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Fourth-Quarter 2015 Business Update February 8, 2016
Fourth-Quarter 2015 Business Update
February 8, 2016
Forward-looking Statements
Certain statements in this presentation, including without limitation the company’s or management’s beliefs, expectations or opinions, are forward -looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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. These risks, uncertainties and factors include, but are not limited to: (i) weather conditions, (ii) pressure on prices and impact from competitive products, (iii) any inability by us to fund necessary capital expenditures, (iv) foreign exchange rates, (v) the cost and availability of transportation for the distribution of our products, (vi) the occurrence of any event, change or other circumstance that would result in the termination or delay of the company’s acquisition of the remaining Produquímica ownership stake by early 2019, (vii) the inability to complete the proposed full ownership acquisition due to the failure of the company or Produquímica to satisfy any of the conditions to the closing of the acquisition, including the failure to obtain necessary financing, (viii) the risk that the proposed full ownership acquisition could disrupt the plans and operations of the company, Produquímica or both, and (ix) the risk that the company may not realize the expected financial and other benefits from the proposed acquisition. For further information on these and other risks and uncertainties that may affect our business, see the “Risk Factors” sections of our Annual Report on Form 10-K for the year ended December 31, 2014 and when filed, our Annual Report on Form 10-K for the year ended December 31, 2015. The company undertakes no obligation to update any forward-looking statements made in this press release 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.
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Solid Earnings Despite Headwinds in Both Segments
• Strong operational performance helped offset fourth-quarter headwinds
- Sales reduced by mild winter weather and agriculture sector weakness
- Adjusted EBITDA margins improved for 4Q and FY15
• Investment plan on track - Capital projects on track to drive
profitable long-term growth
- Completed investment in Produquímica (PDQ), a leading Brazilian specialty plant nutrition company
• Positioning company for long-term success
- Strategic initiatives to capitalize on investments
- Trimming costs to address near-term challenges
- Streamlining organization to increase future agility and resilience
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CMP Consolidated Results (Dollars in millions)
Full-Year Fourth-Quarter
2015 2014 2015 2014
Sales $1,099 $1,283 $289 $433
Operating earnings $221 $311 $72 $108
Operating margin 20% 24% 25% 25%
Operating earnings*, excluding special item
$221 $228 $72 $108
Operating margin*, excluding special item
20% 18% 25% 25%
Adjusted EBITDA* $300 $306 $92 $128
Adjusted EBITDA* margin 27% 24% 32% 30%
Earnings per diluted share $4.69 $6.44 $1.72 $2.38
Earnings per diluted share, excluding special items*
$4.69 $4.79 $1.72 $2.38
*Non-GAAP measures. The 2014 period excludes per-tax gain of $83.3 million from an insurance settlement. See appendix for reconciliations.
Salt: Near-Record Earnings in 2015 Despite Extremely Mild Winter in 4Q
• Mildest fourth quarter since the 2012-2013 winter
- Snow events were 36% below the 10-year average
- Warm temperatures compounded the negative impact from lack of snow
- Weakest December on record for Compass Minerals highway deicing sales volume
• Strong improvements in operating earnings despite negative weather impact – best full year margins since 2009
- Strong pricing and freight-logical bid season results couple with lower fuel prices
- Reduced impact of imported salt in 2015
- Commercial initiatives driving higher-margin sales across the segment
- Better production rates at mines in 2014 and 2015
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20.9% 17.9%
19.7% 20.8%
25.4%
2011 2012 2013 2014 2015
Adjusted Operating Margin**
**Excludes impacts of 2011 Goderich tornado on earnings. See appendix for reconciliations.
47.4
35
17
10 Year Avg
2014
2015
4th Quarter Snow Events*
* The number of snow events in 11 cities in Compass Minerals’ primary North American deicing region compared with the 10-year average number of snow events, which is the mean number of snow events for the periods ended in the 2014-2015 season. For more information, please see the Investor Resources section of the company’s investor relations site at www.compassminerals.com
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*MOP delivered price to Midwest, U.S., as reported by Integer.
Broad ag market weakness slows purchase decisions. Farm incomes at 13-year lows
Strong dollar is weakening demand for U.S. ag exports and increasing attractiveness of U.S. market for SOP imports
Agriculture Market Conditions Impact on Compass Minerals
Impacts all ag inputs including sulfate of potash (SOP) and micronutrients
Increasing potential for product substitution between MOP and SOP for less chloride-sensitive crops
2015 imports of SOP estimated to be up 30% from prior year
Standard potash (MOP) pricing down 25%* since 4Q14
Plant Nutrition: Working to Overcome Broad Sector Pressure
Executing Capital Projects at Lower Spending Levels
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$0
$50
$100
$150
$200
$250
2015 2016 2017 2018
Base MOB Special MOB Investment Capital
($ in millions)
Updated 2015-2018 Capital Spending Totals = $630 million
Investment Cost Completion
Timing Percent
Complete
Goderich shaft relining (Special MOB)
Ogden plant projects (Special MOB)
Ogden plant expansion (Investment capital)
Goderich continuous mining (Investment capital)
Major Capital Projects On Track to Drive Growth
• Updated capital spending plan at least $100 million less than previous plan
- More efficient execution
- Project thrifting
- Modest foreign exchange benefits
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
$550
$600
$300
$95-$100
$85-$95 $15-$20
Executing the Path to $500+ Million EBITDA
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*Non-GAAP measure. See appendix for reconciliation.
2018
$500+
2015
Adjusted EBITDA Target* ($ in millions)
Salt
Plant Nutrition
• Cost saving from continuous mining
• Ongoing efficiency initiatives
• Begin accessing additional Goderich capacity
• Average winter weather
• SOP sales volume growth
• Pond-based yield improvements at Ogden
• Growth of Wolf Trax acquisition
• Assumes full ownership of PDQ
FILLING THE GAP • Plant nutrition
market expansion in selected U.S. and global markets
• Product development opportunities
• Grow Wolf Trax sales in Brazil through PDQ distribution
• License Wolf Trax technology
• Opportunistic acquisitions
Positioned to Generate Cash at Double the Historical Rate
• Remain on track to double EBITDA by 2018
• Capital spending expected to be at normalized levels in 2018
• Free cash flow expected to expand significantly beginning in 2017 and beyond
- Organic growth
- Opportunistic acquisitions
- Returns to shareholders
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*Free Cash Flow defined as cash flow from operations minus capital expenditures
2010-2014 Average 2018E
$115 million
~$220 million
Prior to Investment
Plan
Investment Plan Fully Executed
Growing Free Cash Flow*
Dividends Excess FCF
SEGMENT RESULTS & OUTLOOK
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• Mild winter weather drove lower revenue versus last year
- Total salt volumes down 29%
- Average selling price declined 6%
Lower highway deicing contract prices for 2015-2016 winter
Less attractive product mix
• Segment adjusted EBITDA declined, but margin improved 2 points
- Reduced impact from imported salt
- Benefits from lower fuel costs and freight-logical bid season wins
- Strong performance of both North American mines
Mild Weather Limits 4Q15 Salt Segment Results
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Salt Segment Results (Dollars in millions)
4Q15
4Q14
Revenue $236 $355
Operating earnings $72 $104
Operating margin 31% 29%
EBITDA* $83 $116
EBITDA margin 35% 33%
Salt Segment Price and Volume
$0
$10
$20
$30
$40
$50
$60
$70
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4Q14 4Q15
Highway Deicing
$0
$50
$100
$150
$200
0
200
400
600
800
4Q14 4Q15
Consumer &
Industrial
Volumes, in thousands of tons Average price in dollars per ton *Non-GAAP measures. See appendix for reconciliations.
Salt Segment Posts Full Year Earnings Growth Despite Mild Winter
• Second strongest full-year earnings on record
• FY15 adjusted EBITDA increased 2% on 15% lower revenue
• Lower demand for packaged and bulk deicing products
- Total sales volumes declined 17%
- Average selling price increased 2% from 2014
Driven by North American highway deicing pricing strength in first half of 2015
• Adjusted EBITDA margin expanded 6 points for the full year
- Driven by improved pricing, lower production and shipping and handling costs, less imported salt vs. 2014, and strategies to simplify the business
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Salt Segment Results (Dollars in millions)
FY15
FY14
Revenue $849 $1,003
Operating earnings $215 $292
Adjusted operating earnings*
$215 $210
Adjusted operating margin 25% 21%
Adjusted EBITDA* $259 $254
Adjusted EBITDA margin 31% 25%
*Non-GAAP measures. The 2014 period excludes a $82.3 million gain from an insurance settlement. See appendix for reconciliations.
Salt Segment Price and Volume
$0
$10
$20
$30
$40
$50
$60
$70
0
2,000
4,000
6,000
8,000
10,000
12,000
FY14 FY15
Highway Deicing
$25
$50
$75
$100
$125
$150
$175
0
500
1,000
1,500
2,000
2,500
3,000
FY14 FY15
Consumer & Industrial
Volumes, in thousands of tons Average price in dollars per ton
Weak Ag Market Weighs on Plant Nutrition 4Q Results
• Weak demand for Protassium+® in 4Q15 for
- Weakness in the broader ag market
- Strong dollar driving more imports
- Significantly lower MOP prices
• Average portfolio price rose 12% from 4Q14
- SOP-only price up 3% year-over-year to $702 from $681 although lower sequentially
- Higher volume of Wolf Trax sales vs. prior year boosted average portfolio price
• Earnings pressured by lower sales volume and increased costs due to planned higher KCl usage
• EBITDA* margin up 1% point, despite these headwinds
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*Non-GAAP measures. See appendix for reconciliations.
Plant Nutrition Segment Results (Dollars in millions)
4Q15
4Q14
Revenue $51 $76
Operating earnings $12 $22
Operating margin 23% 28%
EBITDA* $20 $29
EBITDA margin 39% 38%
Plant Nutrition Segment Price and Volume
$100
$250
$400
$550
$700
$850
0
30
60
90
120
4Q14 4Q15Volumes, in thousands of tons Average price in dollars per ton
Full-Year Plant Nutrition Results
• Sales volumes decreased 21%
- Demand weakness in second half of year
Continued decline in MOP price and general ag market malaise
- Increased import volumes driven by strong dollar
• EBITDA* declined 14%
- Planned increased use of supplemental KCl
- Lower sales volumes
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Plant Nutrition Segment Results (Dollars in millions)
FY15 FY14
Revenue $238 $271
Operating earnings $58 $75
Operating margin 24% 28%
EBITDA* $88 $102
EBITDA margin 37% 38%
*Non-GAAP measures. See appendix for reconciliations.
Plant Nutrition Segment Price and Volume
$0
$200
$400
$600
$800
0
100
200
300
400
FY14 FY15
Volumes, in thousands of tons Average price in dollars per ton
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Fourth Quarter Performance Versus Guidance
Salt Segment Guidance Actual
Volumes 4.2 million to 4.6
million tons 3.0 million tons
Average Selling Price (per ton)
$74 to $77 $78
Operating Earnings Margin 33% to 35% 31%
Plant Nutrition Segment Guidance Actual
Volumes 80,000 to 100,000 tons 62,000
Average Selling Price (per ton)
$760 to $790 $805
Operating Earnings Margin 24% to 26% 23%
Corporate Items Guidance Actual
Corporate & Other ~$52 million $52 million
Interest Expense ~$23 million $22 million
Capital Expenditures $210 million to $230
million $218 million
Weak Volume Performance Offset Partially by Price; Margin Results Modestly Below Guidance
2016: Responding to Market Conditions; Executing Cost Control Measures
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Key Drivers for 2016 Outlook
• Salt earnings dependent upon rest-of-winter weather activity
• Plant nutrition business continues to battle ag market weakness and greater import competition
- Will compete to maintain and grow market share in U.S.
- Production costs remain inflated in 1H16
Higher cost SOP inventories heading into 2016
Expect $50 per-ton reduction in Ogden production costs in 2H16
Actions to Mitigate Headwinds
• Initiating headcount reduction of approximately 150 positions
- Includes management and production positions
- Significant portion related to continuous mining implementation at Goderich mine
Pulling ahead substantial number to 2016 due to market conditions
• Expect ~$4 million restructuring charge in 1Q16
• Ongoing savings total $15 million
- $6 million excluding continuous mining personnel savings
- Full benefit to be achieved by end of 2017
- Payback period less than one year, excluding continuous mining savings
1H16 and FY Outlook Summary
2016 OUTLOOK: FULL YEAR EPS - $3.80 to $4.20
Salt Segment 1H16 FY16
Volumes 5.9 million to 6.3 million 11.5 million to 12.3 million
tons
Average Selling Price (per ton) $68 to $72
Operating Earnings Margin 26% to 28%
Plant Nutrition Segment
Volumes 160,000 to 180,000 320,000 to 360,000
Average Selling Price (per ton) $645 to $675
Operating Earnings Margin 9.5% to 11.5%
Corporate
Corporate and Other Expense (excluding restructuring charge) ~$56 million
Interest Expense ~$25 million
Capital Expenditures $175 million to $190 million
Effective Tax Rate ~28%
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APPENDIX
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Reconciliation of Non-GAAP Information
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Reconciliation for Net Earnings, excluding special items (unaudited) (in millions)
Three months ended
December 31, Twelve months ended
December 31,
2015 2014 2015 2014
Net earnings $ 58.4 $ 80.5 $ 159.2 $ 217.9
Gain from insurance settlement(1) - - - (60.6)
Add costs to refinance debt, net of taxes(2) - - - 5.1
Net earnings, excluding special items $ 58.4 $ 80.5 $ 159.2 $ 162.4
(1) In the quarter ended September 30, 2014, the company recorded an $83.3 million gain ($60.6 million after applicable income taxes) 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, in 2011.
(2) In June 2014, the company redeemed early $100 million in senior notes for pre-tax costs of $6.9 million.($5.1 million, net of taxes).
Reconciliation for Adjusted Operating Earnings (unaudited) (in millions)
Three months ended
December 31, Twelve months ended
December 31,
2015 2014 2015 2014
Operating earnings $ 71.9 $ 107.6 $ 221.4 $ 311.0
Gain from insurance settlement(1) - - - (83.3)
Adjusted operating earnings, excluding special items
$ 71.9 $ 107.6 $ 221.4 $ 227.7
Reconciliation of Non-GAAP Information
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Reconciliation for EBITDA and Adjusted EBITDA (unaudited) (in millions)
Three months ended
December 31, Twelve months ended
December 31,
2015 2014 2015 2014
Net earnings $ 58.4 $ 80.5 $ 159.2 $ 217.9
Interest expense 5.4 5.7 21.5 20.1
Income tax expense 13.7 23.2 55.3 73.9
Depreciation, depletion and amortization 20.5 20.8 78.3 78.0
EBITDA $ 98.0 $ 130.2 $ 314.3 $ 389.9
Adjustments to EBITDA
Gain from insurance settlement(1) - - - (83.3)
Other (income) expense(2) (5.6) (1.8) (14.6) (0.9)
Adjusted EBITDA $ 92.4 $ 128.4 $ 299.7 $ 305.7
(1) In the quarter ended September 30, 2014, the company recorded an $83.3 million gain ($60.6 million after applicable income taxes) 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, in 2011.
(2) Primarily includes interest income and foreign exchange gains and losses. In June 2014, the company redeemed early $100 million in senior notes for pre-tax costs of $6.9 million.
Reconciliation of Non-GAAP Information
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Reconciliation for Salt Segment EBITDA and Adjusted EBITDA (unaudited) (in millions)
Three months ended
December 31, Twelve months ended
December 31,
2015 2014 2015 2014
Segment operating earnings $ 72.1 $ 104.4 $ 215.2 $ 291.4
Depreciation, depletion and amortization 11.0 11.3 43.9 44.8
Segment EBITDA $ 72.1 $ 104.4 $ 215.2 $ 209.1
Adjustments to EBITDA* - - - (82.3)
Adjusted segment EBITDA $ 83.1 $ 115.7 $ 259.1 $ 253.9
Reconciliation for Plant Nutrition Segment EBITDA (unaudited) (in millions)
Three months ended
December 31, Twelve months ended
December 31,
2015 2014 2015 2014
Segment operating earnings $ 11.5 $ 21.6 $ 57.9 $ 74.8
Depreciation, depletion and amortization 8.1 7.3 29.8 27.3
Segment EBITDA $ 19.6 $ 28.9 $ 87.7 $ 102.1
* In the quarter ended September 30, 2014, the company recorded an $82.3 million 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, in 2011.
