James O'Rourke
President & Chief Executive Officer at Mosaic
Good morning. Thank you for joining our fourth quarter and full year 2021 earnings discussion. I hope you've had a chance to review our posted slides as well as our news release and performance data, which were made available on our website yesterday. I will provide some additional context before we respond to questions we received last night, and then we'll conclude with a live Q&A session.
Mosaic delivered excellent financial performance in 2021 with total EBITDA for the year of $3.6 billion, our highest total since Mosaic listed on the New York Stock Exchange. Adjusted earnings per share was $5.04, the highest since 2011. Our results were a reflection of strong performance across all of our segments. Phosphate segment adjusted EBITDA totaled $1.7 billion, over 200% higher than the segment's total in 2020, reflecting strong pricing and growth in MicroEssentials, which more than offset the production impacts of Hurricane Ida. Potash segment adjusted EBITDA totaled $1.3 billion, up 78% from the prior year as pricing, increased output from K3 and the restart of Colonsay largely mitigated the closure of K1 and K2.
In Brazil, Mosaic Fertilizantes generated adjusted EBITDA of $821 million, up 74% from the prior year as the team capitalized on strong demand, a trend that we expected and drove our decision to acquire Fertilizantes four years ago. In 2021, Mosaic Fertilizantes was able to achieve its $200 million transformational EBITDA improvement target, over a year ahead of schedule. These results highlight the decisions we've made over the last decade that have strengthened the business. Most significant has been the construction of K3, which at full capacity will be one of the largest, most efficient and automated potash mines in the world. Assuming a net investment consistent with what we discussed at our 2019 Analyst Day, at today's prices, K3's payback period can be measured in months rather than years.
Also in potash, we successfully restarted Colonsay and reached our targeted annual run rate of 1 million tons during the fourth quarter. Colonsay's fourth quarter cash cost averaged $85 per tonne, well below our pre-idle cost of $100 a tonne despite higher price-driven taxes and royalties.
In Brazil, our acquisition of Mosaic Fertilizantes in 2018 followed by the team's transformational work to improve margins has driven significant shareholder value. At the time of the transaction, pro forma EBITDA was less than $70 million. Our 2021 results show that we've been able to optimize that business through integration and transformational share gains and co-product sales. In our phosphate business, performance products, primarily higher-margin MicroEssentials, now account for more than 40% of the segment's finished product sales volumes. All of these decisions, combined with strong execution, put us in a position to benefit from 2021's favorable market backdrop and improve Mosaic's financial position. In 2021, Mosaic retired $450 million of long-term debt, raised the annual dividend by 50% and repurchased nearly $0.5 billion in shares.
Looking forward, we continue to see agricultural market strength extending through 2022. Global demand for grain and oilseeds remains high, while stock-to-use ratios are at the lowest point in more than a decade. Food security concerns and rising biofuel consumption are driving demand for corn and soybean as well as rice, wheat, coffee, palm oil and other agricultural commodities. These dynamics are sustaining agricultural commodity prices. It's the strength in crop markets, combined with global industry supply constraints, that have pushed fertilizer prices higher. Global supply disruptions from 2021 are expected to continue impacting the global market in 2022. In potash, sanctions against Belarus are beginning to have a profound impact on supply. Global buyers are beginning to acknowledge this, including India and China, which both signed contracts with Canpotex at $590 per tonne to ensure they have adequate supply for 2022.
In phosphates, the secular shift of Chinese supply away from exports towards domestic agriculture and industrial consumption is expected to outlast the short-term export ban currently in place. Over time, we believe domestic demand will drive China's phosphate exports lower as secular demand trends continue to grow, especially on the industrial side from chemicals and electric vehicles, lithium iron phosphate batteries.
Globally, strong demand over the last 18 months resulted in many producers delaying maintenance downtime to meet customer needs, which will have to be addressed at some point. On the demand side, farmer economics in most global growing regions remains constructive. Inflation and input costs are impacting profitability, but recent increases in crop prices are improving farmer economics for 2022, even if that estimated profitability remains below the 2021 record levels.
As we head into North American spring planting season, we are seeing normal buyer behavior as demand continues to reflect strong underlying crop prices. In Brazil, fertilizer shipments in 2022 appears set to equal last year's record-setting total. Grower economics are improving, thanks to rising crop prices, credit availability and a favorable exchange rate. In India, while farmer demand remains very strong, availability is still lagging. This month, the Indian government released its initial budget for nutrient subsidies, highlighting the Indian government's willingness to respond to market condition with revisions. Given depleted Indian inventories, we see India as a source of pent-up demand, which should see phosphate and potash consumption growth in 2022.
As we look at our business in the context of today's global markets, we remain very optimistic. In potash, K3's ramp-up is expected to be completed by the end of the first quarter, meaning it will reach full capacity, under budget and two years ahead of schedule. When combined with Belle Plaine and a full year of production from Colonsay, we expect higher production in 2022 with production costs trending lower as the year progresses.
In the first quarter, we expect sales volume of 1.8 million to 2 million tons with average realized FOB prices more than $125 per tonne higher than prices realized in the fourth quarter. In phosphates, we also expect a recovery in volume in 2022 following last year's production curtailments related to sulfur shortage in the second quarter and Hurricane Ida in the third and fourth quarters. We expect to see input cost inflation in 2022, especially related to our open-market purchases of sulfur and ammonia. But in ammonia, we continue to benefit from 2/3 of our needs being met by internal production and our supply agreement with CF Industries.
In the first quarter, we expect phosphate sales volumes up 1.6 million to 1.8 million tons. Our expected sales volumes reflect supply chain constraints as well as low inventories at the start of the year because of Hurricane Ida. Average realized FOB prices are expected to be more than $60 per tonne higher than prices realized in the fourth quarter, somewhat offset by higher input costs.
For Mosaic Fertilizantes, we expect the business to continue reflecting the favorable market backdrop and our transformation efforts in 2022. Sustained grower demand and improved market positioning should continue to drive results. We are seeing inflation effect our cost structure but believe our transformation initiatives should offset much of the impact. Given the direction of our business, we anticipate generating significant earnings and free cash flow in 2022. With that in mind, it is imperative that we allocate capital wisely across our three strategic focus areas of capital return to shareholders, balance sheet strength and investing in the business.
Returning capital to shareholders will be a key focus in 2022. Over the coming year, we anticipate returning most of our free cash flow up to 75% to shareholders through a combination of share repurchases and dividends. At today's price, we believe our shares represent compelling value given the dynamics we're seeing. To underscore this point, we will be initiating a $400 million accelerated share repurchase program in the coming days. After the ASR, we have repurchased approximately $830 million against our $1 billion authorization established last August. We plan to exhaust the remaining portion of that authorization through open-market purchases. As a result, Mosaic's Board has approved a new $1 billion repurchase authorization, which goes into effect after the current program is completed. The ASR and our new authorization together represent about 8% of our market capitalization. Combining both authorizations represents approximately 12% of our current market cap.
In addition to share repurchases, Mosaic's Board has also approved raising the regular annual dividend from $0.45 to $0.60 per share beginning in the second quarter. This is the third regular dividend hike in the last 12 months and reflects our confidence in the long-term strength of the business.
In the area of balance sheet strength, we remain committed to reducing long-term debt by $1 billion. Last year, we retired $450 million, which leaves $550 million left towards our ultimate goal. This coincides with $550 million of long-term debt that matures later this year. It is also important to note that our working capital needs tend to grow as our end markets strengthen. Because of this, we have expanded our working capital lending facilities by $375 million to help us more efficiently manage our liquidity.
Given our outlook for the year, we expect we'll also be able to continue investing wisely and efficiently in our business, even as we return the majority of our capital to shareholders. Over the last five years, the value created by key investments, like accelerated construction of K3, the acquisition of Mosaic Fertilizantes and the development and growth of MicroEssentials, speaks for itself.
Looking forward, we will continue to seek out high-returning investments, but our focus is not on large-scale greenfield projects. Rather, we believe better return, expansion of MicroEssentials and investment in soil health and biologics.
In the last area, we are seeing very promising results. Field trials of a first-generation nitrogen fixing formulation for corn has shown promising results that we believe are as good as anything available in the market today. And we believe further development can result in a best-in-class nitrogen solution for growers in the next two years. We will have exclusive rights to that product when it comes to market in the Americas, China and India, key growing regions that want to reduce their nitrogen cost. This is just one example of many partnerships as we continue to explore grower solutions across biologicals and soil health. And we continue to do this through small, efficient investments that establish exclusive rights partnerships like with BioConsortia or give us access to entire product portfolios as is the case with our recent investment in Plant Response, a small ag technology company that develops and commercializes plant and soil health products.
In total, we've invested approximately $50 million over the last two years to build the foundation for an exciting future portfolio of value-add products that our customers are asking for. We anticipate having more to share on these investments over time. These moves emphasize our commitment to disciplined capital allocation. We will remain flexible in our approach, continuing to evaluate compelling opportunities that strengthen our business over the long term, optimize our balance sheet and return significant capital to shareholders.
Finally, a discussion of the future of our business would be incomplete without including an update on some of the initiatives we've taken to make sure we continue to operate sustainably. Over the last year, we've made significant progress towards our ESG performance targets originally set in 2020, so much so that we've set even higher targets. In the area of carbon emissions, Mosaic has set a target of being net zero at its Florida operations by 2030 and globally by 2040. For diversity and inclusion, we set new goals for 2030 around the issues of race, gender and community support. Our global goals ensure that our actions are purposeful, sustainable and measurable as we seek to operate our business while also helping to build a more inclusive culture where all of our employees can thrive.
With that, let's move on to the Q&A portion of the call.
