KANSAS CITY SOUTHERN. Stifel 2017 Transportation & Logistics Conference Kansas City Southern

Transcription

1 KANSAS CITY SOUTHERN Stifel 2017 Transportation & Logistics Conference February 14, 2017

2 Safe Harbor Statement This presentation contains forward-looking statements within the meaning of the securities laws concerning potential future events involving KCS and its subsidiaries, which could materially differ from the events that actually occur. Words such as projects, estimates, forecasts, believes, intends, expects, anticipates, and similar expressions are intended to identify many of these forward-looking statements. Such forward-looking statements are based upon information currently available to management and management s perception thereof as of the date hereof. Differences that actually occur could be caused by a number of external factors over which management has little or no control, including: competition and consolidation within the transportation industry; the business environment in industries that produce and use items shipped by rail; loss of the rail concession of KCS subsidiary, Kansas City Southern de México, S.A. de C.V.; the termination of, or failure to renew, agreements with customers, other railroads and third parties; access to capital; disruptions to KCS technology infrastructure, including its computer systems; natural events such as severe weather, hurricanes and floods; market and regulatory responses to climate change; legislative and regulatory developments and disputes; rail accidents or other incidents or accidents on KCS rail network or at KCS facilities or customer facilities involving the release of hazardous materials, including toxic inhalation hazards; fluctuation in prices or availability of key materials, in particular diesel fuel; dependency on certain key suppliers of core rail equipment; changes in securities and capital markets; availability of qualified personnel; labor difficulties, including strikes and work stoppages; insufficiency of insurance to cover lost revenue, profits or other damages; acts of terrorism or risk of terrorist activities; war or risk of war; domestic and international economic, political and social conditions; the level of trade between the United States and Asia or Mexico; fluctuations in the peso-dollar exchange rate; increased demand and traffic congestion; the outcome of claims and litigation involving KCS or its subsidiaries; and other factors affecting the operation of the business. More detailed information about factors that could affect future events may be found in filings by KCS with the Securities and Exchange Commission, including KCS Annual Report on Form 10-K for the year ended December 31, 2015 (File No ) and subsequent reports. Forward-looking statements are not, and should not be relied upon as, a guarantee of future performance or results, nor will they necessarily prove to be accurate indications of the times at or by which any such performance or results will be achieved. As a result, actual outcomes and results may differ materially from those expressed in forward-looking statements. KCS is not obligated to update any forward-looking statements to reflect future events or developments. All reconciliations to GAAP can be found on the KCS website, kcsouthern.com/investors. 2

3 2016 Revenue Summary FY 2016 vs. FY Variance Reported Revenues (in millions) $2,334.2 $2,418.8 (3%) Carloads (in thousands) 2, ,216.6 (2%) RPU Reconciliation 2015 RPU $1,050 Foreign Exchange (29) Fuel Price (19) Mix / Pricing / Other RPU $1,034 5% 9% 7% 5% 0% 2% 1% 0% 1% 2% Carloads -1% -2% -3% -3% -4% -6% -6% -2% RPU Revenue -10% -11% -18% -20% -18% -13% Revenues Adjusted for Estimated F/X Impact* Chemical & Petroleum Industrial & Consumer Agriculture & Minerals Energy Intermodal Automotive * All reconciliations to GAAP can be found on the KCS website in the Investors section. 3

4 2017 Volume Outlook vs Outlook Markets Key Drivers Additional cross-border conversion based on new interline service Intermodal Gradual return of rail volume in Lazaro Cardenas as new APM Terminal comes online Limited late-year return of rail volume in U.S., due to anticipated truck capacity crunch Favorable approximately 65% of volume Chemicals & Petroleum Consistent growth of southbound plastics New business under Mexican Energy Reform Cross Border Franchise new business, due to new plants located on KCS network Kia and Audi will have a full year of production, and will continue to ramp up Automotive No significant planned shutdowns communicated by OEMs Growth opportunities due to superior security model Agriculture & Minerals Grain and Food Products are coming off a good year expect the same in 2017 Ores and Minerals expected to be strong as road projects in the Southern U.S. resume & grow Neutral - approximately 35% of volume Industrial & Consumer Growth in steel and appliance markets Lumber business growth with new lumber production coming online Flat paper market Other carload decline off historic 2016 highs in military and empty car movements Additional Utility Coal volumes anticipated Energy Frac Sand demand expected to be greater than 2016, due to weak comps associated with low natural gas and crude oil prices Crude oil expected to be flat growth will be dictated by crude spreads 4

5 Mexico Demand for Refined Products: Growth Forecast Exceeds Domestic Production Mexico Market - Gasoline, Diesel, Jet Fuel 2,000 Current Forecast 1,500 Thousand barrels per day 1, Production Imports Exports Demand Source: Prospectiva de petróleo crudo y petrolíferos , Secretaría de Energia (SENER)

6 Mexico Brings Forward Market Pricing Gasoline and Diesel Imports by PEMEX only Free Imports Controlled pricing Regionalized free pricing LPG Imports by Pemex only Controlled pricing Free Imports Regionalized free pricing 6

7 Regional Timelines Market pricing being implemented by region in 2017 KCS network timelines: Northern end: June 2017 Central & Southern end: November 2017 Regional Timelines March 30, 2017 June 15, 2017 October 30, 2017 November 30, 2017 December 30, 2017 Destination terminals being constructed Expect significant opportunity with some volatility as zones switch to market prices Monterrey Celaya KCS/Watco/WTC Terminal in SLP 1 Source: CRE (Comisión Reguladora de Energía) 7

8 Pipeline Infrastructure Not In Place Gaps exist in Mexico s pipeline network Gaps are in key growth areas Rail is the most efficient method to serve these key growth areas 8

9 Refined Product Terminals on KCS Network KCS network well positioned to serve key markets that are in need of refined products FR Terminales - Monterrey Bulkmatic Salinas Victoria II 2Q terminals on KCS network: 7 in operation Marsori San Luis Potosi 1Q G Terminal San Luis Potosi 2018 OTM Altamira 7 under construction WTC San Luis Potosi 2Q 2017 Cooper T Smith Altamira 2018 Some terminals to have both transload and storage capabilities Bulkmatic San Luis Potosi Grupo SIMSA Howard Energy TILH-UNNE Tula Bulkmatic Tula I, II, & III I & II III 2018 Atarmex Tampico 2018 Ferroservicios Ahorcado HST Terminal Tepexpan 2018 Under Construction 9

10 SLP Joint Venture Terminal Refined Products Fluid Terminal Gasoline, diesel, ethanol, biofuels 74 acres of land Phase 1: Land, truck, transload equipment, roads Direct rail to truck transload Open in Q Phase 2: Storage tanks and rail unloading system 10

11 What s in it for KCS? 7 Key Business Opportunities 1. Importation of Refined Products Increasing demand Ability to exports from U.S. refineries Destination terminals in place on KCS network 2. Importation of LPGs LPG shortages exist 8 out of 10 Mexico homes use LPG for heat, cooking, etc. Some terminals to have LPG storage 3. Heavy Fuel Oil Exports Unable to convert HFO into PetCoke or Asphalt CFE (MX Power Utility) converting to natural gas Will need to export excess HFO supply 11

12 What s in it for KCS? 7 Key Business Opportunities (cont.) 4. Movement of Steel Pipe for Natural Gas Transmission Mexico imports 5% of U.S. natural gas production (2016, Source: EIA) Natural gas demand increasing due to industry growth & utility plant conversions 5. & 6. Crude Swaps between U.S. & Mexico Northbound: Heavy crude from MX wells to U.S. refineries Southbound: Lighter crude from U.S. suited well for older MX refineries 7. Importation of frac sand Longer term opportunity Shale basins in Southern Texas extend into Mexico 12

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