Q4 2019 Earnings Call
<unk> fourth quarter earnings call at this time, all participants are no listen only mode. A question and answer session will follow the formal presentation. As reminder, this conference is being recorded I would now like to turn the conference over to Richard Downey, Vice President of Investor Relations. Please go ahead.
Thank you operator, good morning, everyone and welcome to nutrients conference call to discuss our fourth quarter 2019 results and outlook on the ball with US today is mr. truck may grow president and CEO nutrient Mr. Pedro for our CFO and the head of our three business units.
As we conduct this conference call very statements, we make about future expectations plans and prospects contain forward looking information certain material assumptions were apply to make any conclusions forecast there for actual results could differ materially from those contained in our forward looking information.
Additional information about these factors and assumptions are contained in our current quarterly report to our shareholders as well as are most recent annual report Mdna and annual information form filed with Canadian and US security commissions to which we direct you I'll now turn the call over to Mr. technical.
Thanks, Richard Good morning, everyone and thanks for joining the call today.
The fourth quarter was the continuation of a challenging year in agriculture, driven by geopolitical issues short term, whether anomalies and other market drivers.
These headwinds virtually eliminated all global growth for crop inputs in 2019 and set back the cyclical recovery we started the C. In 2018.
In the fourth quarter, we experienced another condensed fall application window and associated price weakness.
But looking forward into 2020, we expect global AG markets to recover as we move through the year.
Overall, we are positive on crop inputs demand the screening across North America.
This is due to the expected increase in ceded acreage improve cash crop margins.
And farmers wanting to catch up on fertilizer applications. After the past three seasons with a sub optimal window.
The recent U.S., China trade agreement has also improved U.S. farmer sentiment.
For potash, we expect the rebound in global demand driven by increases in the U.S. and southeast Asia was stronger applications in Indonesia, Malaysia due to the dramatic rise in palm oil prices over the past four months.
However, short term shipments to China remain uncertain as they draw down port inventory and the Corona virus has limited product movement.
For nitrogen U.S. prices have shown signs of recovery and we anticipate strong global demand to provide stability in 2020, despite the recent impact from lower global energy prices.
Nutrient was created to withstand the variances in the global crop input markets that can arise from time to time.
We have the ability to generate more stable earnings than our peers and to make highly accretive investments through the cycle.
While still maintaining our ability to capture significant leverage to higher fertilizer volumes and prices as the markets improve.
We captured 650 million in synergies from the merger and continue to execute on our strategic plan. Despite the headwinds experienced in the second half of the year.
We also generated significant free cash flow for both the quarter and the year with 2.6 billion in free cash flow or $4.54 per share, which was supported by a reduction in working capital.
Even after excluding changes in working capital, we generated $2.2 billion in free cash flow in 2019 or $3.70 per share.
Our adjusted net debt to EBITDA was two and a half times, which is essentially at the middle of our target range and this is in a year, which we would consider to be near or at the bottom of the cycle.
We also purchased over 36 million shares in 2019 and continued to be active in the market in 2020.
Now, let's take a closer look at the fourth quarter results.
Total adjusted EBITDA was up modestly in 2019 due to good results from our retail business solid operational performance. The continued benefit from merger synergies and a focus on cost control.
This more than offset the impact from the significant weather challenges in North American Australia trade, uncertainties, and the softening of global fertilizer market conditions in the second half of 2019.
Nutrients adjusted EBITDA in the fourth quarter was $664 million after accounting for a number of charges totaling 128 million related to M&A activities. The largest of these was about $50 million charge related to the real co acquisition.
This will also be the last quarter that items related to the merger will be reported on.
On a business unit basis, our retail Q4, EBITDA was 8% higher in the fourth quarter of 2019 than last year and 2% higher on an annual basis.
Gross margins in the fourth quarter were higher year over year across every retail category.
North American retail fertilizer volumes in the fourth quarter were similar to last year, but there were significant regional differences.
Yes, retail fertilizer sales volumes in the fourth quarter were 20% higher year over year compared to the compress season in 2018.
Farmers in the corn bar Bell, particularly the eastern and southern corn belts, we're applying fertilizer right up until new years.
However, this was fully offset by significantly lower volumes in Western Canada, and some northern use states due to an early winter.
We had great success with the launch of our.
And adoption of our new digital platform in 2019 at the end of the year, we had customers representing over 60% of our North American revenue signed up.
They made $260 million of purchases online in 2019 results that are unprecedented unprecedented in the AG retail industry.
Potash EBITDA was down 62% in the fourth quarter compared to the same period in 2018 due to lower prices and sales volumes and higher per ton cost as we took downtime at a number of our facilities to better match supply with a temporary reduction in global demand.
The CN rail strike also lowered earnings by approximately $10 million this quarter.
On an annual basis 2019, potash adjusted EBITDA was similar to 2018 as higher average selling prices were offset by lower sales volumes.
Nitrogen EBITDA this quarter was 19% lower year over year due to lower ammonia volumes and sales prices the narrow window for applying ammonia in Canada in the northern tier of the U.S. This fall had a major impact on our volumes and our earnings we estimate we lost a 110000 tons of ammonia.
Sales due to an early onset of winter in this very important market.
As we have seen before this will result in an increase in demand for nitrogen product applications. This spring.
For the year nitrogen EBITDA increased 2% as lower natural gas costs in North America, and higher earnings from our equity investments more than offset lower ammonia sales volumes and lower nitrogen realized prices.
Despite depressed phosphate prices in the second half of 2019, our business continued to generate positive cash margins for both the quarter end the year, thanks to our product mix and merger synergies, including our decision to convert the redwater phosphate facility to an ammonium sulfate facility.
While fertilizer markets have started 2020 under pressure. There are there are several positive factors to consider for the crop input market as we look towards the spring season.
The U.S. AG market should fully recover as we expect more than 14 million additional acres to be ceded the spring or about a 6% increase from last year.
Almost all of those additional acres will be plants, it's a corn and soybeans.
Second positive development is the resolution of the US China trade dispute while that is uncertain. When we will see us agricultural exports rise, there's little doubt it will be a significant improvement relative to the past two years.
On the on the market outlook for potash, we expect to see strong demand in North America as our potash winter fill program achieved the target the targeted volumes quickly and we were sold out of potash for the first quarter within a matter of weeks.
Globally, we also expect that the dramatic increase in palm oil prices over the past three or four months will result in a rebound in potash demand from southeast Asia. After imports dropped in that region by 2 million tons in 2019.
However, we now expect China will not conclude a new contract until sometime in the second quarter due to elevated port inventories and the impact that the Corona virus is having on product movement in the country.
As a result, we have lowered our 2020 Chinese fertilizer shipment estimate.
By 1 million tons from earlier estimates.
Our new forecast for global potash demand in 2020 is 66 to 68 million tons, which represents about a 4% increase over 2019 levels.
As such our sales plan. This year is intended to support our customers in these growing markets with our sales anticipated to be between 12.3 in 12.7 million tons.
For nitrogen, we anticipate north American prices will be supported by a surge in demand this spring and lower offshore imports. While this was a tough quarter for the industry.
Nutrients stayed focus on our strategic priorities.
We were excited to close the real co acquisition and to announce the Australian rebranding uniting all of our global retail operations under the name nutrient AG solutions, we expect real co and other acquisitions made in 2019 to add over $125 million to retail EBITDA. This year.
We also foresee strong organic growth for retail assuming normal weather and ceded acreage plus the benefit from ongoing investments in our digital platform and supply chain improvements.
We also announced the purchase of AG or Sema and AG retailer in southern Brazil, with 12 farm centers in 200 employees servicing thousands of foreign customers and we expect more of these types of acquisitions in Brazil in 2020.
We will continue to focus on developing our leading position in digital agriculture.
We are aiming to approach half a billion dollars in sales through the digital platform in North America. This year, essentially doubling last years level and leading the industry in online revenue generation.
We will also be rolling out our sustainable agricultural strategy supported by our climate Smart investments, we have invested across the value chain and products services and technologies that can make a significant and positive contribution to sustainable agriculture and to our bottom line.
This will be a multi pronged approach, including new AG biological in nature based products best available carbon reduction technologies and carbon capture and sequestration, both in our upstream and downstream operations.
This also extends to our new digital tools that help growers make more informed decisions, which encompasses our recent acquisitions of agricole and waypoint.
We will leverage these type of investments as we build a companywide sustainability strategy that is integrated into the long term plans for our company.
We will be rolling out the details of this strategy along with specific targets later in 2020.
We continue to believe our business model will perform well in times of volatility our strong cash generation will allow us to grow our operations, while returning capital to shareholders with the focus clearly said on long term value creation.
We are issuing EBITDA guidance of 3.8 billion to $4.3 billion in 2020, which assumes a solid growth in retail earnings, but recognizing that fertilizer prices are likely to continue to be under pressure in the first half of the year given current levels and the lag in price realization compared to quoted benchmark prices.
We see 2020 as the year that will start to demonstrate the momentum back towards the path of recovery for global fertilizer markets, which started in 2018, we will continue to remain disciplined in our approach to capital to controlling our controllables, including our investment in production decisions with that operator I'd like to open.
The call for questions.
Ladies and gentlemen to ask a question. Please press star and the number one on your telephone keypad, a pause for just a moment Paul the county roster.
Your first question comes from Jacob bout with CIBC. Your line is open.
Hi, good morning.
My question is on the same store sales for retail so I think for the year, you're indicating that it's down 1%, but if I remember correctly, you're on the third quarter call you said year to date.
The same store sales were up one and half percentage so.
Wondering what happened in the fourth quarter and then how to same store sales are you saw it compared to the overall industry and is there any nuances here within the fertilizer seed and crop protection.
Yeah. Good morning taken so that number is a global retail number will have Mike Frank just dissect that for you because we we've seen good growth in the us and he can answer your question. So go ahead, Mike Yeah. Good morning, Jacob So when we report on same store sales as you probably know it's an adjusted numbers. So we adjust for both FX and for.
Fertilizer price, which last year, we had appreciation and so on a global basis on the on the 12 months, we did see a 1% decline. If you look at the use of market specifically our same store sales adjusted are up about 2%. So we actually had really strong performance in the US we were down in Canada as.
You may know in Western Canada, we really lost the fourth quarter window for both herbicide application and fertilizer and so that ended up putting our same store sales in Canada.
And so that's kind of where we evolve from Q3 through to Q4.
And then compared to the overall industry.
Yeah, we don't have numbers Jacobs for the industry. So.
You know with the best numbers, we have won an industry basis is in the US again, which is our biggest market. We do get point of sale data on the crop protection sales. So we have a really good understanding of the performance of of our business in us crop protection and last year, we saw an increase of about one and a half share points most.
That being organic growth and so we're really pleased with how our business performed in the US is as you you will note. It was a very tight window. Once farmers eventually had a chance to plants are crop.
Our supply chain and service approach to to our retail network really kicked in and we saw significant share increased and so I would expect we led the way in same store sales growth.
Just based on that alone.
Thank you.
[noise] can you guys and your next question comes from Joel Jackson with BMO capital markets. Your line is open.
I thought maybe we could dive into your 2020 potash our guidance a little bit more.
Maybe just help me bridge.
To for 2020, so are you assuming that you're getting some tailwinds here and maybe some lower cost per tonne are you assuming lower royalties I know the different credit that have been.
Changing the governor changed some of the.
Ability to apply them. It also seems like you're maybe assuming I 15 to $30 a time potash price increase globally from spot through the year can you maybe comment on the different buckets. Thanks.
Yeah. Good morning, Joe also up I'll try to give you the best perspective that we have if you look at our overall guidance.
And then we can dive and have a deeper look at the potash business.
The lower end of our guidance would essentially have todays pricing moving forward through the year.
We don't think that that is a high likelihood but that is how we've crafted the overall lower end of the guidance. The upper end of the guidance has of course price increases the assume through the year, but that the overall net pricing would be actually less than 2019. So that's how we get to the the upper end of the guidance. So then when you when you look specifically at.
At our potash guidance certainly when you look at how we've sold our sales plan you know that's based on our view that we're going to see some decent growth on moving from up from 60 below 64.2 million tons Thats, our guesstimate for 2019 up to 66 to 68 million tons.
And that's how we get our volume so about 1 million tons of a volume growth that we're assuming.
And then when you look at our our cash costs, what we are assuming a slightly lower cash cost as we continue to optimize the potash network grow volumes from broken belt. So that's built into the guidance.
And and then the rest is really the market pricing, which we sort of book and for you on a macro level from sort of today's pricing.
Through to a slightly less than last years, we don't want to get too much more specific than that because I think that's probably enough said, but we have some confidence in our guidance ranges I think the biggest wildcard that we have right now in potash is when will the China contract, you signed and and even that I think we've taken a fairly conservative route.
Where we believed that the contract will be settled now until the second quarter as I mentioned in my prepared remarks, because of the port inventory build but really because of the disruption from the corona virus and not being able to get to the negotiating table as well as move forward inventories inland and we do think that that that's going to have a bit of an impact.
Into the second quarter.
Your next question comes from Ben Isaacson with Scotiabank. Your line is open.
Thank you and good morning.
You mentioned some headwinds in your outlook or at least possible ones. The Corona virus Australian drought swine fever can you talk about what kind of puts and takes our on both supply and demand in your business from each of those and as it stands right now how would you rank those in terms of important tier.
Bottom line. Thank you.
So look I think.
The overall guidance ranges that we've set.
As assumes normal weather it it does assume the 14 million acres of incremental ceded acreage in the us that that we've outlined.
And so I think that you have to assume that the sales volumes that we've outlined in our guidance is key to the overall earnings. There's a there's always a bunch of puts and takes in our industry that is what agriculture is about and I do I wouldn't want to overall rank them for you because I I don't.
I think that that would be a appropriate and we wouldn't actually have a great understanding which when it's going to be most disruptive I think given the situation in AG. When we look at last year versus this year last year, there was clearly geopolitical and the macro backdrop that pressured that not only in nutrients earnings but throughout the entire sector and there were.
Recovery that we saw really nicely shaping up in 2018, there was a reset and now that now we think that 2020 will be that year of recovery, but because of the situation of how low prices went in the fourth quarter and as well as the inventory that was built.
Some in nitrogen, but also in potash, we think that we're going to see the recovery in 2020, we just don't know when the Corona virus just to give up some commentary on that obviously, we're watching it closely nobody really has the full impact understood right now where we're seeing that impact is on the contract negotiation with potash.
Which we've already talked about but theres also some active ingredients for crop chemistry that are core to too.
Our supply chain, but many others that are quite tight right. Now now we have a very good inventory position for that we don't think that thats going impact us for the spring season.
African swine fever, I think you mentioned that as well, we think that the worst is behind us there in that the herds are starting to rebuilt it certainly I think when you look at the results for 2019, you are going to see that grain and oilseed demand was impacted because of that but that headwind should become a tailwind as we move through 2020, and then of course the U.S.
China trade settlement.
A major headwind for the last two years, but now that the settlement has agreed to I know that theres. Some uncertainty on one we're going to start to see U.S. agricultural products start to shift to the China at the higher levels, but we have confidence that that will happen in 2020, we have confidence that thats going to be a major tailwind for us.
But we don't know exactly the time, so that were being a bit conservative because of all of these things, but most of the tailwinds from last year should the headwinds from last year should become tailwinds from for this year.
Your next question comes from Don Carson of Susquehanna Financial Your line is open.
It's called Chuck.
In Canada that it's difficult to business environment. These days with blockades from carbon tax pools like that can you talk about what the impact of the court real situation is on your ability to move products to oppose to export and domestic points what is.
The potential outlook for carbon taxes on your Alberta next Gen production.
Good morning, Don So look on the fee and a rail disruption to here in Canada right now.
We do have some cars some ammonia cars and some potash cars that are caught up in in the slowdown.
So the situation is manageable for US right now as far from ideal, but we don't send a lot of cars east from our operation. So most of our production of as you know is in the West we don't use the east as a core exporting route. So the majority of our exports are going to be just fine. This is discipline.
Joining though because we just got through a rail strike at CN in the fourth quarter and now we've got this the slowdown in Canada and so overall you know we're watching the situation. We don't think it's going to have an impact.
To our deliveries right now, but the reliability of the Canadian supply chain is becoming a concern for us.
Thats something that we're actively involved with.
The authorities to try to help them understand that this will impact.
Canadian agriculture, and our reputation overtime at this stuff continues.
The carbon tax we we have a carbon tax already in Alberta.
And it for a large emitters, but we have also a lot of.
Offsets as well so we have a cogen facility at one of our our operations that allows us to have carbon tax credits and we also have a relatively new carbon sequestration operation.
That has been a fantastic investment for us and that is helping offset some of the carbon tax. So what I would say right now is that we're in the new regime. When it comes to carbon taxes, certainly in Western Canada, It's something that's been with US for some time I'd say today, we don't see a significant impact overall cost and we have found.
Smart ways to offset our carbon taxes by making some I think strategic investments.
Over time, and we'll watch the situation overtime to see how how things progressed, but certainly right now we're quite comfortable that the Canadian assets are going to remain very competitive globally and in fact with April gasoline is probably some of the lowest cost production on the planet.
Your next question comes from Andrew Wong with RBC. Your line is open.
Hey, good morning, So I'd, just like to understand how much excess free cash flow there might be this year. So we took the midpoint guidance.
Hi, some historical cash conversion, we get about $2 billion of cash flow free cash flow.
About 1 billion of that goes to dividends. So it was out of the billion. That's remaining how much of that it's already kind of tag for growth spending like acquisitions or growth Capex and then how much of that might be excess available for share buybacks stuff like that thanks.
Good morning, Andrew I have a Pedro our CFO answer your question and then operating I'll have some final comments as well.
Andrew Good morning.
Our cash flow. This fear was so it was particularly.
Positive and and I get surprised but it's not a total surprise for those were working here. We ended up last year free high inventory as you'll recall, we bought in anticipation of China tariffs last year. We also had a late season and so this year, we did a lot of.
Work to work down the inventories so as we worked out of this inventory we produced very good cash flow I think we are in excess of course of earnings.
We think that that cash flow and working capital and continue to improve of course, there's going to be a lot of puts and takes but we think that we the efforts. We are putting this year, we'll continue to bear fruits.
And this coming year.
In terms of our capital allocation of how much we're going to be using four different uses I mean, our capital allocation strategy continues to be the same so.
We'll go after after we protect the balance sheet and we expanded our sustaining capital is a concern about assets were going to be taking a look at everything that compete for capital basis.
We have a share buyback program active in January and February.
Yes, we were looking at our different alternatives for inorganic growth at organic and we'll be making decisions throughout the year, but we think working cap. The continues to behave well. Yes ended just a few other comments I think Pedro cover that very well. So no change we the company was built to generate significant cash flow even in market conditions.
We saw last year I think we've demonstrated that now and the Priories haven't changed straight we want to maintain our investment grade rating, we have a very strong balance sheet, we want to protect our assets. So from a sustaining capital perspective, we allocate about $1 billion to put back into the assets to make sure that they're safe and reliable and then beyond that.
Then it's a it's a matter of allocating the capital for the best long term growth for the shareholder and we think that we'll have enough cash to do both to return capital through buybacks and an increase dividends over time and to invest through both organic and inorganic investments for long term value creation.
Your next question comes from Christopher Parkinson with Credit Suisse. Your line is open.
Hi, guys. This is lucasfilm going on for Chris.
So just wanted to go onto retail could you give us an uptake on the ongoing opportunity to further consolidate the north American market given some of the recent large transactions do you think there's still the potential for mid size to large acquisitions, there or should we be limiting asphalt prices to pretty much tuck ins on line at this point.
Good morning, Lucas I'll have Mike Frank answer the question for you.
Lucas I think as we think about our opportunities in North America, they're primarily tuck ins.
If obviously if the if a significant our retail assets came onto the market. We would we would look at it of course, but we're always focused on.
Quality and value generation for our shareholders and so.
So right now we have a I think a pretty solid lineup of tuck in opportunities last year, we acquired over 73 retail branches through our tuck in program and I would anticipate in 2020, we'll have something similar.
In the U.S.
For opportunities as well now as you May know, we're also looking at Brazil. So we announced an acquisition earlier this year of AG receivable and we continue to look for opportunities to really build out the backbone of our retail business in Brazil. So we're not we're also focused on opportunities.
In that market as well.
Your next question comes from Steve Hansen with Raymond James Your line is open.
Yeah. Good morning, guys the target to double your digital sales in 2020 is notable but can you. Perhaps described if there's any changes to the platform over the course of the year that will help pull more farmers onto the platform and perhaps if it's not to really just describe whether or not you are seeing any.
Because of market share benefits as a result of the platform. Thanks.
Good morning, CV I, we're very excited about the 2020 plan for our digital platform, Mike Frank will walk you through it.
Steve So we we turned on our order are taking capability on the platform.
A year ago and 'em, we turned it on through the course of the first quarter and we saw significant ramp up of uptake of ordering online, finishing the year, which is over $260 million of online orders.
You know in terms of changes to the platform. We continue to add more products onto the platform last year was primarily crop protection products. This year, rabbie, adding seed ordering and fertilizer ordering capability onto the platform and so that will I think generate additional revenue.
And we've also added a number of other accrues to the platform that were trending on in 2020, we recently turned on our crop planning tool, which allows our sales agronomist to sit down with our customers and planned or their farm field by field across all inputs.
It creates insights both for our supply chain, but it also allows our sales agronomists to really work with our customers to provide those you know full acres solutions, including financing opportunities that we're now financing using nutrient financial which is also integrated into the digital tools. So we're really creating a lot of can be.
Unions.
Digital insights from abroad, we standpoint work. We're also now exposing field level, whether and spring conditions and so there's a number of of features that we've added onto the platform at the last half of 2019 and here early in 2020, I'm, so our anticipation of of doubling or.
Online orders is is I think very achievable and we've got a lot of momentum right now and that in that direction.
Your next question comes from Steve Byrne with Bank of America. Your line is helping.
Yes, Thank you a fertilizer buyer in Brazil recently indicated that.
The potash sales into Brazil in recent months.
Were sold only where the price cap.
And that the buyers were given 60 days to lock in the price.
Which if this was a practice that was.
Prevalence certainly could have contributed to the plunge in pricing in that region can you comment on this was was canpotex and involved in the selling practice.
And if so do you expect it to continue.
You know after the potash market tightens up.
Yeah. Good morning, Steve I'll have 10 sites, our head of the potash business answer your question.
Thanks, Steve, Yes, I can say that.
We haven't seen some smaller volumes moving in Brazil with.
Different pricing mechanisms, but I can also tell you that for the large volumes and the large suppliers that's not the case and certainly not the case for.
Capital X. Camtek says, they're very well established channels into that country and you can see the prices at a 240 $550 a ton.
With various rebates, depending on volume but.
It's not it's not the case that capita axis looking at on traditional pricing mechanisms with their customers into into Brazil.
Your next question comes from Adam Samuelson with Goldman Sachs. Your line is open.
Yes. Thank you. Good morning, everyone was hoping to just get a little bit more color on the potash market outlooks for 2020, so at the market level. It looks like you're forecasting about two and half million tonne kind of increase in global shipments at midpoint.
Your own sales forecast.
Calls for about 1 million tons increased in sales and I'm thinking about kind of as new entrants in the market I think that there should probably be about 752 million more tons.
Of Eurochem production incremental year on year, given that do you think that then all the curtailments that took place in the industry in the in the fourth quarter of 2019, do you think that Thats actually kind of there's enough room for everybody else to see a reasonable recovery to normalization of production or do you think that theres more capacity.
Yes, the permanently come on stream to the to balance the market.
Yeah. Good morning, Adam So I'll, just give you a high level perspective on on the your question here.
Certainly, yes, the sat back last year, when we had a reduction because the palm oil prices and then of course, the U.S. weather impacted.
Before that we were seeing very good growth and we had a view that as the market continue to grow to at its historical rate. It would require more supply and the new entrants supply would would fit pretty nicely into the increased demand.
Obviously in 2019, we had a that reset and I think new trend looked at our sales walk in and we pulled back on our on ourselves because simply we didnt have the customer base to support it now and we look at the 2020 plan, though we're seeing what I would call respectable growth another 4% up from 2019 level getting.
Back to basically 2018 levels and so our plan is is outlined in in my prepared remarks is where we are going to take our sales volumes up.
And we think that it will be supported by growth in southeast Asia.
And in North America, China, it's probably going to take a little less than they took last year.
But but overall when I when we look at the sales plan that we've put in fourth we think that the market is going to need the tough.
And we're not sure exactly what others are planning or could do but but certainly it with the increased a market that we see coming in 2020 that depending on when we see a channel settlement.
Our view strongly is that that our sales plan makes a lot of sense for us in it for our stakeholders and then we'll just have to see how the rest of the market.
Moves there are tons into into it we don't really have a lot of insight on on their sales plan.
[noise] starting next question comes from John Roberts with the after your line is open.
Thank you at your Investor Day last year, you identified some nitrogen brownfield opportunities, both near term and little bit longer term could you give us an update and where your thoughts on that.
Yeah. Good morning, now have rate slightly just walk you through the progress yes. Thanks question John at the Investor Day, we identified about 300 million.
All those all.
Spend on about five or six projects.
The first wave of those is actually.
Coming online this year. So if you look at our forecast volumes were expecting to see.
Got a million tons more products. So in 2020 versus 29, saying some of that as ammonium sulfate that 400000 tons that yeah. The 700000 times mix of ammonia and urea. Some of that of course is from a less unplanned less planned outages.
Some of it is the first wise as these expansion projects, we have some other projects coming online in 20.
We should be finished at borgata.
Expansions and also the biggest urea plant and so we'll see continued growth in volumes through 20, and then into 2021.
Your next question comes from P.J. Juvekar with Citi. Your line is open.
Yes, Hi, Chuck you mentioned deal that lower raw material cost in phosphates would be a headwind to a significant market recovery.
Are you, saying that fall strip prices are unlikely to go up due to board raw materials and what's your margin outlook. Thank you.
Good morning, PJ I have rave sell answer the questions for it so.
So pitch I.
We think you as you know he was a lot of price declined to 29 say in phosphates, we saw IC pay and other producers pulled back from the west market, we're seeing prices come up a little bit we suspect that they will probably come up a little bit further before the.
Importers get back into the market in a big White, we don't think there'll be a large price appreciation, we think at least some.
Yeah, they ending up at P. does it when you look at phosphate business you grow that.
Most of the margin. These days comes from nonagricultural products that we sell including purified industrial products, Yeah, and PD. One last point is just that we did a lower our total cost because we converted redwater twin ammonium sulfate flat, we did some modest expansions of our two phosphate fulfill.
He is in the U.S. and and we of course, we're not buying imported rock anymore for Redwater. So overall, that's what's driven our cost and even in these tough conditions. We saw 19, we did have positive margins and as as Ray said and most of our product mix is not related to agriculture, it's related to industrial business and food Africa.
Patients, which I think I had a more stable margins over the long term. So those two combination when we look at our business. It helps a lot and it insulates us a little bit more than from the kind of the agricultural a backdrop that we saw in 2018 and 19.
[noise]. Your next question comes from Mark Connelly with Stephens, Inc. Your line is helping.
Thank you two questions was was all of the increase in ammonia controllable cost related to the turnarounds and.
Secondly.
Some farmers in the Midwest are telling us that soil moisture is too hard to high and I'm wondering in the middle of February whether that's a concern yet.
But if they do stay to high how is that going or sex affect your mix and timing and nitrogen.
Good morning, Marco Huff a rate fell into the first question and then my can give you a view of moisture levels in the U.S. and then race can come back and talk about the impact yeah. So look I mean, there's certainly been.
I mentioned the expansion projects previously.
There's been a a mix of those plus efficiency work going on with the large turnaround has been doing so we certainly have been focusing on efficiency I think the majority the costs come from la.
Lower gas costs year over year, we're seeing that in the U.S.
So I was [laughter] well, then I think let the rates the answer the early Micah. Another question on soil moisture conditions. Good morning, Mark So the way we look at the U.S. right now from a mid West standpoint, if you go south of by 80, you know I would say soil moisture is good but not excessive and as we.
Talk to our customers throughout that region. There were anticipating you know getting into field once it warms up and you know when for the most part it's been a pretty mild winter through a lot of that region. If you go north of a by 80, you know into the Dakotas, and Minnesota, Wisconsin, obviously, they they had a really really winter hit them.
Soil moisture is especially in South Dakota are still high but the ground is frozen and so you know even though they've had sold I snow conditions you know.
The the moisture hasn't been attitude I think over the winter. So look we're anticipating as Weve talked about you know the another 40 40 more million acres getting planted in 2020 and a lot of that over 12 million acres of that is corn and beans that are going to go in and in the Midwest and so that's our anticipation and.
And as we talked to our customers right now and we look at our order book our order book for for Corn seed is incredibly strong where we're seeing a lot of momentum in corn and a you know I would say the been soybean order book is consistent with our expectation of about 85 million acres of soybeans right. Now so that's what farmers are planning on and anticipating and.
And obviously, we need a you know we need a normal spring conditions in order for us to to get those acres planted and mark just to wrap up with your last point. It. We don't have any concerns right now on fertilizer applications for this spring season, because of the weather or moisture conditions that it's a little too early to be concerned right now and things look like they're pretty.
Seating as we would have expected them to.
[noise]. Your next question comes from Vincent Andrews with Morgan Stanley. Your line is open.
Hi, This is Jeremy Rosemarie around for Vincent Thanks for taking my question. She wanted to ask on the potash outlook.
Looks like versus versus prior guidance you took the Indian number down maybe about 450000 tons at the midpoint I'm in Latin America down about 800000 times and other Asia on looks basically unchanged. So just two quick ones.
One is just what what trail with the changes to the Indian Latin America shipment numbers and to just given the decline in palm oil prices over the last call a month or so if he's just see any risk to the other Asia demand number. Thank you.
Good morning, I'll have Jason Newton, our Chief Economist answer your question.
Hey, good morning, Jeremy.
India. The major driver means that we still expect year over year that we'll see shipments going in and you have possible 500000 come out we ended up last year writer Brouwer, Expectable 4.1 million tons, but we think there is.
Some risk of sub sea change in India as result of lower prices, what we'll watch that going forward. We do expect you need to move up.
In Southeast Asia, we expect a demand will be up about one and a half million tons and yet palm oil prices have been really volatile and that's related to the krona virus and but as we look at what does the U.S.T. outages, saying in terms of supply demand outlook. It is a tightening significantly.
And and so we think a price will be supportive as a result of that and they're still up about 40% from the lower last year and so we expect the.
Rebound in that region, although not back up to 2018 levels.
Your next question comes from Michael Picken with Cleveland Research. Your line is open.
Following up just wanted to get a deal for how your retail margins might.
Look because here and what your expectations are if we can kinda look at it from a crop nutrient standpoint, as well as a firm seed and crop protection in light of a you know maybe some additional rebating discounting you know going on in the feed markets and indicate for fertilizer. You know some of these prices, particularly you ran in phosphate maybe below while where pricing was straight.
Well thanks.
Good morning, My friend can answer the question Yeah, Michael look if we if we kind of goes through the the major categories and from a margin standpoint, as we head into 2020, firstly from an nutrient standpoint, we were pleased with the performance of our nutrient business last year or margin per tons were up $6 a ton across or.
Our global retail business.
In Q4, and really days here in 2020, we're seeing those margins hold and so we anticipate you know similar margins on a per ton basis in 2020, though that we Oh, we delivered in 2019 on C. piece, you know we had a very challenging first half of the year in C.P. there was.
A lot of inventory that was carried in into the into early 2019 across the retail network and then they the market was really slow to evolve and a that put a lot of margin pressure and of course as we reported our first half ratings last year.
Was reflected in our in our margins in crop protection as we as the year unfolded, we really recovered significantly and we ended up all holding or margins, our gross margins pretty flat year over year, Ed. So as we as we head into 2020 I would actually anticipate some.
Positive opportunities on on a crop protection margins you know, we don't anticipate the a the delayed spring I think channel inventories, including our own have drawn down or at this time. This year versus this time last year and that should all be conducive to more regular.
Because of competition and ER and opportunities for us from a margin standpoint. We also saw just on the crop protection before I leave that we also saw a little bit of a decline in our mix of proprietary products last year and again a lot of that was based on inventories that we had that we wanted to sell the inventories that we had enough in our sheds and so as we look at 2020 we.
I would anticipate our mix of proprietary products to get back to where we were a year earlier and now we'll also be a constructive to two margins finally on the seed side.
No. We we are seeing to date, a margins on corn seed at pretty historic levels, and so and with with a more corn.
Acres to be planted that's gonna be good for our seed margins I soybean seed is a is is probably where there's more competition. This year and so we're seeing I'm a bit of margin erosion in our soybean seed business I'm. So the I would say that's that's probably the one area that we're we're watching out for but overall I think if you if you.
Look at seed on an all in basis, a will likely be you know in similar margins as we've been historically, especially with the more corn acres coming in.
[noise]. Your next question comes from China, I'll start with Bernstein. Your line is open.
Hi, good morning.
So wondering if you could talk a bit more by beer, Brazil acquisition strategy and how the integration of the previous acquisition is going are we seeing any any synergies out of that so far.
Good morning joined us yet so Mike Frank can answer the question.
So join us as we build out our retail business in Brazil.
In the early days you know there's lots of traditional synergies that we get in North America or even in Australia, because we have a big footprint that we tuck in the acquisitions into as we build out our retail footprint in Brazil, primarily we're expanding into new geographies and so there is not significant synergies you know from a price proprietary products stamps.
Well from an operational leverage standpoint that being said about 18 months ago, we acquired a nutritional business in Australia called agriculture, and so as we expand our footprint a in Brazil, our retail footprint, we do see that as a channel to to increase our sales of agriculture products, which are industry, leading nutritional products that come with really nice.
Margins, and a and customer benefits and so that would be the one area synergy, but again just to set expectations. As we think about Brazil were really building out the backbone in the capability of our retail network and a that will likely take you know the next two or three years and from that point as we get that that business established as.
Let me tuck ins from that point going forward, we'll see more synergies.
[noise]. Your last question comes from Jeff Zekauskas with JP Morgan Your line is open.
Hi, Thanks very much.
In Europe potash data.
You show that Canpotex shipped about 17% of its volume to China in the quarter.
Are those shipments priced at the old to 90 per tons delivered that the old China contract with center or is there a different set of prices that are used now.
And secondly, Chuck I think you said that.
Acquisitions would benefit retail EBITDA by 125 million in 2020, how much did they benefit retail EBITDA in 2019.
Yeah. Good morning, Jeff So I'll hop can I say plant sort of potash question and then we can come back and answer that.
The M&A question retail.
Right. So yeah with respect to fourth quarter shipments into China, we position potash along our entire supply chain at any point in the year and that's also true for China and so the volumes that you would've seen go to China would have been provisionally ship, there and headed into bonded warehouses as you probably know China.
Stops additional shipments into that country see imports at the end of August yet captech ship in pre position material and in anticipation of strong demand in China, and 2020, and so the pricing mechanism for those provisionally ship volumes will be that there are waiting a new contract which is relevant because.
[music].
In fact to Capex is not the only supplier so that when we look at port inventories in China, and say three and half million times, while about a million and a half a million of those times now are awaiting a new contract and that new contract price will be the price for those provisionally shipped volumes and Jeff just to answer your second question. So the.
Impact from the M&A for on 2019 with somewhere between 35, and 40 million a as you know we didn't close real call until October I'm. So that was really the driving difference I think between 2019 in 2020 as well as we have.
Several of the other tuck ins that that will start to show benefit in 2020. So to answer your question somewhere between 35 in 40 million.
And then there is no further questions queued up at this time of the call back over to Richard Downey VP of Investor Relations.
Thank you operator, thank you everyone for joining us today and if you have any additional questions a investor relations available to take a calls thank you.
This concludes today's conference call you may now disconnect.