Q4 2019 Earnings Call

Good day, everyone welcome to the Compass minerals fourth quarter earnings Conference. Today's conference is being recorded at this time I'd like to turn the conference over to Miss Theresa Womble Director of Investor Relations. Please go ahead.

Good morning today.

Kevin.

Yes.

Well, we view compass minerals fourth quarter and.

And our outlook for 2020 as well as some key strategic item.

Awesome on calls today are our chief operating officer George jewelry.

Commercial officer Brad.

They will be available for questions.

Anymore.

Before I turn the call over to.

To remind you that today's discussion may contain forward looking statements.

On the meaning of the private Securities Litigation Reform Act of 1995.

These statements are based on the companys expectations as of today.

I love it.

2020.

And uncertainties caused the companys actual results to differ materially.

Discussion of these risks can be found in our STC filings located on line.

Got something minerals dot com.

Our remarks today also include non-GAAP financial measures, which we feel are important provide a full understanding of our businesses and our operating condition you.

You can find reconciliations of these measures.

Earnings release or in our earnings presentation.

There are also available at investors Dot compass minerals, dotcom like that housekeeping out or the way I now turn the call over to Kevin Thanks, Teresa and good morning, everyone.

I'd like to start today by broadly summarizing our financial and operational results for 2019 before providing some thoughts on our continued evaluation of the company's strategic direction.

This has been a year of challenges recovery in the valuation for accomplishment.

Or salt business delivered substantial improvements in operating earnings and EBITDA for both the 2019 fourth quarter and before here.

While our plant nutrition businesses lag full year 2018 results both generated modest improvement in the fourth quarter.

The improvement in full year Salt results was primarily driven by a combination of increased average selling prices and improve salt production and lower cost that's gone richmont.

Plant Nutrition, North America reported a 9% dip in 2019, even though as as soapy sales that were lost the poor weather conditions early in the year only partially recovered in the fall.

And micro nutrient demand weakened.

While volumes were lower versus 2018 hours soapy only price remained steady compared to 2018, and we achieved strong pond only pesto p. production at our Utah facility.

Our plant nutrition, South American business was pressured by agriculture trade uncertainty that ultimately resulted in growers being less likely to purchase.

Higher value prop inputs.

Even with that pressure, we delivered double digit growth in our direct to grow agriculture sales channel.

On a consolidated basis, the strength in the salt business more than offset plant nutrition weakness and boosted our full year operating earnings, 26% and EBITDA of about 12% above 2018 Brussels.

Of course, these financial numbers only tell what part of our 2019 story.

As we discussed on our last quarterly call. We've engaged in significant efforts to improve performance at our Goderich mine and the impact has been very caused disease.

On a year over year basis, the mine produced 40% more tons in 2019 compared to 2018 results.

And we've reduced per unit production costs by approximately 29%.

Importantly, two we fully expect another step function change it out but again it 2020, along with the commensurate cost reductions.

Even with those two years of improvements, we're nowhere near close to the long term potential of daughters.

I'm very proud of the work the team has done a daughter it's to achieve these results.

This includes using very basic exploration techniques to size and map the geological anomalies, Weve recently encountered and adjust as needed to ensure we're cutting in the highest salt purity areas.

We've also worked diligently to improve our overall relationship with our employees there who are now actively involved in finding solutions to problems and opportunities for greater operating efficiencies.

And we have a new larger continuous mining unit now underground undergoing assembly, which should further improve productive capability. Once its commissioned early in the second quarter.

I'd also like to call out or codes launch mine in Louisiana for achieving strong results as well despite a direct hit from hurricane and an unfortunate contractor safety incident.

In total the mine experienced 23 days of unplanned downtime and still met their 2019 production targets and we're grateful to them for overcoming those difficult circumstances.

And lastly, we continue to achieve excellent pond based production the best Soapy at our Cogs in Utah facility, which has resulted in lower cost for the plant nutrition, North America business and help the segment maintain strong margin performance for the quarter end the year.

In fact, the fourth quarter of 2019 was the second highest sales quarter on record for Compass. We've also been delivered over the past several months deeply evaluating all aspects of our company.

The past that refer to this as a business in MRI upsell works as we work to sift through the layers of compass minerals to determine where our strengths lie and identify our true core competencies.

A couple of things have come into sharp focus throughout this process.

First compass minerals' throughout most of its history has been and continues to be primarily a mining company.

We're uniquely positioned to succeed in the soft industry, but the company has failed to execute on some critical investments.

Short of expectations, particularly at our flagship mining doddridge.

This accentuated the need to strengthen our leadership team of deep mining technical and operational experience.

Since I joined Compass minerals last May we've continued to build out our mining expertise with the addition of our Chief operations Officer, George Jeweler, who joins me on the call today as well as a numerous others at various levels throughout the organization.

In decades of experience in mining and operations.

Fully expect that we will continue to augment the existing talent in the future has additional needs become apparent.

As I've said before what I've found since being here is that compass minerals has a privilege set of assets across the enterprise.

In particular, our Goderich mine, where we see a great deal of untapped potential.

We will succeed with these assets by working closely with our employees as the business partners. They are having the foresight to be able to course correct. When geological for other challenges presented themselves and taking a longer term view on how to operate underground utilizing best mining practices.

The second key finding is this the people of compass minerals are extremely talented and passionately committed to the success, but the muscle and environment necessary for consistent execution culture needs to be strengthened.

People call. This many different things high performance culture operational excellence et cetera.

Think about it in rather simple terms.

Doing what we say we're going to do.

We're working to build a culture, where we routinely deliver on our promises.

Every voices heard and everybody's matters, where new ideas to drive better results are supported and if those ideas have strong business cases are successfully implemented.

In other words culture of ownership across the entire platform.

That's what the enterprise wide optimization program, we began discussing in November is all about.

In addition to driving material operating and financial improvements across the company. This effort is also fostering the skills needed to build that execution machine that we need for the long term success.

All the while supporting improved engagement throughout the organization.

The purely financial perspective, we expect to begin delivering incremental EBITDA improvements from these efforts in 2020 and expect to reach a significantly improved run rate by the end of 2022.

I want to be clear. This is not an aspiration will go get based on the top down directly from the or the senior leadership team.

This is a plan built from the bottom up based on ideas and opportunities solicited from those who know US best our people and believe me they have a lot of ideas and importantly ownership and the outcomes out of hundreds of potential business improvement initiatives, we're implementing those with the most compelling business cases.

And that work is what's driving these expected improvements.

One interesting example of an initiative that should have near term benefits for us came from our team at Goderich.

Our continuous mining machines have a tendency to create fine particles in the rock salt we produce.

Which can put us out of specification for some customers.

As a result, a good bit of those fines never make it out of the mine.

We have a team at the mine that we'll be adding a compaction unit underground to harvest these finds and compact them into saleable product.

Given that the cost of mining the salt has already been incurred this project has the potential to increase annual production by at least high single digit percentage points and also lower overall costs at the Goderich mine.

In fact after full implementation, we expect this project to pay back the modest capex cost in less than a year and reduce our goderich mine per unit cash costs by about 5% current operating rates.

Expect to have the system in place in the third quarter of this year.

I'm excited about where these optimization efforts are headed not just because I have a high confidence that it will drive better financial results, but also because it will improve our customers experience with compass minerals'.

Build stronger employee engagement and invigorated the entire enterprise.

Finally, as a leadership team and with our board we continue to evaluate the best ways to position compass minerals to deliver long term value to our shareholders customers employees and communities.

As part of this process, we have begun this strategic review of our South American business to determine if and how it fits going forward with our core strengths and capabilities.

We believe we can achieve mid success by focusing on our salt in SLP core businesses.

Establishing ourselves as a leading minerals and mining company.

Difficult to replicate assets.

Serving essential in USIS through low cost production in efficient distribution.

While the specialty plant nutrients and chemical products, we manufacture and sale in Brazil are very attractive long term businesses. We're assessing whether we are the right partner to drive success, and then walk us full value.

Strategic review will help determine the best path forward for our plant nutrition, South America business and give us optimal flexibility to execute on our future strategic priorities.

The process could result in a variety of outcomes many of which should provide us with the ability to significantly reduce our long term debt generate additional returns to shareholders and potentially put us in a much better positioned to selectively and strategically complement our core salt in their soapy businesses.

Completing this evaluation is one of several critical priorities we have in 2020.

In addition, you've heard me say before.

We remain steadfastly focused on delivering our full potential.

As we work to continue the improvements we've seen in our operations and to deliver the operational and commercial benefits from our internal optimization program.

Executing in these areas will also help us improve our balance sheet metrics.

Last but certainly much more important.

We'll work to improve our safety results at our culture with a simple imperative.

Zero harm.

In doing this will be working to reduce opportunities for safety incidents by carefully addressing behaviors key risks and hazards at all of our sides. We will also ensure that we continued to be responsible environmental stewards of all of our resources.

And were likewise focused on our responsibility to serve as partners to the communities were our employees live and more.

So before I turn the call over to Jamie Let me just conclude by saying this.

We had a strong into 2019, but there is much more work ahead to put us on a from path.

Increasing value for all of our stakeholders.

Im confident we have the team in place for Compass minerals.

Successfully navigate this journey.

I believe we are well positioned for a stronger twentytwenty and beyond.

Jamie will now provide greater details on our financial results and outlook Jamie.

Thanks, Kevin and good morning, everyone.

I'll start on slide eight with a review of our Salt segment results.

Fourth quarter 2019, salt revenue increased 9% from prior year results on 4% volume growth.

5% higher average selling prices.

Looking first at our highway Deicing performance, we reported 4% higher sales volumes and our average selling price for highway Deicing products increased 10% from fourth quarter 2018 levels.

The sales volume results may seem a little light given the above average winter we experienced in parts of our North American market.

However, our UK sales declined more than 50% due to warm winter weather, which offset a portion of the improved results in North America.

Our consumer and industrial sales volumes grew 5% from 2018 fourth quarter results, while average selling prices for these products did 3%.

Year over year change in product sales mix.

Primary driver for the decline.

For example, because of Goderich mine improvements.

We sold a higher proportion of folks all products this year, which has a lower average selling price in some of our other product categories like water conditioning. So.

The salt segment as a whole generated significant growth in both operating earnings and EBITDA of 41% and 36% respectively.

In addition to improve selling prices and lower per unit salt costs lifting fourth quarter 2019 earnings.

Prior year results were negatively impacted by approximately $15 million Gatorade strike related.

Before turning to some comments on full year results I'd like to note that the EBITDA margin for the Salt segment at 31% is the highest we've achieved since transitioning to continuous mining in haulage at the Goderich mine.

And beyond that.

Highest since the third quarter of 2016.

This is a strong indication that we're executing better across the entire salt business not just in gonorrhea.

For the full year Salt revenue increased 4% from 2019 results driven by a 5% improvement in average selling prices, which more than offset a 6% decline in sales volumes.

Remember our first half 2019, salt sales volumes were impacted by lower highway Deicing bid commitments for the 2018 2019 winter season.

Operating earnings grew 45% and EBITDA increased 35% from 2018 results driven primarily by a combination of improved highway deicing sales price favorable geographic sales mix.

Increased consumer and industrial sales volumes.

Before moving on to plant nutrition results I'll review the winter weather impact.

For the fourth quarter, we did not report any benefit from above average winter as a combination of early season snows and warm weather in the UK.

Sales volumes close to one average weather would have been expected to generate.

For the full year, we reported a benefit of $20 million to $25 million in sales and 8 million 10 million in operating earnings lift from above average winter.

Turning to slide nine the plant Nutrition, North America segment reported a 12% year over year decline in fourth quarter revenue, primarily driven by lower sales volumes.

As we note on this slide although the sales volumes were 11% below the prior year quarter. They were still quite robust and in fact, they represent the second highest fourth quarter sales volumes in company history.

This.

As well as the resilience of our SLP pricing demonstrate the attractive qualities of this business, particularly in regard to SMP, which is not highly correlated to the row crop economic cycle.

Despite lower revenue this segment generated a 6% increase in fourth quarter 2019, operating earnings and a 2% increase in EBITDA compared to prior year.

This growth was primarily due to the continued improvement incur unit SLP production cost we delivered in 2019 compared to 2018 results.

For the full year plant Nutrition, North America, operating earnings and EBITDA declined, 11% and 9% respectively.

These declines primarily resulting from lower sales volumes as the business was unable to recruit sales volumes lost in the first half of 2019.

In cold weather reduced fertilizer applications.

North American markets.

We review our plant Nutrition, South America results on slide 10.

I will discuss these results in local currency as this is the best measure of the business is underlying performance.

The segment generated 4% revenue growth compared to fourth quarter 2018 results on both higher sales volumes and average selling prices.

Fourth quarter 2019 clinical solutions sales volumes increased 17% from prior year results, primarily due to a rise in the lower priced water treatment sales.

Agriculture products fourth quarter sales volumes were 4% lower versus 2018 results.

The decline was driven partially by lower sales through distribution and partially by a product sales mix shift in favour holier products versus our soil applied nutrients.

Mix shift was favorable for both average selling price and earnings with fourth quarter 2019, operating earnings and EBITDA up, 23% and 18% respectively versus 2018 results.

For the full year. This segment delivered 5% topline growth from 2018 levels operating earnings and EBITDA, both decline largely due to soil product sales.

Our b to B customers.

And lower year over year, Chlor alkali product prices.

We also continued to invest in our sales personnel for the direct to grow or portion of the agriculture business, where we can more effectively drive increased adoption rates for higher value and more innovative products.

We continue to see strong returns on these investments as our full year 2019 direct to grow our agriculture revenue in local currency increased about 12% from 2018 results.

Despite a challenging global agriculture environment.

This follows a 30% increase from 2017 to 28.

The key outlook metrics for our business segments are provided on slide 11.

First half 2020.

Segment revenues are expected to benefit primarily from improved salt prices as our salt cost benefits will be heavily weighted to the back half of 2020.

Remember volumes will ultimately be determined by winter weather activity.

The plant Nutrition, North America segment is expected to see more normalized demand for S&P and Mike for nutrients, assuming typical weather conditions in 2020.

We note that some customer inventories were elevated at the end of 2019, which could shift the timing of our sales in this segment towards the second quarter.

In South America, the first half of the year is typically the slow part of the year for agriculture demand. Although we are expecting a nice rebound of agriculture sales through distribution. We also anticipate that our chemical solutions business will continue to deliver growth in water treatment sales volumes.

We provide an overview of full year 2020 sales volumes by segment and our corporate items on slide 12.

Full year salt volumes are expected to be between 11 million in 11.5 million tons as we continue to rebuild our inventories and replaced our imports with Goderich times.

As we progress through the remainder of this winter and the upcoming bid season, we will update our full year volume guidance accordingly.

We are guiding corporate and other expense, excluding depreciation and amortization as well as non cash stock based compensation expenses.

Also be excluding stock based compensation from our adjusted EBITDA results. As we believe this is a better way to view the cash generating capabilities of the company.

Our capex is modestly elevated from 2019 results as we plan to spend about 10 million of capital investments related to efficiency projects with rapid payback periods that are part of our enterprise wide optimization efforts as well as five to 10 million estimated for new mine development.

Spending.

We estimate our full year 2020 effective tax rate to come in around 30%, which is higher than 2019 as a large portion of our year over year earnings improvement will be in Canada, and Brazil, both of which have higher tax rate than us.

Our full year EBITDA range of 350 million to $400 million does include some improvements from the enterprise wide optimization in 2020.

At a much more meaningful impact in 2021 in 2022.

Last.

I'd like to touch on our free cash flow results and outlook.

We did not reach our targeted free cash flow range for the full year due to a couple of reasons.

In addition to some fourth quarter capital spending increases we ended 2019 with increased inventories.

None of this was driven by lower than expected SMP sales.

In addition, our strong Goderich mine production allowed us to build some incremental salt inventories, which puts us in excellent position to efficiently serve our markets during the first quarter.

For 2020, we expect our free cash flow to increase by 60 to 70 million driven by improved results across all segments and collection of our $58 million outstanding IRS tax refund.

Partially offset by.

Further build a salt inventories and higher capital spending as previously noted.

All of our guidance is based on our business as it exists today.

We're very optimistic about the year ahead, given the increased profitability of our salt business and the expectation of better agriculture fundamentals in both North and South America.

The initial benefits from our optimization efforts are expected to occur in the back half of 2020.

While we're not providing specific guidance on the expected benefits. We are planning to report the financial impacts of these efforts as they are realized throughout the coming quarters years.

Finally in regard to our balance sheet and leverage ratio.

During 2020, we expect to drive our leverage ratio well below four times debt to EBITDA through a combination of earnings improvement and debt reduction.

With that I'll now ask the operator to begin the QNX session operator.

Thank you at this time, if you do have a question. Please send off by pressing star one we do ask that you. Please initially limit yourself to one question one follow up.

Again that will be star one for questions.

Your first today from Mark Connelly with Stephen.

Thanks last quarter, Kevin you said that you'll hear more about the improvement opportunities from the salt business.

And you said today that we're nowhere near the potential can can you give us some sense of how we should think about where we are in that progression and and given the heavy seasonality is it reasonable to expect.

Clear and consistent year over year improvement or is this can be a lot lumpier than that.

No look I think it's a it's a progression mark as we talked about I mean, God rich I mean, we always tend to talk about broadridge, but it was up 40% 18 to 19, we expect.

15% to 20% increase this year.

And I mean, we'll start to.

Level out after a while but I think it will be a steady progression as we move as we integrate this new equipment as we begin implementing the new mine plan to take a lot of that will be frankly invisible from the outside looking in.

But it will be a steady progression to as I've said before I think.

And our serve salt areas will probably run out of market before we run out of capability. It got a rich.

Okay, and just a question on SLP.

We were surprised by the size of margin improvement there.

Can you help us understand what went right in plant nutrition and whether you see this as you know a good operating quarter or is this a step change in performance at that asking.

Yeah, I mean, I think kudos to the team out there for despite kind of a slow start to the year.

Doing an excellent job.

Controlling input costs are running well some of its a function of the internal improvement initiatives that we've talked about the kudos to the team for really controlling that and finishing the year very strong, especially in the face of all the.

Potash potash anguish that we saw across the rest of the industry, we were able to hold firm on price control costs and maintain margins even growth in the fourth quarter year. So there's a nice finish.

Very good I'll come back.

Thank you.

Well hear next from Christopher Parkinson with credit Suisse.

Great. Thank you and your strategic priority Slide just you mentioned in evolution of core competencies and then adjacency strategies can you offer a little more color and your initial thoughts on how you see portfolio evolution 12, 20 436 months out.

As wells, including any preliminary views of where do you want the balance sheet to be thank you.

Sure.

Look I think from a priority standpoint, you've heard me pretty consistently say that.

The top three priorities are gotta rich.

After that it's delivering on our full potential across the enterprise. So we have a lot of work there to do.

A lot of upside potential just across the existing platform. So thats really job one.

And then of course, we've announced a strategic review of our Brazil.

Thats great team, great set of assets, that's going to pick up time, and we want to really really concentrate our focus in those two areas and knock us get distracted.

But at the senior management team and the board you know as part of this process will now begin to kind of phase and then start to think about what adjacent see strategies do look like.

Take advantage of existing core competencies.

Sure and work towards the formulation of a longer term strategic plan, which I think.

Referenced on the last call that we'd be ready to start talking about mid mid year, maybe third quarter sometime in in that timeframe, but what I, what I want to do is not create distraction for any body, we've got our hands full with.

The priorities that we set forth on we think Theres, just a extraordinary amount of internal opportunity for improvement.

Across the platform and we will stay focused on that and the running a thorough.

For some process with respect to Brazil.

Okay, great interest as a quick follow up when it comes to the S&P premium versus MLP, just how do you see this evolving in 20, given some MLP price pressure, but alternatively specialty crop economics seemed a little bit better off versus row crops. So you can you just in terms of your price for value strategy can you give us a little more color on how you're thinking about.

This going forward. Thank you.

Yes, so I'll I'll address at a very high level, then turn it over to the expert Brad is sitting here sitting here with me, but I guess, there's there's a belief that theres a correlation between ammo pms soapy pricing, you're not going I guess overtime. There has been some correlation but when we look at the plants that needed.

So Pete.

They just need Thats. Okay. There is no there is no price at which Im Opie works because of the damage you potentially damaging the route structure via the chloride content.

And.

As everybody knows we have a very dominant position in that marketplace and we think we asked fair value for our products that where you do get into little competition as some of the.

Vegetables around the margin.

A little more sensitive to.

Pete price visa be where as soapy price is.

Our strategy is to continue to run all going well stay focused on cost.

Supply the folks that that neither plants fed with the good stuff.

And.

And thats the kind of price that we believe is fair fair value for that.

For more more color I'd look to Brad to to augment that lets us know those are great comments, Kevin and Christopher I think as you know the fertilizer category in general retail customers certainly in 2020 are bullish and we saw a little bit of that bullishness.

At the conclusion of 2019, so despite some of the challenges in the NPV case.

Versus prior year, specifically around price in contrast.

Pricing has remained steady.

Throughout the year I think your question around why there is that premium the growers are willing to pay as Kevin said Theres, they're certainly the chloride free premium as we call. It but there is there's also the sulfur component that is really overlooked type thing.

Remember our AR.

Our rating is zero zero 50 parts of K in 17 parts of yes.

And so far as a critical component for a number of the crops to Kevin mentioned, it's it's responsible for chlorophyll production.

Then also nitrogen metabolism. So in the absence of good ask you can put down as much and and you're not going to get the agronomic benefits I think I think producers see that.

In there and their specialty crops in particular and.

I think specialty crops right now too when you look at year over year view on almonds.

They've held its held in terms of price that's held in terms of volumes. So our end use customers are doing quite well on especially category as well.

Great color. Thank you.

From Deutsche Bank will hear next from David Begleiter.

Hey, this is business give us long Interfyl is I guess first why your slide six of all the focus is as you are healthy aligned can you just talking about the priorities for each year and that no sense that commercial is the second largest source of your improvement can you also talk about what kind of action.

Plant you take you realize that enforcement there.

Yes, I think I heard our volume most suffering there for this low I think I heard most of the question but.

Yes on the operating side I think I gave a pretty good example of.

I would have a better examples obviously.

The compaction at that God rich to improve the defines content and term.

Material that we previously left underground the turn that into a product.

We've already incurred the cost the mine it and all you have to do is compacted and pay a royalty on it and get it out from underground to to be able to realize almost the full benefit of the.

Fob price there at the mine so I think Thats a real good example of what are the.

Operating examples.

The.

Logistic side I think as we've talked about before we move.

Product around all over the place and it's a it's around maximizing.

Water halls like calls Im trying to minimize.

Rail and over the road that last miles the most difficult piece and we've got some initiatives underway. It will want to say too much just it's again that is fairly sensitive, but we've got some internal initiatives underway that we think.

We could optimize around that and save a fair amount of money.

Then just in terms of commercial.

I guess the way I look at it is we're on a path here for God rich to become the long term low cost swing supplier in the served market, where we operate and.

We're going to have a lot of opportunities on the commercial side.

To expand our market reach just given the the cost profile thats there, there's a bunch of importance sloshing around.

And our served market, which we think as of the haven't target on their back as it relates to.

Got a rich as we continue to have to wrap it up so we think theres a lot of opportunity there and that's kind of one of the areas that we would call a commercial opportunity.

Great and second a like it's just something assault EBITDA guidance for the first half you mentioned, primarily driven by pricing do you expect Tc any appreciable improvement.

In first half or would that be primarily in the second half.

Yes, it will see I just mentioned earlier the in Georgia is here and I'll ask him to comment on it but well see a steady improvement will see a step function change when we get the new units underground and the in the second quarter its underground now being assembled.

But we'll see a step function change when we move that new unit into into solved and take what are the other units to start developing our long long term roadway. So I think you know just in terms of cost will be kind of flattish for the for the first half, but as we work through some of that higher cost inventory and get that flushed out of the system you'll start to see.

Good good cost improvement back half of the year and we've talked in terms of salt Salt margins, we think we're going to be push and 30% Paul all year and in 2021 will be comfortably in that three handle three heavily ZIP code, which we've talked about previously you then you'd like to add George just on the productive side.

Goderich, yes, thanks, Kevin I think maybe just a couple of comments again, probably coming off a very strong quarter.

Probably art without that our strongest three months since we went to mechanized mining.

Again, there is good there is good operational improvement.

Kevin you highlighted the workforce there of about a lot through the operational excellence operational opportunities I do think you guys either we're trying to reduce that variability that we've seen a production. So again, David day week to week month month, we're going to see that continue.

Improvement in production.

As we go through the year and I do think it'll be more.

Second half loaded, but by the same token that group and that team up with guide, which going incredible job. So I think we'll continue to see that effort. Thank you.

Thank you.

Moving onto Seth Jeff is the caucus with JP Morgan.

Thanks very much.

Can you talk about.

What's their condition.

Snow fall.

Through January are up into February 10th year over year or versus your longer term that purchase.

Yes, I think certainly Jamie Brad you are too, but I think.

Through the end of the year lows about normal maybe a little bit above average in terms of that many by add to our our benefit obviously January was a little soft.

February is off to a pretty good start, but I think overall you'd have to characterize the winter season, those about average that fair Brad that is.

Yes, so were.

Looking forward, but.

Well control, what we can control whether is going to do what it's going to do.

Okay and in terms of can be.

Youre sort of strategic.

Change you.

You are interested in exploring the sale of that.

South American nutrient business small, but north America nutrient business.

Why strategically South America, rather than North America.

And you I think you talked about wanting to be more of a mining company going forward.

Does that mean owning more salt pass that sort of and tonight assets or ultra minerals can you can you elaborate your strategy a little bit more.

Yeah look I think with respect to South America, and again with no.

Negativity at all towards the team and the asset down there that's a great asset. It really is just question ultimately whether we are the right owner forward and we're going to run a fulsome process and im not going to really say anything about timing or what the outcome might be we're going to run a fulsome process with the board at our internal team.

Our external advisors, and we'll keep everybody posted as that progressive but look at the end of the day.

We're not emotional about any of our our assets when it comes down pivot if they're worth more to somebody else than they are so what we think that we can deliver all from an execution standpoint, there ought to be a conversation I mean, I think thats the.

Fair value proposition than any any scenario so.

As we move ahead.

[music].

I think maybe I'd just like the correct what you said.

Become.

I think we are a mining company I think we've historically always have been kind of lost our way there for awhile, but were restoring that.

Operationally excellent although on a day by day basis.

And I think our ability to mine.

Transport should end market.

Essential materials is gonna be key to how we think about our strategy going forward I don't want to imply what those minerals might or might not be right now is still still premature but.

Again as I said earlier, our focus is executing internally, we've got lots of value that can be created internally just by delivering on our full potential and focusing on the running a very fulsome and thoughtful south American process. So thats the near term focus.

Great. Thank you so much.

Welcome.

Well hear next from Vincent Anderson with Stifel.

Yes, Thanks, I, just I wanted to kind of dig into the timing of the strategic review I mean, the assets aren't exiting the year.

Yes, no and job until now your focus has been a god rich and these companywide improvement efforts.

With the timing have you heard that you've already received some pretty significant interest or did you look at the cost assessment of your new God Rich plan and decided that maybe you want to de leverage more aggressively before undertaking large scale change that mine.

Yes, if you look with respect to do timing I think it's a it's a decision from a strategic point of view, it's a great asset is gonna have great value in any market.

And I would want to very quickly dissuade you have the notion that power interested in exploring options with respect to Brazil has absolutely nothing to do with what we're planning a god rich I think I've been pretty clear so far that our plan at goderich, which will largely be invisible from the outside looking in will be able to absorb the cost of the new bond.

Unplanned inside of previously given Capex guidance with the exception of the mill.

Still work and working through that because we want to be able to utilize things that are at the mine and reuse them and not spend extra money, but we could have a little bit of expense associated with the mill, but not something that will cause you to sell on asset to be able to be able to pay fourth we will be able to handle that comfortably.

Within the bounds of our existing cash flow. So there is no connection between the two absolutely not.

All right great.

Good to hear.

Switching gears this was kind of addressed earlier.

But the strategy and SLP for a while now it's been to to try to grow into that flex capacity does you have above and beyond the existing pond capacity and that's generally bound by targeting the marginal SLP consumer so specifically with regards to 2020 would whereas ammo Pete prices are today.

Look at the market right now in those spreads and you're going to continue to fight for share at these spreads or do you dial that back a bit.

Yes, Hey, Vincent it's Brad.

Good. Good question, you know I think the way I look at it is number one.

We need to serve our customers we need to be their primary.

Source of S&P, if not their exclusive source of S&P domestically and so.

We're going to focus on the needs of our customers in our key accounts and ensure that our account management team our logistics team delivers our products when and where it matters you've heard me also in prior.

Calls in conversations talk about the aspect of pricing dynamically.

We will continue to price dynamically.

We are the only producer that's so Pete and this hemisphere, and we intend to maintain the strength and the share that we have in the United States Anand U_s_m_c a for that matter. So.

That's what I would say about about share you know as it pertains to MLP.

Listen the way that we win that one Vincent is agronomy.

And our team continues to put together.

Very solid research trials across a number of specialty crops.

And I think that we as we continue to get more competitive intelligence and agronomic intelligence on these crops, that's what's going to unlock additional opportunities I'll give you one that we just really become aware of in recent weeks and thats. It thats earlier on apples honey, Chris Pappas appear to be precise has not been a focus crop.

So I'm, especially side of the business, but Esso key makes a dramatic difference in the market ability.

And the potential waste for and Chris apples for our for grocery and the entire grocery supply chain.

So that's what we're going to do we're going to we're going to continue on our customers and we're going to continue to really understand and expand the agronomically for our SSP and specialty potassium business.

That's very helpful. Thank you.

Okay.

Well hear next from David Silver with CL King.

Yeah, Hi, thanks very much.

I had a question about the.

And so Pete business, but I was kind of maybe coming at it from a different angle.

Over a longer period of time I think your company has had a number of strategies to cope.

More pond based Tom Alberta.

How does that facility.

And.

Given the edge other people have mentioned the big.

Value differential between upon based upon an alternative.

Where what does the potential to maybe.

In that two either I don't know improved this feeling in the ponds or.

We do some others that to cope with more of those.

Low exceptionally low cost high value today.

Out of that and thank you.

David This is Jamie.

I wouldn't say back in 2015 16, we made.

Significant investments in that facility to increase the capacity and improve the production efficiency, there and which is what really enables us to to have the 550000 tons of total capacity, which is about 325000 tons of pardon base capacity. So we used to be at a much lower.

Well, we used to be 225. So now were 325 in order to increase upon based capacity it would take a significant amount.

New acres in upon which is which would be a significant.

A significant cost of implementation of capital cost.

Because we have the ability to go to the 550.

Using K T L as as an input.

And were working hard to grow into that capacity over the next three to five years.

That's just a decision for down the road.

Now that you want to okay yeah.

David is.

David is bread Griffith how are you.

Good I'm going to.

Hold on Jamie's comments, if I, if I could you know I like I like your phrase coax more PON times I like that I might might you that.

But but as it pertains to 2018 in 2019 those were a record.

Pond based on.

Production years, and you know what we expect 2020 to be a record pond based on production year. So while Jamie is absolutely correct. When we look at the.

Kind of spent played on on our assets, we would say that it's in that 325000 ton range. Our team in August. However has been quick to correct both of us and they feel like because they can do more and we're going to let them do that so I'm not going to put a number on their head I'm going to let them proved to us what they can do and George as well.

What I would say is it pertains the enterprise wide optimization plan that Kevin and spoken about.

While it's early days there is an intersection of innovation.

Advantaged asset like Ogden and grow or need and we're going to continue to work on.

Additional mineral applications from our operations and Ogden into position that we have.

As a specialty K provider in this hemisphere if that helps.

Yeah, No that's great and just as an aside feel free to steel steel any thing decent that I'd say for your revenues.

I've been stealing from the other guys on these calls for a long time stuff.

Just one other question and I admit this is going to be kind of wonky. So.

But it has to do with $58 million.

Of refunds, I guess or the settlement that your due to receive.

From the Canadian authorities.

Just wondering if you could characterize that another words I'm, assuming that that may be a.

Yeah, that's been settled over resource taxes, which might be paid on a per ton of production base.

And again, that's just an assumption I am I'm coming up this more recently, but.

Are there any implications for your minds per year.

Efficiency or your cost of the basis going forward from that settlement in other words.

Where the basis for assigning lets say resource taxes or other other assessments.

Understood and touch away that.

2020, 2021, there will be structurally lower assessments relative to what was what you were being charge before the dispute in other words are there some longer term structural implications that we should model and based on that settlement. Thank you.

Thanks, David I'll take that I'll try to summarize that quickly. So this this goes back to a dispute between in terms of our transfer price [noise].

Between the us in Canada.

The one that.

The one that dispute so we had to pay taxes back in 2017 to Canada revenue and during 20.

I'm, sorry, 2018, and now we're just now getting our US refund. So thats 58 million that that's prominent a settlement that happened previously the only.

Okay. So what that was was transfer pricing and it comes down to where is where does the profits in our north American salt.

And as it relates to highway Deicing salt, whereas the profit I counted as it in the U.S. or is it in Canada. So the only impacts will be around.

The tax rate so it's all below the line.

At the park part of that you can see in terms of our tax rate guidance for 2020, right around that 30% it's already embedded in that so there is no further implication we would expect.

And from Goldman Sachs will move next to BOP courts.

Hi, everyone. This is Tom Kominsky on for Bob. So just first on capital allocation. If we assume that you generate say 102 150 million in free cash next year and sell the South America business could you walk through maybe what your capital allocation priorities would be in that scenario.

Yeah, I mean, let me hit it at a high level I don't want to speculate too much and you can speculate that will arrive at that as a conclusion, but to the extent that we did divest Brazil, maybe you could certainly expect.

Fuse.

Barge.

Portion of those proceeds to de lever the balance sheet.

At least around the pre payable side and then from there we'd have to make the decision whether we want to warehouse the cash having discussion with the board about proper allocation.

Share share repurchase its et cetera.

But clearly if we if we did end up divesting South America de leveraging with the that's topped the list anything you'd like to add to that you're saying no. It sounds great.

Cool and then second on the interest expense guidance sorry. If this is a bit of a minor question, but it appears that you expect interest expense of <unk>.

Plus 10 million or sell year over year from 2019 to 2020.

Could you just walk through the moving parts here and perhaps if this implies that you expect additional borrowing thanks.

No. That's the primary driver there is the but the incremental interest expense related to the bonds. We issued back in November So we've got the new 500 million.

Bonds and they carry a higher interest rate.

Then.

You know debt that was previously financed with short term bank debt.

So so that transaction really boosted our liquidity by about $125 million.

Yeah that extended our tenor and pushed all of our maturities out past that 2024 right.

Great So thats coming cyber.

Yes. Thank you.

Well move next to Joel Jackson with BMO capital markets.

Hi, good morning.

Can you give us a sense.

Obviously, 2018 19 were kind of right terming hydrology goderich for watch reasons.

We look at what production going to be at Goderich in 2020, and the cost can you contact compare that to where you were in 2017 before you started transitioning continuous mining. Thanks.

I certainly couldn't do that off the fell off the top of my head, but I mean, I guess really we started first cm unit there what three years ago.

Well, we've had to develop a minor for a while Betsy yeah, I would I would say.

When you look back at cash cost.

Back to 20, you said 17 18.

Brendan third $35, a time I think.

Our expectation would be in 2020 to get down.

Bound to that level and then we'll take it down to the low $30 range.

In 2021.

As we continue to to make a.

Improvements process improvements and an improved production.

And the efficiency there so thats a fully loaded called headed is not at ash, Yeah, No that's cash cost capital costs down down down around at around 30, total salt I'm talking total salt cost, which includes our seeing eye business.

I guess I'll check out production. So like 2020 production Goddard versus say three years ago are we above that mark or are we belong got mark.

So so we don't disclose goderich mine production.

Okay, we are.

Total total production annually.

So my last question would be.

It would seem like you know we have you seem to could tell price improvement. This year, we got some downtime from yourself, maybe a competitor it seems like maybe this year you're going after market share I mean, the winter you say the average sizing that's what you're not in tier 2020 guidance average for bid season in that scenario. It seems like you're going after.

Her yet market share this year, maybe you could talk about that thanks.

Yes, I think I think the first step for US Joel is what we need to do a little bit of inventory replenishment, but importantly for us we need to displace the the tone and so that we've been importing.

But as a profound effect on the margin improvement and I don't think we've ever disclose the amount of tonnage that we were importing but it's not an insignificant amount.

And then the mix the next change from there would be a targeting the rest of the imports that I talked about earlier that are sloshing around inside of our our served market because there'll be no way that they can compete with us.

Really anywhere inside of that served market. So we think there is the opportunity to do that.

Over time is not going to happened in one year, but our goal this year to so just push out the could offer tonnage that we've been importing and then do a little bit a restocking getting ready for.

Next winter season.

Thank you.

At this time I'd like to turn things back to you all for closing remarks.

Thank you Kelly this is theresa.

Thank you all for joining our call today, if you have any follow up questions. Please contact Investor Relations you can find our contact information on the website. Thank you bye.

Again that does conclude today's conference. Thank you all for joining us.

[music].