Q4 2019 Earnings Call
Good morning, ladies and gentlemen, and welcome to them a safe company's fourth quarter 219 earnings conference call. At this time, all participants have been placed in the listen only mode.
The company completes their prepared remarks, the lines will be open to take your questions. Your host for todays call is Lora Jackman Vice President Investor Relations domestic company Mr. TEGNA you may begin.
Thank you and welcome to our fourth quarter and full year 2019 earnings call presenting today will be John <unk>, President and Chief Executive Officer, Clint Freeland, Senior Vice President and Chief Financial Officer, and Rick Mclellan Senior Vice President commercial we also have other members of the senior leadership team available to answer your questions. After our prepared remarks.
The presentation slides, we are using during the call are available on our website at mosaic code Dot com.
We will be making forward looking statements. During this conference call. The statements include but are not limited to statements about future financial and operating results. There based on management's beliefs and expectations as of today's date and are subject to significant risks and uncertainties.
Actual results may differ materially from projected result.
Actors that could cause actual results to differ materially from those in the forward looking statements are included in our press release issued yesterday and in our reports filed with the Securities and Exchange Commission. We will also be presenting certain non-GAAP financial measures a fourth quarter press release and performance data attached as exhibits to yesterday's form 8-K filing.
Also contain important information on these non-GAAP measures.
Now I'd like to turn the call over to Chuck Good morning, everyone and thank you for joining us today.
As you're well aware 2019 was a challenging year in our industry and for mosaic as poor weather in North America for three consecutive fertilizer application seasons lots finished product inventories heart and prices low, especially for phosphates are realized out price declined 20% 2019.
And while potash prices remained relatively stable most of the year sales volumes Roth over 10%.
Market demand weakened.
Despite these market dynamics, we at mosaic continued to focus on execution within our business.
Actively managing our portfolio allows us to effectively navigate this period of short term weakness.
Position mosaic for long term success.
Now with constructive agricultural commodity prices and nutrient depleted soils across most of the U.S. corn belt growers, how strong incentive.
Landmark filmmakers and maximize their yields we expect the U.S. farmers will plant 10 to 15 million more acres than last year.
And we expect very strong fertilizer consumption and demand this spring in North America.
And we're not alone.
A few weeks ago, we held our biggest customer event and it gave our entire executive team three days to engage with our top global customers.
The atmosphere was upbeat like retailers are feeling.
Much better as we head into 2020.
This sentiment shift producer curtailment and a late fall surge of applications has driven phosphate prices higher today, we're seeing more than $65 per ton improvement from the lowest price is traded we made in December.
Now to that the extended production downtime in China.
Due to the Corona virus, and we see a much more constructive global supply and demand picture for the global phosphate market. This demand is depleted our inventories and will lead us to bring phosphate production back to full levels before the end of the first quarter.
The potash market is waiting for China contract to form a new price benchmark and the country's necessary response to the Corona virus outbreak has made the timing about settlement more uncertain. We do expect good demand in North America, Brazil, and South East Asia as farm economics are driving strong demand for potash around the world. So we may.
I see a divergence from the China contract as a benchmark we will continue to monitor the dynamics in China as they develop.
While we cannot control weather or viruses and how the market reacts to those types of events. Our focus continues to be on running our operations well and advancing our strategic initiatives in 2019, we made significant progress in managing in transforming each of our business units in potash, we demonstrated that we could exceed major does.
<unk> milestones, allowing us to accelerate the development of our case reminded esterhazy Cisco.
We increased the pace of capital allocated to this Mega project to match the execution pace. So that we could eliminate brine management costs. The K one on K two full two and a half years earlier than originally planned these cost savings combined with lower cost of production should result in a total cash savings of approximately $300 million.
The ramp up of Keith reproduction facilitated the extended idling of the clone say mine.
We expect to be able to meet market demand with our currently operating potash facilities and we have retained substantial surge capacity if the pace of demand growth accelerates.
Our mosaic furloughs onto the business in South America has made tremendous strides since we completed the volley furloughs onto acquisition two years ago. We've now achieved approximately $330 million in annual net synergies well above our original target and we've committed to achieve an additional $200 million in annual EBITDA benefit by the end.
2022.
We also responded to the difficult situation of changing tailings dam regulations with an aggressive and transparent approach.
While meeting the new standards resulted in $80 million in costs and significant downtime at three of our Brazilian facilities. In 2019, we were able to reach a successful resolution with all operating down certified by third parties and returned to full production.
In phosphate, we demonstrated market and cost discipline first by permanently closing the plant city facility and then through curtailments and other phosphate manufacturing plants as Mark This weekend.
The reduction in supply is now beginning to bring the global supply and demand picture into balance.
We're also executing a number of very exciting and promising initiatives to drive significant future efficiency gains.
Those of you who joined US for our Analyst day last March may recall that we discuss potential technological improvements at our minds.
That potential is beginning to come to fruition and we're moving towards automating many elements of our mining processes in both phosphate and potash, we expect the relatively modest capital requirements to yield strong ROI in the near future and enable safe and reliable production for many years to calm.
Push the organization on many fronts in 2019, and we accomplished a great deal wall affirming our commitments to responsible operations. In fact, we generated record safety performance for the seventh consecutive year and our recordable injury frequency rate is industry leading.
We believe the broad spectrum of SG performance provides good measures of risk management and management effectiveness and we're delivering strong results.
Taken together the moves we made in 2019 of strengthened mosaic permanently reduced our costs and help balance global potash and phosphate supply and demand now I will turn the call over to Clint to discuss the financial details and changes in our approach to setting forward looking expectations after that I have asked.
Rick to provide some insight into the Corona buyers impact in China before I close with our updated strategic priorities Glenn. Thank you Jack and good morning, everyone.
As you can see on slide five mosaics reported net loss for the fourth quarter of 2019 totaled $921 million or $2.43 per share, which included $1.1 billion in previously announced noncash charges related to asset and goodwill write offs adjusted EBITDA for the quarter.
Was $202 million and adjusted EPS was a loss of 29 cents.
For the full year mosaics net loss totaled $1.1 billion, including approximately $1.5 billion, a noncash charges related to the plant city closure.
And the impairment of goodwill at the phosphates business unit.
Adjusted EBITDA was $1.35 billion, an adjusted earnings per share were 16 cents.
At our potash business adjusted EBITDA for the fourth quarter was $159 million down from $270 million in the fourth quarter of 2018.
Primarily due to lower sales volumes and a higher rate of fixed cost absorption as we adjusted production levels to more closely aligned with customer demand.
With reduced demand during the fall application season, we curtailed production at our Colonsay facility, leading to an overall operating rate for the segment of 63% down from 99% in the fourth quarter of 2018.
Well this would normally lead to a sequential increase in production cost per ton given the fixed cost intensity of that business cash cost of production during the fourth quarter actually declined compared to the third quarter of 2019 as the company began to realize the benefits associated with shifting production from Kalonzo safe to the lower cost extra hazy case.
Facility.
Additionally, gross margins benefited from a true up of Canadian resource taxes of $13.8 million or $9 a ton from extending the colonsay idling.
At the phosphates business fourth quarter, adjusted EBITDA totaled $8 million compared to $240 million in the fourth quarter of 2018, a significantly lower finished goods prices more than offset an improvement in raw material costs.
Despite market headwinds, which continue through the quarter. The company continued to focus on managing costs and for the period recorded a sequential decline in cash conversion costs to $64 per ton and a $2 per ton reduction in cash rock costs.
Adjusted EBITDA mosaic frozen chase totaled $78 million during the fourth quarter compared to $138 million in the fourth quarter of 2018 as lower finished goods prices distribution margin pressure and higher idle costs more than offset benefits from raw material cost and foreign exchange rates as well.
It was transformational gains.
As noted on slide though segments operating rate improved reflecting the final resolution of the tailings dam remediation and helping to drive cash conversion cost back to levels. We saw before operations were slowed by the mine closures.
At this point I'd like to turn to 2020 expectations and as you May recall I noted on our third quarter conference call that we were considering changes to our approach on earnings guidance. The reason for this is that the primary driver behind mosaics earnings is the market price of finished phosphate and potash products, which is.
Something we don't control and which can change quickly and meaningfully both positively as they did in 2018 or negatively as they did in 2019.
Additionally, we are mindful that any direct or implied pricing outlook, we provide can and likely will influence customer behavior.
As such we're modifying our approach to give investors the information and tools, we believe they need to accurately model the company and to make reasonable adjustments throughout the year as markets change.
As shown on slide seven our approach pivots off of actual reported adjusted EBITDA results $1.35 billion for full year 2019 in this case.
We will also note those nonmarket related items that will be different going forward. In this case, the $225 million that we've previously disclosed related to cost incurred in 2019 that will not reoccur in 2020 or known structural benefits from actions taken by the company.
Further detail on the makeup of that $225 million can be found in the appendix at this presentation.
The total of these two items $1.575 billion in this case should be the starting point for an investors 2020 analysis.
As you can see we've provided annualized adjusted EBITDA sensitivities for both realized Fob mine fertilizer prices and foreign currencies, which can be applied by investors to adjust their estimates for full year consolidated results.
Going forward I would not expect to update these numbers unless there is a material change to the non market related items.
For full year volume's, we've provided a summary of the history of each segment on slide eight.
Like prices volumes are driven by market conditions, so consistent with our approach on market prices, we will not be providing forward guidance on volumes, but this is an important assumption that investors should update in their evaluation of the company.
One thing to note for 2020 is that we do not expect the previously disclosed curtailments in the phosphate and potash businesses to limit sales volumes in 2020 as the ramp up of K three replaces lost production from Kwanzaa and Bartow has already begun to restart production.
As reflected on slide nine we will continue to provide the company's outlook for capital expenditures and those items needed to help investors reconcile from adjusted EBITDA S.
The same information we provided in the past, including our expectations for DNA net interest expense non notable adjustments like equity compensation in a aro accretion and an estimated effective tax rate.
As you will note mosaic sustaining capex level for 2020 is somewhat elevated compared to historic norms, primarily due to approximately $75 million in record spend related to the phosphate segments consent decree.
All work under that agreement must be final. This year. So this will not be a recurring costs moving forward.
Growth Capex for the year is focused on the K three project it esterhazy and represents approximately $300 million of this total most of the balance is associated with previously disclosed phosphate mine extension efforts in Florida and investments in Brazil related to the next generation transformation work at mosaic for lunches.
She is expected to generate $200 million per year in recurring EBITDA benefits by the end of 2022.
And finally to assist investors and refining their modeling of the company, we will be supplementing our traditional disclosures with two new sets of data.
First we will add new disclosures to our quarterly performance data on a number of topics. Most importantly detail around realized pricing product and geographic mix and raw material mix and realized costs.
Second.
While our updated outlook approach is focused on annual results. We recognize the importance of modeling quarterly earnings. So to that end, we will begin disclosing monthly sales volumes and revenues by business unit for the first two months of each quarter.
This information will be provided in the middle of the following month on mosaics investor Web sites with results for the third month of each quarter provided in the regular quarterly earnings release. We believe this will enable investors to more effectively model quarterly results and better understand both the seasonality of our business and the lag that typically occurs between.
Visible changes in benchmark prices and actual product pricing realized by the company.
And finally to assist investors with more detailed modeling of mosaic, particularly those who have less history with the company will be providing an investor education deck on our investor website that will provide additional detail on the most important factors and dynamics that should be included entered analysis of the company.
With that I'll turn the call over to Rick to share insight on the Corona buyers. Thank you Clint and good morning.
On behalf of all mosaic employees I'd like to say, our thoughts continue to be with our China employees and the people in China as they managed not only the direct impacts of the Corona virus, but also the challenges they are facing with restricted movements supply shortages.
And the uncertainty of when normal daily operations will resume.
Since keeping farmers healthy is critical to protecting China's food supply.
We are in the process of procuring face masks to distribute to rural farmers through our local operations and business partners.
These small efforts are greatly needed in the region.
We hope.
Assists in stemming the spread of the virus.
Beyond the imminent humanitarian issues, we know there will be impact in China supply and demand for both phosphate and potash.
Approximately 30% of Chinese phosphate rock, 30% of China's GDP and 45% of China's MHP are produced in Newbay Province, which is the epicenter of this outbreak and has been subject to the most restricted rules enacted to reduce the spa.
Of the virus.
In new Bay phosphate production facilities have been on extended shutdowns and we understand the second round to shutdowns has been enacted from February 16th through the 29.
We believe the earliest these plants could reopen would be sometime in the first week of March.
Plants that had already resumed operations outside of who pay province are now running short of raw materials, causing some of them to reduce production.
We believe the overall phosphate production shortfall will ultimately be 2 million tons in the first half of 2020.
Based upon surveys our China team conducted half of in PK and blend plant operators surveyed stated they have about two weeks of raw material on hand once they returned to operations. This is a very low level.
If phosphate prices are attractive, we do expect China to be able to ramp up to recover portion.
In the back half of 2020.
For potash transportation issues have hampered movement of product away from the ports and will impact ongoing contract discussions.
Over spring is near in the government is working proactively to ensure the return of logistic support for agricultural products.
When workers are able to safely returned to duty in the plants and in transportation. The resumption of normal operations is expected to be slow, but once trucks returned to the road. We expect potash will move from the port to the blenders and on to farmers.
Creating a need for additional potash imports during the second quarter.
We continue to monitor the situation how best we can position Mosaiq in these markets and expect to provide an update later in March.
Ill now turn the call back over to John to share our updated strategic priorities.
Thank you Rick.
The short term challenges we faced in 2019 are largely behind us and our focus is on the future.
We have a clear strategic roadmap to grow and strengthen the company and we have the right teams in place to execute the strategy our goals have not changed to drive increased efficiency and competitiveness in our existing business and grow value for the long term. The enterprise is aligned around six strategic priorities that will build on our current strong.
Today's question and drive a step change in performance first in North America, We will continue to transform our potash and phosphate businesses and pursue new opportunities to improve their profitability and competitiveness.
Technology, and innovation will be used to accelerate our progress and drive value beyond the transformative efforts currently underway.
Such as Esterhazy, Kthree and next generation mining in phosphates.
Second we plan to fully leverage or manufacturing and distribution advantage in Brazil, which is the fastest growing agricultural market in the world to increase market share and profitability.
Third we will continue to grow and strengthen the value of our product portfolio by building on the successful performance products and by pursuing strategic opportunities within the broader soil health space.
Fourth we will leverage the learnings from our very successful, Brazil integration to drive improved collaboration inefficiency in our corporate functions as well.
As our approach to capital and asset optimization, we will continue to balance our allocation between strengthening the balance sheet growing the business and returning money to shareholders and finally, we remain committed to operating responsibly and ethically and all that we do so we're excited about the path before us markets are in.
Improving and we expect strong global demand for phosphate and potash this year.
And in the years ahead, we've made tremendous progress we are managing capital effectively maintaining our market discipline and taking actions to permanently reduce our cost base, while growing long term value.
In this increasingly unpredictable environment, new seed and other technologies and effective soil nutrition are necessary for the world farmers to meet the ever growing need for food at mosaic, we're managing for long terms prosperity. So that we can fulfill our mission to help the world grow the food it needs.
We expect to achieve the promise of our mission by building and sustaining the most competitive resilient profitable and responsible company in our space. We have the right strategic plans in place to accelerate our progress on that path and we believe mosaic is very well positioned to add strong value for all of our stakeholders in 2000.
20, M. beyond now we will take your questions operator.
Thank you.
My day to ask a question you will need to press star one on the telephone keypad WB star one on the telephone to withdraw your question press the pound Keith we will limit the question to one question for participants.
Chad I'd ask your question. Thank you. Please standby will be compiled acuity roster.
Your first question comes from the line of Mark Connelly from Stephen Kim.
This is incorporated your line is now open you may ask a question.
Thank you Chuck you covered a lot of ground, but you Didnt mention model can you talk about how that business is performing and how.
How its responding to the to the stress of this market.
Yeah. Thanks Mark.
Yes, good morning.
Martin's performance.
So far I guess this is also a mega project close to $8 billion of spend.
It is ramping up and continues to ramp up.
While I think the final answers to that should be with the.
With the model company to answer or how they feel about the ramp up from our perspective, it's ramping up about as we expected.
I think bill out another.
Half a million tons. This year of production. So by the end of this year will be close to.
On on track with that project for final production levels.
And.
We still expect similar price impact benefits to mosaic.
As that project completes that will be a low cost producer it gives us diversity of supply, particularly into markets like India and Asia. So we still think it's a it's a great project. It was ultimately a needed project in global SMB. So.
And that's about where it stands today. Thanks.
Thank you next question comes from the line of Jonas Oxgaard from Bernstein. Your line is now open you may ask your question.
Thank you.
I'm, just wondering could expand a little bit on K three.
So you're going to move about 600000 tons in 22.
Production there but.
Can you give us a fuller picture of where are you how much at end of next year, how much production will there be MK three and how should we think about the capital spend going forward.
Yes, thanks join us.
Okay three as we've stated a number of times we've actually.
Accelerated that project a couple of times now.
And with that comes an acceleration obviously of the capital the capital spend over the next couple of years I believe is in the 300 million dollar range per year, but then ramps down quickly after 2021.
In terms of where the projects out.
We have completed.
The first shaft. It is running we've completed the conveyor over to a Kate to already it is running a NIM production Thats, where the 600000 tons has been has been moved of product has been moved.
We are ramping up very quickly we're ramping up a single new minor every every three or four months and will soon have a conveyor over to K, one and then second shaft running so we'll be.
At full capacity and a little over two years and that will completely complete that project.
Thanks.
Thank you next question comes from the line of Christopher Parkinson from Credit Suisse. Your line is now open you may ask your question.
Great. Thank you so lower sulfur prices decline it kind of where the theme across the entire global phosphate cost curve in 19, I wish I had very NFX across the cortiles, depending on timing just giving your own assessment of the global your global cost position.
And the fact that you had to cycle through some higher price inventory even into the second half of these events in North America can you just simply give us an update right here right now given your outlook for sulfur and 20, just what type of benefits that this should this actually mean for straight margins and how should we be thinking about this thank you.
Hey, Chris.
Oh, I think the easiest way to answer about is obviously sulfur prices have been coming down quite a bit lately.
Obviously, the difference between solid sulfur prices and the liquid molten sulfur prices makes the difference.
As we go forward, we're looking as low as you know in the mid Sixtys for salt for price into the first quarter I don't see any reason with lotto sulfur inventory and IMO 2020 et cetera, There's a there's.
Really no strong reason for that Saul from all markets Titan and if we look at inventories around the World for example, China with 3 million tons of inventory sitting on the ground.
There's plenty to solve for employees for the near term needs. So I would expect.
Continued weakness and solve for pricing, which as you alluded to is positive for our stripping margins.
Thank you next question comes from the line of Bad things happen from Scotiabank. Your line is now open you may ask a question.
Thank you.
On page 23 of your deck.
You show that 2020 shipment changes.
Could increase from zero to two and a half.
Million tons can you talk about the changes you see on the supply side.
We will contribute to your comment about tightening market in phosphates I think you mentioned a few you talked about about I think 2 million tons down in in China that could come back a little bit in the second half you've talked about half a million tons out of Matt and what are the other changes that you see on the supply side that will contribute to a tightening market.
Thanks, Ben Let me, let me hit a couple of days, maybe Rick Mclellan My data might add some color to it.
As as we see the market on a on a macro scale.
As Rick mentioned in his remarks. The first piece is China will certainly be down I mean, who by province has been down so China's.
He will be down we also expect that they will focus that production that they do make in the first quarter certainly on.
On internal or domestic requirements, and then they'll make up some of that in the second half and we expect that some of that will come back in that it is needed for mobile.
On balance in terms of new supply as I said, we have new supply from Rod Martin as that ramps up.
CP has pushed back their new faas acid capacity to the second half of the year, but ultimately this year. We expect they will be also bringing on new capacity per our our expectations. So.
We expect in that case that we will have a relatively.
Most market with out.
Any changes from China, but strong growth demand will take up all of that and then some which will need from legacy to China and the second huh.
Chuck I think the only thing that that I would add is that on the demand side, we see two real clear pushes for increased demand. One is in North America, where we're going to have 10 to 15 million acres of production brought back in compared to 19 and.
And that in turn will will improve demand in North America and the second is in Brazil, and South America, where grain prices and the currency are pointing farmers towards a big second crop corn, there's challenges with weather as there always is but.
The fibers are following the economics and we've seen some of the Q4 demand that was sitting still in Brazil, now get pulled into Q1, so it bodes well on the demand side.
Thank you next question comes from the line of Adam Samuelson from Goldman Sachs. Your line is now open you may ask your question.
Yes. Thank you good morning, everyone.
I was hoping it maybe.
Taking a bit more into the phosphates demand side this year.
Two parts one maybe this is for Rick.
Any view at this point kind of how much if any phosphate and I guess potash demand in China could be impacted.
By by the supply disruptions and logistics disruptions in the first half of the year. I mean is there risk of demand loss and then second on the North America point, you alluded to strong uptake and depletion of your out inventories in recent months.
In response to low prices is there any concerns they you've seen distributors refill at low prices and pull forward demands from the spring. Thank you.
Okay. Thanks, Adam I will hand, this over to Rick right away, but let me, let me make a comment on the Chinese situation.
Because I think.
The Chinese government.
Is going to be highly focused on making sure.
And that they can.
Have a good planting for their own needs and to make sure that food accessibility and.
Food security is correct, but there is a real risk here, but with the idling of plants and the.
The curtailment of.
Transport, but they're going to have a tough time getting all the product to the farm that they need to get so we do see a risk in this but there will be song.
The man.
Disruption at least in the first half of your because of the.
The big impact of this fires.
Now I'll just take it from there John Good morning, Adam.
It is as we look at at China demand I think joc hit in that there will be disruptions in in planting and.
And usage.
But the Chinese government and again this morning in China.
Right.
Repeated a mandate on the importance of prioritizing movement of fertilizers and agricultural products.
To the to the blenders and on through to the distributors. So they're going to do everything possible to make sure that what gets produced gets moved to the farmer.
And if somebody has a view of of just what the impact of all that.
They've got to a better view inside than we do and we believe we have very strong view.
The second is north American.
Dealers and distributors have stepped into the market in a nice way in the last kind of two months almost and it covered up there's things that they that the volumes if they needed to just effectively take care of Q4 and get ready for the spring season.
And it was that the it's a good time for us to kind of explain why we brought back up bartow.
If we look at what's in the in the distributor inventories. They are about normal for this time of year, when we look back to our own facilities.
We were getting empty theres a bit of an axiom that you can't sell other than empty production warehouse. So we had to bring the plants back. It says that it's that simple and we've seen prices continued to strengthen during this period and we're seeing prices in Brazil for MLP in the Threethirty.
Five to 340 range and we believe there's opportunities for that to strengthen and we've seen a big.
A big push in North America, despite some loveliness as imports come in.
We're selling to 85 barges NOLA.
And if you take a look at Brazil prices it would equate to something near 304 NOLA. So all indications right. Now we've continued to have we're going to continue to have to move product into that marketplace to assure we meet the spring demand.
Let me just out of clarifier, there Rick potash was really following almost exactly the same process and in China. The movement will be from the ports to the blenders and then to perform so both those.
Oddities, we'll be moving much the same way thank you.
Thank you next question comes from the line up Steve Byrne from Bank of America. Your line is now open you may ask your question.
Yes. Thank you in your appendix you have a couple of charts that show your your estimates of.
Shipments of P and K by region, it's very useful.
But if I if I try to eyeball the numbers in say north American shipments, particularly for phosphate.
The decline in 2019 seems relatively modest compared to what I would have thought given the level of weather driven disruption in demand.
Can you comment on.
No what portion of those shipments were from you versus imports.
Is that has that changed versus historical.
Ratios and would would that level of decline.
Be commensurate with the level of price decline that you saw in 2019 and if not.
What do you think what do you think was driving that that level of price decline in your outlook for a inflection.
Okay. Thanks, Steve Let me try and touch on that and then how to direct for a little bit.
Extra yeah. The 9.4 remember that as a number that is shipped months not necessarily what went to the ground. So we've talked about a bunch about how much the inventory buildup was and how much inventory buildup was nominal in our customers warehouses, but along the river and throughout the system.
As I think was mentioned in the in the prepared remarks, the long tale of the fall application season has largely drawn down a lot of that inventory now and so while it shows a shipment number that is closer to.
Our normal the actual application number was much lower and of course, that's exactly what led to the price declines and.
Where we just proportionately absolutely mosaic was disproportionately hit because the imports came in irrespective of the market conditions and the inventory build.
Rick.
And.
Sorry, it yes, Steve Good morning, I think the that Chuck has hit the majority of it I think your question is what drove the pricing to where it was I think the the weather conditions as we kind of talk to boat drove pricing to where it was.
An excess of imports coming to the to the us Gulf compared to what the demand was at the farm level that displacement of time really put the pressure on on pricing at the Gulf.
And so as you look for demand increases for 2020 is we've got in the model for North America I think what are the things you'd have to take a look at is the ratio of P and K to the to the commodity prices it farmers, followed money and where the where.
Suite in potash prices are today, we'll certainly lend itself to increased farmer applications on a per acre basis, and that's the only other point I'd add to what you said Chuck.
Right.
Thank you next question comes at the line of Don Carson from Susquehanna Financial Your line is now open you may ask your question.
A question on some of the new data that you're presenting on realizations.
Phosphate page you got to prices Fob mine senior to 66.
In.
The fourth quarter.
Is that kind of how long before this recent price increase we've seen what will translate into higher realizations for you and also the to 66 were well below some of the benchmarks was that due to some index pricing that that was.
Resulted from from all these imports coming in so again, just kind of the timing of more price realizations in the market today when you get them.
And what's your outlook would be for for first and second quarter price falls.
Sure. Thanks, Don I'm going to hand that straight to Rick I think we've had actually had some sales recently in Brazil that with significant significantly push that price and as we realize those right you've got to better.
Yes, I think that the timing done you you've hit a couple of key points. One is the index pricing model.
Coming into North America or into NOLA. They.
Net debt exacerbated.
This situation that we're dealing with we think that the sellers into into NOLA are have learned a fair bit and.
And there isn't going to be or that there should not be the the amount of Ah of index pricing and in fact indexing into a market that strengthening lake we're seeing today probably works to.
Works more to the producer advantage in that it does to the to the buyer and so from that perspective, and so that.
You talked about about pricing, we believe that as we move forward into the second quarter that.
You're looking at least senator golfer noble pricing in the 300 dollar a ton range with some opportunities to to move from there and we're looking for the Brazil price at right now we've we've sold some three fifteens into into Brazil for EMV.
Pete.
Kurt Street, Threethirty Fives, I should say and we're looking for.
The three forties and there's opportunities to move from there.
Yes, yes and Don.
This is Glenn I'll, maybe add a couple of things here because I think part of your question was about kind of when do we expect to begin realizing.
The change in pricing and I think that what you're touching on is something that's really important.
For investors to consider when their modeling our company and that is the lag between when you see.
A liquid benchmark prices move versus when you actually see it in our financial statements and as I mentioned in the prepared remarks, we'll be putting out a.
Kind of an investor education deck and that is one of the topics that will be.
Addressed is how people should think about a lag in realizing prices and not only on the revenue side, but also on the on the raw material cost I mean in general kind of a rule of thumb is there is typically call. It a two month lag between when you see prices move and when you actually see it.
Show up in our financial statements.
And then one other thing that May assist people on this front, just a monitor that lag and to see things as they realize.
Our some of our monthly disclosures that we've talked about putting out going forward around I'm not only volumes, but also realized revenues on a monthly basis. So again that will be another data point that people can can reference to to calibrate that lag.
Thank you next question comes on the line Vincent Andrews from why did the timely your line is now open.
Hey, Good morning, guys. This is chairman Rosenberg on for Vincent just question on potash obviously.
A lot of capacity was taken offline. This year now you indicated content is going to remain offline.
I'm just wondering your thoughts on kind of the other players you know if there is risk that they all bring back their capacity this year that they curtailed and just considering you know the greenfield tonnage we're expecting from Eurochem this year.
Can the market support all of those tons this year. Thanks.
Thanks, Jeremy.
Yeah look we do expect some about tonnage to come back I think each company, who curtailed in the fall, we'll look at the demand expectations. They have for for the spring going forward and and make sure that they have sufficient product for for the needs.
On the basis that the demand recovery will be in the range. We believe in the range of 2.9 million tons.
Even with the ramp up of the other operations.
We still expect there to be some deficit, the which will have to come from the existing players bring back new production in terms of our decision for Kalonzo I'd just like to give you a little color on that the way. We're looking at that is the combination of inventory and.
Passed the ramp up but esterhazy, which has been as we've talked about significantly.
Better than what we originally plan some eight years ago.
Has allowed us to meet what we believe as market needs without without the calonge they operation for the near term.
We leave that in what I would call standby condition. So that if the markets do improve more than what we are expecting that we wouldn't be able to bring that up at some point in the future.
Thank you next question comes on line PJ Juvekar from Citi. Your line is now open.
Hi, Good morning. This is kinda marthaler on for PJ.
Just kind of linking back to an earlier question around sulfur.
With with phosphate raw material prices coming down one of your competitors had recently said that that could be a price headwind this year.
So how do you think about that impact and the broader context of all the phosphate supply demand factors.
We've been talking not in the call I for 2020.
Got it thanks Kindle look.
The way I would suggest.
We look at it I would suggest you would look at sulfur pricing is in a weak market. It is hard to.
It is hard to how the consumer absorb the price of the raw material changes.
A stronger market.
We often expect that the raw materials are basically a a.
They flow through so what I would.
What we look out is what we would call distraught the stripping margin, which is really what is the margin without the raw materials in it and so we're not way yes. It may the price may come down as to solve for price goes down, but our profitability will not change.
Thank you next question comes on the line Angela from RBC Capital. Your line is now open.
Hi, good morning. Thanks, So John in your prepared remarks, you mentioned that global potash prices.
Mike diverged a little bit from China.
Could you elaborate a little bit on that.
And does this indicate maybe.
A higher degree of uncertainty around the timing of a contract settlement. This year. Thank you.
Yeah, Andrew I'm. Thanks for the question I will talk about this little bit I think its worthy of Rick mentioned talking a little bit on this as well, but let me start by saying the the Corona viruses created a situation I mean, if you think about it the travel restrictions to China I mean, it is impossible for.
Sales teams and marketing teams to even go to try not to have discussions so those discussions while they're probably going on are going on by phone as such there is added uncertainty as to when a China contract might be side as such the needs in the rest of the world will continue whether that be.
South America for their second crop for North America for.
Indonesia, Malaysia, all those areas are going to need potash soon and so if there isn't on India are sorry is that there isn't a Chinese contract.
There there may have to be a different process for this year.
Rick you want to talk with them.
Yes, Chuck Good morning, Andrew I think as we look at.
At this.
The China contract is going to be is going to be driven by how fast those port inventories can be drawn down.
Because there's no more inventory saleable inventory instead being sent to China. So were below two and a half million tons, we see that being drawn down probably accelerating as this direction from the government to move inventory into position to the blenders and onto the farmer.
Yes.
His was reinforced this morning.
So we think that has an impact the other markets that doesn't get talked about that is really really important and saw some significant decreases in 2019 or is the Malaysia, and Indonesia market and frankly palm oil prices have jumped up quite considerably they corrected re.
Recently, but the returns are there for palm oil producers and we see significant demand growth. There. It's one that we don't talk about enough and and maybe gets lost in the noise of Brazil, China in North America, but it's a significant market and will provide significant opportunities for growth in htwo.
And just let me add too if we go back to last year, India settled in the spring without.
The Chinese and then again in the fall without the Chinese so.
It doesn't say that.
The Chinese isn't an important benchmark market, but it does say that the other needs will at some point take precedent and they will have to deal with their own.
Needs and their own countries.
Your next question comes on the line of John Roberts from you'd be asked your line is now open.
I didn't know what your line is now open you may ask your question.
Oh excuse me can you hear me now.
Yeah.
Yeah in that Investor education deck that you're planning could we get a sample of what a monthly update would look like say what you would have reported in mid December for the fourth quarter.
Clint.
Go ahead.
Hi, John It's quite know I think Thats certainly is something that we can include in there.
Investors.
Okay, and then maybe you could refresh us on the earn out that valley head on the front loves Aontais business, obviously, the performance and the recent quarters has been much lower than expected.
Yeah. The simple answer answer there is it wasn't actually based on business performance. The business performance has been probably better than what we expected it was based on.
Currency and DAP and mop pricing. So it does the payout is now complete the payout will be zero.
Thank you next question comes from the line of Michael Piken. Your line is now open.
Yes, Hi, I'm I, just wanted to talk a little bit more about kind of your longer term strategic plans for your Florida might typically I know youve talked about lowering your rock costs conversion costs. I mean, if you could walk us a little bit through the cadence I know you had killed slide they're charging that.
Hi, Dan maybe $2, though by the end of 2021 on rock, but maybe you could just walk us through maybe like a five year outlook and what the trajectory might look like and how you think long term competitiveness of value to Florida operations.
Yeah. Thanks, Michael.
Yes, I think that's an important question as we sit at the very bottom of a market I'm not that becomes a question obviously.
If we look going forward. If you go back our 21 target has been 2021 target that we talked about it investors day has been to hold our cash costs of mind rock flop over over the time frame. So basically I think the number we came to you with was about 39 bucks per tonne likewise, our cash.
Conversion costs as we go through some of these transformations, we expect to go down into the mid Fiftys to high Fiftys. So you know long term.
We we with our transformation efforts can really drive a significant costs out of our our system compared and if we look at our basically our rock plus conversion.
Cost we believe we're in the in a best cortisol position and certainly overall, we're we believe we're firmly in the.
Bottom half of the cost curve and probably in the bottom third of the cost curve as such it through market. This is a pretty attractive business, we intend to.
To improve that business to make.
Make it even better.
Next question comes on the light up until our Jackson from BMO capital. Your line is open.
Hi, This is Barry Murphy on for Joe. Thanks for taking my question. Firstly, thanks for the sensitivity information right. That's very helpful for the phosphate segment, if I say prices in Twentytwenty average the same as 2019 levels, but EBITDA between Canadian higher because of the plant city cost savings or how would you expect huh.
Yeah, that's trend.
Pricing environment, even directionally.
I'm going to how about the Clint to give that I think that's part of our guns broker.
No. It is and good morning, I think that would be kind of the starting point would be the $20 million that we spent on idle cost at plant city last year, obviously that will not affect us. This year. So you would see an improvement there.
And then I guess, the other things that you would need to factor in not only.
Finished goods prices, but.
Also update raw materials also update volume expectations.
And and an overall cost targets it to the extent that you would adjust any of the volume targets as far as sales also.
Think about what that does to cost per tonne also think about what that does to idle costs relative to this year. So I would say that those are just a number of things to keep in mind as you as you model that business.
Yes, let me just had one thing before we had off because I think we're running out of time very quickly which is look. This this year. We also absorb a bunch of costs through idling arc plants, we don't expect that to repeat itself. So when you look at our costs you will expect them to be more in line with long term improvements because we have made under.
Like improvement so let me summarize before we go here up markets are improving and we expect global demand for both phosphate and potash this year to increase can be strong.
And also we expect that to continue into the years ahead.
As a company we have made tremendous progress we're managing capital effectively we're maintaining our market discipline and taking actions to permanently reduce our cost base well growing long term value so with that.
I'd like to say, thank you very much for listening to us and in terms of the questions that you may have with respect to the modeling Lucy and Laura will be available to answer. Your question. So please go ahead have a safe and how happy day, we'll see you soon thanks bye.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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