Q4 2020 Corteva Inc Earnings Call
Please standby.
Good day, everyone and welcome to the core kind of fourth quarter 'twenty and 'twenty earnings call. Today's call is being recorded at this time I would like to turn the conference Board of Jefferies. Please go ahead.
Good morning, and welcome to Court Cabot's fourth quarter 2020 earnings conference call. Our prepared remarks today will be led by Jim Collins, Chief Executive Officer, and Greg Friedman Executive Vice President and Chief Financial Officer. Additionally.
Additionally, Tim Glenn Executive Vice President and Chief Commercial Officer, and Raj on the jewelry Yep Executive Vice President of the business platforms will join the Q&A session.
We have prepared presentation slides to supplement our remarks during this call which are posted on the Investor Relations section of the <unk>.
What type of website and through the link to our webcast.
During this call we will make forward looking statements, which of our expectations for all of our statements about the future. These statements are based on current expectations and assumptions that are subject to risks and uncertainties actual results could materially differ because of the factors discussed and the comments made during this conference call and and the risk factors sections of our.
And 10-K forms 10-Q, and the other reports and filings with the Securities and Exchange Commission, we do not undertake any duty to update any forward looking statement.
And we provide of pro forma basis discussion and our earnings release and slides and.
Unless otherwise specified.
Historical financial measures presented today on a non-GAAP or adjusted basis and excludes significant items and other charges. The net benefits, which can be found and the schedules that accompany our earnings release.
And our Investor Relations website, you can find our earnings press release, and our supplemental financial summary, slide deck, which is intended to supplement our prepared remarks for today's call and provides a reconciliation of differences between reported GAAP and non-GAAP financial measures. The non-GAAP financial measures provided should not be considered a substitute for the measures of financial performance prepared.
Third in accordance with GAAP.
And it's now my pleasure to turn the call over to Jim.
Thank you, Jeff and welcome to the participants joining the call today.
Starting on slide four.
And I reflect on the year 2020 was the year of profound societal and economic disruptions globally.
Despite these challenges and I'm extremely proud of the continued resiliency of our company.
Global teams have worked aggressively to keep our employees and customers safe and our.
And our supply chain is open and our growth commitments on track our.
And our progress as a company and managing through the pandemic and other disruptions over the last year confirms the strength of.
And the durability of our strategy.
Underpinning our progress is our strong organic sales growth for the full year, where our teams delivered gains in both seed and crop protection and across all regions.
Transforming our cost structure remains a priority for Teva to deliver on our targeted earnings growth, we demonstrated our commitment to cost reductions of 2020 by managing spending and delivering on our productivity programs. These savings were mostly offset some headwinds that we had anticipated such as higher input costs and.
The investments to support growth in addition to unfavorable currency.
Despite these hurdles we delivered solid operating EBITDA improvement for the year.
Turning to the balance sheet, we continued to strengthen our financial position as we ended the year with cash and investments of roughly $3 8 billion.
Further our cash net of debt improved by approximately of $1 billion over the prior year as a result of the organization is focused on disciplined capital deployment and.
Strong execution on working capital productivity.
The company made progress on returning cash to shareholders with more than $660 million.
Returned via dividends and share repurchases.
Looking ahead, we see 2021 as the year in which we will accelerate on our path and expect the capitalized on the significant momentum we have built as the.
Investments, we made since 2017 and begin to drive substantial earnings improvement.
Our entire team is focused on executing to deliver further value for our shareholders from a number of in flight strategic initiatives, including the ramp up of enlist and the launch of Provence and the U S retail channel and the continued advancement of our crop protection pipeline. Following 2020, we obtained more.
And then 140 registrations globally for new active ingredients and formulations that we were.
We'll start selling and 2021.
We recognized that our 2020 performance was not where we need to be in terms of realizing the full operating leverage from organic growth and productivity programs and our earnings.
From 2021, and I'm confident that we have made the necessary adjustments and are well positioned to deliver 15% to 20% operating EBITDA improvement for the year and.
Excluding more than 200 basis points of margin improvement as the organization remains focused on executing on our targeted productivity actions.
On capital allocation you may recall that we discussed last quarter that we plan to accelerate the completion of our $1 billion share repurchase program by the end of 2021, which was six months ahead of our initial plan.
Given our current cash position and outlook for 2021, we expect the complete most of the repurchases by mid year, while maintaining our strong balance sheet and investing for growth.
The bottom line, we view 2021 is a big step forward for Teva and I am confident we remain on track and laser focused on delivering on our mid term targets.
Turning next to slide five and briefly touching on 2020 performance for the total company.
For sales strong organic growth in both segments and across all regions led to improved performance compared to our revised guidance with.
And with double digit organic growth for the year and both Latin America, and the Asia Pacific.
Continued penetration of new and differentiated technology drove the increases, including 2% pricing and our corn and soybean portfolios globally.
On operating EBITDA, and we delivered 5% improvement for the year exceeding our expectations compared to our revised guidance as organic growth and cost and productivity actions were partially offset by higher input costs and an unfavorable net currency impact.
On currency net of pricing results were better than we had anticipated for the year as teams delivered strong execution on local pricing coupled with favorable movement in exchange rates late in the fourth quarter.
As a result, despite a 15 basis point decline and the fourth quarter on the absence of prior year divestitures, we extracted 33 basis points of margin expansion for the year, establishing a strong foundation for solid growth moving forward.
Shifting to the discussion to the market backdrop on slide six.
While more resilient and some other sectors of the AG markets based upon the expected impacts, resulting from the COVID-19 related disruptions throughout the year, we observe tremendous volatility, including the commodity demand levels acreage levels and foreign currency exchange rates.
As our business is highly sensitive to these movements, we are closely and continuously monitor market conditions and remain agile to adjust our actions accordingly.
As we entered the fourth quarter fundamentals shifted and the outlook began to improve.
Out of the demand has stabilized considerably with constructive trends out of China on grain purchases from the U S.
This trend coupled with lower yields for 2020 U S crop and uncertainty in Brazil has led the higher commodity prices.
Which also leads to improved outlook on farm income levels, resulting in the highest levels, we've seen and.
Seven years gum.
The government stimulus payments and the U S are also supporting farm income improvement.
So after two straight years of unprecedented impacts from weather and the pandemic. We are pleased to see signs of a more favorable market environment for 2021.
Taking our operational momentum into consideration, we are encouraged of strengthening AG fundamentals and additional support to our expectations to further accelerate our strategy and deliver strong growth and 2021.
Now moving to slide seven for full year highlights on the top line performance from our teams around the globe.
And North America, we delivered organic sales growth of 4% for the year powered by high performing technologies like chrome corn seed, which provides growers and approximate eight to 10 bushel per acre yield advantage over comparable products.
And soybeans as the recovery and planted acres helped volumes, we drove 2% pricing with a yield advantage lineup and disciplined execution by our teams.
We also continued to make progress and accelerating the ramp up of our enlist system.
While we entered 2020 expecting enlist <unk> soybeans to represent just 10% of our soybean volume. We finished the year well ahead of those expectations at approximately 17% of our volume and on 20% of total U S soybean acres.
And that has helped drive strong early demand for enlist herbicides, which delivered $140 million in the fourth quarter sales more than double the prior year period.
The full and Lis system delivered approximately $440 million and sales for the year and we could not be more excited about how the system is gaining traction in the market.
And Europe Middle East and Africa organic sales grew 8% and 2020 on strong demand for new and differentiated crop protection products, such as <unk> and Rins score of herbicides.
<unk> is the product we are particularly excited about as it progressed through the European regulatory process faster than any product I can remember in recent years and really exemplifies our advantages and sustainable chemistry solutions and area of growing demand, where we have highly effective products and the market and and our pipeline.
And seed we were able to drive volume and price gains as a result of our route to market expansions in Russia, and Ukraine, as well as share gains in corn.
While significant currency volatility from the Brazilian reais weighed on net sales in Latin America, we delivered 17% organic growth for the year.
Here, we executed on market share gains in both seed and crop protection and gained meaningful market share and the Brazil. The freemium market. While we continued to drive adoption of our novel crop protection products the <unk>.
Teams displayed strong execution on managing the volatility of local currency, which is evident in the $150 million and pricing for currency in Brazil for the year.
And Asia Pacific, we realized 13% organic sales growth compared to prior year on both volume and price improvements.
This progress is another proof point of continued penetration of our new technology as we drove the adoption of <unk> and <unk> herbicides as well as other advantage products like the spinoffs and insecticide.
During the period, we also benefited from strong demand for seats and India.
Moving to slide eight for a more detailed review of our 2020 operating EBITDA performance.
We delivered strong price mix benefits of $210 million and volume benefits of $160 million from the continued penetration of our new and differentiated technology across all regions representing important progress on our targets.
Through these actions, we delivered $100 million and earnings improvement on the sales growth of $250 million of new crop protection products in 2020.
At the same time, we drove seed share gains in Europe, and Latin America seed pricing improved operating EBITDA for the year led by a 2% improvement globally for corn and 2% improvement for soybeans in North America.
On cost, we delivered approximately $30 million and net operating EBITDA improvement for the year.
This improvement reflects execution on the $230 million and productivity and cost actions, which were largely offset by higher input costs and reinvestments to accelerate future growth and profitability.
Other was a headwind for 2020 and predominantly reflects the impact of asset divestitures and 2019.
Lastly, gross currency impact the operating EBITDA was approximately $330 million before pricing and was predominantly due to the devaluation of the Brazilian reais.
The offset this headwind local teams delivered approximately $150 million and pricing for currency.
<unk> and the net currency headwind of approximately $180 million for the year.
Our growth initiatives are taking hold and we continue to take actions to reduce costs and drive productivity across the organization.
Yesterday, we announced the restructuring program that includes facilities consolidations footprint efficiencies and head count reductions.
This is part of delivering on our broader productivity programs.
We are confident the hiccup.
Reached the point, where the investments we have made over the past few years, we will begin to accelerate earnings growth and 2021 and beyond.
Now I'll turn it over to Greg to provide more detail on our results and the 2021 outlook.
Thanks, Jim.
The slide nine and a more in depth look at our performance and the crop protection segment organic sales for the fourth quarter grew 21% driven by an 11% improvement and volume and a 10% improvement and price robust demand for enlist herbicides, coupled with fall applications of <unk>.
The night and North America drove organic sales up 31%.
Over prior year.
Strong demand for our new products and pricing actions to offset currency also led to organic growth of 21% and Latin America, and 17% and Asia Pacific for the quarter.
Coupled with our productivity actions this growth drove an approximate 70 basis points operating EBITDA margin benefit for the segment and the quarter. Despite the net impact of asset divestitures and 2019.
For the full year organic sales increased 11% supported by continued growth and new products and in our differentiated <unk> and insecticide, both up double digits on an organic basis over prior year.
This growth was partially offset by our strategic decision to phase out from <unk> and ramp down of selected low margin third party products.
Overall crop protection results reflects price and volume gains and all regions, showing the balance and diversity of our new and differentiated products globally as well as our ability to growth organically above the market.
Despite the organic sales growth operating EBITDA for the segment has declined for the year due to the impact of currency, coupled with higher input costs and investments to support growth and the impact of asset divestitures and 2019.
Of course, as we mentioned last quarter, we have taken several actions starting back at the completion of the merger and 2017 to streamline our manufacturing operations to drive better operating leverage and crop protection.
Given the regulatory approval requirements and each of the jurisdictions, where we sell our products. It takes several years for the benefit of our asset footprint actions to impacts of the bottom line, we should begin to see those benefits in 2021.
On currency, we have recognized approximately of $150 million and pricing for the year to offset the weakening Brazilian real and.
And pricing will continue to be of strategic lever for us going forward.
Moving to the seed segment on slide 10, and organic sales for the fourth quarter were up 9% driven by strong suffering of corn sales in Brazil, and deliveries and North America and Europe on an early start to the season.
Operating EBITDA for the segment declined for the quarter due to the impact of the currency and higher commodity costs.
Full year organic sales grew 6% due to the soybean acreage rebound and improved price and North America market share gains and Brazil, and Europe, corn, and strong volume and price gains and new products, particularly chrome power core ultra and enlist <unk> soybeans overall.
Price and volume gains coupled with productivity actions drove an approximate 190 basis points of operating EBITDA margin benefit from the segment for the year.
Turning now to slide 11, and I'll provide our full year guidance for 2021.
Starting with net sales and we expect the reported net sales to be between $14, four and $14 6 billion up roughly 2% over prior year at the midpoint of the range with organic growth of about 3%.
This primarily reflects the continued ramp of new products globally, and both our crop protection and seed segments, partially offset by the strategic decisions. We've made in our crop protection portfolio to further drive margin improvement.
The operating EBITDA, we expect to deliver between two four and $2 5 billion and improvement of 17% year over year at the midpoint.
With our expected top line growth and continued focus on delivering cost savings the commitments, we expect to improve operating EBITDA margins by over 200 basis points and a total company basis.
Turning to operating EPS, we expect to deliver between $1 85, and $1 95 per share, which would represent a 27% improvement over 2020 using the midpoint.
We have provided supplemental information on our guidance and the appendix of our presentation.
Focusing on operating EBITDA Slide 12 provides our key assumptions.
Starting with seed global demand for agricultural products continues to be strong if new crop prices sustain current levels and weather remains favorable for a normal spring planting pace, we anticipate combined U S 2021.
And soybean area will increase between five and 8 million acres.
Just on relative commodity prices, we expect that the planted area increase will be heavily biased towards soybeans.
We will refine our assumptions when the market data is available as part of the March prospective planting estimates published by the USDA.
In terms of analyst expectations, consistent with what we shared on our third quarter call. We believe we can have greater than 35% of our units and enlist E. Three next year and anticipate as much as 30% of the soybean units and North America will carry the enlist and <unk>.
III trail.
Our seed pricing, we expect to maintain our 2020 momentum and continue to extract value per yield advantaged technology, and corn globally, including further penetration of chrome and our core and lineup.
Turning to the crop protection, we expect to deliver continued growth and our new product sales. This growth is underpinned by strong market demand for enlist and <unk> service sides and continued penetration of ice class and insecticide globally.
And in total we expect new crop protection products to contribute approximately $300 million and incremental sales growth during 2021.
With respect to our differentiated technologies, we expect to release and additional 10% of spin of <unk> capacity and 2021, resulting in approximately $80 million of additional sales opportunity.
As demand will continue to exceed supply exceeds supply for this product and a growing targeted segment of the market.
As I've mentioned, we have made strategic decisions to phase out of pure fast and the ramp down selected low margin third party products. While these changes are accretive to our margins. We do expect an approximate $75 million headwind to earnings in 2021 as a result of these decisions which is.
Included in our volume assumptions.
Moving on the cost we are targeting approximately $150 million and net cost savings and 2021, which includes $250 million and savings from our productivity programs, mostly related to the manufacturing and supply chain rationalization work, we have underway and crop protection.
We also expect the majority of our Covid related savings and 2020 will be sustained in 2021.
These savings will be partially offset by an approximate 100 million headwind and seed input costs as a result of higher grower compensation cost due to rising commodity prices, along with unfavorable yields and Europe.
Finally on currency, we expect the headwind in 2021, given the change in the year over year rates for the Brazilian real and seasonality.
Pricing will continue to be of lever to offset this impact as our commercial teams and Brazil actively price for changes in local currency.
We anticipate we will recognize approximately 100 million and pricing for the year, reflecting of rate of approximately $5 50.
Through our dynamic pricing coupled with the financial instruments, we have in place we expect to further reduce volatility and our guidance and we will continually monitor movement and local currency rates as that could more directly impact our ability to price for currency.
Turning now to slide 13, I'll provide an update on our capital deployment targets over the mid term as a result of our strong operational performance throughout 2020, coupled with effective working capital management. We ended the year with approximately $3 8 billion and cash and investments.
That's after returning more than 660 million of shareholders this year through dividends and share repurchases.
Building on this momentum we expect to generate between three and $3 5 billion of operating cash flow and total for 2021 and 2022 combined largely driven by earnings growth and continued focus on working capital productivity.
Taking a look at the potential uses for cash we have outlined several key priorities. Our first priority is to maintain a strong balance sheet with financial flexibility to support our industry, leading business model, which will allow us to fund the investments in the business annually. These.
And these investments will reinforce and renew our innovation and market capabilities.
We will also continue to explore paths to optimize our portfolio.
Through opportunistic bolt on M&A.
The <unk> fruit and vegetable seeds digital technology and biologicals.
Finally, we are committed to accelerating the return of cash to shareholders through dividends and share buybacks in short, we see tremendous opportunity to return capital to our shareholders over the mid term.
As you can see we view the cash generation capabilities of this business is very strong and we are excited to share more details as we move forward and our journey with the.
I'll turn it back to Jim.
Thanks, Greg and turning to slide 14, I would like to emphasize a few key points before we take your questions.
Made tremendous progress in the short time, we've been and independent company, but we know we have more work to do.
Our recent results and guidance indicate we are well positioned to accelerate value creation, and 2021 and beyond including progressing on our products through the ramp up of our proprietary enlist system and strengthening of our advantaged multichannel multi brand route to market.
Continuing to transform our crop protection portfolio and enhance our higher value product mix and further streamlining cost and disciplined execution on our productivity actions. We will also maintain our balanced capital allocation program continuing to return cash to shareholders, even as we invest and long term.
The book growth.
What kind of his board and management team are fully aligned on our strategy to deploy our competitive advantages to deliver increased value that is durable.
Our plan is solid we are executing and it is working.
At the same time, we are always open to perspectives the benefit all of our shareholders. The core Teva and we believe and the fundamental importance of listening and incorporating ideas that will help advance our mission and our objectives and we continue to do that.
While I am pleased with our progress I am not satisfied with a relatively flat earnings over the past three years.
We have learned we've adapted and are now very well positioned to accelerate our growth and deliver on the tremendous opportunities. We have created through our targeted investments and disciplined emphasis on cost and productivity.
So as I consider our path ahead, there is no doubt.
We have aligned our culture and gain the trust of our customers.
At the same time, we have the right products and our portfolio transformation is underway and.
And we have the productivity programs in place to deliver our future.
Through disciplined and focused execution. We are confident this plan will deliver meaningful earnings growth and margin expansion in the near term and significant sustained long term value for all of our shareholders and.
And importantly, which core Teva fully on track to achieve our mid term targets.
I'll hand, the call back to you Jeff.
Thank you Jim.
Now, let's move on to your questions I would like to remind you that our caution on forward looking statements non-GAAP measures and pro forma financials apply to both our prepared remarks and the following Q&A operator, please provide the Q&A instructions.
Thank you if you would like to ask next question. Please signal by pressing star one on your telephone keypad, if youre using a speakerphone. Please make sure. Your mute option is turned off to allow your signal to reach our equipment. Once again, everyone that is star one on your phone also please limit yourself to one question.
We will take our first question is from Joel Jackson with BMO capital markets.
And good morning, everyone.
And Joe.
Jim and Greg and you look at your 2021 range and on Slide trial could you maybe outline where you think the guidance is most conservative and where do you think is the most of the gotcha. Thank you.
Great. Thanks, Thanks, Joel and.
And yes, as we've said and the opening comments 2000, and 'twenty 'twenty. One is the big step forward for us and I really believe we've reached and acceleration point given the investments and the strategies that we've been putting in place since 2017 and believe they will drive substantial earnings for the years ahead and.
That's the starting point for 'twenty, one and I think you've got to look at that fourth quarter momentum that momentum is there and it's real and it gives you a strong sense for where that growth is going to come from so as we guided for 'twenty, one and you see on the chart of 15% to 20%.
The improvement in EBITDA, and that's of 200 basis point improvement and EBITDA margin. So I believe that guide is strong and it's realistic and as.
<unk>, let me give you some proof points and why I have some confidence in it.
Two thirds of the <unk>.
<unk> and the business. This next year is going to come through our crop protection business and that's tied to the productivity improvements that we put in place of number of footprint reduction.
The reduction projects as they have started to flow through cost of sales and you can really begin to see that and our CPE margins you add to that the continued ramp up of either the new products that we've talked so much about.
About 300, or so million dollars of.
The incremental new product.
Sales and then you start to unleash the spinouts and capacity that we have.
<unk> been investing in and.
So overall, you get about $400 million of growth there and.
And then all of that on crop protection is net of now the strategic decisions that we made to exit a number of key products. So while those decisions have been headwinds in the past and we've got those behind US now and so the numbers, we're talking to you about our hard part of net numbers and.
And then about a third of that improvement next year as types of our seed business and <unk> really got to start that discussion, but just looking at Latin America, the tremendous momentum carry.
And the fourth quarter, and then you add to that expectations of five.
And five to 8 million acres of new crop coming back in the corn and soybeans in North America, probably heavily weighted to.
And to soybeans, but it's real out there you can see of tied to the really strong demand in the marketplace and that's been reflected and commodity prices.
And then the other confidence and I had the.
Seed business with respect to the pricing and you looked at what we delivered in 2020 kind of 2% price improvement and climb and 2% price improvement and soybeans.
Globally.
We've got a track record now there and so we're going to count on that track record and we will have a little headwind and the seed business tied to commodity prices and cost cost of sales and the.
And don't forget about provider as we're thinking about the bridge next year, we're just scratching the surface of what what per bonds and.
And as well as and list is going to be able to deliver for us. So.
I think this is a strong and realistic guidance of 2021 and I have a lot of confidence and this plan and my team that we can deliver that.
We'll take our next question is from David Begleiter with Deutsche Bank. Please go ahead.
Hi, Thank you good morning.
Good morning, all of your 2022 target, which implies about and I think about $2 95 billion at the midpoint.
Bruce that roughly $500 million increase versus 'twenty, one piece of it.
The cost of new products productivity et cetera.
Great David Thanks for the question and Youre right and our our outline of our prepared remarks today, we really are affirming our midterm targets and that's that kind of 12% to 16% EBITDA growth using the 2019 as of.
As the baselines and wanted to provide guidance for 'twenty and 'twenty two specific guidance for 2022.
But we do see that continued momentum that I was just talking about that we have going into 'twenty and 'twenty, one and so it's a little hard to sit here today and predict the market and 22, but we can't talk about the levers that are still going to be within our control.
Given the confidence to confirm the midterm target and.
And starting to seed with really and list and in 2021, and we're just scratching the surface on the margin lift that.
The risks and deliver for us by 2022, we're really in two.
And as a noticeable improvement in net royalty expense as we not only ramp up the top line revenue, but we can ramp up the corporate.
And the proprietary portion.
Of those sales that are in the core Teva Germplasm, and then we're going to continue to see improvement and the rest.
Of our portfolio and.
A few other areas and then I mentioned ours needs and keep reminding folks about the bonds at the end.
One was just going to be a good year of good start the year for us by 2022 will allow us to continue that momentum into the retail channel with the performance.
Crop protection.
The main story there is momentum we delivered $250 million of new products.
The incremental revenue and 2020 'twenty, one is going to be another strong year with about $300 million of incremental from.
From from those new products, where the 140, new product registrations that we receive right here at the end of 2020 that'll that'll just start having momentum in 'twenty, one and you'll feel that again in 'twenty two and.
And then on top of the top line revenue that we'll get from from crop protection by 'twenty, two you're really starting to see the compounding effects of better margins on that new chemistry as higher volumes flow through that same asset base and take off and start to spread the fixed cost over a much.
Broader base, so youre seeing some of that and 21.
Those new product sales continue to ramp it shows up and 22 on top of that the further improvements that youre going to seed from the asset footprint work that we're doing and and we've got a good start of that this year coming up.
Show up next year. So all of these levers and we really have within our control and.
Again, while it's it's.
And it's early we still got 21 to get through and.
And again tough to predict what that market will look like but we've got our hands firmly on these levers and that's what's going to propel us to those of midterm targets.
And we will take our next question from Vincent Andrews with Morgan Stanley.
Thank you and good morning, everyone, Jim if I could ask and seed production costs and I believe.
They were up and 2020 somewhere.
$75 million to $100 million range and most of that was on production this year.
And then this year and talking about another 100 million sort of out of a two year stack My maths right, you're up 175 to 200 and.
Yes. My question is if we have the sort of normal production and the U S and Europe this year and the.
The futures curve for corn, and soy is correct and commodity prices are lower in the.
And next year does that mean, there's going to be a 170, the 200 million dollar of seed production cost tailwind and 22 or would some of that the eaten up by other costs, maybe extend launch costs or anything else how should we be thinking about that bridge. Thank you.
Yeah. Thanks, Vincent for the question and you're right for 2021, we are expecting approximately $100 million and seed input cost headwinds and those of profit predominantly due to the higher commodity prices for soybeans that.
The impact of our grower compensation program and the way, we compensate growers for producing seed and we also had lower the seed.
The yields in Europe, and it was a tough seed.
Seed production here, so just as background and we go out and the contract with independent growers to produce our commercial seed and they have the opportunity to lock in the commodity price right.
And the window, and especially with soybeans as we saw that run up late in the season, they locked in at higher rates.
And now we go into every year.
With our best foot forward and so as we put seed and the ground and 'twenty one from.
<unk> production clearly, we will lap those higher commodity prices and if we see some tail off there will benefit from that and we'll expect the always have good solid yield production and our fields. We work with a lot of irrigated field. So we tried to take the weather out of that as much as possible. So.
We've seen good trends and I think we've got a locking and play that should help support us as we come out of 'twenty one into 'twenty two.
We'll take our next question from P J <unk> with Citi.
Yes, hi, good morning.
Good morning, a couple of related questions Jim on on seed.
Are you are you seeing that farmers are willing to buy higher price seed given that they have a strong disposable income this year and just related to that.
On your fixed minimum royalty payments that you have through 2023.
I think that's more of a cash flow items can you talk about the income statement impact as you are.
Amp of volumes up and the steeply and ramp bound volumes of around the particular years. Thank you.
Great. Good morning, the P. J, let me I'll talk to the the <unk>.
Pricing quest.
Question, and maybe have Greg and walk you through the impacts of it the way the balance sheet and the royalties flow.
As we think about the market next the season in 2021.
And as always and competitive marketplace and it will be just as competitive as we saw.
And 2020, even with the commodity pricing backdrop. So we're going to continue to go out there and we get paid for the value that we deliver.
Growers, especially when it comes to the yield advantage technology that we're putting out there and most notably we really do see that income.
John.
And we've established and really strong track record that I mentioned earlier of extracting that value for our technology and all of you got to do is go back and look at our 2020 performance, where we delivered 2% pricing and corn and soybeans and that's globally. So this is always a market specific phenomenon, but when you step.
Back and look at our performance last year, we did that everywhere and so.
No.
As we sit here today, we're very pleased with the pace of orders that are coming in in both of our pioneer brand and North America, as well as burbach brand and through those channels.
Channels.
And so I'm confident on that value question that will carry that momentum into 2021.
Greg can you talk a little bit about royalties.
The day on the royalties.
<unk>.
We are in 2020.
The relatively flat.
Royalty spend and we will continue into 2021.
Pretty much on the same on the same basis.
As we as we go into 2022 and sort of ramping up more of our proprietary.
Products and germ plasm well.
We will start to see that that royalty expense come down and.
And that will that will continue.
And beyond 2022 through the through the.
Our rollout of of enlist.
Through the end of the decade.
We do as you know have some minimum payments that.
And we make every year.
Those are.
And those will end in 2023.
Thanks Vijay.
We will take our next question from Arun Viswanathan with RBC capital markets.
Great. Thanks for taking my question congratulations on the progress in 'twenty.
I just wanted to I guess, the ask about the margin progression and evolution are that youre seeing and you've achieved and you can kind of see over the next couple of years.
So it looks like you're guiding to about a 17% EBITDA margin at the midpoint and 21.
And you've outlined some the new restructuring.
Our initiatives are prepared optimization and such.
Do you see them.
And maybe this is the first step and maybe some other projects down the road.
Maybe you can.
I'll expand on the opportunities that you see and and the net.
So where do you think margins ultimately can get to.
And what would it be dependent on whether it be dependent on maybe further market growth or inorganic growth or maybe some.
And some different assets.
Structuring or potentially even some different business lines like formulation or anything like that.
And so there's a lot of them there, but maybe you can address some of that thanks.
Okay, great great run and.
And thanks for your and your comments as well.
Due to the merger we did inherit a number of U S manufacturing locations that have been more expensive.
And then what I have personally experienced in the past around a more outsource or more localized approach to the business. So we didn't wait to take any actions to start optimizing the supply chain since merge since the since the close of the merger with shut down nine manufacturing assets and we are starting to see.
The benefits of those lower cost supply chain. So I do believe the 2021.
And inflection point for US you really haven't seen much of the benefits of those actions yet and that's kind of related to the amount of time that it takes to clear of the regulatory hurdles of every time you make a change in your supply chain do you have to go back and resubmit, the dossiers to regulatory authorities and every country.
Around the world So.
We saw some restructuring and the 8-K that we filed but had.
Restructuring and it that's just part of those programs that we've talked about and we'll just kind of continue the roll forward. So.
And our guys in our confirmation of our midterm targets.
And we've included those strategic decisions and those guides, it's one of the tools that we have and one of the ways that we get there and have confidence.
They are achievable and then we're always looking for opportunities and new ideas and we take every one of our active ingredients that we produce and we asked ourselves. The question can we be the lowest cost producer of that product and when that answer is no.
The the teams began looking for alternate sources and whether the answer is yes, but we need project work to get there we began to put those initiatives in place to drive that so.
And the Best example, I can point of view is if you look at 2020 one's EBITDA improvement and two thirds of that improvement is going to be coming from those initiatives and our and our crop.
Crop protection business. So I've got a lot of confidence a lot of great visibility of those initiatives that are in flight and exactly where we are and each one of those manufacturing units and those cost of sales points to be able to point to that.
Alright, we will take our next question from Joseph of couples with J P. Morgan.
Thanks very much.
The question about your conservative operating cash flow guidance.
And that year of $21 22, total is three to $3 5 billion, so let's call it.
Yes, I don't know one 7 billion of year.
And this year and your operating cash flow was 2 billion. If you subtract out of your working capital benefits, maybe it's one seven and so youre sort of saying that your operating cash flow.
We are not really going to change very much from that base and.
And there'll be a little bit more working capital, but your EBIT Guy.
Think will go from $2 billion to $3 billion over up to 2022.
I don't understand why.
You would be generating so much EBITDA and so little operating cash flow.
And then secondly, your pension.
The ability really went down and.
Fourth quarter from.
Think of sequentially from something like $5 8 billion.
And one but interest rates really fell year over year and I would've thought that there would have been and adjustment in the opposite direction. So can you explain what happened the pension and can you explain why there is some little growth and operating cash flow.
Hi, Jeff Thanks for the question.
Let me just start by saying.
And really proud of how the team performed in 2020 from a cash flow perspective.
And the numbers that we've talked about.
And also the plan that we put in place for 'twenty and 'twenty, one and that includes returning.
About the for 'twenty 'twenty, one and when we complete the share buyback and the dividends, we're going to return $1 1 billion to shareholders.
So let me turn it to Greg to talk a little bit about.
The future looking on cash flows and that balance and as you talk with EBITDA and <unk>.
The discussion of what happened and the pensions and okay, yes, so specifically.
Our cash flow.
We had a very strong.
Cash generation here as you commented this year.
A lot of that was was it was driven by growth real specific actions that we took to manage our working capital.
And and also.
Manage our capital spending, particularly during the.
During the pandemic.
And what also happened towards the end of the year as we saw.
Some some very good cash generation by our customers through the government programs that are that the.
<unk> received some benefit from and in addition to that the.
The rise in commodity prices towards the end of the year also.
Generated some incremental income for for our customers and we got the benefit of that with <unk> with some cash generation at the.
At the end of the year as we go into.
2021 and beyond.
We are looking at.
And increasing our our capital spending we were at $4 75 and.
In 2020, and <unk> and <unk>.
Youll see and our guide that we've we've included Capex of five at about $5 50, and 2021, so we put some of our.
Our capex on hold and we plan to reinvest.
The reinvest and in our growth projects and in 2021 and beyond and addition to that we do expect to.
The return to a more normal cash credit mix.
With our customers so there will be some.
So some.
The changes in working capital as we move through 2021.
And assuming a more normalized cash kind of things.
And you wanted to talk about range.
Yes, so so.
So on pension and specifically.
And.
And we.
We saw a.
The net decrease in the <unk>.
And the obligation and that was driven by by two things number one.
And increase in the the gross obligation given discount rates and that was offset by our asset returns.
And then the other thing Jeff just to highlight is <unk>.
And our unfunded balance declined and that was mostly due to changes in the OPEC obligation as a result of some changes that we made and benefits.
Yeah.
Okay.
And we'll take our next question from Jonas <unk> with Bernstein. Please.
Please go ahead.
Alright, Thank you and good morning.
You mentioned earlier that you were seeing from share gains and South America crop protection I was wondering if you could.
And on share gains in corn, and soybean and core protection and other regions and then.
Follow up how do you see that evolving this year.
Yes, great. Thanks.
Yeah.
We are confident that we gained of corn market share for sure and Europe.
And in Brazil, both in net Sapremia season, as well as summer and we've got just a fantastic lineup and.
<unk>.
And our teams really executed very very well.
It's a little too early to call on share gains and North America.
We really have to get that last round of USDA data that gives us the plantings of what happened right down to kind of of county level. So it's.
And we'll kind of have that final call on North America and mid March.
I am confident that we held the share at least for sure in corn in North America, while while delivering above market share above market pricing gains and so.
And our story and North America was really all about value and and.
And in soybeans.
From a global perspective.
We saw some slight declines in volumes, but for us it's the U S and that really matters and our U S seed volumes and soybeans were up so.
I'm pretty pretty confident and soy as well we held if not we were up we.
We were up slightly and one more time and soybeans at 2% pricing.
And I'll look back basis shows that we not only from the heavily held if not gain slightly and.
And drove much higher value so those of the big markets, but maybe Tim do you want to share either of the broader perspective of how we're doing on market shares and other markets around the world other crops and maybe.
And.
And so, especially in moving back in 2020.
And can confidently and say we gained.
Sure and crop protection and they got the global basis.
We obviously are still in the early days and we don't handle competitive.
The metrics in place.
And it certainly seems like the global basis every bit of outperforming the market on the <unk>.
And <unk> as well as and again.
And as well.
And we.
We've been ahead of the market it really throughout the year and and his strong finishes there and.
In North America, maybe sort of the hanging with the market from most of the day year and crop protection and we could then the had a really strong finish to the through the year as well and so we'll see where that growth.
Maybe the law.
And then.
The market for North America, and strong, finishing and Latin America.
Fair to say that we started off of the year behind the market and the <unk>.
And we felt like we were camping and the.
Third quarter, and a really strong finish and the fourth quarter and as the anticipated and again I think much like in the Caribbean.
And some reasonable EBIT.
And I want everything standard out there.
And we're going to be certainly with the market and maybe just ahead of it on the on the crop protection side.
In conjunction with the the seed.
Share position that Jim talked about I think we can get really proud of and all.
And we performed versus the marketing and crop protection side again with the strong pricing and supported great. Tim. Thanks for thanks for mentioning the crop protection.
You mentioned Latin America right there at the end.
And as our insecticide business and the fourth quarter and Latin America was up 36% and our fungicide business and Latin America of 28%. So as Tim said really really strong close for the year.
And by that team and on a full year basis. We were also similar numbers. So we're encouraged by our CP market share is there as well.
Thanks Dennis.
Our next question comes from Kevin Mccarthy with vertical research partners.
Yes, good morning, just.
Just to follow up on capital allocation it sounds like youre going to be mostly done with your share repurchase commitment by the middle of the year. So how would you describe.
And the potential for future repurchases versus the M&A opportunities that you described herein and and fruits and vegetables, digital and biologicals and related to that for Greg can you comment on other other cash calls or expectations for 2021 in terms of pension and <unk>.
P fast and any other extraordinary items. Thank you.
Thanks, Thanks, Kevin as we've mentioned and our message earlier, we're going to continue to evaluate opportunities to return capital to shareholders.
And we view that as a priority and our overall scheme for capital allocation. We mentioned we are committed to executing the current share repurchase program and now plan to complete as you said most of that program by mid 'twenty. One that is a further acceleration from where we were and where we communicated back in <unk> and <unk>.
And then and I'll look forward basis, you look at that combined with our dividend will be a little over one $1 1 billion return to shareholders and.
And at that time of that program closes out will take will take the view of all of our obligations.
And sit down with our board and talk about what's next after that but.
And I'm confident that returning returning capital to shareholders is a priority for me and it's a priority for this board and we'll certainly keep you informed as our thoughts around that and evolve.
Greg.
Yes.
On cash calls.
You mentioned, the pension and <unk> and specifically.
With respect to the the pension.
<unk>.
We continue to be confident that we don't have of required contribution to pension plan.
And the next the next couple of years and.
Factors and as I mentioned earlier our returns this year.
Exceeded the.
The cost of the plan so or are funded right.
Crude youll see the details of all of that in the and the.
The 10-K, when we issue that and the.
And the next several days so.
So I apologize for not having the details readily available for you for that regarding regarding open of snow.
No additional cash calls other than what we normally normally see on and on an annual basis and that's.
Jim mentioned with the changes that we made to the to the plan that reduced the liability significantly.
Thanks, Kevin.
Our last question will come from Steve Byrne with Bank of America.
Thanks, and thank you.
Good morning, James You mentioned seven year of high on crop commodity prices and.
If you looked at the out another way.
The growing rather locking and harvest month futures prices today versus what they were doing a year ago. We're looking at a $100 an acre of higher revenue today than we were a year ago and so my question for you on the out is how do you think that most of the.
Sex the decisions those farmers made the.
Is it sort of genetics.
A shift to branded crop chemicals and application rates, how do you think the most effects your verticals and then the second question there would be.
The 'twenty and 'twenty, one guide of a 3% sales growth is the same as it was in 'twenty and 'twenty is.
And the reasonable we'll see that is not really middle of the road.
And not to Miss guide.
Great. Thanks, Thanks, Steve clearly improving commodity price markets.
It helps the psychology of everybody involved and what they are.
And farmers always think about the decisions as investments in the future to drive productivity and yield and so.
The higher commodity prices means that they will continue to push for yield and.
And be able to take advantage of that yield and what I like about what we're seeing right. Now is we feel like the demand side of this equation thats driving those commodity prices is pretty pretty durable.
The one to two year term as we look out China's China's demand curve seems to be strong as they are rebuilding the pork industry and.
We know we've got demand for exports and other markets and strong demand for animal feed.
And we're seeing come back in North America and.
And with the carryover stocks, where we're seeing them. So I like do you believe that we have support for those commodity prices here for the next.
Two or three years, and thats driving our acreage assumptions as well.
And would expect 180 $182 million corn and soybean acres when you combine them little hard to call. The split there, but probably the best news. We're hearing right. Now is we don't seem to be it's going to favor soybeans. We know that any increases will go into the soybean acreage, but it's not coming out of corn and so.
It's really setting up for multi strong corn and bean.
And when you look at our revenue guide for next year as you mentioned.
And just remember that in that guide.
That is of net top line revenue number and it's net of.
About $300 million of revenue that we phased out of from 2020 going into 'twenty. One the first of those strategic decisions around chlorpyrifos, and then and several other low margin.
It's very very generic.
And just probably not the right kind of products from our portfolio going forward. So, we're certainly and a mix enrichment and the.
The refreshment of that portfolio and basically have the majority of those big strategic decisions now.
Behind us so so back to my comment earlier I think this guidance is a strong and of realistic guide with all of those elements really baked into it and we still have a whole season ahead and we're sitting here early in 'twenty. One a lot to go from what we're confident we've said this at the right spot. Thanks, Steve.
Great. Thank you for joining the call today and we appreciate your interest income from.
And that does conclude todays presentation. Thank you for your participation you may now disconnect.
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