Q4 2020 Nutrien Ltd Earnings Call
Greetings and welcome to the nutrients and 2024th quarter earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
As a reminder, this conference is being recorded.
I would now like to turn the conference over to Richard Downey, Vice President of Investor Relations. Please go ahead Sir.
Thank you operator, good morning, everyone and welcome to nutrients conference call to discuss our fourth quarter 2020, and year end results and outlook on the phone with US today is Mr. Chuck Magro, President and CEO of nutrients, Mr and Mr paper for our CFO as we conduct this conference call various statements that we make about future X.
<unk> plans and prospects contain forward looking information certain material assumptions were applied in making these conclusions and forecasts. Therefore actual results could differ materially from those contained in our forward looking information additional information.
Asian book These factors and assumptions are contained in our current quarterly report to our shareholders as well as our most recent annual report MD&A and annual information form filed with Canadian and U S security commissions to which we direct you I will now turn the call over to Mr. Chuck Magro.
Thanks, Richard and good morning, everyone 2020 will go down as one of the most challenging years in recent history and as you listen to this call I hope that you and your loved ones are safe and healthy.
As we look at as we look towards 2021, we can see prospects of a much better year, both socially and economically for.
For nutrients. This includes stronger agricultural and crop input fundamentals that we have seen and some time.
Before I review, our results and our outlook I'd like to take a moment to thank all of nutrients employees globally for their ongoing dedication to providing farmers the sustainable crop inputs and services they need during this pandemic.
The importance of food security and nutrients purpose to feed the world has never been more apparent.
And important and your dedication and commitment are truly appreciate it.
That dedication was also evident and the impressive execution right across our businesses and the fourth quarter.
We achieved excellent progress across virtually all key operating metrics and.
<unk>, our best year ever for health and safety results.
We remain committed to our long term strategy of both growing our business and a thoughtful and fiscally responsible manner. While also returning capital to shareholders. In this regard we announced yesterday that we increased our dividend to $1 84 per share on an annualized basis as well as our intention to implement.
A new share buyback that share buyback program and 2021.
Last year demonstrated the strength of our business and we see three factors that have reinforced our conviction for 2021 and beyond.
First we believe there is a cyclical recovery and agriculture underway aided by some structural catalysts, including solid growth and food and fertilizer demand despite the global economic turndown.
Second nutrient is very well positioned with earnings leverage from higher fertilizer prices and sales volumes growth.
And finally, we have plans that will contribute to growth cost reductions and the implementation of industry, leading technologies that are within our control and that will further improve our competitive position across the AG and put value chain.
Now turning to the results.
Earnings and cash flow and the first quarter were up significantly over the same period last year.
On an annual basis, we generated free cash flow of $1 8 billion and.
And $2 4 billion after accounting for improvements and working capital.
Even at the low point and the cycle, our dividend was at 56% of cash flow well within our target of 40% to 60%.
Nutrient AG solutions delivered an excellent fourth quarter with EBITDA up 29% year over year.
This was mostly a result of organic growth stellar performance in Australia, and Brazil, and a wide open fall application season in the U S.
Retail gross margins for fertilizer and crop protection products. This quarter were both up significantly due to higher volumes and firm percentage margins.
Fourth quarter crop protection percentage margins were slightly lower than last year due to a mix effect from the growth in Australia, and Brazil, where fourth quarter margins are typically lower than in the U S.
U S crop protection margins were up noticeably year over year, both in the fourth quarter and for the full year.
For 2021, we expect further improvement and our crop protection margins across all of the operations.
We intend to continue to strengthen our competitive leadership position through innovation in the retail AG sector, offering new products and services and expanding our full aker solutions that generate value for our customers and grow our business and margins.
Organic growth and 2020 accounted for about 60% of the $200 million growth and annual retail EBITDA.
With the other 40% from accretive acquisitions.
Our EBITDA per U S selling location increased 11%.
Passing $1 million per facility and fast approaching our 2023 target of $1 1 million per facility.
Our strong organic growth rates were also demonstrated by the size of the increase and our EBITDA margins across all major regions and 2020.
Retail EBITDA to sales increased by nearly half a percent to nine 7% while U S. EBITDA to sales increased almost a full percentage point, reaching 10, 6%.
Retail earnings outside of the U S grew by 32% this year and accounted for just over 30% of total retail EBITDA in 2020.
We also lowered retail average working capital by nearly 900 million this year through supply chain improvements.
These actions combined with low and inventories, resulting from the extended fall season helped drive drive our retail working capital ratio to a record low 15%, which is even below our 2023 target of 17%.
Furthermore, our investments and technology and supply chain enhancements and our ongoing focus on cost reduction also contributed to an improved cash operating coverage ratio in 2020, which declined by one percentage point.
This improvement was achieved despite the impact from the <unk> acquisition, which we continue to optimize.
Our digital platform sales exceeded $1 2 billion in 2020 more than double our original goal of $500 million and over four times the 2019 levels.
We expect to demonstrate continued momentum again this year and are now targeting digital orders of $2 billion in 'twenty and 'twenty, one with the goal of achieving 50% of North American retail sales.
And the next three years.
Moving to our potash operations.
Sales volume surpassed expectations and the fourth quarter due to exceptional demand and the U S. This fall and continued strength and offshore markets. We leveraged our flexible network to meet demand and we were able to increase our volume in North America on an annual basis volumes were up one three.
And tons over last year from a cost perspective, we achieved record low cash cost of $59 per ton for 2020.
We are progressing our continuous improvement and automation programs that will further reduce cost and improve safety and our operations.
Similarly for nitrogen for our nitrogen business, we saw excellent sales volumes, both for the quarter and the year, we increased our nitrogen sales volumes by 700000 tons in 2020 due to strong north American operating rates and benefits from our de bottlenecks and optimization projects and good agricultural demand.
Land these.
These factors also contributed to a significant decline and our controllable cash cost position.
In addition, as part of our ongoing portfolio review, we sold our 26% equity position in the Moscow nitrogen facilities and Egypt for $540 million as we believe we can reallocate this capital to higher return uses.
Shifting to the outlook the setup is excellent for the spring season in North America, assuming we get normal weather, we could be seeing the start of a multiyear cyclical recovery in agriculture and crop inputs crop prices have improved for several reasons, while recent crop yields and north and South America had been.
Slightly below trend the major factor has been stronger demand, which we believe is more structural in nature.
Signer is importing more grains and oilseeds to help ease food inflation as domestic corn prices are over $11 per bushel.
We believe that China will need to rely more heavily on crop imports going forward as they transition their hog industry to professionally manage large scale operations utilizing feed rations as they rebuild their herds following the devastation caused by African swine fever, we.
We also see the potential for increased demand for crops and the future.
For use in Biofuels to meet climate change objectives set by many countries around the world.
And response to higher crop prices, we expect higher planted acreage globally and the U S alone. We anticipate total planted acreage to increase by approximately 10 million acres with strong crop prices and the highest U S growth margins and at least seven years, there will be strong crop input spend.
In 2021, which is supported by our level of customer prepay and soil sampling activity.
Our annual guidance.
As for adjusted EBITDA of four to four 5 billion with all business units expected to achieve significantly higher year over year growth.
We have good line of sight to a strong first half of 2021, and we'll continue to refine our outlook as we get more insights on the second half of the year.
Nutrient AG solutions expects to benefit from higher planted acreage and increased discretionary spend and North America and continued growth in Australia and Brazil.
For potash prices are firming and every market. The U S has seen the strongest price strides so far but Brazilian prices are now transacting at $300 a ton.
And southeast Asia standard potash prices have lagged the increase seen elsewhere as they often do and a rallying market. However, we believe prices will firm further in the coming weeks and could approach $280, a ton and certain regional Asian markets.
We continue to fill our order book at higher price levels, and we are fully committed on domestic and international sales through April without positioning or selling volume to India or China.
Our 2021 sales volume guidance is for 12, 5% to 13 million tonnes, and we expect to match strengthening market conditions, and nitrogen and phosphate prices and.
And demand are being supported by stronger demand from higher crop prices and improved industrial conditions as well as higher a higher cost curve. We are also constructive on these markets and 2021.
2021 will also be a significant year from an ESG perspective for nutrients, we will unveil a comprehensive long term strategy with performance metrics and the first half of the year, which will demonstrate our continued leadership in this area and regards to our new carbon farming program. There has been and overwhelming interest and this one.
Ah kind program by growers around the world, we have 100000 acres lined up for our pilot program across the U S and Canada. This spring and we will continue to work on scaling the program in the future.
Nutrient is well positioned to lead and carbon.
Management, and its monetization and agriculture, with our unique capabilities and expertise, including direct connection to growers and our investment and digital agriculture.
We believe nutrients as the best positioned company and the AG sector to capitalize on improving market fundamentals across the value chain, we have levers to grow our business and our earnings with actions under our control and exceptional leverage to improving market conditions.
And as always we will focus on what we can control and follow through on our commitments.
And our recent Investor day, we outlined a pathway to generate $1 billion and value over the next five years that is within our control. This plan plus the cyclical recovery and agriculture presents a very compelling value creation opportunity. We are currently experiencing.
Finally, I wanted to let you all know that Mike Frank has decided to step down as executive VP of nutrients retail business.
<unk> of the entire nutrient management team, we thank Mike for his valuable contributions over the past three years and wish him all the best and the future with that operator, let's open it up for questions.
Certainly at this time, if you would like to ask a question. Please press Star then the number one on your telephone and can you talk to.
To remove your question press the pound key.
We will pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Jacob <unk> from CIBC. Your line is open.
Good morning.
And hoping to get your thoughts and the recent activity and international potash markets. We've got one producer that was settling with China, and India of low market prices and I.
I guess my questions are do you see producers selling at similar prices.
Is this a year that we could see India, and China and moving to a spot market.
And if you were to speculate why would a producer settlement such a low price.
Yes, good morning Jacob.
So there's lots going on right now and the potash market for sure what I'd say is you're right. We've had one but only one.
Major players signed contracts with India, and China, and and our perspective has been pretty clear right from the beginning on this we feel that these contracts were actually rushed and certainly are not reflective of the current market conditions, we're seeing around the world.
We can't change that and we're certainly not going to dwell on it but for US what we're seeing is just strong demand basically around the world. So if you look at North America last year, we increased our sales volumes by over 1 million tons, primarily driven by strong domestic demand here at home and prices now.
And are quite high relative to say the contracts that have been signed in India.
And in China, Brazil has really good momentum going forward prices are moving up quite nicely there and we're pleased with the progress and the demand book that we have for Brazil.
So what I'd say right now is that for us the way, we're thinking about India and China is all options are on the table and.
And when we look at those markets now are clearly our lowest netback.
So we're going to allocate our volume accordingly, and I, certainly don't expect us to put significant volumes in those markets.
At the disconnected price levels from the rest of the world. So we'll have to see how things unfold and obviously canpotex is active and the discussions.
But we have better places to put our potash and we're going to prioritize those for 2021.
Your next question comes from the line of Ben Isaacson from Scotiabank. Your line is organic.
Thank you very much and good morning, everyone. Chuck can you talk about the deep freeze that we're seeing right now and North America, and retail exposure, especially in the southern Plains area, what what is the risk.
Are there are positives and negatives.
And then maybe just as a follow up can you talk about what the goal is for your.
Retail EBITDA margins, you guys hit and nine 7% I believe overall.
Slightly higher and the U S book, how should we think about that growth about EBITDA margins. Thank you.
Yes, good morning, Ben So look on the deep freeze that we're seeing it has not impacted our retail operations. So.
It has impacted the nitrogen industry more broadly and and.
And I'll have.
<unk> selling maybe comment on that because it's probably important to talk through but let me answer your retail questions first so.
Right now, we're seeing very good movement of even in Canada with fertilizer.
And if you recall last fall the fall application season was cut short and Canada. We've got very strong canola prices up here and we're expecting just a very solid spring season, and fertilizer is still moving to the farm right now for storage and supply chain management.
Right now in Canada, and the U S. Obviously, the weather has slowed down some of the retail activity.
But we're expecting and.
Incremental 10 million acres being planted.
We're expecting more corn and the south and I would say generally the strong optimism of a solid spring season across the U S. So the weather really hasn't had much of an impact there.
Before I turn it over to Ralph just to talk about what we're seeing and nitrogen was the weather to your question on EBITDA margin. So we're seeing very good growth in fact I was looking at it the other day and if you go back 10 years.
This business had a seven 5% margin. So we have really driven up the retail EBITDA margin slow and steady and we think that there is a lot more opportunity to continue on that journey and.
And the strategy is very clear, it's a strategy that we've been employing for at least five years. What we're trying to do of course sell higher margin products part of that is our proprietary products portfolio and at the same time optimize our overall network and drive supply chain efficiencies and reduce our cost.
And then if you layer and now the digital platform on top of that we think that theres going to be some opportunity to lean out our back office and make the relationship with the farmer more efficient and we think that that over time will drive margins as well. So I don't want to give you a number except to say that we think that there is significant upside.
And it's on the same path that we've seen so what you should expect is a slow and steady increase and overall EBITDA margins.
And for retail rates do you want to just comment quickly on what we're seeing from a weather perspective and nitrogen in the U S.
Yeah. Thanks, Chuck So Ben as Chuck mentioned, obviously, the cultural has impacted the nitrogen industry as a whole.
With gas supply being impacted.
We see I think it's eight to 10 plants that have been down and in the last couple of days most of them.
Selling off the gas supply.
Because it was because of the impact we've seen on pricing.
We have had one plant that's come down from mechanical issues.
<unk> running about 80% to 85% at the moment and we expect that the whole industry will be back up.
And by the end of the week largely as the cultural posture zone.
So some impact to supply.
At the start of the spring season, probably will.
And there's a little bit of firms continuing and crushing.
But largely the number of plants that have come down it's come down just because there is an opportunity for them.
And so the cash into the market.
Your next question comes from the line of P. J <unk> from Citi. Your line is open.
Yes, hi.
You talked about Chinese rebuilding our colored.
How long would that continue I think sort of pegged. It takes about nine to 12 months. So is that something that will continue into 'twenty one into 'twenty. Two and then maybe you can mention on the bio fuels opportunity that you talked about.
And how much.
And so.
Demand and growth for grants would that come from.
Yes, Hi, P. J I'm going to have Jason Newton, our head of market research and just to answer your questions go ahead, Jason good.
Good morning P. J when the hog herd rebuild started to unfold we had heard that it was going to take.
Anywhere between two and three years for it to recover.
Probably seen the numbers that I think that the Chinese government estimated.
And late 2020.
Heard it rebuilt by about 90%.
But private estimates within China, where the herd rebuild was significantly.
Below that level.
I think what we would expect to see is it.
Net of a bumpy recovery is and is currently the pork prices are strong and so rather than rebuild the breeding herd.
Hog farmers are selling into the into.
And to the meat market. So that's going to just slow things to some degree.
And then you will see.
Periodically outbreaks of disease, which is totally normal and China that also causes a pause and the rebuild.
The good news is that despite some of the bumpy road that may occur, we've seen and extremely strong feed grain demand in China ads.
As it is rebuilt is being rebuilt with more commercial style hog barns and feed.
<unk> rations.
On the biofuel side.
Unlike what we saw with renewable fuel standard a lot of the biofuel.
Growth, but the potential growth to occur going forward. It has not been specified and mandates. So it's a little bit uncertain, what that looks like but it is part of the clean fuel standards that are being rolled out.
And that you asked in Canada and EU there.
There's potential for biofuel would be a component of the fuel supply that helps to reduce emissions.
And the U S. For example, if we move to a 15% blend rate by 2030 that would equate to about 2 billion additional bushels of corn and so definitely incrementally positive, but I think the impact is uncertain because there arent strict mandates and place outside of what we see and Indonesia and Malaysia with.
More strict biodiesel blending mandates, yes, PJ just to add one more comment on the hog herd in China. So the rebuilding is one thing, but how they are rebuilding with the professionally managed feed rations and I think that's where we think it could persist for the foreseeable future. That's the comment that I made in the prepared remarks.
Is this the beginning of a structural new need for incremental either soybeans or corn rations because of the way, they're how they're rebuilding their herd.
The thing that we're observing right now.
Your next question comes from the line of Chris Parkinson from Credit Suisse. Your line is open.
Great. Thank you very much just very quickly Chuck beginning on retail.
And then acreage growth and North America can you just give us an update on all of your other initiatives across that platform to drive above market growth and margin third party product penetration.
The lag et cetera, and if you could also include just a quick update on your Australia now.
And that would also be great. Thank you very much.
Good morning, Chris share so look.
The plan for retail of courses is multi pronged.
Obviously, we set out at our Investor day that in the next five years, we'd like to have the retail EBITDA to $2 billion and Thats.
The midpoint of what we provided at the same time, we'd like to grow the EBITDA margins and so that's the overall strategy and we've been allocating capital to invest and retail as you well know.
And if you think about that then the way we're trying to do that is really with three direct strategies. One is we're implementing higher value products and services and technologies.
Digital platform is certainly part of that the proprietary products platform that we've built I think is second to none we have that now same platform and Australia and in Brazil. So we have integrated products companies in those countries, which was driving margin enhancement and differentiation for customers and that's the first really major dry.
The second of course is just geographic growth. So we've had just tremendous success I think and building leading platforms now in Australia.
And and we're off to a really good start in Brazil, and Australia. The real co acquisition is well underway.
And through the integration and we've already increased what we expect from a synergies perspective, and every time I look at the performance of that organization and I just get very impressed that theres more they can do we also had a few small acquisitions last year, and Australia, which which helped as well.
And in Brazil, when I look at what we did during the pandemic. It was a pretty remarkable so we did have two sizable acquisitions.
And our platform now and Brazil has with the one we just announced.
Two weeks ago. The acquisition, we just announced two weeks ago, we now have 40 retail locations.
In Brazil, with and integrated products company and.
And our run rate.
Sales of about $500 million.
And so well on our way to what we wanted which was about $1 billion and revenue coming out of Brazil. So that's the third really driver. The second driver sorry. The third driver is is network optimization and investing in the supply chain and really working with our suppliers and we've talked about this before where we're having.
Less suppliers with larger share.
And a deeper relationship even working jointly with technology solutions or new products that are going to be exclusive.
Nutrients and that so that's what I would say is the journey we've been on for some time and we're starting to see I think success certainly in 2020.
Technology new products geographic.
Diversity, and then of course optimization of the core business.
Your next question comes from the line of Adam Samuelson from Goldman Sachs. Your line is open.
Yes. Thank you good morning, everyone.
I was hoping to maybe just follow up on retail and just thinking about 'twenty 'twenty, one outlook a little bit more.
The EBITDA guidance is up 5% to 12%.
Year on year your outlook for crop expenditures and your key market is up.
Kind of 4% plus and kind of all the key areas, where you operate so I'm just trying to think about how you're framing the low and high end of that range. When certainly this would seem to be the best crop input market you faced and at least five years, probably some favorable mix as farmers and farmers trade up.
In terms of the inputs that they're buying and.
And so what help me think about the different range of outcomes, there investments that youre, making that might temper what should be some pretty good operating leverage and a good volume environment.
Yeah, that's right. So look I think the way I would describe it as obviously were expecting very good EBITDA growth and in retail we've tried to provide a perspective. If you look at the midpoint it would be up about 8% year over year last year, we grew the retail business, 16% and certainly since the beginning of <unk>.
2018, I think retail is up 25% so very good good growth and as I mentioned 2020, the growth came 60% of it came from organic growth initiatives and.
And the EBITDA per location and finally crested over a $1 million on our way to our target of $1 1 million and.
And so what I would say for 2021 is expect more of the same.
We think that we're going to have very reasonable growth year over year. The majority of that growth will come from our organic initiatives.
<unk> already.
And then we will have M&A behind it and so if I was asked the way you've asked the question about how do we get to the top and it would be doing a little bit more M&A earlier on and the year and from a pipeline perspective, what we're seeing right. Now is we have a good pipeline of M&A opportunities both in North America, but around the world I would say and.
And so we will see I think that the crop backdrop is very positive for retail so the 10 million acres more and more planted corn and soybean acres, but more.
Cotton acres as well and the south all of that will benefit retail and I think we will see one other thing most likely and the second half of the year, which we really haven't seen meaningfully in retail for a couple of years as is more discretionary spend on <unk>.
Yield boosters adjuvant micro nutrients those sort of products as soon as the crop comes out of the ground, we're expecting a very high interest, which we really haven't seen.
And the last couple of years because of crop pricing.
Your next question comes from the line of Joel Jackson from BMO capital markets. Your line is open.
Hi, good morning, Chuck.
Okay.
Hi, Chuck and let's go back to the discussion on global potash prices and the bifurcation between granular and the Asian pricing.
Can you maybe answer a couple of questions why has it been so challenging to get southeast Asian prices up which is why China, India is there and then.
And if PTC and the Belo Russians have a bit of a different mandate and you and other players and they seem to want to walk and volume. So they want to get predictability and cash flow out of China and India.
And not be so concerned around pricing and if they want to lock in pricing and Brazil up to a year and advance.
Price and you'll have to match like how do you deal with that and how do you reconcile that because you've got a silicon somewhere and bcf tons everywhere too.
Okay. So there's a lot there to talk about Joe first of all what I would say is no one company can sell all the volumes and every market. So.
This is a massive global market and it's growing and so don't forget.
This year, we are expecting.
Up to 2 million tons of incremental growth in.
In terms of global demand and not that much of incremental supply coming into the market. So we like the backdrop, but to answer your question on Southeast Asia, Let me pass that over to Ken Seitz because he's working this day by day right now with Canpotex and he can provide you a perspective and then I'll come back with some other comments on the rest of.
Your questions go ahead Ken.
Yes, great. Thanks Joel.
And in fact, we are seeing some strengthening in southeast Asia and I would argue that the.
If you see reported prices, they're lagging what's actually happening and that part of the world and of course, we saw significant demand destruction and southeast Asia with Hormel prices dropping off in 2019, we saw recovery and demand in 2020 as palm oil prices recovered and.
Palm oil prices continue to strengthened so that into 2021, we see southeast Asian demand getting back to sort of 2018 levels in other words strong demand.
Malaysia, and Indonesia, Southeast Asia, those are spot markets, but little more seasonal in nature, because they are procuring potash using their tender system and so over the next sort of month month and a half we'll see another round of tenders coming in like I say, we do expect to see strengthening and southeast Asia.
At round of tenders, we're seeing it now you may not with the legacy it and reported prices but.
We believe southeast Asia is going to be on trend with the rest of the globe as potash prices strengthen.
Yes.
Yes, sure so just to wrap up.
We like the backdrop that we're seeing and the potash business and if you just look at global operating rates. We are expecting a continued tightness even year over year 2021 versus 2020, the global operating rate is going to increase and our and our expectation is that it'll be somewhere close to 95.
Sent.
In terms of our global operating rate, which which usually means we're gonna have forward momentum and pricing because the supply demand is going to be quite tight. So I think that neutrolin will be able to move the volumes that it wants to move into the into the market and we are.
As I said before we're going to prioritize the markets, where we have the highest net backs, but make sure that we service our customers the way we need to.
Your next question comes from the line of Steve Byrne from Bank of America. Your line is open.
Yes. Thank you.
Your one of your slides indicate that your proprietary products generated 23% of retail EBITDA in 2020 and 2019.
And would like to hear your view.
And what gives you confidence you can drive that to 29% given flattish the last two years and as and.
And do you see this is being driven more by the Loveland brand or the diner growth brand and how do you think youre going to get there.
Yes, good morning, Steve.
We think that when we look at the investments we've made over the last couple of years.
And we've added active growth to the portfolio we've added Agra.
So the portfolio in Brazil, So we've got a more robust I'd say a broader set of offerings that are all kind of wrapped up and of that that phrase proprietary products.
And so we're very confident that we've got just a suite of products that are going to add tremendous value to the farmers' bottom line and we are expecting to be able to grow certainly when you look at crop protection.
Look at even the fourth quarter of last year, our CPP margins were up.
And for the full year, they were actually up in the U S and.
And so we just need to move through now the CPP product through the new channel that we have with Royal Cole and Australia. So that's just getting kind of sorted out right now and of course, the new acquisitions that we have in Brazil. So I'd say from a crop protection perspective, we're well positioned to continue to growth that percentage.
And now you mentioned feed and Diane and grow and what I'd say there is we.
That we've got germplasm that is second to none and we've just had tremendous success I think.
With Diane and grow in our core markets and so we have a lot of optimism around what that will do and then if you just plainly look at our order book for 2021 for our diner growth seed it's up versus this time last year. So we are seeing good forward momentum I think in terms of the percentage of our proprietary.
<unk>.
And that's what really drives the confidence that we'll be able to get to.
The numbers that you indicated.
Your next question comes from the line of Mark Connelly from Stephens. Your line is open.
Thanks Chuck.
Chuck I was hoping you could sort of put some puts and takes of higher freight and complicated and logistics into context for us.
Sensors, it's probably a net positive and in nitrogen and at least and spring, but I'm just sort of curious if you could walk us through the businesses.
Yes, so maybe what I'll do is I'll have ray talk a little bit about the nitrogen logistics and then I can have can do the same and potash for remarks. So go ahead Ralph.
I'm sorry.
Could you just.
Give me a little bit more on the question that you're looking for.
Sure I am really trying to think about big picture, what the impact of higher freight rates and the kind of complications.
Sort of hearing about everywhere and logistics or are affecting your business.
Both from a global perspective, and nitrogen and in terms of moving product into place from this first for the spring season.
Look I mean, we've had some recent success is actually getting better rights.
So and we've got a network of about 300 terminals.
And warehousing locations across the country.
So.
Hi.
Yes.
We then have I guess, it's been a positive.
Chris.
Using the net we've had we've been able to.
The head of the spring season, and having tons close to the customer so I'm not sure that's answering your question but.
That's all force there and see if you got anything specific you want to and.
Well, let me let me jump in here then right. So I think I think you've answered the question, but if you look at the overall network. So we do have one of the largest distribution and storage networks in North America. When it comes to AG inputs and it is highly integrated between the upstream business and the retail.
<unk> stream business.
Literally we.
We were able to store and if you just look at this spring season market I think if you look at what what's in front of us that the product is forward place right now and ready to go for the spring season, and I'm not sure. We can say that about all of our peers in the industry.
And we just had a review actually last week and the fertilizer crop inputs and the seed when we looked at it last week, it's exactly where it needs to be an anticipation for a wide open spring I think from international perspective, We also have some advantages and Ken you can talk to that I think for potash.
Yes, absolutely Chuck and Mark.
And I would just say domestically rail movements and our 300 managed warehouses between ours and our customers and those continue to serve us well and we saw that saw that and the fourth quarter of 2020, where we mobilized that infrastructure to meet growing demand. So while it is true that inventories are low and north.
And the moment very low.
We are we are utilizing our supply chain effectively to meet our Q1 and Q2 order book, which.
As I said earlier is heavily committed internationally. It is true that or should we have seen some ocean freight rates go up but those are mostly in the capesize vessels and the ones carrying iron ore.
We expect that the ocean freight market will tighten as global commodity prices go up and more volume is moving around the globe, but I think as you say mark that is a net positive for us so.
As it stands today, we're expecting again record potash demand and we expect absolutely to be able to meet all those commitments.
Your next question comes from the line of Jeff <unk>.
<unk> from Jpmorgan Your line is open.
Thanks, very much can you give us your impressions.
Tightness and the phosphate market and I know for awhile, and yours and quite bearish about that.
Do you view that market differently now.
Yeah. Good morning, Jeff Ray if you want to talk about what we're seeing and the phosphate market right now.
Yes, certainly.
Jeff I think.
The tightness is continuing.
I think a lot of what we're seeing and North America is tied up with the.
Kind of weighted judy's ruling.
We sure hope so.
March 25th we'll see with it.
Is finalized and whatnot.
I think he said even if it doesn't go ahead, and I still think theres and underlying tightness and the phosphate market.
I suspect that towards the later and be able to start to see.
Increased production from.
Yeah.
From I should say and others, we should see and we may see some imports coming into the country and the second half.
But I think the tightness will continue I think structurally.
There's a tightening in supply.
Your next question comes from the line of John Roberts from UBS. Your line is open.
Thank you does the buyback authorization imply and there were unlikely to see any significant acquisition activity and retail, especially in Brazil.
And good morning, John So no it does not.
So what we expect to do with the plan. This year as we talked about was for retail.
When we look at.
The growth opportunities, we've got in front of US the plan is really predicated on stronger organic growth.
But we've always looked at M&A opportunities and we have a very good pipeline and as I mentioned and we will be able to do both so if you think about where we're sitting I think we finished the year last year with net debt to EBITDA right and the middle of the zone, where we'd like it to be around two six per tie.
Time, so we have the financial capacity, we're going into a market, while expanding margins and we expect to generate very strong free cash flow and 2021. So we will prioritize and we'll look at the best returns longer term for shareholders, but you can expect it would be a mix that the buyback is certainly.
And important part of that that the board approved yes.
And yesterday, but we do expect to allocate capital to grow the retail business and 2021.
Your next question comes from the line of Andrew Wong from RBC capital markets. Your line is open.
Hi, Good morning, I, just wanted to focus a little bit on the EBITDA guidance.
So maybe using history as a guide 2019, we had $4 billion.
But then when you look at compare that to 2021 retail is obviously higher with the acquisitions and acreage.
And your potash volumes of higher costs or I'm, assuming lower as well.
With the synergies and and.
And whatever improvements we've seen since then.
So obviously pricing is a little bit of that delta, but market fundamentals the fundamentals are pretty strong.
So am.
Am I is it fair to say that that maybe there's some conservatism and the guidance range.
Putting in there.
And good morning.
Andrew look this year.
A bit difficult to put a pin and the guidance range as prices.
And fertilizer, we're moving pretty quickly.
Here's how we think about the range that we provided.
First it goes without saying that there is a lag between realized prices and the benchmark and that's true with any of our companies because we have to forward sell to place the product.
But if you were to look at today's market prices for and PK fertilizer and you were to look at that for an entire year, what we would be well well beyond the top end of our guidance range. So obviously, what we're expecting is is a normal seasonality and pricing, especially for nitrogen and phosphate.
And.
So we do expect Mark after the spring season for prices to subside somewhat but with with higher lows and we saw last year, which I think is important the bottom end of our range would have what I would consider to be a more significant seasonal reset.
Based on changes to supply and demand.
And that's how we bracketed it is today's prices if it was to continue for the full year, we would be well above.
The top end of our guidance and you'd have to see a pretty significant reset to come near the bottom.
And we will update the market as we learn more the crop is and certainly in North America is and even in the ground right now and like I said this was a particularly challenged challenging time, because fertilizer prices were moving up so quickly.
Your next question comes from the line of Vincent Andrews from Morgan Stanley. Your line is open. Thank you.
And you and and good morning, just looking at slide 24, and your global potash deliveries for 2021 and the forecast.
Just maybe if you could put a little color around North America, it looks like you're projecting it to be flattish to down.
Despite the favorable economics and the good acreage.
And even potentially below 17 and 18 so.
What's the thought process there.
Yes, good morning, Jason Newton can answer that question for you to go ahead Jason.
Yes, good morning, Vincent I would certainly expect to see a strong applications of potash and the spring season and throughout.
2021, just given the fundamentals and high average.
Patients.
Did see a really historically strong fall application season in 2020, driven by weather and so.
The range would assume more of a normal.
Other scenario throughout 2021 and U.
Pointed out 2017, and 18, which were years, where we saw channel inventories build and in the North American market and so our assumption would be that channel inventories remain.
Flat through the year to come up with that 95 to 10, and 5 million ton range and just maybe one other comment so.
Waypoint soil sampling data that we have now it's been really interesting to watch that the day to come in and what we've seen is that there is actually an increase and the number of soil sampling and in the U S up by about 25%. So farmers are really looking at their soils and and there are pockets of of fertilizer deficiency.
But on average what we're seeing is that the soil levels for fertilizer and constant over the last two or three years, which is good. So I think what that showed us as we were concerned that there was a lot of forward pull into 2020 at the end of 2020 and there wasn't.
And then if you look at our customer prepay in and retail.
That is also up about 25%. So there is a strong indication here of a very solid spring season, and I think the way Jason as freight that is absolutely accurate, but I think that's where the determining factor will be and the second half of the year and and we won't know that until we we sort of get through that.
The first half.
Your next question comes from the line of Michael Picken from Cleveland Research. Your line is open.
Yeah, Hi, I guess, it's sort of weighted to a follow up question and one of the other analyst day.
At the nitrogen segment significantly I'm one of your competitors earlier said that they are viewing this as potentially one of the most favorable backdrop for nitrogen and nearly a decade and it looks like you and your.
At.
Presentation, and you were talking about Chinese exports may be only being three to 5 million metric tons. This year. So I guess, what sort of are the factors that you think might pause and nitrogen prices.
Be well enough to the point that you're getting to your numbers in light of that and horizon global cost curve and your demand expectations.
Yes, so the nitrogen outlook, we would certainly agree that the backdrop is positive certainly for the first half and we're seeing it and our order book.
I've mentioned, the other kind of parameters that we're monitoring and I think theres no question that nitrogen is going to have a very strong spring season.
Around the world and it's driven by quite a tight supply demand, but also a steeper cost curve and in Europe, and and and other parts of the World I think the fundamental question that we have to ask ourselves is what happens after the spring season. There is some new capacity that was deferred from 2000 and 'twenty that we do expect to start.
Up in 2021.
Now there and jurisdictions that normally has a bit of a rocky start up so when do they come online how much did they produce those are all things that we need to understand as we get through the next several months or quarters, but I think that beyond that if we think past 2021, we would agree that that nitrogen from an overall supply and demand after this.
New capacity comes online and there isn't a lot of new capacity. So I think the difference and view. If there is a difference and view is is that we are expecting a good spring season.
We expect some new supply and the second half of the year, which could have a reset effect, but I think longer term the supply demand fundamentals are quite strong and nitrogen and that's why if you look at nutrient and how we've allocated capital. We're in the middle of several brownfield expansions, adding about 1 million tons of capacity between last year and this year in 2000.
And 'twenty two and that's because we are constructive on the overall supply demand for nitrogen.
Your next question comes from the line of Steve Hansen from Raymond James Your line is open.
Yeah, Good morning, guys.
And the digital strategy is clearly exceeding expectations, thus far from a from a sales standpoint, you've outlined 2 billion target for this year and check your opening remarks also made some reference to 50%.
Penetration and I believe I just wanted to get some color around that rollout from here to there.
And how confident you are and that and is it possible to give us just a sense for how many of your customers are actually using the platform at this point as opposed to just the dollar value a lot of a lot of your peers and a lot of the other players and the digital space of course talk about acres I don't think that's super relevant.
Just trying to get a sense for the penetration rate, you've actually seen with with the number of customers you have today.
Yes, so Steve we have some of the data available and then we have to deal with some of it offline I think but generally like I said it and the way you phrase. The question is absolutely accurate, we're very pleased with.
And that the progress with the digital platform and and Covid, probably helped to be very honest last year with the restrictions and mobility.
But to have $1 $2 billion of orders come in and through the platform and we are expecting 2 billion. This year. So continued really good growth and we're also seeing an increase and online payments, which we do expect to see from customers to actually double in 2021, and we'll have to get you the percentage of.
Of customers, but the customers that are digitally active we do have some data now that is quite interesting and what we're finding is that and customers that are digitally active we have a 30% improvement and share of wallet and actually the revenue we get from customers that are digitally active with is actually double that of <unk>.
Non digital customers and our churn rate is 60% less. So these are all very good indicators that the program is value, adding for our customers for both them and for us.
And if you look at the program that we're rolling out in 2021, we're pretty excited about our offering so we're going to add even more of our products to the platform. So we're still working on the percentage of our products to get on the digital E Commerce platform and we rolled out the field planning capability, which is really exciting growers can go in now and basically create and entire.
Field plan.
Each of their fields for their crops.
And I call it and digital model of their farm and then they can take that plan to a contract right away and digital contract with us and they can even order the products and services now online so the digital experience now.
It goes right from the beginning of the planning process to the commercial connection to nutrients and then just in January we tightened our nutrient and finance capability on a pilot of a set of pilot programs with our very large digitally active customers and the feedback we're getting is really quite strong and positive and we think that that'll be and.
Good reason to kind of get digitally engaged with the nutrients platform.
For growers so.
And the journey, we're on is more and more investment and trying to drive up more of our customers on the platform and as they hear more about it I think that the.
The feedback we're getting is quite positive we'll have to follow up with you on the exact numbers I don't have those at my fingertips.
Your next question comes from the line of Jonas <unk> from Bernstein. Your line is open.
Thank you.
I appreciate the enthusiasm of our owner operator.
Looking at the potash forecast.
And it looks like outside of other Asia practically every region you are forecasting.
More or less flat.
For 'twenty, one and over 'twenty, and we changed the pricing given the strength of the AG environment and.
And your commentary so I guess the two part question is the first.
And does that reflect the strong fall application took some of the 'twenty, one volume and already put it in the ground.
And B.
What do you think like that.
<unk> ability is here as well.
Could we see more than your projections here.
Yes, so I think look.
I'll have to get into a bit of detail here, Ken why don't you kind of look at each of the regions and what Youre seeing from a demand perspective, and then or are part of that if you can hopefully that will help you understand that we're actually thinking look the global market demand is going to be up a couple of million tonnes and we expect that the nutrient volumes.
Followed that but so that's the macro backdrop, but maybe.
We'll just have a quick look at the region. So can go ahead.
Yeah and.
John Thanks for the question yes.
I guess one of the things that we're we're staring at us in fact, we have seen record.
Shipments and consumption and several regions across the globe in 2020, and so the starting point is actually record global demand from 68 million tonnes in 2020.
China and was at $16 1 million tonnes, that's more than they've ever remember consumed Brazil was 11 <unk>.
And a 5 million tonnes debt up from.
And I was sort of $10 5 million ton previous record. So the starting point is already record global demand and as Chuck said.
We're expecting it to grow from there and maybe one or 2 million tons.
So when we look at the range is again, China, we're expecting a bit of demand growth there and that that's on top of record demand in 2020, India.
And we saw a 1 million ton growth from 19 to 20, we're expecting it to be and sort of that four and five to 5 million ton range, which is the.
Sort of the three year average.
Saw record strong demand in North America, we've talked about that on this call and we expect strong demand for all the reasons, Jason Newton described earlier, and North America, and in Indonesia, and Malaysia, as I said earlier and we're expecting.
And to go up this year.
And so those are those are the big regions that we serve and again when you add it all up building on a very strong record global demand and 2020, and we're expecting further growth into 2021.
Your next question comes from the line of Michael <unk> from TD Securities. Your line is open.
Thanks, Yeah at your Investor Day, and late November you provided and expectation for 2021 global nitrogen demand of 156 million tons are up about two 5% year over year at that point.
Just wondering if that still holds true or if you have any updated views on global nitrogen demand expectations for this year.
Okay, Michael Jason Newton can answer that question go ahead, Jason Yeah. Good morning, Michael Yes, that's that's in line with where we'd expect the demand growth to be in 2021, I think versus where we were in November 2020.
Probably ended up a little bit stronger.
And so it's still 2.5% growth and 2021, but from a stronger base in 2020.
Operator, we're coming up to the hour here and we know there's another call. After this so we thank everybody for joining us today, if you've got any questions investor relations and available and.
So thank you.
That concludes today's conference call. Thank you everybody for joining you may now disconnect.
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