Corteva, Inc.

Good day, everyone, and welcome to the Corteva Fourth Quarter 2020 earnings call. Today's call is being recorded. At this time, I would like to turn the conference over to Jeff Rudolph. Please go ahead.

Good morning, and welcome to

Corteva'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, Tim Glenn, Executive Vice President and Chief Commercial Officer, and Rajan Gajaria, Executive Vice President of Business Platforms, will join a live 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 Corteva website and through the link to our webcast. During this call, we will make forward-looking statements, which are our expectations for or 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 factors discussed in the comments made during this conference call and in the risk factors sections of our Form 10-K, Forms 10-Q, and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement. We provide a pro forma basis discussion in our earnings release and slides. Unless otherwise specified, certain historical financial measures are presented today on a non-GAAP or adjusted basis and exclude significant items and other charges and net benefits, which can be found in the schedule that accompany our earnings release. On 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 provide the 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 in accordance with GAAP. It is 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, as I reflect on the year, 2020 was a year of profound societal and economic disruptions globally. Despite these challenges, I'm extremely proud of the continued resiliency of our company. Our global teams have worked aggressively to keep our employees and customers safe, our supply chains open, and our growth commitments on track. Our progress as a company in managing through the pandemic and other disruptions over the last year confirms the strength and durability of our strategy. Underpending our progress is our strong organic sales growth for the full year, where our teams deliver gains in both seed and crop protection and across all regions. Transforming our cost structure remains a priority for Corteva to deliver on our targeted earnings growth. We demonstrated our commitment to cost reductions in 2020 by managing spending and delivering on our productivity programs. These savings were mostly offset from headwinds that we had anticipated, such as higher input costs and 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 $1 billion over the prior year, as a result of the organization's focus 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 a year in which we will accelerate on our path and expect to capitalize on the significant momentum we have built, as the investments we made since 2017 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, the launch of Bravant in the U.S. retail channel, and the continued advancement of our crop protection pipeline following 2020, where we obtained more than 140 registrations globally for new active ingredients and formulations that we will start selling in 2021. We recognize 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 in our earnings. For 2021, I am confident that we have made the necessary adjustments and are well positioned to deliver 15 to 20 percent operating EBITDA improvement for the year, including 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 planned 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 to complete most of the repurchases by mid-year while maintaining our strong balance sheet and investing for growth. The bottom line, we view 2021 as a big step forward for Corteva, and I am confident we remain on track and laser focused on delivering on our midterm 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 double digit organic growth through the year in both Latin America and Asia Pacific, continued penetration of new and differentiated technology drove the increases, including 2% pricing in our corn and soybean portfolios globally. On operating EBITDA, 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 and exchange rates late in the fourth quarter. As a result, despite a 15 basis point decline in 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 the discussion to the market backdrop on slide six. While more resilient than some other sectors, the ag markets faced unexpected impacts resulted from the COVID related disruptions. Throughout the year, we observed tremendous volatility, including commodity demand levels, acreage levels, and foreign currency exchange rates. As our business is highly sensitive to these movements, we have closely and continuously monitored market conditions and remain agile to adjust our actions accordingly. As we entered the fourth quarter, fundamentals shifted and the outlook began to improve. Commodity 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 to higher commodity prices, which also leads to improved outlook on farm income levels, resulting in the highest levels we've seen in seven years. Government stimulus payments in 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 as strengthening ag fundamentals add additional support to our expectations to further accelerate our strategy and deliver strong growth in 2021. Now moving to slide seven for full year highlights on the top line performance from our teams around the globe. In North America, we delivered organic sales growth of 4% for the year, powered by high performing technologies like Chrome corn seed, which provides growers an approximate 8 to 10 bushel per acre yield advantage over comparable products. In soybeans, as the recovery in 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 in accelerating the ramp up of our Enlist system. While we entered 2020 expecting Enlist E3 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. That has helped drive strong early demand for Enlist herbicides, which delivered $140 million in fourth quarter sales, more than double the prior year period. The full Enlist system delivered approximately $440 million in sales for the year, and we could not be more excited about how the system is gaining traction in the market. In Europe, Middle East and Africa, organic sales grew 8% in 2020 on strong demand for new and differentiated crop protection products, such as Aralex and Rinscore herbicides. Aralex is a 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 in sustainable chemistry solutions. An area of growing demand where we have highly effective products in the market and in our pipeline. In 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 RAI 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 in the Brazil's Safrania market while we continued to drive adoption of our novel crop protection products. The teams displayed strong execution on managing the volatility of local currency, which is evident in the $150 million in pricing for currency in Brazil for the year. In 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 Rinscore and Aralex herbicides, as well as other advantage products like the spinosan insecticide. During the period, we also benefited from strong demand for seeds in India. Moving to slide 8 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 in 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 in net operating EBITDA improvement for the year. This improvement reflects execution on the $230 million in 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. It predominantly reflects the impact of asset divestitures in 2019. Lastly, gross currency impact to operating EBITDA was approximately $330 million before pricing and was predominantly due to the devaluation of the Brazilian REI. To offset this headwind, local teams delivered approximately $150 million in pricing for resulting in a net currency headwind of approximately $180 million for the year. Our growth initiatives are taking hold, and we continue to take action to reduce costs and drive productivity across the organization. Yesterday, we announced a restructuring program that includes facilities consolidations, footprint efficiencies, and headcount reductions. This is part of delivering on our broader productivity programs. We are confident that we have reached the point where the investments we have made over the past few years will begin to accelerate earnings growth in 2021 and beyond. Now I'll turn it over to Greg to provide more detail on our results and the 2021 outlook.

Thanks, Jim. Moving to slide nine and a more in-depth look at our performance in the crop protection segment, organic sales for the fourth quarter grew 21 percent, driven by an 11 percent improvement in volume and a 10 percent improvement in price. Robust demand for enlist herbicides coupled with fall applications of ophthalite in North America drove organic sales up 31 percent over prior year. Strong demand for our new products and pricing actions to offset currency also led to organic growth of 21 percent in Latin America and 17 percent in Asia Pacific for the quarter. Coupled with our productivity actions, this growth drove an approximate 70 basis point operating EBITDA margin benefit for the segment in the quarter, despite the net impact of asset divestitures in 2019. For the full year, organic sales increased 11 percent, supported by continued growth in new products and in our differentiated spinosans insecticide, both of double digits on an organic basis over prior year. This growth was partially offset by our strategic decision to phase out clopriaphos and ramp down of selected low margin third party products. Overall, crop protection results reflects price and volume gains in all regions, showing the balance and diversity of our new and differentiated products globally, as well as our ability to grow organically above the market. Despite this organic sales growth, operating EBITDA for the segment has declined for the year due to the impact of currency coupled with higher input costs, investments to support growth and the impact of asset divestitures in 2019. On costs, as we mentioned last quarter, we have taken several actions starting back at the completion of the merger in 2017 to streamline our manufacturing operations to drive better operating leverage in crop protection. Given the regulatory approval requirements in each of the jurisdictions where we sell it takes several years for the benefit of our asset footprint actions to impact the bottom line. We should begin to see those benefits in 2021. On currency, we have recognized approximately 150 million in pricing for the year to offset the weakening Brazilian real. And pricing will continue to be a strategic lever for us going forward. Moving to the seed segment on slide 10, organic sales for the fourth quarter were up 9% driven by strong saffronia corn sales in Brazil and deliveries in 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 currency and higher commodity costs. Full year organic sales grew 6% due to the soybean acreage rebound and improved price in North America, market share gains in Brazil and Europe corn, and strong volume and price gains on new products, particularly Chrome, PowerCore Ultra, and Enlist E3 soybeans. Overall, price and volume gains coupled with productivity actions drove an approximate 190 basis point operating EBITDA margin benefit for the segment for the year. Turning now to slide 11, I'll provide our full year guidance for 2021. Starting with net sales, we expect reported net sales to be between 14.4 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 in 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. On operating EBITDA, we expect to deliver between 2.4 and 2.5 billion, an improvement of 17% year over year at the midpoint. With our expected top line growth and continued focus on delivering cost savings commitments, we expect to improve operating EBITDA margins by over 200 basis points on 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 in 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 corn and soybean area will increase between 5 and 8 million acres. Based on relative commodities 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 perspective planting estimates published by the USDA. In terms of enlist expectations, consistent with what we shared on our third quarter call, we believe we could have greater than 35% of our units in enlist E3 next year and anticipate as much as 30% of the soybean units in North America will carry the enlist E3 trait. On seed pricing, we expect to maintain our 2020 momentum and continue to extract value for yield advantage technology in corn globally, including further penetration of chrome in our corn lineup. Turning to crop protection, we expect to deliver continued growth in our new product sales. This growth is underpinned by strong market demand for enlist and Erilec herbicides and continued penetration of isoclast insecticide globally. In total, we expect new crop protection products to contribute approximately 300 million in incremental sales growth during 2021. With respect to our differentiated technologies, we expect to release an additional 10% of spinosan's capacity in 2021, resulting in approximately 80 million of additional sales opportunity, as demand will continue to exceed supply for this product in a growing targeted segment of the market. As I've mentioned, we have made strategic decisions to phase out chlorpyrifos and to 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 to cost, we are targeting approximately 150 million in net cost savings in 2021, which includes 250 million in savings from our productivity programs, mostly related to the manufacturing and supply chain rationalization work we have underway in crop protection. We also expect the majority of our COVID-related savings in 2020 will be sustained in 2021. These savings will be partially offset by an approximate 100 million headwind in seed input costs as a result of higher grower compensation costs due to rising commodity prices, along with unfavorable yields in Europe. Finally, on currency, we expect a headwind in 2021 given the change in the -over-year rates for the Brazilian real and seasonality. Pricing will continue to be a lever to offset this impact as our commercial teams in Brazil actively price for changes in local currency. We anticipate we will recognize approximately 100 million in pricing for the year, reflecting a rate of approximately 550. Through our dynamic pricing, coupled with the financial instruments we have in place, we expect to further reduce volatility in our guidance and will continually monitor movement in 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 midterm. 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 in cash and investments. That's after returning more than $660 million as shareholders this year through dividends and share repurchases. Building on this momentum, we expect to generate between $3 and $3.5 billion of operating cash flow in 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 investments in the business annually. These investments will reinforce and renew our innovation and market capabilities. We will also continue to explore paths to optimize our portfolio through opportunistic both on M&A, including 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 midterm. As you can see, we view the cash generation capabilities of this business as very strong, and we are excited to share more details as we move forward in our journey. With that, I'll turn it back to Jim.

Thanks, Greg. Turning to slide 14, I would like to emphasize a few key points before we take your questions. We've made tremendous progress in the short time we've been an 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 in 2021 and beyond, including progressing on our products through the ramp up of our proprietary enlist system and strengthening our advantage multi-channel, multi-brand route to market, continuing to transform our crop protection portfolio and enhance our higher value product mix, and further streamlining costs and discipline execution on our productivity actions. We will also maintain our balanced capital allocation program, continuing to return cash to shareholders, even as we invest in long-term sustainable growth. Corteva's board and management team are fully aligned on a 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 that benefit all of our shareholders. At Corteva, we believe in 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 our 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 costs and productivity. So as I consider our path ahead, there is no doubt we have aligned our culture and gained the trust of our customers. At the same time, we have the right products, and our portfolio transformation is underway, 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 importantly, puts Corteva fully on track to achieve our midterm 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 cautions on forward-looking statements, non-GAP 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 a question, please signal by pressing star one on your telephone keypad. If you're 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'll take our first question from Joel Jackson with BMO Capital Markets.

Good morning, everyone. Good morning, Joel. Jim and Greg, as we look at your 2021 bridge on slide 12, could you maybe outline where you think the guidance is most conservative and where you think it's most aggressive? Thank you.

Great. Thanks, Joel. And yeah, as we've said in the opening comments, 2021 is a big step forward for us. And I really believe we've reached an 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 at the starting point for 2021, 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've guided for 2021, as you see on the chart, a 15 to 20% improvement in EBITDA, and that's a 200 basis point improvement in EBITDA margin. So I believe that guide is strong and it's realistic. And as you've asked, let me give you some proof points on why I have some confidence in it. Two thirds of the improvement in 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, a number of footprint reduction projects as they have started to flow through cost of sales. And you can really begin to see that in our CP 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 of incremental new product sales, and then you start to unleash the spinosan capacity that we have been investing in. And so overall, you get about $400 million of growth there. 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, we've got those behind us now. And so the numbers we're talking to you about are our net numbers. And then about a third of that improvement next year is tied to our seed business. And you really got to start that discussion by just looking at Latin America, the tremendous momentum we carried in the fourth quarter. And then you add to that expectations of five to eight million acres of new crop coming back into corn and soybeans in North America. Probably heavily weighted to soybeans, but it's real out there. You can see it tied to the really strong demand that's in the marketplace, and that's being reflected in commodity prices. And then the other confidence I have in our seed business is with respect to pricing. You look at what we delivered in 2020, kind of 2% price improvement in corn and 2% price improvement in soybeans globally. We've got a track record now there, and so we're going to count on that track record. We will have a little headwind in the seed business tied to commodity prices and cost of sales. And then don't forget about Bravant as we're thinking about the bridge next year. We're just scratching the surface of what Bravant and as well as Enlist is going to be able to deliver for us. So I think this is a strong and realistic guide for 2021, and I have a lot of confidence in this plan and my team that we can deliver that.

We'll take our next question from David Begleiter with Deutsche Bank. Please go ahead.

Thank you. Good morning. Jim, on your 2022 target, which implies about, I think, about $2.95 billion at the midpoint, can you bridge that roughly $500 million increase versus 21 -a-vis cost, new products, productivity, et cetera?

Great, David. Thanks for the question. And you're right. In our outline, our prepared remarks today, we really are affirming our midterm targets. And that's that kind of 12% to 16% EBITDA growth using that 2019 as a baseline. So we're not going to provide guidance for 2022, specific guidance for 2022, but we do see that continued momentum that I was just talking about that we have going into 2021. And so it's a little hard to sit here today and predict the market in 2022, but we can't talk about the levers that are still going to be within our control that have given me confidence to confirm those midterm targets. And you start in seed with really Enlist. And in 2021, we're just scratching the surface on the margin lift that Enlist can deliver for us. By 2022, we're really into the noticeable improvement in net royalty expense as we not only ramp up the top line revenue, but we ramp up the proprietary portion of those sales that are in Corteva, Jermplasm. And then we're going to continue to see improvement in the rest of our portfolio in a few other areas. And then I mentioned I always need to keep reminding folks about Bravant. Again, 2021, it's going to be a good year, a good start year for us, but 2022 will allow us to continue that momentum into that retail channel with Bravant. On crop protection, the main story there is momentum. We delivered 250 million of new product incremental revenue in 2020. 2021 is going to be another strong year with about $300 million of incremental from those new products. We had 140 new product registrations that we received right here at the end of 2020 that will just start having momentum in 2021, and you'll feel that again in 2022. And then on top of the top line revenue that we'll get from crop protection, by 2022 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 up, you know, we start to spread that fixed cost over a much broader base. So you're seeing some of that in 2021, but as those new product sales continue to ramp, it shows up in 2022. On top of that, the further improvements that you're going to see from the asset footprint work that we're doing, and we've got a good start of that this year coming up and it'll show up next year. So all of these levers we really have within our control, and again, while it's early, we've still got, you know, 21 to get through and tough, 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 help us to those midterm targets.

All right, and we'll take our next question from Vincent Andrews with Morgan Stanley.

Thank you, and good morning, everyone. Jim, if I could ask you on seed production costs, you know, I believe they were up in 2020 somewhere in the 75 to 100 million dollar range, and most of that was on production issues, and I think in soy, and then this year talking about another 100 million. So on a two-year stack, my math's right, you're up 175 to 200, and I guess my question is if we have sort of normal production in the US and Europe this year and if the futures curve for corn and soy is correct and commodity prices are lower into next year, does that mean there's going to be a 170 to 200 million dollar seed production cost tailwind in 2022, or would some of that be eaten up by, you know, 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 dollars in seed input cost headwinds. Those are predominantly due to the higher commodity prices for soybeans that impact our grower compensation program, the way we compensate growers for producing seed. And we also had lower seed field yields in Europe. It was a tough seed production year. So just as background, you know, we go out and we contract with independent growers to produce our commercial seed, and they have the opportunity to lock in a commodity price rate during a window, and especially with soybeans, as we saw that run up late in the season, they locked in at higher rates. You know, we go into every year with our best foot forward, so as we put seed in the ground in 2021 for 2022 production, clearly we will lap those higher commodity prices, and if we see some tail off there, we'll benefit from that. And we'll expect to always have, you know, good solid yield production in our fields. We work with a lot of irrigated fields, so we try to take the weather out of that as much as possible. So we've seen good trends, and I think we've got a lot in play that should help support us as we come out of 2021 into 2022.

We'll take our next question from PJ Jubicar with Citi.

Yes, hi, good morning. A couple of related questions, Jim, on seeds. Are you seeing that farmers are willing to buy higher priced seeds given that they have strong disposable income this year? And just related to that, on your fixed minimum royalty payments that you have through 2023, you know, which I think that's more of a cash flow item, can you talk about the income statement impact as you ramp up volumes of NLIST E3 and ramp down volumes of Roundup Ready to yield? Thank you.

Great, good morning, PJ. I'll talk to the pricing question and maybe have Greg walk you through the impacts of the way that balance sheet and royalties flow. As we think about the market this season, 2021, it's always a competitive marketplace, and it will be just as competitive as we saw in 2020, even with the commodity pricing backdrop. So we're going to continue to go out there and get paid for the value that we deliver to growers, especially when it comes to the yield advantage technology that we're putting out there, and most notably, we really do see that in corn. And we've established a really strong track record that I mentioned earlier of extracting that value for our technology, and all you've got to do is go back and look at our 2020 performance, where we delivered 2% pricing in 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 as we sit here today, we're very pleased with the pace of the orders that are coming in, in both our Pioneer brand in North America as well as Bravant brand through those channels. And so I'm confident on that value question that we'll carry that momentum into 2021. Greg, want to talk a little bit about royalties?

Yeah, speaking on royalties, we are in 2020 relatively flat on our royalty spend, and we'll continue into 2021 pretty much on the same basis. As we go into 2022 and start ramping up more of our proprietary products in germplasm, we'll start to see that royalty expense come down. And that will continue beyond 2022 through the rollout of Enlist through the end of the decade. We do, as you know, have some minimum payments that we make every year. Those will end in 2023. Thanks, P.J.

We'll take our next question from Arun Viswanathan with RBC Capital Markets.

Great, thanks for taking my question. Congratulations on the progress in 2020. I just wanted to, I guess, ask about the margin progression and evolution that you're seeing and you've achieved and you 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 in 2021, and you've outlined some new restructuring initiatives for footprint optimization and such. Do you see maybe this is a first step and maybe some other projects down the road? Maybe you can expand on the opportunities that you see and if so, where do you think margins ultimately can get to and what would it be dependent on? Would it be dependent on maybe further market growth or some inorganic growth or maybe some different asset structuring or potentially even some different business lines like formulation or anything like that? So there's a lot in there, but maybe you can address some of that. Thanks.

Great, great, Arun, and thanks for your comments as well. You know, due to the merger, we did inherit a number of U.S. manufacturing locations that have been more expensive than, you know, what I had personally experienced in the past around a more outsourced 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 close of the merger, we've shut down nine manufacturing assets and we are starting to see the benefits of those lower cost supply chains. So I do believe that 2021 is really an 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 the regulatory hurdles. Every time you make a change in your supply chain, you have to go back and resubmit dossiers to regulatory authorities in every country around the world. So you saw some restructuring, the 8K that we filed that had restructuring in it. That's just part of those programs that we've talked about and will just kind of continue to roll forward. So in our guides, in our confirmation of our midterm targets, we've included those strategic decisions in those guides. It's one of the tools that we have, one of the ways that we get there and have confidence that they're achievable. And then we're always looking for opportunities and new ideas. We take every one of our active ingredients that we produce and we ask ourselves a question, can we be the lowest cost producer of that product? And when that answer is no, the teams begin looking for alternate sources. And when that answer is yes, but we need project work to get there, we begin to put those initiatives in place to drive that. So the best example I can point to is if you look at 2021's EBITDA improvement, two-thirds of that improvement is going to be coming from those initiatives in our 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 in each one of those manufacturing units and those cost of sales points to be able to point to that.

All right, we'll take our next question from Jeff Isikakis with JPMorgan.

Thanks very much. Faber, I have a question about your conservative operating cash flow guidance. In that, your 21-22 total is $3 to $3.5 billion. So let's call it, I don't know, $1.7 billion a year. This year, your operating cash flow was $2 billion. If you subtract out your working capital benefits, maybe it's $1.7. So you're sort of saying that your operating cash flow is not really going to change very much from that base. And there will be a little bit more working capital, but your EBITDA, you think will go from like $2 to $3 billion over to 2022. So I don't understand why you would be generating so much EBITDA and so little operating cash flow. And then secondly, your pension liability really went down in the fourth quarter from, I think sequentially from something like $5.8 billion to $5.1, but interest rates really fell year over year. And I would have thought that there would have been an adjustment in the opposite direction. So can you explain what happened to pension and can you explain why there's so little growth in operating cash flow?

Great, Jeff. Thanks for the question. Let me just start by saying I'm really proud of how the team performed in 2020 from a cash flow perspective. You've seen the numbers that we've talked about. And also the plan that we put in place for 2021. And that includes returning about, for 2021, 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 as you talked with EBITDA and for the discussion of what happened to the pension.

So specifically on cash flow, we had a very strong cash generation year as you commented this year. A lot of that was driven by real specific actions that we took to manage our working capital and also manage our capital spending, particularly during the pandemic. What also happened towards the end of the year is we saw some very good cash generation by our customers through the government programs that they received some benefit from. And in addition to that, the rise in commodity prices towards the end of the year also generated some incremental income for our customers. And we got the benefit of that with some cash generation at the end of the year. As we go into 2021 and beyond, we are looking at increasing our capital spending. We were at $475 in 2020. And you'll see in our guide that we've included capex at about $550 in 2021. So we put some of our capex on hold and we plan to reinvest in our growth projects in 2021 and beyond. In addition to that, we do expect to return to a more normal cash credit mix with our customers. So there will be some changes in working capital as we move through 2021 and assuming a more normalized cash credit mix. Great.

And you want to talk about pension? Yes.

So on pension specifically, we saw a net decrease in the obligation. And that was driven by two things. Number one, an increase in the gross obligation given discount rates. And that was offset by our asset returns.

And the other thing, Jeff, just to highlight is our unfunded balance declined. And that was mostly due to changes in the OPEB obligation as a result of some changes that we made in benefits.

All right. And we'll take our next question from Jonas Oxguard with Bernstein. Please go ahead.

Good morning.

You mentioned earlier that you were seeing some share gains in South America crop protection. I was wondering if you could expand on share gains in corn, soybean and crop protection in other regions. And then as a follow-up, how do you see that evolving this year?

Yeah, great, Jonas. Thanks. We are confident that we gained corn market share for sure in Europe and in Brazil, both in the soprenia season as well as summer. And we've got just a fantastic lineup and our teams really executed very, very well. You know, it's a little too early to call on share gains in 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 a county level. So we'll kind of have that final call on North America in mid-March. But look, I'm confident that we held share at least for sure in corn in North America while delivering above market share, above market pricing gains. So our story in North America was really all about value. And in soybeans, from a global perspective, we saw some slight declines in volumes. But for us, it's the U.S. that really matters. And our U.S. seed volumes in soybeans were up. So I'm pretty confident in soy as well. We held. If not, we were up slightly. And one more time, in soybeans, that 2% pricing on a look-back basis shows that we not only held, if not gained slightly, and drove much higher value. So those are the big markets. But maybe, Tim, you want to share either the broader perspective of how we're doing on market shares and other markets around the world, other crops?

Yeah, Tim, maybe I had a couple comments on the crop protection side especially. Looking back at 2020, I think we can confidently say we gained share in crop protection, I think on a global basis. We obviously are still in the early days and we don't have all the competitive metrics in place. But it certainly seems like on a global basis that we would have outperformed the market on CPE as well as I think we can confidently say in EMA as well as Asia Pacific. We've been ahead of the market really throughout the year and had strong finishes there. In North America, we've sort of been hanging with the market for most of the year in crop protection and then we had a really strong finish to the year as well. And so we'll see where that puts. But maybe a little optimistic that we will end up above the market for North America with that strong finish. And in Latin America, fair to say that we started off the year behind the market. In the first half, we felt like we were catching as we went through the third quarter and a really strong finish in the fourth quarter as we anticipated. And again, I think much like North America, we have some reason to believe that once everything is tallyed up that we're going to be certainly with the market and maybe just ahead of it on the crop protection side. So in conjunction with the seed share position that Jim talked about, I think we can feel really proud of how we perform versus the market on the crop protection side, again with strong pricing to support it. Great,

Tim. Thanks for mentioning the crop protection. You mentioned Latin America right there at the end. Jonas, our insecticide business in the fourth quarter in Latin America was up 36% and our fungicide business in Latin America up 28%. So as Tim said, really strong close for the year by that team. And on a full year basis, we were also up similar numbers. So we're encouraged by our CP market shares there as well.

Thanks, Jonas.

Our next question comes from Kevin McCarthy with Vertical Research Partners.

Yes, good morning. Just to follow up on capital allocation, it sounds like you're going to be mostly done with your share repurchase commitment by the middle of the year. So how would you describe your potential for future repurchases versus the M&A opportunities that you described, Jim, and fruits and vegetables, digital and biologicals? And then related to that for Greg, can you comment on other cash calls or expectations for 2021 in terms of pension, OPEB, PFAS and any other extraordinary items? Thank you.

Thanks, Kevin. As we've mentioned in our message earlier, we're going to continue to evaluate opportunities to return capital to shareholders. And we view that as a priority in our overall scheme for capital allocation. We mentioned that we are committed to executing the current share repurchase program and now plan to complete, as you said, most of that program by mid-21. That is a further acceleration from where we were and where we communicated back in 3Q. And then in a look forward basis, you look at that combined with our dividend, we'll be a little over $1.1 billion return to shareholders. And at that time, if that program closes out, we'll take a view of all of our obligations and sit down with our board and talk about what's next after that. But look, I'm confident that 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 evolve. Greg?

Yeah, on cash calls, you mentioned pension and OPEB. And specifically with respect to the pension, we continue to be confident that we don't have a required contribution to the pension plan in the next couple of years. In fact, as I mentioned earlier, our returns this year exceeded the cost of the plan, so our funded rate improved. You'll see the details of all of that in the 10K when we issue that in the next several days. So we apologize for not having the details readily available for you for that. Regarding OPEB, no additional cash calls other than what we normally see on an annual basis. And as Jim mentioned, with the changes that we made to the plan, that reduced the liability significantly.

Thanks, Greg.

Thanks,

Kevin.

Our last question will come from Steve Byrne with Bank of America.

Yes, thank you. Good morning. Jim, you mentioned seven-year high on crop commodity prices. If you look at that another way, the growers that are locking in harvest month futures prices today versus what they were doing a year ago, they're looking at $100 an acre higher revenue today than they were a year ago. And so my question for you on that is, how do you think that most affects the decisions those farmers make? Is it seed genetics? Is it shift to branded crop chemicals? Is it application rates? How do you think that most affects your verticals? And then the second question there would be your 2021 guide of a 3% sales growth is the same as it was in 2020. Is it reasonable to see that as not really middle of the road but a -to-miss guide?

Great. Thanks, Steve. Clearly, improving commodity price markets helps the psychology of everybody involved. As what they think, farmers always think about their decisions as investments in their future to drive productivity and yield. So higher commodity prices means they will continue to push for yield and be able to take advantage of that yield. What I like about what we're seeing right now is we feel like the demand side of this equation that's driving those commodity prices is pretty durable for the -two-year term as we look out. China's demand curve seems to be strong as they're rebuilding their pork industry. We know we've got demand for exports in other markets and strong demand for animal feed that we're seeing come back in North America. And with the carryover stocks where we're seeing them. I, like you, believe that we have support for those commodity prices here for the next two or three years. That's driving our acreage assumptions as well. I would expect $182 million corn and soybean acres when you combine them. A 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 soybean acreage. But it's not coming out of corn. So it's really setting up for both a strong corn and bean. When you look at our revenue guide for next year, as you mentioned, just remember that in that guide, that is a net top-line revenue number. And it's net of about $300 million of revenue that we phased out of from 2020 going into 2021. The first of those strategic decisions around chlorpyrifos. And then several other low-margin products, very, very generic and just probably not the right kind of products for our portfolio going forward. So we're certainly in a mix enrichment and refreshment of that portfolio. And basically have the majority of those big strategic decisions now behind us. So back to my comment earlier, I think this guide is a strong and a realistic guide with all of those elements really baked into it. And we still have a full season ahead. We're sitting here early in 2021, a lot to go, but we're confident we've set this at the right spot. Thanks, Steve.

Great. Well, thank you for joining the call today and we appreciate your interesting quick chat.

And that does conclude today's presentation. Thank you for your participation. You may now disconnect.