Nutrien Ltd.

Ladies and gentlemen, thank you for standing by, and welcome to the Nutrien 2020 First Quarter Earnings Conference Call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Rich Downey, Vice President of Investor Relations. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and welcome to Nutrien's conference call to discuss our first quarter 2020 results and outlook. On the phone with us today is Mr. Chuck McGraw, President and CEO of Nutrien, Mr. Pedro Farrar, our CFO, and the heads of our three business units. As we conduct this conference call, various statements that we make about future expectations, 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 about 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 Negro.

Thanks, Richard, and good morning, everyone, and welcome to Nutrien's first quarter 2020 earnings call. Our management team is calling from various locations around North America, ensuring we are following social distancing protocols, and we sure hope that you are listening in from somewhere safe as well. You don't need to look any further than your local community to be reminded how important the agricultural industry is to our daily lives. As grocery stores experience lineups and empty shelves, crop input companies like Nutrien were designated an essential or critical service by governments around the world. for clear reasons. Nutrient's top priority is ensuring the safety and health of our more than 25,000 employees globally and the communities in which we live and operate. This is fundamental to Nutrient's culture and is at the heart of every decision that we have made to manage through this global pandemic. Our COVID response team has been working with world-class advisors to develop policies, practices, and business continuity plans that can help safeguard all of our stakeholders. This commitment to our stakeholders extends to the $20 million of community investment program where we recently increased funding to food related programs by $1 million. Additionally, we donated protective equipment to local health authorities and began producing hand sanitizer at select facilities to share with local communities. Nutrien continues to produce and deliver crop inputs in a safe and efficient manner, and COVID-19 has so far had limited direct impact on our operations or on demand for crop inputs. I would like to take a moment to thank all of our employees for their commitment and dedication to conducting their very important work in some challenging and unusual circumstances. Nutrien has a strong balance sheet. A stable and growing dividend and we continue to expect to generate strong free cash flow. Our first quarter results were in line with our expectations and we believe our first half earnings will remain similar to our expectations from the start of the year. The current situation also highlights benefits from our recent investment in our industry-leading digital platform. We've had tremendous engagement As the tool provides a more convenient, highly efficient and safe way to conduct business. In the first quarter, we had over $200 million of orders come in through the digital platform, of which 36 million was from our newly launched CDAP. About 40% of our retail products that were available online were ordered through the digital platform, nearly four times higher than our 2019 results. We said that we have the world's best agricultural e-commerce platform and our numbers are clearly showing this. We intend to build on these strengths and have allocated about $60 million in 2020 to accelerate new functionality and tools for our customers and our agronomists. Also, out of an abundance of caution, we move very quickly to increase our financial flexibility. First, we enhanced our liquidity and cash position by increasing short-term debt facilities and drawing upon available credit lines. This ensures our business can operate efficiently through these unprecedented times and was done as a precaution for working capital requirements, facilitating sales, and managing our capital structure. At the end of the quarter, we had over $3 billion of cash on hand with access to another $2 billion of credit lines. To date, we've added an additional $1.5 billion of committed credit facilities. As such, we are well positioned from a cash and liquidity perspective to weather any potential storm. Our leverage remains within our targeted range of two to three times of annual EBITDA through the cycle. Our single financial debt covenant of debt to capital is 41%, well below the covenant ratio limit of 65%. Second, we deferred more than half a billion dollars of capital projects that don't impact our safety or reliability of our operations. While we continue to adapt to the current situation, Nutrien's strategy remains on course and the company is in solid financial position with a strong balance sheet, exceptional quality assets, a stable and growing dividend, and ample liquidity. Now let's turn to the results for the quarter and the market update. Nutrien delivered $508 million of adjusted EBITDA in what is a seasonally slow quarter. Retail sales were up 30% in the first quarter, despite lower crop nutrient prices this year. 60% of the growth was from acquisitions and 40% from organic growth, which was supported by strong performance from our extensive proprietary products line and our online platform. The Australian retail business performed extremely well, and we are making great progress on integrating the rural co-business, and we are well ahead of our planned synergy target by over 35 million Australian dollars. We also continue to advance our growth strategy in Brazil, announcing the acquisition of TecAgro, a leading ag retailer and soybean seed producer. With this acquisition, we expect our existing investments in Brazil to contribute Half a billion dollars of annual revenue. In potash, our EBITDA declined this quarter due to lower selling prices. Strong North American sales volumes largely offset weaker international volumes. The increase in North American sales reflected the increase in seeded acreage and solid application rates supported by soil fertility requirements after several seasons of missed applications. Offshore sales declined about 10% due to cautious spot purchasing in some international markets, and we continue to be focused on our controllables, reporting a stable potash production cost of $60 per tonne. Turning to nitrogen and phosphate, nitrogen EBITDA was down due to lower nitrogen prices. We grew sales volumes by about 300,000 tonnes this quarter, supported by recent brownfield capacity expansions. and we also benefited from lower North American gas costs. Our phosphate EBITDA was down slightly from last year. While our industrial phosphate business performed well, it could not fully offset the impact from lower DAT and MAT prices compared to last year. There are several factors that will support solid crop input demand this spring. In fact, we are seeing excellent crop input demand across North America and Australia this season. While crop prices have recently come under pressure from a slowdown in non-food demand, U.S. farmers are still expecting to plant an additional 15 million acres this year, and planting is progressing well despite COVID-19. We expect U.S. corn acres to come in between 94 and 96 million acres this year, slightly lower than the USDA's March estimate of 97 million acres. The harvest in Brazil is nearly complete, and most growers have locked in profits on their current soybean crop. Indications are they've also forward contracted a greater portion of next year's crop. Brazilian grower economics continue to be strong, and despite some dry conditions there, we expect strong soybean acreage growth again this year. There are also several recent supportive U.S. government programs for agriculture. The U.S. Coronavirus Food Assistance Program will provide $19 billion in immediate and direct support to farmers and ranchers who have been negatively impacted by COVID-19 and in direct support of food purchase and distribution programs. Congress is also considering funding for ethanol producers, and Nutrien is working with our biofuel partners to support this effort. Also, phase one of the US-China agricultural trade deal is being implemented, as highlighted by recent corn exports. We believe the deal will be highly supportive for US growers. However, no company is immune to the recent volatility. For our business, we believe the uncertainty is predominantly in the second half of the year. We have lowered our 2020 annual adjusted EBITDA guidance to $3.5 to $3.9 billion, incorporating the risks as we see them today. The biggest change has been to our potash business, where we've lowered full-year EBITDA guidance by about $300 million. Despite solid potash demand in the US, cautious buying in international markets has weighed on global demand and prices. The recent China potash contract is expected to add clarity to the market and should accelerate offshore shipments over the next couple of months. However, we've lowered our 2020 global potash Shipment forecast by about a million tons to 65 to 67 million tons to reflect China market dynamics, a relatively slow start to the year outside of the U.S. and expected impact from lower biofuel demand. We are working with Campitex to determine our next steps in terms of volumes and length of contract in China, but it does provide a floor and we have already seen more demand and higher prices In retail, we maintained our 2020 EBITDA guidance of $1.4 to $1.5 billion, given the fundamental resilience of the business and what we are seeing so far in Q2. This is despite an estimated $25 to $50 million of FX headwind for our non-US-based retail operations, as a result of a much stronger US dollar. We are monitoring the increased risk in the second half of the year from impacts to parts of the food supply chain, including fruit and vegetables, dairy and livestock, which has the potential to impact crop inputs over time. In nitrogen, some of our industrial customers are experiencing lower demand for their products as a result of COVID-19 impacts on the broader economy. As such, we've lowered our expectations for ammonia and nitrates demand in 2020. And due to the current ammonia prices, we made the decision to temporarily curtail production at one of our ammonia plants in Trinidad. While a lot has changed over the past few months, what remains constant is food security is vital. Many of us have come to expect that food would always be available at the grocery store. The current situation is a stark reminder that this is something we can no longer accept as a given. As always, Nutrien is there to support our customers to ensure they have inputs they need to supply world's food through this challenging time. Nutrien's integrated model is designed to perform well despite economic volatility. This is supported by our people, our strategy, the quality and mix of our assets, and the importance of the demand for food and crop inputs. We have a strong balance sheet, a stable and growing dividend and significant free cash flow generation potential. We remain focused on long-term value creation, which includes continuing to grow our business to feed the future and returning capital to our shareholders. Finally, we are committed to leading the way in sustainability for our industry. We issued our 2020 ESG report in April, highlighting our approach and future plans, and I'm pleased to announce Charlotte Hillebrandt recently joined our leadership team as executive vice president of stakeholder relations and will be our chief sustainability officer. She brings exceptional experience to the role and makes Nutrien one of only a small group of companies in the Fortune 500 to have a CSO at this level. Given our position as the world's largest provider of crop inputs and solutions, our access to technology, our deep relationship with growers, We are in a unique position to take a leadership role in innovative and sustainable agronomic practices, and we have every intention of doing that. With that, operator, I'll turn it over for questions.