Nutrien Ltd.

Greetings and welcome to the Nutrients 2021 Second 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, VP of Investor Relations.

Thank you, Operator. Good morning, everyone, and welcome to Nutrients Conference Call to discuss our second quarter results and outlook. On the call with us today is Mr. Mayo Schmidt, President and CEO of Nutrium, and Mr. Pedro Farrar, our CFO. We also have the heads of our business units, Ken Size for potash, Ray Sully for nitrogen and phosphate. For retail, we have Jeff Tarcy and David Elser, and Mark Thompson, who leads our strategy and sustainability group, and of course, our head of market research, Jason Newton. As we conduct this 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. Mayo-Schmidt.

Well, thank you, Richard. And I do want to pause to comment before I get into my prepared remarks. The Nutrien's team and I do want to wish you and your family all the best in your planned retirement, which will occur, of course, later this year, and certainly recognize you and thank you for your 25 years of service to Nutrien. You've been an outstanding member of this team for many years and have enjoyed an exceptional career. You are appreciated and you will be missed. I know you're very pleased to be passing your torch over to Jeff Holzman, who I know many of you already know as our Vice President of Investor Relations. So good morning, everyone, and welcome to Nutrien's second quarter earnings call. Today I will recap the actions our teams have taken to fully benefit from excellent agriculture fundamentals and the demonstration of the advantages of our global integrated business structure. which together allowed us to execute on delivery of record performance for the quarter and for the first half of the year. This morning, I will also provide an update on the outlook and decisive actions that we have taken that allowed us to increase our annual adjusted EBITDA guidance to a midpoint over $6 billion for 2021, an increase of over 33%. Furthermore, we will illustrate the momentum that we will expect to carry forward well into 2022 and how the Nutrien team are enhancing our unique market position to drive value. So first of all, I would like to thank all our employees for the dedication and commitment they demonstrate each and every day in support of our grower customers in the more than 40 countries that we serve and as we work to feed a growing world. These efforts are especially apparent through the busy application seasons when our approximately 3,600 crop advisors are working directly with our grower customers as we produce and safely deliver nearly 30 million tons of potash, nitrogen, and phosphate globally. Myself, the board, and all employees are very proud of how our potash team has responded to increased production significantly from our flexible, reliable, low-cost six-mine network in the second half of the year to ensure our growers around the world have the potash they need to meet the ever-growing demand for food. So now turning to our results, our first half adjusted EBITDA was over $3 billion, up 36% over last year's level. We delivered excellent results across all businesses, geographies, and for most products and services. The key driver was impressive team execution with our well-positioned assets, higher prices for crop and fertilizers, and robust global demand. Our business also generated notable free cash flow of $1.9 billion in the first half of the year. Nutrien Ag Solutions, our retail operations, achieved a 24% year-over-year increase in adjusted EBITDA for the first half of 2021. In fact, almost all of our retail metrics showed significant improvement, and we're on track to meet or exceed our longer-term targets ahead of schedule. When we look across our nutrient businesses, we generated a combined $1.2 billion in adjusted EBITDA in the second quarter. Year-over-year potash earnings up 48%, and nitrogen and phosphate businesses up 45%. The increase was due to continued focus on managing costs, making operational excellence core to everything we do supported by stronger pricing. Our wholesale marketing and sales team execution was outstanding. Our team ensured we did not get over committed too early and optimized our retail distribution system. We evaluate our retail business on a first half and second half basis representing the spring and fall application seasons. In the first six months of this year, we witnessed strong year-over-year performance across all geographies in the majority of our product shelves. Adjusted EBIT in the first six months in the US, Canada, and Australia were up over 20%, driven by organic growth, while our South American team's EBITDA was nearly double last year, driven by their strategic acquisitions. By product shelf, the biggest increase in earnings was for our crop nutrients, per ton margins benefiting from well-placed inventories in a rising fertilizer price environment, as well as record sales volumes. Volumes for crop protection and seed were higher year over year, helping drive a significant increase in growth profit. The increase was also due to improved proprietary product performance across all geographies and products, with profits from all proprietary products up an average of 13% year over year. We also delivered excellent retail performance relative to our long-term targets, adjusted EBITDA percentages surpassing 11.4% compared to 10.3% in the first half of last year, partially supported by strategic fertilizer procurement. Our working capital as a proportion of sales and cash operating coverage far exceeded our long-term targets, and our average EBITDA per location showed significant year-over-year improvement. The ongoing progress in these metrics is made possible by our continued focus on meeting growers' needs while also rationalizing our network, optimizing working capital, and expanding our proprietary product line. We also reported $1.6 billion in digitally-enabled sales in the first half of the year, nearly double the same period in 2020, and processed approximately one-half a million grower payments through our systems. We also continue to grow our retail business in Brazil and recently announced an agreement to acquire Terra Nova, the fourth value-enhancing zillion acquisition in the past 18 months. With this transaction, we operate 33 branches in Brazil and are well on our way to generating $100 million in run rate EBITDA by 2023. Our retail team continues to demonstrate exceptional performance across the board and in all geographies in which we operate. Our Plodash Group performance has been outstanding. Ken and his team responded to market conditions and have fully delivered commitments to our customers while taking action to increase sales and production significantly to ensure our customers have the product they need. We are the only producer globally with the capability to respond. We delivered record volumes in the first half of 2021 and are on track to achieve a full year record. We are focusing all-time high global potash consumption in 2021 due to exceptional spot market demand in the US and Brazil and Southeast Asia, where we saw a significant market recovery this year. The demand has positioned Campotex to place greater emphasis on these higher net back markets compared to contract markets of China and India. Overall, we project to produce nearly 14 million tons of potash in 2021, In fact, by the fourth quarter, we anticipate nutrients to serve potash production to approximately 17 million tons on an annualized equivalent basis. We will continue to be proactive and flexible with our operating rate. Rafe's teams in nitrogen and phosphate delivered excellent results in the first half, capturing much stronger prices, and for nitrogen, achieved a 92% ammonia operating rate despite increased turnaround activity and weather-related challenges. Phosphate margins this quarter reached an impressive $195 per ton, and nitrogen margins averaged $182 a ton. Both were up almost 60% year-over-year despite higher input costs. We continue to benefit from the brownfield expansion projects completed over the past few years, which have both expanded production capability and increased product mix flexibility. These results also demonstrate our ability to leverage the competitive advantages of our extensive production and distribution network to execute on emerging market opportunities. For the near-term outlook, there is a wide range of crop conditions across North America. Crop maturity is generally ahead of normal, which bodes well for the fall application window. We may see some pullback on fertilizer applications in severe drought areas such as western Canada this fall. Overall, in North America, we expect solid crop input demand supported by continued above average crop prices. In Australia, very favorable weather conditions also continue to support strong crop input demand. Some ongoing weather challenges in Brazil have impacted yields for certain crops this year, but the outlook for next season is a further expansion in seeded acreage, which will support demand for all crop inputs. For fertilizers, The current price environment is a result of robust demand for all nutrients, driven by supportive agriculture and industrial market fundamentals. We expect these market dynamics will continue to support prices into 2022. That said, fertilizer affordability is something we watch closely. But even at today's elevated prices, most fertilizer to crop price indices are close to average levels and grower margins continue to be very favorable into 2022. We expect global potash demand in 2021 to be at record levels between 69 and 71 million tons and global inventory levels in key regions to remain very low. There is no news at this point about a potential contract with China or India. However, we continue to believe that China will need to negotiate a new contract before the end of the year as their inventories continue to draw down as Chinese domestic demand has been seen as robust. Campotex is already fully committed right into November and will continue to focus on higher net back regions. We believe the future outlook for our company is excellent. We expect crop prices to remain well above historic levels and fertilizer markets to remain tight. We will also benefit from our ongoing commitments to operational excellence, execution, a keen focus on cost and inventory management, continued value-added growth, and a strengthening return on investment. As such, we raised our consolidated annual adjusted EBITDA guidance by more than $1.5 billion, or over 33%, and our EPS by nearly 70%. This is due to stronger earnings outlook across all business lines and executing on our competitive advantages. We believe this positive earning outlook will continue into 2022 further strengthening our balance sheet. We will maintain our discipline compete for capital approach, which includes the potential for further investment in the business, deleveraging of the balance sheet, and additional returns to our shareholders. Our purpose is to help growers increase food production in a sustainable manner. There is no better example of this commitment than our responsiveness of our team to quickly and safely bring on an additional one million tons of potash production to improve access of this important nutrient for growers globally. These actions also deliver significant financial value for our shareholders as the increase in production accounted for approximately 25% of the $900 million increase in our potash adjusted EBITDA guidance for 2021. Another example of executing in line with our purpose is our Feeding the Future plan and 2030 sustainability commitments which includes our ongoing focus on improving carbon outcomes. We are reducing the carbon footprint at our facilities, making great progress on our industry-leading carbon program at the farm level, and our recent announcement on a partnership to develop a marine vessel that is powered by low carbon ammonia as a fuel. Nutrien is committed to ensuring our strategy and operations remain world-class and successful over the long term. which is supported by strong integration and management of ESG risk and opportunities into our strategy and our execution plans. We believe the outlook for Nutrien is exceptional, with crop and fertilizer prices anticipated to remain well above historic levels into 2022. No other company is more advantageously positioned across the value chain to be a catalyst for positive change in the global crop production system and help growers around the world feed a growing world. So I want to thank you for joining the nutrient team today and we're all looking forward to your questions.