Nutrien Ltd.

Good day and thank you for standing by. Welcome to the Nutrien 2021 Q3 earnings conference call. At this time, all participants are in a 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. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Jeff Holzman. Please go ahead.

Thank you, operator. Good morning and welcome to Nutrient's third quarter conference call. On the call today is Mayo Schmidt, President and CEO, Pedro Farrar, CFO, Ken Seitz, Executive Vice President of Potash, Rafe Sully, Executive Vice President of Nitrogen and Phosphate. For retail, we have Jeff Tarcy and David Elser. We also have Mark Thompson, Executive Vice President of Strategy and Sustainability, and Jason Newton, our Head of Market Research. 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 shareholders, as well as our most recent annual report, MD&A, and annual information form filed with Canadian and U.S. Securities Commissions. I'll now turn the call over to Mayo for opening comments before we take your questions.

Good morning and welcome to Nutrient's third quarter earnings call. Our exceptional results this quarter highlight our team's strong execution significant competitive advantages, and leverage the strengthening market fundamentals. 2021 has been a remarkable year for global agriculture supported by strong demand and tight supply for most crops. Grain and oilseed prices are well above the historic average and food security remains a top global priority. Expect crop input markets will remain tight as we move into 2022 due to the significant supply-related outages and constraints that occurred in 2021. What sets Nutrient apart in this environment are the competitive advantages of our integrated model, our top quartile assets, and the decisive actions that we have taken across each of our business units. In potash, we quickly ramped up production by one million tons to meet the needs of our customers. This represents a portion of our low-cost available production capacity and is optionality that no other potash producer has today. Our low cost and strategically located nitrogen assets are generating higher margins and escalating feedstock costs and production curtailments impact producers in other regions. We continue to make investments to enhance our nitrogen position, including strategically expanding our capacity and completing projects It will support the achievement of our GHG emissions reduction targets and the commitments in our Feeding the Future plan. Our retail team effectively navigated a number of global supply chain challenges by utilizing the scale of our world-class network and strategic partnerships to supply our grower customers with the products and services they need when they needed it. These efforts have resulted in impressive market share gains and margin growth in 2021. Key to this performance is the dedication and focus of Nutrien employees around the world. Extremely proud of how our team has supported our customers in this dynamic market while remaining steadfast on our core values of safety and integrity. Turning to our third quarter results, adjusted EBITDA exceeded 1.6 billion in the quarter. an increase of nearly $1 billion compared to the same period last year. Nine months adjusted EBITDA increased by 61% to 4.7 billion and we generated free cash flow of 2.8 billion over this period. Retail delivered a record third quarter driven by higher sales and increased margins with significant earning growth achieved in each of the geographies in which we operate. Sales growth was supported by excellent agriculture fundamentals and market share gains across all major product categories. Due to our strategic inventory positioning and close connection with our customers via our 3,600 agronomists, we were able to capitalize on the strong demand for crop, nutritional, and fungicides in the quarter. Adjusted EBITDA margins increased by 1.5 percentage point, driven by strategic procurement in a rising price environment and stronger proprietary product results. Our adjusted average working capital to sales ratio remains at an all-time low of 12% due to strategic supplier management. We have grown our retail businesses outside the US with adjusted EBITDA from these regions up $150 million in the first nine months of 2021, accounting for over 30% of total retail EBITDA. We expect our proportion of retail earnings outside the US will continue to grow over the next five years through both organic and inorganic growth initiatives, providing us with further diversity and stability in our earnings base through exposure to geographies that are critical to global agriculture production. Our recent transactions in Brazil are performing quite well, and we have a robust pipeline of targets and a strong team in place to execute our growth plans. The potash team delivered a record third quarter with adjusted EBITDA up 131% from last year. Potash supply is tight and prices have increased significantly in all key spot markets. We expect to surge to an annualized run rate of 17 million tons during the fourth quarter and are on pace for record production and sales in 2021. Due to the flexibility provided by our low cost six mine network, we were able to significantly increase production of granular-grade potash in response to strong demand and higher prices for this premium product. Campotex increased shipments through its Portland and eastern Canadian port facilities in the third quarter to mitigate temporary restrictions on rail service to its port in D.C. Having access to multiple mines and offshore port facilities is a significant competitive advantage for Nutrien and underscores our leadership position in the potash business. Nitrogen and phosphate generated nearly $700 million in combined adjusted EBITDA in the third quarter, supported by higher selling prices across all product lines. These results demonstrate the benefit of our lower-cost nitrogen assets in market production facilities and extensive distribution networks. Nitrogen sales volumes were up 5% in the quarter, despite our production being impacted by weather-related downtime and planned maintenance projects. We completed two large nitrogen plant turnaround projects over the past six months, and I want to thank the teams at Borger and Redwater for their efforts. These are critical sustaining projects that will enhance our safety, efficiency, and reliability for our sites over many years to come. In addition, we completed the first phase of our nitrogen expansion project that were started in 2018 and expect to fully benefit from this expanded capacity in 2022. These are projects that were completed on time, on budget, and we expect will generate very attractive returns on investment. Now turning to the outlook for the business. We have prepared a few slides in the presentation posted to our website to help frame our view of the market and expectations going into 2022. Global grain and oilseed inventory is well below historic levels and crop prices and grower margins remain strong. We expect this will support crop input spending in key regions where we operate. In North America, sentiment remains positive and growers are investing in their soils and actively preparing for next year's crop. We have seen a strong start to the fall application season due to the relatively early harvest and favorable yields in most regions. We expect this robust demand to continue in the fourth quarter, weather permitting, and our retail network is well positioned to meet our customer needs. We expect growers to maximize planted acreage in 2022. as projected U.S. corn and soybean margins are approximately 60% and 35% respectively above 10-year average levels. If planting intentions start to shift before spring, we anticipate future markets will respond to ensure adequate acreage. Growers in Australia experienced a second consecutive year of historically high crop yields and margins driven by ideal weather and higher ag commodity prices. Growers in Brazil are making good progress on planting their soybean and corn crops, with acreage expected to be up 5 to 7 million acres. The strength in Brazilian ag fundamentals is fueling demand for all crop inputs, while with fertilizer consumption projected to grow by more than 10% in 2021. Similar to our third quarter results, we expect to generate exceptional retail fertilizer and crop protection margins in the fourth quarter, due to strategic purchasing in a rising market. And while we expect strong agriculture fundamentals next year, we anticipate retail fertilizer margins will return to more historic levels. As it relates to global fertilizer markets, supply is very tight and prices move significantly higher throughout the year. While there is potential for reduced demand in some markets due to limited supply availability, we believe there's a number of factors that could contribute to an extended period of market strength. Some of these factors are unique to each nutrient, but overall we expect support from higher agriculture commodity and energy prices, limited new capacity additions, and low channel inventories. In potash, global demand has been very strong while supply was impacted by mine flooding, new project delays, and limited availability of most producers other than nutrient to meaningful increased production. We estimate inventory levels in most major markets are below average due to record consumption and limited product availability. Additionally, buyers are dealing with the potential impacts of U.S. European trade sanctions on Belarus, which is impacting vessel chartering and U.S. dollar denominated transactions in other import markets. Prices have moved up in all key spot markets with Brazilian granular potash prices transacting above $750 per ton and recent tenders in Southeast Asia awarded at $600 per ton. We expect contract negotiations with China and India will progress during the fourth quarter and the new contracts will reflect prevailing market conditions. We are equipped and prepared to meet this demand. The nitrogen market has been impacted by the combination of soaring energy prices in Europe and Asia, plant outages, and Chinese government ordering fertilizer producers to halt exports until June of 2022. European gas prices have been trading at around $30 MMBTU, equating to ammonia production costs of approximately $1,100 per ton. This has resulted in at least 40% of European ammonia production being shut down and has increased the need for import. We expect nitrogen markets will remain very tight through the first half of 2022 and there is limited new nitrogen supply expected to come online over that period. We plan to increase our nitrogen production next year by approximately half a million tons through higher operating rates and the benefit of our recently completed expansion projects. We are now fully committed on potash volumes for the remainder of the year and the majority of our nitrogen and phosphate volumes are booked. We expect a normal two to three months lag in our price realizations and anticipate the increase in benchmark prices over the past few months will position us for a very strong start to 2022. We project full year 2021 adjusted EBITDA in the range of 6.9 to $7.1 billion for 2021, which at the midpoint represents a $3.3 billion increase in 2020. The increase in earnings and free cash flow is providing the opportunity to advance our capital allocation priorities. We repurchased 2.4 million shares in the third quarter and returned $900 million to shareholders so far in 2021 through dividends and share buybacks. We plan to significantly strengthen our balance sheet by reducing our long-term debt by approximately $2 billion over the next six months. This will provide flexibility to deliver on future growth opportunities and return of capital to shareholders while reducing our finance costs by approximately $50 million per year. We remain focused on growing our retail business through tuck-ins and acquisitions, building out our network in Brazil. We've announced five transactions in Brazil since the beginning of 2020 and have a good pipeline of accretive opportunities in this market. We are on track to achieve our target of 100 million in run rate EBITDA from Brazil by 2023 and deliver attractive returns on investment. After completing a successful first phase of nitrogen brownfield expansions, we have started a second phase of projects that are expected to add half a million tons of production capacity over the next few years and improve the energy efficiency of our plants. The total investment is estimated at $260 million, providing for some of the lowest cost, most efficient expansion tons in the industry. We continue to progress on previously announced decarbonization projects that are expected to reduce CO2 equivalent emissions by approximately 1 million tons by the end of 2023. Additional free cash flow beyond these identified opportunities will be allocated on a compete for capital basis and we will maintain our disciplined approach. Our board, our leadership team are focused on taking decisive actions to ensure we're positioned to deliver superior long-term value for our stakeholders. We continue to track very well compared to our long-term goals, and we'll provide an update on our targets, our strategic plans, and capital allocation projects and priorities at our next investor meeting in June of 2022. And with that, the Nutrien team is standing by and looks forward to your questions. Thank you.