Nutrien Ltd (NTR) 2017 Q4 法說會逐字稿

Greetings, and welcome to the Nutrien Fourth Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Richard Downey, Vice President, Investor and Corporate Relations. Thank you, sir. You may begin.

Thank you, Operator. Good morning, everyone, and welcome to Nutrien's first investor conference call to discuss the results and outlook. On the phone with us today is Mr. Chuck Magro, President and CEO of Nutrien; Mr. Wayne Brownlee, our CFO; and the Heads of our 4 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 US security commissions to which we direct you.

I will now turn the call over to Mr. Chuck Magro.

Thanks, Richard. Good morning, everyone, and welcome to our first earnings call as Nutrien. Today we will recap the fourth quarter and the full year performance of our legacy companies and provide insight into how we see the market unfolding in 2018. I would also like to share my thoughts on the strategic priorities for Nutrien, our financial guidance for the year and additional details on our synergy targets.

I'm excited for the future of Nutrien. I believe we have a tremendous opportunity ahead of us and our goal is to ensure we deliver on those opportunities and exceed the expectations of all of our stakeholders.

First, let's talk about our legacy company's results and Nutrient pro forma. The strength of our global Retail business was evident again this quarter. We achieved record Retail EBITDA, driven by strong sales and higher margins across our entire portfolio of crop inputs and services.

For the full year, Retail EBITDA rose to $1.2 billion, an 8% increase over the previous year. This growth was supported by higher proprietary product sales, a continued focus on operational excellence initiatives and contributions from acquisitions. As a result, we delivered further improvement on all Retail operational metrics in 2017. For example, our cash operating coverage ratio declined to 60% and our EBITDA to sales ratio increased to 10%, while our normalized comparable store sales increased by 2%. As such, the majority of our Retail targets set for 2020 have now been met or exceeded.

It's worth highlighting that our Australian Retail operations achieved record EBITDA of $154 million this year, up 26% over last year and more than double the EBITDA in 2012. Our EBITDA margins for Landmark reached 8.8% this year compared with just 3.6% in 2012.

Fourth quarter performance for the legacy Agrium wholesale business benefited from strong potash results, but was impacted by lower production and sales volumes in both nitrogen and phosphate. Overall, Agrium generated $1.6 billion in cash from operations during the fourth quarter and $1.3 billion for the year, supported by our integrated business structure. And this is a testament of our operating model strength.

Turning to the legacy PotashCorp results. The fourth quarter continued the trend of improved year-over-year performance for the Potash business due to higher realized potash prices and lower cost. For the full year, PotashCorp benefited from significantly improved global market conditions as our average realized potash price increased 11% and sales volumes rose by 8%, and importantly, our cash cost per tonne declined by 13% in 2017, a direct result of portfolio optimization decisions taken over the past 2 years.

This included the ramp-up of our expanded Rocanville potash mine, the largest and one of the lowest cost mines in the world. Cash cost for this mine were around $50 per tonne in 2017 based on production of nearly 5 million tonnes.

Nitrogen margins during the fourth quarter were supported by improved market conditions and an increase in global benchmark prices for both ammonia and urea.

Phosphate results for the quarter were impacted by non-cash impairment charges totaling $276 million at our White Springs and feed phosphate facilities.

PotashCorp's adjusted earnings totaled $59 million for the quarter and $455 million for the year and were supported by improved Potash segment results. Cash from operating activities totaled $1.2 billion for the year, which was in line with last year.

Nutrien will release pro forma historical financial information later this month, but to give you a high level sense for performance this year, our adjusted combined EBITDA totaled approximately $2.9 billion and combined cash flow from operating activities was $2.5 billion. This was achieved in a year that we believe represents a relative low point in the crop nutrient cycle and does not include the $0.5 billion in future merger synergies.

With more than 25 million tonnes of primary crop nutrient sales, Nutrien is well positioned to benefit from the recovery in the fertilizer markets in the next couple of years.

In terms of the contribution by business segment, Retail accounted for 36% of the total EBITDA, with Potash contributing 33%, Nitrogen around 1/4 and Phosphate the reminder. All together we invested $1 billion in sustaining capital to maintain our assets, which still provided significant free cash flow to return to shareholders and continued to grow our Retail business.

Before I speak about our 2018 guidance and strategic priorities, I would like to touch on the outlook of our markets. The 2017-2018 crop year will mark yet another year of above trend yields for global grains and oilseed production. While this has contributed to more modest crop price environment, it has also supported significant growth in global consumption. In fact global demand has grown at an annualized rate of 2.7% over the past 5 years, which is the highest 5-year growth period since the early 1980s.

In simple terms, this robust agricultural growth story has translated into greater demand for crop inputs, services and solutions. For the upcoming North American planting season, we expect relatively stable acreage of most major crops and application rates of crop input similar to last year. This should be supported by North American grower crop margins, which are above last year's levels.

Our Retail business has collected grower prepay of over $1.5 billion, which is in line with last year and an indication of solid anticipated spend this spring. We anticipate the crop protection product market to be firm this year, with price appreciation for some products such as glyphosates and generic products, which is partially associated with higher production cost in China.

The feed market is expected to remain flat in 2018 as price appreciation on technologies is expected to offset some competitive price pressure due to relatively low crop prices.

In potash, we are seeing strong customer engagement and steady to higher prices to begin 2018. Global potash shipments set a new record of approximately 64 million tonnes in 2017, which was driven by strong consumption growth in all major offshore markets. Potash remains highly affordable, and with relatively low inventories across the supply chain, we forecast global potash shipments between 64 and 66 million tonnes in 2018.

Canpotex had a record year in 2017 and is actively filling its order book as the growing season approaches in several key agricultural regions. We had a positive response to our domestic winter fill program announced in early January and are fully committed through the first quarter with orders taken at prices up $20 per tonnes for the second quarter deliveries.

We expect new greenfield potash capacity will enter the market this year, but anticipate the amount of actual supply in 2018 will be limited by typical ramp-up issues, as well as announced mine closures and product mix changes by some producers. Therefore, we see a relatively favorable environment for potash well into 2018 as supported by the recent price increases in several markets.

Turning to Nitrogen, prices remain firm in the early part of 2018, with benchmark prices up between 15% to 40% from the fourth quarter 2017. Chinese production rates have been cut back by ongoing regulatory pressure that includes reduced natural gas availability, significantly higher natural gas prices and continued strength in coal. We view these changes as a more structural shift and anticipate lower exports from Chinese urea producers moving forward.

North American nitrogen demand is expected to be relatively stable in 2018 and the ongoing ramp-up of new domestic capacity will further reduce dependence on offshore imports. However, due to the slow pace of imports and large offshore exports over the past 6 months, we expect relatively tight supply in North America between now and the spring application season.

Overall, we anticipate an improved nitrogen market compared to 2017 based on the expectations for higher global energy prices, lower Chinese exports and demand growth absorbing recent capacity additions.

We expect higher sales volumes for potash in 2018 compared to our 2017 combined total. This is in line with the anticipated growth in global potash demand. We also expect our total nitrogen sales volume to be higher in 2018, which is partially due to higher on-stream time for our plants in North America and Trinidad. Our Trinidad operating rate is expected to be higher in 2018 due to improved gas availability.

Based on these market conditions, we announced annual earnings guidance of $2.10 to $2.60 per share in 2018. This excludes incremental depreciation related to purchase price allocation adjustments, share-based payment expenses and synergy implementation cost.

The EPS guidance includes equity earnings from SQM and APC for a portion of 2018, but is excluded in the EBITDA guidance. We also provide EBITDA guidance of $3.2 billion to $3.7 billion for 2018.

Let's now move on to Nutrien strategic priorities. Over the past months, I've had the opportunity to visit our offices and operating sites and I've been very impressed with the quality of assets in the Nutrien portfolio and the depth of talent within the organization.

With this strong foundation in place, the management team and the board will be focused on a few key strategic areas over the next 6 to 12 months. First and foremost, our priority will be delivering our integration plan, which includes capturing $0.5 billion in synergies by the end of 2019.

While we are only a month into the process as Nutrien, I can tell you that the extensive work completed over the course of 2017 has allowed us to hit the ground running. Integration teams are in place and each business unit is working towards its synergy plan.

In the early stages, we will be focused on capturing synergies in the areas such as procurement, transportation and distribution, operations and finance. In fact over the first month, we've already captured $40 million in run rate synergies and have identified a number of opportunities that reinforces our confidence to deliver on our synergies target. Starting in the first quarter, we will report detailed synergies on a quarterly basis.

The second priority is to define strategic areas of focus for each business unit, including a portfolio review of our assets within the first 12 months and the completion of required equity divestment.

Many of you will have seen the announcement in January on the divestiture of our 14% stake in ICL. We were very pleased with this outcome, and just to clarify, we received net proceeds of $685 million. We continue to make good progress on the divestiture of the SQM and APC stakes, and based on current market values, we believe the sale of these 3 equity stakes could generate proceeds after tax of between $4.5 billion and $5 billion.

We recently announced the acquisition of Agrichem in Brazil and I'm excited about the opportunity in this major growing region of the world. As a leader in Brazilian specialty nutrient market, the Agrichem team and extensive product profile will be an excellent fit with our Loveland products business.

Brazil will be a strategic focus for future retail expansion due to its large and growing agricultural retail and crop input market. We will also continue to focus on growing our footprint through tuck-in acquisitions in our existing regions, particularly in North America, and as such, we acquired 44 locations this past year with approximately $300 million in annual synergies and an average EBITDA multiple of just over 7x before synergies.

Furthermore, we continue to pursue greenfield location builds in 7 US states. In 2017, 2 locations became operational and we expect construction will be completed on another 6 locations in 2018.

Finally, it is a top priority to establish a clear capital allocation policy. Our goal is to maximize shareholder value and you can expect a balance between return of capital to shareholders and growth of the business, while maintaining a strong investment grade rating.

We will be in a position to more clearly articulate our plans for returning cash to shareholders in the coming months, but I can tell you our priority will be to pay a stable and growing dividend. We will target a payout that would represent 40% to 60% of our free cash flow through the cycle. In line with previous disclosure, Nutrien's annual dividend is expected to be $1.57 per share, which is well within our targeted payout range and should also allow for future growth.

To conclude, Nutrien's integrated business model and unique position within the agricultural landscape provides us with significant levers to create value for our shareholders.

With a clear line of sight on $500 million of synergies and significant proceeds expected from the sale of our equity investment, we're coming out of the gate with a strong free cash flow position and a healthy balance sheet. As well the fundamentals for our business have improved and in particular the outlook for potash and nitrogen markets. This affords us with a lot of flexibility to allocate capital effectively and generate excellent shareholder returns.

I'm joined today by members of the Nutrien executive leadership team and we would be happy to take your questions. Operator, please go ahead.

(Operator Instructions) Our first question comes from the line of Jacob Bout with CIBC.

Chuck, you seem pretty confident on the $500 million in synergies. Can you talk about what potentially could drive this higher?

Yes, I'll give you a summary and then I'll have Wayne just talk a little bit about what he's seeing in his area, and maybe Raef Sully, our President of Potash, could talk about what we're doing in potash. But look, we've been at this for well over a year now, and when we look at it, the $500 million of annual synergies, we're very confident about that number. And for 2018, just to set the context, we're expecting $250 million on a run rate basis. And then if you will look at our annual guidance, the number that we expect to deliver for the full year is about $200 million. And in Q1, we've hit the ground running, as I mentioned in my prepared remarks. We're over $40 million on a run rate basis. And we're starting to see areas such as leverage from some of our finance service providers, of course the network optimization when it comes to production specifically around our nitrogen optimization and our potash optimization and then very significant synergies in the supply chain. We're already down 200 railcars in our fleet, we're reducing our warehouse footprint quite rapidly and that's shedding a tremendous amount of cost. But I'll pass it over to Wayne just to talk about some of the procurement synergies and then I will have Raef Sully talk a little bit about potash. Go ahead, Wayne.

Jacob, we are on track. We've already reached about $20 million in procurement synergies in the first month, which is a run rate for the course of the year. And we're optimistic that we will find quite a bit more over the course of the year and we'll be well in excess of $100 million by the time we're done, probably closer to $150 million. So that's going very well.

Jacob, one of the largest opportunity we have got of course is optimizing our production footprint. As you know, we have got 6 operating mines. There's quite a difference in the cost of production across those 6 mines and we're looking to move production to the lowest cost mines. As Chuck mentioned, Rocanville is down at around $50 dollars a tonne cash cost. We actually think there's probably more room to go on that. We're going to look at trying to ramp it past the 5, 4 mark. We'll head up towards 6 over the next couple of years. And we think that there's a fair bit more than the original $50 million we had tagged for that.

Our next question comes from the line of Andrew Wong with RBC.

I have a couple of questions, first on the guidance. It looks like there might be some sort of disconnect in the EPS and the EBITDA outlook versus the consensus, and I think you touched on some of those things like the purchase price allocations and the equity and earnings. Could you just maybe help us walk through in more detail what's in the outlook and maybe what the outlook would look like if you included the equity earnings on a full year basis? And then just secondly, if you could provide us an update on the sale of your SQM and Arab Potash stakes?

Look, let's start with the guidance and I'll give you our view on how we set the EBITDA guidance and what's in it and what's not importantly, and then I'll ask Wayne to talk a little bit about the EPS guidance, because that is being affected of course by some of the merger accounting. And then Wayne can also address your question on the equity stake. We provided EBITDA guidance because I think it's the best view for our recurring earnings for the core of the business. And of course that range we set now is $3.2 billion to $3.7 billion with a midpoint of $3.45 billion. And it's important to note that the equity stake, so the equity pickup in last year that was about $170 million, that is not included in the EBITDA guidance range. So that's really important to communicate clearly. And that's simply because we do intend to sell them because of the regulatory settlements that we made with the government. So that's the first set of adjustments that I think needs to be kind of observed. In all cases for guidance, though, we are assuming that retail growth is EBITDA. The other thing we're assuming in all of the guidance numbers that we have provided is that we deliver our synergies because we have strong confidence that we will hit our synergy target. So then when you look at the range, $3.2 billion to $3.7 billion, really the difference is all market price and it's really fundamental in terms of what the market price is for nitrogen and potash. And if I can just paint the book end for you. So at $3.2 billion of EBITDA, and that's the low end, retail grows, we deliver our synergies, but the market prices are basically where they were in 2017. Clearly, that's not where we are today. It's probably a bit conservative in my eye, but that's the one end of the book -- the guidance book end. The other end of the book end, $3.7 billion, we grow retail, we hit our synergies and the market prices are up somewhere between $30 and $40 a tonne. And if you look at that, that's the massive leverage that this new company has to the upside when it comes to market pricing. So then you look at the midpoint, $3.45 billion, retail grows, we deliver our synergies and you need market pricing to increase around $20 a tonne on nitrogen and potash versus last year. And that's up almost 20% than versus the 2.9 billion that the pro forma company delivered last year. So I'd say that's pretty significant operational improvements and growth. And the combination is retail growth, delivering our synergies and a little help from the market. Now, when you move to EPS, of course there's the merger accounting and I'll let Wayne explain that. And then Wayne can also address your question on the equity sales.

The big item that we are still working through is the purchase price accounting. As you know, the market value of -- since accounting-wise Agrium was the acquiree, the market value was $10 billion higher than the book value. So we have to adjust for that. We're going through a evaluation process right now that we expect to wrap up by close to the end of the first quarter. That range of additional amortization or depreciation could be somewhere in the range of $150 million to $300 million. So we need to sit on that and we'll come back and we'll give you pretty good directional guidance by the end of the first quarter. So that will be the biggest adjustment. It's of course a non-cash item. It's just purely accounting speak. And that will have the biggest impact on the earnings per share. As Chuck noted, the equity investments are not included in the EBITDA -- sorry, the equity investments are not included in the EBITDA. We fully expect to incur some income from them over the course of the year. They will show up as discontinued items in our financial statements going forward, but they would have otherwise normally have been in the EBITDA. So that adjusts for the difference. With regards to sales process, as you know, we concluded the Israel Chemicals sale in January. Still we're continuing to work through Arab Potash Company and SQM. We have a robust bidding process in both of those 2 entities. And it's speculative in some ways to try and determine when those -- the sale of those equity interest will take effect, because not only do we have to reach an agreement with a third party, but we will also have to probably go through any regulatory hurdles that may be required to close those sales. So we expect that to continue through this year. We're hoping that by the end of the second quarter we might be in a position on Arab Potash Company. That remains to be determined. And we'll continue to work through SQM. And once again, the timing of that will be determined, but the bidding process to-date on a very preliminary basis has been quite robust.

Our next question comes from line of Don Carson with Susquehanna.

Chuck, you talked a bit about optimization in your Potash operations. What about permanent capacity closures? You've got 22 million tonnes nameplate. Obviously, it would take you a long time to get up to meeting all that nameplate capacity. So as you ramp-up Rocanville and some of your other lower cost mines, are you looking at permanent closures of smaller Saskatchewan mines and New Brunswick?

Look, I'll let Raef Sully, our President of Potash, give you his view and then I'll give you my thinking longer-term in terms of the strategic overlay in terms of the potash market. But go ahead, Raef.

So, look, Don, all of those things are on the table. We're certainly looking at those options at the minute. As I said, we were looking just at optimizing the plants we have running. You'll know that New Brunswick isn't producing at the moment. It's down. We took Cory down to white only recently. And prior to that, we had Allan and Lanigan taken down (inaudible). So I think in the short-term we need the 6 running. We'll look at that again halfway through the year and end of the year, seeing what second half does. And if we need to, we'll make some decisions.

Don, it's Chuck. So, look, when we look at the market for potash, certainly what we see right now is demand is quite robust in all global markets. And so if you look at our guidance that we provided, we're only going to take our sales book up about 3%. But there's a lot of optimization with the 3% that we can get significantly lower cost by moving product to the lower cost facilities and then trying to maximize sales from the higher premium potash business. And then there's this notion of the integration into retail with some of the higher premium products. So all that's underway. When we look at that, the synergy creation is quite substantial. And then we need to understand if the market continues to grow at 2.5% to 3% per year, what ultimate capacity are we going to have the need from our production? And those decisions are going to take a little bit more time for us. We're going to have to look at demand in the second half of the year as we move into 2019. But we're going to, rest assured, look at the best long-term optimization decisions for that business.

Our next question comes from the line of Ben Isaacson with Scotiabank.

It's Oliver on for Ben. Thanks for taking my question. Could you just give us some color on the implied Phosphate EBITDA outlook? It looks like you're expecting 2018 to be a pretty challenging year there. And then on that note, could you give us an update on how the strategy to turn that business around is going and maybe what we could expect that business to look like when you come out on the other side?

I'll have Susan Jones, our President of Phosphate, answer your question.

Yes, our EBITDA range for the year is going to be between $150 million and $200 million for the Phosphate business. Fortunately, we have had global phosphate prices firm in the first quarter, so we're out of the gate with fairly robust demand and pull, which is nice to see. I did want to address your turnaround question. And first and foremost, we are very much focused on the synergy number. We have a target of $80 million in synergies that we have been discussing with shareholders since the time that we announced the merger. And in essence, this is replacing third-party rocks for our Redwater facility with excess capacity at our Aurora, North Carolina and White Springs, Florida facilities. Now, we are looking at 3 options to address this right now. One is moving rock to Redwater to upgrade its MAP. Another is moving acid to Redwater to upgrade its MAP. And finally, just moving finished MAP straight into Western Canada and looking to repurpose our Redwater facility. And of course in any of these scenarios, we're going to be looking to use the legacy PotashCorp's excess capacity and combining that with Agrium legacy's retail demand to create the synergies. So as part of this what is really key is we need to look at the capital to be spent to achieve the synergies. And it's looking right now with this, the least amount of capital is just to simply move the finished MAP. But that's the synergy plan that we're focused on and I am very confident we're going to be able to achieve those synergies. And we are of course going to have phosphate as part of the overall portfolio review. We're looking at the feed business. We're looking at the industrial business. And there will be more to come on that as we go through the course of the year.

Our next question comes from the line of Chris Parkinson with Credit Suisse.

This is Graeme Welds on for Chris. Just had a quick question on the Potash outlook that you guys put out. If I take a look at the incrementals for your volume guidance for Nutrien as well as the volume guidance for the industry, it looks as though you guys will be gaining a little bit of share. I know you talked a bit in the prepared remarks about your expectation that the greenfield projects coming online won't be able to produce as much, as well as some facilities that you expect to be winding down. But I was wondering if you could kind of walk us through a little bit more of the specifics of that dynamic and what you see kind of driving that outcome?

It's Chuck. I'll take your question. So, look, I think when we gave the guidance -- here's the backdrop. The demand is quite strong, especially in the first half. And some of the new capacity that's coming into the market, we don't believe will have saleable tonnes certainly in the first half of any big significance. The second half, we'll we need to see. Some of the operators that are bringing new capacity have already kind of extended the timeline when they thought that the tonnes would be into the market. So we think that the testament that market price is now and even in North America are up $20 a tonne, spot prices in Brazil are up, I think that that's all good signs that the market is strong and getting healthier. For our guidance -- when we look at our production and our sales, it's up a relatively small amount, 3%. Last year the combined pro forma company was up much more than that. And I don't have the exact market shares, but I would say that the journey is sort of a flat market share. And we're trying to sell a lot of those tonnes in the first half of the year, because that's where the demand is. And then we'll see what happens in the second half of the year. That's why we gave a range for guidance. But I think we're quite aware of the market dynamics. We like how the market is improving. It's getting healthier. And we just don't think there's enough tonnes in the market, especially in the first half.

Our next question comes from the line of Steve Byrne with Bank of America Merrill Lynch.

The 6% increase in global shipments for potash that you noted in 2017, you assess that as being commensurate with end user consumption. From an agronomy perspective, what do you think was driving that increase in potash consumption in 2017? And then you're basing that at least largely on your assessment of channel inventory levels in all of the key regions, China, India, Brazil, US. What's your confidence level that channel inventory levels are indeed lower than they were a year ago?

Look, we're very confident that the potash went to ground, very sure of that. And I'm going to have Jason Newton, our Head of Market Research, walk you through those dynamics and why we believe that the potash went to ground.

I think there's a few things leading to the high amount of demand growth that we saw last year. Number one is that we saw stable and firming pricing environment which gave downstream buyers confidence in the market to take a position. But also if you look at the price of potash even where it has increased to today, it's very affordable at the farm level compared to crop prices. And historically when we're seeing that combination of steady and increasing prices at affordable levels, we've seen firm demand growth. And that's what we saw last year. If we look at inventories in 4 of the major markets, so North America, China, India and Brazil, what we've seen -- and there definitely isn't perfect inventory data downstream, but the inventory data that we've seen in those markets is down about 5% year-over-year. So obviously we're seeing a lot go to ground. In the North American market, we have the insight from our retail group that says that fall demand was very strong, channel inventories were tight at the end of the year and we expect to see flat demand in the first half of the year within North America. I think the second half is more of a question mark, so we're a bit conservative on the shipment range. But that's just driven by how strong the fall application season was this year and we've really seen limited build in inventories.

And, Steve, just -- it's Chuck. Just a little bit more color for you and it's just color at this point. But certainly in Brazil the phenomena or the structural change of moving pasture land to agricultural land, it's there, it was there last year. That's driving demand. That's why they hit a record potash demand in Brazil. And we think that that phenomena will continue over the foreseeable future. In India and China, the governments are starting to mandate now soil sampling by their farmers and our intelligence would suggest that the data is quite worrisome and I think that finally they're starting to see that if they don't change the soil health dynamics, they could have long lasting implications. And we're starting to see good application rates as a result of some of the soil sampling we're seeing in India and China. Now, will it continue? We don't know, but we certainly saw that clearly last year.

Our next question comes from the line of P.J. Juvekar with Citi.

It's Dan Jester on for P.J. I was looking in the appendix of your deck and you have some targets for your ammonia production capacity. And I'm just looking at -- for total Nutrien, it looks like the aspiration is to go from about 90% utilization to 98% utilization in the next couple of years. So I was wondering if you can kind of dive into what's driving that. And if you add back Joffre and Trinidad, what do you think the ultimate operating capacity of the business is?

I'll have Harry Deans, our President of Nitrogen, take your question.

Yes, we got lots of growth plans for our business. We think we can actually take the learnings that we've had from both the Agrium and the PCS side of our business and apply it elsewhere. So we're planning to run our plants hard. We're planning to make sure that we have efficient turnaround; we are as both cost efficient and also we reduce the amount of time that our plants are actually down. Also taking learnings that we've had from other parts for our plant in terms of reliable operations, so risk-based inspections and also minimal trips to make sure that we protect the key pieces of our assets. So we're very confident. As you see from the charts that we got -- in Agrium we got the utilization up from 89% to 93% and in the Potash Corporation there was a similar trend. And we're very confident that we can get our assets up to a higher utilization rate. The reason we exclude Joffre and the reason we exclude Trinidad is they are subject to availability of their feedstock, hydrogen for Joffre and natural gas for Trinidad. But we're confident we can repeat that story at those units when we get the feedstocks that we require.

Our next question comes from the line of Joel Jackson with BMO Capital Markets.

I have 2 questions on the synergies. So if the most likely scenario is now that you'll be shipping finished MAP from the East Coast to Alberta. How is it that instead of shipping rock or acid, how is it the synergy bucket could be exactly $80 million still? Maybe you could walk us through that math? And on the potash cost, I believe you talk about maybe $50 million from running Rocanville at a harder rate. But wasn't running Rocanville full out and running PotashCorp mines -- other mines at lower rate a key and well established multi-year plan from PotashCorp as a standalone company. So if you're not shutting out other mines, how is that a synergy?

So, look, the way we're thinking about this in terms of phosphate is it's a synergy simply because we have -- we think we have multiple path. And I have to tell you we're not decided yet, but what we're trying to do is minimize the amount of capital spend. But we have a channel in Western Canada with 280 retail facilities, so we have a captive demand channel there and we are trying to find the lowest cost way to get the finished product into that channel. And then if we repurpose our Redwater facility -- is it exactly $80 million? No, Susan didn't say that. We'll give you the exact numbers probably as soon as we make the final decision. But it's going to certainly be in that ballpark and it's going to be a combination of I think changes, the shipping changes in terms of a margin enhancement from, let's say, the Southeast part of the US and repurposing our Redwater business. We think actually the synergy could be very close to the $80 million, maybe even a bit more. And we're just finishing the analysis on that. Now, to your potash question, obviously it has been a longstanding legacy PotashCorp issue to get Rocanville up to capacity. The difference now in terms of where the synergies lie will be on 2 fronts. When you add Vanscoy into the mix, we are able then to further shift the demand -- because you've got to remember that with the Vanscoy production comes the Vanscoy sales book. And so when you look at that, we need to line up the assets and look at where the cost optimization is. And last year we said it publically Rocanville produced 5 million tones. So if we could get Rocanville up to 6 million tonnes because of the demand we have and then the other lower cost plants, that is clearly an operational synergy without impacting the overall potash market. And that's what we're highly sensitive to. So there is a cost optimization of the network. There is a way to save cost, to share resources, to reduce the overall fixed cost of these facilities by shifting the tonnes and rebalancing the headcount and the fixed cost. So we've said many times in the past that we used to run Vanscoy in what I would consider it to be a fairly unnatural state, because we had one line and we needed to make the spring season. And so overtime cost and things like that were excessive, because we needed to make sure that we delivered the tonnes to the market. All of those cost savings now are going to be part of the synergy bucket and we won't have to run any of our plants in an unnatural state. And once you do that, the costs will come down quite substantially.

Our next question comes from the line of Vincent Andrews with Morgan Stanley.

This is Neil calling in for Vincent. Do you see any changes in the crop chemical marketing dynamics now that the industry has begun to consolidate, with DuPont and Dow (inaudible) China?

I will have Mike Frank, our President of Retail, take your question.

At this point in time the companies that have already completed their mergers, really for the 2018 season, it's really a continuation of their 2017 programs. And so we are sitting down with all the companies. I think we've got a new opportunity to create more strategic alignment as this industry consolidates. But in the short-term, we're not seeing any changes per se to their marketing programs on crop protection or other products.

Our next question comes from the line of Adam Samuelson with Goldman Sachs.

A question on the Retail outlook. And I'm really just trying to get a little bit more on the pieces, the 1.2 to 1.3. There is some growth versus the '17 number. I know there's a small accounting change and how you're going to treat some of the financing, I presume the customers there. But maybe just calibrate kind of the growth in crop nutrients and unit margins versus crop protection with some of the inflation, seeds, operating expenses, impact of tuck-ins from 2018 that should -- 2017 that should impact 2018, et cetera?

So I'll have Mike Frank take your question, Adam.

Well, as you saw on the results, we come out of '17 with lots of momentum. We are growing our share of the market. We're increasing our EBITDA margins to operational excellence and our proprietary business is growing. And so it's really those fundamental strategies that we're going to continue to drive into 2018. We do see some inflationary impacts on crop protection, but it's a bit lumpy. Some products are up 5% to 10%. A lot of products are flat. We expect overall there to be probably a lift in crop protection selling prices of 2% to 3%. Seed, we are expecting seed to be relatively flat to last year. And in crop nutrients, coming out of again the fourth quarter, we had great growth from a volume standpoint and margins were roughly flat. And so we expect that to continue into the spring season in 2018. And again, with our momentum, it's why we're confident that we can drive continued growth in this Retail business.

Our next question comes from the line of Jeff Zekauskas with JP Morgan.

I have a question on the domestic potash market. So the seed and crop [American] companies seem to believe that everything will be geared towards the second quarter and that the first quarter will be relatively light in terms orders and shipments. Do you see domestic potash demand follow a similar pattern?

I'll have Jason Newton to take your question.

I think what we expect to see from a shipment standpoint in North America is pretty similar to what we saw last year. We saw very strong shipments in the first half of the year and we'd expect that to be similar this year. We are seeing as far as weather conditions that it doesn't appear like the applications are starting very early, so I think a pretty seasonal shipment trend in the first half.

Our next question comes from the line of Jonas Oxgaard with Bernstein.

In the last quarter you also had some operational issues in your nitrogen units and now they still seem to be rearing their ugly heads. So what's going on? Is there a continuing issues that we -- it can bleed into Q1 as well?

I'll have Harry Deans to talk about what happened in the fourth quarter, but it's an isolated incident. But, Harry, go ahead.

Yes, we did have some carry over from Q3. As we discussed in the last call, we had a very heavy turnaround program, especially in Alberta. And in Q4, we had the continuation of that, where we took our facility in Joffre down to align with the plant maintenance from our supplier of hydrogen. So what that did for us? It meant that we had a very, very limited amount of inventory to continue the rest of the year with. Also, in our facility down in Borger, in Texas, as you recall, we started that up in January of this year. And as you will find with most of these new plants, there's some tweaking required for a period of time, where there are some things that you actually don't like the way it's operating, there's other things that you want to fix to make the plant more reliable. So we took that opportunity towards the tail end of the year to take that plant down and put some fixes in place to make the plant more reliable. If I look at the January numbers, Jonas, just to get you a feel for where we were running in January, excluding Joffre, as we always do, and excluding Trinidad, we were running about 96% to 97% utilization rate and some plants are setting records. So the investment we put out in the plants to refresh them, particularly in Redwater, are actually paying off, which is very pleasing to see.

Our next question comes from the line of Vincent Anderson with ‎Stifel.

I wanted to get your thoughts on the specialty fertilizers market. Obviously, retail investment is the priority, and while specialty nutrients are dwarfed by the NPK business, it's an area you don't have much wholesale exposure and then you actually divested out of it a couple of years ago. So was this purchase in Brazil an indication that you see micronutrients and specialty fertilizers as a place you feel that you need to integrate, and if so, is your preference ultimately to buy a larger scaled asset or are you happy to buy good product profiles like Agrichem and scale production and distribution yourself?

Yes, Vincent, it's Chuck. I'll give you the strategic overlay and then I'll have Mike Frank give his perspective as well specific to retail. So you're right, years ago we actually sold -- I guess it was a specialty business, but it was really focused on turf and ornamental and the T&O business isn't really what we do and we actually kept our micronutrients and our coated urea business, our ESN business and the specialty portfolio. And we still have those businesses today and they are good margin makers. So from a specialty perspective, we always start with the farmer and work backwards. So it's not like we want to collect these assets for the sake of building out the portfolio, but we're really focused on the share of wallet for the grower and if we can help them maximize yields. And what we've noticed is that the Loveland type specialty fertilizers are the ones that really have good growth rates, high margins, they fit well with our channel strategy for retail. And that's why we made the Agrichem investment in Brazil, because there's a nice fit there. And maybe I'll have Mike just talk a little bit about that acquisition and what we actually bought.

Sure, Chuck. So it's clear that the specialty chem nutrient business is growing. In fact, in Q4 with our fall market, we saw growth over 20% in the US and that's products that are being supplied through our Loveland's business. And so as we think about building out our Retail business in Brazil, Agrichem is really a strategic acquisition for us because it really allows us to feed in specialty nutrients into what we want to have as an expanding retail footprint in Brazil. So it's a market, as Chuck said, that's growing. It's adding value for growers and there's nice margins in that product space.

Our next question comes from the line of Michael Piken with Cleveland Research.

I was wondering if you guys could give a little bit more color on your expectations for when we might see India return to the nitrogen market as well as your outlook for 2018 Chinese urea exports?

Jason Newton is in the best position to answer those questions, Michael.

To be honest, a little bit surprised that we haven't seen India come back in, because it's widely expected that they would be in in the last couple of weeks and it hasn't happened. I think it's uncertain whether they really need to come in before March. But we do know that the inventories of urea in India are down significantly year-over-year somewhere between 500,000 and 600,000 tonnes currently, which really supports the outlook for imports in the first half of the year. And we expect the overall imports in India to be relatively flat to where they were last year, flat to slightly higher. In terms of Chinese urea exports, we saw China export 4.6 million tonnes of urea last year. Our expectation this year would be somewhere between 3 million and 4 million tonnes of exports. Now, we know that 1 month can make a big difference with China. But the domestic market is extremely tight currently. They have brought in some imports and some of that has been re-exported. But there is the potential for imports in the first quarter in China. We want to watch that carefully coming out of the holiday season.

Our next question comes from the line of Mark Connelly with Stephens.

Chuck, we haven't talked about Echelon in a while. I was wondering if you could give us a sense of how farmers are thinking about those products now that they seem to be pinching more pennies.

It's a good question. I'll have Mike Frank talk to you about Echelon and basically our whole precision agricultural offering.

As you probably know, the whole area of digital tools continues to grow and evolve in the marketplace. Our Echelon platform has also continued to grow. We've got over 50 million acres now where we've got growers fields mapped and we're providing recommendations, including variable rate fertilizer recommendations on those acres. Look, as we are kind of stepping back and thinking about our whole digital platform, it's really about combining all of our strengths, the supply chain we have and the footprint we have, the agronomists that we have on the ground, over 3,000, that are really the trusted advisor for our customers and having a full product portfolio and services that we can bring to our customers in combination with the digital platform. We really think that that's the strength of what we bring and that's what farmers need. And so we're going to continue to make investments in digital, build out our Echelon plan, continue to look for ways to partner and acquire technologies to bring -- ultimately to bring it together into solutions. I think a lot of the digital products are still really kind of single solution type products. We're trying to bring it altogether in a way that it makes sense on a farmer's field and across their farm. And so we see a lot of opportunity to continue to invest in this space.

Our next question comes from the line of John Chu with Laurentian Bank.

So just on the M&A front. I know you're really focused on growing the Retail side of the business whether it's domestically or internationally. But with all the mega mergers going on and even a couple that might be happening soon or rumored to happen soon, there might be some asset divestures in other areas such as seed and crop protection where you can actually add to your product portfolio. So how does that come into play if something like that becomes available and do you change your priorities or is it still going to be focused on the Retail side?

So, look, we think we have a very good plan to build out Retail, consolidate the space and create value. And it's a pretty simple plan. We're going to continue to do our tuck-in programs in North America, consolidate the space. We will look at backward integration in terms of the Loveland products portfolio. That has been a huge winner for us and really a key driver of our earnings over the last 2 or 3 years. The international expansion into Brazil now is finally in motion and we've talked about that over the last few years and we see tremendous opportunity in that space. And that's going to be probably the core pillars of growth. Mike did also communicate that we are actively investing in our digital offerings. Like all distribution companies, we're really focused on that as well and you could see us get active in that area as well. Now, to your question on crop protection or seed, we're always looking for parts of portfolios that will fit into our overall offering and drive yields up for our growers and so we would absolutely be interested in parts of those portfolios that would make sense. But we passed on a lot of them over the last few years because we've been selective. But if something came along that would fit with I think our view of where the market is going, what our growers need, we would absolutely look at all of those opportunities.

Our next question comes from the line of John Roberts with UBS.

In phosphates, after you finish the integration, do you still need a more strategic solution in phosphates or is the combination enough here to get the business to where you can just leave it alone for a while?

Yes, it's a good question, John. So, look, the way we're focused right now is we need to deliver the synergy number that we've put out there and the market is not working entirely with us right now. So we're focused on optimizing what we have and really extracting as much value out of that as we can. Susan mentioned it. I'll just restate it, though. It's prudent after a merger like the one we just went through to look at all of our businesses and determine the long-term strategic fit, what kind of capital or investment would be required to take it to the next level and where the best returns are for our shareholders. And phosphate will be part of that among many other parts of our portfolio and we'll make those decisions sort of as we get through 2018 and into 2019. But I would tell you right now, John, our primary focus is improving the business and getting after the synergies.

Our next question comes from the line of Alex Falcao with HSBC.

I just wanted to understand the difference between your realized prices on phosphates and the apparent strength that you're seeing in benchmark prices. Is there anything particular for this quarter or that's how your portfolio is shaping up?

We'll have Susan Jones, our President of Phosphate, take your question.

Yes, I think, Alex, probably the best way to look at this is you need to really look at it on a margin basis versus realized price basis. So just to give you a sense of -- we obviously are seeing the firm prices right now due to sulfur and ammonia prices increasing. But really from our perspective, it really comes down to the overall margin and that's where we did have good volumes out of our legacy PCS for last quarter, we did see prices rise and we have the seed and industrial businesses a bit more squeezed. But at the end of the day, it comes down to a margins discussion as supposed to just looking at the realized prices.

Our final question comes from the line of Duffy Fischer with Barclays.

A question back on Retail. Obviously, you guys have improved that business much faster than the trend line to your 2020 goal would have indicated. One, what has allowed that to happen, and then two, does that mean that where we are at today is a good baseline for continued growth or was there some stuff pulled forward or maybe some stuff that doesn't make the LTM kind of a solid baseline for growth for the next 3 years?

I'll have Mike Frank take your questions.

So I believe clearly the momentum that we have and the strength of our business through the tuck-in acquisition, our proprietary products businesses is a big part of what's driving our EBITDA margin growth. We can continue on that path. And so as we think about the next 3 to 5 years, we believe that we can continue to extend the trend lines that we're seeing. And so we're very optimistic on the future of the Retail business.

Okay, we are on the hour and I thank everyone for joining us today. IR is available for any other follow-up questions. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.