Nutrien Ltd. (NTR) Q3 2017 Earnings Report, Transcript and Summary

Greetings and welcome to the Agrium's Third Quarter 2017 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. And as a reminder, this conference is being recorded. I would now like to turn the conference over to Richard Downey. Thank you. You may go ahead.

Thank you, operator. Good morning, everyone, and welcome to Agrium's 2017 third quarter conference call. On the phone with us today is Mr. Chuck Magro, President and CEO of Agrium; Mr. Steve Douglas, CFO; Harry Deans, the President of Wholesale; and Mike Frank, our President of Retail, to review and discuss our results. 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 were 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. Securities Commissions to which we direct you. I will now turn the call over to Mr. Chuck Magro.

Thanks, Richard. Good morning and welcome to Agrium's third quarter conference call. Before I start, I'd like to introduce Mike Frank, our new President of Retail. Mike comes to us from Monsanto and has almost three decades of experience in the ag industry. He is widely known and respected across our industry, and we are very excited to have him on our team. Welcome, Mike. [0D9C0P-E Michael Frank]: Thanks, Chuck.

It's early November, and the application season is now in full swing across much of North America. We have seen strong application rates so far by growers as they replenish soil, nutrient levels following another year of strong yields and as fertilizer prices remain affordable. In Canada, we had an excellent ammonia season. And in the U.S. where the season is just getting started, we expect the same. Both the nitrogen and potash markets look like they will remain tight in the fourth quarter. And we expect this to continue into the spring season of next year. The third quarter tends to be a seasonally weaker earnings period for Agrium. And we indicated we expected a loss in earnings this quarter, primarily due to our particularly intensive summer maintenance turnaround schedule for wholesale this year. Our results this quarter reflect the impact of those outages along with some delays in ramping them back up. While this impacted our results this quarter, it will set us up for a strong performance in the future and all plants are back up and running well now. In supporting future performance, wholesale has made significant improvements in our operational excellence program. Our capacity utilization rates have been significantly improved on a consistent basis with the past three-year rates averaging in the mid-90% range across our facilities. Cash cost of production has also improved by over 50%, while our SG&A has been lowered by approximately 40%. This was supported by reaching our planned $80 million in annual cost savings this year, which is three years ahead of our 2020 target. The next step in our program is to move our nitrogen maintenance turnarounds from two years to four years. That, along with the final refreshing at Redwater in 2019, are the last steps towards achieving our 2020 targets. The work completed this year are some of the final pieces towards delivering these objectives. With respect to our Q3 results for wholesale and nutrient products, in nitrogen, virtually all of the decline in volumes this quarter was in ammonia. This was due to the increased urea production at Borger, which reduced net available ammonia; a shift in industrial ammonia sales timing, along with the maintenance outages. Our natural gas cost in Q3 were about $2.50 per MMBtu, up slightly from last year and should remain around $2.50 level in the fourth quarter. While potash gross profit increased from prior years, cost increased due to the maintenance requirements this quarter. The year-over-year decrease in international potash volumes was due to increased focus in North America market and the reduction in our Canpotex allocation. Turning to Retail results for the third quarter. Retail EBITDA was up 9% over the same period last year. Our U.S. Retail operations accounted for all of the increase with EBITDA in the U.S. up 22% over third quarter of 2016. Weather played a key factor regionally this quarter with drought conditions in Australia and Western Canada and excess moisture in Argentina keeping earnings flat to slightly lower year-over-year in these regions. The two massive hurricanes in the Southern U.S. had an impact on crop protection sales in the Southern region, which contributed to a reduction in crop protection margins this quarter. We also continue to make good progress on our strategic priorities for Retail. We saw good contributions from acquisitions and the strength in sales of our proprietary product portfolio where sales were up 20% compared to the same period last year. Seed profits were similar to last year; however, margins were impacted by product mix, primarily due to higher soybean planting and lower corn acres. Services and other sales were supported by strong livestock shipments in Australia and solid demand for application services in the U.S. In addition to our ongoing focus on smaller tuck-ins, we acquired 20 ag retail sites from Southern States Coop in Georgia and Florida, which is expected to add over $100 million in revenue. Year-to-date, we have acquired a total of 38 locations that are expected to add approximately $250 million in annual revenue, and our plate remains quite full with other possible transactions. Furthermore, our greenfield, or newbuild, retail center program continues as per plan with 12 new farm centers in different stages of development, and we expect to have several operational for the upcoming spring season. Our Financial Services business also has grown significantly this year with EBITDA more than double last year at this time, and we continue to have strong interest from growers in North America. Retail is expected to show improvement across almost all of our key operational metrics in 2017. And in many cases, we are expected to meet or exceed our 2020 targets this year. We've also made great progress on the merger front. We recently announced the conditional approval of both China and India with the U.S. being the final approval remaining. You will have seen the news release that we have now signed definitive agreements to sell both our Conda phosphate business and our North Bend facility, which are subject to regulatory approval. These divestitures are intended to address U.S. regulatory concerns raised with respect to the pending merger. The transactions are now being reviewed by the U.S. Federal Trade Commission and we are still targeting an end of Q4 close. I will now turn the call over to Steve Douglas to discuss our guidance and provide an update on the integration activities.

Thanks, Chuck. First off, for our phosphate business, Conda has now reported in discontinued operations due to the recent sale of the facility to Itafos in anticipation of the merger with PotashCorp. As a result, an associated loss of $182 million, net of tax, was recorded. Our phosphate results this quarter exclude the Conda phosphate operations and our historical comparable phosphate results have also been restated to reflect this. We updated our 2017 annual guidance, narrowing the consolidated EPS range and slightly lowering the midpoint to account for the lower volumes in Wholesale over the past few months. The incremental downtime is estimated to have impacted earnings by approximately $0.15 per share. We have left the guidance midpoint unchanged for Retail EBITDA, which implies record fourth quarter earnings. We also lowered the annual sustaining CapEx guidance to $425 million to $475 million for 2017, partly associated with the pending sale of the Conda facility. While quarterly earnings can be influenced by a number of factors, I think it's important to put the earnings power of Agrium's free cash flow into perspective on an annualized basis, both in terms of size and quality. For example, even in the challenging nutrient price environment we have seen so far this year, Agrium expects to generate close to $1 billion in free cash flow in 2017. This would be double Agrium's existing dividend. In fact, we can cover the existing dividend by the contribution in free cash flow from Retail alone. Retail provides a stable and growing earnings base with the added benefit of counter-cyclical cash flow generation relative to the Wholesale business. Furthermore, with the anticipated strong fourth quarter, we expect our net-debt-to-EBITDA ratio to decline to roughly 3 times EBITDA by yearend. The rating agencies have placed Agrium on watch for a potential upgrade pending the merger. As Chief Integration Officer for Nutrien, I can assure you that the preparations for the completion of the merger with PotashCorp are at an advanced stage and we are confident that we'll be able to integrate this business quickly and effectively after close and start achieving our targeted synergies as per our plan. We remain very confident that our expected $500 million of recurring synergy savings will be achieved within the first two years following the merger. The timeline for capturing these synergies is to achieve $250 million in synergies on a run rate basis by the end of the first year, and to achieve a full $500 million on a run rate basis by the end of the second. We continue to expect the deal to close by the end of the fourth quarter of this year and for Nutrien to be operational as of January 1, 2018. We look forward to presenting more details on how we will report synergies and progress towards our target in the new year. I will now pass the call back to Chuck to discuss the outlook.

Thanks, Steve. Looking at the outlook for the remainder of the year, a large corn crop in the U.S. is anticipated, with the USDA projecting an average corn yield of 172 bushels per acre. While crop prices are at relatively low levels, which can create challenges for some growers, U.S. grower margins remain at similar levels to last year. We have seen strong demand for crop inputs so far this fall with normal to above-normal application rates. The key uncertainty for the fourth quarter revolves around the completion of the U.S. corn harvest, which was still about 10% behind normal for this time of the year. The soybean harvest is progressing well in those acres where much of the fall fertilizer is applied. There is still time to harvest the crop and allow for a solid application window depending on weather, and growers can put a lot of fertilizer down in a relatively short period of time. Looking at the outlook for the major nutrients, nitrogen has seen the sharpest increase in pricing, up over 50% since the lows experienced in July. The strength in pricing as a result of the continued low level of Chinese urea production and export availability combined with strong Indian import demand. We expect the relatively tight market conditions to continue for the remainder of 2017 and into 2018. In North America, retailers will need to fill relatively empty pipelines to meet the demand for the fall and spring application seasons. The increase in Chinese coal prices and the increased emphasis on lowering pollution levels in the country has resulted in Chinese urea production levels remaining in the 60% range, even after the recent increase in global prices. Furthermore, the medium-term supply/demand balance for nitrogen appears to be positive, as illustrated on slide 14 in our third quarter slide presentation. In potash, strong global shipments have helped support higher prices, particularly from areas such as Brazil, India, China and other Asian markets. We expect limited new capacity being available to the market for the remainder of 2017. Much will depend on the rate at which new mines actually come on stream in the years to come and the rate of global growth over this period. We anticipate global potash demand to increase approximately 3% to 65 million tonnes in 2018, which would maintain global operating rates in the high 80% range and provide support to the market. In phosphate, export availability was reduced from the U.S. due to hurricane Irma and from China, which has provided some support for prices. Phosphate prices have also been supported by an increase in sulfur and ammonia prices, but this has also impacted margins. Before we move on the questions, I would like to talk a little bit about the pending merger with PotashCorp that is now in the final stages of regulatory review. The combination of our two companies has compelling synergistic and strategic benefits. And we can't wait to finalize this deal that shareholders of both companies have so strongly endorsed. In addition to our identified synergies, the new company will benefit growers, communities, employees and will allow us to be more competitive in the global market. However, more than that, our vision is to be a true leader in innovation and technology in the global agricultural market, bringing complete agricultural solutions to the next generation of growers who are striving to meet global food challenges. Nutrien will be ideally placed to achieve these goals, while providing stable growing shareholder returns and leaving a positive legacy in the communities in which we operate. On that note, I'd like to open the line up for questions. Operator, please go ahead.

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

It's Oliver Rowe on for Ben. Thanks for taking my question. On nitrogen, we've seen a big Indian tender get cancelled and some restarts in Europe, as well as some more production coming on in the U.S. and several producers have an outlook for a volatile pricing in the coming quarters. So, what's underpinning your view for tightness into spring 2018? And I guess, further to that, do you see urea trading on Chinese economics through spring?

Good morning, Oliver. I'll have Jason Newton, our Head of Market Research answer your questions.

Hey. Good morning, Oliver. Yeah, we saw the Indian tender get cancelled yesterday, and that is really almost similar timing to what happened a year ago. But as far as market conditions are concerned, we see it a bit different now versus what the case was a year ago. If you look at the supply/demand in India, overall production and imports so far this year are down about 2.2 million tonnes, while the domestic deliveries are only down about 0.3 million tonnes. So, year-over-year, there is close to 2 million tonnes difference in the supply/demand balance. A year ago, we were adding inventories in India. And this year, we've been tightening them in the range of about 1.5 million tonnes year-over-year. So, the Indian market's in a lot different situation and we think they will have to continue to tender between now and early next year to add new supply to avoid going into a deficit situation. You're right that new supplies are coming on stream. The big AOA plant in Algeria has added one train, is expected to add another. And there is some small production coming on stream in Ukraine and in Central Europe, although the magnitude of that is relatively small. But the other thing to consider is, as we move into the first half of the calendar year, you get into a seasonally strong demand period. And as we look at the – in particular the North American supply/demand balance, we think there will have to be imports moving into the market in the new year, and prices still are not attractive to import volumes moving in. And essentially, the market has been net balance between imports and exports in the third quarter of the year. So, as we as we look at demand, over the next few months, we think that growth will offset the supply coming on stream. The other thing to watch will be what happens in China. And at current prices, it looks like the Chinese production should be getting somewhat more profitable, but we haven't seen production rates go up and in fact they've been moving down over the last few weeks. And as we get into the first quarter of next year, it's the Chinese high demand period. And we know a year ago, they drew down inventories to meet domestic demand and those inventories aren't in place at this time. And so, the Chinese demand situation in the first part of next year will also be important to watch.

Oliver, it's Chuck. Just a couple of comments on nitrogen longer term. We've been constructive on the nitrogen supply/demand balance for some time. And today's recent strength is a bit of a surprise even for us, but we like the long-term supply/demand outlook. If you look at demand, it's been consistent for many years. We think that it's going to continue to grow globally at around 2%. And yes, we have some supply coming online this year and early next. But then the supply/demand fundamentals start to tighten up quite significantly. And we think that in the second half of 2018 and moving into 2019, the supply/demand fundamentals of nitrogen actually look the best out of the three nutrients.

And Oliver, it's Harry Deans, just to back that up, if you look at our committed book in Q1, we've already got about 35% of urea committed at prices $10 to $15 a tonne higher than Q4 numbers.

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

Thank you. Chuck, just to continue on nitrogen, obviously, you wear two hats there, both as a producer and a retailer. You did comment that North American channel inventories are relatively low as people anticipate new production coming online or ramping up more fully. So, what's your retail position on nitrogen? Are you below average or are you sort of reflecting the optimism that you've just talked about and have a more normal level of nitrogen inventories going into the spring?

Good morning, Don. I'll have Mike Frank answer your question in terms of our inventories in retail for nitrogen and the other products. Go ahead, Mike.

Yes. So, hello, Don. So, we're in a good position on our inventory with fertilizer. We're up at the end of Q3 about 9% versus this time last year. So, we're sitting on more fertilizer. We've got a strong cost position and we believe that that's going to help our margins in Q4. And some of that will also spill into Q1. So, we're in a good position right now. We think we're probably in a better position than the rest of the marketplace.

Yeah. Our read, Don, would be that – it's based on our view, so retail acted on our view. But I think a lot of our peers in the retail space were thinking that there would be some volatility and maybe some temporary price reductions in nitrogen through the fourth quarter. And we're pretty aware of some of our peers being really light on inventory right now. And to Harry's comment, our book for wholesale, even into the first quarter, this is a little unusual this time of year to see our book so strong and at higher prices than (20:42) even Q4. So, that gives us a lot of confidence that I think as my opening comments suggested that we think the nitrogen strength will last through Q4 and into the spring.

Thank you. Our next questions come from Steve Hansen with Raymond James.

Yes. Good morning, guys. Just it seems to me that you've been able to meet or exceed all of your 2020 targets at a faster pace of delivery here, which is good news. The one in particular, though, that you highlighted, Chuck, that struck me as interesting is that EBITDA is more than doubled in Financial Services space. Can you just give us a sense for where you want that to go? Again, just remind us the targets there and the pace of growth in that business.

Yeah. Good morning. I'll have Steve Douglas answer your questions.

Good morning, Steve. Yeah. I think our group has been successful in expanding our offerings on the Financial Services side. We've been very careful to do it in a way, though, that is balancing, obviously, the needs of our growers and making sure we're there to support them. But balancing that off with our desire and recognition of the fact that we're not a bank and we need to make sure that we keep these on a normal basis. We continue to see ourselves expanding our financial services offering commensurate with our growth in the retail business. We've not had this stray over into the wholesale side. And I think as we continue to grow the book, we'll find innovative ways, not unlike what we did with ARM in the U.S. to make sure that we can continue to provide those financial services to our growers, but do it in a way that we see to the fact that we are committed to an investment-grade organization and not overextend ourselves in terms of cash being tied up in things that have relatively low returns compared to the balance of our portfolio. So, we continue to develop alternative financing measures. And really, in our view, corral what is out there, because we have a litany of offerings from a lot of our suppliers that really give us leverage with our growers and allow us to not necessarily take on additional debt and financing into our books and still provide the growers with the lending that they need. So, I realize that's, perhaps, an elongated answer compared to what you wished for. But we're going to continue to grow our operation in that side through a combination of growing credit commensurate with our sales, growing credit commensurate with our reach because as we continue to add tuck-ins, we obviously need to add working capital into that mix. But we'd like to continue to grow it by adding a fee base from referring customers to other offerings out there from other providers, while still maintaining a balance sheet that is investment grade and not necessarily having a leverage at 10 times the way banks do to provide financing.

Yeah. And Steve, it's Chuck. Just so strategically we think that this is very important because it gives the retail organization another tool in its toolkit. Of course, our first – and our business model is serviced on providing full agricultural solutions through our 3,000 agronomists to growers around the world. We not only provide products, but services. And in many cases, we're doing the application work and we have our – of course, our strong proprietary products portfolio. So now, when we add another dimension to this, which growers need right now, especially in today's market conditions, access the capital. And if we can provide that as a one-stop shop along with these other products and services, we think that there is just tremendous competitive advantage here. But we've got to make sure that we get paid for that, of course, and that we don't put the balance sheet at risk in the way Steve has described this. I think the arrangement we have with ARM, A-R-M, allows us to really get the best of both worlds, allow us to grow our book, but it's not on our balance sheet and allow us to provide a much-needed service to farmers in North America and in Canada.

Thank you. Our next questions come from the line of Andrew Wong with RBC.

Hi. Good morning. Thanks for taking my question. So, you made a couple of sizable acquisitions this quarter. Could you provide some of the details on the margins of those businesses or how they compare with your base business? And then secondly, do you see any opportunities available for a larger acquisition sometime in, I don't want to say, the near future, but at least in the foreseeable future? Thanks.

Hi, Andrew. I'll answer your larger acquisition question and then I'll have Mike Frank answer sort of what we've been able to do in the third quarter and this year. And we've had a very good year. So, last year as you recall we had a record year when it comes to just the tuck-ins. And then this year is on a very similar pace. As to your question on is there somebody larger that we can acquire or merge with our company, we're always looking for that. Of course, we're conscious about the prices we'll have to pay that we've been saying for some time that we believe that this market is heavily fragmented, and our roll-up strategy has played very well. We think consolidation is good for the industry. And we're always on the lookout for something larger and more strategic. But a lot of these companies are private. And what that means is that it's not just about price. It has to be about cultural fit and succession planning for some families that own these entities. And we're always looking at that. But what I'd say right now is that we're focused on growth many different ways. Our tuck-ins and our greenfield program, which I did outline in my opening comment, are two of the primary ways that we're going to grow and we'll keep looking for the larger ones. Mike, do you want to just describe how we're doing this year.

Sure. Yeah. So, if you look at a couple of the big acquisitions we made right at the end of Q2, the California retail business that we acquired, a very good business, but even with that, we think there's significant opportunities to increase margins through proprietary product sales through those stores as well as just from a scale standpoint. Southern States, which Chuck talked about, which was a big acquisition in Q3, we believe there is significant margin lift opportunity with that business. So, we're working with that team right now. We're integrating it into our business. Proprietary sales, asset that can help them serve their customers even better than in the past. So, we're very excited about that acquisition as well as we continue to work with the team down there to use it to improve margin significantly.

And just on the multiples that we're paying, they really haven't changed a whole lot. They're in that 6.5 times range. They might have come up a 0.5 point or so simply because of really lower EBITDA and the market conditions that we're seeing. But they've been very consistent. And then, of course, these are pre-synergy numbers. Post-synergy, we do get the benefit of having our proprietary products move in there. Of course, our buying power, because we just buy more products and then usually there's an optimization from a cost structure perspective. So, these things are still highly accretive if you compare that to where we're trading today, and we don't see that that will stop anytime soon. In fact, we see the pipeline being very full right now and we're working pretty hard on some other medium-sized acquisitions which we hope we can announce in the fourth quarter.

Thank you. Our next questions come from the line of Josh Spector with UBS. Please go ahead with your question.

Hey, guys. Thanks for taking my question. Just another one on nitrogen real quick. If you look at slide 15 that you have which shows the decline in Chinese exports, is there a scenario where you see exports going down to zero at some point over the next couple of years? And if that does happen, does the cost for the incremental importer then shift to the next highest cost producer like a European gas cost producer – gas-based producer? Just wondering if that's a scenario that's potentially realistic or something you think about in terms of what could set U.S. nitrogen prices over the next couple of years.

Good morning, Josh. I'll have Jason Newton answer your question for you.

Yeah. Good morning, Josh. We don't think it's likely that China will move to a zero export situation, primarily because the global market needs that supply. So, as we look forward, we see the need for Chinese exports to be in the 3 million to 4 million tonne range longer term. Now, if you look at the rates at which China has produced this year versus last year, the peak rates of 2016 versus the peak rate of 2017 is down about 16 million tonnes. So, there's been a significant reduction in production. And we have seen that as prices have come on up that production hasn't ramped up as fast as expected. And thinking about this, we think that when we're looking at high production rates and in late 2015 or early 2016, we're questioning why more production wasn't shutting down. And the reason was that they were running covering variable costs and some were fearful that if they did shut down, they wouldn't be able to obtain the financing to restart. And so now as we look forward and the prices have come up and the economics for some have improved, we think that maybe they're unable to restart. And so that's something to watch as we move into the coming years and as global demand grows and as the volume of new capacity being added globally declines, that has the potential to really tighten the global supply/demand balance if that Chinese exportable surplus is not as high as what's needed to meet global demand.

Thank you. Our next question comes from line of Adam Samuelson from Goldman Sachs. Adam Samuelson - Goldman Sachs & Co. LLC: Yes. Thanks. Good morning, everyone. So, maybe some questions on retail, in crop protection, your margins declined year-over-year. I think some of the comments in the text talked to some of the hurricane disruptions presumably on cotton, but also some competitive shifts, and anymore color there. And then also in retail, can you talk about the impact of acquisitions on SG&A? Given the gross profit performance, I would have expected a little bit more leverage on the gross profit uplift. Thanks.

Good morning, Adam. I'll have Mike Frank answer those questions, and then I'll give you my perspective as well. Go ahead, Mike.

Yeah. So, Adam, for Q3, our overall margins on crop protection were up about $17 million. Margins were down. It's a very competitive marketplace, and so that did have some impact. And of course, as Chuck mentioned in the opening, the hurricanes definitely had an impact on cotton growers in Texas and on vegetable and citrus growers in Florida. And so, that did have an impact on our crop protection sales in Q3. Some of that will move to Q4, and we saw that already in our results in October. And so, some of that moves and obviously some of that gets lost, too, based on whether or not the crop got totally destroyed or not through the hurricanes. On your question with respect to the SG&A impact to our acquisitions, look, if you go back and look at it over time, these acquisitions are significantly helping our business. If you look at all the acquisitions and tuck-ins we've done since 2016, they'll represent probably a third of our EBITDA growth this year. And so, they're definitely contributing to our overall growth. It takes time to build them up, usually a couple of years, as we sell more proprietary products through those retail outlets. And so, we typically see that it takes about two years to get the full benefit of the tuck-ins.

Yeah. And just a couple more comments on the SG&A question. So, some of the mid-sized retail facilities, if you're buying a group of, say, 20, like we did in Southern States and even Cargill last year, we have to do a lot of training in terms of the sales force to sell our proprietary products, get them up to speed on that. It doesn't happen overnight. So, what we're finding is that the margin lift that we get will take some time. It's not just one season, but we do get exactly what we look for and that's built into our business cases. But if you look actually SG&A as a percentage of revenue quarter-over-quarter, we're actually down almost 2%. So, I think you are seeing strong leverage through the acquisitions, and there is more to come as we work through the integration of these mid-sized transactions. But I'm actually very pleased with the leverage that we're getting from an SG&A as a percentage of revenue. And then if you look op cost – total op cost, forget about just SG&A, total op cost as a percentage of GP for example, that's been more or less flat this year. But we do expect to come down 1% by the remainder of the year. And some of that has to do with timing and the late harvest, because we have a large temporary workforce that we hire both in the spring and in the fall. We've done that, but the harvest is a little late. So some of the SG&A and some of our operating costs are a function of how late the season is. But by the end of the year we do expect to see the leverage.

Thank you. Our next questions come from the line of Jacob Bout with CBIC (sic) [CIBC] (34:30).

Good morning. Talk a bit about some of the wholesale production issues that you had in the quarter. I was a little surprised just how widespread this was given the focus on reliability.

Hi, Jacob. It's Chuck. Let me start at the high level and then Harry can walk you through some of the details. We tried to actually communicate that we were going to have a very intensive maintenance turnaround schedule this year. And the reason that we did that is we are planning for an improvement in the supply/demand fundamentals in late 2018 and 2019, and we also are driving towards those 2020 targets that we put out several years ago. And if you look at our performance in the last three years, our capacity utilization is up around 10%. So, for us, that's like having another ammonia plant up and running. That's the incremental production that we've been able to get out of the facilities. But the last steps, which we, I think, have tried to communicate as clearly as we can are still needed to get to where we want to be in 2020. And the two remaining steps are to move the turnaround frequencies for all of our nitrogen plants from two years, where they are today, to four years. And then we have some end-of-life equipment with Redwater that we still needed to replace. And so, the outages that we had were primarily in nitrogen this year were centered all around those facilities. Now, look, we feel very good now that a chunk of the work is complete. The plants are back up and running, and we have one more outage now in 2019 for Redwater. But for next year, for example, there's only one major outage left. So, you're not going to see us take two or three of these facilities down because they're where they need to be. And I'll let Harry speak more to that. So, I think we're in good shape. The plants are now prepared to run as the supply/demand fundamentals improve, and we're well on track to hit our 2020 targets. So, Harry, why don't you talk a little bit about the work that you have to do in Redwater?

(36:38). Thanks, Chuck. Thanks for the question, Jacob. So, Redwater, if you remember, we've been flagging since about 2014 that we had quite a lot of end-of-life issues in Redwater where we had to replace a big gas turbine that we had and some other furnaces and do some reconfiguration in the furnaces at the ammonia plant. And on top of that, there were some offsite boilers that had to be replaced as well. So, what we decided to do at that time was actually break it into two chunks. So, do some of the turnarounds work in 2017 and then do another piece of the turnaround work in 2017. If we hadn't – 2019, sorry. If we hadn't done that, then we would probably be talking about an outage of between five and six months in 2019. So we thought we'd derisk it by doing some of it now and some of it later on, which we thought was a good strategy, particularly at the bottom-of-the-cycle conditions for nitrogen. We thought it was a good time to actually take the outage in 2017. The other plants, Joffre, as you know, is the back end of an ammonia plant, we rely on our nitrogen and our hydrogen for suppliers and those suppliers were taking outages anyway. So it didn't seem appropriate for us not to take the outages at the same time to do the maintenance work. Carseland, as Chuck alluded to, we did the turnaround in Carseland because we had statutory inspections that we have to do. We had an LP loop that required replacing and also we wanted to go into this four-year turnaround cycle. So, in the future we wouldn't have as many plants down at the same time. And that four-year turnaround cycle meant that we implemented lots of stuff that will help our reliability on that site such as risk-based inspections and other appropriate stuff to help us become even more reliable on the site.

So, Jacob, the way I look at it now is we've made some investment to run these plants at a four-year turnaround frequency. Clean up some of the risk that we would have had in 2019 and now we're in good shape to take advantage of the improving supply/demand fundamentals as we move forward into the second half of 2018 and 2019.

Our next questions come from the line of Joel Jackson with BMO Capital Markets.

Hi. Good morning, Chuck and team. A little bit on Conda. You sold the mine and the plant now to Itafos. Looks like you have a bit of a partial tolling arrangement where you'll sell ammonia and take back MAP. At another reserve at that mine, the rock reserve at that mine is quite low. And Chuck, I know you had looked at trying to find rock there for quite some time or in the area or globally. If Itafos locks in rock somewhere else, would your arrangement that you would keep buying MAP and keep supplying ammonia or does it end when the current reserve ends?

Yeah. Good morning, Joel. So, that's right. If you look at what we were able to do, first of all, it goes without saying that we sold both of these businesses entirely to satisfy regulatory concerns in the U.S. And both of these companies, Trammo for North Bend and Itafos for Conda, are two strong and strategic buyers. And I would say they're natural owners for these operations, and obviously they're committed to running these businesses for the long term. If you look at the Trammo arrangement, I'll just start there, they have supplied ammonia to North Bend for some time. We also moved some of our ammonia into that market as well, into that plant. And in the North Bend is really a nonintegrated industrial nitric acid supplier. And that is really Trammo's sweet spot. So, it's great to have them own that facility, and we can repurpose our ammonia back to the ag markets, keep those tonnes a little closer to home by using our retail channel. Now, when it comes to the arrangement with the Itafos in Conda, you're right, Conda today is only permitted till around the year 2023. And so whether it was us or Itafos, it would require some capital to find the rock resource to service that plant beyond 2023. Now, Itafos is integrated phos operator. They have interests in North America, Brazil and Peru, and they do have sizable rock reserves in Idaho just a few miles away from the plant. So, there they're going to be able to then monetize their rock reserves which I think is good for them. And for us, when I look at the arrangement, it was important for us to have a commercial relationship for MAP, for our retail business, I've said that many times when I talked to shareholders in this outside world, and we were able to have that. Whether the agreement will be re-upped after that a few years, we'll have to see. The market conditions of course will change, so we didn't want to have a very long-term contract. But we feel very good about what we have in place for the next few years. So, overall, when I look at this arrangement, I think it's a win-win for everyone. Agrium will have – obviously it's getting fair value for the business. But really this paves the way to close our merger and deliver the $500 million of synergies. The Itafos is getting a good operating business. They will be able to monetize their rock resources. And then of course our clients, our farmer customers are getting good long-term product sources now for years to come. I should say the sale of Conda, a couple things about it. There is no impact on earnings. I think it's important to say that for 2017, and there is no impact on Nutrien synergies. So, the phosphate synergies are all centered around integrating and optimization of Redwater with White Springs and Aurora. Conda really wasn't contemplated in the synergy capture. And therefore, our $500 million annual operating synergy target remains unchanged.

Chuck, just to add one thing to your commentary. There is an impact on earnings owing to the sale, because we did take a provision. But outside of that, I think what you're referencing was operating earnings...

Recurring earnings.

...were immaterial.

Our next questions come from the line of Chris Parkinson with Credit Suisse. Christopher S. Parkinson - Credit Suisse Securities (USA) LLC: Great. Thank you. Just following the sale of the equity stakes, you're naturally going to have a lot of capital. Can you just comment on the priorities assuming it's going to be overwhelmingly on M&A, and just any color on the various sizes of potential transactions that you may be interested in both the U.S. and even potentially Brazil. Are the targets mostly bolt-ons or is there anything else you'd consider? Thank you.

Good morning, Chris. So, clearly, when you're talking about selling the equity stakes and reallocation of the capital, it's the purview of the Nutrien management team and the Nutrien board of directors. So, I can't speak specifically, but I can give you sort of a view of how we're thinking about things going forward. First of all, I think we'll be able to move quickly to clarify our capital allocation priority. So, I think you should look for Nutrien to come out shortly after we start up the company and clarify a full and complete picture of how we're going to allocate capital. But here are some general thoughts. So, obviously, the balance sheet and protecting our investment-grade rating is always important for us. Steve mentioned it, though, the Nutrien balance sheet we think is going to be in really good shape, but it's something that we always have to keep an eye on. So, I think the allocation of capital is really going to be targeted towards long-term shareholder growth. And what does that mean? It means that you're probably going to see us allocate some of the capital to retail growth. But the where and how and how much and how big, I think we have to wait until we actually spend a little bit of time with the new management team and the new board to work through those details. But I think it's fair to say that retail growth will be a key priority. But I also would say that I think you're going to see us also return some capital to shareholders whether that's in the form of dividends or a combination of buyback. It's to be determined. But because we have such a strong balance sheet, and I think we're going to raise a lot of free cash flow just from our operations and the sale of the equity stake, I think we'll be able to have a nice balance of growth-centered capital, but some return of capital for shareholders. The specifics, we'll leave for the new management team and the new board to work through in detail, but I think you'll see some clarity very shortly after we start up.

Our next questions come from line of Jeff Zekauskas with JPMorgan. Please go ahead with your questions.

Thanks very much. Has your longer-term strategy in phosphate altered that is thinking about the combination with PotashCorp? And of the $500 million in synergies, how much are to come from phosphate?

Good morning, Jeff. So, to answer your second question first. Out of the $500 million, about $80 million of the synergy target is allocated to phosphate. And I can have Steve Douglas explain what that is. But I'll answer your second question and then will turn over to Steve just to put a little bit more color on the $80 million. When it comes to the long-term strategy of the phosphate business, now that of course we're taking – we have to sell Conda to meet some regulatory requirements, we need to look at the rest of our phosphate portfolio and understand, first of all, what we have as Nutrien. So, right now, what I would say to you is, I think one of our key priorities will be to integrate the new company. That goes without saying. We have to make sure that we have an operating company, and we do integrate the company. We need to focus on delivering $500 million of annual operating synergies. That's a large focus. We have literally hundreds of people inside of both of our companies focused on that. And then we will look at the assets in due time and just make some decisions strategically. It's premature for me to describe anything more than that at this point simply because we haven't had those discussion, and to be honest with you, we have a few higher priorities. But what I would say is we will get there in time, and I think it will be relatively quickly and you'll see more clarity in terms of the overall strategy for the company into 2018. Steve, do you want to talk a little bit about the $80 million synergy bucket and what it entails?

Certainly. You're obviously versant in what we put out when we initially declared or described the synergy, which was effectively if you cut through it all was utilizing rock supply that PCS has into our facility in Redwater, in Alberta to replace rock that we are currently buying which costs us incrementally more between a combination of tonnage – sorry, of freight and just paying for people's capital by virtue of the fact that we were importing rock to Redwater, which has always been a facility. Nothing has dissuaded us from believing we're going to get materially close or that $80 billion synergy through some derivative of reorienting that rock supply. And so, nothing really is unchanged. I've always said from the outset that as we got deeper into this and then ultimately got to the point where we put the two companies together, the details of how that was going to work is going to obviously be, in all likelihood, reoriented in some way, shape or form. But it is anchored in the fact that PCS has rock, Redwater needs rock, and in one way, shape or form, we will come we think exactly where we want to be on those synergies.

Our next questions come from the line of Michael Piken with Cleveland Research.

Yeah. Hi. I was wondering if you could give us your thoughts in terms of the seed market for the upcoming year, now that price cards are out, what your expectations are for seed pricing. And then secondly, your thoughts in terms of your desire to spray dicamba and what type of incremental volume opportunities might be available from spraying dicamba next year?

Good morning, Michael. I'll have Mike Frank answer both of your questions.

Hey. Good morning, Michael. Yeah. So, from a seed standpoint, as we look ahead to this new crop year, so firstly commodity prices are largely unchanged from this time last year. So, growers are going to look really hard at those decisions. We think based on the strong harvest this year, especially on the corn side, that there's likely going to be a little bit of momentum to maybe a few more acres of corn if we were predicting it right now, which for our business that's good from a margin perspective both from nutrients as well as seed and other inputs. But that being said, we think overall seed pricing is going to likely be pretty flat to last year just based on the pressure that growers are under based on current commodity prices. Now, relative to the dicamba and the Xtend system, we're working very closely with all of our farmer customers. Our customers that used the technology last year, now that harvests are out, the reports that they're giving us is that they were very pleased with the weed control, and that yields with the Xtend varieties have come out very strong. And so, we clearly see that there's going to be momentum with Xtend acres going into next year. We've got a supply plan that we'll be able to serve growers whatever they decide to choose from a technology standpoint. In terms of application, we've been selling dicamba for decades. We continue to custom-apply. Of course, we follow all the regulations. And so, we think it's a value that we can provide to our growers to have applicators and be ready to apply dicamba on the field where growers use that technology. So, we're set up for I think a strong year going into next year across the seed sector.

Our next questions come from the line of Steve Byrne with Bank of America.

Thanks. This is Ian Bennett on for Steve. When Canpotex issues a press release saying that it's fully committed for potash, what does that mean? And over the next three to five years, do you expect Canpotex's shipments of potash to grow in line, above or below the market?

Good morning, Ian. Look, those are really Canpotex-specific questions that I really shouldn't comment on. Obviously, we are a member of Canpotex, but we're only one member. I think what you should do is actually talk to Canpotex. My understanding is that when they say they're fully committed, it means exactly that, is they have no product to sell. And you should follow up with Canpotex. I don't think it would be appropriate for me to sit here as the Agrium CEO and speak for Canpotex.

Thank you. Our next questions come from the line of John Chu with Laurentian Bank.

Hi. Morning. So, just on the retail side, my understanding was that Sinofert had a delegation in Canada not too long ago. So, I was just curious if the company had any historical interactions with them and what kind of opportunities could there be going forward for Agrium in the retail segment as it relates to China and working with Sinofert? Thank you.

Good morning, John. Well, that's a question that we really haven't contemplated. Obviously, there's a relationship between PotashCorp and Sinofert in terms of being an owner of that company. So, I'll leave that question for PotashCorp. From an Agrium perspective, we have done historically a little bit of interactions with Sinofert. I wouldn't say business. We've looked at whether there was an opportunity for our retail business to be in China. They've come and spent a little bit of time to understand just the value that our proprietary products portfolio brings. And there's always, I believe, ways that we can work together a little bit more closely in the future. But it really hasn't been a strong focus for us, of course, because we've been looking at building our own retail business in North America and then in South America and building our Loveland product portfolio into our channel. But I would presume that once we close the merger, maybe there's an area of opportunity here. But to be honest with you, today, there really hasn't been much of a focus.

Operator, we have time for one more question.

Okay. Your next questions come from the line of Jonas Oxgaard with AllianceBernstein. Jonas I. Oxgaard - Sanford C. Bernstein & Co. LLC: Morning, guys. I was wondering a little bit more about that nitrogen and the outages, and this is little bit of a two-part question, if you don't mind. The first one is on the maintenance schedule pushing to four years. One of your competitors tried to push theirs to three and ended up concluding that that was probably too far apart, and these are pretty old assets. So, what are you doing differently from the past to allow this four years to work? And then the follow-up to that is, it also looks like you had a number of unscheduled outages this quarter. What was going on in the business and how should we think about this going forward?

Yeah. Jonas, I'll have Harry talk a little bit about both of those, and then I can give you my comments as well. Go ahead, Harry.

Jonas, thanks for your question. Morning. I used to run a plant in Cologne in Germany and had a five-year turnaround cycle. And how did we get there? We did it through risk-based inspections, through minimum trips through safety instrumented systems, SIS, and we did it through vibration control. So, I think if you've got the right inspection regime in place, these plants, no matter what their vintage are, can actually go on to have turnaround cycles of four or even five years. So, I think it's well within our capability to do that. We've demonstrated that elsewhere. And actually, we've got a plant at the moment running up at Fort Saskatchewan, and that's in the fourth year of its turnaround cycle, and it's one of the most reliable plants that we actually have. On the second piece about the schedule, what's actually happened was we had turnaround, and actually under turnaround, we found some work that we wanted to complete. We also had some issues, to be frank, with our contractors because productivity wasn't as we expected. And particularly around welders, the welding quality was pretty poor. So, that required some rework for us in the turnarounds. So, I wouldn't read anything into these issues that we have. We're still on track to hit our 2020 target. We've had turnarounds that were delayed, but we're well set up to capitalizing those turnarounds and hit the four-year turnaround cycle.

Yeah, John, it's Chuck. So, I would just echo what Harry is saying is, in fact, world-scale plants today should be four or five years. There's no – the way that these things are engineered and designed – and yes, our plants of course are – you could say, are an older vintage, but they've been refreshed. So, the piping, the reactors, all the equipment are brand-new. And there's no reason why we can't. And Harry and his team has a lot of experience, and we have plants now in our fleet that can do this. So, we're just trying to bring the rest of the plants up to that standard, and I actually think that that is where we need to be. And that's what is contemplated in those 2020 objectives. Your second question, it wasn't a notion of unscheduled outages or not being reliable. It was some of the outages went a little longer than we anticipated because we had shortages of qualified tradesmen in Western Canada for different reasons. And look, that's on us, we're not making excuses, but it's a very different issue than saying that the plant was running and then stopped running because of a challenge. It's more things were delayed because of productivity with the workforce.

And, Jonas, on that, on our Saskatchewan asset, we set certain production records month after month before we had the turnaround, and certainly on nitrogen assets we've had the longest run length ever on our big ammonia plants at Redwater by 150 days and the same on the urea plant, an extra 200 days compared to the run length. So, I think we did all the right things. I think we're well-placed to capitalize on these four-year turnaround cycles and to make our plants even more reliable.

Thanks, Harry. Thanks, everyone, for joining us this morning. If you have any follow-up questions, Investor Relations is available to answer any of your questions.

This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.