Nutrien Ltd. (NTR) Q1 2018 Earnings Report, Transcript and Summary

Greetings and welcome to the Nutrien First Quarter 2018 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] And as a reminder, this conference is being recorded. I would now like to turn the conference over to Richard Downey, Vice President Investor Relations and Corporate Relations. Thank you, you may begin.

Thank you, operator. Good morning, everyone, and welcome to Nutrien's 2018 first quarter conference call to discuss our results and outlook. On the phone with us today is Mr. Chuck Magro, President and CEO of Nutrien; Mr. Wayne Brownlee our CFO, and heads of our four 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 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 Nutrien's first quarter 2018 earnings call. Today, I’ll recap first quarter results and provide insights on market conditions and our financial outlook for the year. I’ll also provide an update on the progress we have made on integration and the actions we have taken on the capital allocation as these two items have been a major focus for the new board and management team. The initiatives implemented during the first four months as Nutrien include a meaningful return of capital to shareholder and strong growth of our retail business. This will serve our shareholders well in the months and years ahead. We believe when you look at our company, the investment thesis is clear. No other company in our sector has the combination of strength, stability, strong future cash position or a potential to invest and innovate. And with over 26 million tons of fertilizer sales no one can touch our leverage to an improvement in the market fundamentals. Turning to our first quarter results, our wholesale operations performed well this quarter. However, earnings were constrained by rail performance issues on west coast potash exports. Our retail earnings were delayed due to the extremely wet and cold weather conditions across North America, the spring, which have deferred applications, planning and associated crop input purchases similar to what occurred in 2015. Our international retail business continues to deliver strong results with EBITDA up 46% from the previous year. Potash EBITDA increased by nearly 40% compared to pro forma results for the first quarter of 2017 earnings illustrating the earnings leverage that can be generated from our large low-cost potash assets. Prices continue to strengthen in both domestic and offshore markets and sales volumes rose 11% despite rail transportation issues. Our cash cost of products sold declined to $60 per ton this quarter as we benefited from continued ramp-up of the Rocanville facility, merger-related synergies and fewer overall downtime days. The delayed start of the spring season impacted our nitrogen sales volumes, most notably for ammonia. However, nitrogen EBITDA was up from the prior year as we benefited from lower production cash costs and higher average realized prices. Our nitrogen plants operated very well in the quarter with ammonia utilization rates increasing to 96% compared to 84% in the fourth quarter of 2017. Our phosphate business also demonstrated strong operational performance this quarter as plant utilization rates increased 13%. Our average realized phosphate price was up $10 per ton this quarter but was offset by sulfur costs that increased by approximately $50 per ton and this headwind is expected to remain in the second quarter. Nutrien’s adjusted net earnings for the quarter was $0.16 per share, excluding $74 million of incremental depreciation and amortization adjustments, as well as merger-related costs of $66 million. Adjusted EBITDA totaled 553 million, which was slightly up from the first quarter of 2017 even with the significant delays to the start of spring season this year. While there’re still some moving parts with merger accounting, Q1 clearly shows the potential for this company. Looking ahead, there are a number of market factors that support our positive outlook for the second quarter and full-year 2018 earnings. First let’s look at the agricultural fundamentals; global crop prices have been supported by delayed North American planting season and significantly lower corn and soybean production in Argentina. Ag markets have also benefited from strong demand for grains and oilseeds globally. Despite near record global crop production, the USDA projects that inventories will decline by nearly 3% during the crop year, the largest year-over-year decline since 2010. Based on current 2018 futures prices, U.S. soybean and corn grower cash margins are projected to be 10% to 20% higher this year. Trade tensions between China and the U.S. has created some market uncertainty. However, we do not expect an impact on grower planting decisions this spring. We also anticipate growers spend on crop inputs and services to be similar to the previous year as famer sentiment is generally very good. While the late spring has delayed fieldwork and retail earnings we are well prepared to meet the challenges of the compressed spring season given an unmatched North American distribution network. As weather conditions started to improve in late April we have seen a significant increase in daily retail sales revenues compared to the previous year. As a result, we expect first half 2018 retail EBITDA to still exceed last year's level. Moving to potash, where price was continue to firm in major stock markets, the improvement in potash fundamentals is a demand story and more specifically a direct result of very positive global consumption trend over the past few years. During this period, the annual potash consumption growth rate was around 4%, which is well above the long-term historical average of 2.8%. The key driver of this growth is a greater use of soil sampling and recognition of the importance of balanced fertilization and sustainable agriculture in developing countries. We anticipate tight fundamentals through 2018 and have raised our global demand forecast to 64.5 to 66.5 million tons. We have also increased our annual product sales volume guidance to 12 million to 12.5 million tons. Canadian rail performance has improved lately, although the pending OCP union vote remains a near-term concern. Our potash cash cost to products sold will benefit from the integration of the Vanscoy mine into the broader potash portfolio and a continued ramp up at Rocanville. We expect production at Rocanville will exceed 5 million tons in 2018 and could move closer to 6 million tons over the next few years. Nitrogen, a delayed start to planting in North America resulted in some pricing pressure early in the second quarter. However, urea and UAN fundamentals are expected to be tight through the spring in most regions supporting prices and volumes. We anticipate higher global energy prices and tighter supply will support nitrogen prices well above the low witnessed last year. Strong phosphate demand in India is expected to be largely offset by increased supply available from Saudi Arabia and Morocco this year. Higher environmental and raw material costs in China are expected to support phosphate prices above 2017 lows and lead to reduce Chinese production. Based on these market conditions and operational considerations we have raised our annual earnings guidance to $2.20 to $2.60 per share and EBITDA guidance to 3.3 billion to $3.7 billion. This equates to an anticipated increase of greater than 20% in year-over-year adjusted EBITDA. These figures exclude synergy implementation cost which will start to wind down now, as well as excluding incremental depreciation related to purchase price allocation adjustments. We have provided guidance for the first half of 2018 in the range of $1.50 to $1.65 per share, our EPS guidance includes earnings from equity investments now classified in discontinued operations with the majority of these forecasted earnings expected to be realized in the second quarter. As I mentioned earlier our focus over the first four months has been on integration and setting Nutrien's capital allocation priorities. We have made significant progress on all fronts. In terms of integration we remain confident in our ability to capture $500 million in annual operating synergies by the end of 2019. We achieved a run rate total of 150 million at quarter end with significant progress made on distribution and production optimization and procurement synergies buckets. Corporate cost synergies were limited in the first quarter given that staff reductions, notices largely took place in March and we took a $28 million charge for severance this quarter. We achieved over $40 million in potash run rate synergies primarily by eliminating maintenance capital redundant fees and over time cost. In procurement we executed on a multitude of initiatives to capture 24 million in synergies and have identified numerous additional avenues to further utilize our scale and drive down costs. We had vast production and distribution optimization plans across all business units achieving $52 million in synergies. This quarter we also announced our detailed plan for our phosphate business. The merger allows us to convert the Redwater plant to ammonia sulfate and move from three phosphate facilities down to two. By repurposing the Redwater plant we will be able to supply more ammonium sulfate to this growing market. It will also allow us to increase utilization rates at our Aurora and White Spring phosphate facilities, which will drive down our rock costs and our delivered MAP costs in to Western Canada. We will also save on capital costs by operating only two phosphate facilities. This plant is expected to allow us to capture $80 million in run rate synergies by the end of 2019 and we have commenced our capital projects to achieve this target. With less than 80 million in investment capital, this is a highly capital efficient project. The second major integration item is the required divestiture of our equity investments. We completed the sale of ICL for net proceeds of 685 million in the first quarter, in terms of SQM and APC the process remains on plan and we expect to conclude those transactions this year. With the potential for net proceeds from the equity stakes of $4 billion to $5 billion plus 500 million in annual operating synergies combined with our unparalleled leverage to the upside and crop nutrient markets we expect to generate significant free cash flow in the future. Therefore, it was important that we move quickly on our capital allocation priorities. In February we declared a quarterly dividend of $0.40 per share, which marks the 27% increase from our legacy company's combined payout level. Maintaining a stable and growing dividend is a top priority for Nutrien and we will target a payout ratio that represents 40% to 60% of free cash flow after sustaining capital through the cycle. This dividend policy will return significant cash to shareholders while allowing management ample resources to grow the company. At the same time, we announced the 5% NCIB program and have moved aggressively to purchase shares. As of May 7th, we have completed one third of this program allocating $500 million to purchase over 10 million shares. Given the point in the crop nutrient cycle we believe the share repurchase program will provide excellent value to shareholders. We also know it's important to grow the company in areas where we have strategic advantage. Over the next few years we will allocate a significant amount of CapEx to expand our retail footprint in our existing markets and to grow our presence in Brazil. So far in 2018, we have purchased 29 locations primarily in the U.S. with total annual sales of 280 million. Which is well above the normal for this point in the year. We have a strong pipeline in place with increased resources targeted on this opportunity. We also recently completed the acquisition of Agrichem that will expand our Loveland products portfolio significantly in Brazil. Having access to proprietary product lines is a key component to implementing our retail model within growing regions of Brazil. I would also like to touch on the investment we are making to enhance our digital capabilities. Last month we launched our new integrated digital platform that will enable our retail customers to interact with us when they want, where they want and how they want providing year-round commercial and agronomic digital management. We have a unique opportunity to combine this digital platform with our industry leading distribution network to create an unrivaled experience for growth. We expect a strong return on investment by increasing growing retention, increasing service offering as well as enhancing our ability to attract new customers. To conclude, we made good progress on our strategic and capital allocation priorities this quarter, but we're just getting started. We are focused on executing our synergy plan, and we will begin realizing G&A savings in the second quarter. With grower margins strengthening and planting now well underway we see good demand and firm prices for most crop inputs which allowed us to increase our annual guidance. With the ability to generate significant free cash flow Nutrien is positioned to deliver excellent shareholder value in the months and years ahead. Thank you and I’ll be happy to take your questions.

[Operator Instructions] Our first question comes from the line of Ben Isaacson with Scotia Bank. Please go ahead.

It's Oliver Rowe for Bin. So, on the digital platform that you are launching is that a response to some of the digital competitors that popped up in the last couple years or is it just taking advantage of the general market opportunity that you saw? And maybe could you highlight some of the key differences between this platform and its digital peers? And on data how much are you willing to share with farmers?

I’ll give you my views and then I’ll turn it over to Mike Frank who is really working directly with the team where we are really excited about our digital platform. This is all about our continued focus on not only being the best crop advisor in the world but also be the easiest to do business with. And we think that there is really unique opportunity here to combine our distribution network our 3300 agronomists in North America with the very unique digital offering and putting those three things together I think will provide significant value for farmers in North America, but our plans are more global in nature longer term. So, with that Mike, maybe you can us your perspective on where we are heading with the digital platform.

So firstly, it's not even response to other online offerings out there. We are taking a really different approach, where we want to create a seamless experience for our customers, how would they deal with that whether they are dealing in person at the branch, or online, so we are really combining all of our assets, all of our offerings into one seamless approach for our customers. We have seen other online omni-platforms in the past, they haven’t been successful and when you think about what's going on right now with the complex season, this is really where we shine where our growers are really taking advantage of our custom application equipment, our people on the ground to can make good decisions, and we will now offer them a more convenient way if and when they want to order products and services from us. So that's the way we think about our digital offering.

Our next question comes from the line of Chris Parkinson with Credit Suisse. Please go ahead with your question.

Can you just give us an update on your card divestitures including your degree of confidence to close in 2018 as well as the size and types of any suitors. Also, do you have any color also on net proceeds and key strategic initiatives. I am assuming M&A is still front and center?

I’ll have Wayne talk about the process, for SQM and APC and then I can come back and talk a little bit about priorities for capital allocation. Go ahead Wayne.

We have an option process ongoing for both Arab Potash and SQM, it’s progressing well, I am hopeful that we’ll have transactions to announce by the end of the second quarter in both cases. The timeline then for cash proceeds will really began on regulatory approval and that is a little bit like the Chinese potash contract, you can speculate all you want, we’ll see where we get there, but the process has been moving well, we’re de-risking as much as we can to get the certainty of proceeds.

And Chris just to finish your question here in terms of capital allocation priority so if you step back and you look we’re pretty confident that the SQM and APC process can close this year. That will generate in total with ICL somewhere between $4 billion and $5 billion of cash. On top of that of course we have the $500 million of synergies and we’ll talk a little bit about that today of course, but we’re on track for that and then if you just look at our base operations and how they’re generating cash after we paid the dividend and the sustaining capital there’s another 1 billion to 2 billion per year even with today’s prices and maybe modestly up a little bit over the next couple of years, that the business will generate per year another 1 billion to 2 billion, so think over the next three years we have to allocate somewhere between $6 billion and $8 billion of capital all in. And our priorities for that capital will be first and foremost we want to sustain our asset base, and we think that the right number to sustain the asset base that we have is about a $1 billion a year for sustaining or maintenance capital. Our balance sheet is an important asset for us, we are strong investment grade today, we don’t see any issues down the road but that will always be a priority for us to maintain a strong and healthy balance sheet. The next priority will be of course, as I mentioned on my prepared remarks, a sustainable and growing dividend and we’re going to allocate 40% to 60% of free cash flow through the cycle on growing that dividend and so that’ll be a major theme in terms of the capital allocation. Beyond that it will be growth and the growth to come in multiple areas but the primary focus for us will be on retail growth. We think that there's a good opportunity right now to where we are in the cycle, we’re seeing tremendous opportunities in North America but also in Brazil to allocate capital but the capital will be allocated basically in three dimensions. One will be in the existing retail footprint, the network itself. The other will be in building out Loveland products portfolio we’ve had the tremendous success in building that portfolio and we think there’s a lot more we can do to consolidate that space and the third as Mike mentioned we’re going to allocate capital to grow our digital capabilities. So, a primary focus for a lot of the capital will be in retail. But that's not to say that it's something opportunistically came in other products and other of the producing businesses we would absolutely have a look at that as well.

And our next questions comes from the line of Andrew Wong with RBC Capital.

So just regarding your strategy with Brazil and growing retail there, how big can we expect Brazil retail to be eventually, could it be comparable or even bigger than some of your other non-U.S. retail businesses and just in terms of timing does buying something in Brazil depend on having capital available from selling the equity stakes?

So, look, we are just getting started but the first process we went through to look at the opportunity and narrow the opportunity to beat Brazil is we wanted to make sure that our retail model creates value for Brazilian farmers. And we have spent a lot of time looking at that as you know we have a pilot facility in Brazil and it's been very, very successful. So that brings us confidence that we have a unique offering for Brazilian farmers to create value for them. And right now, we are looking at a lot of opportunities in Brazil and the first entry beyond our pilot program was the acquisition of Agrium which brought over 30 proprietary products, about 300 employees, and it's the second largest product company by market share in Brazil. And we thoughts that was a very unique way to enter the market because now we can bring Loveland Products into Brazil, we can bring those products into our other global operations. But we think that over the longer term that Brazil will certainly be either I’d say that the second largest retail business after the U.S. business as we allocate capital over the next few years. Now we are going to also take our time we are going to get this right but right now we are just seeing tremendous opportunity to create some value for shareholders, but also to grow value for farmers in Brazil by offering a pretty unique offering.

And our next question comes from the line of Don Carson with Susquehanna.

Chuck a question on your potash rationalization plans or what strategy you decided upon. As you commented Rocanville is ramping up that’s helping lower reproduction cost but now it's Rocanville and Vanscoy, do you need some of these smaller mines that you have and would you look at perhaps permanently closing some of your smaller potash facilities.

I’ll give you my perspective and then I’ll turn it over to Raef Sully, our President and he will provide some specifics. So, thing that you have to remember two of the facilities right now are running exclusively white potash. So, we really only have four facilities running red. And those plants are at maximum capacity, they have very high margins because of core sets of premium products. So, I think you have to get into a bit of the details on how we have optimized the network in terms of potash, bringing Vanscoy into the network now supported us tremendous synergies that we are seeing right now in the results. If you look at the cash cost of overall products sold, down to $50 a ton, so it's down 10% from the first quarter of last year, and that’s because of the optimization network. So, we think given market conditions where we are today and we actually raised our potash sales volume this year, we're seeing really good synergies being delivered by the optimization of the network. Right now, we are feeling comfortable with our current operating plan that Raef maybe you can give your perspective as well.

I think you hit the main points, as Chuck mentioned we only have four red producing mines at this time. Patience Lake is white only and quite small. Cory was put down, ramped down to 800,000 tons of white only. But aside to higher cost, we're getting higher margin for white potash as well. They're doing quite well. We only have four red mines optimized. Vanscoy is actually the smallest mine in terms of capacity of those four. And our focus at the moment is on integration. We've already generated some synergies at Vanscoy. By bringing Vanscoy in and operating it as one of a system, we've been able to immediately lower maintenance costs, sustaining capital, and overtime spend. As Chuck said we are looking forward, we are seeing higher sales when we first thought in the back half of the year. We want to make sure we are really in the market to catch those. We will keep looking at what we think will happen in '19, the potential volatility there as competitors ramp up, we’re looking forward to what we think will happen in ’20. And we'll make a decision as we get through the year. One of the important things to remember is putting a mine in care and maintenance is not a small decision. If we do that, we're not gonna do it unless we think we can keep it down for more than 12 months. 24 months would be better. And so I guess the summary is, at the moment, we think we need all four of them. We'll keep an eye on it. We always do. It's something that's reviewed constantly. Towards the back end of the year, we'll make a decision about what we do into '19.

Thank you. And our next questions come from the line of P.J. Juvekar with Citigroup. Please go ahead.

Hey good morning everyone, it’s Dan Jester on for P.J. You know obviously there’s impacts on the quarter on the retail side and crop protection and hence few sales, can you -- you mentioned that going into April there’s some acceleration, can you just walk through what you’re seeing on Nutrien’s crop protection feed in April and May and how you think the first half is going to evolve for those buckets?

Dan so I’ll turn it over to Mike Frank our President. Q1 is entirely a weather story, it’s that simple. But he can walk you through what he’s seeing on the specific shelves in the overall business.

So, Dan, really the first two weeks in April will be a carryover of Q1 where it continued to be wet and cold through most of our core markets in the U.S. and in Western Canada, but that part of April really started to open up and so we’ve been actually running record days and record weeks over the last couple of weeks. So, we’re really seeing it open out. Especially in the core Midwest markets, Indiana, Illinois, Iowa, it’s still quite a bit behind I would say in the northern U.S. states, Dakota, Minnesota, Wisconsin, and Western Canada, so we are rapidly catching up across all of our shelves, and so we’re almost at the point where we are crossing over where we were last year and we still have long ways to go until we’re really pleased with what’s going on in the market place right now.

Our next question comes from the line of Jacob Bout with CIBC.

Can you talk how much the rail issues and the changes to the revenue recognition policy impacted your first quarter potash volumes? And maybe just as a secondary, what you're seeing on the demand side to increase your potash guidance?

Since it was primarily a potash impact, I’ll have Raef Sully talk a little bit about the impact we saw in the first quarter and how we think I think we’re going to unfold in the second, so go ahead, Raef.

For the rail impact?

Yes.

So, I think we were behind offshore quarter one, we started behind domestically quarter one as we made up so quarter one we finished whole domestically we were behind on export, quarter two we’re running behind on export at the moment, but there has been improved performance, from the railways we’re seeing come to table and hope to take more tons to the east, we are seeing OCP put more trains on, if that increased performance continues we will hold by the end of the second quarter early third quarter, April is a strike, obviously that’s going to hurt us. About 80% -- 85% of our export volumes go via OCP.

And I think it’s important to say Jacob that our earnings guidance that we’ve outlined for the first half and the annual does not include anything from a rail disruption, so its business as usual, I know it goes without saying but we just need to put that on the record.

Our next questions comes from the line of Steve Hansen with Raymond James. Please go ahead.

Just a quick one two-part question phosphate just perhaps a bit better detail on the timeline associated with your phosphate restructuring down the two facilities and the red water conversion? And then as a second part how do you feel both the -- how do you feel the division we positioned after this restructuring is completed and whether or not it's still core to be a broader enterprise.

I have Susan Jones; our President of Phosphate talk about the synergy deliver and the restructuring and then I can come back and talk a little bit about strategically how we think about our phosphate business. Go ahead, Susan.

As Chuck may have mentioned earlier we are well underway for our synergy plan in phosphate. We do plan to capture 80 million in annual run rate synergies by only spending 80 million in capital. And just as a reminder we are going to when we repurpose red water, we are going to be moving from 250,000 tons of phosphate production to 700,000. And we are going to shift our MAP production from White Springs, Florida and our Aurora facilities in the U.S. to backfill that. In terms specifically to your question on timing this is going to be very efficiently sequent, so we are going to be bringing the map train up in the first quarter of 2019 and we are going to be planning to do the full conversion in Q3 of 2019. So, we are going to have ample opportunity to bring product through insurance in the bins ready for customers in time for both spring through summer ready for the fall.

And then strategically Steve if you step back and look at the phosphate business, moving from three facilities to two it makes the operations I think more efficient. It allows us to run at a higher capacity utilization rate. And that 80 million no matter what we chose to do we will go to our shareholders which is the most important thing that we are focused on. So, I’d say right now the vast majority of our energy and attention is on getting that right, 80 million capitalized is significant value creation. I have said before that phosphate as well as many parts of our portfolio will be part of our overall portfolio review with our Board of Directors that we will start that process most likely in the middle of this year. But right now, it's still little early to talk about what would happen through that process until we get through our analysis and have our discussions with our board. And the vast majority of our energy right now as I mentioned is just delivering 80 million in synergies.

And our next question comes from the line of Vincent Andrews with Morgan Stanley. Please go ahead.

This is Neil calling for Vincent. Just a question on your synergies, you already achieved 150 million run rate at the three months versus the 250 million run rate total by the end of the year. Does that exceed your initial expectations? And does your fast pace in 1Q imply any upside to the $250 million number as we get through the year?

I’ll ask Steve Douglas, our Chief Integration Officer, kind of give you how we are thinking about the synergies now and maybe even a few examples to make it real for you and if he can also address the question on is there some upside. So, go ahead Steve.

I think it's important to remember that regarding to the fact that I think we have had some great successes in the beginning of the year and its still early days relative to where we are at on the synergies. That said, nothing we have seen in any way shape or form leads us to believe we won't achieve the synergies we put out there the $5 million of run rate by the end of 2019. The $150 million that we have realized on a run rate basis to date is reflective of both capital and income impacts by virtue of a lot of things and as Chuck alluded to we have some examples of shading over 900 railcars 10 warehouses, incremental potash tons being put into retail that we wouldn’t have otherwise generate sales for. Reduced Vanscoy's sustaining capital, and you’ll recall when we were agreeing on a standalone basis we had one mine that needed to run so we probably took a lot of incremental costs that we wouldn’t otherwise, and you look it in the context of a broader portfolio that we have to-date. Other savings include the credits of these savings that we've been able to realize, insurance just having larger pools be able to put together and a lot of other more granular examples that I think lead us to believe that we’re going to be exactly where we said we were going to be. We’re not at this point suggesting that we’re going to exceed the $500 million, again it’s still early days and we’ve only really been together and able to look over the wall for the last for five months, or four months now and three into the quarter, but we remain very confident the facilities we laid up beginning August are eminently achievable, and we’re going to keep working to make it higher if we can.

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

Did your retail operations seen any change in the competitive behavior from co-ops early in the season, when it looked like the co-ops would get a tax windfall on your grain operations, I suppose that could drive the farmers to use the co-ops more for their inputs as well and do you think the U.S. tax law has been fixed to address that?

Mike Frank can answer your questions.

Yes, John we didn’t see any impact on crop inputs, I know there’s a lot of concern on the grain side, and what we understand now is that the tax issue has been fixed and so there’s no chance of having any spillover impact on retail.

And your next question comes from the line of Joel Jackson with BMO. Please go ahead.

I understand that your presentation has segment EBITDA, now includes synergies, where in the past it didn’t, so you have raised EBITDA guidance for both potash and nitrogen by $100 million each for EBITDA, can you talk about how much of that is just by layering on synergies now in the presentation, how much is of 100 each is you see better outlook for the business and then you did a good job to breakdown the $150 million run rate synergies achieved so far by bucket, do you look at breaking that down by segment as well?

So not to get overly granular on the guidance ranges, we raised potash and nitrogen EBITDA, a $100 million each as you mentioned and that’s really because we’re getting more optimistic about the performance of our business, about market conditions, we’re seeing higher sales volumes, we’re seeing higher market prices, certainly some of the lower cost are due to synergy capture in those two big businesses, they were always part of the plan, and if you look at that, the increase of the 200 million of EBITDA, fits pretty nicely inside of the overall consolidated 3.3 billion to 3.7 billion. We did raise the bottom end of that range because we have growing confidence of the 2018 market conditions. The reason we didn’t touch the top end right now is because a lot of the conditions need to be determined in the second half of the year and mainly around price, so what we thought as we were just increase the bottom end of the range, the businesses for potash and nitrogen fit very nicely into that range, and then once we get through the spring season in the second quarter we’ll have a good look at the range, we’ll have better feel for second half prices, but I should remind you because this should go without saying the midpoint of our EBITDA guidance range of 3.5 billion. It is up over 20% from last year's pro forma of 2.9, so excellent growth. It does reflect about 200 million totals of synergies and of course increased volume and higher market prices. So, everything is moving in the right direction. Also, in my remarks expecting flat planted acres, higher farmer margins we are expecting good input demand we are seeing that right now in retail. So right now, we are pretty optimistic about market conditions through 2018.

And our next question comes from the line of Steven Byrne with Bank of America. Please go ahead.

Its regarding your plans to sell Loveland Products in Brazil do you need product registrations to do that or do you already have them and if not, how long would that take? And to these newly acquired Agrium locations represent a footprint for you to not just sell Loveland but to expand to a more full-service retail model at those sites and if so would a fertilizer distributor like Henninger provide the same footprint to expand into full-service?

I’ll have Mike Frank to talk about our plans for Agricum and LPI in Brazil. Go ahead Mike.

So, Steven on the questions with respect to registrations and so a lot of our Loveland Products don’t require registrations in Brazil, specifically our biologicals and microbials and nutritional products. And so those are part that we can take directly into Brazil. And the way Agricum works they don’t have their own retail network, they actually have a broad base of distributors across Brazil and beyond Brazil. So, what we see here is an opportunity to take Loveland products into their distribution system and get broad access across the country of Brazil. Now the other opportunity gets us closer to the retail industry in Brazil. And so, as we think about expanding our footprint this also allows us to get to know the retailers better and we think that will be an opportunity as we think about our M&A strategy in Brazil as well.

Our next question comes from Vincent Anderson with Stifel.

Thinking a little more long-term when you imagine your ideal retail and distribution asset in Brazil with the addition of that assets to your portfolio materially alter the math behind a possible restart of any of the New Brunswick potash assets. and this is probably too reactionary, but have the recent rail issues in Canada added anything to your thoughts on the values of those to your portfolio?

So, I’ll try to answer your question the best I can. So, the retail growth in Brazil is really focused on value creation for farmers in Brazil bringing them a full suite of product offering. Of course, that offering include potash. We have significant underutilized capacity and we would do what any other producer would do. We would start to use up that capacity from our lowest cost production up. We have still in Saskatchewan as has already been mentioned today, we have underutilized capacity in Saskatchewan, a fairly significant underutilized capacity that we could more immediately bring up than other production outside of that province. So, in order or priority the growth of Brazil stands on its own because of value creation for retail and for growers in Brazil but if there is a potash synergy we would bring up the capacity from the low-cost plants in Saskatchewan.

And our next question comes from the line of Mark Connelly with Stephens. Please go ahead.

How differently are you positioning nitrogen through the system because of late planting and obviously your footprint gives you a nice advantage but the shift to urea and UAN make your system more or less efficient?

So, I’ll have here Harry Deans talk about how we’re preparing for the spring and the overall network it’s been quite a nice situation to have, the southeast part of the U.S. now and the northwest part of Canada in terms of the production profile in North America. So, go ahead Harry.

Thanks for your question, Mark. Mark, these two systems couldn't be more complementary. We've got our Western Network, as we call it, in Canada and the Eastern Network in the United States. But what we've been busy doing, even though maybe the product hasn't been going to the field, we’ve been very active positioning all the tons in the right places, so when the demand does kick in, we can supply the markets and that’s worked extremely well. What we find out before as we ultimately deliver to these places but now have actually changed where we deliver from and that’s actually helped us to cost, reduce the lead time and improve the efficiency of the operation.

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

I was wondering if you could talk a little bit about what you’re seeing in terms of the seed and crop protection markets in the U.S. and then particularly are you seeing any competitiveness towards the end of the season on soybean seed and then on your crop protection just wondering what the delayed spring might mean for pre-emergence?

Hi Michael, Mike Frank can address your questions.

So, firstly on crop protection with the quick development of the spring, there’s likely an impact on some of the early season residuals and even the first spring down marketing, so we’re watching that carefully, when we look at our product mix, we’re actually pleased from a margin standpoint as to how the market's developing at this point in time, but from a focus side standpoint which is really the big part of the crop protection market right now, there probably is an impact with growers going directly into planting. On the seed side the seed market has been highly competitive this year, when we look at our overall book of business on the corn side, our average corn selling price is down about $2, and so you can almost call that flat. Soybean is flat and canola seed is actually down a bit this year and so the seed market has been very competitive. And from a soybean standpoint, we’re expecting about half or so of our mix to be dicamba traits which again we’re in a unique position because of our custom application equipment to really serve that market. But the seed market has been competitive for sure.

Our next questions comes from the line of Jonas Oxgaard with Bernstein. Please go ahead.

So, you talked a bit in the beginning of the Q&A about here it is a lag, but what are the other competitive aspects out there supposedly the website for price comparison, can you talk a little bit about, what kind of price differentiations do you actually have between individual products right now and then how do you see the competition with this website evolving?

So, I’ll have Mike give you his perspectives Jonas and then I’ll talk -- I’ll give mine as well.

Yes, so Jonas when you look at competitive sites and I think one you’re referring to, so firstly from a product standpoint, if you look at their site, probably 80% or so of their portfolio is not available and so as I talk to our customers across the market, I mean they are really not getting any value from that site because it's not reliable from a supply chain standpoint. From price discovery standpoint growers know that there are different prices in the market place whether you are prepaying for cash, well in advance of the season buying in season with net 30-day insurance, buying it in season with longer terms, or you are getting it bundled with applications services. And so, what our customers have seen when they have looked at the data is that it really isn’t helpful. So, from our perspective we are taking a very different approach again with our omni channel approach building a site that provides both the convenience of online ordering and managing your account online but also giving full suite of agronomic advisors as well. So, we are taking a different approach based on all our feedback from our customers and through our beta testing, the feedback has been very positive and so we feel we are confident in the approach we have taken.

My perspective on these websites. So, price discovery or price transparency, it's good for any business and we are a big believer in that. But it has to be on an apple to apple basis. So, it can't be just several smaller generic products with no service that really are not really relevant in terms of the market price. So, in our business we are really focused on not just the cost of any one product but we are trying to work directly with the growers to provide value, to provide profit per acre and so to provide the service the agronomic knowledge, the digital tool, so that they maximize their business performance whether that’s yield or profit. And there will always be a subsection of our customer base that will want just the lowest cost but really our business model is not geared towards that. It's really geared to working with growers that are wanting more than that. They want profit, they want yield, they want to maximize their business, they need a partner. And we think that given our distribution capability, with skill set we have instead of our retail business and now our new digital offering it's really going to be nothing that we can't provide a grower in terms of value creation.

And our next question comes from the line of John Chu with Laurentian Bank. Please go ahead.

Just one the red water repurposing, I understand that the ammonium sulfate capacity supply going double one you do that. So, what's the definition for that product? If I recall a few years ago you were repatriating quite a bit of volumes back into Canada. So, I’m just curious where the market as you are going to be focusing on for that AS product?

I have Susan Jones talk to about our plans for ammonium sulfate.

The Canadian market is obviously a key for ammonium sulfate. It is expected to be a growing market with canola acres and also application rates. We do expect to have a large chunk of that going into the Western Canada markets but we are also going to be positioning within the PNW in the northern plans and the nice point to that is we got a key distribution network not only in Western Canada but also in the U.S. our own retail and also what we have already got established. And so, it will be a combination of those three.

That is the end of the call today. If you have any follow up questions then Investor Relations is available to take if take any of your calls. And thanks for joining us today. And we will talk to you shortly. Bye, bye.