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Nutrien Impacted by a Temporary Slowdown in Fertilizer Demand; Positive 2020 Outlook

SASKATOON, Saskatchewan--(BUSINESS WIRE)--

All amounts are in US dollars

Nutrien Ltd. (Nutrien) announced today its 2019 third-quarter results, with net earnings from continuing operations of $141 million ($0.24 diluted earnings per share). Third-quarter adjusted net earnings was $0.24 per share and adjusted EBITDA was $785 million. Adjusted net earnings (total and per share amounts), and adjusted EBITDA, together with the related annual guidance, Potash adjusted EBITDA and free cash flow are non-IFRS financial measures. See “Non-IFRS Financial Measures” section for further information.

“Nutrien’s third-quarter results and fourth-quarter expectations are impacted by short term market softness. However, we believe that agriculture fundamentals are starting to strengthen and we expect 2020 to be a strong year for crop input demand for which we are well positioned to benefit,” commented Chuck Magro, Nutrien’s President and CEO.

“Over the course of the year, we have allocated capital to grow our Retail business while continuing to return significant capital to our shareholders. That is what our integrated business model is designed to do, and we remain confident that it will drive significant long-term value creation,” added Mr. Magro.

Highlights:

  • Retail performed very well with EBITDA increasing 64 percent in the third quarter of 2019 compared to the same period last year due to the delayed timing of crop input demand in the US and stronger margins. Nutrien’s sales, service and supply chain strength helped to grow share in key markets on a year-to-date basis.
  • Potash adjusted EBITDA was down 14 percent in the third quarter of 2019 compared to the third quarter of 2018 due to lower sales volumes caused by a temporary reduction in global demand.
  • Nitrogen EBITDA in the third quarter was 9 percent lower than the same period last year due primarily to lower net realized selling prices for ammonia.
  • Nutrien generated $2.0 billion in free cash flow in the first nine months of 2019, up 28 percent from the same period in 2018.
  • Nutrien announced the close of its acquisition of Ruralco Holdings Limited at the end of the quarter, the third largest agriculture retailer in Australia.
  • Nutrien full-year 2019 adjusted net earnings per share and adjusted EBITDA guidance were lowered to $2.30 to $2.55 per share and $4.0 to $4.3 billion, respectively.

Management’s Discussion and Analysis

The following management’s discussion and analysis (“MD&A”) is the responsibility of management and is dated as of November 4, 2019. The Board of Directors (“Board”) of Nutrien carries out its responsibility for review of this disclosure principally through its audit committee, comprised exclusively of independent directors. The audit committee reviews and, prior to its publication approves this disclosure pursuant to the authority delegated to it by the Board. The term “Nutrien” refers to Nutrien Ltd. and the terms “we,” “us,” “our,” “Nutrien” and “the Company” refer to Nutrien and, as applicable, Nutrien and its direct and indirect subsidiaries as a group. Additional information relating to Nutrien (which, except as otherwise noted, is not incorporated by reference herein), including our 2018 Annual Report dated February 20, 2019, which includes our consolidated financial statements and management’s discussion and analysis and our Annual Information Form, each for the year ended December 31, 2018, can be found on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. The Company is a foreign private issuer under the rules and regulations of the US Securities and Exchange Commission (“SEC”).

This MD&A is based on the Company’s unaudited interim condensed consolidated financial statements as at and for the three and nine months ended September 30, 2019 (“interim financial statements”) prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”) and prepared in accordance with International Accounting Standard 34 “Interim Financial Reporting” unless otherwise stated. It contains certain non-IFRS financial measures and forward-looking statements which are described in the “Non-IFRS Financial Measures” section and the “Forward-Looking Statements” section respectively. For the definitions of financial and non-financial terms used in this MD&A, as well as a list of abbreviated company names and sources, see the “Terms”, “Abbreviated Company Names and Sources” and “Terms and Measures” sections of our 2018 Annual Report. All references to per share amounts pertain to diluted net earnings (loss) per share, n/m indicates information that is not meaningful and all financial data are stated in millions of US dollars unless otherwise noted.

Market Outlook

Agriculture and Retail

  • US corn and soybean prices have increased by approximately 10 percent from summertime lows, as the shortened growing season is expected to lead to lower yields and harvested acreage, particularly after parts of the Northern Corn Belt received frost in mid-October.

We believe this will tighten crop inventories and result in approximately 12 million, or about 7 percent, more US corn and soybean acres to be planted in 2020, which is expected to support crop input demand. While there is strong underlying demand for a heavy crop input application season this fall, there is significant risk of a shortened application window created by the late harvest in both the US and Canada.

  • South American corn and soybean prices have increased by approximately 20 percent since July 2019 and growers in Brazil are expected to increase soybean and safrinha corn planting by a combined four to five million acres, or 3 to 4 percent, over last year’s level. We expect this growth to translate into a meaningful increase in crop input demand.
  • Weak palm oil prices had a significant impact on potash demand in South East Asia this quarter. However, prices have recently improved, partly due to new biofuel policy developments in Indonesia and Malaysia.
  • Australia continues to experience drought conditions which could limit crop production and input use over the coming year.

Crop Nutrient Markets

  • Global potash prices declined during the third quarter of 2019 as customers in key offshore markets drew from inventories built by strong first-half 2019 shipments, delaying new annual contracts in China and India. Global producers announced curtailments to rebalance supply over the near term.

We anticipate potash demand to remain subdued through the fourth quarter of 2019 as customers continue to draw down inventory. We are lowering our 2019 projection of global potash deliveries to 64 to 65 million tonnes (previously 65-67 million tonnes). We are also further lowering our potash sales volume guidance to 11.6 to 12.0 million tonnes, which represents an incremental 300,000 tonnes impact to the 700,000 tonne downward revision announced on September 11, 2019 (potash sales volume guidance provided on July 29, 2019 was 12.6 to 13.0 million tonnes).

We expect global potash deliveries to rebound to 67 to 69 million tonnes in 2020 as offshore inventories are depleted, Western Hemisphere planted acreage increases significantly and affordability for growers remains attractive with improved prices for corn, soybeans and palm oil.

  • Global ammonia benchmark prices have increased from third quarter 2019 lows as a result of several unplanned production outages and improved demand, while US urea import prices have recently come under pressure. We expect strong seasonal nitrogen demand, supported by higher planted acreage in the US and Brazil, and strong demand in India due to favorable monsoon conditions and supportive government policies.
  • Dry phosphate fertilizer prices continue to be pressured by the combination of increased supply from Saudi Arabia and Morocco, strong exports from China and lower raw material prices. Liquid fertilizer and industrial phosphates prices continue to demonstrate more stability.

Financial Outlook and Guidance

Based on our nine-month results and market factors detailed above, we have lowered 2019 adjusted net earnings guidance to $2.30 to $2.55 per share (previously $2.70 to $3.00 per share) and adjusted EBITDA guidance to $4.0 to $4.3 billion (previously $4.35 to $4.70 billion). For additional adjustments to related guidance, please see the table below.

The related sensitivities can be found on page 62 of Nutrien’s 2018 Annual Report.

All guidance numbers, including those noted above are outlined in the table below.

2019 Guidance Ranges 1

Low

 

High

 

Adjusted net earnings per share 2

$

2.30 

 

$

2.55 

 

Adjusted EBITDA (billions) 2

$

4.00 

 

$

4.30 

 

Retail EBITDA (billions)

$

1.20 

 

$

1.30 

 

Potash EBITDA (billions)

$

1.60 

 

$

1.70 

 

Nitrogen EBITDA (billions)

$

1.30 

 

$

1.35 

 

Phosphate EBITDA (millions)

$

175 

 

$

200 

 

Potash sales tonnes (millions) 3

 

11.6 

 

 

12.0 

 

Nitrogen sales tonnes (millions) 3

 

10.6 

 

 

10.8 

 

Depreciation and amortization (billions)

$

1.80 

 

$

1.90 

 

Merger and related costs (millions)

$

60 

 

$

70 

 

Effective tax rate on continuing operations

 

23 

%

 

25 

%

Sustaining capital expenditures (billions)

$

1.0 

 

$

1.1 

 

1 See the “Forward-Looking Statements” section of this MD&A.

2 See the “Non-IFRS Financial Measures” section of this MD&A.

 

3 Manufactured products only. Nitrogen excludes ESN® and Rainbow products.

 

Consolidated Results

 

Three Months Ended September 30

 

Nine Months Ended September 30

(millions of US dollars)

2019

 

2018

 

% Change

 

2019

 

2018

 

% Change

Sales 1

4,134

 

3,990

 

4

 

16,482

 

15,761

 

5

Freight, transportation and distribution

246

 

253

 

(3)

 

667

 

675

 

(1)

Cost of goods sold 1

2,748

 

2,582

 

6

 

11,388

 

10,953

 

4

Gross margin

1,140

 

1,155

 

(1)

 

4,427

 

4,133

 

7

Expenses

812

 

2,514

 

(68)

 

2,628

 

4,265

 

(38)

Net earnings (loss) from continuing operations

141

 

(1,067)

 

n/m

 

1,040

 

(327)

 

n/m

Net earnings from discontinued operations

-

 

23

 

(100)

 

-

 

698

 

(100)

Net earnings (loss)

141

 

(1,044)

 

n/m

 

1,040

 

371

 

180

EBITDA 2

785

 

(932)

 

n/m

 

3,162

 

1,062

 

198

Adjusted EBITDA 2

785

 

839

 

(6)

 

3,347

 

3,012

 

11

Free Cash Flow 2

329

 

422

 

(22)

 

2,019

 

1,572

 

28

1 Certain immaterial figures have been reclassified or grouped together for the three and nine months ended September 30, 2018.

2 See the "Non-IFRS Financial Measures" section.

Our third-quarter and first-nine months of 2019 net earnings from continuing operations increased compared to the same periods in 2018 due to a non-cash impairment of our New Brunswick potash facility in 2018, the continued benefit of Merger related synergies and operational improvements, higher potash net realized prices, and strong performance by Retail in the third quarter of 2019 where a compressed US growing season supported demand for higher margin products and services. Net earnings from continuing operations in the 2019 periods were negatively impacted by lower sales of produced crop nutrients caused by a temporary slow down of global demand and the timing of the US application season.

Our net earnings from discontinued operations in 2018 was related to the required divestiture of certain equity investments in connection with the Merger.

Segment Results

In the first quarter of 2019, our Executive Leadership Team reassessed our product groupings and decided to evaluate the performance of ammonium sulfate as part of the Nitrogen segment, rather than the Phosphate and Sulfate segment as reported in 2018. Effective January 1, 2019, we have four reportable operating segments: Retail, Potash, Nitrogen and Phosphate. Comparative amounts presented on a segmented basis have been restated accordingly. We also renamed our “Others” segment to “Corporate and Others”.

Detailed descriptions of our operating segments can be found in our 2018 Annual Report in the “Operating Segment Performance & Outlook” section.

Our discussion of segment results set out on the following pages is a comparison of the results for the three and nine months ended September 30, 2019 to the results for the three and nine months ended September 30, 2018, unless otherwise noted. See Appendix A for a summary of our results for the nine months ended September 30, 2019 by operating segment.

Retail

 

Three Months Ended September 30

(millions of US dollars, except

Dollars

 

Gross Margin

 

Gross Margin (%)

as otherwise noted)

2019

 

2018

 

% Change

 

2019

 

2018

 

% Change

 

2019

 

2018

Sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crop nutrients 1

769

 

650

 

18

 

175

 

142

 

23

 

23

 

22

Crop protection products

1,318

 

1,086

 

21

 

303

 

236

 

28

 

23

 

22

Seed

60

 

60

 

-

 

17

 

14

 

21

 

28

 

23

Merchandise 2

135

 

161

 

(16)

 

22

 

27

 

(19)

 

16

 

17

Services and other

217

 

174

 

25

 

138

 

114

 

21

 

64

 

66

 

2,499

 

2,131

 

17

 

655

 

533

 

23

 

26

 

25

Cost of goods sold 2

1,844

 

1,598

 

15

 

 

 

 

 

 

 

 

 

 

Gross margin

655

 

533

 

23

 

 

 

 

 

 

 

 

 

 

Expenses 3

617

 

539

 

14

 

 

 

 

 

 

 

 

 

 

Earnings (loss) before finance

 

costs and taxes ("EBIT")

38

 

(6)

 

n/m

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

152

 

122

 

25

 

 

 

 

 

 

 

 

 

 

EBITDA

190

 

116

 

64

 

 

 

 

 

 

 

 

 

 

1 Includes intersegment sales. See Note 2 to the interim financial statements.

2 Certain immaterial figures have been reclassified or grouped together for the three months ended September 30, 2018.

3 Includes selling expenses of $601 million (2018 – $552 million).

  • EBITDA was higher in the third quarter of 2019 as a higher proportion of crop nutrients and crop protection products applications were made in the US during the quarter due to the impact of a wet spring. EBITDA increased in the first nine months of 2019 as sales, service and supply chain strength helped to grow share in key markets. Gross margin percentage increased in the third quarter due to a favorable sales mix of product, and gross margin percentage for the first nine months of 2019 is now in-line with 2018 levels. Expenses as a proportion of sales in the third quarter and first nine months of 2019 were similar to the same periods in 2018.
  • Crop nutrients sales increased in the third quarter and first nine months of 2019 due to higher sales volumes and selling prices. Gross margin percentage also increased in the periods due to strategic purchasing and an increased mix of higher margin specialty and proprietary products.
  • Crop protection products sales in the third quarter and first nine months of 2019 increased as US farmers made more in-season applications due to the excessive moisture experienced earlier in the year. Gross margin percentage increased in the third quarter and was stable in the first nine months of 2019 due to favorable sales product mix and strategic purchasing. This offset the impact of higher competition in an abbreviated pre-emergence season and higher costs of raw materials sourced from China.
  • Seed sales in the third quarter were comparable to the same period last year as higher sales in North America more than offset lower Australian sales, which was caused by prolonged drought conditions. Seed sales in the first nine months of 2019 increased as a result of a greater proportion of sales from higher value corn and cotton seed, which more than offset the impact of lower planted acreage in the US. Gross margin percentage was higher in the third quarter and flat in the first nine months of 2019 due to the timing of vendor programs, which offset replanting discounts earlier in 2019.
  • Services and other sales were higher in the third quarter and first nine months of 2019 due mostly to increased US applications and services resulting from a condensed growing season, as well as the timing of Australian livestock commissions. Gross margin percentage decreased in the quarter compared to the previous year due to the lower margin livestock commissions, while gross margin percentage for the first nine months of 2019 increased significantly due to a greater proportion of higher margin North American sales.

Potash

 

Three Months Ended September 30

(millions of US dollars, except

Dollars

 

Tonnes (thousands)

 

Average per Tonne

as otherwise noted)

2019

 

2018

% Change

 

2019

 

2018

% Change

 

2019

 

2018

% Change

Manufactured product 1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

330

 

358

 

(8)

 

1,438

 

1,678

 

(14)

 

229

 

213

 

8

Offshore

379

 

458

 

(17)

 

1,823

 

2,180

 

(16)

 

208

 

210

 

(1)

 

709

 

816

 

(13)

 

3,261

 

3,858

 

(15)

 

218

 

212

 

3

Cost of goods sold

303

 

358

 

(15)

 

 

 

 

 

 

 

94

 

93

 

1

Gross margin - manufactured

406

 

458

 

(11)

 

 

 

 

 

 

 

124

 

119

 

4

Gross margin - other 2

-

 

1

 

(100)

 

Depreciation and amortization

 

34

 

33

 

3

Gross margin - total

406

 

459

 

(12)

 

 

 

 

 

 

 

Impairment of assets

-

 

1,809

 

(100)

 

Gross margin excluding depreciation

 

 

 

 

 

Expenses 3

86

 

89

 

(3)

 

and amortization - manufactured 4

158

 

152

 

4

EBIT

320

 

(1,439)

 

n/m

 

Potash cash cost of product

 

 

 

 

 

 

Depreciation and amortization

110

 

128

 

(14)

 

manufactured 4

 

62

 

56

 

11

EBITDA

430

 

(1,311)

 

n/m

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA 4

430

 

498

 

(14)

 

 

 

 

 

 

 

 

 

 

 

 

1 Includes intersegment sales. See Note 2 to the interim financial statements.

2 Includes other potash and purchased products and is comprised of net sales of $Nil (2018 – $1 million) less cost of goods sold of $Nil (2018 – $Nil).

3 Includes provincial mining and other taxes of $83 million (2018 – $78 million).

4 See the "Non-IFRS Financial Measures" section.

  • EBITDA was higher in the third quarter and first nine months of 2019 due to a non-cash impairment of our New Brunswick potash facility in the same periods of 2018. Adjusted EBITDA decreased in the third quarter of 2019 due mostly to lower sales volumes. Adjusted EBITDA in the first nine months of 2019 was higher than the same period last year as higher net realized selling prices more than offset lower sales volumes and previously announced changes to the Saskatchewan government tax structure.
  • Sales volumes in North America were the second highest of any third quarter, down only from the third quarter record of 2018. North American sales volumes in the first nine months of 2019 were lower due to a wet US spring which postponed some applications. Offshore sales volumes were lower in the third quarter of 2019 as customers in key markets drew upon inventory levels, however, offshore sales volumes for the first nine months of 2019 were the highest on record due to strong demand in the first half of 2019.
  • Net realized selling price increased in the third quarter of 2019 due to higher prices in the North American market. Offshore net realized selling prices in the third quarter were lower than the previous period reflecting pressure from the slowdown in offshore demand and adjustments to Nutrien’s provisional selling price to Canpotex. North American and Offshore net realized selling prices were higher during the first nine months of 2019, similar to increases in major global benchmark prices.
  • Cost of goods sold per tonne was largely unchanged in the third quarter and first nine months of 2019 as higher royalties and higher costs resulting from the timing of mine maintenance were offset by favorable foreign exchange rate changes. Potash cash cost of product manufactured increased in the periods mostly due to the timing of mine maintenance and lower production volumes.

Canpotex Sales by Market

(percentage of sales volumes, except as

Three Months Ended September 30

 

Nine Months Ended September 30

otherwise noted)

2019

2018

% Change

 

2019

2018

% Change

Latin America

44

40

10

 

31

33

(6)

Other Asian markets 1

21

37

(43)

 

27

32

(16)

China

16

7

129

 

23

18

28

India

12

11

9

 

11

9

22

Other markets

7

5

40

 

8

8

-

 

100

100

 

 

100

100

 

1 All Asian markets except China and India.

 

 

 

 

 

 

 

Nitrogen

 

Three Months Ended September 30

(millions of US dollars, except

Dollars

 

Tonnes (thousands)

 

Average per Tonne

as otherwise noted)

2019

 

2018 ¹

% Change

 

2019

 

2018 ¹

% Change

 

2019

 

2018 ¹

% Change

Manufactured product 2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ammonia

144

 

190

 

(24)

 

715

 

750

 

(5)

 

203

 

253

 

(20)

Urea

221

 

198

 

12

 

726

 

691

 

5

 

304

 

286

 

6

Solutions, nitrates and sulfates

168

 

182

 

(8)

 

1,081

 

1,122

 

(4)

 

155

 

163

 

(5)

 

533

 

570

 

(6)

 

2,522

 

2,563

 

(2)

 

211

 

222

 

(5)

Cost of goods sold

416

 

419

 

(1)

 

 

 

 

 

 

 

165

 

164

 

1

Gross margin - manufactured

117

 

151

 

(23)

 

 

 

 

 

 

 

46

 

58

 

(21)

Gross margin - other 3

16

 

13

 

23

 

Depreciation and amortization

 

50

 

45

 

11

Gross margin - total

133

 

164

 

(19)

 

Gross margin excluding depreciation

 

 

 

 

 

Expenses

13

 

9

 

44

 

and amortization - manufactured 4

96

 

103

 

(7)

EBIT

120

 

155

 

(23)

 

Ammonia controllable cash cost

 

 

 

 

 

 

Depreciation and amortization

127

 

115

 

10

 

 of product manufactured 4

 

45

 

44

 

2

EBITDA

247

 

270

 

(9)

 

 

 

 

 

 

 

 

 

 

 

 

1 Restated for the reclassification of sulfate from the Phosphate segment. See Note 2 to the interim financial statements.

2 Includes intersegment sales. See Note 2 to the interim financial statements.

3 Includes other nitrogen (including ESN® and Rainbow) and purchased products and is comprised of net sales of $69 million (2018 – $69 million) less cost of goods sold of $53 million (2018 – $56 million).

4 See the "Non-IFRS Financial Measures" section.

  • EBITDA decreased in the third quarter of 2019 due primarily to lower net realized selling prices. EBITDA in the first nine months of 2019 increased as a result of higher net realized selling prices and higher earnings from equity-accounted investees.
  • Sales volumes were down slightly in the third quarter due to a delay in the start to the fall season across most of North America, resulting from the late maturity of the crop. Sales volumes in the first nine months of 2019 decreased compared to the same period in 2018 due to the extremely wet weather this spring across the US and the late start to the fall season.
  • Net realized selling price of nitrogen decreased in the third quarter of 2019 following most global benchmarks, particularly for international trade ammonia. The net realized selling price of nitrogen in the first nine months of 2019 was up compared to the same period in 2018 as our distribution network and product positioning allowed us to benefit from higher US inland premiums when supply was impacted by elevated water levels on many of the US river systems.
  • Cost of goods sold per tonne of nitrogen was similar for the third quarter and up slightly for the first nine months of 2019 compared to the same periods in 2018 as lower gas costs were offset by a lower proportion of sales from our lower-cost facilities, increased maintenance spend and slightly lower volumes. Ammonia controllable cash cost of product manufactured per tonne was mostly unchanged for the third quarter and first nine months of 2019.

Natural Gas Prices

 

Three Months Ended September 30

 

Nine Months Ended September 30

(US dollars per MMBtu, except as otherwise noted)

2019

 

2018

 

% Change

 

2019

 

2018

 

% Change

Overall gas cost excluding realized derivative impact

2.06

 

2.40

 

(14)

 

2.47

 

2.45

 

1

Realized derivative impact

0.22

 

0.34

 

(35)

 

0.14

 

0.33

 

(58)

Overall gas cost

2.28

 

2.74

 

(17)

 

2.61

 

2.78

 

(6)

 

 

 

 

 

 

 

 

 

 

 

 

Average NYMEX

2.23

 

2.90

 

(23)

 

2.67

 

2.90

 

(8)

Average AECO

0.78

 

1.03

 

(24)

 

1.05

 

1.10

 

(5)

  • Gas costs were lower compared to the third quarter and first nine months of 2018 due to lower benchmark and contract gas prices.

Phosphate

 

Three Months Ended September 30

(millions of US dollars, except

Dollars

 

Tonnes (thousands)

 

Average per Tonne

as otherwise noted)

2019

 

2018 ¹

% Change

 

2019

 

2018 ¹

% Change

 

2019

 

2018 ¹

% Change

Manufactured product 2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fertilizer

164

 

267

 

(39)

 

492

 

650

 

(24)

 

335

 

411

 

(18)

Industrial and feed

106

 

114

 

(7)

 

192

 

228

 

(16)

 

549

 

498

 

10

 

270

 

381

 

(29)

 

684

 

878

 

(22)

 

396

 

434

 

(9)

Cost of goods sold

284

 

355

 

(20)

 

 

 

 

 

 

 

416

 

404

 

3

Gross margin - manufactured

(14)

 

26

 

n/m

 

 

 

 

 

 

 

(20)

 

30

 

n/m

Gross margin - other 3

(1)

 

1

 

n/m

 

Depreciation and amortization

 

85

 

59

 

44

Gross margin - total

(15)

 

27

 

n/m

 

Gross margin excluding depreciation

 

 

 

 

-

Expenses

9

 

4

 

125

 

and amortization - manufactured 4

65

 

89

 

(27)

EBIT

(24)

 

23

 

n/m

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

58

 

52

 

12

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA

34

 

75

 

(55)

 

 

 

 

 

 

 

 

 

 

 

 

1 Restated for the reclassification of sulfate to the Nitrogen segment. See Note 2 to the interim financial statements.

2 Includes intersegment sales. See Note 2 to the interim financial statements.

3 Includes other phosphate and purchased products and is comprised of net sales of $44 million (2018 - $29 million) less cost of goods sold of $45 million (2018 - $28 million).

4 See the "Non-IFRS Financial Measures" section.

  • EBITDA decreased in the third quarter and first nine months of 2019 due to lower net realized selling prices, lower sales volumes and higher non-cash asset retirement obligation and inventory adjustments.
  • Sales volumes decreased in the third quarter and first nine months of 2019 due to the conversion of the Redwater facility to ammonium sulfate and delayed demand caused by a late spring planting season in most of North America.
  • Net realized selling price decreased in the third quarter and first nine months of 2019 as higher prices for industrial products were more than offset by lower dry fertilizer prices.
  • Cost of goods sold per tonne increased in the third quarter and first nine months of 2019 compared to the same periods in 2018 mostly due to higher non-cash asset retirement obligation and inventory adjustments and lower sales volumes that more than offset lower raw material costs.

Expenses and Income Below Gross Margin

(millions of US dollars, except as otherwise

Three Months Ended September 30

 

Nine Months Ended September 30

noted)

2019

 

2018

 

% Change

 

2019

 

2018

 

% Change

Selling expenses 1

607

 

560

 

8

 

1,835

 

1,758

 

4

General and administrative expenses 2

97

 

112

 

(13)

 

287

 

312

 

(8)

Provincial mining and other taxes 3

92

 

79

 

16

 

253

 

192

 

32

Share-based compensation

(recovery) expense 4

(21)

 

51

 

n/m

 

95

 

149

 

(36)

Impairment of assets 3

-

 

1,809

 

(100)

 

33

 

1,809

 

(98)

Other expenses (income)

37

 

(97)

 

n/m

 

125

 

45

 

178

Finance costs

147

 

142

 

4

 

413

 

394

 

5

Income tax expense (recovery)

40

 

(434)

 

n/m

 

346

 

(199)

 

n/m

Actual effective tax rate on earnings (loss)

 

from continuing operations (%)

22

 

29

 

(24)

 

25

 

38

 

(34)

Actual effective tax rate including

 

discrete items (%)

22

 

29

 

(24)

 

25

 

38

 

(34)

Other comprehensive (loss) income

(75)

 

1

 

n/m

 

(57)

 

(174)

 

(67)

1 Expenses are primarily in the Retail segment. See the "Segment Results" section for analysis.

2 Includes expenses in the Corporate and Others segment of $65 million for the three months ended September 30, 2019 (2018 - $75 million) and $191 million for the nine months ended September 30, 2019 (2018 - $208 million).

3 Expenses are primarily in the Potash segment. See the "Segment Results" section for analysis.

4 Expenses are reported in the Corporate and Others segment.

  • Share-based compensation (recovery) expense was a recovery in the third quarter of 2019 as our share price decreased, compared to an increase in share price in the comparative period which resulted in an expense. For the first nine months of 2019, the expense was lower due to lower share price appreciation than in the comparative period.
  • Other expenses (income) were higher than the comparative quarter and in the first nine month of 2019 primarily due to a curtailment gain on certain of our defined benefit plans (“Curtailment Gain”) in the comparative periods partially offset by lower Merger and related costs in the current periods.
  • Income tax expense (recovery) - The decrease in the effective tax rates on earnings from continuing operations for the third quarter and first nine months of 2019 compared to the same periods last year is a result of a change in proportionate earnings (loss) between jurisdictions. In 2018, an impairment of Canadian assets contributed to higher effective tax rates.
  • Other comprehensive (loss) income was a loss in the third quarter of 2019 compared to income in the comparative quarter primarily due to the higher net loss on translation of our Retail operations in Canada and Australia as well as a decrease in the fair value of our investment in Sinofert Holdings Limited (“Sinofert”).

Other comprehensive loss was lower in the first nine months of 2019 than in the comparative period due primarily to the lower net loss on translation of our Retail operations in Canada, Argentina and Australia as well as a lower unrealized loss in our investment in Sinofert in 2019. The 2018 losses were partially offset by an actuarial gain on our defined benefit plans.

Financial Condition Review

The following balance sheet categories contained variances that were considered significant:

 

As at

 

 

 

 

(millions of US dollars, except as otherwise noted)

September 30, 2019

 

December 31, 2018

 

$ Change

 

% Change

Assets

 

 

 

 

 

 

 

Cash and cash equivalents

568

 

2,314

 

(1,746)

 

(75)

Receivables

4,843

 

3,342

 

1,501

 

45

Inventories

3,873

 

4,917

 

(1,044)

 

(21)

Prepaid expenses and other current assets

440

 

1,089

 

(649)

 

(60)

Property, plant and equipment

20,045

 

18,796

 

1,249

 

7

Goodwill

11,983

 

11,431

 

552

 

5

Liabilities and Equity

 

 

 

 

 

 

 

Short-term debt

2,287

 

629

 

1,658

 

264

Current portion of long-term debt

501

 

995

 

(494)

 

(50)

Current portion of lease liabilities

219

 

8

 

211

 

n/m

Payables and accrued charges

4,615

 

6,703

 

(2,088)

 

(31)

Long-term debt

8,555

 

7,579

 

976

 

13

Lease liabilities

793

 

12

 

781

 

n/m

Deferred income tax liabilities

3,137

 

2,907

 

230

 

8

Share capital

15,769

 

16,740

 

(971)

 

(6)

Retained earnings

7,399

 

7,745

 

(346)

 

(4)

  • Explanations for changes in Cash and cash equivalents are in the “Sources and Uses of Cash” section.
  • Receivables increased due to a shift in Retail sales to the third quarter of 2019 as a result of unfavorable weather conditions in the second quarter of 2019. Receivables also increased due to the acquisition of Ruralco Holdings Limited (“Ruralco”) which was completed on September 30, 2019.
  • Inventories decreased due to a drawdown from increased seasonal Retail sales activity.
  • Prepaid expenses and other current assets decreased due to the drawdown of prepaid inventory where Retail typically prepays for product at year-end and takes possession of inventory throughout the year.
  • Property, plant and equipment increased primarily due to the addition of “right-of-use” assets from the adoption of the lease standard as discussed in the “Other Financial Information” section. Property, plant and equipment also increased due to recent Retail business acquisitions that were closed in the first nine months of 2019.
  • Goodwill increased as a result of additional goodwill from the recent Retail acquisitions, primarily from Ruralco and Actagro, LLC (“Actagro”), that were closed in the first nine months of 2019.
  • Short-term debt increased primarily from commercial paper issuances as part of our seasonal working capital management.
  • Payables and accrued charges decreased primarily due to lower customer prepayments as Retail customers took delivery of prepaid sales. The decrease was partially offset by an increase in payables and accrued charges from the Ruralco acquisition.
  • Long-term debt (including current portion) increased due to the addition of $1.5 billion in senior notes issued in April 2019 exceeding the repayment of $1 billion in notes that matured in the first nine months of 2019.
  • Lease liabilities (including current portion) increased due to the recognition of approximately $1 billion in lease liabilities from the adoption of the lease standard as discussed in the “Other Financial Information” section.
  • Deferred income tax liabilities increased primarily due to the deferred tax provision recorded on higher earnings from continuing operations.
  • Share capital decreased primarily due to share repurchases.
  • Retained earnings decreased primarily due to the impact of share repurchases and dividends declared exceeding net earnings.

Liquidity and Capital Resources

Sources and Uses of Liquidity

See the “Liquidity & Capital Resources” section of our 2018 Annual Report for information on our sources and uses of liquidity.

Key uses in the third quarter and/or nine months ended September 30, 2019 included:

  • Acquisition of Ruralco, an agriservices business in Australia with over 500 Retail operating locations. In addition, we acquired 54 other Retail locations globally, which included Actagro, Van Horn, Inc. and Security Seed and Chemical, Inc. in the US as well as completing the remainder of the Agrichem acquisition in Brazil. The cash consideration paid for all business acquisitions in the first nine months of 2019 was $837 million (net of cash acquired), including Ruralco for $330 million. See Note 11 to the interim financial statements.
  • Repurchase of 36,066,766 common shares for cancellation at a cost of $1,878 million with an average price per share of $52.07. This completed the purchases under the current normal course issuer bid. See Note 10 to the interim financial statements.
  • Maturity and repayment of $1 billion of long-term debt in the first nine months of 2019. See Note 9 to the interim financial statements.
  • Payment of $244 million and $764 million in dividends to shareholders for the three and nine months ended September 30, 2019, respectively.

We increased our expected quarterly dividend from $0.43 per share to $0.45 per share commencing for dividends declared in the third quarter of 2019 and until otherwise determined by the Board.

Key sources in the third quarter and/or nine months ended September 30, 2019 included:

  • On April 1, 2019, we issued $1.5 billion in senior notes. See Note 9 to the interim financial statements.
  • Commercial paper outstanding increased by $612 million and $1,588 million for the three and nine months ended September 30, 2019, respectively.

We believe that internally generated cash flow, supplemented by available borrowings under our existing financing sources, if necessary, will be sufficient to meet our anticipated capital expenditures and other cash requirements for at least the next 12 months. At this time, we do not reasonably expect any presently known trend or uncertainty to affect our ability to access our historical sources of liquidity.

Sources and Uses of Cash

(millions of US dollars, except as otherwise

Three Months Ended September 30

 

Nine Months Ended September 30

noted)

2019

 

2018

 

% Change

 

2019

 

2018

 

% Change

Cash provided by (used in) operating activities

589

 

(177)

 

n/m

 

1,246

 

84

 

n/m

Cash (used in) provided by investing activities

(904)

 

(479)

 

89

 

(2,133)

 

903

 

n/m

Cash provided by (used in) financing activities

272

 

615

 

(56)

 

(837)

 

821

 

n/m

Effect of exchange rate changes on cash and cash equivalents

(5)

 

(13)

 

(62)

 

(22)

 

(22)

 

-

(Decrease) increase in cash and cash equivalents

(48)

 

(54)

 

(11)

 

(1,746)

 

1,786

 

n/m

Cash and cash equivalents decreased by $48 million this quarter compared to a decrease of $54 million in the comparative quarter, due to:

  • An approximately $400 million increase in cash used for acquisitions and capital expenditures compared to the same period in 2018 primarily from the recent Ruralco acquisition and capital expenditures related to our digital Retail projects, the Potash Full Potential Program, which launched in September 2018, and our ammonium sulfate product expansion at Redwater.
  • Cash payments to shareholders in the form of share repurchases of $459 million in the third quarter of 2018 with no comparatives in the same period in 2019.
  • A decrease in our short-term debt net borrowings by $744 million compared to 2018. We used our short-term debt borrowings in 2018 for share repurchases and dividend payments, which were subsequently repaid using proceeds from the sale of our equity investments.

In addition, the following business activities had cash impacts:

  • Cash provided by operating activities significantly increased by $766 million. Despite a higher opening inventory balance due to unfavorable weather conditions since the end of 2018, we were able to sell through our inventories in the third quarter of 2019 that resulted in a positive impact to our cash flows.
  • The shift in Retail sales and collections to the third quarter of 2019 as a result of unfavorable weather conditions in the second quarter of 2019 also resulted in a positive impact to our cash flows.

Cash and cash equivalents decreased by $1.7 billion in the nine months ended September 30, 2019 compared to an increase of $1.8 billion in the nine months ended September 30, 2018 due to:

  • A decrease of approximately $2.3 billion in cash receipts related to discontinued operations and cash acquired as a result of the Merger compared to 2018.
  • Repayment of $1 billion in long-term debt in the first nine months of 2019.
  • Cash payments to shareholders in the form of share repurchases were approximately $1.9 billion, an increase of $267 million compared to 2018.
  • Approximately $700 million increase in acquisitions and capital expenditures compared to 2018.
  • Cash proceeds from the issuance of long-term debt of $1.5 billion in the first half of 2019 with no issuance in 2018.
  • A decrease in our short-term debt net borrowings by $1.7 billion compared to 2018. We used our short-term debt borrowings in 2018 for share repurchases and dividend payments, which were subsequently repaid using proceeds from the sale of our equity investments.

In addition, the following business activities had cash impacts:

  • Cash provided by operating activities significantly increased by $1.2 billion. Despite higher opening inventory balances due to unfavorable weather conditions since the end of 2018 and inventory purchases in anticipation of higher prices, we were able to sell through our inventories this year, which resulted in a positive impact to our cash flows. This was partially offset by higher accounts payable payments earlier in the year related to inventory purchases, which resulted in a negative impact on our cash flows.
  • Higher selling prices for Potash and Retail crop nutrients compared to 2018 also contributed to the increase.

Cash Requirements

For information about our contractual obligations and other commitments as at December 31, 2018 (excluding planned (but not legally committed) capital expenditures and potential share repurchases) see the “Liquidity & Capital Resources - Cash Requirements” section of our 2018 Annual Report. There were no significant changes to these contractual obligations and other commitments since December 31, 2018 aside from the changes to long-term debt discussed in the “Capital Structure and Management” section.

Capital Structure and Management

Principal Debt Instruments

We use a combination of cash generated from operations and short-term and long-term debt to finance our operations. We are in compliance with our debt covenants and did not have any changes to our credit ratings in the nine months ended September 30, 2019. See the “Capital Structure & Management” section of our 2018 Annual Report for further information.

Short-term Debt

 

As at September 30, 2019

(millions of US dollars)

Outstanding and Committed

 

Remaining Available

 

Credit Limit

Credit facilities 1

2,287

 

3,553

 

5,840

Letter of credit facilities

139

 

155

 

294

1 The credit facilities consist of a $4,500 million unsecured North American revolving term credit facility, a $500 million North American uncommitted revolving demand facility and approximately $840 million of other credit facilities in Europe, Australia and South America. Included in the amount outstanding and committed is $1,979 million of commercial paper and $308 million of other short-term debt. We have a $4,500 million credit limit under our commercial paper program, which is limited to the availability of backup funds backstopped by the $4,500 million unsecured revolving term credit facility. Interest rates on outstanding commercial paper ranged from 2.3 to 2.4 percent.

In the third quarter of 2019, we added a total of $319 million in new credit facilities in Australia, of which $201 million was assumed from the Ruralco acquisition, and $112 million was outstanding at September 30, 2019.

In 2019, we terminated our $500 million accounts receivable securitization program.

Long-term Debt

Our long-term debt consists primarily of notes and lease liabilities. See the “Capital Structure & Management” section of our 2018 Annual Report for information on balances, rates and maturities for our notes. During the first nine months of 2019, $1 billion of our notes matured and were repaid and $1.5 billion in notes were issued. See Note 9 to the interim financial statements.

On January 1, 2019, we adopted IFRS 16 and recognized $1,059 million in lease liabilities with a weighted-average interest rate of 3.5 percent. As of September 30, 2019, we had total lease liabilities outstanding (including current portion) of $1,012 million. There were no changes to our debt covenants as a result of adoption of this standard.

Outstanding Share Data

...