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Greetings, and welcome to the Nutrien Fourth Quarter 2018 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Richard Downey, VP of Investor and Corporate Relations.
Thank you, operator. Good morning, everyone, and welcome to Nutrien's conference call to discuss our fourth quarter results and outlook. On the phone with us today is Mr. Chuck Magro, President and CEO of Nutrien; the heads of our 3 business units; and Mr. Pedro Farah, our new Chief Financial Officer.As we conduct this conference call, various statements we make about future expectations, plans and prospects contain forward-looking information. Certain material assumptions were applied in making these conclusions and forecasts. Therefore, actual results could differ materially from those contained in our forward-looking information. Additional information about these factors and assumptions are contained in our current quarterly report to our shareholders as well as our most recent annual report, MD&A and annual information form filed with Canadian and U.S. security commissions, to which we direct you. I will now turn the call over to Mr. Chuck Magro.
Thanks, Richard. Good morning, everyone, and welcome to Nutrien's Fourth Quarter 2018 Earnings Call. This quarter marked the first full year for Nutrien. It was a year in which we delivered on all of our strategic priorities and generated significantly higher earnings. Before I touch on our fourth quarter and full year financial results, I would like to review the performance of our key priorities. First is the progress we made on synergies and the value we generated from the merger. At the end of 2018, we achieved run rate synergies of $521 million, exceeding our initial 2-year target in just 12 months. We also increased our run rate synergy target by 20% to $600 million. The realization of synergies has made a meaningful impact on our costs, and we expect to capture further improvements across our business units going forward. The second priority in 2018 was to complete the required sale of our equity investments. I would like to acknowledge the exceptional work of the team on this progress as we generated net proceeds of $5.3 billion from the sale of our stakes in SQM, ICL and APC, which exceeded our initial estimates of $4.5 billion to $5 billion. The equity proceeds, along with strong operating cash flows, provide a significant opportunity to return cash to shareholders and grow our business. In 2018, we returned $2.8 billion to shareholders through share buybacks and dividends. We paid nearly $1 billion in dividends, representing a 17% increase from our legacy company's combined payout, and we announced a further 7.5% increase in our dividend for 2019. We also increased our existing share buyback program in December from 5% of shares outstanding to 8%. We have been very active with this extended buyback program and have now repurchased 42 million shares at an average price of $50.80 per share. We accomplished a lot in 2018 and are well positioned to generate significant value for shareholders as we move forward. I will now turn to our financial results for the quarter and the full year. Retail results were impacted by one of the wettest fourth quarters in the U.S. in over 100 years. The business was also impacted by grower caution related to the ongoing trade uncertainty. Q4 retail EBITDA was down 11% from the same period last year, primarily due to lower crop nutrients and crop protection applications. On a full year basis, retail EBITDA was up by 5%, supported by earnings from recent acquisitions and optimization of our extensive platform. Most of our operating metrics were relatively flat year-over-year, and we maintained EBITDA margins of nearly 10% despite challenging weather conditions and pressure on grower margins. Retail also had a very successful year in terms of delivering on its strategic initiatives. We acquired over 50 locations in the U.S. and Australia, representing approximately $400 million in annual sales. Also, in July, we launched our integrated digital platform. By the end of 2018, we had over 50% of our North American revenue base signed up. The platform is leading edge and complements our existing supply chain, agronomist network and our product offerings, creating value for our customers. We will provide more details on our retail strategy, including a demonstration of our digital platform, at our Investor Day in Toronto on May 28. Moving to our crop nutrient business, where we generated significantly higher earnings in the fourth quarter compared to the previous year. Potash EBITDA increased by almost 60% as we benefited from higher prices, record Q4 sales volumes and lower cash cost per tonne. The strength of Q4 potash volumes illustrates our ability to respond to market opportunity by flexing our operational and supply chain capabilities. We benefited from higher prices in all major markets and continued to lower our costs through merger synergies and increase production from our lowest cost mines. Potash adjusted EBITDA for the year was up 48% compared to 2017. We increased potash sales by 1.3 million tonnes and lowered our cash cost to product manufacture by 9% to $60 per tonne. This places us as the largest and one of the lowest cost producers in the world. Turning to nitrogen. Our EBITDA increased by nearly 65% in the fourth quarter as we benefited from higher market prices and increased volumes. We were able to offset a weaker fall application season in the U.S. with healthy nitrogen sales in Western Canada and our stable industrial customer base. Our ammonia utilization rate increased by 6 percentage points in 2018, which helped drive our cost per tonne and increased sales volumes. Combined with stronger year-over-year nitrogen prices, we increased nitrogen EBITDA by over 40% in 2018. We also generated higher earnings from our phosphate business, both for the quarter and on a full year basis. Higher realized prices, in particular for fertilizer products, more than offset the impact of increased ammonia and sulfur input costs. We closed our small Geismar phosphate facility at the end of 2018 and completed the final purchase of phosphate rock, moving towards a simpler and more cost-effective phosphate platform. Nutrien's adjusted EBITDA totaled $932 million in the quarter, up 50%, and we generated an impressive $2 billion in cash from operations. Our annual adjusted EBITDA was $3.9 billion, up 32% compared to 2017, reflecting the strength of our integrated business model, merger synergies and improving market fundamentals. We ended the year with a very strong balance sheet and a net debt-to-adjusted EBITDA ratio at approximately 1.6x. The strength of our balance sheet puts us in an excellent position to execute on our strategic priorities. As we look forward, we see a supportive environment in the first half of 2019. Global trade uncertainties have impacted the ag sector, but the underlying fundamentals for most crops are improving. The USDA is currently projecting the lowest U.S. corn inventories since 2013. U.S. soybean and corn prices are up 15% to 20% from harvest time lows, and December corn futures are back around $4 per bushel. We expect U.S. growers to increase corn area by 2 million to 4 million acres in place of soybeans, and we also expect higher cotton acreage. The shift in acreage is supportive of crop input demand as per acre expenditure on corn and cotton is roughly double the average spend for soybeans. U.S. grower prepay, which we consider to be a barometer of farmer sentiment, is above last year's level, and we anticipate a very busy spring season. In Potash, we forecast record demand of 67 million to 69 million tonnes, supported by steady consumption growth and low inventory levels in key markets such as China and Brazil. We expect potash markets will remain tight through at least the first half of the year. Canpotex has a strong order book in place and is fully committed until April. We recently announced a $10 price increase in the domestic market, reflecting our expectation for a strong spring season assuming normal weather conditions. Nutrien's potash sales volumes are expected to range between 13 million and 13.4 million tonnes in 2019, up modestly from last year. We maintain strong production flexibility in 2019 should market opportunities arise and have approximately 5 million tonnes of incremental operational capacity in Saskatchewan that we can bring on with limited capital as global demand grows. Nitrogen markets have weakened over the past few months, resulting in more cautious view on pricing through the early part of 2019. However, we believe the market is overcorrecting and still anticipate a seasonal recovery in prices, driven by strong demand in the spring and limited new capacity additions. As such, we see the opportunity for higher global utilization rates and a continued improvement in nitrogen prices over time. North American gas prices are expected to remain low, particularly compared to other key nitrogen producing regions such as Europe. This provides a significant competitive advantage for our North American nitrogen assets. In phosphate, we expect a balanced market and relatively stable pricing across our diverse product lines. We anticipate a small reduction in our phosphate sales volumes as we complete our synergy plan, including the conversion of our Redwater plant to ammonium sulfate in the third quarter.In 2019, we will report ammonium sulfate results in the nitrogen segment, resulting in an approximately $50 million shift in EBITDA from phosphate to nitrogen. Based on improving market conditions and increased synergy realization, we expect higher earnings across our retail and crop nutrient businesses in 2019. Our annual adjusted earnings guidance is $2.80 to $3.20 per share and our adjusted EBITDA at $4.4 billion to $4.9 billion, both up significantly year-over-year.Sustaining capital expenditures are projected to be similar to last year, and we expect free cash flow in 2019 to exceed the $2 billion generated in 2018. Our guidance included the impact of the new IFRS lease accounting standard, which will result in an increase to EBITDA of approximately $225 million and finance cost of $30 million. It also includes incremental depreciation from the merger-related purchase price allocation adjustments of about $350 million, which we no longer exclude from our adjusted earnings guidance. Our focus in 2019 remains on the execution of our strategic priorities and prudent allocation of capital. We continue to work towards the achievement of our synergy targets and drive operational efficiencies across the organization. We will provide more detailed operational targets for each of our business units at our Investor Day in May. We are very well positioned to enhance shareholder value with a healthy balance sheet and the strong cash generation of the company. Retail will be the primary focus of growth capital, and we continue to have a strong pipeline of highly accretive acquisition opportunities in North America and Australia. We had a strong start to the year with 2 U.S. retail acquisitions completed in January, representing a total of $170 million in revenue. This week, we also announced the definitive agreement to purchase Actagro, a leading developer and producer of proven environmentally sustainable soil and plant health products and technologies. The acquisition is aligned with our strategy to invest in proprietary products that increase our margins and deliver strong value to growers. The acquisition is expected to be accretive to earnings in the first year and to generate approximately $55 million in run rate EBITDA 2 years after close. In terms of returning cash to shareholders, we are focused on providing a stable and growing dividend that is underpinned by growth in our retail business, and we'll review the renewal of the share buyback program when it concludes later this month. This is an exciting time for Nutrien. We accomplished a lot in the first 12 months, and we look forward to delivering on the significant opportunities that lie ahead. Finally, I would like to welcome our new CFO, Pedro Farah, who joined us at the beginning of the month. Pedro brings extensive global experience in both financial and retail services and is well positioned to lead our finance organization. With that, operator, we will now be happy to take questions.
[Operator Instructions] Your first question comes from the line of Ben Isaacson with Scotiabank.
Chuck, there was an article in The Wall Street Journal yesterday that talked about rising bankruptcies in the U.S. farm belt, near-record debt levels, negative median farm income. And I guess, this is partially being blamed on lower crop prices, increased competition and the trade war. Can you provide your thoughts on what's happening on the ground? What data points should we be watching for, for red flags? And then as it relates to Nutrien specifically, can you frame the risk to retail in terms of volume on your 9.5% EBITDA margin that you've realized in each of the past 2 years?
Yes. So we have seen the article in The Wall Street Journal. And look, maybe I'll start with just the overall comments. Farmer bankruptcies, especially when it's family farm bankruptcies, we never want to see that. And I've said it many times before, that we make money when our farmer customers are profitable and healthy financially. But you have to put that data into context. When we look at the overall bankruptcy situation for farmers in the U.S. as a whole, actually, 2018 -- the number of bankruptcies in 2018 was actually lower than the 10-year average and the 2018 number has actually improved; it is lower than the 2017 numbers. Now when you look at the debt for -- that farmers are carrying, the increase is really driven by real estate, by their acquisition of land. And land values have actually held up fairly well over the last few years. So their balance sheets from a balance sheet perspective on the farm are relatively stable. And what we have to worry about or be concerned with is really the liquidity and the cash flow from the farms. And what we're seeing is that comes down to farmer margins. And last year in 2018, it wasn't a great year for farmers. We had -- crop prices started to recover early in the year. The fundamentals have improved for most crops, cotton, corn around the world, and that is good news. But then the trade uncertainty hit. That provided a significant amount of pressure on crop prices and that has hurt our farmer customers, and we've said that before. But when we look at the fundamentals of crop around the world, especially stocks-to-use ratios, they are getting better. So when I look at it from a 2019 perspective, here is what we expect. We do expect farmer economics to improve in 2019. Crop prices are actually up -- I said that in my prepared remarks -- from the lows we saw in 2018. We do expect the mix change for more corn-planted acres to really help farmer economics. And if you look at our prepay, so this is directly involving now Nutrien and our customers that we deal with, the prepay is up year-over-year approaching $1.6 billion, which is a really good sentiment, I think, that our customers are certainly expected to spend more on crop inputs this year. We do need a trade settlement, Ben. I think it is important to suggest that if we had a trade settlement, we do expect crop prices to rise. But overall, we still expect 2019 to be a better year than 2018.
Your next question comes from the line of Jacob Bout with CIBC.
On your retail EBITDA guidance, how much is organic versus acquisition growth? And how aggressive do you expect to be on U.S. retail acquisitions in '19 and in retail overall?
I will have Mike Frank, our Head of Retail, answer the question for you, Jacob, and then I'll provide some color as well.
Yes, good morning, Jacob. Look, based on our guidance, we would expect that our EBITDA growth from acquisitions will be a bit stronger this year than it has been historically. We would estimate that probably $30 million to $50 million of the growth in our EBITDA will come from acquisitions. And obviously, we're also expecting a good bounce back, especially in the first half following a Q4 that was very tough for our customers and we didn't get on the herbicides or the fertilizers that growers wanted to get on. So we expect a strong performance in our base business. We do expect some growth from acquisitions as well. And I would just say in terms of the opportunities that lie ahead from an M&A standpoint, are strong. As Chuck mentioned in the opening comments, we've already made a couple of acquisitions this year that are really good acquisitions. On the footprint side, we acquired a company called Security Seed, which is based in Kentucky, that has 14 branches. And it's a high-quality business. And so we expect to have some additional mid-sized acquisitions on footprint like that through this year. We're also very pleased with the acquisition of Actagro. Obviously, that has to go through regulatory approval. And so we expect it to close sometime in the first half of the year. But this is an acquisition that really fits really well with our proprietary product strategy, where we can take really good products, help our customers perform their -- improve their performance on their fields and these products also have strong margins. And so it's exactly the type of acquisitions that we're looking for.
Yes, and Jacob, just a couple more comments on this one. So the guidance range for retail at 1.3 to 1.4, it really does, as Mike suggested, include really a normal or historical M&A activity as part of that number. It certainly does not include a significant step-up in capital spending for acquisition. And the reason is, just look at the Actagro acquisition. That's a phenomenal acquisition. We're very pleased to have the employees and the products of those companies join Nutrien, but that has to go through an antitrust review process. And most likely, we won't have that integrated and contributing to retail's earnings by the spring season, which, of course, is the largest season from an earnings perspective. So these things are -- they take time to integrate and to close. But certainly, when you look forward to 2020 and 2021, the capital that we plan to allocate into retail will be very accretive. And I think you'll see that in the years to come.
Our next question comes from the line of Don Carson with Susquehanna Financial.
Chuck, just wanted to get your thoughts on the upcoming nitrogen season. You mentioned that, obviously, last fall was the wettest fall season in the U.S. in over 100 years. So how much demand do you think will -- got pulled from Q4 into the first half of this year in terms of either volumes or the percentage of ammonia that wasn't applied versus what was normally applied? And I guess, logistically, how do you see the prospects of squeezing 1.5 season into 1 season? Could we see logistical tie-ups and enhanced tightness in supply and demand that could lead to a fly-up in prices?
Yes, I'll give you my comments and then I'll have Raef Sully, our Head of Nitrogen, provide his, Don. So look, you framed it very well. What -- when I traveled through the U.S. and I was in the -- at the Michigan Ag conference just a few weeks ago, what was being reported is that in the key nitrogen areas in the fourth quarter, it really did not have a season and -- especially when it comes to ammonia, and that's been very, very well documented, I think, and pointed out. And that has led to the volatility and the uncertainty we're seeing in terms of pricing right now. And as I said in my remarks, we think that nitrogen prices have overcorrected. Now if we get normal weather patterns in the spring season, we expect to get all of it back. So if the window is there for growers, especially with the mix moving to more corn acreage, farmers will not gamble in terms of their nitrogen applications. So the answer to your second question, I think, is depending on whether -- it would be nice to get an early spring, but even a normal spring, we are anticipating and planning to get all of the deficit back assuming that the weather cooperates. Now with the distribution system that Nutrien has in place in the U.S., a season like this, it's going to tick to our benefit. We've invested heavily in our distribution system. We have our retail business plus our wholesale distribution network, one of the best, I think, in North America, and that will play to our strength. Raef, do you have more comments?
No, just to reinforce the point that the distribution system is there. We've had seasons in the past where they've been very tight. We got the volumes out. Chuck mentioned there are areas where there was no ammonia applied, there are areas where 25% went down. As long as we get a couple of good windows through the spring season, we'll see that go out and get to ground.
Our next question comes from the line of Andrew Wong with RBC Capital Markets.
So maybe a question both for Chuck and Pedro. Could you talk about your views on an optimal capital structure and leverage ratio? Because, obviously, Nutrien has a lot of financial flexibility now, much lower net debt-to-EBITDA ratio. So maybe what scenarios we should be looking to increase leverage?
Yes, Andrew, I'll give you my comments and then I'll have Pedro make a comment or two. Recognize this is his first week on the job. But he has vast experience from the different businesses he has been with and it would be good to get his perspective. So our view really hasn't changed when it comes to leverage and the capital structure for the company. We want to maintain our investment grade rating. We think it's very, very important to do that. And it's going to -- and our leverage ratios will depend on where we are within our cycle. So at the top of the cycle, having 2 or below is something that we're not uncomfortable with. And then at the bottom of our cycle, getting up to 3x debt-to-EBITDA, again, is not something that we would be uncomfortable with. So the movement between 2x to 3x debt-to-EBITDA is sort of what -- where we think. Obviously, at the end of this year, we were at 1.6x. So we have, I think, capacity and opportunity, but that will be dependent on where we can allocate capital to grow shareholder value. Certainly, we're not going to rush out and do anything that we don't think will create long-term value. We've been very active with our share buyback program. If you look at what we've been able to do so far, purchasing 41 million shares at just less than $51 a share, we think that, that is a great use of our capital. And we would be prepared to allocate even more capital to the buyback program. And maybe now I'll turn it over to Pedro for a few comments.
Yes, as Chuck said, this is day 4 for me, so there is a lot to learn about the business. But I think the company is in a very privileged position from a cash standpoint. The balance sheet is so strong. And I think it will provide in the short term room for all that we want to do in terms of share repurchase, dividends and the acquisitions that we have on the radar at this point in time. So as we go forward, I think there will be more room and we can consider something of different sizes. But right now, I think we're sitting well positioned to take advantage of everything we have in the pipeline.
Your next question comes from the line of Chris Parkinson with Crédit Suisse.
This is Graeme Welds on for Chris. I just had a quick question on the nitrogen segment. Curious to hear your views on how you're thinking about global cost curves given the volatility we have seen in energy prices outside of the U.S. Also, you mentioned the fact that you see Chinese exports being roughly stable year-on-year. But I'm curious to get your views as well on what you think Chinese production cost will look like in '19 relative to '18 and the impact that, that could have on pricing for the year going forward?
Graeme, I'll give you the overall arching comments and then I'll have Jason Newton, our Head Economist, talk about China and the production -- specific production costs for you. So the way we're looking at the nitrogen supply demand is a continuation of what we saw last year. There's not a lot of excess capacity coming into the market. Demand has been growing at a steady rate. And so we see a continued improvement in the overall supply-demand for nitrogen. We don't think that we see much more exports from China than we saw in 2018 simply because of the cost structure, which Jason will address. And probably as equal important is their environmental reforms that they are trying to put through in China. So we like the overall fundamentals of the nitrogen business. We think they are supportive, they are tightening. And if you look at it from a cost-to-serve perspective, when you have a third of our nitrogen business based on AECO Gas up here in Western Canada and then another third in NYMEX -- based on NYMEX and then a third in Trinidad, we are really well positioned globally in terms of our cost curve. I think we can compete very well. And we think that, that will improve even more as we go through 2020, 2021 where the supply-demand situation, I think, will get even tighter. Jason, you just want to address the cost of production in China?
Yes. Just looking at the cost of production in China, it's relatively flat to where it was throughout much of the second half of last year, particularly, the anthracite-based urea production, which really drives the marginal cost. And so we still believe those costs are in the range of $250 to $300 per tonne FOB at port in China. The bituminous prices have come down and are now lower than they were a year ago. But if we look at where Chinese production rates are, they're really very flat to year-ago levels and inventories at port also remain relatively flat to year-ago levels, which were relatively tight. And so while the export pace picked up at the end of 2018 and early 2019, we really don't see the export volumes from China being significantly different in '19 than they were in '18. European gas costs are also an important driver, particularly for ammonia and UAN. And we have seen the hub-based gas prices in Europe come down, but we're really right pretty close in line to where we were a year ago. So they're down from the highs, but in line to year-ago levels and really -- I think as we go through the year, the direction of those prices will drive the floor price as we move midway through the year. The formula-based prices driven by crude oil have also declined, but they're actually up about $1 per MMBtu compared to where prices were a year ago. So overall, I think the cost structure remains pretty much stable to average 2018 levels, but down from the highs that we saw in the second half of the year.
Your next question comes from the line of Steve Byrne with Bank of America.
How do you expect and envision your digital ag program to drive value for your retail business? And perhaps more specifically, what fraction of your members' digital data do you think you'll be able to access yield data by genetics, as you could then build a predictive tool to help your members buy the best genetics for their soil type?
Steve, I'll have Mike Frank answer your questions and then I'll provide some color as well.
Steve, as Chuck mentioned in his comments, since we've launched our digital platform to our customers last July, we've been very pleased with the uptake and the engagement that we've seen from our customers, with over half of our customers now signed up onto the customer portal and engaging -- managing their account and now buying products. The way we think about our digital platform that is customer-facing, it really has 3 big buckets. One is around what we call the omni-channel piece of it. And this is the area that growers can come in. They can manage their account, they can look at what we have done in the past, they can pay their invoices online, and now they can also order products online. And so that's a very important convenience tool that we've now put in the hands of our customers online. The second big area of focus for us is around crop planning. And this is a tool that allows our agronomists to sit down with our growers at the end of the season, look back to what happened on their farm and field by field, and then plan the next year based on the opportunities, the weather, the crop prices and technologies that we have that we can help our customers be successful in. And so that's a second big bucket that we're well advanced in. And then the last area and probably the area you were asking about is more around digital agronomy. And this is an area that we will build, buy, and partner in. We have some great tools today around variable rate fertilizer and variable rate planting prescriptions where we can go into a field and prescribe a specific planting rate or fertilizer variable rate script. We also have other tools. We announced a partnership with Lindsay recently on water and irrigation management. And so this is an area that will continue to build out over time. I would say it's the third leg to the stool. And we won't develop all these tools ourselves. There is a lot of partnership opportunities. So for example, on the seed side, with the Agrible acquisition we made last year, they have a great tool called Find My Seed. So we've got that seed selection tool also now up and running on our digital platform, where customers can go in and on a field-by-field basis select the right genetics for their field. And so we feel like we're on the leading edge of this. And again, based on the feedback and the engagement we're getting from our customers, it has shown up that way for them as well.
Yes, Steve, just a few more comments. So Mike covered the details really well. The high-level strategy is we plan to lead the industry. We're going to be very smart about what that means, but we want to be able to work with our customers when they want, how they want and where they want. And this integrated platform is connected to our 3,500 agronomists, our extensive supply chain capability and our proprietary products. And when we put it all together, I think we're going to have so much leverage. We'll be able to create tremendous value for not only our customers but our shareholders.
Your next question comes from the line of P.J. Juvekar with Citi.
Couple of questions on potash. You talked about low potash inventories in Brazil and China, but you also mention high retail inventories in North America. So what are the magnitudes of this low and high inventories in different regions? And could they potential offset each other? And secondly, related to potash, you talked about 5 million tonnes of flex capacity in potash. Is that sort of your new strategy, to flex your capacity with demand, and that replaces the old strategy of price over volume?
Yes, I'll answer the second question and then I'll have Susan talk about inventory. So look, P.J., we don't subscribe to any one specific strategy. I want to make that as clear as I can; we never have. We adjust our strategy based on market demand and where we are on the cycle and what our competitors are doing, like every other company would. Now when we look at 2019 though, we're very constructive on what -- how it's unfolding. If you look at last year, we had 2% increase in demand, again, up to 66.5 million tonnes. This year, our guidance and our view is that the market will continue to grow to somewhere between 67 million and 69 million tonnes. So if you just take the midpoint of that, we think that the demand around the world will grow an incremental 1.5 million tonnes. And if you look at what we -- what's been announced by our peers in the industry and what we believe will come into the market, it's something less than 1.5 million tonnes. And because we have -- I think we're one of the few companies that have incremental capacity, we will service our customers like we always have and look at the supply-demand and make sure that we can supply our customers. And that's what we've done and our guidance -- our production guidance and sales volumes numbers that we gave is reflective of that. So the strategy really has not changed. I think we were very constructive last year. We grew our sales volumes by over 1 million tonnes, but as well we saw good momentum when it comes to pricing, but we met our customer's needs. That's what we're trying to do and that's what we'll do in 2019. Susan, do you want to just talk about how you're seeing inventories globally?
Yes, P.J. In terms of -- you're absolutely right. What we talked about is the low inventories in both China and Brazil, in particular. Canpotex indicated before we went out of 2018 that they were sold out through the first quarter. We are seeing the same thing in North America. And potash, no different than the rest of the nutrients, was impacted by the wet season in the fall. However, having said that, from a domestic standpoint, this is no different than the nitrogen story we talked about earlier, which is the fact that if we see a normal season, we expect those inventories to clear out. We expect to have good demand throughout the spring season. And we are perfectly positioned with both our upstream warehouse and distribution capacity and our downstream retail capacity to pull that potash into the market. So I don't think this is a situation where the domestic well will offset the low inventories globally. We do expect to see good demand. And just on the flex capacity, the one piece that I just want to add to Chuck's comments are that, the way we look at this is stable prices are what we want for the grower. We do not want to see volatility in prices. You will have seen last year we met the demand as it was needed and we are well positioned to do so if we see further demand going into the second half.
Your next question comes from the line of Mark Connelly with Stephens Inc.
So more than one domestic seed producer has talked about seeds pull-forward into the fourth quarter, but we're not seeing that very clearly in your numbers. So I am wondering how you're thinking about the timing of seed sales this spring? And on a related note, outside of the central corn belt, many of the farmers we are talking to are looking pretty aggressively for alternative crops rather than just shifting to corn or cotton. I would assume you get a pretty good sense of that. And so the question is -- is that a significant trend? And would it help you or hurt you if it becomes significant?
Mark, I'll have Mike Frank answer your questions for you.
Mark, I think on the seed side when you hear from other suppliers, again, I think you need to parse through what is building channel inventory and what is actually being sold through to the grower. Obviously, our numbers show what's being sold to growers. What we saw in Q4 is that our corn seed sales were strong and it lines up with our expectation that corn acres are going to be up a little bit next year. And selling of soy seed was soft as growers are really taking their time to figure out what they're going to do this spring. So, and again, as Chuck mentioned, the fact that we've got prepay that is up over last year, that's a strong indication that growers are going to invest in their crop. But they are delaying some of their purchases and some of their planting decisions, I think, to see how the trade dispute plays out. Now your question, outside the corn belt we're not seeing a big shift that's material there. The wheat acres are pretty much baked based on what was planted last year and that was pretty flat. As Chuck mentioned, we do expect cotton to be up a little bit. And if you look at West Texas, which had a significant drought last year, they will definitely plant more cotton. So that's constructive to our business. And so we're not seeing a shift to other crops that are going to -- that would be material in any way to our business.
Your next question comes from the line of Joel Jackson with BMO Capital Markets.
If I could go back to retail. It seems like if you sort of parse the numbers, you're projecting kind of organic growth in retail to be flat, right? So $150 million more retail EBITDA this year, maybe $75 million more from the IFRS change, $40 million more from acquisitions, some deferred demand from the fall to the spring. So it looks like there is not much organic growth going on in retail. Can you just speak to that point? And then can you maybe, in that commentary, talk about different regions and different product groups, the different puts and takes?
Mike, go ahead.
Yes. So Joel, we are expecting a strong year in retail as per our guidance. After a very challenging 2018, we were very pleased through Q3 last year where we were running ahead about 10% on the EBITDA line. Obviously, we gave some of that back in Q4 because of the tough conditions. But ending up 5% year-over-year, we know we outperformed the market. In fact, on a look-back basis, we know that we grew our share in the U.S. on the crop protection shelf by at least half a point. We were up slightly on seed and we also grew share probably over 1% in fertilizer. So we feel very good about that. And most of that is just organic growth based on how we performed in the marketplace. As we said in the previous comments, we are expecting a bounce back in the market which will look like organic growth because of the weak Q4. But we are also very pleased with the progress we are making. We are transforming our supply chain to get more efficient in terms of how we operate. And with our vast network of operations, in a busy spring, we know that will benefit our business. And so we feel good about the range, the guidance range for next year, and I think when we are there, it will -- we'll look back and it will be a strong year of performance.
Your next question comes from the line of Steve Hansen with Raymond James.
Just a quick one in terms of the retail growth outlays for this year. Your recent announcements through January, Actagro et cetera, and the comments I think Mike made earlier suggest you're off to a pretty good start. But most of the announcements do tilt very heavily towards the domestic opportunity. I'm just trying to get a sense for the full year outlook: how do you expect the outlays to sort of tilt on a relative basis between domestic and international, particularly around Brazil and a lot of the work you have been doing down there. Should we really think it is going to be domestically heavy this year, or how should we think about it?
Mike, go ahead.
Yes. So Steve, look, I think we would expect that the majority of our M&A activity is going to continue to be domestic with just a significant runway of opportunities that we see unfolding in the U.S. as the independent side of the retail business continues to look for opportunities to exit in this very tough market and the changing dynamics around digital and everything else that's going on in the retail space. As Chuck mentioned, we also see opportunities in Australia and we made some very nice acquisitions last year in Australia. So we see some opportunities continuing to unfold there. And in Brazil, the way we're thinking about Brazil is over the next 3 to 4 years, we'll likely invest about $1 billion. And so this is -- this will likely unfold on a slower basis than a big bang basis. We are now down there prospecting the market. We made a very nice acquisition last year of Agrichem. We would expect to make some acquisitions this year of retail footprint, where we will actually start expanding our retail presence. And we'll also continue to look for opportunities to add content in the Brazil market from a proprietary standpoint that will also build out our business there. So I think, there'll be some movement in Brazil in 2019, but we will go there slow and steady and we will build it over time.
Your next question comes from the line of Duffy Fischer with Barclays.
Maybe if I could sneak in two quick. One just on your slide where you talk about the IFRS 16 impact on EBITDA of $225 million. Can you do a bridge of that $225 million from EBITDA to free cash flow or to cash flow, how that affects that? And then Chuck, if you would, just talk about what do you think the delta would be in North American purchasing whether we have a deal or no deal by the time we're planting in April?
Duffy, I'll have Fred Thun, our Head of Finance, talk about the IFRS conversion and then I'll try to address your question on trade.
Duffy, just talking about the IFRS conversion. The beauty of this is that it's simply an accounting change and it's a realignment of certain lines on our financial statements. So I would not anticipate any change to cash flow whatsoever as a result.
And then, Duffy, your question on whether we have a deal, what would happen for grower sentiment and purchasing, that's pretty tough to call. Our conversation with our growers, I think Mike framed it really well. Right now, farmers are in the mindset of kind of wait-and-see and they are going to wait as long as they can before they have to make planting and crop decisions because they simply don't know. So I think what would happen is if we had a deal, 2 things most likely would happen. First is, I think you would see clarity in terms of their purchasing decisions and maybe the timing accelerated a bit, which would be good news for all of us. But I want to caveat that. Nutrien has the supply chain capability and the infrastructure to go with the farmer when they choose to go. It doesn't have to be in early spring. We can still get a lot of business done with them. The second, I think though, which is probably more important is that once the trade deal is done and assuming that there is success there, there will be this cloud of uncertainty that would be lifted over the crop pricing. And the crop prices will be allowed to trade more on the fundamentals. And we believe that when that happens, you will see higher prices, which is going to be good for everybody but farmers first in terms of their profitability. So that's why we're really concerned in watching the trade progress is because we think that it will be constructive for the overall ag complex, starting with crop pricing.
The next question comes from the line of John Roberts with UBS.
;I realize this is not big, but hopefully it will be insightful to me. When you buy something like Actagro, how do they go to market? Would Actagro product be available in an Agrium store and also available at a competitor store down the road? And I don't know if they are currently held by FBN, but would you pull them from FBN if they were there?
John, I'll have Mike Frank answer your questions for you.
John, so we know Actagro very well. In fact, we are by far their largest customer. We've been working with them for over 10 years and we really like the products and technologies. We like how they perform in the field and their value-add to us as a retailer. And once we close the deal, we'll get the full margin opportunity. Actagro also does sell to other third parties and we intend to continue to service that business as well. So that is an opportunity for us. When we look at the synergy opportunity, there will be some cost synergies, but the sales synergies will be significant. We will start driving this harder across our whole retail footprint, both domestically and internationally. And so we see a number of opportunities. Regarding FBN, they do not distribute through FBN today. As you probably know, FBN's product portfolio is very thin. And it's a very small part of their business. And so we wouldn't expect any change there.
John, just to fill that out for you, we do have a wholesale proprietary product business that we sell to other retailers. Now we are selective on what those products are, but that is part of our business, so there would be no change with the Actagro go-to-market strategy.
Your next question comes from the line of Jeff Zekauskas with JP Morgan.
Your EBITDA in 2018 was about $4 billion, and your cash flow from operations was $2 billion. And there was a large working capital use, maybe by about $1 billion. Can you speak to what your normal level of cash flow from operations is? Is it 3.2 or 2.7 or 3? What's a more normal number? And secondarily, how many people work at Actagro?
Okay, Jeff, so we'll have Fred Thun answer your question on the conversion in terms of free cash flow, and then just to answer your second question quickly here, Actagro has about 100 employees. Fred, go ahead.
Thanks, Chuck. In terms of our cash flow, both operating and free cash flow, number one, Jeff, is we are focusing on the strength of the balance sheet and focusing on maintaining a strong balance sheet there. You will see ups and downs, particularly in the noncash working capital line, primarily seasonally, but then also with the commodity cycle. It's difficult, given that, to predict what the annual cash flow provided by operations should be. Instead, we prefer to focus on free cash flow. We delivered $3.16 per share of free cash flow in 2018, about $2 billion. And our free cash flow is going to rise proportionally with the growth in our business in 2019. But overall, ultimately, we're focused primarily on the strong balance sheet and maintaining that investment-grade credit rating.
Yes, Jeff, just to give you perspective on how I think about the company as a whole. Okay, so we usually convert somewhere between 70% and sometimes you'll get a sizeable 73% of EBITDA to free cash flow. And so that's a good kind of walking around proxy. Now what happened in 2018 was we had a working capital build. And the reason we had a working capital build is, as we've articulated, it was one of the wettest fourth quarters in our history, and really did not have a fall application season. So that will work its way through the system. But generally, we see a conversion from EBITDA to free cash flow in that 70% to 73% ratio.
Your next question comes from the line of Michael Piken with Cleveland Research.
Just wanted to get a feel for how you are thinking about the 2 competing platforms, how big you think the launch of the new soybean-wheat platform will be this year and what is your expectation for selling both products in the future?
Okay, we will have Mike Frank answer those questions.
Yes, Michael, we were really pleased to see the Chinese government finally approved a number of new biotech traits that will be important tools for U.S. growers in corn and soy and in canola. I think you're referencing specifically the Corteva Enlist trait that just got approved and how it's going to stack up to Xtend. I think our research would say growers are very interested in both technologies. They have unique features and benefits. And like a lot of traits, it really depends on the quality of the underlying germplasm. So for 2019, we don't expect to see much of a market for Enlist. I think it will be a very slow introduction to the technology, but we'll get our hands on it. And we will test it with some of our growers. And in 2020 and beyond, it will be more commercially available throughout the marketplace. And so, we are working with both Corteva and Bayer. And again, we like both technologies; we think there's going to be a fit for both. And we think Corteva is going to push hard on Enlist and Bayer is going to push hard on Xtend and that will be good for our customers and probably an opportunity for us as well on the retail space.
Your next question comes from the line of Vincent Andrews with Morgan Stanley.
Maybe to build a little bit on that, you talked about the seed order book is -- in a sense, kind of coming in ahead of schedule a little bit in prepaid. Are you seeing any unusual promotional activity in seeds and I guess, maybe in crop chemistry as well that might be encouraging that larger prepay. And I guess, just some more comments on soybeans would be helpful because I just recall last year one of the consolidated competitors apparently got quite promotional with soy. So are we seeing that again, particularly as maybe we're about to enter a more competitive dynamic with trade competition as well?
Go ahead, Mike.
Vincent, as you know, in the last several years, the seed market has been very competitive. And there have been lots of programs that have been offered from the suppliers, and so we are not seeing anything unique. That continues. It's a very competitive marketplace. From a seed availability standpoint, we have got very strong availability, so farmers don't feel rushed right now to make those decisions. Now we're not seeing anything unusual, which I think is at the core of your question, on either crop protection or seed. And so, we -- as you know, our margins last year on both seed and crop protection were roughly flat. We think that we are going to continue to drive hard our proprietary products business this year, which will be constructive to margins. And the seed business will likely be similar to last year from an overall margin perspective.
Your next question comes from the line of Adam Samuelson with Goldman Sachs.
Maybe a question and a follow-up on potash. Just want to make sure, on the guidance, it would seem that the guidance implies kind of unit margins and pricing reasonably flat to up slightly year-over-year in the EBITDA range that you have given. Is that accurate? And then along those lines, just from a demand perspective, it sounds like from a global growth perspective, it's almost all China is how you're thinking is going to drive the global basis and just the confidence level in the first half, second half dynamics embedded in that assumption.
Adam, I'll have Susan Jones answer your questions for you.
Adam, the way we are looking at from a directional pricing perspective is we are seeing firm pricing, assuming a normal spring season, through the first half. And as I mentioned earlier on the call, Canpotex has a very strong book of business. When we get into the second half, pricing we expect to be flat to a little bit down. But a lot is going to depend on how quickly some of these ramp-ups happen. We do expect to see demand growth consistent with what we have seen last year and some of the years, 2.5% to 3% demand growth, continue. And that is not only out of China, but we see that -- other Asian markets, we see that in Brazil and we see that -- maybe a little bit of flat in India. But I think from an overall volume perspective and where we are directionally positioning, it would be keeping our market share pretty well flat year-over-year, meaning around that 19.5% market share.
And just one other comment. We are seeing good growth in Africa and we don't talk a lot about Africa, but the work that some of our peers have done on phosphate in Africa is having certainly a good strong effect when it comes to potash demand in that area as well. So China is by far the largest in terms of leading the growth in 2019, but we're really pleased with how demand for fertilizer is improving and increasing in Africa, which could be helpful in the future.
Operator, we have time for just one more question.
Our final question comes from the line of Jonas Oxgaard with Bernstein.
Thinking more broadly about your retail strategy, it seems that you have 3 main directions: footprint, proprietary content and digital ag. Can you talk a little bit about how you rank order those priorities and, if I may, if you had 3 choices and the returns were about the same in all 3, which one would you pick?
Jonas, I will try to answer your question. The way we think about it is, we have -- we have a channel and we have a direct relationship to the grower. And we are investing heavily to continue to build out that channel, that's the traditional retail footprint, the facilities that we buy. But then we also want to either own or rent or lease content. And we have been investing heavily in that as well. That's the Actagro acquisition, Agrichem down in Brazil and the Loveland products portfolio. And then we have this notion of our digital platform, which is another tool to enable the relationship with the grower. And I don't think we actually -- internally, we don't prioritize them. We don't say one is more important than the other. It's a strategy of execution on all 3 of those because we think that, that's the way to maximize value creation for the farmer and for our shareholders. But that is, in essence, the strategy: continue to build the channel and the content while looking at what services, solutions and opportunities can we bring for our growers.
And we will now turn the call over to Mr. Richard Downey for closing remarks.
Thank you, operator. And thanks everyone for joining us. Ours is available for any calls you may have, and we'll talk to you shortly. Thanks.
This concludes today's conference call. You may now disconnect.