As a reminder, this conference is being recorded. 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 Ferra, our new Chief Financial Officer.
As we conduct this conference call, various statements that we make about future expectations, plans and prospects contain forward looking information. Certain material assumptions were applied in making these conclusions and forecasts, Therefore, actual results could differ materially from those contained in our forward looking information. Additional information about these factors and assumptions are contained in our current quarterly report to our shareholders as well as our most recent annual report, MD And A, and annual information form filed with Canadian and US security commissions to which we direct you. I will now turn the call over to Mr. Chuck Magro.
Thanks, Richard. Good morning, everyone, and welcome to Nutrien's 4th quarter 2018 earnings call. This quarter marked the 1st 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 full year financial results, I would like to review the performance of our key priorities.
Versus the progress we made on synergies and the value we generated from the merger. At the end of 2018, we achieved run rate synergy of $521,000,000, exceeding our initial 2 year target in just 12 months. We also increased our run rate synergy target by 20 percent to $600,000,000. 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 complete the required sale of our equity investments.
I would like to acknowledge the exceptional work as we generated net proceeds of $5,300,000,000 from the sale of our stakes in SQM, ICL and APC, which exceeded our initial estimates provide a significant opportunity to return cash to shareholders and grow our business. In 2018 we returned $2,800,000,000 to shareholders through share buybacks and dividends. We paid nearly $1,000,000,000 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 42,000,000 shares at an average price of $50.80 per share.
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 1 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 nutrient 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 400,000,000 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. At our Investor Day in Toronto on May 28. Significantly higher earnings in the 4th 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 ton.
The strength of Q4 Potash volumes illustrates our ability to respond to market opportunities 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 increased production from our lowest cost mines. Potash adjusted EBITDA for the year was up 48% compared to 2017. We increased potash sales by 1,300,000 tons and lowered our cash cost to product manufactured by 9% to $60 per ton. 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 4th 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 costs per ton and increase 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 $932,000,000 in the quarter. Up 50% and we generated an impressive $2,000,000,000 in cash from operations. Our annual adjusted EBITDA was 3.9000000000 dollars, up 32% compared to 2017, reflecting the strength of our integrated business model, merger synergies, and improving market fundamentals. We ended the year with 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 twenty nineteen. Global trade uncertainties have impacted the ag sector. But the underlying fundamentals for most crops are improving. The USDA is currently projecting the lowest US corn inventories since 2013. U.
S. Soybean and corn prices are up 15% to 20% from harvest time lows in December, corn futures are back around $4 per bushel. We expect U. S. Growers to increase corn area, by 2 to 4000000 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. US grower prepaid 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 67,000,000 tons 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 $13,000,000 13,400,000 tons in 2019. Up modestly from last year. We maintained strong production flexibility in 2019 should market opportunities arise, and have approximately 5,000,000 tons 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 fuel 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 red water plant to ammonium sulfate in the third quarter.
In 2019, we will report ammonium sulfate results in the nitrogen segment resulting in an approximately 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 $4,400,000,000 to 4 $900,000,000, 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 $2,000,000,000 generated in 2018. Our guidance includes the impact of the new IFRS lease accounting standard which will result in an increase to EBITDA of approximately $225,000,000 and finance cost of $30,000,000 It also includes incremental depreciation from the merger related purchase price allocation adjustment of about $350,000,000 which we no longer 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 show 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 strong pipeline of highly accretive acquisition opportunities in North America and Australia. With 2 U. S.
Retail acquisitions completed in January representing a total of $170,000,000 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 1st year, and to generate approximately $55,000,000 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 will 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 1st 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 Farhar 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
As a courtesy, Q And A will be limited to one question per caller. Your first question comes from the line of Ben Isaacson with Scotiabank. Your line is open.
Thank you and good morning. 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 and your 9.5% EBITDA margin that you've realized in each of the past 2 years? Thanks.
Good morning, Ben. Yeah, 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 wanna see that. And I've said it many times before that, you know, we make money when our farmer customers are profitable and healthy financially.
But you have to put that data in the context. When we look at the overall bankruptcy situation for farmers in the US 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 by their their acquisition of land.
And land values have actually held up fair fairly well. Over the the last few years. So the their balance sheets from a a balance sheet perspective on the farm are relatively stable. And what we have to worry about to be concerned with is really the liquidity and the cash flow from the farms. And what we're seeing is is that comes down to farmer margins.
And last year in 2018, it wasn't a great year for farmers. We had, a 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 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's what we expect. We do expect farmer, economic to improve in 2019. Crop prices are actually up. I just said that in my prepared remarks from the lows we saw in 2018.
We do expect the mix change of for more corn planted acres to really help farmer economics. And if you look at our prepaid, So this is directly involving now, Nutrien and our customers that we deal with. The prepay is up year over year approaching $1,600,000,000, 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 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. Your line is open.
Jacob.
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 2019 and retail overall? I'll have, Mike Frank, our head of retail answer the question for you, Jacob, and then I'll provide some color as well.
Yeah. 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 $30,000,000 to $50,000,000 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 fertilizer that growers wanted to get on. So 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 and A standpoint are strong. As Chuck mentioned in the opening comments, we've already made a a couple of acquisitions, this year that are that are really good acquisitions. On the, footprint side, we acquired a company called Security Seeds, which is based in Kentucky that has 14 branches and it's a high quality business. And so we expect to have, you know, some additional midsize acquisitions on footprint like that through, 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, you know, we can take really good products help our customers perform their improve the performance on their fields. And these products also have strong margins. And so it's it's exactly the type of acquisitions that we're looking for.
Yeah. And Jacob, just a couple more comments on this one. So the guidance range for retail at 1.3to1.4 it really does, like, as Mike suggested, include really a normal or historical, M and A activity as part of that number. It certainly does not include a significant step up in capital spending for acquisitions. And the reason is just look at the the Actagro acquisition.
That's a phenomenal acquisition. We're very pleased to have that that the employees and and the products of those companies join Nutrium but that has to go through an antitrust review process. And most likely, we won't have that integrated and and 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 are, they take time to integrate and to close.
But, certainly when you look forward to 2020 2021, the 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.
Your next question comes from the line of Don Carson with Susquehanna Financial. Your line is open.
Yes, Chuck. Just want to get your thoughts on the upcoming nitrogen season. You mentioned that obviously last fall was the what is fall season in the U. S. In over 100 years.
So how much demand 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 a season and a half into one season we see logistical tie ups and, and enhanced tightness in supply and demand that could lead to a fly up in prices?
Yeah. I'll I'll give you
my comments and then I'll
have Rafe Sully, our head of nitrogen, provide his, Don. So, look, you framed it very well. What when I've traveled through, the US and I was in the at the Michigan Ag Conference just a few weeks ago, what what is being reported is that in in the the key nitrogen areas in the fourth quarter, they really did not have a season. And it it it especially when it comes to ammonia, 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 the in terms of of pricing right now.
And as I said in my remarks, we think the nitrogen prices have have overcorrected. Now, if we get normal weather patterns in in the 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 to more corn acreage. Farmers will not gamble in terms of their nitrogen applications. So the the answer to your second question, I think, is depending on 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 the deficit back, assuming that, that the the weather cooperates. Now with the distributions to that Nutrien has in place in the US, a season like this is gonna take to our benefit. You know, 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 and that will play to our strength.
Great. Do you have more 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've got the volumes out as Chuck mentioned, there are areas where there was no ammonia applied. There's 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.
Your next question comes from the line of Andrew Wong with RBC Capital Markets. Your line is open.
Hey, good morning. 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 would you be looking to increase leverage?
Thanks.
Yeah, Andrew. I'll, I'll give you my comments and then, I'll have Pedro make a a comment or 2 recognize this is his 1st week on the job. But, he has a vast experience from the different business he's been with, and it would be good to get his perspective. So our view really hasn't changed when it comes to leverage and and the capital structure for the company. We wanna maintain, our investment grade rating.
We think very, very important to do that. And it's gonna and our our leverage ratios will depend on where we are within our cycle. So at the of the cycle, you know, having, 2 or below is is something that we're not uncomfortable with. And then at the bottom of our cycle, getting up to 3 times debt to EBITDA is, again, is is not something that we would be uncomfortable with. So the the movement between 2 to 3 times debt to EBITDA is sort of what where we think Obviously, at the end of this year, we were at 1.6.
So we have, I think, capacity and opportunity. But that will be depending on where we can allocate capital to grow shareholder value. Certainly, we're not gonna rush out and do anything that we we don't think will create long term value. We've been very active with our share buyback program. If you 41,000,000 shares at just the 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 of the comments.
Yeah. I I a struck status is day 4 for me. So there's a a lot to to learn about the business. But I think I think the company is in a very privileged position from a from a cash standpoint. The balance sheet is is so strong that I think it will provide in the short term room for all that we wanna do in terms of share repurchase dividends and the acquisitions that we have in the in the radar at this point in time.
So, you know, as as we go forward, I it will be more room and we we can consider something, of different sizes. But right now, I think we're 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 Credit Suisse. Your line is open.
Good morning, everyone. This is Graham Wells 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've seen in energy prices outside of of the U. S.
Also, you mentioned the fact that you see Chinese exports being roughly stable year on year, but curious to get your views as well on what you think Chinese production costs will look like in 'nineteen relative to 'eighteen and the impact that that could have on pricing for the year going forward?
Graham, hi. I'll I'll give you the overall arching comments, and then I'll have Jason Newton, our head economist, just talk about China and the production, specific production cost for you. So the the way we're 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 their environmental reforms that they're trying to put through in China. So we 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 a cost to serve perspective, when you have, a third of our nitrogen business based on a coal gas up here in Western Canada, And then, another third in, 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, do you just want to address the cost of production in China?
Yeah. Good morning. Just looking at the cost production in China, So it's relatively flat to where, it was through a 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 those costs are in the the range of, $250 to $300 per ton, FOB, for it in in China. The the 2 minutes prices have come down, as 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 a year ago levels and and inventories at port also are in relatively flat year ago levels, which which were relatively tight. And so while the export pace picked up at the end of 2018 early 2019, we really don't see, the export volumes from China being significantly different, in 'nineteen than they were in 'eighteen. European gas costs are also important driver particularly for for ammonia and and UAN. And we have seen, the hub based gas prices in Europe come down, but really right pretty close in line to where we were a year ago. So they're they're down from the highs, but in in line to year ago levels.
And, really, I think as we go through the year that direction in those prices will, will drive the floor price as we move midway through the year. The the formula based prices, driven by crude oil, have also declined, but that they're actually out about a dollar per MMBtu compared to where. Prices were a year ago. So overall, I think that the the cost, 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. Your line is open.
Yes, thank you. How do you expect and envision your digital ag program to drive value for your retail of your member's digital data, do you think you'll be able to access, you know, yield data by genetics as you could then build a predictive tool to help your members buy the best genetics for their soil type.
Good morning, Steve. I'll have Mike Frank answer your questions. I'll provide some color as well.
Good morning, Steve. You know, as Chuck mentioned in his comments, since we've launched our digital platform 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 customer facing. It really has 3 big buckets. 1 is around what we call the omnichannel piece of it.
And this is this is the area that you know, growers can come in. They can manage their account. They can look at what they've 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, a focus for us is around crop planning. And this is a tool that allows our agronomist to sit down with our growers at the end of the season, look back to what happened on their farm and in field by field and then plan, the next year based on the opportunities, the weather, the crop prices, and, technologies that that we have that we can help our customers be successful. 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 was more around digital agronomy.
And this is an area that, you know, we we will build buying partner in. We've 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 we announced a partnership with Lindsey recently on on water and irrigation management. And so this is this is a an area that will continue to build out over time.
I would say it's it's the 3rd, you know, late to the stool. And we won't develop all these tools ourselves. There's a lot of partnership opportunities. So for example, on the seat side, you know, with the Aggrible acquisition we made last year, they have a great tool, called Find My Seed. And so we've got that seed selection tool also now up 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 it it's showing up that way for them as well.
Yeah. Steve, just a few more comments. So, Mike covered the the details really well. The the high level strategy is we we we plan to lead the industry We're gonna be very smart about what that means, but we wanna be able to work with our customers when they want, how they want, and where they want. And this integrated platform is is connected to our 3500 agronomist.
Our extensive supply chain capability and our proprietary products. And when we put it all together, I think we're gonna 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 PJ Juvekar with Citi. Your line is
Just
a couple of questions on potash. You talk about low potash inventory in Brazil and China, but you also mentioned high retail inventory in North America. So what are the magnitudes of these low and high inventories in different regions and could they potentially offset each other? And secondly, related to potash, you talked about 5,000,000 ton 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?
Thank you.
Yeah. I'll answer the second question and then I'll have Susan talk about inventories. So, look, PJ, we we don't subscribe to any one specific strategy. I wanna make that as clear as I can. We we never have.
We adjust our strategy based on market demand and where we are on the on what how it's unfolding. If you look at last year, we had 2% increase in demand again up to 66,500,000 tons. This year, our, you know, our our our guidance and our, our view is that the market will continue to grow, to somewhere between 67,169,000,000 tons So if you just take the midpoint of that, we think that the demand around the world will grow an incremental 1,500,000 tons.
And if
you look at what we what's been announced by, our peers in the industry and and what we believe will come into the market, it's something less than 1,500,000 tons. And because we have, I think when 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 a 1,000,000 tons. But as well, we saw good momentum when it comes to pricing, but we met our customers' needs. And 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?
Yeah. Good morning, P. J. In terms of, you're actually right. What we've talked about is the low inventories in both China and Brazil, in particular, Capitex 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 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, you know, I I don't think this is a situation where the domestic will will offset the low inventories globally.
We do back 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 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. Your line is open.
Thank you. So more than one domestic seed producer has talked about seeds pull forward into the 4th quarter. But we're not seeing that very clearly in your number. So I'm wondering how you're thinking about the timing of seat sales this spring. And on a related note, outside of the central corn belt, many of the farmers we're talking to are looking pretty aggressively for alternative crops rather than just shifting Corner Cotton.
I would assume you'd 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 if it becomes significant?
Hi, Mark. I'll have a
Mike Frank answer your questions for you.
Yeah. Good morning, Mark. You know, I think on the seat side, you know, when you hear from others, suppliers, you know, again, I think you need to parse through what is building a channel inventory and what is actually being sold through to the grower. Obviously, our numbers show what's what's being sold to growers. You know, what we saw in Q4 is that, our corn seed sales were strong.
And it it it lines up with our expectation that corn acres are going to be up a little bit next year. And and selling of soy seed was was soft as growers are really, I think, 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's up over last year is a strong indication that growers are going to invest in their crop but they are delaying some of their purchases, and and some of their planting decisions, I think, to see how the 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, pretty flat. As Chuck mentioned, we do expect cotton to be up a little bit. You know, and you if you look at West Texas, which had a significant drought last year, they will definitely plant more cotton. And so, you know, that's 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.
Super helpful. Thank you.
Your next question comes from the line of Joel Jackson with BMO Capital Markets. Your line is open.
Hi, good morning. I'm
glad to go
back to retail. It seems like if you sort of parse the numbers, you know, you're projecting kind of organic growth in retail to be flat, right? So $150,000,000 more retail EBITDA this year, maybe $75,000,000 more from the IFRS change, 40 more from acquisitions some deferred demand from this from the fall to the spring. So it looks like it's 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? Thanks.
Good morning, Joel. 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 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, you know, we know we outperformed the market.
In fact, on a look back basis, you know, we know that we grew our share in, in the US on the crop protection shelf by at least a half a point. You know, we're 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, you know, based on how we performed in the marketplace. So, you know, as we said in the in the in the previous comments, we are expecting a bounce back in the market, which will look like organic growth, because of, the the weak Q4 But we're also very pleased with the progress we're making. We're, we're 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'll benefit our business. And so, we feel good about the range, the guidance range for next year. And I think when we're there, it'll we'll look back and it'll be a strong year of performance.
Your next question comes from the line of Steve Hansen with Raymond James. Your line is open. Steve Hansen, your line is open.
Yes, good morning, guys. Just a quick one in terms of the retail growth outlays for this year. Your recent announcements through January, Actagro, etcetera. In the comments, I think Mike made earlier, suggest you're off to a pretty good start. But both 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've been doing down there. Should we really think it's gonna get me this year? Or how should we think about it? Thanks.
Yes. Good morning, Steve. Mike, go ahead.
Yes. So Steve, look, I think
you know, we would expect that the majority of our M and A activity is going to continue to be domestic, you know, with just a 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, will likely invest about a $1,000,000,000. And so this is, you know, this will likely unfold on a on a slower basis than a big bang basis. You know, we we are now down there, prospecting the market. You know, we made a very nice acquisition last year of Agrichem. We would expect to make some acquisitions this year of retail footprint where we'll actually start expanding our retail presence And we'll also continue to look for opportunities to add content, in the Brazil market, you know, from a proprietary standpoint that will also build out our there.
So I think there'll be some movement in Brazil in 2019. But we'll go there slow and steady and we'll build it over time.
Your next question comes from the line of Duffy Fischer with Barclays. Your line is open.
Yeah. Maybe if I could sneak in 2 quick. 1, just on your slide where you talk about the IFRS 16 impact on EBITDA of 225 Can you do a bridge of that $2.25 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 a hold.
Oh, good morning, Duffy. I'll have Fred Thun just our head of finance talk about the IFRS conversion. And then I'll try to address your question on trade.
Hi, Duffy. Yeah. 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 wouldn't anticipate any change to cash flow whatsoever. As a result.
And and then, Duffy, your your question on, whether we have a deal, what would happen for, grower sentiment and purchasing No, that that's pretty tough to call. Our our conversations with our growers, I think Mike framed it really well. Right now, farmers are in the mindset of kinda wait and see. And they they're gonna 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 we had a deal 2 things most likely would happen. First is I think you'd see clarity in terms of their purchasing decisions and and maybe the timing, accelerated a bit, which would be good news for all of us. But I I wanna 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 an early we can still get, a 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 and assuming that there's success there, there will be this cloud of uncertainty that will 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'll see higher prices. Which are gonna 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.
Your 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're currently held by FBN, but would you pull them from FBN if they were there?
Hi, John. I'll have Mike Frank answer your questions for you.
Yeah. Good morning, John. So we we know Actagro very well. In fact, we're 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 they're value adding to us as a retailer and once we close the deal, we'll get the full margin opportunity. They the Actagro also does sell to other third parties and we 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'll start driving this harder across our whole retail footprint, both domestically and internationally. And so we we see a number of opportunities. You know, regarding FBN, they they do not distribute through FBN, today. You know, as you probably know, FBN's product portfolio is is very thin.
And it's a very small part of their business. And so, we wouldn't expect any change there.
Yeah. John, just to fill that out for you. So we do have a wholesale proprietary products business that we sell to other retailers. Now, we're selective on what those products are. But that is part of our business.
So there would be no change with 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 $4,000,000,000 and your cash flow from operations was $2,000,000,000 And there was a large working capital use, maybe by about $1,000,000,000. Can you speak to what your normal level of cash flow from operations is. Is it 3.2or2.7or3? What's a more normal number? And secondarily, how many people work at Actagro?
Okay, Jeff. So we'll
have Fred to answer your question on the conversion in terms of free cash flow. And then just to answer your second question quickly, your Actagro has about 100 employees. Fred, go ahead. Thanks Chuck.
In terms of our cash flow, both operating and free cash flow, number 1, Jeff, is we're focusing on the strength of balance sheet and focusing on maintaining a strong balance sheet there. You will see ups and downs particularly in the non cash 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 $2,000,000,000 and our free cash flow is going to rise proportionately with the growth in our business in 2019.
But overall, ultimately, we're focused primarily in the strong balance sheet and maintaining that investment grade credit rating.
Jeff, just to give you a perspective on how I think about the company as a whole. Okay. So we usually, convert, somewhere between 70 and sometimes they'll get a sizeable 73% of EBITDA to free cash flow. And so that 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 the working capital build is as we've articulated is, one of the wettest, 4th quarters in our history.
And really did not have a fall application, season. So that'll work its way through the system. But generally, you know, we 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. Your line is open. Michael Piken. Your line is open.
Hello? Can you hear me?
Yes, Mike. I can hear you now.
Hi. Sorry about that. Yeah, I just wanted to get
a feel for, how you're thinking about the 2 competing platforms, how big you think the launch of the new soybean weed platform will be this year? And what is your expectation for selling both products in the future? Okay. We'll have Mike Frank answer those questions.
Yeah. Good morning, Michael. We were really pleased to to see the the Chinese government finally approved a a number of new biotech trade that will be important tools for U. S. Growers in corn and soy and in canola.
I think you're referencing specifically the the Corteva enlist trade that just got approved, and how it's gonna, you know, stack up to extend. You know, I think you know, our our research would say growers are very interested in both technologies. They they have unique features and benefits. And like a lot of traits, it really depends on the quality of the underlying germ plasm. So for 2019, we don't expect to see much, of a market foreign list.
I think it'll be a very slow introduction to the technology, but we'll get our hands on it. And we'll we'll test it with some of our growers. And in 2020 and beyond, you know, it'll be more available throughout the marketplace. And so, you know, we're working with both Corteva and Bear. And, you know, again, we like both technologies.
We think there's going to be a fit for both. And, and, you know, we think Corteva is going to push hard on and list and bears going to push hard on extend and that'll 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.
Everyone. Maybe to build a little bit on that. You talked about the seed order book is, kind of coming in ahead of schedule a little bit on prepays. Are you seeing any unusual promotional activity in seeds? And then I guess maybe in crop chemistry as well that might be encouraging, that larger prepay.
And I guess some more comments on soybeans would be helpful because I just call last year. One of the consolidated competitors apparently got quite promotional with soy. So are we seeing that again, particularly as maybe we're enter a more competitive dynamic with trade competition as well? Thanks.
Good morning, Vincent. Go ahead, Mike.
Yes, Vincent. As you know, the last several years, the seed market's been very competitive. And there's been, lots of programs that have been offered from the suppliers and And so, you know, we're not seeing anything unique. That continues. It's a very competitive marketplace.
You know, from a seed availability standpoint where we've 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're going to continue to drive hard our proprietary products business this year, which will be constructive to margins and, the seed seed business will likely be similar to last year from an overall margin perspective.
Your next question comes from the line of Adam Samuelson Goldman Sachs. Your line is open.
Yes, thanks. Good morning, everyone. Maybe a question and a follow-up on potash Just wanna make sure on the guidance, it would seem that your the guidance implies kind of unit margins and pricing reasonably flat to up slightly year over year in the EBITDA range that you've 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 a global basis and just the confidence level and the first half, second half dynamics embedded in that assumption?
Good morning, Adam. I'll have Susan Jones answer your questions for you.
Yeah, good morning, Adam. The way we're 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 firm book of business When we get into the second half, pricing, we expect to be flat to a little bit down, but a lot's going to depend on how quickly, some of these ramp ups happen. We do expect to see demand growth consistent with what we've seen last year, in 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 that, you know, from an overall volume perspective of where we're directionally positioning, it would be keeping our market share pretty well, flat year over year, meaning around that nineteen point percent market share.
Yep. And just one other comment, Adam. So 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, a, a, an, a, a good, strong effect when it comes to potash demand, in in that area as well.
So China is by far the the largest in terms of leading the the growth in in 2019. But we're really pleased with how demand for, for fertilizer is improving and increasing in Africa, which which could be helpful in the future. Operator, it was time for just one more question.
Your final question comes from the line of Jonas Oxgaard with Bernstein. Your line is open.
Well, thank you for sneaking me in there. 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 the how you rank order those priorities? And if I may, if you had 3 choices, the the returns is about the same in all three. Which one would you pick?
Yes, Josh. I'll try to answer question. So look, though, the way we think about it, it is we have, we have a channel, and we have a a direct relationship to the grower. And and we're 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 or rent or lease, content. And we've been investing heavily in in that as well. That's the Actagro acquisition, Agrochem down in Brazil and the Loveland products portfolio. And and then we have this notion of of our our our digital platform, which is another tool to enable, the relationship with the grower.
And I 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 of execution on on all three of those because we think that that's the way to maximize value creation for the for the farmer and for our shareholders. But that is in essence the strategy. Is continue to build the channel and the content while looking at what what services solutions and opportunities can we bring for our growers.
I 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.