Good day, everyone, and welcome to the Corteva Q4 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Megan Britt. Please go ahead, ma'am.
Good morning, and welcome to the Q4 and full year 2019 earnings conference call for Corteva Agriscience. The call is available to investors and media via webcast. We have prepared presentation slides to supplement our comments during this call. These slides are posted on the Investor Relations section of the Corteva website and through the link to our webcast. Speaking on the call today are Jim Collins, Chief Executive Officer Tim Glynn, Executive Vice President and Chief Commercial Officer Rajan Gajadia, Executive Vice President of Business Platforms and Greg Friedman, Executive Vice President and Chief Financial Officer.
During this call, we will make forward looking statements regarding our expectations for the future. Slides 23 of our earnings release contain our forward looking statement disclaimers. All statements that address expectations or projections about the future are forward looking statements. These statements reflect our current expectations, but are not guarantees of future performance and are subject to risk and uncertainty regarding assumptions. Our SEC filings provide discussion of some of the factors that could cause material differences in our actual results.
We are providing information on a pro form a basis prepared in conformity with Regulation SX to provide the most meaningful comparison. We provide a pro form a basis discussion in our earnings release and slides. Unless otherwise schedules that accompany our earnings release. We will also refer to non GAAP measures. A reconciliation to the most directly comparable GAAP financial measure where available and other associated disclosures are contained in our earnings release and on our website.
It's now my pleasure to turn the call over to Jeff.
Thank you, Megan, and thank you and welcome to the participants joining the call. Earlier today, we reported 4th quarter and full year results for 2019. Our key operational performance indicators for the full year are captured on Chart 4. Net sales on a reported basis decreased 3% versus the prior year, primarily due to currency. On an organic basis, net sales were flat as weather related declines in North America were offset by above market organic growth in other regions.
Outside of North America, reported net sales were up 1% and organic sales were up 7%, demonstrating the strength of our pipeline, brands multichannel distribution strategy. Operating EBITDA declined 4% compared to prior year, largely driven by currency and weather related price and volume declines in North America. Continued realization of cost synergies, disciplined spending actions, increased sales from new products and gains on divestitures were a benefit. Operating EBITDA margin declined 10 basis points for the full year for the company. In Crop Protection, new product sales and gains on divestitures resulted in margin expansion.
In seed, weather related price and volume declines in North America drove margin decline. Selling, general and administrative and R and D costs declined 4% for the full year due to cost synergy realizations and the benefit from disciplined spending actions. In total, we realized approximately $350,000,000 in cost synergies, accelerating $50,000,000 of savings into 2019 relative to our expectations at the beginning of the year. Overall, these indicators show that we capitalized on the strength of our product pipeline and realized above market organic growth outside of North America. We also delivered on our cost synergy commitments and intensified our productivity actions to support sustainable operating EBITDA expansion.
Finally, we acted on our portfolio to divest products that are not aligned with our strategy moving forward. Turning to Slide 5. We have previously talked about ROIC as our key performance indicator to assess our effectiveness in using capital to generate earnings. We are targeting a sustained mid to high teens percent performance on this metric. Using a 4 quarter average, we delivered a return of 19.8% for 2019.
This result demonstrates our focus on driving effective risk management, reducing inventory carryover and maintaining diligence on accounts receivable and collections. Going forward, our ERP implementation will be critical to maintaining performance at this level. A harmonized ERP system will allow our teams to have real time transparency and actionable data to drive continued working capital productivity. Slide 6 highlights our progress on our 5 priorities for shareholder value creation. These priorities guide our strategic actions and underscore the quality of the results we are committed to achieve.
Starting first on culture, given the historic market backdrop, it is sometimes easy to forget that we launched a new pure play agriculture company in June with the new Corteva brand, new values and a new purpose. In our Q1 as a public company, we put in place a cultural transformation called Execute to Win. This is an example of how we intend to operate differently as Corteva. In 2020, we are targeting $30,000,000 in operating EBITDA benefit as we get started on delivering our target of $500,000,000 in incremental operating EBITDA over the next 5 years. Moving to capital allocation, we look to invest productively in innovation and growth.
An example is the project announced last quarter to add additional manufacturing capacity for key spinosan insecticide products. While continuing to invest in innovation and growth, we are committed to delivering value to shareholders in the form of quarterly dividends and share repurchases. In total, our actions returned approximately $220,000,000 to shareholders in 2019. On our priority related to developing innovative solutions, we received regulatory approvals in 2019 for several proprietary traits. In February, we received the final import approvals necessary to launch ENLIST E3 soybean products and KRONE corn products.
In late December, China approved our Conchesta insect control trade in soybeans. Conchesta soybean import approval had been in progress in China since 2014. The receipt of China approval for Conkesta is a necessary step for commercialization of Conkesta E3 product in Latin America. This is another important milestone toward trait independence. Today, we announced our intention to accelerate product development and production of Enlist E3 soybean products along with Enlist 1 and Enlist Duo herbicides ahead of the 2021 selling season.
This decision reflects our focus on rapidly ramping up differentiated technology solutions that we expect will enable greater choice and value for growers over time. On our priority around best in class cost structure, we delivered $50,000,000 in cost synergies in the quarter and approximately $350,000,000 for the full year. Overall, we have realized cumulative cost savings through the end of 2019 of $800,000,000 out of the $1,200,000,000 commitment expected through 2021. In 2019, we also authorized and launched an ERP harmonization project that is focused on eliminating approximately $200,000,000 in costs inherited with the spin. Finally, weather related impacts and currency obscured several positive signs of operational momentum in 2019.
Of note, our strong growth in insecticides and our positive organic net sales performance outside of North America. We took several actions in seed like launching our global retail brand, Brevant, and restructuring our brands in North America to create a more powerful regional anchor brands that we expect to deliver above market growth in the future and continued momentum on share gains in local markets. And now I'll turn the call over to Tim to provide some details on our commercial performance.
Thanks, Jim. Starting on Slide 7, I'll provide details on how our teams execute around the globe in terms of top line performance. 2019 was a very complex and dynamic ag market, but through all of that, I'm proud of how our teams position themselves to win in the market and deliver above market growth. In North America, organic net sales were down 6%. Due to the weather related delays, approximately 11,000,000 fewer acres of corn and soybeans were planted in the U.
S. Year over year. As a result, feed units were down significantly and reduced applications had a negative impact on crop protection. Pricing was challenged due to higher replants in both soybeans and corn, coupled with heightened competitiveness in the marketplace around soybean pricing. Despite a very challenging environment, our teams achieved share gains in both Pioneer corn and soybeans for the year.
Additionally, excluding replant, we were able to hold price flat in Pioneer corn. In terms of crop protection inventories, we see elevated levels in the U. S. Market, primarily in corn and soybean herbicides. We also saw strong early demand in the Q4 for Enlist Chemistry due to 2020 ramp up.
In Latin America, our team delivered 8% organic growth led by strong demand for new products. We successfully implemented the brand positioning for Provance and launched new technology like PowerCore Ultra, which resulted in share gain in summer corn in Brazil. We did see a more normal start to the 2nd corn crop or safrinha season, which limited volumes in the Q4, but we expect to see those sales in Q1 of 2020. In Crop Protection, new products like Isoglass insecticides contributed to growth as we obtained registration for the product in Brazil and the overall insecticide market continues to expand. In Asia Pacific, we delivered 3% organic growth on improved pricing and volumes under challenging and dynamic market conditions.
Insecticides continue to drive growth, particularly in our spinosans product offering given strong local demand. Drought conditions limited our opportunity to drive fungicide sales, particularly in South Asia and Australia. In seed, the launch of our Bharat brand in the India corn market and an integrated portfolio approach around rice continues to be a strategy that enables us to win in the market. In Europe, Middle East and Africa, gains in volume and price led to organic growth of 7% versus a market growth of around 1%. In Europe, strong demand for new products like Arborlife herbicide and Zorvec fungicide continued to drive top line growth despite regulatory challenges for other products, including ProPure Fawns.
We believe that our seed and crop protection business gained share across Europe this year, primarily due to strong demand for new products. In particular, route to market changes in Russia and Ukraine drove market share growth in both corn and sunflower seed. Now before I turn the call over to Rajan, I want to quickly make a point on Slide 8 that I believe sets us apart in the marketplace and is at the center of how we operate each and every day. And that starts with demand creation, our ability to create demand or market pull for Corteva products and services through direct contact with farmers. At our core is the focus on servicing farmer customers and our ability to be on the ground working closely with them to find technology and agronomic solutions that meet their needs and address their challenges.
We use multiple pads to reach farmers, including strong collaboration with our channel partners and an increasing use of digital technology to support face to face contact in the field. There are several illustrations on this chart, including education of customers on solutions to manage a new insect pest that was threatening their profit livelihood the introduction of a new rice production system that will deliver economic, societal and environmental benefits and the introduction of a new solution that combines seed and crop protection technologies to address one of the most pressing needs of soybean farmers. This relentless focus on the customer is something we believe we do better than anyone else in the industry as we engage with more than 10,000,000 farmers worldwide. As a result, we gained share in Asia for insecticides. We sold more than 6,000,000 units of Revant branded corn after just launching 2 years ago and have overcome portfolio changes in our Brazil corn business as a result of the merger through share gains, just to name a few.
I'll now turn it over to Rajan to review segment performance.
Thank you, Tim. Turning to Slide 9, highlighting the performance for full year in both our Crop Protection and Seed segment. In Crop Protection, net sales were $6,300,000,000 down 3% from the prior year. The decrease was primarily due to 3% decline from currency. Organic net sales increased 1% from the prior year, partially due to volume improvement on new and differentiated products.
The percent of sales from patented and differentiated products for 2019 was approximately 30%, up from approximately 25% in 2018. Crop Protection operating EBITDA was approximately $1,100,000,000 down 1%. Unfavorable currency, volume declines in North America and higher input costs excluding synergies drove the decline in EBITDA. The segment delivered on cost synergies and realized a benefit from new products and gains on divestitures. For the full year, Crop Protection delivered approximately 30 basis points of operating EBITDA margin expansion.
In seat, net sales were $7,600,000,000 down 3% for the year. Currency was a headwind of 2%. Weather related impacts in North America were partially offset by growth in other regions, particularly strong demand and pricing on power core ultracon products in Latin America, new route to market enhancements in Europe and market share gains in corn in South Asia. Feed operating EBITDA was approximately $1,000,000,000 down 9% versus the prior year, reflecting the impact of the North America weather related decline, market competitiveness in soybeans and unfavorable currency. Our synergies, particularly in R and D and sea production were a benefit to the segment.
Turning now to Slide 10 for a closer look at several products that contributed to the full gear segment results and are helping to create a clear path for future above market growth. Starting with insecticides, with overall market grew 6%, Corteva net sales were $1,700,000 an increase of 10% from the prior year. Organic net sales was up 14%. This growth was led by our unique SpinoSense franchise. Outside of North America, SpinoSense contributed 40% of the organic net sales growth for crop protection despite supply constraints in several regions.
As we expect strong market growth in insecticides to continue, we recently announced our intention to add additional capacity in support of our spinosan insecticide offering. The combined impact of our investments since mergers close will essentially double our capacity at full utilization to address global market growth in insecticides. Looking next at corn. Net sales were $5,100,000,000 in 20.19, down 1% from the prior year. With nearly 60% of global comp sales originating in North America, weather related volume and price impacts in that region resulted in the decline.
Though it was a challenging year, we have seen green shoots starting. Plume Corn Products received China import approval in February 2019 and were offered commercially across a broad range of geographies. In November, we shared the results of our field trials. Pioneer brand from products delivered nearly a 7 bushel per acre average yield advantage measured against all competitors and comparable technology segments. In 2020, Chrome products are expected to represent 20% of our online.
With a demonstrated yield advantage, we expect Chrome products to deliver low single digit price improvements year over year. And today, we announced our decision to accelerate production of ENLIST PC Soybeans along with the ENLIST 1 and ENLIST Duo herbicides. During the Q4 of 2019, we finalized our breeding plans and large scale product development timelines that enable the seed ramp up. We believe Enlist E3 Soybeans launched in 2019 in the United States and Canada are the most advanced weed control trait technology for soybeans. Following the positive on farm performance of Enlist E3 Soybeans in the fall of 2019, we received supportive feedback from growers, retailers and independent seed companies.
So we have accelerated our ramp up plans to deliver this important technology even faster than originally anticipated. We now estimate that ENLIST E3 soybean penetration in 2020 will be 20% of total North America acres, up from the 10% previously indicated. These are just a few examples of tangible actions that underscore our target of growing 2% to 3% above the market over the midterm. With that, I'll turn the call over to Greg, who will provide details on our financials.
Thank you, Rajan. Turning to Slide 11 for a brief overview of our 4th quarter performance. Net sales on a reported basis improved 6% versus the prior year, primarily due to strong volumes in both North America and Latin America, partially offset by currency. Organic sales were up 9% with improvements in both segments. In seed, we delivered 13% organic growth led by both volume and price improvements, primarily in North America and Latin America.
Specifically, we reported higher sales in our multi channel brands in the U. S. Versus prior year due to improved supply chain performance. Continued penetration of new products in Latin America drove 8% pricing improvement for the quarter. In Crop Protection, organic sales improved 7% for the quarter on broad based growth in most regions, which was led by North America with improved volumes from early demand for Enlist herbicides in advance of the 2020 season.
In addition, continued ramp of new products, particularly insecticides in Europe, Middle East and Africa and Latin America helped drive volume and price improvements. Operating EBITDA of $224,000,000 improved by $174,000,000 compared to prior year, largely driven by higher sales in both segments, continued realization of cost synergies and gains on divestitures. Margins benefited from improved mix from PowerCore Ultra in Latin America and demand for new crop protection products like isoplast insecticide and Enlist herbicide. Gains on divestitures aligned with our ongoing best owner portfolio strategy resulted in approximately $70,000,000 of gains in the quarter. R and D expense was lower by more than $50,000,000 in the quarter compared to prior year due to cost synergies, timing as well as focused actions to control spending.
Turning to Slide 12 for a year over year comparison of operating EPS. Currency was a $0.19 headwind for the year, primarily from the Brazilian real and the Europe. Volume and price amounted to a $0.04 decline year over year, primarily due to weather related impacts in North America and competitive pricing in soybeans. Costs were better by $0.08 on continued realization of merger related synergies, which were partially offset by higher input costs in seed. Our base tax rate for the year was 19.6%, representing a reduction of $0.06 compared to prior year.
We generated $0.10 of benefit from foreign exchange gains related to our balance sheet hedging program. Lastly, other was a $0.02 benefit, primarily from gains on divestitures. Turning now to Slide 13, I'll provide our full year guidance for 2020. Considering our market backdrop, a few key areas that we continue to monitor include commodity price levels, near term fluctuations in trade and expected farm level profitability. There continues to be uncertainties in each of these areas, which impact customer planting decisions and input purchases.
Our full year guidance incorporates caution relative to these uncertainties. Touching first on net sales, we expect reported net sales to be approximately $14,500,000,000 up about 4% to 5% over prior year. This primarily reflects normalized conditions in the North America market, coupled with continued ramp of new products globally in both our Crop Protection and Seed segments. We expect global ag markets will grow at about 2.5% to 3% next year as U. S.
Corn and soybean area and production are expected to be higher in 2020 on a return to normal planting season weather. Global demand for agricultural products continues to be strong, helping reduce ending stocks in both corn and soybeans. Market opinions differ on the degree of increase for both corn and soybean area and this will continue to materialize into the first half as growers make their ultimate planting decisions. At this point, we expect currency to be relatively flat
year over
year. However, we are closely monitoring currency movements in Latin America, particularly the real as well as employing hedging strategies to help manage volatility. On operating EBITDA, we expect to deliver about 12% improvement year over year. With our expected top line growth and continued focus on delivering cost savings commitments, we expect to improve margins by approximately 100 basis points for the total company. Turning to operating EPS, we expect to deliver between $1.45 $1.55 per share, which would represent a 5% improvement using the midpoint over 2019.
We have provided detailed modeling guidance in the appendix of our presentation. Now as it relates to key assumptions incorporated into our guidance, Slide 15 provides more detail. Starting with above market growth, 2020 expectations are led by the recovery to normalized conditions and planted area in the North America market. We are assuming roughly 11,000,000 acres return with about 2 thirds going to soybeans. We will update our assumptions when market data is available as part of the March prospective planting estimates published by the USDA.
On pricing, we are confident we will realize gains in the low single digits for corn globally. This is a function of the technology we offer customers and the value it creates in the market. In North America, we expect pricing lift in corn due to improved mix, primarily from the launch of CHROME and proprietary seed treatment offerings. In soybeans, 2020 will be a continuation of 2019 in terms of price competitiveness. We expect these trends to potentially amplify this upcoming year and believe soybean prices in North America will be an approximate $50,000,000 headwind on operating EBITDA year over year.
In Crop Protection, new products will continue to ramp globally as registrations expand. In total, we expect growth from new product sales in 2020 to be approximately $250,000,000 Turning to costs. We remain committed and fully expect to deliver on the incremental $200,000,000 in merger related synergies. In terms of productivity, we expect to capture approximately $30,000,000 in operating EBITDA improvement in 2020 as we execute against projects to deliver savings. As part of this, we are considering a restructuring plan that is subject to Board approval.
This program represents the necessary actions we need to take as an organization to build on a targeted cost structure that is best in class. We look forward to sharing more details as these plans further develop and we take action. We expect corporate costs to remain on target at less than 1% of sales. Cost of goods is estimated to have incremental costs of approximately $150,000,000 which includes higher unit costs in seed from lower yields and increased royalty costs primarily due to the accelerated ramp of Enlist E3 Soybeans. To close, we expect 2020 to be a year of strong sales and earnings improvement in line with our midterm targets and are confident we have appropriately dialed in risks based on uncertainties as we see them today and are fully committed to deliver on the guidance we are providing.
In addition, the organization is focused on maximizing opportunities as market conditions firm and we look to provide updates on those as the year progresses and results materialize. I'll now turn the call back to Jim.
Thanks, Greg. Before we go to Q and A, I wanted to offer a few final comments on a remarkable year. Without a doubt, we will remember 2019 as a historic year for our industry and our company. As we look forward, I'm encouraged by our accomplishments as we navigated unprecedented market conditions to deliver a solid finish to the year. We've also laid the groundwork to deliver on our commitments going forward.
I've said that Corteva is a different kind of agriculture company, and part of that difference is how we support our customers and partner with society. The agriculture industry has been facing one of the most challenging periods in history due to weather, trade and regulatory burdens, which have limited access to new innovations and safe and reliable seed and crop protection products. We are encouraged to see a resolution to the trade dispute with China and the passage of the USMCA. We work closely with the U. S.
Government to advocate for more transparent and predictable regulatory approvals as part of the trade resolution with China, which helped to secure important approvals for ENLIST E3, CHROME and Conkesta. I testified last July in front of the U. S. Senate Finance Committee in support of the USMCA as a vehicle to further expand and modernize North America trade and increase grower and consumer access to innovation. Both trade deals will be positive over the long term for growers and agricultural demand.
We feel privileged to use our influence as a public company to drive positive societal impacts. It is our purpose through which the lives of those that produce and those who consume, ensuring progress for generations to come. With that, I'll turn the call back to Megan.
Thank you, Jim. Let's move to your questions. I'd like to remind you that our cautions on forward looking statements, non GAAP measures and pro form a financials apply to both our prepared remarks and the following Q and A. Operator, please provide the Q and A instructions.
Thank you. The question and answer session will be conducted electronically. And our first question will come from Joel Jackson with BMO Capital Markets.
Good morning, everyone. Good morning, Joel. Hi. You talked about in the past about trying to hit a free cash flow conversion target in 2020 of 50% or maybe a little bit better than 50%. There wasn't anything on the release, the presentation about that in prepared remarks today.
Maybe give an idea of the puts and takes on free cash flow conversion, where you might be in 2020, where you might be in 2021? Thanks.
Yes, great, Joel. Obviously, all of that is still coming together. And as we close our kind of 1st full year, we're getting new clarity around those numbers. Greg, do you want to share some more specifics?
Yes. Thanks, Jim. As Jim mentioned, 2019 cash flow was a complex year with the first half incorporating cash flow elements from our heritage companies and the second half really represented Corteva's results and that validated our ability to manage effectively our seasonal working capital movements. So we remain committed to our target of converting more than 50% of our operating EBITDA into free cash flow, while continuing to grow the top line and improving our margins. Specifically for 2020, we're focused on driving working capital productivity that will translate into cash flow improvement in a year where our business is growing.
And also, you'll notice in our guide, our capital expenses are lower by roughly $100,000,000 than the prior year at the midpoint, which is consistent with our commitment to manage capital. And 2020, as I mentioned, will be the 1st year that we'll have standalone cash flows without discontinued operations and spend related uses of cash. So we'll continue to provide updates on our progress on free cash flow conversion for 2020 throughout the year.
Thank you. Our next question will come from David Begleiter with Deutsche Bank.
Thank you, Jim. Just on the soybean price headwind, I think before you were looking at perhaps soybean price mix to be flat in North America with price down mix up, maybe 2% each. Now I think we're looking at pricing in soybeans to be down maybe 5% or more. 1, is that correct? And 2, what caused the change or the more severe pricing headwind in North America?
Yes, great, David. Thanks for the question. You're right. We do expect our soybean pricing, primarily in North America, to be down kind of low single digits. And it is a direct response to kind of the market competitiveness that's going on and the aggressiveness that is out there in the market.
It is early and early in the invoicing process for soybeans and we're taking a very selective approach to how we respond to that. And Tim, you're a lot closer to this on a day to day basis. Anything else you would highlight?
Yes, Jim. I would I'd highlight that. We have very strong performance in our soybean product line, especially around a pretty 82 Extend portfolio. And we did come out with the expectation of being flat. The year started where our largest competitor in the Roundup 32 extend segment came out of the door by taking their prices down low single digits.
So that was kind of the environment we entered the season in. And I think our value proposition and our performance advantage in services is holding up well. But it's important to know that we need to take this $50,000,000 and use it on a very selective basis to kind of shore up our position. So this is not a broad price adjustment. It really is a very specific competitive response and we can manage this on a customer by customer basis.
So just to give you some idea that $50,000,000 really represents somewhere less than 0.5 percent price adjustment across that business. So it is very specific, very targeted, and I think it's really important that we use that to shore up our position in what is a very highly competitive marketplace.
David, I would just add, as I step back and think, we think about overall pricing, we always put that in the context of 3 areas. The market backdrop is one of them. And I think we've dealt with that pretty well globally, understanding what our customers are facing. We always put that in the context of our product performance. And I think we've got about the best lineup in the marketplace from a performance perspective.
So we're going to continue to price for the value that we deliver. And the 3rd element that Tim mentioned is the competitive response out there. And so it really is we're focused on one region and really one product right now and everywhere else in the world. I'd say across the board, I feel really good about where we are.
Thank you. Next, we'll hear from Vincent Andrews with Morgan Stanley.
Thank you. Good morning. Jim, if I could just ask you on the Enlist rollout that you expect, when do you think you'll have Enlist in PIONEER germplasm? And then when you as you do this, can you help us understand sort of the SKU complexity and maybe inventory management decisions you're going to have to make and is this going to impact working capital at all?
Yes. Great, Vincent. Thanks for the question. From the beginning of the creation of Corteva, we've talked about creating more choices in the marketplace. And so we're very excited about the announcement that we've put out today about our plans to accelerate the ramp up of Enlist.
I think about that ramp up over the next 5 years would be kind of the timeframe of where we would expect to get to peak penetration. And it's about a commitment that we're making to the technology and towards that longer term kind of proprietary trait and brand strategy that we've been talking to you about. So a real big proof point here today that we're on that path. The other thing to remember as we talk about Enlist, it is a system. It includes branded seat sales.
So you're right, is a Pioneer brand element to this, but also our other multi brands. And maybe I'll have Rajan share a little more about that around how we're going to manage kind of through the inventory cycle that you were asking about. Remember, this also gives us an out licensing opportunity. So there's income and revenue from out licensing, and it's part of that royalty improvement path that we've talked about. So with that, Rajan, we've got a project team up and running.
We've got a detailed plan over the next 3 to 5 years to really manage all of those moving parts. Do you want to share a little more of that detail there?
Absolutely. Thanks again for the question. Just let's start talking about inventory. I think inventory management is a key area of focus for us from a fee productivity standpoint, and we have got a lot of activities initiated as we transition platform. We start really with no carryover from Enlist into our germplasm.
So we've got a very robust plant. So you should not expect that increase in inventory. We will continue to work with getting the best PIONEER germplasm with the ENLIST trait in this. We're already launching ENLIST in the PIONEER brand and with our multichannel brands this year. So we've got a very robust inventory management plan, which will ensure that the transition doesn't result in any increase in inventory.
So thank you for the question.
We'll go next to Jonas Oxgaard with Bernstein.
Hi, good morning. I was hoping you could talk a little
bit about the value of Conchesta. What kind of premium you're hoping market share and ramp? And also what happens to Compesta if Bayer loses the patent dispute on Intacto they're filing right now? Great. Thanks, Jonas.
You're right. We're very excited to have recently received the China approval that I mentioned. We'll have that opportunity to stack Conchesta with E3 for something for a product in the Brazil market that we believe will be differentiated and it's again one more step towards that trait independence that we have talked about. We need still a little bit of time for that product to kind of be ready for the full launch in Brazil. One of the things we're waiting on is EU approval for the stack We've submitted and we anticipate that sometime in 2021 or so we'll get those approvals.
We also have to go through the same process that we went through on Enlist around the breeding plan, accelerate the integration of that trait into our background germplasm. And that process kind of starts now. So earliest commercialization could be the latter part of 2021, and it gives us a real opportunity to drive new market share. Our share in soybeans in Brazil is kind of in the low single digit range here today. So Rajan, anything else you'd add?
Yes. I think just to add on the question, Jonas, about Intact, we are watching that closely. But really it comes back to a value proposition for the growers. We feel very confident about the value proposition that Conquesa will bring to the marketplace. The Brazilian farmers historically have been always willing to pay for the right technology, which we bring there.
And from a Conquesta perspective, we are very confident that we should be able to extract value for the technology that we are bringing there for them. So looking forward to a rapid ramp up of Comtester.
Our next question will come from Jeff Zekauskas with JPMorgan.
Thanks very much. On Page 4 in your press release, in your crop protection area, you have good growth in your major sub segments. But in your other category, I think you go from $155,000,000 in revenues to $70,000,000 for the year from $382,000,000 to $253,000,000 What's behind that decrease? And because the decrease is so large, has it come to an end so that whatever is going on in that category will change for the better in 2020 as a base case?
Thanks, Jeff, for the question. You're right. That category covers a number of other of our other products in the marketplace. And as part of our portfolio work and we talk about our best owner mindset, you see that we begin to rationalize pieces of those portfolios. And some of those products would have been in there with revenue, but very, very low margins or contributions to earnings.
Rajan, anything else you can share about that category?
No, I think, Jim, just building on what you said, I think on the other category, yes, there are products, sometimes we have 3rd party products, etcetera, that did not necessarily fit there. So we continue to reduce our sales in some of those products, which have no impact on us. There's also some categories, which is like a catch all where you have a miscellaneous bucket as we are working through our systems to see what that is. So as that category reduces, I think the key message, Jeff, back to you is that we continue to expect a rapid ramp up of our products as we move forward. There is a 30 basis point margin expansion in Crop Protection, and that is all a reflection of how we are managing our portfolio actively.
So feel very good about the commitment we have made of 2% to 3% above market growth, which is going to be led by rapid ramp up of lot of new technologies that cuts across all the segments. So no concerns there.
Our next question will come from John Roberts with UBS.
Thank you. Is Asia primarily a Northern or Southern Hemisphere market for you? I should know that, but I don't. I don't know whether this quarter and it was down meaningfully is representative or is it seasonally low? And what's going on in there to cause that decline, especially in the crop protection chemical area?
Yes. John, thanks for the question. It primarily is a second half market for us on a calendar year basis, which we kind of do group it with the Southern Hemisphere type performance. So I don't know, Tim, do you want to share more specifics about what happened this year?
Yes. I think Asia, we've had several years of very strong growth and we actually have business that transpire over the course of the year. So it's hard to call it 1st or second. It really is seasonal business and you have multiple seasons in different markets. So we actually do play in all parts.
And on the year, we did see overall growth in the region and growth in both seed and crop protection and continued strength, in particular, in the insecticide segment. So I think what hit us as we came through the year and maybe why we took a little bit off the top was, when you talk about the extended impact of the drought in Australia, that is significant. And we also had periodic droughts over the course of the season, especially in the ASEAN countries. So think Indonesia, especially and at one point we did have a typhoon in the Philippines and all those things do impact the seasonal business that we have. So it's not quite as, I guess, as tied to the calendar as we would have in another market.
It does play a little bit Northern Hemisphere, a little bit Southern Hemisphere, but throughout the year. So again, I think the highlight is we grew nicely in both the crop protection, 3% overall in crop protection for the year. And again, double digit growth in our insecticide portfolio, which again is capped by our ability to supply those markets. So we're very satisfied. We believe we did outperform the market again, and we continue to have strong expectations for our business nation.
Yes. A number of our new products that we're launching have real utility as well as you've heard us talk about the insecticide expansions that we're making to continue to supply the Stenosant's products, supply constraints that will really benefit Asia Pacific as we go forward as well.
Our next question will come from P. J. Juvekar with Citi.
Yes, good morning. Good morning, P. J.
Hi. Can you hear me?
Yes.
Yes. Thank you. So Jim, you have a lot of levers to pull in 2020. You have new products like Enlist E3 that will be on 20% of acres, Conquesa, chrome, your new plants in crop protection, your cost cutting, you're addressing new markets. So when you look at all these levers, what are the most important levers for you in 2020 that could create potential upside?
And then what are the big risks for you in 2020? Thank you.
Great. P. J, thanks for the question. When I think about the other the key other drivers of additional upsides to the plan that we have laid out, I think one of the areas would be pricing. We're basically priced through the first half with offerings that we have out there in the market.
There'll be small opportunities here and there to make adjustments. But that second half pricing opportunity is ahead of us. And as markets unfold, we'll certainly have a very, very close eye on that. I think the second upside area revolves around route to market changes that we've been making. In the U.
S, the multi channel and multi brand opportunities that you have there And then in places like Eastern Europe, where we launched the more direct approach and continuing to penetrate in Latin America, That's about driving share and margin going forward. And then finally, I think about the cost category, we're clearly laser focused on continuing to drive productivity. We're seeing that show up. You see good evidence of that in the 4th quarter. We're carrying great momentum going into the year.
So we have a base plan.
But with our Execute to
Win initiative, we've got 20,000 employees now all around the world thinking like owners and bringing up ideas every single day about how to continue to improve productivity. So this will be another area where we're going to keep driving.
We'll go next to Duffy Fischer with Barclays.
Yes, good morning. Three questions around Enlist. So Tim talked about your big roundup ready to extend customer cutting price. Does Enlist have to match that in the market or can it move to more of a premium? 2nd, Greg talked about royalty costs increasing as you're ramping the Enlist trait.
I think that surprises most people because you own the Enlist trait. So I think most people would have thought that was kind of a free on board. So can you talk about the mechanics of why the COGS increases as that goes up? And then your bump from 10% to 20% of Enlist this year, how much of that was driven by your own seed and how much of that was driven by 3rd parties? Great, Duffy.
Thanks for the question. And you're right, we're a lot of moving parts with Enlist. We're excited about the announcement and the ability now to talk about it at the accelerated pace that we promised you we'd be back to share with you as we close out the year. Why don't I turn it to Tim and have you talk about the first and the third one pricing and the improvement from 10% to 20 Yes.
Hey, good morning Duffy. When I think about the little pricing today, I mean, this is I think of this as really our 1st year of commercial sales. And there's a tremendous amount of energy. And I wouldn't I don't necessarily see Enlist E3 competing head to head with Xtend at this point in time. There's significant presence in the market from multiple brands selling the product as well as Corteva's brands.
And what I would say, what you're seeing is some companies are taking a very run approach around penetration pricing, really trying to go out there and drive trial and utilization from farmers. And as you can see, it had a tremendous impact. So again, I don't see it necessarily going head to head with the Xtend technology in the market per se, more about farmers, excited to have a choice, a new option in the marketplace. And you're seeing those market dynamics where penetration pricing is really helping to create some strong momentum for adoption. When you think about the move from 10% to 20%, I think it's a combination of both.
We're getting very strong uptake on E3, particularly in our multi channel business. And obviously, the many other companies who are in the marketplace today are seeing that same level of adoption. So I think it's broad and really reflects positive energy from farmers, from retail channel and other seed companies for having that new choice menu option available. So it's great to see that farmer interest really translate into orders at point.
And then the other part of your question, Duffy, is, yes, there are some short term financial implications of the decision that we've made, especially in the royalty area. We fully have dialed those into the plan that we have, the guidance we have. But Greg, you want to share a little more detail around that?
Absolutely. Let me clarify a little bit, but the royalty that's increasing is on the Xtend portfolio. So our 2020 royalty costs are expected to increase, as you mentioned by $50,000,000 And this change, by the way, does not have a cash impact. This is related to a change for the rate at which we recognize per unit royalty expense for Roundup Ready to extend. And this will require that we report per unit royalty expense associated with the Roundup Ready to Extend at the current rate rather than the average royalty rate over the life of the established contracts since inception.
So there's no impact to cash, as I mentioned, associated with this change. I'll also mention that there's a non operating accelerated amortization expense associated with the prepaid royalties that we have recorded on our balance sheet.
We'll go next to Don Carson with Susquehanna.
Yes. A question on the current EBITDA walk versus what you've talked about in the past. So, as I see it, you're about $180,000,000 lower on your EBITDA outlook. Is that all due to headwinds? I mean, in the past, you used to talk about perhaps $100,000,000 of headwinds in 2020 now, as I added up, you get about $250,000,000 And specifically, you used to talk about a 2 $50,000,000 benefit in 2020 from normalized North American market conditions.
Is that still part of your assumption? And you also used to have $100,000,000 benefit from new product growth. Is that now higher given some of these accelerations you're making?
Great, Don. Thanks for the question. As we built this 2020 plan, clearly it's aligned with our midterm guidance that we've been out talking about. So this plan is absolutely aligned with those with that midterm. We've put a plan together where we derisked.
We've got a lot of confidence in this plan and we've got an opportunity as you heard in May to go to drive for some upsides going forward. So I'm confident that we've appropriately considered the uncertainties that we've seen today. And then the plan is consistent with some of the items that we have previously shared before. And the 2 broad categories, there's a number of growth items, the North America recovery is in there, the synergies and productivity are in there and the new product portfolio driving forward. So all very consistent with what we've shared in the past.
We've anticipated some headwinds, many of these very consistent with what we've also mentioned around soybean prices, higher carbs, some investments that we're making to drive growth. So I don't know, Greg, do you want to maybe share a little more detail around those categories?
Yes. Don, thank you for the question. And I'll just walk you through the numbers very quickly here. So you mentioned the North America market return of 250 due to normalized weather. We are positioned and ready to realize this effective rebound of the market year over year.
New products, we're anticipating $100,000,000 of margin improvement as we bring new technology to market. We talked about synergies and productivity. We're prepared and executing on projects to deliver that $230,000,000 that we talked about. We also mentioned headwinds of about $100,000,000 Those do exist and they're primarily related to lower yields than anticipated and increased commodity prices. That's all confirming information that we previously provided.
So what's new? A couple of things here. We talked about our global corn price increasing. We've got a $100,000,000 of global corn price that we dialed in here. This is proof of the value of the innovation that we're delivering to the market and our ability to price for that value.
We did talk about a $50,000,000 potential reduction in soybean price that's dialed in as well. We also mentioned $50,000,000 cost for implementing our ERP system and then the royalty element that we just discussed of another $50,000,000 Additionally, we had some portfolio actions in the 4th quarter as we executed our best owner strategy, those elements are not recurring. So we're not going to see those come back. And then finally, as Jim mentioned, investments in R and D and selling to bring our new products to market.
Thank you. And our last question will come from Adam Samuelson with Goldman Sachs.
Thank you. So a lot of grounds that's been covered here this morning. I was hoping maybe just to recap, the 100 basis points of anticipated margin improvement in 2020, can you walk through the key kind of components, the pluses and the minuses there and kind of where opportunities may exist, more risks exist in your mind, around that anticipated margin improvement?
Thank you. Great. Thanks, Adam. Clearly, a lot of that margin improvement is consistent with the new product launches that we've been driving, bringing new technologies. So that would be one aspect.
2nd, you hear the strength of our corn portfolio globally and the pricing that we're really driving in that portfolio, and that's having a nice look coupled with the new products. Chrome was the example that Tim mentioned earlier. And then finally, we continue to drive productivity. We've got the productivity related to the merger, the synergies that continue to flow through and finishing those out over the next few years and then the new productivity that we're driving as a result of our next P2M work. So those are probably the 3 major drivers.
Okay. I think that's going to conclude actually
the Q and A for the call today. We really appreciate everyone who joined the call. Thank you so much.
That does conclude today's conference. Thank you all for your participation. You may now disconnect.