Earnings Call: Q1 2018

May 8, 2018

Good morning, ladies and gentlemen, and welcome to the Mosaic Company's First Quarter 2018 Earnings Conference Call. At this time, all participants have been placed in a listen only Vice President, Investor Relations of the Mosaic Company. Ms. Ganielle, you may begin. Thank you, and welcome to our 1st quarter 2018 earnings call. Presenting today will be Jockel Roark, President and Chief Executive Officer. We also have other members of the senior leadership team available to answer your questions after our We will be making forward looking statements during this conference call. The statements include, but are not limited to, statements about future financial and operating results. They are based on management's beliefs and expectations as of today's date and are subject to significant risks and uncertainties 80s. Actual results may differ materially from projected results. Factors that could cause actual results to differ materially from those in the forward looking statements are included in our press release issued yesterday and in our reports filed with the Securities And Exchange Commission. Our first quarter press release and performance data attached as exhibits to yesterday's Form 8 K filing also contain important information on these non GAAP measures. Now, I'd like to turn the call over to Jack. Thank you, Laura. Good morning, everyone. Since you've all had ample time to review our results, I will execute well in the first quarter of 2018, and global markets for our products continued to improve. Our financial performance for the quarter was impacted by weather and the underperformance of Canadian rail service providers. In both potash and phosphate, we came in at the low end of our sales volume guidance, due to the late North American spring and the rail related logistical issues, including related production curtailment costs These factors negatively impact in the the issues are resolved and global seasonal demand moves into full swing. We have 3 key takeaways for this call. 1st, We expect strong business performance to effective tax rate from 20% to approximately 30%. We have increased the midpoint of our full year earnings per share guidance to reflect strong EBITDA growth, our confidence in the business environment and our ability to execute 2nd, The underlying performance of We are making remarkable progress in transforming the Mosaic Fertilizantes business in Brazil, and we're excited about the success our team has delivered in our first quarter of ownership. Now I'll start with the markets, which continued their steady improvement. While the late spring in much of North America has delayed planting, and led to some doubts about the 2018 crop, farmers outside of the U. S. Are generally enjoying good economic results. Brazil is a highlight. Grower Economics are excellent with stable commodity prices and a weakening reais. Potash and phosphate prices built on their momentum during the quarter. Strong on farm demand and delayed purchasing in India, Brazil and other key growing regions is expected to provide extended price support. It is important to keep in mind that prices usually move seasonally and cyclically. However, we expect no seasonal declines until much later in the year, and we expect the cyclical trend to be positive throughout 2018. In potash, prices have continued a steady ascent, For the quarter, our average sale price was $2.39 per ton, which is up $45 per ton from the 2016 lows. Global demand is strong. In fact, Canpotex is fully committed through June in spite of the lack of a contract with China. New supply continues to be delayed beyond prior expectations, and now we believe prices will remain firm into the second half of twenty eighteen. Phosphate prices and margins also increased during the quarter. Once again, belying the theory that supply coming to market in 20172018 would pressure margins. In fact, average 1st quarter stripping margins have increased year over year from $2.33 to $2.62 per ton. Our actions to remove higher cost production have helped lead to a balanced supplydemand picture. Overall, market conditions are constructive, as we expect demand in India and Latin America to increase. Now I'll move on to a brief discussion of each of our segments. First, the transformation of Mosaic Fertilizantes in Brazil is well underway and proceeding according to plan. As a reminder, we expect to achieve $100,000,000 in synergies in 2018 $275,000,000 in annual savings by 2020. We are on pace to achieve those numbers, with many efficiency generating initiatives implemented in process or in the queue. We've already taken actions that will ultimately deliver $100,000,000 in annual savings. It's important to note, however, that these savings will primarily flow through in 2018, we would expect roughly a third of the targeted savings to benefit earnings in the first half of the year and 2 thirds in the second half. Our second quarter gross margin guidance for the Brazil business considers several competing factors. On the negative side, we expect to take turnarounds during second quarter, which will increase our production costs. We will see diminishing benefits of purchase accounting adjustments declining from around $30,000,000 in the first quarter to approximately $20,000,000. And we expect a seasonal shift to more sales our business transformation is taking hold, which is leading to real efficiencies. Market prices and stripping margins have increased per map and the currency exchange has grown more favorable with the weakening Brazilian reais. We've also modified our annual volume guidance for this segment cause we missed some intra segment eliminations. The change in guidance does not reflect any change in our expectations for the market or for our business. We are making excellent progress, and we continue to have very positive expectations for the acquisition in Brazil. The region remains extremely promising for the agricultural industry. In fact, Brazil's soybean production provides Mosaic with a good hedge against any ongoing Chinese tariffs on the U. S. Soybeans and help demonstrate the value of our strategy to build an America's powerhouse. Our growing momentum in Brazil is the primary driver of our new higher full year tax rate guidance put simply we expect a higher proportion of our pretax earnings to come from Brazil than our previous guidance showed. In phosphates, The aggressive transformation or employee safety. In fact, in the first quarter, we achieved several new daily production records at both our mines and our chemical plants, as we strive to recover a portion of the lost production from idling our higher cost Plant City facility. Cash cost per ton in Florida Mine rock were $35 in the quarter, the lowest in several years. Our sales volume for the second quarter reflects the expectation of continued high stripping margin and strong seasonal shipment volumes. Finally, In the potash business, our costs and overall operating performance remain very strong. Shipment volumes were challenged by the significant rail backlog, and in fact, We were at or near containment at all of our mines for part of the quarter, which negatively impacted production by approximately 200,000 tons, to reiterate demand exists for all that product, and we do not believe that we have lost significant sales for 2018. It is just an issue of timing. Production costs per ton were roughly flat with the sequential quarter despite the logistics driven curtailments. Gross margins per ton were above guidance as prices remained strong and our business mix was more heavily weighted towards higher priced granular product. I should note that our results this quarter reflect the one time impact of a change in the methodology Canpotex uses to recognize revenue. Under the previous Revarex standards, we would have recognized an additional 400,000 tons of sale in the first quarter. Our second quarter guidance reflects the expectation that more lower priced standard product will be shipped in the quarter. Risks to our volume guidance include a longer delayed contract with the Chinese customers and persistent problems with rail transport in Canada. Before I conclude I would like to provide some insight into our capital philosophy. In essence, our approach to capital allocation has not changed. We seek to maintain shareholder return. The past few years were quite challenging, but we were able to weather the storm while maintaining a strong financial foundation and completing the largest acquisition of our history, today with strong and improving market conditions and considerably more efficient operating model, we expect to generate substantial cash, and we expect to use that cash just as prudently as our track record indicates we always have. We expect to We are now targeting to pay down to reach our commitment even as we experience some external challenges. We are on the right course managing for cost efficiency across the cycle while maintaining the ability to capitalize on opportunities to growth opportunities, large and small. We are looking forward to a strong 2018 and beyond. Now we will take your questions. Our first question comes from the line of Vincent Andrews with Morgan Stanley. Go ahead please. Your line is open. Hi, this is Neil calling in for Vincent. Just a question on your outlook for Chinese phosphate exports. It seems that that MAP exports have been down so far pretty significantly to begin 2018. What's your outlook for the rest of the year and what are you forecasting in terms of Chinese capacity shutdowns? Thank you, Neil. This is Joc here. I will make a couple of comments and pass this on to Corinne and Mike, but let me reiterate our previous position, which was that our forecast do not have a decrease in China export sports per se, although our bias is that we expect that those may go down. And certainly over time, we expect they'll go down. You, you make a note and I will reiterate that the last 6 months, these exports are down by 24%. But in terms of the 1st quarter, what I will caution people on, it is a very small quarter compared to the rest of the year. The big quarters are the 3rd and the 4 or sorry, the second and the third quarters. So we will wait before we make any determination. And really the big factor there is price. If the price is higher, they will be motivated to export more. If the price is lower, they would be probably exporting less current, Mike. Thanks, John. Yes, Neil. We are seeing the environmental protection of the Yangtze River zone mandate has been widely the us. And we really are seeing events progressing. There's continued environmental squeeze on all the producers. We're some rock production at some mines decreasing. And there's increased cost for gypsum disposal as well as these regulations on proximity relative to the river, maybe causing some plants to require relocation in the future. But as Jack noted, we are seeing stronger margins and economics today. So, the decrease that we've seen, the 24% drop in the last 6 months, that's about 1,200,000 tons. So again, highlights that it's a relatively small quarters in the fourth quarter of 2017 1st quarter of 2018. But we really do anticipate that the pace of restructuring will continue in the Chinese industry as we go forward for the longer term. Mike, do you have anything to add? Not a whole lot to add, but if the Chinese keep up this pace of about $1,000,000 to $1,200,000 less exports. It basically is about our numbers show about a 1,000,000 to 1,500,000 ton hole in the global S and D that needs to be filled. From somewhere else. So just reiterates Joc's point that, we haven't factored in a dramatic decline in a Chinese ports in order to balance the market. Your next question comes from the line of Andrew Wong with RBC Capital Market. Go ahead please. Your line is open. Hi, good morning. Thanks for taking my questions. So I mean, the phosphate markets and prices have been pretty healthy to start the year and some of that is because of the Chinese exports lower, and the definitely has been stronger than expected. So can you just share your outlook on phosphate pricing and shipping margins for the back half of the year and you mentioned that seasonally, we might be a little bit weak, but probably a little bit better than it has been in the past. And what's implied in your guidance for phosphate pricing and stripping margin Thanks. Okay, Andrew. Thanks. Thanks for the question. I will push this pretty quick to Karen and Mike again. But I will say, yes, the phosphate markets have been strong. I think our actions have been part of that by shutting down higher cost production here in the U. S, we've ensured a well balanced market. And what we've seen as a result, we believe, is a market strip margin that has industry benchmark strip margin that is, really moved up in the last couple of months. And we have not seen what we would have normally seen, which is a winter decline And so we don't see a real decline till very late in the year, if at all. Corinne? Yes, I would just reiterate the global demand growth is very strong. It was strong last year. It's very strong this year. We're forecasting about 1.8% further growth really led by demand for in India, Brazil, Asia, Oceania, and Africa, really strong growth numbers. We've also seen some supply adjustments that Jack talked about with the Plant City idling, but also we've had much slower ramp ups than expected out of Saudi Arabia and out of Morocco. And that combined with these lower Chinese exports, are creating a pretty tight S and D. And so We've seen stripping margins at a healthy level for Q1 and we actually are guiding to a little bit higher industry shipping margins in the balance of the year. Yes, we do calculate a benchmark stripping margin based on public spot prices. And from January 2016 to the end of last year, that margin traded in a pretty narrow channel in that 225 to 250 range. And what we said, I think on the last call is that we think fundamentals have changed, as Corinne pointed out, to move that up into kind of that $2.75 to $300 channel And indeed, if you look at the stripping margin, I think last week was approaching $300 or $2.90 So we have moved up basis these fundamentals. And as we look out for the rest of the year, we're seeing good price momentum in key markets whether it's Brazil or India, and the outlook for raw material costs with some additional ammonia coming online, and and sulfur market coming into better balance. I think bodes well for margins in the last half of the year. Your next question comes from the line of P. J. Juvekar from Citi. And P. J. Juvekar, if your line is on mute, please unmute you. Looks like your next question is going to be from the line of Don Carson from Susquehanna. Go ahead, please. Your line is open. Yes, I just want to go back to the outlook for sportable phosphate supply in the second half of the year. Now the Moroccan, maybe Mike, you can comment on how you see the Moroccan capacity ramping up of you have a good window into what's going on with the modern. And what impacted the shipping difficulties in the Mediterranean have on, on first quarter pricing? Thanks, Don. I'm going to hand that straight to Mike as those I think are straight to his warehouse. Yes, I think, good morning, Don. I think the best way to answer that is just looking at demand growth, some of the supply adjustments and what is the overall supply and demand balance that we see. We're projecting that demand for the main phosphate products grows about 1,200,000 tons if you look at some of the supply changes, we've taken about a 1,500,000 tons offline with the Plant City idling And when you look at the ramp ups of capacity, the drawer phosphate hub will produce a few more tons. The hub number 3 will produce a few more tons this year. The 4th hub, the startup of that has been delayed probably until the second half of the year. But you probably can squeeze maybe 900,000 tons or 1,000,000 tons out of there. And then the MPC ramp up, I think we've indicated last time that in 2017, it produced about 477,000 tons. We think it will produce 1,500,000 to 2,000,000 tons this year. So there's an incremental tonnage there. And then if the Chinese continue along this pace where X ports are off a 1,000,000 tons. That basically results in about a 1,500,000 ton supply gap for 2018. And that's why going back to our previous, the previous question, we're not predicting that the world runs out of phosphate, but what we are predicting is that the supply and demand balance is such that you're going to have to see somewhat elevated prices and margins, maybe to crimp a little bit of the demand growth, but also stimulate a little bit more supply coming from established producers, whether it's in the U. S. Or other place sir. Your next question comes from the line of Jeff Zekauskas. With JP Morgan. Your line is open. What percentage of your ammonia requirement from CF will you purchase in the first half or what's the cadence of those purchases through the year? Thanks, Jeff. I'm gonna I'm gonna hand that straight to Karen, but I can say in broad terms, that with our own production of circa 400,000 tons in, Louisiana and our offtake of $600,000, which is paced basically even throughout the year. So our offtake on the low end and today we'd be taking the low end from CF. That'll be paced evenly throughout the year. So our own capacity will be somewhere around $1,000,000 to a little bit higher than that short tons per year. The remainder, which is somewhere around 500,000 tons we will purchase. That's 4 Florida, not including Brazil, but the other 500,000 will purchase on the open market. So approximately 2 thirds of our total tonnage will come from either the CF or our own production. Correct? Did you Yes, I don't have much to add to that, Chuck. It'll be a relatively even paced throughout the year. We've got our own dedicated logistics shipping and that requires a steady take pattern Your next question comes from the line of Adam Samuelson with Goldman Sachs. Your line is open. Yes, thank you. I was hoping a little bit more color on the outlook and what's changed and took the EPS range for the year up $0.15 at midpoint. Obviously, the tax rate went up in that within that on higher Brazil earnings, but just can you calibrate a little bit how the outlook for potash and phosphate and nitrogen changed just where magnitude between the three businesses I think there was an allusion to a belief that potash prices would be stronger in the second half than prior and just a little bit more color on the outlook would be helpful. Thank you. Yes, thanks, Adam. Look, what we're probably seeing today in terms of our EPS outlook going up is as we get more into the year, we're seeing stronger potash and phosphate fundamentals In potash, we're seeing a good demand picture, low global inventories, which I could throw at Mike for a second, but also expectations that what we're not seeing in the market is a lot of the new production yet. And so as we get further along in the year, we have more confidence that that will be later on to come. And it's virtually the same for phosphates where we see great demand around the world and slower to come on new production. So what we don't expect to see is any kind of post season weakness that we might have had there been more new production coming in. So really that's what's driving it. And then of course, as we've now got 3 to 5 months in Brazil versus 1 month at our last, earnings call, We now have a much greater faith in achieving our $100,000,000 of synergies plus the tailwinds of both better pricing and better Brazilian reais. And I might throw that to Tony in terms of the reais impact. And, Josh, I'll add just also, we are continuing to have the progress from a production standpoint from an operational efficiency standpoint. We also have the offsets, however, from Q1 and carrying into Q2, the logistics issues, principally the rail issues in Canada. And of course, you mentioned that, and you mentioned the higher tax rate which also is impacting us to the downside, but we want to note that from a cash tax standpoint, We're not expecting to pay cash taxes this year. So from a cash flow perspective, that higher tax rate will not impact us. So Adam, to summarize, really, it's more confidence in the future of this year and going into the second half of this year than we were able to have at the start of the year. Your next question comes from the line of Michael Piken with Cleveland Research. Your line is open. Yes, hi. I was wondering if you could give an update on how the spring season is going in the U. S. And in particular, we had obviously a delayed start, but what you're seeing in terms of application rates and, you know, have any read you might have on, you know, the need for distributors or retailers to have to restock during the spring, or do you think they to have sufficient inventories. Thanks. Thanks, Michael. I'm going to push that over to Mike to answer the question. But one thing I will say is just recognize that in today's world, the ability to apply fertilizer and plant very rapidly has increased quite a bit even over the last, say, decade. So, we think that the ability to catch up is a lot better than it ever was before. Mike, do you want to talk a bit about the spring season? Sure. Hey, good morning, Michael. Yeah, we got off to a slow start, but we're rapidly catching up. You probably saw the planting progress numbers from yesterday. Corn planting has a Sunday was 39% complete, soybean planting about 15% complete. Corn planting is running, still running a little bit behind the five year average, if you look at some key states like Illinois, Indiana, they are running well ahead of the 5 year average. And in the case of soybeans, we're off to actually faster start than normal, in terms of planting. So as Jack said, farmers can sink seeds into the soil pretty quickly. With the current technology. The other point is, all of the feedback that we're getting from our account managers very positive in terms of farmers, applying rates at normal or even above normal rates. And as we've been saying for a long time, the demand drivers continue to look very strong. The world's, in North America harvested big crops, there's a need to replenish those nutrients And secondly, when you look at the affordability index, P and K continue to be good buys for farmers. And we think that they are actually rebuilding some rates and with higher yield objectives in some cases, increasing rates. So, season is really shifting into high gear. As we move a little bit further north and the weather cooperates. So I think it's going to be a great spring season. Your next question comes from the line of Steve Byrne with Bank of America. Your line is open. Yes, thank you. A couple, transportation and logistic questions. What's your outlook for the resolution in the issues of the Canadian rail lines in the near term, with respect to your to the comment about Canpotex being sold out through June, is that effectively a rail fleet limitation or port handling limitation? What limits that? Is that something that can be addressed? And then lastly, transportation issues in Brazil, are are meaningful? And is that really just a productivity drag for your business down there? Or does having a distribution business down there represents a value proposition to you? Okay, Steve. We're going to take these one at a time. And what I'll do is I'll come back to Brazil in second, after we get Corinne to talk about our outlook for the Canadian railways and what's going on there. But let me just say, Look, the weather related issues that the Canadian railways faced were definitely seasonal and delays because of cold weather and snow, those we fully expect to recover from. The one that we is probably a little more unpredictable is what is the potential for a strike with the Canadian Pacific Rail and that we really don't have a a reasonable place to start in terms of a view. Corinne, do you just want to talk about how we're shifting those volumes and where that when we expect to see those? Sure. As Mike noted, spring season is making up the pace pretty nicely at this point in the quarter. We do have some weather and rail related tonnage amounts that slipped from first quarter, we think, into the balance of the year. But our guidance for the year, as Joc said, is unchanged. We think we'll get that volume back. Canpotex is sold through June. That's a combination of, limitations, both the ability for producers to supply those tons given the big North American spring season that's going on as well as some rail and port logistics. Over the long term, it absolutely, we have are working on ways to improve that capacity. So there is more capacity for exports in the future. And I guess, Brazil, you want to turn that over, Jack? Yes. Let me just turn to Brazil now. And obviously, our distribution business and the proximity of our new production business to the markets the key agricultural markets, we think is one of the key competitive advantages that we accomplished through this. And then the improvements in our internal logistics in Brazil are the other area where we can add real values for this acquisition. Rick, do you want to just talk a little bit about that? Yes. Good morning, Steve. The in Brazil, we're seeing some real advantages from all the moves that we make with product. And when we look in Brazil, about 78% of what we move is by truck. And so when we look across our whole business, we've been able to to develop synergies and significant synergies roughly at least $5,000,000 of rail, of of movements by truck that we're taking advantage of backhauls with trucks moving to ports, trucks bringing material that we produce to customers. And so the optimization of our overall grid for freight has created some pretty significant advantages and it's one of the key advantages we find of being both in distribution and production in Brazil. Let me just summarize that. I think over 10% or around 10% of our total synergies and run rate for this year will be created through transportation and logistics, particularly the optimization, as Rick said, of the new freight grid, and of course, the optimization and the use of the port of Tiplam. Your next question comes from the line of Jonas Oxgaard with Bernstein. Your line is open. Good morning, guys. I was wondering if you could talk a little bit more about what you've been doing and seeing now that you've been running the Brazilian assets for almost 3 months, more than 3 months. And as a follow-up, I know there was a condition on the purchase that would have you pay an extra payout to have, but could you talk a little bit about how that payout is structured and what you expect to pay out this year? Sure. Thanks Jonas. Good morning to you as well. Look, let me, let me start with talking about what we're seeing in Brazil. I've been down there a couple of times this year already, and Rick down there, of course, all the time. So we're going to give it over to Rick. But let me summarize the trips that Rick and I have taken together. I guess one of the things that probably encouraging to us as we see the opportunities as probably better than what we had expected and our confidence in reaching our targets is better than what it would have been 3 months ago. And let me come back to kind of some of the high level things we're seeing that give us that level of confidence. First, of course, is the markets are better than what they were, even 6 months ago, which is starting to give us some real tailwinds, but just to put what we've done ourselves already in the first quarter, we have been able to increase productivity at these operations through a combination of debottlenecking, recovery improvements, shift changes, where we're seeing and people reduction, where we're seeing a total productivity in terms of phosphoric acid per full time employee of about 43% across the business. And so now our level of confidence that we can get that $100,000,000 run rate to flow through all the way through COGS this year is quite high. And Rick just talked on the last question about the transport advantages. You start adding those up and those give us a great deal of confidence in, in where we're going, long term in that business. Rick, do you want to talk a little bit more about Brazil and where we feel? Yes. Good morning Jonas. One of the things that's a significant takeaway in visitors that, that we've had through are amazed. We're making some pretty significant changes. We've made structural changes at plants. And in the 1st month of operation, We've looked at how we, how we look at shifts, how we look at different we're changing a lot of things in the business, but the energy from the people to support that change is tremendous. There's quite a bit of, of support. People see things that need to be changed and needed to be changed. And as we looked and looked for this $100,000,000 that we're talking about run rate for the first quarter, probably over half of that, what came from the bottom up from the people that are operating our plants that see the changes that need to be made and are willing to step up and say, Hey, we should think about doing this different. And idea of looking to do things different is something we're building on and is really quite exciting to see how this will roll into our busier Second And Third quarters. Your next question was on the provisional payments to a Vale based on on the market conditions. And yes, we are getting closer to it. And I'm going to hand it over to Tony to give you a little more detail on that, Jonas. But, what I will say is, I absolutely agree with you. Both Vale and Mosaic would be extremely happy if we had pay out that contingent payment. So, Tony, do you want to just talk about the details? Certainly, Jack. Good morning, Jonas. We, as Jack said, we'd be thrilled we were into this territory, but don't expect it. In fact, our full year guidance would have to be higher if we got into the earnout payout levels And just to illustrate, at today's reais level, which is in the 3.50s, we'd needed an average MAP price for the rest of this year approaching $500 for a delivered Brazil. So again, we're not expecting it to reach that level but we'd be thrilled if it did. Yes, all of our business would greatly benefit from that. Your next question comes from the line of Joel Jackson from BMO Capital Markets. Go ahead please. Your line is open. Hi, good morning. So it looks like Brazil is going to plan. So what did you sort of learn the last few months that made you change the overall tax guidance of 20 percent to 30 percent because it does look like FAFSA is doing better than you thought. And then what would be your tax guide for 'nineteen? Thanks, Joel. Let me touch on that and I'm going to hand it over to Tony again, of course. Yes, you're right. We have increased our gap effective tax rate from the high 20s or sorry, 2 to high 20s from the low 20s and is really driven by higher mix of earnings from Brazil. Brazil has a tax rate of 34%. And of course, those are no longer deductible against U. S. Taxes. So the new tax law changes that. And I have to say at this point, we've optimized our operations under the old tax law. And although we're going to change that and try to optimize against the new tax laws in the transition, there are some quirks that drive higher taxes. Now what I would want to renote though is cash taxes are expected to remain immaterial through 2018. In Brazil, we expect to pay 0 tax because we have VAT taxes we've previously paid that will offset any of our cash income tax this year. In Canada, depreciation against our Esterhazy mine provides material cash benefits allowing us to pay low tax in Canada. And in the U S, because of the alternative minimum tax change, we expect to actually receive cash back and AMT refunds will exceed any cash tax liability. And so that's important to note that these are not cash taxes, but actual GAAP taxes. Over time, we expect our normalized tax rate to go back to the mid to low 20s as opposed to where we were before. But certainly for this year and next year, cash tax is we expect to remain very close to 0. Tony, what have I got to miss there? Josh, I think the only thing I'd add is in terms of Phil's question on what's driving the Brazil earnings movements, from our prior forecast. And I think it's a combination of the synergy realization that's been talked about already. The improved market prices and the devaluation of the re eye, which benefits us as well. Your next question comes from the line of Mark Connelly from Stephens. Go ahead please. Your line is open. Thank you, Chuck. Can you give us a little more sense of the kind of synergy gains that you already have in the bag that are going to flow through in 2018? You mentioned the freight being about 10% of it. And second question, Is there anything different trended P and K. Okay. Thanks, Mark. Look, I'm going to hand a little of this over to Rick, obviously, to talk a little more detail on Brazil and maybe Corinne as well to touch on some of the global demand issues for or not issues, but opportunities for MicroEssentials. But let me at a very high level bucket some of the synergies we're we're able to achieve here. We expect about 48, so call it 50% of the total synergies coming from the operational opportunities, which I discussed, which are better use of our maintenance time shift changes, which allow more time on the equipment, operational attention, debottlenecking, and easy one, we have increased the recovery of of, a phosphoric acid at, UberAVA by simply picking up some areas where we were actually spilling from one process stream to another, the P-two zero five. So those things we're doing now we're really focused on that. So that's about half of that synergy for this year. The next one, organization, and that's restructuring of the operation, commercial and finance teams, to really take better advantage of the needs and really benchmark against other jurisdictions where the manpower per ton, let's say, is lower. The next one's procurement, 15% of our expected earnings will be our improvement will come from procurement, supply chain and Rick talked about those inland freight optimization, the optimization of TIP Lam is about another 9%. And then another 8% or so come from commercial improvements, which is really what is the opportunity between the two cross selling and selling more gypsum, selling new products, transferring some of our SSP from outside suppliers to internal, So all of that stuff's leading to, a lot of really good opportunity for us. Rick, do you want to expand on that? You've got a pretty good list, Chuck. And I think the one thing that we need to go back and talk about is how we expect this to show up in we'll see about a third of this $100,000,000 go to the P and L. And the remainder will be in the back half of the year. I think the key piece that drives that is we make changes to the operations, they first have to go through inventory for us to turn it into cash. And your next question, Mark, was on the microessentials trends, and I'm going to get Corinne to talk about it, but I will say that product continues to do very well, continues to grow. And I suspect it will not be that long until production limitations become the limitation to growth again. I would just add, Jack, great point. We are seeing strong microEssentials growth both in North America, but also globally. It's interesting to see the very rapid pace of growth in our MicroEssentials and really all of our premium products internationally, as well as in North America. Additionally, on price, the market and pricing premiums remain intact for these products. They truly are adding value for farmers. And so I think that's what's really driving the price premiums we've been able to realize and the demand growth. And Jacques is right. It will not be long before we are debating about expanding further for our production capability. Your next question comes from the line of Jacob Bout from CIBC. Go ahead, please. Your line is open. Good morning. I had a couple of questions first on the rail logistics, maybe just help us with the dynamic of C and R versus C. P. My understanding is Canpotex is, roughly 70% of it is hauled by CP. Is that correct? And what it, who is your main carrier into the U. S? And how much with a cure for you? 2nd question, just really on the global potash market. Commenting on strength you're seeing there in your mind, what are the big drivers there? Okay. Thanks, Jacob. Let me start by saying we have a contract for North America through CP. Canpotex does do the majority of their haulage through the Canadian Pacific, with a good portion. I'm not sure the exact number. Corinne might have the exact number of Centimeters. Clearly, if we're hauling to the East Coast, that is an Centimeters Hall. If we're hauling hauling to the West Coast that is predominantly Canadian Pacific, including our if we're hauling to, Portland, because that is actually Canadian Pacific and then trade it off to, I think, the UP or something. Isn't that correct? So anyway, but I'll get Crenned to Anne answer that. And maybe while she's at it or Mike, you can answer the global potash demand question. Yes. And I do not have an exact split on the Canpotex proportion and as CP versus CN. Certainly for Mosaic, we are have a contract with CP, and that's our primary carrier. And for potash demand, I'll hand it off to Mike. Hey, good morning Jacob. Yes, potash demand continues to look very robust. As you probably know, from the recent statistics, we estimate the expand increased about almost 7% in 2017 or over 4,000,000 tons to 65,000,000. We think we'll see another 2.6 percent or 1,700,000 ton increase in 2018. And again, demand growth is is fairly broad based. We do think China after imports being down and implied shipments being down a little bit in 2017 or at least at lower levels, we'll see a nice rebound there this year. And then across the board increases, led by, everywhere from Brazil, where we expect continued growth in demand as soybean acres continue to increase a little bit. There, Indonesia, Malaysia, all of the the majors accounting for the bulk of the growth. But the bottom line, as we think, 2.6%, which is right in line with our long term CAGR of about 2.5% over the next 5 years. Your next question comes from the line of John Roberts with UBS. Go ahead please. Your line is open. Thank you. Could you discuss the benefit of purchase accounting adjustments on inventory of $30,000,000 in the first quarter and $20,000,000 in the second quarter. I normally think about that as a headwind rather than a tailwind when you write up acquired inventory because when you sell it, you don't have any profit initially. So how are you getting a benefit there? Thanks, John. I'm going to hand that straight to Tony to explain. But I can tell you in broad terms that you're right. Normally, that is a tailwind. However, there was some high priced inventory that was revalued on the purchase. And Tony, do you want to talk about that? Certainly, Jack. Good morning, John. You're right. Oftentimes, that purchase accounting adjustment has the opposite direction from a, and it's typically a tailwind as you've said, in our case, or sorry, it's typically a benefit. In our case, it's a tailwind. And, the reason for that is that we revalue all of the inventory at, a market value in terms of the inventory that was acquired. So on the day of the acquisition back in January, we acquired inventory that had been produced under the Vale Fertilizante ownership and those production costs were higher than market. And so as of the date of the acquisition, we record that inventory at a market value, which was lower than that previous production cost. So that results in the benefit that you saw in our results, which we've disclosed We also revalue things like depreciation, as well as ARO accounting asset retirement obligation accounting, a variety of things. Every asset liability is recorded at market. So there's a number of adjustments included in that as the inventory adjustment. Yes. And I can say in summary to that, John, as you buy this business, you've got to expect a lot of noise in the first couple of quarters. There's just a lot things that are changing. As Tony said, whether it's the change in depreciation rates, change in purchase accounting for inventory considerations. But in answer to the other piece of your question, I mean, we must say you look at the pro formas, this business was underperforming. And because of that, it's a little different than a normal acquisition. Your next question comes from the line of Ben Isaacson from Scotiabank. Go ahead please. Your line is open. It's over Roan for Ben. Thanks for taking my question. So does the phosphate supply gap that you mentioned to change your decision on restarting Plant City. Do you think that that project still makes sense in your portfolio? And what sort of, I guess, phosphate prices or stripping margins do you think you need to make it work? Thanks, Oliver. Let me hit that one rather than getting into too much detail on it. But Let me summarize. By idling plant city and optimizing our phosphate production assets, we effectively tightened the supply And in spite of new supply coming on, we saw the industry benchmarks increase material. So at the same time, this action also lowered our production costs and allowed us to continue to meet our customer demand. So from our perspective, we think that's pretty good. The net result was a significant increase in our profitability across all of our 16,000,000 tons that we produce in our phosphates. In both Florida and Mosaic Fertilizantes in Brazil. So all I can say at this stage is we will revisit Plant City in the fourth quarter, but we really feel that the what we did there was exactly what we needed And our last question comes from the line of Christopher Parkinson from Credit Suisse. Go ahead please. Your line is open. Great. Thank you. Just in terms of further developing the Brazilian market, how are you thinking about this over the long term, especially developing Northern port access further and also just obviously, consequently reducing your own costs. Do you foresee yourself as a leader here? And also just do you have any quick views on the political front given elections later this year? Well, thanks, Chris. That's a fair bit to cover. The last one we could probably talk about for hours, but, let me start about the Brazilian market development. I think over time, Northern Access and that whole access to the Tocontines area and call it Northwest Montegroso is a definite it's going to happen. It's a question of when. I think as it happens, that's one of the big opportunities I think for us, particularly on a distribution side, because we're going to be a person that can a group that can really get in there and be leaders in that space. So I definitely think we are now, the production leader in Brazil we're certainly one of a couple of distribution leaders. And I think that relative size compared to the market really allows us to take opportunities that others may not be able to do. So I'm going to hand it to Rick to just talk about this a little bit. And he may be able to give you some insight into the politics, although those are pretty muddy. Are they ever, Chuck? Good morning, Chris. I think as you as you look at Northern Access, to Brazil, it is going to grow. And I think the precursor to that is the grain movements that are moving, that are going there. And year over year increase in grain movements has been really quite significant to the northern through the northern outlet. Which is improving the basis for farmers in the area, because they're spending less money on logistics. The back movement fertilizer hasn't been growing at the pace because there's infrastructure that needs to be developed. That'll be developed over the next couple of years. But in the position we're in is both in production and distribution across the major production areas. Will definitely be involved in the development of the Northern the northern access to the Brazil Serratos. As far as the politics go, I will stay completely out of it. It's in a state of flux just like a lot of other countries. And, stay tuned if this one's coming fast. The only thing too I will say about Brazil, and I think it's worthy of mentioning as you talk about politics is despite the economic political and lack of reform that they're able to get now with sort of a lame duck government, if you will, with the with the new election coming this fall, I will say the ag sector has been a real standout and continues to grow. And I think This northwest corridor will really be the next horizon of growth for Brazil and maybe for the world from an agricultural perspective. Okay. With that, look, I I hear a rumor out there that another company may be reporting today. So I'm gonna call it in now and allow you guys to get on with the rest of your day. But in closing, let me just say a couple of words here which is, first of all, as we look forward this year, we see strong EBITDA growth We're now guiding to $1,700,000,000 to $1,900,000,000 in 2018, which is up about 50% on a midpoint from last year. So we're seeing some real benefits. We're starting to see the Mosaic Fertilizante take a real stand and we now have gone from expecting it to be somewhat neutral in terms of EPS to now being accretive and contribute in the range of $300,000,000 of EBITDA to our business. So we're really starting to see an investment that is going to quickly show real dividends for the company and a real opportunity for growth into the future. So overall, with the markets, we're very confident on the year. We're starting to see some changes that we think are important in the ag space and in our space. But let me conclude then with the 3 reiterate reiterate our key messages. Our business did perform well in the first quarter of the year, and we expect the strong markets and our good execution to continue through 2018. The work we've done and are doing to transform our potash, phosphates and Fertilizantes business are delivering meaningful long term value. And as I said earlier, We're ahead of schedule in Brazil, and we're really excited for the prospects there. So overall, Mosaic is executing very well, markets continue to improve and we are generating substantial momentum. This concludes today's conference. You may now disconnect.