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Agrium Inc. (NYSE:AGU)

2nd Annual BofA Merrill Lynch Global Agriculture Conference

February 27, 2013 2:15 pm ET

Executives

Michael M. Wilson - Chief Executive Officer, President and Director

Analysts

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

Agriculture conference. The next presenting company, we're very pleased to welcome Agrium. Agrium is about a $15 billion equity market cap, diversified provider of seeds, crop protection chemicals and nutrients on the retail side of the house, as well as nitrogen phosphate and potash fertilizer in the Wholesale business. Representing the company today, we have Chief Executive Officer Mike Wilson, who joined the company in 2000. Mike, I expect you've had a busier the last several months than you might have otherwise had, given the proxy battle that's occurring right now with the company. So we do appreciate you making time for us to come down in Florida here, and talk to us and look forward to your update. And thank you.

Michael M. Wilson

Thanks, Kevin. And we have been busy. It makes life interesting. What I'll do today is I'll cover off just one slide on our strategy, briefly talk about the Ag fundamentals, you're likely getting tired of hearing about the Ag fundamentals but we can get into that in Q&A. And then highlight our 3 business units, our Wholesale, our Advanced Technologies, I only have one slide on it, and then our Retail business, and wrap up with where we're taking the company over the next 3 years.

We've all read our forward-looking statement, I'm sure.

If you look at Agrium, we are unique in this sector. We're the only global Ag input company that crosses the entire agricultural value chain. We are not a conglomerate. We're focused on Ag inputs. And if you look at the company, we make a little over 8 million tonnes of fertilizer. That group that makes that also buys and purchase for resale another 3 million to 4 million tonnes of fertilizer. And we're the largest retailer in the world. We serve about 350,000 growers around the world directly, and I'll talk a lot more about that. We're the third largest nitrogen company in the world, with most of our assets in North America, and then heavy weighted within North America and Alberta. We have a large position when it comes to chemical and seed, we're not just a fertilizer company, we're a good fertilizer company but we now pushed over $5 billion of seed and crop protection chemicals. It's amazing how much that business has grown considering 8 years ago, 7 years ago, it was likely a $400 million business. And we have a very unique position in a controlled release urea, which gives both an environmental and an agronomic -- economic impact to the farmer positively.

This is a key slide when you're looking at farmers, and that is how are they doing financially, are they making good cash margins? And the answer is they are. If you look at a $5.50 bushel corn which is sort of where December corn is, you can see they're making margins of about $500. To sort of put the mindset of the farmer, one good measure that we use when we're looking at farmers is how much prepay do they pay at the end of the year. And our prepay is up between 30% and 40% year-over-year. So the mood of the farmer is they're getting ready for the spring, they want to go and prepay us up significantly.

And you can see, there's also some discussion and we can get into it in Q&A if you want, oh my God, what happens if corn goes to $4.50? Well, if corn goes to $4.50, the farmer still makes very good money. And will still use our seeds, our crop-protection chemicals and our nutrients.

We have an integrated strategy. There's been a lot of questions around that. It's very powerful for us. Retail is certainly worth more within Agrium than outside of Agrium. If you look at potash alone, we took up about $0.75 billion of operating synergy on potash. If you look at the financial side, we have debt capacity of at least $0.75 billion more. And we have counter-cyclic cash flow. If you go back to '09, and I'm sure a lot of you in the room like you don't want to remember '09, but if we go back to '09, we freed up $1 billion of cash flow in a counter-cyclic fashion, and that allowed us to take advantage or attempt to take advantage of what we were called being opportunistic, and we were, and we will be opportunistic in the future if good deals come along.

You also look at the business. We're able, as a result of having an integrated strategy, to get some really great acquisitions. Royster-Clark was one, Tetra was one last year. And we're in the middle of closing and getting the competition review of Viterra. We tried for a long time to buy Viterra, and we were unsuccessful in the multiples, we would have had to pay were in that 10 or 11 range. We've now gotten Viterra at less than 6 pre-synergy. And our ability to do that was our ability to take both the nitrogen plant and the retail business. So it's very important.

And then the market intelligence, it's hard to quantify what this market intelligence is worth, but you've got a picture. We've got 350,000 growers that we talk to on a regular basis and that information is fed to our fertilizer people. And our Retail group buys over 8 million tonnes of fertilizer. In fact, this year, it will be closer to 9 million tonnes of fertilizer. They're only buying 1.5 million from Agrium. And so by having that insight as to what's going on in the Ukraine, what's going on in Russia, what's going on from a potash or nitrogen point of view in China is very powerful for them as well.

If you look at the portfolio, our company has grown a lot. You look at where we were in 2005, and where we are in 2012, and the message to give you is it's not just riding the cycle, it's not just riding price that's taken our market cap up to $15 billion. Our assets have grown at a compound growth rate of 23% during this period.

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And if you look at our Retail business, it's quite interesting. The retail today is worth 150% or an extra half turn more than the whole company was worth in '06. And our crop protection chemical and seed business is worth more today than our Retail combined with potash and phosphate was in '06, so you can see the growth of the company and its growth of assets as we grow around the world.

Turn to Wholesale. What you get in Wholesale is a key when you're in this business is it costs to serve the customer. You've got to be -- you've got to have the right assets obviously, low cost position in your assets and we have that and I'll talk more about it. But you have to have the distribution capability. And when you look at our infrastructure, be it North America, Europe or South America, we're able to get to that grower, to that retailer when they need the product. As an example, in North America, we have about 4 million tonnes of distribution capability. It's a unique business, this Ag business, I've been in commodities my whole career. I've only been with Agrium about 12 years. But it's one where everything moves in 2 seasons. And if you've got the right distribution capability, then you can typically capitalize and get a higher price for your product.

If you look at the strengths of our Wholesale business, each one of our NP&K has its own unique strengths. Obviously, on nitrogen, we've got this North American gas. It's a great position to be in. And on top of that, in Alberta, we're, today, getting about another $0.30 lower gas cost than a Gulf Coast type producer.

If you look at both phosphate and nitrogen, we sell very close to our plants and we have an end market advantage in that our competition has to ship into our market, they have a freight penalty, and we price off of that freight penalty, which gives us a premium.

In potash, we're in Saskatchewan, we get the same cost structure as a PCS or Mosaic, and have the ability, as I said earlier, to move product through our retail chains should we choose. We move about half of our potash on a global basis, and the other half in North America.

And then on phosphate, we're back-integrated in ammonia and we've got an incredible sulfur position. And so if you look at our phosphate business, and I'll show a slide in a few minutes on our rock costs, our rock costs are higher but this back integration on ammonia and our sulfur position gives us excellent gross margins.

Nitrogen, the other key thing is not only do we have a low cost position, there's a floor that sets the price at a fairly high level. If you look at the right-hand side of that graph, it shows the cost to get into the North American market, of the Chinese, the Ukrainians, the Western Europeans. And what we've seen over the last few years, as price comes down, as nitrogen comes down off season, it typically heads towards $350, and then stops. And the reason it slows down is you've got these high-cost producers shutting in. And so we've got this natural margin built in even in the worst part of the cycle of anywhere from $150 to $200 a tonne. Now obviously, in the market today, we're selling above the $350 level because the season is starting to take off and you're going to see pricing in the $400s. But even in the worst case scenario, you can see the floor that a North American producer has.

I talked about potash. As I said, we moved half our products internationally through Canpotex, we're a member of Canpotex, the other half in North Africa. When we look at our operating rates and we go back last few years, we typically operate at a higher capacity utilization of a PCS or Mosaic, the other North American producers. And the reason we do that is we have the flexibility should we so desire to move products through our retail chain. As I said earlier, Retail buys, this year, 9 million tonnes of fertilizer, and 1.5 million from Agrium. And then in potash alone, they're buying north of 1 million tonnes, and they're buying about 400,000 tonnes from us. So we have the ability should we need to move 200,000 or 300,000 tonnes through that chain and we could move more if we want it. And it's all done arms length. There's no discount in pricing. There's no penalty to Retail to do that, so we have that flexibility.

On phosphate, one of the questions we get is we have 2 operations, we have one in Idaho and we have one in Western Canada. In Idaho, we're back-integrated into rock. We have good long-term rock reserves. In Western Canada, that plant was built quite a while ago, I think 30 or 40 years ago on imported rock. And then we managed to get a mine up in Northern Ontario, in a place called Kapuskasing, and we ran it for about 10 years. Economic ore from there is no longer available, so we have moved back to imported rock for a period of time. We signed a contract with OCP. And you can see our margins and if you look at the graph, you can see our margins in 2012, they are coming down with imported rock, but they're still very attractive margins. If you look at our 2012 fourth quarter, we had the highest margins in North America on a gross margin basis versus any of the producers. This rock contract we have allows us -- if phosphate pricing comes down, the rock price comes down, if it goes up, it's a sharing mechanism. So we're still going to have very attractive phosphate margins going forward.

I only have this one slide on our Advanced Technologies. We have a product called ESN. It's environmentally smart nitrogen, it's a controlled release urea. It's a polymer-coated product, and we can release it -- the urea releases rather than a quick release when you put it on the soil, it releases over anywhere from 6, we can tailor at 6 to 12 weeks. And it releases under a combination of temperature and moisture conditions. So if there's no moisture, then this product won't release. When it rains and the root needs the moisture, it will also get the nutrient. And you get a yield boost from this. You get a yield boost of anywhere from 5% to 15%, depending on which crop you're on. The other thing that's interesting is you get about a 75% reduction in nitrogen leaching. So it's got a huge environmental benefit. But the real catch here is it's got both environmental and the farmer has an economic proposition.

We've built or just completed our third plant there. We built it New Madrid, Missouri. It came up late last year, on time, on spec, even $1 million dollars below budget, it's a small capital project. And so now, we're going to take this to another step, so it's been growing quite well.

Retail. If you look at Retail, what it offers us, when you're in the commodity business, I always say you ride the wild horse, you're at the top and you're enthusiastic it's going to last forever, and then you're at the bottom, you're pessimistic and it's never going to get better. And the secret in wholesale is always dampen the cyclicality of that curve with your low cost position. What we're doing in Agrium is not only are we dampening the cyclicality of the commodity curve, we're underpinning it with a very stable business, and that's our Retail business. And the reason it's relatively stable is we're diversified by geography, we're diversified by product offered and crop that we serve. If you look at geography, if there's a drought in the Corn Belt, we're still in California, we're still in the southern part, we're in Canada, we're on the East Coast, we're in Australia, we're in Argentina, we're now in Brazil. If you look at the products offered, we not only supply fertilizer, we supply -- we're the number one supplier of chemical, we supply about $1 billion of seed, moving -- going up to $2 billion in time. And if you look at the products, the crops we serve, we're on corn, we're on soybean, we're on sugarcane, we're on cotton, we're on lettuce, we're on strawberries, we're on pecan. So we're not reliant on any particular crop, and that gives us a lot of stability across this business.

The business last year was about $12.5 billion. We're going to be bringing Viterra in and I'll talk a little bit more about that, which is going to boost this even more. We crossed the $950 million mark last year on EBITDA. If you look at where we were in 2011, we were at $769 million, in 2010, we're around $600 million, so you can see the growth of this business from an EBITDA point of view.

We have about 1,200 farm centers. It's interesting, we rationalize all the time our farm centers. We've shut in -- since 2006, we've shut in 255 farm centers. We're always looking at how to optimize that base. And as I said, we have a balanced portfolio. Our seed business in 2004, 2005, was about $100 million, it's 1.2 last year. Our chemical business was about $400 million in 2005 in revenue. It's 3.9 as you can see last year. So you can see the growth that we have in this business. And I'll talk more about where we're heading in 2015.

Viterra, just a great transaction. And again, we've managed to get Viterra in the fold as a result of being having this integrated strategy. We were the only ones that people who are looking at Viterra approached. We managed to pick up the Retail business and a nitrogen -- 1/3 of a nitrogen plant in Medicine Hat. We sold that 1/3 of the plant to CF for $915 million. They're going through competition review, hopefully get it soon. And we get the earnings from that plant from last April. So we're getting earnings for almost a year now, and we're going to get $915 million. When you net that all out, we're buying that Retail business for less than a 6 multiple pre-synergy. And today, our Retail is trading at about a 9 multiple within the company and the sum of the parts. So pre-synergy, we've extracted a huge amount of value on this. We're in the Competition Bureau review right now. We expect to get approval likely near the end of the second quarter, which means we'll unfortunately miss the spring season. But having said that, we're still going to get the earnings. It will just go against the purchase price of the asset.

There's been a lot of questions lately about continuous improvement in metrics around this business. And what I want to show you is a few metrics on our Retail business. We believe we're best in class. Every measure we've had, every one we bought, we've been outpacing them before we bought them, and quickly bring them in the company. And we've got lots of room to continue to improve, we'll never deny that. But if you look at our revenue per facility since 2006, it's gone up at 21%, so it shows it's not just a matter of making acquisitions, it's improving on your base. If you look at our EBITDA per facility it's gone up at 24%. And then operating expense to gross profit, you can see how it's coming down every year. And we've set ourselves a target of further reducing it out towards 2015.

Now there are no peers in this industry. There were only 3 publicly traded companies. Two we bought, and one's on the edge of bankruptcy. And so it's hard to get someone to benchmark to see how you're doing. What we do to benchmark ourselves is we've got the same slope for improvement when you look at working capital is we bring in consultants on working capital who only specialize in that area, and we ask them to take a look at us, benchmark us, give us advice. We do the same thing on G&A. And so you have to do that to make sure you're not missing anything.

From an operation point of view, we have 2 models that we use in North America primarily. One is a high service model and the other one is a low service model. The low service model obviously has a lower operating expense to gross profit. The high service model has a much higher expense. And so you have to be careful just focusing in on one aspect of the business. Some people will say, why don't you reduce our operating expense? You have to look at the EBITDA to revenue line and the power that we get from that to really know what the right operating expense number should be.

If you look at growth in this business, we've grown our seed business by 38% compound. We've got a clear line of sight to get to $2 billion of seed. And we're confident we're going to get there in the not so distant future, the '15, '16 time period. We'll just keep growing at this pace. And once you cross the $1 billion dollar level, what you get is you get the ability -- we've now moved from selling seed in bags to 1 tonne sacks, we're actually selling seed now in bulk, with bulk silos for seed. And so once you to get to this critical mass, you can really extract a lot of power.

If you look at our private label business, it's grown at 28% compound. And that's private label chemical and also private label foliar nutrients. We're now in the foliar nutrient business. It's a very specialty business. It's grown from about -- I think, we didn't -- hardly sold any about 4 years ago. We did about $300 million last year, and the gross profit on this is about 40%, just a great business for us.

I throw this one up because if you're the CEO of a company, you're always asking your team if they're embracing continuous improvement, and putting your employees at risk, safety of your employees is key. And I encourage you as an investor, if you're investing in a company, always ask them what their safety record is, because if they've got a good safety record, they're embracing continuous improvement.

And what you can see on this slide, which is interesting, is you can see this where UAP was when we bought them. Here is Royster-Clark, here's ADM. These competitors were all twice as high, and we've managed to grow from 1,000 employees in 2002 to 11,000 employees in 2012. At the same time, absorb all these companies that had records 2x to 3x worse than us and still improve on safety. So it's a measure that you should be looking at. I mean, if you've got a good safety record, typically, you've got a good management team.

And then the last slide's on metrics, EBITDA margin. And again, you look at our EBITDA margin, we're 9.7% in North America, 9.7% last year. What we didn't put on this slide is when we bought UAP, they were 5.5%. When we bought Royster-Clark, they were closer to 5%. And so this is what you have to look at, this EBITDA margin when you're looking at your operating costs because it's easy to strip costs out, it's easy to strip out working capital, but as you do that, you start affecting your high service end model, and you start affecting your margins. And I'm sure our shareholders would not trade 400 basis points higher EBITDA to revenue margin versus some higher working capital.

And then ROCE did dip coming out of '09. And as we've made -- we've made about $4 billion of acquisitions. But you can see what's happening to us now, we're getting all the synergies and all the power from those acquisitions. And you can see our return on capital employed going up. And we did 11.6% last year in the North America, and we're rapidly heading as a whole company towards 13%, and we'll go even higher than that as we go beyond 2015.

Growth. We've got a lot of growth opportunity. We talked at our Analyst Day about Retail. We've now set our target at $1.3 billion for 2015 in Retail. And we've delivered every time we set the target. We keep raising the bar. And I remember, when we started on this strategy in '05, and we are, I think, $85 million in EBITDA, I challenged the team to double their EBITDA in 5 years, and they did it in 18 months. So we're sitting at $200 million. And I said, now I challenge you to get to $500 million in 5 years, and we did it in 2.5 years. So then I put the challenge to get to $1 billion, but we're there. So in a matter of 7 years, we've gone from roughly $100 million to $950 million. And we've got a clear line of sight to getting to $1.3 billion. And if you look at how we're doing that, we've got the organic growth for 30%. As I said, our private label is growing at 28%. Our seeds growing at 38%. We've got our tuck-in acquisitions. And we tucked in about 50-some-odd farm centers. They're small farms centers that we buy. And we bring those in, we typically buy them around a 5.5 multiple pre-synergy, and quickly get them in the organization. We can integrate these into our company within a month or 2, they're very quick integrations. We've got the Viterra acquisition. It will be around $100 million of EBITDA. We can't wait to get that group in. It's a very strong, powerful organization. And then we've got some improvement that we're going to deliver in Australia.

On the Wholesale side, we've got a brownfield potash expansion that's under construction right now. It will be completed by the end of the 2014. It will give us 1 million tonnes of capacity. We'll move about half of that into the international market. The other half, we'll have the support of Retail to get it moved into North America. And then we are looking at brownfield nitrogen. And then if you go beyond that, we're going to generate a lot of cash. We've increased our dividend, started in 2011. We're going to look at continuing to sustain and grow that dividend and we're looking at excess cash in the form of share buybacks.

So I'll just wrap up with this slide. We are unique. We are the only global company across that whole Ag input value chain. We can capitalize better than anyone else in our view on the strong Ag fundamentals. We've got a Board, some people have criticized, or one person has criticized our Board recently. And I guarantee you, we've got one of the best Boards you can get in the industry. They're rated very high on governance. They're in the top decile on any ranking you do. They've overseen our strategy of 500% total shareholder return. They challenge us constantly. They're the ones that challenge us on working capital and G&A, bringing in outside cold eyes' review. So we do have a very strong Board. We've got lots of growth opportunity as I've said. If you add that $350 million of EBITDA from Retail, and on top of that, add a brownfield potash, a brownfield nitrogen, you can see $900 million to $1 billion of EBITDA over the next 4 years, and still lots of cash left over to look at other opportunities or to return it in the form of dividends and share buyback.

And like I said, our dividends are strong, we'll continue. So I guess the message to you as shareholders, we're continuing to look at how we can increase the value for you, we think we've got a great future and we've got a great asset mix. So thank you.

Question-and-Answer Session

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

Thank you, Mike. Just to get the ball rolling with a question here. You've outlined a number of goals for 2015, 13% returns, 10% EBITDA margins. Can you talk about your level of confidence in achieving those? And what needs to happen in the external environment or how insulated you might be, for example, if corn goes to $4.50? You mentioned income still quite attractive. What are you assuming, if anything, in that regard? And what are you assuming with regard to deal activities is strictly organic in nature that helps you get there?

Michael M. Wilson

Well, a couple of things. We're not assuming in any of this any other deal other than what we've talked to you about. We have the advantage that being across that whole value chain, we get to see more opportunities than most people. We've got likely one of the best M&A teams in North America. We constantly look at every aspect of the industry, but we're disciplined enough to hold off if they're not going to add value, so we have no deal baked into those numbers. As far as the improvement on working capital, the improvement on operating expense, the improvement on EBITDA, we're confident we can get there. If you look at our private label business, it typically generates 2x the margin that we get on our branded chemicals. If you look at our seed, we're into seed treating, we're into the foliar business. We're going to grow our seed from $1 billion to $2 billion, so when you add all that up and you continue on the improvement of revenue per facility and EBITDA per facility, you can see how you can get those metrics improved. As far as external factors, I learned a long time ago, it's hard to predict commodities. But if you look at the basic fundamentals of nitrogen, phosphate and potash, they look pretty good. I think potash has bottomed out from our perspective on price and -- but we don't see huge upward momentum, to be quite honest, over the short period, but we do see it going out a couple of years. Nitrogen looks pretty good, and we're assuming, when we get into '15 -- '14, '15 and into early '16, nitrogen is actually going to be pretty strong. Phosphate, once Ma'aden is absorbed, there's not a lot coming up. And at $4.50 corn, if it is $4.50 corn, I sort of smiled because it's déjà vu from last year. If you remember, last year, I really was worried, oh my God, it's going to 160 bushels an acre, and 97 million acres. As I'm reminded regularly, we haven't planted one kernel of corn yet. So it's a little early to predict what the crop is going to be. But even if it was $4.50 corn, the farmer still makes pretty good margins. So our assumption is in there, we can get there easily from our point of view

Unknown Attendee

Mike, just a quick question on the acres that have been replanted this year and we've seen a little bit in the press. If the 96 million, 97 million acres are planted, and there's a reasonable, let's say, historic yield there, where does that get us to in terms of stocks to use or inventory to use? And do you think that, that would impact the corn price further than the $4.50 mark?

Michael M. Wilson

Our view is it would take a couple of years of good crop, good acreage and good yields to get -- have an impact on pricing. If you look at 97 million acres and you say get more historic yield levels, I think we've only beat 160 bushels an acre once, and I think we hit 159 once, so I'm not really sure what historic is anymore. But our view is if you had that and you had a good crop, you'd like to be pushing your stocks to use up to that 9%. Maybe if you really had an incredible crop up to that 9%, 10%, that might take pricing down into the $4s, we don't think it would take it much lower. You'd have to have several years in a row of that. And our experience has been perfect storms 2 years in a row don't usually happen. Now the other thing is demand continues to grow on a yearly basis, on a global perspective. But also, if corn fell off in pricing to any degree, we think you'd see a large pickup in demand from a livestock feed point of view, poultry, swine and cattle, because that's been really dampened over the last few years. And if corn fell off, the economics around ethanol would look a lot better as well. So we're not really as concerned as some people seem to be on a good crop and a good yield, you'd have to have several years of it.

Unknown Attendee

Can you give us an update on Egypt and where that asset fits into your overall portfolio?

Michael M. Wilson

Egypt, they're having some political problems there apparently. No, we've got $285 million invested in Egypt. We have 26% of the MOPCO facility, which is running today at capacity. And there's 2 issues in Egypt. One is the issue around gas and then the other issue is a political issue of getting the construction of those 2 plants up and completed. I've been over, I've met with the President in Egypt. He's assured us that it makes sense to get those plants up. He's assured us that we need to get them up this year. We are running our facility. The issue he has is he's got a lot of other political issues going on right now. The elections are in process. They should be completed by midyear, and I would hope we get back into that site and get the facility up. The current production we're getting out today of the existing plant roughly covers our $285 million, so everything from there is upside. But we're hoping that things will calm down in Egypt once the elections are over. And we'll get the plant back up and Chuck Magro, our COO, was just over meeting with the Prime Minister in January, and I met with the President, I think, in November. So they've assured us, we're going to get it back up, but I think they've got some security and other priorities that they're working on right now.

Unknown Attendee

You touched briefly on advanced technologies and some of the environmental benefits that you see there. To what extent have you -- or the company contemplated positioning the company more in terms of its strategy around a solution provider to issues like food security, climates and more on the environmental benefits of the advanced technology products?

Michael M. Wilson

Well, there's 2 aspects to it. One, as a large corporation or any sized corporation, you have a responsibility to always be reducing your own environmental footprint, be it burner technology, anything you can do around CO2 to reduce it, making sure all our retail facilities have containment around every one of their tanks. Our competition typically doesn't do that. All of our ammonia facilities have double safety on them when it comes to any sort of ammonia release. So we're constantly looking at how do we reduce our footprint. And then you look at what you can offer, the best thing you can do from a food security point of view is try to get out there and educate on best management practices. The world can feed itself. It's just people just need to start using the right seed and the right amount of fertilizer at the right time. And so we're doing a lot of work on that, both through the industry association and through ourselves on best management practices. There's a group called International Plant Nutrition Institute that also has PhD agronomists around the world doing that. And then we have a responsibility. We've got a number of initiatives we support from a -- we've got a caring for the watershed initiative where we're on 14 watersheds now around the world, educating mainly from a school point of view of how to care for the watershed. We're part of the Jeffrey Sachs Millennium Promise in Africa. So we're looking at those types. So you've got your own environmental footprint you've got to reduce, you've got a social responsibility to get back to the community. And then you've got a responsibility to educate. And when you look at the yields in some parts of the world, be it Central Europe, India, China, even Brazil, they haven't gotten to the level that we are in North America. And so as they get their yields up, it will improve. And then obviously, we have technology like ESN as well.

Unknown Attendee

Mike, you mentioned that your prepays were up 30% to 40% on a year-over-year basis, can you elaborate on what is driving that? What it tells you about seeds, crop protection nutrients, are there differentials on prepays there that you can comment on? And what is the correlation between pre-pay levels and future sales, is there any sort of rule of thumb that is meaningful there?

Michael M. Wilson

Yes. Well, what's driving it is like most of us in this room, farmers don't like paying tax. And so they'll prepay us before the end of the year. And so that's one of the key drivers. The other driver though is just the mood of the farmer. And there isn't -- it would be interesting, we should go back and try to correlate, and we haven't done that, pre-pay versus momentum going into the spring and how the sales go. But if you look at the farmers, they've got a lot of cash, and they want -- they're signaling us that they want product. Now we don't book the order, we have their money. Now some of them are coming in and saying, show me my seed, I want to make sure I got the latest seed technology. But other than that, it's just a clear indication of the expectation of the farmer of a fantastic spring. Our prepay a year ago was $1 billion, and I think its $1.3 billion or $1.4 billion right now, and it's a huge number. And so you can see that, that enthusiasm of the farmer to get going because when you look forward at $5.50, $5.30 corn in December, they're making great margins. So -- well, we haven't done the correlation and I'll challenge our guys, go take a look.

Unknown Attendee

Mike, can you elaborate on previous questions or concerns about overcapacity potentially in new nitrogen production facilities? Are you concerned about rising natural gas prices for your own plant? And can you elaborate on the buy versus make decision about building your own nitrogen plant -- additional plant?

Michael M. Wilson

First of all, on the gas side, we're not overly concerned about rising gas costs. Our basic belief today and -- it's interesting, I remember back in the '90s, I was involved in an ethanol business, and I was told by the consultants, gas always was $2 and always will be. And then in the early 2000s, I was told it's going to be $8 forever. And now I'm being told it's going to be $3 forever. Our view on gas is that if gas goes up towards $5, there's huge economics for the guys to drill, the gas people to drill and they will, and there's lots of supply there. So when we look out long-term, we typically look around that $5 mark for gas, we don't use a $3 number. If you were to look at what's coming at us from a capacity point of view on nitrogen, you have to look at 2 things. And in our slide deck, you will notice, there's a slide, I think it's in the appendix actually, if you look at nitrogen demand on a global basis, and you can go back forever but we just went back to 2000, it's going up every year. It's an amazing curve that you don't see dips in it, you don't see cycles in it. And it's growing at a couple of million tonnes a year. So the first thing you have to look at is the world needs 2 million tonnes of production a year from somewhere. You're not seeing anything being built in North Africa, Middle East anymore. That's the place everyone built for the last 5 to 10 years. They're going to build in North America now. And so the first thing you have to say is, am I worried about overcapacity? I need someone building 2 million tonnes a year. And then you come to North America, there's about 10 plants that have been announced, we think maybe half of those will go. It's quite a long permitting process to get these plants up. Anything greenfield here, at least 4 years or maybe even 5 years before you get it up. The brownfield, you might be able to get them up in 2.5 years to 3 years. So we don't have a huge concern about overcapacity. What you'll see is a change in the trading patterns of nitrogen around the world. What's coming into the U.S. today will be moving into Southeast Asia, India and Brazil. And so you're going to have that happen but we don't see this big flood. On buy versus make, we're constantly looking at buy versus make. Today, the buy side, when you pay a premium, it's difficult to justify buying. Brownfield is pretty easy to justify if you've got the right location. Greenfield is a little tougher. And what you're going to find is as we're looking at our greenfield project, the capital cost is quite high. And I think a number of those people who have announced plants haven't really got a good feel for what the capital is going to hit them at.

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

Time for one more question if there is one. Maybe I'll just ask you one final one, Mike. You recently accelerated the timing of your annual shareholders meeting to April 9. I think you've been on the road a lot. Can you talk a little bit about the changes that you've made following JANA's involvement and what your expectations are over the next 6 weeks or so? Have you had dialogue with ISS, Glass Lewis, those sorts of things? And how can investors think about probable outcomes?

Michael M. Wilson

I thought I can get away without a JANA question. The changes we've made since JANA's involvement is easy, none. We haven't changed anything in the way we operate the business. We haven't changed anything in the way we look at the business. So that's an easy one. What JANA has done, which is positive, is they brought a lot of focus to our Retail business at a time when the Retail business is just clicking. We've gone from $600 million to $761 million to $950 million going to $1.3 billion, and it's brought a lot of focus, so thank you, JANA. Any other changes? None. We advanced the AGM because we want to get this behind us. We'll be talking to ISS and Glass Lewis over the next 2 or 3 weeks. Expect they'll be coming out some time in the end of March. We'll have our AGM on the 9th, and hopefully, I won't get any more JANA questions after that. Thank you.

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

Very good. Well, Mike, thank you very much for your time and your remarks today. Always helpful. I appreciate it.

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