Nutrien Ltd 6-K, filed Nov 3, 2020
Nutrien Ltd. (NTR)
About this 6-K
Nutrien Ltd filed this 6-K on November 3, 2020.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
Report of Foreign Issuer
Pursuant to Section 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For the month of: November, 2020
Commission File Number: 001-38336
NUTRIEN LTD.
(Name of registrant)
Suite 500, 122 – 1st Avenue South
Saskatoon, Saskatchewan
S7K 7G3 Canada
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F ☐ Form 40-F ☒
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
Exhibits 99.2 and 99.3 to this report on Form 6-K shall be incorporated by reference into the registrant’s Registration Statements on Form S-8 (File Nos. 333-222384, 333-222385 and 333-226295) and on Form F-10 (File No. 333-237068) under the Securities Act of 1933, as amended.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| NUTRIEN LTD. | ||||||
| Date: November 2, 2020 | By: | /s/ Robert A. Kirkpatrick | ||||
| Name: | Robert A. Kirkpatrick | |||||
| Title: | SVP & Corporate Secretary | |||||
EXHIBIT INDEX
| Exhibit |
Description of Exhibit | |
| 99.1 | News Release dated November 2, 2020 | |
| 99.2 | Management’s Discussion and Analysis | |
| 99.3 | Interim Financial Statements and Notes | |
Exhibit 99.1
|
|
News Release | |
|
NYSE, TSX: NTR
|
November 2, 2020 – all amounts are in US dollars except as otherwise noted
Nutrien Delivers Improved Operating Results
as Ag Fundamentals Continue to Strengthen
Nutrien Ltd. (TSX and NYSE: NTR) announced today its 2020 third quarter results, with a net loss of $587 million ($1.03 diluted loss per share), which includes a non-cash impairment of $823 million, primarily related to our Phosphate operations. Third-quarter adjusted net earnings were $0.23 per share (adjusted EBITDA was $670 million), excluding the impairment. Adjusted net earnings includes a net tax benefit of $48 million ($0.08 per diluted share) related primarily to recoveries of prior year taxes due to US legislative changes. Adjusted net earnings per share and adjusted EBITDA (consolidated), together with the related guidance and potash cash cost of product manufactured are non-IFRS financial measures. See the “Non-IFRS Financial Measures” section for further information.
“Nutrien delivered another quarter of solid operating results with strong fertilizer sales volumes and exceptional growth of orders through our digital agriculture platform, surpassing $1 billion of sales. Market conditions are improving around the world with higher crop and fertilizer prices, lower expected inventories and strong demand for crop inputs as we finish the year and enter 2021,” commented Chuck Magro, Nutrien’s President and CEO.
Highlights:
| • | In the third quarter of 2020, we recognized a non-cash impairment of $823 million associated primarily with our Phosphate assets related to a less favorable long-term outlook for phosphate prices and expected global supply imbalance. |
| • | Retail delivered 13 percent higher adjusted EBITDA in the first nine months of 2020, over the same period in 2019 as a result of double-digit growth in sales and gross margin. Adjusted EBITDA in the third quarter of 2020 was 15 percent lower due to elevated applications in the same period last year caused by the timing of the growing season, and was further impacted by lower insecticide and fungicide applications this quarter as a result of lower than expected US acreage and dry conditions. Total sales through our leading digital retail platform exceeded $1.0 billion in the first nine months of 2020, more than double our annual goal of $500 million. Digital sales in the first nine months of 2020 accounted for 43 percent of North American sales of products that were available for purchase online. |
| • | Potash sales volumes in the third quarter and first nine months of 2020 were higher compared to the same periods in 2019, and Nutrien is fully committed on offshore potash sales volumes and well subscribed domestically for the remainder of the year. Potash adjusted EBITDA was down 19 percent and 33 percent in the third quarter and first nine months of 2020 respectively, compared to the same periods last year as strong sales volumes and lower cost of goods sold per tonne were more than offset by lower net realized selling prices. Potash cash cost of product manufactured was $53 per tonne in the third quarter, the second lowest on record and $9 per tonne lower than in the third quarter of 2019. |
| • | Nitrogen adjusted EBITDA was 21 percent lower in the third quarter and 17 percent lower in the first nine months of 2020 compared to the same periods last year due to lower net realized selling prices and lower industrial sales volumes. We delivered higher sales volumes, lower cost of goods sold and higher ammonia utilization rates (93 percent versus 90 percent) in the first nine months of 2020 compared to the same period last year. In the third quarter, we also made the decision to indefinitely close the smallest of our four ammonia plants in Trinidad. The closure is expected to enhance the competitiveness at that site, and we are now running three plants at normal production levels. |
| • | Nutrien’s full-year 2020 adjusted net earnings per share and adjusted EBITDA guidance range is narrowed to $1.60 to $1.85 per share and $3.5 billion to $3.7 billion, respectively due to increased visibility in each of our business units to the end of the year. |
1
Management’s Discussion and Analysis
The following management’s discussion and analysis (“MD&A”) is the responsibility of management and is dated as of November 2, 2020. The Board of Directors (“Board”) of Nutrien carries out its responsibility for review of this disclosure principally through its audit committee, comprised exclusively of independent directors. The audit committee reviews and, prior to its publication approves this disclosure pursuant to the authority delegated to it by the Board. The term “Nutrien” refers to Nutrien Ltd. and the terms “we”, “us”, “our”, “Nutrien” and “the Company” refer to Nutrien and, as applicable, Nutrien and its direct and indirect subsidiaries on a consolidated basis. Additional information relating to Nutrien (which, except as otherwise noted, is not incorporated by reference herein), including our 2019 Annual Report dated February 19, 2020, which includes our annual audited consolidated financial statements and MD&A and our Annual Information Form, each for the year ended December 31, 2019, can be found on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. No update is provided to the disclosure in our annual MD&A except for material information since the date of our annual MD&A. The Company is a foreign private issuer under the rules and regulations of the US Securities and Exchange Commission (“SEC”).
This MD&A is based on the Company’s unaudited interim condensed consolidated financial statements as at and for the three and nine months ended September 30, 2020 (“interim financial statements”) based on International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”) and prepared in accordance with International Accounting Standard 34 “Interim Financial Reporting” unless otherwise noted. This MD&A contains certain non-IFRS financial measures and forward-looking statements which are described in the “Non-IFRS Financial Measures” and the “Forward-Looking Statements” sections, respectively.
Market Outlook
Agriculture and Retail
| • | Key crop prices have increased, driven by significant improvements in supply and demand fundamentals. Higher crop prices have boosted North American grower sentiment. |
| • | The North American harvest progressed at a pace well ahead of the past two years when timing was impacted by late maturing crops and weather delays. This is expected to provide a wider window for growers to plan and apply fall fertilizer compared to the past few fall seasons. |
| • | Strong Brazilian crop prices and margins provided an incentive to boost summer soybean and Safrinha corn planting. We expect the planted area of these crops to increase by approximately 4 percent and 6 percent respectively. Planting has started slower than normal as a result of dry weather, but we expect a long planting window and high crop prices will motivate farmers to plant. |
Crop Nutrient Markets
| • | Global potash demand has been strong in 2020 and we continue to expect global potash shipments and consumption to increase by approximately 2 million tonnes from 2019 levels. As a result, we maintain our 2020 shipment forecast between 65 and 67 million tonnes. |
| • | The prospect of a robust fall application season in North America has supported strong retail-level demand. We expect that potash delivered in North America in the fall of 2020 will largely be applied to ground and that channel inventories will be lower at the end of 2020 compared to recent years. We also expect that strong fall applications in China, driven by historically high crop prices in combination with seasonal increases in compound NPK production, will support strong potash consumption in the remainder of 2020. Meanwhile, demand in India will continue to be supported by the favorable growing conditions and increased minimum support prices for crops. |
| • | Global urea prices have been relatively stable as Indian import tenders have pulled significant volumes out of the trade market. The pace of Chinese urea exports has recently increased, along with Indian demand, but remains down around 10 percent in the first nine months of the year. North American urea prices are currently discounted relative to the rest of the world, which is seasonally normal, but offshore imports are down more than 25 percent from July to September and prices need to increase significantly to reach import parity. Global ammonia prices have increased driven by improved industrial demand, higher global gas prices and production curtailments in East Asia and Trinidad. |
| • | Global phosphate prices have trended higher due to strong demand in India and Brazil and trade flow changes related to countervailing duty investigations in the US. We continue to believe the phosphate market is fundamentally oversupplied which could limit a long-term price recovery. |
2
Financial Outlook and Guidance
Based on market factors detailed above, we are narrowing our 2020 adjusted net earnings guidance to $1.60 to $1.85 per share (from $1.50 to $1.90 per share previously) and adjusted EBITDA guidance to $3.5 to $3.7 billion (from $3.5 to $3.8 billion previously). In the third quarter of 2020, we revised the measure with which we evaluate our segments from EBITDA to adjusted EBITDA. This has not had an impact on our segment guidance numbers below.
All guidance numbers, including those noted above are outlined in the tables below. Refer to page 46 of Nutrien’s 2019 Annual Report for related sensitivities.
| 2020 Guidance Ranges 1 | Low | High | ||||||
| Adjusted net earnings per share 2 |
$ | 1.60 | $ | 1.85 | ||||
| Adjusted EBITDA (billions) 2 |
$ | 3.5 | $ | 3.7 | ||||
| Adjusted Retail EBITDA (billions) |
$ | 1.37 | $ | 1.42 | ||||
| Adjusted Potash EBITDA (billions) |
$ | 1.1 | $ | 1.2 | ||||
| Adjusted Nitrogen EBITDA (billions) |
$ | 1.05 | $ | 1.10 | ||||
| Adjusted Phosphate EBITDA (millions) |
$ | 200 | $ | 250 | ||||
| Potash sales tonnes (millions) 3 |
12.2 | 12.5 | ||||||
| Nitrogen sales tonnes (millions) 3 |
10.9 | 11.1 | ||||||
| Depreciation and amortization (billions) |
$ | 1.85 | $ | 1.95 | ||||
| Effective tax rate |
11 | % | 13 | % | ||||
| Sustaining capital expenditures (billions) |
$ | 0.9 | $ | 1.0 | ||||
1 See the “Forward-Looking Statements” section.
2 See the “Non-IFRS Financial Measures” section.
3 Manufactured products only. Nitrogen excludes ESN® and Rainbow products.
Consolidated Results
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||||||||||
| (millions of US dollars) |
2020 | 2019 | % Change | 2020 | 2019 | % Change | ||||||||||||||||||
| Sales |
4,205 | 4,169 | 1 | 16,807 | 16,581 | 1 | ||||||||||||||||||
| Freight, transportation and distribution |
204 | 210 | (3 | ) | 653 | 596 | 10 | |||||||||||||||||
| Cost of goods sold |
3,004 | 2,819 | 7 | 12,129 | 11,558 | 5 | ||||||||||||||||||
| Gross margin |
997 | 1,140 | (13 | ) | 4,025 | 4,427 | (9 | ) | ||||||||||||||||
| Expenses |
1,719 | 812 | 112 | 3,526 | 2,628 | 34 | ||||||||||||||||||
| Net (loss) earnings |
(587 | ) | 141 | n/m | 143 | 1,040 | (86 | ) | ||||||||||||||||
| Adjusted EBITDA 1 |
670 | 787 | (15 | ) | 2,899 | 3,361 | (14 | ) | ||||||||||||||||
| Free cash flow (“FCF”) 1 |
280 | 329 | (15 | ) | 1,634 | 2,019 | (19 | ) | ||||||||||||||||
| FCF including changes in non-cash operating working capital 1 |
(888 | ) | 333 | n/m | 34 | 579 | (94 | ) | ||||||||||||||||
1 See the “Non-IFRS Financial Measures” section.
Our third-quarter and first-nine months net (loss) earnings for 2020 were negatively impacted primarily by a non-cash impairment of assets related primarily to our Phosphate operations. Adjusted EBITDA decreased in the same periods due to significantly lower crop nutrient prices that more than offset strong Retail earnings growth and greater operational efficiencies. The COVID-19 pandemic had limited impact on our business during the periods.
Segment Results
Our discussion of segment results set out on the following pages is a comparison of the results for the three and nine months ended September 30, 2020 to the results for the three and nine months ended September 30, 2019, respectively, unless otherwise noted. In the third quarter of 2020, we revised the measure with which we evaluate our segments from EBITDA to Adjusted EBITDA. Adjusted EBITDA provides a better indication of the segments performance as it excludes the impact of impairments and other costs that are centrally managed by our corporate function. We have presented adjusted EBITDA for the comparative periods.
3
Retail
| Three Months Ended September 30 | ||||||||||||||||||||||||||||||||||||||
| (millions of US dollars, except | Dollars | Gross Margin | Gross Margin (%) | |||||||||||||||||||||||||||||||||||
| as otherwise noted) | 2020 | 2019 | % Change | 2020 | 2019 | % Change | 2020 | 2019 | ||||||||||||||||||||||||||||||
| Sales |
||||||||||||||||||||||||||||||||||||||
| Crop nutrients |
780 | 769 | 1 | 179 | 175 | 2 | 23 | 23 | ||||||||||||||||||||||||||||||
| Crop protection products |
1,328 | 1,318 | 1 | 256 | 303 | (16 | ) | 19 | 23 | |||||||||||||||||||||||||||||
| Seed |
103 | 60 | 72 | 27 | 17 | 59 | 26 | 28 | ||||||||||||||||||||||||||||||
| Merchandise |
234 | 135 | 73 | 37 | 22 | 68 | 16 | 16 | ||||||||||||||||||||||||||||||
| Services and other |
275 | 217 | 27 | 162 | 138 | 17 | 59 | 64 | ||||||||||||||||||||||||||||||
| 2,720 | 2,499 | 9 | 661 | 655 | 1 | 24 | 26 | |||||||||||||||||||||||||||||||
| Cost of goods sold |
2,059 | 1,844 | 12 | |||||||||||||||||||||||||||||||||||
| Gross margin |
661 | 655 | 1 | |||||||||||||||||||||||||||||||||||
| Expenses 1 |
669 | 617 | 8 | |||||||||||||||||||||||||||||||||||
| Earnings (loss) before finance |
(8 | ) | 38 | n/m | ||||||||||||||||||||||||||||||||||
| Depreciation and amortization |
170 | 152 | 12 | |||||||||||||||||||||||||||||||||||
| EBITDA / Adjusted EBITDA |
162 | 190 | (15 | ) | ||||||||||||||||||||||||||||||||||
1 Includes selling expenses of $669 million (2019 – $601 million).
| Nine Months Ended September 30 | ||||||||||||||||||||||||||||||||||||||
| (millions of US dollars, except | Dollars | Gross Margin | Gross Margin (%) | |||||||||||||||||||||||||||||||||||
| as otherwise noted) | 2020 | 2019 | % Change | 2020 | 2019 | % Change | 2020 | 2019 | ||||||||||||||||||||||||||||||
| Sales |
||||||||||||||||||||||||||||||||||||||
| Crop nutrients |
4,092 | 4,082 | - | 894 | 846 | 6 | 22 | 21 | ||||||||||||||||||||||||||||||
| Crop protection products |
4,774 | 4,348 | 10 | 960 | 892 | 8 | 20 | 21 | ||||||||||||||||||||||||||||||
| Seed |
1,638 | 1,613 | 2 | 305 | 276 | 11 | 19 | 17 | ||||||||||||||||||||||||||||||
| Merchandise |
703 | 387 | 82 | 116 | 65 | 78 | 17 | 17 | ||||||||||||||||||||||||||||||
| Services and other |
911 | 620 | 47 | 527 | 425 | 24 | 58 | 69 | ||||||||||||||||||||||||||||||
| 12,118 | 11,050 | 10 | 2,802 | 2,504 | 12 | 23 | 23 | |||||||||||||||||||||||||||||||
| Cost of goods sold |
9,316 | 8,546 | 9 | |||||||||||||||||||||||||||||||||||
| Gross margin |
2,802 | 2,504 | 12 | |||||||||||||||||||||||||||||||||||
| Expenses 1 |
2,157 | 1,937 | 11 | |||||||||||||||||||||||||||||||||||
| EBIT |
645 | 567 | 14 | |||||||||||||||||||||||||||||||||||
| Depreciation and amortization |
488 | 433 | 13 | |||||||||||||||||||||||||||||||||||
| EBITDA / Adjusted EBITDA |
1,133 | 1,000 | 13 | |||||||||||||||||||||||||||||||||||
1 Includes selling expenses of $2,068 million (2019 – $1,816 million).
| • | Adjusted EBITDA was lower in the third quarter of 2020 due primarily to the sales mix and use of crop protection products compared to the delayed season last year which pushed sales into the third quarter in North America. US applications this year were also negatively impacted by lower than expected planted acreage and weather-related events. Adjusted EBITDA in the first nine months of 2020 increased significantly from the same period in 2019 due to strong growth in revenue and gross margins across most product lines. The increase was primarily due to organic growth, aided by more normal weather conditions in the US, as well as from the benefit of acquisitions made over the past year. |
| Total selling expenses increased in the periods due primarily to acquisitions, including the acquisition of Ruralco Holdings Limited (“Ruralco”). Selling expenses as a percentage of sales were also impacted by lower crop nutrient and seed prices in 2020, which resulted in lower associated sales. Total US selling expenses, excluding depreciation and amortization, were down this quarter relative to the third quarter of last year. |
| • | Crop nutrients sales were higher in the third quarter and the first nine months of 2020, compared to the same periods in 2019 as higher sales volumes more than offset the impact of lower selling prices. Third quarter sales volumes were 10 percent higher than last year, due to strong applications in Australia which offset lower sales volumes in the US. For the first nine months of 2020, total sales volumes were up 12 percent, with increases across all geographies. Gross margin percentage was stable in the third quarter but higher in the nine-month period due to a larger proportion of higher-margin proprietary product sales. |
| • | Crop protection products sales in the third quarter and first nine months of 2020 were higher compared to the same periods in 2019, due to acquisitions and continued market share growth. Gross margin percentage decreased in the periods due to the impact of recent acquisitions, including that of Ruralco, which impacted the mix of product sold. There was also a slight reduction in use of higher margin discretionary products such as fungicides and insecticides in the US market due to a combination of weather and market factors. |
4
| • | Seed sales in the third quarter and first nine months of 2020 increased from the same period last year due to strong growth in all key markets, including contributions from the Tec Agro Group acquisition in Brazil and Ruralco in Australia. Gross margin percentage decreased in the third quarter of 2020 primarily due to the Ruralco acquisition, while US seed margins in the third quarter strengthened year over year. Gross margin percentage increased in the first nine months of 2020 due to higher margins achieved on soybean and corn sales and fewer replanting discounts compared to the same periods in 2019. |
| • | Merchandise sales increased in third quarter and first nine months of 2020 due to benefits from the acquisition of the Ruralco business in Australia. Gross margin percentage was stable in the periods. |
| • | Services and other sales were higher in the third quarter and first nine months of 2020 due to increased contributions from our Australian business. Sales and gross profit in the US declined in the third quarter but margins were slightly stronger. Gross margin percentage decreased in the periods due to product mix changes resulting primarily from the acquisition of Ruralco. |
Potash
| Three Months Ended September 30 | ||||||||||||||||||||||||||||||||||||||||||
| (millions of US dollars, except | Dollars | Tonnes (thousands) | Average per Tonne | |||||||||||||||||||||||||||||||||||||||
| as otherwise noted) | 2020 | 2019 | % Change | 2020 | 2019 | % Change | 2020 | 2019 | % Change | |||||||||||||||||||||||||||||||||
| Manufactured product |
||||||||||||||||||||||||||||||||||||||||||
| Net sales |
||||||||||||||||||||||||||||||||||||||||||
| North America |
252 | 330 | (24 | ) | 1,426 | 1,438 | (1 | ) | 176 | 229 | (23 | ) | ||||||||||||||||||||||||||||||
| Offshore |
339 | 379 | (11 | ) | 2,252 | 1,823 | 24 | 151 | 208 | (27 | ) | |||||||||||||||||||||||||||||||
| 591 | 709 | (17 | ) | 3,678 | 3,261 | 13 | 161 | 218 | (26 | ) | ||||||||||||||||||||||||||||||||
| Cost of goods sold |
303 | 303 | - | 83 | 94 | (12 | ) | |||||||||||||||||||||||||||||||||||
| Gross margin - manufactured |
288 | 406 | (29 | ) | 78 | 124 | (37 | ) | ||||||||||||||||||||||||||||||||||
| Gross margin - other 1 |
- | - | - | Depreciation and amortization |
|
34 | 34 | - | ||||||||||||||||||||||||||||||||||
| Gross margin - total |
288 | 406 | (29 | ) | Gross margin excluding depreciation |
|
||||||||||||||||||||||||||||||||||||
| Expenses 2 |
84 | 86 | (2 | ) | and amortization - manufactured 3 |
|
112 | 158 | (29 | ) | ||||||||||||||||||||||||||||||||
| EBIT |
204 | 320 | (36 | ) | Potash cash cost of product |
|
||||||||||||||||||||||||||||||||||||
| Depreciation and amortization |
124 | 110 | 13 | manufactured 3 |
|
53 | 62 | (15 | ) | |||||||||||||||||||||||||||||||||
| EBITDA |
328 | 430 | (24 | ) | ||||||||||||||||||||||||||||||||||||||
| Impairment of assets |
22 | - | n/m | |||||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA |
350 | 430 | (19 | ) | ||||||||||||||||||||||||||||||||||||||
1 Includes other potash and purchased products and is comprised of net sales of $Nil (2019 – $Nil) less cost of goods sold of $Nil (2019 – $Nil).
2 Includes provincial mining and other taxes of $58 million (2019 – $83 million).
3 See the “Non-IFRS Financial Measures” section.
| Nine Months Ended September 30 | ||||||||||||||||||||||||||||||||||||||||||
| (millions of US dollars, except | Dollars | Tonnes (thousands) | Average per Tonne | |||||||||||||||||||||||||||||||||||||||
| as otherwise noted) | 2020 | 2019 | % Change | 2020 | 2019 | % Change | 2020 | 2019 | % Change | |||||||||||||||||||||||||||||||||
| Manufactured product |
||||||||||||||||||||||||||||||||||||||||||
| Net sales |
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| North America |
709 | 832 | (15 | ) | 3,774 | 3,389 | 11 | 188 | 245 | (23 | ) | |||||||||||||||||||||||||||||||
| Offshore |
987 | 1,421 | (31 | ) | 6,396 | 6,247 | 2 | 154 | 228 | (32 | ) | |||||||||||||||||||||||||||||||
| 1,696 | 2,253 | (25 | ) | 10,170 | 9,636 | 6 | 167 | 234 | (29 | ) | ||||||||||||||||||||||||||||||||
| Cost of goods sold |
878 | 892 | (2 | ) | 87 | 93 | (6 | ) | ||||||||||||||||||||||||||||||||||
| Gross margin - manufactured |
818 | 1,361 | (40 | ) | 80 | 141 | (43 | ) | ||||||||||||||||||||||||||||||||||
| Gross margin - other 1 |
- | 1 | (100 | ) | Depreciation and amortization |
|
32 | 34 | (6 | ) | ||||||||||||||||||||||||||||||||
| Gross margin - total |
818 | 1,362 | (40 | ) | Gross margin excluding depreciation |
|
||||||||||||||||||||||||||||||||||||
| Expenses 2 |
199 | 242 | (18 | ) | and amortization - manufactured |
|
112 | 175 | (36 | ) | ||||||||||||||||||||||||||||||||
| EBIT |
619 | 1,120 | (45 | ) | Potash cash cost of product |
|
||||||||||||||||||||||||||||||||||||
| Depreciation and amortization |
329 | 324 | 2 | manufactured |
|
55 | 60 | (8 | ) | |||||||||||||||||||||||||||||||||
| EBITDA |
948 | 1,444 | (34 | ) | ||||||||||||||||||||||||||||||||||||||
| Impairment of assets |
22 | - | n/m | |||||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA |
970 | 1,444 | (33 | ) | ||||||||||||||||||||||||||||||||||||||
1 Includes other potash and purchased products and is comprised of net sales of $Nil million (2019 – $1 million) less cost of goods sold of $Nil (2019 – $Nil).
2 Includes provincial mining and other taxes of $161 million (2019 – $237 million).
5
| • | Adjusted EBITDA decreased in the third quarter and first nine months of 2020 due to lower global potash prices. This was partially offset by higher sales volumes and lower cost of goods sold per tonne. |
| • | Sales volumes in the third quarter of 2020 were the second highest of any quarter on record while sales volumes in the first nine months of 2020 were the highest on record. Higher sales volumes relative to the same periods last year were supported by strong offshore demand, higher US planted acreage and improved crop fundamentals. |
| • | Net realized selling price decreased in the third quarter and first nine months of 2020, due to pressure in global benchmark prices. |
| • | Cost of goods sold per tonne decreased in both periods due to production efficiency gains and the deferral of maintenance projects related to COVID-19 precautions. These factors also lowered the potash cash cost of product manufactured in the third quarter and the first nine months of 2020. |
Canpotex Sales by Market
| (percentage of sales volumes, except as | Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||||||||||
| otherwise noted) | 2020 | 2019 | % Change | 2020 | 2019 | % Change | ||||||||||||||||||
| Latin America |
36 | 44 | (18 | ) | 33 | 31 | 6 | |||||||||||||||||
| Other Asian markets 1 |
20 | 21 | (5 | ) | 25 | 27 | (7 | ) | ||||||||||||||||
| China |
23 | 16 | 44 | 22 | 23 | (4 | ) | |||||||||||||||||
| India |
14 | 12 | 17 | 13 | 11 | 18 | ||||||||||||||||||
| Other markets |
7 | 7 | - | 7 | 8 | (13 | ) | |||||||||||||||||
|
|
100 | 100 |
|
|
|
100 | 100 |
|
|
| ||||||||||||||
| 1 All Asian markets except China and India. |
Nitrogen
|
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Three Months Ended September 30 | |||||||||||||||||||||||||||||||||||||||||
| (millions of US dollars, except | Dollars |
|
Tonnes (thousands) |
|
Average per Tonne | |||||||||||||||||||||||||||||||||||||
| as otherwise noted) | 2020 | 2019 | % Change |
|
2020 | 2019 | % Change |
|
2020 | 2019 | % Change | |||||||||||||||||||||||||||||||
| Manufactured product |
|
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| Net sales |
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| Ammonia |
105 | 144 | (27 | ) | 546 | 715 | (24 | ) | 193 | 203 | (5 | ) | ||||||||||||||||||||||||||||||
| Urea |
193 | 221 | (13 | ) | 766 | 726 | 6 | 251 | 304 | (17 | ) | |||||||||||||||||||||||||||||||
| Solutions, nitrates and sulfates |
143 | 168 | (15 | ) |
|
|
|
1,091 | 1,081 | 1 |
|
|
|
131 | 155 | (15 | ) | |||||||||||||||||||||||||
| 441 | 533 | (17 | ) | 2,403 | 2,522 | (5 | ) | 184 | 211 | (13 | ) | |||||||||||||||||||||||||||||||
| Cost of goods sold |
392 | 416 | (6 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
164 | 165 | (1 | ) | |||||||||||||||||||||
| Gross margin - manufactured |
49 | 117 | (58 | ) | 20 | 46 | (57 | ) | ||||||||||||||||||||||||||||||||||
| Gross margin - other 1 |
9 | 16 | (44 | ) |
|
|
|
Depreciation and amortization |
|
|
|
|
55 | 50 | 10 | |||||||||||||||||||||||||||
| Gross margin - total |
58 | 133 | (56 | ) | Gross margin excluding depreciation |
|
||||||||||||||||||||||||||||||||||||
| Expenses |
21 | 13 | 62 |
|
|
|
and amortization - manufactured |
|
|
|
|
75 | 96 | (22 | ) | |||||||||||||||||||||||||||
| EBIT |
37 | 120 | (69 | ) | Ammonia controllable cash cost of |
|
||||||||||||||||||||||||||||||||||||
| Depreciation and amortization |
131 | 127 | 3 |
|
|
|
product manufactured 2 |
|
|
|
|
47 | 45 | 4 | ||||||||||||||||||||||||||||
| EBITDA |
168 | 247 | (32 | ) | ||||||||||||||||||||||||||||||||||||||
| Impairment of assets |
27 | - | n/m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
| Adjusted EBITDA |
195 | 247 | (21 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
| 1 Includes other nitrogen (including ESN® and Rainbow) and purchased products and is comprised of net sales of $99 million (2019 – $69 million) less cost of goods sold of $90 million (2019 – $53 million). |
| 2 See the “Non-IFRS Financial Measures” section. |
6
|
|
Nine Months Ended September 30 | |||||||||||||||||||||||||||||||||||||||||||
| (millions of US dollars, except | Dollars |
|
Tonnes (thousands) |
|
Average per Tonne | |||||||||||||||||||||||||||||||||||||||
| as otherwise noted) | 2020 | 2019 | % Change |
|
2020 | 2019 | % Change |
|
2020 | 2019 | % Change | |||||||||||||||||||||||||||||||||
| Manufactured product |
|
|||||||||||||||||||||||||||||||||||||||||||
| Net sales |
||||||||||||||||||||||||||||||||||||||||||||
| Ammonia |
464 | 602 | (23 | ) | 2,048 | 2,400 | (15 | ) | 227 | 251 | (10 | ) | ||||||||||||||||||||||||||||||||
| Urea |
703 | 739 | (5 | ) | 2,622 | 2,342 | 12 | 268 | 315 | (15 | ) | |||||||||||||||||||||||||||||||||
| Solutions, nitrates and sulfates |
500 | 540 | (7 | ) |
|
|
|
3,451 | 3,166 | 9 |
|
|
|
145 | 170 | (15 | ) | |||||||||||||||||||||||||||
| 1,667 | 1,881 | (11 | ) | 8,121 | 7,908 | 3 | 205 | 238 | (14 | ) | ||||||||||||||||||||||||||||||||||
| Cost of goods sold |
1,344 | 1,345 | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
165 | 170 | (3 | ) | ||||||||||||||||||||||
| Gross margin - manufactured |
323 | 536 | (40 | ) | 40 | 68 | (41 | ) | ||||||||||||||||||||||||||||||||||||
| Gross margin - other 1 |
40 | 57 | (30 | ) |
|
|
|
Depreciation and amortization |
|
|
|
56 | 50 | 12 | ||||||||||||||||||||||||||||||
| Gross margin - total |
363 | 593 | (39 | ) | Gross margin excluding depreciation |
|||||||||||||||||||||||||||||||||||||||
| Expenses |
29 | 7 | 314 |
|
|
|
and amortization - manufactured |
96 | 118 | (19 | ) | |||||||||||||||||||||||||||||||||
| EBIT |
334 | 586 | (43 | ) | Ammonia controllable cash cost of |
|||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization |
453 | 394 | 15 |
|
|
|
product manufactured |
44 | 44 | - | ||||||||||||||||||||||||||||||||||
| EBITDA |
787 | 980 | (20 | ) | ||||||||||||||||||||||||||||||||||||||||
| Impairment of assets |
27 | - | n/m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
| Adjusted EBITDA |
814 | 980 | (17 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
| 1 Includes other nitrogen (including ESN® and Rainbow) and purchased products and is comprised of net sales of $404 million (2019 – $364 million) less cost of goods sold of $364 million (2019 – $307 million). |
| • | Adjusted EBITDA decreased in the third quarter and first nine months of 2020 as lower net realized selling prices more than offset the benefit of higher sales volumes into North American agricultural markets and lower cost of goods sold per tonne. |
| • | Sales volumes decreased in the third quarter of 2020 compared to the same period in 2019 due to lower industrial nitrogen demand, particularly for ammonia, and associated operational changes in Trinidad. This was partially offset by higher agriculture-related nitrogen sales. Sales volumes in the first nine months of 2020 were higher compared to the same period in 2019 due to recent expansion projects and strong operating rates at our North American facilities. |
| • | Net realized selling price of nitrogen was lower in the third quarter and first nine months of 2020 than the same periods last year due to lower global and North American benchmark prices. Third quarter sales commitments in 2020 were weighted towards the beginning of the quarter prior to benchmark price increases. |
| • | Cost of goods sold per tonne decreased in the third quarter and first nine months of 2020 compared to the same periods in 2019 due to lower natural gas prices and fixed costs. This more than offset higher depreciation and amortization per tonne related to expansion and turnaround work completed in late 2019. Ammonia controllable cash cost of product manufactured per tonne increased in the third quarter due to lower production associated with curtailments in Trinidad. Ammonia controllable cash costs for the first nine months of 2020 were consistent with the same period last year due to lower fixed costs that offset lower production. |
Natural Gas Prices in Cost of Production
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||||||||||
| (US dollars per MMBtu, except as otherwise noted) | 2020 | 2019 | % Change | 2020 | 2019 | % Change | ||||||||||||||||||
| Overall gas cost excluding realized derivative impact |
2.18 | 2.06 | 6 | 2.17 | 2.47 | (12 | ) | |||||||||||||||||
| Realized derivative impact |
0.06 | 0.22 | (73 | ) | 0.06 | 0.14 | (57 | ) | ||||||||||||||||
| Overall gas cost |
2.24 | 2.28 | (2 | ) | 2.23 | 2.61 | (15 | ) | ||||||||||||||||
| Average NYMEX |
1.98 | 2.23 | (11 | ) | 1.88 | 2.67 | (30 | ) | ||||||||||||||||
| Average AECO |
1.62 | 0.78 | 108 | 1.54 | 1.05 | 47 | ||||||||||||||||||
| • | Gas prices in our cost of production decreased in the third quarter and first nine months of 2020 as lower US gas prices and a lower realized derivative impact more than offset higher Canadian gas prices compared to the same period last year. |
7
Phosphate
|
|
Three Months Ended September 30 | |||||||||||||||||||||||||||||||||||||||||||
| (millions of US dollars, except | Dollars |
|
Tonnes (thousands) |
|
Average per Tonne | |||||||||||||||||||||||||||||||||||||||
| as otherwise noted) | 2020 | 2019 | % Change |
|
2020 | 2019 | % Change |
|
2020 | 2019 | % Change | |||||||||||||||||||||||||||||||||
| Manufactured product |
|
|||||||||||||||||||||||||||||||||||||||||||
| Net sales |
||||||||||||||||||||||||||||||||||||||||||||
| Fertilizer |
172 | 164 | 5 | 542 | 492 | 10 | 317 | 335 | (5 | ) | ||||||||||||||||||||||||||||||||||
| Industrial and feed |
94 | 106 | (11 | ) |
|
|
|
166 | 192 | (14 | ) |
|
|
|
563 | 549 | 3 | |||||||||||||||||||||||||||
| 266 | 270 | (1 | ) | 708 | 684 | 4 | 375 | 396 | (5 | ) | ||||||||||||||||||||||||||||||||||
| Cost of goods sold |
268 | 284 | (6 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
379 | 416 | (9 | ) | |||||||||||||||||||||
| Gross margin - manufactured |
(2 | ) | (14 | ) | 86 | (4 | ) | (20 | ) | 80 | ||||||||||||||||||||||||||||||||||
| Gross margin - other 1 |
1 | (1 | ) | n/m |
|
|
|
Depreciation and amortization |
|
|
|
85 | 85 | - | ||||||||||||||||||||||||||||||
| Gross margin - total |
(1 | ) | (15 | ) | 93 | Gross margin excluding depreciation |
||||||||||||||||||||||||||||||||||||||
| Expenses |
782 | 9 | n/m |
|
|
|
and amortization - manufactured |
81 | 65 | 25 | ||||||||||||||||||||||||||||||||||
| EBIT |
(783 | ) | (24 | ) | n/m | |||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization |
60 | 58 | 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
| EBITDA |
(723 | ) | 34 | n/m | ||||||||||||||||||||||||||||||||||||||||
| Impairment of assets |
769 | - | n/m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
| Adjusted EBITDA |
46 | 34 | 35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
| 1 Includes other phosphate and purchased products and is comprised of net sales of $26 million (2019 - $44 million) less cost of goods sold of $25 million (2019 - $45 million). |
|
|
Nine Months Ended September 30 | |||||||||||||||||||||||||||||||||||||||||||
| (millions of US dollars, except | Dollars |
|
Tonnes (thousands) |
|
Average per Tonne | |||||||||||||||||||||||||||||||||||||||
| as otherwise noted) | 2020 | 2019 | % Change |
|
2020 | 2019 | % Change |
|
2020 | 2019 | % Change | |||||||||||||||||||||||||||||||||
| Manufactured product |
|
|||||||||||||||||||||||||||||||||||||||||||
| Net sales |
||||||||||||||||||||||||||||||||||||||||||||
| Fertilizer |
491 | 635 | (23 | ) | 1,582 | 1,664 | (5 | ) | 310 | 382 | (19 | ) | ||||||||||||||||||||||||||||||||
| Industrial and feed |
304 | 321 | (5 | ) |
|
|
|
551 | 578 | (5 | ) |
|
|
|
552 | 555 | (1 | ) | ||||||||||||||||||||||||||
| 795 | 956 | (17 | ) | 2,133 | 2,242 | (5 | ) | 373 | 426 | (12 | ) | |||||||||||||||||||||||||||||||||
| Cost of goods sold |
779 | 963 | (19 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
366 | 429 | (15 | ) | |||||||||||||||||||||
| Gross margin - manufactured |
16 | (7 | ) | n/m | 7 | (3 | ) | n/m | ||||||||||||||||||||||||||||||||||||
| Gross margin - other 1 |
4 | (4 | ) | n/m |
|
|
|
Depreciation and amortization |
|
|
|
84 | 80 | 5 | ||||||||||||||||||||||||||||||
| Gross margin - total |
20 | (11 | ) | n/m | Gross margin excluding depreciation |
|||||||||||||||||||||||||||||||||||||||
| Expenses |
799 | 29 | n/m |
|
|
|
and amortization - manufactured |
91 | 77 | 18 | ||||||||||||||||||||||||||||||||||
| EBIT |
(779 | ) | (40 | ) | n/m | |||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization |
179 | 180 | (1 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
| EBITDA |
(600 | ) | 140 | n/m | ||||||||||||||||||||||||||||||||||||||||
| Impairment of assets |
769 | - | n/m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
| Adjusted EBITDA |
169 | 140 | 21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
| 1 Includes other phosphate and purchased products and is comprised of net sales of $87 million (2019 - $125 million) less cost of goods sold of $83 million (2019 - $129 million). |
| • | Adjusted EBITDA increased in the third quarter and first nine months of 2020 primarily due to lower cost of goods sold per tonne. As part of our expenses, we recognized a $769 million non-cash impairment of assets which is added back to adjusted EBITDA. This impairment relates to a less favorable long-term outlook of phosphate selling prices and an expected global supply imbalance. |
| • | Sales volumes increased in the third quarter of 2020 compared to the third quarter last year due to higher fertilizer sales that more than offset lower industrial and feed sales. Sales volumes in the first nine months of 2020 decreased compared to the same period last year primarily due to the conversion of the Redwater phosphate facility to ammonium sulfate in 2019 and lower phosphoric acid exports in 2020. |
| • | Net realized selling price of phosphate fertilizer sales was lower than in the third quarter of last year due to the lag effect in realized prices, which was partially offset by higher industrial and feed prices. Net realized selling prices in the first nine months of 2020 were lower than the same period last year consistent with declines in global benchmark prices. |
| • | Cost of goods sold per tonne decreased in the third quarter of 2020 due to lower raw material costs and a favorable non-cash inventory adjustment. Cost of goods sold per tonne decreased significantly in the first nine months of 2020 compared to the same period last year primarily due to both lower raw material costs and a change in estimate related to an asset retirement obligation recorded in the second quarter of 2020. |
8
Corporate and Others
| (millions of US dollars, except as otherwise | Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||||||||||
| noted) | 2020 | 2019 | % Change | 2020 | 2019 | % Change | ||||||||||||||||||
| Sales 1 |
23 | 35 | (34 | ) | 70 | 99 | (29) | |||||||||||||||||
| Cost of goods sold |
20 | 35 | (43 | ) | 63 | 99 | (36) | |||||||||||||||||
| Gross margin |
3 | - | n/m | 7 | - | n/m | ||||||||||||||||||
| Selling expenses |
(4 | ) | (5 | ) | (20 | ) | (17 | ) | (14 | ) | 21 | |||||||||||||
| General and administrative expenses |
66 | 65 | 2 | 191 | 191 | - | ||||||||||||||||||
| Provincial mining and other taxes |
- | 8 | (100 | ) | 1 | 13 | (92) | |||||||||||||||||
| Share-based compensation expense |
29 | (21 | ) | n/m | 9 | 95 | (91) | |||||||||||||||||
| Impairment of assets |
5 | - | n/m | 5 | 33 | (85) | ||||||||||||||||||
| Other expenses |
67 | 40 | 68 | 153 | 95 | 61 | ||||||||||||||||||
| EBIT |
(160 | ) | (87 | ) | 84 | (335 | ) | (413 | ) | (19) | ||||||||||||||
| Depreciation and amortization |
15 | 10 | 50 | 41 | 32 | 28 | ||||||||||||||||||
| EBITDA |
(145 | ) | (77 | ) | 88 | (294 | ) | (381 | ) | (23) | ||||||||||||||
| Merger and related costs |
- | 21 | (100 | ) | - | 57 | (100) | |||||||||||||||||
| Acquisition and integration related costs |
10 | - | n/m | 38 | - | n/m | ||||||||||||||||||
| Share-based compensation expense |
29 | (21 | ) | n/m | 9 | 95 | (91) | |||||||||||||||||
| Impairment of assets |
5 | - | n/m | 5 | 33 | (85) | ||||||||||||||||||
| COVID-19 related expenses |
11 | - | n/m | 30 | - | n/m | ||||||||||||||||||
| Foreign exchange loss, net of related |
13 | 2 | 550 | 4 | 14 | (71) | ||||||||||||||||||
| Loss on disposal of business |
6 | - | n/m | 6 | - | n/m | ||||||||||||||||||
| Adjusted EBITDA |
(71 | ) | (75 | ) | (5 | ) | (202 | ) | (182 | ) | 11 | |||||||||||||
| Finance costs |
129 | 147 | (12 | ) | 401 | 413 | (3) | |||||||||||||||||
| Income tax (recovery) expense |
(264 | ) | 40 | n/m | (45 | ) | 346 | n/m | ||||||||||||||||
| Other comprehensive income (loss) |
71 | (75 | ) | n/m | (86 | ) | (57 | ) | 51 | |||||||||||||||
| 1 Primarily relates to our non-core Canadian business which was sold in the third quarter of 2020. |
| • | Share-based compensation expense (recovery) - We had an expense for the third quarter of 2020 due to an increase in share price and a recovery for the comparative period in 2019 due to a decrease in share price. We had a lower expense for the first nine months of 2020 as our share price was negatively impacted from market volatility due to the COVID-19 pandemic in the first nine months of 2020. |
| • | Impairment of assets was lower for the first nine months of 2020 due to a $33 million impairment of our intangible assets as a result of Fertilizantes Heringer S.A. filing for bankruptcy protection in 2019. |
| • | Other expenses in the third quarter and first nine months of 2020 were higher due to project costs related to our Retail enterprise resource planning system as part of our digital transformation and COVID-19 related expenses. COVID-19 expenses primarily consist of increased cleaning and sanitization costs, the purchase of personal protective equipment, discretionary supplemental employee costs and costs related to construction delays from access limitations and other government restrictions. |
| • | Finance costs in the third quarter and first nine months of 2020 were slightly lower than the same periods last year. Lower interest rates more than offset higher finance costs incurred as we managed our immediate liquidity position during the initial months of the COVID-19 pandemic. |
| • | Income tax (recovery) expense – Income tax recoveries were recorded for the third quarter and first nine months of 2020 due to an impairment of assets, discrete tax recoveries primarily related to US legislative changes and a change in jurisdictional earnings composition. The discrete tax recoveries were $48 million and $59 million for the third quarter and first nine months of 2020, respectively. |
| • | Other comprehensive income (loss) – For the third quarter of 2020, we had higher other comprehensive income from a gain on translation of our Retail operations in Canada and Australia as the Canadian and Australian dollars appreciated relative to the US dollar as global markets rebounded following the COVID-19 pandemic in the early part of 2020. For the first nine months of 2020, we had a higher other comprehensive loss due primarily to a loss on translation of our Retail operations in Brazil as the Brazilian Real declined relative to the US dollar. There were also offsetting impacts from translation of our Canadian and Australian Retail operations. |
9
Financial Condition Review
The following balance sheet categories contained variances that were considered significant:
| As at | ||||||||||||||||
| (millions of US dollars, except as otherwise noted) | September 30, 2020 | December 31, 2019 | $ Change | % Change | ||||||||||||
| Assets |
||||||||||||||||
| Cash and cash equivalents |
465 | 671 | (206 | ) | (31 | ) | ||||||||||
| Receivables |
5,056 | 3,542 | 1,514 | 43 | ||||||||||||
| Inventories |
3,829 | 4,975 | (1,146 | ) | (23 | ) | ||||||||||
| Prepaid expenses and other current assets |
531 | 1,477 | (946 | ) | (64 | ) | ||||||||||
| Property, plant and equipment |
19,308 | 20,335 | (1,027 | ) | (5 | ) | ||||||||||
| Liabilities and Equity |
||||||||||||||||
| Short-term debt |
1,644 | 976 | 668 | 68 | ||||||||||||
| Current portion of long-term debt |
- | 502 | (502 | ) | (100 | ) | ||||||||||
| Payables and accrued charges |
5,239 | 7,437 | (2,198 | ) | (30 | ) | ||||||||||
| Long-term debt |
10,041 | 8,553 | 1,488 | 17 | ||||||||||||
| Retained earnings |
6,477 | 7,101 | (624 | ) | (9 | ) | ||||||||||
| • | Explanations for changes in Cash and cash equivalents are in the “Sources and Uses of Cash” section. |
| • | Receivables increased due to seasonal Retail sales resulting in higher receivables from customers and vendor rebates receivables. |
| • | Inventories decreased due to seasonal Retail sales activity. |
| • | Prepaid expenses and other current assets decreased due to the drawdown of prepaid inventory where Retail typically prepays for products at year-end and takes possession of inventory throughout the year. |
| • | Property, plant and equipment decreased primarily due to a non-cash impairment of our Phosphate production facilities as described in Note 3 to the interim financial statements. |
| • | Short-term debt increased from commercial paper issuances as part of our seasonal working capital management. |
| • | Payables and accrued charges decreased due to lower customer prepayments as Retail customers took delivery of prepaid products. This was partially offset by an increase related to a shift in timing of vendor payments. |
| • | Long-term debt (including current portion) increased due to the addition of $1.5 billion in notes issued in May 2020 exceeding the repayment of $500 million in notes that matured in the first quarter of 2020. |
| • | Retained earnings decreased due to dividends declared exceeding net earnings. |
Liquidity and Capital Resources
Sources and Uses of Liquidity
We managed our capital in accordance with our capital allocation strategy. We believe that our internally generated cash flow, supplemented by available borrowings under our existing financing sources, if necessary, will be sufficient to meet our anticipated capital expenditures and other cash requirements for at least the next 12 months. As further developments and impacts of COVID-19 are highly uncertain and cannot be predicted, we continue to monitor our liquidity position. Refer to the “Capital Structure and Management” section for details on our existing long-term debt and credit facilities.
Key uses and sources of cash and cash equivalents in the third quarter and/or nine months ended September 30, 2020 included:
| • | Investments in capital assets to sustain and grow our safe, reliable and cost-efficient operations. Sustaining capital expenditures were $203 million in the third quarter of 2020 and were $511 million in the first nine months of 2020. Investing capital expenditures were $96 million in the third quarter of 2020 and were $360 million for the first nine months of 2020. |
| • | Returns to our shareholders through dividends and share repurchases (See Note 9 to the interim financial statements). Dividends paid were $257 million in the third quarter of 2020 and were $771 million for the first nine months of 2020. Share repurchases were $nil in the third quarter of 2020 and were $160 million in the first nine months of 2020. |
10
| • | Other financing activities including the following: |
| • | Issued $1.5 billion of notes on May 13, 2020. See Note 8 to the interim financial statements. |
| • | Drew down $446 million and $801 million from our commercial paper during the three and nine months ended September 30, 2020, respectively. |
| • | Repaid at maturity $500 million of 4.875 percent notes during the nine months ended September 30, 2020. See Note 8 to the interim financial statements. |
| • | Established new committed revolving credit facilities totaling approximately $1.5 billion in March and April 2020, in response to the market uncertainty caused by the COVID-19 pandemic. We closed these credit facilities after the issuance of the new notes, as described above. During the first nine months of 2020, we drew down from and later repaid $3.5 billion of our revolving credit facilities to provide additional liquidity in the volatile market caused by the COVID-19 pandemic. |
Sources and Uses of Cash
| (millions of US dollars, except as otherwise | Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||||||||||
| noted) | 2020 | 2019 | % Change | 2020 | 2019 | % Change | ||||||||||||||||||
| Cash (used in) provided by operating activities |
(685 | ) | 589 | n/m | 545 | 1,246 | (56 | ) | ||||||||||||||||
| Cash used in investing activities |
(356 | ) | (904 | ) | (61 | ) | (1,209 | ) | (2,133 | ) | (43 | ) | ||||||||||||
| Cash provided by (used in) financing activities |
85 | 272 | (69 | ) | 465 | (837 | ) | n/m | ||||||||||||||||
| Effect of exchange rate changes on cash and
cash |
6 | (5 | ) | n/m | (7 | ) | (22 | ) | (68 | ) | ||||||||||||||
| Decrease in cash and cash equivalents |
(950 | ) | (48 | ) | n/m | (206 | ) | (1,746 | ) | (88 | ) | |||||||||||||
Cash and cash equivalents decreased by $950 million in the third quarter of 2020 compared to a decrease of $48 million in 2019 as a result of lower cash from our operating activities mainly due to lower crop nutrient prices and comparatively strong results in the third quarter of 2019. We also settled more trade payables due to the shift in timing of vendor payments from the second to third quarter of 2020.
As cash from operations decreased, we lowered our spend in investing activities through:
| • | A $305 million decrease in cash used for acquisitions compared to the same period in 2019. We acquired Ruralco in the third quarter of 2019 with no similar acquisition in the third quarter of 2020. |
| • | A $276 million decrease in capital expenditures compared to the same period in 2019 as we deferred or reduced capital projects mainly due to lower crop nutrient prices, as well as COVID-19 precautions. |
Cash and cash equivalents decreased by $206 million in the nine months ended September 30, 2020 compared to a decrease of $1.7 billion in the nine months ended September 30, 2019.
Cash from our operating activities decreased as a result of lower crop nutrient prices. Despite this decrease, we had a $933 million decrease in short-term debt net proceeds compared to the same period in 2019, due to improved working capital management.
The decrease in our cash from operating activities was partially offset by:
| • | An approximately $900 million decrease in cash used for Retail acquisitions and capital expenditures compared to the same period in 2019. |
| • | A decrease of $1.8 billion in cash payments to shareholders in the form of share repurchases compared to the same period in 2019. |
| • | A $503 million decrease in long-term debt repayments compared to the same period in 2019. |
Capital Structure and Management
Principal Debt Instruments
In response to the COVID-19 pandemic, we continue to monitor our liquidity position. We added new credit facilities of $1.5 billion in March and April 2020, which we subsequently closed in May 2020 after the issuance of the new notes described below. We use a combination of cash generated from operations and short-term and long-term debt to finance our operations. We are in compliance with our debt covenants and did not have any changes to our credit ratings in the nine months ended September 30, 2020.
11
Short-term Debt
|
|
As at September 30, 2020 | |||||||||||||||
| (millions of US dollars) | Rate of Interest (%) | Total Facility Limit | Outstanding and Committed |
Remaining Available | ||||||||||||
| Credit facilities |
||||||||||||||||
| Unsecured revolving term credit facility |
NIL | 4,500 | - | 4,500 | ||||||||||||
| Uncommitted revolving demand facility |
NIL | 500 | - | 500 | ||||||||||||
| Other credit facilities 1 |
0.8 - 9.5 | 600 | 193 | 407 | ||||||||||||
| Commercial paper |
0.2 - 0.6 |
|
|
|
1,451 |
|
|
| ||||||||
| Total |
|
|
|
|
|
|
1,644 |
|
|
| ||||||
| 1 Other credit facilities are unsecured and consist of South American facilities with debt of $143 (December 31, 2019 – $149) and interest rates ranging from 2.0 percent to 9.5 percent, Australian facilities with debt of $24 (December 31, 2019 – $157) and an interest rate of 1.3 percent, and other facilities with debt of $26 (December 31, 2019 – $20) and interest rates ranging from 0.8 percent to 4.0 percent. |
The amount available under the commercial paper program is limited to the availability of backup funds under the $4,500 million unsecured revolving term credit facility and excess cash invested in highly liquid securities.
Long-term Debt
Our long-term debt consists primarily of notes. See the “Capital Structure and Management” section of our 2019 Annual Report for information on balances, rates and maturities for our notes. On May 13, 2020, we issued $1.5 billion in notes. See Note 8 to the interim financial statements. During the first quarter of 2020, we repaid the $500 million 4.875 percent notes that matured March 30, 2020.
Outstanding Share Data
|
|
As at October 30, 2020 | |||
| Common shares |
569,145,935 | |||
| Options to purchase common shares |
11,123,020 | |||
For more information on our capital structure and management, see Note 26 to our 2019 financial statements.
Quarterly Results
| (millions of US dollars, except as otherwise noted) | Q3 2020 | Q2 2020 | Q1 2020 | Q4 2019 | Q3 2019 | Q2 2019 | Q1 2019 | Q4 2018 | ||||||||||||||||||||||||
| Sales |
4,205 | 8,416 | 4,186 | 3,442 | 4,169 | 8,693 | 3,719 | 3,762 | ||||||||||||||||||||||||
| Net earnings (loss) from continuing operations |
(587 | ) | 765 | (35 | ) | (48 | ) | 141 | 858 | 41 | 296 | |||||||||||||||||||||
| Net earnings from discontinued operations |
- | - | - | - | - | - | - | 2,906 | ||||||||||||||||||||||||
| Net earnings (loss) |
(587 | ) | 765 | (35 | ) | (48 | ) | 141 | 858 | 41 | 3,202 | |||||||||||||||||||||
| Adjusted EBITDA |
670 | 1,721 | 508 | 664 | 787 | 1,870 | 704 | 924 | ||||||||||||||||||||||||
| Earnings (loss) per share (“EPS”) from continuing operations |
||||||||||||||||||||||||||||||||
| Basic |
(1.03 | ) | 1.34 | (0.06 | ) | (0.08 | ) | 0.25 | 1.48 | 0.07 | 0.48 | |||||||||||||||||||||
| Diluted |
(1.03 | ) | 1.34 | (0.06 | ) | (0.08 | ) | 0.24 | 1.47 | 0.07 | 0.48 | |||||||||||||||||||||
| EPS |
||||||||||||||||||||||||||||||||
| Basic |
(1.03 | ) | 1.34 | (0.06 | ) | (0.08 | ) | 0.25 | 1.48 | 0.07 | 5.23 | |||||||||||||||||||||
| Diluted |
(1.03 | ) | 1.34 | (0.06 | ) | (0.08 | ) | 0.24 | 1.47 | 0.07 | 5.22 | |||||||||||||||||||||
Seasonality in our business results from increased demand for products during the planting season. Crop input sales are generally higher in the spring and fall application seasons. Crop nutrient inventories are normally accumulated leading up to each application season. Our cash collections generally occur after the application season is complete, while customer prepayments made to us are concentrated in December and January and inventory prepayments paid to our vendors are typically concentrated in the period from November to January. Feed and industrial sales are more evenly distributed throughout the year.
12
Since the fourth quarter of 2019, Potash earnings have been impacted by lower net realized selling prices caused by a temporary slowdown in global demand. In the fourth quarter of 2018, earnings were impacted by $2.9 billion in after-tax gains on the sales of our investments in Sociedad Quimica y Minera de Chile S.A. and Arab Potash Company, which were categorized as discontinued operations. In the third quarter of 2020, earnings were impacted by non-cash impairments of property, plant and equipment primarily in the Phosphate segment as a result of lower forecasted global phosphate prices.
Risk Factors
Coronavirus Disease (COVID-19) Pandemic
Epidemics, pandemics or other such crises or public health concerns in regions of the world where we have operations or source material or sell products could impact or disrupt our business. Specifically, the ongoing COVID-19 outbreak has resulted in travel restrictions and extended shutdowns of certain businesses around the world, as well as a deterioration of general economic conditions. These or any governmental or other regulatory responses or developments or health concerns in countries in which we operate could result in operational restrictions or social and economic instability, or labor shortages. More specifically, there remains uncertainty relating to the potential impact that COVID-19 could ultimately have on our business. It is still possible that COVID-19 could impact our operations, create supply chain disruptions and/or limit our ability to timely sell or distribute our products in the future, which would negatively impact our business, financial condition and operating results. It is also possible that COVID-19 could negatively impact our customers, even though the agriculture sector is classified as an essential service. Any significant long-term downturn in the global economy or agricultural markets could impact the Company’s access to capital or credit ratings, or our customers’ access to liquidity, which could increase our counterparty credit exposure.
Critical Accounting Estimates
Our critical accounting policies are disclosed in our 2019 Annual Report. We have discussed the development, selection and application of our key accounting policies, and the critical accounting estimates and assumptions they involve, with the audit committee of the Board. Our critical accounting estimates are discussed on page 54 of our 2019 Annual Report. Other than the critical accounting estimates discussed below, there were no significant changes in the first nine months of 2020.
Long-lived Asset Impairment
During the three and nine months ended September 30, 2020, we identified an impairment indicator in our Phosphate cash generating units (“CGUs”) due to lower long-term forecasted global phosphate prices and recorded impairments of assets in the statement of (loss) earnings relating to our property plant and equipment at Aurora and White Springs of $545 million and $215 million, respectively. See Note 3 to the interim financial statements.
The recoverable values of Aurora and White Springs are most sensitive to the following key assumptions: our internal sales price forecasts which consider projections from an independent third-party data source, discount rates, long-term growth rates, and expected mine life. We used key assumptions that were based on historical data and estimates of future results from internal sources, external price benchmarks, mineral reserve technical reports, as well as industry and market trends.
The following table highlights sensitivities to the recoverable value which could result in additional impairment losses or reversals of previously recorded losses. The sensitivities have been calculated independently of changes in other key variables.
|
|
Aurora | |||||||||||||||
| Key Assumptions |
|
Change in Assumption |
|
Increase (Decrease) to Recoverable Value ($ millions) |
||||||||||||
| Net selling price |
± | 10 per tonne | ± | 150 | ||||||||||||
| Discount rate |
± | 1.0 percentage point | ± | 120 | ||||||||||||
For our White Springs CGU, there were no reasonably possible changes in the key assumptions that would result in a substantial change in the recoverable value.
At September 30, 2020, we performed impairment testing on the Trinidad CGU, part of our Nitrogen segment, due to the indefinite closure of an ammonia plant in response to market conditions and lower long-term forecasted global ammonia prices. No impairment resulted from comparing the carrying value of the Trinidad CGU to its recoverable value determined on a fair value less costs of disposal (“FVLCD”) methodology. FVLCD was based on after-tax discounted cash flows (using a five-year projection and a 2.0% terminal growth rate) discounted at a post-tax rate of 12.6%.
13
The following table indicates the percentages by which key assumptions would need to change individually for the estimated Trinidad CGU recoverable value to be equal to the carrying value:
| Key Assumptions | Change Required for Carrying Value to Equal Recoverable Value |
|||
| Net selling price (5-year average) |
4 percent decrease | |||
| Production volumes (5-year average) |
5 percent decrease | |||
| Discount rate (post-tax) |
0.9 percentage point increase | |||
Controls and Procedures
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended, and National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with IFRS. Any system of internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
There have been changes to our internal control over financial reporting during the quarter ended June 30, 2020. As part of our digital transformation, we have implemented a new enterprise resource planning system in the Retail segment resulting in a more automated control environment for our Canadian and Loveland Products operations. This change continues to materially affect our internal control over financial reporting.
As a result of the acquisition of Ruralco and the integration of the Australian Retail operations, the internal control over the Australian Retail operations will come into scope of the Company’s internal control over financial reporting for the fourth quarter of 2020. The acquisition of Ruralco was previously excluded from management’s evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019 due to the proximity of the acquisition to year-end. The integration of the Australian Retail operations is expected to materially affect our internal control over financial reporting.
COVID-19 has also affected our business. During the quarter, corporate office staff and many site administrative staff have worked from home. This change has required certain processes and controls that were previously done or documented manually to be completed and retained in electronic form. This change has not materially affected our internal control over financial reporting.
Except as discussed herein, there have been no changes during the quarter ended September 30, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Forward-Looking Statements
Certain statements and other information included and incorporated by reference in this document constitute “forward-looking information” or “forward-looking statements” (collectively, “forward-looking statements”) under applicable securities laws (such statements are often accompanied by words such as “anticipate”, “forecast”, “expect”, “believe”, “may”, “will”, “should”, “estimate”, “intend” or other similar words). All statements in this document, other than those relating to historical information or current conditions, are forward-looking statements, including, but not limited to: Nutrien’s 2020 annual guidance, including expectations regarding our adjusted net earnings per share, adjusted EBITDA (consolidated and by segment); capital spending expectations for 2020; expectations regarding our liquidity; expectations regarding performance of our operating segments in 2020, including the impact of our ammonia plant closure on our Nitrogen segment; our operating segment market outlooks and market conditions for 2020, including the impact of COVID-19 thereon, and the anticipated supply and demand for our products and services, expected market and industry conditions with respect to crop nutrient application rates, planted acres, crop mix, prices and the impact of import and export volumes; and acquisitions and divestitures, and the expected synergies associated with various acquisitions, including timing thereof. These forward-looking statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from such forward-looking statements. As such, undue reliance should not be placed on these forward-looking statements.
14
All of the forward-looking statements are qualified by the assumptions that are stated or inherent in such forward-looking statements, including the assumptions referred to below and elsewhere in this document. Although we believe that these assumptions are reasonable, having regard to our experience and our perception of historical trends, this list is not exhaustive of the factors that may affect any of the forward-looking statements and the reader should not place an undue reliance on these assumptions and such forward-looking statements. Current conditions, economic and otherwise, render assumptions, although reasonable when made, subject to greater uncertainty. The additional key assumptions that have been made include, among other things, assumptions with respect to our ability to successfully complete, integrate and realize the anticipated benefits of our already completed and future acquisitions and divestitures, and that we will be able to implement our standards, controls, procedures and policies at any acquired businesses to realize the expected synergies; that future business, regulatory and industry conditions will be within the parameters expected by us, including with respect to prices, margins, demand, supply, product availability, supplier agreements, availability and cost of labor and interest, exchange and effective tax rates; the completion of our expansion projects on schedule, as planned and on budget; assumptions with respect to global economic conditions and the accuracy of our market outlook expectations for 2020 and in the future; our expectations regarding the impacts, direct and indirect, of COVID-19 on our business, customers, business partners, employees, supply chain, other stakeholders and the overall economy; the adequacy of our cash generated from operations and our ability to access our credit facilities or capital markets for additional sources of financing; our ability to identify suitable candidates for acquisitions and divestitures and negotiate acceptable terms; our ability to maintain investment grade ratings and achieve our performance targets; and the receipt, on time, of all necessary permits, utilities and project approvals with respect to our expansion projects and that we will have the resources necessary to meet the projects’ approach.
Events or circumstances that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: general global economic, market and business conditions; failure to complete announced and future acquisitions or divestitures at all or on the expected terms and within the expected timeline; climate change and weather conditions, including impacts from regional flooding and/or drought conditions; crop planted acreage, yield and prices; the supply and demand and price levels for our products; governmental and regulatory requirements and actions by governmental authorities, including changes in government policy (including tariffs, trade restrictions and climate change initiatives), government ownership requirements, changes in environmental, tax and other laws or regulations and the interpretation thereof; political risks, including civil unrest, actions by armed groups or conflict and malicious acts including terrorism; the occurrence of a major environmental or safety incident; innovation and cybersecurity risks related to our systems, including our costs of addressing or mitigating such risks; regional natural gas supply restrictions; counterparty and sovereign risk; delays in completion of turnarounds at our major facilities; gas supply interruptions; any significant impairment of the carrying value of certain assets; risks related to reputational loss; certain complications that may arise in our mining processes; the ability to attract, engage and retain skilled employees and strikes or other forms of work stoppages; the COVID-19 pandemic and its resulting effects on economic conditions, restrictions imposed by public health authorities or governments, fiscal and monetary responses by governments and financial institutions and disruptions to global supply chains; and other risk factors detailed from time to time in Nutrien reports filed with the Canadian securities regulators and the SEC in the United States.
The purpose of our expected adjusted net earnings per share and adjusted EBITDA (consolidated and by segment) guidance ranges are to assist readers in understanding our expected financial results, and this information may not be appropriate for other purposes.
The forward-looking statements in this document are made as of the date hereof and Nutrien disclaims any intention or obligation to update or revise any forward-looking statements in this document as a result of new information or future events, except as may be required under applicable Canadian securities legislation or applicable US federal securities laws.
Terms and Definitions
For the definitions of certain financial and non-financial terms used in this document, as well as a list of abbreviated company names and sources, see the “Terms and Definitions” section of our 2019 Annual Report dated February 19, 2020. All references to per share amounts pertain to diluted net earnings (loss) per share, “n/m” indicates information that is not meaningful and all financial amounts are stated in millions of US dollars, unless otherwise noted.
15
About Nutrien
Nutrien is the world’s largest provider of crop inputs and services, playing a critical role in helping growers increase food production in a sustainable manner. We produce and distribute 25 million tonnes of potash, nitrogen and phosphate products world-wide. With this capability and our leading agriculture retail network, we are well positioned to supply the needs of our customers. We operate with a long-term view and are committed to working with our stakeholders as we address our economic, environmental and social priorities. The scale and diversity of our integrated portfolio provides a stable earnings base, multiple avenues for growth and the opportunity to return capital to shareholders.
For Further Information:
Investor Relations:
Richard Downey
Vice President, Investor Relations
(403) 225-7357
Investors@nutrien.com
Tim Mizuno
Director, Investor Relations
(306) 933-8548
Media Relations:
Megan Fielding
Vice President, Brand & Culture Communications
(403) 797-3015
Contact us at: www.nutrien.com
Selected financial data for download can be found in our data tool at www.nutrien.com/investors/interactive-datatool
Such data is not incorporated by reference herein.
Nutrien will host a Conference Call on Tuesday, November 3, 2020 at 10:00 am Eastern Time.
| • | In order to expedite access to our conference call, each participant will be required to pre-register for the event: |
| • | Online: http://www.directeventreg.com/registration/event/9668938. |
| • | Via Phone: 1-888-869-1189 Conference ID 9668938. |
| • | Once the registration is complete, a confirmation will be sent providing the dial in number and both the Direct Event Passcode and your unique Registrant ID to join this call. For security reasons, please do not share your information with anyone else. |
| • | Live Audio Webcast: Visit http://www.nutrien.com/investors/events/2020-q3-earnings-conference-call |
16
Appendix A - Selected Additional Financial Data
| Selected Retail measures | Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||
|
|
2020 | 2019 | 2020 | 2019 | ||||||||||||
| Proprietary products margin as a percentage of product line margin (%) |
||||||||||||||||
| Crop nutrients |
33 | 31 | 27 | 24 | ||||||||||||
| Crop protection products |
43 | 39 | 40 | 42 | ||||||||||||
| Seed |
n/m | 20 | 43 | 44 | ||||||||||||
| All products |
25 | 27 | 27 | 28 | ||||||||||||
| Crop nutrients sales volumes (tonnes - thousands) |
||||||||||||||||
| North America |
1,159 | 1,202 | 7,683 | 7,254 | ||||||||||||
| International |
741 | 533 | 2,364 | 1,677 | ||||||||||||
| Total |
1,900 | 1,735 | 10,047 | 8,931 | ||||||||||||
| Crop nutrients selling price per tonne |
||||||||||||||||
| North America |
413 | 467 | 423 | 471 | ||||||||||||
| International |
407 | 389 | 356 | 395 | ||||||||||||
| Total |
411 | 443 | 407 | 457 | ||||||||||||
| Crop nutrients gross margin per tonne |
||||||||||||||||
| North America |
116 | 114 | 102 | 103 | ||||||||||||
| International |
61 | 70 | 47 | 57 | ||||||||||||
| Total |
94 | 101 | 89 | 95 | ||||||||||||
| Financial performance measures | 2020 Target | 2020 Actuals | ||||||||||||||
| Retail Adjusted EBITDA to sales (%) 1, 2 |
10 | 10 | ||||||||||||||
| Retail adjusted average working capital to sales (%) 1, 2 |
|
21 | 17 | |||||||||||||
| Retail cash operating coverage ratio (%) 1, 2 |
61 | 62 | ||||||||||||||
| Retail Adjusted EBITDA per US selling location (thousands of US dollars) 1, 2 |
|
1,000 | 1,031 | |||||||||||||
1 Rolling four quarters ended September 30, 2020.
2 See the “Non-IFRS Financial Measures” section.
| Nutrien Financial | As at September 30, 2020 | |||||||||||||||||||
| (millions of US dollars) | Current |
31-90 days past due |
>90 days past due |
Allowance 2 | Total | |||||||||||||||
| Nutrien Financial receivables 1 |
1,661 | 37 | 35 | (22 | ) | 1,711 | ||||||||||||||
1 See the “Non-IFRS Financial Measures” section.
2 Allowance for expected credit losses of receivables from customers.
17
| Selected Nitrogen measures | Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Sales volumes (tonnes - thousands) |
||||||||||||||||
| Fertilizer |
1,426 | 1,304 | 5,010 | 4,204 | ||||||||||||
| Industrial and feed |
977 | 1,218 | 3,111 | 3,704 | ||||||||||||
| Net sales (millions of US dollars) |
||||||||||||||||
| Fertilizer |
280 | 316 | 1,108 | 1,155 | ||||||||||||
| Industrial and feed |
161 | 217 | 559 | 726 | ||||||||||||
| Net selling price per tonne |
||||||||||||||||
| Fertilizer |
196 | 243 | 221 | 275 | ||||||||||||
| Industrial and feed |
166 | 178 | 180 | 196 | ||||||||||||
| Production measures | Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Potash production (Product tonnes - thousands) |
3,430 | 2,977 | 9,811 | 9,761 | ||||||||||||
| Potash shutdown weeks 1 |
4 | 11 | 38 | 27 | ||||||||||||
| Nitrogen production (Ammonia tonnes - thousands) 2 |
1,413 | 1,529 | 4,479 | 4,763 | ||||||||||||
| Ammonia operating rate (%) 3 |
91 | 85 | 93 | 90 | ||||||||||||
| Phosphate production (P2O5 tonnes - thousands) 4 |
354 | 374 | 1,083 | 1,124 | ||||||||||||
| Phosphate P2O5 operating rate (%) 4 |
83 | 87 | 85 | 88 | ||||||||||||
1 Represents weeks of full production shutdown, excluding the impact of any periods of reduced operating rates and planned routine annual maintenance shutdowns and announced workforce reductions.
2 All figures are provided on a gross production basis.
3 Excludes Trinidad and Joffre.
4 Excludes Redwater.
18
Appendix B - Non-IFRS Financial Measures
We use both IFRS and certain non-IFRS financial measures to assess performance. Non-IFRS financial measures are numerical measures of a company’s performance, that either exclude or include amounts that are not normally excluded or included in the most directly comparable measures calculated and presented in accordance with IFRS. In evaluating these measures, investors should consider that the methodology applied in calculating such measures may differ among companies and analysts.
Management believes the non-IFRS financial measures provide transparent and useful supplemental information to help investors evaluate our financial performance, financial condition and liquidity using the same measures as management. These non-IFRS financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with IFRS.
The following section outlines our non-IFRS financial measures, their definitions and why management uses each measure. It includes reconciliations to the most directly comparable IFRS measures. Except as otherwise described herein, our non-IFRS financial measures are calculated on a consistent basis from period to period and are adjusted for specific items in each period, as applicable. As non-recurring, unusual or other non-operational items arise, we generally exclude these items in our calculation.
Adjusted EBITDA (Consolidated)
Most directly comparable IFRS financial measure: Net earnings (loss).
Definition: Adjusted EBITDA is calculated as net earnings (loss) before finance costs, income taxes, depreciation and amortization, Merger and related costs, certain acquisition and integration related costs, share-based compensation, impairment of assets, certain foreign exchange gain/loss (net of related derivatives), COVID-19 related expenses and loss on disposal of business. In the first and third quarter of 2020, respectively, we have amended our calculation of adjusted EBITDA to adjust for the impact of COVID-19 related expenses and loss on disposal of business. There were no similar expenses in the comparative period. To align with the change in our segment performance measure effective in the third quarter of 2020, we will primarily use Adjusted EBITDA going forward as our consolidated performance measure.
Why we use the measure and why it is useful to investors: It is not impacted by long-term investment and financing decisions, but rather focuses on the performance of our day-to-day operations. It provides a measure of our ability to service debt and to meet other payment obligations.
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
| (millions of US dollars) | 2020 | 2019 1 | 2020 | 2019 1 | ||||||||||||
| Net (loss) earnings |
(587 | ) | 141 | 143 | 1,040 | |||||||||||
| Finance costs |
129 | 147 | 401 | 413 | ||||||||||||
| Income tax (recovery) expense |
(264 | ) | 40 | (45 | ) | 346 | ||||||||||
| Depreciation and amortization |
500 | 457 | 1,490 | 1,363 | ||||||||||||
| EBITDA |
(222 | ) | 785 | 1,989 | 3,162 | |||||||||||
| Merger and related costs |
- | 21 | - | 57 | ||||||||||||
| Acquisition and integration related costs |
10 | - | 38 | - | ||||||||||||
| Share-based compensation expense (recovery) |
29 | (21 | ) | 9 | 95 | |||||||||||
| Impairment of assets |
823 | - | 823 | 33 | ||||||||||||
| COVID-19 related expenses |
11 | - | 30 | - | ||||||||||||
| Foreign exchange loss, net of related derivatives |
13 | 2 | 4 | 14 | ||||||||||||
| Loss on disposal of business |
6 | - | 6 | - | ||||||||||||
| Adjusted EBITDA |
670 | 787 | 2,899 | 3,361 | ||||||||||||
| 1 In the fourth quarter of 2019, we amended our calculations of adjusted EBITDA and restated the comparative periods to exclude the impact of foreign exchange gain/loss, net of related derivatives, as foreign exchange changes are not indicative of our operating performance. |
19
Adjusted EBITDA (Consolidated) and Adjusted Net Earnings Per Share Guidance
Adjusted EBITDA and adjusted net earnings per share guidance are forward-looking non-IFRS financial measures. We do not provide a reconciliation of such forward-looking measures to the most directly comparable financial measures calculated and presented in accordance with IFRS due to unknown variables and the uncertainty related to future results. These unknown variables may include unpredictable transactions of significant value that may be inherently difficult to determine, without unreasonable efforts. Guidance excludes the impacts of acquisition and integration related costs, share-based compensation, certain foreign exchange gain/loss (net of related derivatives), and COVID-19 related expenses.
Adjusted Net Earnings and Adjusted Net Earnings Per Share
Most directly comparable IFRS financial measure: Net earnings (loss) and net earnings (loss) per share.
Definition: Net earnings (loss) before certain acquisition and integration related costs, share-based compensation, certain foreign exchange gain/loss (net of related derivatives), COVID-19 related expenses (including those recorded under finance costs), loss on disposal of business and impairment of assets, net of tax. In 2020, we have amended our calculation of adjusted net loss to adjust for the impact of COVID-19 related expenses and loss on disposal of business.
Why we use the measure and why it is useful to investors: Focuses on the performance of our day-to-day operations excluding the effects of non-operating items.
| Three Months Ended September 30, 2020 |
Nine Months Ended September 30, 2020 |
|||||||||||||||||||||||
| (millions of US dollars, except as otherwise noted) | Increases (Decreases) |
Post-Tax | Per Diluted Share |
Increases (Decreases) |
Post-Tax | Per Diluted Share |
||||||||||||||||||
| Net (loss) earnings |
(587 | ) | (1.03 | ) | 143 | 0.25 | ||||||||||||||||||
| Adjustments: |
||||||||||||||||||||||||
| Acquisition and integration related costs |
10 | 8 | 0.01 | 38 | 31 | 0.06 | ||||||||||||||||||
| Share-based compensation expense |
29 | 23 | 0.04 | 9 | 7 | 0.01 | ||||||||||||||||||
| Impairment of assets |
823 | 661 | 1.16 | 823 | 661 | 1.16 | ||||||||||||||||||
| COVID-19 related expenses |
14 | 11 | 0.02 | 45 | 36 | 0.06 | ||||||||||||||||||
| Foreign exchange loss, net of related derivatives |
13 | 10 | 0.02 | 4 | 3 | 0.01 | ||||||||||||||||||
| Loss on disposal of business |
6 | 5 | 0.01 | 6 | 5 | 0.01 | ||||||||||||||||||
| Adjusted net earnings |
131 | 0.23 | 886 | 1.56 | ||||||||||||||||||||
Free Cash Flow and Free Cash Flow Including Changes in Non-Cash Operating Working Capital
Most directly comparable IFRS financial measure: Cash from operations before working capital changes.
Definition: Cash from operations before working capital changes less sustaining capital expenditures. We also calculate a similar measure which includes changes in non-cash operating working capital.
Why we use the measure and why it is useful to investors: For evaluation of liquidity and financial strength, and as a component of employee remuneration calculations. These are also useful as indicators of our ability to service debt, meet other payment obligations and make strategic investments. These do not represent residual cash flow available for discretionary expenditures.
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||||||
| (millions of US dollars) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||
| Cash from operations before working capital changes |
483 | 585 | 2,145 | 2,686 | ||||||||||||||||
| Sustaining capital expenditures |
(203 | ) | (256 | ) | (511 | ) | (667 | ) | ||||||||||||
| Free cash flow |
280 | 329 | 1,634 | 2,019 | ||||||||||||||||
| Changes in non-cash operating working capital |
(1,168 | ) | 4 | (1,600 | ) | (1,440 | ) | |||||||||||||
| Free cash flow including changes in
non-cash |
(888 | ) | 333 | 34 | 579 | |||||||||||||||
20
Potash Cash Cost of Product Manufactured (“COPM”)
Most directly comparable IFRS financial measure: Cost of goods sold (“COGS”) for the Potash segment.
Definition: Potash COGS for the period excluding depreciation and amortization expense and inventory and other adjustments divided by the production tonnes for the period.
Why we use the measure and why it is useful to investors: To assess operational performance. Potash cash COPM excludes the effects of production from other periods and long-term investment decisions, supporting a focus on the performance of our day-to-day operations.
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
| (millions of US dollars, except as otherwise noted) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
| Total COGS - Potash |
303 | 303 | 878 | 892 | ||||||||||||
| Change in inventory |
4 | (26 | ) | (28 | ) | (1 | ) | |||||||||
| Other adjustments |
- | (4 | ) | (5 | ) | (16 | ) | |||||||||
| COPM |
307 | 273 | 845 | 875 | ||||||||||||
| Depreciation and amortization included in COPM |
(124 | ) | (87 | ) | (305 | ) | (292 | ) | ||||||||
| Cash COPM |
183 | 186 | 540 | 583 | ||||||||||||
| Production tonnes (tonnes - thousands) |
3,430 | 2,977 | 9,811 | 9,761 | ||||||||||||
| Potash cash COPM per tonne |
53 | 62 | 55 | 60 | ||||||||||||
Ammonia Controllable Cash COPM
Most directly comparable IFRS financial measure: COGS for the Nitrogen segment.
Definition: The total of COGS for the Nitrogen segment excluding depreciation and amortization expense included in COGS, cash COGS for products other than ammonia, other adjustments, and natural gas and steam costs, divided by net ammonia production tonnes.
Why we use the measure and why it is useful to investors: To assess operational performance. Ammonia controllable cash COPM excludes the effects of production from other periods, the costs of natural gas and steam, and long-term investment decisions, supporting a focus on the performance of our day-to-day operations.
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
| (millions of US dollars, except as otherwise noted) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
| Total COGS - Nitrogen |
482 | 469 | 1,708 | 1,652 | ||||||||||||
| Depreciation and amortization in COGS |
(113 | ) | (109 | ) | (395 | ) | (340 | ) | ||||||||
| Cash COGS for products other than ammonia |
(287 | ) | (262 | ) | (1,017 | ) | (952 | ) | ||||||||
| Ammonia |
||||||||||||||||
| Total cash COGS before other adjustments |
82 | 98 | 296 | 360 | ||||||||||||
| Other adjustments 1 |
(11 | ) | (2 | ) | (46 | ) | (35 | ) | ||||||||
| Total cash COPM |
71 | 96 | 250 | 325 | ||||||||||||
| Natural gas and steam costs |
(45 | ) | (62 | ) | (164 | ) | (221 | ) | ||||||||
| Controllable cash COPM |
26 | 34 | 86 | 104 | ||||||||||||
| Production tonnes (net tonnes 2 - thousands) |
557 | 755 | 1,945 | 2,343 | ||||||||||||
| Ammonia controllable cash COPM per tonne |
47 | 45 | 44 | 44 | ||||||||||||
1 Includes changes in inventory balances and other adjustments.
2 Ammonia tonnes available for sale, as not upgraded to other Nitrogen products.
Gross Margin Excluding Depreciation and Amortization Per Tonne - Manufactured
Most directly comparable IFRS financial measure: Gross margin.
Definition: Gross margin from manufactured products per tonne less depreciation and amortization per tonne. Reconciliations are provided in the “Segment Results” section.
Why we use the measure and why it is useful to investors: Focuses on the performance of our day-to-day operations, which excludes the effects of items that primarily reflect the impact of long-term investment and financing decisions.
21
Retail Adjusted EBITDA to Sales
Most directly comparable IFRS financial measure: Retail adjusted EBITDA divided by Retail sales.
Definition: Retail adjusted EBITDA divided by Retail sales for the last four rolling quarters.
Why we use the measure and why it is useful to investors: To evaluate operational efficiency. A higher or lower percentage represents increased or decreased efficiency, respectively. In the third quarter of 2020, we revised this measure from EBITDA to Adjusted EBITDA to align with how we evaluate Retail results. There were no changes to this measure as a result of the change.
| Rolling four quarters ended September 30, 2020 | ||||||||||||||||||||
| (millions of US dollars, except as otherwise noted) | Q4 2019 | Q1 2020 | Q2 2020 | Q3 2020 | Total | |||||||||||||||
| Adjusted EBITDA |
231 | 7 | 964 | 162 | 1,364 | |||||||||||||||
| Sales |
2,171 | 2,649 | 6,749 | 2,720 | 14,289 | |||||||||||||||
| Adjusted EBITDA to sales (%) |
10 | |||||||||||||||||||
Nutrien Financial Receivables
Most directly comparable IFRS financial measure: Receivables.
Definition: Nutrien Financial receivables are a subcategory of US Retail receivables managed in the Nutrien Financial portfolio, segregated predominately according to credit quality. We manage our credit portfolio based on a combination of customer credit metrics, experience with the customer and by managing exposure to any single customer.
Why we use the measure and why it is useful to investors: Used by credit rating agencies and other users to evaluate overall credit risk.
| (millions of US dollars) | As at September 30, 2020 | |||
| Nutrien Financial receivables |
1,711 | |||
| Non-Nutrien Financial receivables |
3,345 | |||
| Receivables |
5,056 | |||
Retail Adjusted Average Working Capital to Sales
Most directly comparable IFRS financial measure: (Current assets minus current liabilities for Retail) divided by Retail sales.
Definition: Retail adjusted average working capital divided by Retail adjusted sales for the last four rolling quarters. We exclude in our calculations the working capital and sales of certain acquisitions (such as Ruralco) during the first year following the acquisition. We have amended our calculation to adjust for the sales of certain recently acquired businesses.
Why we use the measure and why it is useful to investors: To evaluate operational efficiency. A lower or higher percentage represents increased or decreased efficiency, respectively.
| Rolling four quarters ended September 30, 2020 | ||||||||||||||||||||
| (millions of US dollars, except as otherwise noted) | Q4 2019 | Q1 2020 | Q2 2020 | Q3 2020 | Average/Total | |||||||||||||||
| Working capital |
1,759 | 2,288 | 2,030 | 3,216 | ||||||||||||||||
| Working capital from certain recent acquisitions |
(138 | ) | (108 | ) | 63 | - | ||||||||||||||
| Adjusted working capital |
1,621 | 2,180 | 2,093 | 3,216 | 2,278 | |||||||||||||||
| Sales |
2,171 | 2,649 | 6,749 | 2,720 | ||||||||||||||||
| Sales from certain recent acquisitions |
(249 | ) | (348 | ) | (338 | ) | - | |||||||||||||
| Adjusted sales |
1,922 | 2,301 | 6,411 | 2,720 | 13,354 | |||||||||||||||
| Adjusted average working capital to sales (%) |
17 | |||||||||||||||||||
22
Retail Cash Operating Coverage Ratio
Most directly comparable IFRS financial measure: Retail operating expenses as a percentage of Retail gross margin.
Definition: Retail operating expenses, excluding depreciation and amortization expense, divided by Retail gross margin excluding depreciation and amortization expense in cost of goods sold, for the last four rolling quarters.
Why we use the measure and why it is useful to investors: To understand the costs and underlying economics of our Retail operations and to assess our Retail operating performance and ability to generate free cash flow.
| Rolling four quarters ended September 30, 2020 | ||||||||||||||||||||
| (millions of US dollars, except as otherwise noted) | Q4 2019 | Q1 2020 | Q2 2020 | Q3 2020 | Total | |||||||||||||||
| Operating expenses 1 |
667 | 677 | 811 | 669 | 2,824 | |||||||||||||||
| Depreciation and amortization in operating expenses |
(160 | ) | (153 | ) | (161 | ) | (167 | ) | (641 | ) | ||||||||||
| Operating expenses excluding depreciation and amortization |
507 | 524 | 650 | 502 | 2,183 | |||||||||||||||
| Gross margin |
736 | 529 | 1,612 | 661 | 3,538 | |||||||||||||||
| Depreciation and amortization in cost of goods sold |
2 | 2 | 2 | 3 | 9 | |||||||||||||||
| Gross margin excluding depreciation and amortization |
738 | 531 | 1,614 | 664 | 3,547 | |||||||||||||||
| Cash operating coverage ratio (%) |
62 | |||||||||||||||||||
1 Includes Retail expenses below gross margin including selling expenses, general and administrative expenses and other (income) expenses.
Retail Adjusted EBITDA per US Selling Location
Most directly comparable IFRS financial measure: Retail US adjusted EBITDA.
Definition: Total Retail US adjusted EBITDA for the last four rolling quarters, adjusted for acquisitions in those quarters, divided by the number of US locations that have generated sales in the last four rolling quarters, adjusted for acquired locations.
Why we use the measure and why it is useful to investors: To assess our US Retail operating performance. This measure includes locations we have owned for more than 12 months. In the third quarter of 2020, we revised this measure from US EBITDA to US adjusted EBITDA to align with how we evaluate Retail results. There were no changes to this measure as a result of the change.
| Rolling four quarters ended September 30, 2020 | ||||||||||||||||||||
| (millions of US dollars, except as otherwise noted) | Q4 2019 | Q1 2020 | Q2 2020 | Q3 2020 | Total | |||||||||||||||
| Adjusted US EBITDA |
143 | (44 | ) | 766 | 86 | 951 | ||||||||||||||
| Adjustments for acquisitions |
(11 | ) | ||||||||||||||||||
| Adjusted US EBITDA adjusted for acquisitions |
940 | |||||||||||||||||||
| Number of US selling locations adjusted for acquisitions |
912 | |||||||||||||||||||
| Adjusted EBITDA per US selling location (thousands of US dollars) |
|
1,031 | ||||||||||||||||||
23
| Unaudited | In millions of US dollars except as otherwise noted |
Condensed Consolidated Financial Statements
Condensed Consolidated Statements of (Loss) Earnings
| Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||||
| Note | 2020 | 2019 | 2020 | 2019 | ||||||||||||||
| Note 1 | Note 1 | |||||||||||||||||
| SALES |
2 | 4,205 | 4,169 | 16,807 | 16,581 | |||||||||||||
| Freight, transportation and distribution |
204 | 210 | 653 | 596 | ||||||||||||||
| Cost of goods sold |
3,004 | 2,819 | 12,129 | 11,558 | ||||||||||||||
| GROSS MARGIN |
997 | 1,140 | 4,025 | 4,427 | ||||||||||||||
| Selling expenses |
676 | 607 | 2,081 | 1,835 | ||||||||||||||
| General and administrative expenses |
107 | 97 | 312 | 287 | ||||||||||||||
| Provincial mining and other taxes |
58 | 92 | 163 | 253 | ||||||||||||||
| Share-based compensation expense (recovery) |
29 | (21 | ) | 9 | 95 | |||||||||||||
| Impairment of assets |
3 | 823 | - | 823 | 33 | |||||||||||||
| Other expenses |
4 | 26 | 37 | 138 | 125 | |||||||||||||
|
(LOSS) EARNINGS BEFORE FINANCE COSTS AND INCOME TAXES |
(722 | ) | 328 | 499 | 1,799 | |||||||||||||
| Finance costs |
129 | 147 | 401 | 413 | ||||||||||||||
| (LOSS) EARNINGS BEFORE INCOME TAXES |
(851 | ) | 181 | 98 | 1,386 | |||||||||||||
| Income tax (recovery) expense |
5 | (264 | ) | 40 | (45 | ) | 346 | |||||||||||
| NET (LOSS) EARNINGS |
(587 | ) | 141 | 143 | 1,040 | |||||||||||||
| NET (LOSS) EARNINGS PER SHARE (“EPS”) |
||||||||||||||||||
| Basic |
(1.03 | ) | 0.25 | 0.25 | 1.78 | |||||||||||||
| Diluted |
(1.03 | ) | 0.24 | 0.25 | 1.77 | |||||||||||||
| Weighted average shares outstanding for basic EPS |
569,146,000 | 572,887,000 | 569,818,000 | 585,421,000 | ||||||||||||||
| Weighted average shares outstanding for diluted EPS |
569,146,000 | 573,702,000 | 569,818,000 | 586,335,000 | ||||||||||||||
Condensed Consolidated Statements of Comprehensive (Loss) Income
| Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||
| (Net of related income taxes) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
| NET (LOSS) EARNINGS |
(587 | ) | 141 | 143 | 1,040 | |||||||||||
| Other comprehensive income (loss) |
||||||||||||||||
| Items that will not be reclassified to net (loss) earnings: |
||||||||||||||||
| Net actuarial gain on defined benefit plans |
- | - | 3 | - | ||||||||||||
| Net fair value loss on investments |
(4 | ) | (11 | ) | (25 | ) | (26 | ) | ||||||||
| Items that have been or may be subsequently reclassified to net (loss) earnings: |
||||||||||||||||
| Gain (loss) on currency translation of foreign operations |
69 | (71 | ) | (52 | ) | (36 | ) | |||||||||
| Other |
6 | 7 | (12 | ) | 5 | |||||||||||
| OTHER COMPREHENSIVE INCOME (LOSS) |
71 | (75 | ) | (86 | ) | (57 | ) | |||||||||
| COMPREHENSIVE (LOSS) INCOME |
(516 | ) | 66 | 57 | 983 | |||||||||||
(See Notes to the Condensed Consolidated Financial Statements)
24
| Unaudited | In millions of US dollars except as otherwise noted |
Condensed Consolidated Statements of Cash Flows
| Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||||||
| Note | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||
| Note 1 | Note 1 | |||||||||||||||||||
| OPERATING ACTIVITIES |
||||||||||||||||||||
| Net (loss) earnings |
(587 | ) | 141 | 143 | 1,040 | |||||||||||||||
| Adjustments for: |
||||||||||||||||||||
| Depreciation and amortization |
500 | 457 | 1,490 | 1,363 | ||||||||||||||||
| Share-based compensation expense (recovery) |
29 | (21 | ) | 9 | 95 | |||||||||||||||
| Impairment of assets |
3 | 823 | - | 823 | 33 | |||||||||||||||
| (Recovery of) provision for deferred income tax |
(161 | ) | 31 | (99 | ) | 178 | ||||||||||||||
| Other long-term liabilities and miscellaneous |
(121 | ) | (23 | ) | (221 | ) | (23 | ) | ||||||||||||
| Cash from operations before working capital changes |
483 | 585 | 2,145 | 2,686 | ||||||||||||||||
| Changes in non-cash operating working capital: |
||||||||||||||||||||
| Receivables |
692 | 624 | (1,455 | ) | (1,427 | ) | ||||||||||||||
| Inventories |
407 | 541 | 1,153 | 1,239 | ||||||||||||||||
| Prepaid expenses and other current assets |
(77 | ) | (23 | ) | 936 | 801 | ||||||||||||||
| Payables and accrued charges |
(2,190 | ) | (1,138 | ) | (2,234 | ) | (2,053 | ) | ||||||||||||
| CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES |
(685 | ) | 589 | 545 | 1,246 | |||||||||||||||
| INVESTING ACTIVITIES |
||||||||||||||||||||
| Additions to property, plant and equipment |
(266 | ) | (518 | ) | (927 | ) | (1,177 | ) | ||||||||||||
| Additions to intangible assets |
(19 | ) | (43 | ) | (87 | ) | (118 | ) | ||||||||||||
| Business acquisitions, net of cash acquired |
10 | (43 | ) | (348 | ) | (216 | ) | (837 | ) | |||||||||||
| Proceeds from disposal of discontinued operations, net of tax |
- | - | - | 55 | ||||||||||||||||
| Purchase of investments |
(13 | ) | (42 | ) | (79 | ) | (164 | ) | ||||||||||||
| Other |
(15 | ) | 47 | 100 | 108 | |||||||||||||||
| CASH USED IN INVESTING ACTIVITIES |
(356 | ) | (904 | ) | (1,209 | ) | (2,133 | ) | ||||||||||||
| FINANCING ACTIVITIES |
||||||||||||||||||||
| Transaction costs on long-term debt |
- | - | (15 | ) | (29 | ) | ||||||||||||||
| Proceeds from short-term debt, net |
397 | 575 | 601 | 1,534 | ||||||||||||||||
| Proceeds from long-term debt |
8 | 14 | - | 1,520 | 1,510 | |||||||||||||||
| Repayment of long-term debt |
8 | - | (11 | ) | (507 | ) | (1,010 | ) | ||||||||||||
| Repayment of principal portion of lease liabilities |
(69 | ) | (49 | ) | (203 | ) | (166 | ) | ||||||||||||
| Dividends paid |
9 | (257 | ) | (244 | ) | (771 | ) | (764 | ) | |||||||||||
| Repurchase of common shares |
9 | - | - | (160 | ) | (1,930 | ) | |||||||||||||
| Issuance of common shares |
- | 1 | - | 18 | ||||||||||||||||
| CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES |
85 | 272 | 465 | (837 | ) | |||||||||||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS |
6 | (5 | ) | (7 | ) | (22 | ) | |||||||||||||
| DECREASE IN CASH AND CASH EQUIVALENTS |
|
(950 | ) | (48 | ) | (206 | ) | (1,746 | ) | |||||||||||
| CASH AND CASH EQUIVALENTS – BEGINNING OF PERIOD |
1,415 | 616 | 671 | 2,314 | ||||||||||||||||
| CASH AND CASH EQUIVALENTS – END OF PERIOD |
465 | 568 | 465 | 568 | ||||||||||||||||
| Cash and cash equivalents comprised of: |
||||||||||||||||||||
| Cash |
328 | 326 | 328 | 326 | ||||||||||||||||
| Short-term investments |
137 | 242 | 137 | 242 | ||||||||||||||||
| 465 | 568 | 465 | 568 | |||||||||||||||||
| SUPPLEMENTAL CASH FLOWS INFORMATION |
||||||||||||||||||||
| Interest paid |
85 | 111 | 334 | 353 | ||||||||||||||||
| Income taxes paid |
27 | 46 | 92 | 1 | ||||||||||||||||
| Total cash outflow for leases |
78 | 89 | 266 | 253 | ||||||||||||||||
(See Notes to the Condensed Consolidated Financial Statements)
25
| Unaudited | In millions of US dollars except as otherwise noted |
Condensed Consolidated Statements of Changes in Shareholders’ Equity
| Accumulated Other Comprehensive (Loss) Income (“AOCI”) | ||||||||||||||||||||||||||||||||||||||||
| Number of Common Shares |
Share Capital |
Contributed Surplus |
Net Fair Value Loss on Investments |
Net Actuarial Gain on Defined Benefit Plans 1 |
Loss on Currency Translation of Foreign Operations |
Other | Total AOCI |
Retained Earnings |
Total Equity 2 |
|||||||||||||||||||||||||||||||
| BALANCE – DECEMBER 31, 2018 |
608,535,477 | 16,740 | 231 | (7 | ) | - | (251 | ) | (33 | ) | (291 | ) | 7,745 | 24,425 | ||||||||||||||||||||||||||
| Net earnings |
- | - | - | - | - | - | - | - | 1,040 | 1,040 | ||||||||||||||||||||||||||||||
| Other comprehensive (loss) income |
- | - | - | (26 | ) | - | (36 | ) | 5 | (57 | ) | - | (57 | ) | ||||||||||||||||||||||||||
| Shares repurchased (Note 9) |
(36,066,766 | ) | (992 | ) | - | - | - | - | - | - | (886 | ) | (1,878 | ) | ||||||||||||||||||||||||||
| Dividends declared |
- | - | - | - | - | - | - | - | (496 | ) | (496 | ) | ||||||||||||||||||||||||||||
| Effect of share-based compensation including issuance of common shares |
431,485 | 21 | 13 | - | - | - | - | - | - | 34 | ||||||||||||||||||||||||||||||
| Transfer of net loss on sale of investment |
- | - | - | 4 | - | - | - | 4 | (4 | ) | - | |||||||||||||||||||||||||||||
| Transfer of net loss on cash flow hedges |
- | - | - | - | - | - | 8 | 8 | - | 8 | ||||||||||||||||||||||||||||||
| BALANCE – SEPTEMBER 30, 2019 |
572,900,196 | 15,769 | 244 | (29 | ) | - | (287 | ) | (20 | ) | (336 | ) | 7,399 | 23,076 | ||||||||||||||||||||||||||
| BALANCE – DECEMBER 31, 2019 |
572,942,809 | 15,771 | 248 | (29 | ) | - | (204 | ) | (18 | ) | (251 | ) | 7,101 | 22,869 | ||||||||||||||||||||||||||
| Net earnings |
- | - | - | - | - | - | - | - | 143 | 143 | ||||||||||||||||||||||||||||||
| Other comprehensive (loss) income |
- | - | - | (25 | ) | 3 | (52 | ) | (12 | ) | (86 | ) | - | (86 | ) | |||||||||||||||||||||||||
| Shares repurchased (Note 9) |
(3,832,580 | ) | (105 | ) | (55 | ) | - | - | - | - | - | - | (160 | ) | ||||||||||||||||||||||||||
| Dividends declared |
- | - | - | - | - | - | - | - | (770 | ) | (770 | ) | ||||||||||||||||||||||||||||
| Effect of share-based compensation including issuance of common shares |
35,706 | 1 | 10 | - | - | - | - | - | - | 11 | ||||||||||||||||||||||||||||||
| Transfer of net loss on cash flow hedges |
- | - | - | - | - | - | 13 | 13 | - | 13 | ||||||||||||||||||||||||||||||
| Transfer of net actuarial gain on defined benefit plans |
- | - | - | - | (3 | ) | - | - | (3 | ) | 3 | - | ||||||||||||||||||||||||||||
| BALANCE – SEPTEMBER 30, 2020 |
569,145,935 | 15,667 | 203 | (54 | ) | - | (256 | ) | (17 | ) | (327 | ) | 6,477 | 22,020 | ||||||||||||||||||||||||||
1 Any amounts incurred during a period were transferred to retained earnings at each period-end. Therefore, no balance exists at the beginning or end of period.
2 All equity transactions were attributable to common shareholders.
(See Notes to the Condensed Consolidated Financial Statements)
26
| Unaudited | In millions of US dollars except as otherwise noted |
Condensed Consolidated Balance Sheets
| September 30 | December 31 | |||||||||||||||||||
| As at | Note | 2020 | 2019 | 2019 | ||||||||||||||||
| ASSETS |
||||||||||||||||||||
| Current assets |
||||||||||||||||||||
| Cash and cash equivalents |
465 | 568 | 671 | |||||||||||||||||
| Receivables |
5,056 | 4,843 | 3,542 | |||||||||||||||||
| Inventories |
3,829 | 3,873 | 4,975 | |||||||||||||||||
| Prepaid expenses and other current assets |
531 | 440 | 1,477 | |||||||||||||||||
| 9,881 | 9,724 | 10,665 | ||||||||||||||||||
| Non-current assets |
||||||||||||||||||||
| Property, plant and equipment |
3 | 19,308 | 20,045 | 20,335 | ||||||||||||||||
| Goodwill |
10 | 12,179 | 11,983 | 11,986 | ||||||||||||||||
| Other intangible assets |
2,352 | 2,330 | 2,428 | |||||||||||||||||
| Investments |
809 | 809 | 821 | |||||||||||||||||
| Other assets |
742 | 538 | 564 | |||||||||||||||||
| TOTAL ASSETS |
45,271 | 45,429 | 46,799 | |||||||||||||||||
| LIABILITIES |
||||||||||||||||||||
| Current liabilities |
||||||||||||||||||||
| Short-term debt |
7 | 1,644 | 2,287 | 976 | ||||||||||||||||
| Current portion of long-term debt |
8 | - | 501 | 502 | ||||||||||||||||
| Current portion of lease liabilities |
230 | 219 | 214 | |||||||||||||||||
| Payables and accrued charges |
5,239 | 4,615 | 7,437 | |||||||||||||||||
| 7,113 | 7,622 | 9,129 | ||||||||||||||||||
| Non-current liabilities |
||||||||||||||||||||
| Long-term debt |
8 | 10,041 | 8,555 | 8,553 | ||||||||||||||||
| Lease liabilities |
847 | 793 | 859 | |||||||||||||||||
| Deferred income tax liabilities |
5 | 3,053 | 3,137 | 3,145 | ||||||||||||||||
| Pension and other post-retirement benefit liabilities |
446 | 425 | 433 | |||||||||||||||||
| Asset retirement obligations and accrued environmental costs |
1,575 | 1,662 | 1,650 | |||||||||||||||||
| Other non-current liabilities |
176 | 159 | 161 | |||||||||||||||||
| TOTAL LIABILITIES |
23,251 | 22,353 | 23,930 | |||||||||||||||||
| SHAREHOLDERS’ EQUITY |
||||||||||||||||||||
| Share capital |
9 | 15,667 | 15,769 | 15,771 | ||||||||||||||||
| Contributed surplus |
203 | 244 | 248 | |||||||||||||||||
| Accumulated other comprehensive loss |
(327 | ) | (336 | ) | (251 | ) | ||||||||||||||
| Retained earnings |
6,477 | 7,399 | 7,101 | |||||||||||||||||
| TOTAL SHAREHOLDERS’ EQUITY |
22,020 | 23,076 | 22,869 | |||||||||||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
45,271 | 45,429 | 46,799 | |||||||||||||||||
(See Notes to the Condensed Consolidated Financial Statements)
27
| Unaudited | In millions of US dollars except as otherwise noted |
Notes to the Condensed Consolidated Financial Statements
As at and for the Three and Nine Months Ended September 30, 2020
NOTE 1 BASIS OF PRESENTATION
Nutrien Ltd. (collectively with its subsidiaries, known as “Nutrien”, “we”, “us”, “our” or the “Company”) is the world’s largest provider of crop inputs and services. Nutrien plays a critical role in helping growers around the globe increase food production in a sustainable manner.
These unaudited interim condensed consolidated financial statements (“interim financial statements”) are based on International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”) and have been prepared in accordance with International Accounting Standard 34, “Interim Financial Reporting”. The accounting policies and methods of computation used in preparing these interim financial statements are consistent with those used in the preparation of our 2019 annual consolidated financial statements. These interim financial statements include the accounts of Nutrien and its subsidiaries; however, they do not include all disclosures normally provided in annual consolidated financial statements and should be read in conjunction with our 2019 annual consolidated financial statements.
Certain immaterial 2019 figures have been reclassified in the condensed consolidated statements of (loss) earnings, condensed consolidated statements of cash flows and segment information.
In management’s opinion, the interim financial statements include all adjustments necessary to fairly present such information in all material respects. Interim results are not necessarily indicative of the results expected for any other interim period or the fiscal year. On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (“COVID-19”) a global pandemic. We have assessed our accounting estimates and other matters that require the use of forecasted financial information for the impact of the COVID-19 pandemic. The assessment included estimates of the unknown future impacts of the pandemic using information that is reasonably available at this time. Accounting estimates and other matters assessed include the allowance for expected credit losses of receivables from customers, inventory valuation, goodwill and other long-lived assets, financial assets, tax assets, pension obligation and assets, and revenue recognition. Based on our current assessment, there was not a material impact to these interim financial statements. As additional information becomes available, the future assessment of these estimates, including expectations about the severity, duration and scope of the pandemic, could differ materially in future reporting periods.
These interim financial statements were authorized by the audit committee of the Board of Directors for issue on November 2, 2020.
NOTE 2 SEGMENT INFORMATION
The Company has four reportable operating segments: Retail, Potash, Nitrogen and Phosphate. The Retail segment distributes crop nutrients, crop protection products, seed and merchandise, and provides services directly to growers through a network of farm centers in North America, South America and Australia. The Potash, Nitrogen and Phosphate segments are differentiated by the chemical nutrient contained in the products that each produces. Sales reported under our Corporate and Others segment primarily relates to our non-core Canadian business which was sold in the third quarter of 2020.
In the third quarter of 2020, our Chief Operating Decision Maker changed the measure used to evaluate the performance of our operating segments from net earnings (loss) before finance costs, income taxes, and depreciation and amortization (“EBITDA”) to adjusted EBITDA. Adjusted EBITDA provides a better indication of the segments performance as it excludes the impact of impairments and other costs that are centrally managed by our corporate function. Due to the change in the measurement of the segments, we have presented adjusted EBITDA for the comparative periods.
28
| Unaudited | In millions of US dollars except as otherwise noted |
| Three Months Ended September 30, 2020 | ||||||||||||||||||||||||||||
| Retail | Potash | Nitrogen | Phosphate | Corporate and Others |
Eliminations | Consolidated | ||||||||||||||||||||||
| Sales – third party |
2,712 | 634 | 524 | 312 | 23 | - | 4,205 | |||||||||||||||||||||
|
– intersegment |
8 | 63 | 103 | 40 | - | (214 | ) | - | ||||||||||||||||||||
| Sales – total |
2,720 | 697 | 627 | 352 | 23 | (214 | ) | 4,205 | ||||||||||||||||||||
| Freight, transportation and distribution |
- | 106 | 87 | 60 | - | (49 | ) | 204 | ||||||||||||||||||||
| Net sales |
2,720 | 591 | 540 | 292 | 23 | (165 | ) | 4,001 | ||||||||||||||||||||
| Cost of goods sold |
2,059 | 303 | 482 | 293 | 20 | (153 | ) | 3,004 | ||||||||||||||||||||
| Gross margin |
661 | 288 | 58 | (1 | ) | 3 | (12 | ) | 997 | |||||||||||||||||||
| Selling expenses |
669 | 3 | 7 | 1 | (4 | ) | - | 676 | ||||||||||||||||||||
| General and administrative expenses |
34 | 2 | 3 | 2 | 66 | - | 107 | |||||||||||||||||||||
| Provincial mining and other taxes |
- | 58 | - | - | - | - | 58 | |||||||||||||||||||||
| Share-based compensation expense |
- | - | - | - | 29 | - | 29 | |||||||||||||||||||||
| Impairment of assets |
- | 22 | 27 | 769 | 5 | - | 823 | |||||||||||||||||||||
| Other (income) expenses |
(34 | ) | (1 | ) | (16 | ) | 10 | 67 | - | 26 | ||||||||||||||||||
| (Loss) earnings before finance costs and income taxes |
(8 | ) | 204 | 37 | (783 | ) | (160 | ) | (12 | ) | (722 | ) | ||||||||||||||||
| Depreciation and amortization |
170 | 124 | 131 | 60 | 15 | - | 500 | |||||||||||||||||||||
| EBITDA |
162 | 328 | 168 | (723 | ) | (145 | ) | (12 | ) | (222 | ) | |||||||||||||||||
| Acquisition and integration related costs |
- | - | - | - | 10 | - | 10 | |||||||||||||||||||||
| Share-based compensation expense |
- | - | - | - | 29 | - | 29 | |||||||||||||||||||||
| Impairment of assets |
- | 22 | 27 | 769 | 5 | - | 823 | |||||||||||||||||||||
| COVID-19 related expenses |
- | - | - | - | 11 | - | 11 | |||||||||||||||||||||
| Foreign exchange loss, net of related derivatives |
- | - | - | - | 13 | - | 13 | |||||||||||||||||||||
| Loss on disposal of business |
- | - | - | - | 6 | - | 6 | |||||||||||||||||||||
| Adjusted EBITDA |
162 | 350 | 195 | 46 | (71 | ) | (12 | ) | 670 | |||||||||||||||||||
| Assets – at September 30, 2020 |
19,722 | 12,005 | 10,805 | 1,362 | 1,760 | (383 | ) | 45,271 | ||||||||||||||||||||
| Three Months Ended September 30, 2019 | ||||||||||||||||||||||||||||
| Retail | Potash | Nitrogen | Phosphate | Corporate and Others |
Eliminations | Consolidated | ||||||||||||||||||||||
| Sales – third party |
2,489 | 748 | 564 | 333 | 35 | - | 4,169 | |||||||||||||||||||||
|
– intersegment |
10 | 68 | 115 | 43 | - | (236 | ) | - | ||||||||||||||||||||
| Sales – total |
2,499 | 816 | 679 | 376 | 35 | (236 | ) | 4,169 | ||||||||||||||||||||
| Freight, transportation and distribution |
- | 107 | 77 | 62 | - | (36 | ) | 210 | ||||||||||||||||||||
| Net sales |
2,499 | 709 | 602 | 314 | 35 | (200 | ) | 3,959 | ||||||||||||||||||||
| Cost of goods sold |
1,844 | 303 | 469 | 329 | 35 | (161 | ) | 2,819 | ||||||||||||||||||||
| Gross margin |
655 | 406 | 133 | (15 | ) | - | (39 | ) | 1,140 | |||||||||||||||||||
| Selling expenses |
601 | 2 | 7 | 2 | (5 | ) | - | 607 | ||||||||||||||||||||
| General and administrative expenses |
28 | - | 4 | - | 65 | - | 97 | |||||||||||||||||||||
| Provincial mining and other taxes |
- | 83 | 1 | - | 8 | - | 92 | |||||||||||||||||||||
| Share-based compensation recovery |
- | - | - | - | (21 | ) | - | (21 | ) | |||||||||||||||||||
| Other (income) expenses |
(12 | ) | 1 | 1 | 7 | 40 | - | 37 | ||||||||||||||||||||
| Earnings (loss) before finance costs and income taxes |
38 | 320 | 120 | (24 | ) | (87 | ) | (39 | ) | 328 | ||||||||||||||||||
| Depreciation and amortization |
152 | 110 | 127 | 58 | 10 | - | 457 | |||||||||||||||||||||
| EBITDA |
190 | 430 | 247 | 34 | (77 | ) | (39 | ) | 785 | |||||||||||||||||||
| Merger and related costs |
- | - | - | - | 21 | - | 21 | |||||||||||||||||||||
| Share-based compensation recovery |
- | - | - | - | (21 | ) | - | (21 | ) | |||||||||||||||||||
| Foreign exchange loss, net of related derivatives |
- | - | - | - | 2 | - | 2 | |||||||||||||||||||||
| Adjusted EBITDA |
190 | 430 | 247 | 34 | (75 | ) | (39 | ) | 787 | |||||||||||||||||||
| Assets – at December 31, 2019 |
19,990 | 11,696 | 10,991 | 2,198 | 2,129 | (205 | ) | 46,799 | ||||||||||||||||||||
29
| Unaudited | In millions of US dollars except as otherwise noted |
| Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||||||
| Retail | Potash | Nitrogen | Phosphate | Corporate and Others |
Eliminations | Consolidated | ||||||||||||||||||||||
| Sales – third party |
12,091 | 1,798 | 1,925 | 923 | 70 | - | 16,807 | |||||||||||||||||||||
| – intersegment |
27 | 191 | 481 | 146 | - | (845 | ) | - | ||||||||||||||||||||
| Sales – total |
12,118 | 1,989 | 2,406 | 1,069 | 70 | (845 | ) | 16,807 | ||||||||||||||||||||
| Freight, transportation and distribution |
- | 293 | 335 | 187 | - | (162 | ) | 653 | ||||||||||||||||||||
| Net sales |
12,118 | 1,696 | 2,071 | 882 | 70 | (683 | ) | 16,154 | ||||||||||||||||||||
| Cost of goods sold |
9,316 | 878 | 1,708 | 862 | 63 | (698 | ) | 12,129 | ||||||||||||||||||||
| Gross margin |
2,802 | 818 | 363 | 20 | 7 | 15 | 4,025 | |||||||||||||||||||||
| Selling expenses |
2,068 | 7 | 19 | 4 | (17 | ) | - | 2,081 | ||||||||||||||||||||
| General and administrative expenses |
102 | 5 | 7 | 7 | 191 | - | 312 | |||||||||||||||||||||
| Provincial mining and other taxes |
- | 161 | 1 | - | 1 | - | 163 | |||||||||||||||||||||
| Share-based compensation expense |
- | - | - | - | 9 | - | 9 | |||||||||||||||||||||
| Impairment of assets |
- | 22 | 27 | 769 | 5 | - | 823 | |||||||||||||||||||||
| Other (income) expenses |
(13 | ) | 4 | (25 | ) | 19 | 153 | - | 138 | |||||||||||||||||||
| Earnings (loss) before finance costs and income taxes |
645 | 619 | 334 | (779 | ) | (335 | ) | 15 | 499 | |||||||||||||||||||
| Depreciation and amortization |
488 | 329 | 453 | 179 | 41 | - | 1,490 | |||||||||||||||||||||
| EBITDA |
1,133 | 948 | 787 | (600 | ) | (294 | ) | 15 | 1,989 | |||||||||||||||||||
| Acquisition and integration related costs |
- | - | - | - | 38 | - | 38 | |||||||||||||||||||||
| Share-based compensation expense |
- | - | - | - | 9 | - | 9 | |||||||||||||||||||||
| Impairment of assets |
- | 22 | 27 | 769 | 5 | - | 823 | |||||||||||||||||||||
| COVID-19 related expenses |
- | - | - | - | 30 | - | 30 | |||||||||||||||||||||
| Foreign exchange loss, net of related derivatives |
- | - | - | - | 4 | - | 4 | |||||||||||||||||||||
| Loss on disposal of business |
- | - | - | - | 6 | - | 6 | |||||||||||||||||||||
| Adjusted EBITDA |
1,133 | 970 | 814 | 169 | (202 | ) | 15 | 2,899 | ||||||||||||||||||||
| Assets – at September 30, 2020 |
19,722 | 12,005 | 10,805 | 1,362 | 1,760 | (383 | ) | 45,271 | ||||||||||||||||||||
| Nine Months Ended September 30, 2019 | ||||||||||||||||||||||||||||
| Retail | Potash | Nitrogen | Phosphate | Corporate and Others |
Eliminations | Consolidated | ||||||||||||||||||||||
| Sales – third party |
11,022 | 2,328 | 2,033 | 1,099 | 99 | - | 16,581 | |||||||||||||||||||||
| – intersegment |
28 | 178 | 487 | 160 | - | (853 | ) | - | ||||||||||||||||||||
| Sales – total |
11,050 | 2,506 | 2,520 | 1,259 | 99 | (853 | ) | 16,581 | ||||||||||||||||||||
| Freight, transportation and distribution |
- | 252 | 275 | 178 | - | (109 | ) | 596 | ||||||||||||||||||||
| Net sales |
11,050 | 2,254 | 2,245 | 1,081 | 99 | (744 | ) | 15,985 | ||||||||||||||||||||
| Cost of goods sold |
8,546 | 892 | 1,652 | 1,092 | 99 | (723 | ) | 11,558 | ||||||||||||||||||||
| Gross margin |
2,504 | 1,362 | 593 | (11 | ) | - | (21 | ) | 4,427 | |||||||||||||||||||
| Selling expenses |
1,816 | 7 | 21 | 5 | (14 | ) | - | 1,835 | ||||||||||||||||||||
| General and administrative expenses |
82 | - | 11 | 3 | 191 | - | 287 | |||||||||||||||||||||
| Provincial mining and other taxes |
- | 237 | 2 | 1 | 13 | - | 253 | |||||||||||||||||||||
| Share-based compensation expense |
- | - | - | - | 95 | - | 95 | |||||||||||||||||||||
| Impairment of assets |
- | - | - | - | 33 | - | 33 | |||||||||||||||||||||
| Other expenses (income) |
39 | (2 | ) | (27 | ) | 20 | 95 | - | 125 | |||||||||||||||||||
| Earnings (loss) before finance costs and income taxes |
567 | 1,120 | 586 | (40 | ) | (413 | ) | (21 | ) | 1,799 | ||||||||||||||||||
| Depreciation and amortization |
433 | 324 | 394 | 180 | 32 | - | 1,363 | |||||||||||||||||||||
| EBITDA |
1,000 | 1,444 | 980 | 140 | (381 | ) | (21 | ) | 3,162 | |||||||||||||||||||
| Merger and related costs |
- | - | - | - | 57 | - | 57 | |||||||||||||||||||||
| Share-based compensation expense |
- | - | - | - | 95 | - | 95 | |||||||||||||||||||||
| Impairment of assets |
- | - | - | - | 33 | - | 33 | |||||||||||||||||||||
| Foreign exchange loss, net of related derivatives |
- | - | - | - | 14 | - | 14 | |||||||||||||||||||||
| Adjusted EBITDA |
1,000 | 1,444 | 980 | 140 | (182 | ) | (21 | ) | 3,361 | |||||||||||||||||||
| Assets – at December 31, 2019 |
19,990 | 11,696 | 10,991 | 2,198 | 2,129 | (205 | ) | 46,799 | ||||||||||||||||||||
30
| Unaudited | In millions of US dollars except as otherwise noted |
Presented below is revenue from contracts with customers disaggregated by product line or geographic location for each reportable segment to show how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
| Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Retail sales by product line |
||||||||||||||||
| Crop nutrients |
780 | 769 | 4,092 | 4,082 | ||||||||||||
| Crop protection products |
1,328 | 1,318 | 4,774 | 4,348 | ||||||||||||
| Seed |
103 | 60 | 1,638 | 1,613 | ||||||||||||
| Merchandise |
234 | 135 | 703 | 387 | ||||||||||||
| Services and other |
275 | 217 | 911 | 620 | ||||||||||||
| 2,720 | 2,499 | 12,118 | 11,050 | |||||||||||||
| Potash sales by geography |
||||||||||||||||
| Manufactured product |
||||||||||||||||
| North America |
358 | 437 | 1,002 | 1,084 | ||||||||||||
| Offshore 1 |
339 | 379 | 987 | 1,421 | ||||||||||||
| Other potash and purchased products |
- | - | - | 1 | ||||||||||||
| 697 | 816 | 1,989 | 2,506 | |||||||||||||
| Nitrogen sales by product line |
||||||||||||||||
| Manufactured product |
||||||||||||||||
| Ammonia |
129 | 172 | 576 | 713 | ||||||||||||
| Urea |
214 | 239 | 780 | 801 | ||||||||||||
| Solutions, nitrates and sulfates |
177 | 193 | 606 | 613 | ||||||||||||
| Other nitrogen and purchased products |
107 | 75 | 444 | 393 | ||||||||||||
| 627 | 679 | 2,406 | 2,520 | |||||||||||||
| Phosphate sales by product line |
||||||||||||||||
| Manufactured product |
||||||||||||||||
| Fertilizer |
216 | 205 | 622 | 752 | ||||||||||||
| Industrial and feed |
105 | 119 | 342 | 359 | ||||||||||||
| Other phosphate and purchased products |
31 | 52 | 105 | 148 | ||||||||||||
| 352 | 376 | 1,069 | 1,259 | |||||||||||||
1 Relates to Canpotex Limited (“Canpotex”) (Note 12).
NOTE 3 IMPAIRMENT OF ASSETS
During the three and nine months ended September 30, 2020, we recorded the following impairments of assets in the statement of (loss) earnings relating to our property plant and equipment:
| Cash-generating units (“CGUs”) | Aurora | White Springs | ||
| Segment |
Phosphate | |||
| Impairment indicator |
Lower long-term forecasted global phosphate prices | |||
| Pre-tax impairment loss ($) |
545 | 215 | ||
| Recoverable value ($) |
995 (post-tax) | 160 (pre-tax) | ||
| Valuation technique |
Fair value less costs of disposal (“FVLCD”) a Level 3 measurement | Value in use | ||
| Key assumptions |
||||
| End of mine life (proven and probable reserves) (year) |
2050 | 2029 | ||
| Long-term growth rate (%) |
2.0 | n/a | ||
| Post-tax discount rate (%) |
10.5 | 12.0 (pre-tax - 16.0) | ||
For our Aurora CGU, the recoverable value was based on after-tax discounted cash flows (using a five-year projection and a terminal year thereafter to the expected mine life), which incorporated assumptions an independent market participant would apply. For our White Springs CGU, the recoverable value was based on pre-tax discounted cash flows until the end of the mine life.
The recoverable value is most sensitive to the following key assumptions: our internal sales price forecasts which consider projections from an independent third-party data source, discount rates, long-term growth rates, and expected mine life. We used key assumptions that were based on historical data and estimates of future results from internal sources, external price benchmarks, mineral reserve technical reports, as well as industry and market trends.
31
| Unaudited | In millions of US dollars except as otherwise noted |
The following table highlights sensitivities to the recoverable value which could result in additional impairment losses or reversals of previously recorded losses. The sensitivities have been calculated independently of changes in other key variables.
| Aurora | ||||||||||||
| Key Assumptions | Change in Assumption | Increase (Decrease) to Recoverable Value ($) |
||||||||||
| Net selling price |
± | 10 per tonne | ± | 150 | ||||||||
| Discount rate |
± | 1.0 percentage point | ± | 120 | ||||||||
For our White Springs CGU, there were no reasonably possible changes in the key assumptions that would result in a substantial change in the recoverable value.
At September 30, 2020, we performed impairment testing on the Trinidad CGU, part of our Nitrogen segment, due to the indefinite closure of an ammonia plant in response to market conditions and lower long-term forecasted global ammonia prices. No impairment resulted from comparing the carrying value of the Trinidad CGU to its recoverable value determined on a FVLCD methodology. FVLCD was based on after-tax discounted cash flows (using a five-year projection and a 2.0% terminal growth rate) discounted at a post-tax rate of 12.6%.
The following table indicates the percentages by which key assumptions would need to change individually for the estimated Trinidad CGU recoverable value to be equal to the carrying value:
| Key Assumptions | Change Required for Carrying Value to Equal Recoverable Value |
|||
| Net selling price (5-year average) |
4 percent decrease | |||
| Production volumes (5-year average) |
5 percent decrease | |||
| Discount rate (post-tax) |
0.9 percentage point increase | |||
During the nine months ended September 30, 2020, we also recorded $63 of impairment losses relating to other non-current assets.
NOTE 4 OTHER EXPENSES (INCOME)
| Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Merger and related costs |
- | 21 | - | 57 | ||||||||||||
| Acquisition and integration related costs |
10 | - | 38 | - | ||||||||||||
| Foreign exchange loss, net of related derivatives |
14 | 2 | 1 | 14 | ||||||||||||
| Earnings of equity-accounted investees |
(23 | ) | (6 | ) | (46 | ) | (53 | ) | ||||||||
| Bad debt (recovery) expense |
(18 | ) | 3 | 9 | 38 | |||||||||||
| COVID-19 related expenses |
11 | - | 30 | - | ||||||||||||
| Loss on disposal of business |
6 | - | 6 | - | ||||||||||||
| Other expenses |
26 | 17 | 100 | 69 | ||||||||||||
| 26 | 37 | 138 | 125 | |||||||||||||
32
| Unaudited | In millions of US dollars except as otherwise noted |
NOTE 5 INCOME TAXES
A separate estimated average annual effective income tax rate was determined for each taxing jurisdiction and applied individually to the interim period pre-tax earnings for each jurisdiction.
| Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Income tax (recovery) expense |
(264 | ) | 40 | (45 | ) | 346 | ||||||||||
| Actual effective tax rate on loss/earnings (%) |
26 | 22 | 14 | 25 | ||||||||||||
| Actual effective tax rate including discrete items (%) |
31 | 22 | (47 | ) | 25 | |||||||||||
| Discrete tax adjustments that impacted the tax rate |
(48 | ) | 1 | (59 | ) | 5 | ||||||||||
Income tax balances within the condensed consolidated balance sheets were comprised of the following:
| Income Tax Assets and Liabilities | Balance Sheet Location | As at September 30, 2020 | As at December 31, 2019 | |||||||
| Income tax assets |
||||||||||
| Current |
Receivables | 50 | 104 | |||||||
| Non-current |
Other assets | 213 | 36 | |||||||
| Deferred income tax assets |
Other assets | 258 | 249 | |||||||
| Total income tax assets |
521 | 389 | ||||||||
| Income tax liabilities |
||||||||||
| Current |
Payables and accrued charges | 105 | 43 | |||||||
| Non-current |
Other non-current liabilities | 40 | 44 | |||||||
| Deferred income tax liabilities |
Deferred income tax liabilities | 3,053 | 3,145 | |||||||
| Total income tax liabilities |
3,198 | 3,232 | ||||||||
NOTE 6 FINANCIAL INSTRUMENTS
Fair Value
Estimated fair values for financial instruments are designed to approximate amounts for which the instruments could be exchanged in a current arm’s-length transaction between knowledgeable, willing parties. The valuation policies and procedures for financial reporting purposes are determined by our finance department. There have been no changes to our valuation methods presented in Note 12 of the 2019 annual consolidated financial statements and those valuation methods have been applied in these interim financial statements.
The following table presents our fair value hierarchy for financial instruments carried at fair value on a recurring basis or measured at amortized cost:
| September 30, 2020 | December 31, 2019 | |||||||||||||||||||||||
| Financial assets (liabilities) measured at | Carrying Amount |
Level 1 1 | Level 2 1 | Carrying Amount |
Level 1 1 | Level 2 1 | ||||||||||||||||||
| Fair value on a recurring basis |
||||||||||||||||||||||||
| Cash and cash equivalents |
465 | - | 465 | 671 | - | 671 | ||||||||||||||||||
| Derivative instrument assets |
31 | - | 31 | 5 | - | 5 | ||||||||||||||||||
| Other current financial assets - marketable securities 2 |
155 | 23 | 132 | 193 | 27 | 166 | ||||||||||||||||||
| Investments at FVTOCI 3 |
135 | 135 | - | 161 | 161 | - | ||||||||||||||||||
| Derivative instrument liabilities |
(35 | ) | - | (35 | ) | (33 | ) | - | (33 | ) | ||||||||||||||
| Amortized cost |
||||||||||||||||||||||||
| Current portion of long-term debt |
||||||||||||||||||||||||
| Notes and debentures |
- | - | - | (494 | ) | - | (503 | ) | ||||||||||||||||
| Fixed and floating rate debt |
- | - | - | (8 | ) | - | (8 | ) | ||||||||||||||||
| Long-term debt |
||||||||||||||||||||||||
| Notes and debentures |
(10,003 | ) | (7,911 | ) | (3,494 | ) | (8,528 | ) | (1,726 | ) | (7,440 | ) | ||||||||||||
| Fixed and floating rate debt |
(38 | ) | - | (38 | ) | (25 | ) | - | (25 | ) | ||||||||||||||
1 During the period ended September 30, 2020, there were no transfers between Level 1 and Level 2 for financial instruments measured at fair value on a recurring basis.
2 Marketable securities consist of equity and fixed income securities. We determine the fair value of equity securities based on the bid price of identical instruments in active markets. We value fixed income securities using quoted prices of instruments with similar terms and credit risk.
3 Investments at fair value through other comprehensive income (“FVTOCI”) are comprised of shares in Sinofert Holdings Ltd.
33
| Unaudited | In millions of US dollars except as otherwise noted |
NOTE 7 SHORT-TERM DEBT
Short-term debt was comprised of:
| Rate of Interest (%) | Total Facility Limit as at September 30, 2020 |
As at September 30, 2020 |
As at December 31, 2019 |
|||||||||||||
| Credit facilities |
||||||||||||||||
| Unsecured revolving term credit facility |
NIL | 4,500 | - | - | ||||||||||||
| Uncommitted revolving demand facility |
NIL | 500 | - | - | ||||||||||||
| Other credit facilities 1 |
0.8 - 9.5 | 600 | 193 | 326 | ||||||||||||
| Commercial paper |
0.2 - 0.6 | 1,451 | 650 | |||||||||||||
| 1,644 | 976 | |||||||||||||||
| 1 Other credit facilities are unsecured and consist of South American facilities with debt of $143 (December 31, 2019 – $149) and interest rates ranging from 2.0 percent to 9.5 percent, Australian facilities with debt of $24 (December 31, 2019 – $157) and an interest rate of 1.3 percent, and other facilities with debt of $26 (December 31, 2019 – $20) and interest rates ranging from 0.8 percent to 4.0 percent. |
| |||||||||||||||
The amount available under the commercial paper program is limited to the availability of backup funds under the $4,500 unsecured revolving term credit facility and excess cash invested in highly liquid securities.
During the nine months ended September 30, 2020, we entered into new committed revolving credit facilities totaling approximately $1,500, all with the same principal covenants and events of default as our existing credit facilities. We closed these credit facilities after the issuance of the new notes as described in Note 8.
NOTE 8 LONG-TERM DEBT
The following tables summarize our long-term debt issuances and repayment activities during the nine months ended September 30, 2020:
| Rate of interest (%) | Maturity | Amount | ||||||||||
| Notes issued 2020 |
1.900 | May 13, 2023 | 500 | |||||||||
| Notes issued 2020 |
2.950 | May 13, 2030 | 500 | |||||||||
| Notes issued 2020 |
3.950 | May 13, 2050 | 500 | |||||||||
| 1,500 | ||||||||||||
The notes issued in 2020 are unsecured, rank equally with our existing unsecured notes, and have no sinking fund requirements prior to maturity. Each series is redeemable and provides for redemption prior to maturity, at our option, at specified prices.
| Rate of interest (%) | Maturity | Amount | ||||||||||
| Notes repaid 2020 |
4.875 | March 30, 2020 | 500 | |||||||||
In March 2020, we filed a base shelf prospectus in Canada and the US qualifying the issuance of up to $5,000 of common shares, debt and other securities during a period of 25 months from March 16, 2020. Issuance of securities requires us to file a prospectus supplement and is subject to availability of funding in capital markets. During the nine months ended September 30, 2020, we filed a prospectus supplement to issue $1,500 of notes, as described above.
34
| Unaudited | In millions of US dollars except as otherwise noted |
NOTE 9 SHARE CAPITAL
Share repurchase programs
| Board of Directors Approval | Expiry | Maximum Shares for Repurchase | ||||||||||
| 2019 Normal Course Issuer Bid 1 |
February 20, 2019 | February 26, 2020 | 42,164,420 | |||||||||
| 2020 Normal Course Issuer Bid 2 |
February 18, 2020 | February 26, 2021 | 28,572,458 | |||||||||
1 The 2019 normal course issuer bid permitted the repurchase of up to 7 percent of our outstanding common shares for cancellation. As of the expiry date, we had repurchased 33,256,668 of the maximum shares for repurchase.
2 The 2020 normal course issuer bid permits the repurchase of up to 5 percent of our outstanding common shares for cancellation and can expire earlier than the date above if we acquire the maximum number of common shares allowable or otherwise decide not to make any further repurchases.
Purchases under the normal course issuer bids were, or may be, made through open market purchases at market prices as well as by other means permitted by applicable securities regulatory authorities, including private agreements.
The following table summarizes our share repurchase activities during the period:
| Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Number of common shares repurchased for cancellation |
- | - | 3,832,580 | 36,066,766 | ||||||||||||
| Average price per share (US dollars) |
- | - | 41.96 | 52.07 | ||||||||||||
| Total cost |
- | - | 160 | 1,878 | ||||||||||||
Dividends declared
We declared dividends per share of $0.45 (2019 – $0.45) during the three months ended September 30, 2020, payable on October 16, 2020 to shareholders of record on September 30, 2020 and $1.35 (2019 – $0.88) during the nine months ended September 30, 2020.
NOTE 10 BUSINESS ACQUISITIONS
Ruralco
On September 30, 2019, we acquired Ruralco Holdings Limited (“Ruralco”) for a purchase price, net of cash and cash equivalents acquired, of $330. We have completed our assessment of identifying and measuring all the assets acquired and liabilities assumed. This assessment included a thorough review of all internal and external sources of information available on circumstances that existed at the acquisition date. We engaged independent valuation experts to assist in determining the fair value of certain assets acquired and liabilities assumed. The significant fair value considerations used in determining the allocation of purchase price are consistent with those disclosed in Note 4 of the 2019 annual consolidated financial statements.
Other Acquisitions
During the nine months ended September 30, 2020, we acquired several businesses, the largest of which was Tec Agro Group, a leading agriculture retailer in Brazil. The acquired businesses include 37 Retail locations in North and South America and Australia. Expected benefits of the acquisitions include expansion of geographical coverage for the sale of crop input products and services, an increased customer base and workforce, and synergies between Nutrien and the acquired businesses.
35
| Unaudited | In millions of US dollars except as otherwise noted |
The fair values allocated to the acquired assets and assumed liabilities were as follows:
| September 30, 2020 | ||||||||||||||||||||
| Ruralco | Other Acquisitions | |||||||||||||||||||
| Preliminary 1 | Adjustments | Final Fair Value | Preliminary | |||||||||||||||||
| Receivables |
318 | (2 | ) | 316 | 2 | 69 | ||||||||||||||
| Inventories |
115 | (3 | ) | 112 | 63 | |||||||||||||||
| Prepaid expenses and other current assets |
8 | (1 | ) | 7 | 4 | |||||||||||||||
| Property, plant and equipment |
136 | 4 | 140 | 53 | ||||||||||||||||
| Goodwill |
207 | 29 | 236 | 184 | ||||||||||||||||
| Other intangible assets |
210 | (2 | ) | 208 | - | |||||||||||||||
| Investments |
15 | - | 15 | - | ||||||||||||||||
| Other assets |
16 | (14 | ) | 2 | - | |||||||||||||||
| Total assets |
1,025 | 11 | 1,036 | 373 | ||||||||||||||||
| Short-term debt |
167 | - | 167 | 36 | ||||||||||||||||
| Payables and accrued charges |
363 | (39 | ) | 324 | 111 | |||||||||||||||
| Lease liabilities, including current portion |
110 | - | 110 | - | ||||||||||||||||
| Deferred income tax liabilities |
42 | (11 | ) | 31 | 1 | |||||||||||||||
| Other non-current liabilities |
13 | 61 | 74 | 9 | ||||||||||||||||
| Total liabilities |
695 | 11 | 706 | 157 | ||||||||||||||||
| Total consideration |
330 | - | 330 | 216 | ||||||||||||||||
1 As previously reported in our second quarter financial statements. We recorded additional adjustments to the preliminary fair value primarily related to changes in the preliminary valuation assumptions, including refinement of our liabilities. All measurement period adjustments were offset against goodwill.
2 Includes receivables from customers with gross contractual amounts of $260, of which $7 are considered to be uncollectible.
Financial information related to business acquisitions is as follows:
| Pro Forma 1 | Other Acquisitions | |||
| Sales |
320 | |||
| EBIT |
24 | |||
1 Estimated annual sales and earnings before finance costs and income taxes (“EBIT”) if acquisitions occurred at January 1, 2020.
| Three Months Ended September 30, 2020 |
Nine Months Ended September 30, 2020 |
|||||||
| From date of acquisition | Other Acquisitions | Other Acquisitions | ||||||
| Sales |
60 | 100 | ||||||
| EBIT |
6 | 6 | ||||||
NOTE 11 SEASONALITY
Seasonality in our business results from increased demand for products during planting season. Crop input sales are generally higher in spring and fall application seasons. Crop input inventories are normally accumulated leading up to each application season. The results of this seasonality have a corresponding effect on receivables from customers and rebates receivables, inventories, prepaid expenses and other current assets and trade payables. Our short-term debt also fluctuates during the year to meet working capital needs. Our cash collections generally occur after the application season is complete, while customer prepayments made to us are typically concentrated in December and January and inventory prepayments paid to our vendors are typically concentrated in the period from November to January. Feed and industrial sales are more evenly distributed throughout the year.
NOTE 12 RELATED PARTY TRANSACTIONS
We sell potash from our Canadian mines for use outside Canada and the United States exclusively to Canpotex. Canpotex sells potash to buyers in export markets pursuant to term and spot contracts at agreed upon prices. Our revenue is recognized at the amount received from Canpotex representing proceeds from their sale of potash, less net costs of Canpotex. Sales to Canpotex are shown in Note 2.
| As at | September 30, 2020 | December 31 ,2019 | ||||||
| Receivables from Canpotex |
201 | 194 | ||||||
36
Exhibit 99.2
NUTRIEN LTD.
MANAGEMENT’S DISCUSSION AND ANALYSIS
AS AT AND FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2020
Management’s Discussion and Analysis
The following management’s discussion and analysis (“MD&A”) is the responsibility of management and is dated as of November 2, 2020. The Board of Directors (“Board”) of Nutrien carries out its responsibility for review of this disclosure principally through its audit committee, comprised exclusively of independent directors. The audit committee reviews and, prior to its publication approves this disclosure pursuant to the authority delegated to it by the Board. The term “Nutrien” refers to Nutrien Ltd. and the terms “we”, “us”, “our”, “Nutrien” and “the Company” refer to Nutrien and, as applicable, Nutrien and its direct and indirect subsidiaries on a consolidated basis. Additional information relating to Nutrien (which, except as otherwise noted, is not incorporated by reference herein), including our 2019 Annual Report dated February 19, 2020, which includes our annual audited consolidated financial statements and MD&A and our Annual Information Form, each for the year ended December 31, 2019, can be found on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. No update is provided to the disclosure in our annual MD&A except for material information since the date of our annual MD&A. The Company is a foreign private issuer under the rules and regulations of the US Securities and Exchange Commission (“SEC”).
This MD&A is based on the Company’s unaudited interim condensed consolidated financial statements as at and for the three and nine months ended September 30, 2020 (“interim financial statements”) based on International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”) and prepared in accordance with International Accounting Standard 34 “Interim Financial Reporting” unless otherwise noted. This MD&A contains certain non-IFRS financial measures and forward-looking statements which are described in the “Non-IFRS Financial Measures” and the “Forward-Looking Statements” sections, respectively.
Market Outlook
Agriculture and Retail
| • | Key crop prices have increased, driven by significant improvements in supply and demand fundamentals. Higher crop prices have boosted North American grower sentiment. |
| • | The North American harvest progressed at a pace well ahead of the past two years when timing was impacted by late maturing crops and weather delays. This is expected to provide a wider window for growers to plan and apply fall fertilizer compared to the past few fall seasons. |
| • | Strong Brazilian crop prices and margins provided an incentive to boost summer soybean and Safrinha corn planting. We expect the planted area of these crops to increase by approximately 4 percent and 6 percent respectively. Planting has started slower than normal as a result of dry weather, but we expect a long planting window and high crop prices will motivate farmers to plant. |
Crop Nutrient Markets
| • | Global potash demand has been strong in 2020 and we continue to expect global potash shipments and consumption to increase by approximately 2 million tonnes from 2019 levels. As a result, we maintain our 2020 shipment forecast between 65 and 67 million tonnes. |
| • | The prospect of a robust fall application season in North America has supported strong retail-level demand. We expect that potash delivered in North America in the fall of 2020 will largely be applied to ground and that channel inventories will be lower at the end of 2020 compared to recent years. We also expect that strong fall applications in China, driven by historically high crop prices in combination with seasonal increases in compound NPK production, will support strong potash consumption in the remainder of 2020. Meanwhile, demand in India will continue to be supported by the favorable growing conditions and increased minimum support prices for crops. |
| • | Global urea prices have been relatively stable as Indian import tenders have pulled significant volumes out of the trade market. The pace of Chinese urea exports has recently increased, along with Indian demand, but remains down around 10 percent in the first nine months of the year. North American urea prices are currently discounted relative to the rest of the world, which is seasonally normal, but offshore imports are down more than 25 percent from July to September and prices need to increase significantly to reach import parity. Global ammonia prices have increased driven by improved industrial demand, higher global gas prices and production curtailments in East Asia and Trinidad. |
| • | Global phosphate prices have trended higher due to strong demand in India and Brazil and trade flow changes related to countervailing duty investigations in the US. We continue to believe the phosphate market is fundamentally oversupplied which could limit a long-term price recovery. |
2
Financial Outlook and Guidance
Based on market factors detailed above, we are narrowing our 2020 adjusted net earnings guidance to $1.60 to $1.85 per share (from $1.50 to $1.90 per share previously) and adjusted EBITDA guidance to $3.5 to $3.7 billion (from $3.5 to $3.8 billion previously). In the third quarter of 2020, we revised the measure with which we evaluate our segments from EBITDA to adjusted EBITDA. This has not had an impact on our segment guidance numbers below.
All guidance numbers, including those noted above are outlined in the tables below. Refer to page 46 of Nutrien’s 2019 Annual Report for related sensitivities.
| 2020 Guidance Ranges 1 | Low | High | ||||||
| Adjusted net earnings per share 2 |
$ | 1.60 | $ | 1.85 | ||||
| Adjusted EBITDA (billions) 2 |
$ | 3.5 | $ | 3.7 | ||||
| Adjusted Retail EBITDA (billions) |
$ | 1.37 | $ | 1.42 | ||||
| Adjusted Potash EBITDA (billions) |
$ | 1.1 | $ | 1.2 | ||||
| Adjusted Nitrogen EBITDA (billions) |
$ | 1.05 | $ | 1.10 | ||||
| Adjusted Phosphate EBITDA (millions) |
$ | 200 | $ | 250 | ||||
| Potash sales tonnes (millions) 3 |
12.2 | 12.5 | ||||||
| Nitrogen sales tonnes (millions) 3 |
10.9 | 11.1 | ||||||
| Depreciation and amortization (billions) |
$ | 1.85 | $ | 1.95 | ||||
| Effective tax rate |
11 | % | 13 | % | ||||
| Sustaining capital expenditures (billions) |
$ | 0.9 | $ | 1.0 | ||||
1 See the “Forward-Looking Statements” section.
2 See the “Non-IFRS Financial Measures” section.
3 Manufactured products only. Nitrogen excludes ESN® and Rainbow products.
Consolidated Results
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||||||||||
| (millions of US dollars) |
2020 | 2019 | % Change | 2020 | 2019 | % Change | ||||||||||||||||||
| Sales |
4,205 | 4,169 | 1 | 16,807 | 16,581 | 1 | ||||||||||||||||||
| Freight, transportation and distribution |
204 | 210 | (3 | ) | 653 | 596 | 10 | |||||||||||||||||
| Cost of goods sold |
3,004 | 2,819 | 7 | 12,129 | 11,558 | 5 | ||||||||||||||||||
| Gross margin |
997 | 1,140 | (13 | ) | 4,025 | 4,427 | (9 | ) | ||||||||||||||||
| Expenses |
1,719 | 812 | 112 | 3,526 | 2,628 | 34 | ||||||||||||||||||
| Net (loss) earnings |
(587 | ) | 141 | n/m | 143 | 1,040 | (86 | ) | ||||||||||||||||
| Adjusted EBITDA 1 |
670 | 787 | (15 | ) | 2,899 | 3,361 | (14 | ) | ||||||||||||||||
| Free cash flow (“FCF”) 1 |
280 | 329 | (15 | ) | 1,634 | 2,019 | (19 | ) | ||||||||||||||||
| FCF including changes in non-cash operating working capital 1 |
(888 | ) | 333 | n/m | 34 | 579 | (94 | ) | ||||||||||||||||
1 See the “Non-IFRS Financial Measures” section.
Our third-quarter and first-nine months net (loss) earnings for 2020 were negatively impacted primarily by a non-cash impairment of assets related primarily to our Phosphate operations. Adjusted EBITDA decreased in the same periods due to significantly lower crop nutrient prices that more than offset strong Retail earnings growth and greater operational efficiencies. The COVID-19 pandemic had limited impact on our business during the periods.
Segment Results
Our discussion of segment results set out on the following pages is a comparison of the results for the three and nine months ended September 30, 2020 to the results for the three and nine months ended September 30, 2019, respectively, unless otherwise noted. In the third quarter of 2020, we revised the measure with which we evaluate our segments from EBITDA to Adjusted EBITDA. Adjusted EBITDA provides a better indication of the segments performance as it excludes the impact of impairments and other costs that are centrally managed by our corporate function. We have presented adjusted EBITDA for the comparative periods.
3
Retail
| Three Months Ended September 30 | ||||||||||||||||||||||||||||||||||||||
| (millions of US dollars, except | Dollars | Gross Margin | Gross Margin (%) | |||||||||||||||||||||||||||||||||||
| as otherwise noted) | 2020 | 2019 | % Change | 2020 | 2019 | % Change | 2020 | 2019 | ||||||||||||||||||||||||||||||
| Sales |
||||||||||||||||||||||||||||||||||||||
| Crop nutrients |
780 | 769 | 1 | 179 | 175 | 2 | 23 | 23 | ||||||||||||||||||||||||||||||
| Crop protection products |
1,328 | 1,318 | 1 | 256 | 303 | (16 | ) | 19 | 23 | |||||||||||||||||||||||||||||
| Seed |
103 | 60 | 72 | 27 | 17 | 59 | 26 | 28 | ||||||||||||||||||||||||||||||
| Merchandise |
234 | 135 | 73 | 37 | 22 | 68 | 16 | 16 | ||||||||||||||||||||||||||||||
| Services and other |
275 | 217 | 27 | 162 | 138 | 17 | 59 | 64 | ||||||||||||||||||||||||||||||
| 2,720 | 2,499 | 9 | 661 | 655 | 1 | 24 | 26 | |||||||||||||||||||||||||||||||
| Cost of goods sold |
2,059 | 1,844 | 12 | |||||||||||||||||||||||||||||||||||
| Gross margin |
661 | 655 | 1 | |||||||||||||||||||||||||||||||||||
| Expenses 1 |
669 | 617 | 8 | |||||||||||||||||||||||||||||||||||
| Earnings (loss) before finance |
(8 | ) | 38 | n/m | ||||||||||||||||||||||||||||||||||
| Depreciation and amortization |
170 | 152 | 12 | |||||||||||||||||||||||||||||||||||
| EBITDA / Adjusted EBITDA |
162 | 190 | (15 | ) | ||||||||||||||||||||||||||||||||||
1 Includes selling expenses of $669 million (2019 – $601 million).
| Nine Months Ended September 30 | ||||||||||||||||||||||||||||||||||||||
| (millions of US dollars, except | Dollars | Gross Margin | Gross Margin (%) | |||||||||||||||||||||||||||||||||||
| as otherwise noted) | 2020 | 2019 | % Change | 2020 | 2019 | % Change | 2020 | 2019 | ||||||||||||||||||||||||||||||
| Sales |
||||||||||||||||||||||||||||||||||||||
| Crop nutrients |
4,092 | 4,082 | - | 894 | 846 | 6 | 22 | 21 | ||||||||||||||||||||||||||||||
| Crop protection products |
4,774 | 4,348 | 10 | 960 | 892 | 8 | 20 | 21 | ||||||||||||||||||||||||||||||
| Seed |
1,638 | 1,613 | 2 | 305 | 276 | 11 | 19 | 17 | ||||||||||||||||||||||||||||||
| Merchandise |
703 | 387 | 82 | 116 | 65 | 78 | 17 | 17 | ||||||||||||||||||||||||||||||
| Services and other |
911 | 620 | 47 | 527 | 425 | 24 | 58 | 69 | ||||||||||||||||||||||||||||||
| 12,118 | 11,050 | 10 | 2,802 | 2,504 | 12 | 23 | 23 | |||||||||||||||||||||||||||||||
| Cost of goods sold |
9,316 | 8,546 | 9 | |||||||||||||||||||||||||||||||||||
| Gross margin |
2,802 | 2,504 | 12 | |||||||||||||||||||||||||||||||||||
| Expenses 1 |
2,157 | 1,937 | 11 | |||||||||||||||||||||||||||||||||||
| EBIT |
645 | 567 | 14 | |||||||||||||||||||||||||||||||||||
| Depreciation and amortization |
488 | 433 | 13 | |||||||||||||||||||||||||||||||||||
| EBITDA / Adjusted EBITDA |
1,133 | 1,000 | 13 | |||||||||||||||||||||||||||||||||||
1 Includes selling expenses of $2,068 million (2019 – $1,816 million).
| • | Adjusted EBITDA was lower in the third quarter of 2020 due primarily to the sales mix and use of crop protection products compared to the delayed season last year which pushed sales into the third quarter in North America. US applications this year were also negatively impacted by lower than expected planted acreage and weather-related events. Adjusted EBITDA in the first nine months of 2020 increased significantly from the same period in 2019 due to strong growth in revenue and gross margins across most product lines. The increase was primarily due to organic growth, aided by more normal weather conditions in the US, as well as from the benefit of acquisitions made over the past year. |
| Total selling expenses increased in the periods due primarily to acquisitions, including the acquisition of Ruralco Holdings Limited (“Ruralco”). Selling expenses as a percentage of sales were also impacted by lower crop nutrient and seed prices in 2020, which resulted in lower associated sales. Total US selling expenses, excluding depreciation and amortization, were down this quarter relative to the third quarter of last year. |
| • | Crop nutrients sales were higher in the third quarter and the first nine months of 2020, compared to the same periods in 2019 as higher sales volumes more than offset the impact of lower selling prices. Third quarter sales volumes were 10 percent higher than last year, due to strong applications in Australia which offset lower sales volumes in the US. For the first nine months of 2020, total sales volumes were up 12 percent, with increases across all geographies. Gross margin percentage was stable in the third quarter but higher in the nine-month period due to a larger proportion of higher-margin proprietary product sales. |
| • | Crop protection products sales in the third quarter and first nine months of 2020 were higher compared to the same periods in 2019, due to acquisitions and continued market share growth. Gross margin percentage decreased in the periods due to the impact of recent acquisitions, including that of Ruralco, which impacted the mix of product sold. There was also a slight reduction in use of higher margin discretionary products such as fungicides and insecticides in the US market due to a combination of weather and market factors. |
4
| • | Seed sales in the third quarter and first nine months of 2020 increased from the same period last year due to strong growth in all key markets, including contributions from the Tec Agro Group acquisition in Brazil and Ruralco in Australia. Gross margin percentage decreased in the third quarter of 2020 primarily due to the Ruralco acquisition, while US seed margins in the third quarter strengthened year over year. Gross margin percentage increased in the first nine months of 2020 due to higher margins achieved on soybean and corn sales and fewer replanting discounts compared to the same periods in 2019. |
| • | Merchandise sales increased in third quarter and first nine months of 2020 due to benefits from the acquisition of the Ruralco business in Australia. Gross margin percentage was stable in the periods. |
| • | Services and other sales were higher in the third quarter and first nine months of 2020 due to increased contributions from our Australian business. Sales and gross profit in the US declined in the third quarter but margins were slightly stronger. Gross margin percentage decreased in the periods due to product mix changes resulting primarily from the acquisition of Ruralco. |
Potash
| Three Months Ended September 30 | ||||||||||||||||||||||||||||||||||||||||||
| (millions of US dollars, except | Dollars | Tonnes (thousands) | Average per Tonne | |||||||||||||||||||||||||||||||||||||||
| as otherwise noted) | 2020 | 2019 | % Change | 2020 | 2019 | % Change | 2020 | 2019 | % Change | |||||||||||||||||||||||||||||||||
| Manufactured product |
||||||||||||||||||||||||||||||||||||||||||
| Net sales |
||||||||||||||||||||||||||||||||||||||||||
| North America |
252 | 330 | (24 | ) | 1,426 | 1,438 | (1 | ) | 176 | 229 | (23 | ) | ||||||||||||||||||||||||||||||
| Offshore |
339 | 379 | (11 | ) | 2,252 | 1,823 | 24 | 151 | 208 | (27 | ) | |||||||||||||||||||||||||||||||
| 591 | 709 | (17 | ) | 3,678 | 3,261 | 13 | 161 | 218 | (26 | ) | ||||||||||||||||||||||||||||||||
| Cost of goods sold |
303 | 303 | - | 83 | 94 | (12 | ) | |||||||||||||||||||||||||||||||||||
| Gross margin - manufactured |
288 | 406 | (29 | ) | 78 | 124 | (37 | ) | ||||||||||||||||||||||||||||||||||
| Gross margin - other 1 |
- | - | - | Depreciation and amortization |
|
34 | 34 | - | ||||||||||||||||||||||||||||||||||
| Gross margin - total |
288 | 406 | (29 | ) | Gross margin excluding depreciation |
|
||||||||||||||||||||||||||||||||||||
| Expenses 2 |
84 | 86 | (2 | ) | and amortization - manufactured 3 |
|
112 | 158 | (29 | ) | ||||||||||||||||||||||||||||||||
| EBIT |
204 | 320 | (36 | ) | Potash cash cost of product |
|
||||||||||||||||||||||||||||||||||||
| Depreciation and amortization |
124 | 110 | 13 | manufactured 3 |
|
53 | 62 | (15 | ) | |||||||||||||||||||||||||||||||||
| EBITDA |
328 | 430 | (24 | ) | ||||||||||||||||||||||||||||||||||||||
| Impairment of assets |
22 | - | n/m | |||||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA |
350 | 430 | (19 | ) | ||||||||||||||||||||||||||||||||||||||
1 Includes other potash and purchased products and is comprised of net sales of $Nil (2019 – $Nil) less cost of goods sold of $Nil (2019 – $Nil).
2 Includes provincial mining and other taxes of $58 million (2019 – $83 million).
3 See the “Non-IFRS Financial Measures” section.
| Nine Months Ended September 30 | ||||||||||||||||||||||||||||||||||||||||||
| (millions of US dollars, except | Dollars | Tonnes (thousands) | Average per Tonne | |||||||||||||||||||||||||||||||||||||||
| as otherwise noted) | 2020 | 2019 | % Change | 2020 | 2019 | % Change | 2020 | 2019 | % Change | |||||||||||||||||||||||||||||||||
| Manufactured product |
||||||||||||||||||||||||||||||||||||||||||
| Net sales |
||||||||||||||||||||||||||||||||||||||||||
| North America |
709 | 832 | (15 | ) | 3,774 | 3,389 | 11 | 188 | 245 | (23 | ) | |||||||||||||||||||||||||||||||
| Offshore |
987 | 1,421 | (31 | ) | 6,396 | 6,247 | 2 | 154 | 228 | (32 | ) | |||||||||||||||||||||||||||||||
| 1,696 | 2,253 | (25 | ) | 10,170 | 9,636 | 6 | 167 | 234 | (29 | ) | ||||||||||||||||||||||||||||||||
| Cost of goods sold |
878 | 892 | (2 | ) | 87 | 93 | (6 | ) | ||||||||||||||||||||||||||||||||||
| Gross margin - manufactured |
818 | 1,361 | (40 | ) | 80 | 141 | (43 | ) | ||||||||||||||||||||||||||||||||||
| Gross margin - other 1 |
- | 1 | (100 | ) | Depreciation and amortization |
|
32 | 34 | (6 | ) | ||||||||||||||||||||||||||||||||
| Gross margin - total |
818 | 1,362 | (40 | ) | Gross margin excluding depreciation |
|
||||||||||||||||||||||||||||||||||||
| Expenses 2 |
199 | 242 | (18 | ) | and amortization - manufactured |
|
112 | 175 | (36 | ) | ||||||||||||||||||||||||||||||||
| EBIT |
619 | 1,120 | (45 | ) | Potash cash cost of product |
|
||||||||||||||||||||||||||||||||||||
| Depreciation and amortization |
329 | 324 | 2 | manufactured |
|
55 | 60 | (8 | ) | |||||||||||||||||||||||||||||||||
| EBITDA |
948 | 1,444 | (34 | ) | ||||||||||||||||||||||||||||||||||||||
| Impairment of assets |
22 | - | n/m | |||||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA |
970 | 1,444 | (33 | ) | ||||||||||||||||||||||||||||||||||||||
1 Includes other potash and purchased products and is comprised of net sales of $Nil million (2019 – $1 million) less cost of goods sold of $Nil (2019 – $Nil).
2 Includes provincial mining and other taxes of $161 million (2019 – $237 million).
5
| • | Adjusted EBITDA decreased in the third quarter and first nine months of 2020 due to lower global potash prices. This was partially offset by higher sales volumes and lower cost of goods sold per tonne. |
| • | Sales volumes in the third quarter of 2020 were the second highest of any quarter on record while sales volumes in the first nine months of 2020 were the highest on record. Higher sales volumes relative to the same periods last year were supported by strong offshore demand, higher US planted acreage and improved crop fundamentals. |
| • | Net realized selling price decreased in the third quarter and first nine months of 2020, due to pressure in global benchmark prices. |
| • | Cost of goods sold per tonne decreased in both periods due to production efficiency gains and the deferral of maintenance projects related to COVID-19 precautions. These factors also lowered the potash cash cost of product manufactured in the third quarter and the first nine months of 2020. |
Canpotex Sales by Market
| (percentage of sales volumes, except as | Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||||||||||
| otherwise noted) | 2020 | 2019 | % Change | 2020 | 2019 | % Change | ||||||||||||||||||
| Latin America |
36 | 44 | (18 | ) | 33 | 31 | 6 | |||||||||||||||||
| Other Asian markets 1 |
20 | 21 | (5 | ) | 25 | 27 | (7 | ) | ||||||||||||||||
| China |
23 | 16 | 44 | 22 | 23 | (4 | ) | |||||||||||||||||
| India |
14 | 12 | 17 | 13 | 11 | 18 | ||||||||||||||||||
| Other markets |
7 | 7 | - | 7 | 8 | (13 | ) | |||||||||||||||||
|
|
100 | 100 |
|
|
|
100 | 100 |
|
|
| ||||||||||||||
| 1 All Asian markets except China and India. |
Nitrogen
|
|
Three Months Ended September 30 | |||||||||||||||||||||||||||||||||||||||||
| (millions of US dollars, except | Dollars |
|
Tonnes (thousands) |
|
Average per Tonne | |||||||||||||||||||||||||||||||||||||
| as otherwise noted) | 2020 | 2019 | % Change |
|
2020 | 2019 | % Change |
|
2020 | 2019 | % Change | |||||||||||||||||||||||||||||||
| Manufactured product |
|
|||||||||||||||||||||||||||||||||||||||||
| Net sales |
||||||||||||||||||||||||||||||||||||||||||
| Ammonia |
105 | 144 | (27 | ) | 546 | 715 | (24 | ) | 193 | 203 | (5 | ) | ||||||||||||||||||||||||||||||
| Urea |
193 | 221 | (13 | ) | 766 | 726 | 6 | 251 | 304 | (17 | ) | |||||||||||||||||||||||||||||||
| Solutions, nitrates and sulfates |
143 | 168 | (15 | ) |
|
|
|
1,091 | 1,081 | 1 |
|
|
|
131 | 155 | (15 | ) | |||||||||||||||||||||||||
| 441 | 533 | (17 | ) | 2,403 | 2,522 | (5 | ) | 184 | 211 | (13 | ) | |||||||||||||||||||||||||||||||
| Cost of goods sold |
392 | 416 | (6 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
164 | 165 | (1 | ) | |||||||||||||||||||||
| Gross margin - manufactured |
49 | 117 | (58 | ) | 20 | 46 | (57 | ) | ||||||||||||||||||||||||||||||||||
| Gross margin - other 1 |
9 | 16 | (44 | ) |
|
|
|
Depreciation and amortization |
|
|
|
|
55 | 50 | 10 | |||||||||||||||||||||||||||
| Gross margin - total |
58 | 133 | (56 | ) | Gross margin excluding depreciation |
|
||||||||||||||||||||||||||||||||||||
| Expenses |
21 | 13 | 62 |
|
|
|
and amortization - manufactured |
|
|
|
|
75 | 96 | (22 | ) | |||||||||||||||||||||||||||
| EBIT |
37 | 120 | (69 | ) | Ammonia controllable cash cost of |
|
||||||||||||||||||||||||||||||||||||
| Depreciation and amortization |
131 | 127 | 3 |
|
|
|
product manufactured 2 |
|
|
|
|
47 | 45 | 4 | ||||||||||||||||||||||||||||
| EBITDA |
168 | 247 | (32 | ) | ||||||||||||||||||||||||||||||||||||||
| Impairment of assets |
27 | - | n/m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
| Adjusted EBITDA |
195 | 247 | (21 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
| 1 Includes other nitrogen (including ESN® and Rainbow) and purchased products and is comprised of net sales of $99 million (2019 – $69 million) less cost of goods sold of $90 million (2019 – $53 million). |
| 2 See the “Non-IFRS Financial Measures” section. |
6
|
|
Nine Months Ended September 30 | |||||||||||||||||||||||||||||||||||||||||||
| (millions of US dollars, except | Dollars |
|
Tonnes (thousands) |
|
Average per Tonne | |||||||||||||||||||||||||||||||||||||||
| as otherwise noted) | 2020 | 2019 | % Change |
|
2020 | 2019 | % Change |
|
2020 | 2019 | % Change | |||||||||||||||||||||||||||||||||
| Manufactured product |
|
|||||||||||||||||||||||||||||||||||||||||||
| Net sales |
||||||||||||||||||||||||||||||||||||||||||||
| Ammonia |
464 | 602 | (23 | ) | 2,048 | 2,400 | (15 | ) | 227 | 251 | (10 | ) | ||||||||||||||||||||||||||||||||
| Urea |
703 | 739 | (5 | ) | 2,622 | 2,342 | 12 | 268 | 315 | (15 | ) | |||||||||||||||||||||||||||||||||
| Solutions, nitrates and sulfates |
500 | 540 | (7 | ) |
|
|
|
3,451 | 3,166 | 9 |
|
|
|
145 | 170 | (15 | ) | |||||||||||||||||||||||||||
| 1,667 | 1,881 | (11 | ) | 8,121 | 7,908 | 3 | 205 | 238 | (14 | ) | ||||||||||||||||||||||||||||||||||
| Cost of goods sold |
1,344 | 1,345 | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
165 | 170 | (3 | ) | ||||||||||||||||||||||
| Gross margin - manufactured |
323 | 536 | (40 | ) | 40 | 68 | (41 | ) | ||||||||||||||||||||||||||||||||||||
| Gross margin - other 1 |
40 | 57 | (30 | ) |
|
|
|
Depreciation and amortization |
|
|
|
56 | 50 | 12 | ||||||||||||||||||||||||||||||
| Gross margin - total |
363 | 593 | (39 | ) | Gross margin excluding depreciation |
|||||||||||||||||||||||||||||||||||||||
| Expenses |
29 | 7 | 314 |
|
|
|
and amortization - manufactured |
96 | 118 | (19 | ) | |||||||||||||||||||||||||||||||||
| EBIT |
334 | 586 | (43 | ) | Ammonia controllable cash cost of |
|||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization |
453 | 394 | 15 |
|
|
|
product manufactured |
44 | 44 | - | ||||||||||||||||||||||||||||||||||
| EBITDA |
787 | 980 | (20 | ) | ||||||||||||||||||||||||||||||||||||||||
| Impairment of assets |
27 | - | n/m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
| Adjusted EBITDA |
814 | 980 | (17 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
| 1 Includes other nitrogen (including ESN® and Rainbow) and purchased products and is comprised of net sales of $404 million (2019 – $364 million) less cost of goods sold of $364 million (2019 – $307 million). |
| • | Adjusted EBITDA decreased in the third quarter and first nine months of 2020 as lower net realized selling prices more than offset the benefit of higher sales volumes into North American agricultural markets and lower cost of goods sold per tonne. |
| • | Sales volumes decreased in the third quarter of 2020 compared to the same period in 2019 due to lower industrial nitrogen demand, particularly for ammonia, and associated operational changes in Trinidad. This was partially offset by higher agriculture-related nitrogen sales. Sales volumes in the first nine months of 2020 were higher compared to the same period in 2019 due to recent expansion projects and strong operating rates at our North American facilities. |
| • | Net realized selling price of nitrogen was lower in the third quarter and first nine months of 2020 than the same periods last year due to lower global and North American benchmark prices. Third quarter sales commitments in 2020 were weighted towards the beginning of the quarter prior to benchmark price increases. |
| • | Cost of goods sold per tonne decreased in the third quarter and first nine months of 2020 compared to the same periods in 2019 due to lower natural gas prices and fixed costs. This more than offset higher depreciation and amortization per tonne related to expansion and turnaround work completed in late 2019. Ammonia controllable cash cost of product manufactured per tonne increased in the third quarter due to lower production associated with curtailments in Trinidad. Ammonia controllable cash costs for the first nine months of 2020 were consistent with the same period last year due to lower fixed costs that offset lower production. |
Natural Gas Prices in Cost of Production
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||||||||||
| (US dollars per MMBtu, except as otherwise noted) | 2020 | 2019 | % Change | 2020 | 2019 | % Change | ||||||||||||||||||
| Overall gas cost excluding realized derivative impact |
2.18 | 2.06 | 6 | 2.17 | 2.47 | (12 | ) | |||||||||||||||||
| Realized derivative impact |
0.06 | 0.22 | (73 | ) | 0.06 | 0.14 | (57 | ) | ||||||||||||||||
| Overall gas cost |
2.24 | 2.28 | (2 | ) | 2.23 | 2.61 | (15 | ) | ||||||||||||||||
| Average NYMEX |
1.98 | 2.23 | (11 | ) | 1.88 | 2.67 | (30 | ) | ||||||||||||||||
| Average AECO |
1.62 | 0.78 | 108 | 1.54 | 1.05 | 47 | ||||||||||||||||||
| • | Gas prices in our cost of production decreased in the third quarter and first nine months of 2020 as lower US gas prices and a lower realized derivative impact more than offset higher Canadian gas prices compared to the same period last year. |
7
Phosphate
|
|
Three Months Ended September 30 | |||||||||||||||||||||||||||||||||||||||||||
| (millions of US dollars, except | Dollars |
|
Tonnes (thousands) |
|
Average per Tonne | |||||||||||||||||||||||||||||||||||||||
| as otherwise noted) | 2020 | 2019 | % Change |
|
2020 | 2019 | % Change |
|
2020 | 2019 | % Change | |||||||||||||||||||||||||||||||||
| Manufactured product |
|
|||||||||||||||||||||||||||||||||||||||||||
| Net sales |
||||||||||||||||||||||||||||||||||||||||||||
| Fertilizer |
172 | 164 | 5 | 542 | 492 | 10 | 317 | 335 | (5 | ) | ||||||||||||||||||||||||||||||||||
| Industrial and feed |
94 | 106 | (11 | ) |
|
|
|
166 | 192 | (14 | ) |
|
|
|
563 | 549 | 3 | |||||||||||||||||||||||||||
| 266 | 270 | (1 | ) | 708 | 684 | 4 | 375 | 396 | (5 | ) | ||||||||||||||||||||||||||||||||||
| Cost of goods sold |
268 | 284 | (6 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
379 | 416 | (9 | ) | |||||||||||||||||||||
| Gross margin - manufactured |
(2 | ) | (14 | ) | 86 | (4 | ) | (20 | ) | 80 | ||||||||||||||||||||||||||||||||||
| Gross margin - other 1 |
1 | (1 | ) | n/m |
|
|
|
Depreciation and amortization |
|
|
|
85 | 85 | - | ||||||||||||||||||||||||||||||
| Gross margin - total |
(1 | ) | (15 | ) | 93 | Gross margin excluding depreciation |
||||||||||||||||||||||||||||||||||||||
| Expenses |
782 | 9 | n/m |
|
|
|
and amortization - manufactured |
81 | 65 | 25 | ||||||||||||||||||||||||||||||||||
| EBIT |
(783 | ) | (24 | ) | n/m | |||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization |
60 | 58 | 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
| EBITDA |
(723 | ) | 34 | n/m | ||||||||||||||||||||||||||||||||||||||||
| Impairment of assets |
769 | - | n/m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
| Adjusted EBITDA |
46 | 34 | 35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
| 1 Includes other phosphate and purchased products and is comprised of net sales of $26 million (2019 - $44 million) less cost of goods sold of $25 million (2019 - $45 million). |
|
|
Nine Months Ended September 30 | |||||||||||||||||||||||||||||||||||||||||||
| (millions of US dollars, except | Dollars |
|
Tonnes (thousands) |
|
Average per Tonne | |||||||||||||||||||||||||||||||||||||||
| as otherwise noted) | 2020 | 2019 | % Change |
|
2020 | 2019 | % Change |
|
2020 | 2019 | % Change | |||||||||||||||||||||||||||||||||
| Manufactured product |
|
|||||||||||||||||||||||||||||||||||||||||||
| Net sales |
||||||||||||||||||||||||||||||||||||||||||||
| Fertilizer |
491 | 635 | (23 | ) | 1,582 | 1,664 | (5 | ) | 310 | 382 | (19 | ) | ||||||||||||||||||||||||||||||||
| Industrial and feed |
304 | 321 | (5 | ) |
|
|
|
551 | 578 | (5 | ) |
|
|
|
552 | 555 | (1 | ) | ||||||||||||||||||||||||||
| 795 | 956 | (17 | ) | 2,133 | 2,242 | (5 | ) | 373 | 426 | (12 | ) | |||||||||||||||||||||||||||||||||
| Cost of goods sold |
779 | 963 | (19 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
366 | 429 | (15 | ) | |||||||||||||||||||||
| Gross margin - manufactured |
16 | (7 | ) | n/m | 7 | (3 | ) | n/m | ||||||||||||||||||||||||||||||||||||
| Gross margin - other 1 |
4 | (4 | ) | n/m |
|
|
|
Depreciation and amortization |
|
|
|
84 | 80 | 5 | ||||||||||||||||||||||||||||||
| Gross margin - total |
20 | (11 | ) | n/m | Gross margin excluding depreciation |
|||||||||||||||||||||||||||||||||||||||
| Expenses |
799 | 29 | n/m |
|
|
|
and amortization - manufactured |
91 | 77 | 18 | ||||||||||||||||||||||||||||||||||
| EBIT |
(779 | ) | (40 | ) | n/m | |||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization |
179 | 180 | (1 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
| EBITDA |
(600 | ) | 140 | n/m | ||||||||||||||||||||||||||||||||||||||||
| Impairment of assets |
769 | - | n/m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
| Adjusted EBITDA |
169 | 140 | 21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
| 1 Includes other phosphate and purchased products and is comprised of net sales of $87 million (2019 - $125 million) less cost of goods sold of $83 million (2019 - $129 million). |
| • | Adjusted EBITDA increased in the third quarter and first nine months of 2020 primarily due to lower cost of goods sold per tonne. As part of our expenses, we recognized a $769 million non-cash impairment of assets which is added back to adjusted EBITDA. This impairment relates to a less favorable long-term outlook of phosphate selling prices and an expected global supply imbalance. |
| • | Sales volumes increased in the third quarter of 2020 compared to the third quarter last year due to higher fertilizer sales that more than offset lower industrial and feed sales. Sales volumes in the first nine months of 2020 decreased compared to the same period last year primarily due to the conversion of the Redwater phosphate facility to ammonium sulfate in 2019 and lower phosphoric acid exports in 2020. |
| • | Net realized selling price of phosphate fertilizer sales was lower than in the third quarter of last year due to the lag effect in realized prices, which was partially offset by higher industrial and feed prices. Net realized selling prices in the first nine months of 2020 were lower than the same period last year consistent with declines in global benchmark prices. |
| • | Cost of goods sold per tonne decreased in the third quarter of 2020 due to lower raw material costs and a favorable non-cash inventory adjustment. Cost of goods sold per tonne decreased significantly in the first nine months of 2020 compared to the same period last year primarily due to both lower raw material costs and a change in estimate related to an asset retirement obligation recorded in the second quarter of 2020. |
8
Corporate and Others
| (millions of US dollars, except as otherwise | Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||||||||||
| noted) | 2020 | 2019 | % Change | 2020 | 2019 | % Change | ||||||||||||||||||
| Sales 1 |
23 | 35 | (34 | ) | 70 | 99 | (29) | |||||||||||||||||
| Cost of goods sold |
20 | 35 | (43 | ) | 63 | 99 | (36) | |||||||||||||||||
| Gross margin |
3 | - | n/m | 7 | - | n/m | ||||||||||||||||||
| Selling expenses |
(4 | ) | (5 | ) | (20 | ) | (17 | ) | (14 | ) | 21 | |||||||||||||
| General and administrative expenses |
66 | 65 | 2 | 191 | 191 | - | ||||||||||||||||||
| Provincial mining and other taxes |
- | 8 | (100 | ) | 1 | 13 | (92) | |||||||||||||||||
| Share-based compensation expense |
29 | (21 | ) | n/m | 9 | 95 | (91) | |||||||||||||||||
| Impairment of assets |
5 | - | n/m | 5 | 33 | (85) | ||||||||||||||||||
| Other expenses |
67 | 40 | 68 | 153 | 95 | 61 | ||||||||||||||||||
| EBIT |
(160 | ) | (87 | ) | 84 | (335 | ) | (413 | ) | (19) | ||||||||||||||
| Depreciation and amortization |
15 | 10 | 50 | 41 | 32 | 28 | ||||||||||||||||||
| EBITDA |
(145 | ) | (77 | ) | 88 | (294 | ) | (381 | ) | (23) | ||||||||||||||
| Merger and related costs |
- | 21 | (100 | ) | - | 57 | (100) | |||||||||||||||||
| Acquisition and integration related costs |
10 | - | n/m | 38 | - | n/m | ||||||||||||||||||
| Share-based compensation expense |
29 | (21 | ) | n/m | 9 | 95 | (91) | |||||||||||||||||
| Impairment of assets |
5 | - | n/m | 5 | 33 | (85) | ||||||||||||||||||
| COVID-19 related expenses |
11 | - | n/m | 30 | - | n/m | ||||||||||||||||||
| Foreign exchange loss, net of related |
13 | 2 | 550 | 4 | 14 | (71) | ||||||||||||||||||
| Loss on disposal of business |
6 | - | n/m | 6 | - | n/m | ||||||||||||||||||
| Adjusted EBITDA |
(71 | ) | (75 | ) | (5 | ) | (202 | ) | (182 | ) | 11 | |||||||||||||
| Finance costs |
129 | 147 | (12 | ) | 401 | 413 | (3) | |||||||||||||||||
| Income tax (recovery) expense |
(264 | ) | 40 | n/m | (45 | ) | 346 | n/m | ||||||||||||||||
| Other comprehensive income (loss) |
71 | (75 | ) | n/m | (86 | ) | (57 | ) | 51 | |||||||||||||||
| 1 Primarily relates to our non-core Canadian business which was sold in the third quarter of 2020. |
| • | Share-based compensation expense (recovery) - We had an expense for the third quarter of 2020 due to an increase in share price and a recovery for the comparative period in 2019 due to a decrease in share price. We had a lower expense for the first nine months of 2020 as our share price was negatively impacted from market volatility due to the COVID-19 pandemic in the first nine months of 2020. |
| • | Impairment of assets was lower for the first nine months of 2020 due to a $33 million impairment of our intangible assets as a result of Fertilizantes Heringer S.A. filing for bankruptcy protection in 2019. |
| • | Other expenses in the third quarter and first nine months of 2020 were higher due to project costs related to our Retail enterprise resource planning system as part of our digital transformation and COVID-19 related expenses. COVID-19 expenses primarily consist of increased cleaning and sanitization costs, the purchase of personal protective equipment, discretionary supplemental employee costs and costs related to construction delays from access limitations and other government restrictions. |
| • | Finance costs in the third quarter and first nine months of 2020 were slightly lower than the same periods last year. Lower interest rates more than offset higher finance costs incurred as we managed our immediate liquidity position during the initial months of the COVID-19 pandemic. |
| • | Income tax (recovery) expense – Income tax recoveries were recorded for the third quarter and first nine months of 2020 due to an impairment of assets, discrete tax recoveries primarily related to US legislative changes and a change in jurisdictional earnings composition. The discrete tax recoveries were $48 million and $59 million for the third quarter and first nine months of 2020, respectively. |
| • | Other comprehensive income (loss) – For the third quarter of 2020, we had higher other comprehensive income from a gain on translation of our Retail operations in Canada and Australia as the Canadian and Australian dollars appreciated relative to the US dollar as global markets rebounded following the COVID-19 pandemic in the early part of 2020. For the first nine months of 2020, we had a higher other comprehensive loss due primarily to a loss on translation of our Retail operations in Brazil as the Brazilian Real declined relative to the US dollar. There were also offsetting impacts from translation of our Canadian and Australian Retail operations. |
9
Financial Condition Review
The following balance sheet categories contained variances that were considered significant:
| As at | ||||||||||||||||
| (millions of US dollars, except as otherwise noted) | September 30, 2020 | December 31, 2019 | $ Change | % Change | ||||||||||||
| Assets |
||||||||||||||||
| Cash and cash equivalents |
465 | 671 | (206 | ) | (31 | ) | ||||||||||
| Receivables |
5,056 | 3,542 | 1,514 | 43 | ||||||||||||
| Inventories |
3,829 | 4,975 | (1,146 | ) | (23 | ) | ||||||||||
| Prepaid expenses and other current assets |
531 | 1,477 | (946 | ) | (64 | ) | ||||||||||
| Property, plant and equipment |
19,308 | 20,335 | (1,027 | ) | (5 | ) | ||||||||||
| Liabilities and Equity |
||||||||||||||||
| Short-term debt |
1,644 | 976 | 668 | 68 | ||||||||||||
| Current portion of long-term debt |
- | 502 | (502 | ) | (100 | ) | ||||||||||
| Payables and accrued charges |
5,239 | 7,437 | (2,198 | ) | (30 | ) | ||||||||||
| Long-term debt |
10,041 | 8,553 | 1,488 | 17 | ||||||||||||
| Retained earnings |
6,477 | 7,101 | (624 | ) | (9 | ) | ||||||||||
| • | Explanations for changes in Cash and cash equivalents are in the “Sources and Uses of Cash” section. |
| • | Receivables increased due to seasonal Retail sales resulting in higher receivables from customers and vendor rebates receivables. |
| • | Inventories decreased due to seasonal Retail sales activity. |
| • | Prepaid expenses and other current assets decreased due to the drawdown of prepaid inventory where Retail typically prepays for products at year-end and takes possession of inventory throughout the year. |
| • | Property, plant and equipment decreased primarily due to a non-cash impairment of our Phosphate production facilities as described in Note 3 to the interim financial statements. |
| • | Short-term debt increased from commercial paper issuances as part of our seasonal working capital management. |
| • | Payables and accrued charges decreased due to lower customer prepayments as Retail customers took delivery of prepaid products. This was partially offset by an increase related to a shift in timing of vendor payments. |
| • | Long-term debt (including current portion) increased due to the addition of $1.5 billion in notes issued in May 2020 exceeding the repayment of $500 million in notes that matured in the first quarter of 2020. |
| • | Retained earnings decreased due to dividends declared exceeding net earnings. |
Liquidity and Capital Resources
Sources and Uses of Liquidity
We managed our capital in accordance with our capital allocation strategy. We believe that our internally generated cash flow, supplemented by available borrowings under our existing financing sources, if necessary, will be sufficient to meet our anticipated capital expenditures and other cash requirements for at least the next 12 months. As further developments and impacts of COVID-19 are highly uncertain and cannot be predicted, we continue to monitor our liquidity position. Refer to the “Capital Structure and Management” section for details on our existing long-term debt and credit facilities.
Key uses and sources of cash and cash equivalents in the third quarter and/or nine months ended September 30, 2020 included:
| • | Investments in capital assets to sustain and grow our safe, reliable and cost-efficient operations. Sustaining capital expenditures were $203 million in the third quarter of 2020 and were $511 million in the first nine months of 2020. Investing capital expenditures were $96 million in the third quarter of 2020 and were $360 million for the first nine months of 2020. |
| • | Returns to our shareholders through dividends and share repurchases (See Note 9 to the interim financial statements). Dividends paid were $257 million in the third quarter of 2020 and were $771 million for the first nine months of 2020. Share repurchases were $nil in the third quarter of 2020 and were $160 million in the first nine months of 2020. |
10
| • | Other financing activities including the following: |
| • | Issued $1.5 billion of notes on May 13, 2020. See Note 8 to the interim financial statements. |
| • | Drew down $446 million and $801 million from our commercial paper during the three and nine months ended September 30, 2020, respectively. |
| • | Repaid at maturity $500 million of 4.875 percent notes during the nine months ended September 30, 2020. See Note 8 to the interim financial statements. |
| • | Established new committed revolving credit facilities totaling approximately $1.5 billion in March and April 2020, in response to the market uncertainty caused by the COVID-19 pandemic. We closed these credit facilities after the issuance of the new notes, as described above. During the first nine months of 2020, we drew down from and later repaid $3.5 billion of our revolving credit facilities to provide additional liquidity in the volatile market caused by the COVID-19 pandemic. |
Sources and Uses of Cash
| (millions of US dollars, except as otherwise | Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||||||||||
| noted) | 2020 | 2019 | % Change | 2020 | 2019 | % Change | ||||||||||||||||||
| Cash (used in) provided by operating activities |
(685 | ) | 589 | n/m | 545 | 1,246 | (56 | ) | ||||||||||||||||
| Cash used in investing activities |
(356 | ) | (904 | ) | (61 | ) | (1,209 | ) | (2,133 | ) | (43 | ) | ||||||||||||
| Cash provided by (used in) financing activities |
85 | 272 | (69 | ) | 465 | (837 | ) | n/m | ||||||||||||||||
| Effect of exchange rate changes on cash and
cash |
6 | (5 | ) | n/m | (7 | ) | (22 | ) | (68 | ) | ||||||||||||||
| Decrease in cash and cash equivalents |
(950 | ) | (48 | ) | n/m | (206 | ) | (1,746 | ) | (88 | ) | |||||||||||||
Cash and cash equivalents decreased by $950 million in the third quarter of 2020 compared to a decrease of $48 million in 2019 as a result of lower cash from our operating activities mainly due to lower crop nutrient prices and comparatively strong results in the third quarter of 2019. We also settled more trade payables due to the shift in timing of vendor payments from the second to third quarter of 2020.
As cash from operations decreased, we lowered our spend in investing activities through:
| • | A $305 million decrease in cash used for acquisitions compared to the same period in 2019. We acquired Ruralco in the third quarter of 2019 with no similar acquisition in the third quarter of 2020. |
| • | A $276 million decrease in capital expenditures compared to the same period in 2019 as we deferred or reduced capital projects mainly due to lower crop nutrient prices, as well as COVID-19 precautions. |
Cash and cash equivalents decreased by $206 million in the nine months ended September 30, 2020 compared to a decrease of $1.7 billion in the nine months ended September 30, 2019.
Cash from our operating activities decreased as a result of lower crop nutrient prices. Despite this decrease, we had a $933 million decrease in short-term debt net proceeds compared to the same period in 2019, due to improved working capital management.
The decrease in our cash from operating activities was partially offset by:
| • | An approximately $900 million decrease in cash used for Retail acquisitions and capital expenditures compared to the same period in 2019. |
| • | A decrease of $1.8 billion in cash payments to shareholders in the form of share repurchases compared to the same period in 2019. |
| • | A $503 million decrease in long-term debt repayments compared to the same period in 2019. |
Capital Structure and Management
Principal Debt Instruments
In response to the COVID-19 pandemic, we continue to monitor our liquidity position. We added new credit facilities of $1.5 billion in March and April 2020, which we subsequently closed in May 2020 after the issuance of the new notes described below. We use a combination of cash generated from operations and short-term and long-term debt to finance our operations. We are in compliance with our debt covenants and did not have any changes to our credit ratings in the nine months ended September 30, 2020.
11
Short-term Debt
|
|
As at September 30, 2020 | |||||||||||||||
| (millions of US dollars) | Rate of Interest (%) | Total Facility Limit | Outstanding and Committed |
Remaining Available | ||||||||||||
| Credit facilities |
||||||||||||||||
| Unsecured revolving term credit facility |
NIL | 4,500 | - | 4,500 | ||||||||||||
| Uncommitted revolving demand facility |
NIL | 500 | - | 500 | ||||||||||||
| Other credit facilities 1 |
0.8 - 9.5 | 600 | 193 | 407 | ||||||||||||
| Commercial paper |
0.2 - 0.6 |
|
|
|
1,451 |
|
|
| ||||||||
| Total |
|
|
|
|
|
|
1,644 |
|
|
| ||||||
| 1 Other credit facilities are unsecured and consist of South American facilities with debt of $143 (December 31, 2019 – $149) and interest rates ranging from 2.0 percent to 9.5 percent, Australian facilities with debt of $24 (December 31, 2019 – $157) and an interest rate of 1.3 percent, and other facilities with debt of $26 (December 31, 2019 – $20) and interest rates ranging from 0.8 percent to 4.0 percent. |
The amount available under the commercial paper program is limited to the availability of backup funds under the $4,500 million unsecured revolving term credit facility and excess cash invested in highly liquid securities.
Long-term Debt
Our long-term debt consists primarily of notes. See the “Capital Structure and Management” section of our 2019 Annual Report for information on balances, rates and maturities for our notes. On May 13, 2020, we issued $1.5 billion in notes. See Note 8 to the interim financial statements. During the first quarter of 2020, we repaid the $500 million 4.875 percent notes that matured March 30, 2020.
Outstanding Share Data
|
|
As at October 30, 2020 | |||
| Common shares |
569,145,935 | |||
| Options to purchase common shares |
11,123,020 | |||
For more information on our capital structure and management, see Note 26 to our 2019 financial statements.
Quarterly Results
| (millions of US dollars, except as otherwise noted) | Q3 2020 | Q2 2020 | Q1 2020 | Q4 2019 | Q3 2019 | Q2 2019 | Q1 2019 | Q4 2018 | ||||||||||||||||||||||||
| Sales |
4,205 | 8,416 | 4,186 | 3,442 | 4,169 | 8,693 | 3,719 | 3,762 | ||||||||||||||||||||||||
| Net earnings (loss) from continuing operations |
(587 | ) | 765 | (35 | ) | (48 | ) | 141 | 858 | 41 | 296 | |||||||||||||||||||||
| Net earnings from discontinued operations |
- | - | - | - | - | - | - | 2,906 | ||||||||||||||||||||||||
| Net earnings (loss) |
(587 | ) | 765 | (35 | ) | (48 | ) | 141 | 858 | 41 | 3,202 | |||||||||||||||||||||
| Adjusted EBITDA |
670 | 1,721 | 508 | 664 | 787 | 1,870 | 704 | 924 | ||||||||||||||||||||||||
| Earnings (loss) per share (“EPS”) from continuing operations |
||||||||||||||||||||||||||||||||
| Basic |
(1.03 | ) | 1.34 | (0.06 | ) | (0.08 | ) | 0.25 | 1.48 | 0.07 | 0.48 | |||||||||||||||||||||
| Diluted |
(1.03 | ) | 1.34 | (0.06 | ) | (0.08 | ) | 0.24 | 1.47 | 0.07 | 0.48 | |||||||||||||||||||||
| EPS |
||||||||||||||||||||||||||||||||
| Basic |
(1.03 | ) | 1.34 | (0.06 | ) | (0.08 | ) | 0.25 | 1.48 | 0.07 | 5.23 | |||||||||||||||||||||
| Diluted |
(1.03 | ) | 1.34 | (0.06 | ) | (0.08 | ) | 0.24 | 1.47 | 0.07 | 5.22 | |||||||||||||||||||||
Seasonality in our business results from increased demand for products during the planting season. Crop input sales are generally higher in the spring and fall application seasons. Crop nutrient inventories are normally accumulated leading up to each application season. Our cash collections generally occur after the application season is complete, while customer prepayments made to us are concentrated in December and January and inventory prepayments paid to our vendors are typically concentrated in the period from November to January. Feed and industrial sales are more evenly distributed throughout the year.
12
Since the fourth quarter of 2019, Potash earnings have been impacted by lower net realized selling prices caused by a temporary slowdown in global demand. In the fourth quarter of 2018, earnings were impacted by $2.9 billion in after-tax gains on the sales of our investments in Sociedad Quimica y Minera de Chile S.A. and Arab Potash Company, which were categorized as discontinued operations. In the third quarter of 2020, earnings were impacted by non-cash impairments of property, plant and equipment primarily in the Phosphate segment as a result of lower forecasted global phosphate prices.
Risk Factors
Coronavirus Disease (COVID-19) Pandemic
Epidemics, pandemics or other such crises or public health concerns in regions of the world where we have operations or source material or sell products could impact or disrupt our business. Specifically, the ongoing COVID-19 outbreak has resulted in travel restrictions and extended shutdowns of certain businesses around the world, as well as a deterioration of general economic conditions. These or any governmental or other regulatory responses or developments or health concerns in countries in which we operate could result in operational restrictions or social and economic instability, or labor shortages. More specifically, there remains uncertainty relating to the potential impact that COVID-19 could ultimately have on our business. It is still possible that COVID-19 could impact our operations, create supply chain disruptions and/or limit our ability to timely sell or distribute our products in the future, which would negatively impact our business, financial condition and operating results. It is also possible that COVID-19 could negatively impact our customers, even though the agriculture sector is classified as an essential service. Any significant long-term downturn in the global economy or agricultural markets could impact the Company’s access to capital or credit ratings, or our customers’ access to liquidity, which could increase our counterparty credit exposure.
Critical Accounting Estimates
Our critical accounting policies are disclosed in our 2019 Annual Report. We have discussed the development, selection and application of our key accounting policies, and the critical accounting estimates and assumptions they involve, with the audit committee of the Board. Our critical accounting estimates are discussed on page 54 of our 2019 Annual Report. Other than the critical accounting estimates discussed below, there were no significant changes in the first nine months of 2020.
Long-lived Asset Impairment
During the three and nine months ended September 30, 2020, we identified an impairment indicator in our Phosphate cash generating units (“CGUs”) due to lower long-term forecasted global phosphate prices and recorded impairments of assets in the statement of (loss) earnings relating to our property plant and equipment at Aurora and White Springs of $545 million and $215 million, respectively. See Note 3 to the interim financial statements.
The recoverable values of Aurora and White Springs are most sensitive to the following key assumptions: our internal sales price forecasts which consider projections from an independent third-party data source, discount rates, long-term growth rates, and expected mine life. We used key assumptions that were based on historical data and estimates of future results from internal sources, external price benchmarks, mineral reserve technical reports, as well as industry and market trends.
The following table highlights sensitivities to the recoverable value which could result in additional impairment losses or reversals of previously recorded losses. The sensitivities have been calculated independently of changes in other key variables.
|
|
Aurora | |||||||||||||||
| Key Assumptions |
|
Change in Assumption |
|
Increase (Decrease) to Recoverable Value ($ millions) |
||||||||||||
| Net selling price |
± | 10 per tonne | ± | 150 | ||||||||||||
| Discount rate |
± | 1.0 percentage point | ± | 120 | ||||||||||||
For our White Springs CGU, there were no reasonably possible changes in the key assumptions that would result in a substantial change in the recoverable value.
At September 30, 2020, we performed impairment testing on the Trinidad CGU, part of our Nitrogen segment, due to the indefinite closure of an ammonia plant in response to market conditions and lower long-term forecasted global ammonia prices. No impairment resulted from comparing the carrying value of the Trinidad CGU to its recoverable value determined on a fair value less costs of disposal (“FVLCD”) methodology. FVLCD was based on after-tax discounted cash flows (using a five-year projection and a 2.0% terminal growth rate) discounted at a post-tax rate of 12.6%.
13
The following table indicates the percentages by which key assumptions would need to change individually for the estimated Trinidad CGU recoverable value to be equal to the carrying value:
| Key Assumptions | Change Required for Carrying Value to Equal Recoverable Value |
|||
| Net selling price (5-year average) |
4 percent decrease | |||
| Production volumes (5-year average) |
5 percent decrease | |||
| Discount rate (post-tax) |
0.9 percentage point increase | |||
Controls and Procedures
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended, and National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with IFRS. Any system of internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
There have been changes to our internal control over financial reporting during the quarter ended June 30, 2020. As part of our digital transformation, we have implemented a new enterprise resource planning system in the Retail segment resulting in a more automated control environment for our Canadian and Loveland Products operations. This change continues to materially affect our internal control over financial reporting.
As a result of the acquisition of Ruralco and the integration of the Australian Retail operations, the internal control over the Australian Retail operations will come into scope of the Company’s internal control over financial reporting for the fourth quarter of 2020. The acquisition of Ruralco was previously excluded from management’s evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019 due to the proximity of the acquisition to year-end. The integration of the Australian Retail operations is expected to materially affect our internal control over financial reporting.
COVID-19 has also affected our business. During the quarter, corporate office staff and many site administrative staff have worked from home. This change has required certain processes and controls that were previously done or documented manually to be completed and retained in electronic form. This change has not materially affected our internal control over financial reporting.
Except as discussed herein, there have been no changes during the quarter ended September 30, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Forward-Looking Statements
Certain statements and other information included and incorporated by reference in this document constitute “forward-looking information” or “forward-looking statements” (collectively, “forward-looking statements”) under applicable securities laws (such statements are often accompanied by words such as “anticipate”, “forecast”, “expect”, “believe”, “may”, “will”, “should”, “estimate”, “intend” or other similar words). All statements in this document, other than those relating to historical information or current conditions, are forward-looking statements, including, but not limited to: Nutrien’s 2020 annual guidance, including expectations regarding our adjusted net earnings per share, adjusted EBITDA (consolidated and by segment); capital spending expectations for 2020; expectations regarding our liquidity; expectations regarding performance of our operating segments in 2020, including the impact of our ammonia plant closure on our Nitrogen segment; our operating segment market outlooks and market conditions for 2020, including the impact of COVID-19 thereon, and the anticipated supply and demand for our products and services, expected market and industry conditions with respect to crop nutrient application rates, planted acres, crop mix, prices and the impact of import and export volumes; and acquisitions and divestitures, and the expected synergies associated with various acquisitions, including timing thereof. These forward-looking statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from such forward-looking statements. As such, undue reliance should not be placed on these forward-looking statements.
14
All of the forward-looking statements are qualified by the assumptions that are stated or inherent in such forward-looking statements, including the assumptions referred to below and elsewhere in this document. Although we believe that these assumptions are reasonable, having regard to our experience and our perception of historical trends, this list is not exhaustive of the factors that may affect any of the forward-looking statements and the reader should not place an undue reliance on these assumptions and such forward-looking statements. Current conditions, economic and otherwise, render assumptions, although reasonable when made, subject to greater uncertainty. The additional key assumptions that have been made include, among other things, assumptions with respect to our ability to successfully complete, integrate and realize the anticipated benefits of our already completed and future acquisitions and divestitures, and that we will be able to implement our standards, controls, procedures and policies at any acquired businesses to realize the expected synergies; that future business, regulatory and industry conditions will be within the parameters expected by us, including with respect to prices, margins, demand, supply, product availability, supplier agreements, availability and cost of labor and interest, exchange and effective tax rates; the completion of our expansion projects on schedule, as planned and on budget; assumptions with respect to global economic conditions and the accuracy of our market outlook expectations for 2020 and in the future; our expectations regarding the impacts, direct and indirect, of COVID-19 on our business, customers, business partners, employees, supply chain, other stakeholders and the overall economy; the adequacy of our cash generated from operations and our ability to access our credit facilities or capital markets for additional sources of financing; our ability to identify suitable candidates for acquisitions and divestitures and negotiate acceptable terms; our ability to maintain investment grade ratings and achieve our performance targets; and the receipt, on time, of all necessary permits, utilities and project approvals with respect to our expansion projects and that we will have the resources necessary to meet the projects’ approach.
Events or circumstances that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: general global economic, market and business conditions; failure to complete announced and future acquisitions or divestitures at all or on the expected terms and within the expected timeline; climate change and weather conditions, including impacts from regional flooding and/or drought conditions; crop planted acreage, yield and prices; the supply and demand and price levels for our products; governmental and regulatory requirements and actions by governmental authorities, including changes in government policy (including tariffs, trade restrictions and climate change initiatives), government ownership requirements, changes in environmental, tax and other laws or regulations and the interpretation thereof; political risks, including civil unrest, actions by armed groups or conflict and malicious acts including terrorism; the occurrence of a major environmental or safety incident; innovation and cybersecurity risks related to our systems, including our costs of addressing or mitigating such risks; regional natural gas supply restrictions; counterparty and sovereign risk; delays in completion of turnarounds at our major facilities; gas supply interruptions; any significant impairment of the carrying value of certain assets; risks related to reputational loss; certain complications that may arise in our mining processes; the ability to attract, engage and retain skilled employees and strikes or other forms of work stoppages; the COVID-19 pandemic and its resulting effects on economic conditions, restrictions imposed by public health authorities or governments, fiscal and monetary responses by governments and financial institutions and disruptions to global supply chains; and other risk factors detailed from time to time in Nutrien reports filed with the Canadian securities regulators and the SEC in the United States.
The purpose of our expected adjusted net earnings per share and adjusted EBITDA (consolidated and by segment) guidance ranges are to assist readers in understanding our expected financial results, and this information may not be appropriate for other purposes.
The forward-looking statements in this document are made as of the date hereof and Nutrien disclaims any intention or obligation to update or revise any forward-looking statements in this document as a result of new information or future events, except as may be required under applicable Canadian securities legislation or applicable US federal securities laws.
Terms and Definitions
For the definitions of certain financial and non-financial terms used in this document, as well as a list of abbreviated company names and sources, see the “Terms and Definitions” section of our 2019 Annual Report dated February 19, 2020. All references to per share amounts pertain to diluted net earnings (loss) per share, “n/m” indicates information that is not meaningful and all financial amounts are stated in millions of US dollars, unless otherwise noted.
15
Appendix A - Selected Additional Financial Data
| Selected Retail measures | Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||
|
|
2020 | 2019 | 2020 | 2019 | ||||||||||||
| Proprietary products margin as a percentage of product line margin (%) |
||||||||||||||||
| Crop nutrients |
33 | 31 | 27 | 24 | ||||||||||||
| Crop protection products |
43 | 39 | 40 | 42 | ||||||||||||
| Seed |
n/m | 20 | 43 | 44 | ||||||||||||
| All products |
25 | 27 | 27 | 28 | ||||||||||||
| Crop nutrients sales volumes (tonnes - thousands) |
||||||||||||||||
| North America |
1,159 | 1,202 | 7,683 | 7,254 | ||||||||||||
| International |
741 | 533 | 2,364 | 1,677 | ||||||||||||
| Total |
1,900 | 1,735 | 10,047 | 8,931 | ||||||||||||
| Crop nutrients selling price per tonne |
||||||||||||||||
| North America |
413 | 467 | 423 | 471 | ||||||||||||
| International |
407 | 389 | 356 | 395 | ||||||||||||
| Total |
411 | 443 | 407 | 457 | ||||||||||||
| Crop nutrients gross margin per tonne |
||||||||||||||||
| North America |
116 | 114 | 102 | 103 | ||||||||||||
| International |
61 | 70 | 47 | 57 | ||||||||||||
| Total |
94 | 101 | 89 | 95 | ||||||||||||
| Financial performance measures | 2020 Target | 2020 Actuals | ||||||||||||||
| Retail Adjusted EBITDA to sales (%) 1, 2 |
10 | 10 | ||||||||||||||
| Retail adjusted average working capital to sales (%) 1, 2 |
|
21 | 17 | |||||||||||||
| Retail cash operating coverage ratio (%) 1, 2 |
61 | 62 | ||||||||||||||
| Retail Adjusted EBITDA per US selling location (thousands of US dollars) 1, 2 |
|
1,000 | 1,031 | |||||||||||||
1 Rolling four quarters ended September 30, 2020.
2 See the “Non-IFRS Financial Measures” section.
| Nutrien Financial | As at September 30, 2020 | |||||||||||||||||||
| (millions of US dollars) | Current |
31-90 days past due |
>90 days past due |
Allowance 2 | Total | |||||||||||||||
| Nutrien Financial receivables 1 |
1,661 | 37 | 35 | (22 | ) | 1,711 | ||||||||||||||
1 See the “Non-IFRS Financial Measures” section.
2 Allowance for expected credit losses of receivables from customers.
17
| Selected Nitrogen measures | Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Sales volumes (tonnes - thousands) |
||||||||||||||||
| Fertilizer |
1,426 | 1,304 | 5,010 | 4,204 | ||||||||||||
| Industrial and feed |
977 | 1,218 | 3,111 | 3,704 | ||||||||||||
| Net sales (millions of US dollars) |
||||||||||||||||
| Fertilizer |
280 | 316 | 1,108 | 1,155 | ||||||||||||
| Industrial and feed |
161 | 217 | 559 | 726 | ||||||||||||
| Net selling price per tonne |
||||||||||||||||
| Fertilizer |
196 | 243 | 221 | 275 | ||||||||||||
| Industrial and feed |
166 | 178 | 180 | 196 | ||||||||||||
| Production measures | Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Potash production (Product tonnes - thousands) |
3,430 | 2,977 | 9,811 | 9,761 | ||||||||||||
| Potash shutdown weeks 1 |
4 | 11 | 38 | 27 | ||||||||||||
| Nitrogen production (Ammonia tonnes - thousands) 2 |
1,413 | 1,529 | 4,479 | 4,763 | ||||||||||||
| Ammonia operating rate (%) 3 |
91 | 85 | 93 | 90 | ||||||||||||
| Phosphate production (P2O5 tonnes - thousands) 4 |
354 | 374 | 1,083 | 1,124 | ||||||||||||
| Phosphate P2O5 operating rate (%) 4 |
83 | 87 | 85 | 88 | ||||||||||||
1 Represents weeks of full production shutdown, excluding the impact of any periods of reduced operating rates and planned routine annual maintenance shutdowns and announced workforce reductions.
2 All figures are provided on a gross production basis.
3 Excludes Trinidad and Joffre.
4 Excludes Redwater.
18
Appendix B - Non-IFRS Financial Measures
We use both IFRS and certain non-IFRS financial measures to assess performance. Non-IFRS financial measures are numerical measures of a company’s performance, that either exclude or include amounts that are not normally excluded or included in the most directly comparable measures calculated and presented in accordance with IFRS. In evaluating these measures, investors should consider that the methodology applied in calculating such measures may differ among companies and analysts.
Management believes the non-IFRS financial measures provide transparent and useful supplemental information to help investors evaluate our financial performance, financial condition and liquidity using the same measures as management. These non-IFRS financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with IFRS.
The following section outlines our non-IFRS financial measures, their definitions and why management uses each measure. It includes reconciliations to the most directly comparable IFRS measures. Except as otherwise described herein, our non-IFRS financial measures are calculated on a consistent basis from period to period and are adjusted for specific items in each period, as applicable. As non-recurring, unusual or other non-operational items arise, we generally exclude these items in our calculation.
Adjusted EBITDA (Consolidated)
Most directly comparable IFRS financial measure: Net earnings (loss).
Definition: Adjusted EBITDA is calculated as net earnings (loss) before finance costs, income taxes, depreciation and amortization, Merger and related costs, certain acquisition and integration related costs, share-based compensation, impairment of assets, certain foreign exchange gain/loss (net of related derivatives), COVID-19 related expenses and loss on disposal of business. In the first and third quarter of 2020, respectively, we have amended our calculation of adjusted EBITDA to adjust for the impact of COVID-19 related expenses and loss on disposal of business. There were no similar expenses in the comparative period. To align with the change in our segment performance measure effective in the third quarter of 2020, we will primarily use Adjusted EBITDA going forward as our consolidated performance measure.
Why we use the measure and why it is useful to investors: It is not impacted by long-term investment and financing decisions, but rather focuses on the performance of our day-to-day operations. It provides a measure of our ability to service debt and to meet other payment obligations.
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
| (millions of US dollars) | 2020 | 2019 1 | 2020 | 2019 1 | ||||||||||||
| Net (loss) earnings |
(587 | ) | 141 | 143 | 1,040 | |||||||||||
| Finance costs |
129 | 147 | 401 | 413 | ||||||||||||
| Income tax (recovery) expense |
(264 | ) | 40 | (45 | ) | 346 | ||||||||||
| Depreciation and amortization |
500 | 457 | 1,490 | 1,363 | ||||||||||||
| EBITDA |
(222 | ) | 785 | 1,989 | 3,162 | |||||||||||
| Merger and related costs |
- | 21 | - | 57 | ||||||||||||
| Acquisition and integration related costs |
10 | - | 38 | - | ||||||||||||
| Share-based compensation expense (recovery) |
29 | (21 | ) | 9 | 95 | |||||||||||
| Impairment of assets |
823 | - | 823 | 33 | ||||||||||||
| COVID-19 related expenses |
11 | - | 30 | - | ||||||||||||
| Foreign exchange loss, net of related derivatives |
13 | 2 | 4 | 14 | ||||||||||||
| Loss on disposal of business |
6 | - | 6 | - | ||||||||||||
| Adjusted EBITDA |
670 | 787 | 2,899 | 3,361 | ||||||||||||
| 1 In the fourth quarter of 2019, we amended our calculations of adjusted EBITDA and restated the comparative periods to exclude the impact of foreign exchange gain/loss, net of related derivatives, as foreign exchange changes are not indicative of our operating performance. |
19
Adjusted EBITDA (Consolidated) and Adjusted Net Earnings Per Share Guidance
Adjusted EBITDA and adjusted net earnings per share guidance are forward-looking non-IFRS financial measures. We do not provide a reconciliation of such forward-looking measures to the most directly comparable financial measures calculated and presented in accordance with IFRS due to unknown variables and the uncertainty related to future results. These unknown variables may include unpredictable transactions of significant value that may be inherently difficult to determine, without unreasonable efforts. Guidance excludes the impacts of acquisition and integration related costs, share-based compensation, certain foreign exchange gain/loss (net of related derivatives), and COVID-19 related expenses.
Adjusted Net Earnings and Adjusted Net Earnings Per Share
Most directly comparable IFRS financial measure: Net earnings (loss) and net earnings (loss) per share.
Definition: Net earnings (loss) before certain acquisition and integration related costs, share-based compensation, certain foreign exchange gain/loss (net of related derivatives), COVID-19 related expenses (including those recorded under finance costs), loss on disposal of business and impairment of assets, net of tax. In 2020, we have amended our calculation of adjusted net loss to adjust for the impact of COVID-19 related expenses and loss on disposal of business.
Why we use the measure and why it is useful to investors: Focuses on the performance of our day-to-day operations excluding the effects of non-operating items.
| Three Months Ended September 30, 2020 |
Nine Months Ended September 30, 2020 |
|||||||||||||||||||||||
| (millions of US dollars, except as otherwise noted) | Increases (Decreases) |
Post-Tax | Per Diluted Share |
Increases (Decreases) |
Post-Tax | Per Diluted Share |
||||||||||||||||||
| Net (loss) earnings |
(587 | ) | (1.03 | ) | 143 | 0.25 | ||||||||||||||||||
| Adjustments: |
||||||||||||||||||||||||
| Acquisition and integration related costs |
10 | 8 | 0.01 | 38 | 31 | 0.06 | ||||||||||||||||||
| Share-based compensation expense |
29 | 23 | 0.04 | 9 | 7 | 0.01 | ||||||||||||||||||
| Impairment of assets |
823 | 661 | 1.16 | 823 | 661 | 1.16 | ||||||||||||||||||
| COVID-19 related expenses |
14 | 11 | 0.02 | 45 | 36 | 0.06 | ||||||||||||||||||
| Foreign exchange loss, net of related derivatives |
13 | 10 | 0.02 | 4 | 3 | 0.01 | ||||||||||||||||||
| Loss on disposal of business |
6 | 5 | 0.01 | 6 | 5 | 0.01 | ||||||||||||||||||
| Adjusted net earnings |
131 | 0.23 | 886 | 1.56 | ||||||||||||||||||||
Free Cash Flow and Free Cash Flow Including Changes in Non-Cash Operating Working Capital
Most directly comparable IFRS financial measure: Cash from operations before working capital changes.
Definition: Cash from operations before working capital changes less sustaining capital expenditures. We also calculate a similar measure which includes changes in non-cash operating working capital.
Why we use the measure and why it is useful to investors: For evaluation of liquidity and financial strength, and as a component of employee remuneration calculations. These are also useful as indicators of our ability to service debt, meet other payment obligations and make strategic investments. These do not represent residual cash flow available for discretionary expenditures.
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||||||
| (millions of US dollars) | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||
| Cash from operations before working capital changes |
483 | 585 | 2,145 | 2,686 | ||||||||||||||||
| Sustaining capital expenditures |
(203 | ) | (256 | ) | (511 | ) | (667 | ) | ||||||||||||
| Free cash flow |
280 | 329 | 1,634 | 2,019 | ||||||||||||||||
| Changes in non-cash operating working capital |
(1,168 | ) | 4 | (1,600 | ) | (1,440 | ) | |||||||||||||
| Free cash flow including changes in
non-cash |
(888 | ) | 333 | 34 | 579 | |||||||||||||||
20
Potash Cash Cost of Product Manufactured (“COPM”)
Most directly comparable IFRS financial measure: Cost of goods sold (“COGS”) for the Potash segment.
Definition: Potash COGS for the period excluding depreciation and amortization expense and inventory and other adjustments divided by the production tonnes for the period.
Why we use the measure and why it is useful to investors: To assess operational performance. Potash cash COPM excludes the effects of production from other periods and long-term investment decisions, supporting a focus on the performance of our day-to-day operations.
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
| (millions of US dollars, except as otherwise noted) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
| Total COGS - Potash |
303 | 303 | 878 | 892 | ||||||||||||
| Change in inventory |
4 | (26 | ) | (28 | ) | (1 | ) | |||||||||
| Other adjustments |
- | (4 | ) | (5 | ) | (16 | ) | |||||||||
| COPM |
307 | 273 | 845 | 875 | ||||||||||||
| Depreciation and amortization included in COPM |
(124 | ) | (87 | ) | (305 | ) | (292 | ) | ||||||||
| Cash COPM |
183 | 186 | 540 | 583 | ||||||||||||
| Production tonnes (tonnes - thousands) |
3,430 | 2,977 | 9,811 | 9,761 | ||||||||||||
| Potash cash COPM per tonne |
53 | 62 | 55 | 60 | ||||||||||||
Ammonia Controllable Cash COPM
Most directly comparable IFRS financial measure: COGS for the Nitrogen segment.
Definition: The total of COGS for the Nitrogen segment excluding depreciation and amortization expense included in COGS, cash COGS for products other than ammonia, other adjustments, and natural gas and steam costs, divided by net ammonia production tonnes.
Why we use the measure and why it is useful to investors: To assess operational performance. Ammonia controllable cash COPM excludes the effects of production from other periods, the costs of natural gas and steam, and long-term investment decisions, supporting a focus on the performance of our day-to-day operations.
| Three Months Ended September 30 | Nine Months Ended September 30 | |||||||||||||||
| (millions of US dollars, except as otherwise noted) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
| Total COGS - Nitrogen |
482 | 469 | 1,708 | 1,652 | ||||||||||||
| Depreciation and amortization in COGS |
(113 | ) | (109 | ) | (395 | ) | (340 | ) | ||||||||
| Cash COGS for products other than ammonia |
(287 | ) | (262 | ) | (1,017 | ) | (952 | ) | ||||||||
| Ammonia |
||||||||||||||||
| Total cash COGS before other adjustments |
82 | 98 | 296 | 360 | ||||||||||||
| Other adjustments 1 |
(11 | ) | (2 | ) | (46 | ) | (35 | ) | ||||||||
| Total cash COPM |
71 | 96 | 250 | 325 | ||||||||||||
| Natural gas and steam costs |
(45 | ) | (62 | ) | (164 | ) | (221 | ) | ||||||||
| Controllable cash COPM |
26 | 34 | 86 | 104 | ||||||||||||
| Production tonnes (net tonnes 2 - thousands) |
557 | 755 | 1,945 | 2,343 | ||||||||||||
| Ammonia controllable cash COPM per tonne |
47 | 45 | 44 | 44 | ||||||||||||
1 Includes changes in inventory balances and other adjustments.
2 Ammonia tonnes available for sale, as not upgraded to other Nitrogen products.
Gross Margin Excluding Depreciation and Amortization Per Tonne - Manufactured
Most directly comparable IFRS financial measure: Gross margin.
Definition: Gross margin from manufactured products per tonne less depreciation and amortization per tonne. Reconciliations are provided in the “Segment Results” section.
Why we use the measure and why it is useful to investors: Focuses on the performance of our day-to-day operations, which excludes the effects of items that primarily reflect the impact of long-term investment and financing decisions.
21
Retail Adjusted EBITDA to Sales
Most directly comparable IFRS financial measure: Retail adjusted EBITDA divided by Retail sales.
Definition: Retail adjusted EBITDA divided by Retail sales for the last four rolling quarters.
Why we use the measure and why it is useful to investors: To evaluate operational efficiency. A higher or lower percentage represents increased or decreased efficiency, respectively. In the third quarter of 2020, we revised this measure from EBITDA to Adjusted EBITDA to align with how we evaluate Retail results. There were no changes to this measure as a result of the change.
| Rolling four quarters ended September 30, 2020 | ||||||||||||||||||||
| (millions of US dollars, except as otherwise noted) | Q4 2019 | Q1 2020 | Q2 2020 | Q3 2020 | Total | |||||||||||||||
| Adjusted EBITDA |
231 | 7 | 964 | 162 | 1,364 | |||||||||||||||
| Sales |
2,171 | 2,649 | 6,749 | 2,720 | 14,289 | |||||||||||||||
| Adjusted EBITDA to sales (%) |
10 | |||||||||||||||||||
Nutrien Financial Receivables
Most directly comparable IFRS financial measure: Receivables.
Definition: Nutrien Financial receivables are a subcategory of US Retail receivables managed in the Nutrien Financial portfolio, segregated predominately according to credit quality. We manage our credit portfolio based on a combination of customer credit metrics, experience with the customer and by managing exposure to any single customer.
Why we use the measure and why it is useful to investors: Used by credit rating agencies and other users to evaluate overall credit risk.
| (millions of US dollars) | As at September 30, 2020 | |||
| Nutrien Financial receivables |
1,711 | |||
| Non-Nutrien Financial receivables |
3,345 | |||
| Receivables |
5,056 | |||
Retail Adjusted Average Working Capital to Sales
Most directly comparable IFRS financial measure: (Current assets minus current liabilities for Retail) divided by Retail sales.
Definition: Retail adjusted average working capital divided by Retail adjusted sales for the last four rolling quarters. We exclude in our calculations the working capital and sales of certain acquisitions (such as Ruralco) during the first year following the acquisition. We have amended our calculation to adjust for the sales of certain recently acquired businesses.
Why we use the measure and why it is useful to investors: To evaluate operational efficiency. A lower or higher percentage represents increased or decreased efficiency, respectively.
| Rolling four quarters ended September 30, 2020 | ||||||||||||||||||||
| (millions of US dollars, except as otherwise noted) | Q4 2019 | Q1 2020 | Q2 2020 | Q3 2020 | Average/Total | |||||||||||||||
| Working capital |
1,759 | 2,288 | 2,030 | 3,216 | ||||||||||||||||
| Working capital from certain recent acquisitions |
(138 | ) | (108 | ) | 63 | - | ||||||||||||||
| Adjusted working capital |
1,621 | 2,180 | 2,093 | 3,216 | 2,278 | |||||||||||||||
| Sales |
2,171 | 2,649 | 6,749 | 2,720 | ||||||||||||||||
| Sales from certain recent acquisitions |
(249 | ) | (348 | ) | (338 | ) | - | |||||||||||||
| Adjusted sales |
1,922 | 2,301 | 6,411 | 2,720 | 13,354 | |||||||||||||||
| Adjusted average working capital to sales (%) |
17 | |||||||||||||||||||
22
Retail Cash Operating Coverage Ratio
Most directly comparable IFRS financial measure: Retail operating expenses as a percentage of Retail gross margin.
Definition: Retail operating expenses, excluding depreciation and amortization expense, divided by Retail gross margin excluding depreciation and amortization expense in cost of goods sold, for the last four rolling quarters.
Why we use the measure and why it is useful to investors: To understand the costs and underlying economics of our Retail operations and to assess our Retail operating performance and ability to generate free cash flow.
| Rolling four quarters ended September 30, 2020 | ||||||||||||||||||||
| (millions of US dollars, except as otherwise noted) | Q4 2019 | Q1 2020 | Q2 2020 | Q3 2020 | Total | |||||||||||||||
| Operating expenses 1 |
667 | 677 | 811 | 669 | 2,824 | |||||||||||||||
| Depreciation and amortization in operating expenses |
(160 | ) | (153 | ) | (161 | ) | (167 | ) | (641 | ) | ||||||||||
| Operating expenses excluding depreciation and amortization |
507 | 524 | 650 | 502 | 2,183 | |||||||||||||||
| Gross margin |
736 | 529 | 1,612 | 661 | 3,538 | |||||||||||||||
| Depreciation and amortization in cost of goods sold |
2 | 2 | 2 | 3 | 9 | |||||||||||||||
| Gross margin excluding depreciation and amortization |
738 | 531 | 1,614 | 664 | 3,547 | |||||||||||||||
| Cash operating coverage ratio (%) |
62 | |||||||||||||||||||
1 Includes Retail expenses below gross margin including selling expenses, general and administrative expenses and other (income) expenses.
Retail Adjusted EBITDA per US Selling Location
Most directly comparable IFRS financial measure: Retail US adjusted EBITDA.
Definition: Total Retail US adjusted EBITDA for the last four rolling quarters, adjusted for acquisitions in those quarters, divided by the number of US locations that have generated sales in the last four rolling quarters, adjusted for acquired locations.
Why we use the measure and why it is useful to investors: To assess our US Retail operating performance. This measure includes locations we have owned for more than 12 months. In the third quarter of 2020, we revised this measure from US EBITDA to US adjusted EBITDA to align with how we evaluate Retail results. There were no changes to this measure as a result of the change.
| Rolling four quarters ended September 30, 2020 | ||||||||||||||||||||
| (millions of US dollars, except as otherwise noted) | Q4 2019 | Q1 2020 | Q2 2020 | Q3 2020 | Total | |||||||||||||||
| Adjusted US EBITDA |
143 | (44 | ) | 766 | 86 | 951 | ||||||||||||||
| Adjustments for acquisitions |
(11 | ) | ||||||||||||||||||
| Adjusted US EBITDA adjusted for acquisitions |
940 | |||||||||||||||||||
| Number of US selling locations adjusted for acquisitions |
912 | |||||||||||||||||||
| Adjusted EBITDA per US selling location (thousands of US dollars) |
|
1,031 | ||||||||||||||||||
23
Exhibit 99.3
NUTRIEN LTD.
INTERIM FINANCIAL STATEMENTS AND NOTES
AS AT AND FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2020
| Unaudited | In millions of US dollars except as otherwise noted |
Condensed Consolidated Financial Statements
Condensed Consolidated Statements of (Loss) Earnings
| Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||||
| Note | 2020 | 2019 | 2020 | 2019 | ||||||||||||||
| Note 1 | Note 1 | |||||||||||||||||
| SALES |
2 | 4,205 | 4,169 | 16,807 | 16,581 | |||||||||||||
| Freight, transportation and distribution |
204 | 210 | 653 | 596 | ||||||||||||||
| Cost of goods sold |
3,004 | 2,819 | 12,129 | 11,558 | ||||||||||||||
| GROSS MARGIN |
997 | 1,140 | 4,025 | 4,427 | ||||||||||||||
| Selling expenses |
676 | 607 | 2,081 | 1,835 | ||||||||||||||
| General and administrative expenses |
107 | 97 | 312 | 287 | ||||||||||||||
| Provincial mining and other taxes |
58 | 92 | 163 | 253 | ||||||||||||||
| Share-based compensation expense (recovery) |
29 | (21 | ) | 9 | 95 | |||||||||||||
| Impairment of assets |
3 | 823 | - | 823 | 33 | |||||||||||||
| Other expenses |
4 | 26 | 37 | 138 | 125 | |||||||||||||
|
(LOSS) EARNINGS BEFORE FINANCE COSTS AND INCOME TAXES |
(722 | ) | 328 | 499 | 1,799 | |||||||||||||
| Finance costs |
129 | 147 | 401 | 413 | ||||||||||||||
| (LOSS) EARNINGS BEFORE INCOME TAXES |
(851 | ) | 181 | 98 | 1,386 | |||||||||||||
| Income tax (recovery) expense |
5 | (264 | ) | 40 | (45 | ) | 346 | |||||||||||
| NET (LOSS) EARNINGS |
(587 | ) | 141 | 143 | 1,040 | |||||||||||||
| NET (LOSS) EARNINGS PER SHARE (“EPS”) |
||||||||||||||||||
| Basic |
(1.03 | ) | 0.25 | 0.25 | 1.78 | |||||||||||||
| Diluted |
(1.03 | ) | 0.24 | 0.25 | 1.77 | |||||||||||||
| Weighted average shares outstanding for basic EPS |
569,146,000 | 572,887,000 | 569,818,000 | 585,421,000 | ||||||||||||||
| Weighted average shares outstanding for diluted EPS |
569,146,000 | 573,702,000 | 569,818,000 | 586,335,000 | ||||||||||||||
Condensed Consolidated Statements of Comprehensive (Loss) Income
| Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||
| (Net of related income taxes) | 2020 | 2019 | 2020 | 2019 | ||||||||||||
| NET (LOSS) EARNINGS |
(587 | ) | 141 | 143 | 1,040 | |||||||||||
| Other comprehensive income (loss) |
||||||||||||||||
| Items that will not be reclassified to net (loss) earnings: |
||||||||||||||||
| Net actuarial gain on defined benefit plans |
- | - | 3 | - | ||||||||||||
| Net fair value loss on investments |
(4 | ) | (11 | ) | (25 | ) | (26 | ) | ||||||||
| Items that have been or may be subsequently reclassified to net (loss) earnings: |
||||||||||||||||
| Gain (loss) on currency translation of foreign operations |
69 | (71 | ) | (52 | ) | (36 | ) | |||||||||
| Other |
6 | 7 | (12 | ) | 5 | |||||||||||
| OTHER COMPREHENSIVE INCOME (LOSS) |
71 | (75 | ) | (86 | ) | (57 | ) | |||||||||
| COMPREHENSIVE (LOSS) INCOME |
(516 | ) | 66 | 57 | 983 | |||||||||||
(See Notes to the Condensed Consolidated Financial Statements)
24
| Unaudited | In millions of US dollars except as otherwise noted |
Condensed Consolidated Statements of Cash Flows
| Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||||||
| Note | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||
| Note 1 | Note 1 | |||||||||||||||||||
| OPERATING ACTIVITIES |
||||||||||||||||||||
| Net (loss) earnings |
(587 | ) | 141 | 143 | 1,040 | |||||||||||||||
| Adjustments for: |
||||||||||||||||||||
| Depreciation and amortization |
500 | 457 | 1,490 | 1,363 | ||||||||||||||||
| Share-based compensation expense (recovery) |
29 | (21 | ) | 9 | 95 | |||||||||||||||
| Impairment of assets |
3 | 823 | - | 823 | 33 | |||||||||||||||
| (Recovery of) provision for deferred income tax |
(161 | ) | 31 | (99 | ) | 178 | ||||||||||||||
| Other long-term liabilities and miscellaneous |
(121 | ) | (23 | ) | (221 | ) | (23 | ) | ||||||||||||
| Cash from operations before working capital changes |
483 | 585 | 2,145 | 2,686 | ||||||||||||||||
| Changes in non-cash operating working capital: |
||||||||||||||||||||
| Receivables |
692 | 624 | (1,455 | ) | (1,427 | ) | ||||||||||||||
| Inventories |
407 | 541 | 1,153 | 1,239 | ||||||||||||||||
| Prepaid expenses and other current assets |
(77 | ) | (23 | ) | 936 | 801 | ||||||||||||||
| Payables and accrued charges |
(2,190 | ) | (1,138 | ) | (2,234 | ) | (2,053 | ) | ||||||||||||
| CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES |
(685 | ) | 589 | 545 | 1,246 | |||||||||||||||
| INVESTING ACTIVITIES |
||||||||||||||||||||
| Additions to property, plant and equipment |
(266 | ) | (518 | ) | (927 | ) | (1,177 | ) | ||||||||||||
| Additions to intangible assets |
(19 | ) | (43 | ) | (87 | ) | (118 | ) | ||||||||||||
| Business acquisitions, net of cash acquired |
10 | (43 | ) | (348 | ) | (216 | ) | (837 | ) | |||||||||||
| Proceeds from disposal of discontinued operations, net of tax |
- | - | - | 55 | ||||||||||||||||
| Purchase of investments |
(13 | ) | (42 | ) | (79 | ) | (164 | ) | ||||||||||||
| Other |
(15 | ) | 47 | 100 | 108 | |||||||||||||||
| CASH USED IN INVESTING ACTIVITIES |
(356 | ) | (904 | ) | (1,209 | ) | (2,133 | ) | ||||||||||||
| FINANCING ACTIVITIES |
||||||||||||||||||||
| Transaction costs on long-term debt |
- | - | (15 | ) | (29 | ) | ||||||||||||||
| Proceeds from short-term debt, net |
397 | 575 | 601 | 1,534 | ||||||||||||||||
| Proceeds from long-term debt |
8 | 14 | - | 1,520 | 1,510 | |||||||||||||||
| Repayment of long-term debt |
8 | - | (11 | ) | (507 | ) | (1,010 | ) | ||||||||||||
| Repayment of principal portion of lease liabilities |
(69 | ) | (49 | ) | (203 | ) | (166 | ) | ||||||||||||
| Dividends paid |
9 | (257 | ) | (244 | ) | (771 | ) | (764 | ) | |||||||||||
| Repurchase of common shares |
9 | - | - | (160 | ) | (1,930 | ) | |||||||||||||
| Issuance of common shares |
- | 1 | - | 18 | ||||||||||||||||
| CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES |
85 | 272 | 465 | (837 | ) | |||||||||||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS |
6 | (5 | ) | (7 | ) | (22 | ) | |||||||||||||
| DECREASE IN CASH AND CASH EQUIVALENTS |
|
(950 | ) | (48 | ) | (206 | ) | (1,746 | ) | |||||||||||
| CASH AND CASH EQUIVALENTS – BEGINNING OF PERIOD |
1,415 | 616 | 671 | 2,314 | ||||||||||||||||
| CASH AND CASH EQUIVALENTS – END OF PERIOD |
465 | 568 | 465 | 568 | ||||||||||||||||
| Cash and cash equivalents comprised of: |
||||||||||||||||||||
| Cash |
328 | 326 | 328 | 326 | ||||||||||||||||
| Short-term investments |
137 | 242 | 137 | 242 | ||||||||||||||||
| 465 | 568 | 465 | 568 | |||||||||||||||||
| SUPPLEMENTAL CASH FLOWS INFORMATION |
||||||||||||||||||||
| Interest paid |
85 | 111 | 334 | 353 | ||||||||||||||||
| Income taxes paid |
27 | 46 | 92 | 1 | ||||||||||||||||
| Total cash outflow for leases |
78 | 89 | 266 | 253 | ||||||||||||||||
(See Notes to the Condensed Consolidated Financial Statements)
25
| Unaudited | In millions of US dollars except as otherwise noted |
Condensed Consolidated Statements of Changes in Shareholders’ Equity
| Accumulated Other Comprehensive (Loss) Income (“AOCI”) | ||||||||||||||||||||||||||||||||||||||||
| Number of Common Shares |
Share Capital |
Contributed Surplus |
Net Fair Value Loss on Investments |
Net Actuarial Gain on Defined Benefit Plans 1 |
Loss on Currency Translation of Foreign Operations |
Other | Total AOCI |
Retained Earnings |
Total Equity 2 |
|||||||||||||||||||||||||||||||
| BALANCE – DECEMBER 31, 2018 |
608,535,477 | 16,740 | 231 | (7 | ) | - | (251 | ) | (33 | ) | (291 | ) | 7,745 | 24,425 | ||||||||||||||||||||||||||
| Net earnings |
- | - | - | - | - | - | - | - | 1,040 | 1,040 | ||||||||||||||||||||||||||||||
| Other comprehensive (loss) income |
- | - | - | (26 | ) | - | (36 | ) | 5 | (57 | ) | - | (57 | ) | ||||||||||||||||||||||||||
| Shares repurchased (Note 9) |
(36,066,766 | ) | (992 | ) | - | - | - | - | - | - | (886 | ) | (1,878 | ) | ||||||||||||||||||||||||||
| Dividends declared |
- | - | - | - | - | - | - | - | (496 | ) | (496 | ) | ||||||||||||||||||||||||||||
| Effect of share-based compensation including issuance of common shares |
431,485 | 21 | 13 | - | - | - | - | - | - | 34 | ||||||||||||||||||||||||||||||
| Transfer of net loss on sale of investment |
- | - | - | 4 | - | - | - | 4 | (4 | ) | - | |||||||||||||||||||||||||||||
| Transfer of net loss on cash flow hedges |
- | - | - | - | - | - | 8 | 8 | - | 8 | ||||||||||||||||||||||||||||||
| BALANCE – SEPTEMBER 30, 2019 |
572,900,196 | 15,769 | 244 | (29 | ) | - | (287 | ) | (20 | ) | (336 | ) | 7,399 | 23,076 | ||||||||||||||||||||||||||
| BALANCE – DECEMBER 31, 2019 |
572,942,809 | 15,771 | 248 | (29 | ) | - | (204 | ) | (18 | ) | (251 | ) | 7,101 | 22,869 | ||||||||||||||||||||||||||
| Net earnings |
- | - | - | - | - | - | - | - | 143 | 143 | ||||||||||||||||||||||||||||||
| Other comprehensive (loss) income |
- | - | - | (25 | ) | 3 | (52 | ) | (12 | ) | (86 | ) | - | (86 | ) | |||||||||||||||||||||||||
| Shares repurchased (Note 9) |
(3,832,580 | ) | (105 | ) | (55 | ) | - | - | - | - | - | - | (160 | ) | ||||||||||||||||||||||||||
| Dividends declared |
- | - | - | - | - | - | - | - | (770 | ) | (770 | ) | ||||||||||||||||||||||||||||
| Effect of share-based compensation including issuance of common shares |
35,706 | 1 | 10 | - | - | - | - | - | - | 11 | ||||||||||||||||||||||||||||||
| Transfer of net loss on cash flow hedges |
- | - | - | - | - | - | 13 | 13 | - | 13 | ||||||||||||||||||||||||||||||
| Transfer of net actuarial gain on defined benefit plans |
- | - | - | - | (3 | ) | - | - | (3 | ) | 3 | - | ||||||||||||||||||||||||||||
| BALANCE – SEPTEMBER 30, 2020 |
569,145,935 | 15,667 | 203 | (54 | ) | - | (256 | ) | (17 | ) | (327 | ) | 6,477 | 22,020 | ||||||||||||||||||||||||||
1 Any amounts incurred during a period were transferred to retained earnings at each period-end. Therefore, no balance exists at the beginning or end of period.
2 All equity transactions were attributable to common shareholders.
(See Notes to the Condensed Consolidated Financial Statements)
26
| Unaudited | In millions of US dollars except as otherwise noted |
Condensed Consolidated Balance Sheets
| September 30 | December 31 | |||||||||||||||||||
| As at | Note | 2020 | 2019 | 2019 | ||||||||||||||||
| ASSETS |
||||||||||||||||||||
| Current assets |
||||||||||||||||||||
| Cash and cash equivalents |
465 | 568 | 671 | |||||||||||||||||
| Receivables |
5,056 | 4,843 | 3,542 | |||||||||||||||||
| Inventories |
3,829 | 3,873 | 4,975 | |||||||||||||||||
| Prepaid expenses and other current assets |
531 | 440 | 1,477 | |||||||||||||||||
| 9,881 | 9,724 | 10,665 | ||||||||||||||||||
| Non-current assets |
||||||||||||||||||||
| Property, plant and equipment |
3 | 19,308 | 20,045 | 20,335 | ||||||||||||||||
| Goodwill |
10 | 12,179 | 11,983 | 11,986 | ||||||||||||||||
| Other intangible assets |
2,352 | 2,330 | 2,428 | |||||||||||||||||
| Investments |
809 | 809 | 821 | |||||||||||||||||
| Other assets |
742 | 538 | 564 | |||||||||||||||||
| TOTAL ASSETS |
45,271 | 45,429 | 46,799 | |||||||||||||||||
| LIABILITIES |
||||||||||||||||||||
| Current liabilities |
||||||||||||||||||||
| Short-term debt |
7 | 1,644 | 2,287 | 976 | ||||||||||||||||
| Current portion of long-term debt |
8 | - | 501 | 502 | ||||||||||||||||
| Current portion of lease liabilities |
230 | 219 | 214 | |||||||||||||||||
| Payables and accrued charges |
5,239 | 4,615 | 7,437 | |||||||||||||||||
| 7,113 | 7,622 | 9,129 | ||||||||||||||||||
| Non-current liabilities |
||||||||||||||||||||
| Long-term debt |
8 | 10,041 | 8,555 | 8,553 | ||||||||||||||||
| Lease liabilities |
847 | 793 | 859 | |||||||||||||||||
| Deferred income tax liabilities |
5 | 3,053 | 3,137 | 3,145 | ||||||||||||||||
| Pension and other post-retirement benefit liabilities |
446 | 425 | 433 | |||||||||||||||||
| Asset retirement obligations and accrued environmental costs |
1,575 | 1,662 | 1,650 | |||||||||||||||||
| Other non-current liabilities |
176 | 159 | 161 | |||||||||||||||||
| TOTAL LIABILITIES |
23,251 | 22,353 | 23,930 | |||||||||||||||||
| SHAREHOLDERS’ EQUITY |
||||||||||||||||||||
| Share capital |
9 | 15,667 | 15,769 | 15,771 | ||||||||||||||||
| Contributed surplus |
203 | 244 | 248 | |||||||||||||||||
| Accumulated other comprehensive loss |
(327 | ) | (336 | ) | (251 | ) | ||||||||||||||
| Retained earnings |
6,477 | 7,399 | 7,101 | |||||||||||||||||
| TOTAL SHAREHOLDERS’ EQUITY |
22,020 | 23,076 | 22,869 | |||||||||||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
45,271 | 45,429 | 46,799 | |||||||||||||||||
(See Notes to the Condensed Consolidated Financial Statements)
27
| Unaudited | In millions of US dollars except as otherwise noted |
Notes to the Condensed Consolidated Financial Statements
As at and for the Three and Nine Months Ended September 30, 2020
NOTE 1 BASIS OF PRESENTATION
Nutrien Ltd. (collectively with its subsidiaries, known as “Nutrien”, “we”, “us”, “our” or the “Company”) is the world’s largest provider of crop inputs and services. Nutrien plays a critical role in helping growers around the globe increase food production in a sustainable manner.
These unaudited interim condensed consolidated financial statements (“interim financial statements”) are based on International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”) and have been prepared in accordance with International Accounting Standard 34, “Interim Financial Reporting”. The accounting policies and methods of computation used in preparing these interim financial statements are consistent with those used in the preparation of our 2019 annual consolidated financial statements. These interim financial statements include the accounts of Nutrien and its subsidiaries; however, they do not include all disclosures normally provided in annual consolidated financial statements and should be read in conjunction with our 2019 annual consolidated financial statements.
Certain immaterial 2019 figures have been reclassified in the condensed consolidated statements of (loss) earnings, condensed consolidated statements of cash flows and segment information.
In management’s opinion, the interim financial statements include all adjustments necessary to fairly present such information in all material respects. Interim results are not necessarily indicative of the results expected for any other interim period or the fiscal year. On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (“COVID-19”) a global pandemic. We have assessed our accounting estimates and other matters that require the use of forecasted financial information for the impact of the COVID-19 pandemic. The assessment included estimates of the unknown future impacts of the pandemic using information that is reasonably available at this time. Accounting estimates and other matters assessed include the allowance for expected credit losses of receivables from customers, inventory valuation, goodwill and other long-lived assets, financial assets, tax assets, pension obligation and assets, and revenue recognition. Based on our current assessment, there was not a material impact to these interim financial statements. As additional information becomes available, the future assessment of these estimates, including expectations about the severity, duration and scope of the pandemic, could differ materially in future reporting periods.
These interim financial statements were authorized by the audit committee of the Board of Directors for issue on November 2, 2020.
NOTE 2 SEGMENT INFORMATION
The Company has four reportable operating segments: Retail, Potash, Nitrogen and Phosphate. The Retail segment distributes crop nutrients, crop protection products, seed and merchandise, and provides services directly to growers through a network of farm centers in North America, South America and Australia. The Potash, Nitrogen and Phosphate segments are differentiated by the chemical nutrient contained in the products that each produces. Sales reported under our Corporate and Others segment primarily relates to our non-core Canadian business which was sold in the third quarter of 2020.
In the third quarter of 2020, our Chief Operating Decision Maker changed the measure used to evaluate the performance of our operating segments from net earnings (loss) before finance costs, income taxes, and depreciation and amortization (“EBITDA”) to adjusted EBITDA. Adjusted EBITDA provides a better indication of the segments performance as it excludes the impact of impairments and other costs that are centrally managed by our corporate function. Due to the change in the measurement of the segments, we have presented adjusted EBITDA for the comparative periods.
28
| Unaudited | In millions of US dollars except as otherwise noted |
| Three Months Ended September 30, 2020 | ||||||||||||||||||||||||||||
| Retail | Potash | Nitrogen | Phosphate | Corporate and Others |
Eliminations | Consolidated | ||||||||||||||||||||||
| Sales – third party |
2,712 | 634 | 524 | 312 | 23 | - | 4,205 | |||||||||||||||||||||
|
– intersegment |
8 | 63 | 103 | 40 | - | (214 | ) | - | ||||||||||||||||||||
| Sales – total |
2,720 | 697 | 627 | 352 | 23 | (214 | ) | 4,205 | ||||||||||||||||||||
| Freight, transportation and distribution |
- | 106 | 87 | 60 | - | (49 | ) | 204 | ||||||||||||||||||||
| Net sales |
2,720 | 591 | 540 | 292 | 23 | (165 | ) | 4,001 | ||||||||||||||||||||
| Cost of goods sold |
2,059 | 303 | 482 | 293 | 20 | (153 | ) | 3,004 | ||||||||||||||||||||
| Gross margin |
661 | 288 | 58 | (1 | ) | 3 | (12 | ) | 997 | |||||||||||||||||||
| Selling expenses |
669 | 3 | 7 | 1 | (4 | ) | - | 676 | ||||||||||||||||||||
| General and administrative expenses |
34 | 2 | 3 | 2 | 66 | - | 107 | |||||||||||||||||||||
| Provincial mining and other taxes |
- | 58 | - | - | - | - | 58 | |||||||||||||||||||||
| Share-based compensation expense |
- | - | - | - | 29 | - | 29 | |||||||||||||||||||||
| Impairment of assets |
- | 22 | 27 | 769 | 5 | - | 823 | |||||||||||||||||||||
| Other (income) expenses |
(34 | ) | (1 | ) | (16 | ) | 10 | 67 | - | 26 | ||||||||||||||||||
| (Loss) earnings before finance costs and income taxes |
(8 | ) | 204 | 37 | (783 | ) | (160 | ) | (12 | ) | (722 | ) | ||||||||||||||||
| Depreciation and amortization |
170 | 124 | 131 | 60 | 15 | - | 500 | |||||||||||||||||||||
| EBITDA |
162 | 328 | 168 | (723 | ) | (145 | ) | (12 | ) | (222 | ) | |||||||||||||||||
| Acquisition and integration related costs |
- | - | - | - | 10 | - | 10 | |||||||||||||||||||||
| Share-based compensation expense |
- | - | - | - | 29 | - | 29 | |||||||||||||||||||||
| Impairment of assets |
- | 22 | 27 | 769 | 5 | - | 823 | |||||||||||||||||||||
| COVID-19 related expenses |
- | - | - | - | 11 | - | 11 | |||||||||||||||||||||
| Foreign exchange loss, net of related derivatives |
- | - | - | - | 13 | - | 13 | |||||||||||||||||||||
| Loss on disposal of business |
- | - | - | - | 6 | - | 6 | |||||||||||||||||||||
| Adjusted EBITDA |
162 | 350 | 195 | 46 | (71 | ) | (12 | ) | 670 | |||||||||||||||||||
| Assets – at September 30, 2020 |
19,722 | 12,005 | 10,805 | 1,362 | 1,760 | (383 | ) | 45,271 | ||||||||||||||||||||
| Three Months Ended September 30, 2019 | ||||||||||||||||||||||||||||
| Retail | Potash | Nitrogen | Phosphate | Corporate and Others |
Eliminations | Consolidated | ||||||||||||||||||||||
| Sales – third party |
2,489 | 748 | 564 | 333 | 35 | - | 4,169 | |||||||||||||||||||||
|
– intersegment |
10 | 68 | 115 | 43 | - | (236 | ) | - | ||||||||||||||||||||
| Sales – total |
2,499 | 816 | 679 | 376 | 35 | (236 | ) | 4,169 | ||||||||||||||||||||
| Freight, transportation and distribution |
- | 107 | 77 | 62 | - | (36 | ) | 210 | ||||||||||||||||||||
| Net sales |
2,499 | 709 | 602 | 314 | 35 | (200 | ) | 3,959 | ||||||||||||||||||||
| Cost of goods sold |
1,844 | 303 | 469 | 329 | 35 | (161 | ) | 2,819 | ||||||||||||||||||||
| Gross margin |
655 | 406 | 133 | (15 | ) | - | (39 | ) | 1,140 | |||||||||||||||||||
| Selling expenses |
601 | 2 | 7 | 2 | (5 | ) | - | 607 | ||||||||||||||||||||
| General and administrative expenses |
28 | - | 4 | - | 65 | - | 97 | |||||||||||||||||||||
| Provincial mining and other taxes |
- | 83 | 1 | - | 8 | - | 92 | |||||||||||||||||||||
| Share-based compensation recovery |
- | - | - | - | (21 | ) | - | (21 | ) | |||||||||||||||||||
| Other (income) expenses |
(12 | ) | 1 | 1 | 7 | 40 | - | 37 | ||||||||||||||||||||
| Earnings (loss) before finance costs and income taxes |
38 | 320 | 120 | (24 | ) | (87 | ) | (39 | ) | 328 | ||||||||||||||||||
| Depreciation and amortization |
152 | 110 | 127 | 58 | 10 | - | 457 | |||||||||||||||||||||
| EBITDA |
190 | 430 | 247 | 34 | (77 | ) | (39 | ) | 785 | |||||||||||||||||||
| Merger and related costs |
- | - | - | - | 21 | - | 21 | |||||||||||||||||||||
| Share-based compensation recovery |
- | - | - | - | (21 | ) | - | (21 | ) | |||||||||||||||||||
| Foreign exchange loss, net of related derivatives |
- | - | - | - | 2 | - | 2 | |||||||||||||||||||||
| Adjusted EBITDA |
190 | 430 | 247 | 34 | (75 | ) | (39 | ) | 787 | |||||||||||||||||||
| Assets – at December 31, 2019 |
19,990 | 11,696 | 10,991 | 2,198 | 2,129 | (205 | ) | 46,799 | ||||||||||||||||||||
29
| Unaudited | In millions of US dollars except as otherwise noted |
| Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||||||
| Retail | Potash | Nitrogen | Phosphate | Corporate and Others |
Eliminations | Consolidated | ||||||||||||||||||||||
| Sales – third party |
12,091 | 1,798 | 1,925 | 923 | 70 | - | 16,807 | |||||||||||||||||||||
| – intersegment |
27 | 191 | 481 | 146 | - | (845 | ) | - | ||||||||||||||||||||
| Sales – total |
12,118 | 1,989 | 2,406 | 1,069 | 70 | (845 | ) | 16,807 | ||||||||||||||||||||
| Freight, transportation and distribution |
- | 293 | 335 | 187 | - | (162 | ) | 653 | ||||||||||||||||||||
| Net sales |
12,118 | 1,696 | 2,071 | 882 | 70 | (683 | ) | 16,154 | ||||||||||||||||||||
| Cost of goods sold |
9,316 | 878 | 1,708 | 862 | 63 | (698 | ) | 12,129 | ||||||||||||||||||||
| Gross margin |
2,802 | 818 | 363 | 20 | 7 | 15 | 4,025 | |||||||||||||||||||||
| Selling expenses |
2,068 | 7 | 19 | 4 | (17 | ) | - | 2,081 | ||||||||||||||||||||
| General and administrative expenses |
102 | 5 | 7 | 7 | 191 | - | 312 | |||||||||||||||||||||
| Provincial mining and other taxes |
- | 161 | 1 | - | 1 | - | 163 | |||||||||||||||||||||
| Share-based compensation expense |
- | - | - | - | 9 | - | 9 | |||||||||||||||||||||
| Impairment of assets |
- | 22 | 27 | 769 | 5 | - | 823 | |||||||||||||||||||||
| Other (income) expenses |
(13 | ) | 4 | (25 | ) | 19 | 153 | - | 138 | |||||||||||||||||||
| Earnings (loss) before finance costs and income taxes |
645 | 619 | 334 | (779 | ) | (335 | ) | 15 | 499 | |||||||||||||||||||
| Depreciation and amortization |
488 | 329 | 453 | 179 | 41 | - | 1,490 | |||||||||||||||||||||
| EBITDA |
1,133 | 948 | 787 | (600 | ) | (294 | ) | 15 | 1,989 | |||||||||||||||||||
| Acquisition and integration related costs |
- | - | - | - | 38 | - | 38 | |||||||||||||||||||||
| Share-based compensation expense |
- | - | - | - | 9 | - | 9 | |||||||||||||||||||||
| Impairment of assets |
- | 22 | 27 | 769 | 5 | - | 823 | |||||||||||||||||||||
| COVID-19 related expenses |
- | - | - | - | 30 | - | 30 | |||||||||||||||||||||
| Foreign exchange loss, net of related derivatives |
- | - | - | - | 4 | - | 4 | |||||||||||||||||||||
| Loss on disposal of business |
- | - | - | - | 6 | - | 6 | |||||||||||||||||||||
| Adjusted EBITDA |
1,133 | 970 | 814 | 169 | (202 | ) | 15 | 2,899 | ||||||||||||||||||||
| Assets – at September 30, 2020 |
19,722 | 12,005 | 10,805 | 1,362 | 1,760 | (383 | ) | 45,271 | ||||||||||||||||||||
| Nine Months Ended September 30, 2019 | ||||||||||||||||||||||||||||
| Retail | Potash | Nitrogen | Phosphate | Corporate and Others |
Eliminations | Consolidated | ||||||||||||||||||||||
| Sales – third party |
11,022 | 2,328 | 2,033 | 1,099 | 99 | - | 16,581 | |||||||||||||||||||||
| – intersegment |
28 | 178 | 487 | 160 | - | (853 | ) | - | ||||||||||||||||||||
| Sales – total |
11,050 | 2,506 | 2,520 | 1,259 | 99 | (853 | ) | 16,581 | ||||||||||||||||||||
| Freight, transportation and distribution |
- | 252 | 275 | 178 | - | (109 | ) | 596 | ||||||||||||||||||||
| Net sales |
11,050 | 2,254 | 2,245 | 1,081 | 99 | (744 | ) | 15,985 | ||||||||||||||||||||
| Cost of goods sold |
8,546 | 892 | 1,652 | 1,092 | 99 | (723 | ) | 11,558 | ||||||||||||||||||||
| Gross margin |
2,504 | 1,362 | 593 | (11 | ) | - | (21 | ) | 4,427 | |||||||||||||||||||
| Selling expenses |
1,816 | 7 | 21 | 5 | (14 | ) | - | 1,835 | ||||||||||||||||||||
| General and administrative expenses |
82 | - | 11 | 3 | 191 | - | 287 | |||||||||||||||||||||
| Provincial mining and other taxes |
- | 237 | 2 | 1 | 13 | - | 253 | |||||||||||||||||||||
| Share-based compensation expense |
- | - | - | - | 95 | - | 95 | |||||||||||||||||||||
| Impairment of assets |
- | - | - | - | 33 | - | 33 | |||||||||||||||||||||
| Other expenses (income) |
39 | (2 | ) | (27 | ) | 20 | 95 | - | 125 | |||||||||||||||||||
| Earnings (loss) before finance costs and income taxes |
567 | 1,120 | 586 | (40 | ) | (413 | ) | (21 | ) | 1,799 | ||||||||||||||||||
| Depreciation and amortization |
433 | 324 | 394 | 180 | 32 | - | 1,363 | |||||||||||||||||||||
| EBITDA |
1,000 | 1,444 | 980 | 140 | (381 | ) | (21 | ) | 3,162 | |||||||||||||||||||
| Merger and related costs |
- | - | - | - | 57 | - | 57 | |||||||||||||||||||||
| Share-based compensation expense |
- | - | - | - | 95 | - | 95 | |||||||||||||||||||||
| Impairment of assets |
- | - | - | - | 33 | - | 33 | |||||||||||||||||||||
| Foreign exchange loss, net of related derivatives |
- | - | - | - | 14 | - | 14 | |||||||||||||||||||||
| Adjusted EBITDA |
1,000 | 1,444 | 980 | 140 | (182 | ) | (21 | ) | 3,361 | |||||||||||||||||||
| Assets – at December 31, 2019 |
19,990 | 11,696 | 10,991 | 2,198 | 2,129 | (205 | ) | 46,799 | ||||||||||||||||||||
30
| Unaudited | In millions of US dollars except as otherwise noted |
Presented below is revenue from contracts with customers disaggregated by product line or geographic location for each reportable segment to show how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
| Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Retail sales by product line |
||||||||||||||||
| Crop nutrients |
780 | 769 | 4,092 | 4,082 | ||||||||||||
| Crop protection products |
1,328 | 1,318 | 4,774 | 4,348 | ||||||||||||
| Seed |
103 | 60 | 1,638 | 1,613 | ||||||||||||
| Merchandise |
234 | 135 | 703 | 387 | ||||||||||||
| Services and other |
275 | 217 | 911 | 620 | ||||||||||||
| 2,720 | 2,499 | 12,118 | 11,050 | |||||||||||||
| Potash sales by geography |
||||||||||||||||
| Manufactured product |
||||||||||||||||
| North America |
358 | 437 | 1,002 | 1,084 | ||||||||||||
| Offshore 1 |
339 | 379 | 987 | 1,421 | ||||||||||||
| Other potash and purchased products |
- | - | - | 1 | ||||||||||||
| 697 | 816 | 1,989 | 2,506 | |||||||||||||
| Nitrogen sales by product line |
||||||||||||||||
| Manufactured product |
||||||||||||||||
| Ammonia |
129 | 172 | 576 | 713 | ||||||||||||
| Urea |
214 | 239 | 780 | 801 | ||||||||||||
| Solutions, nitrates and sulfates |
177 | 193 | 606 | 613 | ||||||||||||
| Other nitrogen and purchased products |
107 | 75 | 444 | 393 | ||||||||||||
| 627 | 679 | 2,406 | 2,520 | |||||||||||||
| Phosphate sales by product line |
||||||||||||||||
| Manufactured product |
||||||||||||||||
| Fertilizer |
216 | 205 | 622 | 752 | ||||||||||||
| Industrial and feed |
105 | 119 | 342 | 359 | ||||||||||||
| Other phosphate and purchased products |
31 | 52 | 105 | 148 | ||||||||||||
| 352 | 376 | 1,069 | 1,259 | |||||||||||||
1 Relates to Canpotex Limited (“Canpotex”) (Note 12).
NOTE 3 IMPAIRMENT OF ASSETS
During the three and nine months ended September 30, 2020, we recorded the following impairments of assets in the statement of (loss) earnings relating to our property plant and equipment:
| Cash-generating units (“CGUs”) | Aurora | White Springs | ||
| Segment |
Phosphate | |||
| Impairment indicator |
Lower long-term forecasted global phosphate prices | |||
| Pre-tax impairment loss ($) |
545 | 215 | ||
| Recoverable value ($) |
995 (post-tax) | 160 (pre-tax) | ||
| Valuation technique |
Fair value less costs of disposal (“FVLCD”) a Level 3 measurement | Value in use | ||
| Key assumptions |
||||
| End of mine life (proven and probable reserves) (year) |
2050 | 2029 | ||
| Long-term growth rate (%) |
2.0 | n/a | ||
| Post-tax discount rate (%) |
10.5 | 12.0 (pre-tax - 16.0) | ||
For our Aurora CGU, the recoverable value was based on after-tax discounted cash flows (using a five-year projection and a terminal year thereafter to the expected mine life), which incorporated assumptions an independent market participant would apply. For our White Springs CGU, the recoverable value was based on pre-tax discounted cash flows until the end of the mine life.
The recoverable value is most sensitive to the following key assumptions: our internal sales price forecasts which consider projections from an independent third-party data source, discount rates, long-term growth rates, and expected mine life. We used key assumptions that were based on historical data and estimates of future results from internal sources, external price benchmarks, mineral reserve technical reports, as well as industry and market trends.
31
| Unaudited | In millions of US dollars except as otherwise noted |
The following table highlights sensitivities to the recoverable value which could result in additional impairment losses or reversals of previously recorded losses. The sensitivities have been calculated independently of changes in other key variables.
| Aurora | ||||||||||||
| Key Assumptions | Change in Assumption | Increase (Decrease) to Recoverable Value ($) |
||||||||||
| Net selling price |
± | 10 per tonne | ± | 150 | ||||||||
| Discount rate |
± | 1.0 percentage point | ± | 120 | ||||||||
For our White Springs CGU, there were no reasonably possible changes in the key assumptions that would result in a substantial change in the recoverable value.
At September 30, 2020, we performed impairment testing on the Trinidad CGU, part of our Nitrogen segment, due to the indefinite closure of an ammonia plant in response to market conditions and lower long-term forecasted global ammonia prices. No impairment resulted from comparing the carrying value of the Trinidad CGU to its recoverable value determined on a FVLCD methodology. FVLCD was based on after-tax discounted cash flows (using a five-year projection and a 2.0% terminal growth rate) discounted at a post-tax rate of 12.6%.
The following table indicates the percentages by which key assumptions would need to change individually for the estimated Trinidad CGU recoverable value to be equal to the carrying value:
| Key Assumptions | Change Required for Carrying Value to Equal Recoverable Value |
|||
| Net selling price (5-year average) |
4 percent decrease | |||
| Production volumes (5-year average) |
5 percent decrease | |||
| Discount rate (post-tax) |
0.9 percentage point increase | |||
During the nine months ended September 30, 2020, we also recorded $63 of impairment losses relating to other non-current assets.
NOTE 4 OTHER EXPENSES (INCOME)
| Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Merger and related costs |
- | 21 | - | 57 | ||||||||||||
| Acquisition and integration related costs |
10 | - | 38 | - | ||||||||||||
| Foreign exchange loss, net of related derivatives |
14 | 2 | 1 | 14 | ||||||||||||
| Earnings of equity-accounted investees |
(23 | ) | (6 | ) | (46 | ) | (53 | ) | ||||||||
| Bad debt (recovery) expense |
(18 | ) | 3 | 9 | 38 | |||||||||||
| COVID-19 related expenses |
11 | - | 30 | - | ||||||||||||
| Loss on disposal of business |
6 | - | 6 | - | ||||||||||||
| Other expenses |
26 | 17 | 100 | 69 | ||||||||||||
| 26 | 37 | 138 | 125 | |||||||||||||
32
| Unaudited | In millions of US dollars except as otherwise noted |
NOTE 5 INCOME TAXES
A separate estimated average annual effective income tax rate was determined for each taxing jurisdiction and applied individually to the interim period pre-tax earnings for each jurisdiction.
| Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Income tax (recovery) expense |
(264 | ) | 40 | (45 | ) | 346 | ||||||||||
| Actual effective tax rate on loss/earnings (%) |
26 | 22 | 14 | 25 | ||||||||||||
| Actual effective tax rate including discrete items (%) |
31 | 22 | (47 | ) | 25 | |||||||||||
| Discrete tax adjustments that impacted the tax rate |
(48 | ) | 1 | (59 | ) | 5 | ||||||||||
Income tax balances within the condensed consolidated balance sheets were comprised of the following:
| Income Tax Assets and Liabilities | Balance Sheet Location | As at September 30, 2020 | As at December 31, 2019 | |||||||
| Income tax assets |
||||||||||
| Current |
Receivables | 50 | 104 | |||||||
| Non-current |
Other assets | 213 | 36 | |||||||
| Deferred income tax assets |
Other assets | 258 | 249 | |||||||
| Total income tax assets |
521 | 389 | ||||||||
| Income tax liabilities |
||||||||||
| Current |
Payables and accrued charges | 105 | 43 | |||||||
| Non-current |
Other non-current liabilities | 40 | 44 | |||||||
| Deferred income tax liabilities |
Deferred income tax liabilities | 3,053 | 3,145 | |||||||
| Total income tax liabilities |
3,198 | 3,232 | ||||||||
NOTE 6 FINANCIAL INSTRUMENTS
Fair Value
Estimated fair values for financial instruments are designed to approximate amounts for which the instruments could be exchanged in a current arm’s-length transaction between knowledgeable, willing parties. The valuation policies and procedures for financial reporting purposes are determined by our finance department. There have been no changes to our valuation methods presented in Note 12 of the 2019 annual consolidated financial statements and those valuation methods have been applied in these interim financial statements.
The following table presents our fair value hierarchy for financial instruments carried at fair value on a recurring basis or measured at amortized cost:
| September 30, 2020 | December 31, 2019 | |||||||||||||||||||||||
| Financial assets (liabilities) measured at | Carrying Amount |
Level 1 1 | Level 2 1 | Carrying Amount |
Level 1 1 | Level 2 1 | ||||||||||||||||||
| Fair value on a recurring basis |
||||||||||||||||||||||||
| Cash and cash equivalents |
465 | - | 465 | 671 | - | 671 | ||||||||||||||||||
| Derivative instrument assets |
31 | - | 31 | 5 | - | 5 | ||||||||||||||||||
| Other current financial assets - marketable securities 2 |
155 | 23 | 132 | 193 | 27 | 166 | ||||||||||||||||||
| Investments at FVTOCI 3 |
135 | 135 | - | 161 | 161 | - | ||||||||||||||||||
| Derivative instrument liabilities |
(35 | ) | - | (35 | ) | (33 | ) | - | (33 | ) | ||||||||||||||
| Amortized cost |
||||||||||||||||||||||||
| Current portion of long-term debt |
||||||||||||||||||||||||
| Notes and debentures |
- | - | - | (494 | ) | - | (503 | ) | ||||||||||||||||
| Fixed and floating rate debt |
- | - | - | (8 | ) | - | (8 | ) | ||||||||||||||||
| Long-term debt |
||||||||||||||||||||||||
| Notes and debentures |
(10,003 | ) | (7,911 | ) | (3,494 | ) | (8,528 | ) | (1,726 | ) | (7,440 | ) | ||||||||||||
| Fixed and floating rate debt |
(38 | ) | - | (38 | ) | (25 | ) | - | (25 | ) | ||||||||||||||
1 During the period ended September 30, 2020, there were no transfers between Level 1 and Level 2 for financial instruments measured at fair value on a recurring basis.
2 Marketable securities consist of equity and fixed income securities. We determine the fair value of equity securities based on the bid price of identical instruments in active markets. We value fixed income securities using quoted prices of instruments with similar terms and credit risk.
3 Investments at fair value through other comprehensive income (“FVTOCI”) are comprised of shares in Sinofert Holdings Ltd.
33
| Unaudited | In millions of US dollars except as otherwise noted |
NOTE 7 SHORT-TERM DEBT
Short-term debt was comprised of:
| Rate of Interest (%) | Total Facility Limit as at September 30, 2020 |
As at September 30, 2020 |
As at December 31, 2019 |
|||||||||||||
| Credit facilities |
||||||||||||||||
| Unsecured revolving term credit facility |
NIL | 4,500 | - | - | ||||||||||||
| Uncommitted revolving demand facility |
NIL | 500 | - | - | ||||||||||||
| Other credit facilities 1 |
0.8 - 9.5 | 600 | 193 | 326 | ||||||||||||
| Commercial paper |
0.2 - 0.6 | 1,451 | 650 | |||||||||||||
| 1,644 | 976 | |||||||||||||||
| 1 Other credit facilities are unsecured and consist of South American facilities with debt of $143 (December 31, 2019 – $149) and interest rates ranging from 2.0 percent to 9.5 percent, Australian facilities with debt of $24 (December 31, 2019 – $157) and an interest rate of 1.3 percent, and other facilities with debt of $26 (December 31, 2019 – $20) and interest rates ranging from 0.8 percent to 4.0 percent. |
| |||||||||||||||
The amount available under the commercial paper program is limited to the availability of backup funds under the $4,500 unsecured revolving term credit facility and excess cash invested in highly liquid securities.
During the nine months ended September 30, 2020, we entered into new committed revolving credit facilities totaling approximately $1,500, all with the same principal covenants and events of default as our existing credit facilities. We closed these credit facilities after the issuance of the new notes as described in Note 8.
NOTE 8 LONG-TERM DEBT
The following tables summarize our long-term debt issuances and repayment activities during the nine months ended September 30, 2020:
| Rate of interest (%) | Maturity | Amount | ||||||||||
| Notes issued 2020 |
1.900 | May 13, 2023 | 500 | |||||||||
| Notes issued 2020 |
2.950 | May 13, 2030 | 500 | |||||||||
| Notes issued 2020 |
3.950 | May 13, 2050 | 500 | |||||||||
| 1,500 | ||||||||||||
The notes issued in 2020 are unsecured, rank equally with our existing unsecured notes, and have no sinking fund requirements prior to maturity. Each series is redeemable and provides for redemption prior to maturity, at our option, at specified prices.
| Rate of interest (%) | Maturity | Amount | ||||||||||
| Notes repaid 2020 |
4.875 | March 30, 2020 | 500 | |||||||||
In March 2020, we filed a base shelf prospectus in Canada and the US qualifying the issuance of up to $5,000 of common shares, debt and other securities during a period of 25 months from March 16, 2020. Issuance of securities requires us to file a prospectus supplement and is subject to availability of funding in capital markets. During the nine months ended September 30, 2020, we filed a prospectus supplement to issue $1,500 of notes, as described above.
34
| Unaudited | In millions of US dollars except as otherwise noted |
NOTE 9 SHARE CAPITAL
Share repurchase programs
| Board of Directors Approval | Expiry | Maximum Shares for Repurchase | ||||||||||
| 2019 Normal Course Issuer Bid 1 |
February 20, 2019 | February 26, 2020 | 42,164,420 | |||||||||
| 2020 Normal Course Issuer Bid 2 |
February 18, 2020 | February 26, 2021 | 28,572,458 | |||||||||
1 The 2019 normal course issuer bid permitted the repurchase of up to 7 percent of our outstanding common shares for cancellation. As of the expiry date, we had repurchased 33,256,668 of the maximum shares for repurchase.
2 The 2020 normal course issuer bid permits the repurchase of up to 5 percent of our outstanding common shares for cancellation and can expire earlier than the date above if we acquire the maximum number of common shares allowable or otherwise decide not to make any further repurchases.
Purchases under the normal course issuer bids were, or may be, made through open market purchases at market prices as well as by other means permitted by applicable securities regulatory authorities, including private agreements.
The following table summarizes our share repurchase activities during the period:
| Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Number of common shares repurchased for cancellation |
- | - | 3,832,580 | 36,066,766 | ||||||||||||
| Average price per share (US dollars) |
- | - | 41.96 | 52.07 | ||||||||||||
| Total cost |
- | - | 160 | 1,878 | ||||||||||||
Dividends declared
We declared dividends per share of $0.45 (2019 – $0.45) during the three months ended September 30, 2020, payable on October 16, 2020 to shareholders of record on September 30, 2020 and $1.35 (2019 – $0.88) during the nine months ended September 30, 2020.
NOTE 10 BUSINESS ACQUISITIONS
Ruralco
On September 30, 2019, we acquired Ruralco Holdings Limited (“Ruralco”) for a purchase price, net of cash and cash equivalents acquired, of $330. We have completed our assessment of identifying and measuring all the assets acquired and liabilities assumed. This assessment included a thorough review of all internal and external sources of information available on circumstances that existed at the acquisition date. We engaged independent valuation experts to assist in determining the fair value of certain assets acquired and liabilities assumed. The significant fair value considerations used in determining the allocation of purchase price are consistent with those disclosed in Note 4 of the 2019 annual consolidated financial statements.
Other Acquisitions
During the nine months ended September 30, 2020, we acquired several businesses, the largest of which was Tec Agro Group, a leading agriculture retailer in Brazil. The acquired businesses include 37 Retail locations in North and South America and Australia. Expected benefits of the acquisitions include expansion of geographical coverage for the sale of crop input products and services, an increased customer base and workforce, and synergies between Nutrien and the acquired businesses.
35
| Unaudited | In millions of US dollars except as otherwise noted |
The fair values allocated to the acquired assets and assumed liabilities were as follows:
| September 30, 2020 | ||||||||||||||||||||
| Ruralco | Other Acquisitions | |||||||||||||||||||
| Preliminary 1 | Adjustments | Final Fair Value | Preliminary | |||||||||||||||||
| Receivables |
318 | (2 | ) | 316 | 2 | 69 | ||||||||||||||
| Inventories |
115 | (3 | ) | 112 | 63 | |||||||||||||||
| Prepaid expenses and other current assets |
8 | (1 | ) | 7 | 4 | |||||||||||||||
| Property, plant and equipment |
136 | 4 | 140 | 53 | ||||||||||||||||
| Goodwill |
207 | 29 | 236 | 184 | ||||||||||||||||
| Other intangible assets |
210 | (2 | ) | 208 | - | |||||||||||||||
| Investments |
15 | - | 15 | - | ||||||||||||||||
| Other assets |
16 | (14 | ) | 2 | - | |||||||||||||||
| Total assets |
1,025 | 11 | 1,036 | 373 | ||||||||||||||||
| Short-term debt |
167 | - | 167 | 36 | ||||||||||||||||
| Payables and accrued charges |
363 | (39 | ) | 324 | 111 | |||||||||||||||
| Lease liabilities, including current portion |
110 | - | 110 | - | ||||||||||||||||
| Deferred income tax liabilities |
42 | (11 | ) | 31 | 1 | |||||||||||||||
| Other non-current liabilities |
13 | 61 | 74 | 9 | ||||||||||||||||
| Total liabilities |
695 | 11 | 706 | 157 | ||||||||||||||||
| Total consideration |
330 | - | 330 | 216 | ||||||||||||||||
1 As previously reported in our second quarter financial statements. We recorded additional adjustments to the preliminary fair value primarily related to changes in the preliminary valuation assumptions, including refinement of our liabilities. All measurement period adjustments were offset against goodwill.
2 Includes receivables from customers with gross contractual amounts of $260, of which $7 are considered to be uncollectible.
Financial information related to business acquisitions is as follows:
| Pro Forma 1 | Other Acquisitions | |||
| Sales |
320 | |||
| EBIT |
24 | |||
1 Estimated annual sales and earnings before finance costs and income taxes (“EBIT”) if acquisitions occurred at January 1, 2020.
| Three Months Ended September 30, 2020 |
Nine Months Ended September 30, 2020 |
|||||||
| From date of acquisition | Other Acquisitions | Other Acquisitions | ||||||
| Sales |
60 | 100 | ||||||
| EBIT |
6 | 6 | ||||||
NOTE 11 SEASONALITY
Seasonality in our business results from increased demand for products during planting season. Crop input sales are generally higher in spring and fall application seasons. Crop input inventories are normally accumulated leading up to each application season. The results of this seasonality have a corresponding effect on receivables from customers and rebates receivables, inventories, prepaid expenses and other current assets and trade payables. Our short-term debt also fluctuates during the year to meet working capital needs. Our cash collections generally occur after the application season is complete, while customer prepayments made to us are typically concentrated in December and January and inventory prepayments paid to our vendors are typically concentrated in the period from November to January. Feed and industrial sales are more evenly distributed throughout the year.
NOTE 12 RELATED PARTY TRANSACTIONS
We sell potash from our Canadian mines for use outside Canada and the United States exclusively to Canpotex. Canpotex sells potash to buyers in export markets pursuant to term and spot contracts at agreed upon prices. Our revenue is recognized at the amount received from Canpotex representing proceeds from their sale of potash, less net costs of Canpotex. Sales to Canpotex are shown in Note 2.
| As at | September 30, 2020 | December 31 ,2019 | ||||||
| Receivables from Canpotex |
201 | 194 | ||||||
36