Feb 24, 2015
Executives
Richard Downey - Vice President of Investor & Corporate Relations Chuck Magro - Chief Executive Officer, President Steve Douglas - Chief Financial Officer Ron Wilkinson - SVP, President of Wholesale Business Unit Steve Dyer - President of Retail Dave Tretter - VP Procurement Jason Newton - Market Economist Tom Warner - President of North America Retail Susan Jones - VP of Marketing & Distribution Kevin Helash - Vice President, Canadian Retail
Analysts
Christopher Parkinson - Credit Suisse Ben Isaacson - Scotia Bank Don Carson - Susquehanna PJ Juvekar - Citigroup Jacob Bout - CIBC World Markets Sandy Klugman - Vertical Research Partners Adam Samuelson - Goldman Sachs Kevin McCarthy - Bank of America Neal Kumar - Morgan Stanley Adam Brelieu - BMO Capital Markets Mark Connelly - CLSA Andrew Wong - RBC Capital Markets Steve Hansen - Raymond James Matthew Korn - Barclays Capital John Chu - AltaCorp Capital
Operator
Greetings and welcome to Agrium’s Fourth Quarter Earnings Call. At this time, all participants are in a listen-only mode.
A brief question-and-answer session will follow the formal presentation. [Operator Instructions].
As a reminder, this call is being recorded. It is now my pleasure to introduce your host, Mr.
Richard Downey, Vice President, Investor and Corporate Relations. Thank you Mr.
Downey, you may begin.
Richard Downey
Thank you, operator. Good morning, everyone, and welcome to Agrium’s 2014 Fourth Quarter Conference Call.
On the phone today to discuss and review our results is Mr. Chuck Magro, President and CEO of Agrium; Mr.
Steve Douglas, our CFO and Agrium’s Leadership team. As we conduct this conference call, various statements that we make about future expectations, plans and prospects contain forward-looking information.
Certain material assumptions were applied in making these conclusions and forecasts. Therefore, actual results could differ materially from those contained in our forward-looking information.
Additional information about these factors and assumptions are contained in our current quarterly report to our shareholders as well as our most recent Annual Report, MD&A and Annual Information Form filed with Canadian and U.S. security commissions to which we direct you.
I will now turn the call over to Mr. Chuck Magro.
Chuck Magro
Thanks, Richard. Good morning, everyone, and welcome to Agrium’s fourth quarter conference call.
On the call this morning, we will provide more background on our fourth quarter results and associated metrics as well as the outlook for the crop input and services sector, in general and our business specifically. Following my comments, Steve Douglas, our CFO will discuss the additional disclosure that we have started to provide this quarter including our newly implemented annual guidance.
While our focus in 2014 was on building the foundations for our future success, the focus in 2015 will be on execution, accountability and the delivery on our commitments. When we look at our strategy and the outlook for the products and services industry for 2015 and beyond, it is clear that Agrium will have the capability to generate significant free cash flow well into the future.
This will be supported by the completion of our expansion projects and growing retail earnings as well as a substantial reduction in our CapEx spending. Turning to the fourth quarter, we achieved excellent results despite challenges associated with a shortened fall application window, lower crop prices and the fact that our potash mine was offline in order to tie-in our 1 million ton expansion project.
We generated approximately $750 million in free cash flow this year, most of it this quarter while also advancing our major growth projects and business improvements across the company. We see 2015 as an important and exciting year for Agrium as we are focused on execution across our business and continue to see increased recognition of the benefits of our strategy as well as the strength and stability in earnings and free cash flow that we are poised to generate going forward.
This attractive earnings profile is driven by our exceptional competitive positions in retail, nitrogen and potash which have been strengthened by recent investments to grow our production capacity and our retail business, while also reducing cost across Agrium. Our earnings mix is also enhanced by our geographic and product diversity particularly in our retail distribution business.
As many of you are already aware, we recently made changes to our capital allocation policy, increasing Target Dividend Payout Ratio and announcing a 5% a Normal Course Issuer Bid for 2015. This is in line with our strategy of increasing capital returns to shareholders and is a natural progression from the direction we laid out at our Investor Day back in November.
The buyback program gives us flexibility to return cash to shareholders as our capital spending programs winds down and seasonal cash flows pick up in the second half of 2015. As a further demonstration of our confidence and our strategy and the substantial free cash flow that we will deliver as a result of our earnings, growth and operational improvements, we were pleased to announce an increase to our target dividend payout ratio of 40% to 50% of free cash, net of sustaining capital from the previous level of 25% to 35%.
We feel that the new higher payout ratio strikes a healthy balance between providing shareholders with excellent return of capital while retaining flexibility for the company to still pursue high-quality value enhancing growth and share buyback opportunities. I’m pleased to report that we made great strides in 2014 in terms of our operational excellence initiative intended to ensure that every part of our business is operating to its utmost potential and that our portfolio is optimized for maximum operating and capital efficiency.
As of the end of 2014, we had identified and acted on plans and projects to attain well over half of our targeted recurring annual EBITDA improvements of at least $125 million and one-time benefits of at least $350 million set for 2017. A few examples in this regard include higher net wholesale margins by repatriating nutrients from lower net-back regions in the U.S.
to Western Canada by leveraging our expensive Canadian Retail distribution network. Second, we implemented procurement and logistics initiatives across retail and wholesale that will deliver over $20 million of annual savings with further improvements to come.
And as we mentioned at our Investor Day, we have reduced production and SG&A across the company. We have also made good progress on each of our expansion projects over the quarter, our Vanscoy potash facility restarted production at the end of December, with no changes in cost estimates and is now fully in the ramp-up process.
We remain on track to produce 2.1 million tons in 2015 with production volumes weighted more towards the second half of the year. Our Canpotex proving run will also occur in the second half of the year and is expected to reestablish Agrium’s Canpotex allocation at around 10% by the start of 2016.
The Borger nitrogen expansion remained on schedule and on budget and we are pleased with the progress made so far. Engineering and procurement are now essentially complete and construction is well underway.
We expect to bring the existing ammonia unit down for two months starting in mid-August to tie-in major equipment associated with the expansion while the urea unit is on track to be completed by the end of December. Once complete, the expansion will add approximately 450,000 tons in that product to our already sizeable North American nitrogen position.
Construction of the project at the Profertil facility in Argentina was completed at the end of 2014, and ramp up of the expanded capacity is expected by the end of the first quarter. Meanwhile in Egypt, construction has continued to progress on the two additional nitrogen trains at the MOPCO facility and we expect to be commissioning and starting up the units mid-year.
Turning to our quarterly results, Agrium achieved consolidated net earnings from continuing operations of $115 million excluding certain tax share based payments and foreign exchange and derivative adjustments which equates to EPS of $0.77 per share in the fourth quarter of 2014. We are very pleased with our earnings this quarter which were supported by the strength of our retail results, particularly in December as well as solid results from our wholesale business.
On an annual basis, retail EBITDA reached a record $1.12 billion in 2014, a 17% increase over last year on a comparable basis. The strong retail results this quarter were achieved despite industry headwinds associated with difficult weather conditions and lower crop prices.
In 2014, the U.S. experienced one of the shortest fall application windows in over a decade with widespread snow across much of the corn-belt shortly after the completion of the harvest in November.
In some areas of the U.S. growers were able to get back in the field, in December for some catch-up on applications.
Our geographic and crop diversity also helped offset this somewhat as the Southern U.S. region benefited from strength in the specialty crops market.
However, the shortened application season in the corn-belt lowered U.S. retail nutrient sales volumes by 10% to 15% particularly for ammonia.
Although these conditions created a challenging environment, our retail business benefited from strong supplier rebate payment true-ups for crop protection products. Additionally, we saw continued impressive performance from our international retail operations in Australia and South America on the back of operational improvements and stronger global livestock markets, highlighting some of the strength of our geographic diversity.
Nutrient crop protection and seed inventory within our retail business are at normal levels for this time of the year. On an annual basis, we performed very well against our 2015 retail target metrics achieving improvements across the board.
Despite the market headwinds that resulted from a significant decline in U.S. corn area, and much lower prices in 2014 relative to 2013.
We have already surpassed our target for average non-cash working capital to sales and we will continue to focus on improving that number further. To put this in context, our retail sales were up 9% in 2014 while average working capital was down 4%.
We also saw a strong performance from the first year of Viterra earnings in our Canadian retail business, and expect to fully achieve our targeted synergies for that acquisition. Our tuck-in acquisition program also was very active over the past year with 32 retail locations acquired adding $30 million in EBITDA at an EV to EBITDA multiple of roughly 5.5 times.
In the first two months of 2015, we have already acquired seven additional businesses and what is normally a quiet period for transaction. Turning to our wholesale business, we saw solid results in the fourth quarter with stronger year-over-year realized sales prices for all three nutrients and our phosphate business achieved industry leading margins again this quarter.
Our potash facility at Vanscoy was out of production for the quarter, as a result to the tie-ins of our expansion project. Overall nitrogen volumes for the quarter were below last year’s results due to lower demand for ammonia during the shortened fall season as well as downtime at our Redwater facility related to the replacement of the waste heat boiler.
I’m very pleased to report that our nitrogen facilities have been performing very well in 2015 as each of our Redwater, Carseland, and Fort Saskatchewan facilities recently achieved record monthly production rates. Turning to our natural gas cost position, we are hedged for the majority of the first quarter.
Gas requirements at around $3 per MMbtu. We also took action to lock in approximately 25% to 30% of our gas needs for the second and third quarters of 2015 at a gas price of approximately $2.50.
We believe this represents an exceptional risk reward opportunity to optimize our nitrogen margins in 2015. Furthermore, as part of our corporate hedged program, we moved our hedged positions up slightly, to approximately 25% of our gas needs for the 2016 to 2018 at an average gas price of about $3 per MMbtu.
Turning to the outlook, major crop prices have increased from the lows seen in September and 2015 grower cash margins have returned to average historical levels. This has helped to improve grower sentiment and anticipated demand for all crop inputs this spring.
Nutrient demand this spring should also benefit from the shortened fall season which will shift nutrient applications to the spring season and from the high nutrient removal from soils following record yields seen last year. A key metric that we monitor internally is farmer prepay across our retail operations.
As we view it as a bellwether for the spring season, in this regard, U.S. customary prepays are slightly higher than the record levels we saw last year.
In regards to expected U.S. crop acreages, we anticipate an increase in soybeans over corn-acres in 2015.
However, with lower fuel prices and some recovery in corn prices, our view is more positive on corn than it was in the fall. The final U.S.
corn area number will be heavily influenced by the timing of the start of the spring application season and -- but under the right conditions we could see 90 million acres planted in 2015. We have seen strong bookings so far this year for seeds, with our volumes up 10% compared to the same period last year with soybean numbers showing a higher relative increase than corn.
The pricing outlook appears to be fairly stable across all crop nutrients as we look towards the spring. Indian urea imports have been historically strong in recent months although stronger Chinese exports are lightly to cap any notable upward movement in international prices.
The phosphate supply-demand balance appears to be firm and international potash markets are expected to be tighter as a result of the flooding of the Uralkali mine in Russia. However, this is offset in the short-term by uncertainty over Chinese potash agreements in 2015.
I would now like to hand it over to Steve Douglas for his comments on our additional disclosure and capital allocation.
Steve Douglas
Thank you, Chuck and good morning everyone. Having now been with the company for a few months, I’m excited about the outlook for the future of Agrium and believe that the recent changes to disclosure, our operational and financial metrics and our capital allocation approach are very positive consistent with transparency and increasing returns to shareholders.
You will notice that we implemented a new disclosure in the form of annual guidance starting in 2015. We’ve increased annual EPS guidance we have issued annual EPS guidance for this year of $7 to $8.50.
The EPS guidance range largely represents different assumptions in the cost of natural gas, foreign exchange and variance in weather conditions that could impact nutrient demand. We will continue to provide guidance for the second and fourth quarters on a semi-annual basis in addition to updating the overarching annual guidance on a quarterly basis.
We believe that the introduction of annual guidance is another step in our ongoing commitment to enhance the level of disclosure and transparency across our business, particularly as earnings and free cash flow continue to grow and our earnings profile continues to become more stable. Furthermore, we’ve also added more disclosure regarding wholesale production volumes and cash cost of products manufactured in our quarterly results.
The aim of this is to help our shareholders better understand the actual production achieved during each quarter as well as our direct production costs. In retail, we added an additional metric to track the progress of our growth and efficiency targets.
We included a cash operating coverage ratio which differs from the existing operating coverage ratio and that it excludes depreciation and amortization. We feel this is more relevant measure of the economic efficiency, particularly as we grow through acquisitions with associated changes in depreciation and amortization that have little to do with cash flow.
We’ve recently launched a new improved Agrium website one of the key additions from an investor perspective is a new financial data tool that allows users to download key quarterly and annual financial data directly to Excel for modeling purposes. This data goes back to 2010 and we updated simultaneously with our quarterly financial results.
You will also notice for the quarter that our tax rate was unusually low due in part to some one-time tax adjustments and we expect that our tax rate will return to the more normalized 27% to 28% range in 2015 as per our guidance. Another item worth mentioning is that Agrium’s interest expense is expected to increase by around $90 million in 2015.
This is primarily due to the previously capitalized interest expense for Vanscoy returning to our income statement, now that the project has been commissioned. Until now, these expenses have been capitalized and have not impacted our interest expense line.
Consistent with our portfolio review, we made the decision to exit a number of non-core businesses where returns have been lower or working capital has been relatively higher risk. We have been divesting these assets accordingly over the past year.
One of the more recent decisions was our move to exit the purchase of resale business in North America with the exception of those assets that are enabling us to prepare for future production capacity from our Vanscoy and Borger expansion projects. As part of this decision, we recently announced an agreement to divest Meredosia and Niota distribution assets for approximately $50 million.
We are able to part with these assets as a result of the significant storage and distribution advantages that already exist in our distribution and production businesses throughout our key North American markets. I view Agrium’s free cash flow generation potential as a critical strength to the company, particularly when I pair this with the strength of our balance sheet overall.
Over the next five years for example, Agrium will only have approximately $625 million in long-term debt maturing. At the same time, we have the potential to generate well over $7 billion in free cash flow over a five-year period starting in 2016, even more under a more robust pricing scenario.
I’ve been meeting with shareholders over the past few months and have been asked what attracted me to join Agrium. One thing I like about Agrium is that we make a tangible product that plays an integral role in helping farmers produce food for the world.
I find something special about companies that make tangible product about the same way when I had my time as CFO Falconbridge. But most of all, I’m impressed with the strategy, the direction of the company the people and its commitment to increasing shareholder returns.
I’ll turn it back over to Chuck for some closing comments before we open the line for questions.
Chuck Magro
Thanks Steve. In closing, I would like to finish by reiterating the factors that we see driving substantial opportunity in Agrium.
The company is now nearing the end of a major capital investment program which is expected to significantly grow our capacity, earnings and free cash flow. We have clearly defined and articulated our capital allocation priorities which will see us returning significantly more capital to shareholders through both a growing dividend and a share buyback purchasing program.
Additionally, it is important to highlight that within our industry which has compelling long-term fundamentals, we have a unique position as the world’s leading provider of crop input products and services. And we have multiple growth opportunities that will continue to add value to that position.
In 2014, we made major progress streamlining our portfolio systems and services, and reestablishing the financial priorities that will guide the future success of Agrium. With many of these changes now in place, we are focused squarely on execution in 2015, and we believe that the actions we have taken will put us in an excellent position to continue delivering superior shareholder value in years ahead.
We now invite questions from callers on the line.
Operator
[Operator Instructions]. Our first question comes from Christopher Parkinson with Credit Suisse.
Please proceed with your question.
Christopher Parkinson
Perfect. Thank you very much for taking my call.
You mentioned you hedged 25% of your Nat-gas through 2018 at $3 per MMbtu. At what level would you even become more comfortable hedging, factoring in also what you’ve already done on the industrial front as well?
Chuck Magro
Hi Chris, it’s Chuck. I’ll talk to you about our strategy and then I’ll just have Ron, walk you through some of the details.
So, look, when we look at the long-term prospects for natural gas specifically in Western Canada, but North America in generally, we think that we’re going to be quite well positioned for the foreseeable future. For us, it’s really a matter of risk management and really what we’re trying to do is, risk versus return.
And you can see even last year there were spikes in the winter time when it came to natural gas. So we’re trying to take that volatility out of our earnings.
So you’ll continue to see us look at future positions to look at that risk versus return. But generally what I would tell you is, right now we’re pretty comfortable with what we’ve done.
We think we have, I think the right balance between risk versus return for gas and maybe Ron, just walk through the positions that we do have.
Ron Wilkinson
Well, our longer term positions are starting in November 1, ‘15. We have two years locked in at 25% -- sorry three years locked in 25% of our gas needs at around just over $3 a million btus.
We have targets below that that we would hedge further. And as Chuck said it’s all about trying to manage the volatility.
In addition to the gas that we purchase, about 15% of our nitrogen volumes or industrial volumes which are naturally hedged, we pass the gas costs through to the, to our customer.
Christopher Parkinson
Perfect. Thank you, and just a quick follow-up.
You’ve already seen a solid overall reduction in G&A and working capital. Could you just give a little more commentary on what you think could be some potential to even further improve these metrics longer-term, and then whether or not you believe most of the near term low-hanging fruit is already gone?
Chuck Magro
I’ll answer that question Chris, it’s Chuck. So, when we look at the overall umbrella of operational excellence as I mentioned in the prepared remarks, we’re more than half way through that that total number of $475 million.
But every day we find more and more opportunity and I would be quite surprised if we don’t hit these numbers and then exceed them. And what we’ve done is, some of the cost savings has been the reduction of the AET business in the disposition of some assets certainly, but more than that it’s not just about the SG&A savings, it’s about finding ways to integrate wholesale and retail the right way and really grab margin enhancement and take out some costs.
So for example, we have repatriated about 150,000 tons of nitrogen and phosphate back in the Western Canada savings some pretty expensive freight costs. As I mentioned on my prepared remarks, the wholesale production reliability is a big part of operational excellence.
And the nitrogen plant so far this year have been performing very well and have exceeded our expectations. And then in retail, the working capital improvements that they demonstrated last year, was quite remarkable in my opinion.
And now they’re really focused on using their size and skills in terms of leverage to get further procurement on logistic savings. And that’s what you will see in 2015 is more a cost-out but also margins up because, some of the operating costs are going to come down.
And that’s really our focus for ‘15 and beyond.
Operator
Thank you. Our next question comes from Ben Isaacson with Scotia Bank.
Please proceed with your question.
Ben Isaacson
Thank you very much. My first question is you’ve increased your dividend payout ratio to 40% to 50%, and that’s coming on the backup of CapEx winding down.
But at your Analyst Day, you also raised your hurdle IRR rate to 12%. So does that mean that you’re not seeing attractive projects out there right now?
And can you just kind of talk about what the landscape looks like?
Chuck Magro
Hi Ben, it’s Chuck. So, what we’re seeing actually is, there is quite a bit of opportunities out there.
But with a very concise strategy that we’ve outlined and I think further discipline when it comes to allocation of the capital, we’re being pretty picky. And don’t forget Ben right now, we have a lot on our plate.
So, we have significant capacity expansions in nitrogen and potash that we’re just on the cusp of bringing up. And we’d like to bring those up in the right way on time and on budget and start to see the earnings profile improve for the company because of that investment.
Certainly in retail, we’re seeing a lot of opportunities from tuck-ins, as I mentioned last year was a pretty solid year with over 30 facilities and about $30 million of EBITDA. And this year alone in the first two months of the year, seven acquisitions which is really unheard of when it comes to this time of the year, usually retailers want to maintain their assets for the spring season.
So, we have a pretty decent pipeline when it comes to retail. And as for further opportunities, we are going to be more disciplined.
We’re going to make sure, first and foremost that it ties to our strategy. And second of all that it meets the hurdle rates that we outlined in November.
Ben Isaacson
Great, that makes a lot of sense. And then just as a quick follow-up, can you give an update on Kenai?
And are there gas problems right now in Egypt?
Chuck Magro
Sure. I’ll turn both of those over to Ron Wilkinson.
Ron Wilkinson
Good morning, Ben. With respect to Kenai, we continue to investigate our options around natural gas up there.
We’ve made good progress but we’ve not made enough progress to actually tie down enough gas to bring forward a proposal to restart the plant. We’re still very optimistic though in terms of the reserves up in that area and do believe that they’ll come to production.
As far as Egypt goes, correct, we are down right now due to natural gas restrictions. We’re being told as well maintenance.
And we’re also being told that we should be restarting shortly but we’ll wait until we actually see the gas.
Operator
Thank you. Our next question comes from Don Carson with Susquehanna.
Please proceed with your question.
Don Carson
Yes, thank you, Chuck, a couple of questions on retail. You did much better than expected in crop protection chemicals in now that, earlier in the quarter you warned that your rebates might be down, but they were up.
So I’m wondering if you can comment what changed in crop protection and what are the implications in terms of pipeline inventories as you go into 2015. And then just secondly on glyphosate pricing, I know you report quarterly on Chinese asset prices and they’re down quite significantly.
When might you expect that reduction in Chinese asset prices to show up in lower glyphosate pricing in your retail system?
Chuck Magro
Okay, Don, let me set the stage for retail and then I’ll turn it over to Steve Dyer, and we’ll get Dave Tretter to answer you some of the specifics. So certainly, you’re right.
At the end of November, we thought that this quarter was going to end up would be quite different. And then weather improved, and really the diversity of the retail model specifically in the Western U.S.
and the South, we were able to get back on the field and put some more, product down and it was a lot of crop protection and in seed booking. So, overall that’s sort of what happened in the fourth quarter.
And when I look at the year, retail had a really strong year with revenues up 9%, EBITDA up 17%, working capital down 4%. So, overall, all the metrics that we track for retail are heading in the right direction so we’re very pleased with the year and 2014 and looking forward to good things in ‘15.
Specific to your questions on glyphosate and inventories, and then I turn it over to Steve Dyer and he’ll sort of coordinate that with his folks.
Steve Dyer
Yes and just a little further on the rebate side. When you take a look at our rebates overall, we did have the addition of Viterra for the full year basis as well.
But as Chuck mentioned, the big driver there was the crop diversity that we have as well that helped us later than we expected to achieve some of our rebate hurdles as well with our suppliers. Just quickly on inventories and then I’ll turn it over to Dave Tretter to talk about glyphosate.
Our overall inventory is slightly up but very slightly year-over-year on chemistry overall. And I’ll let Dave comment a little bit on glyphosate.
Dave Tretter
Hello Don, this is Dave Tretter. If you look at glyphosate, it has come down from a tide.
There were very few people that bought glyphosate when it was at the high. I think that the lower price has already found its way into the U.S.
Our cost has come down slight from where they were, they’re not that material. Looking into the first quarter, we expect our selling prices to remain relatively flat.
I’m not sure what’s going to happen in the second half of the year but we have already seen some of the prices come down, and feel that they’re going to be relatively flat going into the first half.
Don Carson
Thank you.
Operator
Our next question comes from PJ Juvekar with Citigroup. Please proceed with your question.
PJ Juvekar
Yes, hi, good morning. Chuck, as the U.S.
dollar has risen against a basket of currencies, growers around the world has seen sort of a de facto price increase in fertilizers just because of currencies. In that environment, do you think fertilizer prices can go up?
Chuck Magro
Yes, hi PJ it’s Chuck. So I’ll talk a little bit and I’ll have Jason Newton, our Market Economist, give you his thoughts.
So certainly the currency and I think it’s been just the volatility and how quickly it’s happened, the whole world is adjusting to what this could mean. But certainly when we look at pricing and more than that the demand things look good specifically in North America for the spring season.
The barometer that we have is our prepay levels are up, crop prices are up over the fourth quarter. And the margins, when we look at the historical -- based on the historical cash margins of growers, they’re at the average levels.
So yes, they’re off the peak and there are probably stresses coming from currency. But all of that gives us some optimism that certainly the first half of 2015 is going to be strong.
Jason, why don’t you comment on specifically what you think is going to happen with currencies and crop pricing.
Jason Newton
Hi PJ, I guess you are right in terms of when U.S. dollar strengthened and the quantities weakened.
And the costs of fertilizers do increase on a domestic currency basis. And it does put some downward pressure on as it does with all commodities.
On the other hand, the most important factor as to profitability is crop prices. And so from a crop price standpoint, especially for exporting countries, strong U.S.
dollar and weak domestic currency is positive. And so, for most growers, it’s a net positive from a profitability standpoint.
PJ Juvekar
Thank you, Jason. And my second question is what kind of seed pricing did you see as the growers placed their orders?
And do you believe that growers traded down to a cheaper seed this season? Thank you.
Chuck Magro
We’ll turn that question over to Tom Warner. Go ahead Tom.
Tom Warner
Good morning, PJ, this is Tom Warner. Seed pricing has been pretty stagnant.
There is a, because the 2014 harvest being large, there is a large seed supply and so it hasn’t been a problem. But as far as pricing, it’s been pretty consistent with 2014, what we’ve got booked thus far, our bookings are above last year.
Operator
Our next question comes from Jacob Bout with CIBC. Please proceed with your question.
Jacob Bout
Good morning. Just going back to your rollout of the operational excellence, I know you talked a bit about working capital and plant utilization rates.
But maybe you can talk a bit about the rollout in retail of the hub and spoke model. Talk a bit about the use of sales leaseback, and maybe what other heavy lifting is left to do to get to this $475 million that you’ve been targeting by 2017?
Chuck Magro
Sure Jacob, its Chuck. Of course what you just mentioned is a big part of the retail focus on operational excellence.
It’s been something that they’ve been doing for several years, it’s not new. But we have some, and we’re very good at it but we have some areas that we’re targeting.
So Steve, why don’t you talk about how far along we are in that process?
Steve Dyer
Yes, Jacob. So, further, like on top of the working capital which we’ve already talked about, Chuck also referred to some of the other activities we have going on, on the procurement side.
Obviously we have a significant amount of spend everything from seed, chemistry, fertilizers, as well as other spend that we have around freight. We’ve got a lot of focus on that and they’ve set some targets and see some improvement areas, again leveraging our size and buying power through our entire network.
Then specific to on the hub and spoke, we continue to move forward with that model. So back at the Analyst Day we show that we have closed a number of facilities as part of our continued consolidation moving towards that hub and spoke in 2014.
And that includes right across our entire geography that was South America, Australia, Canada and the U.S. we continue to drive that consolidation.
And then we are reinvesting and then building our larger facilities to help support that hub and spoke model, particularly on the fertilizer side of our movements, which is again the highest working capital that we have as well.
Jacob Bout
Okay, and then maybe as a follow-up here, just on the potash markets, if we assume that we are in a flat global demand type environment in 2015, with the ramp-up that you’re doing in Vanscoy, what are you doing as far as preparing the U.S. market for more of the Agrium potash?
Chuck Magro
Jacob, I’ll start with a high-level and I’ll turn it over to Susan Jones, our VP of Sales Marketing and Distribution, who has been working on this for literally years. When we look at the potash market in general, we would agree with your assessment that last year was a great year for shipments and demand up over 10%, really strong demand in China, in India.
We expect India actually to have a little increase in demand in 2015, but right now it is a question mark on how strong Brazil and China would be. So, your assessment of flat market conditions is sort of where we’re at.
But you never know and time will tell. But certainly for Agrium, the ramp-up of the plant as we communicated would be 2.1 million tons this year, so we’re not going to the full 2.8 million tons that will take us through 2017.
And we’ve been working with the North American market base and our own retail organization to make sure that we move the product in the market, in the right way. And maybe Susan, you can talk about some of the specifics.
Susan Jones
Yes, good morning Jacob. As Chuck mentioned, we have been preparing this for a couple of years.
And what I would say is with the ramp-up, we’re going to be producing 1.4 million tons in the back half of the year and about 700 million in the first front half. And what that enables us to do is as Chuck mentioned, get the product out of Vanscoy, we are fully committed for the first half.
We’re doing all we can to utilize our retail network. And as well, we’ve got some significant plans in terms of our own logistics networks.
So we are putting in track expansion of Vanscoy to ensure that product gets out very smoothly. We do have 600 additional railcars that we purchased to ensure that the product moves smoothly.
And I would say, it really comes down to logistics and that’s the key focus of us right now along with working with our retail network.
Operator
Our next question comes from Sandy Klugman with Vertical Research Partners. Please proceed with your question.
Sandy Klugman
Thank you, good morning. So, I was wondering if you could discuss your outlook for North American nitrogen capacity additions and the impact that you expect this to have both on our import requirements and on prices.
Because based on your five-year potential cash generation forecast, it seems that if anything, you see upside to 2014 nitrogen levels, whereas you can easily make the argument that new supplies will lead to lower netbacks.
Chuck Magro
Hi Sandy, it’s Chuck. I’ll turn that over to our Head of Market Research, Jason Newton.
Jason Newton
All right, Sandy. In terms of what we see for capacity additions, I think CF has mentioned that they will be bringing on Donaldsonville in the second half of this year for urea.
And I believe the OCI plants in Iowa will be coming on at some point during 2015 likely late, very late in the year. And then, there is, a number of other Brownfield capacity additions and I think about two ammonia greenfields that will be coming on-stream.
In terms of balance, once all of those plants are on-stream, we still believe that the urea market will be a net importer overall last year was a big year of imports from offshore sources close to 7 million tons imported in 2014. We believe that will fall probably by about 50% but still be a large net import market of urea.
Ammonia, there is a couple of new plants coming on-stream but there is also some production of urea that will be using up some of the net ammonia. So overall, with demand growth, probably just a slight reduction in ammonia imports, so probably still in the 3.5 million to 4 million tons of ammonia coming from offshore sources.
On UAN, it’s a smaller net importer and with the new production of UAN coming on-stream, we think the North American market will be more self-sufficient.
Sandy Klugman
Okay, thank you. That’s helpful.
And then just as a follow-up, what impact, if any, has Agrium seen on the nitrogen global cost curve from the significant reductions in crude oil prices?
Chuck Magro
Ron, you want to handle that question?
Ron Wilkinson
Sure. Sandy, it’s Ron Wilkinson.
What I’d say is, right now the -- I’ll say the marginal producer on nitrogen seems to be China. And they’re really coal-based producers.
So, as of yet, we’ve seen really no impact in the market with lower oil prices.
Operator
Thank you. Our next question comes from Adam Samuelson with Goldman Sachs.
Please proceed with your question.
Adam Samuelson
Yes, thanks very much everyone. Maybe touching on guidance a little bit and it’s a pretty wide range at the EPS level, and would like to hear some of the drivers for why the range is so wide.
A couple different levels there; one, given how much you hedged, I don’t really understand the range on the natural gas price? And then on retail, help us think through the drivers of the low end and the high end of the retail EBITDA growth that you are targeting?
Chuck Magro
Sure. Adam, I’ll turn it over to Steve Douglas, our CFO, he’ll walk you through some of the fundamental assumptions for the guidance range.
Steve Douglas
Thanks Chuck, and then I’ll maybe ask Steve to chime in on the question around the retail side. Your comment that saying the guidance is pretty wide, we do have a relatively small number of shares relative to a lot of other industry participants.
And what you get is a swing that’s much more dramatic on a per-share basis and you might otherwise get. I’d say, as a percentage basis, it’s actually pretty tight given, but that said we’re clearly at the outset of the year.
And we’ll likely tighten that up as the year progresses, which is just sort of a natural progression for any guidance range. In terms of the inputs, your comment around natural gas, that’s about what input as to how it relates to what our earnings are going to be.
And clearly we’re saying that if we surprised to the upside of natural gas in terms of the ranges that I think Chuck and Ron were describing as to where we are hedged, we’ll get closer to that upper end of the range as a consequence of the natural gas price. But there is, also influences from crop nutrients that are going in their end.
I won’t get into the specifics as to the actual numbers we’re suggesting to get up to the 850, which being the outer bound. It doesn’t take a massive change in the pricing of the crop inputs to get us there.
So, to that end I’ll maybe kick it over to Steve and ask for the retail drivers.
Steve Dyer
Yes, Adam, on the retail side, really the two main drivers are going to be crop commodity prices as well as cropping patterns. So that would be corn versus soybean.
Our view is corn is going to be that 88 million to 90 million and soybean is probably 84 million to 86 million. But a shift in that can have an impact it’s really the available revenue.
The inputs on soybean are about half of corn for example, so the available margin as well is about half. And then on commodity prices, obviously, lower commodity prices of corn has dipped down back into the 3 level or lower 3 level, that may shift away, growers shift away from some call it discretionary or preventative applications as well.
So, those are really the two main drivers for retail perspective.
Adam Samuelson
And maybe just following up on that, Steve, on the retail side, comparable same-store sales in 2014 were down 2%. It looks like it was a sharper decline in the second half of the year, presumably from the shorter fall season window and the lower fungicide sales.
What’s the expectation for comparable same-store sales in 2015? And can you talk through some of the discrete kind of Agrium benefits that you have year-over-year Viterra synergies, improvements in Australia, etc.
that should drive some earnings growth?
Steve Dyer
Sure. So, first on the comparable store sales, yes, we were down slightly.
But if you look at the overall market, was down as well as you mentioned yourself. We did have that shortfall season that shifted quite a bit of fertilizer from a revenue standpoint that will pick up in the spring season.
So definitely the expectation is that our comparable store sales will be up in 2015 from that standpoint. Now turning to other part to add there, Australia obviously we had good performance in Australia year-over-year, we were up considerably up around 90% year-over-year.
We see that momentum continuing into 2015. We’ve had improvements in the weather conditions there as well as the cannibalisms but underlying that fundamentally we’ve had a significant reduction in our cost structure and improvement in margins as well.
And again, we’ve seen good performance in South America driven by one of the big areas that we had a step change was on working capital down to South America where we took out over $45 million of working capital. And then actually maybe I’ll turn it over to Kevin Helash, to talk a little bit about Viterra and where we are with that in terms of our synergies integration.
Kevin Helash
Okay. So I’d say we’re very happy with how the Viterra integration has gone, we’re essentially complete.
And we’re really focusing on just optimizing the business that we do have. We’re going through all the numbers now trying to peel apart what was Viterra, what was legacy CPS.
But I’d say at a macro level, as Chuck mentioned earlier, we feel we’re well on our way to achieving all of our synergies, I mean our deal model and look forward to running that business going forward.
Operator
[Operator Instructions]. Our next question comes from Kevin McCarthy with Bank of America.
Please proceed with your question.
Kevin McCarthy
Yes, good morning. You mentioned that the U.S.
had the earliest onset of winter in more than a decade. I was wondering if you could talk through the likely impact of that on 2015 demand, and in particular, touch on nitrogen and what you might be baking into your range of 3.6 million to 3.8 million tons there?
Chuck Magro
Okay, Kevin. What we’ll do is we’ll divide it, Ron will talk a little bit about expectations for the spring and for the year for wholesale and then I’ll turn it over to Steve Dyer to do the same for retail, go ahead Ron.
Ron Wilkinson
Yes, Kevin. In terms of nitrogen for the spring, we’re essentially in a sold-out position.
So our annual production is really an estimate of our capability and we’re not sales constrained or production constrained. So that’s the reason for the range there, it’s nothing about the market.
Steve Dyer
Yes, and then from a retail perspective, we talked about the fall season. We saw application of fertilizer down about 10% to 15% due to the early fall, early setting of winter.
So we expect to capture most of that into spring season. And again as Chuck mentioned, our pre-pay is slightly higher than last year, so again, overall we see good intentions from the growers out there.
Operator
Thank you. Our next question comes from Vincent Andrews with Morgan Stanley.
Please proceed with your question.
Neal Kumar
Hi, this is Neal Kumar calling in for Vincent Andrews. I was wondering if you talked about the state of the current Chinese contracts.
And also in terms of phosphate, I know you are focused on finding an alternative rock source for Redwater. I was just wondering if you could update us on that and other strategic priorities in phosphate.
Chuck Magro
Okay, good morning, it’s Chuck. I’ll deal with those questions.
So look, the Chinese contracts, as everyone is aware we’re not able to settle an agreement before the New Year. Obviously, that the both parties are working towards it, I think it’s in everybody’s best interest to do this sooner than later.
But we’ve seen this before, and sometimes it takes a little bit longer and can move into March. But I would also say that look, we have time before the spring season and we’re hopeful that it will happen soon.
But as Ron and Susan mentioned, for Agrium, in essence we’re sold-out for the first half of this year regardless of what happens in China. And so, we’re hopeful that things get settled but certainly from a sale-out of our capacity right now in the first half of the year, I don’t think that’s going to be an issue.
As for your phosphate question, the business here has worked really hard to really drive operational improvements. And in fact the phosphate business once again had the highest margins in North America among all of its peers.
So, certainly when I look at a business like that performing very well in the markets that we operate in, it’s comforting. So we’ve had another solid quarter, but we have some questions on our mind.
I’d say they’re more strategic in nature in terms of can we find low cost reserves for Redwater that’s the first question on our mind. And we’re working through a pretty diligent process to look at alternatives for Redwater.
But we have some time because that contract doesn’t expire until 2018 so we are going to take our time to find the right solution both for short-term results and for long-term. But right now that business is a positive contributor to our earnings.
So we feel good that we have the right business for 2015, it’s really optimizing it for the future that we’re working on.
Operator
Thank you. Our next question comes from Joel Jackson with BMO Capital Markets.
Please proceed with your question.
Adam Brelieu
Hi, this is Adam Brelieu for Joel. I just had a question on the MOPCO expansions.
So at Investor Day, you guys previously said that the first train would start up in Q1 ‘15, the second one would be in Q2, and now it seems like they’re both delayed to about midyear. Is this just due to the gas availability or is there something else going on with the delay?
Ron Wilkinson
Hi, it’s Ron Wilkinson, I’ll take that question. It’s a little bit gas but it’s just the actual start-up sequencing.
So, on train-one, we’re actually in the start-up process right now. And we have our some of the machinery already running and we’re putting natural gas into the front-end of the plant and so, all going well, we’ll be producing ammonia in the March timeframe, urea likely into April.
The second plant target to be mechanically complete in April, and again, we project start-up kind of in that mid-year timeframe. You’re right, all of this depends on gas in terms of will these plants produce once we have them fully commissioned.
Operator
Thank you. Our next question comes from Mark Connelly with CLSA.
Please proceed with your question.
Mark Connelly
Thank you. Question our retail the tuck-in acquisitions are obviously important to your growth.
How do you think about organic sales growth in North America given some of the shifts that we are seeing in what retailers actually offer? And is, your restructuring activity going to allow you to drive meaningfully higher same-store sales versus that organic growth rate?
Chuck Magro
Hi Mark, it’s Chuck. I’ll let Steve Dyer address both of those questions for you.
Steve Dyer
Yes, Mark. In terms of, as you mentioned that we had very good pipeline on tuck-in but again as Chuck mentioned, we see that continuing on into ‘15 and ‘16.
But my expectation is that we have good solid organic growth to complement the acquisition pipeline on tuck-ins as well. So, the expectation is that comparable store sales will be all that low to mid-single-digits on a go-forward basis as we continue to grow.
So, we have big focus and that will be driven by continue to consolidate our facilities, investing in the right place within our facilities building out our hub and spokes so we can serve to a broader customer base as well with our existing assets.
Operator
Thank you. Our next question comes from Andrew Wong with RBC.
Please proceed with your question.
Andrew Wong
Hi, thanks guys. So maybe question for Steve, actually; it looks like, Steve Douglas.
It looks like the debt to EBITDA ratio is a bit over 2.5 times currently. But I imagine that will come down as your earnings improve through 2015 and 2016.
So I was hoping you could talk about your optimal target leverage ratio or capital structure, and any future plans you may have to repay or take on more debt?
Steve Douglas
Certainly. You’re right our debt to EBITDA I think actually was a little higher than that.
But nonetheless, you bear in mind that as the contribution from Vanscoy kicks in, and as the nitrogen business gets more reliable we’re clearly going to see an up-tick in the EBITDA from that side. And we’ll naturally gravitate to debt to EBITDA down.
We’re always looking to be opportunistic as it relates to managing our capital stack. I think we’re in a very enviable position, I mentioned in my comments.
We sit with about $625 million coming due in the next five years. We do have some CP outstanding that if we could we take advantage of maybe perhaps extending out favorable rates.
But I think from a target perspective we remain committed to being a mid-investment grade that is BBB mid-BBB high, BBB minus, bearing in mind that there is an ebb-and-flow to this business and you need to be opportunistic. We’re anchored in that investment grade but if the right opportunity came along, we could tick up that debt-to-EBITDA margin a little bit as we did in the expansion of Vanscoy and in the expansion of Borger to add to our productive capacity.
But as I’d mentioned we’re anchored at that, we’re anchored in being investment grade. But I don’t specifically like to view us as having a one finite target and manage to that.
I think you’ll see at times where we’re probably down in the twos or low twos and we may tick it up for the right opportunity but again, anchored in having flexibility and really taking advantage of our balance sheet strength.
Operator
Thank you. Our next question comes from Steve Hansen with Raymond James.
Please proceed with your question.
Steve Hansen
Yes, good morning. Just quickly as it relates to the acquisition of retail outlets, you’ve obviously had a busy start to the year.
Just trying to understand what exactly might be driving owners to let go of their outlets ahead of the spring period and whether this early burst enclosure is really up to your expectations for the full year?
Chuck Magro
I’ll let Steve Dyer talk to you, Steve about maybe the incentive for sellers.
Steve Dyer
Yes, I think part of it is we do have a strong presence out there. And a lot of these acquisitions actually come from our field and come up to our level in terms of whether a good acquisition to bring into all of the Agrium family.
But we do have a little bit of headwind right now on commodity prices on crop prices so that maybe creating a little bit of incentive for some smaller independent retailers to look at monetizing their business today. So that maybe a bit of a driver and then that may continue for us or probably will continue for us through 2015 as well.
Operator
Thank you. Our next question comes from Matthew Korn with Barclays.
Please proceed with your question.
Matthew Korn
Hi, good morning everybody. Thanks for taking my call.
Question on the interplay between retail and wholesale; the USDA surprised a bit I think with the U.S. acreage numbers they put out.
Corn is in line, maybe soy not showing the expansion anticipated. So first, how is that match up with the intelligence coming out of your retail group?
And second, maybe even more importantly, can you point to anything in particular going into the year, where you’re adapting your wholesale product mix or your geographical focus for those products based on what you are seeing in retail, like on what farmers are planting or not planting and where? Thanks.
Chuck Magro
Well, hi Matt, it’s Chuck. We’ll have Steve address to you from a retail perspective and then I’ll ask Ron to comment on any adjustments for wholesale.
Steve Dyer
Yes, again, from -- just going back to the corn acres again, where based on what we’re seeing out there right now with seed bookings and talking to the growers. Our expectation is in that 88 million to 90 million acres for corn.
So we do see that. And just a reminder, one of the beauties of our diversity in retail today is corn and soybean represents about 40% of our revenue.
So we do have a very diverse portfolio from a crop standpoint as well that provides us some good stability. So yes, corn moving around a couple of million acres has an impact but it’s muted because, we do have a very diverse crops that we’re servicing.
Operator
Thank you. Our last question will be from John Chu with AltaCorp Capital.
Please proceed with your question.
John Chu
Hi, morning. So just on wholesale side, with the recent capacity expansion that you’ve got going on, would the company look at some M&A opportunities there as well?
I’m thinking more in particular, Rentech has got some assets that may be up for sale. The Illinois plant seems to fit in with what you’re looking to do on the Greenfield side previously, so just maybe any comments on if you’re looking at that and how that might fit?
Chuck Magro
Hi John, it’s Chuck. So, we’ll tell you how we think about all opportunities that come our way.
So, first and foremost it needs to fit in our strategy. And we like nitrogen, nitrogen is core for Agrium.
So a nitrogen opportunity with low cost gas behind it, we would absolutely be interested in. But the other thing to remember for us is we’ve been very open and transparent with our capital allocation process and the decisions that we need to make.
So any acquisition of size, we would have to look at it against a share buyback. And so if Rentech or some opportunity was to come to our way, we would not only look at it strategically from a fit perspective but we’d also look at it economically to say is this the right use of capital on which is the return that drives the highest shareholder value, this or a buyback.
And we do that for all opportunities that come our way. And we would continue to be kind of selective on how we analyze these projects going forward.
Operator
Thank you ladies and gentlemen. This concludes today’s teleconference.
You may disconnect your lines at this time. And thank you for your participation.