Corteva, Inc. (CTVA) Earnings Call Transcript & Summary

Thanks for joining us. This is Jonas Oxgaard from Bernstein hosting Jim Collins from Corteva. Just before we start, I'd like to remind everyone that you should submit questions through pigeonhole. There's a link on the left side of your viewing screen. At the end of the session, we'll have a procensus poll, and there will be immediate access to the results of the procensus poll. Also, the link will be available on the left side of the screen. And if you have any technical problems, this is the first time we're doing this, so please be patient, reach out to either Sales or Corporate Marketing team. So with that, it's my great pleasure to have Jim Collins with us. Jim has been the CEO of Corteva for almost exactly a year, since the spinout, but has spent pretty much his entire adult life in DuPont and Corteva, as far as I know. So with that, I'll hand it over to Jim.

Great. Thank you, Jonas, and it's a pleasure to return to the Strategic Decisions conference. And like you said, this year -- or last year at this event, we were still a division of DowDuPont, but we were really close to our intended spin timing. So as we come together this year, we're celebrating, or very soon to be celebrating a significant milestone, our 1-year anniversary as a publicly traded company. So it's been a remarkable year. And with each new challenge, we've demonstrated that we're stronger, we're more agile and more reliable and certainly more resilient. This is especially apparent as we continue to deliver strong execution in the face of this global health and economic crisis. So to open today, I'll provide an update on our operational momentum, particularly the pace of US seed deliveries. I'll also provide an update on several of our strategic actions that we have recently taken to enhance our resiliency as we emerge from this crisis and ensure that we deliver operational and financial results consistent with our commitments. You can find the slides that I'll be using today on our website. And as mentioned on Slide 2, expectations for the future given today are forward-looking statements and are not guarantees of future performance. Certain risks, including those outlined in our SEC filings, could cause our actual results to differ materially. Also from Slide 3, reconciliations of the non-GAAP measures to GAAP may be found on our website. So turning to Slide 4. And an update on our first half momentum. At this point, our U.S. corn deliveries are almost 95% complete and still trending about 10% ahead of last year. Favorable weather conditions have supported a strong planting pace. The latest USDA planting progress report indicates that we have 88% of the corn planted compared to about 55% a year ago. We continue to expect low single-digit price improvement in corn through the first half driven by a strong mix improvement in the first quarter. On soybeans, it's still early in the planting window, but we're also seeing solid progress on deliveries, as shown in the chart. We have over 70% of our soybean deliveries complete, close to double compared to where we were a year ago at this same time. While we see high levels of competitiveness in the market, our teams are executing with strong internal pricing discipline. We estimate that the U.S. soybean price, through the first half, will be down low-single digits. But with continued favorable weather, and expected reversal of the high level of third quarter replant that occurred last year, we would expect this to benefit pricing on full-year basis compared to the first half trend, and our teams are executing to achieve this result. Our full launch of Enlist E3 soybeans continues to go as planned. We expect to have Enlist soybeans, represent about 20% of the U.S. soybean market overall and 10% of our lineup. We are also seeing continued high demand for Enlist herbicides. The largest remaining uncertainty on first half performance is currency. We are able to offset currency headwinds in the first quarter with pricing and some strong mix improvements. As we consider the first half, despite this pricing and hedging actions, we will expect approximately $150 million in currency headwinds to operating EBITDA. Looking at the second half of 2020, we are closely monitoring the exchange rate movements on a basket of global currencies, but most notably the Brazilian real and are using price and hedging tools to minimize or mitigate the potential impact. We're also closely monitoring the market outlook for corn and soybean consumptions, specifically, dynamics in the ethanol industry, trade negotiations with China, potential disruptions to the food value chain that may impact commodity price levels and the outlook for U.S. planted area in '21. As we monitor currency and commodity demand, we are actively executing our plans to drive strong demand creation, internal price discipline and aggressive cost management to mitigate the downside impacts on our full-year results. Overall, we remain committed to provide further transparency on our actions in response to the economic fallout from COVID-19, and expect to provide more insights on full year 2020 outlook on our second quarter earnings call. So moving to Slide 5. This chart summarizes our Seed brands and the differentiated channels that exist in the marketplace today to acquire and serve customers. Last week, we announced our intention to launch the Brevant Seed brand in the U.S. for sale exclusively through the retail channel, beginning with the 2021 sales season. Now this change has been in development for over a year and will expand the retail access to Corteva seed genetics technology and traits. We're committed to providing growers choice through a brand that we have established globally and recognize that there are growers that prefer purchasing products through the retail channel. Today in the U.S., approximately 1/3 of seed volumes are sold through retail channel. And through our Mycogen seed brand, we account for less than 5% share of that total retail channel. With the introduction of Brevant, we will replace the Mycogen brand and enhance the seed product portfolio that will be available in the retail channel. Ultimately, we're targeting growing to over 20% share in that channel. With this change, our initial focus will be on establishing a strong value proposition, including better value capture and margin on products sold in retail that represents a premium to the level Mycogen had previously held. In addition, we expect our strong product performance will build credibility with retailers as a trusted seed provider. Our track record in crop protection and strong relationships gives us an entry point here as well. To achieve our target market share, we will ultimately need to establish a core group of retailers, probably less than half of retail locations in the market today, where we hold a lead position. Retail choice, unique product offering and opportunity for retailers to capture additional margin are all working in our favor. We look forward to providing you updates on our progress in scaling our presence in retail as the 2021 selling season unfolds this fall. So turning to Slide 6. We have one of the largest and most diverse crop protection portfolios in the industry. We've launched 8 new crop protection products, which are a key driver of the broad-based organic sales growth realized in the first quarter of 2020 and are expected to continue to drive our sales growth. For the quarter, new crop protection product sales were approximately $180 million, almost $70 million better than last year. This was led by continued penetration of products such as Arylex and Enlist herbicides and Isoclast insecticide. We announced in the first quarter that we have now secured registration in several European countries for Inatreq fungicide in cereals, which represents another key milestone for our Crop Protection portfolio. Though we successfully launched Innotrac in 2019 in bananas, this technology provides market-leading control on all Septoria streams and will address resistance issues that have arisen in cereals. In fact, Inatreq represents the first new target site in cereal in 15 years. More broadly, the Inatreq registration also represents the latest in a series of registrations for products with very favorable environmental profile, underscoring the strength of our pipeline. Slide 7 captures our continued emphasis and focus on cost. We delivered approximately $70 million in cost synergies and productivity savings in the first quarter and expect to deliver $115 million in the first half and $230 million for the full year. These results show our continued progress on bringing merger-related synergies to the bottom line as well as the initial strides we are making from the Execute to Win program. Last year, we launched Execute to Win to inspire and reinforce an organization-wide commitment to productivity that is needed to deliver and sustain our results over the long term. This effort is expected to ultimately contribute $500 million in incremental operating EBITDA over the next 5 years. We remain committed and feel confident that we will execute and realize our synergy and productivity commitments. Now given the uncertainty related to the crisis, we have also identified targeted spending actions across the entire organization. Our focus on spending is intended to both preserve cash and create more resiliency in our results. Through these actions, we expect to achieve approximately $100 million in targeted reductions in 2020, with approximately 1/3 of those realized in the first half. Looking forward, we have over $1 billion in cost savings and productivity improvements yet to be delivered. So our structured emphasis across the entire organization will be a key driver of operating margin improvement in the midterm. In closing, it's important to keep in mind that we have a lot of road left ahead of us in 2020, including planting and harvest in the U.S. and 2 crop seasons in Latin America. As we all know, a lot can happen in a single season. Though we expect corn acres in the U.S. to decline into 2021, we have a robust strategy in place to drive accretive growth beyond corn seed. We are executing on the next phase of our multichannel, multi-brand strategy by bringing retail customers more access to our innovation. We are also continuing to launch new Crop Protection products in every product category. We are extracting productivity throughout our organization, trimming where possible and using our innovation capabilities like our digital tools to become even more effective. And finally, our team is laser-focused on maintaining our momentum and executing on our strategy. We're proven that we are resilient. And with our 5 priorities for shareholder value creation as our consistent road map, we are committed as an organization to weather the challenges ahead. With that, Jonas, I'd love to take your questions.

Thanks. Appreciate that. Yes, for those of you listening in, who are not familiar with pigeonhole. So there's a link on the left side of your screen, and when you click it, it opens a window in a new browser. The video will continue in the prior browser, you submit your own question top of the box. You can also vote on questions that are already in there, and the more votes, well, the more likely is I will ask it. So with that, I'm trying to group the questions sort of in categories, and starting to talk about the market itself. So it looks like we've had a strong U.S. market so far. Do you have a sense for corn acres, where we're ending up for the year?

Yes. I think it's a great question. We always planned for about 95 million acres of corn in North America, and clearly, our early order book and our early shipments have confirmed that. We're about -- as I said earlier, we're about 95% shipped in corn. And if you looked at the latest planting reports, we're probably 88% planted in the U.S. So by the time you get up to these numbers, you get a pretty good sense. We never 100% believed the 97 million-acre estimate that was out there. And so I think the last time we talked about this at earnings, we sort of said, "Hey, we think it will fall closer to 95 million." I think that's about where we are, Jonas. Right here towards the end, we've had some wet weather in the far north of the Midwest, up here in some of those fringe states, North Dakota, Northern Minnesota. And even on the East Coast, we've seen a lot of wet weather. We might have taken 0.5 million or 1 million acres even off of that, but we're not going to be -- we're going to be, I think, in a range of 94 million to 95 million. And again, that's consistent with our planning and certainly consistent with where we felt like things would come out. Soybeans, I think we're still on track for the estimates that we talked about before. We're about 70% shipped today out of our inventory, and about 65% planted is what the latest data would suggest. And so we'll -- might we have a slight uptick versus the previous numbers on soybeans? Possibly as the commodity prices are starting to move around a little bit in response to where demand is going globally. But I think the probably the bottom line on that is, hey, it's coming in about where we said it was at the start of the year, and we're confident that we have returns dialed in right now given where things have turned out.

Okay. On the pricing side. So you've talked about maintaining pricing discipline in the midst of market competitiveness. I believe I'm quoting you from your earnings call. What does that mean? And what does that suggest for next year?

Yes. So it's a story of 2 types of pricing. Clearly in corn, we have had a strong start. If we look at seed overall globally in the first quarter, prices were up 5% and corn was the primary driver there. A big part of that was mix related to Qrome and PowerCore Ultra in Latin America. We had really strong pricing performance in Latin America. Part of it, pricing ahead of some of this currency, but part of it is the new technology. So with corn, it's innovation-driven. In soybeans, there were lots of speculation that it was going to be a disaster in pricing in North America, locked some new technology. There are a few players that had been really aggressive. But when we -- we know what pricing cards were at the start of the season. So what we did this year was we installed a new approach or protocol with all of our reps and established very tight pricing box around it. And then we rolled out some of the best technology in the industry. So we started and we priced for the value and the productivity that we were delivering. So despite a competitor with a really aggressive pricing structure, we were out there more aggressive with a better portfolio. So you don't have to discount your product if it's better, right? You can go price it for what it delivers. But on top of that, there is a fairly complex set of discounts that are available to every one of our reps to use to help secure business, to reward loyalty, to help to drive additional sales across the broader portfolio. And we just put a more disciplined process in place. So that's what that raise was designed to say, it was very internal pricing discipline. And we're able to monitor that on essentially a real-time basis for every one of our reps all across the Midwest. This is the benefit of our model, right? This direct route to market. It gives us very good control of our inventory. If shifts start to occur, we know about it way ahead of everyone else. Gives us really good control of our pricing and our value, and it gives us a great connection to our customers. So as a result of that, through the first half, we've expected that we would be down slightly in soybean prices. And as I said here in my opening comments, you'll remember last year, soybeans, this week, last year, were only about 26% planted compared to where we are right now, we're at about, I think 65%. And so we had a heck of a lot of late beans that went in, and then we had a lot of replant that went in as well as guys got beans and tried to get it in early, and it just got rained out. So when we adjust for the pricing hit that you take on our replant accounting, we would expect on a full year basis, soybeans would actually be maybe essentially net flat, which is a real victory versus all of the doom and gloom that was shared early on in the season about where things could go.

Okay. And what does that imply for '21, '22?

Yes. So first of all, we got a lot of road to go before we get to that in pricing for '21. Commodity prices are always a benchmark for where we start. But for us, it's our portfolio. It's the technology that we're bringing. And again, so we'll price for the value that we're delivering, and we really like the lineup in corn that we have coming. So we'll have another full year, a full -- even fuller year of launching Qrome, another full year of PowerCore Ultra. We'll have in soybeans, the Enlist, a nice real push for Enlist going forward. And you know -- but commodity prices will play a role. So what will really affect that? Well, first, ethanol will clearly affect what happens in corn. And I'm actually seeing data -- I'm a little more optimistic there than I was probably a few weeks ago from the Transport Association that says folks are going to drive a lot this summer. They're not going to fly. And they'll take vacations, but they'll do it more driving more local. Well, that will create demand for fuel, which will open the refineries back up, and that will get that ethanol moving again. So USDA's numbers they put out just recently, I think I'd be a little more bullish on the ethanol, the grind -- the corn grind that will go to ethanol. The second piece of that is obviously going to be China. The administration is clearly holding them accountable for their Phase 1 Trade Deal, and they have been buying both corn and beans lately. And so assuming that that will continue, I'm a little more optimistic there that we'll take up some of that carryover. And then my belief is we're going to probably land in a 90 million-acre corn world next year probably. We may take 5 million to 7 million off of where we are today. And so some folks say, "Oh, my goodness, 5 million decline." But 90 million acres of corn is an average year. So we're going to just kind of return to a more normal market. Feed will have to adjust, obviously, with animal demand. So that's how I view it. It's a little early to say, call anything, but I don't view it as a disaster. And we've got a pipeline and opportunity to grow without having to drive price. We can grow based on the portfolio that we're bringing out.

Okay. So speaking of ethanol and corn, there seems to be a lot of fear in the market that corn will hit $3 or so. It's creeping up a little bit now, but what does $3 corn mean for you in terms of pricing?

Well, again, we price for the productivity and the value that we deliver. So growers tend to lock in their seed purchases very early because they're working hard to preserve and protect that ability to get maximum yields. So even in a low pricing -- in a low-commodity-price core market, that extra 5 bushels an acre is all of their profit. So if they can get another 5 out of that, they make that investment. And so we'll obviously sit down with them and be sensitive to their situation. The government has clearly been out there with additional stimulus that will work its way in in the second half of the year. We saw it last year with the MFP payments, so growers get -- had a fair amount of cash, and they're willing to invest that cash in their operation. And you've heard me say this before, at the end of the day, a grower only has 1 way to make money, and that's to plant a crop, and so they will. And they want to maximize the productivity that they get out of that crop. And that's what we're known for. If you want to drive productivity, you work with pioneer. And with the Brevant brand that we'll have out there now, we'll have even more Corteva germplasm in the marketplace than ever before and growers will have a chance to benefit from that as well. So without worrying too much about price or commodity prices, I see opportunities for us to grow in the market next year and based mostly on our lineup.

Okay. So speaking of Brevant. Could you explain to someone who isn't a farmer? What does the Brevant thing really mean for investors?

Yes. Really important announcement for us here this last week or so. And it goes back to what I talked to you about probably 3 years ago, actually. From the very first day of the discussion of the merger of DowDuPont, I've been very excited about our opportunity on retail. So why is that? Well, the world in North America pretty much sells seed through 3 channels. There is the direct to farmer channel, which the pioneer brand, flagship brand, high-touch, high service, we really are the key player there. It's -- we've been there for 90 years. We have a tremendous amount of focus on that. And so we're pretty penetrated there. So we work with large growers, the more sophisticated, large operations. But unfortunately, 2/3 of the world doesn't want to buy their seed that way. Many of them want to go through their local regional seed companies. There are a number of them out there. They're very good suppliers of genetics. And we own 4 or 5 of those brands that we have worked over the last 2 years since the merge to rationalize and get those focused in key regions. So we have ones in the northeast, one in the west. A couple down in the south. And so we've been working to improve and continue to penetrate there. So that's been a source of growth for us. But there is a third channel that is through distribution and retail. And when we were just DuPont, we chose to basically ignore that except for our chemistry business. So and for years, as you said, Jonas, I've been around a long time, for years, the channel has been begging us for a choice. Because up until this announcement that I'll talk about in a minute, they really didn't have a choice. If they were going to sell their own brand of seed or they were going to sell a retail brand, it was coming from 1 basic company. Yes, Syngenta and even Dow with the Mycogen brand had a presence there, but these are very small shares. The real dominant shares are with Bayer’s brands. So when we merged, I was very hopeful that this Mycogen brand would be a real advantage for us. That we could improve the germplasm in those bags, and we could get retail on our side. What I underestimated was the amount of negative connotations that there have been over the years with the Mycogen brand. No disrespect, but there were just some performance issues a decade ago that people just didn't forget. And so even though we said, "No, no, no, it's different stuff in the bag," it was hard to overcome that. So with this announcement, we pulled the Mycogen brand, and we replaced it with Brevant. Now Brevant, we've done this everywhere else in the world. So in Europe, Latin America and in Asia, we launched Brevant 2 years ago. We've sold over 12 million units of that brand. It's been a very successful strategy everywhere else, but the U.S. We even launched it in Canada. So this was the last area. And when we decided to pull Mycogen, it was logical, let's get Brevant in there. So it comes in as a new brand, it comes in with a better value proposition for a retailer. We're going to price it at a premium to where we had Mycogen priced at before. And we're going to set ourselves up now with retail to give them their first choice that they have had in a long, long time. So that's the story around Brevant and why we're so excited about making that shift.

Okay. So last on the specific seeds for now. But -- so Enlist seems to have been very successful this year. Can you -- do you at this point know roughly how successful it's been? And again, what does that mean for next year?

Yes. So it's still early. We're about 65% planted. So we're just getting emerging out of the ground with the system. But demand for the system itself has been very strong. And I'd just remind everybody, this is a 2-part opportunity for Corteva. First, it's the seed sales into the Enlist brand, and that's sales into corn, which we've had out for a couple of years, and in cotton a few years, but now soybeans. So it will be about 10% of our lineup this year, and we think it could be as much as 20% of the market. And so the other opportunity then is we're licensing that technology to others, which is where you see that difference from our 10% to the 20%. And then the third revenue opportunity is the herbicide sales that we get on every one of those acres. Only the Corteva branded Enlist chemistry can used over the top of Enlist schemes. And so we'll pick up those sprays here in the coming weeks. So I am optimistic. Yes, early feedback has been very positive from growers who saw that technology last year in limited trials. And so we'll see how the system will perform. I think 3 things come from this. First, it's easy to use. Farmers don't have to worry about all the restrictions and set asides and buffer strips and some of the temperature and weather conditions that are out there with other technologies. Farmers need a choice for weed control from a resistant management perspective, and this gives us that opportunity as well. And then I think the other partners that are out there have been excited about having another choice. So we'll see. We could double that going from '20 to '21 and then double that again into '22. We just -- we have to get our breeding machine up and running. So about half of the germplasm we have out there, we've licensed in from others and half was part of the legacy Dow breeding organization, and we'll get the Corteva breeding machine up and running. And by mid-20s, we'll be fully converted over to our own germplasm and really be running at that point. So very excited about it. Our intent would be to convert a large majority of our soybean seed sales over to the Enlist system.

Okay. Can you talk about the potential headwinds in your seeds business from patent exploration, including the timing and monetary impact?

Well, we're in the early days of Enlist. So we've got a number of years to run there. Our germplasm, we turn it over every single year, Qrome and PowerCore Ultra are relatively new to the marketplace. And so there aren't really any short-term IP patent expiry issues there. In our chemistry business, we're always facing some of that as products come off patent. But we have a number of products that are differentiated. And even though they're off-patent, they still have -- they continue to have strong life. So more of our headwinds at times comes from cost of goods as market pricing for seed moves around and additional trade-in licensing. But we really -- I don't see much downside. There is way more upside from a margin perspective in seed than any downside. So it's margin from royalty shifting from the use of more proprietary traits. The margin enhancement coming from our seed productivity work through the synergy projects, but also our Execute to Win focus. And then the upside that just comes from share, right? Our ability to go out and drive share in retail and recover our soybean business in Latin America. Those are all tremendous upsides for us as well.

Okay. Switching over to Crop Protection. I have a tendency to forget that you're half Crop Production. I think that's somewhat shared with investors. The first question is, what is the Spinosyn? And what kind of opportunity do you expect to realize from Spinosyns?

So the Spinosyns were a class of insecticides invented by Dow a number of years ago. They actually entered the marketplace about the same time as the diamides that had been invented by DuPont. And you'll remember when we launched those products, probably the product I worried about the most as the head-to-head competitor for the diamides was the Spinosyns, very, very efficacious but also a more natural chemistry we created through fermentation. It's just something that has kind of a green chemistry image to it. Matter of fact, Dow won, for many years, several green chemistry awards through the U.S. EPA for that product. And I was never successful at winning one of those awards myself. So anyway, run the clock forward, the merge occurs, we're forced to divest one of those because we have the 2 best in the industry. So the first message here is, these were 2 fantastic molecules. And so the commission forced us to divest the diamides, and so we retained the Spinosyns. Now the rest of the story is, during that whole period of diamide runup, while we felt the competition in the Spinosyn products, it was never really very detrimental to us. And the reason for that is that Dow had underinvested in the capacity of that. I think the Dow corporate, it's the whole premise of a merger of the stem, right, that when we were part of our parents, they fought for capital versus the petrochemical complex down on the Gulf Coast and Dow or versus an electronics business in DuPont. So it was very hard sometimes to get the amount of capital that we needed based on the potential or the opportunity. So as a result, Dow AgroSciences didn't get all the capital it needed to expand that. So we get inside, merger closes, first thing we do is we take a look and say, "Why aren't we way bigger in Spinosyns?" And the answer was, we need more fermentation. So we made a first step in fermentation right at merge. About 6 months after that, we had sold that capacity out already. We hadn't even produced the first molecule yet, and we could have sold it. so we made a second decision to expand a second time. Those expansions are running their course, and you'll see the start-up of that second tranche kind of coming late this year, but really into next year. The problem is we sold all that out as well. I could sell all of that tomorrow if I had it. So we made a third decision here. About 4 months or so ago, our Board supported a brownfield expansion at our Midland site to take an abandoned building. So the infrastructure is there, the utilities are all there. It just needs a bunch of fermenters and made a third decision. And so overall -- I'm trying to remember the percents that we will -- from merge to where we are. Yes, it will be about a 50% increase in available capacity from where we were at the day of the merge. And I'm optimistic that our team already knows what to do with all of that capacity. So we're going to keep driving. Now I think part of the rest of the question is, folks sometimes want to make this about a big head-to-head battle. But this market itself is growing. The -- it's mostly fruits and vegetables. So as people are eating healthier around the world, the opportunity for all of these chemistries is getting bigger. On top of that, there's a lot of older chemistry that is still being used on those crops that, over time, there are newer alternatives. And so our market potential is very strong, and it isn't about a big head-to-head. It's about the best chemistry being used on the best opportunities in the best crops. And that's the Spinosyns story.

Okay. Moving over to more the corporate level. I think that by far, the most voted question we've gotten here is, can you give us an update on your historical liabilities, particularly the PFOA and pensions and the impact on your cash flows over the coming years?

Right. So on the key liabilities. As you've mentioned, folks have talked a lot about PFOA. And just to remind folks that we're talking about, one chemical that is sometimes connected with a larger class of chemistries called PFAS. And so people sometimes confuse the 2. PFOA was only used by -- it was used by DuPont in the manufacture of some of the flora products. It was used at 4 key sites within the company. And this material never left those sites. It was never part of the finished product. So those PFOA liabilities are well known, they're well understood. They're mostly groundwater issues at those locations. There were some class action lawsuits in Ohio that were settled a while back, there are some remaining cases. But again, these are well understood. And we -- are being managed. At the time of the spin, Chemours agreed to indemnify DuPont for all of those liabilities. So -- and they continue to do so today, and they have been spending several legal fees and remediation expenses. A couple of years ago, 2017 or so, we settled a number of those cases. And once again, Chemours reupped and reconfirmed their indemnification of us going forward. Now lately, you've seen a lot in Delaware court, where they tried to undo that. And recently they lost their case. They've appealed it. But we are very confident in our ability to continue to prevail there. So no change. That indemnity is durable. And no real change in the numbers of cases. We feel good. That said, this PFAS is also connected to other companies. It's also connected to products that were used in firefighting foams. The numbers of sites are much larger, and we are essentially a very, very, very minute connection to any of those. So that's the PFOA story. You mentioned pension. So at the end of the year in 2019, our pension is underfunded about $6.7 billion. The pension performance -- obviously, the discount rate affects that, the performance of the underlying assets will affect that. And every year, we will test that unfunded position and make a determination as to whether there are required contributions to be made. We don't anticipate that for the next 2 or 3 years, that there will be any required contribution. But we're always evaluating that and determining are there tax-efficient reasons for why you might make a smaller contributions over a period of time here to maybe even push that large requirement out a few years. And so we're just -- we're evaluating that. And our Board is looking at that as well as trying to be responsible in looking at that. That said, right now, with the crisis going on, our focus is on preserving cash and maintaining a real healthy balance sheet, which as you know, is an A category rated balance sheet. We have about $2 billion in cash on hand, but we've also got access to about $6 billion of credit facilities. And so our liquidity position right now is actually quite good. And then on top of that, we went out here just in the last month and tested the bond market. As a new company, we were -- we wanted to make sure that if we had to go borrow that we had the borrowing capability. And I'm quite rewarded to know that we were -- I think at one point, we were 7x oversubscribed on the initial billion dollars that we put out. So borrowed at a really great rate. And kind of basically, as a new borrower established our credit rating as well as our credit capacity for whatever comes now. So we'll hold that cash for now and see what opportunities where we might do that. Mainly, we're going to use it to offset other higher-priced commercial paper and keep ourselves in a position to loan to our customers, which is so important to our business model.

Okay. Thank you. You talked about $1 billion efficiency, cost-cutting program. So the first question is, will that $1 billion fall all to the bottom line? Or would some of that be eaten up by inflation? How should we think about that?

Yes. Hard to speculate what other headwinds might be out there that could eat into that. But the main message here is, yes, we're going to go create $1 billion worth of tailwind, whatever comes our way. And that $1 billion is $500 million related to the Execute to Win specific numbers of programs, and we're underway. We still have work to do, but we feel good over the next 5 years that we'll realize that. On top of that, you have the remaining part of the $200 million of synergies for this year. So we've delivered about, I'd say, half of that through the first half. So it will be a little bit left on that. And then another $200 million next year. On top of that, there's the $200 million that we've identified from our ERP harmonization project, which is on track, well underway. And so you've got the $200 million, $200 million and $100 million from ERP synergies and synergies, and then you've got the $500 million. So there's where the $1 billion comes from. Now on top of all that, this year, I've challenged the organization to find the savings that are associated with the COVID crisis. So travel, entertainment, promotion, advertising. By and large, a lot of -- some of that, maybe a majority of it will come back as we get back up and running fully. But there are aspects of that that will never come back. And I think we've learned how to be much more efficient with our travel and our communication. So I'm optimistic that we'll put a little bit of that in our pocket as well. So that gives us a little cushion around that overall $1 billion. But that's where -- that’s how the math works. That's where the number comes from.

Okay. So we should see margins or EBIT margins go from about 10% to 15%?

Yes. So EBIT or more like EBITDA, if you look at that on an EBITDA basis, we're angling to get ourselves into the mid-20s EBITDA over the planning horizon. So we sit in the high teens today. We see a path in the next few years to get into that low 20s. And then as we improve our trade and royalty margin, that will help drive these cost reductions that we just talked about down to the bottom line, offsetting other headwinds that will happen. There are going to be other cost of goods headwinds, I'm sure, that we'll work hard to mitigate. But this gives us a cushion or gives us some headroom to be able to take those as they come.

Okay. And how do you think about the volatility of EBITDA through the cycle?

Well, that's where we're -- that's the kind of company we're trying to build, is a company that has a much more stable and a more predictable trajectory on that and to give ourselves the levers and the headroom that when we do take a hit, like we're going to take here with currency, that we have the capacity to take that. So we feel good. We've telegraphed that over that cycle, continuing to grow our business ahead of the market in both seeds and Crop Protection. And that's where that pipeline comes in too, it gives us that engine of growth. So we don't have to go out and discount and price to take share from others. We're going to go take share because we have better stock, better products and newer products. So pipeline, our unmatched distribution system, our connection to growers, this focus on operational excellence and the connection to food globally, the long-term demand for grain is undeniable to feed a growing population. And so I talk about those 4 things as the engine that propels us going forward.

Okay. So taking a step back, over the next 2 to 3 years, what would you say is the biggest strategic decision that you're expected to make?

It's a good question. I think about, first, what we've already done, I feel really good about our seed business today. We stepped up to the strategic decisions around multi-brand and multichannel, and we fine-tuned that now with Brevant in North America. We stepped up to the strategic decision around Enlist. And a strategy over the next decade to become more trade independent. And then this continued focus on breeding and germplasm to have the best stuff in the marketplace. Our seed opportunity to grow in Brazil with Conkesta and E3 down there and rebuilding that market. So a lot of strategic decisions already in seed starting to really bear fruit. On Crop Protection. And we've made some strategic decisions to exit a few products. You saw some assets that we divested the last couple of years. We made a big decision this year to cease the production of Chlorpyrifos by the end of the year. And what that does is creates resources and headroom for us to drive the new products like crazy and we're getting registrations for those. I talked about Inatreq in my opening comments. So continuing to become more differentiated, more patent-protected and newer, more responsive to the environmental trends that are out there. So I'm feeling really good about those. So the big strategic decisions we have ahead of us, clearly, one of those areas is going to be digital. The digital assets that we have, how we continue to deploy those? How we make more money? How do we make more EBITDA from that investment over time? That investment is helping us be a better organization internally. It's certainly going to help us be a better selling and marketing organization. But can we continue to drive software-as-a-service and will customers respond to that technology? So that's one decision and the investment thesis behind it and what we’d have to do. And what other bolt-ons do you need to put on that, whether it's grain trading, whether it's marketing, whether it's other aspects. And we're partnering with some great companies. We work with John Deere, we work with some other retailers. There's more to do in that space. The other decision is around our Seed business from a diversity perspective. I've long been interested in the vegetable seed space. I think this is growing double-digit CAGRs every year for the last decade, and we don't see any change in that going forward. We just have -- and we have an amazing breeding and R&D organization that has tools today that could be levered into any area of the Seed business, not just corn and beans. So how would you get into a vegetable seed company and then use this amazing set of R&D tools to really go drive that? So we're on the lookout for opportunities, bargains maybe during this time, but also opportunities that just might come up. And so making the strategic decision on diversity in our Seed business. And then the final one would be in this whole biologicals area. I just believe that with continuing regulatory restrictions that are out there, more naturally derived products are going to be a more favorable opportunity for the industry. And there are start-ups. They're small companies that have great products. And so we have made a strategic decision to understand that space. We've identified a program manager. We've just announced one of our first collaborations here this past week. But we need to do more in that space. And I'd say that will be the third one. So I think that's my list.

Okay. So summing up a lot of what we heard. I mean there seems to be many tailwinds, some possible headwinds for '21. So where on the balance do you see '21 shaping up in terms of EBITDA or whatever your favorite number to pick is?

Yes. So clearly, we're going to continue to grow the business. And we're in the process right now of building our models for 2021. We'll be sitting down with our Board in July to review the operating plan for '21 going forward. And we'll be in a better position, say, in third quarter to start to give you some view of that. You're right, headwinds are going to be corn acres. Headwinds are going to be commodity prices, demand for grain, where that shakes out. Like I said, we have a whole year ahead of us before anybody will be in a position to make a prediction about grain prices and carryover stocks for '21. And I just -- right now, I wouldn't do it. I think it's irresponsible to be out there that far ahead. You've got all this stimulus money that's out there that are going to affect farmers' purchasing decisions one way or the other. And then you've got the tailwinds that we have talked about, our product launches in Enlist, the new capacity of Spinosyn coming online. Seed cost of goods ought to be great this year as we're planting into low-commodity market, and we continue to drive our own productivity. We ought to get some of that COGS back that we lost in 2019. And then all these productivity efforts that I talked about flowing through. So we have got a lot of good things to evaluate and a lot of headwinds still out there that are a bit unknown. I didn't mention currency, but it's always a factor. And so we'll be in a better position in the second half of the year to true that up. And we'll get that to you.

Okay. What are the biggest headwinds that you're worried about, if I ask it that way?

Yes. As I said, commodity prices, demand for grain, whether it's ethanol, whether it's China purchases, whether it's just the feed industry and a more return to normal from an animal production. The cattle industry takes a few years. It's a longer cycle to build out a herd than it will be for pork and poultry. And as we get these processing houses settled down and back to normal demand. I'm sure you've been in the grocery store recently, those shelves are a little bit bare with some of those. So it will take a little time for us to sort through [Audio Gap] it could be a little bit of a tailwind. If farmers wind up with enough stimulus that they don't feel a need to invest in a crop to drive productivity, it could be a little bit of a negative, but it's an unknown right now.

Okay. With that, we are unfortunately out of time. Thank you so much. It was a pleasure. And for those of you listening in, remember, there's a procensus poll. You can see the live results immediately after completing it. With that, thank you very much, Jim.

Great. Jonas, thanks for the opportunity. And thanks, everybody, on the call for listening.

Bye.