FMC Corp (FMC) — Q4 2015 Earnings Call Transcript

Thank you. And good morning, everyone. Welcome to FMC Corporation's fourth quarter earnings call. Joining me today is Pierre Brondeau, President, Chief Executive Officer and Chairman; and Paul Graves, Executive Vice President and Chief Financial Officer. Pierre will begin the call with a review of FMC's fourth quarter and full-year performance and then discuss the outlook for 2016. Paul will provide an overview of select financial results. As we have done for each of the past two quarters, we have published a slide presentation that accompanies our results. This slide presentation, along with our earnings release and 2016 outlook statement, is available on our website. The prepared remarks from today's discussion will be made available at the conclusion of the call. After the prepared remarks, we will be joined by Mark Douglas, President FMC Agricultural Solutions; Eric Norris, President FMC Health and Nutrition; and Tom Schneberger, Vice President and Global Business Director, FMC Lithium, to address your questions. Before we begin, let me remind you that today's discussion will include forward-looking statements that are subject to various risks and uncertainties concerning specific factors, including, but not limited to, those factors identified in our release and in our filings with the Securities and Exchange Commission. Information presents our best judgment based on today's information. Actual results may vary based on these risks and uncertainties. Today's discussion will focus on adjusted earnings for all income statement and EPS references and pro forma revenue and segment earnings for FMC Agricultural Solutions. A reconciliation and definition of these terms, as well as other non-GAAP financial terms to which we may refer during today's conference call, are provided on our website. I will now turn the call over to Pierre.

Thank you, Brian. Good morning, everyone. 2015 marked the completion of FMC's transformation to a technology-driven specialty company with leading market positions across agriculture, nutrition, pharmaceutical and specialty Lithium applications. In Ag Solutions, the acquisition of Cheminova strengthened our technology pipeline, brought great regional balance, broadened our market access and expanded our portfolio. The integration of Cheminova continues to go well. Our success to date reinforces our confidence in achieving the run rate cost savings of $140 million to $160 million by the middle of 2017. The acquisition and integration of Cheminova, combined with the actions we have taken to restructure Ag Solutions operations in Brazil, have positioned FMC to better address current market conditions. In Health and Nutrition, we focused on driving higher margins by capturing high-value commercial opportunities across our portfolio and by implementing a manufacturing excellence program and process technology improvements. And in Lithium, we continued to execute on a strategy of growing FMC's differentiated downstream specialty business to take advantage of favorable market demand. 2015, however, was also a year marked by significant foreign exchange headwinds and difficult conditions across the global agricultural market. We took decisive actions throughout the year to address these challenges, accelerating the integration of Cheminova, restructuring our Ag Solutions operations in Brazil, exercising discipline on pricing and aggressively controlling costs across the company. As we enter 2016, we remain focused on the continued execution of a strategy to drive improved performance. Despite challenging macroeconomic and agricultural market conditions, we believe the actions we have taken will enable FMC to deliver higher earnings growth across each of our businesses in 2016. I will provide further details regarding our 2016 outlook shortly. But first, I will review our fourth quarter and full-year 2015 performance. Starting with FMC's full-year results on slide 1. FMC reported revenue of approximately $3.3 billion in 2015, roughly flat to reported revenue for 2014 and adjusted EPS of $2.47, a decline of 22% compared to last year. For the fourth quarter, FMC reported revenue of $899 million, an increase of approximately 1% compared to the same period last year. Adjusted earnings per share for Q4 were $0.77, 9% below the fourth quarter of 2014. Turning to Ag Solutions on slide 2. For the fourth quarter, Ag Solutions delivered revenue of $657 million and segment earnings of $101 million, a decline of 23% and 8% respectively from the pro forma results for the same period of 2014. The negative impact of foreign exchange and lower sales volume more than offset price increases and lower operating costs in the quarter. About 75% of the decline in sales volume during the fourth quarter was the result of actions to eliminate lower margin third-party product sales. Excluding these sales, volume declined by less than 5% compared to the fourth quarter of 2014 as we continue to see demand for FMC's proprietary products across all regions. In Europe, we saw healthy demand as mild weather conditions allowed for late application of cereal herbicides. During the fourth quarter, we were pleased to record our first direct sales of FMC product into Western Europe as we transitioned to direct market access provided by the Cheminova acquisition. Across the Americas, however, market conditions were significantly more challenging. In North America, consecutive years with low pest pressure have resulted in elevated channel inventory levels. Compounding the channel inventory issues is the deterioration in farmer income levels in the U.S., resulting in a more cautious mindset of distributors and growers. While we continue to see strong support for proprietary products, we expect challenging market conditions to persist throughout 2016. In Brazil, we saw improving conditions in certain crop markets, including sugar cane and cotton as well as niche crops such as coffee and citrus. However, channel inventories, especially in insecticides and unfavorable weather conditions negatively impacted sales volume. As we have discussed previously, we expect channel inventory to remain elevated through 2016. In the rest of Latin America, we continued to see strong demand for FMC's products, including three emergent herbicides in Argentina and products for niche crops in Colombia and Mexico. Sales in Argentina, however, continue to be impacted by delays in receiving import licenses for formulated products. In Asia, weather conditions in India, Pakistan, Australia and parts of Southeast Asia related to reduced demand in higher channel inventories. The negative impact of foreign exchange was the single-largest driver of the 2015 performance. In the quarter, the strengthening of the U.S. dollar reduced Ag Solutions' segment earnings by about $60 million compared to last year. However, the combination of price increases and cost reductions more than offset the negative impact of foreign exchange. In Brazil, we continued to implement significant price increases related to U.S. dollar-based pricing in that country. These price increases recovered more than 70% of the currency impact on segment earnings in the fourth quarter. In addition, FMC continued to aggressively reduce operating costs through the faster integration of Cheminova and further restructuring of Ag Solutions' operations in Brazil. Other results. And despite the challenging demand environment, segment earnings margin improved by 250 basis points to 15.4% in the quarter. I will provide further details regarding cost savings activities shortly. But first, I will comment on the full-year performance for Ag Solutions. As shown on slide 3, Ag Solutions reported revenue of $2.6 billion for 2015 compared to pro forma revenue of $3.4 billion for 2014, a decline of 23% as lower sales volume and foreign exchange headwinds more than offset price increases during the year. Lower sales volumes accounted for about 16% of the decline in revenue. However, more than half of this volume decline was the result of actions we took throughout the year to eliminate lower-margin, third-party product sales. Excluding these, sales volumes declined about 7% compared to 2014. In 2015, the strengthening of the U.S. dollar resulted in foreign exchange headwind of about $300 million, erasing over 50% of Ag Solutions' pro forma 2014 segment earnings. To be clear, this reduced reported sales by about $380 million and lowered our reported costs by about $80 million. We offset about 60% of the currency impact on sales in Brazil by raising prices throughout the year and we expect to continue to offset future foreign exchange impacts in Brazil through price increases. Early in the year we began to aggressively reduce operating costs. For the full year, operating costs were lowered by about $100 million. This includes savings from the Cheminova integration, lower spending on discretionary items and lower energy and raw material costs. Despite the challenging market conditions in 2015, we continued to invest in innovation and the technology pipeline of new synthetic and biological active ingredients. Products introduced in 2015 were well-received by the market and we expect further traction from new product introductions in 2016. I will now turn to the 2016 cost savings we expect to realize from the Cheminova integration and related actions. As you can see on slide 4, in 2015 FMC realized about $40 million in cost savings as a direct result of the Cheminova integration and the restructuring of operations in Brazil. For 2016 we expect to deliver additional cost savings over 2015 between $60 million and $70 million, reflecting the full-year benefit of previously announced headcount reduction and savings associated with various procurements and cost reduction programs. As discussed during our third quarter earnings call, FMC targeted total headcount reductions of 800 to 850 positions. As of December 31st, 2015, over 700 positions have been eliminated and we expect to implement the remaining reductions during the second half of 2016. The success we have achieved to date in delivering the headcount reduction plus the further cost reduction initiatives currently underway gives us a high degree of confidence that we will deliver the 2016 cost savings target and achieve the $140 million to $160 million in run rate cost savings by the middle of 2017. Turning now to Health and Nutrition on slide 5. Q4 represented another quarter of solid earnings performance. As a result, the business delivered its 11th consecutive year of report earnings in 2015. Health and Nutrition reported revenue of $172 million, a decline of 10% compared to the fourth quarter of 2014, mainly due to lower sales volume and the weaker euro. We sold over NCC banner in terms of sales in the quarter, partially offset by higher sales of NCC-based products for food applications and increased sales of omega-3 for the nutraceutical market. Segment earnings for Health and Nutrition increased 5% compared to the fourth quarter of 2014 to $46 million. Lower operating costs more than offset the negative impact of lower sales volume. The benefits of ongoing manufacturing excellence and process technology improvements increased segment earnings margin in the quarter to 26.9%, an increase of almost 400 basis points compared to the fourth quarter of 2014. As a result of the actions taken over the past year, Health and Nutrition is well-positioned to deliver continued earnings growth in 2016. Turning next to Lithium on slide 6. Lithium delivered a strong quarter. Revenue of $17 million was up slightly compared to the fourth quarter of 2014 as higher prices were partially offset by the impact of foreign exchange. The fourth quarter of 2015 represents the fourth consecutive quarter in which FMC realized higher pricing in the Lithium business as demand growth across end market applications coupled with tight supply supported price increases, especially for FMC's carbamate and hydroxide products. Sales volumes were essentially flat to last year as higher volumes for FMC's butyllithium and specialty organics were offset by lower volumes resulting from scheduled maintenance downtime in our hydroxide unit and less third-party supply of carbamate. Demand for FMC's downstream specialty Lithium products remained strong. Hydroxide sales volume were up significantly on a full-year basis as demand for energy storage applications continued to grow at double-digit rates and as we continued to increase throughput from our existing assets. Segment earnings increased 42% to $11 million in the quarter. The combination of higher pricing, improved sales mix and lower operating costs more than offset the impact of foreign exchange on FMC's reported results, pushing segment earnings margin to 15.9%, an increase of 450 basis points compared to the fourth quarter of 2014. Now moving on to our 2016 outlook on slide 7. Last night we published our outlook statement for the first quarter and full year 2016. I will take a few minutes now to briefly discuss the outlook for each of FMC's business segments. In Ag Solutions, full-year segment revenue is expected to be approximately $2.3 billion to $2.5 billion and full-year segment earnings are expected to be in the range of $380 million to $420 million with first quarter segment earnings in the range of $70 million to $90 million. I will discuss Ag in more detail in a moment. In Health and Nutrition, we're anticipating full-year segment revenue of $775 million to $825 million. We continue to see stable low to mid-single digits given growth in the majority of our end markets. Segment revenue growth is expected to be slightly below these levels, as we do not expect certain omega-3 sales to the pharmaceutical API market made during the first quarter of 2015 to happen in 2016. Excluding these sales, we expect underlying sales growth in the mid-single-digit range, driven by increased demand for health ingredients and nutraceutical ingredients across emerging markets. Health and Nutrition segment earnings are expected to be in the range of $198 million to $280 million in 2016. The business made significant strides to improve its cost structure and operating efficiency over the past 12 months. We expect to drive further margin expansion in 2016 which would allow Health and Nutrition to grow earnings accordingly. We expect first quarter earnings for Health and Nutrition to be in the range of $46 million to $51 million. We have little clarity in these segment earnings for Health and Nutrition. However, as I mentioned previously, we do not expect certain omega-3 sales from the first quarter of 2015 to recur this year. As a result, reported first quarter segment earnings will be lower compared to 2015. In Lithium, we see strong demand and a favorable pricing environment. We will continue to optimize our sales mix to drive higher volume of FMC's downstream specialty products. As we enter 2016, FMC is sold out across most products. Higher pricing, improved mix and lower operating costs will drive earnings growth in 2016. In addition, the reduction in operating costs as a result of the devaluation of the Argentine peso will provide a tailwind for segment earnings over the next 12 to 18 months. For the full year, we expect Lithium segment revenue to be between $240 million and $260 million and segment earnings to be in the range of $33 million and $43 million. We expect first quarter segment earnings of $8 million to $12 million. On a consolidated basis, we expect FMC's 2016 adjusted earnings per share to be between $2.50 and $2.80. We expect first quarter 2016 adjusted earnings to be in between $0.48 and $0.60 per share. I will now discuss the outlook for Ag Solutions business in more detail, starting with a few comments regarding the market on slide 8. In Europe, we expect our key markets to be broadly flat compared to last year, although we expect to see higher growth across Eastern Europe. In North America, we expect the challenging market conditions to continue in 2016, given elevated channel inventory levels and projected lower farm incomes. As a result, we expect the market in North America to be down in 2016. Across Asia, we expect the market to be mixed depending on the countries. However, overall, we expect the region to be up slightly in 2016, assuming more normal pest pressures and weather conditions. Turning to Latin America, market conditions in Argentina, Mexico and Colombia are expected to remain favorable with growth in weed-resistant acres and increasing acreage for these crops. We expect the market in Brazil to be down again in 2016. Channel inventory levels are expected to remain elevated in 2016. However, we expect to see an improvement in market fundamentals for sugar cane and cotton. While the factors impacting market growth vary across growing regions, we are broadly seeing a more cautious approach to purchasing decisions throughout the value chain as a result of the protracted downturn in the ag cycle. Based on the factors I just described, we expect the global crop protection chemical market to decline by a mid to high single-digit percentage in 2016 on a U.S. dollar basis. However, it is important to remember that these factors are unique and will change through the year. In particular, changes in planting this season, pest pressures and, of course, weather conditions will significantly impact demand over the course of a growing season. We will get more clarity on these external factors as the year progresses and we will update our views on market conditions as some of these uncertainties become clear. Turning next to slide 9 where we summarize the critical earnings drivers for 2016. The number of factors will contribute to the year-over-year increase in Ag Solutions segment earnings. First, we expect a positive $20 million impact from the full year of Cheminova. Next, we're targeting incremental cost savings of $90 million, including $60 million to $70 million from Cheminova-related synergies. Third, we expect that our pricing actions in Brazil and overall mix improvement will contribute approximately $90 million. New product introductions scheduled for 2016 and revenue synergies in Europe and North America from the Cheminova acquisition will positively impact our mix and volumes for the year. Continued foreign exchange headwinds, the broader market decline and our decision to exit certain low-margin, third-party product sales will partially offset the incremental earnings from the items I just described. In Health and Nutrition, higher sales of excipient and nutritional products in emerging markets and the full-year benefit of continued operational improvement are expected to deliver approximately $8 million in earnings growth. Lithium is expected to contribute about $15 million to growth in earnings in 2016, driven primarily from higher pricing, improved mix and lower operating costs. I will now turn the call over to Paul who will discuss corporate expenses, the impact of foreign currencies and cash flow.

Thanks, Pierre. Let me start with the income statement. Our corporate expense line represents those centrally-held expenses that are not charged back to the businesses. 2015 came in lower than 2014 for the full year, as we saw various items such as insurance expenses, pension charges, year-end LIFO adjustments to inventory and those incidental foreign exchange-related expenses all coming in below last year. We do not expect these to repeat in 2016 leading to our guidance for the corporate expense line of $70 million to $80 million. Looking at the tax rate, our full-year rate benefited from two drivers, relative to our previous expectations. First, various legislative items passed at the end of the year primarily related to R&D deductions, resulted in a reduction in our overall rate. Second, the geographic mix of our earnings changed away from the U.S. and Brazil and towards Europe and Asia. Since the latter regions typically have lower tax rates than the U.S. and Brazil, our overall tax rate benefited. Together, these two items lowered our full-year 2015 tax rate by approximately 300 basis points. Looking forward, we expect our adjusted tax rates to be in the 24% to 26% range. I would like to spend a few moments on slide 10 revisiting the impact of the strengthening U.S. dollar on our business during the year. As Pierre has already described, our 2015 performance faced a significant challenge from the impact of the strengthening dollar in our earnings. Across all of FMC and before any pricing actions, the strengthening of the U.S. dollar would have reduced our 2014 operating earnings by approximately $310 million. Of this reduction, approximately $293 million would have directly impacted agricultural solutions. On slide 10 you can see the drivers of this hit to the Ag Solutions segment earnings. The cumulative effect of weakening lower currencies on revenue was approximately $380 million, of which the Brazilian real was easily the largest, followed by the euro. Offsetting this revenue impact was the positive effect on our local cost base, again, mainly the real and euro or euro-linked currencies which reduced our costs in U.S. dollar terms by $85 million. Our response to this was to raise prices. Pierre has already noted that for the full year in 2015 these price increases offset approximately 60% of the currency impact in Brazil. This was possible in large part because market practice in Brazil is to price in real but to do so relative to U.S. dollar impacts. In the rest of the world, pricing is generally not dollar indexed, creating a bigger challenge to raising prices, especially when market conditions are soft. In aggregate, globally, we recovered more than half of the $293 million earnings headwind through raising prices. Looking into 2016, we expect the foreign exchange headwind to be more modest than in 2015. The forecasted counter-movements in major currencies such as the euro are far smaller in 2016 than we saw a year ago, and while there remains uncertainty around both Asian and Eastern European currencies, movements in these currencies have a far smaller impact on our profitability. The key region that drives the guidance regarding both currency and pricing, as Pierre just described on slide 9, is Brazil. First of all, our guidance assumes that there will be a less volatile depreciation of the real with no rapid devaluation right in the middle of the key selling period as we saw in Q3 of 2015. Although we're not expecting stronger market conditions in Brazil, our guidance also assumes that local price actions already in place plus additional price increases which will be introduced later in the year, to reflect the actual depreciation of the real would largely offset the forecast year-over-year impact of currency depreciation. Turning to the balance sheet and the cash flow on slide 11, our year-end net debt was approximately $2.1 billion with a small increase over the Q3 net debt being entirely due to the final tax payment related to the alkali sale. The fourth quarter is typically a flat to negative operating cash flow quarter for us, given the seasonality of sales in Brazil. However, strong performance in Health and Nutrition and Lithium as well as continued cost and capital spending controls ensured that we kept our net cash outflows to a minimum. For the full year, our adjusted cash from operations, adjusted to remove the one-off impact of Cheminova and alkali-related items, saw a 16% increase over 2014, despite a declining EBITDA of around $100 million. We benefited from a positive year-on-year swing from working capital as all businesses improved their working capital performance compared to 2014. Our cost control programs included cash spending discipline. We saw lower cash outflows for capital expenditures which was one-third lower than in 2014, offset by slightly higher restructuring spending. In addition, our cash taxes related to ongoing operations were significantly lower than 2014, reflecting lower profitability in both the U.S. and Brazil. Looking into 2016, we expect a continued improvement in cash generation performance. In aggregate, we expect adjusted cash from operations to increase by approximately 25% in 2016, driven by higher earnings, continued working capital improvements and lower restructuring spending, offset by higher cash taxes. With that, I will turn the call back to Pierre.

Thank you, Paul. Despite the ag industry uncertainty, we believe that our 2016 plan is very achievable. It relies more on things we control than on expectations of positive external events. We expect to deliver earnings growth in all businesses in 2016 and will continue to position FMC firmly on the path of growth by leveraging the company's unique business model that has defined our success. FMC remains a technology-driven company with low-cost asset life operation, a unique high return model for active ingredients innovation and strong regional formulation capabilities. I want to thank you for your attention and I will now turn the call back to the operator for questions.

Your view, stepping back a second, obviously you guys working hard on the ag side, but we're dealing with these macro pressures that we continue to hear more and more about, and obviously the inventory situation is a bit worse. So if you think about over the next couple of years, how ultimately do you think the cycle plays out and what needs to happen for things to really start to improve from a macro standpoint?

Yes. From a cycle standpoint, I have to say that we're highly focused right now on 2016. And the way we look at it today, as I said in my prepared remarks, is that we're in a situation which is a little bit easier and more balanced in Europe and Asia and for that matter in Latin America outside of Brazil, but we have certainly still significant inventory level in Brazil and in North America. Actually, North America for us is as much of a concern as Brazil is. So we're highly focused on executing our strategy in a market we believe will be down mid-single to high-single digits in 2016. There is still the possibility of a cycle turn in 2017, but you have to see how 2016 goes. It is highly dependent upon how the industry behaves, making sure that we don't oversell, don't push sales and that there are normal weather and pest pressure. That is going to be very critical. Any additional negative weather from an ag industry standpoint or no pest pressure would lead to resulting less inventory. So 2016 will be a difficult year and as we go into 2016, we should be able to see if 2017 remains the year where you will have a turn of the cycle. Mark, I don't know if you have any additional comments?

No. I think the only thing I would add is we're keeping a close watch on stock-to-use ratios which shows very clearly where supply and demand is. We're seeing some change in key crops for us such as sugar cane, as sugar prices go up, and as supply is reduced in the last few years. Those are the type of things we look for to sense any changes in our key markets, but I think everything else you said, Pierre, is very valid.

Okay. From an FMC standpoint, obviously dealing with this, you guys have done a great job with the price increases and getting ahead of offsetting the pressures you're feeling. You alluded to more this year. Could you help me understand the timing of it? And ultimately is 70% of our recovery the right number to think about or does it go higher or lower from here?

Well, I think when we look at 2016, as we said, we're going to pretty much cover with price increases the foreign exchange impact for two reasons. First of all, because we expect the foreign exchange impact to be less in 2016 than it was in 2015. Remember, the biggest problem in 2015 was the high volatility and rapid devaluation of the real in the third quarter. That was unprecedented, more than actually the overall devaluation of the real. So we're not expecting that situation. In a less impactful situation from currency, the price increases we need going into 2016 is less than last year because a big part is a recovery of currency issues from price increases which are already in place. So I would say we're entering 2016 with about 60% of the price actions already in place to recover the currency impact, and the rest is to happen during the year.

Pierre, I was wondering if you could -- there was a time when you thought, for 2016, maybe earnings for ag could be in the mid-$600 million, and clearly a lot has changed since then. Foreign currency has taken a big hit. But if you could bridge the gap or maybe talk about $400 million in 2016 and where the opportunity is, what's the earnings power of Ag Solutions over time?

See, I don't think from a business strength standpoint anything has changed for FMC. I believe we remain one of the lowest-cost manufacturers of active ingredients and maybe the most flexible one with our asset-like model. We believe our technology strategy is even better today than it used to be and our formulation strength has not changed. So it is right now the earnings potential of FMC Ag Solutions has not changed. The problem is we're in a situation where demand is very low, decisions from growers are pushed to the last minute and in a currency situation which has been, as you can see, the biggest problem. So 2016 is going to be focused for us on earnings growth. There isn't much we can do around volume demand. We're also going to be highly disciplined. We're not -- I can tell you one thing; we have not done that in 2015 and we're going to stick with that strategy in 2016, we're not going to run after market share. We're working our way from low-profit sales and we're increasing price to recover the currency impact. That should position us, as soon as the cycle turns, to a very strong performance. So to expect the business going into the mid- to high-teens growth as soon as the market turns around, I have no doubt about it. The model is still intact. Right now it is inventory, and I would say our worries are mostly placed in North America and Brazil.

And then your forecast for 2016 looks for volumes to be down, a couple percent, the minus 50 there in terms of the impact for earnings -- oh, maybe that's an earnings impact. But it does sound like if the markets are down mid to high single digits, you're going to do better than that. And just wanted to get a better understanding of why or why you feel that your volumes will be better than the market being down as it is?

No. I think if you look at our overall performance from the business from a revenue standpoint, we're going to be about in line with the market if you remove the impact of third-party sales. So really, think about our business from a volume standpoint, we're going to be in line with the markets. So if it's a mid to high single-digit, call it a 7%, pure volume driven by market demand, that's where we're forecasting our performance. Now, our decline in sales is going to be higher because we're -- and I'm talking volume here, okay -- because we're working our way still from third-party -- the run rate at which we close 2015 is leading to a number which is higher than 2015 because we started this process during the year. And I think it's about an incremental $100 million of third-party sales. We're working our way in 2016 which make our performance from a revenue standpoint a bit worse than the market. So two things, we market from a demand standpoint. For us third-party sales, $100 million, work our way. Where we're going to outperform the market, as we show in one of the slides, I think it's slide 9, the one where we have the earnings driver, is because of the work we've done around integration, around the costs and also two drivers of growth which are synergies from Cheminova and also the new product introduction. Let me finish. Let me maybe be more precise in the quantification. If you think about our sales, we're going to be declining, just look at about three big buckets. Sales driven by market decline about $150 million to $200 million. That's the market demand. Think about third party; we're working our way with no profit implication about $100 million and think about growth which would be coming from synergies and new technology, from $50 million to $100 million. Those are the three big buckets of our revenue drivers in 2016.

Can you give us a quick update on anything incremental on your potential across Europe, specifically on the back of Cheminova? You mentioned some nice data points in fungicides, but how are you thinking about your now integrated aggregated portfolio? And then also, just in the near term, quick question, do you believe the mild winter will benefit insecticide sales during the first half? Thank you.

Talking about Europe, we talked a lot about the direct market access and where the growth is going to come from. We're already seeing that, as Pierre alluded to in the earlier part of this call. We're seeing now our -- primarily our herbicides from FMC getting pushed through the Cheminova pipeline. So we've gone direct in the UK now and we're also expanding into Spain. So we're seeing that geographic growth for herbicides that we wanted. Obviously we're introducing new fungicides across the region. So everything we thought of in Europe is coming true. The country managers, the sales force from Cheminova have embraced the portfolio from FMC and are now gearing up to put those products into the marketplace. So from my perspective, Europe is exactly where we thought it would be and, obviously, it is going to be growth for us going forward. To the second part of your question on the insecticides, obviously we've had, especially in North America, probably three years of extremely low pest pressures across the U.S. One could say that a warm winter would allow the pests to come back, but frankly, we don't know. We're not forecasting a strong pest season. We tend to forecast an average season and see where that takes us, but we'll know more about that as we get into the end of Q1 and Q2, we'll get a better feel for that.

And then just also very quickly in Argentina, is most of the potential here for your herbicide portfolio? And do you have any kind of new or preliminary plans or initiatives for southern parts in particular? And if so, how are you balancing that long-term potential with FX credit volatility, length of terms, etc.? Thank you.

Argentina has been a good market for us despite some difficult conditions in getting import licenses. Our predominant market down there is preherbicides for soy. We're a market leader. With the Cheminova acquisition, we bring along more fungicides and insecticides that we can put through the channel. We're actually doing a couple of things to expand our presence in Argentina at the moment. First of all, is the consolidation of our market access with Cheminova. And then secondly, we're looking at expanding our supply chain in Argentina to more reflect what we do around the rest of the world in terms of toll manufacturing. We're actually going to be importing more active ingredients and formulating in country. That helps us two ways. First of all, it allows us to formulate products for Argentina on the ground, gives us more flexibility. And, secondly, it helps with our cost base which is in local currency. So we do see Argentina growing. It has been a good market for us over the last couple of years and we think our portfolio is ideally suited to where they're going. We're seeing weed-resistant acres continue to increase just like we do in the U.S. So I'm very bullish on Argentina.

Maybe just another one on pricing in Ag Solutions. I think you talked about the linkage between the real and the U.S. dollar in Brazil and your ability to get pricing. But can you talk about how that is evolving in other parts of the world which have had other FX challenges? And specifically, are you seeing the competition also raise prices as aggressively as you or do you think there's a risk that you're getting a little ahead of the market, given how challenging the macro conditions are?

I think the ability to increase price is very different in places like Brazil where the local pricing in real is indexed to a dollar currency and there is a mechanism, usually which is in place now. It always ends up being a negotiation. And I believe, yes, we have been the most aggressive at increasing prices because we believe our portfolio can afford that and also believe that today predicting the profitability of the business is critical, especially when the cycle will turn because the cycle will turn and we believe we will be in a much stronger position at that time. It is more difficult to increase pricing in locations like Europe or even Asia where there is no indexation on the currency on the dollar because there is purely a supply/demand and negotiations. So I would say most of our pricing recovery comes from Brazil rather than other regions. And, yes, you are correct, I don't think we're ahead of the market because, as you can see, we only partially recovered the currency negative impact with price increases, but, yes, we were -- and we believe it's the right strategy -- the most aggressive on that front.

Sure. So the $15 million of earnings increase we're forecasting is driven by multiple factors. First of all, you know that we've been working very hard at fixing our operational issues and I think we're there. Most of our plants -- there are issues somewhere, but most of our plants are operating much better than they used to. And also the currency, the peso in Argentina, has been helping us from a cost standpoint and is going to be a tailwind in 2016. Additionally, there is the price and mix. We have a very strong product line and technology for lithium hydroxide. We're one of the critical and leading suppliers and that market is increased in a tight supply situation which allows us to right price the product. So all in all, pricing, mix, better operation and currency will be the drivers in 2016. Around capacity, I think capacity decisions will be in line with our strategy. First of all, we're working very hard at debottlenecking our plants, especially lithium hydroxide, to make sure we can supply our customers with the growth they need. From a capital investment standpoint, we believe our key competitors today have made decisions to increase lithium carbonates in a significant way, so we do not believe volume of lithium carbonate from FMC will be required to serve the market. There will be plenty of products, and we will be able to have supply agreements on lithium carbonate from other companies. So we do not believe -- even with an improving situation in Argentina, we do not believe we need, going into 2017, to increase capacity in lithium carbonate and keep the plant. Where we're looking at capital spending to improve our sales is in the downstream specialty business in with lithium hydroxide. This is where most of the capital spending will go in the next two or three years.

Pierre, I was hoping you could comment on some of the consolidation that's been happening in the space lately. We've seen two pretty large deals announced in the last, call it, three or four months. Just kind of wondering competitively, if you see that having any positive or negative impact on you or if consolidation could support a better pricing or competitively do you see the guys around you getting a little bit stronger?

Sure. Let me talk about the two deals. First of all, the one is Dow and DuPont. The consolidation of these two companies together will certainly create a very strong company with a very solid seed and chemicals portfolio, but honestly, this is two years away. You first need to have the time to get the approval from Dow and DuPont to merge as a single company. And once that is done, they need to do integration, and then from integration they need to break up the company as they said into three companies and merge together the two ag businesses. So I believe it's an interesting decision which creates a very good company, but their impact on the market or the competitive landscape is still a couple of years away, so not a short-term concern for us. The SYNGENTA Cheminova -- ChemChina, sorry, the SYNGENTA ChemChina, my view is that it doesn't change much to the competitive landscape because if I understand well, through what I've read and what I've heard, SYNGENTA will be operating as a stand-alone company and instead of being a publicly traded company, they will have a single shareholder which is ChemChina. So, earnest ChemChina has a very fundamentally different strategy which, I don't think so, into SYNGENTA, we would be facing the same type of competition that we've been facing in the past. So my point of view at this stage, it's pretty much no change to the landscape for the next couple of years and we'll see what will happen two years down the road.

One more if I could, just on the cadence of the ag guidance through the year. I think, historically, Q1 has been the strongest quarter for per segment earnings and I know Cheminova changes the profile a little bit, but the outlook for 2016 looks like it'll be one of the -- or at least a below-average quarter if not the weakest quarter through the year. Just kind of wondering if you could help us understand why things will pick up sequentially from kind of a weaker Q1 and what needs to happen for that to play out?

Our belief is this year is going to be a bit different from what we've seen in the past for a very specific reason. As I said in the prepared remarks, we believe that the North American market has maybe a higher level of inventory than it used to have in the previous years and consequently the decisions to purchase or fear the growers or distributors' inventory are going to be made at the last minute. So we're going to have sales in North America much more spread over Q1, Q2 and Q3 period than we used to have where people would really buy very strongly in advance in the fourth quarter. So the fact that we have a different profile in the first half of the year is purely due to North America and North America being an important region for us from an earnings standpoint. That's why it's spread in a more balanced way over the earnings throughout the year. It is more that than the Cheminova impact. I remind you that Cheminova is very small. It's very small in North America.

Just wondering, you talked about this elevated inventory that you're expecting through 2016. Can you just talk about what's going to improve that as we look out over the next couple of years?

Yes. I think what we're looking at is the demand. The demand does not vary in our field in an enormous way. I think what will be resolving the issue is there is growth in demand, 2% or 3% every year, usually to resolve the end-market demand. And then start to use ratio should be decreasing in the next two years. We should start to see an increase in the commodity prices, together with the fact that today all of the ag chem companies, as you've seen in their performance, are selling less. So if you look, there is much more product on the ground, product which are put on the ground and product which are sold by the chemical industry into the market and that differential is what is decreasing the level of inventory. You just need strong weather or strong pest pressure combined with more product on the ground than the industry is selling and you could see a turn in 2017. But we're not operating under the assumption that it will be any turn in 2016. I think that's where we're focused and we're not assuming anything.

Just a quick one, in Brazil, wondering if the early dry conditions impacted any fungicide application in the early part of the season?

Yes, obviously dry conditions do not help fungicide use. We've seen a lot of variable conditions in Brazil. Fungicides for us is a smaller part of our portfolio, so we've not really been impacted that much. But you've got to balance that with other parts of Brazil have been very wet. So you're going to get good pressure there. So I'm not so sure that fungicides will be off a significant amount in Brazil.

This is [indiscernible] on for Don. Thanks for taking the question. Just wanted to ask about your outlook of the impact of the extended approval on authority volumes? And as a follow-up, the impact of Intacta on Brazilian soil insecticide volumes in 2015 and your outlook in 2016 as Intacta acreage doubles. Thank you.

Taking the first one, obviously extent is an important platform. We don't expect much impact in 2016, obviously given where we're, but we do see that as a growth aspect for us in 2017 and 2018 and going into 2019. So it's something we've invested a lot of time and effort in. We're a market leader in the preherbicide section in North America, so, yes, we do see that as a positive for us going forward. With Intacta, Intacta has had a lot of success in Brazil, obviously affects certain types of insecticides and not others. I think we've all been affected by lower spray amounts in Brazil. I expect that to continue. But we're seeing different types of pest pressure coming into Brazil. Certainly the piercing pests such as stink bugs, we're seeing much more activity in that area. So you've got a different mix going on in insecticides, but overall Intacta has definitely reduced the amount of sprays.

This is Ian for Steve Byrne. Thanks for taking my question. Just following up on some of the inventory issues, how much did FMC sell into North America in this fourth quarter? And what is the logic behind that if inventory levels are high?

We don't break up the sales by quarter by region, but the inventory we believe North America actually has been less talked about from an inventory level compared to Brazil because Brazil was -- had an overwhelming impact because it was combining high inventory level and currencies. So when you put those two together, you have the dramatic situation from a business performance we've heard about. Obviously North America doesn't have the piece which is the currency impact, so we've thought less about it, but we've come quickly to realize that purely from an inventory standpoint, about the same phenomenon we have seen in Brazil is happening in North America. Commodity prices being low, growers were very cautious in terms of planting decisions and purchasing decision, as their colleagues were in Brazil. The crop protection industry kept on selling product and there was a point where there was more product going into the channel than product going on the ground and that creates, as in Brazil, a very elevated situation. Additionally, insect pressure was not great in the previous year which has been creating even more of a problem. So all of that has been compiling the situation which, for us from an inventory and supply-chain standpoint, is very close to what we see in Brazil less the currency effect.

Okay. And then just one follow-up on the Cheminova synergies from sales, moving some of that FMC product through Cheminova's distribution, is that because FMC already has existing registrations in all these countries? And what is the outlook for further growth as we move forward in time either from active ingredients or for the registrations?

Yes. I mean, a lot of the countries where Cheminova have market access that we didn't, predominantly in Europe and parts of Asia, we actually had registrations already, so it allows us to move forward pretty quickly. That's the reason we got synergies in 2015 to be pretty quickly off the bat. And in 2016 as well. So from a registration standpoint we think we're well-placed. And then you ally that to the fact that our innovation platform is still obviously delivering on our formulation capabilities, we probably have somewhere close to 60 products we're launching around the world in 2016. Obviously you don't get a tremendous amount of revenue in the first year of a launch of a formulated product, but it goes to show that what we're doing on a formulation standpoint is continuing through these times in the ag space. We believe that innovation is going to be super critical for us as we go forward, so you see the growth not only from the synergies of FMC and Cheminova coming together, but the launch of new products as well into the marketplace.

Most of my questions have been answered, but I have just a couple of follow-ups. First of all, what sort of debt level do you expect to have by the end of 2016? In other words, you talked about cash generation, how much of that is going to be deployed toward debt reduction?

I think we've been pretty clear on where we want to get our leverage down to which is the mid 2 to 3 times range. We're not there right now. So until we get to that point, whether that's through expansion of EBITDA or pay down in debt, you should assume surplus cash is going to be deployed in that direction.

Okay. So what about the free cash that calculates for you for the year, I'm safe in assuming that it's going to go towards debt pay down?

Today that's the safest assumption to make, yes.

And then looking at the first quarter guidance for the ag business, it looks like at the midpoint it's basically flat year over year versus last year, despite the fact that you're going to have Cheminova profitability that you didn't have last year. So is the offset to the acquisition benefit and the cost savings you are realizing from that, the deterioration of the North American market, is that going to be really that bad in the first quarter? Is that basically the takeaway?

Yes. I think it's the right way to look at it. I might not call that a deterioration, but the lack of improvement of the ag market in North America and maybe a pushing of the decision to purchase in the third quarter. But that's the right way to look at it which is the overall spread of business over three quarters and the lack of growth -- not growth; we believe the business will be down in North America year on year are raising the benefit from the Cheminova first quarter.

Okay, Pierre. Maybe I can say this differently and see if it still makes sense. The sales that you typically get over the first couple of quarters of the year in North America and the European markets, you would expect those sales to basically occur over a three-quarter period, but in terms of aggregate, you're not looking for a significantly down demand year in 2016 versus 2015? It's just that it's -- demand is going to be spread over three quarters versus two?

If you look at -- yes, part of your statement is correct, there is more of a spread over three quarters. That is correct. There is also, as I said, a market we expect to be down in North America. So we're expecting the market in North America to be down 5% to 10%, that would be a range. The two biggest down markets, that will be Brazil and North America. So you combine a spread of disuniting over three quarters together with a down market in North America, not in Europe, in North America of mid-single digits, that is what creates the situation.

This is Dan Rizzo on for Laurence. Just a question on omega-3s. Are you seeing any signs of pricing in 2016 as part of the turn or is it going to be somewhat until 2015 where you're subject to overcapacity and just some pricing pressures?

What we're seeing in Omega 3 is a mix effect. We do expect to see in our mix in the nutraceutical market and improvement in products we're launching that are launched at a higher price. If you look at the core of the market, though, the middle part of -- when we talk about concentrations, the middle to low part of the concentration, we don't expect to see improvement and that market still remains an oversupplied market where demand is not growing rapidly. And so we see a similar set of pricing competitive dynamics in that part of the market in 2016 as we did in 2015.

I think on the last call, maybe I'm wrong, but you said that potentially you could see strategically exiting the omega-3 market, but it wasn't the right time. Is that kind of still the same outlook or same thought process?

Here is what we believe. Our market strategy of participating into the pharmaceutical and nutraceutical market has not changed. We're still going after all of these markets high concentration and mid-concentration product. What we're doing today is focusing more on supplying those markets from one of the assets we have, rather than the high concentration products which we do not believe is an asset which is necessary today for us to participate in the pharmaceutical market. So it is not a change in the market we intend to participate in, but it's a change in our manufacturing strategy to serve those markets.

I have a couple of small ones. First of all, do you anticipate that the announcement of the addition capacity on the lithium carbonate will have a negative impact on overall pricing as those big plants come on stream?

Not in 2016. I think pricing will be stable for lithium carbonate in 2016 as most of the capacity increase already called for from a demand standpoint. Will there be some pricing pressure in 2017? We'll have to see what the demand is. But if it is a question -- and I cannot answer that right now, but if it is a question on pricing, it's a 2017 question.

And then are you successful in getting your receivables in Brazil? Are the farmers paying you in the way you would expect or the fact that you have done so much restructuring is creating the opportunity for someone to just not pay?

Rosemarie, it's Paul. I would answer as follows; the restructuring is not a factor in this. The way we restructure and what we restructured was done very carefully, so it does not at all impact on our ability to collect. The factors that are driving our ability to collect are really driven more by market conditions and I don't necessarily just mean ag market conditions, but as much the financing market conditions down in Brazil where we're seeing a continued cautiousness on the part of the Brazilian grower to hold on to his liquid resources. A lack of confidence that financing will be there for them as they head into the next growing season is essentially across the board creating challenges to collection. Compounding on top of that, of course, as we've discussed, is the fact that the most leverage you have is when the grower has to buy new product. When you have pest pressures down and when you have excess inventory in the channel, it just makes that collection process even more difficult for us. I would say 2015 unfolded very much in the way we described. I think we talked at length about it being a multi-year program to reduce the receivables balance in Brazil and 2015 played out really exactly as we had expected. The next couple of quarters will be the next key benchmarks for it as we look at a collection in the first half of the year and for us, at least, heading through the back end of 2016 is the first time we'll be able to show real measurable progress down there in Brazil.

How much do you think you can reduce your receivables from Brazil in 2016 versus how much did you reduce it in 2015?

We will certainly reduce it more in 2016 than we did in 2015. We did reduce it in Brazil in 2015, but not by a huge amount. So we definitely expect to make more progress on that in 2016.

And one last one, if I may. Could you talk about the protein demand in China? Are you seeing that improving or the decline when the price of milk and whey was really high has not recovered yet?

We continue to see in China a dairy market that's fairly on a demand -- on a growth basis flat to down. We saw a big swing in our sales last year due to a correction in inventories for our colloidal products into that market and to some of the plant-based beverages such as peanut milk. That's worked its way off and the underlying demand is coming through, but that demand is fairly flat. We saw modest growth ourselves. The overall market, however, is flat to down.

That's all the time we have for the call today. I want to thank everyone for joining us. I'll be available to address any additional questions you may have. Thank you. Have a good day.