雅保公司 (ALB) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Q4 2014 Albemarle Corporation earnings conference call. My name is Glenn and I will be your event manager for today. At this time, all participants are in listen-only mode and later, we will facilitate a question-and-answer session.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Lorin Crenshaw, Vice President, Treasurer and Investor Relations. Please proceed, sir.

Thank you and welcome everyone to Albemarle's fourth quarter 2014 earnings conference call. Our earnings were released after the close of the market yesterday and you'll find our press release, earnings presentation and non-GAAP reconciliations posted on our website under the Investor section at albemarle.com. Joining me on the call today are Luke Kissam, Chief Executive Officer; Scott Tozier, Chief Financial Officer; Matt Juneau, President, Performance Chemicals; and Michael Wilson, President, Catalyst Solutions.

As a reminder, some of the statements made during this conference call about the future performance of the Company may constitute forward-looking statements within the meaning of federal securities laws. Please note the cautionary language about our forward-looking statements contained in our press release. That same language applies to this call.

Please note that our comments today regarding our financial results exclude all non-operating or special items and reconciliations related to any non-GAAP financial measures discussed may be found in our press release or earnings presentation, which are posted on our website. With that, I'll turn the call over to Luke.

Thanks, Lorin, and good morning, everyone. I'll begin the call by commenting on the Company results and accomplishments for the year.

Scott will review select highlights related to the business segment performance and financial results and I'll end by providing some perspective on our outlook. At the end of our prepared remarks, Matt and Michael will join Scott and me to address your questions.

In 2014, Albemarle delivered full-year earnings per share of $4.20, up 5% year over year and in line with our guidance. Net sales totaled $2.5 billion and adjusted EBITDA was $562 million for the full year, resulting in adjusted EBITDA margins right at 23%. We also generated free cash flow of $361 million, up 24% year over year. We divested our antioxidant and ibuprofen businesses in order to enhance our margins and strategic focus.

And finally, in January of 2015, we closed acquisition of Rockwood Holdings, which will certainly transform the Company. While attaining our financial and strategic goals, it is critically important. It is essential that we do so in a way that is safe and sustainable.

With this in mind, I am very proud of the fact that we incurred 42% fewer injuries in 2014 than in 2013, and dramatically lowered the severity of those injuries that did occur. Our 2014 OSHA Recordable Rate was 0.327, which we expect will place us in the top quartile of the companies in the American Chemistry Council. In a year that marked our 20th anniversary as a public company, we ended 2014 better positioned to grow, innovate and deliver value to our stakeholders than ever before.

In terms of our full-year financial performance, Catalyst delivered double-digit earnings growth on higher volume and pricing. Our technologies continue to provide significant performance and financial benefits to refiners which, in uncertain economic times, becomes even more critical to our customers.

Within Performance Chemicals, full-year sales and earnings were down from 2013, primarily driven by weaker performance within our bromine franchise caused by sluggish demand, cautious customer inventory management, pricing pressure and a slow down in demand for drilling completion fluids in the fourth quarter. Nevertheless, Performance Chemicals achieved adjusted EBITDA margins in the mid-20%s for the year and the bromine franchise EBITDA margins was north of 35% for the year.

During the fourth quarter, we achieved several critical milestones related to the acquisition of Rockwood, which paved the way for us to successfully close a few weeks ago. In November, shareholders of both companies voted in favor of the deal.

In late November, we successfully raised $1 billion in US dollar debt followed by a $700 million Euro issuance in December. We were pleased to execute these offerings which were rated investment grade, at a weighted average cost of approximately 3.20%.

Then, on January 12, we closed the Rockwood acquisition by purchasing the outstanding shares for $5.7 billion. Our immediate focus is seamless integration and our team is off to a good start. We have already taken actions that result in our achieving over $30 million of annual cost synergies and have actions in place that should result in us achieving our target of $50 million in annualized run rate synergies by the end of 2015.

Last week, we announced a realignment of our global business units, effective by the end of the first quarter of 2015. This organizational structure of three global business units is the most efficient and effective way for us to run these businesses and will help us achieve our goals of capturing synergies, EBITDA growth and cash generation. The three global business units will be: Chemetall Surface Treatment, Refining Solutions and Performance Chemicals.

Chemetall Surface Treatment will continue to supply specialty chemicals and services for the surface treatment of metals across a variety of end markets. Refining Solutions will consist of the Heavy Oil Upgrading and Clean Fuels Technologies businesses, delivering a robust portfolio of Catalyst Solutions to the refining industry. Performance Chemicals will combine the lithium, bromine, curatives, aluminum alkyls, derivative catalysts, minerals and Fine Chemistry Services business.

In our financial reporting, we will continue to give visibility to the financial performance of lithium and bromine. The new Company will be structured to leverage thee complementary fit between lithium and bromine, two of the world's leading mineral extraction and processing businesses, allowing us to capitalize on our long-term lithium strategy while providing immediate ability to leverage its similarities with bromine.

Both the lithium and bromine businesses have access to the lowest cost, most geographically diverse sourcing locations in the world. Given their extraction and production process similarities, we expect to realize cost benefits from technology sharing.

Additionally, both businesses go to market similarly, with several common end markets including consumer electronics, automotive, polymers and agriculture. This produces opportunities for cross-selling to existing customers as well as the opportunity to attract new customers.

The new structure not only brings together bromine and lithium, it also combines Albemarle's Aluminum Alkyls franchise with Rockwood's Lithium Alkyls business. These product lines have similar manufacturing technology, packaging and distribution channels as well as a number of common customers, particularly in the elastomers market.

As a result, we expect a combination of these two product lines to unlock significant synergies as well. Overall, I am confident that we are now well-positioned to achieve the $100 million in cost synergies that we have targeted over two years.

Let me try to bucket the sources of synergies for you. We will achieve $35 million in elimination of duplicate corporate functions; $20 million or so will come from asset consolidation and manufacturing best practices across all divisions.

$35 million will come from leveraging our increased scale to lower sourcing costs and finally, around $10 million will come from organizational structure efficiencies. We expect the cost to achieve these synergies to still be in the range of $150 million.

As we move forward, our resources will be directed towards maximizing the potential of our four core businesses: Lithium, Catalyst, Surface Treatment and Bromine, where we enjoy number one or number two global market positions, excellent margins and attractive growth prospects.

Consistent with this direction, we will pursue strategic alternatives for three other businesses: Minerals, which includes flame retardants and specialties; Fine Chemistry Services; and metal sulfides. In aggregate in 2014, these businesses generated revenue in the range of $550 million and adjusted EBITDA in the range of $100 million. 2015 revenue and adjusted EBITDA would be very similar for these businesses.

Given our priority on our four core businesses, we believe that selling the Minerals, Fine Chemistry Services and Metal Sulfide businesses represents the optimal choice for maximizing value to our shareholders and giving the management and employees of these three businesses the best opportunity for future growth and market success. We will use the proceeds from these sales to pay down debt. With that, I'll turn the call over to Scott.

Thanks, Luke, and good morning, everyone. Before I get into the details, you'll notice a change in how we will be reporting and discussing GBU results going forward.

We will be using adjusted EBITDA as opposed to segment income which should provide additional clarity on the businesses' performance. The non-GAAP reconciliation will give you the details on how to bridge to reported GAAP numbers.

Today, the financial discussion will be primarily around Albemarle's Q4 and 2014 results, prior to the acquisition of Rockwood. While I will share some high-level comments around Rockwood's full-year results, as the Rockwood transaction closed only a few weeks ago, the results discussed and shown in the earnings deck are indicative, preliminary results.

The acquisition and reorganization will make comparisons challenging but we will start to provide you information to restate our segments and align reporting definitions, anticipating a complete view by our first quarter 2015 earnings call.

Financially, we ended 2014 by delivering fourth-quarter net income of $77 million, or $0.99 per share, excluding special items. Our US GAAP basis earnings were a loss of $19 million, or $0.24 per share including special items.

Two special items, in particular, impacted our results, the largest, related to an approximately $0.90 pension related mark-to-market loss. This non-cash loss reflects the actuarial impact of a lower discount rate and longer projected life expectancies, partially offset by better-than-expected asset performance.

This has no immediate cash impact as we expect our current funding to be adequate for the next six years. We also reported $0.30 per share acquisition and financing costs associated with the Rockwood transaction and other items amounted to a $0.02 per share loss. These items net to a loss of approximately $1.22 per share, which when added back to our reported EPS of a $0.24 loss, gets you to our adjusted EPS of $0.99 for the quarter.

Net sales totaled $599 million and adjusted EBITDA was $137 million for the quarter, while profitability, as measured by adjusted EBITDA margin, was 23%, slightly up from Q4 2013. Revenue was down 6.4% in Q4 and was impacted by the strengthening dollar by about $10 million, or 1.6%, mostly from the Euro and Yen.

Earnings per share were impacted negatively by foreign exchange by almost $0.02. Fourth-quarter earnings were hurt by about $0.05 per share on a higher-than-expected tax rate, due to geographic mix of our revenues in the quarter, primarily due to the lower drilling fluid shipments out of Jordan.

Finally, lower share count, due to share repurchases in the first half of the year, contributed $0.04 per share. At this time, for the combined Company, we expect our effective tax rate, excluding special items, non-operating pension and OPEB items for 2015 to be 25% or so, again, driven by the level and geographical mix for our profits including those generated as a result of the recently completed Rockwood acquisition. Our diluted shares outstanding at --after the acquisition are about 113 million.

Free cash flow, defined as cash flow from operations, adding back pension and post-retirement contributions and subtracting CapEx was $361 million for 2014, up 24% from 2013, and the strongest in our Company's history. The growth was driven by improved working capital and more normalized CapEx spend that was up $111 million, or 4.5% of revenue.

For the newly combined Company, we expect CapEx to be between 4% and 6% of revenue and in 2015, we'll be managing to the higher end of the range as synergy projects are executed to deliver cost savings. At the beginning of 2014, we established a goal to reduce working capital by $100 million by the end of 2015.

We ended 2014 with net working capital down to 23% of revenue, down nearly 5 percentage points, representing a savings of approximately $120 million. Our team has accomplished a great deal and we will face new opportunities with Rockwood, which has an even longer cash conversion cycle than Albemarle's.

In 2015, our focus will be on pushing that rate below 23% and ensuring those gains are sustainable as we look at setting our next milestone. The strength of our balance sheet is a source of pride at Albemarle and allowed us to execute the Rockwood acquisition and remain investment grade.

We are committed to aggressively deleveraging and have a goal of achieving leverage, as measured by net debt to adjusted EBITDA in the range of 2 to 2.5 times by the end of 2017. Executing the divestitures that Luke discussed will certainly aid us in this objective.

During the quarter, we raised $1.9 billion in debt in preparation to fund the Rockwood acquisition, however, net debt to adjusted EBITDA remains low at 0.78 times as of year-end as the cash proceeds from the operating remained on our books. We expect that ratio to increase to around 4 times when we report our first quarter results, in line with our expectations and expect to end 2015 at 3.7 times before the impact of any just divestitures.

Although the transaction has only been closed for two weeks, the repatriation of our cash has already begun, with over $1 billion in cash having been repatriated from overseas as of today. We have already taken out 75% of the bridge loans and expect the remainder to be taken out by mid-February.

On another positive cash flow now, we previously estimated that as much as $400 million of our 2015 free cash flow would likely go to one-time tax payments to repatriate that foreign cash. However, we now estimate a one-time cash tax outlay in 2015 of a much less at $150 million to return over $3 billion in cash to the US. Roughly half of the cash will be repatriated in 2015 with the rest returning as we earn it over time.

While the impact of foreign exchange on total Company sales and earnings in 2014 was very modest, as we entered 2015, a steep depreciation of both the Euro and the Japanese Yen represented a major financial headwind. Our earnings are exposed to the movement of these two currencies versus the Dollar specifically on the combined Company, we estimate that every $0.01 change in the Euro-Dollar exchange rate will have an impact of approximately $1.5 million to $2 million EBITDA.

And every JPY1 change in the Yen-Dollar exchange rate will have an EBITDA impact of approximately $500 million to $1 million. To put that into perspective, ranging the Euro between $1.12 and $1.18 and the Yen to between $1.17 and $1.21, we would expect to see a $40 million to $50 million headwind to EBITDA in 2015, or about $0.20 per share.

And now I will turn to each GBU's 2014 financial performance. For the full year, Catalyst reported net sales of $1.1 billion, up 9% year over year, and adjusted EBITDA of $300 million, up 12% year over year and adjusted EBITDA margins of 27%. The strong revenue growth in 2014 was driven by volume and price increases and favorable mix within Heavy Oil Upgrading and Clean Fuel Technologies.

Of particular note were new customer wins in Heavy Oil Upgrading and the large first-ever sale of AlkyClean, a solid acid alkylation catalyst designed to increase our refineries' octane yield in clean fuels. This growth was partially offset by continued pricing pressure in Performance Catalyst, predominantly aluminum alkyls and catalyst precursors.

In the fourth quarter, with the drop in oil price, we saw evidence of higher operating rates at some of our customers that we think benefited our HOU business. However, we also saw what may be the beginning of a shift by refiners into cost management mode.

Catalyst Solutions, 12% growth in adjusted EBITDA was the biggest source of earnings growth for the entire Company. Refinery Catalyst was the main driver, with double-digit growth in margin expansion, driven by volume and pricing gains.

Performance Catalyst Solutions, full-year revenue and volumes rose year over year, reflecting solid underlying polyolefins market demand, offset by soft pricing and lower utilization rates at our facilities, which we believe is consistent with utilization rates across the organometallics industry. For the full year, Performance Chemicals reported net sales of $1.4 billion, down 3% year over year and adjusted EBITDA of $337 million, down 6% year over year on adjusted EBITDA margins of 25%.

The year-over-year weakness was primarily driven by lower Fire Safety Solutions results and the loss of a large custom services contract. Within Fire Safety Solutions, revenue and profits were down despite higher volumes on lower pricing within certain pockets of brominated flame retardants, particularly in insulation foam where product transition is occurring and continued soft pricing in China. We believe that the higher volumes were predominantly reflective of an ongoing mix shift towards server and automotive electronics markets, offsetting continued sluggish demand in the TV and PC markets.

Fine Chemistry Services finished the full year with a modest profit increase despite unexpectedly losing a major contract during the year on strong results within the pharmaceutical and electronic materials applications and aided by a one-time event related to supply of pharmaceutical active ingredient in the third quarter.

Specialty Chemicals finished the year with modest profit growth on flat volumes. Year-over-year results were driven by strong metal bromide sales volumes which we do not expect to continue in 2015 and curatives, which delivered record profits.

Drilling Completion Fluids were solid as this business benefited from another year during which the backdrop for offshore deepwater completions remained quite favorable. However, during the fourth quarter, amid the steep decline in crude prices and announcements of CapEx reductions by drillers, we began to experience significantly weaker order patterns for completion fluids.

In total, overall bromine-based product volumes were flat year over year, with a drop in oil fuel being a year-end surprise. Brominated flame retardant volumes were up about 5% for the year, but mix shifts to lower end products and continued weak pricing meant that earnings were down. EBITDA margins for bromine were flat versus 2013, north of 35%.

Now, let me provide some perspective on our legacy Rockwood business performance. As a reminder, these numbers for lithium and surface treatment are based on Rockwood 's historical reporting practices.

For the full year, lithium had an estimated net sales of $474 million, down 1% year over year and adjusted EBITDA of $199 million, up 9% year over year, resulting in margins of 42%. The primary performance drivers were battery grade applications rising over 20% year over year on growing demand within the consumer electronics market in particular.

The acquisition of Talison, which contributed nearly $30 million to full-year adjusted EBITDA and GDP-type growth and most technical grade applications, offset by weaker butyllithium and potash results. Excluding potash, lithium's adjusted EBITDA would have been up 15% year over year. Surface treatment had estimated net sales of $940 million, up 6% year over year and adjusted EBITDA of $220 million, up 11% year over year, resulting in margins of 23%.

The business had a great year on all measures, benefiting from broad-based volume growth and pricing gains in most end markets, particularly driven by higher automotive OEM and automotive components, general industry, coil and cold forming applications, and aerospace applications.

Results also reflect continued market share gains and the impact of the acquisition of the remaining 50% interest and its previously unconsolidated joint venture in India. With that, I'll turn the call back over to Luke to talk further about our outlook.

Thanks, Scott. As we consider the outlook, we expect our lithium, catalyst and surface treatment businesses will experience a nice growth in 2015, but the actual results will be muted somewhat by foreign-exchange translations.

As Scott said, going into 2015, the currency headwind is $40 million to $50 million of EBITDA. The last time we saw crude oil at this price level was in the 2008, 2009 cycle, and applying a similar impact that we saw at that time related to our oilfield-related businesses, results in an estimated headwind of $30 million to $50 million of EBITDA in 2015.

Although certain near-term implications for our businesses are clear today, other impacts, favorable or unfavorable, are not possible to forecast with a high degree of certainty. Against this backdrop, our focus, it will be on controlling what we can control.

That will include focusing on cost and spending levels and ensuring that we are designing the most efficient organizational structure as we integrate these businesses into one Company. We will focus on deleveraging by identifying further opportunities to reduce working capital, rigorous scrutiny of capital spending, and executing on the announced divestitures.

Now let me provide color on each business so that you can understand the fundamental drivers of this outlook. Let me start with Performance Chemicals. We expect meaningful year-over-year growth in lithium, primarily driven by the combination of a full-year earnings from Talison and continued strong demand for battery grade lithium salts. The continued proliferation of lithium-ion batteries within consumer devices remains the primary driver as demand for electric vehicles is expected to remain a relatively small percentage of the battery market in 2015.

As a result, we will allocate an increasing percentage of volume to high value battery applications at the expense of technical grade accounts. Lithium salts pricing will be up year over year across both technical and battery grade products. Within technical grade applications, we expect GDP type growth and within potash, pricing and volumes are expected to be relatively flat.

Turning to Bromine. A number of factors will make it challenging for this business to grow in 2015. However, the most significant headwind is reality that the sharp decline in crude prices in recent months will place considerable pressure on its profitability as we expect drilling completion fluid volumes to experience a steep decline following a multi-year run of exceptionally strong results for this product.

I would note that our current forecast still includes a certain amount of volume for offshore deepwater fracking projects that our customers are still forecasting. Any delay or cancellation of this business is a risk built into our range that I will discuss in a minute. The downturn in drilling completion fluids will be partially offset by a favorable outlook from Mercury Control while we project an increase in bromine volumes as many coal-fired utilities proceed to implement the EPA's Mercury and Air Toxics Standards.

Within Fire Safety Solutions, we expect continued pricing pressure, coupled with modest volume growth, as servers and automotive electronics compensate for flat to declining PC and TV trends and we get some growth in construction and other non-electronic applications. Specifically, third party estimates call for global PC unit growth of around 1%, but with the continued trend towards smaller units, 6% growth in server shipments and flat global TV units, but a 2% decline in developed markets where most fire Safety Standards exists.

Within organometallics, a result should benefit from solid growth and polyolefin demand globally. Customers continue to exploit differentiated specialty polymer opportunities and the operational benefits of shutting down our higher cost polyolefin catalysts capacity last year.

Partially offsetting these factors will be lower polyolefin catalysts component pricing, reflecting continued competitive intensity. We also expect another year of lower pricing and demand for butyllithium, reflecting weak synthetic rubber market fundamentals, and an inability to replace the volume that was lost when a key customer switched to a different synthesis route in 2014 that eliminated butyllithium. Finally, profits within Fine Chemistry Services are projected to decline, as pricing and volume gains in certain segments, such as selected pharmaceutical applications are not sufficient to offset a number of contract expirations.

Turning to refining solutions, we expect mid- single-digit EBITDA growth from this business year over year. As we have discussed in the past, the global demand for refinery catalysts is driven primarily by two factors: the demand for fuels and the severity of upgrading required to produce those fuels.

Current outlook for global fuel demand, particularly transportation fuels, is expected to continue to grow in 2015. So, we don't see this factor as a major risk. The severity of upgrading, in turn, is determined largely by three factors. the crude slate, the end products slate, and the refinery capacity utilization rates.

It is here where we see some uncertainty as we enter 2015. As the relative availability and cost of crudes, cost of heavy crudes, light crudes and tight oil shift, refineries will likely adapt their operations to maximize their profitability.

In some scenarios, reduced upgrading severity as more stringent cost controls are employed could result in a move by refiners to lower performing, lower cost catalyst, or extend the time period between change-outs and fixed bed unit operation. Consequently, in Heavy Oil Upgrading, we see the primary risk being the product mix, not volume, which would be manifested in lower realized prices.

In Clean Fuels Technology, which tends to be a lumpier business anyway, we could see the timing of orders shipped between quarters. With these risks in mind, we still anticipate another year of strong volume and solid earnings growth in Heavy Oil Upgrading while we cautiously expect Clean Fuels performance to be flat to down based on timing and product mix risk and unfavorable FX impacts.

Whichever direction our refinery customers choose to turn, we stand ready with a robust suite of Catalyst Solutions to meet their ever-changing needs. Our current view of the pace of revenue and refining solutions is second-half loaded. Because our CFT, customer change-out calendar, calls for relatively heavier number of turnarounds in the second half of the year.

The other fact that creating a second half bias to refinery solutions results reflects the fact that a number of competitive trials at some of our HOU customers are projected to occur in the first half of the year versus the second. As these trials are completed, we expect a corresponding uptick in the second half operating trends for this business as we produce at more normalized levels.

Turning to Surface Treatment. We expect this business to deliver mid-single-digit adjusted EBITDA growth despite a significant drag from currency. Absent currency growth, absent currency, growth would be double digits, driven by solid underlying market growth in most market segments, product mix improvement, positive price and regional expansion in developing economies.

We also anticipate a continuation of the factors that have, in recent years, presented opportunities to gain market share, including the coupling of innovative technology with superior technical and customer service and our close proximity to our customers. Bolt-on acquisitions continue to support these gains, including the latest buyout of our Shanghai joint venture which is expected to close in the first quarter.

Adding all that together for the total Company, excluding the impact of any divestitures, we expect to deliver revenue in the range of $3.7 billion to $4 billion. Adjusted EBITDA in the range of $875 million to $965 million, free cash flow in the range of $100 million to $200 million and EPS in the range of $3.15 per share to $3.70 per share.

Depending on how currency plays out, the potential for both upside or downside exists in these numbers. We have assumed the Euro is within the range of $1.12 to $1.20 and the Japanese Yen is in the range of $115 million to $120 million in 2015, resulting in a drag on revenue of about $200 million, and a drag on adjusted EBITDA of between $40 million and $50 million year over year.

As far as the expected quarterly progression of adjusted EBITDA and EPS for the total Company, we expect it to be split roughly 40% in the first half of the year and 60% in the second half, with each quarter of the year getting successively stronger.

The second half bias is mainly driven by Refining Solutions, for reasons I explained earlier. While the earnings progression of Performance Chemicals and Surface Treatment is pretty evenly split between the first and second halves of the year.

In closing, we currently see much uncertainty in 2015, more than typical. Our focus will be on the fundamentals of our business strategies, integration of the acquisition and deleveraging. In short, we will control what is within our power to control. Our core businesses are strong and the underlying fundamentals over the long run remains solid. Our focus going forward will be three things. One, seamless, effective and efficient integration of the businesses that achieve our stated synergy targets.

Two, actions to accelerate growth in our core businesses, and three, generation of strong cash flow that allows us to rapidly deleverage, investing organic growth opportunities in our core businesses, return capital to shareholders via dividends and share buybacks, and where appropriate, opportunistic small bolt-on acquisitions to accelerate EBITDA growth in our core businesses.

We are better positioned today than we were a year ago to deliver long-term value for our shareholders and have the people and resources in place to execute that strategy. With that, I'll turn the call over to Lorin for your questions.

Operator, we're ready to open the lines for Q&A, but I would remind everyone to limit your questions to two at a time and then get back in the queue as time allows. You can proceed.

(Operator Instructions)

Bob Koort, Goldman Sachs.

Yes, this is Ryan Berney on for Bob Koort. Thanks for taking the question. I was hoping you could provide a little bit of background on the surface treatment business just for us here? If I recall correctly, a lot of their sales are to Europe, but especially into Germany. Can you give us a little bit of a break out there geographically on where else that business sells into?

Yes, I think it's predominantly European business and then you would see other sales into the United States would be the second-most, with Asia-Pacific and Latin America coming in a distant third. So there's opportunity for growth there. That's one of the reasons where you will see in the first quarter the acquisition of that joint venture partner in Asia.

Great, thanks. And then as a follow-up, we've been following some bromine pricing recently and it looks like China maybe is getting slightly better. Could you comment there versus what you're seeing and if your comments on the lower China bromine pricing are more year over year versus sequential?

Yes, go ahead, Matt.

I'll take that. Ryan, we have not yet seen a significant change in China but remember in our businesses, at the beginning of the year, you've always got the impact of Chinese New Year, so they tend to start pretty slow for us in China in the first quarter. Chinese New Year is mid-February this year so it's about where we expect it in January but I would not say we see a pick-up. Okay, thank you very much.

David Begleiter, Deutsche Bank.

This is actually Ram Sivalingam sitting in for Dave. Look, just quick question. Could you perhaps give us bromine utilization rates by region? Just give us a sense for how --

Yes, it will be tough for me to do it by region but I can tell you that in 2014 overall, we're in the high 60%s for bromine utilization rates, when you are looking at absolute bromine. It was about the same for JBC as it was for Magnolia. it's Roughly the same, within a couple percentage points one way or the other. We can move production around based on whether derivative demand is but roughly if you look at that blended rate, it is in the high 60%s.

Got it. That's very helpful. And then in the past, given some demand erosion in legacy TV panels, you've talk about re-applications for bromine. Any progress there? (multiple speakers)

We've made some progress in that. We've developed some particularly as it relates to the oil field where there's the promising for the shorter term. and seeing good results there. Some of the longer-term projects have not panned out from a lab scale standpoint so we've reallocated those resources so we're making progress, there's nothing -- but everybody needs to understand this is a long-term view. We need to do this but I don't -- where there's nothing built into our 2015 numbers relative to these new products; it is a development product this time.

Thank you very much, Luke.

Matt Andrejkovics, Morgan Stanley.

Yes, good morning. It's actually Matt Andrejkovics on for Vincent. Could you just help just clarify some of the competitive dynamics that you're seeing in the Performance Catalyst business? What's driving the soft pricing while you're seeing increased in demand and then additionally, can you help us understand the decision to move that segment into the Performance Chemicals GBU?

Yes, well, let me tell you the second one first, if you don't mind to move that into Performance Chemicals and then I will let Michael talk a little bit about competition. Essentially, for competition, he'll go into more detail but it's overcapacity in the market. We try to address that somewhat by taking our highest cost production in Europe last year but that's essentially what it is.

The second question you had is why I'd move it into that because when you look at putting the lithium business together with the lithium alkyls business, they have butyllithium and such along with our aluminum alkyls. That's where we thought we could get synergies not only from a customer overlap but from a production overlap, from an asset overlap, from the way those markets go to business.

So we thought it was the most efficient way to do it. You don't get those efficiencies in the Refining Catalysts business so that was decision was made to do that. Michael, you want to talk a little bit about the competitive dynamics?

Yes, Matt, I think Luke largely answered the question. We've talked about this for most of the past year; it's just supply and demand. There's overcapacity on the alkyls side of the business. Part of that we've acknowledged, we've got a capacity over the last couple of years and there were a couple of new competitive entrance. So the good news is, is that demand is continuing to grow so as that capacity utilization tightens up, we should get back to the point of having some pricing leverage. Of course, as Luke pointed out, we took a significant step last year but taking capacity off-line in Europe.

Great, thanks. And just on the follow-up, have you guys earmarked the net proceeds that you think you would gather from some of these divestitures that you're contemplating?

Well, I certainly have a number in my head that I think we should have but I think the market will say what that is and we'll make a decision on whether we divest or do it. I don't think it makes a whole lot of sense for me to throw a number out there because it usually sets a floor or a ceiling.

And I want to maximize what we can get out of these assets because they're great assets and then in the right hands, they'll be grow and be market leaders in each of their respective markets and we're looking forward to getting trough the process.

Great, thanks very much.

Kevin McCarthy, Bank of America.

Yes, good morning. Luke, can you give us a sense for your rationale in choosing to divest the three businesses that you called out as well as a feel for how the $100 million in aggregate EBITDA might be disaggregated among those three businesses?

Yes, I can do that kind of generally. I think Scott can get into the numbers but the way I look at them is this is we've got four core businesses and we need to focus on those four core businesses and to continue to drive the because we've got great opportunities in that. And we need to deploy resources, both from a capital standpoint as well as from a people standpoint to drive the growth opportunities we have there.

It was going to be taken away from that for us to continue to try to develop these businesses. They are solid businesses, they generate nice EBITDA but they're not going to be a strategic focus for Albemarle in the long run and they're not big enough to move the needle. So we decide -- we made that point that we thought it was in the best interest of our shareholders to divest these businesses at this time, to take the proceeds to allow us to deleverage more rapidly and move forward with our strategy. So that was a thought process behind it and Scott can give you little more details on the numbers.

Yes, so of the three businesses, Kevin, minerals is the largest at roughly $250 million and roughly 10% EBITDA margins. The Fine Chemistry Services is the next largest, around $200 million.

And they've got margins that are up in the -- EBITDA margins in the upper 20%s and metal sulfide a business is roughly $100 million with kind of a high teen level type EBITDA margin. So that kind of breaks it down a little bit as to where they are.

Great. That's very helpful. Second question, Luke, on lithium. Chile's National Lithium Commission seems to be reevaluating policy as it relates to long-term development of the resource there. What is your view of that? Could you maybe elaborate on any discussions or view on how policy might change in Chile and what, if anything, that would mean for Albemarle?

Right. Great question. The Lithium Commission issued their findings yesterday. And so we've had a chance to review them. I'd also say that the week of the 19th, I was actually in Chile and met with a number of officials in the mining industry and other government officials about the business there to understand their thinking.

Number one, lithium is non-concessible mineral so that remains unchanged, which is a good progress. Never two, the existing contracts don't change. So the existing contracts that SQM and a Rock would have -- or remained unchanged that was assured time after time that those contracts will be honored.

Going forward, I think they would -- are going to establish a state entity to manage the development of future lithium projects and they're looking for participants that are interested in doing that with a track record in the industry, which is very positive, we believe, from an Albemarle and Rockwood standpoint. So we applaud the government for taking these steps.

We look forward to the collaboration, not only for the exploitation of the development of lithium but they also talked about a collaboration from an R&D perspective to drive new uses for lithium, similar to what Albemarle is trying to do for bromine. So we stand ready and able and think we're in the best position to collaborate with them with new uses as well as in the long run, allow us to be their preferred partner.

And if you'll allow me, I just -- the agreement that we have, Kevin, we have the right for 2000 metric tons of lithium. We started operating there in 1984, it was the first carbonate production, and we've used essentially 80,000 metric tons of lithium through the end of 2014, which leaves us over 120,000 metric tons of lithium, which at our current extraction rates, allows us to operate under the existing agreement that we have into the 2030 kind of timeframe.

So it's not an issue short term. Long term, we ought to be the preferred partner of that commission, and we're going to work very hard to ensure that we are active participants in the lithium markets in Chile forever.

Thank you for that color.

Laurence Alexander, Jefferies and Company.

Hi, this is actually George D'Angelo on for Laurence. First question, given the 35% EBITDA margin in bromine, can you just give some puts and takes on what happened and the rest of performance chemical segment, and where the weakness was?

I think Scott can do that but essentially, all Matt, both of them are here but essentially what it is, is if you just look at it, those have always historically been lower-margin businesses so there wasn't a whole lot of year-over-year change from a dramatic standpoint. But Matt, you want to comment just a little more?

That's correct. On a year-over-year basis, if you look at the FCS, it was flat to slightly up, that would be the Fine Chemistry Services piece. If you look at the Minerals business, it was roughly flat as well with a little bit of upside versus 2013 so what you're seeing really reflects the impact in the bromine franchise year over year. The EBITDA margins would have been somewhat higher, if you will, in 2013 compared to 2014.

Okay, thanks. And can you guys just provide a little bit of a timeline for selling the three businesses?

Yes. We're -- our goal is to divest the businesses by year-end but obviously that depends a lot upon the third parties. So we'll launch the process in the month of February and -- but it -- and we'll -- we've got a plan laid out to be able to close them by the end of the year but it depends on who the specific purchasers, what their hurdles may be and what -- you've got to deal with a third-party so it could take longer but that's our goal.

Thanks, guys.

Dmitry Silversteyn, Longbow Research.

Good morning, guys. A couple of questions, if I may. First of all, in terms of strategic thinking, I'm sorry to be revisiting ancient history here, but Albemarle spent some capital to build its flame retardant business beyond bromine with phosphorus and minerals.

You've sold phosphorus a couple of years ago when that business, the profitably deteriorated, now you're selling mineral salt. It seems to be a complete about face from the strategy of, let's say, ten years ago. What -- as you kind of look back on your execution or the market developments, what didn't go right for you in sort of building yourself into a flame retardant powerhouse and how do you -- what do you see yourself as going forward if it's not in bromine?

Yes, that's a great question. So I thin, the one thing I'd say is we're a different company today because of the acquisition than we were before. So number one, I think in phosphorus, the acquisition that they made was a small phosphorus business and you could not compete with the Chinese because you just didn't have the volume.

You didn't have a big enough position in phosphorus to get your cost to a level where you could be competitive. So that's ultimately the depth of that phosphorus business from an Albemarle perspective. If you look at minerals, minerals has been an excellent, excellent acquisition for Albemarle. It has -- had an outstanding return overall.

I think we paid $20 million and assumed some debt for that and you can see the kind of EBITDA that's thrown off on an annual basis. So it's been a great -- if I just looked forward, it's not going to get the kind -- I don't see the kind of growth that business that I do in lithium, surface treatment and catalyst and I don't see the profitability. So I don't know that I'd call, I'd say it's more of a change in circumstances than it was a failed strategy on the minerals business.

Okay, well, that's helpful. And then to stay on the flame retardant topic, I thought I heard you say on your prepared remarks that you expect some headwinds on mix or pricing from the European adoption of the new announced reconciliation. Can you get a little bit more granular on that; why that's going to be a problem for you? And then also how will the ICL joint venture in the non-styrenic installation flame retardants work for you when it's active later in 2015?

Okay. So Dmitry, this is Matt, I'll take that. So the bulk of that headwind actually occurred really this year for us because if you remember, we've been unable to enter the market for the new polymeric flame retardant that is replacing HBCD until late in 2014. So what we have seen is faster conversion from HBCD toward the polymeric replacement, and that impacted our 2014 numbers fairly significantly, and that's what we referred to in the script.

As we look to 2015, with the announced joint venture with ICL, we are already selling GreenCrest with our tradename for that polymeric in the market. We're entering the market already, and we really don't have the same kind of headwind year on year in 2015 that we had in 2014 versus 2013.

Okay, I got it. So the headwind was really in 2014, and you actually expect it to be a good guide for you in 2015?

We expect it to start contributing in 2015.

Okay, fair enough. Thank you. I will get back into queue.

Mike Sison, KeyBanc.

Luke, when you think about the Rockwood transaction back in July, I think the expectation that you had hoped to do in 2015 was EBITDA over $1 billion and free cash flow closer to $500 million. And at the midpoint, you're about the $100 million off in EBITDA and free cash flow is certainly up quite a bit.

Can you help bridge us the gap of -- and I know there's foreign currency, yield services, but just kind of help us bridge the gap of where the delta is? And then I have a follow-up.

Yes. So Mike, you've got the numbers, right? So overall, versus what we were expecting, currency plays a big role as you'd might expect, roughly $40 million -- as we said, $40 million to $50 million, the same as what it is on a year-over-year basis.

The second key one is a change in reporting that we've made with how Rockwood traditionally reported a JV EBITDA. So traditionally, Albermarle has used a net income from our joint ventures and included that in our EBITDA. Rockwood has used a JV EBITDA rather than the net income. And so we've converted them to that same methodology. That drives roughly $25 million.

And then you get down to business results and business outlooks, and that's roughly the $100 million that you referred to. The predominant side of that is really in Performance Chemicals and the lack of growth and the challenge that we've had with the drilling fluids and dropping off on the bottom of us. A little bit of lithium but not much. So those are the big drivers.

Okay, great.

Cash flow, as Luke said, if you would have looked at our free cash flow with that tax payment, it would have been around $100 million in the model, so $500 million less that $400 million tax payment. We're still forecasting $100 million to $200 million of free cash flow next year on a better tax payment primarily and a little bit better in joint venture dividends.

Okay, great. And then Luke, when you think about what the -- your earnings potential should be longer term, maybe take us out 2017, 2018, it might be early, but where do you think the EBITDA potential combined with all the synergy growth potential could be longer term?

Well, I think we still -- we've got about $50 million of synergies built into this, so there's another $50 million of synergies on top of that. And we've talked about the growth that we would expect. I think that surface treatment, I see no reason they can't continue with double-digit -- high single, double-digit EBITDA growth as long as they can continue to drive their services.

So I see that. Catalyst, a high oil upgrade, we've always said, we've been in a period of time, depending upon the crude slate, but I expect our Catalyst Business, Refining Catalysts continue to grow. And lithium will grow the way we've described it in the high single digits as well as double-digits once -- mid-double-digits once we see the, really, adoption and proliferation of electronic vehicles.

So there's not a reason in this world when we look out 2017 and 2018, we can't be at $1 billion. We've got just some issues that are impacting us this year from a macroeconomic trend on that price of oil that I can't tell you where that's going to go, and currency just punched us in the gut. So those are the two main factors.

Great, thank you.

Benjamin Kallo, Robert W. Baird.

Thanks for taking the question. Real quickly, housekeeping on the EPS, did that include businesses that you're going to divest? And if so, how much EPS, roundabout, does that include?

Yes. So that does include the businesses that are being divested. So we're not assuming that there's any divestitures at this point in time.

Okay. And then --

It's roughly $100 million of EBITDA, so a roundabout EPS impact for you.

Okay, got it. And then on some of the commentary on FCC, I know you've addressed this. But what are you seeing on the FCC catalyst business right now as far as your refiners? Are they in a shock mode in purchasing, where they're still waiting on commodity price changes? So is that what some of the uncertainty is that you're seeing there?

I think what we're seeing in FCC Catalyst is more, right now, we've got some change-outs in the first half -- I mean, not change-outs, some competitive trials in the first half of the year that will reduce our volume. We're seeing more in the high oil -- in the Clean Fuels or the Hydro Treating Catalysts where they seem to be pushing out some trials, pushing out some change outs in running at a little more cost focus. But, Michael, do you want to address that in a little more detail?

I mean, I would say on the FCC side for the full year, I mean, we're still expecting a significant volume growth year over year. Now the timing of that from a quarter calendarization standpoint, as Luke has pointed out, is going to be stronger in the second half of the year for the reasons that he's given.

But overall, still strong demand growth. And I think that is attributed both to business that we've already won, that's coming on stream and also just the suite of products that we have to offer refiners to solve their problems regardless of what changes they may see in crude dye or end products. So I don't really see that much of an issue on HOU. It's going to contribute, I think, strongly both to volume and earnings growth in 2015.

And then my last question. We understand the foreign currency translation impact, but how is it -- can you run through the business units from a competitive standpoint where you have foreign competitors? And how that changes the competitive landscape because of the currency impact?

Yes. I think if you look at surface treatment, surface treatment is really very localized and regional. So I don't -- it doesn't have much of an impact on the surface treatment business from a competitive landscape. It has a big transitional impact for us, but from a competitive landscape, because it's so -- such a regional business, it doesn't have as big of an impact.

If you look at the bromine businesses from a standpoint that's not a European producer, really, so the impact there is -- Chemtura is US, they've got kind of the same US production that we do, probably sell in the same currencies that we do. They probably got the same Yen issue that we do. And ICL is about the same; it's a bucket of currencies.

So it may give, overall, an edge a little bit to the Chinese, some of those producers. And Tosoh is a Japanese producer, but doesn't really participate outside of that region. So I don't see that as much of an issue. If you look in our catalyst business, we -- in Refining Catalysts we sell in the US. We got a plant in the US. We got a plant in Amsterdam. We've got joint ventures all over the world.

W.R. Grace pretty much has the same thing. BASF, their production facilities are the same. So from a competition standpoint, some of that depends upon where you're building your catalyst and where you have to ship it to. So I don't see a tremendous impact there across the portfolio. And with regard to lithium, not really a huge competitive market.

So while we have about $40 million or $50 million of translational issues that will impact the what -- our earnings, I don't see it creating a huge competitive impact in any region of the country vis-a-vis our major competitors, with maybe the single exception of bromine out of Asia.

Got it. Thank you very much.

Aleksey Yefremov, Nomura.

Good morning, everyone. First question on lithium. What kind of volume growth do you expect there this year and next? And also, what are your plans in regards to lithium carbonate expansion in Chile? What is the status of that expansion?

Alex, I think what you are kind of - we can barely hear you. I think what you said was, what are we looking at for lithium volumes in 2015? And then there was a question about lithium carbonate that I just didn't catch.

Mr. Yefremov removed himself from queue, sir.

Go ahead, Michael, I guess from a volume and a lithium standpoint <Michael Harrison - Analyst - First Analysis Securities> <harrisonmichael> As the volume on the lithium standpoint? Yes, I mean, I think from a volume standpoint, we expect to see continued growth in lithium salts. Again, battery applications are going to drive the market growth predominantly. The non-battery applications are more industrial uses that are going to grow more like GDP.

I think what you're going to see us do in terms of the capacity that we have available will increasingly shift that to higher value battery applications away from technical grades. I do think there is going to be some tightness in the market overall in terms of lithium availability, so -- hence, the guidance that we gave that we expected to see higher pricing in lithium.

If you think about the downstream of lithium and the organolithiums, I think the one issue is on butyllithium, where we talked about the major business that was lost last year by Rockwood as a key synthesis account switched to a different route that eliminated butyllithium from synthesis. We'll see the full year impact of that this year. Last year was not a full year impact. So I think overall, butyllithium will grow, but we won't completely be able to overcome the loss of that major piece of business that really affected the industry, not just our lithium business. And Alex, we couldn't hear what the last question was on lithium carbonate.

II think the last question you asked was about the plant in Chile. And from a start-up standpoint, we see bringing on that capacity in the second quarter to midyear sort of time frame. So -- and then what I think you need to recognize is that, that capacity, the lithium carbonate that we've added there, is predominantly targeted for providing for battery grade accounts. So there will be a qualification period associated with that. So the impact of that from a volume standpoint will come on gradually over time, probably from mid-year this year through mid-year 2016.

I would now like to turn the call over to Mr. Lorin Crenshaw for closing remarks.

Well, thanks to those listening and I invite you to call us with any further questions and -- so you have a good day.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect and have a great day.