雅保公司 (ALB) 2016 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the first-quarter 2016 Albemarle Corporation earnings conference call. My name is Towanda and I will be your coordinator for today. At this time, all participants are in a listen-only mode. Later, we will conduct 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 Mr. Matt Juneau, Investor Relations. Please proceed, sir.

Thank you. Thanks. Welcome to Albemarle's first-quarter 2016 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 Investors section at www.albemarle.com.

Joining me on the call today are Luke Kissam, Chief Executive Officer; Scott Tozier, Chief Financial Officer; Raphael Crawford, President, Bromine Specialties; Silvio Ghyoot, President, Refining Solutions; Joris Merckx, President Chemetall Surface Treatment; and John Mitchell, President, Lithium and Advanced Materials.

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 forward-looking statements contained in our press release. That same language applies to this call.

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

Thanks, Matt. I'm very pleased with our start to the year as we opened 2016 with a great first quarter for each of our businesses. Excluding adjusted EBITDA from divested businesses and year-over-year currency exchange impacts, revenue grew by $58 million, or almost 7% and adjusted EBITDA grew by almost $44 million, or 22% compared to the first quarter of 2015.

Adjusted EBITDA growth was driven by increases of 31% in Refining Solutions, 26% in Lithium, 16% in Bromine and 14% in Chemetall Surface Treatment. Overall, Company-adjusted EBITDA margins remained strong at 28%. Our four core businesses delivered combined adjusted EBITDA margins of 32%, up from 29% in the first quarter of 2015. Additionally, actual free cash flow in the quarter was in line with our expectations.

Profit improvement was driven by volume growth, price gains and lower costs across most of our businesses. These results highlight the strength of our businesses and the quality of our employees. In January, we reached the one-year anniversary of the Rockwood acquisition and we are now truly one company with a focused, performance-driven organization.

Before I turn the call over to Scott to discuss P&L and business unit highlights, let me update you on two strategic projects. First, our synergy projects continue to add to our bottom-line results. As of the end of the first quarter, we have achieved synergies that will deliver $105 million in cost savings versus 2014, putting us well within reach of our goal of $120 million. We are working a number of identified projects that should allow us to easily meet our target, with our supply chain initiatives making significant contributions.

Second, as we discussed in the fourth-quarter call, we successfully divested two non-core businesses, minerals and metal sulfides, in early 2016. This left us with only one business, Fine Chemistry Services, of the three targeted for sale in early 2015. We ran a structured auction process for this business, but the offers received and negotiations with potential purchasers failed to result in a value proposition that met our expectations. As such, we believe it is in the best interest of our shareholders to keep Fine Chemistry Services and to run it as a standalone business. First-quarter 2016 results of this business showed slight improvement over 2015, and keeping the business will not impact our ability to deleverage in any meaningful way. With that, I will turn the call over to Scott.

Thanks, Luke. For the first quarter, we reported all-in diluted earnings per share of $2.02, or $1.12 per share excluding special items. The major special items were the gains of $1.02 related to the sales of the minerals and metal sulfides businesses. A full reconciliation of all special items in the quarter can be found in both the earnings release and in the earnings presentation posted on our website.

Before going into the details, I want to put our EPS performance into perspective. Our first-quarter 2015 adjusted EPS was $1.17. This included $0.36 from the one-time non-cash foreign exchange gain and a net $0.03 from the two divested businesses. Excluding these items from 2015 yields a first-quarter 2015 pro forma EPS of $0.78. So on a like-for-like basis, the EPS of $1.12 in this year is up 44% from 2015 pro forma.

Most of the growth, $0.28 per share, was driven by core business performance. We had small benefits from corporate, FCS performance, lower interest costs, lower D&A and tax rates and a headwind of $0.04 per share from a higher average share count. A detailed walk can be found on page 8 of the earnings presentation posted on our website.

In the first quarter, we saw changes in business mix by country, particularly a great quarter by our Jordan Bromine Company joint venture that led to a lower-than-expected company-wide effective tax rate. As such, we now expect our 2016 tax rate, excluding special items, non-operating pension and OPEB items to be about 22% to 23%.

Depreciation and amortization for 2016 is now forecasted at $260 million to $270 million for the year, lower than originally expected. Final revisions to purchase price accounting related to the Rockwood acquisition and a slight change to the depreciation schedule for the new La Negra battery grade lithium carbonate plant are driving the lower forecast.

First-quarter capital expenditures were right in line with expectations and we continue to expect and forecast capital expenditures in 2016 of between $230 million and $240 million. Operating working capital, including the Fine Chemistry Services business, was 27% of sales at the end of the first quarter, up slightly from the end of 2015, but fully in line with expectations, and we expect operating working capital to range between 26% and 27% for the year.

In the first quarter, our adjusted free cash flow, defined as cash flow from operations, adding back pension and post-retirement contributions and subtracting capital expenditures, was $160 million. This excludes one-time synergy, acquisition and tax-related costs and is right in line with our full-year expectations of $550 million to $650 million. All-in reported free cash flow, including those one-time costs, was $119 million, also in line with our full-year expectations of $450 million to $550 million. Note that we made a final cash tax payment of $20 million related to the repatriation of cash from overseas in the first quarter as costs related to the Rockwood integration continue to wind down.

At the end of the quarter, Albemarle's net debt to EBITDA ratio as measured by our bank covenants was 3.5 times, down from 3.8 at year-end 2015. This improvement reflects both a strong first-quarter performance in both adjusted EBITDA and in free cash flow and allowed us to retire the $300 million one-year term loan following the completion of the two business divestitures in early 2016.

Finally, negative currency exchange impacts, while not as significant as in 2015, continued to affect our results. In the first quarter of this year, these impacts reduced net sales by $23 million and adjusted EBITDA by about $4 million versus first quarter 2015, very much in line with our guidance of $10 million to $20 million of adjusted EBITDA impact for the full year.

Now let me get to the details from our business units, but before we get into the numbers, remember that we are reporting in our organizational structure that became effective on January 1. We are now aligned under four global business units. Refining Solutions and Chemetall Surface Treatment are unchanged. The prior Performance Chemicals GBU is now aligned into two GBUs -- Bromine Specialties, which encompasses all of our bromine-related businesses and Lithium and Advanced Materials, which includes both Lithium and PCS, our polyolefin catalysts and curatives businesses.

Let's start with Lithium and Advanced Materials. First-quarter net sales were $216 million with adjusted EBITDA of $87 million resulting in an adjusted EBITDA margin of 40%. Compared to first quarter 2015, net sales were up 9% and adjusted EBITDA was up 11%. The lithium portfolio continues to deliver outstanding results. First-quarter net sales were up 19% and adjusted EBITDA up 26% compared to the first quarter of 2015. Adjusted EBITDA margins were 47%, the fifth quarter in a row with margins greater than 40%.

Overall volume grew in the first quarter by 17% and pricing improved by approximately 5%. Battery grade products, as expected, drove the increases and helped to overcome headwinds related to lower potash volumes and pricing. Remember that potash is a byproduct of our lithium production in Chile.

We have previously discussed our intent to move our customers for lithium carbonate and hydroxide to multi-year contracts. While the initial reception was mixed, we are pleased with our progress to date. More than 60% of our lithium carbonate and hydroxide business is now covered by multi-year agreements, and we expect that percentage to continue to increase in the coming months.

We see this as a win-win. Our customers benefit from improved security of supply, and we increase volume certainty and create additional opportunities to adjust price based on market conditions, which will support our capital investments in this business.

PCS performed in line with expectations. Net sales were down 6% and adjusted EBITDA was down 16% compared to the first quarter of 2015, but note that last year's first quarter benefited from the timing of customer demand for a key catalyst component. While most of the PCS business continues to meet our expectations, the rest of the year may be challenged due to the bankruptcy filing of Sun Edison, a customer in this segment that also has manufacturing facilities located at our Pasadena plant site and purchases services there from Albemarle. While the bankruptcy is in the very early stages, Sun Edison's issues could impact PCS adjusted EBITDA by as much as $10 million this year.

First-quarter adjusted EBITDA for our bromine-based business was $62 million, up 16% year-on-year with net sales up just under 4% to $197 million and adjusted EBITDA margins of 31%. The improvements were driven by better-than-expected clear completion fluids demand, particularly in the Middle East, timing of some flame retardant orders and favorable costs as a result of our synergy projects and lower raw material prices. While we do not expect to see this level of performance for the rest of the year, we were pleased with the first-quarter performance across the bromine portfolio.

Refining Solutions reported first-quarter net sales of $171 million and adjusted EBITDA of $55 million with adjusted EBITDA margins of 31%. Year-over-year, sales were down 5%, but adjusted EBITDA was up 30%. Both Clean Fuel Technologies, or HPC catalysts and Heavy Oil Upgrading, or FCC catalysts, performed in line with expectations. Heavy Oil Upgrading volumes, revenue and adjusted EBITDA were all up as expected compared to first quarter 2015, which was negatively impacted by an elevated number of customer trials. Though the operating environment continues to be a challenge for Clean Fuel Technologies, the business delivered a solid quarter with an improved EBITDA driven by a better product mix and lower variable costs.

Chemetall Surface Treatment net sales in the first quarter of 2016 were $208 million with adjusted EBITDA of $53 million resulting in margins of 25%. Net sales were up 8% and adjusted EBITDA was up 14% compared to the first quarter of 2015. The business remains on track to expectations and is seeing especially good growth in automotive and coil applications.

Regionally, Asia-Pacific and Western Europe continue to lead the growth with year-over-year growth in China and India, particularly noteworthy, which bodes well for the future growth potential of this business.

Now I will turn the call over to Luke to update our view for the rest of 2016.

Thanks, Scott. As I said, I'm very pleased with our start to 2016, with all of our businesses delivering adjusted EBITDA growth of double digits on a percentage basis versus the first quarter of 2015. In the second quarter, we expect lithium, Chemetall Surface Treatment and Refining Solutions to again show growth versus the second quarter of 2015. Bromine faces a tough comp against the second quarter of 2015 due to the loss of a methyl bromide contract that contributed roughly $15 million of adjusted EBITDA in the second quarter of 2015. PCS will likely struggle to overcome the impact of the Sun Edison bankruptcy that Scott discussed.

Overall, however, our businesses are outperforming our initial 2016 expectations and are more than overcoming significant headwinds like Sun Edison and lower potash volume and pricing. Given that, we now expect 2016 net sales of between $3.3 billion to $3.6 billion, up from $3.2 billion to $3.4 billion at the beginning of the year. We are also raising our adjusted EBITDA guidance to between $920 million and $970 million. Adjusted EPS should be between $3.90 to $4.25, up from $3.45 and $3.80 at the beginning of the year.

We told you in early 2016 that we expected to build on the momentum that we had developed across our businesses in 2016. In the first quarter, we did just that and have every expectation that we will continue to do so for the remainder of 2016.

Operator, we are ready to open the lines for Q&A. But before you do so, I would remind everyone to please limit your questions to two per person at one time so that everyone has a chance to ask questions. Then feel free to get back in the queue for follow-ups if time allows. Please proceed.

Thank you. (Operator Instructions). Aleksey Yefremov, Nomura Securities.

Good morning. Thank you. Could you discuss your long-term lithium contracts, how far out do they go on average and what kind of price openers do they typically include?

Our current agreements are typically three to five years, meaning we will continue to move those to even longer-term agreements as we go forward, and the pricing provisions give us the flexibility to adjust pricing as we see the market conditions change. But I do want to reiterate our position that we want to continue to support the market in its growth, and we are not seeking to exploit any kind of spot market pricing that people seem to talk about where they see that type of spot market prices in China.

Thank you. And on tolling arrangements, do you expect to sign more arrangements later in 2016, or are you happy with your current portfolio agreements?

We are happy with the current portfolio of tolling relationships that we have, and those tolling relationships will allow us to continue to support our key customers in their growth and increase the volume growth to those customers.

Thank you very much.

Bob Koort, Goldman Sachs.

Good morning. Thanks, guys. Maybe not surprisingly some more lithium questions. Can you tell me what exactly is required going forward in Chile to get your new plant up and running both from a regulatory standpoint and maybe a technological or process standpoint?

Bob, let me ask a question and then I'm going to turn it over to John. When you say the new plant, you are talking about the one we are just -- we are starting up now?

Yes, sir.

Okay. Go ahead.

Okay, so I want to just be clear that there's really nothing that stops us from starting up plant number two, which is the new 20,000 metric ton battery grade expansion. We have the permits in place. It was a very long and expensive and in-depth permit process. We are very confident that we will continue to operate under that permit, and we have the ability to increase pumping rates in the Atacama and supply that new investment. So there's nothing holding us back in terms of expanding the capacity of plant number two.

And then could you talk a little bit about what you expect on the following plant and whether it's -- I guess with the MOU now, you are going to put it in Chile. Does that squelch any plans to create a spodumene conversion plant of your own and what do you think about the carbonate hydroxide balance as you look forward to your next incremental expansion? Thanks.

First off, with regard to converting the MOU to a definitive agreement, that's going extremely well. We hope to have that finalized within the next couple coming months. That MOU and that agreement allows us to accelerate the expansion of La Negra and fully utilize the pumping rates that we are allowed to deliver under the permit. So we are going to be able to increase the capacity of La Negra to around 70,000 metric tons, maybe more than that. That project does not necessarily mean that our spodumene to salt conversion project is going to be canceled in any way. In fact, we are still in the design phase and we will continue to develop that project as we see market demand. And so we see that project coming online probably a little bit after 2020, 2021-2022 timeframe, but we see that that's also an important project to be able to meet the needs of the customers. And again, if we see the market demand shifting forward, we have the flexibility to meet that demand.

Yes, Bob, if I could just add, if you look at the returns on both of those, they are both very good returns, but the Chile plant, because of the cost position and because you are coming out of the Atacama has a better return. So we have focused on fast-tracking that project and delaying the spodumene conversion project, and also because we have the toll converters that we know we can still supply the customers there. So we feel like that's the best approach to take.

Great. Thanks very much and welcome back, Scott.

Thanks, Bob. I appreciate it.

Vincent Andrews, Morgan Stanley.

Good morning. Actually this is Matt Andrejkovics calling in for Vincent. Thanks for taking the call. Can you just talk about the volume growth that you saw in lithium? Were there any new customers that you signed up as a function of this contract renewal process, or is that volume growth what you see as the underlying demand for that business right now?

So out of the 26% increase of adjusted EBITDA, about 17% is due to volume and we see -- there is always a mix of organic growth within the customer base and new customers coming in, but can't point to a one new blockbuster customer that's come into the market that's driven the growth. It's really across the portfolio.

Great. Thanks. And then just in PCS, you hadn't previously listed BASF as a competitor for that business, but you had listed Grace with their acquisition of BASF's polyolefin catalyst business. Do you see any potential change in the dynamics of the industry? Thanks.

No, and -- I mean that acquisition really doesn't have a bearing with regard to the markets that we are focused on.

James Sheehan, SunTrust Robinson Humphrey.

Thank you. So in your raised 2016 outlook, you talked about the benefit in there from having Fine Chemistry Services retained in the portfolio. Could you just quantify how much of the increase in guidance was due to Fine Chemistry? And also it looks like FX rates have improved versus your initial expectations. Can you break out what the benefit is you see from improved FX headwinds?

Yes, if you really look at the improvement that we've pointed to year-over-year from our initial earnings, I will do that, then I'll let Scott talk a little bit about currency. FCS is not going to perform as well as in the second half of the year as we forecasted it to perform in the first half of the year in 2016. Plus we've got headwinds that we've got for Sun Edison that we've got in there, as well as lower potash pricing and volume. So the view that you ought to have is the increase in our guidance for the year is not only a buildup of a pass-through of our first-quarter beat, but in addition to that overcoming some of the headwinds, but it's very, very -- there's a minimal amount in there for the custom services. And Scott, for currency, that would be -- can you take that, please?

Yes, currency right now, we had forecasted at the beginning of the year a $10 million to $20 million impact on EBITDA. We saw about $4 million in the first quarter and at current rates, we have a little bit of benefit, but we'd still be within the range of our guidance, so we did not adjust our forecast for FX at all. So I think right now, it's still quite a volatile market out there and it doesn't make sense for us to try to adjust for it at this point.

Okay, great. And on lithium pricing, you mentioned the increase there. I'm just wondering, in the battery grade market, there were price increases nominated of some 15% or so. Could you talk about how much of an actual price increase you are realizing in battery grade?

Appreciate the question. Our guidance for overall pricing in the lithium business has been mid-single digits on a percentage basis. Q1 was consistent with that guidance, and of course, we are seeing better pricing on the battery side and our battery business is about 25% to 30%. But we are not going to distinguish pricing between the different markets at this point.

Thank you.

P.J. Juvekar, Citigroup.

Yes, good morning. My first question is on lithium. Can you just talk about what's happening to spodumene rock prices out of Talison? And then on the brine side, how much of your sales and profits come from potash?

So with regard to spodumene, I think one important thing is that the Talison mine currently provides the spodumene ore to its shareholders, so to Albemarle and to Tianqi. So the Talison mine is not supplying spodumene ore to third parties at this time, so there's no pricing implication, market implication with regard to the Talison spodumene ore.

Sorry, your second question again?

Was on the potash side, how much of your sales and profits?

Yes, so the potash revenue represents about 5% of our overall business; typically doesn't have much of an impact. However, with the pricing situation, we could expect a few million dollars of impact just given the pricing and demand of potash. Hoping for a recovery toward the end of the year.

And then, secondly, can you talk a little bit about bromine pricing as it relates to elemental bromine versus brominated flame retardants, which is what you are seeing in clear brine pricing? Thank you.

P.J., I think our general view on pricing for 2016 is general stability year-over-year. There is increased pricing, slightly higher than what we saw earlier in the quarter in China for elemental bromine. Some of that has moved into derivatives in China. The rest of the world is fairly stable with exception, as you mentioned, of the completion fluids business where we see pricing pressure on that business around the world.

Raphael, can you quantify that a little bit more?

I'm going to answer this. We don't want to quantify it to be honest with you, and the reason we don't want to is because you almost have to go customer by customer, product by product and any type of quantification that we would give you worry is going to be misleading because it is so specific to customer, region and product, P.J.

Thank you.

John Roberts, UBS.

Thank you. With high-yield rates continuing to normalize, why do you think private equity wasn't willing to give you an acceptable bid for the Fine Chemical business?

I have no idea. I can't give you an answer for that. We are going to keep it and run it. Why they would or why they wouldn't, it wouldn't meet our expectations, so we are going to keep it. We are going to continue to operate it and hopefully it's a steady business. I've got confidence in the new leadership team that we've put in there and hopefully we will never have to talk about it on a call like this again. So that's the goal.

Okay. Thank you. And then the bromine clear completion fluids business was down less than expected. Has it actually stabilized, or are you still expecting it to decline sequentially going forward?

We expect it to decline in the second half of the year. It was stronger for us than what we had previously indicated. That was really because of the regional mix; much stronger for us in the Middle East than in the Gulf of Mexico. As you know, we have a strategic advantage with our site in Jordan on the Dead Sea and that enabled us to capture some additional volume in the Middle East.

Do you have visibility to where it will stabilize, or I guess given the first-quarter surprise maybe you don't have that visibility?

All the indications we get from our customer base, as well as what we read into from forecasted E&P spending, is that it will be down in the second half of the year.

Thank you.

Mike Harrison, Seaport Global Securities.

I was wondering if you could talk about how much of a contribution you are seeing from the GreenCrest products as you shift away from HBCD? How much of a revenue or margin benefit are we seeing in the bromine business there?

So the GreenCrest piece is a strategic product for us that we have announced recently that we have discontinued HBCD, and we are focusing on GreenCrest for those applications. That is still a relatively small part of our portfolio, but growing at a fairly fast clip in 2016.

Yes, the other thing I'd add on that is we make less profit on this product than we did on HBCD just because of the volume and because of the cost position of that product, royalties that have to be paid to the owner and such things like that. So it's not -- from what HBCD was, it is a negative as opposed to a positive.

All right. Thank you. And then was wondering if you could talk a little bit about the cadence of FCC volumes this year. I know you have a big customer that's going to roll off eventually and you're working to replace those volumes, but any sense of how we should be (technical difficulty)?

On your first question, the cadence of the volume for this year is probably determined by the fact that there is, on the one hand, a strong gasoline market, which determines good utilization of the majority of units all over the world. On the other hand, compared to last year, there were no additions this year or commissioning of any new units. So in essence, there is a stable number of assets there that's all being run at a good pace, and this is driven by the fact that there is a good gasoline demand all over the world.

Ben Kallo, Robert W. Baird.

Hey, Luke, Scott, Matt and John. Two questions. First, on the catalyst business, both FCC and HPC, can you guys talk about the pricing environment if we are entering in your opinion truly a new cycle where you can push on some price, maybe with the backdrop of where oil has come off its lows? And then the second question is for Scott -- and welcome back, Scott -- how do you think about your current capital structure, and especially as your stock price keeps increasing? Anything you can do there on the debt side or equity side to help you guys delever faster than you had anticipated? Thanks.

On the FCC pricing, you know we have announced an increase earlier in the year and have been clear on the specific reasons for doing so. That has not changed. We are working on implementation. You know that it's going to take some time before we are going to see the result of it. Probably too premature to express on where things are heading, but we have had some minor successes so far, and we are confident that over a period of two or three years that that price increase will come through.

Hold on one second, Scott, he asked about HPC too, so (inaudible) as well.

Okay, on the HPC, you know that the metals are playing a big part in the price setting for those products, so price to a certain extent is determined by the volatility of the metals prices, and for the rest, there is no downward pressure whatsoever on the pricing.

So if I could add to that, that metals is generally a pass-through, so it may impact your margins somewhat, but it won't impact your actual profit that you would make off that when you see these pass through.

On the FCC and HPC catalysts, again, as we've said, as long as we can deliver the technology that helps the refinery make more money, to have more throughput, to be more efficient in their operations, we can get a pass-through. We can increase prices because we are helping them make more money and that's our goal. That's the industry's goal. We want to help refineries make more money, and then we want to get a piece of it. And that's what we are working hard to do to push through these price increases, and we feel good about where we are with that. So, Scott, sorry to interrupt, but the capital structure and deleverage.

Yes, so I'm happy with our capital structure and its readiness, if you will, for deleveraging. We were able to borrow for the transaction of Rockwood, as well as refinance the debt that we took over from Rockwood at very favorable rates. We have in place a term loan now, the remaining term loan that's about $900 million that's fully pre-payable. It's due in 2019, so we fully expect that that will be the target that we use to go down. And frankly, we just need to execute on converting these great EBITDA margins into cash and we will be well-placed. So I think we are in great shape and you will continue to see us delever.

All right. Thanks, guys.

Dmitry Silversteyn, Longbow Research.

Good morning. Thanks for taking my call. Can you talk a little bit about the decision to separate bromine into a separate division and what can we take away from that as far as your future plans for that business and why do you think it's better to be run outside of the Performance Chemicals division?

Yes, so if you look at it -- I appreciate the question. First of all, you shouldn't read anything into it. But if you look at the lithium business, the lithium business has significant growth opportunities before it. It will be -- it will require capital in order for us to achieve the type of growth that the entire industry is going to have, and maintain our leadership position in that. Bromine is a much more mature business and it requires it to be run differently. So we are going to run bromine not for growth, but we are going to maximize the cash that we get out of that business to fund lithium.

And I think it takes two different focuses to run those businesses. One is all about growth and delivering these great opportunities we have. The other one is ensuring our cost structure is where it needs to be, maintaining what we have, ensuring that we are a solid supplier, achieve growth where possible, but run it for cash. It requires two different focuses and to us it made the most sense to do that.

In addition, whenever we were speaking with investors after the transaction we were going around, there was a clarity from our major investors that they wanted to see transparency on how Bromine was doing, but mainly how Lithium was performing versus what we said and what we thought it was going to do. So we thought that, given the two different focuses of the leadership team, as well as the request for the clear transparency from the investors, this made the most sense to operate in that regard, Dmitry.

Okay, Luke, I appreciate that commentary. Secondly, you talked about raw materials coming down in pricing in your refining catalyst business. Was that the metal price that you referred to, and should we expect to see your sales price come down? So again no impact on profitability, but should we be looking at perhaps a lower top line as you pass through these lower prices?

Yes, as a general rule, Dmitry, that's exactly right.

Okay. All right. Thank you.

Laurence Alexander, Jefferies.

Good morning. Two questions. First, on Bromine, are you seeing any end markets for bromine derivatives actually improve, and are we at the point where the electronics contraction is offset by the data server demand for the flame retardants? And then a strategic question, obviously, you're a long way off, but what do you think would need to fall into place for you to consider another large transaction? What would be your criteria?

Okay. I'm going to let Raphael take the first one.

So on your question on end-market demand for bromine, the largest market for us is brominated flame retardants, and the largest piece of that is going into electronics. So far, we are seeing a relatively flattish outlook for BFRs into electronics. There are some things going up and some things going down. As you mentioned, server demand is up. We are expecting, at least from what we've seen in published reports, that to be up 8% in total server demand year-over-year, but offsetting some of that is a low single digit decline in PCs and TVs year-over-year. So on the balance, it's relatively flat.

When we do look at some of the other indicators, so for example, Bishop & Associates puts out a Global Connector Confidence Index. That's at about 76 right now and anything north of 50 tends to be a positive sign for electronics. So we are cautiously optimistic, but so far the indications we get from our customers looks relatively flat to slightly positive.

On your second question, a criteria for us to do another large acquisition. You know, Laurence, we need to follow through on this one first. We've still got to finish the integration. We've got to capture those synergies that we talked about. We've got a lot of focus on getting more efficient as a company and we will do that. We need to pay down our debt. We made a commitment that we were going to deleverage and we need to do that. That'll take us probably through the end of 2017, early 2018, that kind of range to pay off the deleverage. And we need to follow through on the capital plans for Lithium and the growth.

So I don't see another large acquisition in our future, in our near future, in the next 12 to 18 months. [I wouldn't assume it]. We've got our plate full executing on what we are doing. And then if you fast-forward out then, we are going to look at the kind of acquisition, if we do one at that time, where we would build on the growth that we've got, build on the great technology positions that we would have. But it's really premature to talk about that now because the focus is all about finishing this integration, executing against the strategy we have, both with our businesses and the Corporation and deleveraging and cleaning up our balance sheet. So it's really premature to talk about any potential acquisition.

Perfect. Thank you.

Jeff Zekauskas, JPMorgan.

Thanks very much. The tax payment of $20 million that you made, is that the end of the tax payments, or is there another $30 million to go?

Yes, Jeff, that's the end.

Okay. The second thing is you said that your free cash flow actual is about $119 million, but you've taken $82 million of cash payments related to acquisitions and other in addition to the $60 million in CapEx, so why isn't your free cash flow $30 million?

When you talk about the $82 million, I'm assuming you are talking about the appraisal shares to -- in the [Varitant] settlement. That was a leftover of the acquisition and the transfer of shares. Is that correct?

In your funds flow statement, you have a line cash payments related to acquisitions and other. What is that $82 million? Is that the settlement amount?

That's the settlement amount, and that normally does not get captured in a free cash flow calculation, so that's actually in the financing section of the cash section. So that's the settlement. So that does affect our cash overall, so it does not affect free cash flow, but it does it affect our cash overall. And obviously included in our ability -- slowdown our ability to pay down debt in Q1 gives us some momentum going into Q2 and the rest of the year.

So that's not included in your actual free cash flow calculations for this year?

It does not, no. No, free cash flow and actual free cash flow is really cash from operations. We do add back pensions and OPEB contributions and subtract CapEx. So those are the components. Other financing activities, pluses and minuses that come through that, would not be included.

Okay, great. Thank you so much.

Chris Kapsch, BB&T Capital Markets.

Good morning. I had a follow-up on the MOU in Chile and just wondering if you could elaborate on what the anticipated implications are for your royalty structure and therefore segment margins. I think it's understood that, in the prior arrangement, your royalty was prepaid, but there has been, I think, some misinformation about what the implications might be. Thanks.

So first off, we are not going to disclose the details of the agreement until it's actually signed, but we anticipate that the EBITDA margins for the lithium business will still be in the range of that 40% over the life of that agreement.

Again, if the MOU is signed and the way it is, we would start paying royalties in 2017, as we've said. So we hadn't said what amount that is because the agreement is not finalized, but we would see that, so you would be a little bit of a dip in the margins because you are paying some for royalties, but we still expect to have growth. And you've got pricing that will continue and we would expect to be able to maintain healthy margins in that 40% range.

Okay. And if I could follow up on the catalyst segment. In HPC specifically, you mentioned beneficial mix helping, but last year there was a bunch of -- as oil prices had been coming down, there was pressure on the integrateds and there was some deferred change-outs in the refining space. So just wondering now how you see that. Deferred change-outs generally represent latent demand. I'm just wondering how you see the change-out cadence in 2016 and maybe even into next year. Do you have good visibility based on your order book? Thanks.

In essence, I would just hold onto what we communicated earlier. The market is still somewhat nervous in terms of the oil price and how they spend their budgets for change-outs or delaying catalyst change-out. So nothing has changed fundamentally there. However, we see some higher number of change-outs year-over-year within the context of the lower oil price, and we have been doing good in securing those volumes, and at the same time, the catalysts that we will be using had a better mix versus what we had last year.

David Wang, Morningstar.

Thank you for taking my question. I just had one on the lithium business. So the 40% rate that you are discussing for, I think, maybe the 2020 expansion, is that representative of what the existing lithium business in Chile is able to achieve? So would we be able to use that to contrast between your cash flows from Chile versus those from the spodumene that you get from Australia?

Yes, I'm not sure I understand the question. So today, we have margins in Lithium, if you just look at Lithium alone, that are in plus 40%. And that's a global average that we have for all of our businesses -- battery, non-battery grade -- everything is north of 40%. What will happen -- you said 2020, but if the MOU -- once the MOU gets signed, then we will pay royalties in 2017. That will impact the royalties from the carbonate and hydroxide produced out of Chile, not the rest of the world. It won't have any impact on spodumene.

So we will see some downward pressure on margins because of royalty that should be able to be offset because of the additional volume we'll be running through, as well as price increases. So to model something now into 2020 and try to extrapolate what the margins are out of Chile versus the margins out of spodumene versus the model out of specialties, you are quite frankly just slicing it too thin. We will maintain margins in the general area in lithium where we are for the foreseeable future.

All right, great. And as a quick follow-up, can you talk about what you see as the overall dynamics of the business going forward? Presumably, growth on electric vehicles and hybrids should benefit the lithium business, will eventually be a headwind for the catalyst business. So can you talk about what you think about from mix of businesses, I guess, in the long run and how you view them relative to each other?

Yes, and I am assuming you've just asked about catalyst and lithium, so that's a question. I think if you look at the most aggressive assumptions in the marketplace, it would be 3% type of penetration of electric vehicles in the annual sales fleet. There's still going to be the need for hydrocarbons for the gasoline and for the diesel, so we don't see the success of one hurting the other. We haven't seen that with low oil prices or high oil prices. It's been a consistent growth for lithium, and last year, FCC had a record year.

So you'd have to see a titanic shift to electric vehicles to 50% plus kind of range to really see a huge negative impact on our catalyst business. Now particularly as we see the slate around the world, the crude slate, getting heavier and getting more sour, so that will require more catalysts even to process the same amount of crude if it's heavier, if it's more sour. So we love both of the businesses. We think for the foreseeable future that both of them can flourish in the environment and one not hurt the other.

Great. Thank you.

Rosemarie Morbelli, Gabelli & Co.

Good morning and thank you for taking my question. Looking at the bromine market, could you give us a feel as to what the Chinese market looks like, and as production comes back on after the end of the winter, what is generating additional price increases on elemental bromine and moving into some derivatives?

As mentioned, bromine prices have stayed higher longer than I think we would have expected coming out of last year and into this year. On the supply side, there's a few things that have affected pricing on elemental bromine. Most recently, in February, there were storm tides in the northern coastal regions that damaged pipelines and other infrastructure, and that slowed startup of several units, several operations in China. So that's led to somewhat of a supply shortage.

What we saw last year and into the beginning of this year was really lower imports. Imports have resumed back up to 2014 levels, and now we think it's local production. And in Q1, our estimate has been that roughly 30% of the capacity within China was utilized for elemental bromine, but we see a run rate of increased production, which would perhaps double that later in Q2.

So we think that, on the supply side, it will certainly loosen up. On the demand side, there were lower inventories of tetrabrom that led to increased demand for bromine. So on the balance, it looked favorable. For us personally, the bromine business in China, the elemental bromine business, is not a significant piece of our business, but where we can, we are taking advantage of the increased pricing in China to capture additional margin for Albemarle.

I think if you listen to any of the -- Matt and I went to a couple of conferences in the first quarter and one of the things that we said there was we have seen a slower pickup than anticipated out of production out of China. What I'm anxious to do is get through the summer, get through the second quarter, see where we are in June and July and what has happened with the production out of China bromine field, I think we will know by then, and it will give us a much better feel of whether we've got some opportunities going forward in bromine, or whether it's still this steady state that we are looking at today.

So optimistic. Feel good about what we've done. But I think as it relates to China specifically, we need a few more months just to make sure that what we are seeing is not a blip as opposed to a trend.

That is helpful. So following up on that, at the moment, you are most likely benefiting from the price increases you instituted last year and that will continue through the end of the summer at which point we may or may not see additional price increases. Am I looking at this the right way? New ones, meaning as opposed to catching up with last year's?

Yes, right now, we are holding the pricing that we had from last year, and as Luke said, we will continue to evaluate as we get a few months down the road to see does the pricing hold out in China and are there opportunities for us to capture more, or at a minimum hold what we have.

Thanks. And if I may, I have a question on lithium. So you are adding capacity (inaudible) -- however you pronounce that -- is adding capacity as well and it looks as though a lot of small players are coming out of the woodwork more intensely than they were before. Is all of this additional capacity going to affect the pricing of lithium, or do you think that demand is going to be strong enough that you could actually see additional price increases?

We see supply/demand imbalance through the midterm, say through the next five years or so, and so given that the market is imbalanced, we think that we should not see a lot of volatility in pricing.

Ladies and gentlemen, that concludes the question-and-answer session. I would now like to turn the conference over to Luke Kissam for closing remarks.

Thank you for your time and your interest in Albemarle. Again, we feel very good about what we accomplished in the first quarter and look forward to continuing the momentum on through the rest of the year.

Thank you for joining today's conference. That concludes the presentation. You may now disconnect, and have a great day.