雅保公司 (ALB) 2016 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Q4 2016 Albemarle Corporation earnings conference call. My name is Sandra and I am your event manager. (Operator Instructions). I would like to advise all parties this call is being recorded for replay purposes. And now I would like to hand over to Matt Juneau. Please go ahead.

Thank you. And welcome to Albemarle's fourth-quarter 2016 earnings conference call. Our earnings were released after the close of the market yesterday. You will find our press release, earnings presentation and non-GAAP reconciliations posted on our website under the Investors section at Albemarle.com.

Joining me on the call today are Luke Kissam, Chairman and Chief Executive Officer; Scott Tozier, Chief Financial Officer; Raphael Crawford, President Bromine Specialties; Silvio Ghyoot, President Refining Solutions; 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 non-operating, nonrecurring and other unusual items. GAAP financial measures and reconciliations from those to the adjusted numbers discussed today may be found in our press release and page 4 in the appendix of our earnings presentation, all of which are posted on our website.

Note that our GAAP numbers in both the fourth quarter and the full year were significantly impacted by the sale of the Chemetall business. Now I'll turn the call over to Luke to summarize 2016 performance.

Thanks, Matt. In 2016 Albemarle continued its journey to becoming a high-growth, specialty chemicals Company focused on driving increased global energy efficiency through our leading positions in lithium and refining catalysts.

First of all, from an operation standpoint, 2016 was the safest year in Company history. We had record low workdays missed due to injury and our lowest ever severity rating for lost time injuries. In addition, environmental incidents at our plants were also at an all-time low. The focus on safe operations in spite of the amount of change that occurred in 2016 is a tribute to the quality and focus of our employees.

Our three core business units performed well in 2016 with each exceeding initial expectations. Adjusted EBITDA from our three GBUs increased by $96 million or 13% compared to 2015. Lithium and Refining Solutions both delivered strong double-digit adjusted EBITDA growth, 34% and 21% respectively. Bromine adjusted EBITDA increased by 2% despite the loss of a key contract that delivered more than $15 million of adjusted EBITDA in 2015.

Importantly, this marks the third consecutive year of consistent, stable results in bromine. Full-year combined adjusted EBITDA margin for our three GBUs was 33%, up 190 basis points from 2015. Not only did our businesses generate strong earnings, those earnings translated into strong free cash flow. Our adjusted free cash flow for 2016 was $672 million, an increase of $166 million from 2015.

We also continue to focus our strategy by successfully divesting minerals and metal sulfides in early 2016 and the Chemetall surface treatment business in mid December. Total net proceeds from these three transactions exceeded $3.4 billion, an aggregate multiple of 13.7 times trailing 12-month EBITDA. Our team structured these transactions to be highly tax efficient leading to significant cash generation for Albemarle.

As a result of the strong cash generation from both operations and divestitures, we were able to reduce debt and significantly strengthen our balance sheet. Our gross debt to EBITDA after completion of the debt tender in February stands at about 2.2 times based on full-year 2016 adjusted EBITDA. Cash on hand as of mid-February was approximately $1.4 billion. We have regained balance sheet strength and flexibility, which positions us to more quickly take advantage of opportunities to accelerate our business strategies.

We announced a dividend increase of 5% just recently in February. This marks our 23rd consecutive year of dividend increases. Our stock price increased by 54% in 2016 compared to increases of 9% and 10% for the Dow Jones Chemical Index and the S&P 500 respectively, placing us in the top decile of performance against our industry peers. We also expect to buy back $250 million of stock in a program that will be launched in the next several days and conclude by the end of June.

Finally, in 2016 we strengthened and extended our leadership position in lithium. First, we finalized two agreements in Chile which position us to expand our lithium carbonate production capacity there from the roughly 24,000 metric tons produced in 2016 to over 80,000 tons by 2020.

In January of 2016 we secured an environmental permit that allows us to pump brine at an annual rate of over 80,000 tons of lithium carbonate equivalent annually. Then in December we reached a definitive agreement with CORFO that expands our total lithium quota to a level that allows production of that same annual rate through the end of 2043.

Secondly, we acquired the spodumene conversion assets of Jiangxi Jiangli New Materials Technology Company in China and announced plans to expand these assets to a conversion [capacity] of 35,000 to 40,000 metric tons. These moves, along with a planned greenfield spodumene conversion plant, will increase our overall capacity of lithium salts to over 160,000 metric tons on an LCE basis by early in the next decade.

Third, on the demand side, we have now secured about 80% of both our technical and battery grade lithium salts business under three- to five-year long-term contracts. We remain confident in both the demand growth for lithium salts and our ability to meet that growing demand.

I will discuss 2017 at the end of our prepared remarks, but clearly our 2016 financial and operational performance, combined with our portfolio actions and steps to strengthen our lithium franchise, leave Albemarle well-positioned for another strong year in 2017. Now I'll turn the call over to Scott.

Thanks, Luke. We ended 2016 with strong performance and great momentum for 2017. Let me give you some of the details. In the fourth quarter we reported adjusted net income from continuing operations of $0.78 per diluted share, a decrease of 12% compared to fourth-quarter 2015 excluding the year-over-year net impact of the divested minerals and metal sulfides businesses.

The decrease was driven primarily by a negative tax impact of $0.17 per share, lower fine chemistry services business performance, equivalent to $0.13 per share, and increased D&A and interest charges of $0.11 per share. Note that our three global business units delivered $34 million of increased adjusted EBITDA in the quarter, roughly a $0.27 per share increase compared to fourth quarter 2015.

For the full year 2016 we reported adjusted net income from continuing operations of $3.57 per share -- or per diluted share. Excluding the impact of the divested businesses and a large one-time non-cash foreign exchange gain from 2015 results, earnings per diluted share increased by 20% compared to 2015, with the increase driven entirely by increased business unit performance and productivity from our synergy program.

Corporate cost ended the year at just under $86 million, in line with our third-quarter guidance. Our effective tax rate, excluding special items, non-operating pension and OPEB items, ended 2016 at 20.8%, an increase from our prior guidance. The catch-up to adjust the full-year rate to 20.8% explains the increase in the fourth-quarter tax rate. The increased tax rate was related to the sale of the Chemetall Surface Treatment business and currency volatility which created taxable FX gains in certain countries.

Capital expenditures for continuing operations ended 2016 at $177 million, in line with our third-quarter guidance. Note that reported capital spending in our yearend financial statements is $197 million; the delta between the two numbers represents capital spent on the divested Chemetall business.

Depreciation and amortization was $191 million in 2016, also in line with third-quarter guidance. At year end, operating working capital improved to 27% compared to 29% at the end of the third quarter. All three GBUs saw strong yearend collections against receivables and effectively managed inventory in the quarter. In addition, our net payables increased as capital spending began ramping up to support our lithium growth.

Luke has already noted that our adjusted free cash flow increased by $166 million in 2016. Even more impressive was the increase in net cash from operations from $361 million in 2015 to a record $733 million in 2016 driven by the performance of our businesses and a meaningful reduction in working capital.

Now let me turn to business unit performance for both the fourth quarter and full year.

Lithium and Advanced Materials had another strong quarter led by the Lithium business. Fourth-quarter net sales of $278 million increased by 30% compared to fourth quarter 2015. Similarly, adjusted EBITDA of $102 million was 32% higher than fourth quarter 2015. Adjusted EBITDA margins were a strong 37%. For the full year sales of $968 million and adjusted EBITDA of $363 million, both increased by 16% compared to 2015.

The Lithium portfolio continued to drive GBU results in the fourth quarter just as it did in the previous three. Fourth-quarter net sales were up 50% and adjusted EBITDA was up 56% compared to the fourth quarter of 2015. Adjusted EBITDA margins were 43% marking eight consecutive quarters with margins above 40%.

For all of 2016 lithium sales increased by 31% and adjusted EBITDA by 34% with adjusted EBITDA margins of 43%. Volume growth for 2016 was an impressive 18% with pricing improving by 14%. Essentially all the volume growth and most of the pricing improvement was driven by battery grade products.

Compared to the fourth quarter of 2016 PCS sales were down just under $5 million and adjusted EBITDA was down $7 million. Full-year adjusted EBITDA ended 2016 down $22 million. Continued competitive challenges that impacted both our organometallics and catalyst businesses and an operational issue at one of our catalyst manufacturing sites led to weaker than expected results in the fourth quarter.

Full-year results compared to 2016 were impacted by the fourth-quarter issues, the Sun Edison bankruptcy and increased competition in our curatives business as a competitor returned to full production after an extended outage in 2015.

Bromine Specialties fourth-quarter sales of $195 million and adjusted EBITDA of $47 million were up by 13% and 11% respectively compared to the fourth quarter of 2015. For the full-year sales of $792 million and adjusted EBITDA of $227 million were both up by [2] (technical difficulty) compared to 2015. Full-year adjusted EBITDA margins of 29% were the same as in 2015.

We saw incremental improvement in our flame retardants business and better-than-expected demand in our clear brine fluids business in 2016. Strong cost management and productivity improvements were also important contributors to full-year performance.

Refining Solutions reported fourth-quarter net sales of $193 million and adjusted EBITDA of $57 million resulting in adjusted EBITDA margins of 30%. Compared to the fourth quarter of 2015 sales were down 4% and adjusted EBITDA was up 9%. Full-year Refining Solutions sales of $732 million were essentially flat compared to 2015. Adjusted EBITDA was $239 million, an increase of 21% from 2015.

Heavy oil upgrading, or STC catalysts, performed as expected in 2016 with adjusted EBITDA essentially flat compared to the record year seen in 2015. Clean fuels technologies, or HPC catalysts, significantly exceeded our initial 2016 expectations and drove overall business unit adjusted EBITDA improvement throughout the year. The clean fuels business benefited from both improved volumes and product mix as we saw more typical buying patterns at refiners after a difficult 2015.

Now I'll turn to 2017. I will frame the balance sheet items and foreign exchange and then Luke will cover the business and overall Company forecast. We currently expect our effective tax rate, excluding special items, non-operating pension and OPEB items, to be approximately 22% in 2017. As always the rate can be impacted by changes in tax regulations around the world and by the regional mix of both sales and production which almost never plays out exactly as budgeted.

You should expect capital spending to increase significantly in 2017 compared to 2016. We will ramp up spending from La Negra 3, our third lithium carbonate plant in Chile, planned for early 2020 startup and begin the 20,000 to 25,000 metric ton expansion of the Jiangxi Jiangli conversion assets in China. As a result you can expect capital to increase to $350 million to $400 million in 2017 with lithium growth capital driving most of the increase.

Our maintenance and continuity capital spend continues to be well-controlled and is again expected to be within our guidance range of 4% to 6% of revenues for all businesses. Depreciation and amortization is expected to range from $175 million to $195 million in 2017. Corporate costs are expected to be between $85 million and $95 million.

Note that the Lithium business will see additional costs in 2017 to position us for sustained growth over the next decade. The royalties for the expanded and extended quota in Chile, additional personnel costs and expenses related to the evaluation and development of potential new lithium resources will result in $60 million to $70 million of new cost in 2017 in that GBU.

Given the margin profile and growth expectations of our businesses we expect to continue our history of strong cash flow generation from operations in 2017. However, working capital, which was a source of cash flow in 2016, is expected to use cash in 2017. Operating working capital should remain at about 27% of revenue, but business growth, production timing and the impact of certain strategic projects should lead to an increase in absolute dollars of working capital in 2017.

The major increase in capital expenditures to capture growth from lithium will also impact free cash flow. Adjusted free cash flow is forecasted to be $200 million to $300 million in 2017. But reported free cash flow will be negatively impacted by a few one-time expenses. The largest of these are tax payments of approximately $275 million related to the divestitures of the Chemetall business.

Finally, estimating the risk of foreign-exchange movements is always challenging and seems even more so in the current global environment. Our 2017 guidance is based on an average US dollar to euro exchange rate of $1.06 and an average Japanese yen to US dollar exchange rate of JPY115.

We estimate that every 1 penny move of the US dollar against the euro and every 1 yen move against the US dollar will impact adjusted EBITDA by $1.5 million to $2.5 million for the euro and $0.5 million to $1 million for the yen respectively on an annual basis.

Now I will turn the call back over to Luke to discuss overall expectations for 2017.

Thanks, Scott. In 2016 Albemarle met or exceeded our financial, strategic and operational targets. That 2016 performance has positioned Albemarle for another outstanding year in 2017. Based on the assumptions outlined by Scott, we expect 2017 net sales to be in the range of $2.8 billion to $2.95 billion, adjusted EBITDA of $800 million to $840 million and adjusted earnings per share between $4.00 and $4.25.

We currently forecast earnings to be somewhat strong in the second half of the year compared to the first, primarily due to expected timing of volumes in Refining Solutions. Even with the $60 million to $70 million of additional expenses in Lithium, our forecasted 2017 adjusted EBITDA range represents an increase of 6% to 11% versus 2016. The forecast results in adjusted EBITDA margins of 28% to 29%, an increase of about 20 basis points from 2016 at the midpoint of this range.

Turning to each of our businesses, we expect another very strong year of earnings growth in Lithium with adjusted EBITDA increase of greater than 20%. Adjusted EBITDA margins are again expected to average greater than 40%. Volumes are forecasted to grow by about 10,000 metric tons driven by an expected increase of about 40% in battery grade salts.

We also continue to see favorable pricing trends with overall pricings in Lithium forecasted to increase by 10% to 15% relative to 2016. We expect to stabilize the PCS business at adjusted EBITDA levels similar to 2016. We have additional headwinds related to the Sun Edison bankruptcy but are countering those with actions to improve productivity of our assets and reduce our operating cost.

While the overall market outlook is for 3% to 4% volume growth the competitive environment in certain product areas remains challenging. Refining Solutions should deliver adjusted EBITDA growth of a few percent compared to 2016. Heavy oil upgrading demand continues to be strong, but the combination of turnarounds at our customers and competitive trials will have some negative volume impact, especially in the first half of 2017.

We also expect the improved demand and mix in Clean Fuels Technologies that we saw in 2016 to continue into 2017. However, the magnitude of that improvement will be significantly less than we saw in 2016. As already noted, we currently forecast a stronger second half of the year in Refining Solutions, but, as always, timing of change out in Clean Fuels Technologies could impact those actual results.

After a better-than-expected 2016 we expect Bromine to perform at similar levels in 2017. Modest demand growth in flame retardants and cost management should allow us to counter uncertain demand for clear brine fluids, cost pressures in certain raw materials and weakness in products sold into the ag markets.

In closing we delivered on all of our key commitments in 2016 and continued the transformation of Albemarle into a highly focused, high-margin Company with strong growth prospects. In 2017 we expect to deliver strong earnings growth let by the Lithium business and to position the Company for continued outsized growth in the years to come.

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.

(Operator Instructions). David Begleiter, Deutsche Bank.

Luke, on 2017 lithium pricing, can you give a little more detail on just the battery grade pricing, [how it ended] in Q4 and what you are expecting for battery grade only in 2017?

Yes, I'm going to turn that over to John.

Hi, David, this is John. When we look at Q4 2016 versus 2015, the growth has come from about 50% volume, 50% price. As Luke mentioned earlier, going into 2017 we are looking across the portfolio, not just battery grade, of increase in pricing from about 10% to 15% in price. However, when you look at the volume, most of the volume growth at 10,000 metric tons that Luke mentioned is going to be skewed toward the battery grade side as well. So a lot of the pricing is coming on the battery grade side.

And, John, can you just comment on what you are seeing demand wise early in 2017, especially China for lithium, for battery grade lithium?

Yeah. So we historically said that the demand for battery grade is driven by automotive penetration rates for battery electric vehicles and plug-in hybrids. Our model shows that to get to a 2% penetration rate by 2021 the overall global demand is about 20,000 metric tons per year. We have seen the market tracking to that.

We know that there have been some recent announcements in China about updating the policies; that was expected. We see continued strong demand out of China. We don't see the demand profile changing much based on our expectations for 2017. And see about 20,000 metric ton growth overall for global demand. We do see acceleration in terms of new models -- new models of cars as well as areas like electric buses also driving growth.

Thank you.

Alek Yefremov, Nomura Instinet.

Can you provide us your expectations for the ramp of volumes at La Negra this year? At what point should we see some additional tonnage? And also, what has been your operational experience so far with this expansion?

So we are planning for approximately 10,000 metric tons of overall volume growth coming basically from the lithium salts. It will come from a combination of the La Negra ramp up as well as hard rock to salt conversion in our new assets in China. We have two assets that came with that China acquisition; one is [Xinhui] City and the other in [Chengdu]. The Xinhui City operation can be ramped up more than it operated in the past.

So it will be about a 60/40 or 70/30 split more heavily weighted towards La Negra. And we are ramping up capacity to meet the needs of our customer agreements. So we want to make sure that we are living up to our commitments and that the customers that have signed long-term agreements with us have the products that they need to grow so we will be able to meet their demands.

Great, thank you. And a question on CapEx, a little bit longer term. Would you expect your CapEx to continue to increase in 2018 from 2017 level as you kind of ramp your lithium expansion activity?

This is Scott. So we expect a slight increase going into 2018 and probably right now in the five-year (inaudible) peak in the 2019 perspective from timing really driven by the new greenfield spodumene conversion plant that we are looking at and the timing of exactly when that spend is. And that is still in the design phase, so it is kind of hard to know. But that is what we are expecting right now.

All right, thanks a lot.

Robert Koort, Goldman Sachs.

John, I was hoping you might be able to answer a question about the challenges of bringing this capacity on. It seems like I remember Rockwood years ago talking about La Negra 2, and maybe there was a delay in some other issues. But can you talk about the actual physical process or the unit operations to get it into production?

I read one of the startup competitors has been having problems. What is it that makes it so challenging? And as an incumbent producer should this give you an advantage or is there something unique about each plant that makes its own challenges?

Bob, this is John. First off, you have to look at both the resource side and then the conversion side. And the plants do have to be designed in a way to be able to handle the incoming -- whether it is a brine concentrate or ore concentrate. And the characteristics of that brine concentrate or ore concentrate can change.

There is some design consideration to be given to where the resource is coming from. Second, you have to design a plant to be able to meet a customer's specifications. So we look at the cross-section of customers that will be supplied from a derivative plant, and we have to make sure that that plant can actually meet a tailored specification. And these are not commodity-based plants, these are performance product plants.

And then these plants have to actually go through a fairly rigorous qualification process. And so it is challenging, it is challenging even for a Company like Albemarle that has hundreds of scientists and hundreds of engineers to be able to meet an evolving product specification that has to withstand the test of 10 years of battery performance.

And so getting it right, making sure that those products are consistent not just from a chemical and purity perspective, but there are a lot of physical characteristics around crystal structure and particle size distribution. So it is a complex product, a complex molecule and it is evolving. And it is evolving every year as battery companies are looking to improve the performance of the batteries.

Yes, Bob, this is Luke. What I would say is that gives companies like Albemarle, like SQM I think an advantage over the others that you may read about coming into the marketplace, because we have a long history with that, we have got experience with it. And we also have the relationships with the customers to understand what that spec is going to be, not just when we bring the plant online but over the next decade. So we design for that. We are going to be patient and we are going to work to bring it online in the proper way for the sustainability and long term of this Lithium business.

And for my follow-up, if I could, Jiangli -- you mentioned there is some headspace to increasing production. I am curious as you got into the assets and took a look around it is there a need for a boost in CapEx or improved maintenance? Or was their inability to meet full capacity a raw material issue? Give us some assessment what you have seen at Jiangli.

So Bob, this is John. First off we had a long standing relationship with those sites. So we had good insight in terms of the quality of the assets, the quality of the people. Certainly Albemarle has a very high standard in terms of safety, in terms of process design. So we are investing in those assets. But that was always part of the business case in terms of that acquisition.

We understood the fact that those assets did have headroom and we are doing a couple things. We are in the process of ramping up. We are making sure that that product is qualified with our customers that are under long-term agreement. And we are improving the safety standards and the reliability of the facility.

At the same time, as we have already previously announced, we are adding another train that will expand our Xinhui facility from 10,000 metric tons to 30,000, 35,000 metric tons.

So there is a lot of work going on there. That work actually started many months ago. So we are really excited about that operation. It's going to have great quality product, battery grade product, our customers are going to be excited about it. And everything is going really well. Thanks.

Great, thank you.

Vincent Andrews, Morgan Stanley.

Just wondering if you can give us a bit of an update on your volumetric mix in lithium between battery grade and standard grade and just sort of some -- maybe some modeling guidance on how that is going to evolve through 2017?

Okay, so -- this is John again. As I said earlier, the growth is mainly being driven by energy storage, particularly in the transportation space. And as we look at 2017 we are crossing the 40% threshold where 40% of our LC demand is going to be going into the battery space.

Vincent, as you look going forward the bulk, if not all, but -- I hate to say all because that is so definitive. But the bulk of all the growth is in the battery space, okay.

Okay, thank you. And then just as a follow up, there is a lot of conversation in China -- or about China in regards to production reform in a variety of different industries within and outside of chemicals. Are you hearing any conversations about their bromine assets and any changes from a policy perspective there?

Yes, I am going to turn that over to Raphael Crawford.

Vincent, this is Raphael. So from a China perspective we keep a close watch on the China market. There certainly are regulatory changes which have affected production among Chinese producers over the last 18 months. Most notably there has been some regulations that came out that restricted production around the G20 summit. There is a new resource tax that has affected Chinese production.

So there has been a series of regulatory pieces, but I think that in China the bigger driver of change within bromine availability in the local market is coming from the degradation of the bromine resources, which we think over the last 18 months has started to decline again after a period of stability for several years prior. So we believe that is probably a bigger impact, Vincent, going forward than the regulatory impact in China.

Okay, very helpful. Thanks very much.

P.J. Juvekar, Citigroup.

So, lithium is a small part of the battery cost, I think it is less than 5%. If that is true, then why not take some more pricing on lithium if it is not going to impact the battery demand. Or are you concerned about attracting more supply to the market?

Yes, so, from a standpoint of what we are trying to do in Lithium, we have talked about this before. We are trying very hard to balance volume and price. We are doing that in a way -- and I think your numbers are accurate on the cost of lithium carbonate in a battery. But we also understand this is a long-term sustainable play.

Our customers are being asked to reduce prices every day to drive down the cost of batteries. And we are also -- we are at 40% margins with great growth both from a volume standpoint and from a price standpoint. Our shareholders are getting an excellent return on that business. We are working with our customers and we are driving -- we are at the infancy of an industry that we are really trying to be a leader in.

And we believe that the approach that we are taking is the most sustainable and thoughtful approach both for the day and in the long-term. We've clearly articulated that with our shareholders as well as our customers and we plan to stick to that path.

Thank you for that. And then just talk about supplying lithium. There are two new mines coming online in Australia. You talked about the challenges of bringing on new capacity. And then on your Talison also, you talked about expanding that in the future. So just talk about supply a little bit.

I'm going to let John talk to you about that, P.J.

Yes, hi, P.J., it is John. As we look at 2017, there are a couple sources aside from Albemarle bringing on capacity. You have the continued ramp up of the Argentinian brine source in Orocobre that will continue to contribute some incremental tons into the market.

You have two Australian hard rock mines that are really exporting ore concentrate of different quality and standards into the Chinese market for conversion into various tech grade and maybe low-grade battery salt products for the Chinese market.

A combination of the Australian mines and the conversion capacity in China, the Argentinian source kind of ramping up and Albemarle will certainly be able to cover the demand for 2017.

And our view through 2020-2021, that the market will continue to remain in balance, there are certainly projects in addition to the ones that Albemarle are bringing on that that will come on. We have a good view of those and we think that the market will remain in balance through the midterm.

With regard to our Talison mine in Greenbushes, Australia, that mine is really extraordinary in terms of ore quality and scale. It is the best ore quality in the world; it is the largest resource in the world. And we have the ability to double the capacity of that mine. We are in dialogue with our joint venture partner and we will make the final decision on the timing of the mine expansion.

But just to give you an idea of the scale of that operation, it has the potential to be able to provide 160,000 metric tons of LCEs into the marketplace, just one mine in a global market that today is about 190,000 metric tons. And it has the best ore quality in the world and the lowest cost structure. So we are really excited about Greenbushes and you should be hearing some good stuff from us and our joint venture partner shortly about the expansion.

Thank you (inaudible).

Kevin McCarthy, Vertical Research Partners.

I think you had indicated new costs in the Lithium business in a range of $60 million to $70 million. Is that meant to represent your expected royalty payment or are there other new costs embedded in there? And if so, would you comment on what the likely split might be?

Yes, we said previously when we did the royalty that the royalty would be less than $50 million in 2017, that is still accurate. We have additional costs related to personnel as well as expenses that will hit our P&L as it relates to testing and development of new resources to bring on into the future. So it is the same split as what we have always said, Kevin.

Excellent. And then as a follow-up, you have been busy signing your lithium customers up to three- to five-year contracts, now 80% I think for the combination of technical battery grade. Would you comment on pricing, risk and opportunity as it relates to those contracts?

For example, if we were to see a downturn in pricing at some point over the life of these contracts, do your customers typically have [MFN] provisions that would allow them to ask Albemarle to meet or release a lower price? What is the price risk or lack thereof that you foresee over that period?

Hi, this is John. So each individual contract is negotiated separately, but in broad strokes our agreements have a pricing provision that essentially provides us a floor for pricing. So in the event someone were to knock on our customer's door and say, hey, we have a great bargain basement price for a lithium salt, the customers cannot come back to us with a [meet to up] where we would have to reduce our prices.

There are in some cases fixed and variable portions of pricing and it does give us some flexibility to adjust prices with market. But as Luke said, we are taking a long-term view. We really value the partnerships with the customers. We feel that there is an opportunity to collaborate on the next generation Advanced Materials and Performance Materials that are going to go into the space.

And we're (technical difficulty) working together to bring energy storage to the transportation segment and making the grid more efficient. So -- but we do have good protection in terms of the downside and some good opportunities to move prices up if we feel the market warrants it and it is appropriate.

Yes, Kevin, we get a lot of questions about specifics of the contracts. And I'd caution everyone on the call not to get too caught up on the specifics of what we may be able to do with one contract or another contract. What this does give us though is confidence in filling the assets for the capital that we are spending over the next three to five years.

It gives us the confidence that we will have volume to be able to run through those facilities. We feel like we've picked the right customers. We also feel as though the pricing is such that our -- we will be able to maintain that 40% margin which is the target that we talked about. And at the same time will allow us to get a significant and continuing improving return on the capital that we are going to invest. So it is all a part of the capital plan to grow overall market and meet that customer demand.

Thanks, I appreciate the color.

Jim Sheehan, SunTrust.

You mentioned for uses of cash, a possible share buyback. So just wondering if you could discuss maybe what your intentions are for reducing the share count in 2017. And any cadence of any share buyback activity?

Sure. Scott?

Yes, thanks, Jim. So we are right now in our guidance we have assumed a $250 million share buyback. And depending on what the stock price would be on that, obviously that would drive the share count. But in our guidance we have assumed that we have a 2 million share reduction in our average shares in that EPS guidance.

So, you will see an announcement here shortly in the next day or so around that share buyback. As we have done in the past, we will be using an accelerated share repurchase in order to do that and it should be completed by the end of the second quarter.

Great. And in Refining Solutions you mentioned some headwinds in raw material costs. Could you give some more color on what exactly you are experiencing there and how long you expect that headwind to persist?

Yes, I am going to ask Silvio Ghyoot to take that question.

Well in general we're coming out of a period where we maybe had favorable tailwinds with raw material. So (inaudible) some of the basic raw materials seem to be trending up these days and obviously that makes a small difference so far versus last year. And also there has been some action by the Chinese authorities to get somewhat better organized with the output of the (inaudible) out of China so that may cause an additional headwind. These are the major ones I was referring.

Thank you.

Dmitry Silversteyn, Longbow Research.

A couple of things. First of all on the strength in bromine in the fourth quarter, you talked about sort of a little bit flattish expectation for 2017. But obviously 2016 was a better year than perhaps we could have expected. Was the fourth quarter strong performance -- was that just driven by the electronic markets or was it better -- drilling fluids perhaps not going down as much? Can you talk a little bit about the bromide market in the fourth quarter and also your kind of outlook for 2017?

Sure, Dmitry, this is Raphael. So in the fourth quarter the strength that we saw relative to what we had guided to for the fourth quarter was really driven by, as you had mentioned, some strength in the electronics market as it relates to flame retardants.

I think what we have seen over the last year is really the diversification of the end markets for flame retardants is now providing some stability to a market that was once more volatile because of the rise and fall of TVs and laptops.

And now with more flame retardant usage in automotive and servers, we are starting to see a regain of strength within flame retardants which gives us confidence that we'll have a market that is flat to growing slightly going forward. And we saw some of that resurgence of strength within flame retardants in the fourth quarter.

Also in the fourth quarter we had additional sales of hydrogen bromide and some of our amines into China, so that was some additional strength versus what we had expected. And overall have been working very hard over the past year, as we always have in bromine, on cost management. So that is really what contributed to the beat in the fourth quarter.

Going forward I think we continue that outlook on stable to slightly growing flame retardants market. We think that the completion fluids market, that is our -- the drilling end market, that has flattened -- that sort of bottomed out. We should see stability generally flat in 2017. And overall we will continue to work on our cost out and efficiency programs within bromine which leads us to believe that we will continue to be a good cash generator year over year for the Company.

Got it. And then thank you for that level of detail. And then as a follow up, when you look at your input cost, the one metal that seems to have gone up about 25% here in the first quarter year over year is molybdenum. Is that a concern for you yet or you'll be able to get this pricing through very quickly? Or was it just sort of the normal volatility of the metal that you kind of ignore until it gets out of hand?

Well, the moly price has been locked in. You may remember this, last year we had a floor of [moly $10] throughout the industry. But what we do see is that the moly price is ramping up gradually as we go forward and start to meet at that level of $10 per pound.

So I think at the end of the day we will see an increase in moly not all of which will be passed through in 2017. And that is included within the estimates that we provided, Dmitry.

Okay, okay. So you are expecting a little bit of a headwind but that is part of your guidance and hopefully it will get the price momentum going for you guys.

That is exactly right. Now if it goes higher than what is in our forecast we're going to have to adjust and deal with that. But the way you have described it is accurate.

Okay, thanks a lot. That is all I have.

Mike Sison, KeyBanc.

Nice end of the year there. When you think about the 160,000 metric tons of LC capacity by 2020, in total how much is it going to cost you to get there? And I guess the returns would be pretty impressive. Can you share any thoughts there?

I mean what we have said is it is going to be around $1 billion for us to spend between now and 2021, that kind of range to get to the LCE both with respect to the conversion assets as well as what we have to do in the Salar. And as we have always stated, we look to get 2x our cost of capital and we will be -- this will be significantly higher. So these will be great return prices. If the demand holds and we have no reason to believe that that demand is not going to hold.

Great. And then just a quick follow up. Clearly when you think about the end market exposure by 2021, if you do the math it looks like it will be, whatever, 80%-90% battery grade. What is the EV penetration that you think needs to occur to support the demand out that far?

This is John. So, in order to be able to support the 160,000 metric tons of supply that we are bringing on by 2020-2021 timeframe, we only have modeled 2% penetration of battery electric vehicles and plug-in hybrids.

Great, thank you.

Arun Viswanathan, RBC Capital Markets.

Hi, this is [Andy Chico] on for Arun. Thank you for taking my question. Just looking beyond 2017, if we see that 20,000 metric tons and annual demand growth in lithium continue to play out, is that 10% to 15% pricing growth number you guys mentioned for 2017 a reasonable assumption going forward? Or will we need to see accelerated demand growth to sustain those increases.

Yes, I think it is too early for us to talk about what pricing is going to be in 2018, we focus on 2017 today. What I will say is if you look as we fill up these assets our per unit costs will continue to drive down -- drive to a lower per unit cost. And as a result we are very confident, based on the price and our cost improvement, that we will be able to maintain those kind of 40% plus margins for the foreseeable future in lithium.

Great, thanks. And then just for a follow-up, you mentioned underlying growth in the PCS business -- or underlying volume growth in the PCS business for 2017. Just what is driving that?

Polyethylene and polypropylene demand.

Is that the new capacity coming on or is that just demand (multiple speakers)?

Yes.

Okay.

No, if you look at -- yes, if you look at the demand coming on around the US Gulf Coast that these ethylene crackers are bringing on and what is happening in Asia and other areas of the world, the Middle East. We expect that you are going to see that type of demand growth. And that is really from third parties that are estimating that growth and we see it is consistent when we talk to our customers.

Great, thank you.

Mike Harrison, Seaport Global Securities.

Luke, I was hoping you could give maybe a postmortem on the new lithium agreement in Chile. Obviously the overarching goal down there was to extend and expand your extraction rights there which you were successful on. But can you talk about how that royalty structure and maybe some other components of the deal played out relative to your expectations?

Yes, I mean, we had a long discussion and an approval process that we had to go through. And the thing I'd say is that none of the material terms changed from January/February of 2016 until December of 2016 when it was finally signed. So we had a long runway to get over the finish line but the material terms were always consistent, they never changed.

Dollars may have moved around a little bit, but the total dollar stayed the same in the commitment. So look, it took a while to go through that process, we were the first ones to go through it. But couldn't be happier with the deal that we got down there and the ability to ensure the long-term sustainability of the greatest lithium resource in the world for Albemarle.

And then just looking over at the catalyst business, you noted the mix improvement that happened in the fourth quarter. Can you talk a little bit about what you are seeing there? And also comment on what you are seeing in terms of the pricing environment on the FCC side of the business?

Yes, I will turn that over to Silvio.

Thank you. First question, the mix improvement is always hard to predict (inaudible) on which changes will occur in a specific order. So there is no structural or no seasonal trends in there, so it is just a fact that some orders may have larger volumes, lots of profitable products (inaudible) may have much smaller volumes and more profitable product.

And the fourth quarter has been one that we have a reasonable size of hydrotreating business, those less favorable than we have had in other quarters, combined with still a strong [HOU] or FCC business, which if that blend [I will get that result], that margin average margin over the fourth quarter.

With regards to the pricing on the FCC, this is a longer haul exercise, it will take a while before we get this fully implemented. 2017 will be -- keep on working on the implementation of this price increase. However, we think that we will see some of the trial effects through our pricing that ultimately 2017 pricing will show more an effect of the blending of businesses rather than the effect of the true price increase.

Thank you. Ladies and gentlemen, that concludes your conference call for today. You may now disconnect. Thank you for joining and enjoy the rest of your day.