Element Solutions Inc (ESI) 2016 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Platform Specialty Products Corporation second-quarter financial results conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Carey Dorman, Director of Corporate Development. Sir, you may begin.

Good morning, everyone, and thank you for participating on our second quarter of 2016 earnings call. Joining me this morning, are our Chairman, Martin Franklin; our CEO, Rakesh Sachdev; CFO, Sanjiv Khattri; Ben Gliklich, our EVP of Operations and Strategy; Scot Benson, President of Performance Solutions; and Diego Lopez Casanello, President of Agricultural Solutions.

Please note that, in accordance with Regulation FD, or fair disclosure, we are webcasting the conference call. Any redistribution, retransmission, or rebroadcast of this call in any form without the express written consent of Platform is strictly prohibited. Before we begin, please take note of Platform's cautionary statement regarding forward-looking statements in the press release, and supplemental slides issued and posted today in connection with this conference call.

Some of the statements made today will be considered forward-looking. All forward-looking statements are based on currently available information, and Platform's reported results could differ materially from those predicted. Platform undertakes no obligation to update such statements as a result of new information, future events, or otherwise. Please refer to Platform's SEC filings for a more detailed description of the risk factors that may affect our results.

Please note that, in the press release and the supplemental slides, Platform has provided financial information that has not been prepared in accordance with US GAAP. In accordance with regulation G, Platform is providing reconciliations of these non-GAAP measures to comparable GAAP financial measures, in both the press release and the supplemental slides, which can both be found on Platform's website at www.PlatformSpecialtyProducts.com in the Investor Relations section under Events and Presentations.

As a reminder, for the purpose of this call, Platform will be comparing the same period of 2016 and 2015 on a "comparable" and "comparable constant currency" basis, as Management believes that these figures provide a better comparison and understanding of the underlying business results for its operation. Comparable information assumes full-period contribution of all Platform's acquired businesses to date. Please review the press release and the supplemental slides for further information.

It is now my pleasure to introduce Rakesh Sachdev, Platform's CEO, for opening remarks. Rakesh?

Thank you, Carey, and good morning. I'm pleased to have the opportunity to update you on our second-quarter results, and provide some additional color on how the full year is coming together. We are halfway through the year, and I'm happy to report that our businesses are performing well, despite what has continued to be a challenging year for many of our key end markets.

As a Company, we've been dedicating significant energy toward positioning our businesses for growth, and concurrently improving operating efficiencies through our integration efforts. In addition, our priority of focusing on cash flow and our balance sheet remains unchanged. Finally, as you saw earlier this morning in our press release, we have raised the bottom end of our full-year adjusted EBITDA guidance by $10 million, to a new range of $735 million to $775 million.

Now let's begin with our quarterly results. Page 4 of the web deck posted on our website shows highlights from our second-quarter 2016 financial performance. Platform reported strong second-quarter 2016 revenues of $922 million, and adjusted EBITDA of $193 million representing 21% of sales. These results were broadly in line with our expectations, and importantly, gave us the confidence we needed to increase the lower end of our adjusted EBITDA guidance for the full year.

Sales grew 37% year over year, driven largely by our acquisitions. Excluding the impact of currency movements and a small divestiture in our Ag business, we grew sales organically by 1% in the quarter. While the organic growth number is below our medium-term expectations for our businesses, I'm relatively encouraged by our second-quarter results, given the weakness in several of our key end markets. Our business leaders, Scot Benson and Diego Lopez Casanello, continue to focus their teams on organic growth, and I expect this focus will translate into results in the medium term.

Our GAAP EPS this quarter was negative $0.04, and diluted non-GAAP adjusted EPS was $0.16. The difference between these numbers is driven by purchase price amortization, restructuring expenses, and intercompany foreign-exchange, which are primarily non-cash. Our adjusted EPS uses book interest, not cash interest. That difference understated adjusted EPS by $0.04 in the quarter. You can refer to the Appendix for the detailed reconciliation.

Actual adjusted EBITDA grew 15% in the second quarter of 2016, compared to a year ago. The primary driver of this increase was the addition of the Alent and the OMG businesses' earnings. Comparable adjusted EBITDA, excluding the impact of currency, declined 6%. This was primarily due to circumstances we flagged to you on our last call, namely our planned increase in corporate costs on a year-over-year basis, some pull-forward into Q1 of European Ag sales, and continued softness in electronics demand. We also mentioned we were concerned about the North America Ag business, and results in the North American regions continue to lag the rest of our Ag business. We will go into more detail on this shortly.

Finally, it is important to note that, excluding the increase in corporate costs, our comparable adjusted EBITDA margins would have been approximately flat year over year. Corporate costs increased $8 million due to continued investment in enterprise development. The investments we are currently making are laying the foundation for a long-term sustainable enterprise. Q2 of last year was a particularly small corporate spend quarter, which magnified this increase. On the other hand, the year-over-year increase in the next two quarters, relative to the second half of 2015, should be modest.

Despite certain pockets of weak performance, we believe that our businesses overall are showing their resilience in these growth-[starved] times for our key industries. We have continued to manage costs well, and are seeing many quantitative and qualitative [wins] with our integration efforts. You will hear later that our run-rate synergies for our Ag business are only about $10 million shy of our three-year target, and we're only 1.5 years into that integration. We expect similar successes with Performance Solutions, as it continue to integrate Alent and the OMG businesses.

These cost savings only tell a part of the synergy and integration story. As we have said before, the acquisitions that we have made are presenting above-market growth opportunities. We are realigning our sales forces to increasingly focus on customer solutions, making new but modest CapEx investments, restructuring some of our partnerships, and increasing our focus on key strategic segments. The results of these efforts will not happen overnight, but I am encouraged by our progress.

You will see, on page 5, our Performance Solutions segment reported second-quarter 2016 revenue of $438 million, and adjusted EBITDA of $98 million. Revenue was down 4% over the comparable 2015 sales number. Part of this decline was driven by the strength of the dollar, particularly against the Chinese yuan and the British pound. Excluding the impact of currency, organic [slipped] sales declined 2%, driven primarily by weak demand from oil and gas end markets, and continued softness in the electronics business in Asia. We still expect the electronics demand picture to begin to turn in the second half of the year. Combined with some share gain that we are already seeing, I expect an improvement in the second half.

Sales benefited from another quarter of solid automotive units globally, and strength in our graphics business, as we won new business with some existing customers. Excluding the impact of increased corporate allocations, constant-currency adjusted EBITDA of our Performance Solutions business increased 8%, despite modest pressure on the top line in the quarter. This led to a more than 200-basis-point increase in margins on a comparable constant-currency basis, driven by synergy realization and business efficiencies. The integration of Alent and OMG businesses are going well, and you will hear more about that from Ben Gliklich shortly.

On page 6, the Agricultural Solutions segment reported second-quarter 2016 revenue of $484 million, and adjusted EBITDA of $95 million. Currency has negatively impacted sales by 5% in the quarter, as most of our major non-dollar currencies were still weaker at the end of June than they were a year ago. Excluding the impact of currency movements and a small divestiture we made in Q4 of 2015, the Ag business posted solid organic sales growth of 5%.

Excluding North America, organic sales of our Ag business was in the double digits. This growth was driven primarily by price actions and a strong demand for our products in Latin America, as well as our products in many of our specialty markets globally. We believe that, even in this difficult environment with low crop prices, low farmers incomes, and high industry inventories, we have products that farmers need and want.

Excluding the impact of increased corporate allocations and changes in currency, comparable adjusted EBITDA decreased 11% in the quarter. This deterioration was driven by weak performance in North America, which has higher margins than the average of the business. All regions outside North America in our Ag business saw positive year-over-year constant-currency sales and adjusted EBITDA growth, when excluding corporate costs.

Let me give you some more color on this regional mix issue. You can see, at the top of page 7, that North America sales were down quite substantially from the second quarter of 2015. This was driven by high channel inventories, and a lack of pest pressure in an overall weak market. In the second half of 2015, we took actions to improve our channel inventory positions but, given demand weakness in the market, the timeline for achieving a more normalized inventory position has extended.

Demand weakness was exacerbated by a weak season for pesticides from our specialty crop portfolio. We saw the lowest levels of mite infestation in more than 35 years this season, dramatically impacting demand for our specialty miticide products. Despite our sales performance, we know that farmers are continuing to buy our products, and that is what is most important in the long term. The channel inventory position will continue to improve as our products sell on the ground and the industry returns to a more normalized sales environment. And this should be a growth driver in the region over the medium term.

Looking forward, we have efforts underway to begin to stabilize our North American Ag business. We are continuing to work on the channel, and expect to benefit there over the next two years. Secondly, we have made significant structural changes to our sales force and product-development initiatives, to be even more customer focused. Finally, we expect to see a share gain in both our seed treatment and biostimulants business going forward. We have lined up a replacement for the seed treatment business we lost last year, and believe our bio-solutions portfolio is underpenetrated in the US market. And we look forward to providing further updates on these initiatives at our upcoming Investor Day.

Turning to page 8, I would like to review our updated guidance. We have increased the lower end of our guidance for adjusted EBITDA, with a new range of $735 million to $775 million for the full year. This is a good outcome, in light of the challenges we are facing in our end markets. On this page, we have taken our first-half adjusted EBITDA total of $361 million, multiplied by 2 to get a full-year annualized value of $722 million. In the second half of the year, we expect to add $10 million of incremental synergies. And the rest of the improvement in the second half will be driven by a higher organic sales growth and an FX tailwind.

Currency is a more complicated picture today than it was at the beginning of the year. While the yuan continues to be a headwind, which is of particular relevance to the performance business, the Brazilian real is now a tailwind, which is positive going into the Brazilian growing season. This benefit will be offset to some extent by lower local prices to reflect the new exchange rate environment. Currencies in Latin America remain volatile, and this guidance is based on the end of June FX rates.

Now let me turn the call over to Ben Gliklich to review our integration successes this quarter. Ben?

Thank you, Rakesh, and good morning, everyone. The second quarter was successful from an integration perspective. On page 9, you can see that we reported $13 million of new cost synergies into our P&L year over year. This is comprised of $6 million from our Ag business, driven primarily by new distribution supply chain initiatives, and the benefit of certain G&A actions we took last year. We also achieved $7 million of new cost synergies in our Performance business from a variety of actions across G&A, commercial, and procurement.

We guided to $40 million of incremental synergies in the P&L in 2016, and we've already achieved $25 million -- $14 million from Ag and $11 million from Performance. As Rakesh said, we feel confident about achieving our targets for the year. On a run-rate basis, we've achieved $69 million of synergies from the Ag integration. This compares to a three-year target of $80 million, and attests to the terrific effort from our team. As we mentioned last quarter, the supply chain synergies are somewhat longer tailed, but you can see significant progress, even on a sequential basis.

In the Performance segment, we are still in the early innings, but have already actioned $33 million of run-rate savings, despite being only seven months into the integration efforts. The team is doing an outstanding job there as well. In addition to cost synergies, we expect to achieve revenues synergies along the way from the stronger sales force, and a larger and more complete product portfolio.

Page 10 outlines some of the integration initiatives in more detail. The key takeaways here are that we're still focused on cost and revenue synergy opportunities in both of our business segments. Both segments are continuously evolving and refining their go-to-market strategies, and we look forward to sharing the highlights of that with you at our Investor Day. Importantly, we've achieved over $60 million of cost synergies to date, non-integration, which equates to over $100 million in run-rate adjusted EBITDA. We've always said that integration needs to be a core competency for Platform. We are not done yet, but we are happy with our progress.

With that, I'll turn the call over to Sanjiv take you through the financials in more detail. Sanjiv?

Thank you, Ben, and good morning. Today, I'm going to review our financial performance in the quarter, and update you on the status of some of our other initiatives. We are providing numbers on an actual basis, but also on a comparable basis. Comparable is the same calculation we did when we used the term pro forma, but we have renamed the metric to avoid any confusion with other SEC-defined terms. We had no acquisition activity in the current quarter, but comparable Q2 of 2015 assumes that we owned Alent and the OMG businesses for the whole second quarter of 2015. We also compare certain results on a comparable constant-currency basis, in order to illustrate the impact that translational currency has had on our financial performance.

Finally, I want to reiterate the point that Rakesh made earlier, and that we indicated in the footnote on page 4 of this deck. We use certain non-GAAP measures to provide what we believe is useful additional information for you, as you analyze our results. We believe these non-GAAP metrics provide better insight into the business. We discuss the adjustments in significant detail, and provide all appropriate reconciliations in the Appendix of this presentation and in our earnings release that we Form 8-K?ed this morning.

Now, on to the numbers themselves. Page 12 begins with the number that Rakesh already reviewed with you. Most of our businesses performed well, given the negative pressures of their end market. Organic growth in our Ag business, excluding North America, was strong, and we have a plan in North America that we are already executing on. This remains a key priority, so a full-year low single-digit growth target for organic sales is still reasonable. As Rakesh mentioned, we also updated the lower end of our adjusted EBITDA guidance to a range of $735 million to $775 million for 2016.

Our cash flow forecast for 2016 remains unchanged. We did, though, make some important updates to the specific drivers of our cash flow. We added $20 million to cash interest to better account for our expected revolver usage and local borrowing costs. However, we expect to more than offset that with significant improvement in cash taxes, which is now down to $100 million to $125 million, from the $100 million to $150 million that we had earlier. And the CapEx, which is now around $100 million, versus the $100 million to $125 million we had earlier.

Given the emphasis we all place on cash flow generation, we also have updated our commentary around cash flow seasonality from last quarter. Last quarter, we saw a large build in working capital, driven by our Ag segment. We said, in May, that working capital had already begun to release, and that continued for the remainder of the quarter.

Cash flow from operations for the quarter was over $90 million. Also note that we have increased the level of detail in our cash flow statement, as seen in the press release exhibits. We expect continued improvement in working capital balances in Q3. But remember that Q4 is expected to be, by far, our biggest cash-generation quarter, consistent with a much stronger operating performance.

Page 13 walks Q2 2015 comparable sales to Q2 2016 comparable sales. This is the same bridge you have seen for several quarters. Again, we have changed some terminology to remove any confusion, but the calculations and methodologies are the same. You can see that FX was the biggest driver of our reported dollar sales decline this quarter. We have reconciled organic sales for you in the Appendix on page 20.

On page 14, you can see the adjusted EBITDA bridge. This is the same format and presentation we have made in previous quarters, and we have reconciled it to GAAP in the Appendix. Three things to call out on this page. First, the FX transactional headwind and the pricing tailwind are both primarily from our Ag business, given the cost and revenue footprint mismatches that this business has. We continue to take price to offset transactional FX pressures, particularly in Latin America. As FX becomes favorable, our ability to take price diminishes, all else being equal. In fact, as local currencies rally, we expect to see price pressure. This is something we are focused on and working hard to minimize.

Second, you will see that the volume mix impact on this bridge is worse than on the sales bridge. This is primarily due to the negative geographic mix shift that we saw in Ag. Third, I want to point out the increase in corporate costs. We have had $15 million of increased corporate costs this year to date. We are working hard to control this number, and we're seeing benefits from our investments already. Q3 and Q4 should show modest year-over-year increase in corporate costs. We are making several positive investments in infrastructure and organization that we believe will pay off.

Page 15 shows our current capital structure. As of June 30, 2016, Platform's net debt was $5.1 billion, which includes $342 million of unrestricted cash. First-lien net debt was $3.5 billion, and we reduced our corporate revolver borrowings by $25 million down to $90 million. We still have significant liquidity available to fund our business, and lower debt maturities on the horizon. We remain committed to using excess cash flow to improve our balance sheet. Overall, Q2 was a solid quarter of cash flow generation.

Finally, before I turn it to Rakesh to wrap up, I wanted to give you some perspectives on our expectations for the rest of the year. Please note that, in 2015, we reported comparable adjusted EBITDA of $167 million in Q3 and $184 million in Q4.

Page 16 shows that we expect Q3 of 2016 to be a smaller percentage of back-ended back-half adjusted EBITDA than in prior years. Q3 is always seasonally slow for Ag, as it is not the peak planting season anywhere in the world. Latin America will ramp up during the quarter, however, we do expect sequential improvement in our Performance Solutions business, driven by demand in our electronics end markets and incremental synergy capture.

At current FX rates, FX is better in Q3 on a year-over-year basis, but we are still lapping some devaluation in the quarter. For all the reasons we have provided, we expect Q4 to be our largest quarter. Additionally, due to cost synergies and new revenue opportunities at Performance, we expect Q4 to be a bigger percentage of the second half than it was last year.

Now, it is my pleasure to turn the call back over to Rakesh.

Thanks, Sanjiv. Again, I want to reiterate that we continue to be focused on the 2016 priorities we highlighted at the beginning of this year, and I'm pleased that we have reported progress on many of them here today. Our teams are executing well against our integration and synergy targets across both businesses. Furthermore, we continue to emphasize above-market growth, as we demonstrated this quarter with our Ag business. I believe that we have continued to improve. At our Investor Day, on September 12, we will plan to review our long-term growth strategies, including our goals to grow our earnings in the high-single digits, beginning with 2017.

And with that, we'll take some of your questions. Operator?

Thank you.

(Operator Instructions)

Ian Bennett, Bank of America.

Hi, thank you, and good morning. A comment on the cash flow: in the first six months of 2016, cash flow from operations was an outflow, of a little over more than $100 million, and you generated $100 million in the first six months of 2015. Can you comment a little bit about what the big delta was there, and what the expectation is for the second half of the year?

Hi, Sanjiv here. I think, if you look at last year, that was not a pro forma basis. So we did not have the full impact of the ag business, specifically at its start in Q1. And as I took you guys through last earnings call, Q1 was a big use of cash as expected. So we need to normalize that. For the whole year, we expect working capital to be a modest negative, consistent with our anticipated growth in sales in the ag business.

Yes, thanks, Sanjiv. And I think I mentioned this at the last earnings call too. I think that the pattern, we are seeing this year is very identical to what we saw in 2015 on a pro forma basis, and Sanjiv clarified that.

Okay, thank you. And then a follow-up, just on the ag side. It seems like the pace of synergies is being realized a little bit faster than anticipated. Can you talk a little bit about what caused that, and some of the changes in the sales force? What opportunities do you see the most in ag from here, whether that's either raising the synergy targets or focusing on some of these [niche] faster growing markets?

From an integration standpoint, we've always tried to be somewhat conservative with regard to our synergy capabilities or synergy opportunity. What we saw last year in the beginning of the year, was also a fast realization of the low hanging fruit G&A synergies. Now we're focused on supply chain and distribution opportunities, and those have come perhaps more quickly than we expected. I wouldn't expect an increase in our synergy outlook, but from our perspective, we basically delivered what we set out to, and are feeling pretty good about that, as you can hear from our comments today.

Since you've asked the question about ag synergies, and Ben just talked about cost synergies, let me ask Diego to maybe make a few comments on some of the things that we are doing on the integration, to help us even grow faster as you saw in this quarter. Diego, do you want to make some comments?

Yes, thank you, Rakesh. I think the biggest achievement of the team was to establish this one face to the customer very quickly. And we have this behind us. The team is highly customer-oriented, and what we're doing right now is adjusting the way we deal with those customers.

We have a key account management organization in place, in those countries where we have a high consolidation of distribution landscape. We align our objectives with those customers. We are coordinating activities together with those customers on the field, to make sure that we have traction with respect to our promotional activities.

Thank you very much.

Daniel Jester, Citi.

Hey, good morning, everyone.

Good morning.

I appreciate the color on the North American ag business. I just wanted to maybe talk a little bit more about that. Where do you think we are in the sort of inventory correction cycle, this is something that we've seen in the industry for a while now. It sounded like this might take a year or two, from what you said in your prepared remarks. So maybe just a little bit more color on that would be appreciated? Thank you.

Yes, I think as you know, we started making this correction last year. What I would say is clearly, our on the ground sales are exceeding what is being replenished in the stock, to our customers and to our distributors. And I think we'll probably see that phenomenon, for as you said, I think you said rightfully, I think we expect it will go on for another year. I think it's going to take that long, to probably correct the inventories.

Overall, I think we are still cautiously optimistic, that this is going to turnaround. It is going to take some time. But as I also said, we have plans to increase share in some of our products, namely, our seed treatment business. We lost some business last year. We're working hard to actually replace it.

I think we are close to having some pretty fairly significant success which will show up in 2017, that Diego and his teams have been working on. And then, some other the things that we are doing. So Diego do want to add some more color for North America?

Yes, I think you said it Rakesh, especially in those products relating to the cereal business, the wheat business. The wheat acreage is down almost 10% in the US, and so the market has been slower than expected. Compared to 2014, prices are almost 40% down. So this has slowed down the pace. But we have good progress in fungicides, we have a good progress on other specialty crop products. We expect to steady that situation in the second half, and we will see improvements in 2017.

Okay, great. Thank you. And then, on the performance business, can you just comment, what do you think the drivers are going to be for improvement in electronics in the second half? And then secondly, I know it's a small business, but where do you think we are in terms of the cycle for the oil and gas business that you have? Do you think we are bottoming out, or when should comps improve in that business? Thanks.

Daniel, as everybody has been reporting this last quarter, we do think we've seen pretty much a bottoming in electronics business in Asia, with some slight growth in the second half of the year. The drivers are still the same as we've been talking about in the past, new releases from Apple for example, et cetera. But we're positioned very well now with a combined organization for some sustained share gain growth, which we think will outperform even the demand growth in the business. And that's where we're focused, when we think we'll definitely start seeing that here in the second half of the year now that our sales organizations are integrated and performing well together.

And as it relates to the oil business, we see the drivers in that business, of course, our capital investment from the large firms, and we think we've reached the bottom of that. We're probably at a sustained level now, through the end of this year and into 2017. But we're pretty optimistic as it relates to the revenue that we generate from a production standpoint. Drilling is a little bit tougher, but production is good. And then, new capital investments we hope return back to what we would consider a more normal level 2017 into 2018.

Thank you very much.

Edlain Rodriguez, UBS.

Thank you. Good morning, guys.

Good morning.

Just quickly on performance solutions also, like in some of the other smaller markets you have there, auto-related market. I mean, it has not been doing extremely well over the past few quarters or so. Are there -- and now there are concerns that global auto might be peaking, like are you seeing anything like this? Like do you get a sense at all that auto should be a concern? Or are your business like well-diversified in all the key regions, so it shouldn't impact you at all, if you have peaking auto in China, and that might be offset someplace else?

Sure. We're confident about our position from -- on a global basis for the auto industry, as it relates to both the industrial and our electronics business. Clearly, electronics content in vehicles is going to continue to grow. So regardless of the automotive production itself, the value or the opportunity for us per vehicle will continue to increase.

We think we're really well-positioned for the expansion that the automakers are making in localized manufacturing and assembly, in Mexico, for example in parts of Southeast Asia and Eastern Europe. So even if growth rates of total numbers of units should slow versus the last three or four years, the available content to us per vehicle is going to continue to increase. So we're very optimistic about the future and our position in the auto business on a global basis.

Okay, that makes sense. And one quick one, probably for Rakesh or Sanjiv. In raising the guidance, or the low end of the guidance, like where are you gaining more confidence? Is it in the ag business, performance solution business, or is it just the synergies getting better or lower corporate costs? Like where is the confidence coming from?

Yes, I think several things are happening. One, I think we are performing slightly better than we had expected. Two, I think we are going to see some tailwind from FX, because some of the currencies have moved in our favor, which we thought it would be fair to translate into higher profits. And frankly, we are gaining some more share.

You just heard Scot. I think if you look at the performance solutions business in the second half, there are three things that are driving it. One is we are seeing some small market recovery. Second, we are seeing some share gains. And third, we had a fairly weak second half last year in 2015, and it's getting to a more normalized level.

So I think we're feeling a little more confident, and six months are in the back. So a half year is behind us and that's where we are. I mean, I understand that the range is still fairly wide, and we hope that when we come back and announce the third quarter results, we'll be able to tighten in this range up even more for you.

Okay. Thank you very much.

Thank you.

Jon Tanwanteng, CJS Securities.

Thanks for taking my question. Good morning, gentlemen. Thanks for taking my questions.

Good morning.

It's nice to see your cash tax outlook has moderated a bit. Can you give us a bit more detail on what you're trying to do to improve that tax rate, and what it may look like maybe a year from now?

It's hard to give a specific target right now, but we are doing all of the above, in terms of all the things you would expect us to do. There is some short term tactical planning we can do, where certain jurisdictions it possible to postpone. We're also looking and having a much better handle, if you remember we acquired Alent late last year. And so, we are better understanding its tax structure and footprint.

And then over time, we plan to look at some structural changes that will allow us to better manage, and match the jurisdictions where we on a tax basis lose money, and certain jurisdictions where on a tax basis we gain money. I think the one thing I do want to make clear is, this is a huge priority for us. And I'm very focused on it personally, to try to reduce this number, which is why we were able to take it down from a midpoint -- we've already taken it down $12 million average, and we plan to take it down even more over time.

Okay, great. And regarding the higher interest rate expectation that you talked about before, does that include the option to extend the maturity of the Series B preferred? And if not, maybe give an update on the strategy and expectations there.

Yes, so that does not include the interest expense related to anything we might choose to do on the preferred B Permira note. And as we have said before, we have several options on the Permira preferred B note. Today as you guys know that the make-whole provision is based on where our share price is. And I think as we continue to perform, in the coming months and quarters, we will see hopefully that reflected in the make-whole. And so, I think we still have a lot of time. We have looked at optionality and we are working, I don't know, Martin, are you on the phone if you want to say something on that?

Yes, look, at the end of the day, we've got plenty of time to figure out what we want to do. It's not lost on us that the intrinsic value of the business is a lot higher than where the stock price is. So we're going to continue to put up performance, explain our strategies, and then we will see where we are when it, when the time gets closer. But we've got plenty of alternatives on how to take care of it. And obviously, we'll do whatever we think is in the very best interest of all of our shareholders.

Okay, great. And finally, one of your major plating competitors is up for sale. Is there any opportunity there, either if assets or talent shakes free, or maybe if they get distracted on an operational standpoint, could you take incremental share?

Yes, this is Scot. Sorry, Rakesh, didn't mean to interrupt you. As with any major disruption, we think that it should provide us some opportunities. And there's this one, and there's a couple of other ones going on. These are very strong competitors, and will remain so, but there are some chances for us, I think to capitalize on actually all the points you mentioned.

Great. Thanks again.

Thank you.

Aleksey Yefremov, Nomura.

Good morning, everyone. Thank you. Do you have any early indications on demand for crop protection in Latin America, volumetrically how could the season evolve for you at this point?

Can you repeat your question again?

Yes. Any early signs of how demand from crop protection in Latin America might shake out? Thanks.

Yes, it's Diego, speaking. What we're seeing -- we have positive expectations about the second half for Brazil and LatAm Customers are being a bit cautious right now, because of FX volatility, so they're waiting to see how the Real is developing, if the Real is strengthening. But having said that, we are expecting growth in the second half in LatAm.

Some of the export-oriented farmers are seeing better margins today than they saw last year. But at the same time, everybody's been very cautious. There is great availability which is also tight. So this is another I would say area that we are watching, but overall, we are positive about the second half.

Just to add to what Diego said, I mean, we had a very strong second quarter in our developing markets. So if you look at Latin America and the Africa and Middle East markets, which make up approximately half of our ag business, the growth, the organic growth in this half of our ag business was absolutely stellar. We grew over 20% organically in these markets.

And I think there are several things that are helping us drive that. In Latin America, clearly, there is wheat resistance to several of the conventional products, and we're benefiting from that. We're selling more of our proprietary products, In places like Africa, where there is a need for malaria control, a lot of our products, pesticides are selling extremely well. So there are several reasons why our products are doing well in these regions, and so we are fairly optimistic even in the second half of the year.

Great. Thank you for this update. And then, within the agricultural business, how are day-services outstanding trending today? Are you, or do you see yourselves going up, or down or flat?

I think we have a bad connection. If you could again repeat the question? I am so sorry to do this to you.

Yes, apologies. What has been your accounts receivable or collection experience, and the terms in DSO in the ag business?

Yes. So specifically, I think we should talk about how our performance on receivables has clearly improved, even in places like Latin America. We realize, credit is tight in places like Latin America, but when I look at our performance -- first of all, our bad debt experience hasn't really changed much in the region. And if you look at our actual collections and receivables, our DSOs have improved year-over-year.

Thank you very much.

You're welcome.

Ladies and gentlemen, thank you for participating in today's conference, This concludes today's program. You may all disconnect. Everyone, have a great day.