Element Solutions Inc (ESI) 2016 Q4 法說會逐字稿

Good morning ladies and gentlemen and welcome to Platform Specialty Products fourth-quarter and full-year 2016 results conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to turn the call over to Carey Dorman, Director of Corporate Development. Please go ahead.

Good morning everyone, and thank you for participating on our fourth-quarter and full-year 2016 results call. Joining me this morning are 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 Safe Harbor and cautionary statement including in the press release and supplemental slides issued and posted today in connection with this conference call. The Company expects to avail itself of a filing extension for its 2016 Form 10-K as permitted under rule 12b-25. As a result, all financial results presented today for the fourth quarter and full-year 2016 are subject to the completion of the Company's audited financial statements and filing of its Form 10-K within a 15 day extended filing period.

Some of the statements made today may be considered forward-looking. All forward-looking statements are based on currently available information and Platform's reported results could differ materially from those presented today. 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 Platform's results.

Please also note that in the press release and in 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 be found on Platform's website at www.PlatformSpecialtyProducts.com in the investor relations section under events and presentations.

As a reminder, for the purposes of this call Platform will be comparing the same periods in 2016 and 2015 on a comparable and a comparable constant currency basis, as Management believes that these figures provide a better comparison and understanding of the underlying business results for its operations. Comparable information assumes full period contribution of all Platform's acquired businesses to date. Please review the press release and the web deck 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. 2016 was a strong year for Platform and we ended the year on a particularly positive note. We made progress against many of our objectives and I'm pleased to report that our overall results met our expectations.

In light of another year of challenging end markets we improved in several critical areas and we demonstrated the underlying strength and quality of our businesses and people. Both of our operating segments demonstrated organic growth and significant adjusted EBITDA margin improvement. Our full-year adjusted EBITDA of $769 million exceeded our revised guidance range and represents constant currency growth of 6% versus the prior year.

We generated over $100 million of free cash flow and meaningfully improved our balance sheet. We also continued to make significant strides in our integration efforts in both of our business segments. We have largely completed our Agricultural Solutions integration and have made considerable progress in unifying both the commercial efforts and supply chains of our Performance Solutions businesses.

Less obvious in our financial results is the important progress we have made on our new products pipeline and the capital investments we made in several new commercial areas where we are targeting above market growth in the coming years. Our focus on improving the balance sheet and cash flow profile of the Company also led us to be quite active over the capital markets in the second half of 2016. We retired our series B convertible preferred stock with proceeds from a successful equity issuance. We then repriced all of our term loans which will generate an estimated annual interest savings of approximately $26 million. Finally, we made demonstratable progress in our cash tax position. While our cash taxes this year finished in the range given on our Q3 call, this was higher than internally planned due primarily to higher-than-expected profitability in certain countries in Q4.

I would like to revisit and highlight our 2016 accomplishments as well as our 2017 plans and objectives, but first let me take you through our financial results. Slide 4 of web deck shows highlights from our fourth-quarter financial performance. Platform saw record fourth-quarter 2016 net sales of $950 million and adjusted EBITDA of $218 million, representing 23% of sales.

Adjusted EBITDA margin improved approximately 300 basis points from 20% in Q4 of 2015 on a comparable basis. Year-over-year organic sales growth was 5%, driven primarily by the Performance Solutions business. Both our Ag and Performance Solutions businesses displayed a strong double-digit adjusted EBITDA growth year over year in Q4. We are pleased with this result and the strengthening trend we saw in the back half of 2016.

Slide 5 lays out our full-year 2016 financial performance. In 2016 sales grew 41% over 2015 with a large portion of that growth driven by the addition of Alent, which we acquired in December 2015. But also reflecting modest organic growth. On an organic basis, excluding the impact of currency, acquisitions and metals prices, the company grew sales 2% year over year with a significant acceleration in the second half driven by strength of our sales into electronics, in the Latin American ag markets, and the continued revenue synergy benefits of our acquisitions. While several of our end markets remained challenged we believe our outperformance was a reflection of our business model and good execution.

Our full-year adjusted EBITDA of $769 million and a healthy margin of 21.4% also represents meaningful growth in year-over-year comparable earnings. Despite a $16 million translational headwind from FX. This result exceeded our updated 2016 adjusted EBITDA guidance range. Constant currency comparable adjusted EBITDA growth of 6% was a result of both top line growth and improved margins of approximately 100 basis points year over year.

This margin improvement was driven by continued synergy realization in both business segments, growth in higher margin products like electronic chemicals and biosolutions, as well as continuous improvement in our supply chain in the Ag business. Our ability to expand margins is one of the key factors to achieving our long-term objective of high single-digit adjusted EBITDA growth. I'm pleased with the progress we showed.

Turning to slide 6, we wanted to review our 2016 accomplishments against the priorities I laid out in my first days as CEO. While we operate diverse businesses in diverse end markets, the leadership team and the whole company focuses on shared priorities, which help us zero in on those factors most important to driving value for our shareholders. We demonstrated solid progress against these objectives in 2016.

After two years we effectively completed our Ag Solutions integration. The teams have worked unrelentingly over that period, combining their day jobs with the integration responsibilities. All while the markets presented various challenges.

Not only have we actioned $85 million of run rate synergies compared to an $80 million three year target, but we successfully combined the commercial supply chain and back-office functions of three global businesses creating a more nimble and customer-centric organization in the process. Diego and his team have been driving the development and implementation of a robust ag strategy, which we laid out at our investor day last September. And have now already begun investing in the newly identified priority segments. Although we have exceeded our synergy targets, we are not done optimizing costs within the business. Ben will elaborate on that shortly.

In Performance Solutions, the teams used the first 12 months to combine three, really four legacy companies into five new operating verticals. Several of which sell products from multiple legacy companies. The customer-first orientation of our integration allowed us to keep our focus on the customer while combining our commercial organizations. Not only did we not disrupt our customer relationships but in fact we have also heard very positive feedback from many of our customers who are pleased with our broader portfolio of solutions.

We began to see the benefits of this in the back half of the year, particularly in Asia. While integrating the commercial organizations, the team also managed to take out $44 million of annualized run rate cost synergies and this is a great outcome in only 13 months.

Our second priority was to focus our commercial efforts on those markets and products we think are poised to grow the fastest. As we have talked about before, this focus on driving organic top line growth was a shift in mindset, but it has started well. Although it is still the early innings, our meaningful acceleration of organic growth in the second half can be seen as evidence of this increased focus. Importantly, our investment in these higher growth segments remain subject to strict return criteria and our CapEx still remains modest and in line with our asset light framework. We have simply improved our methodology and approach to R&D and CapEx prioritization frameworks, particularly in the Ag business.

The Performance Solutions business made new investments in several key areas, most notably for advanced packaging of the semiconductors where we expect significant secular growth. In the Ag business, we continued to invest behind biosolutions and seed treatment products which nicely complement our conventional crop protection offerings. Our biosolutions business grew over 30% in the year.

Our business and product development work within Ag has included short-term wins, but also a significantly improved pipeline of differentiated proprietary products that we developed either internally or offered through collaborations of key partners. Our latest estimate of our combined peak sales potential of new products to be introduced from 2017 through 2025 now stands over $1.3 billion. This is a significant increase from the peak potential value we had just one year ago. The products in our pipeline align more and more with our priority strategic segments, such as weed resistant management and crop establishment.

These segments are characterized by above market growth, high margins and an ability for Arysta to differentiate. An example of our recent collaborative efforts was the addition of our agreement with DuPont to develop mixture formulations with their blockbuster insecticide, Rynaxypyr. This collaboration is a perfect example of the value add we provide through our discovery-based partners.

Coming out of 2015, which was an intense year of acquisitions and management changes at Platform, we had a priority to establish an operating rhythm by building a cohesive organization with talented leadership and developing good forward momentum. We have made good progress. We've established a cadence of management practices that have given us greater insights into the businesses. We've also continued to focus on building a strong and durable corporate infrastructure to improve our controls and visibility in finance, tax and IT.

As we integrate different companies with different cultures we have improved our people management and HR related processes, including talent management, succession planning and incentive systems, which I believe are critical for a people intensive business like Platform. And finally we have placed a priority on generally quality and sustainable cash flow with an aim of delevering the Company, while continuing to invest in the business.

This year we delivered $185 million of cash flow from operations which translates into over $100 million of free cash flow. In 2017 we expect this to improve meaningfully. Sanjiv will take you through the sources and uses of our cash later, but I think it is important to note that many of the improvements we made to our balance sheet, working capital management and tax structure are expected to continue to improve our cash flow conversion in 2017 and beyond.

Slide 7 depicts the results of the Performance Solutions segment which reported net sales of $1.8 billion and an adjusted EBITDA of $401 million in 2016. Excluding the impact of metals pricing and the negative impact of currency translation primarily from the Chinese yuan and the British pound, organic sales increased 1%. This sales growth accelerated to 4% in the second half of the year as we saw an uptick in demand across our electronics and industrial markets, particularly in Asia.

All businesses other than our offshore oil and gas unit grew in 2016. While some of our markets, particularly electronics, showed improvement the second half of the year, we believe our growth across represents the combination of that market growth and share gains.

These share gains are most evident in our Asian industrial business, driven by a greater penetration in the automotive market. While we're continuing to expect modest softening in Western automotive production, we saw meaningful growth in Asia and we expect that to continue in 2017. While there is still a significant amount of local competition in the region, our globally consistent and broad product offering is becoming increasingly differentiated and favored by customers. Though automotive unit growth in North America and Western Europe is forecast to slow, we believe content per vehicle growth should continue to provide a tailwind to our business.

It should not be surprising that our offshore business was down this year given the macro challenges in the oil and gas industry. The business ended down approximately 20% year over year on a constant currency basis, primarily from reduced drilling business. But its margins did increase due to careful price management. Given the lag between spot energy prices and CapEx investment decisions at our customers, we expect 2017 to continue to be slow, but there are positive signs ahead. That said, we have taken a non-cash goodwill impairment in this business in Q4 in light of market conditions and recent performance compared to the 2013 assumptions when we bought this business.

Comparable constant currency adjusted EBITDA for our Performance Solutions business increased 10% in 2016 over 2015, when excluding the allocation of corporate costs. This was driven by top line growth and margin improvement on a comparable basis of about 200 basis points. We are also seeing positive mix shifts into higher margin areas including advanced electronics and the Alpha paste business. This segment-wide margin improvement occurred despite the declines in our high-margin offshore business.

On slide 8, the Agricultural Solutions segment reported full-year 2016 net sales of $1.8 billion and adjusted EBITDA of $368 million. Excluding Platform's corporate allocation, adjusted EBITDA for the segment was $401 million. Currencies were volatile all year and our net translational headwind year over year was approximately $36 million on the sales line. Excluding the impact of currency and divestitures, organic sales grew 3%. Sales growth was mainly driven by increased volume and price in EMEA and LatAm.

Our EMEA region saw strong growth particularly in northern Europe and Africa. While also benefiting from revenue synergies from the integration. These synergies were the result of the complementary territorial market position of the three legacy companies. By combining these businesses we were able to open new subsidiaries in Germany and the UK, and profit from cross-selling opportunities in our key legacy markets like France and eastern and southern Europe.

In Latin America, growth in 2016 was driven by pricing management and increased volume with higher value specialty products, In particular, with biosolutions and our integrated best management portfolio under our "Pro Nutiva" solution brand. These products continued to gain significant traction, more than offsetting some generic competition we encountered in portions of our selective herbicides portfolio.

Overall we were able to manage FX volatility in Brazil better than we had expected. We actively increased local currency prices in times of depreciation and delayed price pressure in times of appreciation. We more than offset through pricing the net impact of translational FX headwinds that we experienced in the region. Our supply chain cost management initiatives were also able to minimize the transactional FX impacts on adjusted EBITDA as well.

In Asia, our strategy changed in India and China to shed several low-margin generic products and focus on high-value proprietary products, helped performance in the second half particularly in our seed treatment portfolio.

While North America is primarily a first-half business we did see positive growth during the second half which helped moderate what had been a rather weak sales performance in the first half of the year. We have spent time on this market with you in previous quarters discussing the impact of low crop prices, low mite pressure and high channel inventories. Our new commercial strategy is showing traction and we are encouraged to see a return to growth in the second half. Channel inventories are slowly getting back to targeted levels at most customers, putting our business up for a better start in 2017.

In our ag business, comparable constant currency adjusted EBITDA grew 5% excluding corporate costs. Drivers of this growth were favorable mix from higher margin specialty products, seed treatment and biosolution sales, supply chain synergies and improvement of our cost of active ingredients. We expect to continue to see the benefit of run-rate synergy actions in our margin in 2017.

We are also preparing to execute against our continuous improvement initiatives to drive adjusted EBITDA growth well in excess of sales growth in this segment. Arysta demonstrated the strength of its differentiated business model in 2016. Before we review our 2017 adjusted EBITDA guidance I'd like to spend a moment reiterating our long-term growth goals on slide 9.

As you have now heard a few times, we believe our go-to market strategies, market positioning and product portfolio should enable above market growth rates for the business units over the medium-term, leading to a long term average blended top line target of mid single-digit organic sales growth. Combining this growth with a commitment to continuous improvement in our cost footprint should help us achieve our long-term goal of a high single-digit average adjusted EBITDA growth rate. Furthermore, our continued emphasis on optimizing taxes, interest, CapEx and working capital should drive an even stronger cash flow growth. Based on this outlook, our balance sheet would delever to within 4.5 times net debt to adjusted EBITDA within a three-year horizon.

Now turning to slide 10, I want to provide some details on the outlook for 2017 and our initial guidance. Based on end of January 2017 exchange rates, we expect adjusted EBITDA to be in the range of between $800 million and $830 million for the full-year 2017. Excluding approximately $15 million of year-over-year currency headwinds, the midpoint of our guidance implies 8% growth versus our 2016 adjusted EBITDA. We expect this to be driven by low to mid single-digit organic sales growth in the Performance Solutions business and flat to low single-digit growth in the Ag Solutions business. This also anticipates continued synergy progress in the performance business and continuous cost improvement in Ag.

On this slide we detail both the market and company expectations that we think will drive our performance. In the performance segment we expect the late 2017 strength in electronics and Asian industrial markets to continue into 2017. While this growth will likely be muted by a slow to recover offshore business, we expect Performance Solutions sales growth rate to be higher in 2017 than it was in 2016.

In Ag we think that the global market will be relatively flat given poor industry inventory positions, low commodity prices and continued FX volatility. Nonetheless, our ag business is expected to see continued year-over-year improvement, particularly in the North American and Asian regions, and further strength in our priority segments including our biosolutions portfolio. Partially offsetting this growth will be our business in Africa where we are restructuring certain non-core businesses. We still expect the African region to be an important growth segment over time once these one-time adjustments roll off.

In addition, we expect modest headwinds in Latin America from generic entrants for a few of our products. These entrants have been on our radar and we already have products in launch and in our pipeline which we believe has helped not only defend our position but also grow market share. None of these short-term challenges changes our medium-term target of 4% to 5% organic growth for this business. Now lets turn the call over to Ben to review our integration efforts this year. Ben?

Thank you Rakesh, and good morning. As you heard already on the call, our integration wins drove both sales and margin improvements in 2016. In the fourth quarter between both businesses we generated $19 million of incremental year-over-year cost synergies.

On slide 11 you can see that we reported $8 million of new cost synergies from the Ag integration in Q4 and a total of $28 million into our P&L year over year. On a run rate basis we exited 2016 having actioned $85 million of cost synergies which were either in the P&L already or will almost entirely be in the P&L by the end of 2017. This year was focused on supply chain, back office and product rationalization synergies. We also spent significant time on commercial initiatives like R&D prioritization and strategy development. We believe our Ag businesses is in a strong place after two years and is poised to benefit nicely from an inevitable recovery in the Ag market.

The $85 million of run-rate cost synergies exceeds our target of $80 million and took us only two years to action. Rather than increase our synergy commitment two years into the integration we've instead chosen to shift the focus to one of continuous cost improvements. This is something we outlined at our investor day last September.

Our team remains focused on cost. On minimizing nonstrategic SG&A costs like back office functions and indirect procurement, as well as optimizing our sourcing costs and facility footprint to improve gross margins. We have identified over $100 million of cost savings that we are targeting to achieve in the business over the next five years and which we will pursue regardless of market conditions.

Revenue synergies were another avenue of success from the Ag integration where we realized approximately $14 million of benefit 2016. As you'll recall, our rationale for combining Agriphar, Arysta and Chemtura AgroSolutions was more than just the cost synergies. We're still pushing on these efforts and are pleased with how the regulatory processes are progressing to expand the crop and geographic presence of our larger AI and brand portfolio.

Slide 12 shows our integration progress in the performance segment where we have achieved $44 million of run rate savings in year one out of a stated target of $70 million within three years. The Q4 P&L savings of $11 million brought the full-year total to $32 million. As Rakesh mentioned, all of these savings were realized without disruption to our commercial efforts. This was a strong performance from our team.

In 2016 we combined the legacy companies into five commercially autonomous business verticals, with a variety of shared back-office services providing added efficiencies. We established a global supply chain group which has already made significant improvements to our processes, including procurement, logistics and worker safety. We're also developing multiple finance shared service centers which help leverage our scale around the world and reduce overheads.

The cost savings we have executed to date have primarily focused on G&A, commercial management, our sales footprint and direct procurement of raw materials. Our 2017 plans are now focused on our global formulation footprint and we have projects underway in all major regions. In conjunction with facility moves, 2017 will also serve as the beginning of our broader product rationalization initiatives.

We anticipate being able to reduce our SKUs, simplifying our supply chain, reducing our working capital and ultimately we believe expanding our margins. This is an exciting effort, which along with many of the growth initiatives we're investing behind will help sustain meaningful earnings growth. Now I'm happy to turn the call to Sanjiv to review our results in more detail. Sanjiv?

Thank you Ben, and good morning everybody. I'm going to review our financial performance for the full year, spend some time on our adjusted EBITDA guidance and provide some more detail on cash flow, the balance sheet and FX. Similar to what we have been doing every quarter, we're providing numbers on an actual but also on a comparable basis. Comparable results assume that we owned Alent and OMG businesses for the whole year 2015.

We also compare certain results on a comparable constant currency basis in order to illustrate the impact that translational currency movements have on our financial performance. Finally, as we indicated in the footnote on slide 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 insights into the business. We discussed our adjustments in detail and provide reconciliations in the appendix of this presentation and in our release filed this morning.

Let's start with a quick review of the numbers on slide 13. For the full year, net sales increased 41% over 2015 primarily due to the acquisitions we did in 2015 and early 2016. But year-over-year organic sales growth of 2% obviously also contributed to the GAAP growth as well.

GAAP diluted EPS was negative $0.63 per share which is slightly less negative than last year's number, due primarily to an increase in operating profit and a decrease in our tax expense, offset by a higher interest expense. On an adjusted basis, diluted EPS for 2016 was $0.63 per share, up $0.03 from last year with the increase in sales and earnings offset by an increase in another expenses and interest expense. You can see the share count we used in the adjusted EPS calculation reconciled on slide 24 in the appendix. Also, as noted by Rakesh, in Q4 we took a $47 million impairment of our goodwill in the offshore business.

Moving to slide 14, shows our sales bridge walking full-year 2015 comparable sales to full-year 2016 comparable sales. Price, volume and mix increases lead to a 2% organic growth performance. The translational FX number represents impacts experienced by both sides of our businesses, with the euro, the pound and the Chinese yuan causing the biggest negative impact to our results.

You can also see that Performance Solutions benefited from $13 million of increase in metal prices that we passed through to customers but recognized as an increase in GAAP sales. We have reconciled organic sales for you in the appendix on slide 31.

On slide 15 you can see our 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. As you can see here, the synergies followed by organic growth in the form of pricing, volume and mix drove the adjusted EBITDA improvement in 2016 of 6% year over year on a constant currency basis. A good year in the circumstances. This should not be a surprise given the significant integration progress Ben took you through.

The FX impact to our adjusted EBITDA in the year was fairly modest relative to what we saw in 2015 when considering both translational and transactional pieces. As you know, the transactional FX exposure which is primarily in the Ag business, was still a headwind due to both the volatility in Brazilian real and the fact that some products purchased at less favorable exchange rates were converted to COGS after the fact.

Increases in corporate costs in 2016 also contributed about $18 million of adjusted EBITDA headwind in the year. This was slightly better than our expectations as we were able to stabilize and then start to optimize the costs by the fourth quarter of this year. This corporate cost figure is consistent with the message we provided at the end of last year that the run rate spend had peaked at that time. As Rakesh mentioned, when reviewing our success against the 2016 priorities, the increased spend in corporate led to improvements in controls, visibility and therefore decision-making. We have also been investing in our tax team to help go after what we believe to be a significant medium term opportunity to reduce our cash tax rate.

Finally I would like to mention that Platform expects to avail itself of a filing extension for its 2016 10-K. As part of Platform's continued integration of Performance Solutions and Agricultural Solutions we have an ongoing initiative to simplify our corporate and tax footprint to better manage cash taxes and our overall cash position. As a result of the timing and scale of legal entity combinations involved in this initiative, Platform has not yet completed certain tax procedures and related disclosures to be included the 10-K. These items are not expected to impact the financial information presented today. We fully expect to have the 10-K filed within the allowed extension period.

Slide 16 shows the sources and uses of our cash flow on a full-year basis. The full-year picture is really the best way to understand our cash flow generation, given the quarterly seasonality of our business which impacts both earnings and cash flow, particularly in Ag.

We generated $185 million of cash flow from operations this year. We spent $80 million of CapEx net of disposals resulting in a free cash flow of approximately $105 million. The rest of these items help you to bridge to the $423 million cash balance you see on our balance sheet. While our September equity raise allowed us to fund the majority of the series B settlement, we also used about $70 million of cash to fund the remainder.

We also used cash to fund the mandatory amortization of our term loans which is basically a debt paydown. Finally there were a series of other small flows including fees for various capital markets transactions. While net working capital is embedded in the operating cash flow number, I can tell you that we used only about $16 million of cash in FX adjusted working capital on a full 2016 basis, arriving to more than $140 million release in the fourth quarter consistent with our commentary last quarter.

Given 3% organic growth in the Ag business this is a good result and about in line with our longer term expectations, depending on which regions in Ag are driving growth. Working capital management as a percentage of sales will remain a key focus area for us globally. We expect 2017 to be another strong year in this regard.

Turning to slide 17 where we provide our adjusted 2017, adjusted EBITDA guidance bridge. As Rakesh mentioned, we expect our full-year 2017 adjusted EBITDA to be in the range of $800 million to $830 million, representing 6% to 10% growth on a constant currency basis. This guidance is based on end of January exchange rates which results in a projected translational FX headwind of approximately $15 million as shown on the bridge.

We will see the run rate benefit of actions we took in 2016 and expect that the Performance Solutions business will continue to track well against their three year plan with meaningful new actions. Overall, we expect $60 million of adjusted EBITDA growth from organic performance and synergies at the midpoint of our guidance. As we did last year, we are also providing you with our estimates for the significant cash flow items in the business.

We expect cash interest expense to be about $335 million for 2017, which is about $25 million below where we came out in 2016, due primarily to the repricings of our term loans that we executed in Q4. We expect cash taxes in the range of $125 million to $150 million, which is similar to the initial guidance we gave last year. Cash taxes should grow year over year on higher earnings, but we hope to reduce this estimate as our planning initiatives progress throughout the year. Finally, CapEx estimates of $100 million to $125 million which also includes product registration investments in Ag and certain corporate IT investments. This is a healthy number that reflects meaningful growth investments and opportunities for both businesses.

On slide 18 we have provided some details for you on our FX exposures in the business. As we already discussed, FX is a significant variable in our results. I will not rehash what was already said on the 2016 impacts of currency on the business. But I do want to explain the data points we are providing you with for modeling and forecasting purposes.

On the bottom left of the page we have provided our top currency exposures with respect to sales in 2016. You will see if you compare to last year's chart that a few currencies like the euro were smaller in 2016 than in 2015. This is primarily due to the devaluations of these currencies versus the dollar throughout the year. Other currencies that devalued are still more meaningful on a percentage basis than they were last year like the Brazilian real or the Chinese yuan. This is because despite the devaluation, our underlying business grew in regions with these functional currencies, specifically in Brazil and China.

The other chart on this slide provides some additional disclosure for you so that you can better understand the quarterly seasonality of our currency exposure. Because parts of our business, particularly within Ag, are particularly seasonal our sales FX exposure is not consistent in all quarters and we are therefore exposed to varying intra-year fluctuations. The big takeaway here is that the euro exposure is much more significant in the first two quarters because of the Ag selling season in Europe and the Brazilian real exposure is larger in the second half for the same reason. We expect the same trend in 2017. Finally, remember we have sales in both real and euro in the performance business as well which is not as seasonal.

Next on slide 19 we are providing a quick reminder of the earnings seasonality in our business. As you know, there are different selling seasons for the different regions of our ag business which is the main driver for these variances. You can see that in the first half of 2016 was about 47% of full year adjusted EBITDA. You can also see that Q1 was significantly lighter than Q2. We expect both these trends to continue in 2017.

In fact, in 2017 we expect the Q1, Q2 split will be even more weighted towards Q2. Last year we saw an early spring in Europe which drove earnings to Q1, while this year we're seeing an extended cold season. We do not expect that this will halt our European business for the full year, but it will delay sales from Q1 to Q2. It is important to note that our 2017 full-year adjusted EBITDA guidance incorporates this phasing.

Lastly, slide 20 recaps our meaningful capital structure activity in 2016. As of December 31, 2016, Platform's net debt was $4.9 billion which includes $423 million of cash. Please note that our $500 million corporate revolver was undrawn at year end. This level of debt and cash leads to net leverage of approximately 5.9 times EBITDA from a debt covenant perspective.

In October 2016 we extended $1.95 billion of term loan debt by three years, subject to certain conditions and reduced our estimated interest expense. We also moved more than $150 million of debt from the US to Europe which is favorable from a global capital planning perspective. This was all on the back of a series B preferred stock settlement and equity raise we did in September.

In December 2016 we repriced the remaining $1.3 billion of term loans, further shifting from USD to euro. This transaction removed about $26 million of estimated annual cash interest cost and shifted approximately $600 million of debt to euros to better match our earnings profile. All-in-all, our Capital Markets activity in the series B preferred stock settlement resulted in an improved cash flow outlook for the company, all else being equal.

As you can also see from the chart, approximately two-thirds of our term loan is now maturing in 2022 or 2023, subject to certain conditions, improving our maturity profile and removing a significant near-term maturity wall. We also preserved our floating to fixed swaps on our term loans, meaning that approximately 55% of our US term loans are swapped to fixed rate until 2020 and 25% of our euro term loans are as well.

Overall, two-thirds of our capital structure is fixed rate which we believe is prudent in this current exchange rate and interest rate environment. You'll see several other familiar slides on the balance sheet in the appendix, including the full capital structure outlined on slide 23 and our covenant overview on slide 25. It is now my pleasure to turn the call back to Rakesh to review 2017 priorities and provide closing remarks. Rakesh?

Thank you Sanjiv, as we did last year we're providing our key priorities for 2017. The themes are consistent with last year, but the slight modifications are meaningful. Our first priority is to continue the positive momentum we established in 2016. This is true for the business segments, for our corporate functions and for the interaction between the two.

The second is to continue our efforts to focus on fast growing commercial areas. Progress on this will be measured over a number of years but we expect to continue to see incremental improvement. The third priority of cost savings from synergies has been adapted slightly to include continuous improvement initiatives to emphasize that improvements in our cost base are an expectation for the businesses, even after an integration is complete.

And finally, generate free cash flow. We're committed to get back to our target leverage of 1.5 times within three years from last September. We believe many of the steps we are taking on costs, working capital, interest and taxes will help accelerate the free cash flow growth in the business and we expect it to continue.

Before I turn the call over, I want to thank all of our employees, our customers and our other partners that help make our first year here a success. These results do not speak to the efforts of any one person or any one region or any one business. The other results are for combined collaboration where everyone did their part and more. I hope we can continue the momentum in 2017 and beyond. Thank you. And now operator, please open the call for questions.

(Operator Instructions)

Daniel Jester, Citigroup.

Good morning, everyone.

On the synergy realization, you have consistently exceeded your targets for the Ag business, and the performance business is also running well ahead of the goals that you've outlined. Is it fair to assume now that you are going to exit 2017 at the full run rate for all of the cost synergy guidance you provided?

Hello Dan, thanks for the questions. This is Ben Gliklich speaking.

We've articulated what we expect to be the incremental synergies we will realize in the P&L this year on our guidance bridge. We should be close in terms of reaching run rate. But I wouldn't say we will be fully there. And of course, as Rakesh mentioned, I mentioned there's a continuous cost improvement mindset at the Company. So once the integrations are complete we will still continue to be looking to optimize our cost footprint.

So to answer that, we will have a little spillover in 2018 from the stated synergies that we announced. But on top of that we are kicking off. We have kicked off a program to get continuous improvement cost reductions in the Ag business; we've outlined that today; it's $100 million opportunity that we are going to go after over the five years. And we will give you more clarity on that. We still see a lot of opportunities in the years to come.

Okay. Thank you.

And then, on the Ag pipeline, which I think you guided $1.3 billion today, last time you disclosed that it was closer to $700 million. Obviously, that is a big increase, can help us think about the different buckets here? How much of that is not secured? How much of that is from you revaluing some of your other key products? And any examples to help us think about how that is going to evolve?

Sure. Maybe I should ask Diego to give you a little more color on that. Diego?

We have done these details on every single project, but I can give you some color behind the $1.3 billion. We say that we want to achieve 15% of our gross profit every year with products that have been received in the last three years. So this pipeline is going to help us sustain that performance over time.

I can tell you that we have several seven new active ingredients that have been advanced into purchase state, of which five active ingredients are the result of collaborations with key partners. We're talking about multinational companies; we're talking about Japanese producers with research focus and some startups. Very exciting projects. We have one new herbicide, a prospective herbicide; we have three new insecticides in the pipeline; we have two fungicides; one new biostimulant. So a lot of really very interesting leads and we'll be updating you in the quarters to come of our progress.

Okay. Thank you very much.

Ian Bennett, Bank of America.

Thank you and good morning.

So could you just comment on, the press reported a couple of weeks ago that Platform hired a strategic advisor and was exploring strategic alternatives? Just any broad-based comments on that would be helpful.

Sure. So obviously we're not going to comment on rumors or speculation, there are always rumors out in the marketplace. What I would say is, today we have two really outstanding businesses; and I think you've seen the evidence of how both businesses performed in 2016. And our role is to continue to grow these businesses both organically and drive the businesses up in achieving greater heights, and that's what we are doing. That is the plan right now.

Okay. Thank you.

And just as a follow-up, it seems like the outlook for Ag is growth a little bit below the long-term targets, and performance solutions is above the long-term targets, at least for 2017. Can you comment a little bit about what you view as cyclical versus Platform-specific, and then also now the cash flow generation is improving, if these capital investments and increased registration, when you anticipate perhaps an acceleration in growth?

I think when you look at the underlying growth in the Ag business in 2017, the reason the headline numbers may look a little weaker is because we are making a change in the way we're doing business in Africa. That is going to lop off between 1% to 2% of growth in the Ag business. We are recalibrating our business. These are fairly low margin businesses. So we don't make a whole lot of money, but from a top line it shows a little weakness. Rest assured, outside of the Africa business, if you look at 2017, we expect Latin America to be strong. We expect North America to be also good.

We expect Europe to be somewhat muted compared to last year. We'll see how Europe plays out; I think as you heard Sanjiv, the first half of the calendar year is the strongest time for Europe. We've started off for Europe with fairly cold climate; it stayed dry. And so I think that sales in Europe are going to be pushed into the second quarter. So we are just being a little cautious about Europe. But other than the Africa situation, I think this business should go in the low to medium, mid single digits in the Ag business.

The performance solutions business, we already talked about. Just to give you a little more color on 2017, I think the electronics business has started off strong. We ended the year strong, and I think we're seeing that strength even play out in the early few weeks of 2017. So I think we expect to see a strong start in the year in our performance business. Still thinking that Asia will be a good driver of growth for performance business this year. That is why we said we expect organic growth in the performance business in 2017 to be higher than what we saw in 2016.

Thank you very much.

John Roberts, UBS.

In the Crop Protection area there is going to be a number of mega deals potentially closing the next several months. Do you think that's going to present any incremental opportunities or threats to your Ag business?

We are aware of what might come out of this. Frankly, much of what might come out doesn't really fit into our business model. A lot of them are for the row crops, large products -- we are much of a niche player; we are very focused on what we do. I think in terms of them presenting an opportunity for us, I think it is likely to be limited. And for the same reason I don't there's likely to be any threats.

If I could make one comment.

At the Investor Day in September, Diego revealed these five new strategic segments that we're focusing on. The whole strategy process that we went through to develop those segments took into consideration the development of the mega ag-chem, and the Big Six going into the Big Four, if you will. Our strategic segments, where we believe we can win, these are segments that are high-margin and will grow faster than the market, are areas that we think we can win in the context of bigger competition because they are niche and specialty, which aligns with our existing footprint capabilities.

Neil Kumar, Morgan Stanley.

Hello, good morning.

Your outlook for performance solutions seems to imbed continued market share gains for Alpha. Can you maybe discuss that a bit further and quantify for us how much is expected to contribute to your growth in 2017?

I think we said we are benefiting from both market growth and we are definitely taking share in, particularly in Asia. And I know Scot is on the phone and I'm going to ask Scot, who runs the performance solutions business, maybe to give you a little more color. Scot?

Sure. One of the key areas that we're focused on within our Alpha business is in the new power supply markets, primarily going into electric automobiles around the world. We made some really nice share gains as it relates to that, with some technology we think we have a leadership position in. That, coupled with the cross-vertical selling opportunities that we are working with gigantic global players, and our ability to have so many more multiple touch points within that electronic supply chain, is opening up additional opportunities for us in basic core electronic assembly as well. It is really a combination of core products and some really focused new technology sectors that is going to help drive growth in Alpha for the coming years.

Thanks. That is helpful.

Robert Koort, Goldman Sachs.

Hello, this is Chris Evans on for Bob.

Regarding your deleveraging and debt reduction plans, how much contribution would you expect from restructuring some of those high-interest term loans as the call protection wanes in 2018?

Good morning Chris.

Obviously, as we've shown in Q4 last year, we've been very opportunistic with the market, and you should expect us to continue to maintain that opportunism. We have a significant protection whereas we can refinance our term loans at very short notice, and you should expect us to remain opportunistic. I don't want to commit to any specific plans on what we'll do, but our actions speak for themselves.

Got you, thanks.

Regarding your tax planning, obviously your rate is maybe a little punitive given your geographic exposure. Can you give us a little more insight into where that comes from? And where you might be in a year or two in terms of your tax rates?

As I have been saying on these calls, real tax planning takes time. Having said that, I'm still very proud of the team in terms of what they were able to do in 2016. Specifically, some of the countries in which we end up paying a lot more in cash taxes, which is more of a reflection of our tax structure there and also the significant local profitability, are Brazil, China, Mexico. Those are probably our key primary countries. And there is still some further leakage in Western Europe: France, Belgium, Netherlands.

Having said, that I think our game plan is looking at both what I call tactical things, like looking at our global pricing footprint, looking at our global sourcing procurement footprint, looking at a global IT footprint. Those are all areas where the team is spending effort working with closely with the business to see whether we have opportunities. Separately, as we've then talked about integration and synergies, we are also looking at legal structure integration and tax structure integration in several countries: China, Germany, Hong Kong, where we should be able to then benefit with low taxes.

Is it fair to assume tax rates should be noticeably, observably lower in the near term?

These things take time. I think we will give you guidance and quarterly updates.

Great. Thank you.

Duffy Fischer, Barclays.

Hello. This is Mike Lee on for Duffy this morning. Congrats on the strong finish to the year.

Ben, on the synergies and cost side you identified $100 million of additional cost opportunity in Ag over the next five years. Curious if you have similar line of sight in the performance business for additional cost take-out?

The performance business right now is focused on integration. We have set an ambitious target of $70 million of realized synergies over three years. We delivered $30 million or so of that in the first year. We're going to stay focused on integration, customer-first integration. There's plenty of wood to chop there. Once that integration is complete, obviously, as Rakesh mentioned, we'll continue to focus on managing costs.

The thing I would say is, we're really focused on developing a continuous improvement mindset. Right now, the performance guys -- they have a lot on their plate in terms of just integrating the recent acquisitions they made. So they're going to deliver on that. But you can be rest assured, just like in Ag as we have moved into a continuous improvement phase and have identified this $100 million of opportunity, they are going to get to that phase also in the performance solutions business.

Great. And then just one more: just curious -- with shares recently at their highest level in the last 14 months or so, just want to be clear, can we rule out any further equity issuances that would accelerate the de leveraging process?

I don't think we have any plans to do that.

Great. Thanks, guys.

You are welcome.

Thanks, Mike.

Jon Tanwanteng, CJS Securities.

Good morning, gentlemen, thank you for taking my questions and very nice quarter.

Good morning. Thanks.

I appreciate the details in the cash flow expectations for 2017. Can you give us your take for changes in working capital as well as any other nonrecurring items or synergy realization costs heading to the new year?

The way we look at working capital is, you obviously have to look at the absolute levels, but the real good metric of evaluating working capital is as a percentage of sales. This year we used up about $60 million, so absolute numbers actually went worse due to FX. But if you look at the sales growth we achieved, our working capital as a percentage of sales actually improved. We have the same focus for 2017. As part of our metrics that we use on a monthly basis, working capital is a key metric and the whole team, not just finance, but the whole team, is really focused on improving that. I still expect working capital to be of modest use in 2017. However, as a percentage of net sales we continue to expect further improvement.

Got it. And other non-recurring costs of synergy realizations, or restructuring?

I think clearly, depending on the type of synergies being executed, there are some cash costs that are normalized for performance metrics. Those relate to people exit costs and also facility rationalizations; and we expect that to be, having said that, versus 2015 and 2016, these amounts are a lot more modest. Which is consistent with what Rakesh has been driving, that we do need to have free cash flow for 2017 significantly higher than what it was in 2016.

Okay, thanks.

Ben, just going back to the $100 million in identified cost savings in the ag business, how should we think of that in timing? Are there low hanging fruit which would make that happen sooner or later? Should we think of it more as a straight-line improvement going forward?

Diego, do you want to --

We have not done an exact phasing, but I think you can take a linear development for the time being and we will be updating you over time. We are very confident on our ability with the $100 million, and the team is doing a great job on implementing 2017, a good part of it.

Great. And finally, rumors aside, have there been any changes to the philosophy for or against divestitures, especially given the valuation of some of your peers out there? To accelerate the balance sheet recovery.

Not really; we are always focused on value creation for our shareholders. That is a given for any public company. But having said that, I can tell you I'm very pleased with the two businesses we have. The run rate for both of these businesses look very good. And we're going to continue to drive growth from both of these businesses.

Okay. Thank you very much.

Jim Sheehan, SunTrust.

Thank you. This is Matthew Stevenson on for Jim.

Quick question: I know in the past you have described the performance business as really being more of a sequential story than a seasonal story, but I've also noticed that there has been 1Q softness over the past couple of years, both on the sales side and on the margin side. Could you elaborate a little bit on that, what we might expect to see in the first quarter of 2017.

Scot, do you want to talk about the Q1?

Sure. What you normally see in Q1 from our business is a bit of an effect from Chinese New Year. We have seen a good start to this year. We like to wait and see January and February combined, because that takes out a little bit of that mitigation from the Chinese New Year effect, but primarily that's really the only thing we see from a seasonality standpoint

I would just add, you're right; MPS is a sequential business. Having said that, due to the timing of the synergies, we still expect even for MPS, the second half to be much stronger. Year over year, MPS will be better every quarter, but again it will be still a second-half story based on our current forecast.

Understood. And then in North America there was a comment in the seasonality slide, that you're expecting a shift from 1Q into the second quarter.

That was a comment on Europe. Europe in Q1 of last year, we had a very strong first quarter last year because we had an early spring. Unlike last year, this year I think the spring is delayed, because it has been cold in Europe and it has been dry. So that point was really related to Europe, not North America.

Understood. Thank you very much.

Thank you. Okay. Should we take one more call? I know we are past the time.

I am showing no questions on the phone lines at this time.

I just want to thank everybody for joining us this morning. And we will give you an update the next time we talk. Thank you so much.

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.