富美實 (FMC) 2015 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the second-quarter 2015 earnings release conference call for FMC Corporation.

(Operator Instructions)

I will now turn the conference call to Mr. Brian Angeli, Vice President of Investor Relations for FMC Corporation. Mr. Angeli, please go ahead.

Thank you, and good morning everyone. Welcome to FMC Corporation's second-quarter earnings call. With me today is Pierre Brondeau, President, Chief Executive Officer, and Chairman, who will review our second-quarter performance and business segment results, including an update on the integration of Cheminova, and discuss our outlook for the second half of 2015.

Also with me is Paul Graves, Executive Vice President and Chief Financial Officer, who will give an overview of select financial results. After the prepared remarks, we will be joined by Mark Douglas, President of FMC Agricultural Solutions; Eric Norris, Vice President and Global Business Director of FMC Health and Nutrition; and Tom Schneberger, Vice President and Global Business Director of FMC Lithium, to address your questions.

Before we begin, let me remind you that today's discussion will include forward-looking statements that are subject to various risks and uncertainties concerning specific factors, including but not limited to, those factors identified in our release and in our filings with the Securities and Exchange Commission. Information presented represents our best judgment based on today's information. Actual results may vary based upon these risks and uncertainties.

Today's discussion will focus on adjusted earnings for all income statement and EPS references, and pro forma, revenue, and segment earnings for FMC Agricultural Solutions. A reconciliation and definition of these terms, as well as other non-GAAP financial terms to which we may refer during today's conference call, are provided on our website. Our 2015 outlook statement, which provides guidance for the full year and third quarter of 2015, can also be found on our website.

I will now turn the call over to Pierre.

Thank you Ryan, and good morning everyone. In my comments, I will refer to the Q2 2015 earnings presentation posted on the FMC Investor Relations website. We have not used slides for previous earnings calls, but we have taken this approach today in order to help explain our results more clearly as we transition through 2015. I will refer to each slide by slide number as I go.

The second quarter of 2015 was perhaps the most significant quarter in the long history of FMC Corporation. We completed the sale of the alkylide business with Tronox, and closed the acquisition of Cheminova. These transactions marked the completion of the transformation of FMC's portfolio to one focused on the ag, health, and nutrition markets.

Following the close of the Cheminova transaction, we moved quickly to integrate Cheminova into FMC Ag Solutions. During this quarter, we took multiple actions that will drive strong future performance of FMC, and allow us to deliver target synergies of $120 million ahead of 2015. In particular, we successfully combined commercial organizations in key regions earlier than we had originally expected, which means we are well positioned to deliver the benefit of the acquisition more quickly than initially forecasted.

These recent changes, however, make it more difficult to compare the reported performance of Ag Solutions and Cheminova to the prior year's performance as standalone businesses. Even just a few months after closing, consequently, we will focus on comparing performance of Ag Solutions including Cheminova to the pro forma results for prior period. The full year 2014 pro forma results were filed with the SEC on June 5. Pro forma results for the second quarter are included in the schedules of the quarterly earnings release issued yesterday.

Before discussing FMC's earnings for the quarter, I will make a few general comments on two of the factors that have had a significant impact on FMC's reported results -- the state of the global crop protection market and the impact of foreign exchange movement. The global crop protection market continues to face multiple head winds that have created one of the most challenging operating environments of the past decade. Demand for crop protections product remains weak, due to the high channel inventories, poor planting conditions, low pest pressures, and soft agricultural commodity prices.

Through the first six months of 2015, on the US dollar basis, we estimate the global crop protection market was down by double-digit percent compared to the same period of 2014. Market conditions in Brazil are the most difficult. We estimate that through June, the crop protection market in Brazil was down approximately 25% compared to last year when measured in US dollars. Decline in demand, reflected in lower volume, are compounded by the rapid depreciation of the Brazilian real, which makes it harder for local currency price lists to keep base with exchange rate movement, resulting in lower revenues when converted into US dollars.

In addition to the real, all of our major currency exposures have weakened against the US dollar, creating a significant head wind to reported revenue and earnings across each of our businesses. The negative impact of foreign exchange and the challenging crop protection market, particularly in Brazil, overshadowed otherwise strong operating performance across the FMC portfolio. During the call, I will highlight where unfavorable currency exchange fluctuations most impacted FMC's financial results.

Turning to slide one, FMC reported $887 million in second-quarter revenue, an increase of 12% over the same period last year. Adjusted operating profit was $159 million for the second quarter, a 5% decrease compared to last year, and we reported $0.70 in adjusted EPS, a decrease of 15% over the second quarter last year. The benefits of ongoing cost-reduction programs and synergies related to the integration of Cheminova largely offset the impact of lower sales volume, higher interest expense, and the higher tax rate in the quarter. However, price increases in local currencies were not enough to offset negative foreign currency fluctuation, which I will discuss in more detail in each segment.

Turning to slide two and Ag Solutions, in order to provide greater clarity, as well as to be consistent with how FMC is currently operating the combined businesses, I will discuss segment performance on a pro forma basis. That is, as though we owned for the full quarter of 2014 and 2015. On this basis, revenue in the quarter was $684 million, and segment earnings were $117 million, a decline of 23% and 30%, respectively, compared to the second quarter of 2014. Foreign exchange had a significant negative impact on segment revenue and earnings in the quarter. Excluding the impact of foreign exchange, pro forma revenues declined 14%, while segment earnings increased 5% compared to the second quarter of 2014.

Multiple factors contributed to this performance. First, let me focus on the regional protection markets, and in particular Brazil, the primary driver in the decline in sales volume compared to the second quarter of 2014. As I noted earlier, we believe the crop protection market in Brazil was down almost 25% through the first half of 2015. It is important to understand that this decline was not evenly spread across all products or crop segments.

With respect to product segments, the volume decline was concentrated in insecticide. We estimate that insecticides, which you would typically expect to account for more than 40% of the market through the first six months of the year, were down 50% over this period, reflecting weak insect pressures and high channel inventories. Offsetting this decline was a 16% increase in the fungicide market, making fungicide the largest crop protection category in the first six months of the year.

This mix shift was dramatic, and unlikely to persist through the remainder of 2015. However, it demonstrates how unusual the crop protection market in Brazil has been so far this year. Historically, insecticides have contributed the largest part of FMC revenue in Brazil for the first half of the year, while fungicide is a segment where FMC was historically under-represented.

The addition of Cheminova gives FMC a broader and more balanced product portfolio, and enhances our future fungicide offerings. In other countries in Latin America, we observed encouraging demand growth, particularly for selective herbicides in Argentina, and niche crops in Columbia and Mexico.

North America delivered another solid quarter. Demand for FMC's Authority brand herbicide was strong compared to the second quarter of 2014, driven by the continued increase in glyphosate-resistant acreage. In Europe, volumes were stable compared to last year, driven mainly by Cheminova sales in the region. We are very excited by the opportunities we see in Europe, as we move to sell through Cheminova's direct access model in most of Europe for the 2016 season.

In Asia, we saw good results from newly launched product in China, specifically herbicides for wheat, and we saw further growth in Pakistan across the portfolio. Higher sales in these countries were partially offset by lower sales in Australia and Indonesia. Sales were also weaker in India, largely due to weak early monsoon season.

Contributing to the decline in sales volume in the quarter were specific actions FMC took related to the way the new Ag Solutions segment will operate. First, we initiated a process to sell our Brazilian subsidiary Consagro. This subsidiary is primarily a distributor of third-party product to smaller customers in Brazil. Given the opportunities that Cheminova portfolio brings, Consagro and its business model no longer fits with FMC. We reduced our investments in certain FMC fungicide in Brazil, electing instead to shift our commercial focus to the fungicide portfolio acquired with Cheminova, which we believe will be better suited to the crops and areas that FMC targets.

Third, we continued to reduce the level of third-party sales across all regions, in particular reducing sales of lower-margin products that are less valued by our customer. Lastly and very importantly, given the underlying market conditions in Brazil, we have remained disciplined in our willingness to extend credit into the Brazilian market. We recognize this would reduce our revenue in the period, but the rising cost of hedging our local currency exposures given the ongoing rapid depreciation of the Brazilian real, and the preference of growers to delay their purchasing decision led us to the conclusion that this is the right business decision for FMC.

All these factors taken together had a significant impact on FMC's revenues and segment earnings in the second quarter, but leave FMC in a position to deliver stronger earnings growth and cash generation through the second half of 2015 and beyond.

Given the environment in which we are operating today, we are intensely focused on the of cost structure of Ag Solutions. In late 2014, we initiated a series of program intended to reduce costs across the segment. This program, combined with early cost synergies from Cheminova integration, helped to partially offset lower volume in the quarter. We will continue to implement these cost-reduction programs while also driving the cost savings benefits of the Cheminova transaction as quickly as possible. We believe these actions will deliver increasing cost savings over the second half of 2015.

Let me now provide you with an update on the Cheminova integration. On slide three, we have provided additional detail regarding the synergies we discussed during our May 11 Investor Day. To remind you, we are targeting $120 million in synergies by the end of 2017. $90 million in synergies will come from cost reduction, principally head count, with $30 million in synergies coming from various commercial opportunities.

Immediately following the close of the Cheminova acquisition, we moved to begin integrating Cheminova and FMC. The integration is progressing well and gaining momentum. The results achieved over the first 100 days bring forth a confidence in the ability of FMC Ag Solutions to deliver the targeted synergies of $120 million ahead of 2017. Our first priority was to combine and integrate the commercial organization across key regions. In North America and Brazil, and in other key countries in Latin America, we have already made changes to our sales organization and internal systems that allow us to approach the market as a single Company. This was critical to deliver targeted synergies in the coming quarters, and I am very pleased with the speed in which it was achieved.

We also initiated our plan to sell FMC products through Cheminova, which for the first time will provide us with a direct market access across the majority of Europe for the 2016 season. As we integrate the commercial organization, we are also focused on reducing cost by streamlining the business and removing overlapping or redundant functions and capabilities.

The majority of the near-term cost savings are driven by head count reduction, and we expect more than 75% of all head-count actions to be taken by the end of this year. Further cost synergies are expected from a number of different non-head programs, including supply-chain efficiencies, procurement savings, and closing surplus facilities. These specific synergies will begin to impact our result in 2016 and throughout 2017.

On slide four, we have summarized our progress to date to achieve the synergy targets. We are targeting net head count reductions of 500 to 550 positions. Through the end of June, we had achieved approximately 65% of that target. As it relates to the other cost-reduction synergies, we have so far identified over 150 procurement projects, and by the end of June we had completed a quarter of them. We expect to identify and target additional procurement projects in the future.

Turning next to commercial synergies, sales and marketing organization have so far identified approximately 50 targeted growth programs. 60% have already been launched. Cost savings from our actions are coming in faster than initially planned, and we are pleased to see a number of recently launched commercial initiatives already gaining traction. As a result, we now expect 2015 earnings to benefit from synergies of $30 million to $40 million, up from a prior guidance of $25 million to $30 million. The impact of these actions will be seen in the second half of 2015, and will serve as a catalyst for future earnings growth for FMC Ag Solutions.

As you might expect, we are finding many opportunities to realize additional synergies that we have not yet quantified. In the coming quarters, we will provide further updates on the progress to achieve our synergy targets, and to the extent possible, quantify the additional synergy opportunities.

Moving on to health and nutrition on slide five, the segment's underlying performance in the quarter was good, although adverse currency movements led to flat revenue and segment earnings, up by just 3% compared to last year. Excluding the impact of foreign currencies, revenue increased 6%, and segment earnings increased 8% compared to the second quarter of 2014. Prices remained stable across the portfolio. Sales were driven by continued rolling growth in MCC-based product for the pharmaceutical and food end markets. Demand growth was strongest in the pharmaceutical industry, especially from multinational countries in Europe, and generic producers in India.

During the quarter, we were encouraged by increased demand for [choloedo] MCC products in both Asia and North America. In China, demand for choloedo MCC in beverage application remains below peak level. However, volumes are now consistent with historical averages prior to the steep pull-back in demand for choloedo MCC product in Asia that we saw in the latter part of 2014.

Slightly offsetting this positive trend is continued weakness in nutritional product, specifically omega 3. While sales value trends have improved, we have yet to see a meaningful rebound in what would bring omega 3 growth rate back to historical levels. We believe excess production capacity in the omega 3 market will continue to be a head wind for prices, at least for the foreseeable future.

The operating performance of the health and nutrition segment continues to improve. We returned to a normal level of seaweed supply in our alginate operations during the quarter, and manufacturing excellence programs are delivering higher yield in our Norway facility. As a result, we remain confident that by the end of the year, we will be able to recover the earnings impact of the seaweed shortage throughout the first four months of 2015.

Now turning to Lithium on slide six, reported revenue of $55 million decrease by 3% compared to last year, and segment earnings of $5 million were 39% lower than the same quarter in 2014. Foreign currency, specifically the Argentine peso and the euro, continue to have a significant negative impact Lithium reported results. Excluding impact of foreign currency, revenue increased 2% while segment earnings increased 17% compared to the prior-year quarter.

The Lithium business continues to operate extremely well. During the second quarter, the business achieved record production rates at our carbonate operations in Argentina, and at our hydroxide plant in the US. We continue to see improved pricing for both products on the back of strong demand growth. The Lithium organization continues to focus on the speciality segments in the market, in particular hydroxide, high-purity metals, and [bulie]. Given our technology strength and product expertise, as well as the market conditions for these segments, these are the areas where are the greatest opportunities for growth for FMC.

Turning to the outlook for Q3 and full-year 2015, as we discussed, we remain cautious about the strength of the crop protection market compared to last year. The third quarter represents the start of the growing season in the southern hemisphere, and as a result, market conditions in Brazil and Latin America will be the primary drivers of the performance in the third and fourth quarter.

Given the difficult market conditions currently seen in Brazil, there are higher than normal levels of uncertainty as to when growers will make purchasing decisions, which could impact the timing of sales between the third and fourth quarter. While these will not change our expectations for the second half of the year, it does make it difficult to estimate the balance between Q3 and Q4.

Despite this environment and continued unfavorable foreign currency moves, we expect very strong earnings performance over the next six months, driven by ongoing cost saving initiatives, acceleration of cost and revenue synergies from Cheminova, and targeted growth programs. Once again, excellent progress to date on the integration, and of course the strategic and operation benefit of the Cheminova acquisition to FMC, and increases our confidence in Ag Solutions' ability to deliver strong earnings growth during the second half 2015.

We expect full-year Ag Solutions segment revenue to be within the range of $2.5 billion to $2.7 billion, and full-year segment earnings in the range of $510 million to $550 million. Over the next six months, we expect segment earnings of between $315 million to $340 million, an increase of approximately 40% compared to pro forma segment earnings in the second half of 2014. For the third quarter, we expect segment earnings to be in the range of $105 million to $125 million. Third-quarter guidance is a wider range than previous year, reflecting the higher than normal uncertainty in the crop protection market. However, this does not impact our outlook for the future.

In health and nutrition, we expect third-quarter segment earnings to increase in the mid-single-digit percent over 2014, driven by continued demand for MCC in both pharma and nutrition end markets. For the full year, we are anticipating segment revenue down low-single-digit percent, but segment earnings growth in the mid-single-digit percent over 2014, supported by ongoing operational improvement and targeted restructuring program within the segment.

In Lithium, we continue to see strong demand and positive pricing trends for key products. As a result, we reiterate our expectation for third quarter segment earnings of $2 million to $4 million, and full-year segment earnings of $15 million to $25 million. On a consolidated basis, we expect adjusted earnings to be between $3 and $3.30 per diluted share, a 3% decrease at the mid-point of the rage compared to adjusted earnings per share for 2014. I will now turn the call over to Paul to cover financial highlights.

Thank, Pierre, and good morning everyone. Today I am going to focus on two main items: First, the impact of recent currency movements on FMC; and second, an update on how we're doing on our stated objective of increasing cash generated from operations.

Starting with FX, Ag Solutions was hardest hit by currency movements. The two currencies that drove most of this impact were the Brazilian real, which depreciated against the dollar by more than 40% compared to Q2 last year, and the euro, which depreciated by almost 20%. We were able to pass a proportion of this impact on to customers through higher prices, but the earnings impact of the shortfall between the price increases and the FX movements was still approximately $35 million. This was largely due to the rate at which the currencies moved, as the local currency price lists could not be amended quick enough to keep pace with the exchange rate movements.

In health and nutrition, the movement in the euro was the largest single impact, although this reduced revenues more than operating earnings, given our relatively large euro or euro-linked cost base. For Lithium, failure of the Argentine peso to depreciate at the same rate as local cost inflation was again the main driver, although the depreciation of the euro also contributed.

Included in these numbers are the hedging costs we incur in our businesses, driven almost entirely by the cost of hedging ag receivables in Brazil. As the base interest rate in Brazil has climbed in recent quarters, the cost to hedge a dollar of exposure has increased accordingly. Today the cost of hedging has increased by 30% per dollar of exposure, generating almost $4 million of additional cost in Brazil alone for the second quarter, and an expected full-year increase of over $10 million. This hedging cost is included in our segment earnings as an operating expense. Given the extreme volatility we see in the real, and indeed in other currencies, we will continue to hedge our exposures, in order to reduce the potential for large swings in our earnings.

However, we will seek to decrease our total hedging cost by reducing wherever possible our real-denominated sales, therefore reducing the need to hedge. We have undertaken a program to identify products or customers which at today's all-in costs don't make economic sense to continue to serve on the same terms. We do not expect this to result in a significant change to the way we conduct business in Brazil, but we will continue to exercise tighter discipline on what products we sell, to whom, and on what terms. In fact, this is one of the factors that contributed to our decision to reduce sales of third-party products for our customers.

This brings me on to the second topic in cash generation. Slide seven highlights some of the underlying contributors to our cash flow. As you can see for the first half of the year, our adjusted cash from operations, which excludes all Cheminova off-off M&A and integration costs, was more than double last year, at $189 million. Perhaps most importantly, our segment operating cash flow, which we define as EBITDA less or plus movements in working capital, and before un-allocated corporate costs, increased by 44% in the first half of the year, despite a year-on-year decrease in EBITDA over this period.

The driver of this improved cash generation is a decrease in the level of working capital in our businesses, as a direct result of multiple programs initiated across FMC. Ag solutions has focused on both inventory and receivables balances this year, with programs designed to ensure we are not making or buying products for resale before they are needed, and that we are not selling product sooner than we need to, or to customers that carry an unacceptable credit risk.

Health and nutrition is also focused on its inventory, reducing levels by over 10% in the year, as it uses ongoing manufacturing excellence programs to bring greater reliability to manufacturing operations, reducing the need to carry excess inventory to meet customer needs. Overall, we remain cautiously optimistic regarding our cash flow performance. We're seeing traction in all of our major focus areas, and we will continue to focus on improving our cash flow performance in the coming quarters.

We've also continued to be disciplined in overall capital spending, which in the first half of 2015 was 30% below the same period last year at $71 million. We expect total capital spending for this year to be in the range of $150 million to $175 million.

Finally, a comment on our quarter-ending net debt balance at just over $1.8 billion. I don't want anyone to get too excited by this number, as we have a significant tax payment related to the alkali sale, which has not yet been made. This payment will be approximately $300 million over and above our ongoing tax payments, and will be paid across the third and fourth quarters. The higher than normal cash balance we are carrying at quarter end is a function of these anticipated payments. Adjusting for this timing difference implies a net debt balance closer to $2.1 billion.

Before I hand the call back to Pierre, just a clarification of the increase in interest expense for Q2 and the rest of the year. We saw a temporary increase of approximately $5 million in the quarter, which was caused by certain local debt facilities of Cheminova in India, Brazil, and Argentina, which were incurring average annual interest rates in the mid-teens percent.

Although these facilities were relatively small, they had a disproportionate impact on our interest expense in the quarter. The terms of those facilities, which reflect the non-investment grade status of Cheminova, did not allow us to immediately replace them with much lower cost to FMC borrowings. However, we have now replaced most of these facilities, and we'll replace the remainder through the rest of 2015, bringing our interest expenses closer to more normal levels by the fourth quarter. With that, I will pass the call back to Pierre.

Thank you, Paul. To conclude, we are very pleased with the performance how the remainder of the year is shaping up. Our results for the second quarter were in line with our expectation, but for the unexpected temporary increase in interest expense in the quarter, our results would have been at the top of our guidance range.

As for Ag Solutions business, we are highly focused on controlling what we can control. We are in a down cycle with currency challenges. We are actually more concerned about currency fluctuations than we are with the market, which is still in line with our views as stated at our Investor Day in May. The cycle will turn around, as it always does, and FMC will be ready with a strong portfolio and a proven business model.

In the meantime, we are very confident that our strategy is starting to pay off. Our focus is to deliver earnings growth via the synergies from Cheminova, including revenue synergies, and stringent cost control regardless of where we are in the Ag cycle -- this starting in the second half of 2015. The integration of Cheminova is progressing faster than expected. Combined with our FMC portfolio and operated under the FMC business model, we will demonstrate in the coming quarters the potential of the new Ag Solutions business. We are also very confident that our earnings growth will accelerate rapidly into 2016.

Our Health and Nutrition portfolio continues to demonstrate its qualities, specifically its resilient earnings profile. The cost control and manufacturing excellence programs undertaken in 2015, combined with a technical strength and strong portfolio, will also see higher earnings growth as we enter 2016.

The Lithium business strategy to focus on downstream speciality product is now in place, and the business continues to bear it well. I am very pleased with the progress we are making in our efforts to reduce capital invested in the business through tighter control of capital spending, multiple effort focused on reducing our working capital, and very tight cost control. With the business environment that we are operating in today, it is extremely important that we continue to prioritize cash flow and capital discipline in all areas.

I will now turn the call over to the operator for questions.

(Operator Instructions)

We'll go to the line of John McNulty from Credit Suisse. Please go ahead.

Good morning. This is Matt Friedman on for John McNulty. I was wondering if you could please provide us some color on ag chem inventories in Brazil. Where are the biggest overruns, either by crop or type?

This is Mark. The inventory situation in Brazil is pretty significant, as we've talked about since the end of last year. The inventory balances that we see in the channels are pretty much spread across nearly all segments. In Pierre's comments, he talked about the impact on insecticides with channel inventories. We see also significant channel inventories in herbicides and fungicides. Obviously cotton is one area that we're exposed to, and we see channel inventories there. We also see in soy and in corn. In summary for us, channel inventories are pretty widespread. Obviously we're entering into the growing season, and those channel inventories are weighting on growers' decisions of when to buy, which we've commented already. But it's pretty widespread right now.

Thanks, that's helpful. How big was the rationalization of third-party sales in the top line? You indicated it was $15 million of earnings.

Obviously through third-party sales we make less margin, so it's less than you would normally see in terms of revenue, but in the $50-million, $30-million to $50-million range overall.

No, I think it's a much higher number.

That's the third party, but that does not include Consagro, the Consagro entity.

Oh, yes. Not including Consagro. Correct, Mark.

Got you. Lastly, if there was consolidation in the ag market, would you say FMC is more likely a buyer or seller of assets?

In terms of if you look at M&A, we have made our move. We have acquired Cheminova. We are integrating Cheminova. We believe that with that strategic move, we now have a very solid geographical balance, and very solid portfolio. We are not a seller and we are not a buyer. We are very pleased with where we are right now, and this is the way we intend to operate our business.

Thank you.

Our next question is from the line of Frank Mitsch with Wells Fargo Securities.

My assumption is if you were a seller of ag you're basically a seller of the Company, because that's what you guys are. You've done a great job of focusing the Company there. Of course we are -- we've hit a little bit of an air pocket here on the ag side, given the commentary. But Pierre, I wanted to just take a moment. The guidance for 2015 of $510 million to $550 million, at Investor Day you outlined -- I think it was $635 million to $685 million, which would be a 25% increase for 2016. Is it still feasible that you would be able to increase your ag earnings by 25% at the mid-point for next year?

Yes, Frank. If you look -- first, to your comment, yes -- selling ag would mean selling FMC, and we are not selling FMC. That's a true comment.

Regarding the earnings for 2016, if you look at the speed at which we are increasing our synergies, and the way they will impact 2016 with a full-year benefit I think the targets we have ahead of us for 2016 at this stage are unchanged. We are not banking on any change in the ag cycle for next year. We believe and we're still at the same place. Our vision, our view for the ag market has not changed since Investor Day. It's going to be a rough second half of 2015, and 2016 we'll look at it as a bit similar to 2015 -- no down, no up, about the same. Within those conditions, targeted growth on key technologies, plus revenue synergies plus cost synergies, should still bring us to the same level we had forecasted for 2016.

All right, terrific. That's very helpful. Clearly, with the acceleration of the synergies or the benefits on the Cheminova integration that would be a positive, now that you've owned the property for several months here. What about on the other side of the ledger? Have there been any -- what other positive surprises have you found, or perhaps negative surprises have you found with the transaction?

I think Cheminova is all we expected. It's really the Company we wanted to buy. What I would say is the biggest surprise is the easiness in which we are capable of integrating the two companies. That's why we are seeing the revenue synergies and cost synergies coming that fast. The culture are matching. There is no push-back from one Company to the other. You look at places -- Latin America, Brazil, Europe -- we are operating truly as a single Company, and that's why we are seeing this acceleration of synergies. There is no big issue we've uncovered. Actually, there is none. So far it's as good if not better than what we were expecting.

Thank you. That's helpful to hear. Thanks.

Thanks, Frank.

Next question is from Mike Sison with KeyBanc. Please go ahead.

Hi, guys.

Hi, Mike.

When you think about the second half, just curious if you can -- the third quarter is going to be difficult for ag, and then you have the big fourth quarter. I know Brazil tends to be stronger. Could you frame up maybe what needs to happen to hit that really strong fourth quarter for Ag Solutions?

Sure. Yes, thanks for the question. It's really an important second half for us, because with the way we've been preparing the second half with the acceleration of synergies in the second quarter, I think it's when things start to come together. I know the numbers look big, but there is a solid logic behind those numbers.

If you think about year on year what we've said is second half of 2015 will be about 40% up verses second half of 2014. Think about it that way. It's about a $100 million of EBIT increase. Two big buckets. The $100-million EBIT increase in the second half of 2015 verses 2014 is about $70 million of cost control and cost synergies. Then there is another bucket I would call of about $30 million of commercial benefit net of FX.

If I look at the commercial benefit, it's in a few categories. First, as you know -- we've been relying on it for many years now. We have a very strong herbicides portfolio, and we are seeing growth and market share grain in the herbicide portfolio. We are seeing, as I said in my script, quick synergies -- specifically in Brazil and Latin America -- on fungicide. There is some specific pest pressure on cotton we are seeing in Brazil, from which we will benefit. All of those three we believe will be bringing the growth. Now we believe that would be less the impact of the lower insecticide demand for Latin America and mostly Brazil, and as I said before, less impact of FX. Think about that $70 million cost control cost synergies, $30 million commercial benefit net of FX impact.

Okay, great. Then 2015 obviously a difficult year. What are your initial thoughts on -- obviously, you're going to get a lot of integration and savings in 2016, but how would you help us think about how Ag Solutions can do in 2016? Maybe is there a couple scenarios, depending on what crop protection globally could potentially do as a market?

Yes, as I said in my closing comment, we are very highly focused on controlling what we can control. Our assumption today, and the plans as we have defined it -- actually if you look at the way we are looking at the market today, we are still exactly at the same place as we were at Investor Day in May. We see a very tough back end of 2015, and we see no improvement in 2016.

Now looking at what is in the channels, all indication we have is we should start to see product being flushed out of the channel by the beginning of 2017. That's what we're expecting to see the cycle ending. Under that, the focus will be on revenue synergies, cost synergies, and cost control. The number is the one Frank mentioned are the ones we still believe we could achieve.

Today where we are, we believe a view of the market is correct. That's what we are expecting. I can tell you that where we have the highest level of uncertainty, and there isn't much we can do about it, is around currency. The real is depreciating at incredible speed. We believe the euro has stabilized. Still very hard to know what's going to happen with the -- in Argentina, and what will happen with their currency. It could be positive. That's where we have the highest uncertainty. Right now, the scenario we have is about the same as the one we were outlining in Investor Day. Potentially we have a currency situation which could be balanced by faster synergies coming into 2016.

Okay. In short, some of the range or the growth that you thought in 2016 you can get verses 2015 is still generally in the cards?

Correct. We have no reason to change.

Thank you.

Thank you.

Our next question is from Dmitry Silversteyn with Longbow Research. Please go ahead.

Good morning, guys. Most of my questions have been answered, but just a couple of follow ups, if I can. Can you repeat your CapEx guidance for the year? I'm sorry, I missed it.

Sure, and it's in the outlook sheet. It's $150 million to $175 million for the full year.

Okay. That's a significant reduction off of the rate you have been running at. Is that a sustainable level going forward, or is this one year, given that Cheminova is bringing a lot of capacity that you can do something with?

I think it's a very sustainable -- that's our target. That is the number we are looking at going forward. Remember, today one of the big CapEx user was Health and Nutrition. That business is very well capitalized for the years to come. It will be ag growth, and I can't wait to have to increase capacity for the ag business. Lithium, if we decide to increase capacity in lithium hydroxide, so much more focused capital spending. $150 million to $170 million is the number we have to look forward for the years to come.

Bear in mind as well, Dmitry, that if you think about historical numbers, you are probably remembering numbers that had alkali in there, too.

Yes, you're right. You got about a $100-million-a-year relief on CapEx from selling the alkali business. Okay. The decline in Lithium operating profit sequentially -- looking back, it doesn't seem to be a seasonal pattern to it. What drove the sequential decline in operating profitability of Lithium?

It's always -- and I hate to get into those discussions, because I hate when our leader of this business explains it to me that way -- but it's just the way accounting works. When you operate in Argentina, there is always operational difficulties and permits. The way you forecast your standard cost is very hard to do, because you don't always have the permit or the surprise you have on the cost end point. The problem is you always get those negative impacts in the time when the products are sold. You capitalize your variances. Some of the earnings decrease you see are mostly linked to issues operating in Argentina, which are due to previous quarters.

Got you.

It's just the way the GAAP accounting works.

Okay, all right. Thank you, Pierre. That's all the questions I had. Thank you.

All right. Thank you Dmitry.

Next we go to Laurence Alexander with Jefferies. Please go ahead.

Good morning.

Good morning.

I guess two quick ones. First, can you -- as you look at the marks environment in Brazil, how severe would things need to get to change your working capital strategy?

Sorry -- how what would things --?

What flexibility do you have to change your working capital strategy if conditions -- assuming that the tough conditions do spill over into 2016, what is your thinking about managing working capital days down there?

It's a great question. We have done, as you can imagine, an enormous amount of work and spent a lot of time focused on this. The whole industry operates on exactly the same terms. It is extremely difficult for any one of us down there, in my view, to individually change the terms on which we do business without having a significant and serious impact on the commercial operations down there. The most important factor that we're really focused on today is ensuring that we think very carefully about who we extend credit to, which products economically make sense to be sold on those terms. That does change rapidly when you have interest rates of 15% and a real depreciating rapidly.

Also thinking about credit risk, we think very carefully about credit risk, as you can imagine. I don't think you will see a fundamental change in the terms of business, but I think discipline around who we sell to and when we sell to them is really the biggest tool we have, and we have been disciplined around that in the first half of the year. I think we'll continue to be disciplined, and our outlook assumes that discipline continues through the rest of the year.

Secondly, can you give an update on your thinking around the biologicals partnership with Christian Hanson? Field trial date, what products testing you're going to be doing next year? Any sort of updates that you have there?

Laurence, this is Mark. The alliance is going very well indeed. As we talked about at our Investor day in May, we have seven really large projects we are working on. The first of those projects is due to be launched at the end of this year. It's for North America. It's a buyer stimulant that we will be using with some of our synthetic in-soil insecticides. Trials have gone very well. That product will be coming to market on target.

Following that, we have some seed treatments coming in, in the 2016 time frame -- then high-value biofungicides, mainly for the fruits and veg, and speciality niche crop markets. Following that are the more difficult areas, the bionematicides and the bioinsecticides. They'll come through in the 2018 time frame. The collaboration goes very well. It's exactly what we thought it would be. We have a pipeline of products, and obviously that pipeline is growing. Right now we feel very confident about our biosolutions platform.

Thank you.

Our next question is from Peter Butler with Glen Hill Investments. Please go ahead.

Good morning.

Good morning, Peter.

Regarding your very important ag program, there is a Company called Origin Agritech in China who is talking about starting to sell corn seed technology, GMO technology, globally outside of China. It claims to have better and cheaper technology than Monsanto. Would something like this be of interest as a way to get into the GMO business, say in a country like Brazil?

Peter, I think we are an ag chemical Company. That's what we do, and that's what we do best. We believe it would be highly destructive for us, and truthfully very expensive, to try to be a competitor in the seed business. There is formidable companies in the seed business like a Monsanto. We are very good at what we do, and they are very good at what they do. I think we're going to stay where we belong, which is really the ag chemical segment.

How are you feeling about your research productivity? Have there been any new developments? Are there any vibes coming from the laboratory on new stuff that you haven't talked about?

I'm going to ask Mark to give you more detail. But from where I sit, we are confirming everything we talked about in terms of platforms at Investor Day.

Peter, this is Mark. I just about the buyer solutions platform that continues to grow. At Investor Day, I talked about the nine active ingredients we have in the pipeline. They're all on track. They're due -- the first one's coming in 2015, and it goes all the way through into the early part of the next decade. We're not stopping there. We have a number of leads that we're following up in areas where we think we have gaps that we'll need to fill as we go into the next decade. But right now I can tell you that I really believe that the platform and the pipeline we have in ag right now is probably the best we've had in a number of decades. It will bear fruit as we go through into the end of this decade, early year, early next decade.

Sounds good, thanks.

Our next question's from Brian Maguire with Goldman Sachs. Please go ahead.

Good morning. Thanks for taking my questions today. Thanks again, also for the slides. That helps separate out what was a pretty noisy quarter. I struck on slide two by the amount of the FX hit to the ag segment. I can't recall FX being a major driver of the earnings one way or the other in the past. Just wondering if there's been -- I realize currencies have moved a lot in the last year -- wondering if there's been a change in the hedging policy, or if there's some impact of hedges in here? Maybe on the flip side, would the impact have been any worse if you hadn't done some hedging activity? Just trying to disaggregate the number there from what it would have been without any hedging activity?

Sure. If you think about it, Brian, two factors to bear in mind. We can only hedge at the prevailing rate, and the prevailing rate itself has moved year on year. Ultimately, without price movements on our real price list, we're always going to have that head wind, simply because the forward rates as well as the spot rates are significantly different. Our hedging policy has not changed. The extent to which we hedge has not changed. The cost of that hedging has increased a significant portion in the quarter, I think about $4 million increase year on year of hedging cost as a result of the real.

A second factor is bringing in Cheminova. Cheminova has a big European business. We have a big euro exposure compared to last year that we historically would not have had. We wouldn't have suffered in quite the same way, because our European business was somewhat smaller. They also have a sensible-sized Brazilian business, so it's magnified the impact of those two. It's really those factors. It is really the extent of the exposure to those major currencies has increased, and those two currencies have depreciated significantly, as you know.

Brian, it's unprecedented. It had an impact in the past, but as Paul said, with hedging we're able to be more predictable. But when you have a 40% change for the real during a period of 12 months, and I think 20% for the euro, the speed at which it was impacting our results never happened in the last five or 10 years. Consequently, the hedging cost is also becoming much higher. It's just the magnitude of the problem which has changed with us being bigger and bigger in Latin America and Brazil.

Just to give you another data point, when we had our Investor Day in May, the forward rate for the real against the dollar was $3.30-ish. Most estimates about a $3.30, $3.35 end of year rate. We hit $3.47 yesterday. It's moving in a way that's incredibly rapid and incredibly unpredictable.

Okay, I think that explains it very well. Paul, I was wondering if you could also comment on any change in collection behavior you're seeing from your customers in Brazil as they come under some pressure, either from the currency or weak ag markets? Are you seeing any change in your ability to collect on receivables down there? Thanks.

It's an interesting dynamic down there. One of the beneficiaries of the depreciation of the real is essentially the Brazilian farmer, because as the real depreciates, his real profitability is going up significantly. Unfortunately, he's getting paid to wait. He's getting paid to wait to selling his dollar currency commodities, and he's also getting paid to wait because of the pace of the depreciation.

We're not having any real meaningful change in the credit profile of our customer base. It remains an important core competence of ours to get out there and collect what is owed to us. Those conversations are no more easy today, largely because of the inherent preference of a Brazilian farmer to not pay until he absolutely has to. It's difficult. It's difficult to collect, but not because of credit reasons. Largely, because it's just a battle to get out there, persuade the growers to pay us what they us. That's true for everybody.

Thanks very much.

Our last question will be from the line of Rosemarie Morbelli with Gabelli and Company. Please go ahead.

Thank you. Good morning, everyone. Pierre, I was wondering if you could talk to us about the omega 3? You have this new plant in the UK. The game plan was to go after pharma application as opposed to food application. But it doesn't look as though anything much is happening. Could you give us a feel for what is going on, and what you expect in 2016, for example?

Sure. I think omega 3, I have to admit that our acquisition we did face two significant problems. There was a slow-down in the market, whether it's pharmaceutical or nutriceutical, mostly nutriceutical, because of some comments, articles which are public, even if they were based on junk science. But it had a very big impact on the market. The fact that it is a market when we came in we had three suppliers. By now we have about 11 suppliers of omega 3, so a very strong over-capacity.

We are fighting two fronts right now. One front is price. As any market-facing over capacity would face. A market where demand, even if it's coming back a bit, is still not back to historical level. Our focus for us, as you said, has never been the food industry. I would say the big difference, even in what you're saying, it's more than pharma. Our real focus is to penetrate strongly the high-end nutriceutical market. The two markets where we should be playing and pharmaceutical and high-end nutriceutical.

We are making some progress, but needless to say it is not at the level that we were expecting when we made that acquisition. Right now we are focusing on multiple fronts -- increasing our product offering in the nutriceutical, still policy bidding in the pharmaceutical, and our team in Health and Nutrition is looking very strongly on cost, and what our options to be even more competitive than we are today.

Is that an area in which you need to be, in order to gain customers, for example, by offering omega 3 as well as your other products, or you can dispose of it?

We could dispose of it without impacting it. It's more that if you think about it, we believe that we could penetrate the omega 3 market faster than others by using our relationship with nutriceutical companies and pharmaceutical. It is the case. I have to say that a larger product offering to a customer base we have is -- our customers are happy we are in omega 3. Well, they're happy because the price is not where we would like it to be, and the opportunities are not as strong as what we would like to be.

Pharma is an interesting point. Could we be out? Yes, we could be out. Is it time for us to get out? No, it is not time. I think we still have opportunities to participate in this market and see a return on our investment. But more challenging than what we were expecting. We're going to keep on driving that business as well as we can through 2016.

That is very helpful, thank you. I was wondering if you could bring us up to date on the new MCC plant in Asia, and is it ready to offer products to your pharmaceutical customers, or not yet?

MCC, as you've heard in the script, it is becoming very tight. The growth has been strong. Health penetration is looking at a strong back end of the year on both side, which is the pharmaceutical part and the beverage/food application for [chloridol] MCC. We are at a place now that we have made -- actually we made that decision yesterday to go ahead. We are staffing the plant. We are expecting the plant open up in 2016.

We also have confirmed the decision we are very well advanced on the engineering side to do the pharmaceutical line. The plant will start up in 2016. If not, we're going to be too tight in capacity, I think. We're going to get close next year to 95% capacity utilization. We're going to start up the plant in both MCC food and pharmaceutical.

Okay, thank you very much.

Thank you. I think we'll close the session. Thank you very much to all of you for joining. As I said before, very critical second half for us, where things are going to come together. Talk to you again very soon. Thanks a lot.

Ladies and gentlemen, this concludes the FMC Corporation second-quarter 2015 earnings release conference call. We thank you for your participation. You may now disconnect.