富美實 (FMC) 2016 Q4 法說會逐字稿

Good morning and welcome to the fourth quarter 2016 earnings release conference call for FMC Corporation.

(Operator Instructions)

I will now turn the conference over to Mr. Brian Angeli, Vice President Investor Relations for FMC Corporation. Mr. Angeli, you may begin.

Thank you, Roxanne, and good morning everyone. Welcome to FMC Corporation's fourth quarter earnings call.

Joining me today is Pierre Brondeau, President, Chief Executive Officer and Chairman, and, Paul Graves, Executive Vice President and Chief Financial Officer. Pierre will begin the call with a review of FMC Corporation's fourth quarter and full year performance, and then discuss the outlook for 2017. Paul will provide an overview of select financial results.

The slide presentation that accompanies our results, along with our earnings release and 2017 outlook statement, are available on our website, and the prepared remarks from today's discussion will be made available at the conclusion of the call. As with our prior calls, Mark Douglas, President FMC Agricultural Solutions, Eric Norris, President FMC Health and Nutrition, and Tom Schneberger, Vice President and Global Business Director FMC Lithium, will join to address 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 earnings release, and 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. With that, I will now turn the call over to Pierre.

Thank you, Brian, and good morning, everyone. In 2016, FMC continued to focus on execution. We consistently produced earnings in line with our expectations, and delivered 14% growth in our EPS. The actions taken over the last two years have improved our visibility into the business, and positioned FMC to deliver significant earnings growth in 2017.

In Ag Solutions, we focused on maintaining price and terms and took a disciplined approach to volumes in the face of elevated channel inventory levels, matching sales to market demand. Despite headwinds from Omega 3, Health and Nutrition delivered another year of strong margin and cash flow. Lithium increased its earnings by 200% by executing on its downstream focus strategy and taking advantage of favorable market conditions.

As we enter 2017, we expect each of our businesses to deliver growth in segment earnings and for FMC to deliver adjusted earnings per share of between $3.20 and $3.60. An increase of 20% at the midpoint of the range. I will provide details regarding our outlook later on the call. But first, I will review our fourth-quarter and full-year 2016 performance, starting with FMC's full-year results on slide 1.

FMC reported revenues of about $3.3 billion in 2016, roughly flat to reported revenue for 2015. However, adjusted EPS increased 14% to $2.82 as a result of 180 basis point improvement in adjusted operating margin, which was driven by a combination of higher prices, favorable mix and lower operating costs.

Fourth-quarter revenue was $866 million, an increase of 4% (sic - see Press Release "decrease of 4%") compared to the same period last year. As revenue growth in Health and Nutrition and Lithium was offset by lower revenue in Ag Solutions. Adjusted earnings per share for Q4 was $0.88,14% higher than Q4 last year, largely driven by the significant increase in segment earnings across the businesses.

As you can see on slide 2, FMC delivered significant growth in reported segment earnings and adjusted earnings per share in 2016. Segment earnings increased by $79 million, driven largely by Ag Solutions and Lithium. The increase in segment earnings more than offset higher corporate expenses and taxes in 2016, driving the 14% increase in adjusted EPS.

I will comment further on each segment's fourth-quarter performance starting with Ag Solutions on slide 3. Fourth-quarter 2016 revenue declined 6% to $618 million, in line with the market and mainly due to lower sales in Latin America and Europe. Despite the decline in revenue, Ag Solutions delivered a 25% increase in segment earnings to $127 million in the quarter. The increase in segment earnings was driven by regional mix with higher sales contribution from North America and Asia, and by our ability to defend pricing in Latin America despite the strengthening of the US dollar.

Segment earnings margin improved by over 500 basis points to 20.6% in the quarter. This marks the first quarter since we closed the Cheminova acquisition that Ag Solutions segment earnings margin has exceeded 20%. We remain confident in our ability to return segment earnings margin to above 20% on a full-year basis. Overall, we continued to execute very well in the context of a strategy that focuses on maintaining discipline on price and term and limiting credit risks, while pursuing top-line growth only where it makes sense for our business.

Turning to slide 4. I will provide additional comments on Ag Solutions' regional performance starting with North America. Revenue increased 8% in the quarter, but declined 6% for the full year. The quarterly and full-year performance in North America was in line with our expectations at the start of the year. The increase in Q4 revenue was driven largely by strong early-season demand for FMC's Authority brand pre-emergent herbicide.

The timing of sales in 2016 is consistent with the trend that we have seen emerging over the past two years. Growers in North America are generally purchasing pre-herbicide earlier, while deferring other purchases until later in the crop season.

In Latin America, sales declined 13% in the quarter and 21% for the full year. Lower volumes in Brazil and FX headwinds from the Mexican peso drove the reduction in revenue in both the quarter and the full year. The lower volume in Brazil was a direct result of two decisions made by FMC, rather than lower end user demand for FMC products.

First, we allowed inventory in the channel to reduce. Second, we were very disciplined with regard to credit exposure. As expected, the disciplined exercise on volumes allowed FMC to defend price and maintain terms despite FX movements. Combined with lower operating costs, we delivered a significant increase in segment earnings in the region for both the quarter and the full year.

In Europe, revenue declined 17% in the quarter as a result of FX headwinds and lower volumes. Sales activity in Q4 is generally [remittent] as the primary sales season in Europe is in the first half of the calendar year. For the full year, sales were down 12%. The shift in timing of sales caused by a move to a direct market access model across Europe and product rationalization each contributed to the decline in full-year revenue.

In Asia, revenue increased 8% in the quarter due to a strong winter crop in Australia and strength in Indonesia. Full-year revenue fell 6% on the back of softer demand in China, and our actions to reduce channel inventory in India following two years of drought.

As we look forward to 2017, our expectations of market conditions remains unchanged from what we saw in November. We continue to expect on a US dollar basis the global crop protection chemical market to remain flat in 2017, creating a more stable operating environment for FMC Ag Solutions than we have seen in the last two years.

However, we expect the market in North America to remain challenging. Continued elevated channel inventories combined with low commodity prices will result in more cautious purchasing decisions by growers. In Asia and Europe, more normal weather conditions should lead to an improved demand environment next year, although we expect FX to be a headwind. In Latin America, we expect to the market to be up slightly. Based on what we saw in 2016, we have higher confidence that the 2017/2018 season will see increased demand across the region.

We expect Ag Solutions' revenue will between $2.2 billion in $2.4 billion, which is roughly flat to 2016, as lower sales in North America will be offset by increased demand in other regions. Segment earnings are expected to grow to $410 million to $450 million, an 8% year-over-year increase at the midpoint. Earnings performance will be driven largely by improved mix, new product introductions and lower operating costs, which will be partially offset by FX headwinds.

We expect continued margin improvements, with margin of approximately 19% for the full year. We expect first-quarter segment earnings in the range of $60 million to $70 million with mid-teens segment earnings margins.

As we mentioned earlier, growers in North America are in increasingly purchasing pre-herbicides earlier and delaying other purchases until later in the growing season. We anticipate similar buying pattern in 2017, and will remain disciplined around when we sell product, allowing sales to fall in the quarter in which growers demand it. As we have seen in recent years, Q1 will contribute to lowest revenue of any quarter. But we still expect sales over the 2016/2017 North America crop season to be roughly flat.

Turning now to Health and Nutrition on slide 5, which delivered fourth-quarter results that were in line with our expectations. Health and Nutrition reported revenue of $177 million. The 3% year-over-year increase was due to higher sales volume of Health excpients in Asia and Nutrition in regions in both Asia and Europe.

Segment earnings increased 17% to $54 million, driven as expected by lower costs. This was largely the result of lower manufacturing costs as noted on our Q3 call. For 2017, we expect Health and Nutrition to deliver full-year segment revenue of $750 million to $790 million, which is an increase of 4% at the midpoint. Increased volumes of MCC-based products are driving most of the year-on-year increase as we ramp up production at our MCC plant in Thailand.

Segment earnings are expected to be in the range of $190 million to $200 million in 2017, an increase of 2% at the midpoint. We expect segment earnings margin to be the same as 2016 at around 25%, as cost savings achieved in 2016 will offset the cost of bringing our new MCC plan online. For the first quarter, we expect earnings in the range of $45 million to $50 million.

As you see on slide 6, Lithium delivered another strong quarter. Revenue of $71 million was up slightly compared to the fourth quarter of 2015, as higher prices across all product groups were offset by lower volumes in the quarter. The season to direct lithium carbonate to a lithium hydroxide startup process resulted in lower volume in the quarter.

Segment earnings nearly doubled to $21 million in the quarter, due to higher prices and inflow mix. These factors combined to drive an increase in segment earnings margin to 30%. In 2016, approximately 75% of our revenue was generated from the sale of downstream products. By managing our sales mix and capturing price increases across the portfolio, our revenue [by per LCE] in 2016 increased approximately 25% compared to 2015.

FMC Lithium is well positioned to deliver another year of significant earnings growth in 2017. Demand across our key downstream market continues to grow, with most contracts in place for 2017. Sales of downstream specialty products will comprise about 90% of our 2017 Lithium revenue. This largely insulates us from volatility in prices for lithium carbonate and chloride. We expect Lithium segment revenue in 2017 to be between $315 million and $355 million, an increase of over 25% at the midpoint driven by a combination of increased volume and higher prices.

Our hydroxide expansion will result in a significant increase in volume in 2017. Our expansion remains on track. We have produced several trial runs of material, and are putting this material through internal quality and performance tests. We expect to begin offering product to customers for quality [cash and] testing in the coming weeks. Based on the product to date, we remain confident that we'll begin commercial sales in July 2017.

The combination of increased hydroxide volumes, higher prices and improved mix is expected to deliver segment earnings in the range of $90 million to $110 million. This represents over 40% growth at the midpoint of the range. We also expect to achieve earnings margin of about 30% for the full year 2017. We expect first-quarter segment earnings in the range of $18 million to $22 million.

Slide 7 summarizes the 2017 outlook for each segment as we discussed earlier, and shows we expect adjusted earnings to be between $3.20 and $3.60 per share. We expect the 2017 quarterly earnings [cadence] to be similar to what we saw in 2016, driven by the timing of Ag sales in North and Latin America and the ramp up in lithium hydroxide production. First-quarter 2017 adjusted earnings per share is expected to between $0.50 and $0.60. I will now turn the call over to Paul.

Thank you, Pierre. As usual, let me start with the income statements before I move on to cash flow and the balance sheet.

First, tax. Our adjusted effective rate for the year was around 22.8%, brought in line with our expectations. Since we were accrued at 23.5% for the year to date, this resulted in a slightly favorable impact on our Q4 tax rate, although clearly not as large as we've seen in prior years. While lower than guidance, the tax rate compared to Q4 2015 was a drag on our earnings of around $0.12 per share. Looking into 2017, we expect that rate to fall into a range of 16% to 20% for the full year. As I discussed at our last call, this is mainly due to the impact of the full integration of Cheminova, a largely European business, into our supply chain. Combined with our current view as what our regional earnings mix will look like in 2017.

Touching on currency next. For full-year 2016 across all businesses and regions, currency was a small tailwind to earnings compared to 2015. Favorable movements in Brazil were partially offset by the weakening of almost every other major currency in our business, most notably the euro and Mexican peso. Almost all of the tailwind occurred in Q4. Looking into 2017, we would expect, based on current forward rates, that currency will be a drag of as much as $45 million on our earnings, almost exclusively in Ag Solutions, and spread across multiple currencies. This headwind is factored into our guidance.

Let me also give a few comments on the higher guidance for corporate expenses in our 2017 numbers. We are guiding corporate expenses to be approximately $10 million higher than in 2016. As you know, FMC allocates almost all centrally incurred costs to the business results. And therefore, all of the savings we have achieved from Cheminova integration are reflected in the segment level results. The remaining corporate costs reflect only those costs which reflect the cost of managing a publicly listed company that we've historically not allocated to the segments.

For 2017, we have approximately $10 million of non-repeating costs related to various programs which will give immediate benefits to either segment earnings, cash flows or the corporate tax rates. Some of these programs commenced in Q4 2016, and all of these programs will be completed in 2017 with the benefits starting to accrue in late 2017.

Moving on to cash flow on slide 8. We delivered adjusted cash from operations $561 million. However, this included a decision we made in the fourth quarter as markets moved in our favor to take advantage of an opportunity to annuitize our remaining UK pension obligation. By injecting $21 million into this fund, we have now removed all future funding requirements and eliminated a significant annual management cost of this exposure.

Without this item, our full-year adjusted cash from operations would have been at the high end of our Q3 guidance range of $550 million to $600 million. Even after this payment, we delivered a 55% increase in cash generation compared to 2015, with higher earnings, stronger working capital performance and tighter spending discipline, all contributing to the year-on-year increase.

In 2016, we collected almost $700 million of outstanding receivables in Brazil. While this is solid progress, we saw no signs in Q4 that the credit tightness being felt by our customers is easing. And we remain cautious about extending further credit to some of our customers through additional sales. This lack of broadly available credit is the reason that the receivables balance in Brazil remains higher than we believe it should be. And we will continue to bring the same focus and discipline to collections in 2017 that we did in 2016. Based on our current visibility, we believe that we will reduce the current balance further in 2017.

We reduced net debt by almost $250 million in 2016, ending with an adjusted net debt to EBITDA of approximately 3 times. We will continue to manage our debt to a level that is consistent with our current credit rating.

Looking into 2017, we expect our capital expenditure to remain similar to 2016, just ahead of depreciation, allowing for our planned expansions in lithium hydroxide. This does not include any capital investment decisions that we may make with regard to a significant expansion of our lithium carbonate capabilities, which is something we are analyzing today. With that, I will turn the call back to Pierre.

Thank you, Paul. Despite the challenging ag market conditions, we believe that our 2017 plan is very achievable. It relies on things we control, rather than expectations of positive external events.

We expect to deliver earnings growth in each business, and strong EPS growth of 20% for the whole Company. The strategy of each business is aligned with its respective market conditions. We expect revenue and earnings growth in our Lithium and Health and Nutrition businesses, and will continue a very disciplined approach in Ag Solutions to ensure earnings growth while positioning the business strongly for the eventual upturn in that market. We expect in 2017 the same predictability of results for the Company that we demonstrated in 2016.

Thank you for your attention, and I will now turn the call back to the operator for questions.

(Operator Instructions)

Robert Koort, Goldman Sachs.

Thank you very much. Good morning. Pierre, I was hoping could you talk maybe about what you see as the path in terms of giving up some volumes in order to tighten up your margins and improve the credit profile. When do you start to lap that, and when would we start to see your underlying volumes echo more of what's going on in the end-markets?

Well I think at this stage, we believe that it is very important to do two things. Let the sales happen in the quarter when there is the demand, and be very disciplined around a potential credit risk.

I do not see us lightening that behavior in the next six months. I think we are still observing the market.

There is multiple signals and feedback from the market that we could see some signal of an upturn for the 2017/2018 season, especially driven by Latin America. So if I would have to predict a date where will we be more focused on a top-line growth in line with the market and maybe a less prudent approach to market, I would say in the back end of 2017.

Got it, thank you. And then briefly, your carbonate sales, you mentioned that those upstream sales are only a quarter of your portfolio yet there was a pretty big volume decrement. Does that mean you're filling the pipeline and we should get the benefit of those carbonate volumes converted to hydroxide sometime in 2017?

So what happened in the fourth quarter are two things. First of all, just to make sure we would have the volumes needed for the start up of the plant, we put inventory, some carbonate, just to make sure we were fully prepared to load the plant as soon and as fast as we can the hydro [extand] expansion. That is one.

The other one which is more important from a volume impact in Q4. Last year, we had quite a few sales of a resale of third party. We would buy product, convert what we would need to hydroxide and whatever we would not need for hydroxide we'd sell in the open market for carbonate.

The problem in the fourth quarter, if you look at the differential between at which we could buy this carbonate and we sell it didn't make if valuable from an earning standpoint. So all of our focus was to line up the volume of carbonate with what was needed for a downstream business. So those were the two key reasons.

From a benefiting of the carbonate sales going into hydroxide, yes, you will see that in the second half of this year where we have a significant volume ramp up of hydroxide coming from carbonate.

Perfect. Thanks for the help.

Thank you.

Chris Parkinson, Credit Suisse.

Thank you. You hit on this a little in your prepared remarks, but can you give a little more color around the shift in your sales in Europe within the ag segment? And comment generally on the materiality of the shift and how it's potentially incorporated into your 1Q guidance. Then also, is there any other region where this could potentially occur throughout 2017? Thank you.

Hello, Chris, it's Mark. As we've gone through this direct market access model in Europe, we are seeing movement. You saw it in Q4, you'll see some of it in Q1. But really it impacted the 2016 numbers.

We get back onto a more normal run rate in 2017, with the exception of one final country which is France. It's the last direct market access, we'll be putting that in place towards the end of this year. So we might see a little bit at the end of the year in France, but essentially it will be done as we move through 2017.

We haven't really put a number on the size of that, although clearly that was a significant reason for what you see in 2017 along with FX. FX is a number in 2017 Q1 that is a reasonably large number that's impacting Europe. I don't think you're going to see that anywhere else in the world.

We're pretty much finished with all our direct market access movements. If you watch the press, we purchased our joint venture in China and also in Argentina as we went through the end of last year. So we're pretty much done in terms of the rest of the direct market access.

Thank you. And a quick follow up actually. Just on the product rationalizations and [line in] in Europe, can you give some general color of the magnitude and the cadence of those efforts? Is that mainly something that's going to appear in the first half?

And then also, any general thoughts on how the rationalizations are going to be netted against the launch of some of your new molecules over the next few years and how that flows eventually into longer term margin guidance? Just any broad thoughts there would be appreciated. Thank you.

Well we've done a lot of work over the last 18 months on rationalization. It's coming to an end. I think we'll see less of it as we roll through 2017. There is still some inventories to be sold as we go through the process.

New product introductions, we have about 40 new products to be introduced in 2017. Obviously that's the first year of those products being sold, so the revenue is smaller than it will be at peak. Those products and many formulations, new mixes that we have for our proprietary molecules, tends to be herbicides and fungicides.

And then obviously going forward, in 2018, we have the launch of our first of the platform molecules, and that rolls through all the way through 2023. We have netted that out against the rationalizations that we've seen already.

We've said our pipeline as peak sales of about $1.5 billion in revenue. That still holds true. So you will see that potential new growth coming through as we go through the rest of this decade.

To give you a sense of a product rationalization, as Mark said, we are getting to the end of the process now. But if you look back, we have worked our way through this process in 2015 and 2016 of annual sales of $461 million, of which 63% were in Brazil. So it was a very significant move.

One of the reasons for which, besides the careful approach in the market and avoiding credit risks and the timing, I think we moved away from $461 million of annual sales. It's a big chunk, 63% in Brazil, 12% in EMEA and 11% in Asia. I think we're seeing the end, which could make us more aligned with market growth in the future.

That's very helpful color. Thank you.

Thank you.

Mike Harrison, Seaport Global Securities.

Hello, good morning. Pierre or Mark, could you maybe talk a little bit about this trend toward increasing Q4 sales of pre-emergent herbicides, and then the fact that you would see delaying in purchases of other chemicals as the crop season progresses? What does that mean for business, and what does that tell you about the market? And is this trend here to stay?

Let me make a color on the first half of the year, and then I will let Mark comment on the move to our early pre-emergent. The way we look at the market today for North America, we are trying to give a quarterly breakdown. But for us, we tend to look at it more on a seasonal basis.

So we're giving two numbers, one for Q1 one for Q2, but we're looking more at a six-month time period. And for this time period, we believe sales would be shifting more toward Q2. But frankly, you could see $10 million shifting from Q2 into Q1 and have Q1 higher by $10 million and Q2 lower by $10 million.

That is what we are seeing today. More of a trend for the past, not the pre-emergent market. Within the season to buy really when you need them, but all depending upon price of commodities and common (inaudible).

You could see that shifting. So the number -- and I know as a public company, we have to talk about quarterly numbers. It's fair game. But look at the numbers as a six-month knowing you could see $10 million shifting from one side to the other. Mark, you want to talk about the pre-emergent?

Yes, Mike, I think one of the things that we see is distribution and retail are prepared to hold inventories of products that they know they're going to move and they know they're going to need early in the season. Hence what we've see on the pre-emergent side.

You think about our market share in pre-emergents, we've grown that share over the last seven to eight years. And we have about 28% of the market in North America now with our authority family of brands.

So distribution and retail know the products are going to move, so they are willing to put them into place earlier. Hence we've seen that shift from Q1 to Q4. I would expect to see that to continue as we roll through the next few years.

Thank you. And then another question on the ag business, just looking at the cost structure overall. I'm wondering if there are some typical costs things like merit pay increases, incentive comp, travel expenses that you have been holding a lid on during 2015 and 2016 and those costs are going to be higher this year? And if so, what would be the magnitude of those higher costs?

We are not expecting cost to be higher. I think the cost controls which have been put in place are mostly cost synergies, which have come to us with the integration of Cheminova. Those are very sustainable.

We believe we have rightsized the organization, and we are not expecting at all to have to make any significant changes on our cost structure. As you've seen in the numbers, we will increase earnings by 8% in the ag business in the flat market. The only place where we are looking at a temporary cost increase is what Paul talked about which is a corporate cause, because we have programs which will have a fast payback around SAP systems and taxes for example.

Which knowing that we are heading toward a decent year, we have good visibility for 2017. I think we feel very much in control. We believe it was the right time to put those programs in place which will pay a dividend quickly, as you could see on the tax rate.

All right. Thank you very much.

Thank you.

Daniel Jester, Citigroup.

Hello, good morning, guys. So in Brazil, you spoke about drawing down your own inventories and you've been talking about that for a while now. So can you give us any sense as to where you believe your inventories are relative to a new normal part of the cycle, any comments about industry-wide inventories in Latin America? Thanks.

I think we are in a good place right now. We worked very hard on the managing the inventory level in the channel. I would say Brazil and Latin America, we are expecting for FMC with all the work we've done and we're going to keep on doing in Q1 this year, that's going to be the bright part of the business in 2017. That's why we are having good expectation.

We are at the right level, I don't think we need to further control our inventory. We still have work to do in North America, don't get me wrong. But I believe we are in good shape in Brazil and Latin America right now to be able to push sales at a normal rate. We are semi-cautious around credit risk, but beside that we feeling quite confident and the numbers should show it in Q3, Q4 this year.

Okay, thank you. And then on lithium, you've spoken today about the benefits from hydroxide pricing, but I think you were out last year with a price increase in ButyIlithium. So any update on that?

And then as you become more downstream in your lithium business, does that change the seasonality of your profit margins? I know in the past, the third quarter has been a weaker quarter. But as you go more downstream, does that change that seasonality as you model out 2017? Thank you.

Yes, hello, Daniel. This is Tom.

On the pricing question, we are expecting to grow our revenue per LTE again. We grew, as Pierre had mentioned earlier, by 25% year over year this year, and we expect to grow another 20% going into next year.

Hydroxide is going to be the bulk of that, other specialty products like metals are also above the average. ButyIlithium at a higher price point and some of the other specialties that are at a higher price point will be lower than that average. But it will go up year over year.

As it relates to the seasonality, the specialty product portfolio is very stable. It really isn't a sales seasonality and it never was in the first place. The seasonality we are continuing to improve, but that's more of an operational improvement process. As we continue to improve efficiencies and reliability in Argentina, we're improving seasonality to the extent possible.

I think what is important for us in a move toward more specialty and downstream is we have way less exposure to the viability of pricing depending upon the supply demand. You see and you could see in 2017 around carbonate and chloride.

The seasonality which is due to our operations in Argentina the fact that we are 12,000 feet and the winter season, that we'll have to live with while trying to improve our operations. But will have to live with from a cost standpoint and production standpoint in Argentina. But the big, big benefit is really the fact that by moving all of our carbonate into a downstream, we have much more visibility.

With most of the contracts signed by now by 2017. I would say the only viable we have this year is to confirm, which we are doing today, that our plants are going to start to have commercial sales of lithium hydroxide the new plants in July. But beside that, everything is pretty much set.

Thank you very much.

Frank Mitsch, Wells Fargo.

Good morning, everybody. Paul, you mentioned that material decline in the tax rate, and it was driven by your regional expectations on where the profit is going to grow in 2017. Can you expand upon that a little more?

Sure, happy to. Ultimately when we acquired Cheminova we did talk about this at the time, it creates, I wouldn't say an opportunity, but the truth is a requirement to realign our supply chain to reflect the fact that we now have a large business. Mark talked earlier about a direct market access business.

Just bear in mind that historically we serviced to Europe and sold to Europe essentially from the US. Today, none of the product we sell in Europe really touches the US anymore. So we're more aligned with the physical flows.

And what that does is change essentially where we recognize profit around the world. Tying it more closely to the reality of how we operate our business.

So this is not a tax planning program per se, it is a tax benefit of the supply chain integration that we have been doing linked to the Cheminova integration. In fact, some of the extra corporate spending and some of the work we will be doing in 2017 just reaffirms that point.

It's realigning where we invoice from. It's realigning our SAP systems to reflect those flows. And the impact is that we do tend to recognize more profit in the future in lower tax jurisdictions because we're making more sales in those regions.

So it's primarily an expectation of generating greater profitability in Europe is the simple answer, correct?

Correct.

All right. And then I should ask the obligatory question, Pierre, regarding your most recent thoughts on possible participation of FMC in some of the divestitures that may be mandated as part of the mega ag mergers that are going on there. What are your current thoughts on your possible participation there?

We are still very attentive to what is going on. Listening to the process, I think we've seen that most of the companies involved in the mega mergers are all having discussions with antitrust authorities.

We believe it will result in opportunities. So at this stage, it's a very high priority for us to watch what is going on and stand ready if we have an opportunity which makes sense for FMC. But we would like to participate if we can.

Perfect, thank you.

Thank you.

Dmitry Silversteyn, Longbow Research.

Good morning, guys. Just wanted to follow up on a couple of questions that perhaps were addressed previously.

On the Health and Nutrition, you're expecting pretty decent results to both the top line and bottom line. You talked about MCC ramping up in Thailand. What other drivers are there of both your growth expectations on the top line as well as your ability to preserve margin on the EBIT line?

Hello, Dmitry. It's Eric here. So I will answer that question.

On the top line, it is, as you referenced already, it is MCC that is a driver for us. The rayon plant in Thailand is ramping up. That is serving largely the food marketplace today, and that market in Southeast Asia remains robust.

China remains steady. We see it steady going forward, and so we've got some modest growth there as well. So that's a positive revenue growth driver in the food market.

Another driver that has been with us all year long and we don't see changing into the coming year of 2017 or this year of 2017 is the growth in the pharmaceutical market. The health excipient marketplace, which again is largely an MCC marketplace for us. Those would be the two largest drivers going forward for growth in the coming year.

In terms of preserving margin, that's a story that Pierre has told and continues to be a focal point for us. We're bringing on a lot of costs when you bring on a greenfield plant.

We simultaneously are going through a lot of manufacturing excellence programs to reduce costs and improve efficiencies in every single operation we have. Not just our two legacy MCC plants, but also our seaweed producing plants around the world as well. So that remains a focus for us.

Okay. And then to follow up on the tax rate question. Should we be modeling the 20% that you've delivered over the last couple of years, Paul? Or in light of your comments, would we be looking for maybe high teens by the time we get into 2018, 2019 timeframe?

No, we've guided in 2017 for 16% to 20%. That range it may be a little wide, but as we go it into the year we'll get more clarity where in the range it's gong to come out. We're pretty confident it will be inside that range in 2017, hence the guidance.

I don't see that materially changing. Based on what I know today, but as you know, things can move quick in our business. I don't see that materially changing for 2018 versus 2017.

Okay. So as we, if I follow your commentary about more and more revenue coming from lower tax jurisdictions, within that range, is it a reasonable to assume that you are going to gravitate towards the 2016, 2017 versus the 2019, 2020 part of that range over time?

It's a little early to tell, to be honest, Dmitry. It's going to be in the 16% to 20%, obviously depending on the strength of the regional ag businesses which is the biggest driver here.

A big rebound in North America versus a big rebound in other regions makes a difference to that rate. So at the moment, I feel most comfortable saying it is between 16% and 20%, and as it becomes clearer to us as we go through 2017 and into 2018 we'll give you new guidance.

Okay, Paul. Thank you very much.

Mark Connelly, CLSA.

Thank you. Two things. First, we are seeing quite a lot of M&A and joint-venture activity in biologicals, even as all this big stuff is going on. Should we expect FMC to announce more deals or ramp up spending to keep up there?

Yes. Mark, on biologicals I think everybody knows that we have a very strong alliance with Christian Hansen, and we've been investing in that alliance over the last few years. We're starting to see the first products coming out of that pipeline. I'm not so sure that we're going to do any what I would call M&A because were fully invested in the alliance itself.

And frankly, with the library that we have and the discovery mechanisms that Hansen has as well, we are very, very happy with where that alliance has gone. So the real investment there is on pure R&D money. Funding scale-ups, funding trials, registrations, et cetera, to get that platform moving.

But were absolutely committed to biologicals. We like where it's going, and we will be committing more R&D dollars to that as we go forward.

Okay, I will leave that one there then. And then second, India is talking a lot about local manufacturing, and we've now had two pesticide companies tell us that they may respond to that push for local manufacturing. I'm just curious, does that have any indirect indications for FMC in terms of maybe freeing up capacity elsewhere that might get you some better deals on your contract manufacturing, or is this too small in your mind?

No, we are embedded in India. We have our own manufacturing site in India where we manufacture active ingredients. We actually have [tall] manufacturing agreements in India.

Our philosophy really on the tall manufacturing side is to have a balanced portfolio around the world. Obviously, were heavily weighted towards China right now; has been for the last 15 years.

India is a very important market to us, it's a growing market. We're likely to put more formulating capabilities into India. But from a tall manufacturing, we will view India as we always have done. It is a source of active ingredients that can help balance our footprint around the world.

Super, thank you.

Rosemarie Morbelli, Gabelli & Company.

Thank you. Good morning, everyone. Going back to ag, are you seeing any change or are you hearing anything about the movement towards less sugar in drinks and everything else we eat? And would that have a large impact on your sugarcane business in Brazil?

Rosemarie, not really. When you look at sugar prices today, sugar prices are at a pretty high level. Really given not that demand is dropping, but supply has been tight given the conditions we've see in Brazil. And over the last three to four years, replanting in Brazil has been a very low level so therefore overall production in Brazil has been lower.

We're expecting that in the 2017 to 2018 season that we may well start to see planting come back, given the high value of sugar in the world market and the opportunities there are for Brazilian growers. So if anything I would say, we've been in a little bit of a trough in the sugarcane business in Brazil. My expectation is we should start to see that come out a little bit better in 2017 through 2018.

Okay, so no real impact. Maybe that is coming five years down the road I suppose.

Looking at what you call and going back to a normal growth rate in Brazil in Latin America. I was wondering what you consider a normal growth rate? And if I may be sneak one in, one additional one, how much leverage are you willing to -- is acceptable to FMC in order to participate in the opportunities created by the big mergers?

Yes, regarding the big mergers, it's always -- we believe we do have financing capacity if we need. It's a matter of what product, what growth potential, and how they fit with our portfolio.

So we haven't capped anything or limit our expectations on what FMC could or could not do. We want to be highly opportunistic. If there is something of interest which is a high-quality product line or technology which fits our portfolio, it's all going to be a matter of price and return. And if it is there, we will act.

Okay. And then the normal growth rate please?

Yes, in Brazil, you've seen some huge volatility in growth rates in Brazil over the last few years. But if you take the long haul, I would say it's low-single to mid-single digits in terms of market growth. When we get there probably later on 2018 into 2019, I think we'll start to see those numbers come through.

Okay, thank you.

Don Carson, Susquehanna.

Hello, this is Ben Richardson sitting in for Don. Just wondering about CapEx on an ongoing basis.

You're running at $130 million to $160 million, a little elevated versus the year ago. And given the lithium expansion and whatnot, wondering what level you see that at in the out years?

Sure. The CapEx of our business if you were really to boil it down to purely non discretionary, it's probably a little bit behind depreciation, a little lower than depreciation. So what we see each year are clearly some decisions that we make depending on market conditions, depending on cash flow expectations of where we want to deploy capital.

We have seen a fallback in the last few years and expansion in the ag business as we've had enough capacity. Clearly as a rebound comes, we would want to get ahead of that and make sure we have enough capacity around the world, particularly in our [Toler] network and also in our formulation plants. They are not typically very high capital requirements. We've invested historically of course in the Health and Nutrition business, particularly with the rayon plant that we've talked about already today.

As we sit here today, really the biggest source of spending that takes us above that base level of maintenance CapEx is the lithium business. And we've talked about the hydroxide expansion, and we're spending some money on debottlenecking down in Argentina to free up capacity down there as well. We'll continue to look hard about what is the right capital deployment, particularly into lithium business in the next 12 to 24 months, and we'll continue to monitor carefully what we need in the ag business.

They will be the two places that I think we'll be paying most attention in the near term. I would expect the spending as a result to remain just a little bit higher than depreciation levels for that reason.

Okay. What was the total spend associated with the Argentinian debottlenecking?

So the spending as we look into 2017 is what we're looking at. It's a relatively small amount of money. It's low-double-digit millions in 2017 going into there.

Thank you much.

All right. Thank you for your participation, and thank you for all of your questions. We feel confident that we'll deliver our promise for 2017.

I would expect the year to be a no-surprise year of execution in what is a challenging but more stable and predictable-like market and a very strong retail market. At this point, I want to thank you very much and hand the call back to Brian.

Thank you, Pierre. Thank you, everyone, for participating. That is all the time we have for the call today.

As always, Michael and I will be available following the call to address any additional questions you may have. Thank you and good day.

Ladies and gentlemen, this concludes the FMC Corporation fourth-quarter 2016 earnings release conference call. Thank you. You may now disconnect.