富美實 (FMC) 2018 Q4 法說會逐字稿

Good morning, and welcome to the Fourth Quarter 2018 Earnings Release Conference Call for FMC Corporation. (Operator Instructions) I will now turn the conference over to Mr. Michael Wherley, Director of Investor Relations for FMC Corporation. Mr. Wherley, you may begin.

Thank you, and good morning, everyone. Welcome to FMC Corporation's Fourth Quarter Earnings Call. Joining me today are Pierre Brondeau, Chief Executive Officer and Chairman; Mark Douglas, President and Chief Operating Officer; and Andrew Sandifer, Executive Vice President and Chief Financial Officer.

Pierre will review FMC's fourth quarter performance and provide the outlook for 2019 in the first quarter. Andrew will provide an overview of select financial results, and then all 3 will address your questions. The slide presentation that accompanies our results, along with our earnings release and the 2019 outlook statement, are available on our website, and the prepared remarks from today's discussion will be made available after the call.

Finally, let me remind you that today's presentation and 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 press 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 and supporting materials will include references to adjusted EPS, adjusted EBITDA, adjusted cash from operations and free cash flow, all of which are non-GAAP financial measures. Please note that earnings, shall mean adjusted earnings, and EBITDA, shall mean adjusted EBITDA, for all income state references. 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, Michael, and good morning, everyone. 2018 was a critical and very successful year for FMC. In Ag Solutions, we delivered tremendous performance in both Q4 and the full year that significantly outpaced our peers and the broader ag market. Our sales team aggressively pursued revenue synergies made possible by the limited customer overlap and the strength of our broader product portfolio. They delivered 11% pro forma sales growth for the full year, posting gains in all geographies. Our entire organization executed well against our growth goal. We achieved this performance in 2018 while taking great stride towards: integrating the largest [acquisition] in FMC's history; separating our Lithium business, which included the (inaudible) IPO; and advancing the implementation of the SAP S/4HANA platform. We also reduced debt by $500 million and completed a $200 million share repurchase program.

Turning to Slide 3. FMC reported over $1.2 billion in fourth quarter revenue, including Lithium, which reflects a year-over-year increase of 24% on a reported basis and 17% on a pro forma basis. This increase was driven by strong commercial execution that enabled broad-based growth in every region in Ag Solutions, along with 6% sales growth in Lithium. Adjusted EPS came in at $1.69 in the quarter, an increase of 54% year-over-year. This was $0.02 above the high end of our preannouncement from January 31, 2019, and $0.31 above the midpoint of our guidance given on our last earnings call.

Slide 4 will shed some light on this outperformance. Again, this was due to very strong operational performance in Ag Solutions, which drove $0.08 of the outperformance, and lower taxes, which drove another $0.21 on -- of the gain. The lower tax was primarily driven by more favorable earnings mix by jurisdiction and, to a lesser extent, by the clarification of certain international tax provisions of the 2017 U.S. Tax Cuts and Jobs Act. We also gained $0.02 of incremental EPS from a lower share count due in large part to the repurchase of 2.4 million shares.

Moving on to Ag Solutions' financial results on Slide 5. Revenue of nearly $1.1 billion increased 27% year-over-year and 18% on a pro forma basis. Excluding an estimated 5% headwind from currency, the pro forma organic growth was a very strong 23% and far ahead of the market. Performance in the quarter and the year was driven by strong commercial execution and robust demand for industry-leading products. Our sales organization has leveraged valuable cross-selling opportunity, due to minimal customer overlap between FMC and DuPont, to deliver significant sales synergies. Additionally, we reduced expected operating cost for the acquired business through accelerated functional integration, leveraging FMC back-office capability and reducing manufacturing cost in legacy DuPont plants. Fourth quarter segment EBITDA of $302 million increased 35% versus the year-ago period and was $13 million above our original guidance. Our EBITDA margin for Q4 increased 160 basis points year-over-year to 27.4%, and full year margin increased 560 basis points to 28.4%.

Turning now to fourth quarter regional financial results on Slide 6. Q4 revenue growth was sharply up on a pro forma basis, led by strong commercial performance in Latin America at 27%, followed by North America at 21%, EMEA at 13% and Asia with 4%.

In Latin America, price increases more than offset the effects of currency headwinds. The outperformance in the region was driven by strong demand from cotton growers in Brazil with acreage expected to be up 25% year-over-year and wheat farmers in Argentina where acreage is forecasted to grow by 5%. Robust demand for insecticide in soybean applications was also a key factor in the region.

In North America, despite an expected shift in acreage away from soybean, strong demand from -- for preemergent herbicides remains a key to our growth as glyphosate resistance continues to spread. We saw strong customer uptake over preemergent herbicides, especially Authority Supreme that was announced last year, in addition to strong sales of insecticide and new fungicide.

EMEA experienced strong growth in France, Germany and Russia with the combined sales of those 3 countries growing 45% year-over-year. This growth was driven by a range of SU herbicides and Rynaxypyr insect control.

In Asia, we continue to benefit from a commercial integration and strong demand in Pakistan, Vietnam, Philippines and Malaysia. If we exclude the India restructuring, which included the discontinuation of certain products and the loss of sales from the required antitrust divestiture in Asia, sales in the region would have grown 14% on a pro forma basis.

Moving now to Lithium results on Slide 7. Lithium fourth quarter revenue was $120 million, up 6% year-over-year. Segment EBITDA came in slightly above the midpoint of guidance at $46 million in the quarter. As you most likely saw in a separate press release yesterday, FMC's Board of Directors has officially declared the spin of the remaining stake in Livent to FMC shareholders, which will occur on March 1, 2019. This will complete the separation process. Please refer to the press release posted on fmc.com for details.

Looking ahead at our 2019 outlook on Slide 8. As we disclosed in the prerelease on January 31, our 2019 earnings per diluted share are expected to be $5.55 to $5.75. This represents an 8% at the midpoint over recast 2018, excluding Lithium and the impact of any share repurchases in 2019. All comparative values from 2018 will now exclude the Lithium business entirely. Shortly after the March spin -- after the spin on March 1, we will file an 8-K with recasted 2018 results that strip out the Lithium business.

We expect 2019 revenue for FMC will be in the range of $4.45 billion to $4.55 billion, up 5% at the midpoint year-over-year versus 2018 recast sales. Excluding an expected 3% FX headwind, our organic sales growth estimate is 8% at the midpoint. We also expect total company EBITDA of $1.165 billion to $1.205 billion, which represent 7% growth at the midpoint versus 2018 recast results. As a reminder, in 2019, our EBITDA guidance includes all corporate expenses. We will no longer delineate between ag segment results and corporate expenses as we had in the past when we had multiple segments.

For FMC, first quarter revenue is expected to be in the range of $1.18 billion to $1.21 billion, which represent growth of 8% at the midpoint. Excluding an expected 6% FX headwind, our organic sales growth estimate for Q1 is 14% at the midpoint. We are also forecasting EBITDA of $320 million to $340 million in Q1, which would be flat year-over-year at the midpoint. This is despite significant FX and raw material cost headwinds. We expect first quarter EPS to be in a range of $1.58 to $1.68, up 3% versus recast results from Q1 2018.

Our 2019 expectation for the overall global crop protection market growth is that it will be flat to up low-single digits. We expect North America, EMEA and Asia will also be flat to up low-single digits, driven by a variety of factors, and Latin America will grow in the low to mid-single digits.

In North America, growth will come from an increase in corn acreage and normalized pest pressures. In Latin America, Brazil is experiencing dry weather in important soybean and corn area to [stable], but we expect this will be offset by favorable climate conditions in Argentina and another strong soybean season across the region next fall. In EMEA, we expect recovery of the winter and spring cereals area and strong cereals pricing as I'm expecting strong growth driven by more normal monsoon season in India as well as a recovery from the drought in Australia.

We expect that FMC's above-market growth in 2019 will be driven by the continued strength in global demand for diamide, preemergent herbicide growth, sales expansion in Brazil, SU herbicide growth in key European countries as well as new product introductions. This new product will account for approximately $60 million to $70 million or 1.5% in incremental sales growth in 2019.

In our third largest country, India, which had over $300 million in sales in 2018, we're expecting strong top line growth in 2019 from our insecticide portfolio as well as new applications of our herbicide portfolio in sugarcane. Our well-structured super distributor network in India drives increased market access and demand generation, further lowers our credit at risk and requires less working capital while increasing profitability.

Earlier this year, we launched our first new active ingredient from the legacy FMC R&D pipeline, Lucento fungicide, in time for the 2019 growing season in North America. Our R&D organization also reached a second very important milestones since our Investor Day in December. We advanced one of our insecticide active ingredients out of discovery phase and into development pipeline. Launch for this product continues to be expected in 2026. This means we still have 6 AIs in our development pipeline after launching Lucento commercially. We will continue to update you with progress within our innovation pipeline on future calls.

As you can see from this full year 2019 EBITDA bridge on Slide 9, the headwinds from FX and higher raw material cost have significant factors in 2019. The full year headwind from FX is expected to be 7% at the EBITDA level, plus another 10% headwind from higher cost for raw materials, representing a total of about $190 million. We expect price increases will offset $130 million of these combined headwinds or approximately 70%.

Turning to Slide 10. The first quarter EBITDA bridge reflects the pressure on profitability as we begin the year. Q1 headwinds from FX are expected to be 15% at the EBITDA level, plus another 18% headwind from raw material cost, representing a total of about $110 million in headwinds. We expect price increase in Q1 will offset $65 million or about 60% of these headwinds. We will absorb about half of this full year impact from raw material cost in Q1 alone. The impacts will diminish significantly in the second half of the year. Likewise, about 2/3 of the full year headwind to EBITDA from FX is expected to occur in Q1, and this is also expected to diminish greatly in the second half. Our plans to offset the large part of these adverse costs with price increase throughout the year are in place, and the execution is taking place as we speak.

I will now turn the call over to Andrew.

Thanks, Pierre. There's a lot to cover this morning. Let me start with a few specific income statement items for 2018. I'll then move on to the year-end balance sheet, cash flow and share count and finish with a few comments on the 2019 outlook.

Foreign exchange had a meaningful negative impact on fourth quarter Agricultural Solutions revenue, estimated at approximately 5%. We believe this impact was more than offset by our price increases in the quarter. For the full year, we estimate FX is an approximately 2% headwind on Ag Solutions revenue. In the Lithium segment, FX was a modest headwind to revenue in the quarter and the full year.

Corporate expense was $28.4 million for the quarter, $4 million higher than implied by (inaudible) guidance given on our last earnings call. There were several drivers of this variance, including: a higher-than-anticipated year-end LIFO inventory valuation adjustment, reflecting continued raw material price increases; higher health and welfare benefits expense; and, to a much lesser extent than in the third quarter, foreign exchange impacts on intercompany fund movements. Interest expense was $1 million higher for the quarter than guided with higher-than-expected commercial paper balances throughout the quarter due to higher working capital.

Our tax rate for full year 2018 came in much better than anticipated at an effective annual rate of 13.7%. The primary driver of the outperformance was the earnings mix by jurisdiction that was substantially improved versus our forecast with more profit being earned in lower-tax jurisdictions than expected. Also contributing to a lesser extent to the lower 2018 tax rate was the impact of the proposed regulations released in the fourth quarter related to U.S. international tax provisions. This resulted in a less unfavorable impact than projected for global low tax intangible income, also referred to as GILTI. The 5.1% effective tax rate in the fourth quarter is a result of bringing our full year provision for income taxes in line with the full year rate.

We took a $106 million noncash charge against GAAP earnings to adjust our environmental reserves to reflect the recent agreement in principle reached with the New York State Department of Environmental Conservation that would, among other things, settle past costs and govern remediation of historical contamination within a defined area attributed to FMC's Middleport New York operations. Upon finalization, this settlement will resolve a significant portion of the issues related to the Middleport site and provide FMC with certainty of the cash outflows required to support these liabilities. The cash outflow specified in the pending agreement will be capped and are well within the assumptions we made for ongoing cash spending on legacy expenses.

Moving on to the balance sheet and cash flow. Gross debt at December 31 was $2.7 billion, down more than $500 million from the beginning of 2018. Gross debt to trailing 12-month EBITDA, excluding Lithium, was 2.4x, consistent with our long-term target of 2.5x or less.

Now turning to Slide 11. FMC generated adjusted cash from operations of $576 million in 2018, up 47% compared to the prior year. Adjusted cash from operations was lower than expected in the fourth quarter as growth in working capital as well as higher and legacy -- higher legacy and transformation expenses more than offset better-than-expected EBITDA.

Working capital was higher than expected in both Agricultural Solutions and Lithium. For Agricultural Solutions, higher working capital was driven by stronger-than-expected sales in the quarter and recovering inventory levels due to the faster-than-expected return to full production from our China toll manufacturing partners. We continue to monitor our inventory and safety stock levels very closely as we move past this period of uncertainty in China. Transformation expenses were higher than expected, primarily due to timing of spending on our SAP implementation.

In early December, we completed the $200 million share repurchase program announced on our November earnings call, purchasing 2.4 million shares at an average price of $81.97 per share.

Looking ahead now to 2019. As Pierre mentioned, FMC expects meaningful FX headwinds to revenue growth, particularly in the first half of the year. Interest expense should be roughly in line with 2018. We expect our effective tax rate to be between 14% and 16% for 2019, based on our current forecast for earnings by jurisdiction and our evolving understanding of the implications of the newly proposed regulations governing taxation of foreign income. As Pierre also noted earlier, we anticipate full year 2019 earnings per share to be between $5.55 and $5.75 with first quarter 2019 earnings per share to be between $1.58 and $1.68.

We're in the process of developing fully recasted financials for 2018 to remove all impact to the Lithium business to provide a clean year-over-year comparison for EPS and other metrics. Due to the complexity and evolving interpretation of the 2017 U.S. Tax law, it will be March before we can provide fully recasted financials for 2018. At present, we estimate that like-for-like earnings per share growth, removing all impact from the Lithium business, is 8% for full year 2019 and 3% for the quarter.

Slide 12 shows a summary of our 2019 cash flow outlook laid out in generally the same way we discuss cash flow at our December Investor Day. FMC expects to generate adjusted cash from operations of $750 million to $850 million in 2019. With capital spending expected to be in the range of $140 million to $160 million for 2019 as well as with legacy and transformation costs in the range of $200 million to $250 million, we expect to generate free cash flow of $375 million to $475 million. This suggests free cash flow conversion from adjusted earnings to be in the range of 50% to 60%, a significant improvement though not yet at our target conversion rate of greater than 70%. This is due to continued legacy and transformation expenditures in 2019 and particular costs to complete our SAP implementation.

With this growing cash flow and improving cash conversion, we will continue to regularly purchase shares through 2019. Year-to-date, we repurchased 1.25 million shares at an average price of $79.84 for a total of approximately $100 million. We intend to purchase a total of up to $500 million of FMC shares in 2019, inclusive of the $100 million already completed.

FMC expects to maintain gross debt at 2.5x trailing EBITDA for full year 2019. You should expect some variation quarter-to-quarter due to the seasonality of cash generation relative to our desire to be consistent purchasers of FMC shares for the 2019.

And with that, I'll turn the call back to Pierre.

Thank you, Andrew. All is in place for FMC to deliver a strong 2019 as a pure-play agricultural sciences company with above-market growth. Quarterly earnings in 2019 will be atypical because of cost pressure in the first half of the year. The first quarter itself will see nearly 60% of the full year raw material cost increase and the FX impact. Q2 will continue to see strong headwinds with relief in the second half of the year. We are highly confident in our ability to recover a large part of these adverse costs through the year and deliver 5% revenue growth with 7% EBITDA growth. Our high confidence is driven by the current work on price increases, which is going well, and the fact that cost pressure from raw materials will decrease considerably in the second half of the year. We are also highly confident that we will deliver EPS growth of at least 8%.

I will now turn the call back to Michael Wherley.

Thank you, Pierre. As Livent has just had its own conference call, we'll keep this Q&A session primarily focused on our Ag business.

Operator, you can now begin the Q&A.

(Operator Instructions) Our first question will come from the line of Chris Parkinson with Credit Suisse.

Can you just give us a quick update on just active ingredient procurement and how this Chinese market evolved in '18, what your key assumptions are in '19 and just any longer-term thoughts you have on your global procurement?

Yes. Right now, as I said in the previous remarks, we are in a good place from supply of active ingredients from China, all of our units as well as all over toll processors currently functioning. And we were able to quickly rebuild the safety stock, which are needed for us to operate, and we're able to all of that at a faster pace than expected in the fourth quarter. From a situation in China today, where we feel the same pressure around environmental issues, but it is, I must say, in a calmer and more organized approach. I think this approach, which was a bit, at times, surprising with one bad actor in an industrial park and everybody shut down, is going away to a much more targeted and rationale approach. So right now, the situation, as it stands, it is also one of the reasons for which we have so much certainty around our ability to deliver on our targeted earnings for the year is because we had a very good view of raw material active ingredient price increase, which will be in the first year. But we already have the contract in place for what will be coming to manufacturing in the first half and sales in the second half in term of pricing. So all of that is very clear now for the year. From a strategic standpoint, as Mark has said many times before, China remains very important to our active ingredient supply. But we are looking for diversification in the U.S., increasing the capacity of some of the plants. In Europe, where we do have active ingredient plants, also in capability, we're increasing our ability to supply from there and also India. So yes, we will tend to diversify our active ingredient supply in the future.

That's great color. And just as a quick follow-up, given your current portfolio pipeline as well as the existing product suite, can you comment on your existing perception of your competitive positioning versus some of your larger peers? And then also, just quickly comment on your willingness to purchase and/or trade for third-party molecules.

Yes. Chris, when you look at our pipeline that we predominantly showed in December, we feel very confident that the pipeline we have stacks up extremely well with anybody else in the industry. When you think about having 6 products in development, that means within the next few years, those 6 products are going to come to market, 3 within our 5-year planned timeline, a first one already out this year. And then the 16 products that we have in discovery, that continue to evolve. And as Pierre said in the script, we moved one of those discovery molecules, which is an insecticide, into development. That's a very good sign that when we make those strategic decisions, moving from discovery to development, that's when we start to spend significant amounts of money. So we're very confident that, that new insecticide will hit the market mid-next decade. So we feel very good about where our pipeline is. But more importantly, we feel good about what is coming through into that pipeline from discovery. We have a tremendous amount of new leads that we're developing down in Stine, and I fully expect that, that discovery pipeline will continue to expand over the next few years.

Our next question comes from the line of Steve Byrne with Bank of America.

Yes. Curious as to what your full year revenues were in 2018 for the Rynaxypyr and Cyazypyr and how did that compare versus (inaudible). What were the key drivers? And any other new formulations in development that incorporate those active ingredients to extend the patent life?

So you cut off a little bit in the second part of your question. So I want to answer the first part and ask you, if you don't mind, to repeat the second part. The -- on the first past, what we are doing is trying to measure the legacy FMC and the legacy DuPont business and look at the year-on-year growth. So we believe that the legacy DuPont business, on a like-for-like basis, on a pro forma basis, was -- for the total portfolio, but mostly driven by Rynaxypyr and Cyazypyr, but also including Indoxacarb and the SUs, the growth rate was north of 20%, most likely in the 25% range, while the FMC portfolio was more in the low to mid-single digit. Now you always have to be very careful because we have pushed a lot of sales, cannibalizing FMC sales with DuPont sales because of the quality of some of the products and the profitability of these products. So it is not exactly a like-for-like, but I would say north of 20% for the DuPont and low to mid-single digit for the FMC. Could you repeat the second part of your question?

Yes. Sure, Pierre. Sorry about that. I was asking about any new formulations that include Rynaxypyr and Cyazypyr to extend the patent life on those active ingredients and maybe couch that in a broader question of the present value of your pipeline being fairly insecticide-heavy, because of the potential for mutation-driven demand increases, and more difficulty being disintermediated by seed-based insecticides. Just wanted your views on that.

Sure. Let me start around mixture, and then I'll move that to Mark, who'll give the detail. But absolutely, we do have a full strategy around mixtures and finding the right partners for the next step here, sales up here. First of all, for normal growth, and that's what we do at FMC, we use formulation for growth, but also for our patents' extension strategy. Now you do not see these formulation impacting '19 sales or even '20. Because every time you do create those new formulations, you do have to go through the full registration process. So depending upon the countries and the regions, it could be from 2 years to 4, 5 years. So that is the process we are going through. All of these products are currently in development with a very active portfolio. Mark, you want to add a couple of things?

Yes. Steve, your question around the insecticide versus the rest of the portfolio for us, yes. I mean, when you look at our portfolio, we're one of the world leaders in terms of insecticides, and we're very happy with that situation. Pest pressure continues to expand around the world, especially in Asia. But if you look at our pipeline, if you think of the development molecules, they're all fungicides and herbicides. And if you -- well, the exceptions are new insecticides we just put into development. If you look at the discovery pipeline of 16 molecule, 11 of them are herbicides and fungicides. So as we talked about many times, we're very active from a discovery and development perspective to rebalance that portfolio. And of course, we are talking to other parties around expanding the use of fungicides and herbicides. So I'm very confident that we have the right programs in place to help sort of rebalance or continue to grow the portfolio, but I'm not unhappy with where we are with insecticides right now.

Our next question comes from the line of Daniel Jester with Citi.

Just a few questions on the quarter. First, in Latin America, was there any benefit in terms of pull-forward? I think the soybean season in Brazil sure was pretty quick. So any benefit in the fourth quarter from that? And then on Europe, you called out very strong sales in France, Germany and Russia, much, much higher than the segment overall. Were there any countries that were particularly weak in Europe in the fourth quarter?

Listen, really, your question in North America around pulling, and I think the question for us would apply to any region of the world. There was a very strong performance of all of our regions from a growth standpoint, even including Asia. It does not look like there were a very strong pull, but we do believe customers were anxious to procure our products. They have all heard about the tension around China. You heard me, they all understand today that is quite -- it is quite stable. So could there be some? I couldn't say no. But in all regions, we saw very healthy sales, especially in Latin America. Slight pull by customers to make sure they will be supplied, possible, but nothing which jumped at us in Latin America.

And then with regards...

Yes, Mark is going to give you in -- so Europe, Mark?

Yes, you're right. In Europe, France, Germany, Russia were very strong for us, good mix. I would say from a weakness perspective, the U.K. was certainly weak, certain parts of Southern Europe as well, but far outweighed by the other areas. And I have to say, the other areas are growing very quickly, mainly because of the things we've done over the last few years with direct market access. That's been an important element of our growth in Europe, continues to be so. And certainly, in France, where we now have a much stronger presence with a much broader portfolio, we see them growing very well.

One additional statement around your question around Latin America and potential pull, I can guarantee you that following our experience in 2016, we are keeping a very, very close eye on inventory. And we're doing a physical check of inventory at customers and distributors and in-house, and we are in a good place today with a very normal inventory level in the supply chain of FMC products.

That's really helpful. And then on your 2019 guidance, you had 8% organic growth and you commented that the market is only going to be up low-single digits. So you're certainly outgrowing the market at a very brisk pace in 2019. Can you comment about what regions you think that you have the best shot to outgrow the market or where you may be taking incremental share?

Yes. First of all, Asia. Asia is one of the fastest-growing part of the world, especially in India. We have a very good market access model in India. The portfolio has grown. We're introducing some of our herbicides from around the world. We have a new formulation in India, which is a mixture of sulfentrazone and clomazone, which is specifically target at the sugarcane industry where we've not had herbicide growth before, but we had tremendous market access. So we're very confident that we're going to see that business grow. And then I would shift to parts of Latin America. Argentina. Argentina last year was a very down market. We continue to see growth with insecticides, but also with our preemergent herbicides. And then Brazil, we continue to take share in soy with our insecticide portfolio, not just the acquired diamide portfolio but the FMC formulations as well. And then I would say parts of Europe where we see that strong market access and growth.

Our next question comes from the line of Don Carson with Susquehanna Financial.

Pierre, a question on your 23% organic growth in pro forma in 2018. What was the price/volume breakout there? And as you look to your 8% organic growth in 2019, what are you expecting on price versus volume?

In 20 -- you talked about 2018 versus 2017 or 2019 versus 2018?

Well, first, the 2018, you had 23% pro forma growth ex FX. What was the price/volume breakout on that?

Understand that we can't do -- we cannot do a breakout of price volume in the -- on a year-on-year because we can only do it on the FMC product, and most of the growth came from the DuPont product. We do not have the information to do EBITDA year-on-year or volume/price/mix on the DuPont products. So we believe a very large part of what we did was driven by volume and most of the price increase was focused on Latin America to overcome the currency. But we do not have a geological like we have for '19, geological breakdown.

And how about for that 8% in '19, what would be price versus volume?

So '19, what we have is, for the full year, we believe we're going to have a net fixed impact of about negative 3%. We're going to have a price/mix -- on revenue I'm talking, okay, the price/mix of about positive 3% and a volume of 5%. So your price/mix offsetting your FX. If you go to EBITDA, the drivers are a bit different because, of course, you have FX and cost. But volume would be on your EBITDA growth, driving 9%.

Okay. And then finally, last year, you were quite aggressive. You changed your policy on hedging sales in Latin America. Are you continuing with that policy, basically hedging the full sale as soon as you book the order?

Yes. Actually, let me take that opportunity with that question to elaborate a little bit why we have a bit of a very high confidence around our target despite the fact that a lot of the earnings are coming into the second half. First, to answer your question on currency. Currency, we're taking the forward values for currency, and we have a very significant part of the currency exposure [which day], like every year. So we have the same aging process we have every year in place. And like last year, we're going to make a decision, I would say most likely, in the next 4 weeks if we do the additional hedging for Brazil. If you would ask me to guess right now, I would say yes, most likely, we're going to go with the same approach for Brazil as we did last year. There is a little upfront cost, but we believe it's giving us much more certainty. So I feel pretty strong around hedging, at the current programs we have in place. And the next one we're going to most likely take for Brazil will put us in a very predictable situation. For the raw material, which is the other part, we saw the increase, which is penalizing the first half coming from raw materials, which we are contracted and used in manufacturing last year. Those are the products which have sold in the first half. What we have procured and contracted for the second half is already done at a pricing which is lower than what we saw in the first half and, actually, pretty neutral versus the prior year. So we have a very strong visibility around our costs in the second half of the year.

(Operator Instructions) Our next question comes from the line of Frank Mitsch with Fermium Research.

Pierre, I want to expand upon that raw material headwind. And I like the description that you pretty much have already contracted for your raw materials for the first half of the year, so you know why -- what the headwinds are going to be, and then it seems like you already contracted for the second half of the year at much lower rate. But what are the key drivers there? Because I don't normally think of FMC's Ag business as being very raw material-driven. So can you help explain why we're seeing the big swings here on the raw material front? What are the key factors there?

Yes. Actually, Frank, yes, it's a good question. I should have say that. It's a very simple factor. It's supply from China. We -- the specialty chemical industry for the ag industry is mostly coming from China. China went to a pretty abrupt approach to the environmental issues last year, which created lots of shutdown and shortage on our raw material supply and active ingredients supply. Those were the product we are procuring at that time to manufacture them in the end of 2018 and fill them in the first half of 2019. Now everything has been reorganized. The shutdown are not so visible or high than they were last year. We have the supply as normalized. There is less emergency shipments. So we are much more back to normal situation. So the products which have been contracted and sold now are contracted under a normal supply from China. So we are back to normal level of inventory, normal supply and back to normal corn issue available, which get the price back to normal.

Our next question comes from the line of Mark Connelly with Stephens.

Just -- I'll keep it to one. Can you remind us of how working capital is going to change from here once everything with the DuPont acquisition is settled through the system and your product launches are settling in too? Particularly interested in how seasonality might shift a little bit.

Mark, it's Andrew. I think certainly -- I mean, 2018 is a bit abnormal in terms of working out capital growth. As you point out, when we acquired the DuPont business, we bought inventory, but we didn't receive -- get receivables or payables with that. So we had to build up receivables and payables to normal levels to support the acquired DuPont business. As we look through to 2019, we expect to see working capital as a use of cash normalized with incremental working capital in the 20% to 25% of sales kind of range. I do think you have to think about the seasonality of working capital. But it is not -- and certainly, from a cash generation perspective, it's not even during the year, Q2 and Q3 being very strong cash-generative quarters. I'll let Mark talk a little bit more specifically about some of the other seasonality elements.

Yes. Mark, it's a good question. The business has changed a lot over the last few years. I'll throw some numbers out for you, just so you can get a feel for how 2018 played out. And 2019's probably going to be pretty similar. So this is, I would guess, a new norm for us. If you look by region, North America has about 60% of the revenue in the first half of the year. Latin America has 70% in the second half of the year. Europe has 70% in the first half, and Asia has about 55% to 60% in the first half. So you can see, we have some very big swings in terms of where our business comes from. And as Andrew said, that is obviously going to impact what you see on a quarterly and semiannual basis. So just bear those numbers in mind, and I would say 2019 will be very similar to that going forward.

Next question -- our next question comes from the line of Aleksey Yefremov with Nomura Instinet.

On Slide 9, you're showing cost and other part of the EBITDA bridge for 2019 at $115 million headwind. Is it fair to assume that this is mostly the raw materials headwind? And also, we have -- if prices have now fully reversed, is it fair to assume that we could see a similar positive item on the 2020 EBITDA bridge?

I would say yes and yes. I think the $115 million is all cost. And certainly, especially in the first half, we're not going to move to 2020. We're going to -- we should have a very favorable year-on-year comparison. Because as far as we see today with a more normalized situation from a supply standpoint, we will not have, in the first half of 2020, the raw material headwinds. So yes, we're going to like our comp in the first half of 2020 much better than we do right now.

Next question comes from the line of Mike Sison with KeyBanc.

You have a really strong start to the first quarter in terms of volume growth. It implies that one of the other quarters will be a little bit less than the outlook for the full year. Can you maybe just walk us through some of the seasonality again in the business on a quarterly basis and maybe just what we need to keep an eye on as the year unfolds.

Yes. Mike, it's Mark. Similar to what I just answered the other question with -- regarding the seasonality in the halfs, if you look to Q3 in 2018, it was our slowest quarter. You'll see that similar trend again. It won't really change. Q1, Q2 are the highest quarters followed by Q4 and then Q3. You should not expect to see that change. It shouldn't be material shifts unless there is some major weather impacts in one of the regions. People are talking about what's going to happen in North America this year. Will the spring come early? Will it come late? Well, obviously, planting occurs right around that Q1, Q2 border. So who knows? We plan for a normal year when we do our forecasting. Same thing in Brazil with September being -- late September being the planting season, that swings between Q3 and Q4. So those are the kind of bridges you have to watch for.

Our next question comes from the line of Kevin McCarthy, Vertical Research.

I was wondering if you could comment on the expected contribution margin in 2019 associated with your volume growth projection of 5%. The reason I asked is if I look at Slide 9 on the lower right, it show the 5%. On the upper right, it seems as though the attached EBITDA benefit is 12%, which seems to imply a very high contribution margin of, I don't know, 65%, 70%. So actually, my question is, is that correct? And if so, what is driving that or perhaps your other factors baked into there?

So I think you're correct. I think usually, compression margin for -- it's going to depend which region and which product. But quite a few of our insecticides or other product do have a profit on sales, which is north of 60%. And when you're growing because we are not adding resources, it drops straight to the EBITDA line, to the earnings line. Now we don't see it in the full P&L this year as we should because of the FX and raw material issue, but your calculation is correct. And those are regular earnings we have on some of the growing product line.

Our next question comes from the line of Mike Harrison with Seaport Global.

Can you hear me okay?

Yes.

You talked about your ability to grow faster than the underlying market in Asia, Latin America and Europe. It seems like you forgot an important region in North America. Can you maybe talk about how you expect to grow in North America relative to underlying markets that might be flat to up slightly?

Yes. Thanks, Mike. Certainly not intending to leave North America out of the mix, given the scale of its involvement to us. I think you're going to see a couple of areas where we continue to grow, first of all, the whole preemergent herbicide space. I think you know that we have a very large position in that area. We're introducing new products and cannibalizing our own product range, which allows us to lift up value to distribution, retail and growers while introducing new technologies to us, which allows us to keep ahead of the competition. So that's one area. Second area is obviously our insecticide portfolio. And when you look at our growth in specialty and niche crops in California and Florida, that's an area that we see as a significant potential for us. And then the third one that we don't talk a lot about, but is quietly growing for us and nicely so, is our herbicide portfolio in the corn segment. We are introducing new products there. You'll see us continue in that area. It helps our balance with soy, especially in a year like this where there may be swings between soy and corn. And then last, but not least, obviously, fungicides. We're introducing a brand-new fungicide. We have 2 others that are growing nicely on more niche crops. So I think if you take those areas together, you'll see us continue to outpace the market in the U.S. and Canada.

And the last question we have time for will come from the line of Laurence Alexander with Jefferies.

Just a quick one. Are you seeing any -- in your discussions with the regulators, any shift in how they're thinking about insecticide legacy effects or lingering effects or the duration of insecticide effectiveness, particularly in Europe.

No. Laurence, listen, the regulatory environment that we're working is an extremely stringent one anyway. You're not allowed mixtures of insecticides in Europe. The neo mix have been removed in Europe, and that's created opportunities for more targeted insecticides, like our diamides. So we're not seeing anything that I would say is out of the ordinary with regards to insecticides. In fact, I could argue that the technology players that are introducing new and more targeted chemistries will continue to take market share in those markets.

And in the past, when there's kind of impulses have happened. I mean, is it about a 5 to 10-year kind of tailwind? Or is it faster than that, that the market shifts?

Sorry. What's the first part, Laurence? I couldn't quite get that.

It's just -- when such regulatory shifts have happened in the past, where a class was taken off the market, can players like yourselves who have the newer products, does the shift happen fairly quickly over 3, 4 years? Or is it more of a 5- to 10-year kind of transition?

It tends to be more quicker. It -- depending on the space of which the product is removed by the regulatory authorities. If it's very quick, then obviously, growers need something that they can use to combat the pest pressures, you can step into those spaces rather quickly. But it does generally take that 4 to 5-year timeframe to get the whole market moving.

Thanks. That's all the time we have for the call today. As always, I'm available, following the call, to address any additional questions you may have.

Thank you, and have a good day.

Ladies and gentlemen, this concludes the FMC Corporation Conference Call. Thank you.