FMC
#Good morning.
I will ask for <UNK> to comment with me.
As we said in the script, remember there is seasons in terms of manufacturing in lithium.
And we are getting into a period which is the winter part of the season and we're going to have more rain and more snow and conditions which can limit more, to some extent, our production of carbonate.
So, what we're expecting in the next three quarters is less carbonate available because of our manufacturing, like most people operating in this part of the world, in the next couple of quarters.
On the positive side, our costs continue to be good, and our pricing will be positive.
So, it's a differential between all of this which creates maybe a little bit less of an over performance in the remaining three quarters than we have in the first quarter.
I don't know if you want to add anything, <UNK>, to this.
Yes, I think if you look, historically, at the earnings, the seasonality has been there.
We're doing what we can to reduce volatility, but that seasonality is going to remain where the first and fourth quarter give us the most volume and flexibility on the mix we can sell.
Yes, first, as you know, most of the carbonate, by a long shot, we use, is produced by us.
So, what we are buying under contract today versus the overall usage is incremental and what we are buying is locked under a long-term supply agreement.
So, we are not facing significant price increase in carbonate.
But, if it plays the way we expect it to play, and once again it will have to be confirmed, but the way we look at it is, for now, we are producing enough carbonate and buying enough to run our strategy around chloride, butyllithium metal, and hydroxide.
And as time will go, we're going to have to sell more hydroxide.
We're going to have to increase our capacity in hydroxide, and we'll have to buy more of carbonate on the actual market, which should be at a time when our peer companies will be increasing capacity and making the product more available in the markets.
It looks like all of this is falling in place quite well.
<UNK>, do you want to add something.
Yes, thanks for the question.
<UNK> has it down well.
The other thing we look at, always, is incremental things we can do in Argentina, and there are small opportunities for small capital to increase our throughput in Argentina which gives us some flexibility as we go forward.
So, right now, I would say there is no major issue around potential increase in the future of our cost in terms of our ability to execute our strategy around carbonate and hydroxide.
Yes, I'll tell you the way we look at Ag Solutions, right now.
First, let me talk about the Ag market as we see it for this year.
I think we are not changing our view for 2016.
We still believe it's a mid- to high-single digit downmarket, mostly driven by North America and Brazil within the high teens.
And maybe Asia and Europe in the high single-digit, while Europe and Asia would be in the low- to mid-single digit decrease.
So, we are not changing our view.
It could be maybe turning more toward the high single-digit overall global market.
The way ---+ and why do I feel better about the way we are operating in the Ag market, it is not because we're seeing a fundamental change in the market in the short-term.
But, what I think we are doing at FMC, I think the key difference is that we know better how to operate in this type of market.
I can tell you, you see it in our numbers.
We are not fighting to keep market share on sales of product.
We are much more looking at three types of objects here.
First, it's very important for us in focusing only on FMC product, is to decrease FMC product in the channels.
The second aspect is we want to be able, by doing that, to focus more on the quality of the sales which is: more term, price, and collection.
And then, looking at all of that, the objective is to align more sales with the normal demand pattern.
You see that in the numbers in Q1 in North America.
Sales down 35%, I think on slide 4, while product on the ground, we're up above market 7%.
So, the way we are operating in the market, today, I believe we have more control over our selling process than we might have had in the past when we got hit by the downturn.
Beyond that, I would say, I would not exclude the market to turn around in 2017, but I have no indicators telling me it will be the case.
So, I think we are much more focused, <UNK>, on operating under the current conditions with very high control on term, price, and managing very closely in partnership with our customers our inventory to create much more predictability in ourselves.
That's where the level of confidence for me is increasing at this stage.
<UNK>et turnaround, I think we'll have to wait a little bit more, and certainly, to go into Q3, Q4 to have more visibility.
That's the million-dollar question with the real.
The truth is that the stability, or the predictability, in the movement of the Real is really what matters to us.
We've talked about it in the past with regards to the timing of changes and the pace of changes.
Q1 and Q2 just aren't really periods in which we have a lot of commercial activity going on in Brazil, so it's really what it does in Q3.
Again, it isn't so much the level.
We've shown that in Q1 where with an average rate of 3.9, today it's closer to 3.5, we were able to still capture pricing on the limited number of sales we have in Q1.
The question will come in Q3, how stable, how predictable is the Real.
In the rest of the world, you look at the forward curves on the currency, it does not feel like a strengthening dollar is what the market is expecting.
That, generally speaking, is what's factored into our numbers, relative predictably, not a big strengthening of the dollar around the world.
Q1 feels like, when you look at where the dollar is today compared to a year ago, Q1 feels like the last of the quarters that we have those tough FX comps.
So, subject to any changes away from where the market expects today, doesn't feel like currency will be quite the high level story that it was last year.
Sure.
It's a pretty straightforward story.
We clearly have an increased expectation around EBITDA, but the truth is, it's largely around working capital.
And you have to bear in mind, if you look over the last few years, two years ago we had a terrible performance with working capital with, largely, cash outflow.
Last year, we turned the corner, and sort of stopped the bleeding and improved it slightly, but this year, we expect that trend to continue so that working capital becomes a positive generator of cash flows.
Our biggest focus is always going to be the Brazil receivables balance and getting that receivables balance down.
But we're also very, very focused on inventory levels, our own inventory levels and making sure that we are very efficient and very thoughtful about what inventory we hold, where we hold it, and how much of it we hold.
So, it's coming in multiple different areas, but you really should be looking at working capital as the primary driver of the increase in cash flow for 2016.
In general terms.
Yes, we are not changing, actually we still have the same numbers, so the numbers would be talking about 60, 70 are very well in line.
And a full run-rate of 140 to 160 getting into the middle of next year are, also, still the targets.
So, there is no change in our numbers, right now.
You know, I think whenever you talk about terms and pricing, we want to be highly cautious and solely comment about we do.
Our strategy, today, is quite simple.
We are highly focused on maintaining our pricing at a healthy level.
We are very vigilant on terms, as you know, balance sheet is always a key challenge for a company like us, and more than ever, we are highly disciplined on terms and not giving terms.
What it means for us, and I'm only talking for FMC, what it means for us is, certainly, we are prepared to see timing change in our sales, and that's what I've been talking about.
We're not being willing to do anything to push product in the market if there is not a complete need for this product by the market.
You know, space shelves is a word we use a lot, but, when you have technical product to be sold, those products, you know there are needed.
And then you have commercial contract with customers.
So, it is not a situation where, because we are aligning our sales with the market demand, that we are taking an enormous risk to see somebody taking our shelf space by the end of the year and us not being able to sell a product.
For example, <UNK> talked about our Authority product line.
It's a pre-emergent product.
It's required ---+ needs to be bought in Q4 and Q1.
We know this product will be sold.
So, I think our strategy might be a bit differentiated, but we are only focusing on ours along the lines of what we discussed before.
Yes, <UNK>, this is <UNK>.
You know, we talked about it earlier.
I got a question earlier about whether we thought it would be a headwind or a tailwind.
I think in initial stages, I expect rates to be reduced.
Good news is we know with Enlist and Xtend that they will still be recommending the use of the pre-emergent herbicides, of which Authority is one of the market leaders.
So, we know we're going to have a substantial market there.
I would say weed resistant acres continue to grow, so we're going to see that pre-emergent continuing, certainly in the US and, as I said earlier, in Argentina.
I think from an over-the-top perspective, we have some very good products that we're going to be promoting, such as our Cadet herbicide, which we think will be a great tank mix partner for those products and really offer a broader spectrum of control.
Don't expect to see us in 240 in Dicamba.
That's just not the sort of business we're going to be in.
We're going to be in the more differentiated products, more highly specialized where we can bring value to the growers and distribution.
You know, I think the food market for us, there is an acceleration.
The way we look at our market in nutrition and in health, are interesting.
In health, the good news is when you are with the customer, you are there for a while because you're not being reformulated out easily.
The problem with that is it's not easy to gain new business.
While the same applies to food, but the reverse.
I think there is a trend to reformulate, change formulation.
There is a very fast cycle which gives opportunities for us.
So, the stronger we are with our product, the more opportunities.
But, by the same token, also, it opens the door for new product and competitors.
So, I would say today, it could be a slight tailwind, knowing that we are, maybe, the largest market shareholder and maybe the more complete product line.
But, I don't see that as a major change from the past.
<UNK>, do you want to add some comment to that.
I would say we see it as a trend.
This is <UNK> <UNK>.
I see it as a trend.
We see it as a trend like many others that have come and go in the industry.
The industry is very that fad-based.
To <UNK>'s point, unlike the health markets where there's very little change over periods of time, there is a great deal of change from every two or three years whether it's low-fat, Atkins and now this simplification, clean-label phenomenon.
It really does come down to the breadth of product line we have.
The fact that they are well-suited to being all naturally-based.
And then having the applications capability to respond to them in the right places around the world, having a spread of knowledge in the right places in your customers.
So, we're well-positioned for it.
Anytime there's a reformulation, there's a challenge, so it does create an effort on our part to respond.
Going forward, we see it as a tailwind though, for us, given the breadth of our product line and application capabilities.
Specifically in the food market.
It comes down to understanding very well, not only what is going on with your direct customers, the large food or small food company, but with consumers.
And then being able to put together a formulation that meets the needs.
So, product differentiation, for us, is less about proprietary technology, intellectual property, such as a patent that might drive more what happens in our Ag business.
It's more about the know-how.
Being able to put a sum of ingredients together that meets a specific need and understanding either color, texture and/or taste issues that might impact the success of that brand.
So, it really comes down to the differentiation around the application and the ingredients we bring as opposed to a proprietary ingredient in the food product itself.
Listen, I don't know what strategy our competitors are operating around.
Their own market push of product, discounts and how rationale they intend to be.
I think what we have made is a decision.
And that is a decision we have made globally.
We believe we are in a situation where the markets are such, and the level of inventory in the channel are such, that you can't guide your activity by what the others are doing.
I think we have a plan in place.
We are working very, very closely in cooperation with our customers who understand our strategy.
We are not going to try to sell in Q1 or Q2 or Q3 a product which is needed in Q4.
And in exchange, we maintain a healthy pricing and terms situation.
And you know, that's where we're going to be focusing.
I believe what we're going to do during this downturn, and until this turns around is, we are not going to work hoping that the overall level of inventory in the market channel is going to go down.
I think it's to tall of an order and too unpredictable.
So, we will be focusing solely on FMC products.
I think the numbers are quite spectacular.
You know I said that many times.
34% sales down in the first-quarter in North America, plus 7% product on the ground.
That is millions of dollars of inventory which are outside of our customer's inventory which they will need to replenish when the markets need it.
And that's the way we are operating.
Our competitors will have to use a strategy which is appropriate for them.
I think the way we look at it, and you know there was a question before, I think it was <UNK> who asked that question on the level of confidence in the market.
I think our strategy, today, allow us to have more visibility in terms of the timing and level of our sales, because we become less dependent upon what the market is doing and rushing to place sales to be safe and those on the shelves.
So, what it does to us is creates more predictability and maybe increase the level of confidence of how the quarters ahead of us are going to be unfolding.
We know which product will be required, usually which technology will be required depending on the season in Q4, Q1 and Q2.
And that's a discussion we have with our customers, and that's the way we our operating, right now.
So it's just giving us a bit more certainty on how things will unfold.
Well, that's all the time we have for the call, today.
I want to thank everyone for joining.
I'll be available for the rest of the day to go through any additional questions.
Again, thank you.
Have a good day.
