FMC Corporation

Good morning, everyone, and welcome to the fourth quarter 2021 earnings call for FMC Corporation. This event is being recorded, and all participants are in a listen-only mode. Should you need assistance, please see a conference specialist by pressing the star key followed by zero. After today's prepared remarks, there will be an opportunity to ask questions. To be placed in the Q&A queue, please press the star key, then one at any time. If you are using a speakerphone, we do ask you please pick up your handset before pressing the key. At this time, I'd like to turn the conference call over to Mr. Zach Zaki, Director of Investor Relations for FMC Corporation. Please go ahead.

Thank you, Jamie, and good morning, everyone. Welcome to FMC Corporation's fourth quarter earnings call. Joining me today are Mark Douglas, President and Chief Executive Officer, and Andrew Sandefur, Executive Vice President and Chief Financial Officer. Mark will review our fourth quarter performance as well as provide an outlook for full year 2022 and the first quarter of 2022. Andrew will provide an overview of select financial results. Following the prepared remarks, we will take questions. Our earnings release and today's slide presentation are available on our website, and the prepared remarks from today's discussion will be made available after the call. 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 earnings release and in our filings with the Securities and Exchange Commission. Information presented represents our best judgment based on today's understanding. Actual results may vary based upon these risks and uncertainties. Today's discussion and the supporting materials will include references to adjusted EPS, adjusted EBITDA, adjusted cash from operations, free cash flow, and organic revenue growth, all of which are non-GAAP financial measures. please note that as used in today's discussion, earnings means adjusted earnings and EBITDA means adjusted EBITDA. 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 Mark.

Thank you, Zach, and good morning, everyone. Despite being one of the most challenging operating environments that we can remember, FMC delivered strong financial performance in the quarter. As previously indicated, We set Q4 up to be a very strong quarter by taking deliberate actions earlier in the year. In Q4, we grew our revenue by 23%, EBITDA by 30%, and EPS by 52%, and importantly, expanded our EBITDA margins by approximately 150 basis points while confronting continued cost pressures, supply disruptions, and emerging currency headwinds. North America and Latin America contributed significantly to our growth in the quarter. not only regaining lost sales from the prior year period, but also driving above market growth with volume and price. New product launches, continued growth of our biologicals platform, and strong pricing gains contributed to the expanded profitability in the quarter. Acreage increasing key geographies and robust soft commodity prices created a positive backdrop for gains. Rising input costs, inconsistent raw material availability, increasing logistics expenses, Long lead times for ocean freight, labour cost inflation and resurging currency headwinds are some of the key challenges we faced in 2021, and we are prepared to navigate them again in 2022. Building on the positive sentiment in the ag market, we expect to drive growth this year through a combination of volume expansion and strong price increases across all regions. Then into Q4 results on slide 3. We reported $1.41 billion in fourth quarter revenue, which reflects a 23% increase on a reported basis and 25% organic growth. This increase was driven by strong volume growth and pricing gains across all regions, as well as double-digit revenue gains in the US, Brazil, Argentina, Mexico, France, Russia, Germany, India, Australia, and Indonesia. Growth was broad-based across all of our product categories, led by herbicides. Insecticides and the plant health business both grew more than 15%. Adjusted company EBITDA was $377 million, an increase of 30% compared to the prior year period. Company EBITDA margins were 26.7%, up approximately 150 basis points year over year, despite steep headwinds in the quarter from cost inflation. This margin expansion was driven by mixed improvement and strong pricing gains in all regions, especially North America and Latin America. Adjusted earnings were $2.16 per diluted share in the quarter, an increase of 52% versus Q4 2020. The year-over-year gain was primarily driven by an increase in EBITDA, while a lower than projected tax rate as well as share repurchases also contributed to the result. Moving now to slide four, North America posted an all-time record quarter for the region, with 80% revenue growth versus the fourth quarter of 2020. Adjusting for lost sales in the prior year period, the region still grew over 30%, driven by strength in selective herbicides, higher prices, new product launches, and continued market expansion of Renaxapyr and Cyazapyr. Our U.S. business has made great progress in revitalizing its portfolios. with more than 20% of the quarter sales coming from products that were launched in the last five years. Revenue in Latin America increased 30% year over year, driven by volume and price increases. Growth in the region was led by strong performance in Brazil, Argentina, and Mexico. Brazil experienced robust market conditions, with acreage increasing for several crops, especially soy, cotton, and corn. We grew our business in these key crops driven by talisman and hero insecticides for stink bug control. We also saw strong growth in specialty crops, mainly coffee and fruits and vegetables. And finally, in Latin America, diamides, herbicides, fungicides, and plant health each grew at least 25% or more in the quarter. In EMEA, our branded business grew 9% driven by diamide and herbicide volumes, as well as price increases partially offset by the weakening of the euro. Growth was driven by our Diomide brands, such as Corrigan for corn and top fruit applications, as well as herbicides for use on cereals, potatoes, and sugar beet. Overall, EMEA sales decreased 8% year over year and 7% organically due to the shift of Diomide global partner sales in the quarter from EMEA to Asia. In Asia, revenue is down 3% compared to the fourth quarter of 2020, primarily due to weather challenges in a number of countries, most notably China. Australia grew more than 40% in the quarter, driven by the continued momentum of our launches, including Banticore Insect Control based on Anaxapyr and Overwatch Herbicide based on our Isoflex active. Agronomic conditions remained positive in the country, and a strong start to the summer cropping season resulted in very good demand for our diamides for rice and cotton applications. India, a key pillar of our Asia business, delivered greater than 10% year-over-year revenue growth driven by demand for our portfolio in rice and pulses in the south and in sugarcane in the north. Turning to slide five, EBITDA in the fourth quarter was up 30%, driven by volume and price increases in all regions. Let me remind you that FMC's definition of the volume driver includes quantity growth, mixed improvement, and the financial benefit from new launches. Volume was up $184 million in the quarter, driven by selective herbicides in the U.S., insecticides for fruit and vegetables in Mexico, and insecticide sales for corn and soy applications in Brazil. Price was up $47 million with pricing actions in all regions. The biggest pricing gains were from the US and Latin American countries with mid-single digit increases. We expect similar pricing actions in other geographies as we approach the new seasons. Raw material, logistics, and packaging costs remain elevated. contributing to the $112 million in costs headwinds. FX was a $32 million negative factor in the quarter, primarily in Latin America. Moving to full year results on slide six, we reported $5.05 billion in revenue, which reflects a 9% increase on a reported basis and 8% organic growth. Approximately $400 million in sales came from products launched in the last five years. Adjusted EBITDA was $1.324 billion, an increase of 6% compared to 2020, even with over $118 million in cost headwinds. We continue to deliver industry-leading EBITDA margins of 26.2%. 2021 adjusted earnings was $6.93 per diluted share, an increase of 12% versus 2020. This increase was driven primarily by the EBITDA increase, as well as lower interest expense, improved tax rate, and a lower share count offset partially by higher DNA. As Andrew will detail in his remarks, we delivered record cash flow of $713 million in 2021, an increase of 31% over the prior year period, and our cash conversion of 80% for the year was also an all-time record. I have mentioned the excellent growth of our plant health business a number of times, so before moving on to 2021 and Q1 earnings outlook, Let me quickly share more details on this business, which includes FMC's biologicals platform. Moving to slide seven, FMC's plant health business is approximately $220 million of revenue today and consists of our biologicals, crop nutrition, and seed treatment technologies. Biologicals can be used to improve nutrient uptake while providing insect control, disease protection, and improving yields. At the same time, these technologies generally have reduced residue and more favorable environmental profiles when compared to synthetic alternatives. These characteristics make the plant health business an integral part of FMC's commitment to sustainable innovation. Regulatory pressures around the world, resistance management challenges, as well as evolving food chain requirements are some of the factors driving double-digit market growth for biologicals. FMC's plant health business has demonstrated margin accretive growth at approximately one and a half times the market over the last five years. We entered the biological space in 2013 with a small acquisition and a strategic alliance with Christian Hansen. In 2016, we established the headquarters for plant health at our European Innovation Center in Denmark, and most recently, entered into a collaboration with Novagyne to research, co-develop, and commercialize enzyme-based crop protection products. We've also made early investments in emerging technologies, such as pheromones with Bioferro and peptides with MicroPep through FMC Ventures. We utilize a tailored business model for plant health with a dedicated R&D center in Copenhagen, specialized contract manufacturers, and an integrated downstream commercial organization that leverages our synthetic crop protection market access throughout the world. All four regions are actively growing the FMC Biologicals portfolio, with Asia and Latin America making up two-thirds of the current business. Our plant health business is targeting a goal of $500 million in sales by 2025, driven by our internal pipeline, external partnerships, as well as a strategic M&A. Moving to slide eight, an FMC's growth outlook. We are projecting 7% top-line growth in 2022, with gains across all four regions, leveraging the full breadth of our synthetic and biological portfolios, as well as price increases. New product growth is anticipated to accelerate in 2022, with approximately $600 million in sales coming from products launched in the last five years. This would represent more than 11% of our total projected sales, as well as a 50% increase from the category versus 2021. Our North American business will drive the growth of recently launched products such as Zyware Fungicide for corn and Banticore Insect Control targeting worm pests in a range of crops, including soy, corn, and cottons. Biologicals and other plant health products are expected to grow double digit due to new registrations. We currently announced in-season price increases in the US and expect pricing momentum to help offset cost headwinds. In Latin America, we expect growth across the whole region, driven by a range of insecticides, including diamides, as well as selective herbicides and biologicals. We anticipate acreage to remain supportive in our key crops of soy, corn, cotton, sugarcane, as well as specialty crops. Significant market expansion opportunities still exist for Colombia, Peru, Paraguay, and other Latin American countries in which we remain underrepresented. Our Diomide product line is particularly suitable for specialty crops in these countries. Pricing will be a key lever in the region to help offset cost and FX headwinds. We are also launching Onsuva fungicide based on our Fluendapyr active in Argentina and Paraguay this year. Onsuva is an innovative broad-spectrum fungicide targeting diseases in soy and peanut crops. Our Asia business is expected to grow across several countries, driven by diamides, new products and biologicals. India will continue to be an important market for our diamides, as well as the broader portfolio, especially in sugarcane, rice and specialty crops such as pulses. Australia is expected to continue its growth trajectory, with recent launches including Overwatch herbicide, which targets annual ryegrass and select broadleaf weeds on cereals and canola, and new registrations in Asia will drive double-digit growth for our plant health products. We expect to continue expanding market access in countries such as India, Indonesia, the Philippines, Vietnam, and Malaysia. And FX volatility will be important to watch, especially in India and Pakistan. Finally, the EMEA business is projecting volume growth across the region, led by Spain, Germany, the UK, and Middle East and African countries. Thiazepa brands, such as Venevia, Verimark, and Exarel, will continue growing volumes on vegetables, top fruit, olives, and citrus. Ranaxapur brands, such as Corogen, are projected to grow in cotton and corn. Herbicides, including Spotlight Plus, which is used for desiccation in potatoes, are expected to grow in the UK and other countries in the region. Biologicals and other plant health products will also maintain their growth trajectory. In terms of new launches, we are introducing a herbicide for grass wheat control in wheat and barley in new countries in the region. Registration losses will be a headwind similar to the magnitude of previous years, and FX volatility is projected to be a headwind with the euro, Turkish lira, and other currencies weakening against the US dollar. Turning to slide nine, an FMC's cost outlook. With respect to the cost of goods sold, we continue to see elevated costs across our supply chain. Higher input costs are driven by inflationary pressures, as well as a lack of availability. Logistics remain tight with ocean, air and ground transportation costs at elevated levels. Packaging costs also remain high and availability remains tight. However, we are seeing initial signs of price alleviation. Overall, we expect supply chain related challenges to persist through 2022. We have better visibility into costs for the first half of the year, and we'll have a clear review of the second half once we move through the second quarter. Increased SG&A investments are anticipated to be driven by commercial expansion activities, especially in support of recently launched products and market access opportunities, as well as labor cost inflation. R&D spend will grow as we continue to advance our discovery and development pipelines. Overall, SG&A and R&D spend will be maintained in line with historical ratios and managed closely. Turning to slide 10 and the review of our full year 2022 and Q1 financial outlook. We expect full year revenue in the range of $5.25 billion to $5.55 billion, representing 7% growth at the midpoint compared to 2021. Adjusted EBITDA is forecast to be in the range of $1.32 billion to $1.48 billion, reflecting 6% year-over-year growth at the midpoint. We expect adjusted earnings of $6.80 to $8.10 per diluted share, representing an 8% increase at the midpoint. This assumes a share count of approximately $127 million and does not factor in the benefit of any potential share repurchases in the year. Looking at the first quarter, we forecast revenue to be in the range of $1.22 billion to $1.34 billion, representing 7% growth at the midpoint compared to first quarter 2021. Adjusted EBITDA is forecasted to be in the range of $300 million to $350 million, representing a 6% increase at the midpoint versus the prior year period. We expect adjusted earnings per diluted share to be in the range of $1.50 to $1.90, representing an increase of 11% at the midpoint versus Q1 2021, and assuming a share count approximately $127 million. Moving to slide 7. I want to highlight some of the potential factors that could guide our results to either end of the guidance range. At the midpoint of our adjusted EBITDA guidance, we are assuming input costs remain elevated and any further inflation is mitigated. If cost inflation becomes more severe and cannot be mitigated through further price increases or internal efficiencies in the calendar year, our results would trend towards the lower end of the guidance. Alternatively, realising mid- to high-single-digit price increases and or easing of FX headwinds would drive our results towards the high end of the range. Weather events and supply disruptions are variables which would also influence the final outcome. Turning to slide 12 and full-year revenue and EBITDA drivers, again in 2022, strong volume expansion and price increases across all regions will drive revenue growth. FX volatility is expected to be a negative factor in our outlook. Our EBITDA guidance reflects the benefits of high incremental margin volumes and price increases, partially offset by cost and FX headwinds. Moving to slide 13 and the Q1 drivers. On the revenue line, volume growth is expected to continue, especially in North America and Latin America, where momentum is strong. As noted earlier, we have already announced in-season price increases in the U.S. Price increases in all regions will be an important driver for the quarter. we're anticipating FX headwinds principally from European currencies. Regarding EBITDA drivers, long supply chains in the ag chem industry provide us some visibility into costs. And so far, inflationary pressures have not subsided and remain at elevated levels. The higher costs driven by raw materials that we saw in the second half of 2021 will continue in the quarter, as well as growing FX headwinds that will partially offset the EBITDA benefit from high margin volumes and price increases. Overall, we are forecasting year-over-year EBITDA growth of 6% in the quarter. I'll now turn the call over to Andrew.

Thanks, Mark. Let me start this morning with a review of some key income statement items. FX was an unexpected headwind to revenue growth in the fourth quarter, principally driven by late quarter volatility in the Brazilian REI and to a lesser extent by the euro. For full year 2021, FX remained a modest tailwind overall, with the late-year currency volatility more than offset by tailwinds in major European and Asian currencies. Looking ahead to 2022, we see increasing FX headwinds. A significant shift in our expectations as compared to the initial outlook for 2022 we provided on the November call. For the first quarter of 2022, the headwinds are primarily in Europe, driven by the euro and the Turkish lira. For full year 2022, we anticipate broad-based FX headwinds, as the U.S. dollar is now expected to appreciate against nearly all currencies of importance to FNC. Interest expense for the fourth quarter was $33 million, down $1.2 million versus the prior year period. Interest expense for full year 2021 was $131.1 million, down $20.1 million versus the prior year due to lower U.S. interest rates and lower foreign debt balances. In 2022, we expect full-year interest expense to be in the range of $115 to $135 million, with higher short-term interest rates in the U.S. offset by the benefits of the refinancing completed in the fourth quarter of 2021. Our effective tax rate on adjusted earnings for full-year 2021 was better than anticipated at 12.7%, driven by a more favorable mix of earnings in the fourth quarter across our principal operating companies. The fourth quarter effective tax rate of 10.8% reflects the true up to the full year rate relative to the 13.5% rate accrued through the third quarter. For 2022, we estimate that our tax rate should be in the range of 13 to 15%, with the increase driven by certain provisions in the Tax Cuts and Jobs Act of 2017 that are effective beginning in 2022. Moving next to the balance sheet and liquidity. Gross debt at year end was $3.2 billion, down roughly $200 million from the prior quarter. Gross debt to trailing 12-month EBITDA was 2.4 times at year end, while net debt to EBITDA was 2.0 times. Both metrics are below our targeted full-year average leverage levels, as intended, given our higher leverage earlier in the year. we expect to maintain full-year average leverage in our targeted 2.4 to 2.5 times gross or 2.3 to 2.4 times net ranges in 2022. As I briefly mentioned a moment ago, we refinanced the $700 million outstanding balance on our 2017 term loan, as well as $300 million in senior notes that matured this month with a new $1 billion term loan in November. The new term loan has improved pricing, which will reduce our interest expense by approximately $8 million in 2022 compared to 2021. We continue to believe prepayable debt, like the new term loan, provides valuable flexibility in our capital structure. Moving on to cash flow in slide 14. FMC delivered record-free cash flow of $713 million in 2021, up more than 30% versus the prior year. Adjusted cash from operations was up more than $100 million compared to the prior year. Significant improvement of working capital and higher EBITDA were only partially offset by growth in cash used by non-working capital items. Receivableness of rebates, vendor financing, and advance payments was the primary driver of improved working capital, supported by improved accounts payable. I note that advance payments from customers were very strong in North America, as were collections around the world in the fourth quarter. Higher inventories were a headwind to operating cash flow, driven by our choice to build inventory to help manage continued supply chain volatility and to be prepared to fulfill strong demand in early 2022, as well as reflecting higher input costs. Capital additions and other investing activities of $114 million were up $26 million compared with the prior year, as we continue to ramp up spending following deferral of projects in 2020 and to support continued growth. Capital additions came in meaningfully lower than anticipated as we were unable to spend at our targeted levels in the fourth quarter due to changes in project timing and in the availability of materials and contractors. Legacy and transformation spending was down substantially due entirely to the completion of our SAP program. Overall free cash flow conversion from adjusted earnings was 80%, an all-time high for FNC. This strong cash flow supported equally strong cash return to shareholders of nearly $650 million in 2021. We repurchased 3.95 million shares in 2021, over 3% of shares outstanding at the beginning of the year, at an average price of $101.14. We also paid $247 million in dividends. Looking ahead now to free cash flow for 2022 on slide 15. We are forecasting free cash flow of $515 to $735 million in 2021, a range reflecting not only the range of potential EBITDA outcomes Mark discussed earlier, but also uncertainty around a few critical assumptions. Underlying this forecast is our expectation of adjusted cash from operations of $750 to $910 million, flat to 2021 at the high end of the range. Growth in working capital isn't anticipated to more than offset EBITDA growth, with a modest tailwind for non-working capital items. Working capital growth reflects our current expectations of a return to more normal advanced payment levels in North America, among other factors negatively impacting net receivables in 2022. We expect to further continue to ramp up capital additions as we expand capacity to meet growing demand, especially for our new products that are seeing rapid gains. Legacy and transformation, however, is expected to be a tailwind with somewhat lower legacy spending and essentially no transformation expense expected in 2022. With this guidance, we anticipate free cash flow conversion of 66% at the midpoint. To put our 2022 free cash flow guidance in perspective, let's move forward to slide 16. The left side of this slide shows free cash flow trends since 2018. As you can see, FMC has made tremendous progress in both the absolute dollars of free cash flow generated, as well as the conversion of earnings to cash flow. And as we've said before, the definition of free cash flow we use is very comprehensive. It's essentially the cash that is left to pay dividends, buy back stock, or make inorganic growth investments. As such, there are a number of factors that can swing cash flow from year to year. The crop protection industry is working capital intensive, So year-to-year swings in working capital drivers, like advance payments, can move our cash flow from one year to the next. Additionally, other cash items like taxes, environmental payments, et cetera, can be lumpy. So as we get to a more steady state level of cash conversion, we believe it's important to look at trends over several years rather than focus exclusively on a single year's results. If you look at the three-year rolling average trend for cash conversion, you can see F&C's performance has stepped up nicely and is maintained at above our targeted 70% through 2022 at the midpoint of our guidance. As discussed, there are some specific drivers that could depress free cash flow conversion somewhat in 2022. But we fully expect free cash flow conversion to be above 70% in 2023, and that we should sustain 70% to 80% free cash conversion on a rolling three-year basis over the long term. Equally as important as improving our free cash flow is the discipline with which we deploy cash. The chart on the right side of this slide shows our cash deployment for 2019 through 2021, with essentially 100% of our free cash flow having been returned to shareholders through dividends and buybacks. As you saw in our earnings release last night, FNC's Board of Directors has authorized a new $1 billion share repurchase program, confirming confidence in our ability to sustainably generate strong cash flow in 2022 and beyond, and reiterating our commitment to return excess cash to shareholders. In 2022, we anticipate continuing to strongly reward shareholders with dividends of around $270 million and share repurchases of $500 to $600 million, a return of more than 100% of our free cash flow in the year at the midpoint of our guidance range. With that, I'll hand the call back to Mark.

Thanks, Andrew. FMC's performance in 2021 was the result of strong volume in pricing gains, as well as overall favorable market backdrops. Our operations and procurement teams worked hard to overcome persistent supply chain and logistics challenges that continue to disrupt the global economy. We expect 2022 will be another year of volatility. From a cost standpoint, second half input costs are somewhat unclear at this time. We are closely monitoring any potential COVID-related impacts, particularly in China, as well as potential logistics issues around the world. However, it's important to recognize that these 2022 challenges are set against the backdrop of solid agricultural market fundamentals and strong demand for our industry-leading products and technologies. We remain confident in our 2022 guidance and another year of healthy growth, driven by pricing, new and recently launched products from our synthetic and biological portfolios, appropriate cost controls, and continued investments to expand market access and broaden our technology platforms. I will now turn the call back to the operator for questions. Thank you.

Ladies and gentlemen, at this time, we'll begin the question and answer session. To ask a question, you may press star and then one using a touch-tone telephone. If you are using a speakerphone, we do ask that you please pick up your handset before pressing the keys. To withdraw your questions, you may press star and two. Once again, that is star and then one to ask a question. At this time, we'll pause momentarily to assemble the roster. And our first question today comes from Laurent Farb from BNPP. Please go ahead with your question.

Good morning, all. Compared to the early look three months ago, it looks like your view on fundamentals is slightly more positive. The view on the supply chain upsets that, and then you have currency on top to bring the overall number down. Is that the right interpretation? Have you seen anything on the ground that would limit your ability to have further pricing if you had further incremental inflation? Thank you.

Thanks, Laurent. Fundamentally, no, nothing more broad-based than FX has changed since we communicated in early November. You think about the markets themselves. The markets are pretty healthy. You know, soft commodity prices are high. You've got soybeans in the 15 range. You've got corn at six plus. Cotton is high. Sugar is high. So the backdrop is generally positive. The only change we see is really FX. And that is something that occurred late in the quarter, and our latest view is obviously to be a headwind as we go through this year. The rest of the projections that we have, whether it be volume growth or pricing trends, are pretty robust. I mean, the way we're thinking about our model for this year is that our pricing increases will more than offset our cost increases through the year, and that our volume increases will more than offset any FX as well as investments in SG&A and R&D. And that's how we get to the sort of mid-point where we are. But really, the only thing is FX that's different.

Andrew, do you want to comment on FX at all? Sure. I think, look, as mentioned in the prepared comments, it really was a spike towards the end of the quarter in the BRL. And just adjusted expectations when we looked at, like everyone else, the third-party sources on forward-looking expectations for currencies, where we are seeing anticipated weakening of a number of currencies against the U.S. dollar, particularly BRL, RMB, Euro, and Indian rupee, which are probably the four most impactful currencies for FNC. So certainly, like all these things, this could change during the year, but based on what our forerunners are right now and our expectations, we do expect a meaningful headwind from FX in 2022.

Thank you. If I can add a follow-up on plant health. It looks like we've got a pretty bullish 2025 target of more than doubling sales in four years. How much of that target relies on M&A as opposed to market growth and product launches?

Yeah, there is some M&A anticipated in that 500 million from where we are today in 2021 at 220. But I have to say, when we talk about double-digit growth, we're talking about significant double-digit growth. We've introduced a lot of products around the world over the last few years. Our biological pipeline is robust. I think we have four or five brand new products coming out of that pipeline. So the market, I would say, is very open to biologicals, much different than it was five seven years ago when we first started this journey when when i think about traveling around the world and talking to growers you know we mentioned that asia and latin america in particular brazil and mexico are perhaps the leaders in terms of adoption of biological and crop nutrients we see that on the ground i go to many customers obviously not over the recent times but we get a lot of questions about what biologicals are coming how can i use them how are they different How do they help resistance? How do they help me as I think about selling products into the food chain? Those are all aspects that are driving that biological platform. So I actually think the $500 million is well within reach when I look at the underlying fundamental organic growth. Now, of course, along with that comes investments, and we are investing at a higher rate in terms of R&D for this business than we are for our synthetic businesses, mainly because the cost is high but the revenue is building, but also, more importantly, from what I would call an educational aspect. We have to educate our people how to sell these products. We have to educate growers how to use them. They're different, but they definitely have a place in this market. We see them as being expansionists to our portfolio, not necessarily cannibalistic in terms of taking our business away from our own synthetics.

Thank you.

Our next question comes from Adam Samuelson from Goldman Sachs. Please go ahead with your question.

Yes, thanks. Good morning, everyone.

Good morning.

Good morning.

So I guess my first question, just thinking about kind of the underlying kind of market outlook, and you gave kind of a framing that market outlook hasn't fundamentally changed on the volume side from where you would have been a few months ago. I guess I'm just trying to think about where you think channel inventory is kind of ended the year and the headwind tailwind that that might present to the volume opportunity certainly seems like a pretty constructive crop price and farm income environment.

Certainly good momentum on the on the new product side that seems to be accelerating. And so I guess I'm just trying to calibrate if we should the scope for for

volume upside over the course of the year? And if so, where do you think kind of which regions kind of would be outperforming and underperforming at the corporate level?

Yeah, I mean, this is from a volume perspective. I mean, you look at the last quarter, we grew volume over 20%. So I mean, there's obviously, there's very, very strong demand out there. Thinking about your comments, there's a lot wrapped up in what you asked. I think from a market demand perspective, it's very strong all over the world. I mean, You know, when I think about channel inventories today, frankly, I have very, very few concerns from where I sit at FMC. There are pockets in India following the spotty monsoon that we had last year, but they're not significant. Brazil, we have, from FMC's perspective, we have absolutely zero concern. From North America, I'm probably the other way around when it comes to channel inventories. I'm more concerned that there is not enough material there. Europe, not really a problem at all. So channel inventories, frankly, in our own internal conversations, has not really come up much in the last quarter. Demand has come up. Demand is very, very strong. We believe we missed sales in the quarter. I can't quantify it, but I would also say we picked up sales as well through people who also had problems. So it's a very, very dynamic market. But when you have a backdrop of such high soft commodity prices, obviously there is scarcity in some key raw materials and intermediates. I think that creates a solid demand for the market. And we've seen that. We've taken advantage of it where we can. And, you know, when we think about a 7% top line growth, that's going to be probably double where the market is in 2022. So we feel very good about the growth that we have. And it's broad based. It's pretty much coming from every region. It's coming from the herbicide portfolio. Our fungicide portfolio in the U.S. is growing with our new addition of Zyway, which is a really good brand-new systemic fungicide for corn applications. So overall, very robust. The pipeline is working well. The investments are there. It's a good scenario for FNC going forward. That's a really helpful call.

If I could just follow on, just thinking about pricing, is there any – you actually put in some pricing in North America, most notably, Latin America. Is there any product or region where pricing might be a bit more challenging to achieve? Are you seeing any areas where there's a bit more less market receptiveness to pricing actions?

Not overall. We've moved pricing in all regions. We've moved pricing on an as-needed basis. And that's very, very different to traditionally how this market moves. When we talk about in-season pricing, we're doing that in different parts of the world. We highlighted the U.S., but it's not just the U.S. So you should expect us to see us move price as we go through the year as needed, as we get more clarity on the raw material position and availability. I don't think there's anywhere in the world where we're not moving pricing. Obviously, there's different degrees given the portfolio and the value that you bring. But quite frankly, there's not a lot of choice here. The price increases that we receive from our suppliers and from intermediates, you can see the impact of costs in the fourth quarter and in 2021. They're significant, and they have to be remediated. So I think we certainly have the desire to move price, and we are all over the world. All right. That's all really helpful, Colin. I'll pass it on. Thank you.

And our next question comes from Chris Parkinson from Mizuho. Please go ahead with your question. Chris Parkinson Great. Thank you very much. Mark, you sound pretty good this morning. I just want to ask a pretty simple question. I mean, what's with the width of the guidance range, particularly reconciling at some of the constructive global, you know, commentary, the outlook, as well as your scenario analysis on page 11 of the PowerPoint?

Yeah, thanks, Chris. I'm glad I sound good. Actually, after the quarter that we had, we should sound good. um listen the the range is wide for a reason um i've been in i've been in the chemical industry 35 years and i have never seen an operating environment like this it's not as if it's one pocket of a raw material it is across the board whether it's commodities whether it's specialties whether it's fine chemicals it is logistics challenges They're all there altogether. Obviously, when we look at the world, we start to think about what could the ultimate upside be and what could the ultimate downside be. It does not mean that on that slide that we think 1320 at the bottom end of that range is something that we're planning for. We're absolutely not. We're planning for 1400 and we're planning to deliver more than 1400 if we can. Now, some things will have to go our way. We'll have to achieve more pricing. The volume side will have to accelerate. FX will perhaps moderate. But those are the types of decisions we make. So people shouldn't be surprised that we've put out a wide range. I mean, you can look at some companies in our space and in the general chemical space. They haven't even guided. That tells you the challenge out there for companies like ourselves, where we're very broad-based in terms of what we buy and what we move around the world. Don't read into that broad range that we have concerns that the $1,400 is not achievable. That's the number we're aiming for. That's what the organization is built to deliver.

All right. So you're telling me Pierre had it easy, huh? Fair enough. Real quick, 22, when you're breaking everything down and you have some great commentary on new products, the biological portfolio, even some stuff on the diamides, when I look at that 7% and think about the midpoint in terms of the incremental year-on-year absolute dollar contributions, Can you just give us some additional color in the dynamite as well as the new product penetration as well as some of the launches, some of those things that are kind of rolling out of the R&D portfolio? So just how should we be thinking about that growth contribution from S&P-specific sources versus your presumption of natural market contributions? Thank you.

Yeah, so I think we commented in the script that products launched in the last five years will contribute $600 million of revenue in the year. That's versus $400 million in 2021. So you can see that acceleration of the portfolio. I think what is most pleasing for us is, you know, we see the diamides continuing to grow in that mid to high single digits depending on the year. That keeps rolling through. We see that year in, year out since we acquired the products. I think what's most important for listeners is the rest of the portfolio and the new products that we're bringing in are also growing in that mid to high single digit number. So you can see that the portfolio is getting more balanced. When I think of products that we launched in 2021, within 2021, I think it was about $120 million of revenue in the year. So that's very healthy. This year is somewhat less than that, just because of the mix of types of products we're introducing. I think we're in the $50 to $100 million range. But again, very healthy. So you should expect to see that number continue to climb, especially as we go through the 23, 24 period. We have some big active ingredients that start to get launched then. You will see that number accelerate as we go through the end of the decade. And if you remember, we talked about the development pipeline delivering something north of $2 billion by 2030 of new sales. That's still very much on track for us.

Thank you very much. Our next question comes from Vincent Andrews from Morgan Stanley. Please go ahead with your question.

Thank you.

Could you just give a little more color on what your FX assumptions are at the midpoint for the first quarter in the full year? And if you just want to tell us what you think the headwind is or what rates you're assuming.

And, you know, I recall that you generally have some at least modest amount of hedging going on to try to smooth things out. But if you could just give us some guideposts so that as the year progresses and the rates move around, we have a better sense of whether it's trending for or against you.

Yeah. Hey, Vincent, Andrew. I would say this. In the first quarter, it's really European currencies that are challenged. The euro is the largest headwind. and the Turkish Lira's volatility. Turkey's not a huge country for us, but the magnitude of the movements have been pretty substantial. And to your point, you know, we do systematically hedge currencies. We don't hedge 100%. That's not economic. So obviously there's a portion of it that's 100% exposed. And it does depend a bit on how far things move. Not really an anchor I can give you on rates. I would just say, you know, look at the year-on-year comparisons for rates as at least giving you an indication of the relative impact as if currencies were to improve in our favor during the year. But I think as we look for the full year horizon, you know, certainly all of the forecast workers we see, see a generalized strengthening of the US dollar. Q1, again, is much more of a European currency issue. But as you get through the full year, We're looking at all of the major currencies that are important to FNC, really showing some headwinds. Obviously, it's just the beginning of February. We'll see how the rest of the year plays out. But from a reference point, I would just look at the year-on-year change. That will give you the best ability to gauge what might be an improvement for FNC.

Okay. And then I think, Mark, you mentioned, you know, on the supply side, one of the risks would be China. And obviously with the zero COVID policy there, they've so far largely managed to avoid Omicron.

But, you know, can you remind us, you know, how much exposure you have to Chinese suppliers on the raw material side of the equation and sort of what flexibility you have in place if, you know, they do have a disruption?

Yeah. So, you know, we talked about this in the past. If you think about going back past 2015, we were probably 95% dependent on China. We had a strategy that was the link to China, low cost, home manufacturing. Obviously, through the acquisitions we've made over the last seven years, we've become a very different company in terms of manufacturing our own active ingredients and reliance on China. I would say today we're probably in the 40% range in terms of dependency on China. Not unusual for a company our size. It's very difficult to totally remove China from the equation and you simply wouldn't want to do that anyway. There is a balance that you often need. We spent a lot of time over the last few years re-registering products around the world so that we have two or three sources of manufacturing. whether it be India, parts of Europe, or even parts of Central America now with Mexico thinking about manufacturing there. So we're much more balanced in terms of our sourcing of manufacturing. I think the whole lockdown process in China is something we're watching very, very closely, mainly because it can be extremely short-term disruptive, i.e. from one day to the next, it can impact you. So having that balanced network has allowed us to serve our customers very well over the last I would say 18 months. Thank you very much.

Our next question comes from Steve Byrne from Bank of America Securities. Please go ahead with your question.

Yes, thank you. Mark, you mentioned you thought inventory levels in the U.S. were low, but you had really strong sales. I was just wondering whether the shortness of glyphosate you know, in the last couple of quarters might have pulled some sales from the first quarter into the fourth. Was there any of that? Just almost with the channel being almost hysterical about not having access to products. Was there any of that going on? And can you comment about your pre-emergent platform in the light of, you know, concerns out there about whether or not

uh you know diamide might be available for use over the top is that beneficial to you yeah i think well listen i mean i would say the following if you look at our growth numbers in in projected in q1 we're at that seven percent range that's a very healthy number um i would say customers whether it's distribution or retail around the world in the us obviously people are concerned with supply i mean there's no way you wouldn't be in this industry and not be concerned with it But frankly speaking, as we went through the quarter, at the end of the day, we were focused on both Q4, Q1, Q2, Q3. So you're getting ready for a season. As you think about it, the volume is there. I don't think it's excessive at this point, certainly not in North America. We have seen changes in terms of our pre-emergent portfolio. We do have some of the leading products in the marketplace in terms of efficacy for glyphosate or dicamba resistance. I do think we've picked up some business there, but it's actually, it's not just that type of herbicide that we've seen. We've seen other herbicides around the world start to pick up because of that glyphosate shortage or glyphosate price increase. I'm not suggesting that it's going to fundamentally alter the profile of FMC, but it is nice business to pick up as the pressure is on those types of products for cost increases. But to the broader question, look at our growth in 2022. We're at 7%. That doesn't suggest to me that there's been a lot of what you call pull forward. We don't see it to that degree at this point. The business is very robust.

Thank you. You mentioned the need to educate growers, and I'm sure that is a challenge for you know, a new mode of action or even, you know, a concept like a biologic, is there anything that you're doing that has helped you accelerate growth of new products, you know, where It's not just educating. They have to try it. Do you need to put out lots of field trials? Do you have to give growers a couple of years of free access just to try this new stuff? Anything that's particularly effective for you on this?

Yeah, I think you raise a very good point, Steve. I mean, we have 24 different research stations around the world, and the biologicals are consuming a significant amount of trial time. We do take growers to the farms around the world. We're also spending more on social media in terms of allowing growers live access to those trials. so that they can see without traveling i think that's been a major boon for us in helping people understand look these products do work they do work under extreme conditions they do improve yield and productivity i would say the social media aspect of communication for our agronomists and our technical sales force has certainly helped And you're right. You know, we've been trialing these products for many years. People want to see two, three years of data before they'll start to try them on their farms. And we're coming through some of that early work now, and we're starting to see the benefits with that high double-digit growth. Thank you.

And our next question comes from PJ Jukbar from City Research. Please go ahead with your question.

Hi, this is Patrick Cunningham on for PJ. Good morning. We've talked a lot about biologicals, but in the presentation, I noticed a reference to precision ag. Do you kind of have an update on where you guys are at with that? I know you had your mobile farm intelligence platform. I mean, are there any other investments you're looking to make? Which parts of the value chain do you hope to play in precision ag? Thanks.

Yeah, thanks, Patrick. Yeah, our out-farm intelligence is gathering a lot of steam. Last year was particularly good for us in terms of how we launched in many countries. We're in 21 different countries now. I think we have 13 different pest spectrums that we forecast for growers. That is – it is a growth platform for us. We are the world's leader of insecticides, so this is a sweet spot for us. We will continue to go out on our intelligence around the world for a myriad of crops, lots of specialty crops, but also now starting to look at some of the bigger row crops, especially in Latin America. Through our ventures group, we are actually investing in other areas of interest to us, whether it's drone applications, whether it's automated spraying or sea and spray type applications, So FMC Ventures is becoming a very important platform for linking not only to R&D, but linking to Precision Ag. We have also, when we think about our own portfolio, we have a very unique system that's patented called Thrive 3D, which is an in-ground application, reduces the amount of water used significantly. It's doing very, very well in the U.S., mainly for corn applications, but we're now looking to take that to to Latin America, in particular Brazil and Argentina. I would say the fundamental premise that we have for precision agriculture is whatever you do, it has to meet an unmet need of the grower. If the grower doesn't have that need, it doesn't matter what your technology is or how it looks on an app. The grower will not use it. And I think being focused like we are without trying to be all things really has an advantage for us. And linking that to our portfolio of new technologies really works. Great. Thank you.

Thank you. And our next question comes from Joel Jackson from BMO Capital Markets. Please go ahead with your question.

Hi. Good morning. Can you go back to slide 11 in the sensitivity analysis, the bull and the bear and the base cases? Do you think it's fair? How would you view the percentages of the bull versus the bear case? And the reason I ask is, It seems like the bear case would be a very difficult situation to occur. You know, when the market shrinks, you've got very limited price increases and huge inflation that you can't catch at price. That would seem to be a very difficult case. Is it fair that the bull case seems more likely than the bear case?

That's a good question, Joel, and we debated this slide a lot before we put it out there. I think it is a good slide to put things into context. I do agree with you. I mean, to be at the bottom end of that downside, the world has to basically collapse on you. I do think there are opportunities in pricing. I do offsetting that, though. As I said, costs are unsure going into the second half. So we'll see how that plays out. As Andrew said, you know, FX is volatile today. It might stabilize. It might not. We'll see. I'm hesitant to go above the midpoint. The midpoint's there for a reason. It is the highest probability we see at this point. But I take your view that the upside, it could happen. It's probably more likely than the downside, let's say that way. That's about as far as I'm prepared to go.

Thank you for that. And then on slide 12, I don't know if we call these chevrons or arrows. You're showing the driver seeing mixed volume price currency on 22. 7% revenue growth, so price in a single digit. You're showing the chevron or the arrow being larger for volume mix and launches. versus price will be similar if you were to do none of that facts. But that would seem to then lead to better than 7% revenue growth. So can you help me understand, are you coding the chevrons here?

Yeah, okay, I will do. Listen, let me give you how we think of it today. Forget the chevrons. Just think of it this way. You've got sort of low to mid-single market growth. Think of it that way. You've got mid-single digit price. You've got a volume growth that's probably slightly above the mid-single. You've got FX, which is a negative coming at you at a low single digit. You've got low single digit rationalization, probably in the one to two range is pretty normal for us. And then you've got some price that's already built into that market growth. Remember that. They're not two separate things, which will go against you. Gets you into that, you know, the market growing in that low to mid single digits and us growing at seven. That's how we think about it today.

Thank you.

Thanks.

And our next question comes from Frank Mitch from Premium Research. Please go ahead with your question.

Good morning, folks. Mark, you did a nice job of outlining how FMC will be outpacing the industry. I was just wondering if we might be able to level set and if you could offer, I guess on slide eight, your outlook for the industry overall in 2022. in terms of industry growth in each region?

Yeah, thanks, Frank. Generally speaking, I think we're a little lower than we were in November when we talked about sort of mid-single digit. We're probably in the low to mid-single digit. Now, the only reason for that is how we're viewing FX, because we think of the market on a dollar basis. Obviously, FX around the world impacts us. When I think about the regions, I would say the regions that I see with the most growth are likely to be North America with the mid-single digit growth, I also think Asia will be good sort of in that mid-single area. And then I would say just thinking about Europe, probably low single-digit, mainly because of the FX impact there. And then Latin America, sort of low to mid-single digits. That's how we sort of view the world today.

Fantastic. And speaking of Europe in terms of your own business, you know, you flagged some registration losses that obviously continue. I was wondering if you might be able to discuss the expected year-over-year impact in terms of the products coming off registration and being discontinued, 22 versus 21?

Yeah, it's just slightly over 1%, Frank.

Terrific. Thanks so much.

Yeah, it's mainly Europe and a little bit of Latin America.

Great. Thank you.

Thanks, Frank.

All right, Jamie.

And our next question.

Jamie, we're going to cut off the questions here at time. Thank you very much. That's all the time that we have for the call today. Thank you and have a good day.

And ladies and gentlemen, that will conclude today's FMC Corporation conference call. We thank you for attending. You may now disconnect your lines.