FMC Corporation ($FMC)

Hi. Good morning. I'm Jeff Zekauskas. I analyze chemicals here at JPMorgan. It's my pleasure this morning to introduce the management of FMC. Representing FMC is Pierre Brondeau, who's the CEO; and Pierre has served 2 tours of duty at FMC. He was CEO from 2010 through 2020 and then again from 2024 to the present. Previous to his tenure at FMC, he was the President and COO of Rohm and Haas. And following the acquisition of Rohm and Haas by Dow, Pierre headed Dow's Advanced Materials division. And there are many CEOs that have come from running the Advanced Materials division. With Pierre is Andrew Sandifer, who is the CFO of FMC since 2018, and Andrew also spent time in the old days at Rohm and Haas. Curt Brooks, who heads Investor Relations is in the audience. The form today we'll have is a fireside chat.

Pierre, one of the endeavors that FMC is involved in or one of the strategic pathways is the sale or the monetization of the company? Have you learned anything from that experience?

You always learn when you go through such a process. I think, as I said many times, I need to be monitoring the 2 approach we have with the company, what we call the Plan A, which is go alone and keep on going with 4 pillars paying down debt, restructuring and manufacturing footprint plus Rynaxypyr, patent protection strategy and new product growth. And then there is looking at what are the strategic options around the sale of the company, which could be sale, which could be merger or any other option. What I have seen on the Plan B, which is the strategic options as we call it for the company, is there is interest. Bank are talking to multiple parties. I'd say there is 5 to 10 parties which are interested in the process at different levels in different manners. There is I think when I look at almost every single party, if there is one thing I have learned is when we see a lot of value in our portfolio of new technologies, we are not wrong. Because that's pretty much where all of the people who are looking at FMC are focusing on. I mean certainly, there is Rynaxypyr or there is the postpatent period, but lots of people are moving beyond that. We do have 4 molecules coming to the market. We do have 2 fungicides very close to getting out of the development phase towards the '30. And we have a portfolio which will be fundamentally transformed by this new technology to being much more herbicide, fungicide and then a balance of pesticide and biological. So a very different portfolio. And that's where I see a lot of focus. I have to say that's the thing I've learned. I was expecting to be tortured on Rynaxypyr and what will we do versus generics and how we defend our position post patent protection. But I think the vast majority of the conversation is on the new pipeline.

So when you look at your Plan B, is it really a question of strategic interest rather than private equity interest in FMC.

I think it's both.

It's both.

It's both. It's a broad range of companies.

And -- but primarily strategic, no, because in the event of a combination, there are synergies, which a private equity company couldn't capture?

You know, you could see and I've got to be careful not to divulge too much. But I would say it is strategic, it's private equity and sometimes a blend of strategic and private equity. So it's a broad range.

So if I gave you $30 per share for FMC, would you take it?

So would I take it? I believe some shareholders would take it and some would not like it. I think we have a new generation of shareholders who came lately when the stock was in the 20s or in the mid-teens. And certainly, those people would be able to make over a short period of time, a significant profit and they would take it. There is more historical shareholders, which are above this number. And we've been told in no uncertain way that there is a significant amount of shareholders who believe in a future where FMC is alone and the stock will get over $30 because of the pipeline we have. Now if you ask me personally, I'm a shareholder of the company. I'm not taking $30. I think as a stand-alone, we can go much higher, but I still run the company. So I have to trust what I do. But it's -- it depends where you stand. It depends if you're a new shareholder and if you're a historical shareholder.

Since we have the luxury of having Andrew up here, one of the events for FMC this year is the refinancing of, I guess, $500 million in debt that comes due in October. I think it's a 3.2% coupon. Do you have the strategy for that or plan for that?

So we've got -- I think stepping back, Jeff, I think we've got multiple ways we can address the October maturity. And to be very clear, we'll deal with this shortly. We have adequate liquidity through our revolving credit facility to absorb the redemption of those notes if needed. That's not the plan. I think our intent certainly would be probably in the second quarter to get out there, get out in public markets and do an offering to replace and redeem those bonds. I think that where we start from, though, I think we have right now a revolving credit facility. It's essentially an investment-grade revolving credit facility. In the last amendment, we introduced this concept of a springing security that would trip if we were further downgraded after the initial downgrade to noninvestment grade. I think we're in midst of active discussions with the bank group to continue to evolve that agreement, probably move to more traditional security rather than the springing security kind of situation, something more appropriate for a company in the BB+ and then a legacy -- some of the legacy elements of the existing agreement. That would also give us a little more operational flexibility through the next several years. And again, set that -- clear the table to go out and do a bond offering in the second quarter, high yield likely secured to address that immediate maturity. I think in conjunction with that, I think as Pierre pointed to, the first pillar of the operating plan for 2026 is paying down debt, right? And so certainly, while we would -- we're very intent on making sure we address that maturity, we're equally as focused on being able to take the steps that are needed to continue to bring the absolute level of debt that the company is supporting down significantly.

Okay. Thank you for that. Obviously, FMC is an agricultural company. But so many companies are touched in different ways by the conflict in Iran. Is that something that touches FMC in a significant way?

In a significant way, right now, I would say no. But right now, -- so if you think about the product we sell as a crop protection company, they are quite removed away from the direct petchem raw material. And most of the cost is in the conversion process where you get to the final product. The place where we see today disruption is not in the cost of a product, it is more on the logistic aspect. Boats are harder to move. Containers are more difficult to find. So to bring the product at the right place at the right time require logistic organization to work differently than what we've done. So that's where we see an impact. We're not yet at an impact where we see cost fundamentally changing. But should the conflict last a long time, it will sooner or later. I mean gas prices going up, oil prices going up, raw materials in the petchem industry are going up. If this conflict is over in 3 weeks, it will be a blip. We will not see much of an impact. If it lasts for 6 months, yes, we will see an impact. It will reach our product, raw material will have an impact. Energy will have an impact. Plant will be more expensive to operate. So for us to say that it will have a very significant impact, it's a matter of time. If it's a short-lived conflict, will be all right. If it's prolonged, and I call prolonged 6 months, then yes, yes, we will see an impact. We're in a quite different place from input like fertilizers, which are being impacted right away because of their location and the nature of the product. So for us, right now, we're still in a decent position beside logistics, just a matter of time.

So if the conflict were prolonged, then how would that affect FMC?

I think it will be -- it will affect FMC like it will affect every crop chemical company. We will just all see because we pretty much all manufacture in the same part of the world. We have about the same cost base. So we will all see increasing cost. So the question will be what is the status of the ag industry at that time? What is the company's situation? Can we push some of those costs into our customers or not? We'll be facing this kind of a situation.

And the routes that are affected, is it more India to the United States or China to the U.S. or it's some other route?

Both of them.

Both of them. I'd like to talk to you a little bit about Rynaxypyr and Cyazypyr before we get to the growth elements of the company, if I might. What's been your experience of the growth of the Rynaxypyr and Cyazypyr in volume terms in 2024 and '25.

I think in 2024 and 2025, we started to see a slowdown of the growth of those molecules because we started to see generics penetrating some market. Market like India, of course, like China, Asia, Turkey, some markets in Latin America. So we had a slowdown of the growth versus the period of 2021, '22, but still a pretty healthy market because our patent position, especially around process was keeping generics away from the main market, North America, Europe, Brazil. So we were still seeing some volume growth. Dollars-wise, we saw a decrease in the number, but we've not been -- we've been very truthful about the situation. There is 2 type of business. There is what we call the branded business, what we sell to the market, and there is what we sell to our partners. What we sell to our partners are products they use for manufacturing and we sell them, make formulations. We sell them on a cost-plus basis to be prepared for the post-patent period for Rynaxypyr. We had to significantly decrease the manufacturing cost. That has translated into a decrease of price to our partners. So that has decreased the overall sales in dollars.

So there was a theory at a point in time that the global volume for these types of chemicals would increase because prices were coming down. That is prices are down probably double digits each year for the past 2 years and maybe that trend is continuing. Are you surprised that there hasn't been more volume uplift for the industry or has there been a volume uplift for the industry, but it's not been something that's touched you because of the magnitude of competitive response.

There has been some volume uplift.

Yes.

To give you a sense, in place like Turkey or China, in the last 3 to 4 years, the size of the market tripled. So we have seen some volume uptick, and we are expecting significant volume uptick starting in 2026. Because to see the volume uptick you need to have a broad penetration of this market by the generics, and you need to have companies like FMC bring this product at a price, which is much lower than where we have been historically, which we can afford to do because we have a much lower cost. So it has been happening in some locations, Turkey, India, China, market has tripled. And we are expecting this market in volume to significantly grow in Brazil, in North America, in Latin America, we will see it, and we're seeing it.

So your view is that beginning in 2026, the volume characteristics for Rynaxypyr should be better for FMC as well as for the other competitors?

Definitely.

As a best case.

Yes, definitely you will see Rynaxypyr penetrating other markets, other insecticide market, broadening the number of applications. There will be a significant volume growth of Rynaxypyr starting in 2026.

When you look at the pricing of Rynaxypyr, obviously, there are competitive responses. How predictable is the price decline for 2026 as far as you perceive it? Is it something where you think you could be right or wrong by a lot? Or is it something which is much more well defined?

It's a difficult question to answer because there are going to be multiple type of Rynaxypyr. You would have low quality, very cheap products. We might not even compete with them. We're going to compete with the high end of the generics. Plus, I think we have a reputation in this market for having been making this molecule for decades of quality, and we have brands. So we will sell at a premium. We have some strong certainty of the pricing we need to be at, taking into account the manufacturing cost to establish our objective, to have flat earnings from '26 -- from '25 to '26 with Rynaxypyr. So we know where we should be.

That's the goal.

That's the goal. The goal, exactly. That's the goal. '25, '26 earnings in dollars flat. To do that, we'll have to increase volume significantly, but we'll have to decrease price using the fact that we have decreased cost, and we'll have to participate in this expansion of the molecule. So we know where we need to be. We are pretty confident of at what price our customers will be buying our product. To know the range of price from our competitors, it's pretty wide and pretty hard to predict.

So you need a lot of volume growth to do that.

We do. We do.

Yes, double digit?

Double digit. Definitely double digit.

But let's not forget, there's very large cost reduction here as well, right? And it's been a part of the headwind, as Pierre mentioned, on our partner business in the past year. It continues to be a headwind in '26. That's that balancing of volume price cost that allows us to get the branded business to flat dollars profitability.

How about Cyazypyr? Are Cyazypyr prices decreasing in 2026 as a base case?

No, it's a very different molecule. First of all, it's a more complex molecule to make. Generics are not yet producing. It's a molecule which in many part of the world until '28, '29 are data protected, which means cannot be sold by any other companies than FMC. So there is not at all the same price pressure you would see on branded. I am talking branded Cyazypyr than you would see on the Rynaxypyr. Now we're not going to make the mistake of the past. We are anticipating the post data protection period for Cyazypyr. So we are working on the cost. We are decreasing the cost. We are preparing the formulation. So we're going to get much more ready for the post-data protection for Cyazypyr than we were for Rynaxypyr. And all this process is taking place right now.

And that beginning of price degradation should happen in 2027?

No. No. '29, '30.

'29 or '30. So Cyazypyr is good.

Cyazypyr is still a growth molecule. It's growing fast. The price is healthy. It's data protected. So it's -- it's like Rynaxypyr was a few years ago.

Interesting. So sometimes what FMC says is that 2027 is a transformational year, where earnings will go from a period of difficulty to a period of strength, but you've got to offset. I mean, key to that is trying to keep Rynaxypyr profits level or not really being pushed down further and then you get the benefits of some Cyazypyr growth.

If you go towards the back end of '27, second half of '27, that's when we see the transformation of FMC because of multiple things. First of all, Rynaxypyr, the big transformation period will be behind us, it's '26. The market will be more established. The price will be more established. The strategy will be in place. And the objective is not earnings growth. It's flat earning, protecting earnings. So that we believe we can do. It's not an objective which is out of reach at all. Cyazypyr is still very healthy until '28, until '29 is growing. Now I think Cyazypyr is a very different molecule from Rynaxypyr because it's much smaller. You will not have the same level of capital investment and generic participation than you saw in Rynaxypyr, which was a much bigger molecule and much easier to manufacture. So we're not expecting at all the same type of market situation with Cyazypyr. The big thing for us starting in '27 is the growth of the new molecules. And that's when they start to get to level in dollars and growth, which really matters for the company. And then you get into the '29, '30s where your growth portfolio is very significant versus the rest of the portfolio.

So in terms of the growth dynamic at FMC, I know that you've talked about licensing some of your key molecules. And I believe that, that's 2026 event for you. How is that licensing effort coming?

Licensing. So let me talk about Pillar #1 of the 2026 plan, which is the $1 billion debt we have to pay.

Yes.

And remember, there is India. Sale of business in India, there is a licensing of a new molecule.

So India is $400 million, $450 million, some number like that or on your books it's...

It's in the books of $450 million. I'm going to let you explain what it is.

Yes. So India fair market value for the business when it was marked to held for sale is $450 million. That represents 2 value drivers. One is expected proceeds from a sale. But the second is the cash generated by that business as we're liquidating working capital during the period that we operated until closing of such a sale. So with anticipation of closing the sale towards the end of this year, we are still operating that business. We are still generating cash from that business. We're mainly selling from inventory. So we're monetizing working capital. So that's a component of the $450 million in value.

The $450 million is inclusive of the working capital?

Inclusive of working capital monetization as well as expected proceeds from a transaction.

So for this year, number one is going well. India is moving forward. We're well within target. We have multiple binding offers. So it's going well. Number two is licensing of one molecule. This process is going very well. We've made progress since last time I talked publicly. So we're feeling quite confident that we're going to get to the right place quite quickly with advanced payments contributing to the $1 billion. You always need points on the scorecard. So the point the 2 of us we want for the earnings call, we would like to be able to say more about India, where we are with more firm of a decision. We would like to be able to announce a licensing deal with more detail on what it is. And we would like to be able to talk more about where we are in the refinancing of the company, which is giving us the breathing room we need to move forward. So those are progressing quite well and very much in line with what we're expecting.

So there's one molecule that you wish to license. Is it 1 of 2? Or is it one? In other words, do you have 2 of them, and you're seeing if you can license either one of them or you have one of them, and you're trying to see whether you can license that one?

So we have 4 new molecules, fluindapyr, Isoflex, Dodhylex and Rimisoxafen. Fluindapyr which is a fungicide has already been licensed. It's been licensed to Bayer. It's been licensed to Corteva. Remain 3 molecules. And right now, we are negotiating on one of those molecules.

On one?

On one. It doesn't mean the other one are not for license or the other one are not under discussion. But the one we are talking about, which will lead to upfront payment, it's one molecule. It doesn't mean the others are not licensable, but what we're talking about is one molecule which is perfectly defined for which we're having a negotiation in place.

So this would be Rimisoxafen as the -- because that's the one that's not yet in the market or if you were looking at it from an outsider's point of view, that would be the logical one to focus on.

You're not wrong, it could be if you -- if we apply your logic, it could be Rimisoxafen or Dodhylex, which are the 2 least advanced from registration and most advanced from technology with new mode of action. So you're not wrong that those will be the 2 one -- the other being commercials already and being already in the process of registration.

So my memory isn't perfect. But I think that what you've said is that by 2035, maybe the revenues of these 4 molecules are $2 billion. And if you license one for $500 million, and that's a value -- maybe the gross margin is 50%, something like that. So would that mean that the way that you would calculate that $2 billion number would be $2 billion, maybe less $1 billion for the licensing of the molecule in trying to conceptualize how this would touch FMC over a longer period of time. Is that a base case way of doing it?

So first, your memory is right, but I am changing your numbers on that. Maybe your memory is not helping you because I think it's more -- it's closer to $2.5 billion. But that's -- the very important point is licensing increase your sales, does not decrease your sales. Because what you do is take a product Dodhylex or Rimisoxafen, new molecule, new mode of action, cost over $300 million to develop those products. Now you put those products in the market as formulated product. We are in a very fragmented industry. FMC is one of the largest company in that space. We have 7% market share. So the market available to us is 7% of the total market. If we choose the right partner, who has a complementary product line in terms of crops or a complementary geographical strength, it allows us to penetrate a much broader market than if we would go alone. So what do we do? We keep on the manufacturing of the product. We sell this product to a partner. They pay a royalty and they access market we could not access. So actually, if you would do the net present value of a molecule licensed versus a molecule not licensed, it would be a higher number for the licensed molecule. One of the reasons for which the number is closer to $2.5 billion than $2 billion is because we are contemplating -- we have the licensing of fluindapyr. We're contemplating the licensing of this molecule.

Of the mystery molecule.

So we should never think that licensing a company cannibalize your business. No, it increases the size of your business. And that's why you see most product company when they have a unique molecule, patented molecule would look for partners who are complementary to what they are. I'll give you a simple example. Take FMC, 70% of the sales, speciality. So fruit, vegetables, nuts, tree nuts, cotton, sugarcane, okay? You have companies like BASF, Bayer, Cortiva, Syngenta, which would do 60% or 70% of their sales in row crops. I mean think about that, we only do 30% row crops. We do 60%, 70%. The row crops market, they are allowing us to reach, we could never reach by ourselves. So it's an all new market. A licensee would help us reach we could not by ourselves.

Okay. Thank you. That's very clear. At FMC, there's really an initiative to lower your manufacturing costs. Why is it that it's so expensive to manufacture outside of India or China, and you already had a large Indian operation. Why did you not keep that if what you wanted to do is really bring your manufacturing costs down?

All right. Thanks, because it allows me to be very specific. In India, we are selling our commercial operations. We are keeping a plant which is a global plant. The active ingredient plant in India, which is producing globally, we are keeping it as well as we have a research center in India, we are keeping. So those are not being sold. They are very important, and they're going to be important in a transformation process. So we're keeping those. Manufacturing in the Western world from a capital spend to a cost of employees, to benefit, to environmental all the aspects are more expensive than the ability you would have to have lower cost manufacturing in place like India or China.

Okay. Pierre, thank you for a very clear overview of FMC, and we wish you good fortune in the licensing of these molecules and the transformation of the company. Thank you very much.

All right. Thank you very much.