FMC Corporation ($FMC)

All right. Let's go on to our next session, kicking off the afternoon with FMC, a very large global producer of crop chemical, crop protection chemicals and distributor of same. We're joined here by Pierre Brondeau, the CEO; Andrew Sandifer, CFO. Gentlemen, it's interesting times we live in, interesting times for FMC as well.

Maybe you could kick off and Pierre and Andrew give us a bit of a state of the union for FMC.

Sure. This time, the company is, as we say, '26 is a critical year. We've defined a strategic plan. which is based on 4 pillars for the company in terms of paying down debt, restructuring and manufacturing footprint post [indiscernible] strategy and new technology and of course, the financing of the company. And while we do that at the same time, the Board has asked to look at strategic options, including the sale of the company, but not limited to the sale of the company. So that's about where we are, very high focus on our 2026 strategic plan, but at the same time, looking at other options.

Okay. Let's talk about some of the latest news. So you sold the India business, you've been trying to sell it for a little while. You sold it for $250 million against the $1 billion you're trying to deleverage. Maybe give a bit of an update on that and how the working capital works in that deal.

Sure. Just to make sure we're very clear. $255 million is the number we're expecting. We're marked at $425 million today. $425 million corresponds to the $255 million corresponding to the sale of the business and the rest representing the cash collection we will be doing in between now and the day we close on the deal, mostly selling from inventory or collecting accounts receivable. So that's -- and if you look at the forecast we have for cash collection plus the amount we get, you get to this number of $425 million.

And you've really put out a plan this year of trying to deleverage by $1 billion. We're going to get into the fundamentals in a second, but I think it's very topical. You've been looking at a plan to try to deleverage this year by about $1 billion. This will be $250 million of the $1 billion, correct?

Correct.

And maybe you can walk through your plans, some of the things you've got on the go here to maybe get close to $1 billion.

Sure. What I talked at the earnings call was right now, we have line of sight for $700 million. Why do I call line of sight? It's the amount for which we are currently in negotiation. So as you say, $255 million will be the India deal. We are getting very close to signing a licensing agreement for one of the molecule with an upfront payment. That upfront payment will go to paying down debt. And then it's a commercial licensing deal, and then we'll be supplying the product to a partner. We will also pay royalty. That's the bucket #2. Bucket #3, and I'm giving those in order of size. Bucket #3 is real estate deals. I'm talking here 9-digit deals. Those are big deals, very large site, which we would sell to developers, and we would only use through a leaseback, the part which we are using. That takes us pretty close to the $700 million. And then we need to get to $700 million, we have a series of molecule or nonstrategic businesses we are currently in negotiation for. That's what we negotiate. Then we have a list of other things. We would be potentially selling, but those are not yet in negotiation. We started to focus on the one which had the longest lead time.

The sale leaseback deals, so all of this that you're talking about, what would kind of be the earnings impact going forward?

Well, the India, we know it was that we've talked about it, very small, very small earnings at the end. The licensing is very interesting because it increased the revenues. When you have a technology, which is a technology of quality, -- it's a very fragmented market. We are one of the largest crop chemical company, and we have a 7% market share. So what you do in our business, you find companies of quality, which have a complementary crop profile and it allows you to increase the market you can reach. So licensing the molecule to a partner would be accretive to us and would increase sales and EBITDA in the future in addition to the onetime payment. The leaseback will have almost no impact because we'll sell, we'll get the revenues. And then we will lease back for part, but we will not have to do all of the maintenance of the entire site. Then the rest, the small molecules for business, that could have an EBITDA impact, but we're talking about very few tens of millions of dollars, so very minimum.

And on the licensing and the prepayment options for the molecule, I think you're working on a deal now for 1 molecule, correct?

Correct.

Any update on that?

Yes. We are almost through the finish line, I think we're...

Do you announce it now?

No. But I would say we're a couple of weeks from signing it. We have chosen the partner. We believe it's a quality partner. It's the right partner from the crop profile. We are in agreement on all of the financial terms. We are finishing to redact the -- what I would call the legal terms around the contract.

Redact, you said? or react?

Yes. And then we'll get to signature. So Andrew, a couple of weeks? What we think a couple of weeks.

Okay. Okay. Fair enough. I want to talk to you about -- let's get into the fundamentals of macro here. Are you seeing -- is FMC seeing a little bit of weakening in generic pressures? Like are you seeing this current conflict, has it raised the cost of production in places like China and India that maybe would lower the pressure a bit? Or is it too early to say?

So here is the way I would answer this question. I'm looking at Latin America and Brazil are today the place where you get the most information about generic behaviors because you're preparing for the big Q3, Q4. And especially for direct sales, you're getting a lot of those sales taking place in Q1, Q2. Today, I believe the pricing is leveling off. We are not seeing this constant spiral down of pricing. So there is a situation, I would say, which at least is stabilizing. Now maybe something more interesting for us. If you remember at the earnings call, which was 2 weeks ago, I said for direct sales for the second half of the year, we had 36% of the orders in hand for the second half of the year. Surprisingly, we have 50% today. So within 2 weeks, we jumped from 36% to 50%. I've really been in a situation where on May 6, we had half of the sales -- direct sales we needed to make H2. The forecast we have right now seem to lead to a number of 65% to 70% of sales in hand by end of June to do H2 for direct sales and about 60% for overall sales. Those are very, very solid numbers. We have not seen those numbers in a long time. What could it be? It could be possibly the channel, which might be not as full as it used to be. But I believe it is also may be less generic pressure and farmers looking for more security of supply today, and that's why we're seeing this demand. So that's an indication. I cannot make a rule out of it, but as an indication and what we see today, I would say yes to your question.

Just to build on that to clarify, we're speaking specifically about the Brazil market.

Brazil, yes.

With the numbers, yes.

Yes. Those numbers are specifically for Brazil.

Is that with you with FMC holding your price ideas? Or have you raised prices in the last couple of weeks?

No, we've not raised prices. Our price -- we've kept our price stable. There are going to be a place in the world where we'll be selectively increasing price for some reason. But overall, in Latin America, we've kept our price flat. What we are looking at in terms of pricing before we make any decision in the impact is the impact of the Iran war. If that would be to last for a longer period of time, it would have an impact on pricing. And I think that's the time when we'll have a decision to be made to adjust pricing accordingly. So I don't want to start to do bits and pieces and some short-term action. I would rather wait to see where all -- where things are going to go and make a decision in the third quarter.

And it's interesting -- another interesting year for FMC has been on the loss of exclusivity as expected of CTPR, Rynaxypyr in China. What have you learned about that market post exclusivity? Or did the conflict here mess up the market. So you're not exactly sure how this market is developing, if that makes any sense.

Yes. I think the market in India hasn't changed much from a demand standpoint. For Rynaxypyr, the market in India has been challenged by something which has nothing to do with the war in Iran. It's because Rynaxypyr is being used a lot because of generic coming very early, there is very significant resistance to Rynaxypyr. So that's been one of the impediments to development of growth. I believe the war has an impact on overall generic pricing, including Rynaxypyr.

Okay. Let's talk about some more of your initiatives. You talked about wanting to outsource the manufacturing of some of your non-diamide core products and exiting some high-cost AI and formulation plants. Maybe talk about that.

Sure. Process is going as planned. I think it's a very heavy lift. It's a complex process because not only you have to exit plant, find a new home for your product, but you also have to rethink your registration. But it's a process which is mapped out. We do have the definition of what we've got to do. And I'm not expecting at this stage any surprise. I'm pretty certain, if not certain, that this process will be finished by the end of Q1 2027. It's going accordingly to plan for most of the product. We know where they will go. We know where we're going to get the resistance. heavy lift, but highly predictable.

Anything else in the -- no excuse me. The crop protection market, any other things that maybe people in the market are missing, like any observations you have this year in terms of material cost, demand, inventories, product switching?

No. I think if you put the -- if you put the war aside, there is -- the big change has been the Rynaxypyr running out of patents and generic coming into it. And up to now in the last couple of years, maybe I've seen the generic more active than I've ever seen. But this is leveling off right now. So it seems like we are in a period where we see more stability in the market and more predictability.

And you talk about Brazil, so you're seeing ordering pick up, which is great. It's also a weird market in Brazil, right, with credit problems, like it must be a very -- you have a new sales team that's what, a year or so in place. It must be -- you say predictable, but it must be difficult to predict actually, all these factors?

Yes, I'm going to say a few comments and I'll ask Andrew to complement. But we are very, very careful and specific to whom we sell in Brazil. We do not go with a broad brush. First of all, we do have a very strong focus on increasing our sales to crops and to direct sales to farmers. I mean those are our 2 #1 target. Then, of course, the distribution channel is very important to us. But there is companies we know are in situations where financially, we should not sell to them, and we don't. I don't know, Andrew, if you want to add anything.

Yes. I think as Pierre sketched, I mean, there's been a couple of major changes in the distribution channels in Brazil. Certainly, the rise in more direct sales is a big part of that, and we're able to do good credit analysis on large growers and understand their position and get comfortable with credit risk there. In the more traditional distribution retail channel, there were several attempts to roll up that market. Those have failed. Two private equity-backed roll-ups have essentially gone into financial -- different degrees of financial restructuring. We're in a situation with them that we're managing through the less overexposure, but we're on basically selling only on cash terms going forward. So not taking on any further risk with them and a few other larger distribution businesses that have similar profile. So I think that as Pierre said, I think the key is just being very disciplined about where we're extending credit and shifting the mix to customers that are inherently like co-ops, just the nature of their structure globally in Brazil. They're more inherently creditworthy.

Let's talk about the pipeline a bit. So you've got some new AIs, you've been pushing them out. They're growing. Talk about what's performing better than expected, maybe what's been more challenged than expected?

I think it's progressing as well as we're expecting. I mean the critical issues when issues you would be facing when you're launching molecules like that is forecasting the timing, not because of the demand from the grower standpoint. Demand is here. The product are high-quality product, they are patented, they have new mode of action. The problem is the speed at which you get the registration. Give you an example, Isoflex, we got the registration for the active at the level of the EU. But then you have to take the formulation you will be selling and you need to get the registration in each of the country in the EU where you will be selling. We're expecting that in the first half of 2027. But you know what, you missed that and then you miss the European season. So that's where the predictability is difficult. But so far, it's performing as we would expect.

Okay. And then also biologicals, you did a good acquisition a few years ago. That's also one of your growth engines. Maybe talk about that.

Sure. At biological, we have, I would say, 2 portfolio. We have a regular biological portfolio, which is growing, 10% to 15% a year. And then we have pheromones, which is viewed more as a research. It's still on negative earnings. We had that first full-size sales in Brazil in the first quarter. Results were pretty good. We had yield improvement according to the farmers where we sold the product by 5% to 15%. And we had a decrease, and I think it was caterpillar by 75%. So I would say the results are encouraging, but it's a very early stage still.

What gets you most excited about the pipeline? You pick one product, one application?

For biological, I would say...

Anything in the pipeline?

Anything in the pipeline for me, it's -- now it's a tough question because I love our 4 new molecules. I think we have a -- here is the thing why I can't dissociate them. The 4 new molecules have 3 herbicide and 1 fungicide. Two of them have new mode of action. One has a dual mode of action. But what is very important, not only they are new products with very high efficacy, they will change the portfolio of the company. Today, we are mostly an insecticide and we're an insecticide company. Insecticides are the most difficult to predict. In 2, 3, 4 years, we'll be a company which will be 50% herbicide, 25% fungicide, 25% insecticide, it's a much, much better portfolio. And we'll have 50% of the portfolio of the company, which will be a growth portfolio. So for me, if you ask me what I'm the most excited about is those 4 molecules. Now for all of this to happen, we cannot dissociate that from the work we're doing on the manufacturing footprint to get our core business back to market growth instead of the erosion we've seen in the past. So those are the 2 critical things which need to happen next -- in the years to come.

Okay. So that's what I want to start talking about is, we've seen core contract a bit for different reasons. We've seen the growth part of the portfolio, be kind of flattish. What -- in each part core, what's the main thing you got to see happen to be able to get to at least flat and for growth? What's the main thing you got to see happen to be able to get into growth? Did I say it right?

I think the core portfolio, if we talk about the non-diamide portfolio because we've talked about our next IPM, but non-diamide core portfolio, we have one core competencies, which we always have from the early days of FMC is formulation technologies. The problem we have is we are not capable of deploying a formulation technology because the active ingredients we are using for that are too expensive. Overall, we are manufacturing at a cost which is not competitive on the market and prevent us to have this core competency in place. I am convinced that by the middle of 2027, once we have a core portfolio, competitive with generics on cost, and then we're able to deploy our formulation technology, we will grow faster than the market. I mean if the market grow 2%, 3%, we should be able to expect 3%, 4% growth for this part. And that's very critical because you can do whatever you want. When half of your company is going down 4% or 5% a year, it doesn't work. We need to get that back to a 4% growth rate, and I believe we're going to start to see that in '27.

Do you think you're reversing your trough, your FMC trough this year? Or might it be in '27?

No. This year.

This year.

This year is a year where we need to execute on the 4 pillars of the strategy and reset the financing of the company. And I believe if we execute all of these, we'll be in the position in '27 to see growth.

And I think you talked about the resetting the financing. Maybe you could give an update -- I think you said that you can give an update on the credit amendments -- credit amendments you made the other month?

Yes. I think certainly on the financing side, we did update our revolving credit agreement in April. A bit of a logical continuation of an amendment we made in December, whereas as we shifted to noninvestment-grade rated borrowing, putting up collateral against the revolving credit agreement. In December, we've had an IP-based collateral structure that was meant to be temporary. We have a pretty complex international tax structure. It took a while to get all of the legal documentation in place to put more traditional collateral in place. So now with this April amendment, we have $6 billion of collateral in terms of direct liens and another $3 billion in terms of pledges of subsidiary assets, et cetera, that back our $2 billion revolving credit facility. It's just literally the legal work it took to get that collateral package in place, took us well into the beginning of April. We'll use that same collateral package to support an anticipated bond offering here in the second quarter, where we do expect to go to the market with a secured high-yield bond to both address the maturity that we have of $500 million in notes that mature in October. But also to the extent we're able to place it, we would like to term out some of the revolver debt and bring down short-term borrowings through that offering.

Okay, Pierre. So you're -- Andrew, you're doing a lot of thinking about what FMC is and what it's going to be in the future and what do you need to partner with and sell off and shore up the balance sheet and then think about what happens after that. I think you're doing a process also to figure out, as part of your review, should FMC still be a stand-alone company, right? That's fair?

That's correct.

What you're -- a few months into this. What are sort of your initial observations?

So for the company employees, we are all highly focusing on the 2026 operational plan we discussed. Now with the Board, we decided to also look at strategic options, including the sale of the company. This process started in February. We had over 20 companies who we are talking with. That has been decreasing. We had a few propositions, diverse proposition. So there were a range of options, which made it to our Board. We had a Board meeting 2 weeks ago, just before the earnings call. We've looked at those options, took a position on each of them with our Board, gave that back to the banks who went back to the companies and the discussions are ongoing. Now here is what I think. That's my point of view, okay? It's only me thinking. But my view is that June, July, certainly no later that the earnings call for Q2, which will be the end of July, we should have a decision to go one way or the other, which means to either go with a strategic option with a partner, selling, merging, whatever it is or carry on with the strategic plan as we have defined. I think we are advanced enough in the discussion. We will not need more than a couple of months to make decisions. Plus, I believe for an organization, 5, 6 months with the uncertainty is as much as an organization can take and stay focused on the operating plan. So that's the target. The Board is completely involved. We are involved as a management team. And I think we'll get with a very clear answer at least at the earnings call for Q2 at the end of July and move on from this point.

Status quo is pretty clear. Selling the company is pretty clear. You talk about the middle, which was like some sort of partnerships. Can you conceptually talk about what you're talking about?

When I mean partnership, it was -- when you look at strategic options, it goes from equity injected in the company, to merger with company, to selling the company. What I call partnership, [indiscernible] merger. So those are -- because there is always a full range strategic options.

Okay. Now you see the kind of landscape out there like I do, right? You see Corteva separating into CP and Seed, SpinCo or pure plays. You see BASF splitting off Crop Science, I think, second half of '27, you see maybe Bayer Crop Science splitting off in the next couple of years. So the whole landscape is going to change. I don't know what that means fundamentally exactly, but when you think of that landscape, regardless of what you do, we have to see that, that landscape is going to be different in 3 years, fair?

Correct?

How do you think about all that when you think about your 2 or 3 options here?

Well, here is what I think. If we carry on with a strategic plan, and we do not have one of the options, which is in front of us happening, I would not be surprised when you would have multiple companies, stand-alone independent crop protection to see again some merger and acquisition taking place. I think the industry most likely will be prone for acquisition. Size matter, size matter, especially for technology companies. So if things don't happen now, they will happen in 2 or 3 years, I believe, when all of what you described is in place.

You're one of a couple of peers that has that view that consolidation "has to" happen in CP. Can you elaborate sort of why it has to happen? You talked about size matters. Anything you want to add to that? Why -- like what's going in the industry right now? And you kind of described some of it today. We have what is so specific industry now that is leading to consolidation that should lead to consolidation.

I think it's quite basic. If you're a technology company, you need to be able to manufacture a generic pricing while being able to support all the marketing and research spending for new technology. The smaller you are, the more difficult to bring one molecule to market, costs $300 million in about 12 years. And usually, what you like to do is a new molecule every year or other year. So there is a significant technology spending if you want to bring the type of technology growers need. At the same time, you need to have a manufacturing network, allowing you to compete with the lowest cost producer. So that's what I believe size matter.

So Pierre, would you agree in your career, the best deal you ever did was being able to buy the diamides and the R&D lab from DuPont. Would you agree that was your best deal?

Definitely.

And that deal came because went down to all the ag chem mergers, I believe, and you can change my words if you want, but the regulator said, I don't want to lose an innovator. I don't -- I want to have multiple players that are doing stuff. So if this is true and you could see deals, you get worried that EU, U.S. regulators, governments don't want to lose innovators, don't want to lose players.

Yes, it's definitely a possibility. That being said, I think there is more and more of a realization that technology is expensive. And the value of what we call technology company with -- will diminish if those companies are too small. And if you really want to bring innovation, you need to have a minimum size to spend multi-hundred million dollars in R&D. So you're correct, it could be a position some legislative bodies would take, but I think things will be changing, and there will be more receptivity to merger in the future of companies.

The deals have to be constructed, I guess, knowing that landscape, does that make sense?

Definitely.

Where you'd have to keep, yes, innovation, make sure there's not some consolidation in innovation. It's hard to explain, but yes.

What you have to be able to demonstrate is that a merger will create more innovation capability than not doing it. If you cannot demonstrate that, if you do it for cost synergy purely, that will not work.

In merger scenario, do you see FMC as being the main innovator leader in that merger? Or would you be -- what's the right word, secondary?

I can't answer that because I don't know if we will be part of those mergers. I don't know when it will be happening. I don't know what will be the status of our technology road map at that time. I think we do have, especially for our size, a very rich new technology portfolio in molecule we are putting on the market today as well as what we have in our development pipeline. How will that impact the role we might or might not play years from now when the industry will possibly change, it's very hard to say.

Do you think some value come if FMC was partnered or merged with like a seed player? Was that...

I don't know -- my friend, Chuck just broke up the company. So if he's right, I should not, and I respect him. So...

But 10 years ago -- 10 year ago, everybody was bundling and now they're not.

Yes. Listen, I'm just going to say Chuck is a good friend.

I wasn't asking about Corteva. I wasn't even asking...

He is a smart man, and I have to say if he does that, there is a good reason. So I'm not going to plan to go the other way.

I had no -- I was actually asking in general. I'm just wondering if you're talking about mergers. So I'm trying to figure out sort of like some of the different arrangements that have pitched you, the merging of you and seeds or you and fertilizer, I'm being silly now, but you know what I mean.

No, no, it's not being silly. In all seriousness, if -- to answer your question seriously, when I talk merger, I would take merger within the same market segment. I would talk about crop protection company merging with crop protection company. I think that creates more synergies in terms of technology capability rather than the seed merging with a crop chemical where you have way less of a technology synergy.

Because the synergy are going to be on the back end, right? It's going to be the manufacturing and...

Definitely. Manufacturing and technology road map, that's where you have the benefit. So I think seed company might merge with seeds company, crop chemical company might merge with crop chemical company. I see that much more than I would see an expansion of the product line.

And in the case that you hopefully stay stand-alone, talk about sort of how do you -- as you traverse the trough this year and move into your pipeline and get past the Rynaxypyr come off exclusivity and redo the manufacturing base, Talk about how you would see the company -- think of company culture and sort of -- an optimization and moving ahead back to growth? Like how would you see that playing out?

I think the company is poised for growth. I think a lot of what we are facing, there is, of course, the market, but there are things we've done to ourselves. We could have avoided to do, but this company culturally is more a growth company than a cost-watching company. And I think even if we know how to decrease our cost, we know how to do cost synergies, I think we are poised for growth. That's what people want. They can't wait. They can't wait to -- they understand the importance of '26 and what we have to do. But everybody, I can tell you when I talk to my employees, they are all looking '27, '28, '29, where we are back to do what we know how to do business.

Is there a case then that if that's what you can do, you can improve things, start getting growth, meaning going status quo, waiting a few years, next administration, no conflict in around, you're talking about you want to have a path by July or by August at the latest. Is there a reason to maybe defer status quo, try and improve the business and try to -- and then maybe with the goal of going back to the market in 3 years when you're better. Does that make sense?

Makes sense. But really, I think that for the 3, 4, 5 years, we have what we need to grow, flourish, be profitable with what we have in our pipeline and our structure. So there is absolutely no urgency if, as you say, we passed the month of August, it would not be to position ourselves for selling the company 2 years down the road. It could happen. Anything could happen, but it would be to carry on because the road map we have could create a very, very attractive company, which could be very capable to keep on growing by itself in 30 and past 30s.

It'd be more like you're not getting the value you want this summer, the spring or summer. So the path to status quo is the way to go. And maybe that's -- you just stay there forever or maybe there's always possibility you look for a deal in 3 years. That's all I'm saying.

That's...

The value is not there. And this year, I'm making this up, I have no idea, right? But yes.

That's the case.

Okay. 2 minutes we have left, Pierre, Andrew, what do you think investors are missing the most about FMC these days?

The problem FMC has is, to say the least, the last 3 or 4 years results were not spectacular. Consequently, when you're in a situation like this one, the normal reaction of investors, and I would do exactly the same thing, is to look at what will this company do in the next 6 to 12 months because we've got to prove what we say we're going to do. So maybe what investors are missing because of that situation is the potential I described before, if we succeed with our delivery of the 2026 plan as designed, start back to growth in '27, past '27, we are going to have an incredible portfolio. I mean, very balanced new technology, more than 50% of the portfolio of the company will be growth. By 2035, patented molecule with new mode of action. I mean it's going to be a company which will be much, much better than what the company was in '18, '19 post the DuPont acquisition because of the breadth of the product. The problem is until we have proven in '26 that we can do what we say we would do, people will have a hard time looking beyond that. So first, let's regain the credibility. Let's do what we say we're going to do. And then we'll move on to the next step and maybe people will have more time and belief to look into the future of this company.

Thanks a lot, guys. Appreciate it.

Thank you.