FMC – Market-leading ambitions - FMC Corporation

January 21, 2013 $15.00 US, $20.00 ELSEWHERE • PMA 40063731
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FMC
Market-leading ambitions
Pierre Brondeau (center),
Chairman and CEO
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FMC
Market-leading ambitions
When Pierre Brondeau took the helm as CEO of FMC at the start of 2010, he set to work
changing the company’s mentality.
According to Pierre Brondeau, previous
management and former CEO William
Walter “was focused on what the
company had to do … to get a healthy balance
sheet” after the spin-o of FMC Technologies,
a maker of industrial equipment. By
the time Brondeau joined FMC in late ,
the company was in a stronger position. It had
posted its second-highest earnings fi gure at
that time, $. million, in the recessionary
environment of , along with $.
billion in sales. Brondeau joined FMC from
Dow Chemical, where he was chief executive
of its advanced materials unit following Dow’s
acquisition of Philadelphia-based Rohm and
Haas in April . Brondeau was president
and COO of R&H when it was acquired by
Dow and was viewed as the likely successor to
Raj Gupta as CEO of R&H at the time.
Brondeau aimed to take FMC, which has operations
in agricultural chemicals, specialty chemicals,
and industrial chemicals such as soda ash to
the next level. “I’m a grower of companies, not a
penny-pincher or a cost-control kind of guy,” he
says. In , he unveiled an ambitious plan to
grow FMC’s revenues to $ billion by , putting
billions to work on new capital projects and
acquisitions. A little over halfway through that
cover story
From left to right: Michael Wilson president/specialty
chemicals; Paul Graves, executive v.p. and
CFO; Pierre Brondeau, chairman and CEO; Mark
Douglas, president/agricultural products; Edward
Flynn, president/industrial chemicals
time frame, FMC has raised its targets (CW, December
/, , p. ). The company now
forecasts revenues to total $. billion by .
It will focus more on organic growth, as opposed
to acquisitions, than anticipated in , and it
expects to invest $. billion over – on
growth initiatives.
Beyond , Brondeau sees company
revenues approaching $ billion even
without big acquisitions. Combining organic
growth with “mid-size or bolt-on deals,
we can take the company north of $ billion
in revenues beyond ,” Brondeau
says. “We are growing % per year.”
chemweek.com IHS Chemical Week, January 21, 2013 | 17

cover story
If FMC matches Brondeau’s aggressive
growth plans, it will be among the world’s
largest specialty chemical companies. “I
think there is room for a leading specialty
chemicals company which has the financial
means to play a key role in the development
of this industry,” Brondeau says.
“I think we can be that company.” In other
words, FMC can fill the market position
left vacant by the sale of R&H.
Big bets on Ag, specialties
To get there, FMC is banking on growth in
agricultural chemicals and specialty chemicals,
particularly biopolymers. Over the next
three to five years, the agricultural chemicals
business will have the greatest impact on
growth, Brondeau says.
FMC’s $1.8-billion agricultural products
business is focused on agricultural chemicals.
It does not play in seeds or traits, unlike
the major competitors in the segment such
as BASF, Bayer, Dow, DuPont, Monsanto,
and Syngenta.
“If you look at markets today, we are mostly
in herbicides and insecticides,” says Mark
Douglas, president/agricultural products at
FMC. “We are investing in fungicides because
we think we are underrepresented.” About
7% of the segment’s revenues are currently
derived from fungicides, Douglas adds. Insecticides
are the largest agricultural chemicals
business for FMC with leading positions in pyrethroid
and carbamate chemistries.
Compared with big agricultural chemicals
firms, “[w]e are almost the reverse,” Douglas
says. “They are in wheat, corn, and soy.” While
FMC does work with corn and soy crops in
Latin America, “[o]ur business … is focused on
sugarcane, fruits and vegetables, cotton, and
rice,” Douglas adds. The company also does
not develop active ingredients in-house.
FMC relies on acquisitions, licensing agreements,
and joint ventures to obtain a portfolio
of active ingredients for its herbicides, insecticides,
and fungicides. “We are seen as a route
to market for [smaller] companies with new
technology,” Douglas says. “We don’t care
where the ingredient comes from, and they
don’t have to worry that we have an interest
in another ingredient we’ve invested in that
may block them.” The company has a scouting
group that researches patents and technologies
looking for promising molecules, Douglas
says. It also works with academics on projects,
such as embryonic insecticides and fungicides,
and is sometimes approached by active ingredient
makers with new ideas.
In terms of acquisitions, FMC typically
aims for product lines in agricultural chemicals.
For example, in late 2011 FMC acquired
2 fungicide product lines from Bayer with
about $30–40 million in annual revenues.
The company aims to grow the revenues of
those product lines—its new base in fungi-
Cash deployment
(Total = $1.5 billion)
Other 5%
M&A
20%
Cash to
Shareholders
35%
FMC uses of capital 2010-12. Source: FMC.
Sales breakdown
(In millions of dollars)
$1,600
1,400
1,200
1,000
800
600
400
200
0
Agricultural Products
FMC segment revenues for 2011. Source: FMC.
cides—to as much as $200 million, according
to Brondeau.
The company has been clear about what areas
it highlights for acquisition. “At the 2010
investor day, we said we were interested in expanding
the food ingredients business,” says
Andrew Sandifer, v.p./corporate planning and
investor relations. The company builds a pipeline
of small, technology-focused potential
targets through conversations with customers
and researching target industries. “We are
talking to banks, venture capitalists, partners,
competitors, customers, and sifting through
what comes up,” Sandifer says. “I wish there
were an algorithm for doing that ... It’s a bit
messy.” The company then follows a buy-andbuild
strategy, using small acquisitions to gain
a foothold in targeted sectors—such as fungicides—and
building out those businesses.
The biopolymers portion of FMC’s specialty
chemicals business—which includes
alginate, carrageenan, and microcrystalline
cellulose (MCC)-based products—provides
further examples of that strategy. In August
2012, FMC acquired Pectine Italia (Milan),
a maker of pectin, a thickener and stabilizer
for foods that is derived mostly from
lemon peels. FMC believes that pectin can
be a $100-million revenue business within
five years, says Michael Wilson, president/
specialty chemicals. The company has done
something similar in natural colors for food,
buying small businesses in Chile and the UK
to gain a foothold, with an eye toward building
the businesses out, Wilson notes.
FMC is also investing in capacity expansions
in its colloidal MCC business, expanding facilities
at Newark, DE; and Cork, Ireland, and
building a $100-million plant in Thailand. The
Thai plant will be online by late 2014, and was
built because of growing demand for protein
in rapidly developing Asian economies. “There
is not enough dairy to meet all the milk and
protein demand in China,” Wilson says. “So
they have nondairy protein beverages, and use
MCC to give it the same mouthfeel as milk.”
In developed economies, demand growth for
MCC is driven by a nearly-opposite trend:
growing consumer preference for processed
foods, especially beverages and desserts, with
less fat content.
Biopolymers is one component of FMC’s
specialty chemicals segment; the other is
lithium, where it is the second-largest global
producer, after Rockwood Holdings. The company
has a highly-integrated lithium position
in Argentina, with a proprietary process and
compounding expertise. About 25–30% of the
lithium business is tied to lithium-ion batteries,
which is the fastest-growing lithium end
market, Wilson says.
“Driving that growth [in lithium-ion batteries]
for the past five years is consumer electronics,
and we expect that will continue to
grow,” Wilson says. However, while growing
market penetration of laptops, and now tablet
computers and smartphones, should support
healthy growth in lithium-ion battery
demand, the electric vehicle (EV) market has
been disappointing.
FMC has cut its expectations for the penetration
level of EVs and hybrid electric vehicles
(HEVs) by 2020, Wilson says. The
company now expects total EV and HEV penetration
into the vehicle market to be around
4–5% by 2020, down from a 6% expectation 3
years ago, he adds. “But probably more importantly,
it will be weighted more towards HEVs
rather than EVs,” Wilson says. “That has con-
18 | IHS Chemical Week, January 21, 2013 chemweek.com
Industrial Chemicals
Organic
Growth
40%
Specialty Chemicals

sequence for lithium demand, because you’ve
got a lot more lithium in an EV than you do in
an HEV.”
The company admits it is uncertain as to
when the inflection point, when EVs and
HEVs become a big driver for lithium-ion battery
demand, will be reached. But “[w]e still
firmly think it will happen,” Wilson says. In
the meantime, “I’d say, in contrast to what we
saw earlier, we don’t see a need for another
significant increase in [lithium] capacity before
2015,” Wilson adds.
While FMC may not be investing in a
lithium capacity expansion anytime soon,
it has plenty of uses for the $4 billion in
capital it expects to spend over 2010–15.
About $1 billion of that will go toward
dividends and share buybacks, about $1
billion to acquisitions, and about $1.5–1.7
billion to capital spending, FMC says. The
company’s capital expenditure for 2012
totaled $250 million, and it is planning for
$350 million in capital spending in 2013,
according to Brondeau.
However, “I have on my desk right now
about $500 million to $600 million in requests
[for capital spending],” Brondeau
says. If FMC’s capital spending does reach
that level in 2013, “[w]e could spend about
$100 million to $150 million in maintenance
capital expenditure, and the rest is
growth expenditure,” Brondeau adds.
FMC’s capital expenditure will not reach
that level, though, primarily because it does
not have the organizational capacity to manage
such a high spending rate. “We are structuring
ourselves for $350 million to maybe
$400 million capital expenditure over the
next 3–4 years,” Brondeau says. “But I think
after 2016 or 2017, we will go back to the
$250-million range. If I listened to my organization,
we’d spend $600 million, then $600
million, then $100 million. I’m smoothing
that out a little.” The ramp-up to $400 million
will be driven by a need for new capacity in
agricultural chemicals, food ingredients, and
soda ash, Brondeau says.
In soda ash, the largest part of FMC’s industrial
chemicals business, the company
says it has the lowest-cost position in the
world with its holdings in Granger, WY; and
Green River, WY. While soda ash is a commodity
and the business will shrink as a proportion
of FMC over time, Brondeau sees the
business as a strong cash generator. “I am fine
with [a commodity piece] as long as … you are
the best at it,” Brondeau says.
While FMC’s soda ash business benefits from
a highly favorable cost position, the industrial
chemicals segment is looking at growth in
other, less-commoditized, businesses. Encompassing
about 5% of industrial chemicals sales,
the newly formed environmental solutions
group will be a focus for M&A, says Edward
Flynn, president/industrial chemicals. The
company had already sold ground trona for
graves: CFO a second
pair of eyes and ears.
douglas: Expanding
into fungicides.
scrubbing applications to electrical utilities,
and it recently added persulfates and in situ
remediation technology via two small acquisitions.
“From an acquisition standpoint, we are
going to focus on growing the environmental
business,” Flynn says.
The environmental business will also be
at the forefront of new hiring in industrial
chemicals. “We are investing heavily in people”
in the environmental group, Flynn says.
FMC is also looking at growing specialty
applications in peroxygens. About 30% of
industrial chemicals nonalkali sales went to
specialty applications in 2011, and the company
plans to grow that to 50% by 2015. It
is particularly looking at aseptic packaging
applications in the food industry and highpurity
peroxygens for computer chips, Flynn
says. The latter will require some capital investment
to ensure that FMC can make peroxygens
to the exacting standards of chipmakers,
Flynn adds.
New team, new company
As CEO, Brondeau has brought in some former
colleagues from R&H—including Douglas
and Sandifer—but he perhaps made the
biggest splash when FMC named Paul Graves,
former lead chemicals banker at Goldman
Sachs, CFO last fall.
Graves was the lead banker at Goldman,
which advised R&H during the tumultuous
negotiations with Dow in 2008 and
2009. “You go through such a long process,
weekends together, fights … [Y]ou see a guy
in tough situations,” Brondeau says. When
cover story
Brondeau joined FMC in 2010, he quickly
saw Graves as a potential success to W. Kim
Foster, FMC’s former CFO, who was scheduled
to leave in 2012 because of the company’s
mandatory retirement age for senior
executives.
Graves, who is currently familiarizing himself
with FMC’s businesses, sees himself as “a
second pair of eyes and on every major judgment.
I am an outsider, and I think Pierre
wants me to continue to create ideas and be
skeptical.” Although the transition from investment
banking to corporate leadership is
relatively rare, Graves says it’s not for lack of
interest among bankers. “When I took this
job, I had many former colleagues call me and
say, ‘How did you do that?’,” Graves says.
Brondeau says he values people skills in senior
leaders. “You aren’t an executive at this
level without having a strong strategic mindset,
great operational capabilities, and great
knowledge of your field,” he adds. “I am very
focused on hiring people with the emotional
intelligence to understand the culture.”
FMC’s culture, which was previously focused
on cost control, has shifted emphasis to
growth in the past few years. “When I became
CEO, the cultural shift was to go from finding
every single dollar you can save to spending
dollars to generate profitable growth.”
The company is highly focused on investment
returns, however. Senior executives say
the company is rigorous in its investment decision
process, and that high returns are a must.
Brondeau also notes that FMC’s specialty orientation
means that it can “build a growth story
where things are very much in our hands.”
The company is “not very energy intensive, not
petrochemical dependent,” he adds.
With the company on the way to achieving
its 2015 goals, Brondeau has an eye on
what’s next. “Pretty soon we are going to
have to talk about our 2020 goals, and we are
building towards that,” he adds. Later in the
decade, FMC expects to have the financial
means to take bigger risks. “Beyond 2015,
we will revisit our approach [to acquisitions]
and what role they play,” Graves says. “I think
we will look very hard at whether it is time to
take a bit more risk.”
But FMC isn’t quite there yet, and the
company hopes to maintain its cash discipline
and resiliency to economic conditions.
“I would like us to be as big as we can, with
as much financial means as we can have,
without losing the critical characteristics of
the company,” Brondeau says.
—vincent valk in philadelphia
chemweek.com IHS Chemical Week, January 21, 2013 | 19