Good day, ladies and gentlemen, and welcome to the First Quarter 2017 Albemarle Corporation Earnings Conference Call. My name is Lisa, and I’ll be your coordinator for today. Today’s conference is being recorded. And at this time all participants are in a listen only mode. [Operator Instructions] And now I’d like to turn the conference over to Mr. Matt Juneau, Executive Vice President of Corporate Strategy and Investor Relations for opening remarks. Please proceed.

Thank you, Lisa. Thank you, and welcome to Albemarle’s First Quarter 2017 Earnings Conference Call. Our earnings were released after the close of the market yesterday, and you’ll find our press release, earnings presentation and non-GAAP reconciliations posted on our website under the Investors section at albemarle.com. Joining me on the call today are Luke Kissam, Chairman and Chief Executive Officer; Scott Tozier, Chief Financial Officer; Raphael Crawford, President Bromine Specialties; and John Mitchell, President, Lithium and Advanced Materials. Note that Silvio Ghyoot, President of Refining Solutions, is not with us today due to an important business meeting. As a reminder, some of the statements made during this conference call about the future performance of the company may constitute forward-looking statements within the meaning of federal securities laws. Please note the cautionary language about forward-looking statements contained in our press release. That same language applies to this call. Please also note that our comments today regarding our financial results exclude non-operating, non-recurring and other unusual items. GAAP financial measures and reconciliations from those to the adjusted numbers discussed today may be found in our press release and the Appendix of our earnings presentation, both of which are posted on our website. Now I’ll turn the call over to Luke.

Thanks, Matt, and good morning, everybody. In the first quarter of 2017, Albemarle continued to build on the strong momentum we established last year. Excluding divested businesses and negative currency exchange impacts, revenue grew by almost $95 million or 15% and adjusted EBITDA grew by $27 million or 14% compared to the first quarter of 2016. Growth was driven by adjusted EBITDA increases of 56% in lithium and 11% in bromine. The combined adjusted EBITDA margins for our three global business units reached 35%, up from 2016’s average of 33%. And total company adjusted EBITDA margins remains strong at 29%. As we’ve discussed in our recent Investor Day, demand for lithium continues to grow rapidly and our business team continues to focus on increasing production to meet both the current and future demand of our customers. Our bromine business is benefiting from improvement employment in demand across various electronic applications and reduced bromine production in China. At the corporate level, we completed our deleveraging plan following the Chemetall divestiture during the first quarter. As of the end of March, Albemarle net debt-to-EBITDA ratio was 0.6. We’re also very pleased with the progress on our $250 million accelerated share repurchase plan and remained on track to complete the buyback by the end of June. Now I’ll turn the call over to Scott.

Thanks Luke, and good morning. In the first quarter, we reported adjusted net income of $1.05 per diluted share, an increase of 13% compared to the first quarter of 2016, excluding the year-over-year net impact of divested businesses. The increase was driven by an adjusted EBITDA increase of $35 million or about $0.24 per share from our three GBUs. Business results were countered by about $0.12 per share of negative impact from the combination of corporate costs, foreign exchange, tax, D&A and interest expense. As Luke noted, our $250 million accelerated share buyback program is well underway. At this point, we have estimate the buyback will result in an average diluted share count for the full year of 2017 of about 112.1 million shares. We continue to expect our 2017 effective tax rate, excluding special items, non-operating pension and OPEB items to be approximately 22%. Capital spending in the first quarter was $54 million with significant commitments executed for major equipment and services for our wave one lithium projects. As construction activities progress and equipment deliveries are made over the course of 2017, the spending rate will increase. We still expect total 2017 spending of $350 million to $400 million. Corporate costs in the first quarter were $32 million driven by compensation costs and negative currency exchange impacts. We do not expect the first quarter spending rate continue, but given first quarter costs and our updated view on the rest of the year, 2017 corporate costs are now expected to range from $95 million to $105 million. Operating working capital ended the first quarter at 27% of revenue in line with our 2017 guidance, and we expect to remain at a similar level through the rest of the year. Adjusted free cash flow in the first quarter was strong at…

Thanks, Scott. Our strong first quarter results have positioned Albemarle for another outstanding year in 2017. Lithium and bromine both outperformed our initial expectations in the quarter, with Refining Solutions and PCS performing about as expected. Lithium is forecasted to drop second quarter results with year-over-year growth similar to the first quarter. Bromine faces comp comparison both sequentially and against the second quarter of 2016, but favorable market trends appeared to be continuing. In Refining Solutions, negative mix comparisons in CFT and FCC and some cost increases are expected to impact adjusted EBITDA compared to last year. Finally, PCS is likely to continue relatively flat year-over-year performance as competitive pressures continue to impact the base organic metallic’s segment. At a company level, our overall expectations have strengthened since the beginning of the year. More favorable outlooks for lithium and bromine are forecasted to overcome expected weaker performance in refining. We now expect 2017 net sales of between $2.9 to $3.05 billion and adjusted EBITDA of between $835 million and $875 million. Adjusted EPS should range from $4.20 to $4.40, up from our initial guidance of $4 to $4.25. As we noted in our recent Investor Day, we’re very excited about the growth potential of Albemarle’s businesses. First quarter results demonstrate our continued pivot to a higher growth profile, and we expect that to continue going forward. Our business teams are focused on meeting the growth challenge by driving results for the second quarter and the rest of 2017 and by executing on our capital projects and business strategies to drive long-term opportunities for our business.

Operator, we’re ready to open the lines for Q&A. But before you do so. I would remind everyone to please limit your question to two per person and at one time, so that everyone has a chance to ask questions. Please feel free to get back in the queue for follow-ups if time allows. Please proceed.

Thank you, ladies and gentlemen, we will now conduct the question-and-answer session. [Operator Instructions] And your first question is from the line of Arun Viswanathan from RBC Capital. Please go ahead.

Just wanted to confirm what kind of pricing volume expectations are embedded in your updated guidance. You said 21% price growth in lithium for Q1. Do you see that continuing? Thanks.

This is John Mitchell. As from a pricing perspective, we’re focused on long-term agreements with our customers. We now have over 80% of our volume under agreement in the 2017 year. And you’ve seen that we’ve been able to secure 21% increase in pricing in Q1. We expect that to continue, and that pricing to hold for the remainder of the year. From a volume perspective, we’ve always messaged that we expect to bring on about 10,000 metric tons or more per year of additional incremental volume. So we’re on track to do or better in 2017.

Great. And then as a follow-up, could you just give us an update on projects in the industry? I understand you guys are bringing on 10,000, but what about the other projects that you’re seeing in the industry? Do you see those coming to fruition and what’s the cadence of that through the year?

So with regard to additional capacity filling the demand need in 2017, we see principally the mines in Western Australia providing some of that capacity in conjunction with some Chinese extra capacity that’s out there in the market. And then also Albemarle is playing a big role in meeting the demand need as well as a result of the two Chinese asset that we have that we’re ramping up in Xinyu and Chengdu and then also our ramp-up in La Negra, our La Negra II plant.

The only thing I’d add is was that it is consistent with the expectations and the discussions we had in Investor Day playing out pretty much as we expected it would.

Our next question is from Alex Yefremov of Nomura Instinet. Please go ahead.

Could you give us your latest view of the lithium demand in China, specifically in the EV market, we had a pretty slow start of the year in January and February, but a bounce back in March. What are your customers telling you? Do they see reacceleration going forward or clearly slow environment?

Yes, this is John. We see it was just really a short-lived, no real concern by our cathode and battery customers. If you look at the number of units sold and the breakdown of EVs and plug-in hybrid sales in 2016, in China was about 45% of the market. In Q1, they’re about 30% of the market, and that’s really just off of a strong March. So we see a good rebound in China. They’re going to be a significant player in terms of the overall EV and plug-in hybrid growth going forward, and no concern from the customer base.

And then if I look at your new financial guidance, 35%-plus for lithium segment, for a free EBIDTA growth, I think those guidance suggest that 100 million in the first quarter could be the high water mark for this year? Is that correct? And if it is, why is that?

Yes, Scott. One of the key things that drove our first quarter was great performance out of our factories. So we’re a little bit hedging on that, make sure that if that continues, we have a bit of an upside that’s based into that range. So we continue to think that we’ll have 100 to 100 plus in the following quarters, so.

Our next question is from Robert Koort of Goldman Sachs. Please go ahead.

John, I had a question for you on the Jiangli assets under Albemarle fold. Can you talk a little bit about operating rates and how much more you could ramp those before your expansion? And then do you expect most of that production to stay within China or would that also be an export engine for you?

Hi Bob, so the nameplate capacity of the two combined plants, the Chengdu is 5,000 metric tons, and Xinyu 10,000. So we have room to continue to ramp up in 2017. And then we’ve already begun the expansion of another 20,000 to 25,000 metric ton expansion in Xinyu bringing total capacity there to 30,000 to 35,000 metric tons by probably early 2018. And in terms of where we’re placing products, it’s a combination. I mean, that product is qualified with our key battery customers. And so we’re able to export it to even customers with the most stringent quality metrics. So we worked hard through the integration period and the negotiation period to ensure that those plants were qualified.

So John, just to follow up on that. If you could provide lithium hydroxide or lithium carbonate from any of your locations to your customers, or is it there are some customers where you come from Chile or elsewhere, how does that specification flexibility for your work?

So it is true that certain customers has specifications that may lend itself to only being supplied from certain assets. However, we are trying to make sure that we have as much flexibility in our Albemarle supply chain as possible so that we can supply customers for multiple facilities. So in the specific case of lithium hydroxide, we have a single battery customer that we can supply from Kings Mountain from Xinyu and from Chengdu, but we have to make sure that each of those plants are qualified to the specific customer specification. But we’re taking those decisions, what makes sense, what’s economical, what’s efficient for us and making sure that we have as much flexible in our system. But it is true each individual plant, no matter, whether it’s Albemarle or through someone else, have to get qualified to a specific customer specification.

Our next question is from the line of Kevin McCarthy of Vertical Research Partners. Please go ahead.

If we look at your lithium results on a sequential basis, your sales increased $8 million and yet the EBITDA increased 11 million in playing contribution margin of more than 100%. Just wondering if you could walk us through some of the moving parts and elaborate on how you’re able to accomplish that.

So one of the key things is acquisition of our Chinese assets. As you recall, last year, they were part of our pulling portfolio, so there’s a bit of an arbitrage in terms of taking them into the Albemarle portfolio. And then also, we’re getting better performance out of those assets than the old owners we’re getting out of it, and it’s a great team that we have there in China. So we’re getting better performance and we’re also getting the effect of arbitrage around the tolling fee. And then, obviously, we have better pricing this quarter versus last quarter.

That’s helpful. And as a follow-up, you’d commented you planned to increase production by 10,000 tons or more this year. I was wondering if you could comment on the composition of the positive increment there. For example, how much are ramping that La Negra II and other sources of new supply this year?

So I believe on previous calls, we hinted that La Negra will be ramping up kind of the 1/3, 1/3, 1/3, so this year bringing 6,000, 7,000 metric tons of carbonate coming on from La Negra and then the balance coming from the Chinese assets in Xinyu and Chengdu. So that’s, we’re pretty much on track, and I see some extra volume coming out of the Chinese asset going forward, though.

Our next question is from the line of Vincent Andrews of Morgan Stanley.

This is Neil [ph] calling in for Vincent. It looks at your guidance for lithium for the balance of the year is down a bit versus growth experienced in Q1, so I was wondering if you can just touch a bit.

Can you repeat that? We can’t hear anything you’re saying. It’s really -- I don’t know if you’re playing with a microphone or something, but can you repeat that, please?

Sure. Can you hear me now?

Yes.

I was just saying it looks that your guidance for lithium the balance of the year is down versus the growth you experienced in Q1. So I was wondering if you could just touch on that a bit.

Yes, I think that’s similar question and it was asked earlier. If you really look what we said, we had a really strong performance out of our Chinese assets in the first quarter. And one quarter does not a year make. So we have to make sure that we can operate that, that on a consistent level during the course of the year. If we do that, we can be able to achieve better than we did, both for the first quarter. If we don’t, we’re going to have a little downside. So what we try to do is range with a regional expectation will be for operating those assets, and that’s how we get to the forecast that we’ve got. But we will have a very strong growth year-over-year in lithium. But on the top line, volume and on the bottom line.

All right. And another question on bromine. Given the strong quarter, have your longer-term expectations for bromine flattish to low single digit type growth in your business that you gave in your Analyst Day. Has that changed at all?

This is Raphael. I think we are pleased with our Q1 results. We do think it we’ll perform better than what we originally expected for the full year. But on the long-term basis, bromine is still a little growth business from a volume and an EBITDA standpoint. But we’re certainly doing all the things we can to keep our margin profile high. And if there are additional volume opportunities in some of our markets, we’ll be looking to capture those opportunities.

Raphael. I might add, too. We’re in a favorable electronics market right now as well, I think favorable tailwinds from that. As you know, there’s a quite cyclical industry that we just got to be cautious that we take this trend in being long-term. Eventually, that’s going to turn and cycle back down.

Our next question is from the line of John Roberts of UBS. Please go ahead.

China apparently is considering mandating electric vehicles as a percent of each manufacturer sales in a couple of years. Do you have any insights into what percent that they’re thinking about targeting and how quickly they might implement something like that?

Yes, we don’t have any insight on what the Chinese government would do there other than what we would read in the press. So we don’t know. But anything that they do in such stat is going to be a continuation of what we’ve seen around the world from a regulatory standpoint and encourage you to electronic vehicles and we see it is something that could possibly impact our Lithium business in the growth process.

Thanks for your question. Our next question is from the line of Jim Sheehan of SunTrust. Please go ahead.

One of your competitors announced that they’re looking into a major capacity expansion in Argentina, about 20,000 tons in the next two or three years. If they move ahead with that project, does that change your view on the supply demand balance over that time frame? And how do you see supply demand being impacted by that much capacity?

Yes, I think we’re going to add -- we’ve announced that we’re going to add between now and 2021 roughly another 100,000 metric tons of capacity in lithium carbonate and lithium hydroxide. And we’ve got that we’re back integrated into resource that give us guarantees if we’ve got the feedstock with that. So we’ve always said we’re going to capture 50% of the growth and we look to the other majors to step-up and filled out our GAAP. So I think this is consistent. I think, John, you’d still see, I mean, supply demand stands relatively consistent throughout this period, is that right?

Yes, Luke. Just second to Luke’s said, we track all the projects around the world. We make sure that they’re considered in terms of the supply demand balance. So I think the project that you’re referring to it is included in some other, we don’t see any change in terms of our outlook, in terms of supply demand balance.

Great. And in bromine, you mentioned you’ve got high operating rates. So I was just wondering if you could just quantify what your utilization is on the bromine assets currently? And are you seeing -- when do you expect to see any pickup in the clear brine fluids demand?

Sure. Without commenting directly into our operating rates are, I want to go back to what we’ve said at Investor Day, which is one of the core strategies within our bromine business is to focus on productivity improvements. So what we’ve been able to do in -- through the course of last year and then the first quarter, we’re seeing the benefit of that is really to be able to get more out of the existing asset base we have, and that’s had a very positive effect on our ability to capture demand that would exist. And we’ll continue to do that and we will continue to be able to get more of our asset base at the same or lower cost than what we’ve had. So that’s really a favorable piece for what we’ve been able to accomplish. But, Jim, what was your second piece of your question?

Clear brine.

Yes, I’m sorry. On clear brine, we still see good demand in the Middle East. We saw that through last year. We see that in the first quarter. But if you remember, Albemarle was strategically advantaged with having a plant, both in North America as well as in Jordan. So we’re able to capture opportunities in clear brines as they come up. We see the Middle East is still fairly good. Gulf of Mexico, we should see that coming back at the end of 2017 or, let’s say, the second half into 2018. And the rest of the world is soft, at least from our perspective.

Our next question is from the line of P.J. Juvekar of Citi. Please go ahead.

Question on lithium. I know you have long-term contracts with your customers. So what percentage of your contract would you say having repriced in the last 12 months?

I mean, it’s a significant portion of the last 12 months. If not all, it’s pretty damn close. So we’ve had good pricing over the last one, [indiscernible] contract by contract, PJ. But we’re getting price increases across the board on battery-grade products. Probably not as much, John, I would say on the technical grade products. Maybe comment some more on that, but I think on battery grade, it’s safe to say, the entire industry has seen pricing increases.

Yes, P.J. Just to reiterate what Luke just said, I would say mostly on of our battery grade customers have seen some pricing movement. As you get into other markets, as we’ve said before, we typically price the value. And you look at a lot of other external factors, like energy prices and things like that, to make sure that the value of our products makes sense for the consumer. And again, in terms of our long-term view with customers, we’re going to treat our customers a very fair way where we can work together to supply the needs of the industry, the energy storage market, and we’re going to grow together. And so that’s really a key part of our overall strategic approach and partnership approach with the leading battery producers in the world.

Great. And then there are [indiscernible] junior miners trying to advance project, in Australia as well as in the Americas, would you look at M&A versus doing your greenfield project in Argentina?

Yes, I think, PJ., what we said at the Investor Day still holds. We’re going to look to deploy the cash that we have in a way that creates the greater shareholder value. We’re obviously looking for M&A opportunities that would de-risk or expedite our strategy that could certainly become what resources where we believe they’re viable resources that put us on the cost position that would allow us to be competitive and maintain a market leadership globally that are priced at a point, that we can get a better return on that and we can own other investments that we see. So it all comes down to what’s the viability of the resource and what kind of return can we get on their asset. But John talked in Investor Day about the resource team, we’re out scouring the globe for resources, that includes new resources, that includes companies that are in start-up phase that are looking to attract dollars. So we’re very active. But just because something is for sale and somebody’s talking about it, doesn’t mean it’s a quality asset, it doesn’t mean that you can meet the value expectations of that particular owner.

PJ, this is John. Just one other quick comment, and again, we mentioned this during Investor Day, but I think it’s important in terms of our approach. We are only building out capacity on the back of long-term agreements, which is different than maybe others in the market. So it’s really going to come down to our partnership arrangements with our customers, what their demand is, and then that’s going to need to us building out capacity, whether it’s through Greenfield, Brownfield or M&A.

Thanks for your question. Our next question is from the line of David Begleiter of Deutsche Bank. Please go ahead.

Luke, on refining, I believe your guidance implies a better back half in the first half of the year. Can you discuss the drivers of improved performance and is that sustainable into 2018 as well?

I didn’t hear the last piece of it.

Is that improved second half performance sustainable into 2018 as well?

Yes, okay. I’m sorry. I think as I look overall at refining, it’s doing about what we would thought. I think both from a margin standpoint as well as from the EBITDA standpoint, you’re going to see a stronger end of the year. And it just a told you see the mix. I think FCC will be strong in 2018 than in 2017 from what I see today. And then when I look at HPC, it just depends what that mix is going to be. How much of it’s going to be resid, are we going to get a good mix for some of our high profit or not. So I would say on FCC, for what I would see, it would be stronger, a strong and continued that in ‘18. But for HPC, it’s still too early for me to call right now, David.

Very good. And Luke, you mentioned in bromine reduced production in China. Can you discuss that, quantify that and how that might impact pricing and margins as is going forward?

Yes, I think we’re getting a little -- I’ll just start off of that Raphael get into details. Part of what we’re seeing a now is [indiscernible] and some tailwinds from what’s going on in China right now. That was reflected in our earlier calls -- our earlier comments, I’m sorry. So I believe we are seeing tailwinds there, but Raphael, I think, could go into more detail.

Yes, David, I’m going to agree with what Luke is saying. There’s a tailwind on the tightness of bromine availability in China. And that has the effect on local Chinese pricing, which is continues to be favorable. We’re still -- compared to last year, the average, we’re up 50% better on local bromine pricing in China. So that’s helpful for our development of bromine business into China, so that’s still relatively small. So the real tailwind that we’ve seen recently on the limited exports of flame retardants out of China which could take a little bit of the pressure of some of our other markets, so that’s been favorable to us on a volume standpoint as well as holding pricing constant. But all this, we watched this closely, we have folks on the ground in China, we held all major reports, we always launching this. And we’re always cautious coming out of the winter months where production is low. And as we look at the summer, we didn’t need to get to the summer, see how production might ramp back up in China. If it does, what the impact would be before we can settle in on the real factor.

Thanks for your question. Our next mentioned is from the line of Mike Sison of KeyBanc. Please go ahead.

One quick question on lithium. When you think about the battery grade [indiscernible] for you guys, you said to the sold out for the year? And is the industry essentially sold out for the year?

I can’t really comment on the overall industry, but I can comment on the fact that every metric ton that we bring on the market is sold. So it’s sold be our long-term agreement. Some of those agreements have options if we able to produce more volume, we can place it directly with those customers. So as much as we can make in the battery grade will be placed into the market to our long-term customers.

And as a quick follow-up in terms of battery grade, is all the incremental demand coming from EVs or are you seeing some growth in consumer products as well as other areas as well?

Yes. So as we outlined in Investor Day, we continue to see growth in consumer products area. These are cellphone, power tools, that’s sort of thing, and 7% to 8% per year. And the big growth is actually coming from the transportation space, automobiles, buses, that sort of thing. Small contribution from food storage, really, very, very small that’s more of story that’s 5 to 10 years out type of thing.

Our next question is from the line of Mike Harrison of Seaport Global. Please go ahead.

John, I was hoping that you could comment a little bit on whether you’ve seen the impact of the higher cost out of Chile related to the royalty payments. And also, can you talk about the contribution of potash in the quarter?

So Mike, the royalty payments, community payments, are all fully baked into Q1 results. So that went into effect January 1. So it’s all part of the mixed now. With regard to potash, as you know, potash is a pretty small part of our business in terms of the way it contributes 5-ish, around 5%. As we actually extract more brine out of the viatorcoma [ph], we’ll have the ability to expand on a potash basis. But right now, we’re essentially maxed out in terms of our potash plant and we’ll evaluate as we extract more brine what the opportunities look like for potash going forward.

All right. And then I was also hoping you could comment on what you’re seeing in terms of lithium carbonate versus lithium hydroxide pricing in your outlook. I assume that the 20%-ish growth number for the rest of the year is kind of a blended average from everything. Is one of them significantly stronger and increasing? Can you just give us some color on that?

With regard to pricing, I would say no. I mean, one it is necessarily stronger or weaker on an incremental basis. As you know -- may know that the price for hydroxide trends higher than carbonate. But on a year-on-year basis, one is performing better than the other at this point.

Our next question is from the line of Dmitry Silversteyn of Longbow Research. Please go ahead.

A couple of questions, if I may, revisiting the refining catalyst business. First of all, in the first quarter results, you talked about trails and a couple of other things, the debt to EBITDA, but I would have thought that would’ve also impacted revenue. So was it most fixed that margin supply?

Yes, it was mainly, Dmitry, price and mix, call it a disconnect. And remember at our Investor Day, we talked about moving in and trying to get more into the resid market, [indiscernible] resid market and how they trading capital. We had good volume in hydro treating catalyst, but more of it was in that resid where we make our margins are less, and if we sell into this business market, so that was a piece of it. And we also had with our joint venture, sold more resid out of that, too, in Japan. So that was really a mix issue.

Okay. So the turnarounds that you mentioned, that impacted your profitability, should we sort of keep that in mind for a year from now when they may not happened in the first quarter as an adjustment to our expectations or is it just the ramp sort of forecast beyond the current quarter?

Dmitry, this is Matt. Since Silvio is not here, let me take this one. If you look at what we’ve said about FCC from the beginning of the year, we knew that some of our major customers were going to be undergoing turnarounds and doing competitive trials in FCC, and that’s why our Refining Solutions guidance have been back ended a little bit second half versus first half. It’s kind of like Luke said earlier in response to ‘18, it’s probably a little too early to get into detail in ‘18. But right now, our review of ‘18 in FCC is favorable.

Fair enough. And then as my follow-up question, just fantastic really quick one, and I understand as a small business than the PCF portion of the company, but I mean, we haven’t had other than business and probably two to three years. If I could change or whether it’s something you shouldn’t do more something with that but that market needs to change for both the polyolefin piece and the organometallic piece to actually become something that we can talk about positively?

Go ahead, John.

So first off, I do think that this business has growth potential. It suffers from some over capacity in the organometallic, so we’re seeing volume growth. We’re just seeing price decline over the last number of years. Hopefully, we hit the bottoms. But its growth -- the overall business will continue to grow based on the growth of plastics and the new and more high-performance types of plastics and resins that are going into packaging. So it does have -- as we outlined at Investor Day, we do believe that it does have a nice growth profile. We’ve suffered also from a significant customer bankruptcy. And so we’re kind of in a turnaround year, where hopefully will bottom out. And then the business will be back on a nice trajectory going forward.

Okay. So 2018 when we should see at least the polyethylene turnaround than it sounds like maybe a couple of more years for organometallic’s?

That’s right.

Our next question is from the line of David Wang of Morningstar. Please go ahead.

First is on the guidance, I think as I look at the EBITDA guidance was raised by about $35 million, but the net cash from operations and adjusted free cash flow remain the same. Is there some additional cash usage that and of course something like working capital, or is it more so that’s a lower net cash from operations and free cash flow lines have a wider range, so this adjustment doesn’t really move a needle?

Yes, David. As you look at the guidance, so EBITDA is up, you’re correct, $35 million, but that comes on the back of increased revenue, and as a result of that, increased working capitals. And since most of the guidance increases in the second half of the year, not in the second quarter, but in the second half. The working capital really stays out there on our balance sheet that you are in. So as a result, that are cash flow -- we’re expecting cash flow to be about the same, maybe a little bit better, but about the same, so in that range of $200 million to $300 million. There really are no other spending changes, if you will, captured in that guidance. CapEx is about where we thought it was going to be. Other items are where we thought they’re going to be.

All right, great. And then it looks like as we have discussed Chinese EV sales maybe a little week in January and February, but bounced back in March. But they are stepping down there incentives this year versus the previous year. Are you concerned at all about that and what’s your outlook for Chinese EV sales for the remainder of ‘17?

As we said a little bit earlier on the call in talking to our cathode and battery customers and just having spend a little bit of time in Asia. No concern in our end, that the actions by Chinese government or the incentives, well in a way affect our guidance for the remainder of 2017.

Our next question is from the line of Laurence Alexander of Jefferies. Please go ahead.

This is Dan Rizzo on for Laurence. The cyclicality that you mentioned in bromine before, is that lessening with your reduced exposure with electronics end market?

This is Raphael, Dan. I don’t think that we reduced our exposure to the electronics. But what I would say is that there’s been a greater diversification of applications within the electronics that has given us more confidence going into the future. As Scott had mentioned, there’s still as cyclicality in electronics overall, but we’re no longer as dependent, for example, on PCs and TV sales and that we’ve diversified, but the market have diversified into wire and cable for automotives, so transportation, wire and cable and Circuit Boards has really increased and some of the end markets have changed. So we feel like it’s in a more stable position going forward.

So from my standpoint, I think Raphael mentioned really growth point there I think we have de-risk of that bromine business on the downside because of the broad applications that we have in that business and how this evolved over the last five or 10 years.

With the diversification in the Internet of Things and just a broad use of different semiconductors, electronics [indiscernible] and everything, I mean, would that be a growth driver for bromine, or is it, am I just over thinking it?

I mean, look, I think I don’t think you’re over thinking it. I think that everywhere that you have a connector or anywhere you need more computing power where you have a fitted wiring board, that’s an opportunity for bromine for that application today. The question becomes over the next decade as they become smaller or they stay in the same size or what’s the new technology others. So I think where we feel very positive about that business. We continue to operate it as a key to our strategy. It continues to generate excellent cash flow. And we continue to harvest that cash and invest in the maintenance of our bromine business so that we can guarantee the prompt response that our customers need and to continue to grow as best we can. But do not expect bromine to grow high single and low double digits for the next five years. It will not do it. We’ve said it will grow around GDP, up some, down some. This year, it’s going to be enough. I don’t know what the future holds. But within what we can control, we’re going to make this the best bromine business in the world.

Our next mentioned is from the line of Chris Kapsch of Aegis Capital. Please go ahead.

I had a follow-up on the Lithium business and perhaps the margin profile there. You mentioned that obviously strategically, you’re shifting a bunch of your tonnage to captive conversion from toll, but you did mention toll conversion still part of the mix. So I’m just wondering how far along are you in shifting overall toll volumes to captive conversion? And what sort of affected the toll volumes are still there have an margins? And then how do you see that playing out over time?

So this is John. The shift from toll to captive happened as a result of the acquisition of the two Chinese facilities that we acquired. So they were tolling facilities for us originally than through the acquisition, now they’re producing volumes that are part of our portfolio, plus we’re expanding the volumes within those assets. Tolling will always be a part of our portfolio. And we continue -- we have a couple other tolling partners that we continue to do business with this year. The tolling volumes this year for those other tolling partners, not necessarily growing, but we continue to maintain those relationships going forward and expect to for a long time.

And just the influence on the margins, I guess, apples-to-oranges now that you have those significant chunks of conversion capacity effectively captive via the acquisitions?

Yes. So margins from a tolling facility as you can imagine will be lowered than the margins from facility that we own because the tone needs to make some kind of process in terms of operating that asset for us. So yes. So you end up improving your margin by shifting from tolling to captive assets.

So what you got to look back overall, when you look at the fact is what you’re capital cost, what’s your cost of depreciation that goes in there, how do you operate the assets versus how they were operated before, what do our ages any standards and the other process standards that we have, how does that impact that margin. We’ve obviously, as you would expect, believe that resid rely tolling that we make more money and we de-risk of those strategy by having. So you saw some improvement in our first quarter margin. And if you look at that, we said a good deal of it was driven by a recent of those Chinese assets that we own. So it’s a positive move and as we bring on more and more capacity and reduce our unit costs down, we will be able to continue to deliver the best-in-class type of margins that we did in the first quarter.

And again, I go back to our philosophy and strategy to secure long-term agreements with customers on a long-term basis, multi-year basis and bring on capacity to meet those contracts and so as we bring up on our own captive capacity, essentially sold out day one. So we need the relationships with the tolling partners to give us some flexibility as well.

But Chris -- hi Chris if I can make one other point. I know everybody’s what are margins going to be, you can’t just look at in one avenue and say you’re moving now to your own conversion assets, so your margins are to be bought or. You we’ve got additional cost that are -- that we’re going to be running through that will ramp up of the course of the year from the expiration standpoint. That didn’t hit as much in the first quarter as you’re going to see it in the next three quarters. And we have got to spend that money to understand the quality of the potential resources that we could bring on in the next decade. And that money that been in a ramp-up over the course of the rest of the year. So we -- as we look at our margins overall, this year, our margins in lithium could be a little bit higher than the target that we set. But I don’t see the first quarter repeating every quarter for the rest of the year from a margin perspective.

Okay, that’s helpful. It makes sense. And then just one quick follow for Raphael, Raphael lot of air time today. Just real quick, though. Just on the strength your seeing in flame retardants, bromine flame retardants and specifically and understand the rising tide of an overall more healthy electronics and the market. But can you talk about specifically where you’re seeing strings for BFRs? Is it across the board, or is it more specifically PWBs versus enclosures versus connectors for automotive? Thanks

Yes. Sure, Chris. It’s roughly in the printed wire board market as well as the connector space, that’s what we’re seeing the strength in flame retardants. It’s not so much in enclosure. It is good news that when we look at the statistics, certainly, we’ve seen the bottoming out or leveling out on the enclosures market, but it’s not what was the meaningful contribution to our improved performance. And now, we think it will drive the rest of the year.

Our next question is from the line of Tyler Frank of Robert Baird. Please go ahead.

Just on the growing market, are you seeing strength in the other markets besides electronics that are notable? And then how low do you expect the lower volumes out of China to last? Is it a 1 to 2 quarter thing or [indiscernible] longer term? Thank you.

So the other markets -- I mean, the largest market for Albemarle is our flame retardants market. The largest market for the industry is flame retardants for bromine. Next is completion fluids, and then we have a whole host of specialty applications, and those have been there small in volume, but in total, they performed pretty well. But overall, the strength of our business, because of the importance of flame retardants, the strength of our results in Q1 and when we look out for the year, it’s really going to be driven by flame retardants and then some recovery in clear brines later in the year. With regard to China, as I had said, I think that we -- we’re expecting prices an average to still be higher than what we’ve seen on the average of the previous 5 years. We think it’ll still remain strong on year, but we don’t know with the second half of the year will look like when summer production could come back up in China. And there are volume -- the production has been low, the demand has been fairly good. And therefore, that’s been -- what’s driven up prices. Expected to be good, but we’re not banking on it on the long term. That is why we continued to work all the things we do on productivity within our assets to make sure we stay competitive whether the market is up, whether the market is down.

Okay. So, our next question is from the line of Robert Koort of Goldman Sachs. Please go ahead.

This is Ryan Berney. Just wanted to get one more in for John, if I can. John, I wanted to ask you about I know you got a couple of questions answer already, but I think there was some chatter that perhaps you’ve got some inventory that maybe was on a lower COG basis coming out of last year. So I guess, can you talk about the $60 million to $70 million in the royalties any other cost this year? And your guidance in the back half seems to be somewhat flat with the first half, really just kind of the read we’re getting from you, so I guess I think about production growth presumably we have La Negra II in the back half, we should be getting some significant health there. So I’m wondering if those $60 million to $70 million in the earnings headwinds there, that you called out are both more back calculated and maybe if you can give some granularity on how much you see and you saw in the first quarter?

Yes. So, Ryan, it’s Scott. So specifically about the lower cost inventory, one of the key things to remember with the Chilean concession and the royalty that we’re paying as well as the community payments, that’s tied to production that started in 2017. So we did not see a full run rate, if you will, of that royalty in the first quarter. So we saw something like, I don’t know, $7 million to $8 million in the first quarter. We’re still expecting to see a full year of around $50 million. So that certainly had some support for that margin in the first quarter. And maybe, John, you can talk a little bit about the production ramp up La Negra II, and how that layers in for the rest of the year?

Yes. So we’ve started production in Q1, certainly going to continue to ramp from a volumetric perspective, increasing throughout the year. And as we’ve said, we’re going to probably bring 6,000 to 7,000 metric tons on this year and then another one third in 2018. So it’ll be a continuous ramp through 2017.

So, Lisa, this is Matt. I think we’re out of our time limit. Thank you. You could close the call for us.

Thank you. Ladies and gentlemen, that concludes today’s conference call. You may now disconnect your lines. Have a great day. Thank you.