Element Solutions Inc (ESI) Q4 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Platform Specialty Products of 2015 Fourth Quarter and Full Year Performance Financial Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Carey Dorman, Director of Corporate Development. Your line is now open.

Thank you, and good morning. Please note that in accordance with Regulation FD or Fair Disclosure, we are webcasting this conference call. Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of Platform is strictly prohibited. Before we begin, please take note of Platform's cautionary statement regarding forward-looking statements in the press release and earnings deck issued and posted today in connection with this conference call. Some of the statements made today during this call will be considered forward-looking. All forward-looking statements are based on currently available information. Except as required by applicable law, Platform undertakes no obligation to update such statements as a result of new information, future events or otherwise. In addition, please note that all financial results for the fourth quarter and full year of 2015 discussed during this call are preliminary and unaudited and remain subject to Platform's completion of its year-end accounting closing procedures, final adjustments and other developments. Actual results may differ materially from these preliminary estimates due to many risks and uncertainties. Please refer to Platform's SEC filings for a more detailed description of the risk factors that may affect Platform's results. Please note that the earnings deck relating to today's press release were posted on Platform's website at www.platformspecialtyproducts.com in the Investor Relations section under Events & Presentations. In accordance with Regulation G, Platform is providing a reconciliation of certain non-GAAP to comparable GAAP financial measures in its press release and in the supplemental slides. As a reminder, for the purpose of this call, Platform will be comparing the same periods in 2015 and 2014 on a pro forma and pro forma constant currency basis as management believes that these figures provide a better comparison and understanding of the underlying business results of operations. Pro forma information assumes full period contribution of all Platform's acquired businesses to date. Please review the press release and earnings deck for further information. It is now my pleasure to introduce Rakesh Sachdev, Platform's CEO.

Thanks, Carey. Good morning, everyone, and thank you for participating on our Preliminary Fourth Quarter and Full Year 2015 Performance Call and Webcast. Joining me this morning in New York is our CFO, Sanjiv Khattri; and Ben Gliklich, whom you all know; and on the phone, we have Scot Benson, President of our Performance Solutions business; and Diego Casanello, who is our President of our Ag Solutions business. In addition, we have our Chairman, Martin Franklin, who's also on the line and will be available in our Q&A. And I want to start by saying how excited I am to have joined Platform at such an important time for the company. And I want to thank all the employees, board members, shareholders and other partners who have graciously welcomed me into the Platform family. I took this job because I truly believe in the quality of its businesses and its people, and I saw a tremendous opportunity to build a leading and highly differentiated global specialty chemicals business. I see many parallels between the business I ran at Sigma-Aldrich and the portfolio of businesses that Platform has assembled, particularly the focus on high value-added batch processes, asset-lite production, critical products that provide critical functionality at a relatively low cost, a high-touch sales force and a solutions orientation. At Platform, we are evolving into a customer-focused solutions company. And although the end markets are slightly different, the process of driving organic growth through customer-focused innovation is something I'm very familiar with and will continue to emphasize here at Platform. I will go into more detail on my initial observations later in the call. I want to take a moment to address the Form 12b-25 filed with the SEC this morning. In this filing, we explained that Platform is taking advantage of the SEC's available 15-day grace period to file its annual report on Form 10-K for 2015. As you all know, we completed 3 acquisitions in 2015 with 2 of them closing in the fourth quarter. We wanted the extra time to ensure the quality of our financial information as it relates to consolidating the acquisition financials, primarily purchase accounting tax entries. We do not expect this to impact any previous reporting periods, and we expect to file our Form 10-K and the audited GAAP financials within the next 15 days. I assure you that our company take such matters very seriously and is focused on making sure we do not need to take advantage of grace periods without a very good reason to do so. With that, let me walk you through our preliminary results. Starting on Page 3 of the Web deck, it highlights our fourth quarter 2015 preliminary results. Fourth quarter 2015 revenues was $735 million with adjusted EBITDA of $154 million. On a pro forma basis, including the full quarter contribution of the recent Alent and OM Group asset acquisitions, revenue was $906 million and adjusted EBITDA was $184 million. Both business segments reported quarters reflecting a weaker macro and FX environment than the prior year period. Performance in the fourth quarter was negatively impacted in the ag segment by high industry inventory levels and bad weather in North America as well as low commodity prices. Softening demand for global electronics and lower oil prices created headwinds for our Performance Solutions business. We believe our planned actions to reduce channel inventories in our North American Agricultural Solutions business created a near-term material headwind without which our ag business adjusted EBITDA would have grown 6% on a constant currency basis in the quarter. The pro forma Performance Solutions business faced a headwind from metal price declines in the Alpha business that we acquired from Alent as well as inventory destocking of some of our semiconductor-related products by certain customers. The other major driver of year-over-year performance was growth in corporate costs at Platform. We will discuss this more when we cover our preliminary full year 2015 results. There were several bright spots this quarter. We cemented our leadership team, closed 2 acquisitions, raised over $1.8 billion in a very difficult financing environment and we believe the organization weathered the challenges well. We feel constructive about the performance of both our businesses, particularly on a constant dollar basis, both relative to our competitors and the macro environment as a whole. On Page 4, you will see the preliminary full year 2015 performance for the combined company. I'm pleased to report 2015 preliminary revenues of $2.54 billion and adjusted EBITDA of $568 million. Adjusting for certain acquisitions, guidance equivalent adjusted EBITDA was $555 million, in line with our previous guidance of $550 million to $570 million. On a pro forma basis, including a full year contribution from all our acquisitions to date, 2015 revenue was $3.62 billion and adjusted EBITDA was $742 million. In 2015, we proved that our businesses have a great deal of stability and resiliency. Despite the fact commodity prices weakened in the ag market and several of our end markets weakened in Performance Solutions, both of our business segments realized higher earnings in 2015 than a year ago on a constant currency basis and before our corporate cost allocations. Our business took advantage of the levers at our disposal to generate these results. We took price where we could and drove savings from integration and other cost opportunities aggressively. I'm happy to report that we realized a total of $38 million of cost synergies in our P&L in 2015, well ahead of the estimated $20 million we guided when we went into the year. The integration effort within Agricultural Solutions, now selling under Arysta LifeSciences, made admirable progress in 2015. We are now going to market with one consolidated sales force selling products from all 3 legacy companies. Our legal entity consolidation has made significant progress and the complex registration transfer process is moving along nicely as well. I feel very good about the remaining synergy opportunities on both sides of the business. We believe our acquisitions of Alent and the OM Group businesses create a complementary and diversified solutions provider with a broad reach across the electronics and automotive markets. The integration of this newly combined business, now called MacDermid Performance Solutions, is progressing well, and we are excited by its potential. Platform's team has successfully proven its ability to integrate the acquired ag business, and we are demonstrating the same track record in our performance segments. We have already actioned $9 million of run rate synergies relating to the Alent and OM acquisitions. Our investment in the corporate function at Platform pressured our results in 2015. We are now a global complex organization with multiple business units. In order to effectively manage our rapid growth, we've had to engage outside professionals and invest in people and system. We expect over the medium term that these investments will result in savings within the business units. And over time, we will reduce this to more normal levels. More on that later. I believe my appointment and that of Diego Lopez Casanello as the Head of the Agricultural Solutions segment has resolved the leadership gaps that previously existed within the company. We have a great team. Scot Benson has done a great job putting his arms around the expanded Performance Solutions business and is a terrific leader for it. The same can be said of Diego, who in a short period of time has demonstrated strong leadership and domain expertise. With those business leaders and Sanjiv and Ben, I'm confident about our capability to move this organization forward. On Page 5, we have laid out some of my initial observations, priorities and outlook for the year. 2016 undoubtedly is a year of opportunity for Platform. I spent the last 8 weeks traveling to several of our offices around the globe, meeting with employees and learning the details of the business. And I'm pleased to work report that I've discovered a number of very encouraging facts. I believe we have a great portfolio of global businesses and strong commercial leadership. I also found a strong culture of innovation and an intense and unwavering focus on the customer, both of which I believe are critical for the success of any company. Integration and synergies realization is another strong focus point for the businesses. As I mentioned before, I feel very comfortable with our ability to achieve the numbers we have laid out. Most important, I found a shared vision and desire to build a truly great specialty chemicals company, and I'm excited to help lead this process. Martin Franklin, who's our Founder and Chairman and a key partner in Platform, has mentioned on a previous call that our near-term focus will be back to basics. This is what we did in the fourth quarter and are continuing to do so in 2016. For me, back to basics means a focus on our customers and on organic growth, establishing our team and core processes, integration and synergy realization and the generation of free cash flow to improve our balance sheet. I plan to focus on a handful of key priorities for 2016. First and foremost, the successful integration of our existing businesses. With 6 acquisitions in the last 2 years, there is still a tremendous opportunity in front of us from combining these companies. We are excited to continue to demonstrate success in cost savings, infrastructure enhancements and cross-selling initiatives. We will also be very focused on organic growth. Streamlining R&D and CapEx prioritization as well as instilling a culture willing to take appropriate risks into new end markets is expected to be an important driver of growth for us. M&A will remain a key part of our long-term growth strategy as Martin and others have proved the success of that approach. But we believe there are also great organic growth opportunities to create value, which we will pursue with vigor. Finally, I'm focused on making our back office more efficient by continuing to invest internally in our business infrastructure and the increased sharing of best practices across the company. We have disproportionately used the services of third parties, which over time we plan to reduce. With respect to our 2016 outlook, we are providing adjusted EBITDA guidance of $725 million to $775 million based on end of January exchange rates. This represents a constant currency pro forma EBITDA growth rate of between 2% and 9%. In 2016, we expect cost synergies and other market share opportunities to largely offset continued headwinds from FX and macro issues. We remain confident in these businesses and their ability to meet our long-term expectations for top line and earnings growth. 2016 will be a year that we focus on positioning ourselves well for when the end markets start to cooperate. Sanjiv will go into more detail about this and other guidance numbers later in the call. And I look forward to updating you on our progress on our future earnings calls and at our Investor Day, which is being scheduled in the second quarter. On Page 6, you will see a high-level overview of our business on a pro forma basis, including the Alent and OM Group acquisitions. Our approximately $3.6 billion of pro forma revenue is split almost equally between the Agricultural and Performance Solutions segments. We have a very diversified global business with no region contributing more than approximately 1/4 of our sales. As you might expect, the performance business has a heavier exposure to the Asian markets while the ag business is more heavily weighted towards Latin America. These regions are both high-growth opportunities in the long term, and we value the diversification of our portfolio and the resilience and stability it provides. Let's now turn to the business unit highlights, starting on Page 7. Our Performance Solutions segment reported unaudited full year pro forma revenue of $1.79 billion and adjusted EBITDA of $395 million. Full year 2015 sales were down 4% on a constant currency basis, driven by continued softness in Chinese electronics demand and lower oil prices affecting both our PET business and certain metal finishing end markets. Pro forma sales were also impacted by decreased tin, silver and other precious metal prices, which are passed through to customers but booked as revenue in the Alpha business. The industrial side of the business benefited from strong automotive sales in North America and Europe. Increasing electronic and decorative content on these cars is expected to continue to provide an exciting tailwind for that end market in 2016 and beyond. On a constant currency basis, Performance Solutions adjusted EBITDA was up 4% for the full year, excluding corporate allocations. This improvement was largely due to enhanced product mix and cost management levers at MacDermid that we began to exercise in the second half of the year. Turning to Page 8. Our pro forma Performance Solutions segment includes MacDermid; Alent, which we acquired in a transaction that closed in December 2015; and the OM Group Electronic Chemicals and Photomasks businesses, which we acquired in 2 separate transactions that closed on October 2015 and January 2016. The numbers on Slide 8 include full year contributions from each of these acquired businesses. And this is the last time we will provide this breakout as these businesses are now being integrated under the same umbrella. MacDermid reported another year of steady EBITDA and free cash flow generation. The newly acquired Alent and OM Group assets experienced modest headwinds, particularly from the electronics end markets but performed in line with our expectations. Decreased tin, silver and other precious metal prices impact Alpha's results. Alent's Alpha business sells value-added assembly materials to the electronics industry, which are metal-based products. As part of its total offering, Alpha buys a lot of metal and basically passes through the price of that metal to its customers. While Alent's practice was to exclude metal sales, thereby reporting higher margins, we do not plan to do so. But we will explain the impact of metal prices on our performance. This year, the dramatic decline in metal pricing was a nearly $60 million headwind to revenue. Because margins on metal are small, metal price volatility has a smaller impact on EBITDA. The industrial surface treatment business in both North America and Western Europe contributed significant EBITDA growth to the segment as we continue to benefit from our auto OEM selling strategy and overall growth in the automotive market. We believe we saw meaningful share gains in some major OEM supply chains with many installations that we anticipate will continue to benefit us in 2016. Our offshore production fluids business also had a strong year, benefiting from the long CapEx cycles and heavier recurring revenue component, driven by monthly fills on existing platforms. Our electronics business experienced softness, primarily in Asia and North America as growth slowed in global mobile and tablet sales and mobile infrastructure projects, particularly in emerging markets, were delayed. Finally, legacy Enthone's damascene copper business also experienced some headwinds from the semiconductor destocking that took place last year. The divergence between the MacDermid and Alent's results can be explained by MacDermid's greater diversification. For example, offshore helped cushion the electronics impact and by proactive cost actions taken by MacDermid. As we look into 2016, we expect to see another strong year in industrial and automotive as decorative and electronic content continue to grow and we continue to penetrate the Eastern European market. We are expecting growth in our Asia business as we annualize the benefit of a number of new installations in 2015 and increase our position in certain mobile phone supply chains. We are also expecting growth in our Alpha business in 2016 as we continue to see a beneficial shift to solder paste from bar solder. A strong U.S. dollar, particularly against a weakening Chinese yuan and British pound, will continue to impact our reported results for most of the year, but we are hopeful that this devaluation has begun to stabilize. Unlike our ag business, a majority of the cost in our performance businesses are matched to the sales from a currency perspective. The net impact of these drivers is a relatively flat top line expectation that EBITDA growth to be driven by cost and revenue synergy opportunities. Now on Page 9, the Agricultural Solutions business' unaudited full year 2015 revenue was $1.83 billion and adjusted EBITDA was $346 million. 2015 revenue grew year-over-year on a constant currency basis, highlighting the relative strength of our specialty-focused ag business in what was one of the weakest global ag market in decades. On a full year 2015 basis, the ag business experienced a gross FX impact of over $200 million in its earnings. As a result of pricing actions to customers, reduction in prices from suppliers and a lower translation of SG&A, the ag business was able to offset about 70% of this FX impact. And Ben will have more to say on this. A strong European season and significant constant currency sales growth in Latin America, fueled by our heavy focus in export crops in that region were the other primary positive contributors for the year. On the other hand, North American inventory issues, which we have previously discussed with you, as well as poor weather in much of Africa and West North America were some of the biggest detractors from our performance. Page 10 provides regional details for our ag segment's performance. In Latin America, volumes were bolstered by our selective herbicide portfolio, which we believe is a leading complement to glyphosate as glyphosate resistance continued to propagate in the region. Insecticides were down significantly due to lower pest pressure in row crops, which impacted our competitors more than us because soya and corn insecticides are a smaller contributor for us in the region. We were particularly pleased by the ability of our team to cross-sell the enlarged portfolio, consisting of conventional crop protection, seed treatment and biosolutions. We also invested in a growing sales force in Brazil, and it is working. In Europe, a strong growing season led to year-over-year earnings growth despite the weakness in the euro. We grew both volume and price in the region. Key drivers of performance were once again herbicides, serial fungicides and our biosolutions portfolio. We had a tough year in North America. Drought on the West Coast and Western Canada weakened demand, and we took actions to improve channel inventories and our seed treatment business also struggled with the loss of a major customer. On the other hand, North America was a major integration effort, where we took out over $10 million in SG&A and rationalized about 50% of our SKUs. In Asia, we had mixed performance. China had a challenging year while Southern Asia performed well. Weather hurt our Chinese business, but volumes in South Asia more than offset that pressure. On a constant exchange rate basis, our Africa, India and Middle East businesses had a strong year, driven by continued robust growth in private market sales and biosolutions. Significant market share growth in East Africa offset pressure from drought in Southern Africa and a bad monsoon in India. Finally, we managed our receivables very well in a challenging environment, recognizing only negligible bad debt expense for the year and maintaining collection rates in line with our long-term averages. Credit management will remain a key priority in 2016, especially amidst the weakened economic environment in Latin America. As we look to 2016, we are seeing a macro ag environment that feels similar to what we saw in 2015. FX will continue to be a headwind in the first half of the year even if currencies like the Brazilian real remain stable. Our guidance numbers imply flat to slightly down ag sales for our products on a global basis but low single-digit growth on a constant exchange rate basis with pricing actions and synergies expected to drive upside. We are now seeing others in the market bring down inventory levels, and we are hopeful that more stable currencies will be the beginning of a positive trend in the back half of 2016 and into 2017. We will provide some more color around what to expect for Q1 near the end of the call. I would now like to turn the call over to Ben to review our integration efforts across the business and foreign exchange. Ben?

Thank you, Rakesh, and good morning, everybody. Turning to Page 11. 2016 will be a very exciting year for the newly combined Performance Solutions business. Despite our expectations for muted end market growth, we hit the ground running on integration initiatives with a key focus on preserving customers in the short term and share gains in the medium to long term. Both our sales force and our customers are excited about the complete solutions we can now provide with our combined product offerings and increased global scale. On the cost side, I have a high degree of confidence in the estimated $70 million synergy number that we previously announced for this combination. We diversified both our geographic and end market exposures and significantly enhanced our market position. We believe there are revenue synergies that are above and beyond the cost savings. In fact, our strongly held position is that when choosing between organic growth and cost synergies, we will always favor growth. That having been said, we are focused on rationalizing the business and have already taken significant steps in that regard. The emphasis in 2016 will be on redundant G&A and supply chain initiatives. 2017 synergies will come primarily from facility rationalization and continued back-office optimization. Page 12 outlines a good story of our Agricultural Solutions integration. Synergy realization in our ag business has been well ahead of schedule and is a testament to the integration success as we're seeing to date. We continue to outpace our targets for synergy realization, reporting $38 million of synergies in our ag business, which on a run rate basis is more than 50% of our 3-year estimated $80 million target. We feel very good about our ability to meet the synergy target. 2015 cost savings focused primarily on SG&A, supply chain and procurement. In 2016, we'll see a shift in focus to the distribution channel, logistics, portfolio optimization and facilities. Foreign exchange remains front of mind. And on Page 13, we pulled together some numbers to help you understand our current pro forma FX exposures, how those exposures impacted our 2015 results and what sort of actions we are taking to help mitigate these risks today and in the future. On the top left, we've laid out our top 5 currencies in 2015, which account for more than 80% of our sales. As you might expect, other than the U.S. dollar, our next biggest exposures are to the euro, the real, the yuan and finally, the yen. The exposures to the U.S. dollar and the euro are higher than our mix of sales in the U.S. and Europe because a portion of sales in Latin American and Asia are based in U.S. dollars and a portion of African sales are denominated in euros. Given the relative stability of the euro relative to emerging currencies and our ability to match balance sheet liabilities against the euro, we view this exposure as a net positive for our currency mix. The right side of the chart shows the impact FX had on our ag business in 2015. The basic message here is that FX had a very large gross impact on our adjusted EBITDA in the segment. However, cost savings, driven by a translational reduction of SG&A and active ingredient savings, offset about 1/3 of this impact. We were also able to use of price increases for both dollar-linked and non-dollar-linked sales, particularly in Latin America, Africa and Eastern Europe to offset more than 50% of the net FX impact. This is a favorable outcome, and we will continue to focus on recapturing EBITDA through price increases in 2016. With that, I'll now turn the call over to Sanjiv to walk you through the unaudited financial results and 2016 guidance in more detail.

Thank you, Ben, and good morning, everybody. Before I give my prepared remarks, a quick shout-out to our leader Rakesh Sachdev. It is great having him onboard, and I know I speak for the team when I say we are already off to a great start under his leadership. Now as I did last quarter, I plan to spend some time going over the numbers themselves but also updating you various ongoing initiatives and addressing some key questions we have been receiving lately. Some housekeeping first. As a reminder, all of the 2015 full year and fourth quarter numbers we are providing to you today are unaudited and preliminary. As Rakesh mentioned, due to all the acquisition activities, we had a prolonged close, so we elected to take the extra time allowed to finalize the remaining schedules. Please note that we do not anticipate any issues filing within the 15-day extension period. While we are not fully audited yet, I do not expect the preliminary numbers we are sharing with you today to materially change and we do not expect any restatements of prior periods. Our baseline results of both the full year and the fourth quarter of 2015 are impacted by the 3 acquisitions we did in the year, including Alent and OMG Electronic Chemicals and Photomasks business in the fourth quarter. Our actual results impact also includes the impact of Alent and OMG assets for the months of Q4 for which we own them and excludes Arysta for the 6 weeks of 2015 that we did not own that business. Therefore, we also provide pro forma results demonstrating business performance as if we had owned all the acquired businesses beginning on January 1, 2014. This also includes the OM Malaysia business, which we acquired in January of 2016 in a separate transaction. Finally, as we did in Q3, we compare certain results on a constant currency basis in order to illustrate the impact [indiscernible] currency headwinds has had on our financial performance. For the constant currency calculation for Q4 results, we assume Q4 2015 average exchange rates for both Q4 2014 and 2015. For the full year results, we assume year-to-date through December 2015 average exchange rates for both 2014 and 2015. This quarter, you will also find a detailed definition of our non-GAAP measures on Page 27 of the earnings deck. This is all in the spirit of increased transparency. But as always, we will be available to answer any questions that you still might have. Now on to the deck. I am on Page 15. This is a very simple walk to show you how our preliminary adjusted EBITDA of $568 million compares to our guidance range of $550 million to $570 million. On an apples-to-apples basis, we achieved $555 million of adjusted EBITDA versus the guidance. This is a good, solid showing despite the challenging environment. On Page 16, we have done a detailed walk for you from pro forma 2014 adjusted EBITDA of $847 million to $747 million on a pro forma basis for 2015. Again as a reminder, this total includes the impact of all the acquisitions to date and assume for the full year. As you can see, the strong dollar created a net FX headwind of close to $185 million. This includes both transactional and translational FX impacts, including the SG&A benefits from translated local currency SG&A back to less U.S. dollars. We benefited from $72 million of net price and volume actions that the business took to offset the top line exchange headwinds. As Ben took you through the FX overview, you should expect us to use these tools at our disposal in 2016 and beyond to try offset this continued FX volatility. The price increases, some of it partially offset FX impacts, were, of course, impacted by lower volumes for the overall business. Synergies are $38 million, all coming from the ag business as Ben discussed before, a solid start to our overall estimated $150 million synergy target. Next, the increase in SG&A and corporate costs, which we mentioned earlier that are weighing in on our year-over-year comparisons. Again, we believe these are necessary investments that were made across the corporate centers in the businesses to ultimately enhance the infrastructure of our complicated global business and to enhance controls, visibility and decision-making. 2014 is a poor comp in this regard. We do not expect such material increases in the coming quarters and years. Finally, other items, including certain onetime benefits, which in aggregate totaled $18 million for the year. Please note that the $742 million for 2015 translated at January 31, 2016, rates to $709 million. I am now on Pages 17 with full details on our 2016 guidance. As Rakesh commented, we are guiding to a 2016 adjusted EBITDA range of $725 million to $775 million. At the midpoint of $750 million, this represents a 1% increase or 6% on a constant currency basis from 2015. We expect to tighten this guidance as the year progresses. Let me flag some of the buckets of the waterfall chart. The rest, you can all see. Also note that the guidance is based off the January 31, 2016, exchange rate, so this is subject to change in either direction in the event of a material change in FX. We took our preliminary 2015 adjusted EBITDA and added back the balance of the contribution of the 2015 acquired businesses to get us to a 2015 pro forma adjusted EBITDA of $742 million. We expect an approximately $35 million headwind from translational FX impacts, primarily in the first half of the year, as we have not yet annualized some of the massive devaluations we saw against the U.S. dollar primarily in the second half of 2015. Next, we expect to see a smaller but still meaningful increase in corporate cost in 2016. Part of this is the full year impact of hires we made in 2015. The rest is a few other initiatives primarily IT-related that we are working on in the business. I will provide more detail on those as we see them ramp up in the year. The final 2 buckets, we should understand well. The estimated $40 million of synergies that Ben just took you through, which we think is a very achievable number even in this tepid environment, and organic growth, which we are confident is still viable, albeit lower than our expectations from these businesses in the longer term. Even as we focus on baseline integration and organization, a key priority for us remains organic sales growth. So even in the tough environment we are in, we are targeting low single-digit growth across our businesses by leveraging some product expansions and niche market offerings. Finally on this page, we wanted to lay out some of the major below EBITDA line cash uses. This has been showed both for modeling transparency but also to highlight the importance of cash flow to us. The important thing to point out here is that we are prioritizing initiatives to reduce these cash flows in the future. We believe CapEx synergies exist for the combined business but will take some time to materialize. The benefit of our facility rationalization plan is also a real long-term opportunity. Tax is also an area where we are continuing to dedicate significant attention and resources. We had a complicated tax ownership structure that will take time to rationalize but represents a significant annuity upside once we do. Hence, it is a great priority personally for me. As you can see with these numbers, if we deliver adjusted EBITDA in the guidance range, we believe we should generate a meaningful amount of cash flow this year. As mentioned so many times earlier in the presentation, a key short-term use of our free cash flow remains a reduction in our leverage. We have been getting a lot of questions from investors on both our capital structure and covenants. The next 2 slides address these subjects. Page 18 lays out on our current capital structure and demonstrates the fact that we have no significant debt maturities until 2020. As of December 21, Platform's net debt was $4.92 billion, which includes $432 million of unrestricted cash. First lien net debt was $2.9 billion and our newly upsized $500 million revolver at year-end 2015 was completely undrawn. Although the amount of our debt is larger than the 4.5x net debt-to-adjusted EBITDA, our long-term goal, I want to assure everyone that we are very comfortable with our ability to operate the business with this amount of leverage. We have significant liquidity from our revolver and our balance sheet cash. And as I alluded earlier, we expect meaningful cash flow generation in 2016. All of our businesses require little maintenance capital and convert significant amounts of adjusted EBITDA to free cash flow. Furthermore, we intend to use cash flow we generate to help continue to reduce this debt balance over time. Debt pay-down, operating balance sheet management and earnings growth will help us reach our leverage targets. We have shown you full capital structure, including the Series B preferred obligation in Q2 2017. As announced on our Q3 call, we have a payment extension at our option to postpone the majority of the note from October 2016 to April of 2017 at a cost of $4 million per month from the time of the extension. That being said, we understand the overhang the Series B note creates on all our other securities, and we would like to resolve the make-whole sooner rather than later. We have ample liquidity to handle the current make-whole value and quite a bit of optionality around resolving it. Furthermore, as we execute against our 2016 plan, the cash liability may be lower in the next several quarters than it is today. We have about $430 million of cash on the balance sheet and expect to continue to generate positive free cash flow in 2016. Given the existing liability in already issued shares, we expect that any action we take to resolve the maturity will be a positive for our balance sheet. Page 19 provides a quick review of the covenants in our capital structure. The only maintenance covenant, which was amended in conjunction with the closing of the Alent financing requires a certification, that quarterly certification that we not lever higher than 6.25x on a first lien debt to covenant basis. The calculation of our covenant EBITDA allows us to take credit up to 15% cap for estimated synergies that we have announced but not yet in our results. So as long as we take actions to achieve the savings within 12 months, on this basis, as you can see on the chart, our last 12 months' covenant EBITDA is calculated at $854 million and puts us at a net first lien leverage of 3.44x. We have 2 relevant incurrence-based covenants as well. I'll just cover the first one and we can explain the second one in Q&A. The first is a 4.5x gross first lien debt covenant. This covenant limits our ability to raise first lien debt of above the 4.5x EBITDA level unless we are able to show that we will still satisfy a 2x FX charge coverage. It is not a hard limit at 4.5x. But if we go above it, the fixed charge test applies at the time we've got the debt only. We are levered at 3.94x on a gross first lien basis. To summarize the 2 charts, as noted earlier, we have no meaningful debt maturities until 2020 and we are focused on using cash flow to reduce leverage over time. Our capital structure allows for that. In the meantime, we enjoy ample operating flexibility. Before I turn it back to Rakesh for closing comments, I wanted to quickly review on Page 20 our Q1 2016 outlook. We expect Q1 2016 to come in below our pro forma Q1 2015 performance. To further help you, in the appendix on Page 25, we have laid out 2015 on both a pro forma and a constant currency basis. So year-over-year, decline is mostly expected out at ag solutions and corporate as discussed on the page. Although lower than prior year, it is important to note that this current outlook is consistent with the $725 million and $775 million guidance range we have provided. Nonetheless, we thought it was very important to give you some perspective on how the quarter is turning out. This should hopefully help your models, too. Now it is my pleasure to hand it back to our new leader, Rakesh, for a discussion of 2016 priorities before we all take Q&A. Rakesh, over to you.

Thank you, Sanjiv. We have covered a lot of material today, so I'll be brief with closing. And as you can see on Page 21, as we look forward to 2016, our priorities are pretty clear. We want to continue our successful integration, realize synergies while maintaining a focus on the commercial aspects of the business. We want to exploit the attractive niche growth markets in which we play and think about attractive adjacencies to drive organic growth and find an operating rhythm for the businesses. In 2015, we suffered from a lot of corporate distractions. We need to limit those and focus our effort on operations. Lastly, we want to generate free cash flow. We are focused on asset-lite, high-touch businesses because they have extremely attractive cash flow characteristics. And in getting back to basics, we need to focus on our fundamental principles and cash flow generation as chief amongst them. So with that, operator, please open the line for questions.

[Operator Instructions] Our first question comes from the line of John Roberts of UBS.

It sounded like the adjusted EBITDA in the first quarter for performance materials will be relatively flattish, plus, minuses. And it was down 6% on the same basis in the fourth quarter, I think, year-over-year. So that seems like a pretty big sequential slip in the comps. Maybe you could comment on that.

Again, we don't want to get too specific, John, on the puts and takes. But if you look at some of the dynamics in the Asian market in Q1 and some of the trends that we are seeing overall, I think we felt pretty comfortable making that comment to you. I want to avoid giving you specific numbers on how that would all play out. Overall though, we are about $10 million of headwind just from FX. But even after adjusting for that, we expect it to be lower for all the matters I stated, I think the run rate on ag, and then the full impact of the increased spending on corporate.

Yes. But this was all, excluding FX, I think performance materials again was down 6% in the fourth quarter and the guidance is sort of flattish year-over-year in the first quarter pro forma. I was thinking that maybe it was significant inventory adjustment at year-end maybe that happened and now that's over, and so that's why the pop-back?

I don't think so that is driving it. I think there are some activity Asia is driving it and our continuous improvement in our performance in the industrials business.

They also have some synergies clocking in, in Q1on that side of the business.

And then on the ag segment, again the fourth quarter was plus 1% in sales on a constant currency basis. And it would have been a little higher excluding the inventory adjustment. And EBITDA growth was 6% that you've commented, excluding the inventory adjustment. That seems like just phenomenally strong performance, given all the other stuff we've seen in ag.

Yes. So that's right. So it was 6%, John, in Q4. And as you heard me say, it was a growth of 3% for the full year, excluding -- on a constant currency basis. So I think the ag business has done a tremendous job in Brazil, as I said, in offsetting the FX issues. We've had a great run with our herbicide products that we've been selling in Latin America. And the synergies that we've got were in excess of what we all thought we would get from the ag business. So I think it's a combination of getting the integration synergies, doing the right things what we did in Latin America. And because I think we have more exposure on specialty crops and not just generally on row crops, I think it has given us the ability to grow our sales even in a very tough market. I can turn it over to Diego to see if he wants to add anything. He's on the phone and talk about the ag business.

Okay. Thanks, Rakesh. I have to say, first, I mean, I'm truly excited to be part of the new Platform management team. I have followed Arysta, Chemtura and Agriphar in the past from the sidelines, of course, but it's a great opportunity to lead the combined business. Nothing really meaningful to add to what Rakesh said. I think the fourth quarter, you see many measures kicking off. For example, price adjustments in LatAm, especially in Brazil. You see synergies, of course, developing and having more impact, let's say, later in 2015. So overall, a great performance from the team. And I believe with this starting point, we will profit also in 2016.

And our next question comes from the line of Jon Tanwanteng of CJS Securities.

Can you give us a snapshot of how the acquired Alent business is doing heading into 2016? And how much of the depreciation in the pound affects the year-over-year performance there?

So Jon, I'm going to turn it over here in a minute to Scot. But I can tell you that we are very excited with what we have seen so far with Alent. Scot and his team have done a great job of integrating the businesses. We have announced the new organization, we have established leadership. And I think what we are beginning to see are opportunities that exceed what we've got when we were going into the acquisition of Alent. I'll turn it over to Scot, who runs our Performance Solutions business, to give you some more specifics.

Yes, thank you, Rakesh. Jon, yes, to follow up on Rakesh's comments, we are extremely excited about the progress we've made as it relates to understanding the Alent business, and then integrating the management team. Other than the senior executives at Alent, we have pretty much retained most of the senior management and they are integrated in with our team. And it's going incredibly well. The similarities between the 2 companies in how we operate within the markets has been much more similar than dissimilar, so that's been very exciting. And the businesses are truly even more complementary to each other than we had anticipated going in. So we think we have a tremendous opportunity from a share gain and market penetration perspective going forward and are really, really happy about the way the commercial and research teams have come together in these initial couple of months. So we really couldn't be happier about where we are today.

Got you. Any commentary on the pound exchange rate?

None from me.

I can take that, Scot. We do have sterling exposure. And the way we are structured right now, some of the businesses do go through the U.K. balance sheet, to the extent that the U.K. exchange rate continues to be challenged as it has been in the last 2 or 3 weeks, that will have some impact on us. But I think one needs to step back, and Alent is probably not as good at it than MacDermid, we do have mostly material offsetting. So sales and costs are more or less offsetting each other in most of the major geographies that we operate in. But you're right, if the sterling continues to weaken, we will hurt. Ben, did you want to say something there?

Yes. I would just say if you look at the FX page I covered on the presentation, you'll note that the sterling isn't among our top 5 currencies. It's less than a 5% impact. So while Alent was a U.K.-based company, most of its earnings were actually in the U.S., Asia and Europe in euros. So the pound itself isn't a material headwind.

Got it, that's helpful. And then can you just comment on the ability to extend the Series B preferred out longer than perhaps the April 27 date?

Should I take that, Rakesh?

Sure, if you want. Yes, go ahead, Martin.

Look, very simply, Permira and Platform had the same mutual interest. Frankly, we don't really want to have it extend it anymore than beyond April of next year. In fact, we'd like to, as we said earlier in the prepared remarks, end it up sooner rather later because we see it as an overhang on the stock. But having said that, we needed to extend it. That would be a conversation with -- I'd probably have with Permira. I just don't think that, that's something that we want to do or contemplate at this time.

Our next question comes from the line of Duffy Fischer of Barclays.

A question for Rakesh. As you've come in, you've been in the seat for a couple of months now, how comfortable are you -- or I guess how much have you been able to vet of the company? And the question I get a lot is a situation similar to the oversupply in the North American ag business, how -- are we not worried that there could be other instances like that, where a predecessor company may be oversold or stuff the channel a little bit before it was sold? How much of the company have you in your short time kind of been able to vet and kind of give a seal of approval to?

So as you pointed out, I've been in the company 2 months and I've been, I can say, drinking from a fire hose. I've spent probably more time on the ag side because it's been a very dynamic marketplace. So I spent a lot of time in Latin America. In the brief time I've been there, I was in Brazil. I spent a lot of time with Diego. As you pointed out, North America is where we've had probably the biggest headwinds. But it's also the smallest of all our regions in the ag business. So our biggest region is Latin America, followed by Europe. And I would say both those businesses are doing well. Fundamentally, the folks, and I had a chance to not just to meet the people in Brazil but met with the country managers of most of the countries in Latin America, there's guarded optimism with the way we are selling our products. We have developed this concept of taking a broad portfolio in the ag side. It's not just conventional crop protection chemistries. We are putting those together with seed treatment, with biosolutions, where we clearly have a leadership position. I think we are nimble. When you look at a company like ours, like Arysta, and say how are we different from the rest of the folks, I think we're very quick with our customers. Over the years, I have learned that if you're responsive to the customers, you can win even with the big guys. And I think that's what's happening. I think we have a focus on niche products -- on niche crops. I think we have got the right products, we are offering solutions. So from what I've seen, just to answer your question, I feel cautiously optimistic of what's happening in Latin America, what's happening in Europe. Obviously, North America is a little bit of a wildcard. And it's one where -- I know Diego, of course, is spending all his time in all the regions. But he's spending a disproportionate amount of his time on what we are going to do in North America. So I can turn it back to Diego. Diego, do you want to add anything on the...

Yes, what I can add, Rakesh, I mean, you said it, I mean, a stronger customer focus. I mean, what does it mean in North America specifically? What we are doing there is we're changing from a push strategy to a pull strategy. So really generating demand at farmer level. And despite the consolidated distribution structure in the U.S., making sure that customers are knocking on the door of our distributors and asking for our product. So yes, there is a destocking aspect on high inventories that we found in the channel. But I see a huge opportunity in really replicating the same strategy we're running in other regions of generating demand and focusing on specialty niche segments on our portfolio of innovative products.

Okay. And then if we just flip to your Slide 17, where you have the cash uses, so you can kind do an EBITDA walk. With what you've given us, that would kind of leave $150 million to $200 million of free cash flow. Are there any other cash calls on that money other than the deleveraging story?

I think, Duffy, as we continue to grow the business in ag, we might have some working capital calls. Clearly, working capital management is a key priority and Rakesh is very focused -- is focusing the whole team on that as a priority. But that could be a call on cash flow. And then to the extent that we spend some money on exploiting the synergies, that could be. But I think we wanted to be very transparent and lay these out, these are all markers. Our goal is focused on doing better than the numbers we've given you. So these are all very tangible ways by which we can improve our cash flow.

Our next question comes from the line of Aleksey Yefremov of Nomura Securities.

Just a follow-up on free cash flow. Could you comment what is the level of this working capital investment that you expect in 2016? And do you have a general guidance for free cash flow for this year or if not free cash flow, maybe the level of debt pay-down that you expect in 2016?

Yes, so again, this is Rakesh. On working capital, we have a lot of working capital in the business, and we are going to be looking at ways -- even though we will have growth, I think our goal is try and clearly keep investment in working capital to a minimum, if not actually even getting cash out of it. We're doing some creative things in Latin America. We are doing factoring. We have very successfully done that. We are watching our terms very closely as our bad debt has been extremely well managed. So I think the leakage in working capital, to answer your question, hopefully we're not going to have working capital as a place where we put a lot of money in 2016. We are also going to look at our CapEx, which we are. We're giving guidance of $100 million to, I think, $125 million.

Correct.

But we're going to take a look at that. Outside of that, there's really no other cash requirement other than to paying down debt in the business. And the one area that we're going to look at, where hopefully we'll be more efficient, is on cash taxes. So you haven't asked the question about cash taxes. We have -- the way we are structured today as a company with the legal entity structure, we shouldn't be paying the amount of cash taxes as we do. And we are going to find a way as part of our tax planning process to reduce that. So if anything, that might become a tailwind, but we are not declaring victory as yet.

And switching to crop protection, you provided us numbers about your FX headwinds in 2015. But if you look at your level of prices in Latin America or in Brazil specifically at the end of the year, did you nearly catch up with FX changes at the point? Or would you need to raise prices further to kind of reflect the current foreign exchange?

So there's always a little bit of a lag in terms of -- because in Latin America, we have prices that are tied to the U.S. dollar, but we also have local pricing that indirectly we can raise prices because the farmers there, the growers are actually exporting in dollars. As difficult as it is, they always take the time to give us the increases. We had, I believe, close to 70% of our FX mitigated last year in Latin America. We are going to continue to look at pricing opportunities as we go into 2016. And that's something that we don't comment too specifically because it's a comparative piece for us. But you can be rest assured that Diego and his team are looking at every possibility of pricing opportunities both on the customer side. But as I said, we're also looking at pricing opportunities on the supply side as well, right?

And a final question if I may, switching to electronics and destocking at Alent and to some extent at MacDermid. Do you see the end of this destocking in the first quarter or first half of 2016?

Yes, this is Scot. Yes, that was an event that took place at a major channel partner in the damascene copper space that began early in '15. And we think that they have right-sized their inventory now. So we don't anticipate headwinds from that in '16.

Our next question comes from the line of James Sheehan of SunTrust Robinson.

Guys, could give a sense for what you expect your net debt-to-EBITDA ratio to be at the year-end 2016?

We don't want to get specific. Clearly, capital allocation is something we are good at. Under the leadership of Martin, the board is really focused on it. So I can't give you a specific number. I want you to have just 2 takeaways. Our long-term objective remains 4.5. But most importantly, we are very comfortable operating with a much higher leverage, not only from a covenant point of view but from an operating flexibility point of view. So I don't think we're going to give you a specific target for year-end.

But it's not hard for you to figure out. I mean, we have $4.9 billion of net debt. You know what, we've given you an EBITDA guidance for the year. And you know how much cash we are likely to generate. In fact, hopefully we'll generate more than what we are guiding with, so you can quickly figure out. It's going to take some time to get to the 4.5. We are not going to get there by the end of this year, but that was never the plan.

On the Ag Solutions business, could you give us a sense for some of the subsegments of the business, the regional, the value add and biosolutions? What kind of growth rates are you baking into your expectations for the year?

Let me ask Diego to step in and answer those questions.

Yes. So I mean, obviously, our focus is strongly on niche segments. I mean, biosolutions is one of those. The biosolutions market growth is at a much faster pace than other segments in the ag business. Now overall, if you look at the market in 2016, the expectations, and you see that there are some estimations already out there, we talked about an overall market that is -- will be down in the single digits in 2016. However, these markets are expected to grow faster than the average of the market. So we will certainly profit out of that. We have growth expectations in LatAm. We have growth expectations in Eastern Europe. We are also expecting to continue to grow in Africa. All in all, I think we're well positioned to grow on a constant exchange rate level in 2016.

And our next question comes from the line of Lauren Gallagher of Crédit Suisse.

On the preferred, you've obviously mentioned that you are interested in potentially settling it sooner rather than later. I guess a 2-part question. One, would you anticipate not extending this beyond -- the preferred beyond October's maturity? And second, any kind of thoughts on how you think about going to settle it from a cash perspective at this point?

Yes. Well, as we said, we've already extended it to April of next year.

At our option.

As I've said, our option. And as Martin said, we look at opportunities to try and get that overhang behind us. But always, we always have the option and are able to probably negotiate if we want to extend that. But we'll be looking at what we might want to do even ahead of April 2017 on the note.

And one comment I would make, Lauren. Despite the overhang it may have in terms of sentiment, it is not in any way impacting our operating flexibility. There's not a single decision we have taken which has been impacted by this. We are operating and focused on what I call back to the basics.

So just to clarify, you already have chosen to extend it from October to April?

No. To be clear, it's at our option. So why would we make that decision today?

Yes.

And then I guess kind of a follow-up, do you anticipate using some of your secured capacity to settle the cash components?

Again, Lauren, as I've said...

Can I start? We haven't made any decision. And when we've made a decision as to what we're going to do, we'll let everybody know. But at this point, we have full flexibility on how we deal with that note. So why would we give up any of our flexibility? So we're just going to keep all of our options on the table. I think that's the only way we can fairly describe to you because we don't want to say we're going to think about doing something in one way and do it in a different way, and then be told we misled anybody. We're keeping all our options on the table.

Okay, understand. And then a follow-up or a question quickly on the synergy targets. Obviously, you continue to kind of keep faster realization on the outside. Is there any chance you kind of increase that synergy target at some point throughout '16?

We're executing well against our synergy targets. If we have reason to believe we'll do far better, we will certainly communicate that with the market. In the meantime, those numbers remain unchanged.

And I'm showing no time for the question-and-answer session.

Great. Well, thank you, everybody, for being on the call.

We'll see you in a couple of months. Thank you all.

Ladies and gentlemen, thank you for participating in today's conference That does conclude today's program. You may all disconnect. Have a great day, everyone.