FMC Corporation (FMC) Q4 2020 Earnings Report, Transcript and Summary

Good morning. And welcome to the Fourth Quarter 2020 Earnings Call for FMC Corporation. This event is being recorded and all participants are in listen-only mode. [Operator Instructions] After today’s prepared remarks, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Mr. Michael Wherley, Director of Investor Relations for FMC Corporation. Please go ahead.

Thank you, and good morning, everyone. Welcome to FMC Corporation’s fourth quarter earnings call. Joining me today are Mark Douglas, President and Chief Executive Officer; and Andrew Sandifer, Executive Vice President and Chief Financial Officer. Mark will review our fourth quarter and full year performance, and provide our outlook for 2021 and the first quarter. Andrew will provide an overview of select financial items. Following the prepared remarks, we will take questions. Our earnings release and today’s slide presentation are available on our website and the prepared remarks from today’s discussion will be made available after the call. Let me remind you that today’s presentation and discussion will include forward-looking statements that are subject to various risks and uncertainties concerning specific factors, including but not limited to those factors identified in our earnings release and in our filings with the SEC. Information presented represents our best judgment based on today’s understanding. Actual results may vary based upon these risks and uncertainties. Today’s discussion and the supporting materials will include references to adjusted EPS, adjusted EBITDA, adjusted cash from operations, free cash flow and organic revenue growth. All of which are non-GAAP financial measures. Please note that as used in today’s discussion, earnings means adjusted earnings and EBITDA means adjusted EBITDA. A reconciliation and definition of these terms, as well as other non-GAAP financial terms to which we may refer during today’s conference call are provided on our website. With that, I will now turn the call over to Mark.

Thank you, Michael, and good morning, everyone. Let me start by saying the fourth quarter was an unusually difficult one for our company and we are disappointed in our earnings results. We exceeded the midpoint of our guidance on EPS and EBITDA for a long stretch of quarters, principally because of the strength of our portfolio and our geographic balance, combined with strong execution in the face of extreme weather events and significant industry specific supply chain disruptions. This quarter was an anomaly and we will be as transparent as always to explain what happened. We experienced significant logistics and supply chain constraints in the U.S., reduced demand in the U.S. on some lower value herbicides, lower demand in Brazil and Argentina following the drought-related delay to the start of the season and products that were held up in Argentine customs. On the positive side, we saw strong growth in EMEA and once again broad growth in Asia. We had a very strong quarter from a cash flow perspective, which led to full year free cash flow of $544 million, an 80% increase over 2019. We also posted very solid 2020 overall results despite numerous challenges related to the COVID-19 pandemic and $280 million in revenue headwinds from foreign currencies. Our organic revenue growth was 7% and our 2% EBITDA growth shows how aggressively we manage costs and implemented price increases to offset as much of that FX headwind as possible. The guidance for Q1 reflects our view of the environment in Brazil, as well as continued logistics and supply chain disruptions occurring around the world. We believe these COVID impacts are perhaps as severe as at any point over the last year. In addition, our very strong Q1 2020 makes this quarter year-over-year comparison a particularly difficult one. All of FMC’s manufacturing facilities and distribution warehouses remain operational and fully staffed despite the ongoing pandemic. However, one of our U.S. toll manufacturers was disrupted in Q4 because of COVID-related staffing issues, illustrating just one of the ongoing business risks during the pandemic. We successfully completed the implementation of our new SAP system in November. We now have a single modern system across the entire company for the first time in our history, which is enabling significant efficiencies in our back office processes. And finally, we gave a thorough technology update to investors on November 17th, highlighting the increasingly positive impact in new synthetic and biological active ingredients will have on our business over the next decade, and the ways in which we are driving to be the leader in crop protection innovation. We plan to launch seven new active ingredients and four new biologicals this decade, which we expect will contribute a combined $1.8 billion to $2.1 billion in incremental sales by 2030. We recently announced a new collaboration with Novozymes, a world leader in enzyme discovery and production to research, co-develop and commercialize biological enzyme-based crop solutions for growers around the world. This adds to research collaborations and partnerships signed in 2020 with Zymergen and Cyclica, and continues our trend of investing in new and innovative technologies that will enhance our long-term competitiveness. Turning to our Q4 results on slide three. We reported $1.15 billion in fourth quarter revenue, which reflects a 4% decrease on a reported basis and 2% organic growth. Despite those headwinds, we posted double-digit sales growth in Asia, led by India, China, Japan and Australia. And in the EMEA with double-digit growth across a broad set of countries. Adjusted EBITDA was $290 million, a decrease of 9% compared to the prior year period. EBITDA margins were 25.2%, a decrease of 150 basis points compared to the prior year. Adjusted earnings were $1.42 per diluted share in the quarter, a decrease of 19% versus Q4 2019. This year-over-year decline was primarily driven by the decrease in EBITDA, an increase in tax rate compared to the very low tax rate in Q4 2019 and slightly higher D&A, partially offset by lower interest expense and lower non-controlling interest. Moving now to slide four. Q4 revenue decreased by 4% versus prior year, driven by a 5% FX headwind and a 3% volume decrease. Price increases contributed a positive 4% impact and offset 80% of the FX headwind, the highest in the past few quarters to deliver a positive 2% organic growth. Volume growth in EMEA and Asia was more than offset by weakness in North America and Latin America. Sales in EMEA increased 45% year-over-year and 42% organically. We saw particularly strong demand for Rynaxypyr insect control applications for specialty crops, as well as herbicides for cereals, especially in France, Spain, Russia and Germany. We also had significant growth in the U.K. as customers secured orders in advance of Brexit. In Asia, revenue increased 11% year-over-year, driven by broad volume growth in India, China, Japan and Australia. India saw a strong demand in rice and pulses in the south and in sugarcane in the north in addition to the growth from our recent market access expansion activities. Last earnings call, we highlighted India as a key pillar of growth in Asia and the strength we saw in Q4 exemplifies this potential with India growing over 25% organically in the quarter. China saw a robust demand for diamide insecticides and fungicides on fruit and vegetables. Growth in Australia was driven by demand in herbicides for cereals and oilseeds, while Japan’s strength came from a variety of insecticides. Moving now to Latin America. Sales decreased 9% year-over-year, but grew 4% excluding significant FX headwinds. Pricing actions across the region offset about 50% of the currency headwind in -- at the earnings level in Q4, substantially more than in the prior two quarters. The Brazil season was delayed by at least 30 days due to hot dry weather and this delay meant many numerous crops misapplications that will not return. The drought persisted throughout Q4, resulting in lower than expected decline across many crops and it also impacted Argentina and other countries in the region. For Latin America overall, we estimated the drought reduced sales by about $30 million. In Argentina, we also had about $10 million of products held in bonded warehouses that was not released by customs officials in a timely manner. Although, these factors reduced Q4 growth in Argentina, 2020 was still our best year ever for the country. In North America, sales decreased 34% year-over-year, roughly $40 million of this decline was due to supply chain disruptions, including COVID-related factors associated with logistics and a toll manufacturing partner, impacting our ability to meet demand late in December. An additional $30 million of the decrease was due to reduced volume and some lower value pre-emergent herbicides. Our newer herbicides such as Authority Edge, Authority Supreme and Anthem MAXX continue to add value and grow well. We should also note our biologicals business had a very strong Q4, with sales up in all regions by at least a high-teens percentage, including very strong sales of Quartzo in Brazil and successful launches of Accudo in EMEA and At-Plant and MSDS [ph] in South Korea. Turning now to the fourth quarter EBITDA bridge on slide five. We had a $50 million contribution from higher pricing, which was nearly double what we realized in Q3. We also aggressively managed costs to offset nearly all the $30 million year-over-year headwind we had had anticipated. However, the FX headwinds were more severe than expected and the light volume misses in North America and Latin America were too large to overcome. Moving to slide six for a view of our full year results. We reported $4.64 billion in revenue, which reflects a 1% increase on a reported basis and a 7% organic growth rate. Adjusted EBITDA was $1.25 billion, an increase of 2% compared to 2019 even with nearly $270 million in headwinds from FX. EBITDA margins were 26.9%, an increase of 40 basis points compared to the prior year. 2020 adjusted earnings was $6.19 per diluted share, an increase of 2% versus 2019. This increase was driven by the increase in EBITDA, as well as lower interest expense and lower share count, offset partially by a higher tax rate compared to the very low tax rates in the prior year and higher D&A. Turning to slide seven for some of the drivers behind the full year revenue growth. Overall, volume contributed 4% to revenue growth, while price increase sales by 3%, about $50 million of the 2020 revenue growth came from product launches within the year. In Asia, sales increased 6% year-over-year and 9% organically. Market expansion and share gains in India coupled with a very strong market rebound in Australia were the primary drivers. Our diamides were in high demand throughout the region in 2020, as we continue to grow in specialty crops such as rice and fruits and vegetables. Sales in EMEA grew 4% versus 2019 and 6% organically. Demand was driven by diamides on specialty crops, Battle Delta herbicide on cereals and Spotlight Plus herbicide on potatoes. Latin America posted a 1% year-over-year revenue growth, but high single-digit volume growth and solid price increases led to 17% organic growth. Brazil had robust demand for our products for soybeans and sugarcane, while there was reduced demand acreage for cotton. North America sales decreased 8%, as we had channel destocking in the first half and then a tough Q4 as described earlier. Of note, the Lucento fungicide launch had a strong second year and Elevest insect control had a good launch year. Moving to slide eight where you can see our full year EBITDA bridge. Volume contributed 9% to the growth, while a combination of stringent cost controls and price increases offset 70% of the impact of foreign currencies. Turning now to slide nine and a look at the overall market conditions for 2021. We expect the global crop protection market will be up low-single digits on a U.S. dollar basis. Commodity prices for many of the major crops are higher and stock-to-use ratios have improved compared to this time last year. All regions are seeing some benefit from better crop commodity prices, while the impacts from COVID on crop demand appear to be lessening. Growth in Asia was expected to be in the low to mid-single digits driven by India, Australia and ASEAN. Favorable weather should contribute in many countries. The weather-related recovery in Australia is expected to continue. The other three regions are each projected to grow in the low-single digits. Growth in the Latin America market will be strengthened by price recovery from FX headwinds from 2020 in Brazil, continued strength in the soybean market and increase of fruit and vegetable exports from Mexico and more normal weather patterns that are forecasted across the region. In the EMEA market, we are seeing a solid market for cereals and specialty crops, which should be helped by improved weather in several parts of the region. The market in North America is projected to have a firm foundation from crop commodity prices, but we are seeing a trend of distributors and retailers looking to strategically reduce their own inventory levels. The specialty crop market is stable, but a more significant change in demand will depend on the pace of the economic recovery. Taking all the above into consideration, we view 2021 as a more positive ag macro environment than we did this time last year. Having said that, we are all too well aware of the potential disruptions that COVID and weather could cause in any one quarter. Turning to slide 10 and the review of FMC’s full year 2021 and Q1 earnings outlook. FMC full year 2020 earnings are now expected to be in the range of $6.65 per diluted share to $7.35 per diluted share, a year-over-year increase of 13% at the midpoint. Consistent with past practice, we do not factor in any benefit from planned share repurchases in our EPS estimates. 2021 revenue is forecasted to be in the range of $4.9 billion to $5.1 billion, an increase of 8% percent at the midpoint versus 2020 and 9% organic growth. We believe the strength of our portfolio will allow us to deliver this organic growth, continuing the multiyear trend of above market performance. EBITDA is expected to be in the range of $1.32 billion to $1.42 billion which represents a 10% year-over-year growth at the midpoint. Guidance for Q1 implies year-over-year sales contraction of 7% at the midpoint on a reported basis and 5% organically. We are forecasting an EBITDA decline of 15% at the midpoint versus Q1 2020 and EPS is forecast to be down 18% year-over-year. Turning to slide 11 and full year EBITDA and revenue drivers. Revenue is expected to benefit from 7% volume growth, with the largest growth in Asia and a 2% contribution from higher prices. FX is forecasted to be a 1% top line headwind. We are expecting growth -- broad growth across all regions. Asia has the best overall fundamentals, but we are also seeing the benefit of better weather in Europe, strong soybean outlook for both Latin America and North America, and a cotton recovery in Brazil next fall. Because of these factors, we are expecting a very strong second half of 2020 -- 2021 relative to the first half. New products such as Overwatch herbicide in Australia based on our Isoflex active and Xyway fungicide in the U.S. are expected to make meaningful contributions. And we are also launching Fluindapyr fungicide in the U.S. for non-crop applications. We are forecasting a strong year for each of our product areas. In addition to continuing strength of Rynaxypyr and Cyazypyr insect controls, insecticide growth is also expected to come from products such as Talisman, Hero and Avatar. Herbicides should see growth in several of our top brands including Authority, Gamit, Riyata [ph] and Spotlight Plus in addition to the Overwatch launch. And growth in fungicides is forecasted to be driven primarily by the Xyway launch in the U.S. Our EBITDA guidance reflects strong volume and pricing benefits, offset partially by increases in R&D spending, as well as the reversal of some of the temporary cost savings from 2020. We are forecasting a $14 million increase in R&D to bring us to a level of funding that keeps all projects on a critical path to commercialization. Additionally, we are making growth investments in our pharma intelligence and other precision ag initiatives, new product launches like Overwatch, as well as FMC Ventures. We are also expecting some supply chain cost increases including logistics and pockets of raw materials. These headwinds will be partially offset by the realization of the final $15 million of SAP synergies, which will give us accumulative SAP synergies of approximately $65 million. Moving to slide 12 where you see the Q1 drivers. On the revenue line, volume is expected to drive a 6% decline, while a 1% contribution from higher prices largely offsets the FX headwind. We expect the benefit of approximately $25 million in sales from Q4, supply and logistics delays to be captured in Q1. This is about half of the Q4 impact. In the U.S., this mistiming limits what we can recoup and in Argentina ongoing customs delays in releasing products could cause us to misapplication windows. There are several headwinds in Q1 revenue that more than offset the flow through from Q4. First, we are facing a particularly difficult comparison in Latin America where sales increased 26% year-over-year and 38% organically in Q1 2020. Brazil’s cotton business was very strong for us a year ago. This will not be repeated this season as cotton acreage is down 15%. In EMEA, we are facing continued headwinds from discontinued registrations and the $15 million in Q4 sales related to Brexit that would normally have been sold in the first quarter. Regarding EBITDA drivers, reduced volume is the biggest factor, while pricing is forecast to offset the FX headwind. Costs are expected to be higher by $12 million, driven primarily by the increased R&D investments we mentioned earlier. With that, I will now turn the call over to Andrew.

Thanks, Mark. Let me start this morning with a few highlights from the income statement. FX was a 5% headwind to revenue in the quarter, as expected, with the impact of higher than anticipated local currency denominated sales in Brazil offset in part by a modest tailwind in the Eurozone. For full year 2020, FX was a 6% headwind to revenue. The Brazilian real represented the vast majority of the FX headwinds in 2020, followed by the Indian rupee, Pakistani rupee and a broad number of non-euro currencies in EMEA. Pricing actions offset slightly half of the currency headwinds in the year. Looking ahead to 2021, we expect a more stable FX environment, with only a slight headwind of revenues. We will continue to take pricing actions in Brazil to recover the FX impacts from 2020. But overall pricing will be somewhat dampened by price volume choices being made in our Asia business to drive higher growth. Interest expense for the fourth quarter was $34.2 million, down $8.7 million from the prior year period, benefiting from lower debt balances and lower LIBOR rates. Interest expense for full year 2020 was down $7.3 million from the prior year, with the benefit of lower interest rates, partially offset by changes in debt outstanding. Our effective tax rate on adjusted earnings for 2020 was 13.7%, well within our expectations and up from the very low 2019 rate, due to shifts in the geographic mix of taxable earnings and interrelated impacts on the U.S. minimum tax from foreign earnings. The tax rate in the fourth quarter was 14.4% to true up with the full year actual rate. Tax was a headwind to earnings in the quarter due to the very low tax rate in the prior year period. We expect our effective tax rate to be in the range of 12.5% to 14.5% in 2021 similar to 2020. Moving next to the balance sheet and liquidity. Gross debt at year end was $3.3 billion essentially flat with the prior quarter, with nearly $600 million of cash on hand. We chose to hold cash on the balance sheet in advance of the seasonal working capital build we see in the first quarter to avoid having to take on as much commercial paper in the beginning of the New Year. As such, gross debt to trailing 12-month EBITDA was 2.6 times at the end of the year, while net debt-to-EBITDA was 2.3 times. We are comfortable. We are in the right leverage range given the excess cash at year end. We do not expect to carry this level of cash on a steady state basis going forward. So you should expect cash balances to decline through the coming year. Moving to slide 13 and a look at 2020 cash flow and the outlook for 2021. Free cash flow for 2020 was $544 million with free cash flow conversion from adjusted earnings of 67%, both metrics up 80% from the prior year period. Adjusted cash from operations increased by about $170 million in 2020, with growth in working capital more than offset by lower non-working capital factors and increased EBITDA. Capital additions were down $60 million due to project delays and deferrals related to the COVID-19 pandemic. Legacy and transformation spending was down $14 million with relatively stable legacy spending and transformation spending lower as we completed our SAP implementation. We anticipate full year 2021 free cash flow to be in the range of $530 million to $620 million, an increase of 6% at the midpoint, with free cash flow conversion of 63% at the midpoint. Growth in adjusted cash from operations, and reduced legacy and transformation spending are expected to be partially offset by a significant year-over-year increase in capital additions. This increase in capital additions comes as we catch up on projects that were delayed or deferred in 2020 due to the pandemic. Turning to slide 14. We are pleased with our strong free cash flow growth and improvement in free cash conversion. There are number of moving parts in our 2020 cash flow results and 2020 outlook that merit some further discussion and we will help better explain this trajectory. 2020 free cash flow benefited from a planned real estate assets sale that will not repeat, as well as the unforecasted delay of a lump sum environmental liability payment we expected to be paid in December. Excluding these impacts, 2023 cash flow would have been about $500 million and cash conversion about 62%. Similarly, 2021 free cash flow is negatively impacted by the timing shift of the environmental liability payment. Adjusting for this timing shift, 2021 free cash flow would be about $600 million and cash conversion of 65%. So, on a more comparable basis, free cash conversion steps up from 38% in 2019 to 62% in 2020 and 65% in 2021, getting closer to our 70% to 80% target range for 2023. I note that this view of cash flow, we have not made any adjustments for the abnormally low capital additions in 2020 or the catch-up to a more normal level in 2021. But this shift is in large part the reason why cash conversion steps up more slowly in 2021, as the increase in capital additions largely offset the step down and transformation cash spending from the completion of the SAP program. You should expect the capital additions continue in a similar range to 2021 for the next several years to support our organic growth including new capacity to support new active ingredient introductions. Equally as important as growing our free cash flow is the discipline with which we deploy it. As you can see on slide 15, we continue our balanced approach to cash deployment. We are fully funding our organic growth and making modest inorganic investments to enhance our growth. We are then returning the excess cash to shareholders through dividends and share repurchases, while keeping debt at our targeted leverage levels. In 2020, we deployed nearly $350 million of cash flow, while maintaining excess liquidity throughout the pandemic. We deployed $65 million to acquire the remaining rights to the fungicide Fluindapyr. We paid nearly $230 million in dividend and we repurchased $50 million in FMC shares in the fourth quarter. In 2021, we expect to accelerate cash deployment. We are planning to repurchase between $400 million and $500 million worth of FMC shares in the year, with purchases in every quarter of the year that more heavily weighted to the second half. We expect to pay dividends approaching $250 million and we will continue to look for attractive opportunities to make additional modest inorganic investments to complement our organic growth and expand our technological capabilities. I’d like to close with a final update on our SAP S/4HANA ERP system implementation. We had a successful last Go Live in November and are now operating on a single thoroughly modern system across the entire company thoroughly modern system across the entire company for the first time in our history. The Go Live went better than expected and we have smoothly transitioned to operating the company and closing the books in the new system. Our new SAP system has enabled significant efficiencies in our back office processes. We captured over $50 million in synergies in 2020 having moved aggressively to accelerate $30 billion in planned savings from 2021 to 2020. We now expect to deliver $15 million in SAP-enabled synergies in 2021, the benefit of which is reflected in our full year guidance for a total of $65 million in synergies from implementing the new system. There will certainly be additional efficiency gains in 2022 and beyond, as we further leverage this generational investment in our business process infrastructure. But we will drive them as part of our business as usual efforts to gain leverage on back office costs as we continue to grow the company. And with that, I will turn the call back over to Mark.

Thank you, Andrew. We had a number of issues in late Q4 that we are having to address. We do not expect all of them to be resolved in Q1. We do, however, see these issues as transitory and are focused on ensuring we can mitigate supply chain risks and continue to expand our market growth opportunities. As you can see from our robust 2021 guidance, we are confident that 2021 will be another year of strong revenue and earnings growth for FMC. We continue to renew our portfolio, launching two new important products in Q1. We continue to invest in our R&D pipeline and we remain fully committed to bringing new sustainable technologies to our customers. Our overall agenda on sustainability continues to advance with the recent appointment of our first Chief Sustainability Officer and through new partnerships like the one recently announced with Novozymes. We plan to return about $700 million to shareholders this year through dividends and buybacks. And finally with our 2021 growth rates above the long range plan, we remain firmly on track to deliver our five-year plan commitments. Before I close, I’d like to highlight the press release issued yesterday regarding Pierre Brondeau’s retirement as Executive Chairman effective April 27. I very much appreciate his leadership and look forward to his continued involvement as Non-Executive Chairman. I will now turn the call back to the operator for questions.

Thank you. [Operator Instructions] And the first question will be from Chris Parkinson with Credit Suisse. Please go ahead.

Hey. Thank you. To start, many of us have interpreted as a fairly cautious 1Q guide. You are maintaining your organic revenue growth despite some challenges. You won’t provide -- you won’t prided yourself on geographic balance and crop diversity. So, can you sit on the two to three highlights with growth this year? It seems like you are construct -- basically constructed on H1 and still cautious optimistic on certain regions in emerging Europe. So, any color to help us bridge and help investors sense weaker than expected 1Q versus what should be characterized as still a fairly strong year? Thank you.

Yeah. Thanks, Chris. Listen, it’s fairly obvious when you look at the release that what we have. We have a weak Q1 yet a very strong full year. And certainly from our perspective, when we look at what is going on in Q1, it does bear some relationships to what is happening in the second half of the year. And I will give you some color on that. First of all, when we talk about some headwinds in the quarter, you look at what is happening in Europe. We have headwinds from loss of registrations. It happens all the time. It just so happens that about 50% of the total revenue that is lost in the whole year occurs in Q1 in Europe and that’s just purely down to the types of products that are sold in Q1 and the timing. So that’s one element that that’s somewhat unique. I think the second one is really all around Latin America. We highlighted in the script that we had a very strong cotton business last year and it really was strong and this year it is lower. The acreage is down. We do have some lingering effects from the drought and missed opportunities. But that all rolls together very importantly and it’s something we -- that we didn’t highlight in the script but something that operationally we are managing very carefully. We are watching and managing inventories in Brazil very carefully. There is no way you go through a fourth quarter like we did with 30 days delay. I mean, put that in perspective. Soybeans take 110 days to grow. We had a 30-day delay. Now that means that some sprays get missed. Those products were already in the marketplace. They didn’t get used. We have told you many times that we manage inventories very carefully. We see that our inventories are elevated. They are nowhere near as bad as they were five years ago. But the industry is elevated as well. We are making a decision in Q1 to deliberately sell out of inventory and make no mistake we are selling nicely in Q1. EDI, our business on the ground is actually up year-on-year, but we are not replenishing those inventories. Why are we making that decision now? Because it makes the second half of the year and our position in the marketplace much stronger. We still want to recover price. We didn’t fully recover all the price in 2020. This reduction of inventory puts us in a much better position to get price increases in Q3 and Q4. Allied to the fact that we already see today that the industry is moving on price. There are many more companies signaling to the marketplace with lessons that are public that they are moving on price. We are doing the same. So it’s very deliberate. We could make a decision. We could sell and have a more normal Q1 in Latin America and particularly in Brazil in Q1 or we can reduce the sales today, sell out of inventory and have a much stronger season ‘21, ‘22. I think there are some other facets as well to the second half that we should highlight. Our growth in Asia is weighted towards the second half of the year. You have already talked -- we have already talked about India a couple of times over the last calls. India is very strong in Q3 and Q4. We expect that to continue. We have talked about investing in India to get us better market access in underrepresented regions of India. That continues and will bear fruit as we go through this year. A lot of different crops involve there, rices, pulse, sugarcane, fruit and vegetables. More importantly, as our market access grows, we are growing our herbicide portfolio as well, introducing new mixtures especially sugarcane, corn and soybeans. So India is expected to continue that very strong growth path in the second half of the year. Allied to the fact that, in the ASEAN region, we are seeing much better conditions in Vietnam and Thailand as we drive our rice business and our fruit/vegetables business. We are seeing Indonesia with much better weather conditions and again very similar to India, growing our market access in Indonesia to geographies where we are not present today, once again, insecticide sales and herbicide sales on a variety of crops. And then in China, we see continued momentum as we develop our Rynaxypyr and diamides business in China. And then, lastly, not only do we expect Brazil to be stronger in the second half given the moves we are making. Other parts of the region are doing very well for us. We continue to expect Argentina will grow. Our crop exposure is getting better. The portfolios we are introducing are better products there. In North America, frankly, with what happened in Q4, we should have a much easier comp in terms of our volumes. So we see that as a very key driver in Q4. And then, in Europe, we expect a strong Q3 on cereal herbicides. We are developing a nice position on cereal herbicides. You have heard me talk about Battle Delta. That’s a product that’s growing well. We had a very weak Q3 last year due to weather on cereals. So this year we expect much better conditions. You put all that together, you can see why we are much bullish for the whole year, but you can see why we have a very different profile, Q1 through Q3 and Q4. I know that’s a very long answer to a very simple question, but I think it’s worth getting it out there, because I am not surprised you asked that question first, Chris, but the reality is, we are setting ourselves up for a very strong second half of the year.

No. That’s very fair. As always thank you for color, Mark.

Thank you. And the next question will be from Adam Samuelson with Goldman Sachs. Please go ahead.

Hi. Thanks. Good morning.

Good morning.

Maybe following up on some of the color, Mark, you just gave in response to Chris, which is incredibly helpful. Just thinking about kind of how the fourth quarter played out. There was, I mean, you came short of kind of where the initial guide had been by about $55 million on EBITDA and I just want to clarify that the expectation is, given the timing you don’t necessarily get most of that back in 2021? And again -- and then maybe additional kind of, Mark, color that there was some dilution to distributors reducing inventory in North America and maybe just elaborate on that point a little bit would be helpful? Thank you.

Yeah. Thanks, Adam. Yeah. Listen, the first piece, I think, was saying, we are getting out of the materials that we had supply chain disruptions through. We are getting about half of that back in Q1. The reality is, listen, it’s a competitive world. Customers want to place orders. You deliver material. If you missed the delivery, some customers will wait, some won’t. And the reality is we did lose some sales. We consider that transitory. We don’t expect that to happen in Q4 next year. The team -- the commercial team will be working hard to recoup that position and we are very confident that the products that we have to deliver then will deliver. I think the comments on distributors and retailers in the U.S. We have watched this evolve over the last year or so. And as growers have faced lower income supply chains of being squeezed all, and I think, frankly, I think, many of us at our point in the value chain and distribution and retail are paying much closer attention to working capital. So the comments we are making are more broad based and it’s something we are aware of. We will work with our customers under these circumstances. It’s what we do, but we are highlighting it out there because we believe it’s a facet for the industry that needs to be highlighted, because everybody’s talking about strong commodity prices and how everything’s going to grow rapidly in the U.S. That may well be true in certain segments. But let’s not forget there is a value chain here that needs to make money and the balance sheets are important to many of our customers and that will get managed appropriately. So that’s why we made that comment, because we do see that trend of an increased focus on working capital and balance sheets.

Okay. That’s really helpful. If I could just sneak in a quick follow up. As we think about pricing over the course of the year, I guess, on one hand there’s some carryover pricing from the actions in Brazil and South America that you took in the second half. But it seems like the pricing side of things is going to be more back half weighted as well, I that perfect?

Yeah. I mean you think about we are entering once we hit Q3 we enter a whole new season in Latin America. That’s clearly where we are looking to recover most of the lag that we had in 2020. It’s normal. It happens from year-to-year. But we are very confident that we will get it. We do have pricing in the first half of the year. We have about a third of the total for the full year. It’s in the first half to the second half. But really it follows the seasons and Latin America is the big season. I like to some pricing in Europe as well, but mainly Latin America.

All right. That’s really helpful. I will pass it on. Thank you.

Thank you.

The next question will come from Stephen Byrne with Bank of America Securities. Please go ahead.

Yes. Good morning. So, Mark, you are 2021 outlook is at a low-single digits increase in most regions, your own organic revenue growth is near double-digit, high single-digit. I am curious to hear your view or on directionally how do you think about those estimates changed in the last six months. If we roll back six months, near month futures for corn, soybeans, wheat and cotton were all significantly lower. Corn may not be a big crop for you, but it’s nearly doubled in that much time. How would you say that is affecting the use of crop comps in 2021? Is this potentially increased application rates that would be driving that low single-digit market growth or is this potentially more tolerance to higher pricing that’s driving that, just curious to hear your views on the impact crop commodity prices?

Yeah. Thanks, Steve. I think our view over the last year has become more optimistic as we have gone along. We have been forecasting for the last few years sort of a flattish type market, and frankly, we have been pretty close to where the market has really finished up. You can tell by our organic growth rates and on revenue growth rates that we are above the top end of our five-year plan sort of numbers. So we do consider it a good year. Clearly, when you when you have strong commodity prices like we see, growers are going to spend money to protect the crops. They want the highest yields therefore they get the most value. So I think it’s going to be a combination of a couple of things. Price recovery in Latin America, as I said, is going to be important. The good news is Brazilian growers, Argentinean growers, the Mexican fruit and veg growers, they are all in much better shape than they were 12 months or 18 months ago. So they are feeling confident. We do expect to see acreage increase in Latin America on top of the good prices, so soy should be increased. We would expect cotton to bounce back quite considerably next year. So I think it’s going to be a more of a combination impact of price in Latin America and then really maximizing our customer’s ability to get the highest yields by using the better products. And frankly that’s why our diamides -- one of the reasons our diamides has been doing so well around the world is the fact that they do enhance yield and allow the growers to get that productivity. So bottomline for me, Steve, I think, we are more confident than we were 12 months ago. These growth rates are higher than we would have had 12 months ago for 2021 and we are confident that our grower’s customers are going to be looking for the best solutions to improve yield.

Thank you.

The next question is from Vincent Andrews with Morgan Stanley. Please go ahead.

Hi. This is Steve Haynes on for Vincent. I just want to ask the question on some of the COVID-related costs that are coming back. Can you quantify how much is coming back and maybe what the risk might be in either direction to that number?

Yeah. When we look at where we are today and we think about that $19 million of cost that we have year-over-year, we think roughly about $25 million to $30 million is really what we would call COGS increases. I was very deliberate in my comments that we do see disruptions and logistics costs that are higher than they have been at any time. You can go and look at any of the data out there and look at shipping rates. Shanghai to Rotterdam a year ago was about $1,700 a container. It’s now $9,300 a container. That is a real increase that we simply don’t control. We can try and mitigate it as much as possible. But there are real logistics costs out there that are starting to flow through many industries and this is not peculiar to our industry or even FMC. We hear about it and see about it in many of the industries. I think the other piece is, we are starting to see some raw material and active ingredient increases coming out of China. It would appear that parts of China and particularly the north have had supply constraints due to pockets of COVID and those are starting to ripple through. So we have been very careful on raw material costs, but we do believe we will see higher raw material costs not across the Board, but in pockets through 2021. So that’s how we kind of get to that $25 million to $30 million increase. It’s not broad based. It is more pockets of activity. But I do think you are going to hear more about it as more people get into the year and talk about their cost structures.

And our next question will come from Mark Connelly with Stephens. Please go ahead.

Mark, I was hoping you could give us an update on your diamide licensing and partnership projects. You have a whole lot of those. And also on what your capacity expansion plans and maybe tell us how your diamide portfolio performed in 2020?

Yeah. Sure, Mark. So, on the first one with the diamide third-party relationships, they are continuing to evolve. I think the last time I gave you an update we said we had about 40 to 41 agreements around the world. That number is up to about 50 today, so commercial teams are continuing to develop those local relationships, as well as some of the global relationships that we have. Diamide has grown very strongly as you and everybody else knows. Last year, I think, we finished just north of $1.8 billion in revenue in size, up from an initial $1.1 billion when we acquired the business. We -- I think the business grew in the mid-to-high single digits last year, closer to the high-single digits. On an organic basis, it would be even higher than that. We just don’t track it at the product level. So very successful. The registration side of this, I have talked about in the past and it continues to evolve. When I think about 2020 between Cyazypyr and Rynaxypyr, we had over 70 brand new registrations in the year and that is essentially driving you into new geographies. I think there’s something like 21 brand new crops added with those registrations. So those are crops that we have never been on before. So you can see why we keep that registration portfolio very close to half, because that’s one of the key drivers, not only do we have to keep the market access going, but we also have to get those brand new registrations. So from our perspective, we track it very closely. I could give you -- I will throw you some numbers out that that you may find interesting. In 2018, we had 106 Cyazypyr registrations around the world. We are now at 173 and then when you look at Rynaxypyr, we had 170 in 2018. We are not 250. So people often ask why does that matter? It gets you new access. It gives the commercial groups new markets to go sell against older chemistries that are out there. So I expect that growth rate to continue as we have said for many years as we go forward. At some point this year, probably, in the August call or, yeah, probably, the August call we will give more details around the third-party relationships, where are they going, what do they encompass. I think we always ask to our investor community. We talked about it in sort of a high level term. I think it’s time now that we have over 50 of these in place that we have to start giving some more granularity here.

Super helpful. Thank you.

And the next question will be from Laurent Favre with Exane BNPP. Please go ahead.

Thank you. Good morning, all. Mark, I have got a question on the phase outs. I think, historically, you have talked about 1% to 2% impact for a full year. I was wondering if 2021 is expected to be much bigger than that. And also can you talk a little bit about, I guess, the product categories, is it all in Europe for instance and any color on that would be helpful?

Yeah. Thanks, Laurent. We are forecasting about 2% headwind due to registration losses. Interestingly enough this year, last year was heavily focused on Asia and parts of Latin America. This year it’s roughly split 50/50 between Europe and Latin America. It’s a combination of some older insecticides and some older fungicides/herbicides. Nothing that’s really big, not like when -- in 2019 when we removed carbofuran, which was the bulk of what we saw the impact last year. This is more a myriad of smaller products. Some is deliberate on our side, cleanup of the portfolio, reducing that portfolio impact. But frankly there’s no major one. It’s -- I would probably say, six or seven different compounds spread across that 2%. I think that’s a fair rate. We have talked about roughly on average about a 1.5% drag due to registration or deliberate actions by ourselves. The last couple of years are pretty close to that 2% range. We don’t have a good view yet of 2022. Our regulatory team will be telling us what that looks like. But I think for your modeling, you should plug in about 1.5% to 2% sort of drag going forward on a longer term basis.

Okay. So it’s almost 4% for Q1 then? I guess that fit you all [ph]…

Okay. Yeah.

… or anything else?

Yeah. It’s much higher in Q1, because about 50% of the European impacts, which is roughly half of the 2% is in Q1. So it’s a bit of a higher lumpiness in Q1 than it would be the rest of the year, Laurent.

Okay. Thank you.

The next question will be from Joel Jackson with BMO Capital Markets. Please go ahead.

Hi. Good morning, everyone.

Good morning.

Just a couple of questions. So, Mark, you talked about the missed opportunity -- I think you talk what the missed opportunity to cotton in Brazil. Can you elaborate on that? Is that not just acreage shift, did you miss some business or some share on cotton in Brazil? And then also are you seeing more generics pressure or generic pressure, I guess, in North America, how is that playing into your forecast?

Yeah. You are right on cotton, Joel. Cotton is not necessarily missed opportunity. It is lower acreage. The missed opportunity I was referring to was more on the soy complex and some other crops because of the drought. Cotton is purely around just, you know, 15% acreage reduction is an enormous reduction in cotton in Brazil. So, hopefully, that clarifies that for you. On generics, yes, I have to say, I think, at the low end of our pre-emergent business, we are seeing more generic pressure and our North American team makes decisions on an annual basis that they want to compete in that low end or are they continuing to focus their marketing efforts on the high end. Obviously, this year, we decided we were not going to go take volume at low margin. It didn’t suit what we wanted the business to look like. It wouldn’t have helped our inventories. That’s for sure. So we decided to focus on the high end, Authority Supreme, Authority Maxx. And actual fact, it really suits where the market is going, because as weed resistance builds, it is the tougher to control weeds that the growers are willing to pay the high premiums for to allow you to get rid of those weeds. The older formulations, the more, how shall I say it, simpler less sophisticated more generic formulations are not actually performing in those fields. So, for us, it’s quite a natural lifecycle progression to move away from those generic products. Elsewhere in the portfolio, I would say, the generic pressure is probably as normal as it’s always been. Pre-emergent, we highlighted it because we felt it was a significant event in the quarter and it needed to be talked about. The positive to take from that is our formulation expertise moves us forward with new products that allow us to continue to take market share at the high end.

Thank you. The next question will come from Michael Sison with Wells Fargo. Please go ahead.

Hey, guys. Good morning.

Good morning.

Mark, you gave a -- you do a nice job giving us the adjusted EBITDA bridge for 2021. It looks like you will need about $180 million 2Q to 4Q. So when you think about that $180 million, how much of that is seemingly within your control? You have got some new products coming out. Maybe a good portion of that is the diamides? And then where do you think -- how much is at risk from sort of pest pressures and weather and stuff like that?

Yeah. Mike, listen, I mean, when we forecast forward, we tend to forecast what we call normal conditions, so that would be normal weather, normal pest pressures. I mean, obviously, the further out you forecast the more variance there could possibly be. But today I would say, there is obviously two pieces, volume and price. I would say right now, we are feeling very good about the price piece given what we are seeing in Latin America and the marketplace. From a volume perspective, also very confident given the fact that a lot of the growers are in much better position than they were 12 months ago and you shouldn’t underestimate the psychology of farmers. That is a very important aspect to how they think forward, how they will prepare for a strong season and what that means for us to feed that value chain as we get into the season. So obviously, listen, both price and volume, we don’t ultimately control. They are part of the marketplace. But I feel very confident that given where the business is positioning itself, the new product growth, the continued growth of diamides, our ability to move price, which we have shown as we went through last year we gathered each quarter, it was higher than the last and we eventually ended up in not a bad place at all especially in Latin America. So just think of it in terms of I would say normal risk, yes, weather will play a part as well a pest pressure, but we are forecasting it to be normal and pretty confident of that forecast.

And thank you. The next question will be from Michael Piken with Cleveland Research. Please go ahead.

Hi. Good morning. I just had a couple of questions in terms of just thinking broadly about kind of the trajectory of your EBITDA margins over the next several years. How much of the growth do you see coming from price mix improvements versus kind of the information of SAP and if in fact the cost increases from China or the costs of some of the raw materials increase. How confident are you in your ability to kind of hold or preserve margins in that type of environment for 2021? Thanks.

Yeah. Thanks, Mike. Listen, at the end of the day, when you think of our long range plan 5% to 7% topline, 7% to 9% bottomline, we actually do that on a non-adjusted FX basis, i.e., it’s essentially a volume plan and if FX goes against us, we will move price and that will adjust. I think the confidence you should have in 2021 relays itself, here we are three years into our plan and we are right in the ranges where we should be. Despite the fact that in 2019, we had something like $115 million of headwind on cost and in 2021 we had about $270 million, $280 million headway on FX, yet here we are still in the middle of our plan range. So, it’s very -- it should give you a lot of confidence that we know how to manage these. Yes, you can have dislocations in a quarter obviously. But if you think about ‘19, ‘20, ‘21, that’s a very strong track record of delivery with almost pretty close to, if not more than $400 million of headwind over this three-year period. Andrew, do you want to talk about costs.

Sure. Look, Mike, I think, there’s a -- as we have talked about for quite some time, it’s a combination of both the faster growth of higher value products, higher margin products, as well as SG&A leverage, both from SAP synergies and just also from other leverage and growing the business. And on that you have seen that trajectory. We were at a 25.9% EBITDA margin in 2018. Grew that -- expanded that by 60 basis points in 2019 expanded another 40 basis points in 2020 in the face of the cost and FX headwinds Mark described. And at the midpoint of our guidance this year we are expecting to expand margins another 50 basis points. So the next couple of years it is still that balanced story between SG&A leverage and mix improvement that will allow us to keep driving up that trajectory. Year three of the five-year plan we are 150 basis points of margin expansion against the goal of $250 million to $300 million. So particularly in light of the headwinds we faced we feel like we are exactly where we need to be on that trajectory and we feel very confident about continuing on it.

Thank you. And the final question will come from Kevin McCarthy with Vertical Research Partners. Please go ahead.

Good morning, everyone. Mark, I was wondering if you might elaborate on two items that you called out. First, the Brexit related boost to sales in EMEA in the fourth quarter? And then second, the tolling issue that you cited in North America, can you talk a little bit about the nature of that tolling relationship? What the magnitude of the hit was and the extent to which it may or may not be extending into the first quarter, please?

Yeah. Sure, Kevin. So, yeah, Brexit, we have a strong business in the U.K. We sort of think about it in terms of a roughly a $15 million to $20 million a swing between Q4 and Q1 on a revenue basis. I have to say what when we put the plans in place with our customers, I was skeptical that it would be needed. But given what we have seen in the U.K. and Europe with regards to freight logistics, I am very pleased we actually did that. I know it makes Q1 look a little worse but the reality is I am glad we did it. On the second piece with the toll manufacturing relationship, it is a toll manufacturer that we have used for many years. They were in a particular hotspot related to COVID and simply could not get staff and could not make the products that we needed in the timeframe that we needed it. We are making some adjustments to our network to obviously help mitigate some of that. We are not seeing that reoccurring in Q1. Frankly, most of that business occurs in Q4 from a tolling perspective anyway, so you wouldn’t really expect it to see. I think what it highlights for us is, we do a very good job of mitigating raw material intermediate movements around the world where we might have issues. Of course, we do employ like many other companies many toll manufacturers and we really do have to -- we have to pay attention to every single one all the time. This one we did not have the right communication flow and obviously we paid a price for that. You can rest assure that we have learned the lesson there and it will not be happening again either there or anywhere else. And then -- and the second piece of that was, the logistics element, there was a lot of logistics issues in Q4 that we had to overcome. Some of it was related to lack of drivers in parts of the world, we have seen that in the U.S. and some of it was related to more warehousing. But the reality is the toll manufacturers was the big piece.

That is all the time that we have for the call today. Thank you and have a good day.

Ladies and gentlemen, this concludes the FMC Corporation conference call. We thank you for attending. You may now disconnect.