Mark A. Douglas - President of The Agricultural Products Group
Andrew D. Sandifer - Vice President of Corporate Planning and Development
Kevin W. McCarthy - BofA Merrill Lynch, Research Division
FMC Corporation (FMC) 2nd Annual BofA Merrill Lynch Global Agriculture Conference February 27, 2013 3:45 PM ET
Kevin W. McCarthy - BofA Merrill Lynch, Research Division
Attendance at our Second Annual Global Agriculture Conference. I'm very pleased to welcome our next presenting company, which is FMC Corporation. FMC is about an $8 billion equity market cap, producer of crop protection chemicals, as well as non-ag products, such as soda ash, lithium and biopolymers. Representing the company today, we have on the dais, is Andrew Sandifer, who directs Investor Relations among some other responsibilities, as well as our speaker, Mark Douglas. Mark joined FMC almost 3 years ago. I think, it was March 2010, and he's currently President to the company's agricultural products division. So Mark, thank you for making the trip to Florida, and we look forward to your remarks.
Mark A. Douglas
Thanks, Kevin, and it's an easy trip when you live in Philadelphia. I do have a public service announcement before I start my presentation. For those who are interested in spending some time in South Beach this evening, which I suppose would be a few people, there is a one way shuttle transfer available. It will make one stop at Collins and 16th and will leave from the ballroom level exit of the hotel at approximately 7:00 p.m.
Those were unprepared remarks. Well, good afternoon, everybody. I thank you for paying attention to the FMC presentation. We appreciate you being here. With me today is Andrew Sandifer, Vice President of Strategic Development and Investor Relations. I look forward to sharing with you a brief overview of our FMC and Vision 2015 plan.
I'll focus the bulk of my comments on the Agricultural Products segment, specifically on how our unique business model will continue to deliver superior performance through 2015 and beyond. Then I will be pleased to address any questions, along with Andrew, if you have questions that are non-ag related.
Before we get into the presentation, I'd like to remind everyone that today's remarks contain certain forward-looking statements that represent FMC's best judgment as of today's date based on available information. Actual results may vary materially from those contained in our forward-looking statements. Also, during this presentation, I will refer to certain non-GAAP terms that are defined in our website. For specific non-GAAP to GAAP reconciliations, please refer to our website or the appendix of this presentation.
FMC has 3 business segments: Agricultural Products, Specialty Chemicals and Industrial Chemicals. Within these 3 segments, we operate 6 largely independent businesses. Agricultural products is a standalone business focused on crop protection chemicals. Specialty Chemicals is comprised of 2 businesses. Our BioPolymer business represents about 75% of segment sales and is focused on specialty food ingredients and pharmaceutical binders and excipients. Our Lithium business represents about 25% of segment sales and provides a wide range of lithium compounds and focuses on energy storage, pharmaceutical and polymer synthesis markets. Industrial Chemicals includes 3 businesses: Soda ash, the largest business, representing about 70% of segment sales; Peroxygens representing 25% of segment sales; and our newest business, Environmental Solutions, that set of fast-growing opportunities in air, water and soil applications, representing today about 5% of segment sales.
FMC has a diversified portfolio, which has uniquely attractive characteristics as compared to other chemical of material companies. We hold leading global or regional market positions in each of our businesses, and the end markets and customer base we serve are highly diversified. As a result, our revenue stream is less sensitive to GDP cycles compared to others in our sector. In fact, about 80% of our sales going into end markets with little or no correlation to GDP cycles.
On a geographic basis, we are strongly biased towards rapidly developing economies, with 49% of our 2012 sales in these markets. Our energy requirements are also low. Our sources are well-balanced among natural gas, coal and electricity.
In 2012, energy represented only 7% of our cost of sales. And unlike most chemical companies, we have a limited dependence on petrochemical feedstocks. The only business within FMC that is on exposure to oil-based chemicals intermediates is our Agricultural Products business, and even there, it is a fairly modest exposure.
We also benefit from a diversified and integrated cost structure. For example, we are backwardly integrated into soda ash and lithium and we have a low reliance on purchase raw materials. In 2012, no single raw material accounted for more than 5% of total raw materials purchased. All of these elements greatly contribute to the predictability of FMC's revenue and earnings growth.
When we launched Vision 2015 back in late 2010, we established 4 critical targets for our company. These include: Growing sales to $5 billion or more and EBIT to $1.2 billion in 2015; sustaining mid-teens or higher return on invested capital; delivering significantly greater earnings stability; and generating significant cash flow and deploying that with discipline. By delivering on these 4 key goals, we believe we will deliver premium return to shareholders.
With the $3.7 billion in 2012 sales, we have added $1 billion in sales since the start of our plan. We are on track toward delivering on our target of $5 billion plus by 2015, and we now expect sales of $5.5 billion or more in 2015. Organic growth is contributing more than we initially anticipated. As you could imagine, we're quite pleased to see that aspect, but we continue to believe that external growth is important to Vision 2015. We are focusing on smaller, but highly strategic bolt-on acquisitions. These acquisitions may deliver less short-term sales, but they are critical to the evolution of our portfolio. We believe today that a bias towards organic reinvestment makes sense with so many organic opportunities within the company.
Moving onto EBIT. As indicated, we are firmly on track to deliver the 2015 EBIT of $1.2 billion, a 17% growth rate per year over the planned horizon. This will again be driven by stronger organic growth than was initially anticipated, complemented by smaller bolt-on and product line acquisitions.
Since the launch of our Vision 2015 plan, we have increased earnings by more than 50%.
Now turning our attention to the FMC Agricultural Products Group. We have a unique and sustainable position in the crop protection industry, and we strive to anticipate and satisfy customers' needs in high-value and niche-focused segments. Reflecting this focus, 2012 resulted in our ninth year of record EBIT performance. We are truly a global business and have particular strength in the Americas, with Brazil as an important component to our business growth.
Over the past several years, we've continued to diversify our product portfolio from what was mostly an insecticide business to a more balanced mix of herbicides, fungicides and insecticides.
To put revenue and EBIT growth in perspective, we can see that over the last decade, our ability to sustainably grow and meet the demands of regional customers has placed us at the top of our industry in terms of financial performance. Our business model is embedded in a way we go to market and service customers, helping us expand our geographic base and broaden our portfolio offering, both of which have helped fuel our growth.
It's important to note that we've not only grown revenue and EBIT in absolute terms, but we've continued to perform at the top of the industry in terms of EBIT margins. Moving forward, we expect our margins to remain at a level consistent with the last few years, approximately in the 24% to 25% range. That's impressive performance despite our continued investment in people to support global expansion, investment in innovation as we bring new products and technologies to market and investment in supply chain and other functions as we manage a larger and much more complex customer base.
Let me now address the key factors that have influenced our success. Our comments in our business model in more detail in the coming slides, but I wanted to mention that our business model operates in a complex external environment. I know many of you follow the macro trends in the ag world, which we also watch very closely. The 4 "Fs", food, fiber, feed and fuel greatly influence demand for crops and crop yields. As well, population is expected to continue to significantly increase within the next few decades, so will, too, will urbanization, especially in developing countries. As an example, China will have an additional 300 million urban dwellers over the next decade versus where we are today. As that urbanization increases, standards of living will rise, also creating an increased demand for food and protein derived from poultry, beef and pork. To supply these increased demands, more feed will be required, and that is the very base. It drives a lot of the soybean demand. And then, the need to increase productivity and crop protection from pests. Demands on ethanol production for biofuel continue to rise, placing pressure on corn and sugarcane productivity. And our Overland is under constant pressure, with Latin America as the only real large-scale source of land that can be converted to agriculture. All of these trends are helping to maintain a highly commodity pricing for crops, which do help to underpin our industry.
Turning to our business model in more detail. We are frequently asked about the reasons behind our success and how sustainable is our business model. The model has 5 key elements: Low-cost variable manufacturing, active ingredient innovation, decentralized R&D, a clear focus on crops of choice and niche crops, and last but not least, closer customer relationships with a go-to-market model that is tailor-made to each region of the world. Each element, on its own, would not enable anyone company to claim they have a successful AgCam business model. In fact, to a number of companies, do have some of the elements I just listed. But what's unique for us at FMC is the way we combine and execute all the facets to meet our customer needs.
We have local organizations that are focused on grower needs in local markets, whether they be Indonesia, Brazil, France, et cetera. Our local commercial marketing and technical people are constantly in touch with growers and distributors, assessing development trends such as pest pressures, resistance, changing crops, climatic conditions and determining what is needed to remove or prevent those pest pressures.
That intelligence is then sent back to our development groups who assess what level of performance is needed. And here's a very important part of our model, what type of active ingredients will be required and what formulations to meet that performance need? Our supply chain teams look at sourcing and manufacturing options, and we source from around the world whatever is necessary to achieve the technical and performance goals. At the same time, our regulatory experts are also engaged to ensure that we have the correct registrations and timing to support future sales.
One of the keys to our model is how all of these groups work together with clearly defined performance objectives that drives our continued growth and share gain. Over the following slides, I'll provide further insights into how each element of the model adds value.
Over 10 years ago, we developed a new approach to our supply chain. It was a bold and transformational step to move from a traditional manufacturing model to a 90% variable low-cost, asset-light contract manufacturing model for our active ingredients. The variable model works by first creating deep, long-lasting relationships with strategic partners for the supply of active ingredients, mainly in China, India and Mexico. Over the years, these relationships have become strategic for both parties. FMC brings capital investments and training on best practices, such as occupational and process safety, environmental compliance and auditing, synthesis technology and understanding. In return, we secure dedicated supply, low-costs and access to other complementary capabilities from our partners.
The active ingredient aspect is only one link of our supply chain that delivers success. We also have a network of owned and contracted formulating facilities located strategically around the world. This is crucial to ensuring we can turn our active ingredients into formulated products in the shortest timeframe with the lowest costs.
Another important element is the scalable nature of our network. Due to the breadth of the footprint and the way we work with our partners, we are able to plan and build further capacity for key active ingredients that leverage infrastructure already in place. Thus, increasing capacity at competitive costs and in a timeframe that meets regulatory and market demand.
In the regulated markets where we participate, having a robust global supply chain requires a superior global regulatory organization to ensure compliance. At FMC, these 2 organizations work hand-in-hand to facilitate the global movement of products legally and cost effectively. This local approach to registrations and formulation manufacturing enables rapid response to market fluctuations and allows us to take advantage of market development.
Moving out to innovation. We look for attractive product line acquisitions that gives us access to high-value segments in fungicides, herbicides and more recently, biologicals. We aggressively pursue global development and distribution alliances as well as licensing. Through these valuable relationships, we contribute development and regulatory expertise to extract full product potential for technologies, some of which are still in early-stage development, and then we leverage FMC's global footprint to provide market access for as companies such as Isagro, Chr. Hansen and Marrone Bio. In turn, these partners help us strengthen our presence and knowledge in new development areas.
When we look at the way we manage innovation today, it's clear this model has brought us several key benefits versus our prior history. We now have a much broader diversified source of active ingredient development. We have certainly shortened the timeline it takes to bring new products to market by removing the lengthy AI discovery and registration step. We have increased our probability of success to successfully commercialize products. And finally, we've lowered the cost of R&D and ensured we focus research spend on the right types of products.
New product development is the engine of our growth. What we do is unique in the sense that we bring together our aggregate technologies that are targeted at niche crops. We look at both organic and external opportunities as sources of new products. With our formulation mindset, we've been able to take undervalued products and breathe new life into them by either using our current market access to sell into new markets or formulate the products with other active ingredients to develop novel solutions not seen before.
To put this in perspective, 5 years ago, we utilized approximately 40 active ingredients in our formulations. Today, we utilize in excess of 150 active ingredients. We rely on our people positioned around the world who possess deep, local knowledge of regulatory environments and agronomic practices. These teams of world class regulatory, toxicology and formulation expertise collaborate together to rapidly bring our products to market. Through these technology collaborations, as well as our own development activities, we launched over 30 new products in 2012 alone, tangible evidence that our innovation model is not theoretical, but is very practical. It delivers real high-value products that meet emerging customer needs, driving both our top and bottom line growth.
By 2015, we expect more than 100 additional products to fuel even more growth, marching towards our target of approximately 35% of sales derived from products launched in the previous 5 years. That is up from today's mid-20s percent.
All companies preach the benefits of customer relationships. But in the ag world and at FMC, we believe we've taken this to a new level. One way is through our customer clubs in Latin America and Asia. I was recently at Clube de Cana, our sugarcane club in Brazil, where we had over 200 people accounting for over 90% of all the sugarcane growers in Brazil. Key industry consultants, machinery suppliers and influencers and others attended this 3-day annual meeting. It is a major forum where FMC brings together the industry to discuss new technologies and industry trends beyond just product applications.
Through our clubs, we gain a much greater insight into the current and future needs of our customers and the markets they serve.
Our customer interactions are very different depending on the region or country. For example in North America, our primary route to market is via long-standing relationships within the distributor network. Our team of marketing sales and tech service, regulatory and product development experts work closely with our distribution partners to get the right products at the right time to the growers. Other examples include countries like Pakistan, where we focus more on retail sales model with our own significant network of retail stores selling a full range of pesticides directed to thousands of farmers.
In Indonesia, we have significant investments in distributor and retail incentives that allow us to grow our business in our key crop areas. Additionally, where it makes sense, we have chosen to strengthen our marketing positions by establishing direct sales and marketing organizations. We've taken this approach in countries where we felt we did not have the right distribution network to sell the value we bring to growers.
The final element of our unique model is a very clear focus on niche crops. Over the years, this strategy has helped us build a meaningful niche crop positions and a deeper understanding of the specific pest pressures they face. It's also allowed us to gain a share in a number of critical markets. A great example is sugarcane in Brazil. Many crop protection companies have a very different market share story. They tend to have a greater emphasis on row crops. However, we prefer to participate where we can create meaningful value for growers and the value chain. Of course, we do have business on row crops, it's in the minority and it's only in areas where we believe we can bring some technology advancements.
As our 2012 performance demonstrated, we are well on track to meet our Vision 2015 targets, more than doubling sales and EBIT in just 5 years. For us, this plan is business as usual. We have delivered and will continue to deliver industry-leading performance in the coming years. I can safely say that my team and I are 100% focused on delivering this plan and preparing the business for an equally successful post-2015 period.
So from the perspective of the agricultural products group and FMC overall, we've been extremely pleased with our performance in the first 3 years of this journey, but it's not over yet. We still have a hard work ahead of us, but we're delivering on what we said we would do. FMC is strongly tracking to achieve our Vision 2015 target of more than $5 billion in sales and $1.2 billion in EBIT. With almost 23% return on invested capital in 2012, we are well above our return on invested capital targets. We will continue to deliver significantly greater earnings stability with strong cash generation and disciplined cash deployment. By meeting and exceeding these targets, we will continue to deliver premium total shareholder return. FMC has a great track record, but our best time is still ahead of us.
I'd like to thank you for your attention, and I'll be happy to address any questions on the ag world, and Andrew will help me with any questions that are targeted towards the broader FMC. Thank you.
Thanks for the presentation, Mark. I think you mentioned your number of active ingredients has increased from 40 to 150 in the last 5 years, did I get that right?
Mark A. Douglas
Quite an increase. Can you talk a little bit about where you're sourcing these new AIs from, whether that number will continue to go higher and maybe a little bit about your process as you import these AIs, so to speak? How are they plugged into your manufacturing model and marketing paradigms?
Mark A. Douglas
Yes, the number going from 40 to 150 adds a huge amount of complexity to your supply chain activities. I don't think that number of 150 will exponentially continue at the same rate. We source those active ingredients from all over the world, whether it be from India, China, parts of the Europe, parts of -- other parts of Asia and certainly, parts of Latin America. The biggest challenge when you're bringing in that many active ingredients is certainly the planning aspects. Given the variability we see in our end markets in terms of weather impacts, pest pressures, we have to have an extremely flexible supply chain. We spend a lot of time on planning, both current planning for the current quarter, next quarter, but then looking at the next season and further out in terms of capacity as we build our key AI capacity. When you're growing at almost 20% a year, most of our growth is volume, probably 90%, the other 10% is price. So we are actually expanding our base quite rapidly. So for us, the focus is really around supply chain, planning and planning not only from a demand standpoint, but from a capacity constraints. That's how we manage that model. It is complex. We've grown up with it. We like the complexity. We believe it's a differentiator for us. It allows us to compete in markets where demand may change quickly. We have the ability to get products to market rapidly. That's really one of our advantages.
What kind of a risk is there with insect-protected soybeans in Brazil? Is that going to be -- is that a material part of your business?
Mark A. Douglas
I guess we're talking about Infecta [ph], right?
Yes, presumably there will be other products.
Mark A. Douglas
I'm sure there will. When you look at our portfolio, I mentioned that we're predominately niche crop-focused. We do have business in the soy area, both in North America and Asia and in Latin America. But it's in the 15% to 16% range of our portfolio. We do have very good insecticides for the soy market. But when you look at what's coming to market in the future, the properties that have begun in the new seeds, they don't take care of all insect pests. There will always be a need for chemicals. And I'm a great believer that when you look at the world of GMO, it's not GMO or chemicals. I think, there's a great synergistic effect between the 2. And as we see resistance in other areas, whether it's glyphosate-resistant, whether it's corn rootworm-resistant, mother nature has a great trick of moving forward at a rapid rate. When that happens, you still need the GMO base, but you have the chemical base as well. And I think, the combination of the 2 will be very good for the industry, improving yields, improving crops. So yes, we know the soy will change in terms of its base in Latin America. We welcome that. It'll be part of expanding the soy business. We have insecticides that will take care of the pests that those new seeds don't take care of. And we're also focusing our efforts on novel fungicides for the soy market, so it's not just an insecticide market for us.
Yes. My question was a little bit on the line of that one. Do you think that -- on the chemical side, you don't have a big presence on corn, for instance. And is that a decision that you take? If you could provide some insight why you don't have it? Or you did it on purpose...
Mark A. Douglas
Yes, it was on purpose, it wasn't by accident. When you look at the crops that we're active in that take up a bigger percentage of our portfolio, corn and wheat for us is about 8% of our total crop exposure. So it's a very low number. The other crops that we participate in: Cotton, fruit and veg, rice, sunflowers, potatoes. There are markets where we have -- sugarcanes. Those are markets where we have, over the years, had a very clear focus where our product range and our development activities have allowed us to take market share. We have not competed in the broad row crops deliberately. We do have some products. For instance, we have a product now, a very good patented insecticide that's used in North America for corn rootworm resistance. Corn rootworm resistance is growing. Our businesses is growing on the back of that. That was a very specific targeted move because we had some technology that can be applied to that marketplace. But you're right, in the broadest sense of looking at the broader herbicides for corn and wheat, we have not been involved in those markets.
Mark A. Douglas
Because we believe there is more value in our model. And the way go to the niche crop segments around the world, it broadens our portfolio base. We have fragmented markets deliberately. It makes us a difficult target in terms of competitive response.
I just wondered if you could run through -- elaborate a bit more on the asset-light strategy you talked about. Because when I look at the big branded guys, [indiscernible], SFI, [indiscernible], Dow, DuPont, they're typically spending 5-ish percent CapEx to sales, which is hardly asset-heavy. So I'm just wondering how you differentiate or if you're trying to differentiate from that?
Mark A. Douglas
Yes. We're nowhere near 5% in terms of capital expenditure to the business. When I say capital light variable manufacturing, it really is a relationship where we have another party who is heavily invested in the process, the mechanical infrastructure of the plants. Our ability to influence that is by bringing very solid process technology to help improve yields, help improve the manufacturing process itself. We do invest in capital in those facilities where we feel it's advantageous for us to do so. But it is a much lower level than a 5% to 10% range, hence, asset-light. I think what it also gives us is the ability to move products through the plant where we have high throughput and also where we have more niche products that require more specialist manufacturer that may have had a higher cost structure in the past. But because of the way we are balancing out those facilities, it allows us to get a lower cost. When you look at our EBIT margins of 24% to 25%, manufacturing cost plays a role in that around the world, and that's one of the key indications that we believe, with our model, we have it right, even though we are now growing into the multibillion dollar range.
Given the complexity of the process you do -- you've basically given off of your company, don't you think eventually it will limit your growth?
Mark A. Douglas
It's a question I get asked a lot inside the company, as well as outside. This model was put in place when -- back in 2002, 2003 was the start of the thinking. At that time the FMC ag business was in the $200 million, $300 million, $400 million range. So it was a leap of faith to get out of active ingredient research -- basic research. It was certainly a leap of faith to stop manufacturing active ingredients at that time. I think, the benefit for us has been that we've grown with our partners and brought other partners on board, and we've got used to and managed our supply chain in a way that allows us to deal with the complexity. It's not as if we are afraid of the complexity, we actually embrace it and bring it in because we recognize that complexity is one of our competitive advantages. We believe it's scalable, the way we're moving China, India, Mexico, and we'll move to other areas of the world as we look for further active ingredients. We believe with a set up around planning and sales and operations planning that we can continue to have that as a key core competency of the FMC model. And so, no, we don't see it as a limit on our size.
So I look at the similar issue from a different perspective. I'm wondering if you would expect any competitors to begin to emulate this model or whether or not you've observed that -- you had best-in-class margins for the better part of the decade. I think, 25% plus operating margins last year. So it seems even sustainable for quite a while, and yet I don't hear any of the big 6 going down this path. I'm not sure if there are other smaller or medium-sized companies that you observe behaving similarly. In other words, how long is this going to remain a unique business model?
Mark A. Douglas
Well, I better make it another 10 years, or else I won't stand in front of you again. So joking aside, when you're in the multibillion dollar size, it is very, very difficult to transform from a fixed asset basic research model because you're heavily, heavily invested in capital, you're heavily invested in the research. Our model happens to work for us. It will not work for everybody. And the other players in the marketplace have very successful models. They're doing what they do, and they get their output from their models. Could you start with a blank piece of paper and do this? Yes, but it's going to take you 10, 15 years. And you've got to grow in a marketplace that's competitive with people like us who are already there practicing this model. Can you do pieces of it? Yes, I said that in the presentation. There are ways to do elements, but when you're in the scale we're in, it's almost impossible to flick the switch and come to this model from an invested model. I don't think if FMC will stood here as a $2 billion AgCam business, heavily invested in capital still in the ground around the world, heavily invested in research, and you ask me to put this model in place, I don't think I could do it. So yes, we do feel it's sustainable. Our job is to continue to modify the model, to keep bringing the innovation, keep moving it from niche crops into other crops and geographies, increase our fungicide portfolio, so we have a better balance. All those things will continue to make this model as successful as it is today and keep those margins and top line growth where they are.
Sugenta [ph] is talking about their initiatives in the sugarcane crops. Does that come in competition against your offering somehow?
Mark A. Douglas
Well, sugarcane is a large market down in Brazil. We have a fairly significant share amongst others. It's always been competitive, the fact that somebody is targeting that market. We feel we have great relationships. We have superb herbicides and insecticides used in that market. We have done some very novel things with our supply chain with a number of the major sugarcane growers in terms of longer-term contracts that lock in business with them, gives them advantages. So yes, I understand there are people looking at that market, but we are very confident in the service we bring, the innovation we bring through our products, and the business model that we have in place with the growers will serve as well as we go through the next few years.
Speaking one, more question here, if I may, which is a tough, I'm warning you.
Mark A. Douglas
That's a pleasant surprise.
We heard a presentation this morning that is this chronicle, the crop protection chemical sales growth in 2012. You're actually top of the list at 20%, I believe. Correct me if I'm wrong.
Mark A. Douglas
Did they say that?
Even the laggards were like 6% and lots of double-digits, so clearly, a very strong market. And I'm guessing a lot of that is high-net cash farm income, farmers have great balance sheet, soft commodity prices really high, times have been a really good. Have you ever looked at the cross-price elasticity between soft commodity prices and demand for crop protection chemicals? In other words, if the whole complex goes down, I understand you're diverse, but if 8 or 9 out of 10 commodity prices were to decline in synchronous fashion, what would you think market growth would do? I haven't been able to find data, which is why I say it's a tough question.
Mark A. Douglas
It's a great question. Thanks for asking that one. I appreciate it late in the day. No, we do not have the answer. But, yes, we are looking at it. For sure, commodity prices are -- have been moving for some time. We all know that. They don't go up in a linear fashion. They don't come down in the linear fashion, but they do move. I think the key question to ask is, if that happens, what impact does that have on us? And we are studying that. But I think, the question you have to ask yourself is, what are the inputs that causes that to happen? Because you're going to have to believe an awful a lot of different things have to occur for a whole broad range of commodities to start to move in one direction. We do like our portfolio. We are more broadly based, and I think, geographically-based. But to answer your question, we are studying that factor because it is something that we need to be aware of and understand our business model. But I have to say, when I look at our balance today, our focus on niche crops, the balance between insecticides, herbicides and the growing fungicide business, I'm confident that we would weather the storms that would come. The question is, would they come and what, for me, would cause those to happen? That's what we are studying.
Have you ever thought about spinning out the ag business because given the scarcity value, it would likely give the market?
Mark A. Douglas
No. Simple answer, no. It's -- look, when you look at FMC, we have 3 major groups, as I said. We have the industrial group, our soda ash business, which is a superb cash generator. If you look at the margins of that industrial chemicals business, a very good industrial chemicals business. They have another growth platform with our specialty chemicals business based upon BioPolymer for food and pharma, which is dealing with some of the big mega-trends in the world. We have a Lithium business, it's smaller, but it's growing, and then we have the ag business, it's a very, very good balanced portfolio. So for us, when I look at the value that it brings to FMC, I don't believe that this business will get spun out of FMC at this point.
Your focus on fungicide is because nobody can do DMC [ph] from fungicide. Is that part of the reason?
Mark A. Douglas
No. The reason I'm focusing on fungicide is, when you look at the balance of our portfolio, 50% insecticides, 40% herbicides, 10% fungicides. I'm really out of balance with what our growers use. I also believe that, as we look more and more at biologicals, the use of biologicals and fungicides has a natural fit. We've introduced products into North America and Latin America. Biologicals on fungicides, we see that as something that will grow our portfolio. But it's really a balance for me. It's to bring our portfolio more into balance and be able to give more down the value chains to our growers in terms of not only the insecticides and herbicides, but bring the fungicides along as well.
Kevin W. McCarthy - BofA Merrill Lynch, Research Division
Andrew, I don't want you to sit up there for the whole Q&A session without even one non-ag question. I know it's been only a couple of weeks since your conference call, but would you care to offer us, I guess, in the 45 seconds we have remaining a brief update on soda ash export pricing, whether or not there's been any meaningful change there and on the lithium operations.
Andrew D. Sandifer
Sure. That's a tough one to do in 34 seconds, but let me do my best with it. Soda ash issue, for those of you familiar with it, it's really related to export prices into Asia. It's about 20% of our soda ash volume. We believe we're skimming along the bottom of the trough there. Chinese producers are selling it well below their cash costs. And given the significant cost advantage that natural soda ash has, we're continuing to make a very healthy earning while competing against those burning cash. I think, we have seen some signals that it suggests to us that their market price should start turning as we anticipate that in Q2, that the strongest has been several of Chinese producers have refused to quote quarterly contracts in soda ash, suggesting that they're anticipating price moving up. The standard selling process for soda ash export in China contracts it's typically been quarterly contracts. So we see that as a positive sign. And we're certainly looking for further indications, have increased industrial activity in China. So it's a mixed signal there. I think, the lithium question is a bit longer one. I will suffice to say that we survived through our first half of last year with some significant weather issues that delayed the implementation of a process expansion. The process expansion we discovered had a few complications with it, and we're not anticipated. That really came to fruition in the second half -- late second half last year, as we got out from under the weather impacts. We have identified what we believe to be the root cause of the process issues where pilots are doing more than pilot test a very substantial operational tests this quarter. We expect to be able to update you at the next quarter call on how we fully vetted what we believe to be the root cause. And the expectation being that we can implement and automate that solution in the second quarter and move forward in the second half, back to a more normalized operation for that business.
Great, Mark, Andrew, thank you very much for the attendance and presentation today. Appreciate it.
Mark A. Douglas
Thanks. Good questions. Thank you.
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