FMC Finds Its Balance
Stepping into Mark Douglas’s office, one is struck by the pristine, ultra-modern space, every inch of it drenched in light let in by enormous windows overlooking downtown Philadelphia from 23 stories, even on a gloomy day in June. As president of FMC’s Agricultural Solutions powerhouse, Douglas, a UK native, is similarly dashing, methodical and polished, but also completely friendly and relaxed.
There is serene, controlled attention to detail here. In a sense, it’s exactly what you won’t find in the agchem market’s unpredictable ways.
“It’s like no other business on earth,” he says, as a light rain falls outside, sirens blaring from below. “For instance here now in North America it’s wet – really wet. Farmers can’t get into the fields, so therefore that backs up the value chain, so we have to deal with that. We’ve been dealing with drought in Sao Paolo state.”
In ag, Douglas continues, “you are dictated to by Mother Nature. Sometimes the agriculture business does not line up with Wall Street’s quarterly cycles.”
Douglas came to FMC in 2010 as a 21-year industrial chemical veteran from Dow Chemical and Rohm and Haas. In a fortuitous turn of events, he says, his longtime colleague Pierre Brondeau had joined the company earlier that year as president and chief executive officer. Douglas initially led the development of FMC’s global procurement and international organization and was later named president of the Industrial Chemicals group. He crossed over to new terrain when he was named president of the Ag Solutions business in late 2012, amid one of the biggest crop pricing booms on record.
“Industrial businesses tend to be more predictable (than ag),” he explains. Nevertheless, “it’s a great market. It has its ups and downs, and we’re going through a bit of a trough right now. But we know we’ll come out on the other side, and we’re in it for the long haul.”
That volatility is as clear as ever. FMC took a hit in its most recent quarter from foreign exchange in addition to drought in Brazil, where it has huge exposure to sugarcane and the correlating drop in ethanol output on the back of lower gasoline prices. FMC expects those challenges to continue in the near term. First-quarter revenue and profits in the Agricultural Solutions unit fell 16% and 32%, respectively, from a year ago. There is the constant churning of weather impacts, on top of downward commodity pricing trends and the impact that has on sentiment all the way down the value chain, Douglas says.
What can the company control? Upping its game with a transformed portfolio completed by its $1.8-billion Cheminova acquisition in April and the best pipeline it’s had in a generation. Having shed its commodity businesses to focus on high-growth, technology-based agriculture, health and nutrition and lithium, FMC now has the portfolio it wants, Douglas says. Agchem now comprises 77% of revenue, versus 37% in 2009.
“We’d been looking at Cheminova for many years – we tried to buy them back in 2010 but they weren’t for sale, unfortunately, or we probably would have gotten it for a much cheaper price,” he says. “Late last year we decided it was a proposition we wanted. It fit very well with us and was very regionally driven and very entrepreneurial.”
Before it acquired Cheminova, FMC counted just 6% of its portfolio in Europe, where Brussels-based Belchim Crop Protection served as its route to market. The old portfolio was heavily weighted toward Latin America at about 55% and North America at 20%. Today, the picture is balanced with about one-quarter derived from Europe – where Denmark-based Cheminova tallied 40% of its revenue and profits – in a more accurate reflection of crop protection market values, and its route to market is direct.
Not only did Cheminova afford it geographic balance, it was also the source of new technology and market access to crops. FMC was weak in herbicides for cereals previously, which in essence locked it out of Europe’s keystone crop. Cheminova brought to the table several sought-after herbicides used in Latin America such as metsulfuron-methyl, nicosulfuron and fenoxaprop-p-etilico herbicides, and fungicides in North America including flutriafol, kresoxim-methyl and fluoxastrobin-flutriafol mixtures.
Nine new patented synthetic AIs are in FMC’s pipeline on track to hit the market beginning in 2017. They are broad-spectrum and cross-spectrum fungicides and herbicides, new modes of action, and are for both row and specialty crops. “We also have some new insecticides targeted for the U.S. market as well as Latin America. It’s taken us a while to build it. We think there is over $1.5 billion in new revenue for these products by the turn of the next decade,” Douglas says.
“In 2016, we will be well in excess of a $3-billion crop protection chemical company (versus 2014 revenue of $2.2 billion). We are truly global with a deep research portfolio and a deep pipeline of new products. Customers should expect to see more technology from us all over the world.”
‘Always Selling Value’
While Brazilian farm incomes remain strong in terms of local currency, U.S. farm incomes are forecast at $73.6 billion in 2015, down 32% from last year and the lowest level since 2009, according to U.S. Department of Agriculture’s Economic Research Service. At a time when growers are looking to reduce costs, honing in on the value proposition is key. For example, FMC promotes its strong position in Authority preemergence herbicides (active ingredient: sulfentrazone), which are noted for excellent control of glyphosate-resistant weeds. It expects continued growth of the multi-hundred-million-dollar molecule in the U.S. and Latin America as weed resistance spreads.
“If you can demonstrate that the grower will get more bushels off his acre, then you’re going to be in better shape and resist the temptation to downtrade to generic applications, which is an obvious choice. We have to continue to sell the advantages of using the technology,” he says. “(Growth) comes through patented products, new modes of action and giving the grower something that’s differentiated that will allow them to improve productivity and margins … It doesn’t matter whether (crop) prices are high or low, we’re always selling value.”
Development is centered around its formulation platforms, namely:
Microencapsulation: In the era of sustainability, this timed-release technology, which features a capsule shell that slows the migration or release of the AI from the capsule, is becoming increasingly important. Why? It controls the effects of volatility and can maintain herbicide efficacy at lower dosages. Microencapsulations can also extend residual control and reduce toxicity of a product, as demonstrated in FMC’s Rugby cadusafos insecticide, as well as protect the AI from environmental effects of photo-degradation. One of FMC’s main breadwinners is the AI in its Command 3ME herbicide, clomazone, which controls key grasses and broadleaf weeds in soybeans, cotton, sweet potatoes and more. New products from Cheminova also feature microencapsulation.
Foam-applied delivery: About half of U.S. corn acres are planted in seven to 10 days, and the timeframe seems to be shrinking. FMC sat down with big corn growers, who expressed the need for speed and the ability to keep planting until the job is done. What did that mean for the company? The answer came from technicians who suggested foam, which has the ability to deliver the same amount of active ingredient with eight to 10 times less water compared to a traditional liquid soil insecticide application. 3rive 3D was born. This year, the foam-applied soil insecticide is in field trials, with a broader launch set for 2016. The product is primarily focused on corn rootworm in the U.S., but FMC touts big plans for it in the coming years.
3rive 3D is also the perfect example of FMC’s new, more aggressive approach on intellectual property protection. It has patented it around the world on different crops, and not only the formulation but the application and applicator itself. “That’s how we’re thinking about IP protection – much broader than it would be in the sense of just the active ingredient,”
Biologicals: Add FMC to the huge roster of crop protection companies making major investments in biologicals. “We’re building this business just like we built the synthetics business,” Douglas says. In 2013 it acquired the Center for Agricultural and Environmental Biosolutions (CAEB), a division of North Carolina-based RTI International. CAEB discovers microbes that have properties which can be used as fungicides, growth promoters and nematicides, while FMC, of course, handles the formulation, registration and product development and global market access.
The missing piece to its biologicals strategy was scaled-up manufacturing, and for that it turned to Chr. Hansen, the Danish producer of microbial products for the food industry. The two firms signed an alliance, and 18 months later it is performing well, says Douglas.
There are nine products in the pipeline ranging from row crop biostimulants, which will be launched at the end of this year in North America, to bionematicides, seed treatments and foliar fungicides, which launch all the way through 2018. Douglas points out the speed at which these products will be brought to market, compared to the 12 years and $250 million it typically takes for a synthetic product. “I think (the regulatory environment) is going to change at some point, but it gives us more opportunity,” Douglas says.
A unique cost-saving aspect is a high ratio of toll manufacturing utilized by its business model. More than 90% of FMC’s active ingredients are outsourced to plants in India, China and Mexico. It owns its own formulating plants in the United States, Brazil, China, Pakistan, India, Indonesia, Australia, Denmark, Germany and Italy. “What that allows us is low cost and flexibility when volumes go up and down,” Douglas says. “Our EBIT margins are right at the top of the industry, and certainly part of that comes from our manufacturing base.”
FMC has no plans to shake up its distribution model, nor will it make any further major acquisitions at this point, Douglas says.
In North America, it remains committed to the longstanding relationships it has built on the continent’s embedded distribution and retail routes to market. Many other parts of the world call for a hybrid model. In Brazil, it conducts business through both distribution co-ops and around 300 direct sales people. In the Philippines, Indonesia, Thailand and China, it goes direct. “It’s a very variable model. Europe will completely flip.” FMC will go 95% direct in Europe in the fourth quarter of this year.
While FMC is digesting Cheminova, it will continue to go out and acquire technologies, whether that is buying molecules in early-stage development or inking cross-licensing deals. As recently as February it picked up a novel broadleaf herbicide from Kumiai and Ihara. “It’s a very big molecule for us and will be in the multimillion dollars of sales in the future – and that was after the acquisition of Cheminova, so that should show people that we’re very heavily invested in technology and that will continue to be.
“Technology is our lifeblood and our pipeline. And we’re not going to slow that down. If you do see us making acquisitions, it’ll be technology.”