FMC (FMC) Q4 2017 Earnings Conference Call Transcript

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FMC (NYSE: FMC) Q4 2017 Earnings Conference CallFeb. 13, 2018 9:00 a.m. ET

Contents:

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  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, this is Didi, the conference moderator for today's conference. Today's FMC Corporation Call is scheduled to begin momentarily. We request that you refrain from pressing *-1 in order to ask a question until prompted by the operator. If you have already done so, please press the # sign at this time.

If you should experience difficulties during today's call please press * then 0 and an operator will assist you. Thank you for your patience, your lines will now be placed back in music hold until the conference begins.Good morning, and welcome to the Fourth-Quarter 2017 Earnings Release Conference Call for FMC Corporation. Phone lines will be placed on listen-only mode throughout the conference. After the speakers' presentation, there will be a question-and-answer period.

I will now turn the conference over to Mr. Michael Wherley, director, investor relations for FMC Corporation. Mr. Wherley, you may now begin.

Michael Wherley -- Director of Investor Relations

Thank you, and good morning, everyone. Welcome to FMC Corporation's fourth-quarter earnings call. Joining me today are Pierre Brondeau, president, chief executive officer, and chairman; and Paul Graves, executive vice president and chief financial officer. Pierre will review FMC's fourth-quarter performance and provide the outlook for 2018 and the first quarter.

Paul will provide an overview of select financial results. The slide presentation that accompanies our results, along with our earnings release and 2018 outlook statement, are available on our website, and the prepared remarks from today's discussion will be made available after the call. Mark Douglas, president, FMC Agricultural Solutions; and Tom Schneberger, vice president and global business director, FMC Lithium, will then join to address questions. Before we begin, let me remind you that today's 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 release and in our filings with the Securities and Exchange Commission.

Information presented represents our best judgment based on today's information. Actual results may vary based upon these risks and uncertainties. Today's discussion will focus on adjusted earnings for all income statement and EPS references. 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'll now turn the call over to Pierre.

Pierre Brondeau -- President, Chief Executive Officer, and Chairman

Thank you, Michael, and good morning, everyone. Before outlining our fourth-quarter results, I wanted to first state that 2017 was a pivotal year for FMC, and we are excited about the opportunities ahead of us in 2018. The integration of the acquired DuPont ag business is progressing very well, as is the process of separating the Lithium business into a public company. As we prepare for listing in the second half of this year, we will continue to expand both our lithium hydroxide and our lithium carbonate capacity to capitalize on the significant demand expected in the coming decade.

Turning to Slide 3. FMC reported fourth-quarter revenue of $980 million, which was 42% year over year -- up 42% year over year. Adjusted EPS was $1.10 in the quarter, an increase of 67% versus the same period a year ago. Adjusted EPS was $0.02 above the top end of our guidance, driven by strong operating result in each of our two segments.

We are very pleased with the fourth-quarter results. In ag solutions, our business performed very well and earnings came in above the high end of our guidance range. The integration of the acquisition into FMC is meeting all our expectations. In Lithium, we delivered our first full quarter of commercial production at our new lithium hydroxide facilities in China and finalized an important agreement with the Argentinian government, paving the way for expansion in that country and for the separation of the Lithium business into a stand-alone company.

Moving on to Slide 4 in ag solutions. Revenue grew 40% year over year. Performance of FMC's legacy agricultural solution business was very strong, growing 9% year over year, driven by double-digit revenue growth in North America, Asia, and Europe. Acquisition revenue of $193 million accounted for the remainder of the growth.

We do not have comparable results for the acquired business for the last two months of 2016. However, it performed well and as expected. Fourth-quarter segment earnings of $189 million increased 48% year over year. Segment revenue for 2017 was approximately $2.5 billion, an 11% increase compared to the prior year.

Full-year segment earnings were $486 million, a 21% increase year over year, and segment earnings margin improved 160 basis points, to 19.2%. Our legacy ag business posted 3% revenue growth and strong earnings growth in the year. On Slide 5, we outline the regional performance in the quarter. In North America, we posted a 38% revenue increase.

Our legacy FMC business grew 14%. The performance was driven by early demand for pre-emergentnt herbicides as farmers plan for expanded soybean acreage this year and strong demand for our SU herbicides for cereals. In Latin America, revenue increased 21% in the quarter. Our legacy FMC business grew 3% in Q4 and 9% for the entire year.

In Brazil, FMC's legacy business grew 15% on a full-year basis, a very strong performance in a market that contracted approximately 10%. In Asia, revenue increased 84% in Q4. Our legacy FMC business grew 14%, driven by successful product launches and strong growth in our plant-health product portfolio. We also saw strong sales of Rynaxypyr insect control, especially into rice markets in India and Indonesia.

And finally, in Europe, revenue increased 59% in Q4. Our legacy FMC business grew 13%, with strong sales in Eastern Europe and in France, where, you may recall, we have moved to direct market access. Moving now to Lithium on Slide 6. Lithium delivered another exceptional quarter. Revenue of $113 million increased 60% year over year, and segment earnings more than doubled to $44 million.

Significantly higher prices and the shift in mix to higher-value product drove the increase in segment earnings margin to 39% versus 30% in the prior-year period. We took an important step in December when we finalized new operating agreements in Argentina. The provincial government of Catamarca formalized these agreements by passing legislation that sets our royalty rate and our commitment to corporate social responsibility programs while also paving the way for us to expand capacity and move toward the intended separation of our Lithium business later this year. We want to highlight the revised royalties and CSR programs are at the level generally consistent with our prior commitment.

Combined, this amounts to a mid-single-digit percentage of sale out of our Argentina operations. Turning to Slide 7, which summarizes our outlook for the first quarter and the full year. We expect adjusted earnings per share for full year 2018 to be between $5.20 and $5.60 per share, which represents at the midpoint of the range a near doubling of EPS year over year. First-quarter 2018 adjusted EPS is expected to be between $1.45 and $1.59. We expect 2018 ag solutions revenue will be in the range of $3.95 billion and $4.15 billion, and segment EBITDA will be in the range of $1.05 billion and $1.15 billion.

We anticipate legacy ag solutions revenue will grow 2% to 4%, while the acquired business is expected to grow by 6% to 10%. First-quarter segment revenue is expected to be in the range of $1.0 billion to $1.07 billion, and EBITDA is forecasted to be in the range of $290 million to $320 million. The Lithium business is well-positioned to deliver another year of significant earnings growth in 2018. We expect full-year revenue for Lithium to be in the range of $420 million to $460 million, a year-over-year increase of 27% at the midpoint.

Full year EBITDA is expected to be in the range of $180 million to $200 million, which represents an increase of 34% at the midpoint. We expect price mix and incremental volumes to each contribute approximately half of the increase in earnings. The volume increase is largely due to the 4,000 tons of incremental capacity coming online from de-bottlenecking projects. We expect first-quarter segment revenue to be in the range of $95 million to $110 million, and EBITDA is forecasted to be between $44 million and $48 million, which represents a year-over-year increase of 78% at the midpoint. Moving now to Slide 8 and the key drivers for the ag solutions business in 2018, starting with the overall ag-chem market, where our expectations for 2018 remain unchanged from what we saw in November.

We continue to expect the global crop-protection chemical market on a U.S. dollar basis to be flat to up low single digits in 2018. We expect the market in Asia Pacific will grow the fastest, increasing by low to mid-single-digit percent range, driven by India and Southeast Asia. We expect the market in Latin America will increase in the low single digits.

Brazil will be a bit ahead of that base, benefiting from increased acreage for nearly all crops. The market in Argentina should see continued expansion in soybean applications. And in Mexico, we expect growth in niche crops. In North America, we expect the market will be flat to up low single digits as farm incomes remain below trend.

Growth will come from post-emergent herbicides and a modest increase in soybean acreage in general. We expect the market in EMEA will be flat to up low single digits. Improved weather and growth in Eastern Europe could provide upside to this forecast. Turning now to a forecast for how FMC will perform in 2018 considering the market conditions just outlined. We expect revenue for legacy ag solutions business will grow 2% to 4%, driven by several factors.

In Brazil, we expect to see a continuation of positive trends in cotton and sugarcane markets, where we are well-positioned, as well as increased demand in the soybean market. In Asia, we anticipate higher demand for our products going to rice, fruit, and vegetables as well as cotton. In Europe, the move to direct market access in France, new products for [Indiscernible] and price increases will all drive growth in FMC -- for FMC in 2018. Moving on to our acquired business, which we expect will grow 6% to 10% in 2018 on a full-year basis, well ahead of the market. This will be driven primarily by increased insecticide revenue.

We believe Cyazypyr insect control is far from its peak in annual sales. In 2018, volumes are expected to grow for cotton and soybean applications in Brazil. New product registrations in EMEA will also drive growth. Rynaxypyr insect control will continue to expand into new crops and geographies such as rice and sugarcane in India and further penetrate into Southeast Asia.

Finally, we also expect to increase sales of our acquired SU herbicide with new formulations in North America for cereal applications. As I said earlier, the integration process is progressing very well after almost four months of ownership. Our 2018 guidance reflects what we believe will be the maximum operating cost as a percentage of revenue for our combined ag solutions businesses. Our assumptions for gross margin, R&D expenses, and SG&A expenses are not meaningfully different than what we have shared with you on calls last year.

But as the DuPont transition service agreement roll off and as we implement a new SAP system in 2019, we will see further cost savings and improvements in EBITDA margins. Turning to Slide 9, and starting with the our views on the lithium market. In summary, we expect global demand for lithium on an LCE basis to grow from about 200,000 metric ton in 2017 to 335,000 metric tons by 2020 and to 1 million metric tons by 2025. This is an average annual growth rate of over 20%. On the supply side, despite recent news out of Chile, we believe that supply for high-cost spodumene producers will continue to be needed to meet the end market demand in every year through at least 2025.

We expect this will create a price floor for lithium carbonate of low double-digit dollars per kilogram for at least the next seven years. FMC is very well positioned to take advantage of these market conditions. Our business is focused on lithium hydroxide, and we have demonstrated that our approach to expanding our hydroxide capacity is more than capable of meeting the growth in demand with relatively low capital needs. Our low-cost carbonate production resource in Argentina are capable of expansion to at least 3x our current capacity, and we have secured the necessary agreements with the local and national governments to allow us to pursue an expansion of this scale.

In 2018, prices will be higher than in 2017 across all our product categories. The majority of our 2018 forecast revenue falls under multiyear contracts that have defined pricing already in place. We expect this trend of customers looking for longer-term supply commitments to continue, especially in hydroxide, reflecting customers' general view that supply will remain tight into the foreseeable future. In 2018, FMC will produce more lithium hydroxide as well as more base LCEs than in 2017.

FMC was the only producer to have significant hydroxide capacity in 2017 when we expanded our production capacity from 10,000 tons to 19,000 tons. We will realize significant growth in 2018 as we run our China plant for a full year. Our next phase of hydroxide expansion should see us commissioning at least one additional 4,000 ton unit by the end of this year. In Argentina, we expect to produce about 21,000 LCEs in 2018, up from 18,500 tons last year as we realize higher volumes due to the de-bottleneckingnecking project at our plant.

The completion of this project will lead to an incremental increase in LCEs produced as the year progresses. The subsequent expansion project in Argentina will add around 10,000 tons of lithium carbonate capacity by the end of 2020 and a further 10,000 ton increase by 2022. These first two increments are expected to require total capital spending of around $250 million to $300 million, as we have previously stated. We are currently exploring adding a third carbonate expansion phase, providing a further 20,000 tons of capacity by 2025 at the latest.

Moving on to market demand. We believe that today, too much of investor focus is on supply and not enough on demand. In particular, we believe the investment community as a whole has yet to absorb the impact that the growth in demand for electric vehicles in the coming years will have on the lithium industry. Simply adding mining or extraction capacity will not be enough without the corresponding increase in manufacturing capacity for battery-grade lithium products that are in a form that the customers can use.

Equally, producing technical-grade carbonate that needs to be further processed to remove impurities will simply add to the cost of that product. And as we move to nickel-rich cathodes in the high-performance batteries, hydroxide will become a requirement in the production process, not just a preferred option. A view of the demand outlook is summarized on Slide 10. Clearly, the source of growth for lithium demand is the rapid penetration of pure EVs into the global auto market.

We model the growth of EVs at the individual vehicle level based on public announcements as well as own directing directions we book to manufacturers and their suppliers. The chart on the left shows the growth of pure electric vehicles, and a few things stand out. First, we expect pure EV penetration to reach 2.5% by 2020 and 12% by 2025. The source of this growth is multiple launches by over 30 manufacturers.

This is not dependent on any one manufacturer. And it shows the influence of China as this country maintains its position as the largest single market for electric vehicles. Of course, this growth in EVs needs to be converted into demand forecast for lithium. The right-hand side of the chart shows how important the EVs will be to the market as a whole by 2025.

And equally important, you can see that the nature of the growth in demand is such that there will be heavy shift toward lithium hydroxide. We reached these conclusions through a vehicle-by-vehicle assessment of the battery technology and size, which we expect to be used in each announced vehicle, as well as through discussions with the customers and end users. In fact, many of our customers and the ultimate end users of lithium are coming to FMC today looking for multi-years contract that commence in 2019 or 2020, demonstrating their confidence in the demand growth shown here. Ultimately, it is the detail in the [indiscernible] of future demand that gives us the confidence to pursue a strategy in lithium.

Now let me move on to the supply side of the equation. There is another reality that we believe the market as a whole is not correctly as it seems. We have seen repeated example of new entrants making large claims about intended capacity additions that are ultimately proven to be far too ambitious. Even a simple review will show that almost without sale, the capital cost increase significantly and the start-up dates are pushed further and further back.

Once projects have been brought online, we have seen production rate that fall far short of nameplate capacity, product quality that is inconsistent and operating costs per unit of production that are far higher than what was originally projected. What is possible today to construct the cost curve using announced project that suggests a risk of oversupply in the future, all available evidence suggest that this is highly unlikely to occur. The supply curves are well known to you all, and the current status shown on the left side of Slide 11 is reasonably well understood and accepted. It is clear that incremental terms of supply is coming from high-cost spodumene, which is being shipped to convertors in China.

We have marked a range for the market price based on data published by others. The prices publicized by our competitors have been realized price, plus those quoted by different market observers such as benchmark minerals indicate a price range of between $11 and $14 for carbonate in most markets today. On the right side of Slide 11 is the cost curve we expect in 2020, taking into account all of the expansions that have been made public. I would point out a few key items on here.

First, you can see that at today's price range for carbonate, the higher royalties payable in Chile means that there is no meaningful cost difference between carbonate produced in Argentina and in Chile. Second, the marginal producer of carbonate remains the high-cost spodumene source and will likely remain so even if demand failed by around 10% from our forecast. There is simply not enough brine capacity of being added by 2020 to change this. When you overlay the price range from today out to 2020, you ended with a chart that looks remarkably similar to the situation we saw in 2017.

We acknowledge that there are many differing opinions about supply and demand growth over the coming decade and that this knowledge could see positive and negative surprises. However, we remain of the view that the risk to the demand side are that we are underestimating the level of EV demand and that the risk of the supply side is that we are being overoptimistic about industry's ability to add capacity on time and on budget. I will now turn the call over to Paul.

Paul Graves -- Executive Vice President and Chief Financial Officer

Thank you, Pierre. 2017 saw a solid cash flow performance, driven by a significant improvement in cash collection in Brazil. One important metric that we track is, of course, past due receivables in Brazil, which have declined by almost 30% compared to the end of 2016. While we do not expect past dues to completely disappear, we believe that 2018 should see us move back to levels consistent with historical performance.

For the full year, we saw adjusted cash from operations slightly below 2016. However, this was entirely due to a cash outflow in the final two months from the acquired business as we started to build trade receivables. As you recall, we did not acquire any of the receivables with the business, creating this oneoff cash flow in the quarter. Net debt finished the year at just under $3 billion, reflecting the $1.2 billion payment to DuPont made in the fourth quarter.

One important area that is getting a lot of attention today is the tax rate. We finished 2017 exactly where we expected with an effective tax rate of approximately 15%. This rate reflects the fact that the majority of our income is generated in lower-tax jurisdictions, reflecting the nature of our supply chain and our revenue mix. Looking forward to 2018 and beyond, recently enacted tax reform in the U.S.

impacts us in three main ways. First of all, we will have a transition tax payable over the next eight years of approximately $200 million, reflecting tax on overseas retained income. This will impact cash flows in the coming years but will not impact our effective tax rate. Second, we see a one-off charge to GAAP earnings, reflecting the revaluation of certain assets, most notably deferred tax assets, of around $160 million.

Again, this will not impact our future effective tax rate. And third, we will see a rise in our effective tax rate for 2018 as a result of the imposition of what is effectively a minimum tax on overseas income, combined with the restriction on the use of foreign tax credit to offset this additional tax. What this means to FMC is that wherever we see a tax rate outside the U.S. of less than around 13%, we will be hit with an additional U.S.

tax bill under the guilty provisions of the tax reform. For us, the offsetting reduction in the U.S. tax rate will not be sufficient to offset this minimum overseas tax surcharge since we do not generate significant U.S. income today.

While this change is a little as the result of the acquisition of assets from DuPont, the net effect is that our effective tax rate for 2018 is likely to increase by about 300 basis points at the midpoint of the range to 18%. I would caution you, we continue to work our way through what a very complex calculations and legislation that in many areas is somewhat ambiguously worded. We will continue to refine our calculations and seek clarity as to the treatment of certain items, and you should expect us to update you on our estimate as for the tax rate in each of the coming quarters. Looking into 2018 for cash flow.

We expect to generate adjusted cash from operations in the range of $550 million to $650 million. Capital spending will increase to around $250 million at the midpoint. Lithium will invest around $105 million, led by the expansion of lithium carbonate capacity in Argentina and the continued addition of lithium hydroxide capacity. The benefits of these investments will start to accrue later in 2018 for the carbonate de-bottleneckingnecking, in 2019 for the hydroxide expansions and in 2020 for the carbonate expansion.

Ag Solutions capital spending is expected to be approximately $95 million, and corporate-level CAPEX will be approximately $50 million, which is mainly the initial spending on the 2-year implementation of a new SAP system. Finally, the Lithium separation remains on track. We expect to be in a position to file initial drafts of the required documents with the SEC in the summer of this year, which gives us confidence that we will list Lithium in the late third or early fourth quarter of 2018, with the full separation from FMC taking place late in the first quarter of 2019. And with that, I will hand the call back to Pierre.

Pierre Brondeau -- President, Chief Executive Officer, and Chairman

Thank you, Paul. In summary, we feel very good about where FMC is today. Our Ag Solutions business delivered a strong Q4, and we are set to deliver an exceptional 2018, with revenue growth significantly above the market growth rate. The integration of the acquired business is progressing very well.

We are in the early stages of understanding the growth synergies, and we will communicate further regarding scale of these synergies on future calls. Lithium had a very strong quarter to finish the year and is on track to deliver another exceptional year in 2018. With that, I will now turn the call back to the operator for questions. Thank you for your attention.

Questions and Answers:

Operator

Thank you. If you would like to ask a question at this time, please press * then the no.1 on your telephone keypad. Please limit yourself to one question. you may reenter the queue, we will take follow-up questions if time permits.

To withdraw your question, please press the # key. We will pause for a moment to comple the Q&A rosetr. Your first question comes from the line of Steve Byrne with Bank of America. Please go ahead.

Steve Byrne -- Bank of America -- Analyst

Yes, thank you. How proprietary and/or differentiated would you assess your hydroxide conversion capacity to be relative to the capacity that's out there in the industry? And do you have any Chinese partners for your operations in China?

Tom Schneberger -- Vice President and Global Business Director, FMC Lithium

Steve, this is Tom. I didn't quite hear the second part of your question, so let me answer the first one first and then maybe you can restate that. In terms of differentiation of our hydroxide product, really, what it comes down to is how that product performs. There's not a spec out there that is specified where somebody could produce a product, measure against that spec and then know exactly how that's going to perform in the cathode material.

So our assets as well as our production processes are geared around detailed processes to produce specific products that then we test and we understand the performance characteristics of that product. And that's how it's going to continue going forward. Can you restate the second part of that question?

Steve Byrne -- Bank of America -- Analyst

Yes, sure, Tom. It's kind of an extension on that and that is, do you have Chinese partners for your capacity in China and, therefore, the risk to ultimately losing that technological edge?

Tom Schneberger -- Vice President and Global Business Director, FMC Lithium

Yes. Partners is a good way to say it. And what we did was we began a partnership with a long-standing partnership of our Ag business. We invest in the assets.

We manage the technology, and we keep tight control over the sensitivity of that technology.

Pierre Brondeau -- President, Chief Executive Officer, and Chairman

One comment I would add to what Tom is saying is the -- we have a very thorough process to protect our process technology. I believe there might not be more than two people within all of FMC and our partners who have a full understanding of this process. So we have a way to protect the process technology by segregating part of the process, and nobody has a complete visibility onto the process and how the parameters of the process impact the performance of the products.

Steve Byrne -- Bank of America -- Analyst

[Inaudible] forecast, is that consistent with what your expectations were prior to acquiring this business? And do you see any longer-term acceleration in that by either expanding those -- the Rynaxypyr, Cyazypyr into new markets and/or recruiting new formulations?

Pierre Brondeau -- President, Chief Executive Officer, and Chairman

I think for some reason, we have a little bit of a connection problem. We couldn't hear the beginning of the question. But in a few words, what we believe is that Rynaxypyr, Cyazypyr and overall the acquired market is performing at least at the level of our expectations from where we do have markets and applications today. There is definitely a process, and you can see it through our comments, for example, what we said about Asia, India, Southeast Asia where we do have increased penetration of new crops, new registration, new formulations for product, which are allowing to grow faster.

Needless to say that in the coming years, FMC will also be looking at developing new products from those base chemistry. The last point we have not touched here and we are gathering a lot of data is around growth synergies. We do believe there is significant growth synergies to be seen in the years to come between the FMC and the acquired portfolio, allowing additional growth to what we have talked about. So I would say, all in all, everything we are seeing and we're operating is it's very positive for us.

And I don't believe we are capturing all of the potential today of -- in the numbers we are presenting.

Operator

Thank you. And as a reminder, please limit yourself to one question and then reenter the queue, well take follow-up questions as permited. Our next question comes from the line of Frank Mitsch with Wells Fargo. Please go ahead.

Frank Mitsch -- Wells Fargo -- Analyst

Yeah, good morning, and congrats on a nice end of the year. Pierre, you were talking about Brazil for full year '17 of being able to generate 15% growth, whereas the market was down 10%. I was curious as to what percent of that preferential performance was due to some prior actions you took on your channel inventories versus market growth and how we should think about your ability to continue to outperform in that part of the world.

Pierre Brondeau -- President, Chief Executive Officer, and Chairman

I think I would say, when you look at a plus 15% in the market shrinking 10%, there is two reasons to the performance. One is the fact that we are one of the very few companies, compared to others, which are operating with almost, I would call, a normal level of inventory in the channel. So we are not in a growth penalized by products which were in the channel, lowering our ability to sell into the channel, allowing us to have growth rate which are closer to product on the ground utilization. Now the number is, of course, increased by the fact that as we've been taking measures over last two years and moving away from some low profitability-generated products, you are comparing to -- for us, to sales which were understated because of the actions we are taking.

So those are the two reasons for which we are outperforming so much. Do we expect to outperform the market next year? Yes, we do. Do we expect to outperform the market by the same extent? Certainly not because we had -- we're going to have a tougher comparison when comparing to 2017 performance.

Operator

Thank you. And our next question comes from the line of Chris Parkinson with Crédit Suisse. Please go ahead

Chris Parkinson -- Credit Suisse -- Analyst

Thank you. Apologies for being a little shortsighted, but your 1Q EPS guidance is particularly strong, which appears to be driven mainly by the Ag segment. Can you just kindly comment on your expectation for your legacy ag asset growth as well as the seasonal cadence for the DuPont assets and whether or not you'd expect any considerable FX tailwind? And also, are there any key trends within product mix which should further benefit margins?

Pierre Brondeau -- President, Chief Executive Officer, and Chairman

Alright. Thank you. Those are some questions. Let me talk about the cadence.

I'll ask Mark to comment about legacy products growth. We announced our legacy business will grow in the 2% to 4%, which is above market we're expecting. So Mark will comment about that, and maybe Paul will say a couple of words around FX. The cadence, as you can see, we do have a first quarter which is stronger as a percentage of the overall business than we used to have.

And it's something which is important, very good for us with the acquired business. If you think about FMC legacy business, we would have slightly above 60%, 6-0, 60% of the business in the back end of the year, mostly driven by the size of our business in Brazil and Latin America. So it's 60% in the back end, 40% in the front end. If you look at the acquired business, it is reversed.

It's slightly above 60% in the first half and 40% in the second half of the year. And this is driven by the size of the business for the acquired business in Europe and North America with a very strong underlying business in Asia and smaller business in Latin America and Brazil. So what it does to us, it rebalances across all of the quarters, and as we wanted, decrease our exposure to Brazil and Latin America. Mark, do you want to talk about the growth of the legacy business?

Mark Douglas -- President, FMC Agricultural Solutions

Yes. Of course, as Pierre mentioned, we're expecting a range of about 2% to 4% growth for the full year. That's going to be pretty evenly spread across the four quarters. We're already seeing Q1 well into the business in North America where the retail is getting ready for the season in the Midwest.

I would say the market in California or in the West has kicked off a little earlier than normal, so that's going to help in Q1. Around the rest of the world, in Europe, we're seeing growth, as we said, from our business, particularly in France. This is our first year of direct market access. So we're out in the market now selling, and that's going very well.

So I think that 2% to 4% range is roughly what you should expect per quarter as we go through the year.

Paul Graves -- Executive Vice President and Chief Financial Officer

Yes, the FX question, I think pretty straightforward. The euro is the only exchange rate that really had a meaningful difference on a budget basis, think about how we hedge forward compared to what we saw in 2017. A few small changes in other currencies. The net impact of this is actually relatively small across the entire business.

We do have a small tailwind, very low single-digits percent increase in revenue and a very small tailwind to operating profit as well as a result of the forecast FX rates, but really not meaningful numbers.

Operator

Thank you. And the last -- next question comes from Aleksey Yefremov with Nomura. Please go ahead.

Aleksey Yefremov -- Nomura -- Analyst

Good morning, thank you. In your Lithium business, you earned about $48 million EBITDA in the fourth quarter, and you're guiding to $44 million to $48 million in Q1 '18 and sort of similar level for the rest of 2018, if I just average your annual guidance. Can you help us build the bridge between your fourth quarter result and average cadence in 2018? And I mean, the bridge if you look at sequential price changes and also volume.

Pierre Brondeau -- President, Chief Executive Officer, and Chairman

I think the operation for Lithium in the first quarter are about the same. I mean, there is no fundamental change in the business in the first quarter versus the fourth quarter. It is the sequential comparison between Q4 and Q1. If you look back at historical performance, it's the same.

The fourth quarter is historically a quarter which is a strong quarter. Sales are high, and the products out of Argentina, because of the seasonality of our production, are very high. So it is just a normal sequential. And you will most likely see when you look at -- on a quarterly basis for this year, you'll most likely see a stronger fourth quarter than you will see first quarter.

You will see earnings ramping up and being at the highest level in the fourth quarter. First quarter, there is a good thing about the first quarter. If you look at the sales to earnings, it's a high-profit quarter because the mix is favorable. So there is nothing fundamentally different.

It's mostly driven by Q4 performance by production -- seasonal production in Argentina and first quarter margin by product mix.

Operator

Thank you. The next question comes from Joel Jackson with BMO Capital Markets. Please go ahead.

Joel Jackson -- BMO Capital Markets -- Analyst

hi, good morning. Maybe, Paul, on Lithium. It seems like there'll be short carbonate in 2019. Is that true? And then how will that work out? Will you maybe run hydroxide a little bit lower? Will you go into the market and purchase carbonate? What will margins look like? It seems like the Nemaska project being on finance will probably not be able to offer your carbonate for at least a couple of years, so maybe you could just elaborate on that.

Tom Schneberger -- Vice President and Global Business Director, FMC Lithium

This is Tom. Yes, I mean, it's a little bit early to be forecasting 2019, but I'll give you an indication of where things are. The de-bottlenecking will come in over the course of 2018, and there's potential upside there. This is a number of different projects that have different characteristics on yield and some incremental capability of equipment that we may see additional there.

We do expect Nemaska volume to begin in 2019, and we still need to see, to your point, how much of that volume will be there, but there are commitments and penalties to that end. And we continue, I would say, a multipronged effort on the acquisition of carbonate elsewhere. So as you know, in 2018, we'll continue to be long carbonate, and we have the ability to shift LCEs toward hydroxide to continue to grow. We have potential for more de-bottlenecking, and we have the potential of more LCEs from the outside as well.

Operator

Thank you. And our next question comes from Dmitry Silversteyn with Longbow. Please go ahead.

Dmitry Silversteyn -- Longbow -- Analyst

Good morning. Thanks for taking my question. Just looking at the time line of the Lithium spinoff, I think you talked about as recently as the third quarter conference call of doing this midyear 2018, but now it looks like the initials move is going to be made in the second half of the year and then the full spinoff in the first quarter of 2019. Am I just misremembering or making too much of the changes in timing? Or is there something going on that you pushed back the timing?

Paul Graves -- Executive Vice President and Chief Financial Officer

It's Paul. No, we've always had really Q3 lined up. It's largely driven, frankly, by requirements for listing a public company, SEC filing, the need for audited financials, the need for quarterly financials. It's -- we are really exactly where we always said we wanted to be, internally at least, when we first announced this almost -- some -- almost a year ago.

So no. If we've made statements that implied the summer for an actual listing, then that's probably incorrect because in the past, there's always been an expectation of a Q3 listing.

Operator

Thank you. And our next question comes from Mike Sison with KeyBanc. Please go ahead.

Mike Sison -- KeyBanc Capital Markets -- Analyst

Hey, guys. Nice quarter.

Pierre Brondeau -- President, Chief Executive Officer, and Chairman

Thank you.

Mike Sison -- KeyBanc Capital Markets -- Analyst

You seem pretty positive or bullish on lithium demand through 2020 and 2025. If you think about what the Lithium business could earn in EBITDA by 2020 and '25, any thoughts on the earnings power there? And how much capital cost to sort of get to that potential?

Paul Graves -- Executive Vice President and Chief Financial Officer

If it was early for Tom to forecast 2019, then forecasting 2025 is asking a lot, Mike. I think a couple of comments I'd just make. I think the capital commitment we've laid out there for the expansion in here is pretty straightforward. We took about $250 million to $300 million for a 20,000 ton expansion.

As we expand further in Argentina, we would expect a similar kind of cost, maybe a little less for the next phase, although we're still working on that, so I wouldn't want to stick a pin in it yet. On the hydroxide side, again, it really sort of depends on where we put the units. There is a meaningful difference between the capital cost in different parts of the world, but you also get a -- in return for that, typically an inverse correlation between operating costs. So we will go through that and work out where is the best place to put these units based on demand, based upon supply of carbonate, et cetera, but it's a much, much lower capital commitment that comes through there.

Now this business today operates at an EBITDA margin of about 45% or so. And I think we've been pretty clear that we -- where we view pricing to be into the future and I think we have a pretty clear view to how many LCEs we'll be producing. I think you guys can probably knock out pretty easily a headline view of what you think the earnings power of the business might be under those scenarios.

Operator

Thank you. And our next question comes from Don Carson with Susquehanna. Please go ahead

Don Carson -- Susquehanna -- Analyst

I want to go back to the cost synergy outlook for Ag Solutions. In the past, you've talked about $40 million to $80 million, and I know your cost synergies are different because it's a question of what costs you bring in. So as you've had a chance to run the new business and as the DuPont TSA rolls off, what's your current view on cost synergies for Ag?

Pierre Brondeau -- President, Chief Executive Officer, and Chairman

So I mean, you said it, Don. There is no cost synergies per se. We always talk about that as a tool to try to model EPS for 2018 based on the negotiation we made when we acquired the business. So where we are today is we have structured an organization which can run a $4 billion-plus business with a TSA supporting the acquired business.

We spend about $50 million per year on that TSA, and that TSA runs until end of 2019. Today, we have not been able -- we are not separating the functional organization. And we just have an organization which supports the entire business. So the way we look at it is what we have today is a structure which supports, as I said, a $4 billion-plus business with minimum -- what we believe as being minimum EBITDA margin for this year on an average of 27%.

Then new projects will [ start ] toward the end of 2019, what will be happening then is we will have implemented, and we started the process a month ago now, we will have implemented a brand-new SAP system, S/4HANA, and we will be rolling out -- rolling off the TSA. Now we have not yet done a calculation of what potential savings. But to think about three digits in million dollars by the time we are rolling off the TSA and having a new SAP is not a stretch. So what we are thinking is we're operating today with a 27% EBITDA margin.

Could we -- could it get better? Yes, it could. We are adding very carefully resources to operate our business. And then you project yourself two years down the road and you can eliminate $100 million of costs.

Operator

Thank you. The next question comes from Daniel Jester with Citi. Please go ahead.

Daniel Jester -- Citi -- Analyst

Hi, good morning, everyone. A couple more on Lithium. Sorry if I missed this, but did you comment on the hydroxide operating rate in the quarter? I think, previously, you had said that you were running above the nameplate capacity. So I was wondering if you're able to sustain that.

And then just secondly, you commented earlier about having conversations for 2019, 2020 sales in the Lithium business. Would it be fair to say that you would lock in some contracts before you would build your further hydroxide expansion? Thanks.

Pierre Brondeau -- President, Chief Executive Officer, and Chairman

Yes, we are demonstrating our ability. Initially, we believe the two units for lithium hydroxide in China should be able to produce 8,000 tons per year, and we are operating and have been able to operate throughout the quarter above the number. So yes, expectation that will be at or north of 9,000 tons of lithium hydroxide potential with these two units is being confirmed. We are planning to add another unit in China of lithium hydroxide and then another two -- couple of units, most likely in North America for at least one of them.

And we will have the exact same process, which we move the securing contract before the French started. But with what we see of the demand today, discussion we have with customers, as it was the case for the first unit, we believe the unit will be sold out before we start operation.

Operator

Thank you. The next question comes from Mike Harrison with Seaport Global. Please go ahead.

Mike Harrison -- Seaport Global -- Analyst

Hi, good morning.

Pierre Brondeau -- President, Chief Executive Officer, and Chairman

Good morning.

Mike Harrison -- Seaport Global -- Analyst

The -- in the Ag business, your Latin America sales you mentioned for the full year were up 15%, but they were lighter than that in the legacy business, looked like only 3% this quarter. Is that just a matter of lapping some tougher comps? Or can you maybe give a little bit more color on kind of how the underlying market looked in Latin America and how it's been trending?

Mark Douglas -- President, FMC Agricultural Solutions

Yes, Mike. Taking Latin America overall, I think Pierre alluded to earlier that we think the Brazilian market is probably down 9% to 10% full year. When you look at our business in Brazil, we're up significantly. As you said, we were -- we had about a 3% growth in the fourth quarter.

I think one of the things that you have to recognize is that's exactly how we planned it. If you remember, Q3 was a very large quarter for us. We knew that was the cadence that was going to happen, so we fully forecasted that type of growth rate. I think going around the rest of the region, Mexico is very good for us.

Good growth in niche crops. Obviously, the newly acquired portfolio helps us there tremendously as well. In Argentina, market was very tough weather-wise. We see continued expansion of the pre-emergentnt herbicides with our Authority brand.

So Argentina was good for us in the second half of the year, expect that to continue as well. So overall, Latin America performed very well for us.

Operator

Thank you. The next question comes from Laurence Alexander with Jefferies. Please go ahead.

Dan Rizzo -- Jefferies -- Analyst

Hi, this is Dan Rizzo on for Laurence. How are you?

Mark Douglas -- President, FMC Agricultural Solutions

Good morning.

Dan Rizzo -- Jefferies -- Analyst

Could you comment on what you're seeing in terms of pest pressures and channel inventories in North America just given the weather we've had in North America over the past couple of months? Has anything changed in terms of outlook for that?

Mark Douglas -- President, FMC Agricultural Solutions

Dan, no, not really. I mean, it obviously is very early to tell whether what the pest pressure is going to be like. I can tell you, though, from a herbicide perspective, our sales already for pre-emergentnt Authority for soy is very, very strong. So clearly, retail and distribution are gearing up for a very strong soy season, which will benefit us.

With channel inventories, I think different companies have different channel inventories. We've said it in the past for us, we think in-soil insecticides is a high for us. They will come down over the next season. But from a herbicide perspective, we're exactly where we want to be.

Operator

Thank you. And our next question comes from Arun Viswanathan with RBC Capital Markets. Please go ahead.

Arun Viswanathan -- RBC Capital Markets -- Analyst

Great. Thanks. Just wanted to get a question in on Lithium here. Maybe you can just comment on your outlook for pricing given that effective capacity, on your slide, looks like it could be above demand through 2020.

Tom Schneberger -- Vice President and Global Business Director, FMC Lithium

Yes, this is Tom. First, let me comment on the effective capacity being above demand. If you look at 2017, effective capacity results were above demand. It doesn't mean that the right products are getting to the customers.

We saw 2017 demand limited by supply, and we saw prices up substantially in 2017. So the same could occur even though effective capacity is above demand. Looking at what we see 2017 to 2018, we've gotten price increases across all of our products. If you take the midpoint of the revenue and the LCEs, you can come pretty close to see that we got a revenue per LCE that is well above the market, and that is driven by a mid-teens increase in our lithium hydroxide product line.

Operator

Thank you. The next question will come from Mark Connelly with Stephens Inc. Please go ahead.

Mark Connelly -- Stephens Inc. -- Analyst

Pierre, when we look at your Ag business and all the markets you're expanding into, how much work do you have left to do in terms of capital, people or partners to really build out the distribution you need to take full advantage of that? I'm talking India and all the other new stuff.

Pierre Brondeau -- President, Chief Executive Officer, and Chairman

I think the integration is moving forward quite well. The supply chain between thetwo businesses are being integrated. And we do have capacity without own manufacturers, which is well in place. If I would say we have work to do and Mark's organization is doing a lot of work, I believe once the synergies are going to be in place that we do have upside to any numbers we are now seeing.

So what -- where we do have work to do today is finding capacity increase in our own acquired business manufacturing network. That's where we want to add capacity as fast as we can because we have, as you can see, extreme synergies. We have a 6% to 10% growth, and we see that being the case for the future. So that's where we are working at forecasting for the future.

Mark, do you have any additional comments?

Mark Douglas -- President, FMC Agricultural Solutions

Yes. The only thing I would add to that is from the legacy FMC pipeline that's coming out of research, we now have products that are getting close enough that we're thinking about brand-new capacity for those new active ingredients. So that's part of that overall capacity view of our supply chain. So we would expect to be making those investments outside the next 12-month period, but it's coming quickly.

Pierre Brondeau -- President, Chief Executive Officer, and Chairman

And it is more a -- I would say, a normal course of business planning in a situation where we believe we're going to have very interesting growth rate for this business versus the market than an integration challenge.

Operator

Thank you. And we have no further questions in queue. Mr. Wherley, please continue with closing remarks.

Michael Wherley -- Director of Investor Relations

Thank you. That's all the time we have for the call today. As always, I'm available following the call to address any additional questions you may have. Thank you, and have a good day.

Operator

Thank you, and that's all the time we have for today. This concludes the FMC Corporation Fourth Quarter 2017 Earnings Release Conference Call. You may now disconnect.

Duration: 66 minutes

Call Participants:

Michael Wherley -- Director of Investor Relations

Pierre Brondeau -- President, Chief Executive Officer, and Chairman

Paul Graves -- Executive Vice President and Chief Financial Officer

Steve Byrne -- Bank of America -- Analyst

Tom Schneberger -- Vice President and Global Business Director, FMC Lithium

Frank Mitsch -- Wells Fargo -- Analyst

Chris Parkinson -- Credit Suisse -- Analyst

Mark Douglas -- President, FMC Agricultural Solutions

Aleksey Yefremov -- Nomura -- Analyst

Joel Jackson -- BMO Capital Markets -- Analyst

Dmitry Silversteyn -- Longbow -- Analyst

Mike Sison -- KeyBanc Capital Markets -- Analyst

Don Carson -- Susquehanna -- Analyst

Daniel Jester -- Citi -- Analyst

Mike Harrison -- Seaport Global -- Analyst

Dan Rizzo -- Jefferies -- Analyst

Arun Viswanathan -- RBC Capital Markets -- Analyst

Mark Connelly -- Stephens Inc. -- Analyst

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