Feb 5, 2015
Executives
Alisha Bellezza - Director of Investor Relations Pierre R. Brondeau - Chairman, Chief Executive Officer, President and Chairman of Executive Committee Paul W.
Graves - Chief Financial Officer and Executive Vice President Mark A. Douglas - President of Agricultural Solutions Eric W.
Norris - Vice President and Global Business Director of Health & Nutrition
Analysts
Robert Betz Kevin W. McCarthy - BofA Merrill Lynch, Research Division Michael J.
Harrison - First Analysis Securities Corporation, Research Division Sandy H. Klugman - Vertical Research Partners, LLC Michael J.
Sison - KeyBanc Capital Markets Inc., Research Division Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division Laurence Alexander - Jefferies LLC, Research Division Dmitry Silversteyn - Longbow Research LLC
Operator
Ladies and gentlemen, good morning, and welcome to the Fourth Quarter 2014 Earnings Release Conference Call for FMC Corporation. [Operator Instructions] I'll now turn the conference over to Ms.
Alisha Bellezza, Director, Investor Relations for FMC Corporation. Ms.
Bellezza, you may begin.
Alisha Bellezza
Thank you, John. Good morning, everybody, and welcome to FMC Corporation's fourth quarter earnings call.
With me today are Pierre Brondeau, President, Chief Executive Officer and Chairman, who will review our quarter performance and business segment results and provide insights into our 2015 outlook; and Paul Graves, Executive Vice President and Chief Financial Officer, who will present select financial results. Following his comments, we will be joined by Mark Douglas, President, FMC Agricultural Solutions; Ed Flynn, President, FMC Minerals; Eric Norris, Vice President and Business Director, FMC Health and Nutrition; and Thomas Schneberger, Vice President and Global Business Director of FMC Lithium, to address your questions.
Today's discussion will include forward-looking statements that are subject to various risks and uncertainties concerning specific risk factors, including but not limited to those factors identified in our release and in 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 that we may refer to during today's conference call, are provided on our website. I will now turn the call over to Pierre.
Pierre R. Brondeau
Thank you, Alisha, and good morning, everyone. Before I begin, I would like to take a moment to introduce Eric Norris and Tom Schneberger, both named to their positions recently.
Each has held leadership positions across multiple businesses within FMC and bring a wealth of experience to these roles. We are confident, given their successful track record, that they will provide the right leadership for the Health and Nutrition and Lithium businesses.
Now I would like to start with some comments on market conditions in the fourth quarter. In Agricultural markets, we saw difficult market conditions in Brazil during the fourth quarter, including weak demand in sugarcane and cotton and high channel inventories in all areas.
Acres were planted much later than normal during the season and resulted in lower-than-expected demand for crop protection products, particularly for cotton. Together, this led to weaker performance in Brazil than the previous-year quarter.
In other parts of Latin America, markets remained strong, especially in Mexico and Argentina. Mexico is currently benefiting from increasing demand for vegetable export and a government program to invest in agriculture.
Argentina now grows the third largest soybean crop globally, and glad to say resistance continues to spread. This is leading to continuing demand growth for FMC's pre-emergent herbicide.
In North America, we saw stronger demand for herbicides that address weed-resistance issues in soybeans and rice, and reduced demand for corn-focused products. This is consistent with third-party expectation that soy acres will be larger than corn acres in 2015.
We expect to get more information on the extent of this trend when the USDA Prospective Planting report is issued later this month. Most Asian markets were stronger, but results were reduced by the impact of currency translation, as most regional currencies weakened against the dollar.
We saw underlying demand growth in China, Indonesia and India, although Australia continued to be affected by drought conditions. Crop protection markets in Europe remained solid, with stable acreage in oilseed rape and cereals.
Coming off a strong growing season and supported by moderate winter condition, demand for herbicides remained steady in the fourth quarter. In Health and Nutrition, we saw demand in Asia, and especially in India, driving increased pharmaceutical excipients volumes.
Demand for texture and stability solutions in North America was greater than the previous year. However, the Chinese beverage market continued to be soft.
Market conditions for Lithium products were mixed. Demand for butylithium softened during 2014 with the decision by a large European customer to change its process and no longer use butylithium.
However, demand for this product in other applications is increasing. Lithium demand for energy storage applications continues to grow at double-digit rates.
This has led to a tightening in some segments and created for a more favorable pricing environment, especially for lithium hydroxide. We also saw some tightening in carbonate supply and demand, which we expect will also lead to favorable year-over-year pricing.
Currency volatility was a factor in the fourth quarter. Paul will provide more details on this later, but it was a net headwind in the quarter, mostly in ag business.
In light of these factors and market conditions, in the fourth quarter, FMC generated $1.1 billion in revenue, a 3% decrease over the same quarter last year. Adjusted operating profit increased to $203 million, a 6% increase compared to last year, and adjusted EPS was $1.12, an increase of 7% over last year.
This includes an $0.08 benefit from tax adjustments that Paul will explain further. Today, as we review the segment performance for the fourth quarter 2014, I will provide a view into each segment's earnings outlook for the full year 2015.
I will also comment on some of the factors that will influence first quarter performance. With that, I will now turn to segment results.
Fourth quarter sales in Agricultural Solutions were $627 million, a 7% decrease over last year's record fourth quarter. Segment earnings were $130 million, down 5% over last year.
As I already mentioned, this performance was primarily due to slower demand in Brazil, specifically, delayed planting and lower cotton acreage reduced insecticide and herbicide volumes. In sugarcane, conditions remained weak despite improvement from earlier in the year.
The rapid industry-wide slowdown highlighted the elevated levels of inventory in multiple channels in Brazil, and these contributed to increased pricing pressure and softer volume across all segments. We continued to see positive momentum with increased penetration in soybean.
Importantly, we reduced our sales in low-margin, third-party product, contributing to an improved EBIT margin in the quarter. During the quarter, we saw higher demand for our products in Argentina, Mexico and North America.
Similar to what we saw in the third quarter, our joint venture in Argentina successfully gained share in key markets. This was especially the case in soybeans, as the need for residual herbicides, such as our Authority brands, continue to expand.
In Mexico, as I mentioned, the increase of vegetable export has led to higher demand for insecticide and fungicide products. The peso devaluation has stimulated demand for growers to produce more for U.S.
exports. As you are aware, fourth quarter sales in North America are mainly in anticipation of the next growing season.
In the quarter, as expected, we sold a higher volume of pre-emergent herbicides for soybeans, which was offset by lower year-over-year demand for corn insecticides. Earlier this week, we announced the acquisition of a new active ingredient originally discovered by Kumiai Chemical.
For the year, we collaborated with Kumiai developing this important molecule. It is one of our platform chemistries, and we are very excited by its potential.
We look forward to providing additional insight as part of our R&D review at our Investor Day. As we look at the market for 2015, current data suggests that growers in both North America and Latin America, will favor planting soybeans over corn to de-risk their field.
At current grain prices and with stocking use [ph] at high levels, we are likely to see pricing pressures global for some crop protection products. In light of this, we believe that global ag chem markets are likely to be flat to slightly lower in 2015.
Without a catalyst to change the currency pricing environment, markets could remain flat into 2016. For FMC, this is a significant opportunity to outperform the market and our competitors as we take advantage of the Cheminova integration to reduce operating costs, accelerate innovation and develop and deliver new revenue synergies.
Now looking at the 2015 ag market by region. In Brazil, drier-than-normal condition delayed the past planting season for soy and cotton growers, leading to high inventory throughout the distribution channel.
These elevated levels will certainly be a factor in the first half of the year as growers work through excess stocks. There was an increase in soybean planted area, and we expect this trend to continue this year.
However, cotton area was reduced by nearly 10%, and we anticipate the area to remain flat. Weather conditions for sugarcane, while better, have not yet returned to optimal conditions and the competitive environment remains high.
Government action on ethanol and gasoline prices will play an important role in improving sugarcane economics, serving as a potential demand stimulus. As a result, a slow recovery is expected to take place over the year in this market.
Continuing pest pressures and resistance, along with previously mentioned additional soybean acres, will offset some of the slower demand. Overall, the Brazil crop protection chemicals market is expected to be broadly flat versus last year, with a slow first half as the industry works down channel inventory levels.
Planting intention in the United States suggest additional acres of soybean will be planted at the expense of corn and cotton acres. Weed resistance remains a growing concern across both soy and corn acres and will drive additional demand for selective residual herbicide.
As in other regions, we expect fungicide and insecticide to see the most pressure during 2015 growing season. Taking these together, the market in North America is expected to be down mid-single digits.
In EMEA, acreage is expected to remain stable in cereals and oilseed rape markets. Conditions in 2014 were exceptional and led to a record year for the crop protection market.
In light of last year's performance, the industry expects normal mode [ph] condition in 2015, and excluding the impact of currency, this market is expected to be down low-single-digit percent compared to a very strong 2014. In Asia, we expect increased demand for crop protection products in most markets.
The potential for a better monsoon season is providing optimism for 2015 performance. Rice acres in the region are expected to remain stable to last year, but are expected to use additional crop protection products to maintain yields.
Cereal acreage is also expected to be consistent with last year. Across the region, crop protection is expected to be up low-single-digit percent, excluding the impact of currency.
Let me now comment on how these market characteristics will affect FMC. First, we are on track to close the Cheminova acquisition within this quarter.
Our integration plans are ready, and we will aggressively begin implementation as soon as we close. However, we will have no more than 1 month of combined operations during the first quarter.
Our revenue and cost synergies will be a top priority as we accelerate integration efforts. As such, we expect a strong progression of earnings contribution as the year advances.
For the first quarter, we expect a slow start to the year. North America is expected to be flat to last year, with higher herbicide demand offset by reduced insecticide sales.
EMEA and Asia are also expected to be flat to last year, with some growth coming later in the year. And as I said, we do not expect the acquisition to provide meaningful benefits until second quarter.
As a result, we expect a challenging first quarter in the Ag Solutions segment. For the full year, continued spread of weed resistance in North America and Latin America, and market share gains in Asia and EMEA, will offset pricing pressures and provide earnings growth to our core business.
We will supplement that with a disciplined approach to discretionary spending. In addition, as we target and aggressively realize the cost and revenue synergies, along with earnings contribution for Cheminova, we expect to deliver full year segment earnings 15% to 30% higher than 2014.
Now turning to Health and Nutrition. Fourth quarter segment revenues of $192 million increased 1%, and operating profit of $44 million was 9% higher than last year.
Revenue growth was partially offset by the depreciating euro. Earnings growth was driven by a favorable product mix and benefits for restructuring programs initiated earlier in the year.
These were partially offset by increased raw materials, mainly seaweed. In the quarter, demand in pharmaceutical end market remained solid.
Specifically, demand for our Avicel brand was steady to last quarter and well above last year. This demand continues to be centered in India, the market that supports generic tablets production for Western use.
Similar to last quarter, our nutrition profitability benefit from changes to the original mix of food ingredients sold. In North America, higher volume of texture and stability solutions partially offset a slower demand for beverage producers in China.
Underlying demand for pharmaceutical-grade omega-3 is demonstrating favorable trends, while demand for nutraceutical products remained weak. We continue to focus our strategy toward the high-concentration application.
In the quarter, we launched a new restructuring initiative to improve operational efficiencies and streamline the footprint we acquired over the past few years. We anticipate that implementation will be spread over the first 3 quarters of 2015.
Our previous Manufacturing Excellence programs have delivered benefit that we expect to replicate in Health and Nutrition. Additionally, as part of this program, we have decided to delay the Thailand MCC plant opening and add flexibility to the facility.
Recognizing the increased demand for pharma excipients in India and weaker beverage market conditions in China, we believe adding pharmaceutical processing capabilities to our Thailand plant provides greater long-term flexibly to serve our customer base. We will update you on these restructuring plans at our Investor Day and throughout the year.
For 2015, we expect demand to have similar patterns as in 2014, including increased demand in health markets, particularly in India; and higher demand for nutrition products in North America. In the Chinese beverage market, we expect some recovery will lead to increased colloidal MCC volumes, although we do not expect a rapid return to demand levels seen prior to the slowdown.
As a result, we expect segment earnings for the year to be up mid-single-digit percent over 2014. First half performance will be impacted by recent condition in the North Sea, which prevented seaweed harvesting and led to an unplanned outage of alginate production.
This has resulted in sales delays due to lack of available product. Combined with the softness of colloidal MCC in China that we have mentioned already, we're expecting Health and Nutrition first half performance to be flat versus the same period last year.
And now, let me review Minerals. Fourth quarter segment revenue of $274 million increased 4%, and operating profit of $48 million increased 32% versus the same period last year.
Record production due to Manufacturing Excellence initiatives delivered volume and efficiency gains in alkali. Higher soda ash pricing and improved operations in both alkali and lithium led to increased profitability over the first -- fourth quarter of 2013.
In Alkali Chemicals, revenue of $204 million increased by 7% over the previous-year quarter. Higher realized pricing, favorable freight and logistic adjustments, and additional manufacturing volume generated higher sales and profitability.
In Lithium, sales of $69 million were 3% lower than the previous-year quarter, mainly related to product mix, including the previously mentioned loss of a European butylithium customer. Pricing for lithium hydroxide, largely used in electric-vehicle batteries, was higher than the fourth quarter of 2013.
And we were pleased that the business generated an operating margin in the low-teens percent in 2014. However, during the second half of 2014, the business became more difficult to operate in Argentina, as we're unable to counteract increasing cost trends.
In 2015, we expect supply and demand for energy storage application will continue to support a favorable pricing environment for lithium hydroxide and carbonate. However, adverse currency conditions and escalating operating costs in Argentina are expected to be a significant headwind to earnings.
As such, Lithium segment earnings are expected to be in the range of $15 million to $25 million for the full year. We are taking all actions in our control to reduce cost as much as possible, but Argentina remains a difficult place to operate.
Before I turn the call to Paul, let me comment briefly on the status of the Cheminova transaction. We have received all required regulatory approvals except 2 countries.
We believe those approvals will be prompt and will allow us to close before the end of the first quarter. We were very pleased to announce the sale of Alkali to Tronox earlier this week for $1.64 billion, a multiple of 9.4x 2014 EBITDA.
We launched the sale process in November and were extremely pleased with the level of interest. It was a very competitive process reflecting the high quality of the Alkali business, and we know that Tronox will be a great owner.
I will now turn the call over to Paul to cover financial highlights.
Paul W. Graves
Thanks, Pierre. Let me start with a review of cash flow.
We finished the year with cash from operations, before all separation and M&A-related spending, of approximately $470 million, an increase of 24% compared to 2013. With CapEx and spending on discontinued operations both lower than 2013, our free cash flow, before the separation and M&A-related spending, was more than double that of 2013 at approximately $200 million.
After accounting for all other demands on cash, including net M&A spending, dividends and separation and transaction-related expenses, our net debt at December 31 was $160 million lower than a year earlier. While we're pleased to have increased our cash flow in 2014, we believe we can do much better, and we continue to focus on trade working capital and capital spending as near-term drivers to improve free cash flow.
Working capital consumed approximately $200 million of cash in 2014, which was about $50 million less than in 2013. This was largely due to a higher collection of prepayments for our North American Ag Solutions business compared to 2013, a good signal of 2015 demand.
Despite this, our Agricultural Solutions business, and Brazil in particular, remains the primary consumer of working capital. We continue to focus on the Brazil credit environment, and we're pleased with our collections during the fourth quarter.
The balance remains higher in Brazil than recent years, and we continue to take a very disciplined approach to credit extension and collections. We expect working capital to remain broadly flat across all businesses in 2015.
And moving on to capital spending. Our total cash outflow on CapEx was $225 million, essentially flat to 2013, as we completed certain projects under budget and reduced our spending for other projects.
For 2015, after removing the spending for Alkali, but including estimates for Cheminova, we expect total operating CapEx to be within the range of $150 million to $175 million for the year. And in the next couple of months, we expect to receive just over $1.1 billion in proceeds from the sale of Alkali, net of all taxes and fees.
A brief comment on our tax rate. Our underlying adjusted tax rate in 2014 was approximately 24.5%, basically flat to last year and slightly better than we forecasted.
This was due largely to benefits from geographic mix of earnings, with a larger proportion of our earnings taking place outside the high-tax countries of the U.S. and Brazil than forecast, as well as the renewal of the U.S.
R&D tax credit for 2014 late in December. The full year rate also benefited from one-off discrete items that were primarily a result of year-end revaluations of various tax balances using actual year-end exchange rates.
These items reduced the full year rate by 160 basis points and the full benefits of this was seen in the fourth quarter, as we completed our year-end true up. The effect amounted to approximately $0.08 per share benefit for the quarter versus our expectations.
We have again provided a full reconciliation of our tax rate in a separate note in our earnings release schedules. In 2015, our underlying adjusted tax rate is expected to be between 25% and 27%.
The loss of certain tax deductions we were able to take as part of the Alkali operations, combined with the lack of an R&D tax credit being passed for 2015, are the primary drivers of this increase in our underlying tax rate. However, the higher foreign exchange volatility that we foresee will mean that our reported tax rate in any quarter is likely to become more volatile in 2015.
Now moving on to the impact of foreign exchange rate movements. In 2014, the net impact of foreign currency movements on our reported EBIT was approximately $20 million or $0.11 per diluted share.
This consisted of a mix of transaction, translation and hedging cost impacts. Agricultural Solutions carried most of these costs in its segment results.
The largest currencies which we carry exposure to are the euro, the Brazilian reais, the Chinese renminbi, followed by the Argentine peso and various Asian currencies. And we expect most of these to continue to exhibit greater volatility relative to the dollar in 2015.
In 2015, the impact of the strengthening dollar will be mixed for FMC. At the most basic level, sales we make in currencies that devalue will be lower in U.S.
dollar terms, putting pressure on sales growth when reported in U.S. dollars.
This is especially the case in our Health and Nutrition and Cheminova businesses, given their relatively large euro exposures. However, we also have a significant cost base in Europe, meaning the impact on our earnings will be far more limited than the impact on revenue.
Equally important, we expect those products we manufacture in Europe for export to the U.S. will have a lower cost in U.S.
dollar terms. In Brazil, a devaluing reais is generally a positive to our business, although there is no doubt it is likely to influence some of the dynamics of our operations there.
We price and invoice largely in U.S. dollars and our customers receive the vast majority of their revenues in U.S.
dollars. However, growers typically incur half or more of their total expenses in reais.
This clearly improves the profitability of growers in reais terms, partially shielding them from the depreciation in global agricultural crop prices and creating an incentive to incur more costs locally, where possible. With increased volatility in exchange rates, we expect to see higher cost of hedging in 2015 for all major currencies.
Unlike in prior years, we are not providing a formal full-year EPS guidance with our earnings today. However, based upon the best judgment we have right now, we expect 2015 earnings to be in the range of $3.50 and $3.90 per share.
To place this in the context of 2014 earnings, let me provide a bridge between the 2014 EPS and the midpoint of this range. First of all, the addition of 10 months of Cheminova earnings, including synergies; growth in the earnings contribution from our current ag, Health and Nutrition and Lithium businesses; and the loss of the Alkali earnings, will collectively reduce EPS by $0.10.
Increases in corporate costs, primarily due to higher expected incentive payments, will be a headwind of a further $0.07; and higher interest expense will reduce EPS by $0.06. Finally, a tax rate higher than the unusually low rate we saw in '14 will reduce EPS by an additional $0.12 per share.
This bridge is centered on the midpoint of a range, which itself is much wider than we would typically provide. This is largely due to the impact that the timing of the Cheminova close has upon our ability to accurately forecast our Ag business today, especially in respect to the calendarization of Cheminova earnings and the timing of synergy realization.
In addition, the delay in the closing has prevented us from spending time with Cheminova management to understand their latest expectations for 2015, a process that is critical for us to complete before we can provide detailed full year and quarterly guidance. With that, I will pass the call back to Pierre.
Pierre R. Brondeau
The conditions we are seeing in the agricultural markets today do not change our excitement about the prospects for our business. Agricultural Solutions will continue its focus on innovation and technology and its ongoing investment in market access initiatives.
The acquisition of Cheminova enhances our business, provides greater balance to our portfolio, broadens our geographic reach and accelerates our innovation efforts. Our Health and Nutrition business continues to demonstrate the strength of our franchise with high margin and predictable growth.
We expect our manufacturing excellence programs will deliver additional upside, reinforcing our confidence in the prospects for this business. In Lithium, underlying demand patterns remain attractive, and market dynamics suggest we will see increased pricing opportunities in the coming years.
We will continue to manage our assets in order to maximize returns from the downstream market, where we have a leading position, and we will continue to drive operational excellence as a tool to help offset cost inflation in our Argentina operations. Today, we are demonstrating progress toward a portfolio focused on agricultural, health and nutrition end markets.
The attractive price we achieved in the Alkali sale will allow us to pay down Cheminova acquisition debt more quickly. And the benefits we will deliver from revenue and cost synergies from Cheminova will ensure our earnings growth outperforms the broad ag market.
Across all of our businesses, 2015 will be an important year for FMC. Although we recognize that near-term visibility is muted, we remain very excited about our prospects through 2015 and beyond.
I look forward to seeing you in April to provide more detail on the plans that we are putting in place and to provide more guidance on both near-term performance and the long-range vision we have for FMC. Now I will turn the call over to the operator for questions.
Operator, please?
Operator
[Operator Instructions] Our first question's from the line of John McNulty with Crédit Suisse.
Robert Betz
This is Rob Betz in for John. So on your ag earnings guidance for 2015, can you parse out what you expect earnings growth to be from your core business versus the growth from acquisitions, assuming 10 months of Cheminova that you guys are expecting currently?
Pierre R. Brondeau
Yes. So for the -- if you look at for the overall business, including the acquisition, we gave a pretty broad range of 15% to 30%.
And as Paul said in his message, it is mostly due to the timing of closing and also due to the calendarization. And what we mean by calendarization, you know that Cheminova is much larger in Europe than FMC is.
And Europe is a first-quarter, beginning-of-second-quarter, market. So you could have a very large amount of sales shifting in between February, March and April.
And today, we don't really know where they are. Antitrust rules forbid us to look at what Cheminova is doing.
So we have no visibility how their sales are unfolding within those 3 months. And if they are big in February, they will most likely be lower in March, or they could all be in March and April.
So that creates a very large range for us. The underlying business, as we see it today, if we think about operating within a flattish or low-single-digit market globally, we would see our business in the low-single-digit positive growth.
That's where we would be seeing the core underlying business. The 2%, 3% range will be something which we would expect to see.
Robert Betz
Okay, great. And then just following up, what are the major swing factors in the ag business that would cause you to come in on the low end of the range versus the high end?
Is it all the timing of Cheminova, or is there a possibility that the core business could do better than what you guys have laid out for this year?
Pierre R. Brondeau
For us, I would say the highest uncertainty and what is an additional swing factor to the timing for Cheminova is Brazil. We are quite confident right now in the way things are shaping in Europe, quite confident around the market share gain and position in Asia.
North America looks pretty good, and we start to have a good sense on the fourth quarter. Latin America, South and North, Argentina, Brazil -- Argentina and Mexico are looking pretty good right now.
We have the right products for the right type of resistance. The question mark is Brazil and the level of stock in the channel.
That is the big question mark for us. Together also with questions around how much sugarcane, for example, will be recovering depending upon weather and government stimulus.
So if I put a place of uncertainty, that will be Brazil.
Operator
Your next question comes from Kevin McCarthy from Bank of America Merrill Lynch.
Kevin W. McCarthy - BofA Merrill Lynch, Research Division
My question relates to your capital budget. If we look back about 6 months ago, I think you were planning to spend $270 million to $300 million.
If I heard you right, you came in at $225 million and expect a further decrease to $150 million to $175 million for 2015, so quite a dramatic change there. And I was wondering if you could talk through how you're thinking about capital deployment, what the key decrements might be in those changes.
And if possible, what do you think the future would look like over the medium to long term on capital spend? Does it go flat from these levels or trend otherwise?
Pierre R. Brondeau
Yes. First, if you look at the reduction from $220 million to $150 million, $170 million, so reduction '15 and going forward versus '14, there is a few reasons for that.
First of all, Alkali tend to be a business which is slightly more capital intensive than the other businesses. So it will not be part of the portfolio, where you know we tend to operate ag on an asset-light business.
So there is a capital intensity which is different between those 2 businesses. Also with the completion of the MCC plant, we have way less capital to spend even if we make it more flexible with the pharmaceutical line than the $100 million we've spent over the last 2 years.
So you're going to have a -- at this point, the way we look at Health and Nutrition, we have capacity. It's a matter of rationalization and optimization of our footprint, but we have capacity.
So you bring together the fact that we have -- we are -- we have the capacity that we need in Health and Nutrition; we have an asset-light business model, even with the acquisition of Cheminova; and we have less of an intensity with Alkali leading the portfolio, that will reduce the capital utilization for the next -- for the years to come. So I would say the number you have in front of us for 2015 is going to be a pretty typical number we're going to be facing for the years to come.
The reduction versus where we were in term of forecast and where we are today, it's purely controlling capital spending in light of our -- in light of the economical situation in the ag business. I think we -- like any company in that space, when you face a slowdown in the business, you just control your capital.
We are certainly seeing way less growth in 2015 and '16 in that business than we saw 2 or 3 years ago. So certainly, a reduction in capital spending.
So we've just been managing very, very carefully capital over the last 4, 5 months, when it became clear that 2015 would be a challenging year for companies in the ag world.
Kevin W. McCarthy - BofA Merrill Lynch, Research Division
The second question, maybe also related to cash flow. On the trade working capital side, I know you've been increasingly focused on this area.
And yet, if we look at the December 31 balance sheet, it looks like receivables were up about 18% year-over-year versus sales growth of 4%. So I'm wondering what your view is on the trend on receivables, specifically for 2015.
And are you today restricting more credit to your customers in Brazil? And is that in any way related to your outlook?
Paul W. Graves
Let me answer that in reverse order. We certainly are as disciplined as we've ever been with regard to extending credit in Brazil.
And it's certainly factored into our outlook. Our views on what the credit environment is and where we extend credit is absolutely factored in there.
When I look at our receivables balance today, as we say, it really is almost entirely driven by Brazil. There is no doubt that the comments Pierre made with regard to inventory levels being elevated in Brazil will have an impact on collection rates through 2015.
And so while we don't expect the working capital balance to increase during the year, we'll ultimately expect the receivables balance to make a shift back down to historical levels within the space of a single season. It's likely to take a little bit more than just 2015 to take it back down to historical levels.
Pierre R. Brondeau
And then just to add something on balance sheet. We -- additionally, to be stable, we are working very, very hard on the inventory side of the balance sheet.
We've made some significant progress in ag. I think we are conscious of the situation.
We are conscious also that even if there is not a lot of risk, it's going to be very hard to decrease the receivable piece. So if you can look at the balance sheet we've made, we made and will continue to make strong progress on the inventory side of the balance sheet.
Operator
Your next question comes from Mike Harrison from First Analysis.
Michael J. Harrison - First Analysis Securities Corporation, Research Division
On the ag side, can you talk a little bit about your marketing and development initiatives? Were they higher or lower -- the spending there, higher or lower year-on-year in Q4?
And then for 2015, it sounds like you expect to accelerate some of that spending in order to take advantage of some opportunities that you see in this challenging market. Can you give a little bit more color on why that strategy makes sense rather than pulling back in a challenging market?
Mark A. Douglas
Yes, Mike, it's Mark. Yes, you're right.
In 2014, our expenses for R&D certainly were up on prior year. Part of that is given the fact that we've invested in a long-term pipeline, as well as our short-term developments.
And you saw some of that with the announcement of the new herbicide we're looking at from Kumiai over the last couple weeks. In 2015, we see that continuing in terms of spend on R&D.
We considered a central platform, and I'll be talking more about that in April when we're together. We are offsetting that, though, by controls in other areas in our business in terms of SG&A spend.
Obviously, we're seeing a challenging environment just like everybody else in the space, and we're taking the prudent steps to make sure that we can afford to spend -- expense on R&D appropriately, yet pull back in other areas that in times that are more difficult, makes sense for us. So yes, overall, R&D will be up again in 2015, but it is core to where we're taking the business.
Pierre R. Brondeau
And Mike, in terms of cost control in ag, I would say today, if I look starting in, hopefully, in March, we have tremendous opportunities to reduce our cost through the Cheminova integration. So that will be our first focus.
When you run an R&D portfolio, and we think we have a very strong R&D portfolio, a big part of the spending is external to your organization. It's all of the regulatory aspect and toxicology aspect of R&D.
It is very dangerous to start that spending in the middle of a project for cost control. So we're going to be careful on how we do it.
But I would rather -- if I have to take any actions which would be on the -- on pushing cost saving, I will try to do it more on the SG&A and more on the overall cost synergies than today on R&D, which is the future of this business.
Michael J. Harrison - First Analysis Securities Corporation, Research Division
All right. And then on the Lithium side, the numbers for the Volt, the Leaf and even Tesla, are not very encouraging right now in terms of electric vehicle adoption.
Have you guys moderated your outlook for battery demand given the dynamics with lower gasoline prices?
Pierre R. Brondeau
No. We've always been among the -- if you take the range of what people are expecting from an adoption rate, we've always been on the lowest end of the range.
And we believe our range is still valid. I think we've always said there is a little bit too much exuberance in this market.
But I have to say that we are a critical supplier of lithium hydroxide to that industry, and that part of the product line has a very healthy growth right now. So we are staying with the same forecast we've been having, knowing that we've been on the lower end at some of our competitors, and we feel our numbers are still looking pretty good.
But I must say it's -- the business, the lithium hydroxide business today is a very bright spot in our Lithium business. There is not -- I mean, you can have some short-term reaction of people to gas price, but gas price is not the driver when you decide to buy a Tesla.
So it is part of the decision, but it's not the main driver. And lots of people who are interested in this kind of cars have other reason to make the decision, and very often, look beyond 1 year gas price.
Operator
Your next question is from the Sandy Klugman with Vertical Research Partners.
Sandy H. Klugman - Vertical Research Partners, LLC
I was hoping you could provide an update on your strategic alliance with Christian Hansen. How meaningful do you expect biologicals to be, and over what time frame?
And in particular, how do you see the European market for biologicals evolving? Do you expect greater acceptance than what has been seen for GMO?
Because it would seem that Cheminova's direct market access would help to accelerate FMC's penetration in the region.
Mark A. Douglas
Yes, Sandy, this is Mark. Talking about the alliance.
The alliance has been in place just over a year now. It is actually producing extremely good results.
We have about 7 products that we have been testing around the world in various trials, ranging from bio stimulants, the first of which will be launched later this year in North America; and then we're looking at high-value fungicides and seed treatment applications for biologicals. So as far as we're concerned, the alliance is working very well.
We've got both products coming from the Christian Hansen library and products coming from the acquisition that we made of CAEB. We expect -- I think you made a comment about Christian Hansen's market access, it's actually FMC's market access that drives the markets and the sales application.
Christian Hansen bring true value to the alliance through their manufacturing scale and species analysis. You'll get a lot more detail of this when we get together in April for the Investor Day.
It is a major part of what we're doing in terms of R&D. It's very different.
We believe we have a world-class library, some very special skills with what we call smart selection, and we will certainly update you. But we're very much on track with our initial plans.
First product to be launched later this year, and then other products following in '16, '17 and '18.
Sandy H. Klugman - Vertical Research Partners, LLC
What I was actually asking as it regards Europe and whether or not these products see greater traction than what's been seen for GMO, is whether or not the Cheminova acquisition will accelerate your penetration in the region, because I know they have a direct sales force in Europe.
Mark A. Douglas
Yes, okay. Sorry about that.
Yes. Yes, it will.
I mean, obviously, as you just said, one of the reasons we're buying Cheminova is to get direct market access in Europe. Europe is a very challenging regulatory environment.
Everybody knows that in the ag space. Having a suite of products that are different, have different modes of action, tend to be softer chemistries, will certainly help.
And for sure, we will be training and building the biological space in Europe through Cheminova.
Operator
Your next question is from Mike Sison with KeyBanc Capital Markets.
Michael J. Sison - KeyBanc Capital Markets Inc., Research Division
Pierre, back in September, you talked about Cheminova EBIT for '15 around $145 million, synergies at $35 million and sort of $180 million in '15. I know it's difficult, given you haven't been able to peek into '15.
But given your guidance, how does that compare to what you're thinking now in terms of timing and such?
Pierre R. Brondeau
So Mike, yes, we haven't -- I mean, the numbers we looked at and when we discussed the information we had when we did the due diligence is still around the numbers you are talking about. I feel today fairly comfortable with the numbers they should be producing for 2015, knowing that if they have the same dynamic as we have, the biggest uncertainty should be Brazil, and Brazil is not as big of an exposure to them than it is to us.
And Europe is looking pretty stable, as well as does India, which are very big regions for them. So I would tend to believe that the numbers we discussed for Cheminova should still be very valid.
But once again, we are not entitled to look at them. So no reason to discount those numbers, but I don't have more proof than the already existing [ph].
Which will mean, even if those numbers are still valid, the calendarization is something which could vary very much year-on-year. If you look at historical data for Cheminova, they would make their numbers for Europe some time from early February to April, May, but it could happen any time, any month, you could have a big sale.
So that is the question we have today. We could be very much in line overall for 12 months, but remember, maximum we'll get 10 months.
And those 10 months could vary very much depending upon where those numbers fall in Europe between February, March and April.
Michael J. Sison - KeyBanc Capital Markets Inc., Research Division
Okay. And then, given the slight delay in closing, is there any risk in the $35 million in synergy?
Or is that something you still can get within this timeframe?
Pierre R. Brondeau
So if you look at the delay, we are still in the range, going to push some -- it's going to push some. I think, as you can guess, the most difficult synergies are always the revenue synergies for which you need all of the time.
It's always easier to accelerate cost synergies than revenue synergies, where you need to convince customers, understand better the product line. So it puts a little bit of a stress on those numbers.
Now, if we close end of February, early March, we are okay. If it gets pushed, the more it gets pushed, the more difficult it is.
So if -- as we have all the reasons in the world to expect a close in the first quarter, we'll be within the $35-million range.
Michael J. Sison - KeyBanc Capital Markets Inc., Research Division
Okay. And then last one, when you think about '16, a lot more synergy pops in for Cheminova.
And in terms of the growth for that business, in this current environment that you described this morning, is the growth that you hoped for back in September still doable in Cheminova x the synergies?
Pierre R. Brondeau
Once again, I'm really sorry to talk like that. That's why I'm pretty anxious to get to the mid-April discussion, where we can really talk with knowledge about Cheminova.
Once again, the way that we're looking at their growth rate until we close by September might be slightly impacted by some of the market trends, which seems to be a bit more muted than what we were thinking at that time. But by September, we really started to have a good idea.
So I don't see much of a change from what their plans were and their growth. I think we have -- I can tell you the thing which is the most exciting for me is the growth synergy opportunities.
I think we've only scratched the surface of that. So I'm still exactly in the same place around Cheminova.
But frankly, I'm going to give you the full story, and Mark will tell you exactly where we are at the mid-April. It will be much more -- talking in a much more intelligent way once we've seen the data.
But right now, I have no reason to change.
Operator
Your next question is from Frank Mitsch with Wells Fargo.
Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division
Look, I just wanted to say, congratulations on the big price tag for soda ash.
Pierre R. Brondeau
Thank you.
Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division
You made Ed's job a lot more difficult because he's stepping into a situation where he's got to deliver on much higher expectations now.
Pierre R. Brondeau
Yes. Ed is very, very good, so he's afraid of nothing.
Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division
I know that to be true. With that higher price tag, at least as expected, you guys had initially laid out back in September a $0.52 negative interest cost from Cheminova and -- but a $0.26 offset, so a negative $0.26 on the interest line.
And Paul just mentioned that you're anticipating 2015 negative interest to be about $0.06. So materially better than the expectations back then.
Can you talk about some of the factors behind that?
Paul W. Graves
The numbers you just threw out don't sound familiar to me in terms of historical statement. But just to back into where we are today.
Clearly, we have -- we were typically using net proceeds in most of our analysis. It was a couple of $100 million at least lower than what we actually achieved, so that's clearly a benefit to us.
And in terms of the cost of incremental debt, we -- I think we talked about this in the last quarter as well. We put a facility in place that is in the region of just below 1.5% to 2% cost of debt.
So we have a delta between the net proceeds for alkali and the proceeds that we'll be paying at the door of Cheminova of something in the region of about $600 million to $700 million, and that increment is going to be financed in that 1.5% to 2% range. So the math's actually pretty simple.
Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division
Great. And then, Pierre, you mentioned that a European customer is moving away from butylithium.
Can you talk about that application and how concerned folks should be that perhaps that could be more widespread?
Pierre R. Brondeau
No. It's a single customer who had a very specific formulation in the agricultural industry, which was not required to deal with new formulations.
So it was -- I mean, it was good for us. It was a very large product.
But frankly, that product has been reformulated without lithium. It was a unique product.
No other competitors would be using it to that extent. So it's not a market trend.
It's a single event. Unfortunate, but not completely surprising.
Operator
Your next question is from Laurence Alexander with Jefferies.
Laurence Alexander - Jefferies LLC, Research Division
Three quick ones. In your outlook, are you including any drag to earnings for the reduction of working capital or the working capital discipline you flagged?
And just to confirm that the FX is included in that range. And secondly, with the Roundup Plus extend program, is there a -- your Authority herbicides are being benchmarked as about a $3-per-acre discount or incentive.
Are you paying that incentive, or does that get paid by Monsanto?
Paul W. Graves
Let me do the first part and then Mark can do the second one. The impact of working capital credit extension, et cetera, as well as all FX assumptions, are all included in the segment guidance that we've given for you.
So our assumptions are all included in that guidance.
Mark A. Douglas
Laurence, it's Mark. For any of the programs that go with Monsanto in North America, we're obviously accountable for all the financial affairs.
So if there are any discounts that are paid as part of the promotional programs, we're accountable for those.
Operator
Your next question is from Dmitry Silversteyn with Longbow Research.
Dmitry Silversteyn - Longbow Research LLC
I'd like to switch gears a little bit and talk about the Health and Nutrition business. You mentioned a couple of items.
The issues with the alginates as far as a shortage of seaweed in the product and higher price of raw material. Typically, you've been able to pass those higher pricing through fairly quickly.
So why is in the first half of the year expectations for Health and Nutrition so much weaker on that issue?
Pierre R. Brondeau
I think I'll ask Eric to complement the discussion. But one of the key issue we are facing in Health and Nutrition, which would reduce earnings in the first half or first quarter, is must be the lack availability of seaweed for our North Sea seaweed for our plant in Norway.
We just had terrible weather, which has been preventing the collection and the full utilization of our assets. So we are ramping up right now.
We are able now to get the product. But the biggest -- one of the biggest issue we've been facing is our ability to supply the market because of a lack of product.
Eric, do you want to add some color to that?
Eric W. Norris
No. I would say that in terms of alginate, there's not much more to add there.
I mean, the high seas prevent ships from being on the water in a safe manner. So that has resulted in, from the latter part of December through a good part of January, the inability to harvest seaweed.
And it is a short supply chain from the North Sea to our site in Norway. And as a result, there's an immediate impact on the availability of the product.
We believe in the balance of the year, we'll be able to make that up. We've had a lot of productivity-based improvements in that plant that we expect going forward.
But the caution is being able to make it up quickly in the first half of the year, Dmitry.
Dmitry Silversteyn - Longbow Research LLC
Okay. Okay, that's helpful.
So it's a shortfall of supply, not so much the pressure on the cost from the higher pricing?
Pierre R. Brondeau
That's correct.
Dmitry Silversteyn - Longbow Research LLC
Okay. Secondly, you mentioned that the dairy market in China or dairy beverage market in China is getting a little bit better versus the issues you've had earlier in the year, but still not expected to be back to the same levels it was prior to the issues.
Have you be able to identify what those issues were? Why the demand dropped all of a sudden and why is it coming back?
And what gives you some level of confidence to expect or not to expect improvements as the year unfolds over 2015 or '16?
Pierre R. Brondeau
Yes. I think we understand better and better the situation.
There is multiple factors which are coming at play, and it's why the recovery is on the slower side. First, there was all of this issue we talked about before on protein prices, which have been really decreasing the overall consumption in Asia, China or Indonesia for the peanut milk or some of the dairy-based product.
So it has been, first, a slowdown in the market, which led many of our customers to have too much inventory and not needing to buy from us. That was one aspect, and we believe it was more of the main reason for the slowdown.
But there is another market dynamic which is taking place and forcing us to look to adjust our portfolio. It's always the same.
It's always a challenge, but it's also an opportunity. What we are seeing is there is different type of protein milk now, which are growing in this market following the success of peanut milk.
So the usage of MCC, which was for us -- we are one of the pioneer in this application with our MCC product line to develop this market with our customers. The success has created now a new product, which are requiring different formulation, different applications for us.
So there is an adjustment on the type of product, and we are in the middle of developing the product to participate in the growth of those new beverage. Those new product will also be supplied -- they are the same chemistry as the one we have for peanut milk.
They will also be supplied from our current plant, and in the future, from a plant in Asia. But there is a shift in the market which could lead to new opportunities and new challenges.
So all of that, the shifting elements, are creating a slow recovery for us, but it's not like we are back to a single beverage with the inventory down at the customers and we are growing back. So a bit more complex from a consumer standpoint.
Operator
Ladies and gentlemen, that will conclude the Q&A session. Mr.
Brondeau, I'll turn it back to you for closing comments.
Pierre R. Brondeau
Thank you very much. Thank you, everybody, for your time.
We feel here, with our team, that this quarter are the final steps of our transformation. I want to recognize the value of and the strength of our management team for Alkali, and wish great luck to each of them and to Tronox, which really has acquired a tremendous business.
But for us looking forward, those are the final steps in becoming a company with a more focused portfolio. 2015 will be a very important year to shape the new FMC, and I really look forward to tell you our story at our Investor Day in April.
So thank you for your time.
Operator
Thank you. And ladies and gentlemen, this concludes the FMC Corporation Fourth Quarter 2014 Earnings Release Conference Call.
You may now disconnect.