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FMC Looks Abroad

New CEO turns attention to emerging economies for firm's specialties businesses

by Melody Voith
March 22, 2010 | A version of this story appeared in Volume 88, Issue 12

Credit: FMC
An FMC agricultural scientist (right) consults with a vegetable farmer in Mexico.
Credit: FMC
An FMC agricultural scientist (right) consults with a vegetable farmer in Mexico.

Pierre Brondeau can get so excited while discussing the prospects for FMC Corp. that he momentarily lapses into his native French. As the specialty chemical firm's new chief executive officer, he is counting on his international flair to help raise FMC's profile in emerging markets.

Brondeau took the reins of FMC from William G. Walter on Jan. 1. Unlike his predecessor, who had a policy of not speaking to the press, Brondeau seems to welcome the opportunity to talk about his goals for FMC and the leadership attributes he brings to the job.

In explaining his global plans, Brondeau points to his 20 years at Rohm and Haas, where he rose to become president and chief operating officer. He joined the company's plastics additives business in 1989 and moved into electronic chemicals in 1993, later leading the business as it grew in Asia. When Dow Chemical acquired Rohm and Haas last year, Brondeau was named CEO of Dow Advanced Materials. He stayed for the integration period, and then looked for something new.

The opportunity to become CEO of a publicly traded specialty chemical maker was too good to turn down, Brondeau says. "FMC is a company Rohm and Haas people know well. It's a company I'd admired for a long time," he reflects. Both firms have their roots in Philadelphia, and Brondeau's new office is only 10 blocks from his old one.

The first admirable trait Brondeau lists is FMC's financial strength. In 2009, the company had more than $2.8 billion in sales and net earnings of $229 million. "It's in great shape. FMC is profitable, has good cash flow, and a healthy balance sheet," he points out.

But what makes FMC interesting, Brondeau tells C&EN, is its product portfolio. "Any company in the world of specialty chemicals that has products in lithium, food, pharmaceuticals, and agriculture—you have to like it. You know there will be growth opportunities including expanding into rapidly moving economies like China, India, and Central and Eastern Europe," he asserts. "You can really create a company which can go beyond where it is today."

Compared with where it started, FMC has already traveled a great distance. The company went public in 1928 as a manufacturer of food and agricultural equipment, calling itself Food Machinery Corp. It began acquiring chemical companies in the 1940s and spun off the machinery business in 2001.

Credit: FMC
Credit: FMC

Now, Brondeau wants FMC to become a global brand and increase its presence in China, where it now gets 16% of its sales. Being more successful in Asia and other emerging markets, he says, will require a tweak to the corporate culture. "FMC is a company completely centered around the businesses; that's the DNA of this company." Each business is strong because it has a sense of ownership, closeness to customers, and deep market knowledge, he observes. But "the downside is sometimes you don't leverage your size across the company," he says.

Brondeau says his electronic chemicals experience at Rohm and Haas showed him how to create new businesses. But just as important, "we really developed strategies to grow in Asia faster than most companies," he says. He believes Rohm and Haas's more centralized structure brought it a stature that smoothed entry into new markets.

Currently, FMC is organized into three segments: agricultural products, specialty chemicals, and industrial chemicals. The agricultural segment sells niche products that kill unwanted weeds, insects, and fungi. Within specialty chemicals are FMC Lithium and the fast-growing biopolymers business. The company's industrial chemicals segment includes soda ash, peroxygens, phosphates, and sulfates.

Brondeau says he is satisfied with the portfolio he inherited from his predecessor, although he acknowledges that many observers consider the diverse collection a bit strange. He has labeled the largest businesses—soda ash, biopolymers, lithium, and agricultural chemicals—as keepers. And he says the peroxygens business is well positioned. That leaves businesses with combined sales of about $300 million per year, including phosphates and sulfates, that could be sold or built upon.

Dmitry Silversteyn, a chemical stock analyst at Longbow Research, is not surprised that Brondeau is not eager to make major changes to the lineup. "It's too soon for him to have a vision of his own," Silversteyn points out. But Brondeau's success in quickly building businesses at Rohm and Haas means "when he finally gets comfortable with the opportunities and growth strategies, we might see a faster pace of deals."

It's the possibilities in agriculture and biopolymers that put the sparkle in Brondeau's eye. While the recession knocked the wind out of commodity chemicals, it turned the spotlight to noncyclical businesses that are resilient to downturns.

In the first quarter of 2009, when the chemical industry was in the depth of the downturn, FMC saw its earnings drop only 2.1% compared with the year-before quarter, while the 23 firms tracked by C&EN saw earnings plunge 68.1% on average (C&EN, May 18, 2009, page 21).

More recently, in the fourth quarter of 2009, earnings from FMC's agriculture products increased 39%, while earnings in industrial chemicals shrank by 39%.

"The strong performance of our agricultural business is the result of a well-thought-out strategy that began in the mid-2000s," Brondeau explains. He says FMC wisely decided not to compete with tier-one players such as Bayer, BASF, Dow, DuPont, and Syngenta, which all moved into biotech. "That's not what we do," he says.

Instead, FMC's strengths are niche applications—against tough pests such as the velvetleaf weed and the Colorado potato beetle. It spends the greatest portion of its company-wide R&D budget on its agriculture products. Here, too, Brondeau says, "I have significant plans to grow in Asia."

The competitive landscape is different for biopolymers, where FMC stresses that it is the number one manufacturer in its three product categories. The company began acquiring businesses in the 1960s and now makes alginates, carrageenan, and microcrystalline cellulose for the food, pharmaceutical, and personal care industries. The most recent addition to the family was ISP's alginates business, bought in 2008.

Alginates and carrageenan are derived from seaweed. FMC controls the supply chain starting with seaweed harvesting in faraway places such as Iceland and Tasmania. As food ingredients, the products provide structure, texture, and stability—for example, in the creamy filling of a shelf-stable pastry.

FMC's corner of the food ingredients market is growing quickly, powered by increasing global demand for convenience food. New foods with healthier profiles use hydrocolloids to replace fat and to disperse vitamins, minerals, herbal extracts, and the like. The Freedonia Group, a market research firm, reports that demand for texturizers and fat replacers grew at an annual rate of 5.4% from 2004 to 2009 and that they are now an $885 million market.

Vive la différence
Agricultural chemicals have an outsized contribution to FMC's earnings.
Agricultural chemicals have an outsized contribution to FMC's earnings.

Brondeau sees the fractured food ingredients sector as a big target for growth, organically and through acquisition. "With the attractive profits and growing market, we'd like to apply our knowledge to a broader product line." He has observed FMC's scientists working closely with food makers in the lab and says they can develop great new products together.

Microcrystalline cellulose, developed by FMC from wood pulp, is used primarily in pharmaceutical excipients and coatings. The company estimates that one out of every two tablets in the world contains FMC ingredients. The growth opportunities here include more sophisticated controlled-release drug delivery.

FMC's other growth-oriented specialty chemical business is its lithium operation. The company is one of only three firms, including SQM and Chemetall Foote, with a full lithium supply chain at purity levels that can supply the future electric-car battery market.

Although the growth prospects for biopolymers and agriculture are immediate, Brondeau says the inflection point for lithium will not arrive for at least five years. "When it takes off, we need to be in the right place. We are mining today in Argentina, but do we expand? Should we think about Bolivia or China? We need to be making the right moves now in capital expenditures and product development."

The third slice of FMC's portfolio is inorganic chemicals. For its soda ash business, 2009 was a tough year. Low demand for auto and construction glass, the chief end markets for soda ash, hurt sales. Meanwhile, Chinese producers, which synthesize soda ash rather than mine trona deposits as FMC does, cut their prices (C&EN, Sept. 7, 2009, page 36). But demand and price are projected to rise in 2010, and the business's cash flow will likely be strong through 2011, Brondeau says.

Soda ash's volatility provides the swing factor in FMC's quarterly earnings, giving it a "disproportionate" amount of airtime among stock analysts, Brondeau complains. Analyst Silversteyn agrees. "As a long-term fan of this stock, I try to concentrate on the crop protection business much more than soda ash. If the management plays up that business, it will go a long way to improve their stock price and help achieve Pierre's goal of growing into new markets." But soda ash is important, Silversteyn says, because it generates cash that FMC will need to expand into higher margin specialties businesses.

That kind of expansion is presumably why Brondeau was tapped to run the company and boost its presence outside of North America. "What I bring to FMC is what is required to grow businesses with a blend of organic growth, technology marketing, and mergers and acquisition," Brondeau says. "I know how to use the advantage of rapidly developing economies to grow in the area of specialty chemicals."


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