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WIKI ANALYSIS
FMC Corporation is a chemical conglomerate that specializes in herbicides, insecticides and lithium products. Insecticides are used in agriculture to enhance crop yield and quality by eliminating pests and herbicides are used to reduce the need for manual or mechanical weeding by inhibiting weed growth. The purpose of both is to increase crop yield for farmers. Their products are used in various regions including North America, Asia-Pacific, Europe-Middle East-Africa, Latin America South and Latin America, with 59% of their revenue in 2007 coming from countries outside North America.[2] [3]FMC benefits when countries devote more land to agriculture or have a particularly good growing season, as such was the case in Asia, where several countries had a better growing season in 2007.
FMC Lithium Division is the world's largest developer and supplier of Lithium based materials for primary and rechargeable batteries used in cell phones, laptops, and hybrid, energy efficient automobiles known as ZEVs and PZEVs.[4]The markets for lithium chemicals are global with demand growth occurring in developing markets of China and India. The products derived from lithium chemicals are used in many markets including construction to (prolong the life of concrete), energy (specifically, rechargeable batteries), and other chemical markets (polymers). On Dec. 16, 2005, Toyota announced that it would accelerate development of lithium batteries for use in their hybrids, reflecting a general trend that lithium batteries are becoming more prevalent in the automotive industry.[5]
Business Financials
FMC products are divided into three segments. Agricultural Products represents 25% of FMC's revenue and primarily focuses on insecticides and herbicides. The Specialty Chemicals represents 34% of FMC's revenue and consists of BioPolymer and lithium businesses. The BioPolymer business focuses on food ingredients that are used to enhance texture, structure and physical stability. Finally, the Industrial Chemicals segment represents 41% of FMC's revenue and manufactures a wide range of inorganic materials, including soda ash, hydrogen peroxide, specialty peroxygens and phosphorus chemicals. Such chemicals have a wide range of applications, including animal nutrition, cleaning products, and personal care cosmetics.
In 2007 FMC continued sales growth in all of their three business segments: Agricultural Products, Specialty Chemicals and Industrial Chemicals each having revenue increases of 16 percent, 11 percent and 10 percent, respectively. Revenue for the year ended December 31, 2007 was $2,632.9 million, an increase of 12.2 percent compared to the $2,345.9 million recorded in the prior year period.[6]This increase was driven by higher sales in all segments, which are discussed separately below.
Agricultural Products (34% of revenue)
The Agricultural Products segment, which represents approximately 34 percent of FMC’s 2007 revenue, markets products for crop protection, with a strong R&D focus on environmentally compatible solutions that can effectively increase farmers’ yields and provide more cost-effective alternatives to older chemicals to which insects or weeds may have developed resistance.[9]The majority of sales in Agricultural Products are insecticides, particularly pyrethroid and carbamate chemistries, in which they maintain leading market positions based on revenues. Pyrethroids are a major class of insecticides most effective against worm pests. Carbamates are broad spectrum insecticides used to control a wide variety of pests in both soil and foliar applications. There is a seasonal tendency for the agricultural segment, as it depends on growing seasons of various countries.
Revenue in Agricultural Products for 2007 was $889.7 million, an increase of 16 percent versus the prior year.[10]Agricultural Products have strong niche positions in crop and non-crop market segments in the Americas, Europe and other parts of the world and derived approximately 78 percent of its revenue from outside North America in 2007.[11]Higher sales were particularly strong in Brazil due to increased planted acres and higher commodity prices. Sales growth in Europe was driven by increased demand for biofuels crops and the benefits of the stronger Euro. In Asia, sales increased due to better growing conditions in several countries.[12]A break down of global Agricultural Product sales is graphed below.
Segment operating profit was $207.0 million, an increase of 38 percent from the year earlier, as a result of the higher sales and continued global supply chain productivity improvements, which more than offset higher incremental selling and distribution costs due to the increased sales and higher energy and raw materials costs.[13]A graph of revenue and operating income in millions for the Agricultural Products Segment is below.
Specialty Chemicals (25% of revenue)
The Specialty Chemicals segment, which represents 25 percent of our 2007 consolidated revenues, is focused on food ingredients, pharmaceutical products, biomedical technologies and lithium specialty products. Important to the specialty chemicals segment is FMC's BioPolymer business, which is organized around the food, pharmaceutical and medical device markets. Trends driving market growth include increasing consumer interest in healthier foods, greater convenience and growth in per capita consumption of processed foods in emerging markets. The trend toward health and convenience drives the need for more functional ingredients to impart desired food tastes and textures.
Revenue in Specialty Chemicals was $659.5 million, an increase of 11 percent versus the prior year, driven by higher selling prices for primary lithium compounds and strong commercial performance in both pharmaceutical and food businesses in BioPolymer.[16]Segment operating profit of $142.7 million increased 20 percent versus the prior year due to higher sales, improved mix, and continued productivity improvements, which offset increased raw material costs.[17]A graph of revenue and operating income in millions for the Specialty Chemicals Segment is below.
Industrial Chemicals (41% of revenue)
The Industrial Chemicals segment, which represents 41 percent of FMC’s 2007 revenues processes and sells refined inorganic products that are sought by customers for their critical reactivity or specific functionality in markets such as glass, detergents, animal nutrition and pulp and paper.[20]
Revenue in Industrial Chemicals was $1,087.1 million, an increase of 10 percent versus the prior year as a result of higher selling prices for soda ash and volume growth across the segment.[21]
Segment operating profit of $92.5 million decreased 4 percent versus the prior year, due to higher energy and raw material costs across the segment and lower electricity selling prices in Spain in the first three quarters of the year, where Foret, FMC Lithium business, operates electricity cogeneration facilities and excess electricity is sold into the Spanish electrical grid.[22]These higher costs offset the positive impact of higher sales. A graph of revenue and operating income in millions for the Industrial Chemicals Segment is below.
Key Trends and Forces
Increased Investor Interest in Corporate Responsibility for Environmental Impact
On March 29, 2009 the CBS News program "60 Minutes" aired a segment exploring the issue of the use of the chemical pesicide "Furadan" manufactured by FMC Corporation in the intentional poisoning of lions in Kenya. FMC explained that Furadan had been restricted for sale in Kenya but 60 Minutes reported that Furadan was still found to be freely available for sale in Kenya, possibly due to continued sales by FMC to neighboring countries which are also reported by 60 Minutes to have incidents of lion poisonings [25]. Investors in general are becoming more concerned with the responsibility for corporations for the environmental effects of corporate policies.--PGSanalyst 19:53, March 29, 2009 (PDT)
Rise of Lithium based products and Renewable Energy
Lithium Ion batteries, known for their compactness, duration as measured by capacity, power and lightweightness, make them the battery of choice for battery electric vehicles [BEV], fuel-cell vehicles [FCV], and plug-in hybrid electric vehicles [PHEV]. Over 60% of the worldwide cell phones and 90% of the laptops are powered by lithium batteries.[26]The growth of Zero Emissions Vehicles [ZEV] and Partial Zero Emissions Vehicles [PZEV] is bolstered by government mandates to fight urban pollution, the harmful effects of greenhouse gas emissions, and rising consumer sentiment to drive less polluting and better fuel economy vehicles. [27]Further bolstering this growth is national sentiment to reduce dependence on foreign oil and the distribution of rebates for the purchase of these energy efficient vehicles by local governments.[28]As the world's largest developer and supplier of Lithium based materials for primary and rechargeable batteries used in cell phones, laptops, and ZEVs and PZEVs, FMC benefits from increased interest in renewable energy.
Declining demand for biofuels in Europe
Rising food prices, trade tensions and social unrest, all highlighted in a Times article from March, 2008 are reasons that the European Union is rethinking its hopes for running its cars and trucks on biofuel. [29] s a result of such protests and other arguments that biofuels investment is causing a rise in food prices, The European Environment Agency, which advises the European Commission, has recommended that the E.U. suspend its 10% biofuels target.[30] Leading the charge is economist Jeffrey Sachs, special adviser to U.N. Secretary General Ban Ki-moon, who in May, 2008 advocated against the European Parliament's goal of increasing biofuel's share in Europe's diesel and gasoline consumption to 10% by 2020.[31] Last year, E.U. governments spent an estimated € 3.7 billion ($5.2 billion) on subsidising biofuel production.[32] As a result of such protests and other arguments that biofuels investment is causing a rise in food prices, The European Environment Agency, which advises the European Commission, has recommended that the E.U. suspend its 10% biofuels target.[33]
Loss of revenue from exchange rate fluctuations
FMC is an international company and therefore faces foreign exchange rate risks. 78% of their agricultural sales are outside of North America, as are a large portion of their sales in their other two segments, combining for a total 59% of their revenue in 2007 coming from countries outside North America.[34]For this reason, FMC is particularly sensitive to the euro, the Chinese yuan, and the Brazilian real. To a lesser extent, to other Asian currencies, particularly the Japanese yen. As the US dollar declines relative to the Euro, expenses incurred will increase, thereby decreasing their net income. The graph below shows historical exchange rates between the US Dollar (USD) and the Euro (EUR) between 5/30/2007 and 5/1/2008.
Competition
The three segments that make up FMC include very different markets and FMC must compete with different companies in each of them both the United States and markets outside of the United States. FMC has a number one or number two market position in many of their product lines, based on revenue, either globally or in North America. The following product lines accounted for the majority of our 2007 consolidated revenue.
The Agricultural Products segment competes in the global chemical crop protection market for insecticides, herbicides and fungicides, an industry which has a relatively small number of large competitors and a large number of smaller, often regional competitors. Some main competitors in this area are:
Agricultural Products
| FMC Product Line | FMC Market Position | [36] | ||
|---|---|---|---|---|
| Pyrethroids | #2 in North America | |||
| Carbofuran | #1 globally |
Specialty Chemicals competes in the biopolymer and lithium-based products businesses. Two domestic producers of lithium are FMC Corporation (FMC), and Chemetall GmbH, a German company that was acquired by US based Rockwood Holdings (ROC) in 2004.[37]
Specialty Products
| FMC Product Line | FMC Market Position | [38] | ||
|---|---|---|---|---|
| Microcrystalline cellulose | #1 globally | |||
| Carrageenan | #1 globally | |||
| Alginates | #1 globally (shared) | |||
| Lithium specialties | #1 globally (shared) |
Industrial Chemicals serves the soda ash markets worldwide, the peroxygens markets predominantly in North America and Europe and the phosphorus markets in Europe, the Middle East and Latin America. In North America, the soda ash business competes with four domestic producers of natural soda ash, three of which operate in the vicinity of their mine and processing facilities in Green River, Wyoming. They are listed below:
- General Chemical (Soda Ash) Partners3
- OCI Chemical Corp
- Searles Valley Minerals, Inc
- Solvay Chemicals
Industrial Products
| FMC Product Line | FMC Market Position | [39] | ||
|---|---|---|---|---|
| Soda ash | #1 in North America | |||
| Peroxygens | #1 in North America |
References
- ↑ FMC.com
- ↑ FMC Annual Report 2008
- ↑ - Derived the percentage via a weighted average of the segments percentage of total revenue and the respective percentages out of the US within each segment
- ↑ seekingalpha.com
- ↑ http://www.hybridcars.com/technology-stories/lithium-ion-batteries.html
- ↑ FMC Annual Report 2008
- ↑ FMC Annual Report 2008
- ↑ FMC Annual Report 2008
- ↑ FMC Annual Report 2008
- ↑ FMC Annual Report 2008
- ↑ FMC Annual Report 2008
- ↑ FMC Annual Report 2008
- ↑ FMC Annual Report 2008
- ↑ FMC Annual Report 2008
- ↑ FMC Annual Report 2008
- ↑ FMC Annual Report 2008
- ↑ FMC Annual Report 2008
- ↑ FMC Annual Report 2008
- ↑ FMC Annual Report 2008
- ↑ FMC Annual Report 2008
- ↑ FMC Annual Report 2008
- ↑ FMC Annual Report 2008
- ↑ FMC Annual Report 2008
- ↑ FMC Annual Report 2008
- ↑ CBS News- "60 Minutes" episode aired 2009-29-09; retrieved 2009-29-09
- ↑ seekingalpha.com
- ↑ seekingalpha.com
- ↑ seekingalpha.com
- ↑ The Clean Energy Scam
- ↑ Europe Grapples Over Biofuels
- ↑ Europe Grapples Over Biofuels
- ↑ Europe Grapples Over Biofuels
- ↑ Europe Grapples Over Biofuels
- ↑ Derived from FMC Annual Report 2008
- ↑ www.exchange-rates.org
- ↑ FMC Annual Report 2008
- ↑ strong growth in lithium demand
- ↑ FMC Annual Report 2008
- ↑ FMC Annual Report 2008
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