Tablet demand helps lift FMC BioPolymer in Q4

William Walter, chairman, president and chief executive officer of FMC Corporation, the US-based diversified chemicals company whose core interests are agricultural products, specialty chemicals and industrial chemicals, said BioPolymer sales to the pharmaceutical market in Q4 were particularly strong in India and China, as well as to generic manufacturers worldwide. The FMC BioPolymer business supplies microcrystalline cellulose, carrageenan and alginate ingredients with applications in the production of food, pharmaceutical and other specialty consumer and industrial products. It is part of FMC's Specialty Chemicals segment, which reported a 10.3 per cent increase in revenue to $161m for the quarter ended 31 December 2007. Specialty Chemicals accounted for 23.9 per cent of FMC's overall revenues in the fourth quarter, which rose by 14.8 per cent to $674m. The revenue growth in Specialty Chemicals was attributed to higher volume and selling prices in the segment's lithium business, as well as the strong commercial performance of FMC BioPolymer. Income from continuing operations before taxes in the Specialty Chemicals segment rose by 39.2 per cent to $34m, with FMC citing sales increases and continued productivity improvements, only partially offset by higher raw material costs. In the BioPolymer business these related to price inflation for speciality wood pulp, which is used to process microcrystalline cellulose - one of whose applications is as a binding and disintegrant agent for tablets and capsules. Operating income from Speciality Chemicals made up 43.2 per cent of the group total before restructuring and other charges as well as interest expenses in the fourth quarter. FMC's operating income was 17.9 per cent higher at $79m, but throwing in the assorted charges brought the group figure down to $48m, a 7.3 per cent decline on operating income for the fourth quarter of 2006. The BioPolymers business also made a strong impression in the food ingredients market during Q4, powered by volume growth in Asia and Latin America (mainly in the dairy segment) as well as a favourable product mix. Growth in the lithium business, which includes specialties for pharmaceutical synthesis, came from higher prices for primary lithium compounds as well as higher volume and pricing for downstream specialty products. For the whole of 2007, Specialty Chemicals generated revenues of $660m, 11.2 per cent more than in the previous year, while operating income before taxes was 20.1 per cent higher at $143m. Somewhat slower progress is expected this year, with revenues forecast to grow in the "mid-single digits"​ due to higher volumes across the segment and higher prices in the BioPolymer business. Moreover, projected earnings growth for Specialty Chemicals in 2008 is in "the low-single digits"​, as a continued strong commercial performance from BioPolymer and the benefits of sustained productivity improvements "are mitigated by lower selling prices for primary lithium compounds and higher export taxes in Argentina"​. Walter elaborated on these dampening factors during the fourth-quarter earnings call. Although lithium pricing in most markets "continues to be driven by tight global supply/demand balance, new capacity and excess inventory has led to some softening of prices in China late in the quarter"​, he commented. The guidance for Specialty Chemicals in 2008 assumes that pressure on lithium prices as a result of new Chinese capacity and some excess inventory in lithium carbonate will continue, although FMC believes it will be confined to just three molecules and a "pretty narrow geographical area"​. Also factored into the projections is the impact of an "unexpected"​ 5 per cent tax on all mineral exports introduced by the Argentinian government during the fourth quarter of 2007. If maintained, Walter said, this would have a $3-$5bn negative impact on the company's lithium operations over the course of this year. The FMC chairman was also asked about the prospects for any acquisitions in the Specialty Chemicals segment during 2008. "The universe of opportunities in the specialties space is pretty limited"​, particularly given the number of properties that have changed hands over the last two to three years, he commented. Moreover, private equity "seems to have disappeared from the scene"​. All the same, Walter predicted, there may be "one or more"​ biopolymer-related properties acquired over the last two to three years that could be coming back onto the market this year. "To the extent that they do, we will be there, we will be bidding on them, but we will continue to be conservative and ensure that we can get a reasonable return on any acquisition price we would pay,"​ he noted. In summary, Walter said, "I would not assign a particularly high probability to our being able to complete a transaction in specialty chemicals in 2008, although we're going to continue to try". ​