Ladies and gentlemen, thank you for standing by, and welcome to the ICL Group Analysts and Investors Conference Call. [Operator Instructions]. I'd like to hand the call over to the first speaker today, Ms. Peggy Reilly Tharp, Investor Relations Manager. Please go ahead, ma'am.

Thank you. Hello, everyone. I'm Peggy Reilly Tharp, and I recently joined ICL as VP of Global Investor Relations. I will be based out of the United States, and my contact information is available in today's press release. I'd like to welcome you, and thank you for joining us today for our Third Quarter 2020 Conference Call. This event is being webcast live on our website at icl-group.com. Earlier today, we filed our reports with the securities authorities and the stock exchanges in both the U.S. and Israel. These reports as well as the press release are available on our website. There will be a replay of the webcast available a few hours after the meeting, and a transcript will be available shortly thereafter. The presentation, which will be reviewed today was also filed with the securities authorities and is available on our website. Please be sure to review the disclaimer on Slide 2. Our comments today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are not guarantees of future performance. The company undertakes no obligation to update any information discussed on this call at any time. Finally, I would also like to remind you of the new interactive data tool we have implemented under the Investors section of our website, which will enable you to easily access our financials and download customized data using multiple periods and parameters. We'll begin with the presentation by our CEO, Mr. Raviv Zoller; followed by Mr. Kobi Altman, our CFO. After the presentation, we will open the line for the Q&A. Raviv, please.

Thank you, Peggy, and hello, everyone. Turning to Slide 3 of our earnings presentation. ICL's business remained resilient, and we continued to generate strong operating cash flow and free cash flow despite the impact of COVID-19 on some of our end markets and as commodity prices remained low. All of our operating divisions delivered positive profitability, and operating cash flow of $203 million was up 15% over the second quarter. Free cash flow of $60 million was up significantly versus the $20 million we delivered in the second quarter of this year. The diversity and breadth of our products as well as our continued cost reduction initiatives partially offset the impact that COVID-19 and lower commodity prices had on our operations in the third quarter of 2020. Despite ongoing market challenges, we remained focused on executing our growth strategy across all divisions and are pleased with the progress we are making. To that end, we achieved record potash production at the Dead Sea during the first 9 months of the year. We also reported record operating income from our phosphate specialties business and from our YPH joint venture in China. The continued focus on growing our specialty business is reflected in record operating income from phosphate specialties, which increased by 13% compared to the third quarter of 2019 and was led by strong sales volumes. Furthermore, our recently announced agreement to acquire Fertilaqua, one of Brazil's leading plant nutrition companies, is an important step towards achieving the crop nutrition growth targets we set forth in our recent Investor Day. We expect this acquisition to be highly accretive and to unlock immediate synergies for the distribution of our specialty and commodity fertilizers in Brazil. It also further expands our product portfolio with higher-growth and higher-margin products. Finally, we're also pleased to…

Thank you, Raviv. Good day, everyone. And Peggy, welcome to ICL. We are excited to have you on board. Despite being significantly impacted by market challenges, our third quarter results remained relatively in line with the previous quarter, although, as expected, they were down compared to last year. Third quarter external challenges included lower potash and phosphate commodity market prices and also short-term lower demand for bromine and bromine compounds due to the impact of COVID-19 on global industrial activity. As Raviv referenced earlier, our results have been remarkably stable over the last several quarters despite these headwinds. Our ability to consistently generate solid operating and free cash flows testified to the disciplined execution of our strategy and our financial strength and reflects the diversity and resilience of ICL's business portfolio as well as the effectiveness of our cost reduction initiatives. Turning to Slide 13. We mentioned during our last 2 earnings calls that we believe commodity prices were at typically low levels and would soon begin to recover. The chart on this slide show the recovery is underway across our mineral value chains, which is reflected in price increases toward the end of the third quarter. Continued solid demand for both potash and phosphate fertilizers was fueled by good agriculture season, a decrease in grain stocks and the subsequent increase in grain prices, and we expect this to continue at least in the short term. Bromine prices in China are steadily increasing as local production is decreasing. That, coupled with the recovery in demand for brominated flame retardants in some industrial sectors is expected to result in improved performance for the Industrial Products division in 2021. Moving to the sales analysis on Slide 14. You can see that lower commodity prices were the main cause for the decline in…

[Operator Instructions]. The first question comes from the line of Vincent Andrews of Morgan Stanley.

Wondering if you could just give some more comments on bromine, and there seem to be some puts and takes with certain parts of the market getting better and maybe some price momentum on the elemental side of the equation. But when do you think that momentum will be enough to offset the weakness in clear brine fluids? Or when do you just even envision that coming back? And is it dependent on oil prices? Or do you have the ability to divert some of that raw material to other parts of the business?

Okay. Vincent, thanks for the question. In terms of clear brine fluids, we think that it's going to take some time until we see demand returning to what it was. Currently, we're selling at about 50% of the levels of last year, meaning we sold about $140 million of clear brine fluids last year. And I think until the end of third quarter, we were a little bit above 70%, but of course, third quarter was much weaker than third quarter, so I would say we're at about 50% of the demand. Now oil prices are okay at the moment. The issue is that quantities have gone down significantly because of air traffic and automotive traffic. And until demand returns to higher levels, we don't see that changing. So that's going to take quite some time. And it means on an annual basis, it means $50 million to $70 million less sales on an annual basis. At the same time, from a flame retardant perspective, most of the activity is coming back. And also the dynamics of the market and our value-over-volume strategy are allowing us to compensate, and mainly in, I'd say, from the end of August into September and now we see -- we saw strong October and still strong in November, flame retardants are doing well in building and construction. There's a lot of renovation going on. So demand is extremely strong both for brominated flame retardants and also for our phosphorus-based flame retardants and also the electronics segment that was weak in previous months as the demand has come back. And so that's in good shape also. There's a certain shift in the mix, in the types of flame retardants. So some types are more in demand than others. But all in all, the demand has been strong. So we see it remaining strong at least until December. In December, traditionally, the level of activity is lower. So flame retardants, we see demand returning to normal or almost normal would be more accurate. And clear brine fluids, it really depends on the length of the pandemic situation and the underlying demand for oil and gas products. I hope that answers your questions.

The next question comes from the line of Joel Jackson of BMO Capital Markets.

Welcome Peggy. I thought we could dig in a bit on the Fertilaqua acquisition a little bit more. You paid $120 million. Should we assume roughly like a high single-digit EBITDA multiple to acquire those assets? What are kind of the margins of that business, which already had an innovative ag solution? And earnings, I guess, to be weighted heavily towards the second half of the year? Can you give us some modeling help on it?

Yes. Thanks for the question, Joel. The Fertilaqua acquisition is a multiple of EBITDA that's one digit. The company is very profitable, and the level of EBITDA is well above 20%. So on average, it's a much higher profitability level than our existing business. And like you said, second half of the year is the strong half of the year for this company, which is also strategically important for us because the sales -- our sales to the southern hemisphere are much, much lower than the northern hemisphere. And that's why Fertilaqua is not our only target in Brazil. We hope that it will lead to the next deal soon.

And then just my second-last question on the potash market. We've seen Brazilian prices come up, then come down a bit. The U.S. market has been strong on some qualifications. Other markets have been pretty flat. What is your sense of the strength for potash market right now, inventory levels around the world? And then also, just in general, you've heard that maybe fertilizer inventories, fertilizers and potash in Europe are high. Can you comment on all that, please?

Yes. I'm much more bullish than I was two weeks ago. And the reason was that we saw prices in Brazil ticking up very nicely for a couple months. But now it's off-season in Brazil and it's off-season in Europe, then there's really not a lot going on in those markets in terms of new transactions. It's very hard to test the existing levels of pricing. But over the past two weeks, we've sold over 100,000 tonnes to the U.S. at above $230 price which was not something that was obtainable just 3 or 4 weeks ago, which means that prices have come up over 10% in the past, I would say, two weeks in the U.S. And the fact that the U.S. market is firming and levels of inventory in China are relatively comparable to long-term levels and we don't see the stockpiling in China, as we did last year, and bonded in Chinese ports prior to contract negotiations and the entrance into contract negotiations looks more positive for potash suppliers. So all in all, I would say that the -- and of course, inland prices in China are going up at the moment. So all in all, I'd say that the prospects look positive. And they look much more positive than they did just a couple of weeks ago because of the situation in the U.S.

The next question comes from the line of Mark Connelly of Stephens.

Raviv, I was hoping we could talk a little bit more about how Fertilaqua fits in from an operational perspective. You talked about their distribution system. And I'm curious, are you going to be merging 2 different distribution networks. Are you going to be putting your stuff through theirs? Just from a nuts-and-bolts perspective, how does that work?

Right. There are two dimensions here. There's the logistics and supply chain, which were merged in the past, and we're just tightening the bolts there. And on the actual sales side, we're merging, I'd say, not 2, but 3 distribution systems that have separate salespeople, separate marketing people, separate environment are sometimes going to the same client. So. On the logistics supply chain side, it's been there for quite a while. We're just -- it's just easier in this new situation to do a little better. And on the front-end side, on the client side, there's some significant consolidation going on because of the independent systems that are coming together. Again, it's 3 distribution systems: one for commodity, one for Polysulphate and one for specialty fertilizers, all having their own salespeople, sales service, marketing infrastructure and not -- weren't always working -- were typically not working in coordination. Would that answer your question?

Yes, it does. How long do you think that integration process will take?

I think that on the technical side, it's just a couple more months because we're well into the process. But from my experience, these types of processes also have all kinds of behavior implication and process implications. They typically take a year or 2 before everybody feels that the organization has really gone through the whole process. There's a whole implementation here, in some cases, the DNA change, the company is becoming much more client-focused and much more aligned around the customer journey. And it's something that is not a two week exercise. So I think we're getting a lot of the benefits relatively quickly. But I think, ultimately, we'll get all the benefits within the next year or two.

Super. And if I could just come back to your comments about lower elemental bromine production by Chinese producers. That's obviously been a long-term trend. Do you see what's happening now? Is it continuation of that trend? Or is any of this temporary?

It's definitely a continuation. And also you should note that in terms of dynamics of the market, that also some of the producers of the compound are not only going through more regulatory scrutiny, but also at the current price of bromine, it's less economical, it's less profitable for them to actually produce. So we're very happy with the current price level. And the fact that we're not under any kind of pressure that we have to make more money in a typical quarter, means that we can be much more disciplined and keep on the value-over-volume strategy and protect our position for the long run. At the end of the day, we're market leaders.

The next question comes from the line of Tom Wrigglesworth at Citi.

Raviv, Kobi, so a couple of questions, if I may. Firstly, just on Industrial Products. Just kind of following on from the earlier question. I guess there's pretty quite a difference between the start of the third quarter and the end of the third quarter in terms of the -- if you can give us some sense of the exit rate by margin? Or how much of that $45 million of lost EBITDA that you've recouped? That would be very helpful, just so we can know where the market is at today. And then really ex the kind of potash business, we can obviously see that there are positives in the bridge for operating expenses. I was just wondering if you could help us understand what if any of those gains might be temporary in nature? And how we should think about those as hopefully COVID ceases and the world returns to normal?

Okay. Could you just repeat who was asking the question because I didn't get that.

I'm sorry. It's Tom Wrigglesworth from Citi.

Yes, yes, yes. I got it now. Thanks, Tom. On bromine, I'll make it simple for you since I have October numbers, then the way to look at it is the average sales in the third quarter were about $90 million per month. October numbers is $105 million, which is very close to what it used to be. And in terms of the outlook, typically, the fourth quarter has 2 strong months, or 2 regular months will be more accurate. And December is usually weaker because of the holiday shutdowns, et cetera. So the only way to look at the fourth quarter is, as I said, average for the first 2 months should be ticking up from $90 million to about $105 million. And December is yet very much unknown to us. At this point, it's very difficult for us to predict how this number is going to look like. I was as open as I can about it. In terms of potash, we still have -- I mean, the Potash division. The main headwinds that we have are definitely COVID-19. One of them is -- the most significant headwind has to do with the situation in Spain, where we actually had -- we had to shut down for about 3 months, late March and beginning of April. And the situation was such that we came to a conclusion that if we have to shut down even once more, it will be too expensive -- it will be more expensive than if we just shut down earlier than expected. We were about to shut down in the -- towards the end of the first quarter, beginning of the second quarter next year. Sorry, I think I said 3 months of shutdown. I meant 3 weeks to shut down. Anyway, getting…

The next question comes from the line from Duffy Fischer of Barclays.

This is Sean Gilmartin on for Duffy this morning. I guess just digging a little deeper into the Spanish operations. Can you just remind us what the production level there is expected in 2020 and what the expectation is for 2021?

Yes. Right now, we're producing at a level which comes to about 600,000 per annum. And that will continue to be the level through the first half of next year because we're producing in one mine. And we will need 4 to 5 months after the end of the ramp project to get everything assembled in place and get to our next targeted level, which is 1,000 -- which is 1 million tonnes a year. So in the second half of next year, we will be producing at a level of 1 million tonnes a year. So the credit estimation that we have and what we're going to budget for next year is 800,000 based on 300,000 in the first half of the year and 500,000 in the second half of the year. Again, a lot of cost is coming out because we're closing one mine and all this production is going to happen in 1 mine instead of two.

Perfect. And so just quickly following up on that, you'd start -- or you would expect to see some of that cost per tonne improvement start to roll through in the back half of next year into 2022?

Correct.

The next question comes from the line of Laurence Alexander of Jefferies.

Could you characterize the M&A pipeline in terms of activity level and how you're seeing sort of the trends of multiple expectations on the parts of targets? And secondly, on the micronutrient side, can you characterize sort of the global sort of number of acre touches that you have in your portfolio?

Okay. I'm not sure I can supply acre numbers, but most of our micronutrient activities are in Europe. And we can get -- I guess we can get that information out there, but I don't remember the numbers. We currently have very limited micronutrient activity outside of Europe and the U.S. other than our Polysulphate fertilizer, which is selling, which is selling in China, India, other Asia Pac countries and also Brazil. And of course, it has magnesium and calcium. But again, I don't know the acreage information. I don't have it here. So I will write it down and get the information out there. Okay?

And then just with respect to the M&A pipeline, so the level of activity or how you're seeing expectations trending?

Oh, I'm sorry. Look, I think that COVID-19 has created opportunities for M&A, which we -- even Fertilaqua was an opportunity that probably would have slipped from our hands, but sort of came back to us due to changing circumstances. And we see other opportunities in the specialty fertilizers arena. In some places, it's more competitive and in some places, it's less. We're very determined to become leaders on specialty fertilizer business. So we're very focused on it. We have, I would say, a very healthy pipeline. At the same time, we have been selective. So we've looked at a lot of deals, and we're not -- we don't move forward unless we feel very comfortable. So there are only a few deals that we're actually -- that we've actually followed up past the initial steps, and they're in the works. We're also working on M&A pipeline that relates to our food business. And those are the 2 areas where we're currently active, in specialty fertilizers and food. We're not in any kind of advanced M&A discussions in any other part of our business.

[Operator Instructions]. The next question comes from the line of Artem Vodyannikov of VTB Capital.

Yes. My question is on phosphate segment. Could you please elaborate a bit on negative impact of seasonality you expect in the fourth quarter? Is it going to impact both specialty and commodity business this year? As on commodity markets, Indian and the U.S. stocks are reported low. So it seems it may support the demand in the off-season. And at the end of the day, do you expect this volume decline to offset increase in the average selling price?

I just didn't get the last part. Do you expect this to affect what?

Do you expect this volume decline that you mentioned in your presentation to offset increase in the average selling price?

Oh, if it's going to offset. No, the seasonality in our phosphate business has to do with the fact that our specialty business is traditionally very low in December. There's a very limited business during the holiday season. So our specialty business is usually lower. And in terms of fertilizers, our main target markets are Brazil and Europe, and they tend to be off-season in the fourth quarter in general, and there are fewer transactions at the end of the year. This year, I guess, maybe because of the strength, the relative strength in phosphates in the U.S., it could be somewhat different. Also, we're seeing a relatively significant or high activity in China. So that may also help. But it has nothing to do with average price. We see the average price for the fourth quarter being higher than the third quarter. Obviously, some of the price increases in our products in TSP and SSP started, I would say, way after some of the price increases in MAP and DAP. So we only realized part of the pricing, I would say, even a small part of price increases in the third quarter. So no, the price is a tailwind for the fourth quarter. But again, seasonality because we typically target Europe and Brazil, there are less sales to those territories and also our specialty business, and this we're sure of, there's much less activity in December because of the holidays. So I hope that gives you a little bit of flavor.

We have no further questions at this time. I will hand the call back to Raviv for closing.

Okay. Thank you very much. So again, welcome, Peggy. And thank you all for participating in our call. We appreciate, and we look forward to circling back with you next quarter and talking about the year summary and 2021. So stay safe, everybody, and thanks again. Bye.

That concludes the conference call for today. Thank you for participating. You may all disconnect.