ICL Group Ltd

ladies and gentlemen thank you for standing by and welcome to the ICL group analysts and investors conference call our presentation today will be followed by a question and answer session at which time if you wish to ask a question you'll need to press star 1 on your telephone I must advise you that this call is being recorded today if you experience any technical difficulties please press star 0 on your telephone I'd like to have a call over to the first speaker today Miss Peggy Riley-Sarp investor relations manager Please go ahead, ma'am.

Thank you. Hello, everyone. I'm Peggy Riley-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 iclgroup.com. Earlier today, we filed our reports with the Securities Authority's on the stock exchanges in both the US 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 two. 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 a presentation by our CEO, Mr. Raviv Zoller, followed by Mr. Colby Alton, 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 three of our earnings presentation. ICL's business remained resilient, and we continue 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 remain focused on executing our growth strategy across all divisions and are pleased with the progress we are making. To that end, We achieved record put-ash production at the Dead Sea during the first nine 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 product. Finally, we're also pleased to announce a $29 million quarterly dividend in accordance with our dividend policy. Due to our strong financial position and balanced capital allocation, we have been able to navigate the current global market challenges, execute on our growth strategy, and return value to our shareholders. As you can see on slide four, our key financial parameters have been relatively stable over the past several quarters. EBITDA, net income, and profit margins have remained balanced during the COVID-19-related global turmoil over the past three quarters, and our ability to generate cash has improved. The third quarter marked the second consecutive quarter with an increase in operating cash flow, and I believe this speaks to our ability to navigate and overcome the current market backdrop. Please note that Q4 2020 revenues were lower due to the facility upgrade in Sedum prior to COVID-19. Let's move on to the business performance of our divisions, starting with industrial products on slide five. Sales at EBITDA decreased by 20% and 34%, respectively, as the global economic slowdown caused by COVID-19 continued to impact short-term demand for clear brine fluids and bromine-based flame retardant. The sharp decline in demand for oil and gas for land and air transportation caused by the COVID-19 pandemic led to a decline in drilling activities and resulted in significant decrease in both demand and sales for clearbarring fluids compared to the third quarter of 2019. Sales of elemental bromine and bromine-based flame retardants decreased compared to the third quarter of 2019, mainly due to lower demand for printed circuit boards. This was partially offset by higher demand, both sequentially and when compared to the third quarter of 2019, for bromine-based flame retardants for the building and construction industry. Market prices of elemental bromine in China gradually increased to a 12-month high in U.S. dollar terms towards the end of the quarter. The increase was due to a combination of higher resources taxes imposed by the Chinese government, continued relatively lower bromine production by several producers, and a favorable impact of the appreciation of the Chinese yuan against the dollar. The year-over-year and quarter-over-quarter increases in phosphorus-based flame retardant sales were mainly due to higher demand from the building and construction industries in Europe and the U.S., and as we increased our market share in this product category. This also coincided with constrained Chinese supply as Chinese regulatory authorities required the shutdown and potential relocation of several production facilities located in densely populated areas. We expect many of the same dynamics to play out in the fourth quarter with continued lower demand for clear brine fluids and certain brominated flame retardants for the automotive industry. We are seeing a gradual recovery in the demand for certain flame retardants for building and construction and for the electronics industries, as well as positive pricing momentum for elemental bromine in China. Turning to slide six. I'm very pleased with the record potash production we achieved at the Dead Sea for the first nine months of the year, despite operational challenges caused by COVID-19, and we remain on track to achieve record annual potash production at the Dead Sea for this year. This helped to offset lower production at ICL Iberia in Spain related to the early closure of the Vilafrunes mine towards the end of the second quarter of 2020, which was induced by COVID-19 challenges. As a reminder, ICL is expediting the consolidation process at ICL Iberia, which was originally scheduled for 2021, as part of our strategic decision to concentrate production at the Syria site. The decision will allow us to speed up development in Syria, and to improve our cost per ton in the future. In the short term, however, we will incur certain costs related to the site closure and higher operating costs due to the decreased production in Spain, and both costs are expected to continue into the fourth quarter. At our UK facility, we saw 10% growth in the production of polysulfate. For the third quarter of 2020, we produced 191,000 tons, and delivered a year-over-year sales volume increase of 49% to reach 113,000 tons. Putash segment EBITDA was down 42% for the quarter, while sales decreased by 17% year-over-year. These declines were primarily due to a $64 per ton year-over-year reduction in average realized putash prices related to higher sales volumes to the low-priced contract markets of China and India. In the fourth quarter, we expect a higher average realized sales price for potash due to an improving geographic sales mix. Turning to our phosphate solutions division on slide seven. This division once again demonstrated the strength of its diverse portfolio, which is focused on a growing specialties business. The strength is reflected in the record operating income from phosphate specialties, as well as from the YPHJV in China. EBITDA for this segment increased 9% year over year, despite unchanged sales, due to continued cost reduction initiatives, a better sales mix, lower costs, and improved performance of commodity phosphates. Compared to the second quarter, EBITDA in the third quarter was up 38%, while sales were up 15%. The global phosphate specialties and commodities markets were not significantly disrupted during the third quarter. ICL's robust and diversified customer portfolio and the wide geographic reach of its phosphate specialties business, coupled with strong demand for food products, prevented a material impact from the pandemic on the segment's results. I'd like to take a few minutes to walk you through some segment specifics. First, higher sales volumes of food-grade phosphates were partially offset by a decrease in sales volumes of industrial salt. The positive trend in food-grade phosphates was driven by strong sales volumes in South America and Europe. This was partly related to a shift of sales from the food service sector to the retail sector, including supermarkets, which was caused by COVID-19. Second, white phosphoric acid revenues in the third quarter of 2020 increased slightly year over year, due in part to the successful launch of the new white phosphoric acid plant in China. This plant is expected to add up to 70,000 tons of food-grade acid production capacity once it reaches full capacity and is now ramping up sales of commercial food-grade acid towards the end of the year. Third, dairy protein revenues in the third quarter of 2020 were significantly higher compared to the third quarter of 2019, mainly due to strong sales of new goat milk powders and other new products. We continue to focus on expanding our global leadership position in the organic cow and goat ingredients markets for high-end applications. Finally, phosphate fertilizer prices recovered significantly across most markets during the third quarter of 2020 compared to the second quarter due to tightened supply. The U.S. market registered the sharpest price increases following Lazai's petition to the U.S. International Trade Commission and to the U.S. Department of Commerce to impose countervailing duties on phosphate imports from Morocco and Russia. The positive momentum in the phosphate commodity market is further strengthened by fourth-quarter phosphoric acid supply contracts signed in India at $689 per ton, a $64 per ton increase compared to the third-quarter price. The accumulated price increase of $99 per ton since the first quarter of 2020 reflects the positive global sentiment in the phosphate commodity market. We see price increases in Brazil and in Europe as well. I would also like to mention that the normalization agreement between Israel and the United Arab Emirates has opened up commercial and economic opportunities for both countries. ICL signed its first contract to buy 35,000 tons of sulfur from the UAE, and this will result in lower transportation costs and shorter delivery time compared to deliveries from Russia, Canada, or Kazakhstan. While we expect the overall positive pricing momentum to continue in the short term, we also expect the usual seasonality to impact the segment's results in the fourth quarter. Slide 8. For the third consecutive quarter, the IES segment reported a year-over-year increase in operating income. The third quarter 2020 increase was mainly due to higher sales volumes, lower costs for raw materials, and continued cost reduction initiatives. Notably, operating cash flow of $38 million marked a 60% increase over the third quarter of 2019. Sales in the third quarter of 2020 increased by 8% year over year. The growth was driven by higher sales volumes of both specialty agriculture and turf and ornamental products, mainly in Europe and North America, as well as favorable exchange rates, partially offset by lower prices. For the fourth quarter, results are expected to follow the usual seasonal patterns. Sales to the specialty agriculture market increased compared to the third quarter of 2019, mainly due to increased demand for straight fertilizers and controlled release fertilizer products, as well as the positive impact of exchange rates. Sales of specialty agriculture products continue to increase in fast-growing emerging markets. We are working to continue to grow our sales of specialty fertilizers in these fast-growing emerging markets, such as Brazil, India, and China. As I mentioned earlier, and in accordance with our crop nutrition growth strategy, we signed an agreement to acquire FertilAqua, a Brazilian specialty fertilizers company, and you can find more details on slide 9. Subsequent to the end of the third quarter, we announced an agreement to acquire FertilAqua, one of Brazil's leading specialty plant nutrition companies, for approximately $120 million. This acquisition will expand our specialty plant nutrition product portfolio and significantly enhance our customer base. It will also provide on-ground presence across all agricultural regions in Brazil, one of the world's fastest-growing agriculture markets. FertilAqua has over 100 different products, a presence in 24 Brazilian states, and over 500 customers. It offers a complete portfolio of plant lifecycle solutions. The products address plant nutrition and stimulation, soil revitalization, seed treatment, and plant health across all key Brazilian crops, including soybean, corn, sugarcane, cotton, coffee, fruits, and vegetables. As we stated during our recent Investor Day, the expected growth of our plant nutrition business will be supported in part by increased demand for organic fertilizers and biostimulants and through our focus on growth markets. FertilAqua gives ICL a significant foothold in a market where demand for specialty plant nutrition products is increasing very rapidly. In addition, it further expands ICL's product portfolio with higher growth, higher margin products, and partially balances the seasonality of our plant nutrition sales between the northern and southern hemispheres. Following the closing of the acquisition, which is expected to occur early next year and is subject to the fulfillment of customary closing conditions, ICL expects to leverage FertilAqua's strong market presence and distribution capabilities to increase the sales of its organic fertilizers, controlled release fertilizers, and other specialty plant nutrition products to the Brazilian market. Turning to slide 10, I would like to summarize both the quarter and our outlook. Although many market challenges remain, I'm happy with our overall performance, which is indicative of a balanced and resilient business. Milestones are harder to achieve in times like these. However, we achieved quite a few of them, as I mentioned in my introductory remarks. We're certainly pleased to see performance records, but above all, our continued solid cash generation is what matters most. Thanks to our strategic execution of efficiency and cost savings plans across all of our operating segments, we have further enhanced the resilience of our businesses. Importantly, many of the internal initiatives that are delivering efficiencies and cost savings began prior to the start of the pandemic and will have an enduring impact on our business and lead to further improvements in cash generation. Although COVID-19 will continue to impact our results in the near term, we are increasingly well positioned for the future. While performance within some of our segments has been impacted by COVID-19 and cyclically low commodity prices as well, our business is highly diverse and growing more so. The pandemic was and continues to be disruptive to end markets. In particular, we expect to see continued weakness and demand for clear brine fluids and, to a lesser degree, flame retardants. And the industrial product segment's performance will ultimately follow the recovery in industrial demand. By contrast, There is inherent stability in our agriculture and food end markets, where our performance has been impacted by commodity pricing rather than end market demand. Commodity prices have stabilized recently, albeit at lower levels. However, we expect prices to continue firming over time. We are also beginning to see improvements in some of our end markets that have been impacted by the pandemic. While certain end markets like oil and gas are cyclical, the vast majority of our revenue is derived from the very durable agriculture and food markets, as well as from ICL's various other value-added specialty products. We have continuously emphasized R&D and innovation to drive growth at ICL across our value chains, and these growth opportunities remain significant. In our more commoditized businesses, we are continuously focused on cost efficiency. We will continue to be one of the lowest cost producers in order to generate operating cash flow even during the bottom of commodity cycles. Finally, while our business is diversified and not excessively dependent on commodity prices, we manage our balance sheet as if our business had a higher level of commodity price exposure than it actually does. This affords us a significant degree of flexibility to execute on our strategic initiatives as we work to innovate, bring new products and applications to market, and manage the growth of our business over the long term. Before I hand it over to Kobi, I would like once again to acknowledge ICL's employees globally for their perseverance in light of the challenging conditions brought about by COVID-19. This pandemic has affected all of us personally and professionally, but due to the efforts and commitment of our team, we've been able to maintain continuity of our business globally with zero disruptions to our customers while ensuring the health and safety of our employees. Thank you all. And with that, I would like to hand it over to Kobi.