Q3 2020 Icl Group Ltd Earnings Call
And to your conference call. Please continue to standby the conference will begin shortly.
[music].
Ladies and gentlemen, thank you for standing by and welcome to the IPO group analysts and investors conference call.
Plantation today will be followed by a question and answer session at which time if you wish to ask a question you will need to press star one on your telephone I must advise you that this call is being recorded today. If your experience I think technical difficulties. Please press star zero on your telephone.
I'd like to hand, the call over to the first speaker today Ms. Peggy.
Peggy Reilly Tharp Investor Relations manager. Please go ahead maam.
Thank you Hello, everyone and Peggy Reilly Tharp, and I recently joined Hcl as VP of global Investor Relations.
The base 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.
Third quarter 2020, Karfunkel. This event is being webcast live on our website at <unk> Dot com.
Earlier today, we filed our reports with the securities authorities and the stock exchanges and got 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 avail.
<unk> two 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 that's why true.
Our comments today will contain forward looking statements within the meaning of the private Securities litigation.
Reform activating 95.
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 financial.
Customized data using multiple periods and parameters.
Well begin with the presentation by our CEO Mr. Arby's builder, followed by Mr. Colby <unk> our CFO after.
After the presentation, we will open the lines of acuity hobbies. Please.
Thank you Peggy Hello.
Hi, everyone.
Turning to slide three of our earnings presentation.
Hi sales business remained resilient and we continue to generate strong operating cash flow and free cash flow. Despite the impact of code 19 on some of our end markets and as commodity prices remain low.
All of our operating division.
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 CFO.
You'd 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 potash production at the dead Sea during the first nine months of the year we.
We also reported record operating income from our phosphate specialties business and from a white ph joint venture in China.
The continued focus on growing our specialty business as reflected in record operating income from phosphate.
So these 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 fertile Aqua one of Brazil's leading plant nutrition companies is an important step towards achieving the crop nutrition growth targets, we set forth in our.
Spent 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.
Also pleased to announce a $29 million quarterly dividends 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.
You 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.
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 instead doing prior to the COVID-19.
Let's move on to the business before.
Once of our divisions, starting with industrial products on slide five.
Sales in EBITDA decreased by 20% and 34% respectively as the global economic slowdown caused by COVID-19 continue to impact short term demand for clear brine fluids and bromine based flame retardants.
The.
For 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 clear brine fluids compared to the third quarter of 2019.
Sales of elemental bromine and bromine based flame retardants.
Sharp decrease 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.
As 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 the 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 to shut down 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.
Claim returns for the automotive industry.
However, 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 bill on mental bromine in China.
Turning to slide six.
I'm very pleased with the record put ASP reduction we achieved that the dead sea for the first nine months of the year. Despite operational challenges caused by cold at 19, and we remain on track to achieve record annual potash production at that see for this year.
This helped to offset lower production that I feel Iberia in Spain related to the early closure of the feel for.
Mine towards the end of the second quarter of 2020, which was induced by COVID-19 challenges.
As a reminder, I sales expediting the consolidation process that I feel Iberia, which was originally scheduled for 2021 as part of our strategic decision to concentrate production at the serious 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.
How are you.
UK facility, we saw 10% growth in the production of Polysulphate.
For the third quarter of 2020, we produced 191000 tons and delivered a year over year sales volume increase of 49% to reach 113000 tons.
Put us 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 potash prices related to higher sales volumes to the low price 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 growing specialties business.
This strength is reflected in the record operating income from phosphate specialties as well as from the white ph JV in China.
EBITDA for the segment increased 9% year over year. Despite unchanged sales due to continued cost reduction initiatives, a better sales mix lower costs and improve.
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.
I sales robust and diversified customer portfolio.
Oil 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 segments results.
I'd like to take a few minutes to walk you through some segments specifics.
First higher sales volumes of food grade phosphate.
So 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 wireless work acid plant in China.
This plant is expected to add up to 70000 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.
Now decision in the organic cow and go in 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.
Buying was likes 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 in Russia.
The positive momentum in phosphate commodity market is further strengthened by fourth quarter phosphoric acid supply contracts signed in India at 689.
Chip dollars per tonne $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.
I feel signed its first contract to buy 35000 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 Kansas down.
Well, we expect the overall positive pricing momentum to continue in the short term. We also expect the usual seasonality to impact the segments results in the fourth quarter.
Slide eight.
For the third consecutive quarter, the EIMEA segment.
Reported a year over year increase in operating income.
The third quarter 2020 increase was mainly due to higher sales volumes lower cost for raw materials and continued cost reduction initiatives.
Notably operating cash flow of $38 million, Mark 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.
These are expected to follow the usual seasonal patterns.
Sales of 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 continued to him.
Recent 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 fertile Aqua Brazilian specialty fertilizers company and.
And can find more details on slide nine so.
Subsequent to the end of the third quarter, we announced an agreement to acquire for lock, while one of Brazil's leading specialty plant nutrition companies for approximately $120 million. This.
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.
Fertile Aqua has over 100 different products a presence in 24, Brazilian states and over 500 customers. It offers a complete portfolio of plant lifecycle. So.
[music] conditions.
The products address plant nutrition, and stimulations soil revitalization seek 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 plants.
Nutrition business will be supported in part by increased demand for organic fertilizers, and bio stimulants and through our focus on growth markets.
Likewise gives IC sales significant foothold in a market where demand for specialty plant nutrition products is increasing very rapidly.
In addition, a further expands I feels product.
Duct 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 I see expects the leverage for lock with straw.
The 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 are certainly pleased to see performance records, but above all our continued solid cash generation.
Ration 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 we'll 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.
Well performance within some of our segments has been impacted by Cove at 19, and cyclical low commodity prices as well.
Well, our business is highly diverse and growing more so the.
The pandemic was and continues to be disruptive to end markets. In particular, we expect to see continued weakness in demand for clear brine fluids and to a lesser degree flame Retardants and.
And industrial product segments performance will ultimately fall to recur.
Covering 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 overtime.
We're 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 or cyclical the vast majority of our revenue is derived from the very durable agriculture, and food markets as well as from I. sales various other value added specialty products.
We have continuously emphasized R&D and innovation to drive growth at IC across our value chains and these growth opportunities remain significant.
In our more commoditized businesses, we're continuously focused on cost efficiency we.
We will continue to be one of the lowest cost producers in order to generate operating cash.
Even during the bottom of commodity cycles.
Finally, while.
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 streets.
Flow each week 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 Koby I would like once again to acknowledge IC sales 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.
Hey, Tim its a colby.
Thank you have a good day, everyone and Peggy welcome to IC and were 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.
Good old though.
As expected they were down compared to last year.
Third quarter external challenges included lower potash and phosphate commodity market prices.
And also showed them lower demand for bromine and bromine compounds due to the impact of COVID-19.
Globally industrial activity.
It's a lot of people their first ever to you our results have been remarkably stable.
Over the last several quarter. Despite these headwinds.
Our ability to consistently generate solid operating and free cash flows.
Testifies to the disciplined execution.
One of our strategy and our financial strength and reflects the diversity and resilience of IC ATM business portfolio as well as the effectiveness of our cost reduction initiatives.
Turning to slide 13.
We mentioned during our last two earnings calls that we've.
Shaved commodity prices were secretly low levels and will soon begin to recover.
The chart on this slide show the recovery is underway across our mineral value of change, which is reflected in price increases toward the end of the third quarter.
Continued solid demand.
Ben for both potash and phosphate fertilizer sales was fueled by good agriculture season it.
Decreasing grain stocks and the subsequent increase in grains prices.
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 sales compared to the sales quarter of 2019.
Nonetheless, the recent improvement in pricing momentum as they just showed on the previous slide is expected to reduce the negative pricing impact in the coming quarters.
The impact of COVID-19 during the quarter easily flexed it in lower quantities sold.
Primarily in the industrial product segment.
Hi, all says the volume of commodity and specialty phosphates as well as specialty fertilizers testifies to the positive momentum in these divisions into their resilient.
Of our business across commodity cycles.
And even so called Black Swan events.
The negative impact of commodity prices is even more apparent on slide 15, and you can see it flows all the way to the profit line then.
The negative impact of lower.
There's volumes on our EBITDA was more than offset by lower cost of raw materials and it by a low operating expenses some of which was a direct result of the implementation of our cross company efficiency and cost reduction plans.
Please turn to slide 16.
Dean for a quick snapshot of our financial position I.
I see and maintains a healthy balance sheet backed by immediately available liquidity of over $1.2 billion.
As off at the end of the quarter.
During the quarter, we also renewed a five year $300 million.
Securitization facility.
An extended our $900 million credit facility to 2025.
With no major principal repayments of loans due until 2024, we are well positioned to continue to focus on executing our strategy and to pursue growth.
As opportunities.
Our net debt to EBITDA ratio of 2.6 times remains in the lower part of our targeted range and we expected to decrease in industrial demand picks up and as commodity prices recover in the coming quarters hourly.
Our liquidity position continues to be so.
Supported by strong cash flow generation, which funds, our quarterly dividend and speaks to the underlying stability of our businesses.
To conclude.
Given the challenging market environment, we have where they're doing 2020 I see it as demonstrated its resilience its cash generation capabilities.
And its ability to successfully execute on its strategic goals.
Among the notable achievements we had this quarter.
We delivered an increase in potash production at the dead Sea, our most cost competitive side to record levels.
We also achieved record operating income from both specialty phosphate.
And from the white be a joint venture in China addition.
Additionally, the performance within our I.S. Division continues to improve and we expect further positive momentum in future periods once the filter acquisition closes.
Well in their markets side momentum seems to be driving commodity price.
This is higher which we believe will be indicative of a longer term trend.
In the short term challenges to demand caused by COVID-19 remain although we are beginning to see improvement in some of our end markets.
For the fourth quarter, we expect to see the regular impacts on seasonality mainly in our.
I S and phosphate solutions divisions due to the end of the season in the northern hemisphere in a slower December four specialties.
As I said before the pandemic had a short term impact on our bottom line results, but we maintain our positive outlook for a recovery in 2021 has.
Asked about demand rebounds, we also expect that our specialty businesses will continue to positively impact our results.
Moreover, our strong balance sheet and healthy liquidity profile continue to provide us with ample flexibility to capture business opportunities in a volatile style.
There has been change in economic environment.
Before I turn the call over to the operator for Q, an a. I would like to draw your attention again to the interactive data to all we implemented last quarter under the investors section in our web site.
Which will enable you to easily access our.
Yes, Gee figures and financial data.
You can also download customized data with multiple periods and parameters. We have prepared this data following discussions with several prospective shareholders and I hope you will find their formation helpful and transparent.
With that I would like to.
Thank you for listening in our call and open up the line for any questions you may have.
Thank you, ladies and gentlemen, if you wish to ask a question. Please press star one on your telephone keypad and wait for your name to be announced if you wish to cancel your request. Please press the hash key once again.
Thats Star one if you wish to ask a question.
The first question comes from the line of Vincent Andrews of Morgan Stanley. Please ask your question.
Thank you and good morning, everyone. I'm wondering if you could just give some more comments on on bromine and there seemed to be some puts and takes with certain.
And parts of the market getting better and maybe some price momentum on the elemental side of the equation, but when when do you think that momentum will be enough to offset the weakness in clear brine fluids or when do you just even ambition that coming back in is it dependent on oil prices or just the ability to divert some of that raw.
Raw material to other parts.
Business. Thanks.
Okay, Hi, Vincent and thanks for the question.
In terms of a clear brine fluids, we think that's a it's going to take some time until we see demand the returning to what it was currently we're selling it.
At about 50%.
The levels of last year.
Meaning are we sold about $140 million of.
Sure, Brian fluids last year, and I think until the end of third quarter, we were a little bit above seven d., but of course third quarter was much weaker.
Within the third quarter so I.
I would say we're at about 50% of the demand now oil prices are are okay. At the moment. The issue is that quantities have gone down significantly because of.
Air traffic and automotive truck traffic.
And until a.
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.
60 million to $70 million less sales on on an annual basis at.
Same time from a flame retardant perspective, most most.
Most of the activity is coming back and also the dynamics of the market and our value over volume strategy.
Our allowing us to compensate and mainly in.
Say from.
At the end of August into September and now we see we saw strong October and still strong in November.
Flame retardants or are doing well in conns in building and construction there is a lot of renovation going on so our.
Demand is extremely strong in both for Bronto Bromley.
I hated the flame retardant and also for our.
Phosphorus based flame retardant.
And also the electronics segment that was a week in previous months of a threex. The demand has come back and so that's in good shape also there's a certain shifts in the mix.
And then the types of flame retardant. So some some types are more in demand than a than others, but all in all the the demand is a it's been strong. So we see it remaining strong at least until December December traditionally the level of activity is lower.
So flame Retardants, we see things returning to normal or almost normal would be more accurate.
And clear brine fluids, it really depends on.
On the length of a of the pandemic situation and the underlying demand for oil and gas products.
Great. Thank you very much.
I hope that answers your question.
Well, yes, no. That's very helpful. Thank you very much. Thank you. The next question comes from the line of Joel Jackson of BMS capital markets. Please ask your question.
Hi, good afternoon, wherever you kind of walk in Peggy.
I thought we could dig in a bit on that for lakoff acquisition a little bit.
For me.
You pay $120 million, you know should we assume revenue like a high single digit EBITDA multiple agile quite those assets.
What are kind of the margin of that business versus what you already have.
AG solutions.
And then earnings I guess would be weighted heavily towards the second half of the year can give us.
Modeling help on it thanks.
Yeah. It's a thanks for the question Joel the fertile locker acquisition as a.
A multiple of EBITDA that one digit.
The company is very profitable and the level of EBITDA is.
Well above 20% so on average its much higher profitability level than our existing business.
And like you said second half of the year as the strong 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.
This year much much lower than the northern hemisphere, and that's why for lock was not our only target in Brazil.
We hope that.
We hope that it will lead to the next deal so.
Sure.
And then just my second last question on the potash market.
We've seen Brazilian.
Prices come up come down a bit.
Yes, Mark it's been strong on some publications other markets have been pretty flat.
What is your sense of the strength the potash market right now inventory levels around the World and then also just in general you've heard that maybe fertilizer inventory.
Fertilizer.
In Europe, our or high can you comment on all that please.
Yeah, I'm, a I'm much more bullish than I was two weeks ago and the reason was that we saw prices in Brazil ticking up very.
Very nicely for a couple of months.
But now this off season in Brazil, and its off season in Europe, then there's really not a lot going on in those markets in terms of new transactions and it's very hard to test the existing levels of pricing.
But over the past two weeks, we've sold over 100000 tons.
To the U.S. at above $230.
Our price.
Which was not something that was obtainable just a three or four weeks ago, which means that the 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.
ER are relatively comparable to to long term levels and we don't see the stockpiling and.
In China, as we did last year and bonded in Chinese ports prior to contract negotiations and the entrance into contract negotiations looks.
A positive for put our suppliers. So all in all I would say that the and of course inland prices in China 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.
Because of a the situation in the U.S.
Thanks Harvey.
Yes.
Thank you. The next question will come from the line of Mark Connelly of Stephens. Please ask your question.
Well I was hoping we could talk a little bit more about how sort of <unk>.
What sits in from a.
An operational perspective, you talked about their distribution system and I'm curious are you going to be merging.
Different distribution network, starting to be putting your sales through there.
Just from a nuts and bolts perspective, how does that work.
All right. There are two dimensions here, there's the logistics and supply chain, which where emerged in the past and we're just you know tightening the bolts there.
And on the on the actual sales side, where emerging or I'd say not two but three distribution centers.
Films that have a separate sales people separate marketing fee pools separate agronomists sometime.
Sometimes going to the same clients so on the logistics supply chain side.
Been it's been there for quite a while we're just it's just easier and this new situation.
And too.
To do a little better.
And on the front end side on the client side. There is some significant consolidation going on so.
Of the independent.
Independent systems that are coming together again in three distribution systems, one for commodity one for Polysulfate and one for us.
Specialty fertilizers, all having their own.
Salespeople sales service.
Marketing infrastructure and not Werent always working we're we're typically not working.
In coordination.
Hope that answers your question.
Yes, it does and how long do you think that integration process will take.
Oh, I think that on the technical side <unk>. It. It's just a you know a couple of more months, because we're well into the process.
But.
From my experience these types of processes that also have.
All kinds of behave.
Behavior implications and process implications.
They typically take a year or two before.
Everybody feels that the organization has really gone through the whole process there was a whole EM.
Fermentation here in some cases, the DNA DNA change the company is becoming much more client focused and much more aligned around the customer journey and it's something that that is not a you know a a two week exercise.
Exercise.
So I think what we're getting a lot of the benefits relatively quickly, but I think ultimately, we'll 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.
A long term trend do you see what's happening now is a continuation of that trend or is any of this temporary.
It's definitely a continuation and also you should note that in terms of dynamic dynamics of the market that also some of the producers of the compounds.
Our 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.
With the current price level and.
The fact that.
We're not under.
You know any kind of pressure that we have to make more money in a typical quarter means.
It means that we can be much more disciplined and each.
She's on the value over volume strategy and protect our position for the long run at the end of the day, we're market leaders.
With that thank you.
Sure.
Thank you. The next question comes from the line of Tom Reckless with Citi. Please ask your question.
RJ Cody crab such.
Couple of questions if I may.
Firstly just on on industrial production.
Following on from the earlier question there I.
I guess, that's pretty quite a difference between the start of the third quarter and in the third quarter in terms of the if you can give us some sense of the exit rate by marginal well how much of that.
$45 million lost EBITDA that you.
Got troops that that would be very helpful. Just so we can know where the markets today.
And then.
Really expert except the potash business, we can obviously see that at all no positives in the bridge operating expenses I was just wondering if you could help us.
Dan wants it any of various games might be temporary in nature.
And how we should think about those funds hopefully coverage ccs broader sense to mobile.
Thank you.
Okay could you just repeat who who is asking the question because.
I didn't get that.
Oh, I'm, sorry, okay rentals weren't from Citi.
Yeah, I got it I got it now thanks Tom.
On bromine I'll make it simple for you since I have October numbers than the way to look at it is the average sales in the third quarter were about nine.
Under a million.
Per per month October numbers is 105, which is very close to what.
He used to be.
And in terms of the outlook typically the fourth quarter has a two strong month.
And or to regular month would 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 the average for the first two months should be a ticking up from 92 of.
About a 105 and december's, yet very much unknown to us at this point, it's very difficult for us to predict how December is going to look like I was you know as open as I can about it.
In terms of potash, we still have a I.
I mean to put Us division.
The main headwinds that we have are definitely.
With 19, one of them is.
What the most significant headwind has to do with the situation in Spain, where we actually had.
We had to shut down for about three months.
Late March and beginning of April and the situation was such that.
We came to a conclusion that if.
If we have to shut down even once more.
It will be.
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.
I'm, sorry, I I think I said.
Three months of shutdown I meant three weeks or shut down.
Anyway getting back to what I was saying we came to conclusion that it makes more sense, just because just from a risk perspective.
Yes.
To halt production in a Villa Florence mine.
Quite a cost I have to say quite a cost, but it's eliminating risks and it's also forcing us to be.
To expedite the.
The consolidation of the mines the ramp project.
As it is about to be finalized we.
We expect the final the final work to be done in February.
So.
We're incurring costs that were not expected and they're directly and indirectly related to covert because directly because we had to shut down for a few weeks.
And indirectly because it put us in a situation where.
We have to choose the less.
The less risk option of.
Starting with consolidation much earlier, so that's one headwind headwind.
Another headwind, it's not as significant is.
In our Mad.
Im business, our magnesium business sales, mostly to the automotive industry and the automotive industry.
Has been to an extent almost shut down.
We are most exposed to the U.S. industry and Unfortunately, we were going through a.
And anti anti anti dumping.
And empty anti dumping suits or last.
Last year.
Which we ended up prevailing but the bad news is we lost a lot of orders because the orders usually happen.
In the last.
For the year and this year because most of the.
Automotive industry is shut down then.
We've had two pretty.
Produce inventory, which we haven't sold yet and so that's another headwind which.
Which puts a.
Which puts us in a situation or we have to.
Work against our intuition.
Which gives cash priority and we're actually producing for inventory.
And we will be selling that inventory much later than we expected. So that's another headwind and the third headway.
Does that there is a second wave in India.
In Europe.
And.
That has.
Additional implications for example in the UK.
We've made a lot of progress in our Polysulphate mine and actually in October we reached.
A level of production and.
When translates into annual production of over 900000 tons close to our 111 million benchmark.
We have over 80 employees out of a little over 500 that are currently in quarantine, we have over 20 a affected with.
COVID-19 and that puts us in a situation, where we may have to.
Lower production once again for the second time this year.
And that's the kind of.
That's the kind of a year, we have to face.
Again these are not.
My.
Monumental headwinds and they're temporary headwinds.
In Spain, you know, maybe where we've been where even turning it into an opportunity, but all those three things together.
Put us in a position where we have to incur costs that were unexpected.
So I guess I guess a covered everything.
And did I Miss anything.
Okay. So again the headwinds are villa Florence in Spain, but that's I would.
I'd call. It a one time expense that will go away, a UK, which is progressing but.
And now that we're almost at the benchmark if you want it to be.
The end of the year, we can suddenly have.
To shut down for for a while I hope not right now we're holding it up.
And magnesium where some of our sales have been.
Delayed but.
Eventually of course things will get back to normal so I hope I answered your question.
That's very helpful. Thank you very much.
Thank you. The next question comes from the line from Duffy Fischer of Barclays. Please ask your question.
Hi, everyone. This is Sean DMR Nonproductive. This morning, I hope everyone is doing well thanks for taking the question.
I guess, just digging a little deeper into the Spanish operations can you just remind.
So what the production level there is expected in 2020.
And what the expectation is for 2021.
Yeah, right now, we're producing at a level, which which comes to about 600000.
Sales and per annum.
And that will continue to be the levels through.
The first half of next year, because we're producing in one mine.
And we will need four to five months after the end of the ramp project to get everything assembled in place and get to our.
Next.
Our next targeted level, which is 1000, which is 1 million tons a year. So in the second half of next year, we will be producing at a level of 1 million tons a year.
So the the current.
The current estimation.
That we have and.
And what we're going to budget for next year's 800000 based on 300000, and the first half of the year and.
500000 in the second half of the year.
Again, a lot of cost is coming out because.
We're closing one mine all this production is going to happen in one mine instead of two.
Perfect.
And so just quickly following up on that you'd you'd start are you would expect to see some of that cost per ton improvement start to roll through in the back half of next year into 2022.
Correct.
Perfect. Thanks, so much guys I'm going.
Thank you. The next question comes from the line of Laurence Alexander of Jefferies. Please ask your question.
Good morning could you characterize the M&A pipeline.
In terms of activity level and how.
How you're seeing the sort of the trends of multiple expectations on the parts.
Targets.
And secondly on the micro nutrient side can you characterize.
Sort of the global certain number of acre touches that you have.
In your portfolio.
Okay, Hi, I'm not sure I can.
Can supply acre numbers.
But most of our micro nutrients 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.
A very limited.
Micro nutrients.
Activity outside of.
Europe and the U.S.
Other than.
Other than.
Our polysulphate.
Fertilizer, which is selling.
Which is selling in China, India.
Other.
Asia Pac countries and and also Brazil.
And of course, it has magnesium and calcium.
But again I don't know the acreage a information.
I don't have it here so.
I will write it down and get the information out there okay.
Thank you.
And then just with respect to the M&A pipeline to the lovelock activity or how you're seeing expectations trending.
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I'm sorry.
Look I think that COVID-19 has created opportunities for M&A.
Which.
We even for lock well was an opportunity that probably.
Would have slipped from our hands.
But sort of came back to us due to changing.
Circumstances and we.
We see other opportunities.
In the specialty fertilizers arena.
In some places it's more competitive and in some places 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.
Only a few deals that were actually that we've actually.
Actually.
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Followed up.
Passed the initial steps and they are in the works.
We're also working on M&A pipeline.
That relates to our food business.
And those are the.
Two areas, where we're currently active and.
Some specialty fertilizers and food.
We're not we're not in any kind of.
Advanced M&A discussions and any other part of our business.
Great. Thank you.
Thank you well. Thank you once again, if you wish.
Good question. Please press star one on your telephone keypad and wait for your name to be announced if you wish to cancel your request. Please press the husky once again Thats star one to ask a question.
The next question comes from the line of Tim Fogarty scope of VTB capital. Please ask your question.
Yes, Hello, My question is on Factset segment.
Could you please elaborate a bit on navigating just isn't that or do you expect when people thought that.
Isn't going to impact both especial Gen commodity business this year.
And now on commodity market billion, then you add sales folks I thought that low so it's a it's nice.
Oh, the multi sales season.
And then on top of the day. They expect a this is what is required to offset the increase in the average selling price.
Thank you.
I just didn't get the last part do you expect this to affect what.
Hi, Dave.
I expect that these volumes to climate that you mentioned in your presentation to offset the increase in the average selling price.
Oh, if its 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 is a very limited business during the holiday busy during the holiday season, So our specialty business is usually.
Lower.
And in terms of fertilizers, our main target markets are.
Brazil and Europe.
Yup and.
They tend to be off season in the fourth quarter in general and they're there for.
You were transactions at the end of the year.
Did see or I guess, maybe because of the strength 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.
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 pricing.
Increases in our product and TSP, an SSP started.
I would say way after some of the price increases and 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 price.
Prices, a tailwind for the fourth quarter, but again seasonality, because where we typically target Europe and Brazil.
They are less sales to those territories and also our specialty business and this we're sure of.
There is much less activity in December because of the holidays, So I hope.
I hope that gives you a little bit of a flavor.
Thank you.
Thank you.
We have no further questions at this time I will hand, the call back to TV for closing.
Okay. Thank you very much.
So again welcome 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 I'm talking.
Talking about the year summary, and 2021.
So.
They say to everybody and thanks again.
That concludes the conference call for today. Thank you for participation you may all disconnect.
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