Ladies and gentlemen, thank you for standing by, and welcome to the ICL Analysts Conference Call. [Operator Instructions]. I'd like to now hand the call over to the first speaker today, Ms. Limor Gruber, Head of Investor Relations. Please go ahead.

Thank you. Hello, everyone. Welcome, and thank you for joining us today to our fourth quarter and full year 2018 conference call. This event is being webcast live on our website at www.icl-group.com. Earlier today, we filed our Q4 2018 and full year press release to the securities authorities and the stock exchanges in the U.S. and in Israel. The press release is available on our website. There will be a replay for the webcast available a few hours after the meeting, and a transcript will be available early next week. The presentation that will be reviewed today was also filed with the securities authorities and is also available on our website. Please don't forget 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. We will begin with a presentation by our CEO, Raviv Zoller; followed by Kobi Altman, our CFO. Following the presentation, we will open the line for the Q&A session. Raviv, please.

Thank you, Limor. Good morning, and good afternoon, everyone. Starting from Slide 3. 2018 was an excellent year for ICL, and our fourth quarter reflects that as well. During this quarter, as well as the entire year, we demonstrated strong financial results with the positive top and bottom-line contribution from all three mineral value chains: bromine, potash and phosphate. The main driver was, of course, higher prices. We benefited not only from the improvement in the commodity markets, but also from our value-over-volume initiatives and specialty businesses, which contributed over $30 million to operating income in Q4 and about $120 million for the full year, allowing us to more than compensate for 2017 contribution of the Fire Safety and Oil Additives and the weaker businesses we divested early in 2018. We will continue to focus on optimizing our pricing also going forward. Higher prices across the board, combined with strong potash sales volumes, resulted to late signing of contracts with China and India, led to an increase of over 20% in Q4 adjusted EBITDA, excluding divestments. Our annual net income more than tripled compared to 2017. On an adjusted basis, and excluding the divested businesses, net income increased by 48%. These strong results are reflected in Q4 being the fourth consecutive quarter to mark a sequential growth in adjusted operating income, in adjusted EBITDA and in operating cash flow, and continue to support our above-average dividend yields. Overall, 2018 was a transition year for ICL. We enjoyed improved market conditions in most of our businesses that we are able to capitalize on due to the implementation of our focused leadership strategy. Our progress on streamlining our businesses should continue to drive positive business momentum into 2019. Let's move to Slide 4 to review some key financial metrics. Our strong operating…

Thank you, Raviv, and good day to you all. As Raviv mentioned, 2018 was a great year for ICL, and our financial results reflect that. During my part, I will discuss both the quarter as well as the annual performance. Let's begin with our annual sales on Slide 13. 2018 sales recorded a growth of 3%. But if we exclude the divested Fire Safety, Oil Additives and Rovita businesses, sales of ICL remaining businesses grew by 8% with a remarkable positive contribution from all four divisions. Analyzing our annual results highlights higher prices in the amount of $419 million to be the major contributor for the increase in sales, together with $99 million contribution from exchange rates due to the strengthening of the euro against the dollar. These were only partially offset by lower sales volumes, mainly of potash, commodity and specialty phosphates. When reviewing the 2018 operating income on Slide 14, we see a similar picture. We've seen less than a year since we divested the significant businesses, we were able to achieve adjusted operating income that was over 15% higher than in 2017. If we compare the remaining businesses only, the adjusted operating income grew by over 40%. Here as well, all four divisions positively contributed to adjusted operating income with higher prices more than offsetting higher raw material prices, higher marine and land transportation costs. The comparison to last year demonstrate the strong results in 2018 that we're able to absorb also lower sales volumes and income from insurance in Israel, which was recorded in 2017, and other operating expenses such as high royalties due to higher potash and bromine prices, provision for slow-moving inventories and depreciation. Turning to Slide 15. Our Q4 2018 sales exceeded last year by 4%. If we exclude the $60 million sales…

[Operator Instructions]. And we'll take our first question today from the line of Joel Jackson.

I had a few questions. Maybe I'll just start one by one. So in the potash segment, looks like you had a pretty large increase year-over-year in the quarter, maybe $65 million in other products that aren't potash. Can you just talk about what drove kind of other things in potash? And then how much of that was a tailwind for earnings? So was that largely all hitting the bottom line or some of it?

Yes. Hi, Joel. This is Kobi. The other products are mainly the Polysulphate, the electricity we sell, the magnesium in this division. So we try to make it easier for you to track our overall division performance and what is the potash stand-alone only. So all the other things that are not directly potash sales are in this line.

And I was asking, sorry, how much of that extra $55 million year-over-year in the quarter in the other basically hit the bottom line? Was it almost all in the bottom line? Or some of it in terms of like profits or existing profit.

Yes, the profitability here is very, very low. Some of the products, as you know, are still loss-making like the Polysulphate. We still need to ramp up this mine. So you can count on a -- actually, a negative contribution from this line at this point.

Okay, that's helpful. So I had a second question. It's kind of two part, but your potash costs, segment costs were quite low in the quarter. Can you give some insight? Is maybe that a suitable cost per tonne or cost base we can expect to cost 2019? And on pricing for potash, should we expect a similar price -- average price in Q1 versus Q4? Or are there some factors moving it either way?

On the expected pricing -- hi, Joel. This is Raviv. On the expected prices for 2019, for the first half of the year, most of our production is going to the Chinese and Indian contracts. So it's pretty predictable. As of second half of this year, it depends on developments in various markets. Right now, prices are relatively stable. In terms of cost per tonne, we booked our production records in Dead Sea Works with over 3.8 million tonnes of production. So as long as we continue with that kind of productivity, we expect staying at the same levels with cost per tonne.

So were your Q4 levels, how should I put it, close to the best you can do in the current environment and you're trying to hold that? Or is there more you can get?

No. They're still -- we can still grow our efficiencies. We're expecting sometime within the framework of 2019 to 2020 to go through plant maintenance that is over twice as long as the usual week of plant maintenance we have per year. We have a plan of 30 different projects that will be executed at the same time and will actually allow us to increase efficiency in the Dead Sea by about 5%.

That's helpful. And just my last question is looking at Brazil. A lot of movement there in Brazil. Looks like phosphate's imports are strong, but inventories are building a bit of weakness in product demand inland, maybe potash as well. We saw Heringer, one of the big distributors, declare bankruptcy. What's going on in the Brazilian market? How do you feel about it? Any headwinds or tailwinds you want to comment on?

Other than the bankruptcy, there's nothing out of the ordinary that we see going on. In terms of seasonality, the season -- it's an off-season. So spot prices have been relatively stable, and the general level of activity has been lower. And we'll see developments within the next couple of months.

Do you think the Heringer bankruptcy will have an impact on the markets? Too soon to tell?

It's way too soon to tell.

And your next question today is from the line of Vincent Andrews.

This is Jeremy Rosenberg on for Vincent. Just want to circle back on potash production. When we think about next year, kind of the run rate exiting the year was kind of 4.8 million tonnes, is that a level we should be thinking about? Or given potential Dead Sea efficiency increases, could we see that...

Yes. That's basically -- those are the levels we're talking about, running at a rate of about 3.8 in the Dead Sea and between 900,000 to 1 million in Spain. In terms of the new efficiencies in the ramp-up, that won't be this year because the plant maintenance that I talked about, the earliest it could happen is towards the end of this year. So we won't see the ramp-up until 2020.

Okay, got it. And then also a question on the phosphate side of things. It looks like there as well production are significantly higher year-over-year in the second half. What could we kind of expect for production levels next year in the phosphate solutions segment?

Again, here we broke production records this year, and we're looking to break those records again next year. Half of our sales are specialty sales, and they're not very much affected by market conditions, at least not in the short run. In terms of our commodity products, those are affected by market conditions. So it depends on the market environment.

Okay, got it. And then if I could just sneak in one last one. Just on phosphate, as you're kind of trying to make more of a push into the specialty applications, how do you think about price next year overall in the phosphate, just directionally?

In the specialty business, many of our contracts are annual contracts. Actually, over 50% of our sales are annual contracts. Most of the annual contracts were signed during the end of the summer period, mainly in September, last month, probably around beginning of October. So the visibility for the next year on the specialty side is very high.

Your next question today is from the line of Tom Wrigglesworth.

A couple of questions for me. Firstly, on bromine, you noted that volumes were a bit weaker. I just wanted to ask some clarity. It's do you think that higher price is beginning to eat in demand? Is that some of the destocking we're seeing through the industrial chain? Any color there would be interesting. Second question on capital allocation. You mentioned, obviously, the stronger balance sheet, the prospects for inorganic growth. I'm wondering if you could provide a bit of color about which geographies would be better suited in your eyes for more capital allocations, which businesses where you want to drive growth with that lever now that it's available to you. And lastly, just a little one on NPKs. You said NPKs were weaker or at least waterborne NPKs. Any color on those specialties and the market dynamics there would be interesting.

Okay, let's start from -- I hope I remember all those questions.

Sorry. I'll repeat them if you want.

Yes. Let's start from the bromine. On the bromine, if you look at Q4-versus-Q4, you'll see the same type of growth every other quarters. Q2 and Q3 were especially strong on the clear brine fluids side, and November and December were a little slower. Also, in December, we got a lot of sentiments coming out of China, but I can't say that the sentiment really affected the business. And looking at January, the year started full swing, very, very strong, both on clear brine fluids and also on China. So we don't see any kind of trend at this point. November and December seemed a little softer, but no trace of that in January. That's on the bromine. In terms of capital allocation, we're very comfortable with this level of debt. The only M&A that we're looking for is around the Specialty Fertilizers side. We're looking for additional product portfolio and also in order to leverage our scale and also for additional coverage, especially in the geographies in the Southern hemisphere, which means Australia, South Africa, Brazil, India, et cetera. We would probably be looking at M&A in the next couple of years. In the case that the targets that we're looking at will successfully be acquired, then you can expect more of the same in terms of dividend distribution, et cetera. If plans linger on, then subject to staying at the same levels of debt more or less, we could consider other alternatives. So net-net, I would say that we like the level -- the current level of debt, plus/minus 10%. We expect a dividend distribution of 15% to remain and for some M&A to happen in the Specialty Fertilizers segment coming in the next couple of years. So that's on capital allocation. In terms of NPKs, in our case, the only weakness comes from loss sales in Turkey that happened after the exchange rate fluctuated in a crazy way in Q3 and we basically exited the territory for a while. We came back after making some new kind of currency hedges. Other than that, we don't -- we didn't really have a development in terms of NPKs in our markets.

And our next question is from the line of Jonas Oxgaard.

I had a couple of questions as well. I was hoping to start at capital allocation. We covered the M&A side, but what about the CapEx side? What do you see your spending in 2019? And how much does it swing depending on when you put that maintenance?

Okay. I'll start, and I'll let Kobi complete my answer. Basically, as most of you know, 2019 and 2020, we have relatively large capital investments committed, especially 3 large ones. One is the P Line pipeline, which we need for future use of the resource in the Dead Sea, and it's a $250 million project. Then we have the self-harvesting agreement with the government of Israel, which is also a very significant project. And also we have the ramp and another significant projects in Spain towards the consolidation of two mines. So net-net, we will see capital expenditures in 2019 about the same levels of 2018, even could be $20 million to $30 million more. The good news is that the cash flow generation is getting very, very strong. So despite the very high CapEx, we will see -- we will still see strong free cash flow. And going to the second half of 2020, we'll start getting back to maintenance CapEx plus about $100 million for growth CapEx. Maintenance CapEx is about $400 million now. You want to complete, Kobi?

I think you covered it. So unless you have follow-up questions on the topic.

No, I agree. I think it was covered very well. On the polyhalide, you said it's still unprofitable. You're ramping. Could you give us an idea of what is required, what is left to do in that mine? And what's the dream stake here? Once it's fully ramped, how should we think about production and profitability for this mine?

Okay. First of all, to put things in proportion, the business is generating a run rate of about $60 million right now. And the run rate is about 500 million tonnes -- 500,000 tonnes of production right now, and the idea is to ramp up to 700,000 by the end of 2019, 1 million in 2020 and 1.3 million in 2021. The breakeven is -- the breakeven point is a little over 1 million tonnes. But it needs to be noted that in this specific business -- this is probably the only business where our destiny is not only in our hands. And the reason is that there's a competitor that is trying to raise an additional 3 billion tonnes in order to come very strongly into the polyhalide market. And basically, if that happens, then what it means is that we become a price-taker. And as a price-taker, our ability to demand a premium and capitalize on special patents, products that we've developed and are developing becomes questionable. So that company is in the process of raising money as we speak in the next few months is very critical for them. So if they succeed, then it's an issue that we have to manage because it means that they'll be coming into the market within the next 3 or 4 years. If they're not successful, then we can go ahead with our stand-alone plans. So we're looking at that. We're trying to manage the risk in a responsible way, so we don't have any significant downside if things don't turn out our way.

That make sense. And how should I think about polyhalide pricing? You mentioned a premium. Is that a premium over the potash wake equivalent or ease when I think of it?

Yes. The mineral value, there are four different minerals in polyhalide, and they all have a mineral market value. And the question is, does the combination, including various types of granulation and mix with other minerals? How can that demand a premium in today's market? There are certain attributes to polyhalide that are very positive. For example, carbon effects are the lowest of any other given fertilizer. So there are all kinds of advantages to polyhalide, slow release and other advantages. And eventually, we'll be able to commend a nice premium as time goes by if we have the ability to be dominant in the market.

And our next question is from the line of Laurence Alexander.

This is Nick Cecero on for Laurence. So maybe we can just visit Innovative Ag Solutions. You called out sales in North America as continuing to be affected by competitive pressures. I was just wondering when you maybe expect them to kind of seize or when you expect to see a demand pickup.

We don't expect the market to be less competitive. But because we're growing our business and making it more efficient in getting closer to the customer and creating advantages for the customer to work with us, as we grow, we'll be able to become more profitable. But the market is very competitive, and we expect it to be even more competitive.

Our next question is from Mark Connelly.

Listening to a couple of producers in China, we've been hearing more talk about seasonality in their businesses. And I'm curious, as your production and mix shifts -- sorry, as your sales into China and the mix of business shifts, are you seeing more or less seasonality? I can't tell whether these companies that we're hearing from are significant to your overall business there.

We don't really have too much of a seasonality issue in China, and the reason is that a huge part of our production is acquired by our partner, which means that their planning is to buy what we produce. So it's less of an issue for us. We basically sell just about all of the production that we're able to produce during the month, in any given month.

Okay, that's very helpful. Can you remind us of what the product ramp for WPA in China's going to be? And are we going to see a mix shift become apparent in '19? Or is that going to be more apparent in 2020?

The mix is going to be more apparent in 2020. We are growing specialty products, but specialty products based on technical-grade white phosphoric acid is going to come to play only at the end of 2019. We started building our production plant for white phosphoric acid in September of 2018, and we plan to start going live with production for customers right at the end of 2019. So it'll only be significant in 2020.

Okay, that's helpful. One -- just one more question. Are there any further charges, cash or noncash, that come from this royalty agreement that you've now resolved with Israel? Or have you just taken all that?

From the royalty agreement?

Yes. Is that all resolved in this?

That's resolved. We have additional issues with the government, which we will need to resolve in the future, so I can't promise for life. But in terms of the royalty issues with the government, I'm very happy to report that these issues have been around since 2012, and we've gone through very difficult arbitration process. And we worked very hard in the past few months to establish good trust and new working relationship with the authorities. And we were able to come to an agreement without the need of the arbitration, without the need for the arbitrators to make a judgment. And that's a very, very good sign because it means that things that were stuck in the past or things that demanded huge transactions, expenses and lawyers and specialists and all kinds of management focus can be worked on in an amicable way. And Kobi led a team and did a great job on that. So after seven years, we were able to negotiate an agreement, and I think it did a lot of good for our relationship with the government.

Your next question is from Patrick Rafaisz.

I have three questions. I'll go one-by-one, if that's okay. The first one is a follow-up on Industrial Products and bromine, especially the clear brine fluids. They still benefited from a mix perspective in Q4. Now you mentioned that you had a strong start here as well in January. How much longer do you think Industrial Products can perform better than the usual run rate of around $75 million to $80 million of operating profits? Or in other words, how much longer will clear brine fluids benefit the mix in that segment?

Honestly, if you'd asked me in June of last year, I probably would've said another 2 or 3 months. But as we gain more information and understanding in the past few months, it seems that there's not enough product around for the current needs. And what we see, even in January, is a new client that never bought from us are buying from us. So it means that they're not getting product elsewhere. So I don't know what that means for the total market, but my guess is that the total market is growing, and probably there's some bleeding wells out there.

Okay. And then the second question, cash flow considerations in 2019. You sound quite optimistic on your cash flow generation and specialty free cash flow generation. Can you talk a bit, maybe a question for Kobi, around the effects of the collections that were pushed out to the Indian and Chinese contracts as well as the inventory levels at directed lows now year-end '18? What kind of effects will -- should we expect here in 2019?

If you look -- I'm stepping in here for a second. If you look into the cash flow trajectory, you see that we're nearing the $250 million quarter rate from operating results. So we're talking about $1 billion or so in terms of operating cash flow generation. So given $630 million or $650 million CapEx expectation, it means that if working capital doesn't change over the year, we will generate over $300 million of free cash flow. But since you also asked about the receivables being pushed forward, Kobi will complete.

Yes. So just if you think about 2018, what was a little bit unusual in that year is that the Chinese and the Indian contracts were signed later in the year versus, I would say, regular years. And as a result of that, we shipped a lot during the last few months. But still, most, if not all, of those accounts are still on our balance sheet as customers' balances and yet to be collected in the first part of 2019. And this is why we believe that 2019 will be a stronger year of cash flow generation compared to 2018.

Okay, that helps. And then the last question. Should we already expect any unusual or exceptional items for your financial expenses in 2019 as well the way you saw now in Q4 from hedges or royalty interests? So anything you already see coming up? Or should we just assume something like $100 million, $110 million of net financial expenses as guided previously?

Patrick, from what we know, obviously, it's hard to predict things like that. But from what we know, interest expenses should be at around $100 million for the year. This is a more stable one, obviously, depending on the interest rate on -- globally. But this is more or less should be stable. We are looking at ways to try to reduce the volatility of the other transactions around hedging and things like that, but this is highly dependent also on exchange rate valuations and things like that. So a little bit higher, more challenging to predict on a quarterly basis. But if you see on an annual basis, this is usually more or less offsetting each other. So if you're going beyond the quarterly fluctuations, more to the annual ones, then the fluctuation is much, much smaller.

Your last question today is from the line of Roni Biron.

I have two questions. First, following up on free cash flow, it has been trending higher from a low base since Q1. You mentioned that Q4 is around -- Q4 run rate is indicative for 2019. And I was wondering, how much room do you still have to improve working capital, overall cost in the company? Or is this is already included in the $250 million run rate?

On our payables, we're in good shape. On our receivables, we have some room based on technical correction due to the payments regarding to end-of-year sales. The place where we have most potential flexibility is on the inventories, and part of that comes from synergies, from a combination of our phosphate businesses. We have three different P&Ls, and the reasons for holding inventory were not necessarily aligned between the three P&Ls. So as we streamline the operations servicing the specialty industry, we have some significant room for improvement, and we're working diligently on creating and improving the working capital based, first and foremost, on inventory management and, like I said before, receivables, given a potential for a correction in the beginning of the year.

So assuming similar CapEx level next year, shouldn't that translate into some improvement in free cash flow versus Q4?

We're targeting an improvement of about $200 million on our working capital.

Okay. And the other question is regarding Spain. Can you walk us through the world map here? When do you expect to conclude the streamlining project? What kind of impact to production levels next year? And basically, once all of that is done, how do you see the single-mind profile in terms of the effective capacity and cost-per-tonne savings?

The 2019 numbers are not going to change from 2018, which means that production is going to be a little over 900,000 tonnes. The ramp, which is the main investment, is going to be completed by the end of 2019, given that it takes a few months until we'll go live in one mine. Then somewhere in the beginning in 2020, we'll be working only in one mine. The first year of consolidated work will result in the very same production levels, maybe 1 million tonnes, no more than that. The potential ramp-up within 12 to 15 months is about 1.3 million tonnes. And in terms of cost per tonne, we have significant leverage once we're working in one mine. We have double-digit potential in terms of decreasing cost per tonne. So -- and that's before the ramp-up from 1 million to 1.3 million. So there's significant potential in lowering cost per tonne.

There'll be no further questions at this time. Speakers, please continue.

Thank you, everyone. Thank you for joining us today, and we look forward to touch base soon. Have a good day.

Thank you. That does conclude the conference for today. Thank you all for participating, and you may now disconnect.