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. [Operator Instructions] I must advise you, the call is being recorded today. [Operator Instructions] I would now like to hand the call over to your first speaker today, Mr.Dudi Musler, Investor Relations Manager. Please go ahead.

Thank you. Hi, everyone. Welcome and thank you for joining us today on our second quarter 2020 conference call. The event is being webcast live on our website at www.icl-group.com. Earlier today, we filed our reports to the securities authorities and the stock exchanges in the U.S. and in Israel. The report 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 after. The presentation that will be reviewed today was also filed to the securities authorities and is available on our website. Please don't forget to review the disclaimer on Slide number 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, Mr. Raviv Zoller; followed by Mr. Kobi Altman, our CFO. Following the presentation, we will open the line for the Q&A session. Raviv, please.

Thank you, Dudi, and hello, everyone. Before discussing ICL's highlights for the second quarter, I would like to once again acknowledge ICL's employees globally for their perseverance in light of the challenging conditions brought about by the COVID-19 pandemic that have affected all of us personally and professionally. Due to the efforts of our committed team, we have been able to maintain continuity of our business globally with zero disruptions to our customers, while ensuring the health and safety of our employees. Turning to Slide 3 of our earnings presentation. In the second quarter, we generated positive operating income in each of our segments, as well as positive free cash flow amid a very challenging operating and market environment. I'm pleased to report that these results were actually ahead of our internal forecasts. In fact, they were more or less in line with our results in the first quarter when our business was not materially impacted by COVID-19. Our results this quarter were also supported by record first half potash production at the Dead Sea as output didn't suffer as a result of increased health and safety measures that remain in place today. I will discuss our operating performance in greater detail shortly, but I'd like to briefly discuss how our strategy drives our performance and provide context for some of the actions we took in the second quarter. As we have stated before, ICL is far from a pure-play commodity company with performance tied to commodity and business cycles. While performance within some of our segments can certainly be impacted by these factors, our business is highly diverse and growing more so. Also, while certain of our end markets like oil and gas are cyclical, the vast majority of our revenue is derived from the very durable agriculture and…

Thank you, Raviv, and good day, everyone. Despite the current ag inputs market environment in which potash and phosphate commodity prices fell to what we believe are cyclically low levels, we achieved adjusted EBITDA of $246 million, adjusted net income of $72 million and operating cash flow of $177 million. You can see that as a percentage of sales, we show increase versus Q1 in all those parameters. Compared to the second quarter of 2019, our results were impacted by significant year-over-year decline in commodity prices. Nonetheless, the stability or improvement in our results, depending on which metric you look at, reflects the diversity and resilience of ICL's business portfolio as well as the effectiveness of our strategic focus on value-based specialty products. Our resilient results were achieved in a very challenging environment that presented both operational challenges and decreases in both commodity prices and COVID-19 related demand from industrial end-market. To Slide 13; the chart on this slide, very clearly -- the impact of cyclically low commodity prices and COVID-19 related softer demand on our results in the second quarter. As Raviv mentioned, average potash selling prices declined by $63 per tonne or 22% compared to the second quarter of 2019. Phosphate commodity prices also declined significantly. The decrease in quantities comes mainly from the bromine value chain and we expect this demand to pick up as the global economy recovers. A similar picture is shown in the adjusted EBITDA segment contribution chart on Slide 14. Both our Potash and Phosphate Solutions segments were negatively impacted by lower prices. Here you can see that quantities had a much lower effect compared to the top line chart. As Raviv mentioned, performance in our Phosphate Solutions segment was driven by strong operating results in phosphate specialties. On Slide 15, we provide…

Thank you very much. [Operator Instructions] The first question we have today comes from the line of Vincent Andrews from Morgan Stanley. Please go ahead.

Thank you, and hello, everyone. Wondering if you can just give us a little more color on the bromine outlook. I know as you noted the prices stabilized towards the end of the quarter, but I'm trying to assess volumetrically what do you think that those volumes are going to be down sequentially 3Q versus 2Q just as maybe the clear brine fluids maybe that's still a little bit weaker in 3Q? And then, if you could just help us understand the moving pieces on the electronics uplift, do you think you might see in which areas that is, as well as what we need to see in Europe from a construction perspective in order to get some favorability there?

Okay. Basically, thanks for your question. Last quarter we were asked the same question and it was more difficult to predict. So we said that our best guesstimate is to say that we don't have any different assessment from our competitors. And at that time, the competitors said that they expect EBITDA to be down 20%. And I want to salute them because it came out 19% and we said we don't have a better assessment. So I owe them that. The third quarter looks very much like the second quarter. So far what we see is on the one hand, of course, clear brine fluids has bottomed and we also see that the electronics related flame retardants are still weak, but at the same time bromine prices that went down in China over May and June, has come back to rising. And we see a stronger demand for home appliance flame retardants. So these are flame retardants that are used for air conditioning units, television sets, appliances like that. PCB boards are still weak, but not as weak as a few weeks ago. And on construction, we also see the market is getting -- the demand is getting stronger, still very low on automotive-related. So all in all, it looks like we've bottomed and now we see some signs of improvement. But the net of it all is that we expect that the third quarter should be very similar to the second quarter.

Similar to the second quarter in terms of the year-over-year decline or the absolute level of EBIT?

The absolute level of EBITDA.

Okay. And then, if I could just ask a follow-up on the phosphate rock that you're no longer selling to the merchant markets. Are you doing something else for the downstream or are you just not selling it?

No, we're just discontinuing the sales of phosphate rock. Given labor union issues and regulatory issues, it was difficult for us to make this decision in the past. And because of the weak markets and new approach by regulators and healthy negotiations with unions, we're now in a position to save about $20 million out of $30 million loss that we had to live with for the past few years.

Okay, excellent. Thank you very much. I'll pass it on.

Thank you.

Thank you very much. The next question today comes from the line of Joel Jackson from BMO Capital Markets. Please go ahead.

Hi. Good morning, Raviv, Kobi. I have a few questions. Maybe we could start with potash. Could you talk about what you expect your potash production and sales to be this year, in '21 and '22 considering different things like inventory levels and some of the stuff you're doing in Spain? Thanks. '20, '21 and '22?

Hi, Joe. We expect -- in 2020, we expect sales to be around $4.55 million and we expect next year's sales to be about $150,000 to $200,000 north of that. Those are the numbers on the potash.

Okay. And then, you would probably be holding inventory levels about flat?

About flat, yes. Most of the -- obviously, most of it is coming from the Dead Sea, so we expect about 3.9 million tonnes from the Dead Sea this year and probably about 4.0 million tonnes next year from the Dead Sea.

That's really helpful. If we -- when we talk about Polysulphate, what was the earnings contribution or loss in the second quarter in Polysulphate? What will it be in 2020 and what do you have to do to make it profitable?

Okay. I'll start from the last part, which is easier to answer. In order to be profitable, we need to cross 1 million tonnes in production and we need to also sell 1 million tonnes, at a certain price level, which we are achieving today, but not on all of our products. So we still have a ways to go. In terms of the results on the second quarter, the result was a loss of about $7 million. It was negatively affected by COVID-19 because of social distancing restrictions, we had to lower production during the quarter from the end of March and gradually picking up until June 1. We were back to full production in June 1. So, our production for the quarter was about 80% of what was originally plan. And also in terms of sales, we sold less than we expected. We ran into some issues. One of them versus plan was the fact that we were late with some sales to India. We've been working on an import license to India and it took us much longer than we expected. Happy to report that's been settled this month during July but of course we sold for the last year...

Okay. And -- sorry.

We sold 131,000 tonnes this quarter. We planned to sell about 160,000 tonnes this quarter. Two-thirds of the difference comes from our plans in India. So again, that was the result for this quarter with some headwinds from COVID-19. They shouldn't last into the second half of the year. But in order to become profitable in the UK, we have to surpass the 1 million tonnes and we have to be able to sell 1 million tonnes a year. It's a new product we're introducing into the market. Our level of run rate of losses is going down obviously and will come to zero when we cross that line of 1 million.

And what percent of your sales in the second quarter and third quarter are being done at the minimum price, you need to breakeven or better?

You've got me there. I can't be accurate, but I would guess that about three quarters of the sales are on premium, and we reported -- towards the end of the quarter, we reported that we were successful with signing some long-term contracts, and all of them are at the right prices. So we're not signing any contracts, we're not doing any long-term business and pricing that is not appropriate.

And just finally for me, you talked about your cost reduction program and efficiency programs, leading to $50 million a year of annual savings. Is that net or gross of inflation? And is that break down, I guess it's mostly -- it sounds like it's kind of divided half and half kind of potash and phosphate roughly. Is that right?

Yes, it's roughly a little over $20 million in phosphate and less than $20 million in potash, and the balance is between other businesses coming mainly from early retirement programs. Okay. Actually, if I -- since the magnesium as part of potash, and let me go back on what I said; it's a little more than $20 million in each of potash and phosphate, and the balance which would be around $7 million or $8 million is in our other two business sectors that also did some early retirement plans.

Little bit on G&A as well.

Yes. Thanks, Kobi.

And is that gross or net of inflation, the $50 million?

I'd have to understand the question to answer?

$50 million cost savings, but you also have inflation in the different businesses, cost inflation. So like that $50 million we're going to see or yet is actually some cost inflation of their business you see or you may not see it?

Agreed. That's of today's costs. So it's $50 million today. If there is a wage inflation for next year, the next year would be a little more.

That's it for me. Thank you very much.

Thank you, Joel.

Thank you very much. The next question today comes from the line of Duffy Fischer from Barclays. Please go ahead.

Hi, this is Sean Gilmartin on for Duffy this morning. Thanks for taking my question, and good to talk with everyone again. I guess just a quick one for me. Again, just on the clear brine fluids business. I mean, no secret that's been a real tailwind. I guess the IP segment throughout 2019, even into Q1, we had kind of a record quarter. I'm just trying to get a sense or see if you could provide a sense of what you would consider the normalized percentage of segment sales or EBIT if you would prefer that comes from the clear brine fluids business, that would be super [ph] helpful?

Well, last year was about 13%. Jury [ph] is telling me that 11%. So I guess at the end of the year, it was 13%. So it was 11% for 2019, and for the second quarter, it was about 4%. That gives you sense.

Got it. That's really helpful. Thanks for that. And then I guess can you just provide maybe your outlook on the phosphate fertilizer business? It seems like you're getting a little bit more positive. We think generally about the market maybe just a month or so ago didn't feel great and that has seemed to reverse here somewhat over the last few weeks. So just trying to get a sense of what you're seeing on the ground and kind of the puts and takes there in the phosphate market?

Well, definitely there has been rapid change over the past month or so. There are few signs for that. One, is prices going up in Brazil; two, is discipline from Chinese supply; and three, obviously and that's the main catalyst I think, now it's the phosphate -- the Mosaic claim on anti-dumping which has caused a positive price momentum in the U.S., and sort of has a halo effect to the rest of the market. So we've seen about a 10% uptick over the past six weeks. And of course, from our perspective, it's a positive sign. And what we're seeing is that we're selling at higher prices. That's what we have seen.

Got it, that makes sense. Thanks for the time guys. I'll pass it along.

Thank you.

Thank you very much. The next question today we have comes from the line of John Rider from Stephens Incorporated. Please go ahead.

Thanks. I'm on for Mark this morning. First question from us. Could you just talk a bit about the relative performance of TSP and SSP prices relative to the movement we've seen in MAP and DAP. We've seen some divergence in the last couple of quarters and/or curious whether you think TSP and SSP prices are reasonable in relative terms?

I think the TSP and SSP have reacted a little less, but over time, we're sure that there'll be a catch-up. Over the long term, there's almost 100% correlation between prices.

Okay, thanks. And then just another one.

This is not market information, it's based on our sales.

Okay, that's helpful. And then, just one other one. Do you think that COVID will slow any of your initiatives to push more phosphate into the specialty side?

Absolutely, not. On the contrary, I think we've built a lot of innovation infrastructure in the company for internal ideation, effective R&D investments. We're taking some more risks on initial stages of new solution and our innovation has created some immediate success, some quick wins. And so, we have great pipeline of new products coming in. And even during COVID, we were able to launch new products through webinars which honestly surprise me also. But we don't see any slowdown at this point. The only area where we're moving a little slower than we hope, has to do with the business development in alternative protein. And [indiscernible] that it's a new business for us and we've signed some significant long-term agreements. And products -- new product development with the food company takes about 18 months. And some of the food companies are inward focused and focused on existing products. So halted some business developments that's going a little slower than we expected during COVID. It requires a little more personal engagement. And so we think that post-COVID, though the initiatives on alternative protein, we will move much faster. The potential there is extremely huge. So it's something that we're very keen on.

That's great color. Thank you very much.

Thank you.

Thank you very much. [Operator Instructions] The next question we have today comes from the line of Laurence Alexander from Jefferies. Please go ahead.

Hey, everyone. This is Kevin [ph] on for Laurence. Thank you for taking my question. I just wanted to ask a quick question about what you guys have seen and what you're sort of maybe medium to long term expectations are for industry consolidation in both, potash and phosphate?

I'm not sure I understand the question. You're talking about industry consolidation?

Yes, sort of based on like current pricing environment?

In terms of M&A?

Yes, exactly.

Okay. So obviously in these times, there is more talk about potential M&A and there are companies out there looking for financing. We're looking to deleverage their balance sheet. So as far as the large players are concerned on potash, obviously, everybody knows about K+S situation. In smaller companies, there are some phosphate assets that are for sale. We don't have any interest in increasing our phosphate capacity. I'm not sure what appetite there is in the market for those kinds of deals. On potash, there are no -- there is not a lot of small players. So, I don't have anything to say about that. I guess from -- I don't see a reason for there not to be consolidation, but I'm not aware of any specific action that is happening other than K+S.

Okay, thank you. And I guess, since most of my questions were asked. Maybe just a quick one on SCRATCH-X. I know you guys launched that a couple of months ago I think maybe back in May or April. It seems that you guys are hoping to capture like 5% to 10% of the market. I'm just curious, it's been a couple of months, any update there?

Yes, it's going very well. That's one of those products that were launched during the COVID virtually, and we're very happy with the results, anti-scratch additive. So it's been accepted well by the market. And right now it's exceeding our plans, even though it's too early to say because we're just in the beginning of the process. We've had a few very successful launches of products and that's been one of the successful ones.

Okay. Thank you.

Thank you very much. The next question comes from the line of Patrick Rafaisz from UBS. Please go ahead.

Thank you, and hi, everyone. I got disconnected at one point. So please forgive me, if it sounds my questions had already been answered. There's three, and please. The first would be, can you talk about how we should split the $50 million cost savings in potash and phosphates?

Yes, that was actually asked and the conclusion is that a little over $20 million in potash, a little over $20 million in phosphate, and the balance of about $8 million is between the other two divisions and G&A.

Excellent, thanks. And then on fixed costs in the second quarter, and they were lower, pretty much in all lines. If I exclude the other lines in the P&L, about $24 million lower year-on-year. And do you have a sense of how much of this was only temporary cost savings or how much that would be sustainable, apart from the $50 million you're targeting for next year?

Most of it is sustainable. There are a couple of items like the travel costs, for example that we're saving about $0.5 million a month. And those are one-time. But on the other hand, you know we had additional cost because of COVID-19. For example, for personal protection equipment, for more transportation to bring employees to the sites, and social distancing. So, the net of it is that there is very little one-time savings. Most of the savings have to do with the fact that immediately when the crisis started then we closed our wallet. We were very conservative. I can tell that the senior management with a 10% pay cut until the end of the year. So we wanted to be conservative. We wanted to save all discretionary expenses. And that's why our G&A is going down and our sales expenses are going down. Maybe because we're very careful, you can look at some of this as one-time, but my experience is that once an organization gets used to leaner mentality then it's fixed.

Okay, thanks. And the third question will be on the site mix that improved in potash and you showed that in the EBIT bridge as well. If we now would [indiscernible] the closure in Spain, how much do you think your cost per tonne will improve going forward?

We have a plan to go down from current levels, which are about potash market price, which means that we're not making money on potash, in other words, to about EUR170 per tonne. And it's a long-term plan. The savings that we're showing here related to the closing of the mine is mainly short-term savings. Short-term in a sense that they are immediate savings such as for example, the fact that we have two mines because of regulatory issues, we have to move salt by truck from one site to the other site, just in order to use that mine. So, the mere fact that we closed that mine saves us immediate cost of moving that salt and also saves us about 250 contractor employees, which gives us a net savings that will stay with us well beyond next year, but is something that we will realize now before our long-term plan to cut potash cost. In other words, since we're going down on our production, then our cost per tonne is not going to go down this year, but we are going to save immediate costs because the two items I mentioned, the movement of salt and the savings of the subcontractors. So again we have short-term savings that do not affect our cost per tonne, but we have a long-term plan from next year going forward to take our cost per tonne down, all the way down to EUR170 per tonne.

Maybe just to add to that, Raviv was referring to our Spanish operation. If you combine the overall ICL division, including the Dead Sea, because of our increased production in the Dead Sea, the balance on the entire division will look even better.

Okay, thanks. Very, very helpful. Thank you.

Thank you very much. There are no further questions at this stage. Please continue.

Okay, thank you very much. Thank you for participating. If you have any questions, and you want to contact me, please feel free to do so. That's it. Have a great day. Thank you.

Thank you very much. That does conclude the conference for today. Thank you for participating. You may all disconnect. Speakers, please standby.