ICL Group Ltd (ICL) 2014 Q4 法說會逐字稿

Greetings. Welcome to the ICL Analyst call. At this time all participants are in a listen-only mode. A brief question and answer session will follow the final presentation.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Limor Gruber, head of Investor Relations. Thank you Ms. Gruber. You may now begin.

Thank you, Rob. Sorry, everyone. So hello, good afternoon, good morning. Welcome, and thank you for joining our fourth quarter analyst meeting and conference call. Earlier today we filed our reports with the securities authorities in the U.S. and in Israel, and the stock exchanges in New York and Tel Aviv.

The press release can be found on our website. The presentation that you'll see today can also be found on our website. And those of you who follow us through WebEx can followed the presentation online. Please don't forget to review slide number 2 for the disclaimer. A recording of this conference call will be available on our website shortly after its conclusion. And the transcript will be available within 24 hours.

Today, we will start with the presentation by our President and CEO, Mr. Stefan Borgas, followed by Mr. Avi Doitchman, Executive Vice President, CFO and Strategy. In addition, our Chairman, Mr. Nir Gilad, is also here today, as well as our global executive members. And we will all be happy to answer your questions after the presentation.

Stefan, please?

Thank you, Limor. Good morning, good afternoon. Welcome to this conference. It's in a slightly new format now because, since September, of course, we are a U.S. stock market listed company so we have to find the right balance between satisfying our very large Israeli shareholders as well as our new U.S. shareholders. And in order to give everybody the same chance to look at our financial results at the same time, we have moved the publication date to the early afternoon.

We've halted the trade for 45 minutes in the tail. Very good collaboration here with the local stock exchange for doing this. This way everybody is awake when we publish our results. Everybody can see the results at the same time. Everybody gets the same chance to react and buy our sale shares. Thank you for understanding this.

Let me right immediately jump into, in medias res, and give you the highlights of the quarter. And I'll mix it with the highlights of the year, actually. And I'll start with the financial results, which you can see on the slide number 3. I'm not going to read these numbers to you. I trust that you could do this by yourselves equally well.

But the numbers are very much influenced by two items. First, of course, when you look at them year-over-year for the full year, still by a significant decline in potash prices because we have the first half year comparison to 2013 still in the system. And the second big, noticeable effect here, of course, are all of the one-time effect.

And let me get to this a little bit more in detail because 2014 was something like a clean-up year, I'd like to call it. We cleaned, we cleared a big issue of 14 years royalty dispute with the Israeli government and put a big reserve into our financials earlier this year. We laid the foundation for the cost reduction in our phosphate, bromine and potash operations, not only in Israel but also in Israel. We have partially benefited this year from this. I'll get back to that in a little moment. But we will benefit from this significantly in 2015 and years beyond.

2014 was also characterized by labor disruptions, especially in phosphates in the first half of the year. But also in potash right at the end of the year because we couldn't ship as much potash as we wanted to. If we had been able to ship, our results - our potash market share would have been the same than everybody else's around the world. We would have been able to keep our market share. But these potash shipments are now moved into 2015.

This is not a financial loss. It's a movement into the next year.

We were also impacted by a hedging cost on oil price and on currencies, which we got hit with in 2014 in the fourth quarter, but we didn't benefit from yet. So this will also be a positive effect in 2015. And then we rolled off several divestitures because the moment you sign a contract for divesting a business and it is below book value, you have to book the loss immediately. Whereas, when you sell a business and you have a gain based on that sale, you can also only book this gain once the deal closes. So we have a time gap here. Our divestiture program, overall, is very successful. It will give us a good gain. But we will only see it in 2015 as well.

We paid the price for all of these things in 2014, but we will enjoy the effects now. The same is true for the lower transportation costs because of the oil price. We will see these effects only in 2015. But all of these things, as well as the shekel/dollar currency effect will be majorly visible in 2015. So we will see quite a lot of headwind for - or tailwind from all of these areas.

The second comment I want to make about the 2014 is the fact that our efficiency improvement really now is getting traction. We booked about $100 million of efficiency gains from cost reductions mostly, but from some higher outputs in plants as well. A hundred million dollars booked visibly in the P&L. If you calculate the potash price effect, it is actually $100 million bigger than you see in the P&L. And the reason why you don't see it in the P&L because it got offset by these efficiency gains.

The run rate, actually, at the end of the year is about $120 million. So we're well, very nicely on track towards our goal of $350 million run rate at the end of 2016.

It's important to understand that we are very determined to implement these efficiency plans that we have announced and that we have engaged into. The strike that we had to go through in phosphate showed, I think, a determination. And, as you can see in our published results, if you dig into the reports, the profitability of the phosphate business after the strike, due to lower costs and higher output at the same time, is quite impressive. This is really impressive. This is better than any performance that this business ever had before. This is a turnaround story that the team in Rotem is really proud about. And we are proud about them here from headquarters' perspective.

The strike that we have in the bromine compounds business at the moment shows that we're determined to go through this as well. And that business, I'll give you some details on that strike in a few minutes.

The third comment I want to make is on divestitures. We have reached the lower level of the range we have announced with the deals that we have signed. We have corrected almost all of the money now already in February because the biggest of these deals just closed in February. And the small ones will close now in March. So that we have reached the $300 million threshold.

We will add some smaller divestitures during the course of the year. And, of course, the probability to exceed the $500 million is still there. It depends very much whether the divestiture of IDE will go through or whether, because of value at the end of the day, we decide not to divest it. Then we will stay closer to the $300 million. But we're working on both scenarios.

The last comment, finally, we have implemented - we have not only worked on efficiency and cost reduction, we have also started to grow our core business. With the help of these proceeds we get from divestitures, we are able to do this.

We have, of course, the big highlight for us from management's perspective was the strategic alliance with Yunnan Yuntianhua in China. This big alliance is phosphates. This gives us the opportunity to double our phosphate business in the mid term. We will have an integrated platform from rock all the way to specialty applications in China and in Asia.

In our food business, we made a very nice progress as well. We bought a whey protein company in Austria with another site in Germany. So that now we can add these whey proteins to our food specialty portfolio. This will have a significant effect on the growth and on the margins because we can spread our cost structure over a bigger business. But, most importantly, it will have a very positive effect on innovation.

And we have finally, I have to say, completed the acquisition of Fosbrasil business in Brazil. This is a white phosphoric acid, the specialty phosphoric acid business in Brazil, which makes us now the market leader in South America in this area.

Let me try to give you a little bit more of a qualitative view on what happened in the markets, maybe with a bit of a perspective of how this plays into 2015.

Potash in 2014 was a very strong year with a little short of 60 million tons of sales, we believe. And, therefore, ICL couldn't participate in this growth to the fullest extent. So we lost market share because of the labor actions at the very tail end of the year. This doesn't make us very nervous because the material is there, so we will sell it a little bit later.

2015, we think, we're not seeing much potash growth. First, because '14 was so strong. But also because commodity prices, of course, are a little bit more under pressure a year ago. And we don't have this catch-up effect. So we expect 2015 to be more or less at 2014 potash levels. And, as an industry, we won't see dramatic growth.

On the pricing side, we should see a bit of an improvement. It depends, of course, on what the big players are going to negotiate with the Chinese. The battle now is between $10 and $30 price increase, if you believe all the publications. I'm sure you read this as carefully as we do.

On the phosphate side, we are very happy with the business in 2014. It was quite good from the demand perspective, especially in the second half of the year. But it was for ICL really driven by this turnaround in our Rotem operations. I already praised the team, but we're really proud about this.

We saw good pricing, so not all of the effect that you see in the P&L comes directly from the efficiency program. Some of it also comes from the market. But our competitiveness now has improved substantially.

In specialty fertilizers, the business had to fight with the weak environment in eastern Europe, the specialty crops environment, which was mostly due to the Russian crisis. The Polish - the eastern Europeans could not export very much to Poland anymore. As a result, they didn't buy much fertilizers any longer.

So we had on the top line not a very satisfying business in the second half of the year. But this was offset by efficiency gains, cost reductions and better performance in the plants so that bottom line, the specialty fertilizer still had a satisfying contribution with a little bit of growth.

In the industrial products business, the flame retardants decline came to a stop in 2014. This is already good news for this business that has really been beaten over the last few years. We have the first new products being launched. But until we see real substantial growth here, I think we'll still need to wait a couple of years.

The biocides, on the other hand, continue to have good demand. The clear brine fluids had good demand. And also orders for the first half of the year are still good. We had expected this to decline earlier. But the time lag from when the drilling stops until we see it in our business is more or less a year. So we expect to see a decline of the clear brine fluids more in the second half of this year.

We have announced price increases involving the fact that we can't ship any right now because of the strike helps this price increase. So, hopefully, this price increase will be probably accepted by the market. And then we should also, in the second half of this year, see a positive effect of this price increase.

And, thirdly, the efficiency improvements that we are doing in bromine will also have a positive contribution after all of the work has been done here. So the second half of this year, the industrial products should have a lot of positive elements. The first half of the year, I'm a little bit more careful about making any projections because it depends very much on how fast we can bring everybody back to work.

Performance products, finally. We had a very disappointing fourth quarter linked to several aspects in Europe. Obviously, the economy is not helping us at all, especially not in the fourth quarter. And half of that business, the advance additives business industrial phosphates are dependent on GDP growth. And Europe is one of our strong regions. And in the U.S., we have - and in Europe, in addition to this, we have the depreciation of the Euro that hit us on the top line. This is not very much a concern for margins because we are balanced in cost and revenue in the Euro. But, of course, in top line reporting you will see it.

In the U.S., competition, especially from China, is ramping up for white phosphoric acid. This is a concern. So our engagement in China comes, I think, not too early at all.

The food specialty business is starting to deliver on the investment of new resources that we put in this business. You know that we have started to build labs in Germany and the U.S. and Brazil and in China. We're planning one for southeast Asia for this year. And we've hired around 60 professional scientists and commercial experts in this business. And the launch of new products is really starting to deliver here.

This buildup took about a year to do. In the last five months, this business has launched 30 new products. Now, these are not major products. These are product contributions between $0.5 million to several million dollars of sales. But the fact that we have 30 new products in five months is really a great success out of this innovation platform.

This is almost ten times as much as we have innovated, brought to the market per year over the last decade. So we really see an acceleration here. This will continue into the first and the second quarter about the same rate.

And then, of course, the Fosbrasil acquisition and the Prolactal acquisition will strengthen this platform as well. It will also help us with our geographic expansions. Once the China deal is closed, we have another region we can add to this business. So in the mid term, the second half of '15, even the first half of '15 and then going into 2016, this business grows quite well.

Before I move on into the numbers and then hand over to Avi, let me just give you a little bit of granularity on this bromine compound, just because this strike is making a lot of noise, at least locally here. And as our investors, you should understand what the situation is.

The bromine compounds in Ne'ot Hovav are the downstream operation of the elemental bromine that we make in the Dead Sea. So the elemental bromine, we have a fantastic competitive position. We are the global cost and volume leaders in elemental bromine.

By the way, we still ship elemental bromine today. This is not on strike. So that business is still ongoing.

Seventy percent of the elemental bromine, however, is not sold as such, but is sold through compounds. So the compounds activities are very important. We have three plants. One in the Netherlands, one in China and the by far largest of the three plants, in Ne'ot Hovav here in Israel. This plant should, because it gets bromine by pipelines from the Dead Sea and is the largest in scale, should also be the most competitive in the world. But it's not.

Over the last 10 years, this plant has lost accumulative amount of ILS1.4 billion - divided by four, you have dollars. And it has eaten another ILS2 billion of CapEx in maintenance and new products and in things like this.

With this kind of a scenario, we have invested a lot of money in this business without ever getting any returns. Now, we have three types of inefficiencies here. We have salary levels that are very, very high with an average of ILS40,000 per month. They're the highest salaries in this business around the world - not on in ICL but in this industry. We are just overstaffed. We have too many people. And the plants are not running at the level where they should be running in terms of output and efficiency. So the CapEx is not used in the right way. And we've got to fix all these three things.

We've got to reduce people. We have to at least stop salary increases. We cannot cut people's salary, but we have to stop the increases for a while. And we have to make sure that the best people on site are used in the best way of their capabilities.

And that's what we're doing with this restructuring process. By the way, while the Company put ILS3.4 billion into this site, the unions took out in benefits payments ILS500 million. Twenty percent of that loss goes on the account of union benefits which are used for holiday, vacations and things like this.

I can ensure you that the determination of the local management is just absolutely fantastic. This group of professionals, managers but also professional people, including many of the unionized employees - the determination to turn this plant around and not only to make money but to make this the best bromine compounds plant in the world because they have the preconditions to do this is huge.

Whenever I meet with them, they have very specific plans to get there, they know exactly what needs to be done, it's not going to go in three months. It's going to take two or three years. But they know exactly what to do. We have very good ideas for this side. But we need to make this step down in cost so that they can start to breathe again and they can operate.

So, hopefully, this will be successful just the same way it happened in the phosphate business Rotem. And we can move on and be happy about this business again.

Let me show you a little bit of granularity now on the efficiency and operational excellence initiative. You see, as we should have had an impact of $300 million due to the potash price decline, this is simply the market price multiplied by the volumes. And we were able to counteract this with about $100 million by efficiency gains. The run rate at the end of 2014 was at $120, because, of course, these programs ramp up all the time.

Most of this comes from the plant and from some SG&A as well. But also procurement started to contribute to this. And on the energy side, this is not oil price reduction, this is actual savings in kilojoules and energy needed.

The macroeconomic environment had, in 2014, an overall negative effect on this. I already talked about the translation issue with Euro-dollar. I already talked about the ruble problem in specialty fertilizers. In the food business it affects us similarly because we have quite a good business in Russia. Russian customers can't buy the products anymore because it's just 100% price increase because of the devaluation.

The other two effects you see on this page, the shekel-dollar exchange rate and the crude oil prices are positive in principle for us here, but not in the fourth quarter because we had hedging costs that we had to absorb and equalize this. But you will see it very quickly now in 2015.

From a demand perspective, it was a strong fertilizer year. You see in of the major markets in which ICL focuses on there was great demand, both in potash as well as in phosphates.

We expect the potash demand to flatten now in 2015. In phosphates, there should still be some growth coming because we're coming from an even lower level.

The alliance with Yunnan Yuntianhua, our new partner for phosphates in China, has been communicated sufficiently, I hope. I'll just repeat the principles. I feel Yunnan Yuntianhua will operate in integrative phosphate operations. This is one of their mines and one of their plants. They have four of those. One of those, they will carve out of their company. ICL will take it over and run it and operate it. ICL will integrate it into ICL, both from an operational perspective as well as from a P&L perspective. So you will see it reported 100% in our numbers. At least, that's what we're aiming at.

And the second thing we did is we bought 15% share in the mother company called Yunnan Yuntianhua with the opportunity to help improve this company and make it a world class phosphate player, to which, of course, we want to build a long term alliance.

The whole key of this joint phosphate platform is to turn it from a quantity business into a specialty business. The collaboration is great. The teams are working very, very well together. We have 30, 40, 50 people in China all the time. Our airplane costs are going up dramatically. If you want to play on this, you can invest in airlines who fly between Israel and Kunming, China.

In the food business, we are now making the next step in the execution of our strategy. Multiples in the food business are very high. On principle - from the principle logic, acquisitions of food additives are not accretive for ICL when they are sizeable. So we cannot buy very large food businesses because they would be diluted.

So what we realized this very early on when we designed the strategy. So what we have done is we have built a global platform of knowledge and a global commercial platform that focuses on texture enhancement and stability enhancement of processed foods. You see some of these examples here on the page. Dairy, meat, bakery, beverage and cheese. That's why the burger is such a great example because we got everything in here.

Once we have this global platform, we can buy smaller regional players and take these products and sell them through this entire network. And this way we can afford these multiples that are a little bit higher than our sale multiples because we can leverage it in the platform.

The synergies in this deal are higher than the entire value of the company that we paid. At least, that's what we think. So now we have to execute the team. I spent two days with them last week in Germany. They are very energized in delivering this. Hopefully, in the - it will take one quarter to close this. And, hopefully, the middle of the year I can report some positive contributions.

Fosbrasil, I talked about it enough already. So let me skip that.

On the divestiture side, the top box shows all the businesses we have signed for sales. In the meantime, the water solutions, the aluminum compounds, the Paper Solutions business have closed. We have received the funds. The Rhenoflex, Anti-Germ and Medentech business sales will close now in the next six weeks so that at the end of the first quarter, we should receive the funds here as well. This should amount to about $300 million of net proceeds.

The businesses that are still in the process you see listed below here. IDE is, of course, important. We will continue to pursue the same policy that we have before. We're not going to dump these business. We're only going to sell them if the value we an obtain through a sale is higher than the value they would present inside ICL.

A short update on our growth activities inside the potash world. You know that we are continuously frustrated with the lack of our competitors to invest into demand creation for potash. So as the little guys, we are doing it pretty much by ourselves. We have added a program in Ethiopia now to the activities that we've already had in India. We have good hopes for this market. We have a share participation in a mining project in Ethiopia. And we think this is one of the stable places in Africa.

So the outreach program that we have here for farmers with 600 demonstration plots is not just yet at the same size than India. India has about 800 plots. But in order of magnitude, it is the same. And we will show you the results as soon as they come.

In Amsterdam, we have inaugurated our European headquarters. And the seat of our European shared service center and the office that will house our global procurement organization. We're very proud that the Dutch prime minister came to this inauguration and introduced himself personally. This is a sign how well the Company can work together with authorities. This is a tough place to be. They are not easy pushovers. But it's a very constructive political environment. Authorities take decisions. Sometimes they are in our favor, sometimes not. But they take decisions. And this gives us a very good, stable planning environment. Similarly than in Spain, similarly than in the U.K. as well.

I wish sometimes that our local politicians here in Israel would copy this kind of behavior because it would be so great for our country here.

We have launched a branding website. I encourage you to take a look at this. There are small video clips on this that explain the results of our business, how we actually fulfill essential needs of consumers in the world. It's quite well done. It's available in many different languages. And as we make more of these clips, we'll add them to ...

(video playing)

ICL fulfills humanities essential needs in agriculture, food and engineered materials. These essential needs continue to change and evolve, and so do we."

More than 7 billion people live in the world. And by tomorrow more than 360,000 babies will join us. All of us need food. While the world's population continues to grow, agricultural areas continue to decrease and the ability to provide sufficient quantities of food decreases. In order to successfully provide more food for more people, farmers use fertilizers that are produced in a unique process here at ICL."

The potash and phosphate fertilizers that we manufacture contain substances that we and plants need to grow and develop. And without which, we wouldn't have anything to eat. Even Bill Gates said that without fertilizers, billions of people would die. And it's true. One sack of potash based fertilizer is sufficient to fertilize a field that produces two-and-a-half tons of rice. That is equal to around 20,000 meals. Our experts help farmers around the world, providing special applications suitable for every crop, making sure that we do not go hungry.

ICL - where needs take us.

Many more of those stories. A great job by the team.

This brings me to the end of the first part of the presentation. I hand over the clicker to Avi and then he'll lead you more through the [tober] results. Avi?

Thank you, Stefan. Stefan showed you the GAAP analysis between our 2014 annual results and 2013. So with your permission, I will concentrate on the quarterly results.

Our sales in the fourth quarter of 2014 was $1.4 billion, 1% lower than our sales in the fourth quarter last year. Our adjusted operating income was $200 million, 8% lower than our adjusted operating income in 2013.

If we suffered in the last quarter from worker disruption on the sales end, operating profit we lose about 60 million ton - over $60 million of sales and $35 million of operating profit as the result of this work interruptions. So taking into consideration these interruptions, basically, our adjusted operating profit is $235 million was better than previous years.

Just to understand what -- GAAP analysis between our operating profits and adjusted operating profits, we exclude non-core write-off of assets in Europe and in the U.S. as the result of restructuring -- many years of actual restructuring that we've done in our assets. We exclude one-time income as a result of consolidation of Fosbrasil on our balance sheet. And we get $9 million of returns from the funds on compensation on the damage of the strike that we had in Rotem, which brings us to adjusted operating income of $200 million this quarter.

We had $66 million for international expenses. Of this $66 million, $43 million are non-recurring international expenses. Basically, we hedged our currency and also our energy costs. Energy costs and currency is mainly shekel-dollar definition work in our favor. Energy costs go down. Depreciation of the shekel against the dollar supports our costs in Israel. So, basically, this is good for us. But as a result of accounting treatment and measurement, our hedging resulting by - to a value of derivatives, leading us to declare a provision of $43 million this quarter. And this is, of course, the benefit that we are doing. Assuming the exchange rate ends, oil price will stay as it is today. But, basically, we are going to gain from this next year. And we have the provision this year.

The rest of the $23 million is for international expenses, more or less, are normal financial expenses based on our level of net loan.

If we look on bridge analysis by our products, businesses, basically our sales in potash business goes from $465 million to $431 million. Improvement of prices by $12 million, and reduction of volume by $35 million affect our sales. Again, if we eliminate the disruption of sales in the fourth quarter by $60 million, still we see here improvement of our volumes and better sales.

The same in operating profits. We can see neutralized the effect of the book effect negative that we have better operating by $11 million on volume. And better operating prices by $12 million.

In phosphates, basically, we see very nice improvement on our reserves compared to last years, reached $385 million compared to $356 million in 2013. Mainly volume and prices slightly negative fed by exchange rate. But if you look on operating volume and prices, but much more important. Efficiency that helps us to improve to reduce our cost by $15 million. If we take this quarter and round it to [un all] amount, we talk about $60 million efficiency in our phosphate activities on annual basis.

Industrial products improving on our sales and operating, mainly by volume, partially a negative effect by exchange rate. On the operating profit, again, the volumes support us. A negative mostly affected by exchange rate, but also by increasing our royalties as a result of privatization we pay [Mobile] fee by $4 million this quarter compared to last year's royalties.

As the fourth quarter, Stefan mentioned already the situation in Russia and in Europe affect our results in the fourth quarter. While some companies in 2014 nearly [aga sults], and also the consolidation of Fosbrasil. So this supported us and increased our sales by $23 million. But reduction of volume and exchange rate affected our sales and the effect of volume, of course, affects our operating profit.

By this, I summarize our presentation and open to questions.

Thank you, Avi and thank you, Stefan. We will now move to the Q&A session. We will start with a question from the lines, please.

(Operator Instructions). Thank you. Our first question is from the line of Yonah Weisz with HSBC. Please go ahead with your question.

Thank you very much. Two questions. One would be on the book on potash. Could you talk a bit about the state of European potash demand and pricing? Stefan, you mentioned something which I didn't catch earlier on about Poland, and inability to sell into Poland by eastern European potash sellers - if I caught that correctly. Maybe you could elucidate a bit more about that situation to the eastern European sales into Europe.

And how European farmers are reacting to what seems to be price increases driven by currency? Are they expecting them or not?

And the second question on potash is about sales to China. In the past, Israel chemicals has been selling one level deeper into the supply chain directly to the NPK blenders as opposed to directly to [China ports]. I think Potash Corp announced that Canpotex will now be copying that strategy. Do you find more competition there in China in 2015 now that Canpotex is going deeper into the supply chain where you happen to be now? Thank you.

All right. Let me clarify the comments in Europe because I think there's two components to this. The potash market in Europe is quite stable. It's quite unexciting. And this is good. It's good, stable demand. It's good, stable pricing. There's nothing extraordinary, really, to report from here.

The comment that I made on eastern Europe was not linked to potash. It was linked to our specialty fertilizer business where we serve mostly the spec ag business, mostly fruits and vegetables, actually. The farmers who buy our products in eastern Europe exports to a very large extent, more than 50% to Russia - these producers - the vegetables and the fruits. And because of the sanctions that the Russians have to suffer under, there are counter sanctions and they're not buying fruits and vegetables from eastern Europe at the moment.

As a result of this, the eastern European farmers have stopped to buy inputs at the end of their growing season, compared to what they usually do. And that weakened the demand. But this is demand for specialty fertilizer.

The China situation doesn't make us nervous at all. First of all, the customers we have are very, very loyal. And [Naseem] was in China just a few days ago, building with these group of customers, like he always does. And he came back and said nobody's nervous here. This is a very loyal group of customers who will continue to buy from us, first.

Second, we have contracts with them. They still run for a long period of time.

Third, we're very proud that PCS actually is copying us as the little guys in this market because it means that we're really doing something right.

Fourth, with our engagement in coming with Yunnan Yuntianhua, we have now the opportunity to actually build up our direct sales force. The plan focused on specialty fertilizers. That we will build a sales force of several hundred people in China. This sales force will sell to customers of these regional distributors, so we will have access, again, one step further down the line. We are not planning to sell significant amounts of potash through this channel. But we could do this at any time if we should ever get under pressure here.

And fifth, Yunnan Yuntianhua themselves buy as much potash per year as we sell to China. So we have - you want to all it - captive use. Or, I believe, we have a partner who, at the same time, could be also a customer.

So we are not nervous at all about not being able to sell to China or having increased competition here. If there's one thing we're nervous about it's not having enough potash available because our production increases are coming a little bit later.

If you could, just maybe, revisit the idea of pricing in Europe that's influenced by currencies. Are farmers accepting these currency and these price increases in Europe or not?

The U.S. had one big influence just in recent weeks. The Belarusians, they got freed from the import restrictions by the Obama administration. As a result of this, they can sell more into the U.S. And they looked at the price in the U.S. and the price in Europe. And I must say not very smartly, went to the U.S., dropped the prices to try to get market share. Everybody reacted. I don't think they gained very much. And that had a negative effect on pricing in the U.S.

It was an isolated incident. One still has to see what the effect will be in the U.S., really, throughout the course of the year. Again, their buying season hasn't really, truly started yet there.

Thank you.

Thank you.

Next question?

(Operator Instructions). The next question today comes from the line of Joseph Wolf with Barclays. Please go ahead with your question.

Thank you. One quick question. You talked about the fourth quarter with the potash shipments down because of the workers. Could you talk about - and the growth in the three emerging market regions. Could you talk about where your market shares ended up for 2014 in China, India and Brazil, given those high growth rates?

Yes. Limor, you have the data right there?

Hi. Joseph. OK. So in China we had a relatively high market share. That was 20%. In Brazil, due to the availability of granular potash and the maximization - or optimization of shipments during the year, our market share was lower than 10% in 2014. And in India, we were at mid double digit, which is also slightly lower than last year. But this is mainly because of the labor disruptions we had in the fourth quarter at the Dead Sea.

Right. And just as a follow-up, with the China investment, it seems to be a long process. But I noted that you have a lot of people going over there already. Can you talk about how you feel about that? What you need to do with the government? And what you're allowed to do, not allowed to do while that's being approved so that where you'll be when the JV finally closes? And just the timing on how that works?

And then, related to that, an update on the Ethiopian investment. If I recall, you were making a decision about further investment sin Ethiopia. You mentioned it briefly during the presentation. But I'm not sure that we heard any final answer to further investments in Ethiopia.

OK. Let me start with the last one. We haven't made any announcements on whether we go the next step in Ethiopia or not. We're still contemplating that. The discussions are ongoing. And there's still technical things to be sorted out.

With respect to the closing in China, there are three major streams of approvals that have to happen. The first one is the approval by the stock exchange regulators for us to be able to invest into Yunnan Yuntianhua, the mother company, our 15% share. This is probably going to be the fastest approval. We expect this to take about six months.

And then, after that, we could do this investment any time we want within a six-month window. Or we have to ask for an extension of that approval, I think, which we can also do.

The second track is the regular joint venture by MOFCOM for - that any joint venture has to have. This takes anywhere between six and eight months, as well. It's a well-oiled machine. MOFCOM is very serious. They're very diligent. You cannot cut any corners. But the surprises you should get should also be relatively low here.

And the third one, which is the determining part of the timeline, is the approval by the Mining Ministry, first in the province and then in Beijing for the transfer of the mining rights to the mine that will be owned by the joint venture that actually will operate. This is expected to take 13 to 14 months. It's also something that is not so routinely done in China because it hasn't yet happened in our industry. And this is the one where we spend the most amount of time to prepare data and analysis and submission papers, and also understand what in detail the government authorities need.

The initial feedback is that on the first two, we don't see any major problems. On the second one, we receive excellent, excellent support from the provincial governments. Again, these are no pushovers. These are very, very serious people. They look at every data point. They look at the economic impact of such a mining rights transfer for the province in a very, very serious way. You cannot cut corners here. You don't want to, either. At least, we don't want to.

The approval process that comes afterwards in Beijing for us is going to be the next step we have to investigate. So we have relatively little visibility on this as of yet. There's a regulatory change that could make things easier that will help it in March of this year - or that is expected to happen in March of this year. We do not count on this. So the timeline I gave you is the baseline that we're building this on.

In the meantime, the pre-closing activities are actually pretty significant. And here, also, we have several streams. We have a few things we can already do before we get any approvals because we don't need any approvals. They're the joint venture we already operate with Yunnan Yuntianhua on the foods phosphates, to which we will add the industrial phosphates. And because this is an operating joint venture already, we will most likely be able to operate this already in the middle of this year. So this could be a pre-closing activity. And we can start to run this enlarged joint venture very much before.

There's a joint R&D center that we're building. We also already started to do this because this doesn't require any approvals, so we're defining projects. And we should start R&D projects already in the second quarter of this year.

The third stream is the builder of the commercial network. As I have explained before earlier today and before when we published this view, the entire logic of this joint venture operation is driven by converting a commodity business into a speciality business. And when you do that, obviously, you need the products, you need the technical infrastructure. But you also need the commercial infrastructure because you need to go out to farmers and explain to them relatively complicated products with an agronomically educated sales force.

We are starting to build up this sales force. This takes about a year to do. We need to hire 200 people and train them and send them into this field. Our partner will help us with products already during that time, so we will act as a distributor for our partner. And then when the joint ventures closes, we are ready to hit the ground running. This is the third track.

And the fourth track is the preparation of the capital investment into specialty plans that we want to do here. There's no reason that we can't start with the basic engineering. And then later on, the detailed engineering of these CapEx projects, because this way we save one year on the execution and on the implementation.

So a lot of activities. I can get much more into detail if you like. But all of us are in China quite a lot these days.

Thank you, Stefan.

Our next question comes from the line of Gilad Alper with Excellence Nessuah. Please go ahead with your question.

Hi. Stefan, can you please comment on the possibility of a general strike or some kind of a strike in ICL in the short term in the Dead Sea works? How bad do you think it could get? How long do you think it could go for? And do you have any type of contingency plans to deal with the risk? This is the first question.

The second is you are building a lot of - or spending a lot of your potash capacity outside of Israel. Can you give a rough estimate, let's say, 10 years down the road what could be the cost per ton in overseas versus the cost per ton in Israel, including all of the effects of the Sheshinski Committee? Thank you.

OK. I think the risk for a general strike, which means a strike in all the plants in all of ICL is very, very low. Because why on earth should phosphate workers go on strike? It makes absolutely no sense. They already have this behind them.

You have to understand that, in Israel, when workers strike they don't get paid. So it's maybe fun to strike two or three days. It's a burden because it's emotionally not funny for anybody.

Right.

Work every day, it's a burden to strike for two or three or four weeks. And it's financially really painful to strike for more than a month because at the end of the first month, there's no salary yet coming on your account. You have mortgages to pay and so on and so forth.

So if we take the phosphate experience, if we take the experience of a strike in the Dead Sea in 2011, usually, length, duration of strikes, is somewhere four to six weeks. Let's assume this time it's more vigorous and it'll be eight weeks. I think this is probably as long as it goes, I would say, because ...

OK.

... the side of the [mettle] of having very high salaries is if when you don't have them, you have very high loss.

So I think, hopefully - actually, we are trying to encourage our unions not to strike at all because the solution is relatively simple on the table. And it won't be very different before the strike or after the strike. So it could be done just soberly around the negotiation table.

I'm not sure - and being still a foreigner in Israel, I'm not sure how well that goes with the psyche of at least these types of units here.

But this is the order of magnitude that we would expect. This would cost money. Of course, this is an investment into restructuring benefits. But this is an investment we've decided to take because the pay rate, of course, is relatively predictable.

If we look at ICL's potash activities, what we aim - we have two aims, two strategic aims, of course. The first one, of course, is that, in the long run, our cost of goods don't go up but go down. This is the reason why we need to expand really substantially bigger than it is so that the asset base there can be spread over a higher volume. And this is what we've talked about many times and explained many times. This is what will happen. So we will see a drastic reduction of costs in Spain.

In the Dead Sea, we will see a significant increase in cost after tax, if tax can be considered a cost. But it's a payout that we have to do. Cost plus tax plus royalties, it's a cost plus government take. In Israel, despite all of the cost reduction that we are doing, we go up, assuming that these taxation increase proposals that are on the table will be implemented as such. Personally, I still have the hope that, eventually, the new Israeli government or maybe the one thereafter will come to reason and will understand that it's not very smart for a country to price itself out of the market by excessive taxation. My chairman doesn't share my optimism. And he is more entrenched here in the local market.

So we're operating on the worst case scenario at the moment. But I can tell you that we have great projects here in Israel that, if we could do them profitably, they would be great for the country and they would be great for ICL. But, at the moment, this is not possible. Maybe in six months we can talk differently. We'll let you know.

And then, of course, we have this option in Ethiopia. If it can be executed the way we've indicated, this will do two things. It will further reduce our cost of goods of the entire portfolio. And, together with Spain, we will then have enough capacity to potentially replace the entire volume in the Dead Sea because we have one other issue to deal with. And this is the expiration of our concession in 2030, which hasn't been decided upon. And we haven't received any much left from the local government to help us to make a decision on this.

The Sheshinski Committee, if it has one good thing, has recommended to the government to find the answer to this. So we know that there's a committee inside the government - a professional committee working on this. Maybe we can clarify the situation. This would be good for everybody, I think.

But again, as the management of ICL, we have to assume the worst case scenario. We lose this concession in 2030. This means it will be cash out phase on this site and we will take as much cash as possible and replace it. And we've got the things in place now to do that.

OK. Thank you very much.

Our next question comes from the line of Joel Jackson with BMO. Please go ahead with your question.

Hi. This is Adam Bredlo for Joel. My first question is on potash in China. Just going back there. Are you concerned that the first half contracts are going to be delayed by pre-contract shipments into China? So people shipping into China currently before the true price settlement has been established? And also do you think that the Chinese market will eventually become a spot market?

And then my second question is on - can you please give us an update on progress with the Israeli government related to ICL's undeveloped phosphate concession? Thanks.

OK. Let me answer the second one because the answer is easy. I can't. There's no update. There is no government. So nothing is happening at the moment.

Second, the first question - potash in China. We're not so concerned, at least in terms of our business for our pre-contract shipments because it doesn't affect us very much. I think if we have a concern that it is on the price settlement. I think the Chinese, if it's correct what I read is the same sources that you read, the Chinese has offered $10 increase, the Russians and the Americans and Canadians are asking for $30 or $35. And I think the truth will be somewhere in the middle. We'll see.

Let me put it this way. We don't have a budget risk if it stays in this frame.

OK. And then on just the second part of my question, whether you think that the Chinese market could eventually become a spot market. Do you have any comments on that?

I mean, look, there could be a little bit more spot elements. But every two or three years when Chinese New Year is late, and the Chinese price settlements happen late, we have these kinds of speculations. If I were the Chinese imports authority, I wouldn't go to spot market fully because it's just too risky. It's too important of a commodity and the country's too short of potash. So I don't believe they will go there. But, you know, this is an opinion.

So we believe that it will remain in some kind of a contractual - in some kind of a contractual structure. If you look at it, it's partially a spot market already now because they have a few people - the Belarusians, for example, that ship aside the contracts. And the Russians who use rail also to ship aside the contract. So part of - 78% of the Chinese market is contract. And I think we'll stay in this order of magnitude.

OK. Great. Thanks.

We have one question in the room.

Would you put a number on the impact of shekel appreciation in terms of operational income?

The best one to do this is Avi.

We had the annual expenses in shekel terms of $1.1 billion annual basis. We hedge about 50% of our exposure. So our exposure is about $500 million, 1% is $5 million on annual basis. On the operating, on the net it's [eleveeh if though sisaacs].

Thank you.

You can go back to questions from the line, please.

Thank you. Our next question is from the line of Sophie Jourdier with Liberum. Please go ahead with your question.

Afternoon. Three very quick questions, please. My first one just on your cost efficiencies you say you were at a run rate of 120. You're aiming to get to 350 in a couple of years time. Can you just give me an idea of how many of the remaining cost synergies are coming from Israel? That's the first question.

The second question I just wonder if we could have an update on the CapEx outlook for 2015. And beyond that, if possible.

And then, third, I just wonder whether you could give us a bit of an update on the Spanish restructuring and expansion works going on, where we are at the moment? Thanks.

OK. Let me start with the - maybe, Avi, you can give a comment later on, on how much of the restructuring comes from Israel. But let me start with the other two questions.

The Spanish - the news on the Spanish activities restructuring from two mines into one and then expanding that one mine is there's no news. That's also the good news, which means everything is on track. We expect to start up the plans - the surface plans in the middle of the year, do all the test runs, start the salt production there. And then the ramp should be finished at the end of the year. And we can fill this land then at the new level.

And we have, thanks to the flexibility of the Catalonian government, we have the flexibility to continue the old mine for another two years. This is important because it could give us flexibility in quantities during these two years. So we can decide this pretty much on-the-spot basis. And that's what we will do.

CapEx 2015 will be, again, around $800 million. And that's about the run rate that we expect to have into the following years as well. That is not counting CapEx which could come in addition to very large, new projects.

One, the percentage of cost reduction from Israel, Avi?

Basically, there's $350 million that we project came from procurement from energy saving, from KVD, it's rationale of our operations - many operations globally and from other activities. So, basically, if we look on our activities, about 50% of our activities are in Israel, and 50% outside of Israel. So I think it's, more or less, the same portion of the cost reduction came from Israel and outside of Israel.

OK. That's helpful. Thanks.

Our next question comes from the line of Bruce Schoenfeld, BlueStar. Please go ahead with your question.

Yes. Hi. I think this is probably a question for Stefan in regard to the phosphate business. Obviously, after the big deal in China, I'm curious to know where you think that business is going. Whether you're going to be looking at other geographies, especially given the uncertainty in Israel. And, specifically, there are several green field or big assets in Canada that are probably trading at distressed prices at the moment. I'm wondering if you're looking at those?

Yes. First, a comment here. We just did a very large transaction in China. We are very, very focused on preparing the integration and then integrating it in 2015 and 2016. So just in terms of the bandwidth of the team, we don't have the bench strength to do many more - to do even one more of projects of that size right now. Just from a people perspective.

But, on the other hand, you can rest assured that we look at absolutely every possible phosphate asset in the world - those available, those not available, those already operating and those that are green field projects. We took two years in order to get to this arrangement with Yunnan Yuntianhua. And there was a lot of work done before. So we are in contact with many of these projects - with some of the green field ones, which are actually quite attractive. And we are also in contact with some of those companies that are thinking of exiting phosphates because it's not big enough for them or scalable enough for them.

And if the opportunity should present itself, and it makes sense from a deal perspective, we would probably try to push our bench to do it anyway.

OK. Great. Thank you.

There's more of an opportunistic reaction rather than us pushing to do another deal, at least in the next 12, 15 months.

OK. Great. Thanks.

Thank you. Our final question is from the line of Rosemarie Morbelli with Gabelli & Company. Please go ahead with your question.

Good morning. Thank you. I was wondering if you could touch on the bromine a little bit more. Do you have a feel for how successful your price increases are. And I understand it is only of product lines and only in Asia.

And then, regarding the excess capacity of approximately 90,000 tons, how do you think that capacity is going to be utilized over the next year or two? How much will go to mercury? Based on your opinion, do you think there is a need actually to eliminate some capacity by some of the players? If you could help me understand more of that bromine market, that would be helpful. Thank you.

Let me pass on to Charley in a minute, just to talk about the price increase success. And also the future uses of bromine. But just let me make one comment on excess capacity.

The excess capacity is in the hands of, basically, two players, which is Albemarle and ourselves. And both of these is around the Dead Sea. It's not significantly pressing excess capacity because these are relatively cheap assets that we have available in order to ramp up capacity really, really fast. So we don't need to shut anything down because they're not operating at this point in time. We can increase the operation, reactor by reactor. So it's actually a pretty ingenious system that has been built here in order to ramp up or reduce capacity as well.

The biggest challenge we always have, especially in reduced capacity, we have a staff that is not flexible. As you know, we're working on this quite heavily at this moment in time.

So we don't need to adjust capacity or invest into costly adjustments. But, maybe, [Charley], you can give - you can shed some light on the price increase and on the future usages of bromine.

Yes. For now, our price increase activities have been focused on China where we announced a 20% increase on bromine prices about a month ago - a little bit more than that. And we are beginning to see the impact now with pricing going up in China.

It's also the slow time. We're right before the new years and what not. And as the industry ramps up later after the new years, we should see even more impact.

So our thinking is that as bromine prices go up in China, so do the compound prices for the brominated products. And so far, we feel comfortable with this.

OK. And then the use of the - the future use of mercury, please? I mean of bromine?

So today, when you look at what are one of the areas that are growing in terms of bromine consumption, mercury control in North America is one of them. And that should continue to grow.

The other more in the future where we see this coming is mercury control happening in Asia. As you know, coal consumption is huge in China. Also in India. And this is one of the focuses for our advocacy.

If we put this in numbers, in the U.S., there's maybe another 15,000 to 20,000 tons of demand for bromine that we expect when the everybody has adopted the regulations. In China, the demand - if there's a regulation at the same level than the U.S. should be at least as big in the U.S. So this would be a big step forward.

And then we, of course, have some other innovation areas such as energy storage applications that are a little bit early in the innovation cycle. So it's difficult to quantify this. But energy storage, for example, is also more than a 10,000 ton application if it comes. But we're maybe three years away from really planning this.

And then there's a few others that we'd rather keep to ourselves.

Do you think, if I may - do you think that that still is far from using up that 90,000 tons? So I am just wondering if price increases - or if the market is going to perceive that the capacity is becoming tighter and, therefore, pricing increases will be more accepted? Or are price increases mostly going to be accepted because of the value added that the new bromine compounds are going to bring?

I don't know. The dynamic here is a little bit different. This is not an overcapacity that is equally spread around all players in the market. The price determining players are the Chinese. And if the Chinese will - the Chinese bromine producers - they sell at - worst case, they sell at their cost. And their cost is somewhere, we believe, around $1,800 - a little short of $2,000 a ton.

But the Chinese do not make enough bromine anymore to supply their own compound producers. Hence, we have an opportunity here to increase prices in China. As long as we're accepting underutilization, which from ICL's perspective, makes sense because of the value of considerations.

And that's why this price increase is sticking on the elemental bromine.

The value add can only come if we really have new applications in which we have unique technology. Otherwise, on the value add, we have to compete with the Chinese. Which is one of the issues why our bromine compounds here in Israel are not so profitable because we haven't had any new products which are protected by IP. And from a cost position, we've been sloppy. So we need to get, sort of, Chinese cost. Otherwise, we won't make very much money on the compounds.

Thank you.

At this time, I'll turn the floor back to management for closing comments.

Is there another question in the room? Last chance. Limor, back to you.

Thank you. Thank you very much. Thank you, everyone, for joining us today. I hope to see you again, of course, in the future. And we are available for any question if you have going forward.

Thank you.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.