ICL Group Ltd (ICL) 2015 Q2 法說會逐字稿

Greetings and 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 formal presentation. (Operator instructions.) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ms. Limor Gruber, Head of Investor Relations. Thank you. You may begin.

Thank you, Adam. Hello, everyone in the room and on the line. Welcome, and thank you for joining our second quarter 2015 conference call.

Earlier today we filed our reports to the securities authorities in the US and in Israel and to the stock exchanges in New York and in Tel Aviv. The reports as well as the press release are available on our website. Please carefully review all relevant data and considerations.

For your reference, this meeting is being webcast live on our website. There will be a replay available a few hours after the call, and a transcript within 48 hours.

The presentation that you will see today was also filed to the securities authorities and is available on our website. Please don't forget to review slide number two with the disclaimer.

Our comments today contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current forecast, and are not guarantees of future performance.

Today as usual we will start with Stefan Borgas, our President and CEO, followed by Kobi Altman, Executive Vice President, CFO. I would also like to welcome our Chairman, Nir Gilad. In addition, our executive committee members are all here, and we will all be happy to answer your questions after the presentations. Stefan, please.

Thank you, Limor. Good afternoon, good morning, ladies and gentlemen here in Tel Aviv and New York and other places around the world.

Let me start with the highlights of the quarter, and there are really four things to mention here. Of course, the numbers -- the reported numbers are to be taken with a grain of salt because they're heavily impacted by the effects of the strike. I think everybody is aware of this and was expecting this. But still, there are four things to take out.

First, we are now very, very confident that our efficiency program is well, well underway. The progress we have made because of the achievements -- contractual achievements with the unions in Israel on this strike and the subsequent weeks after the strike makes us very confident about this.

Second, the ramp up after the strike both in potash as well as in bromine and bromine compounds is going better than we had expected. We don't have any of the negative possible breakdowns of equipment that could have happened after such a long outage.

Third, our strategy implementation, the implementation of our next step forward strategy has also made good progress in the second quarter with the acquisition of Allana Potash. That was completed in order to be able to now explore the potash reserves in Ethiopia, and further advancement of the approval of our joint venture in China.

And fourth, not on the list here but still very important, the atmosphere in which we are operating in Israel is again becoming a little bit more constructive than it already started to be in the first quarter.

We don't have any positive decisions yet from the Israeli regulators on taxation, royalties, concessions and the like, but the entire discussion atmosphere is becoming quite constructive.

Let me go into the details now, and I'll start with the business environment and the major developments in each one of our business segments. Let me start with our fertilizers.

The strike of course led to very weak results in our potash operations. We could not sell from the Dead Sea except for the month of June because, of course, we still had inventory which during the strike we couldn't ship. And in June, we could start to ship out the inventories. This was important to start to fill the contracts that we had signed during the strike for our Indian and Chinese customers.

In our phosphate operations, on the other hand, in Rotem, despite a fire that we had, we continued to show good improvement of the profit margins. And I think this is the living proof on what the turnaround of management capability in these sites can do. The profitability in this business was 200 basis points higher in the second quarter of 2015 compared to one year before.

I mentioned the fire. Let me give you just a little bit of background here. It was in one of our production facilities, not in the entire plant. It was in the production plant of SSP, super single phosphate. This is a product that is made directly from phosphate rock.

About 200,000 to 300,000 tonnes are affected for the next quarters until this is rebuilt. We will be able to compensate some of these lost sales with additional sales of phosphoric acid and with additional sales of rock.

The loss of sales of this SSP are going to be compensated by the insurance, as well as the reconstruction of the plant. So, the impact that you should see in total will be relatively negligible.

In the UK, in our potash mine in the UK, we increased production in the second quarter 2014 compared to the year before, despite the fact that we had a maintenance outage that was planned. In Spain, everything is going according to plan.

In the Dead Sea, we now, after the strike, are already back at regular production levels for the third quarter. And we are ramping up production above the historic production rates step by step so that in the fourth quarter we should be at an annualized production volume of around 4 million tonnes per year.

This has to do with efficiency improvements that we started to deliver immediately. So, in 2016, you will see -- unless we have major breakdowns also which we don't expect, you will see record production levels in the Dead Sea, at a level that we've never had before.

The specialty fertilizer market is a more difficult situation at the moment. We are relatively strong in Europe, so the business there suffers under the economic weakness in Russia and the Ukraine, and also under changing regulations in China, golf course regulations in China, believe it or not, that exist.

This leads to lower prices and lower volumes in this business. That's why the performance here was a little bit weaker.

In industrial products, ICL industrial products, the post strike production ramp up also continues. In the bromine compound plant, the ramp up is of course much slower than in potash and in elemental bromine, because it's very complex chemistry with which we are dealing here.

So, the ramp up will last through the entire third quarter. And then, in the fourth quarter, we will be back at traditional capacity and capabilities. But, in addition to selling the usual volumes, we will now benefit from the higher prices that we have in the market.

Most of the savings of the strike you will therefore only see in 2017 -- sorry, in 2016 and then of course some more in 2017. In the fourth quarter of 2015, you will start to see some effects as well. But, calculated for the whole year, that is relatively small.

The compound prices of bromine around the world are moving up, even though, due to seasonality, the elemental bromine prices are relatively low in China. But, they are still higher than the announced price increases that ICL did before we started with the strike. We see -- also outside of Asia, we see price increases in most of our other markets. So, the pricing scenario in bromine is actually very encouraging.

We achieved at least what we had announced in 2014 before the strike started with our price announcement. And every additional increase, of course, is an upside for us, and we see quite a lot of those like I have described.

In performance products, we had a stable demand in advanced additives in the industrial part of performance products, the industrial part of the downstream phosphate business. But, we had elevated competition in the US because there were higher imports from China.

We offset some of this with additional sales in some of our specialty segments, the specialty in the fire safety business, because here the season started, as you might have seen, with the fires in California and Canada about one month earlier than usual.

In food specialties, we have successfully integrated our new acquisition in Europe in the whey protein market, and that offset some of the demand weakness that was especially coming from Eastern Europe. We had a pretty strong business in food also in Russia and the Ukraine. And also, it offset some of the weakness of the euro.

In performance products, we divested -- we finished the divesture of all the non-core businesses. So, we now have a pure advanced additives/food specialty core business structure in performance products from here going forward.

If we look at the market trend and our business here, we expect stable performance in the second half of 2015 compared to the year before, with some potential upside from consolidation of the newly acquired companies.

Let me spend a couple of more minutes on the strike in order to give you some granularity here. I am very pleased with the achievements that we got out of this exercise.

We needed to regain managerial control so that these sites in Israel are not continued to be operated in a government style operation, but in a private business style operation so that we can be competitive globally. And we have now done this with all of the sites here in our home country.

We succeeded pretty fully with what we wanted to do. This is due to the big determination of the management team that we have locally on each one of the sites, and great support from our Board as well, which didn't lose the nerves.

We reduced the workforce at both of the sites by about 10%, a little bit higher in the bromine compounds than that. This will result in annual savings of about $80 million that will start to contribute in the second half of 2015, and then an additional $50 million in 2016 and another $10 million in 2017. So, you can see this has a really good effect.

Let me give you a couple of examples, tangible anecdotes on what's going on here on the managerial side, because this is what gives us more upside, I think, going into the future.

Average hours people actually worked before the strike at one of the two sites was below four hours per day. Now they're working seven and a half hours if you deduct the breaks. So, it just makes a big change.

There is a bonus now. We've changed the annual bonus towards a bonus that will pay out when the capacity actually increases, not for regular work. As a result, we're already higher on the run rate of production than we were ever before.

Managers can now walk around, make a decision, implement the decision without any hassle. It sounds pretty benign, but it wasn't the case before. Managers can now also send people from one place at the plant to the other. It also sounds pretty benign, but it never happened before. So, now where there is work, we can send the people.

There is a continuous dialogue now between all the employees down to the lowest level with their respective team leaders and managers in kind of roundtable sessions. We have biweekly newsletters so the link between all the people working on the site is very, very tight.

There are daily safety sessions. As a result, the safety record is already dramatically better, just a number of examples to show you what it is actually specifically that we did here.

One of the most important achievements is the support we have now for the implementation of our operational excellence objectives going forward, because there is no more blocking for additional ideas that can be implemented. This gives me even more confidence that we can meet and even surpass the goals that we have, the cost reduction goals that we have.

In the Dead Sea, for example, we will have, for the next two years, for sure 400,000 tonnes of potash per year more output, because the product is already in the raw material. If you make the calculation here, this is quite significant. There is a good possibility that this can remain sustainable even for the long term.

From a numbers perspective, this chart shows you how the strike worked. The impact is lower than previously estimated because the strike -- we were able to end it about one month earlier.

And the net benefit that you see on this chart here, the $170 million NPV does not include the bromine price effect. And it doesn't include any potential increases of productivity at the Dead Sea, and it doesn't include any extension of the additional production capacities beyond two years. So, this is a very conservative calculation here.

A couple of other points; in China we made good progress with the approval of this -- with this very complicated and complex approval of our joint venture. You can see listed here all the things that have been achieved. I am most proud that the management team that will run this operation is already fully in place, starting to work as of September 1st. That's a pretty good achievement.

From a result perspective, this operation will contribute about $50 million of EBITDA in the first year, growing to $120 million EBITDA in year five.

A couple of words on potash, because we believe that investors and some of the analysts also don't quite appreciate our ability to grow our potash production and our potash sales in the market, together with market shares.

As you can see, in the last 10 years ICL has lost considerable market share. And what we aim to do over the next 10 years, not in two or three years but over the next 10 years, is slowly rebuild this market share. And we will with all the investments that we have outlined.

The trick here is we will do this slowly, step by step but steadily, so there is no huge, massive CapEx spend that will put significant capacities in the market that we cannot sell. As you can see, the plant expansions are designed to just bring us back to a market share that we had in the past, or not even to this.

Our position will be focused on the faster growing markets, for example Africa, where there is no potash sold today yet. So, here the competitive pressure will be relatively low in the beginning because we will create the market. The usage there is almost zero.

If we exclude the polysulphate and the SOP in Ethiopia, the grow rate of potash is just 3%. So, it's not dramatically faster, just a little bit faster than the overall market.

Polysulphate, here charted with 1 million tonnes per year, this is a very conservative assumption for the year 2025. We will probably reach this capacity much, much earlier than this. And this is a specialties' market, so it doesn't compete with any potash directly. So, the potash business has good prospects and it not going to put heavy pressure, we believe, on the rest of the market.

In industrial products, the growth projects will bring significant contribution. And there's two categories of those. We have some long term R&D projects in the pipeline around energy storage, gold extraction, soil fumigation, 3D printing, but those projects will all contribute only in the long term. Let's say four years and beyond.

But, in the meantime, we have many products in our pipeline, of which some of them will replace existing products, replace them but at much better margins. And they will provide a nice contribution within the next five years.

These products, these new replacement products, are more profitable. One of the examples is our flame retardant, 122P for construction applications.

And my last slide, before I'll turn over to Kobi to walk you through the numbers, on performance products shows you the structure of the new business and the logic behind why we did all these divestitures and these small bolt-on acquisitions.

We now, after the divestitures, have a business which is fully core. And I'd like to show what we expect in the next years, and you can see this charted on this slide. The top line growth is supported by the back integration in phosphate, but also by our technologies in all these specialty markets.

In the food specialties business, our growth is supported by the knowhow we have in bakery, meat, dairy, and beverage applications. And it's strengthened by these new ingredients that are co-formulated with the phosphates.

So, we're not buying ingredients just for the fun of it, but it is very, very -- we're only getting into new products if they're synergistic.

If we look at the historic turnover in operating margins for what we call today the core and the non-core business, it becomes clear why we have been doing what we have been doing, because you see in total a margin uplift on the whole business. So, it's margin uplift that we were after and not necessarily only top line growth.

Cost also of course is a key driver all even also in this business. So, to keep the machine lean and focused is very important. And therefore, it's better to have two businesses rather than eight or nine with the same turnover.

With this, I'm sure I raised a few thoughts. I am happy to have discussions with you after Kobi has gone through the numbers.

Thank you, Stefan. Good afternoon, and good morning, everyone.

This quarter started in the middle of anticipated execution storm, and ended in a good momentum in our dividend execution of our strategy. The strike in our two major facilities in Israel continued until the end of May, and resulted in a financial impact that was better than we forecasted last quarter.

As we anticipated last quarter, the strike impact on Q2 was more significant than in Q1 due to several main reasons. First of all is the length of the strike in our Dead Sea facility, two months this quarter versus around 1.5 months in Q1.

The second reason is that we utilized most of our bromine compound inventories that we accumulated toward the strike in Q1 -- and you will see that when we present the bromine compound results -- and the ramp up activities following the end of the strike, which Stefan already discussed. Due to the strike, we obviously produced less than the usual tonnage at the Dead Sea.

You can see that the year-over-year analysis of the adjusted result is tougher this quarter than the reported results. The adjusted results provide a good understanding of our underlying business performance, and this is why we also show you this comparison.

Our cash flow was very strong this quarter due to a reduction in trade receivables and inventories. Most of that is due to the strike, so we expect a lower cash flow in the next quarter as we continue to ramp up.

Let's move now to discuss the financial results of our main businesses. Before we dive into the potash business, I would like to shortly discuss what we see in the overall global fertilizer market.

Global demand for fertilizers has slowed during the quarter in most markets, mainly in Brazil and in the US. General fertilizers demand in the US was lower compared with the same quarter last year, due to a shortened spring season, high stocks, and lower crop prices.

In Brazil, demand is substantially reduced due to several economic factors such as the depreciation in the real, which impacted the confidence of importers, low access to farmers' credit, low crop prices, and high stocks.

As a result, prices have decreased, affecting other markets such as Europe and Southeast Asia. India proved to be one of the strongest markets for fertilizer this quarter, with a healthy monsoon season supporting agriculture.

Moving now to our potash business, I'll start with the sales similar to the first quarter. The strike at ICL Dead Sea had a strong impact on our potash sales, with slow sales of about 600 K tons. Total volume we lost during the strike amounted to 900 K tons, and we estimate to recover them in the following three years.

The devaluation of the euro and the pound versus the US dollar in lower volumes sold also negatively affected sales. To remind, our ICL UK facility sells more than 50% of the production inside the UK in pounds, and the pound devaluated by 10% versus the dollar. The euro was devaluated by about 20%.

Higher contract prices in China and India resulted in a positive $21 million contribution this quarter.

On the operating profit, the impact of the strike, strike related, and prior year items were the most notable items that impacted the operating profit.

In the fertilizer and phosphate franchise, we continue to show very nice improved performance at Rotem, which contributed to higher production, sales, and, most importantly, profit.

The lower euro and shekel had negative impact on sales, both on the commodity fertilizer business and on ICL specialty fertilizer, but a positive contribution to profit and profit margins, as most of the costs are contracted in Israel and in Europe.

The positive results in executing our operational excellence program in Rotem, adjusted profit margin improved from 7.4% last year to 12%, very impressive indeed.

It's giving us the confidence that we are now on the right track also in the other two bigger sites, ICL Dead Sea and ICL Neot Hovav. Actually, our Rotem team just won the CEO reward for 2015 for their achievements in improving the operation.

In the industrial product segment, you can see the direct and indirect impacts of the strike on sales and profit. As I mentioned before, we ran out of inventory during the quarter, and this impacted significantly the results.

Similar to other segments, we see negative impact of exchange rates on sales, but balanced impact on profit.

Performance products, Q2 sales were favorably impacted by the successful integration of Prolactal as well as the contribution of Fosbrasil, which we acquired at the end of last year.

Organic growth and acquisitions were offset by the divestment of the non-core businesses and by the weakening euro against the dollar, which had a negative impact of $48 million.

In order to try to provide you more visibility on the underlying performance, what we did in this segment, we presented here the core business. But, we are showing in the right-hand table on the profit the main items that impacted our core versus the overall results that were still influenced by the non-core activities.

I want to talk a little bit about our efficiency program. As a reminder, we achieved a $120 million run rate of savings at the end of 2014. And now we feel very comfortable in our ability to achieve our plan of $240 million run rate at the end of this year.

We are on target to deliver by 2016 year-end a run rate of $350 million contribution to EBITDA on efficiency improvements. In the slide, you can see the contribution by segment as well as by the area of savings.

I want to dive into the operational excellence part of this whole program. Operational excellence initiatives are a key contributor to our overall cost saving program, and we wanted to show you a snapshot of the activities we are diligently executing.

This program will have a significant contribution to the competitive position of our major production sites. The project at the Dead Sea will help us offset increased costs as a result of the salt harvest project.

We recorded a significant improvement in ICL UK, which led to improved profitability in this site that was losing money in Q2 2014.

Rotem, again, is a real success story. Ever since we have settled the labor issues and commenced our operational excellence program at Rotem in Q2 2014, the improvement surpassed our expectations, and the site moved from a loss to double digit profit margin.

Despite 10% reduction in labor, we managed to increase both phosphoric acid and rock production by about 15%. We are now designing the work plan for the implementation of operational excellence initiatives at the sites of our other two segments.

I would like to summarize with what Stefan started. We are on track in implementing our efficiency initiatives. We expect elevated potash sales and improved profitability in the second half of the year. And we continue to progress on our strategic initiative. We completed the Allana potash acquisition, and we are advancing in our Chinese phosphate joint venture with Yunnan Yuntianhua.

I would like now to turn the call for a Q&A.

Thank you, Kobi. I would like to see if there is any question in the room first.

Thank you, ladies and gentlemen. (Operator instructions.)

Adam, thank you. We have one question in the room, so we will start with it. Yonah, please.

Thank you. It's Yonah Weisz from HSBC. If it's okay, I'll ask maybe a couple of questions one at a time. First of all, if you could, talk about your view on potash pricing towards the second half of 2015. The current quarter I think had a $309.00 average price, which I understand is oriented very much towards European markets and therefore also weak foreign currency exchange rates. But, how do you think that could develop, or normalize perhaps, more into 2H? And I can carry on afterwards.

Yes, just give us all your questions and then we can answer them in a block.

Certainly. You mentioned in terms of growth prospects, Stefan, in the presentation, next generation flame retardants, brominated biocides, Merquel, and clear brine fluids. Now, perhaps I don't understand perfectly what you were trying to imply here. But, if I understand Merquel, it's been around for a couple of years. It really hasn't taken off very well. Clear brine fluids, linked to drilling, oil drilling, not such a great industry at the moment. Brominated biocides around for, again, a very long time. And in fact, in previous presentations you've talked about how the flame retardant business is kind of contracting a bit structurally. So, I'm just wondering how these represent or how you see these as growth drivers for ICL industrial products.

And finally, just maybe an update on the phosphates. Have you had, with this constructive atmosphere in Israel, any idea what's going to happen with the mine at Brir?

Okay. Thank you very much. Let me answer the industrial products and the Brir question. And then, maybe potash pricing, Nissim, you can give the view what we see in the market afterwards.

Well, what I mentioned in Israel is we've had -- the atmosphere is more and more constructive. But, what I also mentioned is that we don't have any decisions yet.

So, we've had a session of the planning committee of Brir, but they didn't decide anything. So, all of this constructive atmosphere is nice. It feels much better than before, but it doesn't help at all until somebody dares to make a decision so that we can actually implement.

So, I think the mood -- the summary here is the mood improves, but nothing material that we can touch yet. And as long as that doesn't happen, we remain skeptical because of the experience we've been in.

On the bromine, there is two blocks. And maybe the chart is a little -- is not totally clear on this. There are some long term applications that are quite interesting. This is energy storage, gold extraction, soil fumigation, 3D printing, and then there is a lot of short term incremental innovation that replaces old products with new products, especially in the flame retardants, especially in the flame retardants.

So, in the flame retardants, we don't need growth, but we will get profitability improvement through this portfolio rejuvenation. Specifically on clear brine fluids, it's simply a growing business because, in the long run, there are a growing number of rigs; not in the short run but in the long run.

And the Merquel opportunity, it has actually delivered in the US about 75% of its potential, which is about 30,000 tonnes of elemental bromine. And it will deliver another -- the last 25% sometime in the next two years.

The next step improvement -- the next opportunity for Merquel is China. And for China, the specificity of this business coming into a reach of execution capability has moved much closer, because the Europeans are just in the legislative process to put in place mercury limits similar to the US standard.

And that doesn't give us a big market for Merquel in Europe, because the coal doesn't contain a lot of mercury. But, it gives the Chinese the standard in order to put it into place in their country.

We have been asked now by Chinese energy manufacturers to put in place a pilot facility in China in order to demonstrate the technology. And we're in the process of setting this up over the course of the next two or three quarters.

Nissim, potash pricing estimates or comments for the second half of the year?

Okay. If you look backwards to 2013, 2014, those are very good years for the fertilizers industry, for the potash industry in specific. And there we saw healthy demands coming from everywhere with good crop prices. And we saw the trend of the going up in the prices in potash.

So, if you look to early this year, we succeed to post the $10.00 in China upwards, and India. The demand in India is very good now. In China, it's also very good.

The two markets which we see now softening in prices and in demand is Brazil and the US. Brazil is due to the economic situation and the crop prices and the credit lines for the farmers. In US, it's due to the rain and the late season start.

So, in these two markets we see a softening of the price, and most probably will continue to see it in the coming period.

Thank you, Nissim. We will now move to questions from the line. But please, since there is a pretty long queue, I would like you to limit yourself to two questions. Thank you. Adam, please.

Matthew Korn, Barclays.

Good day, everyone. Thanks for taking my question. Stefan, apparently the fertilizers industry is going through its own phase of consolidation, or at least attempts to consolidate potash, nitrogen. We got some news today on a producer and distributor. I'm interested in your view on what the market significance of all this really is. Does this mark a now fairly more mature market? Does this mark expectations of more challenged producer profitability? What inferences can we draw from this? Thanks.

Yes, I think it's a combination of the market being a little bit softer, the capital being very, very cheap, and the opportunities being there. There are options for rounds of consolidation. It's not limited to the fertilizer market. You see this also in crop protection, for example.

And I think this, at the end of the day, will be good for the market if there's more consolidation, because this makes the market clearer to operate in.

My other thought with this then, in the phosphate fertilizer side, we've heard from different views in pricing trends for the second half, at least across the North American producers. Do you expect, Chinese currency levels aside, that -- the renewal of the Chinese ban, is that going to have any material effect on the floor price?

Not at this point.

Thanks very much.

Vincent Andrews, Morgan Stanley.

Good morning. This is Neel Kumar calling in for Vincent. I want to just talk a little bit about bromine prices. So, how sustainable do you think higher bromine prices are post the strike, given the weak near term demand environment? And also, just given the impact of the Chinese currency devaluation, do you see any impact on bromine prices?

No impact that we see from the currency perspective simply because the Chinese are utilizing all of their bromine domestically, and they need significant imports in order to fulfill their domestic bromine demand.

We see the elemental bromine price increase in China as very sustainable. And as a result, we also see the bromine compounds price increase as pretty strong. It's supported by everybody, and prices are still moving up rather than down. So, for the next six, 12, 18 months, this should be the environment in which we are in.

Okay. Thanks.

Sophie Jourdier, Liberum.

Thank you. The first question is just whether you could update us on the discussions you're having with the government on the Sheshinski reforms and any amendments that they are considering, what your views are. You mentioned more constructive discussions recently, and also what timing we should expect on any results out of that. That's the first question.

And then the second question just is a quick question on your Chinese joint venture. Can you just update us as to what still needs to be done before completion and when you're expecting that completion? Thanks.

Okay. On the -- in Israel in the discussion with the government, the Sheshinski tax is one of the topics that is under discussion. The second one is the encouragement of investment. The third one is royalty arbitration. The fourth one is the tax dispute from the past. The fifth one is the extension of the concession at the Dead Sea, and the last one is the concession for phosphate. So, you see it's a whole bouquet of interesting topics which all influence one and the other.

I would say the qualitative difference between now and a year ago is that, in the government, most people now have realized that all of these things are connected. So, it is of relatively little help to the country if they solve only one of the issues, because that could deteriorate the conditions with the other issues.

So, we need everything solved, if not in a package deal, then in a short sequence of topics. And that is the reason why the discussion becomes more constructive, because it's complicated. And the professionals in the government have understood this quite a while ago, and now the politicians have also understood this.

It's very, very difficult to give you any timing for the resolution. The target of the old government was to have everything in the law already done by now. Now the government has just decided to probably postpone all of this until next year, until there is more chance for a discussion, or most of these things to be postponed for next year.

I think what this means is that the guidance we gave you in the past is for sure the worst case scenario.

I'm sorry. The guidance in terms of the $100 million additional taxes?

Yes, $130 million as of 2017, this is probably the worst case scenario.

Great. And sorry, when you they've postponed, is that postponed decisions to next year? What have they actually postponed to next year?

Yes, yes. The decision is postponed because the cycle to put it into a budget is now almost over.

Okay. Thank you. And then, just on the Chinese joint venture?

In China, we expect to close the deal still in 2016 -- 2015, sorry, by the end of this year. Mostly there are some security and safety checks to be passed still, yes. And that should be done by the end of this year.

Okay. Thank you very much.

We're confident enough in China that we have started to operate part of the operations already. The R&D center we have started. This doesn't need national government approval, only local government approval.

We have received this, so we've already started. And there is a couple of other activities as well. We have hired all the management, so these are signs that we feel pretty confident that this will happen.

Chris Kapsch, BB&T.

My questions are focused on the industrial products business. And just, Stefan, in your formal comments and in the slide presentation there's a comment about brominated flame retardant demand for printed circuit boards being lower. And a couple of your competitors have talked about in this quarter, generally speaking, while not robust, but the electronics end market demand looking a little bit better, a little bit more healthy that it's been, at least stabilizing. So, I'm just wondering if you could just reconcile those divergent comments. Is this just a function of your inventories of derivatives being depleted? I appreciate it.

I'll hand the question over to Charlie Weidhas, who runs the business.

Good afternoon, good morning. You need to separate the demand into a couple pieces. So, we're specifically talking about the products that go into PCs being a little bit weaker, which impacts one of our products directly. But, I would say that the portfolio of the other markets is very stable.

And there's a second part, which is prices generally are going up for the sales of these. And so, you would see some better profitability because of the pricing.

Okay. But overall electronics demand, you're speaking about the weakness is specifically in the PC, but the rest of the electronics and market demand is -- how would you describe it, stable or improving slightly?

I'm speaking specifically about the PC market, and the rest of the market is generally pretty stable.

Okay. And then, just also in the formal press release you talk about the Chinese manufacturers sort of reducing their production of, it looks like, derivatives. Can you just provide additional color on that dynamic? Thank you.

Yes, a lot of our produced and consumed is in China and goes towards, for example, the PC and PC component markets.

Gilad Alper, Excellence.

Just a question and kind of a follow up, I guess, on the issue with the government. Assuming for a second that you see from the government the type of tax break that is at least reported in the financial press here, and assuming that you want to really unfreeze some of the investments you had planned to do in Israel, the question is after committing to investing up to above $0.5 billion in China, buying the mine in Ethiopia, expansion in Europe, do you actually have enough funds to make all of the investments in Israel that you had planned to do before the Sheshinski Committee hit you a year or two years ago?

And just a connected question on that. Assuming the government gives you whatever you want right now and you make all of those investments, what kind of guarantee do you have that they simply won't do another committee raising taxes once more after you have made all of those investments, let's say three or four or five years from now? Thanks.

Great question. Let me answer it in three pieces, whereas the third piece I'd like to ask our Chairman to comment on.

First, on the investments, we have two major blocks. One block is around the Dead Sea expansion of potash. And the other one is around phosphates in Rotem, our expansion of the phosphate platform. What we have talked about is to put these investments in place in the next 10 years. So, during that period of time, yes, we have enough funds.

Having said this, the later any kind of a stable environment is created here, the more we have made investment decisions elsewhere. So, for the next two, three years, like you have observed correctly, the investments have been spoken for. So, that will not be in Israel.

Whatever environment we can get now will then trigger investments that need to be prepared. That preparation takes some time. And then, once the funds are available, they can be done. But, if this takes another year or two to decide, we would continue to make decisions to invest elsewhere.

So, we are, as you know, quite disciplined in our capital allocation, also in our spending, and that's just the scenario. And these projects compete with each other. Specifically I am talking about the Brir decision, of course.

The second part of the question is around the stability of the environment. And you are right. This is one of our major, major concerns. Therefore, we have made it very, very clear that it is not just a tax code adaptation that we need. But, we need a long term decision on our concessions so that we know we can operate here for the long term.

And for each investment that we will make, we will ask for a specific contract that will ensure that particular investment, similar then, for example, companies like Intel do it in Israel. So, it works in this country. We will just insist on this. Otherwise, it's too risky because of the history we have.

Let me come back on the timing of that decision. I mentioned before it was postponed, but of course things change a little bit. Nir, can you maybe explain just the process in which we are and the opportunities of whether this happens next week or next year?

Okay. The process currently is that the government decided last week to move the decision on the new natural resources law through a committee, and gave the committee the permission to observe and to make some changes if needed.

If changes were put in place, they need to review if there is a fiscal implementation. And if yes, it needs to come back to the government. This is where Stefan came with a notion that if this goes back to the government, it will probably not be together with the rest of the budget process and have some delays.

You should bear in mind that Stefan said the average time to do a project in Israel -- industrial project in Israel is between six to nine years from the day that you started. We're still working on projects for, for example, of new power plants and etcetera that started six or seven years ago.

So, the timeline of the projects, and this is part of the problem, is delayed regarding the issues that we don't know with the environment. So, that's a good question about stability. This is something that needs to be clarified.

As you know, according to the concession agreement, we have some rights. These rights need to be preserved. And we need to understand that, by the end of the concession, the calculation of the extension of the concession will be in terms that it will be valid to invest today because, if we started today to invest, by 2030 we will run this project only six, seven, or eight years for projects that can live more than 30 years.

So, this is part of the discussion, part of the problem. And as we mentioned, we think that by the end of the day the rationale will come back.

Rosemarie Morbelli, Gabelli & Company.

Good morning, everyone. Stefan, I was wondering if you have seen any change in the demand for bromine removal since the Supreme Court made the decision to postpone the decision on that. I am assuming it will go through, but it will take longer. Have you seen -- since that, have you seen the demand remaining at the same level or decline as some of the utilities decided to just either wait to do what they were planning on doing, or just stopped it until they know exactly where they stand?

Charlie, please.

Yes. The Supreme Court decision has not had an impact on the current demand. And in fact, the Supreme Court decision is a very technical decision about how something from the EPA gets put into law.

And the Supreme Court said that there was a mistake in that, so it goes back to the EPA. So, it's still unclear exactly what the EPA will do next and when they'll do it.

But, in terms of the current demand for the product, this is demand that was developed and is being sourced prior to this decision from the EPA. So, so far no impact, and I don't anticipate an impact from it.

And I was wondering if you could give us a feel for the potential size of the demand for bromine if those regulations, or the European version of it, comes into play in China. Any feel for it as far as (multiple speakers)?

30,000 to 40,000 tonnes in the US. In China, the demand will be bigger.

Though price more?

It's difficult to say at this point. If you tell me how fast the Chinese regulators will implement and if all the government companies have to do it, then I can tell you the size. But, it will be bigger.

Okay. Thank you.

You're welcome. Next question?

Howard Flinker, Flinker & Company.

Hello everybody. My two questions before I'll ask other ones to [Lee] after the conference call are what will your CapEx be in the second half? And in the Chinese joint venture, you mentioned that next year the EBITDA could increase by $50 million to your account. What would the D&A be in that EBITDA? Thank you.

Sorry, what is the D&A of an EBITDA?

Out of the $50 million, how much is D&A?

Our depreciation?

Yes.

Okay, two technical questions. I think we will take them offline. And we will come back to you offline on both of those, okay?

By all means.

Thank you.

Joel Jackson, BMO.

Hi, Stefan. Good afternoon.

Hi, Joel.

I had a couple questions. Looking at your potash shipments to China and India for the second half of the year post strike now, are you able to give some color on how much of that contract you have still to -- those contracts you have still to ship to China through end of the year, and to India to the end of March?

All of it. We should fill our contracts.

Well, what I mean is through now, the beginning of August or through end of June, whatever you're comfortable talking about, how much percent of those shipments do you have still to fulfill? Is it 100% of both you still have to fulfill?

Until the end of the year, we will fulfill somewhere between 90%, 95% of both of those contracts.

From the beginning of August fulfill -- okay.

Now Limor is shaking her head vehemently, so obviously I said something not very smart. Until the end of the year, I said we will ship most of the contracts.

For China, it's probably correct. For India, the contract is ending at the end of March, just at the regular contract time.

And in India, usually the shipments are very linear. Of course, we have to catch up because we had the downtime. But, that's more or less the situation.

So, if I understand, if we say 90% of what's left to go to China --.

If you look at the end of -- as of the end of the second quarter, we still have most of the volume to ship. We didn't ship -- we shipped very small volumes in the second quarter. We had only one month.

If I interpret that, 90% of what's left to go to China will happen in Q3 and Q4, and 90% of what's left to go to India will happen in Q3, Q4, and Q1. Does that sound right?

Yes.

Yes, pretty close.

Boy, Limor, I'm glad I have you.

My next question is on Allana now that you fully control it. Can you talk about the timelines? You've talked a little about the detailed engineering timelines, but can you talk about, now that you fully own it, looking at their feasibility study that was there before, the quality of it, where you think the mine plan and cost plans and freight plans maybe weren't correct, and so the trajectory of where that will go, and then maybe what your points of go or no-go will be for that investment?

Okay, great question. Thank you for it. So, on slide number eight, you see the volumes that we are targeting, 1 to 1.5 million tonnes of potash, plus 0.5 million tonnes of potassium sulfate, SOP. This is the complete size of the project, so it's a different scope than what Allana had.

We will need until the end of March 2016 in order to finish all of the engineering so that we can approve the project or reject it, but hopefully approve the project in our Board of Directors. This is the timeline that we have.

We will start some parts of construction already in September of this year, especially in order to get infrastructure into the site. This shows you that we are relatively confident about it.

In terms of CapEx, it will be significantly below $1,000 per tonne, significantly below $1,000 per tonne. So, here the Allana ratio was not actually very much off.

We are right now studying two scenarios. One scenario is to invest everything in one shot. This obviously has the disadvantage of a very big CapEx in a relatively short period of time and then some empty capacity, but it's extremely profitable.

The second option is to invest it in two stages, half and half over the course of the next 10 years until we are to this 2025 timeline. That would obviously make it a little bit softer. We like that approach from a risk perspective, from a cash flow perspective, from this mindset that we have, from this mentality that we have in ICL to build step by step and slice by slice.

So, we're looking at both of those options, and we will make the decision at the end of March this year -- next year.

So, if I understand your commentary, it would be -- the CapEx would be significantly below $1,000 a tonne. Does that mean it will be or you would only invest in it if you find a way to make it significantly below $1,000 a tonne?

Look, we've just spent $147 million buying this asset. We are very convinced it will be.

But, if something dramatic happens in the next seven months and it will be much higher, then we will write off the $147 million tonnes and walk into the sunset.

Okay. Maybe I'll just ask one more question. Would that decision, whether Potash Corp is successful in acquiring K+S, have any bearing on your decision to go ahead with Allana?

Can you repeat the question, please?

Oh, sorry. My last question, I guess, was if Potash Corp were to acquire K+S, would that have any bearing on your decision to proceed with Allana or not?

No, this is an independent -- I mean, K+S or Potash Corp have nothing to do with ICL.

Just on the supply-demand balance of the world, that's all.

Yes. But, as I pointed out, if you very carefully read these numbers and make your own math, half of the Allana investment probably is a replacement investment, because we have a mine in the UK which is coming to the end of its life cycle, at least in potash.

And the other half is to fulfill growth in Africa where there is no market today. We're building a marketing infrastructure there and a logistics infrastructure. So, the world market will not see the potash there -- that we make there.

That was helpful. Thanks, Stefan.

My pleasure.

Thank you. Ladies and gentlemen, we have time for one final question. Rosemarie Morbelli, Gabelli & Company.

Thank you for agreeing with my follow up question. I was just wondering, when do you think that your capacity -- talking about bromine, elemental bromine, will be back online to the point where you can actually supply your customers at the same level as you did prior to the strike? How long will that take?

There is two parts to this. The first is our ability to produce here in Israel. And we anticipate very late Q3, very early Q4 to have our bromine back to prestrike production levels.

There's a second part of the question, which is our ability to ship bromine outside of Israel, which is a function of our specialized ISO tank fleet. And we have a little bit more of a backlog in terms of getting the ISO tanks repaired. So, that's probably going into early next year.

So, in terms of our ability to produce compounds and produce elemental bromine, end of Q3, early Q4; and the ability to have our full capacity to ship external to Israel via our ISO tanks, early next year.

Why do you have an issue with ISO tanks?

Because the ISO tanks, during the strike and actually prior to the strike, we were not able to do maintenance on those which is a requirement, because of work sanctions.

All right. Thank you. I appreciate it.

Thank you. Ladies and gentlemen, there are no further questions at this time. I would like to turn the floor back over to management for any closing remarks.

Adam, thank you. Thank you, everyone, for being here with us and listening to us over the phone. And whatever follow up questions you have, I will be happy to get them. Thank you. Good day.

Thank you, ladies and gentlemen. This does conclude our teleconference for today. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day.