ICL Group Ltd (ICL) 2018 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the ICL analyst conference call. (Operator Instructions) I must advise you that this conference is being recorded today. (Operator Instructions)

I'd like to hand the call over to your first speaker today, Ms. Limor Gruber, Head of Investor Relations. Please go ahead, ma'am.

Thank you. Hello, everyone. Welcome, and thank you for joining us today to our second quarter 2018 conference call. The event is being webcast live on our website at www.icl-group.com.

Earlier today, we filed our reports to the securities authorities and the stock exchanges in the U.S. and in Israel. The reports as well as the press release are available on our website. There will be a replay of the webcast available a few hours after the meeting, and a transcript will be available early next week. The presentation that will be reviewed today was also filed with the securities authorities and is available on our website.

Please don't forget to review the disclaimer on Slide #2. Our comments today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are not guarantees of future performance.

We will begin with our CEO, Raviv Zoller; followed by Kobi Altman, our CFO. Following the presentation, we will open the line for the Q&A session. Raviv, please.

Good morning or good afternoon, everyone. I'm very excited about presenting my first quarter here as the CEO of ICL. We had a strong Q2 in all of our businesses, with growth in sales resulting in nice margin expansion. Despite a notable contribution from the divested Fire Safety and Oil Additives businesses in Q2 2017, we were still able to surpass the comparable quarter sales, operating income and net income. We'll review our performance this quarter in detail shortly.

The strength of our balance sheet has been a major focus for us, and we continued to improve our debt structure in preparation for the future. Kobi will elaborate on this later on.

Consistent with our dividend policy in support of our solid operating cash flow generation, we'll distribute about 50% of our adjusted net income this quarter or more than $0.04 per share, which implies an annual dividend yield of about 3.5%, among the highest in our industry.

As you probably noticed in the financial reports and the press release, we're also aligning our organizational structure with our recently launched strategy. This will be effective from Q3, and I will elaborate on that shortly.

Let's go to Slide 4 and first discuss our performance this quarter, starting from the key results. The table on Slide 4 speaks for itself. While sales grew by 4%, margin expansion, mainly as a result of market prices and our value-oriented sales initiatives in the specialty businesses, led to more than a 20% increase in adjusted operating income. Our quarterly EBITDA continues to grow, increasing by 18%, almost reaching $300 million. Adjusted net income increased by almost 80%. And on a pro forma basis, excluding the divested businesses' contribution last year, our adjusted net income more than doubled compared to the second quarter of 2017.

Let's go to Slide 5 and dig deeper into each segment, starting with Specialty Solutions. The graphs show pro forma data for the comparable quarter, excluding the Fire Safety and Oil Additives businesses, which were divested at the end of Q1 2018. On a pro forma basis, segment sales increased by 13%. And as a result of our value-over-volume approach, segment profit increased by 26%. Even including the divested businesses, we were still able to grow both top and bottom line.

It was an exceptional quarter for ICL Industrial Products. The bromine value chain benefited from the positive pricing trend and from strong demand for clear brine fluids from specific projects. Note the demand for clear brine fluids is volatile and difficult to predict. Demand for flame retardants continues to be stable, but our phosphorus-based flame retardants business benefited this quarter from environmental regulatory pressure on Chinese production. Since the beginning of this year, we have been implementing value-oriented sales initiatives in our specialty phosphates business, similar to what we have been doing in our bromine business for quite a while now. We're very encouraged by the initial results from these initiatives and it is reflected in the Advanced Additives business line performance. In addition to these initiatives, we were able to increase sales volumes of salts and acids by about 15%. Following a difficult 2017 in the dairy protein business in China, steps taken by the business line to diversify the customer base and the resolution of the regulatory situation in China resulted in a strong recovery in our Food Specialties business line.

Let's move to the Essential Minerals segments on Slide 6. The improvement in market conditions for commodity fertilizers is clearly demonstrated in potash and phosphate commodities results. In potash, we benefited from an increase of 14% in the average price FOB price and from improved production, mainly in Spain, as a result of the efficiency plan we implemented at the beginning of this year. Higher phosphate prices more than compensated for the impact of the maintenance in our sulfuric acid and phosphoric acid plants in Israel and in China. We successfully launched NP+ S, a semi-specialty fertilizer in our YPH JV in China. This is a nitrogen, phosphorus, sulfur compound for precision crop nutrition, and demand is exceeding our initial expectations due to the favorable quality that we are offering. This is an example of our strategy in the phosphate value chain. We are not here to sell phosphate rock or green acid or commodity fertilizers. We are utilizing our ability to control the entire value chain in order to grow the value-added specialty products. We continue to leverage our Specialty Fertilizer product portfolio and our strong agronomic know-how to further penetrate into the specialty agriculture market.

If you look at Slide 7, it demonstrates what I've just discussed. Prices of major products in our different value chains are all going up. For example, potash prices in Brazil are approaching $330 per tonne, up by more than 10% year-to-date. This is supported by a relatively tight market as new capacity is ramping up much slower than expected and demand continues to be healthy. Slower-than-expected ramp-up of new phosphate capacity is reflected in the phosphoric acid prices, the basic raw material for the entire phosphate chain, which increased at a similar rate. In specialties, bromine prices in China increased by more than 50% since the beginning of 2015. And prices of white phosphoric acid, the basic raw material for our specialty phosphates, increased by 10% during the last 12 months.

On Slide 8, I would like to provide you some inputs on the adjustments that we're making to the corporate structure. The main goal for this adjustment is to align it better with our strategy, thus enabling us to optimally allocate managerial resources and to focus on creating leadership in areas where the company is currently not an industry leader. Our recently launched strategy aims at solidifying our core mineral chains and creating leadership in Innovative Agro Solutions. As a result, we created a division for each mineral chain with a very clear strategic direction for each division.

In bromine, we're solidifying our leadership in the global market. In potash, we want to ensure that we are among the top 3 most competitive in our target markets, specifically Brazil, Europe, India and China. And in the phosphate value chain, our strategy is focused on growing our specialty phosphates offering. We have the backward integration into rock and acid, and we'll use more and more of our commodity phosphate to produce the value-added specialty products.

Innovative Agro Solutions is the fourth division. We identified it as a potential major growth engine, but we're not leaders yet. We want to create leadership by leveraging our advantages, which include R&D capabilities, vast agronomic experience, backward integration and chemistry know-how, to name a few. Today, this division includes the Specialty Fertilizer business. But within this division, we will also develop our digital platforms to serve the agriculture community, which is expected to become more and more technology-oriented. To put things in perspective, by separating this business from the 3 more established operations, we will allow you to follow our progress.

As you can see, these adjustments are not dramatic, and we expect to implement them almost seamlessly. The potash and industrial product businesses will remain exactly as the previous business lines. In addition, we are building a Specialty Fertilizers business for accelerated growth, and we are consolidating the different phosphate value-chain activities into one division in order to streamline operations, thus increasing the efficiency and effectiveness of strategy execution.

On Slide 9, you can see the breakdown of each division's contributions. You can see that potash and bromine are about 50% of sales. Then we have the phosphate solutions, where most of the profit is coming from the specialty businesses. And finally, the Innovative Agro Solutions, which, today, includes the Specialty Fertilizers, but our goal is that it will be much more significant in the future.

When we look at Slide 10, it seems that we are currently on the verge of a tipping point. Our cost and value-oriented sales initiatives, together with the improved market conditions, are reflected in our positive business momentum and increasing margins. In addition, earlier this year, a major overhang on our shares was removed with the successful and swift sale of Nutrien's 14% holdings. Our new strategy provides a clear road map to further enhance our established businesses and utilize the growth engines we identified. This is further supported by a very solid balance sheet. And finally, we expect that our organizational alignment will support our strategy. Now we need to execute, and you will be able to monitor this closely.

Before we move to Kobi, I would like to take the opportunity to thank Asher Grinbaum, who led the company throughout a very challenging period and was able to stabilize it. We appreciate his efforts very much.

And with that, I will move to Kobi. Kobi, please go ahead.

Thank you, Raviv, and good day, all. What a quarter. Let me begin with the analysis of the financial results on Slide 12. This was an excellent quarter, with all our business lines contributing to an overall increase in sales of 10% compared to the previous year's results if we exclude the businesses we divested. Even if we don't exclude it, we managed in only 1 quarter after the successful completion of this transaction to show an increase of 4% year-over-year. The divested businesses, mainly the Fire Safety business, contributed $68 million in sales in Q2 2017. Q2 '18 was the first quarter where these businesses were not included, and we are pleased to show that not only at the company level, even the results of our ongoing operations in the Specialty Solutions division, more than offset the lack of the divested businesses' contribution. The impressive results were achieved by excellent performance in all our business lines.

Turning to Slide 13. Here, you can see the increased contribution of each business line to the adjusted operating income for the quarter compared to Q2 '17. The biggest contribution comes from the Industrial Products business line that had a record quarter with exceptional results due to increased flame retardant and clear brine fluid sales. The potash business line also had a strong contribution this quarter, reflecting the continued increase in market prices and improved production, mainly in Spain, which more than offset higher logistics and energy cost. Our potash production this quarter was higher than our quarterly average. The overall production next quarter will be impacted by the termination of potash production in the U.K. and from the summer vacation season in Spain.

In the U.K., we are now focusing on Polysulphate, and this transition will continue to negatively impact the U.K. result this year. Phosphate commodities business line results improved despite the impact of the maintenance period in the acid plants we discussed in the previous conference call, mainly due to higher prices and higher fertilizer production in Israel and China. The review of our phosphate business should take into account the full phosphate value chain. And here, you can see the major contribution from the downstream part of the chain.

Advanced Additives had a solid quarter, with volume and price growth in our continuing coal-phosphate specialty businesses.

The Food Specialty business has continued its recovery after a moderate year in 2017 in our dairy protein sales, which suffered from a destocking activity of a customer due to lower demand from China last year.

We are reaping the rewards from our value-over-volume approach in our specialty businesses with price contribution of almost 20% to the profit of the Specialty Solutions segment. The price increase was not the only factor that contributed to the strong quarter for this segment, with increased quantities and a better portfolio mix of products more than offsetting the increase in the raw material and energy cost.

In our Essential Minerals segment, higher prices more than offset the increase in raw materials, transportation and energy cost. The increase in raw material cost is mainly due to higher sulfur and ammonia costs as well as the increase in commodity fertilizer prices, which are used as raw materials for our specialty business.

Slide 14 highlights the increase in both sales and adjusted operating income broken down into the specific attributes that caused the increase. The adjusted operating income exclude an asset write-down of $60 million following the completion of the divestment of Rovita, a producer of commodity milk proteins, which was part of our whey protein business, and negatively impacted the business line's operating profit.

The contribution of higher prices was significantly higher than the negative impact of higher raw material prices, mainly of sulfur, transportation, energy and other costs. After several consecutive quarters of negative impacts from exchange rate fluctuation on operating profit, this quarter, it was balanced, mainly due to the depreciation of the Israeli shekel versus the dollar in the last few months. Improved product mix led to a minor contribution of sales quantities to operating profit despite 0 contribution to sales.

On Slide 15, we want to walk you through ICL's overall effective tax rate. Compared to 2017, the decrease in the normalized tax rate from 26% to 22% derived mainly from the tax reform in the U.S. and a reduction in the Israeli corporate tax rate. ICL UK and YPH joint venture in China, we generate losses that are not recorded for tax purposes, increases our effective tax rate to a level of around 25%. We expect this impact to moderate. This quarter, our tax rate was exceptionally low, mainly due to the devaluation of the Israeli shekel against the dollar during the quarter, which reduced the tax obligations of Israeli subsidiaries.

Slide 16 analyzes our cash flow generation. Our working capital requirements increased, serving the expansion we see in all of our businesses. Our operating cash flow covered our CapEx needs, which also includes strategic infrastructure projects, which are on track. The pace of our CapEx in the first half on a cash basis is lower than the annual figure we anticipate, and we expect a higher rate in the second part of the year.

In the next few slides, I would like to summarize the activities we made this quarter to optimize our debt structure. On Slide 17, you can see how we ended the first quarter. Gross debt level was $3.2 billion, and we have a couple of PIK payments in 2022 and 2024.

On Slide 18, we marked in green the debts we paid after we completed the divestments, which provided us with the financial flexibility to execute our growth strategy. We still wanted to take care of the debt maturities in order to further enhance our financial flexibility. So in May, we successfully completed our debt restructuring with a $600 million buyback of our 2024 debentures, and in parallel, the issuance of $600 million of new debentures redeemable in 2038.

We were extremely pleased with the demand for our long-term debentures, indicating the market support for ICL current financial position and long-term strategy. You can see the results on Slide 19, gross debt of $2.5 billion and a much flatter maturity horizon. Lower debt level results in lower interest rate. However, this quarter, we had higher financial expenses due to an expense of $12 million as a result of the 2024 debentures buyback and due to hedging transactions.

Before we will move to the Q&A session, I would like to summarize the key highlights for this quarter as presented on Slide 20. Our robust performance this quarter was mainly driven by improved market conditions and our commercial excellence efforts, including our value-oriented sales approach. The improvement in our financials, together with the debt optimization, further strengthened our financial position, which gives us the needed flexibility to execute our strategy. The alignment of our organizational structure with our strategic focus will further help us to optimize the operation of our various businesses as well as make it easier to understand the relative contributions of our value chain to our overall performance, creating greater transparency to our stakeholders.

For your convenience, in addition to the pro forma numbers for the first half of 2018, which Raviv presented earlier, in the appendix to this presentation, you will find the numbers for the second quarter. We will prepare and publish pro forma numbers for additional periods before the end of the third quarter, so you will be able to adjust your models.

Finally, 2018 so far marks a turning point for ICL. We can leverage the improved market conditions. We successfully implement our value-over-volume approach, and we have a clear strategic path with organizational structure to support it.

Thank you for your time, and we will be happy to take your questions now.

(Operator Instructions) Our first question comes from the line of Mark Connelly from Stephens Inc.

Can you talk about how NPS is being marketed in China? We know a number of specialty fertilizer companies rely on village-by-village trials that can take a long time and a lot of people. And you also said that sales are up based on quality. I'm not sure what you meant by that.

Okay. Mark, this is Raviv Zoller speaking. In terms of NPS, it's a new product. We just started sales, and we're selling through our direct channel with our sales force in China. We're also leveraging some of our partner's capabilities, but we're only in the beginning. The response from clients is very good, and the product quality is very good. I'm not sure what you meant by quality, but I can say that the main thing that's happening in our specialties business is that we're working more with our clients in order to figure out what the exact needs are, and we're creating more value-add solutions. So for example, in food, we're working with specific clients in the meatless industry, for example, where the growth is stronger than the general food market. And we're using our R&D together with the R&D of our clients in order to produce unique and high value-add products.

Okay. That's helpful. Just one more question. As you think about the push into specialties, which has been going on and is making progress, how do you think or how should we think about the balance of organic growth versus maybe M&A? You talked about leveraging some of Israel's technology infrastructure. How should we think about all that fitting together?

Okay. It's really happening in 2 divisions. One division is the phosphate chain. In phosphates, the growth right now is organic. And the critical mass in our business of high-value products is really allowing us to look at the world a little differently, where the whole chain is serving the high value-add products. And we're really not going to be in the business anymore, not going to focus anymore on sales of rock or commodity, but rather serve the downstream of our business. If we attempt any M&A, it will be relatively smaller transactions that could give us access to additional high value-add products or additional customers or strengthen us in certain geographies. There are no specific plans at this moment, which means that the base of our strategy is organic growth. The other division, which is the new Innovative Ag Solutions division, is where M&A would be more probable. And the reason is that building leadership position in specialty fertilizer products and gaining access to new types of sales, direct sales to our customers, is something that we will need to develop over time. And here, you will see a mix of both organic growth, new digital development that will be developed within the company and M&A that could range from tactical entrance into new markets or into new products or a larger-type transaction that would speed up our long-term plan of being significant and creating leadership position in the specialty fertilizer space. So I would say that M&A would target our future. Our future is Specialty Fertilizers and getting closer to the end client. And in the phosphates, it's -- we're looking at the base's organic growth and some M&A, some opportunistic M&A to come into effect there.

Our next question comes from Joel Jackson from BMO Capital Markets.

Just first on bromine, seen strong revenue growth -- well, Industrial Products, really, has seen strong revenue growth both quarters of the year, Q1 and Q2. But we've seen lot of variable margin performance in that business, so we've seen margins drop a few hundred basis points in Q1 and we've seen them come back in Q2. Can you talk about what's going on in the margin performance? How it will play out in the second half of the year? And could you remind us what percent of this business right now is roughly bromine earnings for IP?

Okay. So it's really a mix of a few factors. First of all, the bromine division -- or the bromine business, the IP business was the most profitable business this quarter. The quarterly net income -- the quarterly operating income, sorry, is a little above what would be deemed as a regular quarter. So if you want to look at the expected margin, you should probably average Q1 and Q2. In general, there's -- prices of bromine compounds are going up. Typically, in the summer, from what we've learned in the past, our prices tend to go down a little bit. This would be especially because of production in China. Lately, there's been a lot of regulatory pressure on Chinese producers, so prices actually have leveled out and haven't gone down more than a very little bit in the summer. So prices are still trending up, so that's a positive factor on prices. At the same time, we also -- in addition to pricing, we also had some out-of-the-ordinary sales in our clear brine fluids business. We had about $3 million of profit above and beyond what was originally expected because of intensified oil drilling, and that's not expected to be there the rest of the year. Although, it is -- it still did exist in July, and a little bit also is expected in the beginning August. So all in all, the first half of the year is pretty indicative. At the same time, the second quarter is a little more than we expect as a trend. In bromine, we are over 50% of global production, so we're acting in a disciplined way. And right now, looking at the present situation, the trend, the pricing trend and the demand trend are relatively stable.

And so -- and that was helpful. So what percent of IP income in Q2 was bromine-based?

I don't have the exact number, but I would guess about 80%.

And the other question I want to ask was, Raviv, you now have been in this company for 2 months, 2.5 months, still a newbie. One thing that was interesting was your predecessors and your colleagues decided to put on a new strategy for the company some months ago in between the time that you were announced as the CEO but before you took over. Now you've been here for 2.5 months. Talk about that strategy. And now that you're in the seat, what you've seen, what you want to change, what you think could be better, what things that have been doing well and maybe give us your initial insights after 2, 2.5 months.

Sure. First of all, I've been involved for quite a few months. I was in contact with ICL, and Asher was very helpful getting me ready for the job. And of course, we discussed strategy and even the divestment before they happened. We also -- Kobi and I discussed the bond offering and the bond buyback way before I started my job. So given this is my fourth CEO transition, it's, by far, the smoothest and not because it's an easy transition. Any transition has its challenges. But I had a chance to get ready for the job for quite a few months, and Asher held my hand for quite a while. In the past 2.5 months that I'm in my job, I feel more comfortable with the strategy. I think that, in a way, ICL's strategy has always been known, but there are a couple of elements that needed to be executed. 50% of our business is potash and bromine, very successful businesses. The strategy is very clear. Bromine, we're a world leader. Let's be disciplined and make as much money as possible. Potash, we're #6 in the world. But in our target markets, we're always among the top 3, and our strategy is to be as close to #1 as possible. I think, today, the way we view the world and from the data that's available to us, in terms of cost competitiveness, we're #1 in India, #2 in China, probably #2 in Brazil and probably #2 in Europe. So we feel that at any price of potash, we're very competitive. We're not looking to -- and this is going back to M&A questions. We're not looking to do any M&A in potash. We feel very comfortable with our strategic position. We're not going to do any M&A in bromine because we're over 50% of the market anyway. We just need to act disciplined. And so the 2 things that really needed to be addressed, one is more of an execution strategy, and that has to do with the phosphate chain. We're a few business units, some of which are dealing with commodity and some of which are dealing with high value-add products. And very luckily for me, close to the time that I got into the job, I guess the company reached a critical mass in which most of the internal production of commodities can be absorbed by the high-value-end chain of sales. So it's really a matter of putting all those businesses together into one P&L, making sure that ICL optimizes its value chain and grows its business and works with its clients in order to build value. And that's an execution matter, and we're on it. It started before I came into the company, but I'm lucky enough to hopefully get some of the credit later. We're just really streamlining the phosphate chain operation, and we're very hopeful that the positive momentum will continue. And the second business -- the second place where we needed to look into is not an -- is not just an execution issue, it's a long-term strategic issue for ICL. And that is the -- what we call now Innovative Ag Solutions, which, generally, what we're saying is that somewhere 20 years down the road, it's not -- the market is going to be -- the agriculture market is going to be totally different than what it is today. We're going to need direct reach to the customer. We're going to have the world's leading fertilizer products and maybe some other products. So we want to, first, put our innovative R&D efforts into that business, into the Specialty Fertilizer business. We want to build digital capabilities. Fortunately for us, Israel is a world-leading agronomist country and also a great high-tech hub for digital transformation. I think one of the reasons I was brought into the company is to create the digital transformation for ICL. It's going to require some internal development, which, fortunately, for us, is not very expensive, and also, some M&A in the future. So some of the strategies are no-brainer. Let's do what we're doing with potash and bromine but have maybe less overhead. Let's put the phosphate chain together and focus on value add in order to optimize results. And on the Specialty Fertilizer business and the Innovative Ag Solutions, let's build our future digital platforms. Let's build our chemistry know-how in order to be #1 in unique products and in reach to the final customer. That's the basis of the strategy. I don't think that internally or from people surrounding the company, it's hard for people to understand. It's very clear once you analyze the numbers, know the capabilities of the company. This is what the company needs to do. We're very firm about it. I didn't find that I needed to make any significant changes in the strategy. I did feel that once the strategy is clear, the organization has to be aligned in terms of organizational structure, messaging, focus. So we're making the alignment in order to make sure that we execute well. And we're confident enough to let our investors track our results, track our progress. Obviously, bromine and potash had existed before. But I think in the phosphate chain, we'll be much more easy to follow, much more transparent. And of course, on the new business, on the Innovative Ag Solutions, that will be also something worthwhile tracking for the long run. Hope I answered.

Our next question comes from Roni Biron from Excellence.

I have 3 questions for you. First, can you elaborate on the ramp-up of your Polysulphate business and at what point you expect the U.K. mine to start contributing to the potash profitability?

Okay. Kobi can probably do this better, but I'll do this because this is what I'm practicing. On the Polysulphate, we need to realize it's not part of the potash business. Polysulphate is -- we're mining in the same place. But as of June 30, we're not mining any potash from our mine in the U.K. Polysulphate is what we call a semi-specialty fertilizer. We feel that it has very good prospects in the market. Its target is to sell 1 million tonnes a year, and the current situation is that we're ramping up production. We're putting together our sales channels. And the target is that by the end of the year, the business will become profitable after ramping up, after going through all the childhood problems of the new product. And we feel very confident about the prospects of the business. We think it will take a little while until we can get premium price for the product because it's an educating-the-market exercise. But this year, we'll still see bleeding to the business. We think that, all in all, this year, we could have an operating loss of, I'd say, between GBP 35 million to GBP 40 million, and that will probably complete all of our investments in the Polysulphate business.

So going forward, will -- the Polysulphate will be classified as part of your potash segment results or otherwise?

That's a great question. The short-term answer is that because it's a mining business and because it originated in that business and there were synergies in mining because we also have mining activities in Spain and semi-mining in Israel, it will stay in the potash business. But once the products are adapted into high-value products because we're going to start with a basic poly, but we've developed technology in order to grow the value of the product. And once we move from selling through distributors, like commodities are sold, to selling through our own sales force, then we will consider moving that part of the business, the sales part of the business to the Specialty Fertilizer division. I would say that's about 18 months down the road, but that would be a ballpark figure. We're not sure at this stage yet.

Okay. Secondly, regarding your Spanish project, if you can comment about your progression there. And how comfortable are you with your targets in terms of time line, cost per tonne reduction, et cetera?

Okay. Great question. We have very good results in Spain this year. Actually, in the quarter, the operating income was about $10 million relative to a loss last year. Cost per tonne has gone down significantly, according to target and even about $4 better than target, so the result for the year should come in line with our expectation, which means that we'll have about $40 million of operating income this year from Spain and growing. We do have a couple of large CapEx investments that are still pending. We still have some challenges. Some of them are going to take longer than we thought. But it's not, at this point, going to affect P&L in any significant way. It's just going to have to make us work a little harder to make our numbers, but things are really looking up in Spain.

Okay. And finally, I know it's still a bit early. But any thoughts on second half of the year as far as potash dynamics? And in particular, how should we think about your margin progression in potash, which seems to be quite lumpy in recent quarters?

You need to follow the market. It's really a matter of what the pricing will be in the future. The only thing I can say at this point is that prices have been trending up until the last week or so. Our average selling price for Brazil was $308, I think. For last quarter, it's already trending towards $330. So in terms of the price trajectory, it's pretty clear that we're in a good situation, much better than we had expected. In terms of how pricing is going to end up, some of it has to do with Chinese contracts. Rumors are that prices can go up anywhere between $40 to $70. That's what we're hearing in the market. We don't have any clear view at this point where the number will add up. But regardless, we're feeling pretty comfortable with the general trend. Also, some of the new ramps-up that were expected are experiencing all kinds of ramp-up challenges, so that's also working in our favor in terms of future market conditions.

Our next question comes from Tom Wrigglesworth from Citi.

Couple of questions, if I may. Question on Food Specialties, very strong volume growth in the sales number. Is that sustainable? You talk about increased demand from a key account. But is that going to be ongoing business going forward? Secondly, on the phosphate business, could you help us quantify the maintenance impact? What would have been the volume growth or -- had we not seen the maintenance in the quarter there? And then lastly, you alluded through the Industrial Products commentary that you've made about constraints to the -- to China. How long do you think we're going to see China constrained by its environmental regulation? Is there a case of the Chinese reinvesting to get themselves clear of the environmental regulation and then coming back to the market? Or do you think this is a more permanent reduction in China's production capacity where you compete with them?

Let's start with food. Some of the growth this quarter, we actually alluded to the fact that we had some compensation from last year, from the dairy business in China. So some of the growth is specific to this quarter. It makes it a little lumpier than usual, not that significant. In terms of the maintenance ramp-up, the loss in China was a little over $2 million. It has to do with the fact that we have dependency on our partner to acquire the green acid and commodity fertilizer that our plants are producing. That's a situation that we don't feel comfortable with, but we've had lengthy discussions with our partners which we're very happy with. And the new agreement is pay or take, so I don't think we'll have these kinds of hiccups in the future as long as nothing else dramatic changes. In Israel, the cost was an additional $2.5 million. But in Israel, it was a planned maintenance. So in terms of our internal plan, there is no issue. It was part of the plan. The P&L was just lumpy relative to last year. You can't really see it because the commodity price increase more than compensated for what we lost on the maintenance. The only surprise we had this quarter was we have -- we had to adjust our sales in China because our partner was going through his maintenance. And as a result, we had to stop shipments to the client and stop deliveries to the client, and that's something that, in terms of planning forward, we can't live with. So we had a lengthy discussion, and I think we're on a better track now. The last question you asked was about China and the regulatory situation. I think that's something that we really don't know. There's general strict policy that seems to get stricter in China. But I want to mention that on bromine, the bromine reserves in China are diluting. So regardless the specific regulatory situation, we expect that, over time, the dilution of the bromine reserves in China will work in our favor. It won't be tremendous growth from us in the next 2 months. But over time, we see ourselves taking some of the -- potentially taking some of the excess capacity that's opening up and doing some more good for our business.

Your next question comes from Ben Gorman at UBS.

Just a few for me, please. First of all, in terms of your new reporting segments. Can you give a bit more detail on the structure of management? So how will you be changing the lower levels of management and are you moving someone over to run the new Innovative Ag Solutions business, internally or externally? And then secondly, on potash. How do you see Brazil deliveries evolving in Q3? If you can give us an idea of that and whether that could offset the U.K. shutdown and lower production from Spain. And I'll just stick with those 2.

Okay. On the potash, we see the -- Brazil and Spain more than compensating for U.K. So we don't see any risk in the potash business at this point of going below Q2. I'm saying this with -- while being careful because I don't want to provide any forward-looking statements. But based on the price trajectory and based on the production trajectory, I see no reason for worry because the production in U.K. of potash is relatively not significant. And so I hope I answered that part. In terms of the new organizational structure, it's really more seamless than it seems. The manager of the IP business, which is the bromine-based business, Anat Tal, she is going to continue to manage that business. But instead of reporting through Eli Glazer, she's going to report directly to me. The strategy is very clear. She knows what she's doing, and we're onboard. In the potash business, Noam Goldstein, who's managing the business now, is reporting to Ofer Lifshitz, who is reporting to me. So basically, the potash business now, Noam is reporting directly to me, and there is no change. The strategy is clear. Ofer, himself, has been moved to take control of the phosphate P&L. He's actually managing the commodity side of the P&L, but he's also getting -- taking control of the other part, the sales part in order to streamline the whole phosphate chain and manage it as one P&L and make optimal decisions for ICL. Eli Glazer, who is managing part of the phosphate chain, has been selected to lead the way on the Specialty Fertilizer business. So he's going to move -- he's going to transition to the Specialty Fertilizer business and also report to me. So basically, we had 6 business units that were transferred into 4 business units, with the main change being the 3 business units having to do with phosphate has been united into one. So the big changes are the merge of the 3 phosphate businesses and the Specialty Fertilizer business that has been added to our R&D and innovative IT and potential future M&A, and that's going to be managed as a separate division, led by Eli Glazer. That's internally the changes at this point. I must say that I knew this before because I'm in very close contact with ICL since about 2005. I used to be an IT services provider for ICL, so I know some of the people from then. I knew that there was a lot of talent in ICL. But every day, I'm more positively surprised. There's plenty of internal talent, and I don't see at this point any reason to recruit any stars because we have stars internally.

Our next question comes from Howard Flinker from Flinker & Co.

I have 3 short questions. What would your CapEx be this year, please?

Kobi, about $550 million?

$550 million. Okay. The second question is...

I'm not sure that you heard. Kobi said $550 million to $600 million.

Yes. $600 million.

Oh, I did not hear. The -- actually I have 2 questions. The second one is, is your power plant at Sodom a natural gas plant or a coal plant?

It's a natural gas plant, and it actually went live last week.

Oh, so your costs are really going to come down because natural gas is much cheaper than coal, I believe. Is that correct?

Oh, absolutely. Yes. It's going to take a little bit of time because some of our capabilities now are to sell electricity to external customers. So most of the savings comes from additional capacity that we can sell to externals. It's a 230-megawatt station, and we need about 150 internally. So we're going to sell the rest of the capacity to additional clients, and that's going to bring costs down. It's going to take us a few months, but it will happen. We are already using 52 megawatts of natural gas at this point, so it's not all a conversion. Some of it is conversion, and some of it is additional capacity.

So roughly 1/3 of the capacity will be able to be sold to local customers at a benefit to you?

That's correct. Actually, we're already selling to the system, to the electrical -- the Israel electrical system. But in order to get premium price, we want to sell to external customers.

My third question was, is your loss in England an operational loss, including the write-off? Or is that a cash outflow? I wasn't clear.

To be honest, it's sort of a mix between R&D and operating and CapEx all together, but we're just recording everything as an operating loss. We recorded about GBP 50 million in the first half of the year, and probably it will be more than GBP 20 million in the second half of the year. But we're finishing -- but we're going to ramp out of the year breakeven. So it's about what happened in Spain last year, something very similar.

Thank you. There are no further questions at this time. I would now like to hand back for closing comments.

Thank you, everyone, for joining us again today. And if you need anything, we are here, looking forward to see you again. Bye-bye.

Thank you very much. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.