Ladies and gentlemen, thank you for standing by, and welcome to the ICL Analysts Conference Call. [Operator instructions] I must advise you that this call 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, miss.

Thank you. Hello, everyone. Welcome and thank you for joining us today to our first quarter 2019 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. The presentation that will be reviewed today was also filed with the Securities authorities and is available on our website as well. Please don't forget to review the disclaimer on Slide number 2. There will be a replay for the webcast available a few hours after the meeting and a transcript will be available within a few days. 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. Today, we will begin with a presentation by our President and CEO, Raviv Zoller; followed by Kobi Altman, our CFO. Following the presentation, we will open the line for the Q&A session. Raviv, please.

Thank you, Limor. Good morning, and good afternoon, everyone. Following our strong performance last year, 2019 also started on a positive note, and the Slide 3 brings you this quarter's main highlights. After excluding Q1 2018's divested businesses, sales increased by 4%. Most notably in parallel to the increase in sales, our profit margins increased significantly, leading to a 65% growth in our adjusted operating profit. That growth in margin expansion was a result of strong performance in all three mineral value chains as we continue to execute our strategy and benefit from cost synergies following the realignment of our business divisions. I'd like to note that this performance was achieved despite headwinds in some of our businesses, especially in our Innovative Ag Solutions division as well as unfavorable conditions in the commodity phosphate market. Our adjusted earnings per share of $0.12, excluding divestments, is 42% higher than in Q1 2018 and 21% higher sequentially. Operating cash flow, which was almost five times higher than in the same quarter last year is supporting our CapEx requirements this year and allowing us to distribute a first quarter dividend of almost $0.06 per share, representing a solid annualized dividend yield of above 4%. As you can see in the table presented on Slide 4, almost all our key financial metrics demonstrated growth over the same quarter last year and sequentially on an adjusted basis, when calculated excluding capital gain from the divestments in Q1 2018. Adjusted operating income and EBITDA grew by 65% and 40%, respectively, and adjusted net income grew by 43% compared to the same period last year. Let's move on to the performance of our four divisions, starting with Industrial Products on Slide 5. Higher prices and sales volumes for most of our products, along with our market leadership…

Thank you, Raviv, and good day, everyone. Moving to Slide 11 for discussion on the financial of another great quarter for ICL. Excluding the contribution of the divested businesses to Q1 '18, our sale increased by 4% driven by higher prices throughout all our mineral value chains, and despite a negative impact of 3% from exchange rates, mostly from the devaluation of the euro. The relatively modest contribution of quantities is mainly attributed to a decrease of 100,000 tonnes in potash sales volume, as Raviv mentioned earlier. Slide 12 demonstrates a notable achievement of growing our adjusted operating profit by 65%, mostly driven by higher prices. About half of the price contribution can be attributed to our value initiatives in the Specialty businesses. Our new gas power plant in Sodom contributed to lower energy costs. Though it should be noted that during summer when energy costs are usually lower, we expect the contribution to be more moderate. The negative impact of exchange rates on sales was reversed in the operating profit with a small contribution mainly due to the decrease in cost in dollar terms, due to the weakening of our main production currencies, the Israeli shekel and the euro. This demonstrates another aspect of our balanced business and global span. I would like to emphasize that despite the increase in sales, reduced cost of sales, sales and marketing and G&A expenses, resulting in a significant increase in our profit margins. Contribution of set-offs and eliminations in the amount of $24 million also includes capital gain from the sale and leaseback off office buildings in Israel and from the sale of a plant in New Mexico. As shown on Slide 13, in this quarter, we did not experience significant fluctuations in our effective tax rate, which should range between 24%…

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Vincent Andrews at Morgan Stanley.

This is Jeremy Rosenberg on for Vincent. I was wondering if we could start out just on India and China. Just get your thoughts on kind of basic contract negotiations playing out over the next few quarters.

Okay. The contract negotiations we think will effectively start sometime around beginning or mid-June. Inventory levels in China are relatively high still. Inventory levels in India are lower. So we may see a little bit more of what we saw last year in India, they'll want to progress faster. But other than the starting point, which is expected in June, there's no clear time line at this point.

Okay. Then if I can just ask a follow-up, just on Phosphate Solutions. It looks like in the press release, you're talking about some strong pricing there. But obviously, just that operating income level looked a bit light. I'm just wondering if you could maybe just frame up the drivers for phosphate. And kind of how you see that market trending over the next couple of quarters.

In terms of specialty phosphates, which is where we're focused, we saw prices going up in Q1. The demand is strong and the businesses are doing very well. In terms of margin expansion on Specialties, we weren't able to achieve any significant margin expansion this quarter because we closed relatively long-term contracts for raw materials in the second half of last year, but we're still trending positive. And due to the higher prices, which more than compensated for higher raw material costs, we'll see some additional margin expansion on the specialties moving forward. In terms of volume growth, we didn't see volume growth on specialties, but that has to do with 2 specific parts of our business: One is white asset sales in, white phosphoric acid sales in Brazil because of competition coming in from China. And our dairy product business we had a production halt, which was partly planned and partly not planned. So we lost some volume there, but will come back in the latter part of the year. Other than those 2, if those 2 didn't exist then we would see, we would also see volume growth on the Specialties during the quarter. On the commodity side, there is pressure in the market. Prices have been spiraling down pretty quickly in the first quarter. It seems like we're getting a little closer to the bottom because recent pricing change has been relatively minimal. And we've seen production being cut from U.S. producers and Chinese producers. So it seems like the market is going to sometime soon hit a bottom and stabilize. In terms of the profitability since raw materials, specifically sulfur is also, prices have declined significantly, than the margin hasn't been affected that much by prices going down.

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

This is Bria Murphy on for Joel Jackson. Just with Industrial Products, we saw a large step up in overall earnings levels in margins there in Q1. How sustainable is this, I guess, going forward into Q2 and the second half? And should we expect, I guess, similar earnings levels in margins?

Okay. If you look at the last few quarters, then you will see a little step-up from quarter-to-quarter. But Q4 are actually down a bit. So a little bit of the great results of Q1 comes from the end of Q4. There was some less optimism in China, I guess, on the basis of U.S., China trade issues. And some buying from China got delayed from, especially for flame retardants, got delayed from December to January. So maybe if that didn't happen, then we would have seen in this quarter a profitability number in the high 80s and not in the high 90s. But other than that, the margins and the growth of the sales are reflective of the trend.

Okay. And then just on Polysulphate. Does it make to sense to continue to invest here given, I think, Sirius are now looking at increasing their available capacity in the product?

It's a good question. We've said in the past that our Polysulphate business is dependent on developments there. Sirius Minerals have been very creative in the ways that they keep coming back to the market and trying to raise money. There was supposed to be a resolution by the end of March, but they were not able to get the relevant financing and government backing. So they've created a deal, which is quite complex to understand, but they did an immediate raise, which probably gets them through a very short-term period. And they have a contingent raise, which has 3 or 4 different parts to it and is based on future covenants for presentations and we will only know sometime around September, which I understand is the plant closing, what they've been successful in doing so the way we're looking at it is the serious situation will be better understood sometime around September. And in terms of our decision-making, we have to take into account that it will be 3 or 4 years until any product, any significant product comes in from Sirius. And that has implications on, given the size of the market, has implications on the pricing and other issues. So we will definitely have to look at the, monitor the situation and make decisions sometime after we see what happens in September. Again, different development didn't happen at the end of March, it happened at the end of April. Clearly, not what was planned. They raised money. The equity portion was raised at a 30% discount to market. So it's a stressful situation there and we're looking to see how it develops.

Our next question comes from the line of Mark Connelly from Stephens.

This is Joan Tong up for Mark Connelly. And I have a quick question regarding your Innovative Ag Solutions segment. Obviously, two quarters in a row that we saw revenue decline and you mentioned, a host of like reasons for that. And then you also mentioned some segment realignment initiatives. Can you just give us some details, how you would see the company is going to achieve faster growth like over the medium term?

Sure. First of all, there are internal and external issues. So the external issues that affected the past couple of quarters have to do with agriculture in various regions. And specifically in this quarter, the wet season in the U.S., which lasted longer. And fertilizer application, which to this point of the season is much lower than a typical season. Also the same happened in Israel, the fertilization season that usually starts around the end of February, started at the end of April. Israel is over 15% of our revenue. The U.S. is about 25% of our revenues. And the most -- and most of the rest comes from China. So that's the external part. The internal part has to do with the fact that the business is based two third on products that we produce. And one third on products that we trade. And it's also based on three or four local businesses. Israel is one of them and Spain is another and the U.S. is another. And we also have specific turf in the Specialty Plants business. And what we're trying to do is internally to streamline that business -- those businesses into one, global business, which is coordinated and cost-efficient and managed by the best people in the organization. There is an internal process that we're going through. And we're also developing new markets. So we actually did very well this quarter in building our business in Brazil, India and China. In all those territories we're very, very small but we started to grow. And based on our initial activities in those regions, we plan to create some production especially blending and coating capabilities in those geographies and build the business there. And also we're working on potential M&A that will give us more coverage in those regions that are exciting in our view and I just mentioned them. Like I can add also Australia, maybe also South Africa because we have very little southern hemisphere. And also we want to create critical mass in those regions or countries where we have an existing infrastructure. We're relatively small. So we make a very nice gross margin, but operating margins are low. So net-net, taking out the noise of the agriculture season, which should come back, most of it should come back later in the year, we're going through a lot of internal process. And while we're very focused on growing the business that has to do with our own production, we're actually getting rid of some of the trading business because it's not a profitable business. And that's part of our realignment. And what we achieved during this quarter is we put together the global sales organization in place. And we still have a lot of work to do to get to where we want.

That's very good. That's very helpful. And then just a follow-up on the phosphate. YPH JV and, for the quarter, I think, you mentioned, you did, like over $5 million in profit. Can you just remind us like what's the target over the medium term the next couple of years? And would you characterize that, like, you actually have some accelerations in terms of like getting better performance because of the maybe early success that you've seen some in that particular operation after the adjustments that you made recently?

Okay. Just, in a nutshell, all the improvement that was achieved, which basically was from 0 to $6 million of profit, and this also follows last, last year, basically the goal was just to get the company from the red to the black or to the green depending on where you come from. This year, we're focusing on just finalizing some of the efforts we started last year and just having a healthier business as it is. But at the same time we're investing in the future. And that means investing in the Specialties business and we're doing in that in 2 ways: One is we're building a specialty white phosphoric acid plant, and that will be put in place by the end of this year, plus/minus a couple of months. And the other thing that we're doing is we've created a process in our existing plant to create MAP specialty fertilizers for our own use. We started business in China and specialty fertilizers by basically trading, which means selling others' products mostly. And what we're doing is, we've taken some of our know-how and created local capabilities to create specialty fertilizers in our existing facilities in China. And that's, we actually, I think, we've updated last time that we went through technical production, innovative process that was not so successful. And we revisited that process and on second trial, we actually achieved our goals. And now, we've moved from trading Specialty Fertilizer projects to the, from selling specialty products traded in China, are trading in China, we're selling our own products now in China. And that's also going to create additional margin expansion. So that means for the JV that the JV is going to be a supplier of our Specialty Fertilizer business in China. And that's one way of growing. And the other way of growing is going to be a supplier and a revenue provider for specialty phosphate products once the new plant is put in place.

Our next question comes from Laurence Alexander from Jefferies.

This is Nick Cecero on for Laurence. So just in regards to bromine prices in China, I was wondering if you can provide a bit of color as to how much capacity you might expect to be affected by the increased environmental regulations. And with the stricter regulations, is there a chance that some of the capacity shut down indefinitely?

Yes. First of all, the situation is that we need to remember that the resource is depleting in China. So the question is not what happens, but how fast it happens. And as far as we're concerned, we're not hoping for very, very fast changes because we're happy with things the way they are. It's not only that the resource is depleting and that there is pressure on the spot market in China, but also Chinese producers that have resource are actually reaching a point where they need to mix, in some cases, their bromine with bromine coming from other countries in order to reach the quality they need for the compounds. So the situation is that there is more potential for long-term deals. There is more pressure on the spot market. And as time goes by, there is more dependency in China on bromine and bromine compounds coming outside of the country. So there is resource depletion. There's no additional resource coming online, any meaningful resources coming online and, other than some limited resources coming online in India, which is not enough to substitute. And that means that the market share for the existing players in the market is growing.

Our next question comes from Tom Wrigglesworth from Citi.

Couple of questions. Firstly, on the clear brine fluids, there's been, business has been good. But has any visibility increased or improved with regards to how that brute clear brine fluid demand might continue? Second question, if I may, on the G&A, just looks like the Phosphates business carries more than its share of G&A relative to the profit that it produces. Is that something that is structural to that business? Or is that something that you'll be looking to reduce going forward? Those are my 2 questions.

Okay. I'll start from the second question because it's, I think, it's more of a technical issue. We moved to reporting according to segments, and the Phosphate segment has been realigned and actually took out a lot of cost. But given that we want to be as clear as possible on the business and given that there is some elements that when you distribute the cost, it works on the basis of relative revenue then, it seems like the Phosphate division got a few million dollars per quarter more than maybe in the way we've looked at the business in the past. That's actually a good thing because that's where we have a lot of cost-cut potential. So I think that in the future, you'll be able to see some of the progress that the division is making in the G&A expenses. So it's a little technical. I think that though, from an economic perspective, there hasn't been a growth in the G&A cost. They've actually gone down. You can see that the selling costs for the division have definitely gone down. That's on the phosphates. Just can you remind me the first question?

Then -- there was on the clear brine fluids. Yes.

Okay. Thanks. We need to keep in mind that clear brine fluids, we've talked a lot about them because -- in the past few quarters, because we've been surprised by the strength and we keep on getting surprised every quarter, but to put things in proportion, we're talking about less than 15% of sales. And the potential fluctuation is not 100% of those 15%. It's relatively small given that there is a strong basic fundamental long-term demand. The situation in recent months has been that there's not enough product, there is not enough supply in the market. And our competitors have not been able to supply the need. And so a lot of excess capacity of demand somehow comes to us at the end. So we've been very fortunate that we can create additional product. And as far as we can see, the first quarter was exceptionally good. But then again, before that, the fourth quarter was exceptionally good. I can only tell you that we don't see any indication that there is any significant change in the market. I think strategically speaking, I don't see any new sources of new product coming in from the supply side. So what can change the dynamics in the market could be a very strong drop in oil and gas exploration, which is probably a function of gas prices and oil prices. So if you see a tremendous drop in oil and gas prices, that will probably affect us. But we don't see -- we don't have clear visibility because either relatively short-term deals, so we don't have very clear visibility. Even though it's called clear brine fluids, we don't have clear visibility. But from what we see, we don't see the level of activity changing in any significant way, at least, since we're now in May, we haven't seen any significant change until today.

Maybe just to clarify the fear that Raviv just mentioned, you said that, less than 15% is -- less than 15% of the segment sales, that's what we meant.

Sure. Sure. And just as a follow-up, you called out in, with regards to Polysulphate, your ability to sell into India now. Is that an important step? Is that going to be a meaningful market for Polysulphate going forward? Could you help us to understand the dynamic there?

Yes, absolutely. We're developing a market that basically doesn't exist. And I think, in October, we've got through the licensing to sell into China, and so we're selling very nicely into China. And just a little more than a month ago, we've got, we finished going through the licensing process in India. And definitely one of the top 4, 5 target markets for us.

Okay. And, in the medium term, what's been the long-term potential of markets like India or China are for this product? Millions of tonnes or hundreds of thousands of tonnes?

It's closer to hundreds of thousands of tonnes for each of them then to millions of tonnes.

Our next question comes from Patrick Rafaisz from UBS.

First, 2 follow-ups on Industrial Products. From the comments you've made so far, I gather the benefit from the volume shift of some flame retardants from Q4 into Q1 have been around $10 million. And can you also quantify the delta from clear brine fluids? And from the higher prices in elemental bromine, if that's at all possible?

Most of the shift from Q4 actually wasn't clear brine fluids. Most of the shift was flame retardants business. And I think it has to do with the planning of electronics component plants on production going forward, given potential trade issues between U.S. and China. So we don't think there is any significant shift in clear brine fluids from the fourth quarter...

No. I think, I'm sorry. I wasn't clear with my question, I'm sorry for that. What I meant was the benefits on your operating profit for the division from that shift, I think, was around $10 million, right? Because you said high 90s versus high 80s.

Yes. I said it would have been high 80s and not high 90s, probably.

Exactly. And I'm just wondering, comparing to prior year Q1, what's the delta in clear brine fluids EBIT? And what will be the delta, if that's possible, to quantify for higher elemental bromine prices, on EBIT?

We are not selling a lot of elementary bromine. So less than 20% of our sales is elementary bromine. And also the focus on prices has to do with the effect on the whole value chain, and not on elementary bromine. In terms of the profitability levels, the various compounds, including clear brine fluids, have relatively similar levels of profitability. So you don't need to worry too much about the internal mix. I should point out that we highlighted the price and quantity effects on Q1. You can see that the price effect on profitability was about $20 million. But actually about $17 million from that comes from bromine products, in general, because about $3 million comes from higher prices in our phosphorus-based flame retardant solutions.

Okay. That's helpful.

So basically, you can also see, I think, $14 million or $15 million increase in quantities. And that would actually be about $3 million more, about $17 million or $18 million of higher quantities as we lost some volume on phosphorus when we raised prices. So the quantity growth in bromine is a little more than you can get from the financials.

Okay. Very helpful. Then you already talked a bit about this during the presentation, but can you explain in some detail the breakdown of the set-offs, the eliminations in the EBIT bridge? What are the main components? And how should we think about that for the rest of the year?

Yes. What we had there this time was mainly the settlements in the, on the royalties, the final arbitration decisions. You have it there. And the second one is sale of leaseback building that we have done in Israel. And we booked some capital gain as a result of that. That was the main component. Going forward, if you take out the 2 components that are more unusual, we don't expect significant figures in this set-off and elimination line.

Okay. The royalty settlement you mentioned that's the $11 million-or-so that you announced in the press release? Or, information.

$11 million, yes.

We have no further questions at this time. Please continue.

Thank you very much everyone for joining us today. We are looking forward to being in touch soon, and have a good day and good afternoon.

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