Ladies and gentlemen, thank you for standing by, and welcome to the ICL analysts conference call. Our presentation today will be followed by a question-and-answer session. [Operator Instructions]. I'd like to hand the call over to the first speaker today, Ms. Peggy Tharp, Vice President of Global Investor Relations. Please go ahead, ma'am.

Thank you. Hello, everyone. I'm Peggy Tharp, Vice President of Global Investor Relations. I'd like to welcome you and thank you for joining us today for our quarterly earnings conference call. The event is being webcast live on our website at icl-group.com. Earlier today, we filed our reports with the securities authorities and the stock exchanges in both the U.S. and in Israel. Those reports, as well as the press release, are available on our website. There will be a replay of this webcast available after the meeting, and a transcript shortly thereafter. The presentation, which will be reviewed today, was also filed with the securities authorities and is available on our website. Please be sure 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. The company undertakes no obligation to update any information discussed on this call at any time. We will begin with a presentation by our CEO, Mr. Raviv Zoller, followed by Mr. Kobi Altman, our CFO. After the presentation, we will open the line for a Q&A session. Raviv, please?

Thank you, Peggy, and welcome, everyone. I'm pleased to report yet another quarter of strong results driven by our specialty businesses, which reported record results again and represented 53% of total EBITDA. This exceptional performance was augmented by commodity price upside, as our sales in the quarter were equally supported by increased demand and higher prices. We are currently well on track to achieve our strategic goals. On Slide 3, you can see some highlights from each division. Industrial Products' record quarter was driven by increased demand for our specialty product offerings and supported by long-term contracts, as some of our customers would rather purchase bromine compounds from us versus producing their own. For potash, during the quarter we successfully completed both our 1-week annual maintenance shutdown at the Dead Sea and the ramp project in Spain. Phosphate Solutions delivered a record-breaking quarter across the board with strength in both specialty food phosphates and industrial salts, combined with higher commodity prices. Innovative Ag Solutions showed sales growth across all product lines with higher prices and volumes. We also completed the acquisition of Compass Minerals South American Plant Nutrition business, and while I'll talk more about this exciting news a bit later, I'd like to turn to Slide 4, where you can see just how important this acquisition is to our leadership strategy. While our acquisitions in Brazil will help to provide seasonal balance between the Northern and Southern Hemispheres and provide opportunities to expand our product reach, they will also firmly establish our agriculture business as a leader in the specialty plant nutrition and move us even closer to our 2025 targets. Our food business is also expanding as we continue to focus on food specialties. In the second quarter, alternative protein sales were up significantly, as we are seeing…

Thank you, Raviv, and to all of you for joining us today as we report significant improvement in year-over-year results, which Raviv just reviewed. On Slide 13, you can see that in addition to our continued operational outperformance, we also maintained our financial strengths and delivered continuous growth in cash generation. Operating cash flow of $242 million was up $65 million over the second quarter of last year and up $105 million for the first half of this year. Free cash flow also improved significantly in the quarter, up $74 million year-over-year and also up $105 million for the first half of 2021. Our net debt-to-EBITDA ratio improved to 2.1x from 2.4x in the first quarter of this year and second quarter of last year. This is good improvement, and we expect to make further progress even as we make strategic acquisitions. During the second quarter, our investment-grade credit ratings were reaffirmed. On June 21, Fitch reaffirmed our senior unsecured rating at BBB minus and provided a stable outlook of our long-term issuer default rating. Just a few days later, on June 23, S&P reaffirmed our international credit rating and senior unsecured rating of BBB minus. Specifically, Fitch called out our strong business profile, which stems from our strategic assets in the Dead Sea, stable earnings due to our leadership in bromine, our focus on increasing sales of specialty products and our efficient diversification of geographies and end markets as well as our strong liquidity. For the second quarter, our liquidity increased slightly over the first quarter. And on June 30, we had approximately $1.2 billion available. As you know, we closed the acquisition of Compass Minerals South American Plant Nutrition business on July 1 and funded the purchase through our cash generation and through the monetization of some nonoperational…

[Operator Instructions]. Our first question comes from the line of Alexander Jones of Bank of America.

Three questions, if I may, please. A first on potash in the context of the guidance, clearly, guidance has gone up and potash prices arguably have gone up even further. So could you give a little bit color behind what potash price you're assuming in your guidance or what average selling price you're assuming for the second half so we can contextualize that versus the spot market? The second question also on potash is around the cost side. I think cost is perhaps slightly higher than had been expected this quarter. Is that just a freight issue? Or is there anything else you'd like to call out there? And how should we think about the evolution of costs in potash going into the second half of the year? And a final question on Industrial Products. Raviv, you mentioned that the Chinese market has been exuberant, and you would expect some normalization there over time. In your pricing this quarter, how much of that pricing benefit reflects that exuberance? Or should we not expect much downward correction in your pricing even if the Chinese market normalizes a little bit?

Okay. Thanks, Alexander for the questions. I'll ask you to repeat the third question because I couldn't hear it all. In terms of potash prices, last quarter, as we spoke to you, we were sold out through almost August. Now we're sold out through October. So we actually know the realized price for Q3, and it's coming in at about $297 in comparison to $251 in the second quarter. So that's on third quarter potash. In terms of costs, you have the breakdown in the presentation in the appendixes, so you can see everything. Other than higher freight costs and energy costs, there's nothing out of the ordinary to call out. And could you repeat the question about exuberance in China just so I'm sure I answer the right question.

Yes. Just on your pricing benefit in Industrial Products, how much of that is reflecting the significant rise in Chinese spot prices? Or how much is that just the sort of gradual innovation mix benefit over time? Just to get a sense of if the Chinese market does correct as you think it might, should we expect pricing to come back down a little bit for that division?

Okay. Great question. The spot market, prices are going up. Most of our business is not spot. In fact, 90% of our business is compounds. So even if it comes down, there will be very, very little effect on the results in the coming months.

Your next question comes from the line of Vincent Andrews from Morgan Stanley.

This is Will Tang on for Vincent. I'm just wondering if you guys can talk about your raw material costs. I'm wondering if any of these raw material constraints have impacted you on the volume side in any of your segments thus far? And how has that raw material picture kind of developed into the second half of the year so far?

Okay, so the raw material issues are related mainly to our phosphate and Industrial Products division. On phosphate, the issue is sulfur, and you're all familiar in the market prices of sulfur. So sulfur prices were going up, and they're not at this point. So we pretty much -- we've consumed the effect. There was some -- there were some issues regarding our ports in Israel that sulfur got held up coming in. So we had some logistic issues. But in terms of pricing, everything is well known. On the side of Industrial Products and raw materials for bromine and phosphorus, the current increases that we experienced in the past few months have been passed on to our customers. The market is such that there's excess demand. And in fact, as I mentioned in the last conference call, unfortunately, we could not supply all of the demand, and we had to turn down customers in the second quarter to an extent that we don't like. We've debottlenecked a little and got through some complex logistic issues, and we have a little more capacity in Q3. So we hope that we don't need to turn down customers. It's never good to turn down customers. But raw materials pricing is not an issue for Industrial Products because of the market dynamics or demand dynamics. The issue was actual availability because of force majeure of certain raw materials. And fortunately, that's behind us. It created some issues for second quarter logistics, but we're past that right now. I hope that answers.

The next question comes from the line of Geoff Haire of UBS.

I just had a couple of questions. First of all, I was wondering if you could help us with what the contribution from Compass Minerals will be in the second half or on a full year basis going forward. And also, can I just ask how the ESG targets that you've outlined there, the sustainability targets, are linked into management compensation?

Okay. So on Compass, Geoff, on Compass we modeled $45 million of adjusted EBITDA contribution for the second quarter. I don't want to talk about 2022 at this point because it depends on the synergies that we will target for 2022, and we're going to make -- we're going to build our model based on the first few months. We're more focused on a clean integration and not disrupting the existing business. So that's the model for the second half of the year. And it's not a linear model. So that doesn't mean -- it reflects about 90 for the year. Brazil is second-half oriented, second half of the year. So 45 means about 55 or 60 for the year. That's in terms of this year. In terms of next year, again, it depends on synergies, and we'll get back to you on that. On ESG, we have quite a few targets. Of course, we've adopted a zero-neutral policy for 2050. We also adopted a policy of 40% renewable energy by 2040 and 30% decrease in greenhouse gas emissions by 2030. We also have some other ESG targets regarding diversity, regarding water savings and circular economy, regarding safety and some others. All of these, we have 9 KPIs altogether, have annual targets, and they're part of management compensation. Each one of the GC, which is the executive management committee in ICL, each one of us has those KPIs in their remuneration. It's a certain -- it's a different component depending on -- it's a different component of the bonus schedule for different people. But we each have those as team goals and we each get compensated based on achieving those goals, and we intend to achieve those goals.

The next question comes from the line of Joel Jackson from BMO Capital Markets.

I had a few questions. I'm going to ask them one by one. Raviv, I thought you said on a question -- earlier question on this call, that the potash realized price for you was $251 in Q2, and things are trending to be about $297 in Q3. But I mean, you reported $281 per ton for potash in Q2. Can you just reconcile that, please?

Yes, $251 is FOB. It's FOB, it's our realized price and $281 is priced before freight and others.

Okay. So if we can expand upon that, you're seeing that before freight pricing is now averaging about $45 to $50 a ton higher in Q3. That's right?

Correct.

And then what would be either higher freight costs you're seeing in Q3 that might scrape away some of that?

No, no, the $297 is after freight cost. The -- we already know the realized freight cost, which is about $39. So it's $336 before the freight costs coming to $297. So the first quarter was $238, the second quarter $251, not a big change. As I mentioned, in April, we were sold out through July. And in the third quarter, it's $297, which is net of $336. And fourth quarter, we expect, obviously, higher numbers.

Great. That's perfect. Okay, that's good on that. Can you talk about polysulphate in the first half of the year? You gave some volumes. Volume is up a lot now. What's the contribution on earnings? And when do you think it could be profitable in that business?

It's a good question. And as we stand right now, our production level in the second quarter was a little less than 200,000 tons, which is behind budget. We were planning to produce about 220,000 in the quarter. The good news is that we sold more than we expected in the quarter. We sold about 180,000 tons which was well above our original target. Unfortunately, some of those sales were fixed in the beginning of the year at lower prices than we currently realize. And so unfortunately, we didn't have a good result in the second quarter. We lost over $10 million in that business in the second quarter. We're still ramping up. We're still looking at improvements on two dimensions: one, increased production, which we're pretty sure of. And the other is demanding a higher premium on the product. The problem with the contracts that were settled early on in the year is that we, of course, didn't expect such high transportation costs. And when you have low price per ton and the transportation cost per ton is fixed no matter what the pricing of the product, then it hurts low-priced products. So that will give you a little bit of color. And of course, we'll report on progress in the continuation of the year.

That was really good color on that, Raviv. And just my final question, so I look at your potash inventories, they're quite low. Obviously, you had some downtime in Spain. Are you going to build inventory in potash here? Or are you going to try to run really low to add a bit more capacity into Spain as '22 comes on?

First of all, we have to prove the 1 million tons towards the end of this year. And then we have the next ramp-up is to 1.3 million tons. We're at an all-time low level of inventory in the Dead Sea because the market is undersupplied, and there's excess demand. And pricing is very, very attractive. You know about Brazil. Our last sale in Brazil, I believe, was $620 hundred. In the U.S., our last sale, I think, was $540 per ton -- per short ton. So that translates into about $600. And just this -- over the weekend, we -- our last sale in Thailand was also $600. So at $600 for potash, we don't intend to hold inventory. There's nothing to wait for. And so that doesn't mean that the price won't go higher. It just means that as long as we have enough inventory to operate, we'll go as low as we can.

Your next question comes from the line of Duffy Fischer from Barclays.

This is Sean Gilmartin on for Duffy, just a couple of questions from me. I guess first one, tagging onto, I guess, an earlier question, is there any way you can give a sense of how much production and IP you guys had to kind of curtail because of raw materials?

I'm not sure I can give you an exact answer in tons. I can say that the missed opportunity in sales was around $40 million. In sales, which comes out to over $10 million in operating income on average, which means on margin is higher.

Got it. That makes sense. Appreciate that. And then second question, just around generally your take around the phosphate market as we sit here today. If I asked you to give kind of a 12-month view looking out into the middle of next year, do you get a sense that we're at peak spot pricing now? Or how do you see that market unfolding over the next 12 months?

Honestly, I don't know better than you guys do. It's everybody is looking at the current state of the market and not seeing -- not seeing any reason for prices to go down. At the same time, the prices are highest they've been for many years, and sulfur is not going up anymore, and sulfur is a catalyst for prices going up. So I think the marginal catalyst now is freight costs. Freight costs are still going up. And as long as they go up, there's sort of a demand orientation in the atmosphere in the market. So I can tell you that everybody around me is talking about prices stabilizing to going up. I don't hear people talking about prices going down. Analysts are revising their assumptions. So analysts had thought the second half of the year, there would be a significant downturn, have moved up their predictions. But the short answer is I really don't know. I can tell you that we're sold out on phosphate until the end of October.

Your next question comes from the line of Laurence Alexander from Jefferies.

This is Dan Rizzo on for Lawrence. Have customers' supply chain constraints affected demand or delayed sales in any way, particularly in the industrial segment?

Yes. As I mentioned before, we had some raw material issues due to force majeure and some other logistic challenges, they didn't -- that didn't last for very long. We found alternative supply. But that sort of comes into the missed demand or missed sales that I referred to earlier.

Okay. And then you mentioned, I think, doing some debottlenecking. I was just wondering how much capacity do you expect that to add?

We are going to add a few thousand tons. It's going to be north of 5,000 and the south of 10,000, but that's what we're talking about, within about 1 year, yes [indiscernible].

Okay. And then finally, have you given what your synergy targets are overall for the CMP acquisition?

No, we haven't. It's too early. And the big question is not what the total synergies could be, but rather the timing of the synergies in terms of their effect on our results in the coming couple of years. So we will give transparency on that at the later part of the year.

Your next question comes from the line of Kyle Quant [ph] of Citigroup.

Thank you for the opportunity to ask questions. I've just got a couple if I may. On the Industrial Products, I wonder if you'd be able to give an indication of the weighting between sort of bromine-based products and phosphorus and magnesia based? Just to get an idea of relative weighting, that would be great. And then secondly, on Phosphate Solutions, your stated aim is to become more specialty based. Yes, aim to be a bit more specialty based. But with commodity prices where they are, you actually -- it results in a bit of a higher margin, actually. And would you -- might you pause that move for now and focus a little bit on commodities, whilst the commodity prices are as high as they are?

Okay. So I'll start with phosphate. Look, our strategy is to increase our specialties, if we can, above and beyond commodities. So if it's alternative proteins, we don't need additional phosphate capacity for that. And so we're growing that business separately. But for our given capacity of phosphate production, we would rather increase our specialties component to 70%. We're very certain that in the long run, on average, specialties will be more profitable and also more stable, and we have unique value-added products. We're creating tremendous amounts of new innovation. In fact, our internal accelerator, which we call BIG, in the past 1.5 years has created additional future EBITDA at a run rate of $80 million, and about half of that is coming from the phosphate division. So we think that the right strategy is to be as competitive as we can, where we are global leaders. We have about 25% of the global phosphate specialty market, and we want to increase that share. And we want to increase the value-add of that share. So that's on phosphate. That doesn't mean that if we have an opportunistic situation that we can leverage on, and we can take steps in the short run, to benefit, and we do so. It's rather marginal, but we do so, and we could consider. But the strategy with specialties we're very determined. On Industrial Products and the product mix, about 75% of the total business is bromine related, of which 10% of that is bromine and the rest is compounds. And then about 10% -- about 20% of the business, a little less, about 17% or 18% is phosphorus related and the balance is the specialty minerals.

Your next question comes from the line of Joel Jackson from BMO Capital market.

I just want to follow-up on the Brazilian acquisition. So obviously, you've covered Compass. I've covered Compass. So we've got that segment in our model. You didn't buy the chemical side. I think you misspoke, Raviv. You said that it did $45 million in Q2. Is that what you think it's going to be in the second half of the year?

Second half of the year, yes.

Okay. And that business did about $60 million for Compass. Of course, you didn't buy the chemical side, which is a smaller part of it. What's kind of the growth you're seeing in that business? Because -- and then I also want to ask a question about Compass really struggled on that business to get any kind of growth there. There was some currency pressures. It wasn't a natural business for Compass. It might be more of a natural business for you. What can you do to get better results out of that business?

Okay. It's a great question. First of all, I think that the basic difference is that for us, the Compass Plant Nutrition business that we acquired, which now is called ICL America do Sul, is a part of our core business, and it was nowhere near any part of the core business of the previous owner. And I think that means a lot because it's an extension. It's a new extension of our product distribution capability. It's bringing into our organization additional expertise, additional R&D, additional relationships with customers. So given that some of our products we currently don't sell in Brazil, not because there's a lack of demand, but because we don't have the right distribution system. And in some cases, we don't have the ability to produce locally. That's definitely going to pick up. And in the case of our new business, it's an amazing business. It has direct distribution to 50% of its customers, which means that it allows us to get closer to the customer, and we're becoming a very customer-centric organization that can create a lot of added value. And we want to get closer to the customers. So the synergies are everything from global procurement, which allows better procurement of raw materials, to information exchange on R&D to direct distribution of some of the products that don't go to direct distribution today. In some cases, don't even go to distributors, but go to importers, so we can do better on that side. And of course, this is all just the beginning. We just acquired the company. The company is already growing this year. It's growing at over 20%. I take that some of what you said has to do with the fact that the currency is -- the currency has fluctuated in a bad way over the years. And so their growth sort of disappeared, because the local currency was weak. But we can't predict the future in terms of what happens to the currency. The company is growing very, very nicely in local currency, and like I said, over 20% this year. Their performance in the first half was above the budget and above the model that we used. And so we're very happy with the beginning. Again, it's M&A. Integration needs to be seamless, needs to be responsible. We don't want to disrupt something that's working very, very well. So we're working with the local team that we think are an amazing group, together, in order to figure out what makes sense in terms of potential synergies. Everybody is excited, like any new adventure, and we want to do it carefully, responsibly and get the most out of the acquisition.

We have no further questions at this time. I will now hand the call back to Dudi.

Thank you. Thank you, everyone, for joining us. And we will be available, Peggy and myself will be available for any question that you have any time, and we'll see you back here next quarter. Thanks.

That concludes the conference for today. Thank you for participating. You may all disconnect.