ICL Group Ltd. Q2 FY2020 Earnings Call

Ladies and gentlemen, thank you for being here, and welcome to the ICL Group Analysts and Investors Conference Call. After our presentation, we will have a question-and-answer session. Please note that this call is being recorded. I would now like to turn the call over to your first speaker today, Mr. Dudi Musler, Investor Relations Manager. Please proceed.

Thank you. Hi, everyone. Welcome and thank you for joining us today on our second quarter 2020 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 report 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 shortly after. The presentation that will be reviewed today was also filed to the securities authorities and is available on our website. Please don't forget to review the disclaimer on Slide number 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 a presentation by our CEO, Mr. Raviv Zoller; followed by Mr. Kobi Altman, our CFO. Following the presentation, we will open the line for the Q&A session. Raviv, please.

Thank you, Dudi, and hello, everyone. Before discussing ICL's highlights for the second quarter, I would like to once again acknowledge ICL's employees globally for their perseverance in light of the challenging conditions brought about by the COVID-19 pandemic that have affected all of us personally and professionally. Due to the efforts of our committed team, we have been able to maintain continuity of our business globally with zero disruptions to our customers, while ensuring the health and safety of our employees. Turning to Slide 3 of our earnings presentation. In the second quarter, we generated positive operating income in each of our segments, as well as positive free cash flow amid a very challenging operating and market environment. I'm pleased to report that these results were actually ahead of our internal forecasts. In fact, they were more or less in line with our results in the first quarter when our business was not materially impacted by COVID-19. Our results this quarter were also supported by record first half potash production at the Dead Sea as output didn't suffer as a result of increased health and safety measures that remain in place today. I will discuss our operating performance in greater detail shortly, but I'd like to briefly discuss how our strategy drives our performance and provide context for some of the actions we took in the second quarter. As we have stated before, ICL is far from a pure-play commodity company with performance tied to commodity and business cycles. While performance within some of our segments can certainly be impacted by these factors, our business is highly diverse and growing more so. Also, while certain of our end markets like oil and gas are cyclical, the vast majority of our revenue is derived from the very durable agriculture and food markets as well as from other various value-added specialty products that ICL produces. We are continuously emphasizing R&D and innovation to drive growth across our value chains and growth opportunities remain significant. In our more commoditized businesses, we are continuously focused on cost efficiency. If we can continue to be one of the lowest cost producers, we can generate operating cash flow even in weak commodity markets and maintain significant exposure to periods where prices are stronger. To that end, we continue to execute on our global efficiency plans and initiatives across all of our segments in the second quarter. Specifically, we reduced headcount in all of our segments, primarily through early retirement programs and took important actions to optimize the footprint of our commodity businesses. We discontinued the production and sales of phosphate rock to third parties from Israel, which does not contribute to the Phosphate Solutions segment's downstream product value chain. We will continue to produce phosphate rock in order to deliver higher-value products to our customers globally, but our cost base will be lower. We also accelerated the closure of potash production in the Vilafruns mine at ICL Iberia in Spain. This was originally scheduled to occur in 2021, but given the potash price environment, we decided not to wait, since our cost per tonne of production will decrease and the savings will drop right to the bottom-line. These actions resulted in charges totaling $297 million in the second quarter, most of which are non-cash charges and the balance will be spread over a number of reporting periods. Importantly, on an ongoing basis, the actions will ultimately result in annual cash savings and enhanced profitability of approximately $50 million commencing next year. Finally, as we announced in June, we have consolidated our crop nutrition sales and marketing infrastructures into a single commercial organization facing the agriculture market. We believe that this structural change, which will not impact our segment reporting, will allow ICL to better leverage region-specific knowledge, agronomic and R&D capabilities, logistical assets and customer relationships, as well as enhance the global operational scale of our crop nutrition business. Our strong financial position and balanced capital priorities provide us with the flexibility to make decisions that we think will maximize our cash flows and create the most value for our shareholders. Our capital allocation priorities remain unchanged and our dividend for the second quarter amounts to about $36 million. The summary of our financial results shown in the table on Slide 4 clearly shows the decline across all financial metrics compared to the second quarter of 2019. This should come as no surprise. As I mentioned, our performance compared to the first quarter of this year was impressive even if our results were not materially different. On an adjusted basis, our results were close to flat quarter-over-quarter and our operating cash flow and net income actually increased. Commodity prices didn't increase quarter-over-quarter; they went down. And COVID-19 brought about operational challenges and the severe disruption in demand from the oil and gas market. I think this is a pretty clear demonstration of the effectiveness of our strategy, our continuous focus on execution and innovation and the diversity of our business. Like many other companies, ICL has been impacted by the COVID-19 pandemic, but the strength of our business model and the critical role of our products play in the food supply chain help us weather the storm better than others. Let's move on to the business performance of our divisions starting from Industrial Products on Slide 5. Segment sales and EBITDA in the second quarter of 2020 decreased by 15% and 19% year-over-year respectively, due to lower demand for flame retardants and clear brine fluids resulting from the negative impact of the COVID-19 pandemic on global industrial activity and demand for oil and gas. Despite the large drop in sales volumes, the segment generated a healthy EBITDA margin of 31% due to an ongoing strategic shift to long-term contracts, a diverse product portfolio and an increase in sales of specialty minerals to the resilient pharma and supplements market. The impact of the COVID-19 pandemic on the segment is expected to continue through the third quarter of 2020 and result in lower demand for clear brine fluids and brominated flame retardants. At the same time, a slight recovery in certain flame retardants for the electronics markets and the European building and construction industry could partly offset the overall negative impact on this segment. Turning to Slide 6; we achieved record first half potash production at the Dead Sea, following the three-week production shutdown in our facilities for capacity upgrades in the fourth quarter of 2019. However, production gains were offset by lower production at ICL Iberia in Spain caused by disruptions to operations due to the COVID-19 pandemic. Based on our prior production forecasts, we measured the negative impact of COVID-19 on the potash division to be about $23 million in the second quarter, mainly in ICL Iberia and ICL UK. Currently, our sites are operating as planned and we do not see a very significant impact from the COVID-19 pandemic on the segment's results in the third quarter of 2020. The Potash segment sales and EBITDA decreased in the second quarter of 2020 by 21% and 43% respectively compared to the same quarter in the prior year. Business performance was primarily impacted by a $63 decrease in the average potash realized price per tonne and higher operational costs resulting from the COVID-19 pandemic, partly offset by a reduction in certain costs as a result of the segment's efficiency initiatives and increased production in Israel. COVID-19 also negatively impacted the global end-market demand for magnesium, primarily in the automotive and aviation industries. As I mentioned earlier, we moved forward the consolidation process of activities of ICL Iberia into one site. As a result, production operations at the Vilafruns mine were discontinued towards the end of the second quarter. The decision allows us to speed up the Suria mine development and to improve our future cost per tonne. Sales to our customers will not be affected due to the closure of Vilafruns as the Suria mine is already stepping up production, and with support from ICL Dead Sea, we'll continue to meet the demand of our customers. Production of Polysulphate increased by 38% to 184,000 tonnes and sales volumes increased by 27% to 131,000 tonnes compared to the second quarter of 2019. These increases were achieved despite some operational challenges presented by the COVID-19 pandemic. Nevertheless, we are still on target to reach our annual production capacity run rate goal of 1 million tonnes by the end of the year. Subsequent to the end of the quarter, we announced the expansion of our Polysulphate distribution network with long-term distribution agreements. Following the signing of these agreements, we have contracted an aggregate of 1.1 million tonnes of Polysulphate as part of our strategy to enable and expand the adoption of Polysulphate globally. Turning to our Phosphate Solutions division on Slide 7; the division once again demonstrated the strength of a diverse portfolio, focused on growing specialty business. The segment sales and EBITDA decreased by 15% and 23% respectively year-over-year, mainly due to a sharp decrease in phosphate commodities market prices, partially offset by lower raw material prices. The continued positive operating income of the segment despite the weak commodity price environment and market headwinds reflect strong phosphate specialties performance and ongoing positive operating profit from the YPH JV in China. For the first time, we have broken out operating income for phosphate commodities and phosphate specialties in our earnings report. Phosphate specialties recorded an operating income of $30 million, 20% higher than the second quarter of 2019, driven mainly by lower raw material costs and strong sales volumes of food phosphates. Sales of phosphate commodities were approximately 31% lower than in the second quarter of 2019, mostly due to a significant decline in market prices and lower sales volumes of phosphate fertilizers. This resulted in an operating loss of $22 million compared to operating income of $7 million in the second quarter of 2019. As I mentioned, our focus on cost efficiency in our commodity businesses drove our decision to discontinue the unprofitable production and sales of phosphate rock from Israel, an activity that does not contribute to the segment's downstream value chain and is consistent with our ongoing focus on growing our value-added businesses. Overall, ICL's robust and diversified customer portfolio and wide geographic reach of its phosphate specialties businesses coupled with the strong demand for food products, prevented a material impact of the pandemic on the segment's business performance. Currently, we do not see a very significant impact from the COVID-19 pandemic on the segment's results in the third quarter of 2020, although the full effect of the pandemic is still difficult to assess. Slide 8; the IAS segment sales decreased 3% year-over-year, driven mainly by unfavorable dollar-euro exchange rate. EBITDA increased by 29% year-over-year to $22 million and EBITDA margin increased to 11% compared to 8% in Q2 of 2019. This was due to lower cost of raw materials and the successful implementation of efficiency and cost reduction initiatives. Sales to the specialty agriculture market slightly decreased year-over-year, mainly as the negative impact of unfavorable exchange rates was partly offset by strong sales of straight fertilizers and higher sales to China. Sales to the Turf & Ornamental market were lower compared to the corresponding quarter last year, mainly due to the impacts of COVID-19 pandemic as a decrease in sales in the turf business were only partly compensated by higher sales of the ornamental horticulture market. The reopening of sports fields and golf courses in Europe resulted in a slight recovery in sales towards the end of the quarter. Turning to Slide 9. As previously noted, ICL announced that it has consolidated its crop nutrition sales and marketing infrastructure, creating a unified commercial platform facing the agricultural end markets in order to drive internal synergies and optimize distribution channels of commodity, specialty and semi-specialty fertilizers. We previously had multiple internal sales organizations across dozens of locations selling portions of our product portfolio to their own base of customers. These organizations were siloed from one another, including with respect to their back office and reporting systems. This was both inefficient from a cost perspective and not optimal for marketing reasons. The company expects that this new operating model, which will be managed on a regional basis will serve to achieve commercial excellence, increase the efficiency of its global operations, and better leverage its region-specific knowledge, agronomic and R&D capabilities, logistical assets and customer relationships. To summarize on Slide 10, I'm very happy to say that, overall, we are fortunate to have suffered minimal operational impact as a result of COVID-19, and all of our production is back online and operating under all applicable health and safety regulations related to COVID-19. The pandemic was and continues to be disruptive to end markets. In particular, we expect to see continued weakness in demand for clear brine fluids and to a lesser degree flame retardants, and the Industrial Products segment's performance will ultimately follow the recovery in industrial demand. By contrast, there is inherent stability in our agriculture and food end markets, where our performance has been impacted by commodity pricing rather than end-market demand. Recently, commodity prices have stabilized, albeit at low levels, and we expect prices to continue firming over time. Overall, the diversity of our business provides stability, resilience, and continued cash generation amid a weak commodity and business environment. We are firmly focused on executing our business strategy and increasing efficiency and cost savings across all our operating segments, which not only protect our performance against downside scenarios but also position ICL to generate significant cash flow when underlying demand in commodity prices is stronger. Finally, while our business is diversified and not excessively dependent on commodity prices, we manage our balance sheet as if our business had a higher level of commodity price exposure than it actually does. This affords us a significant degree of flexibility to execute on our strategic initiatives in order to innovate, bring new products and applications to the market, and manage the growth of our business safely and consistently over the long-term. Before I hand it over to Kobi, I would like to briefly highlight recent recognitions we have received with respect to our ESG practices. First, ICL was recently included in the FTSE4Good Index Series, which has designed to measure the performance of companies demonstrating strong ESG practices. These indexes are used to create index-tracking investment products focused on sustainable investment. Additionally, ICL was awarded the highest Platinum Plus ranking by Maala, a leading professional non-profit corporate membership organization, comprised of over 110 of the highest impact companies in Israel. We try to display our commitment to the highest ESG standards in our strategy and everyday practices and we are very grateful that third parties continue to validate our efforts. Thank you, all. And with that, I would like to hand it over to Kobi.

Thank you, Raviv, and good day, everyone. Despite the current ag inputs market environment in which potash and phosphate commodity prices fell to what we believe are cyclically low levels, we achieved adjusted EBITDA of $246 million, adjusted net income of $72 million and operating cash flow of $177 million. You can see that as a percentage of sales, we show increase versus Q1 in all those parameters. Compared to the second quarter of 2019, our results were impacted by significant year-over-year decline in commodity prices. Nonetheless, the stability or improvement in our results, depending on which metric you look at, reflects the diversity and resilience of ICL's business portfolio as well as the effectiveness of our strategic focus on value-based specialty products. Our resilient results were achieved in a very challenging environment that presented both operational challenges and decreases in both commodity prices and COVID-19 related demand from industrial end-market. To Slide 13; the chart on this slide, very clearly visualizes the impact of cyclically low commodity prices and COVID-19 related softer demand on our results in the second quarter. As Raviv mentioned, average potash selling prices declined by $63 per tonne or 22% compared to the second quarter of 2019. Phosphate commodity prices also declined significantly. The decrease in quantities comes mainly from the bromine value chain and we expect this demand to pick up as the global economy recovers. A similar picture is shown in the adjusted EBITDA segment contribution chart on Slide 14. Both our Potash and Phosphate Solutions segments were negatively impacted by lower prices. Here you can see that quantities had a much lower effect compared to the top line chart. As Raviv mentioned, performance in our Phosphate Solutions segment was driven by strong operating results in phosphate specialties. On Slide 15, we provide additional details on the non-GAAP adjustment we made this quarter before and after the tax impact. The non-GAAP adjustments comprise of a $187 million non-cash impairment and write-down of assets in Rotem sites and in Spain. As part of the saving program, we initiated that includes a global workforce reduction of about 250 employees. We booked provisions for early retirement of over 200 employees in the amount of $78 million. We also increased provisions for asset retirement obligations in the amount of $32 million. The table on this slide shows how those adjustments are distributed by operating sites. Please turn to Slide 16 for a quick snapshot of our financial position. ICL maintains a healthy balance sheet, backed by immediately available liquidity including cash deposits and unutilized credit lines of $1.15 billion as of the end of the quarter. Our balance sheet was bolstered by an additional $110 million issuance of our Series G bond in May. With no major principal repayments of loans until 2024, we are well-positioned to focus on execution and also to pursue growth opportunities. Our net debt to EBITDA ratio of 2.4 remains within an acceptable range although we expect it to decrease as industrial demand picks up and commodity prices rebound. S&P and Fitch ratings acknowledge ICL's strong financial position and credit metrics as well as the actions we have taken that will further improve our liquidity over the coming years. Each rating agency recently reaffirmed our BBB minus rating both with a stable outlook. Each rating agency stated that its rating reflects ICL's strong business profile stemming from our unique and strategic assets in the Dead Sea, our market or cost leadership position, the resilience of our specialty chemicals and bromine businesses, the synergistic profile of ICL's specialty chemicals production, our strong liquidity and prudent financial policy, and our solid funds from operations net leverage. Slide 17 provides the view of the commodity cycle we face. We believe that both potash and phosphate commodity prices have fallen to cyclically low levels, while our business has significantly less commodity price exposure than a pure-play producer. We still manage for commodity cycles and maintain a conservative financial profile as a result of this exposure. If we zoom in, we see that the new supply contract signed in China and India should help to reverse the downward trend in potash prices that has impacted our results lately. To conclude, our performance in the second quarter in a market environment without precedence is directly related to ICL's differentiated business model. We are continuously focused on executing our strategy to increase the cost efficiency of our commodities businesses and to grow our specialties product businesses by entering new product categories and expanding our geographical distribution network. Absent the impact of COVID-19, we would be expecting increasingly strong results in the near term as commodity prices are expected to start a recovery from cyclical lows. The pandemic has pushed our expectations out in time. But we maintain our positive outlook and believe that industrial demand will rebound from second quarter levels and our specialty businesses will continue to positively impact our results. At the same time, our strong balance sheet and healthy liquidity profile will provide us with ample flexibility to capture business opportunities in a volatile and changing economic environment. Finally, I would also like to turn your attention to the new interactive data tool we have implemented under the Investors section in our website which will enable you to easily access our financials and download customized data with multiple periods and parameters.

Thank you very much. The first question we have today comes from Vincent Andrews from Morgan Stanley. Please go ahead.

Thank you, and hello, everyone. Wondering if you can just give us a little more color on the bromine outlook. I know as you noted the prices stabilized towards the end of the quarter, but I'm trying to assess volumetrically what do you think that those volumes are going to be down sequentially 3Q versus 2Q just as maybe the clear brine fluids maybe that's still a little bit weaker in 3Q? And then, if you could just help us understand the moving pieces on the electronics uplift, do you think you might see in which areas that is, as well as what we need to see in Europe from a construction perspective in order to get some favorability there?

Thank you for your question. Last quarter we faced a similar question, and it was challenging to predict. At that time, our competitors anticipated a 20% decline in EBITDA, which ended up being 19%. We don’t have a different assessment than them. Currently, the third quarter appears quite similar to the second quarter. We’ve noticed that clear brine fluids have stabilized, while electronics-related flame retardants remain weak. However, bromine prices in China, which fell in May and June, are now increasing, and we are seeing higher demand for flame retardants used in home appliances like air conditioners and televisions. Although PCB boards are still underperforming, they are not as weak as they were a few weeks ago. The construction market shows signs of strengthening demand, although it remains low for automotive-related products. Overall, it seems we have reached a bottom and are beginning to see improvements, but we expect the third quarter to be quite similar to the second quarter.

Similar to the second quarter in terms of the year-over-year decline or the absolute level of EBIT?

The absolute level of EBITDA.

Okay. And then, if I could just ask a follow-up on the phosphate rock that you're no longer selling to the merchant markets. Are you doing something else for the downstream or are you just not selling it?

No, we're just discontinuing the sales of phosphate rock. Given labor union issues and regulatory issues, it was difficult for us to make this decision in the past. And because of the weak markets and new approach by regulators and healthy negotiations with unions, we're now in a position to save about $20 million out of a $30 million loss that we had to live with for the past few years.

Okay, excellent. Thank you very much. I'll pass it on.

Thank you.

Thank you very much. The next question today comes from the line of Joel Jackson from BMO Capital Markets. Please go ahead.

Hi. Good morning, Raviv, Kobi. I have a few questions. Maybe we could start with potash. Could you talk about what you expect your potash production and sales to be this year, in '21 and '22 considering different things like inventory levels and some of the stuff you're doing in Spain? Thanks. '20, '21 and '22?

Hi, Joe. We expect in 2020, sales to be around $4.55 million and next year's sales to be about $150,000 to $200,000 more than that. Those are the numbers on the potash.

Okay. And then, you would probably be holding inventory levels about flat?

About flat, yes. Most of it is coming from the Dead Sea, so we expect approximately 3.9 million tonnes from the Dead Sea this year and likely around 4.0 million tonnes next year from the Dead Sea.

That's really helpful. When we talk about Polysulphate, what was the earnings contribution or loss in the second quarter from Polysulphate? What do you expect it to be in 2020 and what actions will you take to ensure its profitability?

Okay. I'll start from the last part, which is easier to answer. In order to be profitable, we need to cross 1 million tonnes in production and we need to also sell 1 million tonnes, at a certain price level, which we are achieving today, but not on all of our products. So we still have a ways to go. In terms of the results on the second quarter, the result was a loss of about $7 million. It was negatively affected by COVID-19 because of social distancing restrictions, we had to lower production during the quarter from the end of March and gradually picking up until June 1. We were back to full production in June 1. So, our production for the quarter was about 80% of what was originally planned. And also in terms of sales, we sold less than we expected. We ran into some issues. One of them versus plan was the fact that we were late with some sales to India. We've been working on an import license to India and it took us much longer than we expected. Happy to report that's been settled this month during July but of course we sold for the last year...

Okay, I apologize.

We sold 131,000 tonnes this quarter. We planned to sell about 160,000 tonnes this quarter. Two-thirds of the difference comes from our plans in India. So again, that was the result for this quarter with some headwinds from COVID-19. They shouldn't last into the second half of the year. But in order to become profitable in the UK, we have to surpass the 1 million tonnes and we have to be able to sell 1 million tonnes a year. It's a new product we're introducing into the market. Our level of run rate of losses is going down obviously and will come to zero when we cross that line of 1 million.

And what percent of your sales in the second quarter and third quarter are being done at the minimum price, you need to breakeven or better?

I can't be precise, but I would estimate that around three quarters of the sales are at premium prices. We successfully signed some long-term contracts towards the end of the quarter, and all of them are priced appropriately. We are not entering into contracts or doing long-term business at prices that are not suitable.

You mentioned your cost reduction and efficiency programs, which are expected to generate annual savings of $50 million. Can you clarify if that figure is net or gross of inflation? Additionally, is the savings distribution approximately equal between potash and phosphate?

Yes, it's just over $20 million in phosphate and just under $20 million in potash, with the remainder coming mainly from early retirement programs. To clarify, each of potash and phosphate is a little more than $20 million, and the balance, which is around $7 million to $8 million, comes from our other two business sectors that also had early retirement plans.

Little bit on G&A as well.

Yes. Thanks, Kobi.

And is that gross or net of inflation, the $50 million?

I'd have to understand the question to answer?

$50 million cost savings, but you also have inflation in the different businesses, cost inflation. So like that $50 million we're going to see or yet is actually some cost inflation of their business you see or you may not see it?

Agreed. That's of today's costs. So it's $50 million today. If there is a wage inflation for next year, the next year would be a little more.

That's it for me. Thank you very much.

Thank you, Joel.

Thank you very much. The next question today comes from the line of Duffy Fischer from Barclays. Please go ahead.

Hi, this is Sean Gilmartin on for Duffy this morning. Thanks for taking my question, and good to talk with everyone again. I guess just a quick one for me. Again, just on the clear brine fluids business. I mean, no secret that's been a real tailwind. I guess the IP segment throughout 2019, even into Q1, we had kind of a record quarter. I'm just trying to get a sense or see if you could provide a sense of what you would consider the normalized percentage of segment sales or EBIT if you would prefer that comes from the clear brine fluids business, that would be super helpful?

Well, last year was about 13%. Jury is telling me that 11%. So I guess at the end of the year, it was 13%. So it was 11% for 2019, and for the second quarter, it was about 4%. That gives you a sense.

Got it. That's really helpful. Thanks for that. And then I guess can you just provide maybe your outlook on the phosphate fertilizer business? It seems like you're getting a little bit more positive. We think generally about the market maybe just a month or so ago didn't feel great and that has seemed to reverse here somewhat over the last few weeks. So just trying to get a sense of what you're seeing on the ground and kind of the puts and takes there in the phosphate market?

There has definitely been significant change over the past month. One sign is the rising prices in Brazil; another is the discipline from Chinese supply. The main catalyst has been the Mosaic claim on anti-dumping, which has generated positive price momentum in the U.S. and positively impacted the rest of the market. We've observed about a 10% increase over the last six weeks, which we see as a positive development. We are indeed selling at higher prices, which is what we've experienced.

Got it, that makes sense. Thanks for the time guys. I'll pass it along.

Thank you.

Thank you very much. The next question today we have comes from the line of John Rider from Stephens Incorporated. Please go ahead.

Thanks. I'm on for Mark this morning. First question from us. Could you just talk a bit about the relative performance of TSP and SSP prices relative to the movement we've seen in MAP and DAP? We've seen some divergence in the last couple of quarters and/or curious whether you think TSP and SSP prices are reasonable in relative terms?

I think the TSP and SSP have reacted a little less, but over time, we're sure that there'll be a catch-up. Over the long term, there's almost 100% correlation between prices.

Okay, thanks. And then, just another one.

This is not market information; it's based on our sales.

Okay, that's helpful. And then, just one other one. Do you think that COVID will slow any of your initiatives to push more phosphate into the specialty side?

Absolutely not. On the contrary, I think we've established substantial innovation infrastructure within the company to foster internal ideas and effective R&D investments. We are taking more risks in the early stages of new solutions, and our innovation has led to some immediate successes and quick wins. Therefore, we have a strong pipeline of new products on the way. Even during COVID, we managed to launch new products through webinars, which honestly surprised me as well. Currently, we do not see any slowdown. The only area where we are progressing more slowly than anticipated pertains to business development in alternative protein. This is a new venture for us, and we've secured some significant long-term agreements. Product development with food companies typically takes around 18 months, and some of these companies are focused inward and on existing products, which has slowed some business development more than we expected during COVID. This area requires more personal engagement, but we believe that post-COVID, our initiatives in alternative protein will accelerate significantly. The potential here is enormous, and we are very enthusiastic about it.

That's great color. Thank you very much.

Thank you.

Thank you very much. The next question we have today comes from the line of Laurence Alexander from Jefferies. Please go ahead.

Hey, everyone. This is Kevin on for Laurence. Thank you for taking my question. I just wanted to ask a quick question about what you guys have seen and what you're sort of maybe medium to long-term expectations are for industry consolidation in both, potash and phosphate?

I'm not sure I understand the question. You're talking about industry consolidation?

Yes, sort of based on like current pricing environment?

In the current environment, there's been increased discussion around potential mergers and acquisitions, with some companies seeking financing to reduce their debt. Regarding the larger players in potash, the situation with K+S is well-known. There are some phosphate assets available from smaller companies, but we are not interested in expanding our phosphate capacity. I'm uncertain about the market's interest in those types of transactions. In the potash sector, there aren't many smaller players, so I don't have much to share on that front. From my viewpoint, while I don't see a reason for consolidation to be ruled out, I am not aware of any specific ongoing actions apart from K+S.

Okay, thank you. And I guess, since most of my questions were asked. Maybe just a quick one on SCRATCH-X. I know you guys launched that a couple of months ago I think maybe back in May or April. It seems that you guys are hoping to capture like 5% to 10% of the market. I'm just curious, it's been a couple of months, any update there?

Yes, it's going very well. That's one of those products that were launched during the COVID virtually, and we're very happy with the results, anti-scratch additive. So it's been accepted well by the market. And right now it's exceeding our plans, even though it's too early to say because we're just in the beginning of the process. We've had a few very successful launches of products and that's been one of the successful ones.

Okay. Thank you.

Thank you very much. The next question comes from the line of Patrick Rafaisz from UBS. Please go ahead.

Thank you, and hi, everyone. I got disconnected at one point. So please forgive me, if it sounds my questions had already been answered. There's three, and please. The first would be, can you talk about how we should split the $50 million cost savings in potash and phosphates?

Yes, that was actually asked and the conclusion is that a little over $20 million in phosphate, a little over $20 million in potash, and the balance of about $8 million is in our other two business sectors and G&A.

Excellent, thanks. And then on fixed costs in the second quarter, and they were lower, pretty much in all lines. If I exclude the other lines in the P&L, about $24 million lower year-on-year. And do you have a sense of how much of this was only temporary cost savings or how much that would be sustainable, apart from the $50 million you're targeting for next year?

Most of it is sustainable. There are a couple of items like the travel costs, for example that we're saving about $0.5 million a month. And those are one-time. But on the other hand, you know we had additional cost because of COVID-19. For example, for personal protection equipment, for more transportation to bring employees to the sites, and social distancing. So, the net of it is that there is very little one-time savings. Most of the savings have to do with the fact that immediately when the crisis started then we closed our wallets. We were very conservative. I can tell that the senior management with a 10% pay cut until the end of the year. So we wanted to be conservative. We wanted to save all discretionary expenses. And that's why our G&A is going down and our sales expenses are going down. Maybe because we're very careful, you can look at some of this as one-time, but my experience is that once an organization gets used to a leaner mentality then it's fixed.

Okay, thanks. And the third question will be on the site mix that improved in potash and you showed that in the EBIT bridge as well. If we now would factor in the closure in Spain, how much do you think your cost per tonne will improve going forward?

We have a plan to go down from current levels, which are about potash market price, which means that we're not making money on potash, in other words, to about EUR170 per tonne. And it's a long-term plan. The savings that we're showing here related to the closing of the mine is mainly short-term savings. Short-term in a sense that they are immediate savings such as for example, the fact that we have two mines because of regulatory issues, we have to move salt by truck from one site to the other site, just in order to use that mine. So, the mere fact that we closed that mine saves us immediate cost of moving that salt and also saves us about 250 contractor employees, which gives us a net savings that will stay with us well beyond next year, but is something that we will realize now before our long-term plan to cut potash cost. In other words, since we're going down on our production, then our cost per tonne is not going to go down this year, but we are going to save immediate costs because the two items I mentioned, the movement of salt and the savings of the subcontractors. So again we have short-term savings that do not affect our cost per tonne, but we have a long-term plan from next year going forward to take our cost per tonne down, all the way down to EUR170 per tonne.

Maybe just to add to that, Raviv was referring to our Spanish operation. If you combine the overall ICL division, including the Dead Sea, because of our increased production in the Dead Sea, the balance on the entire division will look even better.

Okay, thanks. Very, very helpful. Thank you.

Thank you very much. There are no further questions at this stage. Please continue.

Okay, thank you very much. Thank you for participating. If you have any questions, and you want to contact me, please feel free to do so. That's it. Have a great day. Thank you.

Thank you very much. That does conclude the conference for today. Thank you for participating. You may all disconnect. Speakers, please standby.