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Presentation

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the ICL Analyst Conference Call. Our presentation today will be followed by a question-and-answer session. [Operator Instructions]. I must advise you that this call is being recorded today. I’d like to hand the call over to our first speaker today, Peggy Reilly Tharp, Vice President of Global Investor Relations. Please go ahead, ma’am.

Peggy Reilly Tharp: Thank you. Hello, everyone. I’m Peggy Reilly Tharp, Vice President of Global Investor Relations. I’d like to welcome you and thank you for joining us today for our quarterly earnings call. The event is being webcast live on our Web site at icl-group.com. Earlier today, we filed our reports with the securities authorities and the stock exchanges in the U.S. and in Israel. Those reports, as well as the press release, are available on our Web site. There will be a replay of the webcast available after the meeting and a transcript will be available shortly thereafter. The presentation which will be reviewed today is also filed with the securities authorities and is available on our Web site. 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 financial information discussed on this call at any time. We will begin with the presentation by our CEO, Mr. Raviv Zoller, followed by Mr. Aviram Lahav, our CFO. Following the presentation, we will open the line for the Q&A session. Raviv, please.

Raviv Zoller: Thanks, Peggy, and welcome, everyone. Earlier today, we announced once again solid first quarter results. And our brief overview starts on Slide 3. Sales for the quarter were $2.1 billion, down 17% versus the sales we reported this time last year, which were significantly influenced by sanctions on Belarus and the global reaction to the Ukraine war. In addition to an expected reduction in pricing this year, we also saw the shipment of approximately 100,000 metric tons of potash to India shifted to the second quarter. Adjusted EBITDA for the first quarter was $610 million, also down year-over-year, as prices have moderated considerably over the past 12 months. Like others in our space in business and other industries and end markets, we continue to work through high cost inventories in the first quarter.

This destocking began towards the end of last year, and we expect it to continue through the second quarter. As such, we also implemented cost efficiencies through our supply chain and are targeting additional initiatives during this year. Once again, general and administrative costs were down year-over-year. Despite the pullback from peak commodity prices in 2022, we maintained our focus on consistent cash generation and delivered operating cash flow in the first quarter of $382 million and free cash flow of $220 million, both new first quarter records. After the quarter ended, we announced a new $1.55 billion sustainability in linked credit facility, and Aviram will talk more about that in a few minutes. In the first quarter, we also returned value to shareholders as we reported adjusted diluted earnings per share of $0.23 and declared a quarterly dividend of $0.11 per share.

Last year, ICL benefited from higher prices which drove a significant increase in cash, even after we made necessary investments in operations, settlement of tax and other disputes from the past and paid our dividend representing 50% of net income. We believe ICL offers investors the best of both worlds. Our outstanding commodity assets, combined with our varied and balanced specialties products, provide exposure to diversified end markets across our broad global footprint. Through our Growing Solutions, Phosphate Specialties, and Industrial Products businesses, we provide the resources to feed and protect the world. And with expansion to battery materials for the electric vehicle and energy storage markets, we will now be powering the world as well.

It is this combination of complementary businesses which help us reach our long-term strategic goals and we will continue to leverage opportunities such as those created by geopolitical developments, global sustainability challenges and the current capital markets backdrop to enhance long-term value creation. Let’s turn to our three-year — some of our key metrics on Slide 4. Again, while sales were down year-over-year, as expected, they were up significantly over the first quarter of 2021. And we anticipate the remainder of this year will progress at this more normalized growth trend with greater gains to be made in the second half. Adjusted EBITDA was down versus last year, but more than doubled the first quarter of 2021. And this included nice growth from our specialties businesses.

For the quarter, EBITDA margin came in at 29%. On Slide 5, you can see our specialty sales followed the similar trend as our consolidated results. As expected, specialties EBITDA was also lower versus last year, as we reduced the amount of high priced inventory in stock and remain disciplined in our flame retardants business. We expect this will be repeated in the next quarter as the destocking of supply chain continues, with margins expected to return to an expanding trajectory in the second half of the year and beyond. Finally, as I just mentioned, we saw year-over-year growth in free cash flow and a significant increase versus the first quarter of 2021. We are pleased with this improvement as we continue to execute in line with our planned specialties growth projections.

Similarly, our adjusted diluted earnings per share was more than double what we recorded in 2021. I would now like to begin our segment review with Industrial Products on Slide 6. First quarter sales were $361 million, while EBITDA was $105 million, as demand for flame retardants was lower year-over-year. The weakness in electronics, which had accelerated in the latter part of last year, continued into this year, as expected. We believe this trend will continue for the near term, with market conditions expected to begin improving in the second half of the year. Over the long term, demand for flame retardants is expected to keep pace with the natural electronics replacement cycle and accelerate due to the continued growth in electric vehicles and energy storage solutions.

The building and construction end markets also remained softer in the first quarter, as higher interest rates persisted on a global basis. However, new buyers are gradually adapting to higher mortgage rates and inflation, while still elevated seems to be cooling. One of the benefits of serving a variety of end markets is that they each have different characteristics. As a recall in 2020, during the height of COVID, demand for flame retardants used in consumer electronics skyrocketed, while our clear brine fluids business suffered significantly. Today, demand from the oil and gas industry is very strong. And I would specifically like to call out the increase we’ve seen in sales to the Middle East since the signing of the Abraham Accords. We also continue to serve an array of industries through our specialties minerals business, where we delivered record quarterly results.

Turning to Slide 7, and our Phosphate Solutions division, where we reported sales and EBITDA of $714 million and $170 million, respectively. For the quarter, Phosphate Specialties results were ahead of expectations and represented 60% of sales and approximately 50% of EBITDA. Demand from our global customers in the food industry remained strong. However, industrial demand was softer, as this business saw some challenges in building and construction. In particular, Europe remained challenging for both our specialty food and industrial offerings, as economic woes [ph] lingered and competition from China intensified. Despite these challenges, Phosphate Specialties delivered record first quarter free cash flow even as we battled force majeure at a major supplier, which resulted in higher costs for some of our raw materials.

Finally, our investment in St. Louis to develop a cathode active materials plant for high-quality LFP batteries remains on track, and groundbreaking is expected later this year. In addition to finalizing our selection for general contractor and other key items, we have been actively negotiating directly with automakers, OEMs and other potential partners about future strategic engagements to achieve our long-term plan. This expansion into battery materials builds on our existing strong upstream positions in Specialty Phosphates, and helps us develop a significant new growth platform. The time is right to make this move, and our vision and ambition are backed by highly attractive markets and a solid plan on how to seize first mover advantage and win in the LFP cathode active materials market in North America and here.

On Slide 8, you will see our potash results where sales were $583 million and EBITDA came in at nearly $300 million. Our potash price per ton was $541, down from $642 in the first quarter of last year, but elevated versus historical levels. Production was in line with last year as we completed our annual maintenance shutdown in the Dead Sea in March again this year. However, deliveries were down mainly due to an unexpected delay in the India contract settlement. During the first quarter, we also successfully completed the sealing project for the feeder canal at the Dead Sea, which had created some concerns for us in 2022. Tragically, we had a fatal accident at the Cabanasses mine in Spain. This happened in the beginning of March. As you know, safety is our top priority and we put in place extraordinary safety measures before we gradually ramp operations back up.

We estimate that the resulting production loss was approximately 30,000 metric tons. Turning to Slide 9, and our Growing Solutions business, which delivered first quarter sales of $564 million, in line with the first quarter of last year, and in spite of the slow start to the spring season in both Europe and North America. For the quarter, EBITDA of $45 million was impacted by high priced inventory and high priced raw materials across the supply chain. While we actively worked to prudently reduce inventory in the first quarter, this process has continued into the second quarter. We are also looking at creating new efficiencies, maximizing operations and developing innovative new products. This included the shutdown of our Summerville, South Carolina production facility earlier this year, which came after we completed a review of ways to optimize production and improve our cost structure in North America.

Across the Atlantic, our Boulby polysulphate mine in the UK delivered record quarterly production of nearly 260,000 metric tons. In addition to this achievement, our FertilizerPlus products, which are based on organic polysulphate, saw higher pricing in the quarter, as did some of our other promising new products launched in recent months. I would now like to draw your attention to Slide 10, and a quick review of how 2023 is shaping up. For our Industrial Products business, we expect to see improvement beginning in the second half of the year, following destocking of the supply chain combined with the recovery of the Chinese economy and new momentum in electric vehicle deliveries. For our Phosphate business, we remain focused on multiple long-term battery material solutions, including our LFP expansion in St. Louis.

We remain extremely enthusiastic about the opportunities in this new sustainable market and continue to see it as a significant part of our long-term strategic growth. In our potash business, we expect to see an increase in production and quantity sold as global stocks-to-use ratios remain low and farmer affordability remains above average. And Aviram will talk more about the macro trends in a few minutes. These trends will also benefit our Growing Solutions business where we plan to continue introducing new, innovative and more importantly, sustainable solutions like our Keep Green biofertilizer in Brazil and our eqo.x controlled release fertilizer in Europe. Finally, for the first quarter, I would like to note it was our second highest ever for sales, adjusted operating income and adjusted EBITDA.

While we clearly do not expect to see the short-term upward trajectory we experienced last year as we benefited from peak prices, we do expect to continue to deliver on our long-term specialties growth strategy as we progress through 2023. As I do every quarter, I want to thank the entire ICL family of employees all around the world for their hard work and contributions. Making progress against our long-term goals would not be possible without our dedicated team. And I’m pleased to share that ICL was recently named one of the best companies to work for by BDI, the largest business information group in Israel. We ranked first among all companies in the industrial sector and second among top 35 companies traded on the Tel Aviv Stock Exchange.

We also made an impressive improvement overall, moving up to 14th place from 21st place last year, and even more impressively up from 84th place just five years ago. I would now like to turn the call over to Aviram.

Aviram Lahav: Thank you, Raviv, and to all of you for joining us today. Let us get started on Slide 12. While the world is in a different place than it was a year ago, there are still a number of multiple factors impacting ICL, our customers and suppliers. While inflation is declining, it is still a concern for some end markets consumers who need to make decisions about what purchases to prioritize. However, as our Phosphate Specialties sales show, food remains resilient on a global basis. For our industrial end markets customers and the building and construction businesses, elevated interest rates continue to pressure homebuyers. However, global monetary policies remain dynamic. China appears to be rebounding faster than anticipated.

As the second largest economy in the world, a more rapid recovery will benefit a wide variety of end markets and businesses including the electric vehicle market. When it comes to currencies, the U.S. dollar is softening from the peaks it hit last year. While this is true for some currencies, the dollar continues to appreciate versus the shekel, which is actually a benefit to ICL. Turning to the agriculture portion of the spectrum, we see crop prices remain elevated, while farmer affordability continues to improve as fertilizer prices have come down. While overall raw material prices are declining for fertilizers and many of our other products, high priced inventory remains in the market. This is not unique to ICL and many in our industries and businesses and other industries and end markets are in the same position.

As Raviv already discussed, this destocking began towards the end of last year, and we continue to work through high cost inventories in the first quarter with these efforts expected to extend through the second quarter. On Slide 13, you can see some of the trends I just discussed with inflation rates generally trending down globally, while interest rates remain persistently elevated. In the first quarter, China’s economy grew 4.5%, the fastest pace the country has seen in the past year as it looks like they’re recovering from their emergence out of COVID restrictions. Turning to Slide 14, where we have a collection of key agricultural metrics. As you can see, commodity crop and fertilizer prices stabilized in the first quarter, resulting in an improvement in farmer sentiment from both the first quarter of last year and the start of this year.

Moving from the world of agriculture to the world of energy on Slide 15 where you can see data we first introduced at our Investor Day last October. Since that time, there has already been an increase in the forecast for electric vehicle adoption, as countries around the world have implemented new environmental standards for cars and trucks with subsidies to help ease the transition for consumers. Automakers have responded with BMW, Ford, Stellantis and Volkswagen, all pledging to have 50% of their production based on electrification by 2030, while GM and Honda have set goals to be 100% electric by 2035 and 2040, respectively. There is real muscle [ph] behind these efforts. As Raviv already discussed, we’re excited to be entering the battery materials market at this opportune time.

If you will now turn to Slide 16, on the left side, you can see the sales bridge from the first quarter of last year to this year. For Industrial Products, we saw slower flame retardant sales. And as Raviv discussed, we saw 100,000 metric tons of potash shipments to India shift from the first quarter to the second quarter. On the right side of the slide, you can see the breakout by quantity, some of which will be shifting to the second quarter, and also price. Potash accounts for over 100% of the negative price effect on EBITDA year-over-year, and together with flame retardants for most of the negative quantity effect on sales and EBITDA. Turning to Slide 17 for our adjusted EBITDA which was $610 million, down year-over-year but more than doubled our EBITDA in the first quarter of 2021.

As the market leader in bromine, our Industrial Products business took a disciplined approach in the first quarter, and this will continue into the second quarter in anticipation that long-term contract customers will increase orders in the second half of the year. I would now like to review a few highlights on Slide 18. At quarter end, our net debt to EBITDA ratio was at 0.56x. As Raviv already mentioned, in the first quarter, we delivered record operating and free cash flow of $382 million and $220 million, respectively. Which brings us to Slide 19, and our first quarter dividend of approximately $146 million or $0.11 per share, bringing our dividend yield for the past four quarters to 9.2%. After the first quarter ended, we announced that we had entered into $1.55 billion sustainability linked revolving credit facility agreement despite the facility replaced our existing $1 billion credit facility with similar financial terms.

We are pleased to expand on our commitment to sustainability by enhancing this facility to include targeted and specific sustainability metrics and milestones across three key performance indicators, which has been designed to align with ICL sustainability, strategy and goals. This new facility will provide us with enhanced financial flexibility, as we continue to invest in our business and target new opportunities, both internally and externally, while continuing to expand and innovate. As Raviv discussed, we are making the most of our cash generation which has continued from 2022 into 2023. Finally, on Slide 20, we are reiterating our 2023 guidance calling of adjusted EBITDA of between $2.2 billion and $2.4 billion in total, and for our specialties businesses to contribute approximately $1.1 billion of that amount.

And with that, operator, we can begin the Q&A.

Operator: Thank you. [Operator Instructions]. Our first question today comes from the line of Alexander Jones from Bank of America. Please go ahead.

Operator: Thank you. Our next question comes from the line of Mubasher with Citi. Please go ahead.

Operator: Thank you. [Operator Instructions]. Our next question today comes from the line of Ben Theurer from Barclays. Please go ahead.

Operator: Thank you. [Operator Instructions]. Our next question today comes from the line of Vincent Andrews from Morgan Stanley. Please go ahead. Vincent, can you hear us?

Operator: You have no further questions. Please proceed.

Raviv Zoller: All right. So I just want to thank you all for participating in our call and continue to following us and give us your support. And we look forward to getting back to you next quarter and reporting on our results and continuing to deliver on our plans. Thank you very much, and take care.

Aviram Lahav: Thank you very much.