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 must advise you that this call is being recorded today. [Operator Instructions] I’d now like to hand the call over to the first speaker today, Peggy Reilly Tharp, Vice President of Global Investor Relations. Please go ahead, ma’am.

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 first quarter 2021 conference call. This event is being live cast on our website 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 website. There will be a replay of the webcast available a few hours after the meeting and a transcript will be available 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 the presentation by our CEO, Mr. Raviv Zoller, followed by Mr. Kobi Altman, our CFO. After the presentation, we’ll open the line for the Q&A session. Raviv, please?

Thank you, Peggy, and welcome, everyone. I’m pleased to report solid first quarter earnings, which were driven by record results across all our specialty businesses, as we executed on our stated growth strategy. We continue to create strong cash generation and margin expansion supported by improved market fundamentals, which began in the latter part of 2020, continued into the first quarter and now the second quarter. Specifically, on Slide 3, you can see some highlights from each division. Industrial products record quarter was driven by strong demand in high market prices and bolstered by long-term contracts. Our potash operations delivered another record for first quarter production at the Dead Sea, and our team in Spain completed the launch of the ramp connecting our Cabanasses mine and Suria plant. Phosphate Solutions delivered record sales and EBITDA, including our YPH joint venture, driven by product innovation, cost efficiencies and the continued shift to specialties. Innovative Ag Solutions also had a remarkable quarter, as results benefited from the unified sales and marketing organization, higher volume and improved product mix. Each of these divisions is focused on one or more of our strategic target markets, and Slide 4 shows the progress we are making in these efforts as we work together to create impact for a sustainable future for our communities, our employees and our investors. In our industrial end markets, our recent investments in capacity have enabled us to meet booming long-term demand for our specialty offerings. For our Food focus, while a smaller part of our business today, our commitment should be apparent following the strategic additions we have made to our leadership team and our Board of Directors. I would like to welcome both Chris Millington to our executive team as our new Head of Food Specialties, and Gadi Lesin to…

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 14, you can see that in addition to this performance, we also maintain our financial strength with liquidity of more than $1.1 billion. We maintain a high level of liquidity even after the funding of the Fertilaqua acquisition early in January of this year and more than $200 million of principal debt repayments during the quarter. In the first quarter, we delivered improvements in both operating cash flow and free cash flow, supported by strong execution and market fundamentals. Our 2.4 net debt-to-EBITDA ratio was down slightly from the fourth quarter of last year, and we have no major short or midterm principal debt repayments on the horizon. On Slide 15, you can see some of the commodity price improvement, Raviv referenced. Recovery that began in the fourth quarter has continued into the first quarter, and we believe additional upside may be ahead. For the first quarter, our average potash realized price per ton of $257 was only 3% higher year-over-year, indicating recent price increases will be more evident in the second quarter and even more so in the third quarter. Phosphorus prices are also participating in the commodity price up cycle, and element of bromine prices in China recently reached another record high, mainly due to strong demand and continued government regulatory restrictions. But if you turn to Slide 16, you can also see the increases we are facing on the cost side. For example, the recovery trend in the phosphate market was followed by major raw material price increases, including sulfur. While this clearly affected phosphate commodities, higher freight rates impacted all of our divisions. With the entire marketplace, feeling the impact…

Thank you. [Operator Instructions] Your first question comes from the line of Alexander Jones of Bank of America. Please ask your question.

Great. Thanks. Good afternoon, Raviv and Kobi. First question, if I may, on the guidance. Obviously, you did nearly $300 million of EBITDA this quarter, and you’ve highlighted that potash and phosphate prices continue to increase. Is there any reason why we shouldn’t annualize this quarter, perhaps with a bit of an increase and get to number above your guidance range? Or in other words, are you being more cautious because of any particular factors or just waiting to see how things play out?

Thanks for the question. As you recall, we’re giving guidance for the first year in the history of the company. And we want to be very cautious about how we deliver guidance. And it’s built bottom up. And we had no intention of changing guidance before midyear. But unfortunate – well, not unfortunately, but when we gave guidance originally, we mentioned that we were basing it on existing prices, and prices have moved considerably. And the recent April signing of the contract in India implies that for the rest of the year, we have an upside of about $80 million, not taking into account some of the price moves in recent days. And we factored in about additional $30 million of logistic costs, so roughly about $50 million and then we exceeded our plans for Q1 by about $20 million, so those two factors, the net upside in potash prices and the overachievement in Q1 brought us to this update. Another thing that I want to clarify is that we’re talking about a guidance that is basically 3.85 times EBITDA of the first quarter, which is roughly a linear extrapolation, whereas the fourth quarter is usually weaker for seasonal and other reasons. So that’s pretty much how we got to the updated guidance bottom up. I also want to clarify that this doesn’t include any upside from the Brazilian acquisition. Given that we don’t have any final clarity on when the closing will happen. Right now, we’re pretty optimistic that the results of Brazilian acquisition will be consolidated for most of the second half of the year. So if that happens, then there’ll be room for additional update of guidance as well. So again, it’s bottom-up based on linear extrapolation. And taking into account some update of pricing of potash, net of additional transportation logistic costs. And not taking into account the possible effect of the consolidation of our recent Brazilian acquisition. I hope that clarifies. And again, keep in mind, yes, maybe we’re a little conservative. It’s the first year. We feel that we must be very, very responsible towards our shareholders. And we don’t want to overpromise. We want to manage this carefully. We appreciate your patience.

Thanks Raviv, that’s very clear. Maybe one more question, if I may, specifically on Industrial Products. By my calculation, your volumes are up about 10% versus 2019. In this quarter how would you expect that to evolve going forward into the next couple of quarters? Did you think there’s any unsustainable element there where customers are restocking? Or on the opposite side, a couple of your competitors, one of them has been talking about issues related to flooding in their plant in the first quarter, impacting volumes in the second and third. So is there any potential for market share gains? Thanks.

Okay. So fundamentally, we’ve gained market share, and we’ll continue to gain market share, but actually not from our competitors. But based on the strategic shift we made to long-term contracts, basically, some of our customers that used to produce their own compounds have transferred production over to us on a long-term basis. And this means that our market effectively grew, and we grew market share, but not so much on the account of our competitors. Now due to post-corona rebound, first of all, we’re sold out at least until the end of the third quarter. And all of our capacity that we thought would take between one to two years to fill, all our capacity has been filled out, and we actually cannot accept additional orders. So the unfortunate weather issue that affects our competitors, unfortunately, we’re not going to be able to benefit from that too much because we don’t have the additional capacity that is necessary. Our additional capacity has been booked up. Some effect of that may be some additional acceleration in prices. We see bromine prices at record highs at this point. So until there’s – we are reaching out for some additional capacity. But in the short time – but in the short-term, there’s a undersupply or over demand in the market. And so the short answer to your question is we’re not going to be increasing market share additionally to what we already did in the next couple of quarters because we don’t have enough capacity to do so.

Excellent, thank you very much.

Thank you. The next question comes from the line of Tom Wrigglesworth of Citi. Please ask your questions.

Raviv, Kobi thanks so much for the presentation. So just thinking a little bit about your position in Brazil, you talked about critical mass. Does that mean the dial is shifting now away from inorganic growth, towards organic growth? Can you elaborate a little bit more on where you see this business going over the medium term? And really what the Compass Minerals acquisition crystallizes for ICL going forward? That would be helpful. The second question is, you quoted raw material pressure in Industrial Products. Is that the co-products that you’re using for the polymers that you’re citing now? I wasn’t expecting to hear that terminology in Industrial Products, given your integration into the building – into the elemental volumes. Yes, those are my two questions. Thank you.

Yes. There are some raw materials that are critical for some of the flame retardants that we are producing that we saw some shortage in. And as a result, prices have gone up. We see that more of a logistical issue for production. And now it seems like it’s leveling out. We don’t really see the pricing issue there because basically any significant price pressure from that side is pretty much rolled over to the ultimate customers. So that’s the dynamic there. But can you remind me what your first question was?

Okay. Well…

On Brazil – sorry, sorry, sorry, yes. I was so excited. It’s a great question, and I was so excited about answering it. I lost it. So anyway, the way to look at it is that Brazil is the number one market in the world, actually, for Specialty Fertilizers. Brazil and China account for 70% of growth of global markets. And as our strategy is to become leaders in this market, we’re very significant in Europe and some other regions. A big component of our strategy is becoming significant in China and Brazil. In China, our strategy is based more on organic growth and leveraging some of the capabilities of our joint venture there. In Brazil, in order to reach a critical mass of production distribution, and it’s not very effective to compete from outside going into a market that has the volatility in exchange rate and local inflation. So it was clear that we need significant production and distribution in Brazil. And we targeted a few companies. And fortunately, for us, because all the stars came into place, we are acquiring the leading player in Brazil. And pretty much, that makes our dream come true. And this M&A is the basis for all of our business in Brazil, so some of our traditional business in Brazil will be consolidated into this new acquisition. And we have Fertilaqua that’s playing in the biostimulants niche of the market. And on that foundation, we intend to focus on organic growth in Brazil because both of these businesses are growing at double-digit rates. They have great distribution, great product. We’re going to add to that additional capabilities that we bring from ICL and that can enhance the organic growth and although there is some non-Brazilian sales very, very little, and there’s potential based on existing products to grow that. We’re, first and foremost, going to grow – focus on growing the business in Brazil. And I guess the way to look at it is the market we’re targeting, the global market is a $14 billion Market, growth is in China and Brazil. China, we’re executing successfully organic growth. Brazil, the only way to do it, given currency inflation, et cetera, is to get critical mass through M&A. And we’re lucky enough to acquire the best company out there, leader in the market. And so we that currently have about 6% of global market are going to get to 9% and close to 10% through this new acquisition, actually the two acquisitions, but mainly the recent acquisition in Brazil. Our leadership strategy has to do with becoming leaders in Brazil. This acquisition will make us leaders in Brazil. And from this point forward, the growth in Brazil will be, first and foremost, based on organic growth. Remember also that we have a strong commodity business in Brazil. We sell between $0.5 billion to $1 billion of potash and phosphates per year in Brazil as well. I hope that answers.

Perfect. Thank you very much. Just a follow-up on that, obviously, you’ve got expertise in phosphates and expertise in potash. As you think about the building blocks of this business, do you now – is it – do you think the need to secure merchant supply is critical given that NPKs play a lot of – play a strong role into a lot of the cash crops in Brazil?

I don’t think that we’re lacking in distribution capabilities for potash and phosphate. And I don’t think that the main synergy or the main – or any main part of our execution strategy in Brazil has to do with complementing our ability to bring in phosphate or potash or any other commodity into the Brazilian market. Compass Minerals soon to be called ICL South America is a very competent company, and we want to focus on specialty offerings and unique product offerings. And even more so on the direct relationships that exist with farmers, the great thing about Compass is that over 50% of the sales are direct to farmer, and that’s very unique in the world of Specialty Fertilizer, and we intend to capitalize on that.

Okay. Thank you very much. Thanks for the color, very, very clear.

Your next question comes from the line of Joel Jackson of BMO Capital Markets. Please ask your question.

Hi. This is Bria Murphy on for Joel. Thanks for taking the question. Is ICL looking at minimizing potash tonnes to China and diverting them to a higher priced market instead? Or is there not much flexibility there?

First of all, yes, in current market conditions, it makes more sense for us to sell elsewhere. We expect though that the conditions in China will improve because there’s a significant disparity between the formal import price and the local price, I think there’s a spread of over $100. So we think that there will be rationalization there, probably before the year is over. So we expect new contract negotiations toward the end of this year. And in the meantime, to make sure that you get your answer, yes, we’ll divert some of our China product elsewhere.

Okay. Thank you. And then just on Polysulphate. Obviously, sales volumes continue to ramp there. Is the business profitable yet? And if not, what needs to happen to get to profitability?

The business is not profitable yet. We still – we’re producing at a rate a little lower than 1 million tonnes, and we need to get to over 1 million tonnes. We feel that, that will happen this year. The other side of it is that we need to demand a higher premium on the selling price than currently is happening. We expect that this will evolve over some more time as a premium is deserved for organic fertilizer, and we see – we’re getting those premiums in Europe, not so much in other territories. So we’re still challenged to demand the kind of premium that we need in order to turn the business to profitability. But we are making advances, and we feel that we’re going in the right direction.

Thank you.

Thank you.

Thank you. The next question comes from the line of Laurence Alexander of Jefferies. Please ask your question.

Hi, everyone. This is Maria Melina [ph] on for Laurence. Thanks for taking the question. Could you please comment or elaborate a bit more on the impact of the rising shipping cost? Is it advantage and net benefit because it’s deepened the cost curve? Or how do you see it shaping out this year?

Well, I think, Kobi mentioned and presented in the long run, it’s to our advantage relative to competition because we’re well positioned from a logistics perspective. In the short run, there’s been a spike in transportation costs. So if – on Indian contract, the price increase was $50, $20 is additional freight costs. So we’re netting an additional $30 out of $50. And of course, one of the reasons that the negotiation ended up where it did is because the customers are starting to understand and of course, this will be the case elsewhere. We see – we’re selling in Brazil now at $365, Europe prices are going up, U.S. prices are going up in recent days. So the world is adjusting to the new freight transportation costs.

Thanks. And just a short follow-up question. You mentioned a few markets that are still slower in the recovery, such as automotive or oil and gas. Do you see any positive movement there? And how do you see it change in 2021 in the rest of the year?

Yes. Automotive is actually back now. Towards the back end of the first quarter and in April, we saw one of our new facilities, one of the capacity upgrades was for an automotive flame retardant. And we thought that it would probably not fill up until the end of the year, and it’s filled up over the past 1.5 months or so. And we see that automotive has actually come back since November, December. But given high levels of inventories in automotive, it’s taken some time to get down the supply chain. So we’ve only felt it recently and most of the first quarter was soft. But from this point forward for the rest of the year, we see it – we see automotive fully recovered. Oil and gas is – we think it’s not going to completely recover until the end of the year. We have a very profitable line of clear brine fluids and to give you a sense of what has changed, it’s gone down from over $50 million last year to a little over $30 million this year in the first quarter, which means that we’ve had a drop to $21 million in sales, which account for about 40% of total sales. It’s actually much better than a quarter or two ago. I think we had a quarter – I don’t remember if it was the second or the third quarter, but total sales were like $3 million or $4 million. So it has come up, but – and in some regions of the world completely, but we expect that the recovery will take until the end of the year. I do admit that we didn’t expect oil prices to rebound so quickly.

Okay. Thanks for the color.

Thank you.

Thank you. [Operator Instructions] Your next question comes from the line of Mark Connelly of Stephens, Inc. Please ask your question.

This is John Rider on for Mark. So you’ve talked about how the automotive business has recovered nicely, but producers are continuing to talk about ship shortages. Do you have any view of whether the issues automakers are facing will impact your own demand maybe later on this year?

It’s difficult to say because as I mentioned there’s a lag of two or three quarters between whatever happens in the end market of automotive until we feel it. But I think part of what we’re feeling is also a certain shift to EV. Electric vehicles demand more electronic components that need flame retardant. So I think it’s also not just the issue of total size, but also the mix of the new demand for products. It’s a partial answer, but it’s really all I have.

Right. That’s helpful. And then can you just give us a little more color on the phosphate specialties growth and where you think the growth will come over the next year, both in product and geography?

Sure. We’ve said many times before that our strategy was to get from about 45% to about 70% specialties in the mix. And this quarter, we plan to be over 60%, but because of a good thing because the rise in commodity prices, we ended up at 54%, I believe. So we’re growing steadily. The specialty business is driven mainly by growth in our food-related innovation, which is actually not just phosphate. Some of it is phosphate and some of it is alternative protein. And the business – that business is growing at a rate of about 10% right now. And the EBITDA of the specialty business is currently about 13%. So it’s a healthy business despite the relatively large investment and innovation, which we hope will bring good results for the future. Despite that investment, it’s still 13% EBITDA business, growing on the strength of food innovation, partly phosphate and partly alternative protein. The industrial specialty products have shown a slower growth, almost no growth this quarter, but technical grade white phosphoric acid is – was up nicely.

Okay. Thank you very much.

Thank you.

Next question comes from the line of Anne De Place of Burgundy. Please ask your question.

Good morning, Raviv and Kobi. Congratulations on a really strong quarter.

Thank you.

I wanted to ask you about potash. Could you talk a little bit about the strength of the up cycle that you’re seeing? Maybe talk about what you expect for demand for the full year? And kind of how you see the supply dynamics going forward in the next year or two if you can? Thank you.

Sure. First of all, I’d like to use your question to call out that, I guess, in the past, the company’s growth or performance was completely dependent on potash prices. And I sort of want to call out that if you look at the results of this quarter, then potash prices went up by 3%. But if you look at the four divisions, potash came in number three. And in fact, if – we happen to be a little late by about two weeks on the start of the connection of the ramp in Spain. And so our production halt started late. So we had better-than-expected results in Q1. By the way, we’ll have a little less than we wanted in Q2 because of that. If that hadn’t happened, potash would have been fourth, fourth out of four divisions. Now that’s the good news for ICL because our strategy focusing on specialties is really coming through, and we’ve created a growth that we can live with for the years that we planned until 2025 when we intend to reach a sustainable double-digit growth. So bromine based on long-term contracts and new developments in agriculture, additional capacity, M&A and product innovation. Food, I already talked about – phosphate and food already talked about. And now potash, there are two things that we’re doing. One, as you know, we increased capacity in the Dead Sea. And we finalized in April, the connection of the ramp in Spain. So we’re poised to get to 1 million tonnes this year, and then we’ll go to a 1.3 million tonnes of capacity within the next two years. And luckily, in terms of timing, everything is coming together and potash prices are showing strength, resilience, I would say, we were selling in Brazil just a little…

Thank you, Raviv. Very helpful. And again, congratulations on the quarter and a lot of work for a turnaround in the last few years.

Thank you very much.

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

We’d like to thank you all for joining us on our first quarter call. We look forward to talking to you again after we report second quarter earnings. Good day.

That concludes the conference for today. Thank you for participating. You may all disconnect. Speakers, please stand by.