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.

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 website at icl-group.com. Earlier today we filed our reports with the securities authorities and the stock exchanges in the US 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 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 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 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.

Thanks, Peggy, and welcome, everyone. Today, we're proud to report record annual results for 2022, with sales of more than $10 billion and EBITDA of more than $4 billion. All three of our specialty solutions businesses delivered record performance in 2022 as we benefited from the results of our long term strategy. We also saw very significant commodity upside as several macro events collide. First, the Ukraine-Russia conflict greatly impacted global agriculture in 2022 and resulted in elevated grain prices, which in turn, drove prices higher for crops and livestock. The global gray stock to use ratio ended 2022 at its lowest in more than a decade and is forecasted to remain tight into 2023. Due to global concerns, increases in fertilizer prices accelerated in the first half of 2022, but moderated in the second half. There was an estimated 5% decline in global fertilizer consumption in 2022, and farmers who skip treatments will need to reconsider their decision in 2023. Farmer affordability and sentiment improved toward the year end, and as there is rising concern over global food crisis, fertilizer volumes are likely to trend upward in 2023. In December, the Purdue University had an autonomous barometer jump and the biggest improvement came from farmers assessment of their current conditions. Farmers were more positive about the future in December and showed improved sentiment regarding their financial conditions. Meanwhile, consumer spending patterns shifted as inflation and interest rates reduced buying power. While the effects varied regionally, they impacted some key end markets for ICL such as electronics, housing and automotive. The recent reopening of China will influence developments in the months to come, as will the increased momentum in ESG related spending. The electric vehicle revolution remains a bright spot as countries continue to invest in competing mobility transformation technologies.…

Thank you, Raviv and all of you for joining us today. Let us get started on Slide 15. While Raviv already addressed, some market trends and our outlook. I would like to call out certain macro highlights impacting ICL, our peers, suppliers and customers. While inflation has moderated somewhat, it remains high, the cost of living slowed in 2022 and consumers ended the year paying more for food and energy, especially in Europe. Across the many regions and end markets where we do business, trends diverge in 2022 and the variances became more pronounced as the year progressed. In general, growth has tempered on a worldwide basis with conditions expected to continue in the first half 2023. While commodity prices are moderating from the peaks we saw in the first half of 2022, fertilizer prices remain elevated when compared to recent history. Farmer sentiment recovered at 2022 came to a close and affordability also began to improve. Supply chain disruption appear to be easing for the most part, but there are some remaining constraints. Our phosphate specialist business is still facing challenges, and these are expected to continue in the near term. Finally, the geopolitical situation remains uncertain with no resolution to the Ukraine-Russia conflict inside after nearly one year. Meanwhile, as Raviv discussed, the recent reopening of China is going to influence developments in the months to come and how this will evolve is yet to be seen. On Slide 16, you can see the Chinese commodity trends with prices moderating, but still ahead of previous levels. Potash prices are back in line with the third quarter of 2021 as our prices for phosphoric acid. Rate continued to stabilize and has returned to pre-COVID rates. Sulphur prices returned to levels not seen since early 2021. Throughout 2022, we were…

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

Hi. Thanks very much for taking my questions. Two if I may. The first on the balance sheet, I guess, is you mentioned net debt to EBITDA at 0.5 times. Have you thought about using that to create additional shareholder distributions either in the form of extra dividends or even share buybacks? And then the second question on Industrial Products. I guess volume is down 30% year on year this quarter. Was there any element there of you sort of somewhat curtailing volumes to give support to the market prices as we might have seen in the past? And if so, how long do you think that might last and what does that tell us about sort of the price outlook for your industrial products business in 2023? Thank you.

All right. So I'll start -- Hey, Alex. I'll start from second question and then go back to the first because Aviram want to add to that. In terms of industrial products, the seasonality is -- the usual seasonality that we see every end of year. Last year in the fourth quarter of 2021, we had an out of the ordinary quarter for a few reasons. One reason was, it was the peak of the hike of buying TVs and other home appliances that require certain flame retardants. Building -- and our customers building inventory to get through supply chain challenges. So there was an extraordinary demand even beyond our annual contracts. At the same time, our competitors had some production issues, everything from hurricane, bad weather effect and force majeure on chlorine production. And the result was an outstanding quarter. If you look at the previous years, you'll see that every year there was seasonality in the fourth quarter. Coming back to the curtailments, I wouldn't call it curtailments, I would call it value over volume strategy. Our strategy is that, at a certain price makes more sense for us to keep our product, because we feel that we can sell at a higher price later. So we don't -- we're not looking to increase our market share, we're looking for maximum value creation. And what we expect is that, in the first few months of next year we'll see some softness around flame retardants for electronics and construction somewhat balanced by peak in demand for clear brine fluids. And some flame retardants that have to do with electric vehicles. And that's why we're saying that after a few months in the first half of the year, we expect that the normal cyclicality will bring a stronger second half. Second half, not like 2022, which was an exceptional year, but a second half that will bring this year's industrial products division performance to somewhere around the 2021 performance. So that's on industrial products. In terms of capital allocation, dividend and buyback, we said on the last conference call that we came to a conclusion that 50% to 60% is what we feel that we can distribute safely in a way that will allow us to execute on our five year plan, with the resources we need for M&A and other needs, capital expenditures, et cetera. Every end of year we debate in our Board of Directors about what the right kind of distribution is and we are debating the issue of a buyback and whether to bring that into potential 60% distribution. So as soon as we'll have news that we can formally communicate, then we will communicate, either way, of course. You want to add to that?

Just one thing. It's perfect. We checked ourselves as -- we constantly look at the market and we find ourselves that it's really the upper part of the companies that pay back to shareholders already at 50%. If we had to stretch that beyond that, that could be something quite exquisite. But we are constantly monitoring this and it's not off the table for sure.

And maybe one more thing I would add is that, you see we created free cash flow of $1.3 billion this year and we just distributed about $1.2 billion. The realistic free cash flow was a little more than that because we used over $250 million to take care of some previous year items, namely the tax dispute that we had for many years, the [Shashinsky] (ph) profit levy in Israel, as well as we closed some environmental issues that we had from 2017 and before. So we had some other use for cash in 2022. And at the same time, we're starting 2023 in a much better place, very, very strong balance sheet and also clean slate with some challenges that we had in the past. Hope that answers.

Thanks, Raviv. Just maybe to follow-up on the buyback discussions you're having, do you have any timeline that we should bear in mind for hearing about that either way? Thank you.

Yes. The timeline is before we report -- well, let me put it another way. Latest we will report back to you on this when we report our first quarter results. Latest.

Thank you.

Thank you. Our next question today comes from the line of Ben Theurer from Barclays. Please go ahead.

Yes. Good morning. Good afternoon. Can you hear me?

Yes.

Yes. Hi, Ben.

Okay. Perfect. Well, thank you very much. And first of all, congrats on a record year in 2022. As well, two questions, if I may. First, just looking into 2023 and some of the demand drivers you're seeing out there and what you're seeing on the contracting side. Can you share a few insights or maybe anecdotes what you're seeing for demand in the different segments. You've laid out a little bit of a trajectory on the industrial side, but also more on the commodity piece, but also just the seasonality you used to have, how should we think about the cadence into 2023 from a demand perspective? That would be my first question.

Okay. Thanks for the question. Since I discussed industrial products, I'll say that on phosphate specialties and growing solutions, we'll see the same kind of seasonality that we have every year, which means pretty flat all through the year with a little bit of softness on the fertilizer side in the fourth quarter of next year. In terms of commodities, lately I would say since November, we see healthy demand in some markets, namely in Brazil, there's very strong demand. And even now, which is the 15 of February, we already sold over half of the annual allocation of potash to Brazil to be delivered in the first half of the year, which means that there's ample room to sell a lot of commodity. We're pretty sold out for first quarter, we’re sold out on potash for the first quarter, we’re sold out on phosphate until the end of the second quarter. If we look back to previous years, that's more robust than in the past. The lowest price in the world right now is in the US, which is why we're not selling in the US. I think we sold only a few thousand tons that we had the commitments to the US, but we have no reason to sell in the U.S. at this point. Brazil very healthy. India needs product. China, there's still inventory. Contract in India is going to be soon. Contract in China, I honestly don't know. I don't think anybody is in a rush at this point since like I said, there are healthy markets to sell in. In terms of India, even though I said, it's very soon. We're in no rush because we don't have any product left for the first quarter. So we don't mind if it takes a few more weeks. But I think that it will be relatively soon, because I think India needs products. I hope that gives a little color

I would maybe -- maybe Ben, just to add one thing, if you look at few things, first of all the price of commodities, agricultural commodities, they are high and they remain high. You couple it with the reduction that happened in fertilizer prices. Both the sentiment that's being tracked by Purdue among others and also the affordability for the farmers is much better and if you couple it with the fact that some of them in certain areas have omitted to commit fertilizers, then it -- you have the ingredients that will make quantity wise 2023 maybe significantly more robust than 2022. So, you have more quantity, somewhat lower prices that we've used before and ultimately this should pick up closer to the agricultural season, to the height of the agricultural seasons if it makes sense to you.

That's perfect. Thank you very much for that clarification. And then the other question really just more long-term strategic and if we take a look at the cadence and if we were to just exclude the 2022 for a moment, it’s a very abnormal year as it's been described. When we take a look at the cadence of growth of EBITDA over the last couple of years from what we had pre-pandemic particularly the specialty business basically expect it to be close to double where it was prior to the pandemic, if we think about what you need to achieve your 2027 targets you've laid out just a few months ago. Is it fair to assume that just as markets continue to work out that with the assets you have and the focus you have and the investments you do organically that's enough to achieve the targets or should we think of the need to add on a little bit on the M&A side to really drive this business to the profile you're looking for in about three, four years’ time.

Well, thanks for that question. I think the way to model it and again we gave the numbers in our five year plan that we presented, like we doubled in the last five months, we're looking to double in the last five years, sorry. We're looking to double in the next five years. In terms of profit margin, the profit margins that are reflective of the long term business or more like the profit margins in 2021 than they are in 2022, but the double digit growth in specialty sales will continue and there will be some margin incremental increase every year, of course, there will be some movements that are not controllable, but over the long run there'll be some margin expansion in the specialties businesses. So if you model special -- if you model specialty phosphates and the growing solutions based on middle double-digit margins with the sales growth that we've seen in the past, you will get to the numbers. If you add to them M&A that will account for about 30% of the revenue growth in growing solutions and about 15% and the growth of phosphate specialties. I hope that's not too much information. As far as industrial products is concerned, the growth will be organic, unless there is some unexpected development. We don't need M&A to hit our targets. We have relatively aggressive target for industrial products, but we have a very detailed outline plan that we feel confident about. So our R&D is in place, our operations in place, the plants that need to be built are either in planning are being built, we have tremendous new opportunities in specialties because of what's happening in the electric vehicle space. And other than commodities, which will be cyclical and we'll be happy to get -- we'll be happy to get same conditions as 2022, but we're definitely not counting on them. So long-term margins will go back to 2021 margins for now, they will incrementally increase every year until 2027 and the growth will be organic, other than 30% M&A in growing solutions and 20% in phosphates specialties.

Thank you very much.

When you think about M&As, especially in the agricultural side, it can come by one of two ways, it’s either portfolio or geographies or both of them. So we speak a lot about portfolio, but we also have massive plans about geographies, and it might be that we will opt to shortcut and do some M&As in order to support geographies as well. So, bear it in mind, with the new five year plan we are definitely looking and we're looking in all directions as long as it's synergetic, as long as we can add value to the acquisition not an acquisition per se. Thank you

Perfect. Thank you very much.

Thank you.

Thank you. Our next question comes from the line of Kyle Caunt from Citi. Please go ahead. Go ahead, Kyle

Hi. Sorry I’m on mute. Firstly on your specialties guidance $1.6 billion this year, $1.1 billion next year. Can you give us an idea on the bridge break down between the different Specialties divisions that would be great? And then my second question on the flip side, obviously, that implies a commodities contribution of $1.1 billion to $1.3 billion. What is your potash ASP that you're baking in to arrive at that guidance? Thank you.

Okay. So, like I said before, when you look at industrial products, then we're looking at numbers that are almost identical to 2021 with the exception that behave -- the seasonality will be different, given that we're starting the year with a slow start, second half to be higher. On specialty phosphates and growing solutions will see a growing trajectory through the year, but we'll go back to the 2021 margins for the year. So that's the way to think about specialties and that's how we got to the $1.1 billion, which is a conservative estimate for the modeling that I just talked about. And, again, some of the upside will be in the second half of the year, because of industrial products. On commodities, the way to maybe look at it is that, if you look at -- if you look at the fourth quarter, $700 million of EBITDA and you multiply that by four and get to $2.8 billion for the year and given that we expect a couple of $100 million upside on specialties and that means that we get to the upper side of our guidance, you need to take out about $600 million, $600 million would reflect the downside on commodities and, of course, about 80% of that comes from potash. So you get to close to the $500 million number for sales price of potash

That's great. Thank you.

Thank you.

Thank you. Our next question comes from the line of Joel Jackson from BMO Capital. Please go ahead.

Joel, you want to go ahead?

Do you hear me?

Now, we hear you.

Yes.

Okay. I have few questions. The first one is technical. I'm confused by your specialties' guidance for 2023. So, you -- sorry, if I look at Slide 23 and Slide 19, but Slide 23, so I meant 2022, so you say that specialties was $1.6 billion EBITDA for 2022, correct, Slide 23?

Yes. $1,573 million, if I remember correctly.

But when I add up the three segments, right, growing solutions, phosphate solutions and IP, I get to $2.1 billion EBITDA, which is what you're saying in several places is specialties. Is there some part of those three businesses, like, are you excluding [Multiple speaker] phosphate commodities?

You’re adding the phosphate commodities. You have all the details in our press release.

I do. So, what -- can you just bridge me the $2.1 billion to the $1.6 billion, why is the $500 million coming out of? Can you bridge that to me, please?

Phosphate commodities. It's in the phosphate --

So, $500 million in phosphate commodities.

In the phosphate solutions business. Yeah, it's just, phosphate commodities.

I can do that for 2022, if you want to or we can do this offline.

Okay. That's fine. I just want to make sure I understood. Okay. And then the other question, the potash segments, you talk about maybe averaging about $500 pricing in 2023, which is what you're saying for -- is implied, what about volume for the potash segment? So, what should we expect in 2023? What kind of production can you do from the different assets?

We're expecting production of about 4.8 million tonnes and we're assuming sales of 4.8 million tonnes. We do have some capability to go down on inventory and go up to 4.9, but in terms of modeling we modeled 4.8.

And then you get over -- you get to what 5.1, 5.2 by 2024?

Not by 2024. We get to 5.1 by 2026.

2026. Okay. And then I know that you are -- you always say -- you are typically followers in some of these larger potash contracts mixes get settled by the buying consortium in China and IFFCO, IPL, et cetera, in India, and you typically follow, we're getting into -- we are approaching contract season. Anything that you can talk about from what you and your team hears about the Indian contract? Is it going to be -- do you think it's going to be Belarussian settling something, then the other suppliers coming at a different tier pricing, do you think it's going to be Canpotex leading? I understand it's all conjecture and you're just sort of hearing what you're here, but how do you think the next couple of months are going to play out for these potash contracts?

I think, it's going to be settled soon.

And that's your [Multiple Speakers]

That's all I can say at this point.

Okay. Okay. I'll pass it on. Thanks a lot.

Thank you, Joel.

Thank you. Our next question, one second please, comes from the line of Vincent Andrews from Jefferies. Please go ahead.

Hey, guys. This is Will Tang on for Vincent. Can you hear me?

Yes.

Okay. Yeah. This is Will Tang on for Vince. Just one quick question, you guys called out an elevated inventory levels at the end of 2022 in industrial products. Was that a comment specific to kind of the flame retardants business or something broadly characteristic across all your end markets there, all your product categories.

Are you talking about our inventory?

Yes. I think all I heard was, elevated inventories at the end of 2022.

Okay. So our inventory levels in recent years have been tracking between 26% to 28% of sales. And we finished the year with 27.1%. In terms of where we see a higher inventory at this point, we see a higher inventory in industrial products, and again, because some of the flame retardants, some of our customers are stocking down, there's always a balance when you go down on production and reach lower efficiencies versus how much it costs to hold inventory. And in our case, it's better to not stop production or produce the inventory that we're sure we can sell. So In industrial products, the level of inventory we have is higher than we would probably like, but it's not unusual given the circumstances. And our other businesses were pretty much where we need to be in the phosphate specialties, a major supplier had a force majeure situation, so that also caused us to have inventory a little higher than we'd like at the end of the year. So we have two divisions that have higher inventory at the end of the year than we would have liked. But at the same time, we're well within our range, which again is 26% to 28%, actually 26% to 28.5% we had in 2018, we're 27.1% now, so we're still in a healthy place.

Just to add if I may that we have delivered plans in place to reduce that actively in every place where we have [indiscernible] excess inventory, it probably take us anywhere from one to two quarters, maybe a little bit more than that. But we'll get it back in line. I think the typical phenomena that stems from what happened in 2022 and the sharp differences that we are seeing these days.

Got you. And then I guess just a quick follow-up, if I may. Going back to an earlier question on your value over buying strategy there, buying down 30% industrial products. Is that what's characteristic of kind of, I guess, the sell through of the entire bromine market? Or is there somebody there who's kind of taking share from you guys on the back half?

Our position in the market is that, we have no problem increasing market share for one, two, but the price we pay is the price level. So we try to be disciplined about the way we make decisions And in some of the products, there's very, very healthy demand. So I mentioned the clear brine fluids. There's even some products that usually we don't sell very well that are suddenly a hit like we have a product that treats mercury emissions coming from coal. That's a product that actually was not very successful in recent years given that coal was almost outlawed. But now given the energy crisis suddenly, there's new demand. There's always some business that's doing well. And fundamentally, the most significant influencer in the foreseeable future is the electric vehicle industry, and we're very confident of the positive trajectory there. So seasonally, we always increase inventory in the fourth quarter other than maybe the one time last year because of the reasons I mentioned. So it's not out of the ordinary to have higher inventory at the end of the year in the bromine related product.

And looking forward to a rebound on the electronic side, which we believe according to our discussions --

And according to our experience.

And our experience that it's coming and some more inventory around the phosphorus side which would see a rebound in housing as interest rates start coming gradually down. So basically, this is an issue that we are totally aware of working through it and should sort itself out. That's the bottom line.

But on electronics, it's going to take a couple more months on construction. It will take much longer because the cycle there is longer. Hope that answers.

Yep. That's perfect. Thank you.

Thank you.

Thank you. You have no further questions. Please proceed.

Okay. So it's the end of the year for all of you guys as well. So thanks for being with us this year. Thanks for sharing your questions and listening to us. Thanks for allowing us to report. Thanks for believing in what we're doing, when you believe in what we're doing, we're very confident about the long term plan that we took upon ourselves a few years ago. We've been successful in executing in the recent five years and we're even more confident about the next five years. We kept even in the fate of lots of luck that we had this year. We kept our expenses intact. We were disciplined. We continue to be disciplined. We don't take ourselves too seriously and we execute, execute, execute and we're looking forward to reporting back to you our first quarter results. Thank you very much for being with us and have a great rest of the day.

Thank you.