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.

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.

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…

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…

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

Great. Thanks so much for taking my questions. Two, if I can. The first just on the guidance that you mentioned, if I take the specialties EBITDA you did in Q1, which I think is just around 235 and multiply by 4, very simplistically, I get to less than 1 billion. And obviously, Q4 is usually smaller. So it would be great to get an idea what gives you confidence in the 1.1 billion you're going for? Is anything you're seeing already in terms of the inventories that you're going to be selling in three, six months time being low priced, or the order book in China improving, but more about what you expect to happen in terms of the order book improving in the second half of the year? And then the second question on capital allocation. Last quarter, we talked about a possible buyback, which you said at the time you're discussing and would revert to the market with a decision either way by Q1 results. So now we're here, it would be great to hear an update on what your reasoning was for not proceeding if that is the decision? Thank you.

All right. Thanks, Alex. So I'll start with specialties guidance. Our plan for the year assumed and continues to assume that in two of our divisions, in Industrial Products and in Growing Solutions, the first half of the year will be softer than the second half of the year. In fact, we mentioned in the past that we expect to get back to 2021 numbers this year in both those divisions. But the way that the year is expected to progress is that we'll be less than those levels in the first half of the year and then higher in the second half of the year. In terms of -- on Phosphate Specialties, it will be more straight line for the year. So we don't expect a big change there. So that's where the -- that's where our assumptions are, and we don't see any significant evidence that things should behave differently. We have been disciplined in our bromine business. So if you look year-over-year, actually our prices went up, which means that we preferred value over volume and behave discipline. And this is something that we expect that it's in our control. So that's on the specialty side. You want to add something?

Sure. Hi, Alex. On top of what Raviv just explained to us, I want to reiterate the issue of the inventory. So basically, we are working through, like much and much of the industry and I guess other industries as well, from a high cost inventory. That obviously is a result of purchases and production of last year. And when we look inside, we see that in all three specialty businesses on the agricultural side, the IP side and to a lesser extent but since then [ph] on the phosphate side, our replacement cost for our inventory would be lower. Now this has impacted our Q1. It's one, if you look at the waterfall, the high cost inventory is a part of why we came to 610 million of EBITDA and not beyond that. And our assumption, knowledge is that as the year progresses, this will have a lesser impact. And therefore, that's another contributing factor to the EBITDA of the specialties as we go along further into the year. We take the two, and I think you can paint for now the picture what we're talking about.

Yes. Both raw material costs, transportation costs and energy costs are going down. On the second issue, I'm glad that you asked because I promised to get back to shareholders. And if you hadn't asked, I would have provided the information anyway. We had a constructive discussion at the Board level about returning additional returns to shareholders. And the general consensus is that we're happy with our policy of 50% dividend, which ended up at the $1.1 billion of return to shareholders last year. And we continue to return 50%. And in the long run, we think that the return that we're providing on a normalized basis is appropriate. There was also an understanding that when returns are abnormal, and definitely 2022 and to an extent 2023 are higher than normal profitability years. And so there is an understanding that in such cases, in terms of optimal capital allocation, there is room to consider additional return to shareholders. But at the same time, there have been developments in the last few months. And one main development is that as you know, we're moving into the cathode material business. And new significant opportunities have opened up for us, opportunities we're very, very excited about, which will also require larger deployments of capital, because to begin with, we're setting up the first cathode material plant in the U.S. in St. Louis. But given the negotiations we have with potential customers and partners, it looks like we're going to be moving faster, more aggressively, because of the opportunities that have opened up to us. And therefore, before we conclude on capital allocation, we're going to have additional discussion based on new data that management is going to provide regarding what our ultimate needs are going to be in the next 12 to 24…

Thank you.

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

Hi. I hope you can hear me. Just a couple of questions, please. First one is on the volume development in Industrial Products. You're talking quite positively about the second half. Just wanted to kind of gauge where that confidence comes from? And if that's why I assume that's predominantly market driven in terms of recovery, just trying to understand what gives you the confidence that there will be such a stark recovery in the second half given nearly 30% volume decline in the first quarter? I know the comps get a little bit easier, but still just some comments around that would be helpful. And then just some thoughts around the comments you just made on the cathode materials side. I think you've talked about highlighting what the CapEx needs could be. I assume this is done within the framework of the 400 million that's been previously announced? Or is it just more timing in the sense that you're going to spend that money quicker than previously anticipated? And just on that project, are you able to highlight any single round returns for that project? Or if you already contracted out volumes and you kind of go from sales or from take or pays on the production from that client? Thank you.

Right. Thanks. So let's start with the flame retardant market, mind you that about 70% of our business is contracted for long term. So we don't -- we're not that worried about the market share. So in an environment where there's hardly any spot activity, and that wasn't the case in recent months, we're not running after business and trying to endanger our long-term value over volume business. What is transpiring here is a cyclical situation. And we've been through quite a lot of cycles. Last time, the market was in this place was during COVID, in the beginning of COVID. And typically, these kinds of cycles take three or four quarters. And that's where we are. We are quite a few months into the cycle. The reason we're confident about recovery is that ultimately, there are purchases of television sets and PCs and definitely electric vehicles, even though in the short term maybe because subsidies were halted and in China and there was some issues in the supply chain, the long-term trend is definitely significant growth of electric vehicles. We're confident that the long-term growth of electric vehicles and the cyclical nature of consumer purchases is going to bring back the demand. We also see the destocking. We're very much aware of the data regarding destocking in these products. We're in good touch with our customers and we know where they're at. And it's not to say that we have an exact date on when exactly the change is going to come. But we have a very good idea about it. And of course, we could be surprised, but we're not going to be surprised in a major way. So that's on flame retardants. And just to give you an idea, most of the volume loss, if you will,…

Very helpful. Thank you.

Thanks, Mubasher.

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

All right, I hope this works. Perfect. Good afternoon to you. And thank you very much for taking my question. Two quick ones. So the first, if we kind of look at the guidance you've reaffirmed and there were certain signs during the quarter where you've actually held up relatively well, particularly on potash but also to a degree on phosphate. And we've talked a little bit about the cadence. But I wanted to see if you can give us a little bit the scenarios, upside-downside case as to the higher end of your guidance range versus the lower end of the guidance range where you see the risks and opportunities within your outlook currently? And then I have a quick follow up as well. Thank you.

All right. So first of all, not everything went perfect. One big -- thanks for your question, Ben, I forgot to say. First of all on potash, we were expecting the India contract to be concluded at the end of February, beginning of March. And we were expecting it to be concluded at 450. That creates a little bit of change in our view, but not really significant because the India contract is 422. But at the same time transportation costs went down and also exchange rates work in our favor. So that's a very small change. At the same time, we also delivered 100,000 tons less than we expected in the first quarter because of the last minute delay in the India contract. We deferred 100,000 tons to Q2. So that also changed the way we performed in the quarter versus what we expected. And also on Growing Solutions, our numbers came in a few million dollars less than we expected. Again, Aviram talked about the inventory issue. We thought it would be a little better. So our Q1 is almost on budget, not entirely 100%. In terms of what the other scenario could be, we think that potash prices are pretty stable right now around the U.S. Europe, of course, prices are going down slowly and surely, but they're still way above other markets. And in India, of course, they're stable. There's still some downside risk from China and Brazil, and I'll explain in a minute. So we took into account certain flexibility and what can happen in the second half of the year, especially in the fourth quarter. And I'll get back to the explanation on the market. In Brazil, it's like two different markets now [indiscernible] K plus S, ICL are not selling product less than…

Yes, that helps. Thank you.

Ben, this is Aviram. I think these are the main factors were obviously articulated by Raviv. I'd like to draw your attention that also China as a market, we're also a manufacturer in China. It seems that we are on track. And that's what we factor in to deliver our budget for 2023. In China, [indiscernible] the YPH part, again, the signs from China these days are good. Initially, the first quarter was on the vehicle side, on EV side was down, but it's picking up now. There's a lot of topics that relate to on China to the extent to which they opened their market, so that's maybe one more thing I would single out that we need to look at. And the final piece, which would give us quite a lot of comfort at this time is the phosphate side. We assume that it will continue to be strong, is currently very strong on the specialty side, and it is holding up.

You're right. I should have mentioned that our phosphate results are beyond our original budget. So that's the way that we made our budget in the first quarter.

You actually already responded to my second question. It was all around China and what you're seeing there in terms of like the cadence, et cetera. So I'll leave it here. Thank you very much and congrats on the results.

Thank you very much.

Thank you, Ben.

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?

Hello. Can you guys hear me now?

Yes, we can hear you.

Hi. This is Will Tang on for Vincent. Thanks for taking my question. You mentioned Boulby reaching record production this quarter even as maybe fertilizer demand more broadly seems weaker than expected. Can you talk about kind of the demand drivers for polysulphate which may be different from commodity fertilizers, and I guess the current profitability and the outlook for the business there?

The main drivers are good solubility, sulfur content, and the fact that it's an organic fertilizer. So more customers are getting to know the product and have gone through extensive field trials. So we can guarantee very good results. Having said that, it's not a gigantic market. It's less than 1 million tons a year. So fortunately for us, we're alone in that market and we're developing it well. And we see that as commodity prices are going down, the poly prices are going down marginally. Okay. There's a potash component. So that tends to cause some reduction in price. But in general, prices are holding up nicely. By the way, poly, it's not just the pure product. It's also a whole family of products that we call FertilizerPlus that we're developing, and we combine the polysulphate with other micronutrients and other characteristics.

Got you. And then maybe a different question here. But I guess, given the incident at ICL Iberia, what are your expectations for the production ramp up schedule there? I think previously, last time you spoke on it and talked about maybe reaching 1 million tons run rate by the end of 2023. Has that changed at all? And then wondering if you could go into more detail on what you guys are expecting for that?

It hasn't changed. But at the same time, until we get there, we'll have some more pain. It has to do not just with the incident. This incident didn't take us back a lot other than make us feel terrible. What the real issue is the geology there. And the main thing that we have to get through is that we're working our way towards a mining area that's going to last for a very long time and is much more rich in mineral than where we currently are. And unfortunately, we've been working our way for the past year or so. We still have about 9 to 10 months until we get to where we want to get. So we're behind our ambitions all the time, and will for sure be below our higher expectations this year. But the other side of that is that even though we will be a few tens of thousands below, in terms of our overall sales forecast, it's not going to change because we started the year with the inventory. So we are going to be able to sell 4.7 million to 4.8 million tons that we forecast for the year.

Got it. That's super helpful. Thank you.

Thank you.

You have no further questions. Please proceed.

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.

Thank you very much.