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'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 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 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 financial information discussed on this call at any time. We will begin with a 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. Similar to the recent quarter, I would like to provide a brief update on the situation in Israel. While there are still challenges caused by the war, we have continued to minimize disruptions to our business operations and for our employees. While various operational challenges related to the war have persisted, including higher logistics costs, we have been able to maintain good production levels, thanks in part to the return of most of our employees who had been called up for reserve duty. Despite the unique challenges, we were able to execute according to plan in the first quarter, resulting in a good start to 2024. For the first quarter, ICL delivered solid sequential improvement as global demand appears to have stabilized, as most of the multiple end-markets we serve have begun to show signs of recovery. While there are some exceptions based on locations and other factors, gradual improvement should start becoming apparent in the various channels we serve. So, as we have said in the past, we will be agile and work to effectively manage the areas under our control and react with appropriate swiftness when necessary. Now, if you will, please turn to Slide 3 for a brief overview of the first quarter. Sales of $1,735 million and adjusted EBITDA of $362 million, both showed quarter-over-quarter improvement, although down versus the prior year, as expected. For the first quarter, we delivered $0.09 of adjusted earnings per share and will distribute a dividend of about $0.05 per share. Our longstanding policy is to pay out up to 50% of adjusted net income each quarter. We continued to focus on cash flow and generate an operating cash flow of nearly $280 million in the first quarter, with free cash flow of more than $130…

Thank you, Raviv, and to all of you for joining us today. Let us get started on Slide 11, with the external macro environment. While some of these metrics have moderated slightly and others are unchanged, there has been a steady uptick in geopolitical tensions. Regardless, experts and pundits still anticipate the global outlook to begin improving in the second half of 2024. As Raviv mentioned earlier, global demand appears to have stabilized and most of the end markets we serve have begun to show signs of recovery. Turning to Slide 12, inflation remained stable, as did interest rates. While housing starts in the U.S. declined in the first quarter, global industrial production is expected to improve as the year progresses. On Slide 13, you can see a slight decline in most grain prices, with the exception once again of rice. Farmer sentiment is generally stable and prices for potash and phosphate appear to have stabilized. Freight rates have also stabilized, albeit at an elevated level. On Slide 14, you can see the expected trend over roughly the next decade, for not only electric vehicles but also for energy storage. In North America, the demand for cathode-active materials used in both of these products is expected to become nearly equivalent by 2030. This trend is expected to result in gradually increasing demand for white phosphoric acid, technical MAP and for global LFP. If you will now turn to Slide 15 and our first quarter sales bridges. On the left side, you can see the decline for each of our segments versus the first quarter of 2023, resulting in first quarter of 2024 sales of $1.7 billion. Turning to the right side of the slide, you can see a year-over-year increase in quantities, which was offset by lower prices, especially for…

[Operator Instructions] Our first question today will come from the line of Ben Theurer of Barclays. Please go ahead.

Yes. Good afternoon, good morning, and thank you very much for taking my question. So two questions, actually. So the first is, you had a very good start within your specialties-driven businesses. Right? If we take a look just at these three, and you've just reiterated that Potash not being part of that, it was almost $250 million in EBITDA just in the first quarter, which sometimes seasonality-wise shouldn't be the strongest one. So just wanted to understand, within your expectations of the $700 million to $900 million for that segment, having had such a good start, what are the risks you're seeing of that sequentially throughout the year to kind of slow down, because otherwise we wouldn't even get to the $700 million to $900 million, would actually be run rate-wise higher. So wanted to understand that. That would be my first question. And I have a quick follow-up.

Hi Ben. Thanks for your question. Basically, yes, we started the year in good fashion, and obviously, the probability that we end up at the lower end looks quite low at this time. But at the same time, as you know, our country is currently at war and the world is sort of turbulent. So I think we want to take a conservative position. I think the general direction now in our Industrial Products division is positive moving forward, and we expect a price increase and accretion in the near future. Potash, you probably know as well as we do. So there's uncertainty there. But that has nothing to do with your question. Just, in general, turbulence in the world. We want to take a conservative view and that's where we are. Want to add anything, Aviram?

Yes, please. Maybe one thing, Ben. First of all, hi. What I want to add is the question mark around the behavior of phosphate during this year. We started the year on a very good note on both the specialty side or basically -- especially as specialty-driven -- basically all our phosphate business started on a very high accord. What we're seeing is a little bit the moderation in the price of the commodity side. The specialty side surprised us for the better because as we've -- talked about this before, there is some attrition in prices. But it was significantly less than we anticipated. And the commodity had a very good run late last year and in the first quarter. And we are not that certain about the continuation, how this will behave. So tagging along to what Raviv said, we're probably within the range, be in a better place. But it's a quarter and we want to take it with a little bit of -- with a pinch of salt, if you might say, and wait for another -- at least another one quarter to see where this is heading.

Okay, perfect. And then just coming back, as it relates to some of the innovation pipeline and the investments, particularly around just the battery technology and the opportunities you're seeing there, how much of -- like, how should we think about your dedication to research and development expenses, right, which I think falls within the broader SG&A, and you've highlighted some of the cost savings. And is it fair to assume that research and development is going to be unaffected from that?

That's a great question. Our aspiration on battery materials are that we want to be a significant technology player and capture significant market share. And therefore, we are taking the position that our business plan is not about creating a plant with the assistance of Department of Energy, but rather becoming a leading technological player. And the main thing that we're doing with regard to that is we're putting up our innovation and qualification center, so that we can work together with our future customers on qualifying their product. Clearly, the demand -- the long-term demand is out there. And so, that center is going to be the basis for a lot of the R&D activity. Some has already started. As I mentioned in the past, 80% of the physical part of the LFP material is phosphate, and we are experts on phosphate. We're already making significant progress in our labs. But in order to be in a position to become a technology-driven growth business plan in North America, we need to expedite the qualification center. The overall investment there is between $20 million to $30 million. $30 million is including the operating costs, and that is an effort that we intend to complete in basically no time. We intend to finalize that by the end of this year.

If I can take it, Raviv, with your permission, a little bit further and broaden the question. I think that Ben was referring to R&D not only in the LFP, but generally. And the answer is that we are fully committed to the R&D efforts. And actually, even if you look, the way we define ourselves with a specialty or specialty-driven company, and the efforts, they really come in the IP division, in the PS division and also in the GS division, where we put a lot of effort into differentiation on the agricultural side. So basically, our commitment to really bring the innovation -- applicable innovation has not changed at all and we are consistent in applying that.

Perfect. Thank you very much, Raviv and Aviram.

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

Great. Thanks very much for taking my questions. Two, if I can. The first, following up on EVs, you talked about three new MOUs for the battery materials expansion. Could you expand a bit on those and also give us more detail on when you would expect to convert those into sort of firm contracts or what are the key hurdles to doing so? And then the second question, just a quick follow-up on the guidance commentary on the phosphate pricing side. Are you seeing any erosion so far in Q2? Or is this more of a concern about what could happen in future quarters, but nothing you're seeing in the books so far? Thank you.

Okay, thanks. On the commodity side, on the Eastern side of the globe, we see a certain erosion of prices, having to do with Chinese exports that are coming out of China -- that didn't come out of China in the first quarter. So far it's been rather limited, but there is potential for additional erosion. There was some start to an erosion in the U.S. It seems like it stopped now with a new tax ruling in the U.S. So right now, we don't see significant erosion, but we have seen some erosion in the second quarter versus the first quarter. If it stays like this, it'll have a marginal effect, but it could continue.

And the first question was about the MOUs.

Sorry. And to go back to your first question on MOUs, the difference between an offtake agreement and an MOU agreement is basically reaching the qualification of product for the customer. And as we work on technological innovation, we're working with customers in order to meet future qualification. So it means that some of these are going to get deferred until we can actually create living samples that come out of the qualification center. On one case, we've already signed an offtake agreement. We can't afford to sign more than maybe one offtake agreement, because basically most of the product from the first plant is already accounted for. So we need to leave flexibility and not commit too much, because once we have a qualified product, it will be for more than just one -- more than just one plant. I hope that explains things. It also means that we're not very concerned about the schedule of the first ton that we sell. We're more concerned about having a client list and technological capabilities that allow us to qualify various specifications of different customers and also use the most advanced technology that's out there.

Thank you.

Thank you.

Thank you. Our next question today comes from the line of Dan Rizzo from Jefferies. Please go ahead.

Sorry. You can hear me?

Yes, I can, clearly.

Hi. Sorry. Thanks. And thanks for taking my question. You mentioned the ruling in EU for anti-dumping, and I was wondering in the past how effective rulings like these have been and when you might see a benefit from that within the region.

These kinds of things are very effective. They, basically, immediately cause the market price to go up. And so it makes us much more competitive. It also allows to pass a hurdle of introducing new solutions that, for example, are more environmental-friendly or more sustainable for the long run that if they are priced at a certain level, it may not be sufficiently economic to introduce into the market. But once you know that the average price in the market goes up, then suddenly you can actually replace the old product, and then the effectiveness of such a move can be very, very long-term.

Okay. And then you mentioned like -- sorry.

A similar petition was also initiated in the U.S. So we expected within a year or so the same thing could happen in the U.S.

That's really helpful. I do appreciate that. And then with potash demand, I mean -- or demand in general, things are generally improving. But I was wondering if customers are still kind of keeping inventories very tight, or if there are signs of a restock cycle or an early signs of restock cycle, I should say.

I think it differs in different parts of the world. If you take China, then China has a lot of current inventory. It's managed centrally. India is also managed relatively central, but there the inventory is not high enough at the moment. And then in other regions, we're not seeing the same heavy stock loads that we saw in the U.S. and in Brazil in recent couple of years. So the demand is robust. There's nutrient deficiency, deficiency of potassium for sure. So we see very healthy demand this year.

Maybe to add that with the current interest rates, the way they are, especially high in Brazil and also higher than expected in most regions in the world, the carrying cost is obviously a bigger issue than before. And therefore, what potentially we can witness is that people, especially the chain, will be buying closer to the event of usage. So a pile-up has a cost today. So what we can see, obviously, the demand projected for 2024 is significantly higher than '23, which in itself was higher than '22, but it can be more close to the event than general restocking at a very high level. By the way, apart from China, it's the other way around because in China, the interest rates in the last -- because of the issues with the stimulus, they are the lowest they have been in many, many years. In fact, used to be that the Western world was low -- very low interest rate for years and China was high. Now it's completely the flip side.

Alright. Thank you very much.

Welcome.

Thank you.

Thank you. Our next question today comes from the line of Anthony Taglieri of BMO. Please go ahead.

This is Joel Jackson, BMO. You hear me?

Yes, Anthony, go ahead.

No, I'm Joel.

Hi, Joel, how are you?

Okay, a few questions. Can you talk about -- like do you see in IP earnings greater in the second quarter than the first quarter? Maybe talk about some of the puts and takes - in Q1?

Yes, on IP, typically the first quarter is seasonally higher, so we don't see a big difference between Q1 and Q2 this year, but we will see continued sequential growth. So we do expect higher prices and better results in the second quarter for IP -- second half. Sorry. Yes,

Right. Okay. And then -- that's helpful. Thank you. And then in Potash, it's pretty stable for you there. A couple of things. So do you think pricing will be similar in the second quarter versus first quarter? And I know we talked about China, India before a little bit on this call, but if we're not getting seaborne contracts in either country because there's a lot of rail shipments going to China and there seems to be some cargo -- like cargo by cargo, more spot deals in India. As a company that sells a lot to both, do you think that the markets are changing in how potash will be sold to those countries, no longer seaborne contracts, maybe more spot cargoes or what do you think?

We don't really see a significant shift. We don't see that. I mean, rail -- railway deliveries sort of peaked last year. I don't think they're that economical anymore. So I don't really see them growing. Always there's regions that carry higher prices and that's how deliveries move. As you know, we're a price taker in the market, so we capitalize on maximum price opportunities that we have, and there's ample demand this year. So from our perspective, we don't see any significant change still. Europe is a smaller market, but less of the suppliers are active in Europe. And, obviously, the long-term trend is that China is becoming more dependent on Laos, so there'll be less Western product going to China. But other than that, we don't see any short-term shifts.

And just on the Q2 price -- in Q2 for potash being similar to Q1 or not?

So, yes, Q2 is, in our case, at this moment, where we're almost sold out for Q2, we're a few dollars less than -- I think we're about $6 to $7 less than first quarter. It's not final, but it shouldn't change more than 1% or 2%.

But it's - dependent on the mix of things, Joel. The mix of sales can have a significant impact.

Yes. Keep in mind that in the second quarter, our mix to Europe is a little lower, so that sort of ticked prices up in the first quarter, our mix of sales.

Okay. So my final question is on polysulphate, which we've looked for over a decade. It's something that you've really tried to push, and there's reasons why maybe you don't want to close the mine, pay reclamation costs. Maybe you want to see what happens with Sirius Minerals and now Woodsmith. The question I have is -- a couple questions. One, is polysulphate losing money this year again? Assuming it is, at what point do you say the experiment's over, we gave it a shot? And to what extent -- we know what's going on in the news with Anglo and Woodsmith and -- to what extent would Anglo, either being bought or closing down Woodsmith, or which have closed down because it gets bought by someone else. To what extent would your decision on Boulby, Cleveland Potash to determine whether Woodsmith does get built or doesn't get built?

First of all, our assumption is that it doesn't get built, to be honest, in the long run. Just the demand for the product is not enough to justify that kind of an investment. As far as we're concerned, we're looking at shorter term. We're looking a few years down the road. And right now, as the product is about breakeven, which is disappointing. But it was very profitable in 2022, and it was marginally profitable in 2023. So we're looking for ways to further go downstream and turn it into a viable, sustainable business. But to tell you that we're 100% sure that it's going to be part of ICL 10 years from now, I can't say that yet.

Sorry. I'm being greedy. Following up on that, yes, they made money in 2022, Raviv, but that was when potash prices were three times higher and not sustainable. Right? So isn't that sort of the answer to the question that after 10 years, does it make sense to go in with it? I mean, the other way to look at it would be, how can you -- how much cash can you free up? Or how can you improve the balance sheet? Or how can the company be more simple if you did divest it or close it?

The answer is yes and no, because in some regions in the world, it's looked at for its commodity -- for some of the commodity parts prices. But in other regions, and for example, in most of Europe, the product commands a premium because of its -- it's being organic and also specific attributes that create the additional yields and additional profitability. So I would say the product is very well received in Europe. It's well received in some other regions, but it's still very much a commodity outside of Europe and North America. In Europe, the market opportunity is still -- that still exists is not that large. The opportunity in North America is larger. I would say, probably hundreds of thousands of tons, but not millions, like, something. So yes, the price of potash, obviously, is very significant in crazy times like 2022, because then those that buy the product as a commodity are also willing to pay a lot. But in normal years, the question is how much of a premium can the product demand? And ICL has been very successful in penetrating with the product in Europe, less so in the U.S., just in terms of the amount of penetration we've actually achieved. But the product is doing very well and the customers are very happy. So I do see a future for the product. But to tell you that we've made a final decision, the burden on the cash flow is relatively negligible. It doesn't move the clock on ICL.

Thank you very much.

Thank you.

Thank you.

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

Okay. So with that, thank you very much for participating in our call this quarter. We're happy to report to you on our progress and looking forward to reporting again next quarter. Thanks again to all of ICL employees for their great contribution. And we appreciate our shareholders and their trust in us. Thank you very much and take care.

Thank you.