ICL Group Ltd

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, at which time, if you wish to ask a question, you'll need to raise your hand using your mobile or desktop application or press star 9 on your telephone keypad and wait for your name to be announced. 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 Riley-Tharp, Vice President of Global Investor Relations. Please go ahead, ma'am.

Thank you. Hello, everyone. I'm Peggy Riley-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 was also filed with the securities authorities and it's available on our website. Please be sure to review the disclaimer on slide two. 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.

Thank you, Peggy, and welcome, everyone. In the second quarter, our focus on long-term specialty solutions benefited the company once again, along with additional upside from commodity prices. The company's strong performance was supported by increased demand and higher prices in most markets and was achieved even as raw material costs remained inflated and as global supply chain challenges continued. To begin with slide three, ICL delivered all-time record sales and EBITDA in another consecutive quarter of profit and margin growth. We saw record results from all our specialties businesses, industrial products, phosphate solutions, and innovative ag solutions, as well as from our commodity businesses. We also achieved multiple production records as we focused on efficiency and productivity. While we've recently benefited from commodity market upside, these cycles come and go. However, the investments and improvements we have made in our production will benefit us over the long term. In the second quarter, ICL delivered record sales of nearly $2.9 billion, an increase of more than $1.2 billion and ahead of our expectations. Adjusted EBITDA of nearly $1.3 billion was also an all-time record. Once again, our focus on long-term cash generation helped deliver strong free cash flow of $410 million, which was up more than 300%. Our policy to return to our shareholders up to 50% of annual adjusted net income resulted in a dividend of 29.18 cents per share, up more than 450% versus 5.26 cents in the second quarter of last year. In total, ICL will pay out a $375 million dividend for the port. And last, But certainly not least, we settled a significant tax dispute with the Israeli tax authority regarding the surplus profit levy on natural resources. By settling, we have finalized all disputes regarding previous years and gained certainty regarding the future. While Aviram will have more specifics in his portion of today's call, I would like to note that I strongly believe this agreement helps provide clarity and will improve our risk management position and public profile with regard to regulatory as well as concession-related challenges. Now, please turn to slide four, where you can see once again significant improvement over the past five quarters. Sales were up nearly 80%, while adjusted EBITDA was up nearly 250%. EBITDA margin for the quarter increased to approximately 44%. This was up from approximately 22% in the second quarter of last year. We've also added nearly $300 million of operating cash flow since the first quarter. On slide five, there's an overview of our second quarter results, which shows triple digit improvement for all but one of these key financial parameters. Clearly the second quarter was impressive, including our adjusted diluted earnings per share of 58 cents, which were up more than 450% year over year. I would now like to begin our segment review with industrial products on slide six. Quarterly sales were $486 million and up 19%, while all time record quarterly EBITDA of $206 million was up more than 60% year over year. This business continued to benefit from our strategic shift to long-term contracts as more than 70% of bromine compound sales are under long-term agreements. The industrial products business also benefited from higher prices and while bromine prices in China have eased somewhat this year, they are still higher year over year. End market demand in the quarter was mixed and we expect to see this trend continue into the third quarter. The oil and gas industry maintained its momentum in the second quarter, resulting in strong clear brine fluid sales. Consumer electronics continued to moderate as consumer demand shifted away from devices and toward experiences as the world reopened post-COVID. Automotive demand was also subdued as automakers continued to face global production and supply challenges. Demand from the construction industry also showed a slight reduction with some products performing better than others. Good demand for our specialty minerals was supported by the dietary supplements and pharmaceutical end markets in the second quarter. We also saw higher sales of magnesium chloride and potassium chloride for industrial applications. During the first half of the year, we continued to invest in and to upgrade our supply chain capabilities with the addition of 34 more isotanks. We expect to bring on 65 more Isotanks in the second half of the year as we look to maintain the efficiency and flexibility of our unique logistic capabilities. Turning to slide seven in our potash business where sales of $951 million were up 150% year over year. EBITDA of $616 million was up 670% and we achieved quarterly profit records at the Dead Sea in Spain and for our magnesium business. At Dead Sea Works, our team set a number of production records, including, among others, an all-time quarterly production record, an all-time semi-annual production record, and an all-time quarterly granular production record. In Spain, production improvements advanced at the Cabanest Mine, with additional progress expected in the second half of the year. We continued to benefit from operational improvements and efficiencies at both sites, and at our Dead Sea site, we strengthened our leadership position, both from a logistical perspective and in terms of lower energy costs. In the quarter, both potash and metal magnesium prices were higher, and our average potash realized price per ton came in at $750, which was up $469 year over year and up $149 from the first quarter of this year. We expect our average butash price in the third quarter to moderate due to the recent trend of price convergence in the global market and as we are scheduled to increase shipments to India and China. In our metal magnesium business, sales in the second quarter increased on higher prices as a competitor faced continued production constraints. Turning to slide eight in our phosphate solutions division, where record sales of $915 million were up nearly 60% year over year, while EBITDA of $315 million was up more than 130%. This business saw record results for both commodities and specialties and maintained its strategic long-term focus on driving specialties profitability, despite the surge in commodity prices. It also benefited from higher prices and stronger demand across all regions for food and industrial specialties, as well as for fertilizers, which offset cost increases in raw materials, production, and logistics. In Europe, our Ludwigshafen site in Germany returned to full production following a fire-related shutdown last year. Also in Germany, we invested in new equipment at our Ladenburg site, which resulted in improved quality and helped make us more energy efficient. In China, our YPH joint venture saw higher prices for both specialty products and commodity fertilizers, combined with increased production efficiency. Demand also continued to grow for our specialty mono-ammonium phosphate solutions destined for LFP batteries used in electric vehicles and other energy storage offerings. Turning to slide nine, and innovative ag solutions where positive fertilizer momentum continued as we expanded on our strategic execution and delivered all-time record sales of $700 million, up 110%, and EBITDA of $155 million was also an all-time quarterly record and up 356%. Organic sales were up nearly 60%, while EBITDA was up more than 230%, with both representing approximately 75% of total IAS sales and EBITDA respectively. Our Brazil expansion strategy delivered both synergies and robust results, as this business contributed $177 million in sales in the quarter, up versus the prior year and beyond our expectations, even during its traditionally slower seasons. Overall demand remains elevated in Brazil, and we expect the continuation of this trend as we enter the key planting season in the southern hemisphere. For the quarter, organic polysulfate was a big winner, both in terms of price and market penetration. Our Fertilizer Plus products have continued to gain recognition and are now the preferred product for many farmers due to their additional nutrients and organic composition. In addition to growth in Europe, India and China, polysulfate gained new business with expansion into Indonesia. ICL Bulbi achieved a significant quarterly profit contribution for the second time and a new monthly production and hoisting record as the site remains on target to achieve its 1 million ton target in 2022. Our turf and ornamental business remains solid But these products, like all of our specialty fertilizers, contended with higher costs and lower availability of raw materials in the quarter. However, we have been able to offset these increases across IAS with higher pricing. Now, if you will turn to slide 10, I would like to review some recent progress we have made in the areas of sustainability, innovation, and leadership. For sustainability, this was the fourth year in a row where we were awarded the highest ESG Index Platinum Plus rating by Ma'ala, the most comprehensive index for corporate responsibility in Israel. We also received the AA score and were ranked first among industrial, chemical, and pharmaceutical companies for our sustainability efforts. Our site in Spain was awarded the prestigious 2022 Greenleaf Award for excellence in safety, health, and environment by the International Fertilizer Association. Our plant was selected out of the record 25 applicants in the phosphate and potash producer category for its actions to reduce greenhouse gas emissions. This award confirms we are on the right track when it comes to achieving sustainable mining practices. In China, our YPH joint venture received green line certification from the Ministry of Environment in recognition of its work as a leader in developing green circular economy and in ecological protection. YPH also joined a prestigious list of five A-ranked companies, which is comprised of only six companies in China. In terms of innovation, we have made several advancements, including in the area of LFP battery production, and we are looking to expand our footprint into the United States. While we currently produce numerous materials central to the production of lithium ion battery cathode materials, we are also advancing in our efforts to develop product offerings for liquid and solid electrolytes. We are already a leading manufacturer of phosphorus chemicals for a range of different applications, and are now putting extra focus on allocating such raw materials for the production of lithium ion battery electrolyte solutions and exploring several possible routes for developing these opportunities in both Europe and the US. We've also partnered with PlantArcBio to boost crop yields through RNAi. The technology we collaboratively developed is shown to improve yields while having a minimal impact on the environment and without any genetic modification. In India, we rolled out a unique solution to the market through our digital ag startup, Agmatics. This offering will drive crop nutrition optimization by leveraging state of the art technology, And ICL India field agronomists are already providing digital nutrition prescriptions to more than 900 farmers and creating digital touch points to support their yield targets and optimize their carbon footprints. We also strengthened our leadership position in India as we signed a long-term agreement with India Potash Limited to supply organic polysulfate through 2026. As you know, since polysulfate is available in its natural state, it has the lowest carbon footprint available globally, making it a cost-effective organic answer to crop nutrition, and it is expected to help boost the government of India's organic agriculture program. In Israel, ICO was recently named one of the best companies to work for by BDI, the largest business information group in Israel. We ranked first among all companies in the industrial sector, and also made impressive improvement overall, moving up to 21st place from 38th place in the prior year. The company also received the highest possible corporate governance rating for the publicly traded companies from Entropy, a leading Israel ESG rating firm. ICL's ranking improved to advanced in the category of corporate governance, making us one of only three companies and the first outside of the banking industry to have received this honor. In the US, ICL was ranked as one of the top workplaces in St. Louis by the St. Louis Post-Dispatch with the award based solely on employee feedback. The team also demonstrated leadership in the area of community giving, and was named a finalist by the St. Louis Business Journal for its 2022 Corporate Philanthropy and Innovation in Philanthropy Award. One item in common for all these endeavors and achievements is the fact that they span the globe. From Israel to Spain and on to China, India, the US and beyond, ICM employees are leading, innovating and improving conditions on earth through their sustainability efforts. Finally, I would like to wrap up my portion of today's call by reviewing slide 11. While this has been an unusual year so far, we have continued to focus on the future and our long-term specialty strategy, and we will continue to do so as this allows ICL to strengthen its leadership position in comparison to its more commodity-based peers. Our performance in the quarter reaffirms our specialty strategy, and our strong balance sheet allows us to focus on business expansion opportunities in this area, including the ability to grow through M&A, investments in R&D, capacity, and new products, among others. We do not have clarity as to how the global macro environment will play out for the remainder of 2022. However, for the second half of the year, we expect to continue to leverage our position as a global provider of specialty chemical solutions and to reap additional benefit from our Brazilian business as the southern hemisphere enters its key planting season. We also expect to see continued profitability from our businesses, such as our YPH joint venture in China and our polysulfate operations in the United Kingdom, as well as our metal-magnesium business. all which had negative contribution in the past. We will also continue to innovate in areas like production for LFP batteries and across the food and agricultural end markets. Especially during this time of food crisis, it is important for us to do our part to help innovate and find solutions for the challenges around the world. While we are currently at the top part of the commodity cycle and are seeing great results, We must remember that this is a temporary high and that we need to keep our eye on the ball and continue to focus on a strong future of long-term cash generation and value creation for our shareholders. As always, I want to thank the entire ICL family of employees spread out across the globe for all of their hard work and contributions as we delivered record results once again. This quarter, we are celebrating 100 years of history of our company and feel proud that we broke our all-time sales and profitability records once again. And with that, I will turn the call over to Aviram.