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 will need to press star and 1 on your telephone. I must advise you that this call is being recorded today. If you experience any technical difficulties, please press star 0 on your telephone. I'd like to hand the call over to your first speaker today, Peggy Riley-Sarp, Vice President of Global Investor Relations. Please go ahead, ma'am.

Peggy Riley- Thank you. Hello, everyone. I'm Peggy Riley-Sarp, 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 is 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 a presentation by our CEO, Mr. Raviv Zolder, followed by Mr. Avi Ramlehov, 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 fourth quarter, ICL delivered significant growth in both sales and EBITDA as we benefited from our continued strategic focus on growing our long-term specialty solutions and from commodity upside momentum. In fact, all three of our specialty businesses delivered all-time record fourth quarter and annual results. Fourth quarter sales came in at more than $2 billion, up more than 50%. while adjusted EBITDA of $575 million increased by more than 100% and was an all-time fourth quarter record. This was a remarkable end to 2021, and for the full year, we delivered $7 billion of sales, our second highest ever, as well as $1.6 billion of adjusted EBITDA. As you know, the fourth quarter is traditionally one of our slower quarters. However, as you can see on slide three, we delivered our fifth consecutive quarter of bottom line improvement. All four of our businesses contributed with double-digit growth in sales and EBITDA, and this includes Innovative Ag Solutions, which delivered on both an organic basis and via our recent Brazilian acquisitions. Performance in the quarter was supported by increased demand and higher prices in most markets, which helped us deliver record free cash flow of $166 million in the fourth quarter, a nine-year record and free cash flow of $465 million for 2021. For the fourth quarter, we also delivered a dividend distribution of 13.18 cents per share, up more than 10 cents per share over the fourth quarter of last year. While we saw continued success in the quarter, we also faced many of the same challenges we had throughout 2021. Once again, the teams worked tirelessly to overcome higher overall costs and global supply chain challenges. Most importantly, the global relationships our supply chain procurement and logistics teams have built over the years served us well during the past 18 months. The teams recognized imbalances in prices and supplies well in advance and worked to ensure consistent quality and quantity of supply. They strengthened partnerships across the supply chain, managed through the tough times, and help keep ICL on track almost seamlessly for the benefit of our extensive global customer base. Now, please turn to slide four for a snapshot of our fourth quarter results. As you can see, once again, we demonstrated improvement in each key financial parameter. On slide five, you can see year-over-year sales were up more than 50%, while adjusted EBITDA was up more than 100%, and margin increased by more than 780 basis points. We also added nearly $90 million of operating cash flow. I would now like to begin our segment review with industrial products on slide six. Quarterly sales were a record $422 million, while EBITDA was $129 million, and both were up approximately 25% year-over-year. This business benefited from strong product demand across key regions and from continued strategic shifts to long-term contracts. Our customers place a premium on knowing they will consistently receive the quality and quantity of product they need to meet their requirements, and this is across all of our end markets. The electronics market remained undersupplied, and the construction industry also remained very healthy in the quarter as the market took advantage of unseasonal weather, which has since turned. Clearbriar fluid sales returned to more normalized pre-COVID levels in the fourth quarter as higher oil prices were maintained. We also saw significant contribution from our phosphorus-based flame retardants and our specialty minerals businesses, as the latter benefited from the higher demand from the supplement, pharmaceutical, deicing, and oil drilling end markets. Our ongoing capacity expansions remain on track and are expected to be operational in the second half of 2022. In addition, Industrial Products is about to launch a growth acceleration investment plan, which is expected to expand capacity and deliver additional improvements in sales and profit. We will provide more details on this initiative when we update you on our progress toward achieving 2025 targets later this year. For fiscal 2021, industrial products delivered record sales and profit for the division, with significant contribution from its bromine and phosphorus-based flame retardants, as well as from its specialty minerals product, allowing us to achieve record cash flow for this business in 2021. Turning to slide seven and our potash business where sales of $698 million were up more than 80% year over year and EBITDA of $288 million was up nearly 250%. For the quarter, our average realized price per ton of $487 was up nearly 115% year over year, driven by strong global crop demand and allocation optimization. Corn, soybean, wheat, and rice prices were all up double digits year over year as supply remained tight and countries remained concerned about food security. For our potash production sites, work was completed on our P9 pumping station in the Dead Sea during the fourth quarter, and operations commenced early this year. In both the Dead Sea and in Spain, we maximized our granular potash production through de-bottlenecking efforts, which resulted in higher realized prices. The shift not only meant granular comprised approximately 50% of our production, but it also added roughly $35 million to operating income in 2021. At ICL Bowlby, we saw an increase in both polysulfate production and sales volume in the fourth quarter, up 36% and 42% respectively. During the quarter, we also announced the approval of Bowlby's application to continue mining and production through 2048. Beginning in 2022, our BOLBI operations will be moving from the put-out segment to our innovative ag solutions segment, and this change will better align BOLBI's specialty products as we continue to focus on targeting long-term growth through specialty solutions. Turning to slide 8 and our phosphate solutions division, where reported fourth quarter sales of $609 million were up more than 20% year over year, while EBITDA of $146 million was up nearly 100%. Of note, December, traditionally one of our slower months, was our strongest for 2021 as we were able to supply new and existing customers at higher market prices. Phosphate specialties delivered record quarterly sales and profit as both food and industrial sales increased with higher demand across all regions. Also, as we mentioned last quarter, we inaugurated our new alternative protein plant in St. Louis in December. Our food specialties business saw mixed impact from the resurgence of COVID, with food service weakening as it had during COVID peaks. However, retail was able to offset this decline once again. Industrial customers also provided strong demand, and this business saw continued improvement in volumes across all end markets at higher prices in the quarter. Our YPH subsidiary capped off record 2021 sales and profit with a great fourth quarter, driven by higher volumes and prices, as well as improved efficiency. This business also continued to supply increasing demand from the lithium iron phosphate battery market, which drove higher specialty monoammonium phosphate sales. Overall, we saw a significant increase in phosphate fertilizer sales and profitability driven by record production and continued healthy demand. Throughout the quarter, supply remained tight due to export restrictions in China and Russia and other shifting global dynamics. Just before the end of the year, we announced the extension of our phosphate mining concession in Rotem, which has been approved for an additional three years through the end of 2024. For fiscal 2021, our phosphate specialties business delivered record sales and profit and also reported production records spanning multiple sites across three continents as the team worked to meet higher new and existing global customer demand. This business saw strong volume increases in higher prices across food and industrial specialty phosphates and for specialty acids. Turning to slide nine and innovative ag solutions. In total, fourth quarter innovative ag sales of $380 million were up more than 130%, while EBITDA of $48 million was up more than 330%. This segment saw record organic growth in addition to outstanding performance from both of our recent Brazilian acquisitions. For the quarter, organic sales and EBITDA were up 37% and 82% respectively. Positive momentum continued across IAS due to its strong demand and higher volumes across most regions and product lines. Our turf and ornamental business saw robust growth as this business benefited from a global increase in sales volumes and higher prices as distributors stocked up in advance of the spring gardening season in the northern hemisphere. Specialty fertilizer sales reached record levels for both the fourth quarter and full year. with increases across all regions led by higher volumes of straights, liquid and controlled release fertilizers, and strong performance in Brazil. For overall 2021, our innovative ag solutions of business reported record organic and total sales and profit. Now, if you will turn to slide 10, I would like to walk you through some of our recent impactful events before turning the call over to Aviram for a review of our financials. Throughout the year, we've targeted innovation, sustainability, and service excellence through valuable partnerships, and we expect this to continue into 2022. You've heard me discuss our internal innovation efforts, and in 2021, these efforts delivered approximately $40 million in annual efficiencies. In addition, Our internal accelerator continued to deliver and achieve a run rate of more than $100 million of additional annual operating income. This program succeeds by challenging employees to be creative and innovative in finding all types of solutions from the everyday to the next big product. Our employees have really made a difference. While America DeSoul is still very new to ICO, they're already blazing a trail when it comes to innovation. The team in Brazil was ranked as one of the five most innovative agribusiness companies in the country by the business newspaper Valor Economico as part of its annual Valor Innovation Awards. We're proud of their efforts, especially since innovation is such an integral part of our identity and our future growth. At ICL, innovation is happening every day. It's part of our DNA, and I would be remiss if I did not point out two other 2021 efforts. First, our expansion into the electric vehicle and energy storage space through our production of specialty MAP for the LFP battery market, and second, the launch of our ICL Planet Startup external innovation hub. I mentioned sustainability a great deal in the past couple of years, and you'll be hearing more of the same in 2022 as we are beginning our year of sustainability within ICL. I'm looking forward to what is to come this year and would like to mention a few fourth quarter milestones. At the end of this year, we launched what we are calling our Greenstone Project. This is an innovative effort designed to leverage renewable energy for our largest production site. It will help us reach our goal of being carbon neutral by 2050, and we will be sharing more about this exciting initiative in the coming months. Also in the fourth quarter, we were awarded the prestigious gold medal rating by EcoVedas for the first time. This means ICO is ranked in the top 5% out of 75,000 rated suppliers and we are thrilled to be recognized as a global supplier that demonstrates sustainability standards aligned with our customers. As I discussed earlier, we opened our alternative protein plant in St. Louis in the fourth quarter and this investment represents just one part of our efforts to develop healthier and more sustainable food products. We're excited about the consumer trend toward more sustainable lifestyle and diet choices and look forward to offering additional sustainable, functional, and nutritional alternative food solutions going forward. I would like to mention our commitment to developing and driving a more circular economy, which we are doing through new and innovative products like Fibagro Advance. This unique and superior peat alternative is made from a byproduct of the timber industries and allows a much lower carbon footprint compared with use of peat and other peat alternatives. a true sustainable step forward. Like innovation, ESG is an integral part of our day-to-day work at ICO, and I would like to highlight two additional achievements in 2021. We set in place measurable environment targets through a sustainability link loan, and we established a new climate and sustainability committee to help direct and guide our progress. In terms of partnership, once again, the positive developments in Israel's foreign relations have opened up the opportunity for us to build new relationships and create new collaborations. As a result, for the first time, we shipped Israeli clear brine fluids to the United Arab Emirates this past December. We welcome the opportunity to supply our product and are proud to be part of this historically significant moment. Earlier this year, we announced a number of other partnerships, including our collaborative efforts with Columbia University's Electrochemical Energy Center to jointly explore strategies to address energy storage and conversion via next-generation batteries. We are also teaming up with PlantArcBio, an Israeli ag biocompany, and have filed a joint patent to develop a novel biostimulant technology platform for improving crop yields while having a minimal impact on the environment. If you will turn to slide 11, I would like to wrap up by reviewing some of the key takeaways from 2021. Our strategic long-term focus on specialty solutions, which continues as commodity upside persists, benefited us through the year as we delivered all-time record profitability from all of our specialty businesses with a year-over-year increase of more than 50%. In 2021, we benefited from some of the additional production capacity we continued to bring online in our industrial products and phosphate solutions businesses. The agriculture portion of our business was strengthened by our strategic acquisitions in Brazil, which provided additional sales, profitability, and a seasonal balance between the northern and southern hemispheres. Our food strategy was executed according to plan, as we added alternative protein capacity and invested in a food tech startup through our ICL Planet Hub, and you can expect to see more of these types of investments in 2022. Our industrial businesses, specifically our industrial product segment, benefited from its commitment to focusing on long-term customer partnerships and on delivering in reliable fashion. And we also added capacity to meet new commitments. From a financial perspective, there were many achievements which Aviram will review. Still, I would like to highlight the significant acquisitions we made in 2021 while maintaining our net cash position as we continue to strengthen our solid cash flow generation. On slide 12, you can see our outlook for 2022. We expect commodity prices to remain firm through at least the first half of the year and supported by strong demand relating to food security concerns, higher food and crop prices, and supply constraints. For our specialty businesses, we will maintain our strategic focus and we expect overall good visibility for the year due to our emphasis on long-term contracts and a very healthy demand pipeline. We will continue to invest in additional capacity to help support our continued growth with higher growth capex in 2022, focused on supplying our long-term contracts through additional infrastructure. We will also maintain our company-wide focus on innovation as we look to generate new opportunities and efficiencies. Our sustainability plan is on track, and we are gaining momentum as we continue to receive third-party accolades for our efforts. Finally, we expect to maintain our disciplined approach to cost management to support our strong cash flow and increase dividend payouts. And of course, we will continue to execute on our strategic leadership goals in the areas of sustainable agriculture, food, and industrial solutions. As always, I want to thank the entire ICL family of employees spread out across the globe for all their hard work and contributions in 2021. We appreciate that our record profitability is a result of your tremendous efforts. And with that, I will turn the call over to Avi Rahm.

Thank you, Raviv, and to all of you joining us today. I must tell you that I'm pleased to be a part of reporting this outstanding quarter. And while you've already seen slide 14, I would like to call out just a few additional highlights. Sales crossed $2 billion and were up more than 50% year over year. Our adjusted EBITDA, a fourth quarter record, was up more than 100%, with margin of 28% up more than 780 basis points. Adjusted diluted earnings per share of $0.26 were up $0.21 or approximately 400%. Operating cash flow of $344 million was up nearly $90 million over the fourth quarter of the last year and approximately $70 million from third quarter of this year. As Raviv mentioned, we delivered free cash flow of $166 million in the fourth quarter, and while each of our business segments contributed, industrial products delivered record cash flow for the second consecutive quarter. In the fourth quarter, our results were driven by both our specialty solutions and commodity upside momentum. While our specialty business, including industrial products, phosphate specialties, and innovative ag solutions had record quarters, we also saw significant year-over-year improvement in commodity prices. On slide 15, you can see how potash, phosphoric acid, and sulfur prices have trended, with each reaching levels not seen over the past 10 years. So not only are commodity prices higher, but so are the prices for the raw materials, which go into our specialty solutions. Also, as we have shown in previous quarters, you can see the acceleration of marine transportation costs over the past four quarters. While this cost appears to be stabilizing, we're still seeing higher rates than at any time over the past decade. Nonetheless, our teams will continue to work to overcome supply chain challenges and higher overall costs. We will also continue to leverage our advantageous production locations and global supply chain capabilities to maintain our position as one of the world's lowest cost producers and to continue to deliver the consistent supply our customers rely upon. On the left side of slide 16, you can see the impact of higher prices on our year-over-year sales growth and also the positive contribution from slightly higher fourth quarter quantities and from our recent Brazilian acquisitions. I would like to point out the organic portion of our Innovative Ag Solutions business represented 59% of the segment sales in the quarter and both our existing business and acquisitions helped drive fourth quarter growth. For phosphate solutions, we continued our strategic shift towards increasing specialty sales, which represented 61% of sales in the fourth quarter, an increase from 53% in the third quarter of this year. On the right side of the slide, while you can see improvements from all four of our segments, the impact of higher potash prices over the past few months has clearly begun to flow through to our results. Turning to slide 17, you can see the significant contribution that higher prices made to adjusted EBITDA, but once again, on a second basis, all four of our businesses contributed to the year-over-year improvement. For phosphate solutions, the sharp increase in commodity prices drove this portion of the business to represent 60% of EBITDA. However, we also prioritized our phosphate specialties focus, which drove significant increases in sales volume. On the next two slides, you can see the same sales and adjusted EBITDA charts for our full year. Slide 18 shows prices were still a significant contributor to 2021 sales. However, our Brazilian expansion and increased quantities each contributed more than $300 million to sales. For IAS, organic sales represented 73% of total 2021, while the phosphate solution specialty sales comprised 55%. On a segment basis, once again, all four segments contributed to the significant year-over-year growth in sales, bringing our total for 2021 to $7 billion, the second highest in company history. Turning to slide 19, where prices had the biggest influence on more than 60% improvement in adjusted EBITDA, the organic contribution to IAS was more than 60%. while commodities came in at exactly 60% for our phosphate solutions, again, as commodity prices increased over the course of the year. On a segment basis, each business contributed to a $1.6 billion of annual adjusted EBITDA as all three of our specialty businesses delivered record quarterly and annual results. Before we turn the call over to the operator for Q&A, which I am looking forward to, I would like to review a few highlights on slide 20 from both the fourth quarter and the full year. For the fourth quarter, our net debt to EBITDA ratio improved to 1.38 times from 2.3 times in the fourth quarter of last year. And we have already discussed we have continued to drive growth in cash flow generation with cost controls and efficiencies. For the full year, we completed approximately $450 million in acquisitions, monetized our YYTH investment in China, and delivered strong operating cash flow, thereby maintaining our existing debt levels. For industrial products, we exited two non-core assets over the course of the year, including the divestment of our Japu site in the third quarter. We also took certain tax actions during the fourth quarter of this year which caused our effective tax rate to increase to 30% versus 24% in the fourth quarter of last year. These actions took advantage of a temporary tax provision which resulted in the release of trapped earnings. The related tax impact accounted for the majority of the difference between our reported and adjusted net income for the fourth quarter. The adoption of this temporary provision will result in lower tax payments on dividend distributions in the future. Our lower adjusted tax rate of 17% for the quarter versus 19% in the fourth quarter of 2020 also reflects the increase on profitability of our YPH subsidiary in China following several years of losses in which a deferred tax asset was not created for these losses. As we begin 2022, we are pleased to be entering our second year of providing adjusted EBITDA guidance, which you can see on slide 21. we expect to deliver a range of between $1,850,000,000 and $2,050,000,000 in 2022. Given our strategic focus on the growth of our specialties businesses, we are expanding our guidance to provide more clarity, and we anticipate our specialty business will provide approximately $875 to $925 million of this amount of annual EBITDA. Finally, as a reminder, we have adopted TCFD reporting for our 2021 annual report, and we appreciate all of the hard work our internal teams have done to help us take this giant step forward toward more transparent sustainability reporting. And with that, I would like to turn the call back over to the operator for Q&A.

Thank you. We will now begin the question and answer session. To ask a question via the audio, please press star and 1 on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press the hash key. And again, please press star and 1 on your telephone keypad if you wish to ask a question. And we have quite a few questions. The first question comes from the line of Joel Jackson. Please ask your question. Joel is from BMO Capital.

Hi. This is for Joel. Thanks for taking my question. So you're guiding to $300 million of EBITDA growth in 2022. How much of this is expected to come from potash price increases and how much is from other drivers? I guess can you please be as granular as possible in helping us bridge the different buckets of earnings growth next year?

Okay. Can you hear me? Yes. Okay. So the put-ash price is based on existing Q4 average price. Actually, the realized price was 471, and our guidance for next year is based on about 425. The difference, we are basing on Q4, but we're basing Q4 prices and the distribution, geographical distribution of sales according to our adjusted plans for 2022. So we're not taking into account the... expected change in Chinese prices, and we're still modeling India prices according to our Q4 price, which was 445. So you can do the math from there.

Okay, that's so helpful. And do you know the magnesium by-product earnings or small negative future ICF? What are you assuming for magnesium in 2020 failure guidance? And how does that fit between first and second half?

Okay so there's been a hike in magnesium prices or rather magnesium prices are much higher than usual. They're running around $8,000 a ton in China now which is much higher than their average price. When magnesium prices spiked a couple of months ago we closed most of the sales for next year So we will see our magnesium business profitable for the first time ever and basically the projection is a relatively conservative projection even though we have annual contracts because we're taking into account that if drastic change happens in price the other way, then we may not be able to actually execute the contract as we are today. At current prices, we have a swing of over $50 million. We're modeling less than that in order to be more conservative.

Thank you. Thank you. The next question comes from the line of Alex Jones of Bank of America. Please ask your question.

Good afternoon. Thanks very much for taking my questions. If I may, the first on CapEx, you talk about higher growth CapEx to capture some of the opportunities you're seeing. Could you give us some quantification of the CapEx spend in 2022 and the particular projects that you're accelerating spending on? That would be my first question, please.

Yes, we're going to see about $100 million of additional CapEx next year for growth. And this is going for, some of it is going to industrial products additional capacity as we are signing additional long-term contracts and have to provide the capacity for that. So we're sort of growing in concurrence with the new business coming in. We're also building additional capacity for MAP for the LFP industry. We're doing that in China. We're also looking for investments in other regions but specifically the plants are currently in China. And we're also building additional specialty fertilizer capacity in a few countries including in Europe for biodegradable coating, sorry, biodegradable coated fertilizer. We're building new capacity in, we plan to build new capacity in Brazil, in India. And so between Brazil, India and Europe there's significant investment in our specialty fertilizer business. And so those are the significant components. In phosphate it's MAP for LFC batteries. the three geographies I mentioned for specialty fertilizers and the additional capacity needed for our expansion on the industrial product flame retardant business that's coming in. I hope that helps.

That's great. Thank you. And just one other question on the EPITAL guidance and specifically the specialties guidance. If I'm correct in thinking that that includes industrial products, innovative ag, and the phosphate specialties, then I think at the midpoint it's only implying 4% year-on-year growth in EBITDA in those divisions, which is a significant slowdown on the growth rate that you've been doing in the past couple of years. Could you comment on what might be driving slower growth in those divisions or whether that's just a particularly conservative forecast to start the year? Thank you.

The forecast implies about a 10% growth. It's inhibited a little bit by a change in the specialty fertilizer business as we are shifting the polysulfate business from the potash division to the specialty fertilizer division as we recognize that given that we are now able to demand a premium and we've developed some specialty products that are based on poly. that makes sense to treat that business as a specialty business and since we're adding it this year and since it's still not a profitable business then the actual growth in the specialty fertilizer business will be inhibited by that component of the business. If you back that in then we'll have an average of about 10% growth in the specialty businesses and I agree that it's a little conservative. One of the reasons for that is that some of the capacity that's needed for growth If we don't build in additional price increases above what we already know, we need the additional capacity to come in. It's not enough to start making the investment. The investment has to be built in order to be able to create the revenue so some of the could have been captured if we would possibly be able to build the capacity faster. But unfortunately, we're building it as fast as we can. It's conservative. It is a conservative forecast in terms of pricing because we don't want to build in any additional pricing increases above and beyond what we already know.

Thank you. That's very helpful.

Thank you. The next question comes from the line of Mubasha Choudhury of Citi. Please ask your question.

Hi. Thank you for taking my question. Just going back to the guidance, I think you said that the guidance for next year is based on 425 or average selling price of $425 a ton for potash, which is around, a hundred dollars higher than what you did in 2021. So if I just on a volume neutral basis I get to kind of 400 million of incrementally that are assuming the price drops and there's no change in cost. So which is quite conservative. Your guidance compared to that is quite conservative. Just some comments around that as to are you seeing a significant slowdown in other divisions or kind of what your assumptions are there. That would be helpful. And the volumes for potash in the fourth quarter were down quite strong. Can you provide some comments around what drove the low sales to China and India? And whether you see that persisting into 1Q22? And sorry, just finally, how sold out are you when we go into kind of, are your volumes kind of confirmed for 1Q and 2Q? And do you have relatively good visibility on your price and volumes in potash? Thank you. Dr. Timothy Stenzel Okay, thanks for that.

I'll try to go through the more difficult part of the question and that would be the product distribution in terms of sales. So we typically sell between 1.2 to 1.5 million tons to India and China. The current plan is around 1.3 for the year which is a little bit more than 25%. Those 25% are built into the model according to existing Q4 prices which admittedly do not build in the expected new pricing for the new contracts in China and of course following that we expect a new contract in India. So that is the component that gets affected once these contracts are done. In terms of your analysis on the additional EBITDA coming from FOTASH, then given the change in distribution and the relevant transportation and other costs, The additional EBITDA is a little lower than $400 million. And then again, there's about $80 million coming from additional EBITDA on the specialty side. So that pretty much explains the additional EBITDA that we expect for next year. I hope that helps.

That's very helpful. Thank you.

Thank you. The next question comes from the line of Jeff Hare of UBS. Please ask your question.

Actually, all my questions have been answered, sorry, asked and answered, so I don't have any more. Thank you.

Thank you. In that case, the next question comes from the line of Duffy Fisher of Barclays. Please ask your question.

Yes, good morning, good afternoon. If you start with the 575 of Q4 EBITDA, and just do a bridge to Q1. Can you just talk about puts and takes, what gets better and what might be getting worse as we go from Q4 to Q1 with that number?

Okay, maybe I'll add to the question that was asked before that I didn't actually answer. We are pretty much close to sold out for Q1, not beyond that. We're holding on some of the sales until there's more clarity on Chinese contract as well as Belarusian, the Belarusian situation that you all know. In Q1 what changes is the is the distribution of sales. What happened in Q4 is that we sold much less to China and also to India. In fact, we, in our previous call, we expected about $100 to $110 of additional put-out strike average for the quarter. And it ended up being over 150, I think, close to 160 because we upgraded our India contract. And as a result, we were able to better our intake. We're talking about an additional $50 million for Q4 after the adjustment. When you go from Q4 to Q1, obviously pricing is not changed much from Q4 to Q1 at this time. And the Chinese contract could affect to a very small extent Q1. It could be very meaningful for Q2 and afterwards.

Well, I guess my question was the whole company, not just Potash. I mean, that 575 number, I don't see anything in that number that really shrinks from Q4 to Q1. So kind of that level or above, I would assume, is where most people come out. Is that fair?

It's fair that there's nothing that's particularly going down. So the bromine business is not going down and the phosphate business is not going down. The specialty fertilizer Brazil is seasonal so Q1 in the Brazilian part which is rather significant could be lower than the fourth quarter. And Parash, I already explained it's a matter of distribution.

Sure. Okay. So that would get me, you know, let round numbers, you know, $0.6 billion of EBITDA for Q1, a seasonally light quarter generally for you guys. I mean, it would seem as logical that the year is $2.5 billion as it is your guide of $2 billion. Would you push back on that?

Like I said, you know, we could get closer to your number depending on Chinese contracts because consider that we're modeling for China, for China products and I explained the quantities, we're modeling $249 at this point. So keep in mind that, you know, 1.3 million tons, China, the rumor in China is that prices are going to be between 500 and 600 depending who you ask. If you ask some of those folks that are close to the suppliers, they'll tell you 600 and above. But if you model somewhere between 500 and 600, then we're talking more than doubling the price. So take 700,000 tons and add that in, and then add the relative addition to the India portion, which would be also significant on another 600,000 or so, then it gets you close to your number, still not there but close. Okay.

Terrific. Thank you, guys.

Thank you.

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

Good morning. Given the environment that you're sketching, can you give an update on your thoughts around your balance sheet management, you know, how much you could flex the balance sheet for M&A? Secondly, with respect to the alternative protein and battery materials markets in particular, what do you see as the target for paybacks for investments in those areas given the kind of long-term growth potential?

Dr. Timothy Stenzel Okay. So batteries is easy. It's a one-year payback. Alternative proteins probably between two and a half to three years. Relatively good paybacks. And on the balance sheet they'll turn it over to Avilam.

The current debt that we have, if you benchmark it vis-à-vis the EBITDA that we have, it's practically an only issue because the theoretical capacity that we have would vastly exceed the $1 billion mark. If you do the math, though, and that's not the limiting factor at this stage. If you want more specifics, we can go through the math, but I think that should cut it. Thank you. We've gone down all the way to 1.4 net over EBITDA and think about this and we've got really significant free capacity, not theoretical by calculation, but real capacity that we can tap into as much as we need.

And of course, given a strong balance sheet, given the right opportunity, then we're looking forward to increase our earning power and take advantage of... of the opportunity that makes sense in the businesses that we're focused on. Again, subject to valuation, we're not in a rush to do anything. We want to get the right deal. We're very, very happy with the Brazil acquisitions that we did. Thanks.

Thank you. The next question comes from the line of Vincent Andrews of Morgan Stanley. Please ask your question.

Hi, guys. This is Will. I'm for Vincent. I just had one quick one. You guys had previously talked about the potential renewals of some long-term contracts in your industrial products business. I'm just wondering how much of that pricing momentum you guys saw in this quarter was driven by those record elemental boning prices that you guys called out versus those contract renewals and kind of what does that mean for pricing within your industrial products I think for the first half of next year or this year I guess?

Okay so the record spot prices didn't really have any impact in Q4 other than a very small portion of our sales which is sales of the elemental bromine, less than 10% of sales from the bromine part of the business. There is an effect in Q1. Some of our contracts have pricing reviews that depend on spot prices, not necessarily just bromine but also TBBA and other materials that have spot prices. And the pricing environment is good and during the first quarter we will see some price increases in existing contracts, all in all positive. At the same time There are also some raw material costs that increase so the net effect is not going to be very significant but still there is going to be a positive effect on earnings even before additional capacity comes in which will happen sometime around July next year.

Got it. And then I guess just a quick follow-up, how are you guys looking at kind of EBITDA margins for the industrial products business in 2022 just given the elevated prices, you know, kind of offset by those higher raw material costs and logistics costs?

Dr. Timothy Stenzel We're working very hard to get some additional margin expansion next year. It's not going to be easy but we're targeting some margin expansion next year. It won't be dramatic but there is some room for margin expansion. Again, due to the updated pricing which will be incrementally positive relative to the raw material and transportation costs.

Got it. Thank you.

Thank you. The next question comes from the line of Amit Barok of OzCapital. Please ask your question.

Amit Barok of OzCapital. Hey guys and thanks for taking my questions and congratulations for the quarter in the year. Kind of have a three-part question if I may. What is your view on the whole Belarus situation, how it will affect available capacity of PODASH? And do you think can other players like Neutrion can offset the shortage if that will be the case?

Look, first of all, a lot of what we know we read like you guys. So what we know about Belarus is that first of all everybody knows that there's 14 million tons that they bring into the market, they could bring to the market this year. 90% of their product goes through a Lithuanian railway to a Copedia port, and that's not happening anymore since February 1st. From what we understand, there's no There's no alternative that fixes the situation for them unless of course sanctions go away. So we understand that some product has been pre-sold to Brazil. There's some talk that maybe given that they're somewhat blocked from the international banking system because of US sanctions there's some talk that or we read like you guys that maybe India will buy in rupees a million tons which we don't know how it gets to India but that's something that we've heard. There may be some products in some ports close to customers but probably not very much so Ultimately, it seems like millions of tons are either not going to get to the market or are going to get to the market late. And the day for certainty seems like April 1st when the formal date for sanctions or the end of the windup period arrives. So again, this is why The way we view this year's guidance is that, you know, we have good clarity on specialties, good visibility on commodities. We'd rather, you know, we'd rather take into account what we know and then adjust the guidance according to developments in the market. Currently, the market is sort of holding on looking to see what happens. If the Belarusian situation materializes and product doesn't get into the market, then we're talking about somewhat of a different market than we currently have now. If there's some solution or sanctions get lifted for any reason, then of course it's a different story. There's also political tension in that region and nobody knows what's happening with, you know, Russia and Ukraine and is Russia going to come under sanctions? So there's all kinds of uncertainty on commodities. The underlying situation is that we're seeing food shortages in some countries. Some countries are building more emergency inventory. The soy prices have gone up by about 20% since November. So the overall situation is that the market is nervous and it's going to be interesting how things develop. But I think other than what we've heard about the alternatives, because there are no port alternatives to Clopidia, at least not for significant amounts of products, definitely not millions of tons. We don't see products coming out in any other regular alternative. Yeah, no meaningful product. There's no port that can take three or four million tons. of Belarusian products at this point. I hope that helps. That's about all we know.

Yes, that really helps. So if I understand you correctly in this, you expect there will be about 10 to 12 million tons shortage. Is that fair to say?

I don't know if that's a number. I mean, if they had to give a number, then I give them credit that they'll find all kinds of solutions and get a little more into the market. But you asked me if Nutrien or anybody else can step up and bring products into the market, then the long-term answer is yes. Can they bring a meaningful amount of tons into the market in a short period of time? One, I don't think so, not more than, you know, hundreds of thousands of tons. And even if they could, I'm not sure that they would want to. So again, you'd have to ask Nutrien that. Unfortunately, we're only price takers in the market. So we see the prices as they are and try to place them in the best place.

Yes, that's fair. Thanks for that. I see, we see it as an upward pressure for the prices. And for the last part of my question, as you say, you are a price taker. So can you give more clarity or more color about your per ton cost for Kodash so we can model all kinds of Kodash prices?

Yes, we're working on providing cost per ton data that will be meaningful for you. So we were hoping to have that done for you on our portal by reporting, but because of reasons having to do with taxation issues that we're still discussing with our government. We're deferring that a little bit and hopefully very soon we'll give you all the details you need and more.

That's great. One addition to this answer is that we took a look at it and I think this comparison needs to be done with a pinch of salt because there are different definitions. There are different definitions. of cost per ton, and you can easily, you know, see a range what you include inside, what you don't look inside. So continuing to what Aviv just said, once we do that, we'll have to be very careful to make sure that it's apples to apples and not something different.

Yeah, of course. Even a range can help a lot. So if you can provide a range right here, it will be very helpful, and if not, that's, It also very helps, and thanks again for the answer.

In our main Dead Sea facility, we're in a very good place on the global cost curve, and in our facility in Spain, our mine in Spain, we're in a not-so-good place on the global cost curve. So most of our tons, 4 million of our tons, are in a very good place, meaning that we can make significant profit in any kind of market.

Thank you. So we are out of time and that does conclude our conference for today. Thank you all for participating. You may now disconnect. Speakers, please stand by.