ICL Group Ltd

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 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 it's available on our website, please be sure to review the disclaimer on slide to. 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 Zolder, followed by Mr. Aviyar Amlahav, 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 our second quarter results, which are compared to an all time record quarter last year. As you can see on slide three second quarter sales of $1.83 billion were in line with revised expectations, but down as expected versus an extraordinary second quarter in 2022 when commodity prices peaked. While the year-over-year decline in prices impacted all of our businesses and we generally saw lower volumes, our put-out segment volumes increased in the second quarter as we sold more product to China, India, and the United States. Lower prices in the second quarter also significantly affected our adjusted EBITDA, which was $441 million. However, we did see some benefit from lower raw material and transportation costs. We continue the stocking throughout the second quarter and proactively adjusted production as needed. Also, we adapted our savings and efficiency plans to react to the challenging near term macro conditions. As a result, we were able to reduce costs, including through production improvements that are industrial products and growing solutions in Brazil and through additional gna cost reduction efforts. While the cyclical decline was more rapid than expected icl delivered a well executed quarter as we quickly adjusted to current market conditions, ensuring continued strong cash generation, while adhering to our long term strategy. We delivered operating cash flow of $391 million in the second quarter and free cash flow of $221 million, which was identical to the first quarter of this year. We continue to return value to our shareholders in the second quarter, as we reported diluted earnings per share of 13 cents and declared a quarterly dividend of 6 cents per share. We also remain committed to our long-term specialty strategy through our investment in lithium iron phosphate battery materials production. Just yesterday, our board of directors and executive leadership were joined by Jennifer Granholm, secretary of the Department of Energy, and Mike Parson, governor of the state of Missouri, To break ground for this exciting project at our manufacturing campus in St Louis. Our St Louis facility will be the first large scale battery materials manufacturing plant in the new in the United States. And it's expected to help meet growing demand from the energy storage electric vehicle and clean energy industries for us produced and sourced essential battery materials. In addition, we remain committed to introducing new technology and additional capacity to enhance this unique and timely opportunity. Let's turn to a three-year look at some of our key metrics on slide four. Again, while sales were down year over year as expected, they were up versus the second quarter of 2021. While we had anticipated the second half of this year to progress at a more normalized rate, we recognized some negative near-term developments and announced a change to our expected guidance in late June. At that time, we provided an update to the framework agreement with our put-out customers in China. We also cited the delayed recovery in flame retardants and it will speak more about these in our segment reviews. On slide five, you can see second quarter and year to date specialty sales which followed a trend similar to our consolidated results as expected earnings per share were down versus an extraordinary 2022 and up when compared to 2021. Also, as I just mentioned, we saw significant year-over-year growth in both operating and free cash flow versus the second quarter of 2021. I would now like to begin our segment review with industrial products on slide six. Second quarter sales were $300 million, while EBITDA was $74 million, or 25%. The recovery and demand for flame retardants, which was expected in the second half of the year, has not materialized. For the second quarter, lower demand resulted in increased competition and lower prices. In addition, elemental bromine prices hit lows not seen since 2008 and 2009, and low price flame retardant supply remained in the market. Once again, results vary significantly by end market. Weakness in electronics continued and was magnified by a slow return to growth in China than had been projected, while the building and construction end markets remained soft as well. Meanwhile, demand for clear brine fluids and for our specialty minerals was stable in the second quarter. As the recovery in flame retardants looks to be delayed until the end of this year, we expect the $200 million EBITDA reduction we estimated in June will negatively impact our 2023 results. During the first half of the year, we targeted cost savings and inventory reduction efforts, and we will continue to do so in the third and fourth quarters. City Council Chambers, Despite this temporary setback our industrial products business remains on track for the long term, we continue to work with our partners to improve our competitive position and to develop innovative flame retardants and other solutions. City Council Chambers, Our steps to create additional savings are also bearing fruit with more to come. City Council Chambers, We do not expect recent developments which are predominantly external to have a material impact on the execution of our five year plan. We also expect demand for flame retardants to keep in pace with the traditional electronics replacement cycle over the long term and to accelerate as the global conversion to electric vehicles continues as the artificial intelligence trend materializes. Turning to slide seven and our phosphate solutions division, where we reported sales and EBITDA of $605 million and $130 million, respectively. For the quarter, phosphate specialties represented 65% of sales and nearly 65% of EBITDA. Food demand remained resilient, with higher prices in North and South America as well as in Europe. For industrial end markets, prices were slightly higher in North and South America, but offset by generally lower volumes in most regions. Overall end market demand in the US remained stable, but competitive price pressures continued to impact other regions. And while conditions are below those we experienced in an exceptional 2022 the base phosphate specialties business remains very healthy. As I already discussed, we broke ground yesterday for our new battery materials manufacturing facility in St Louis in partnership with the Department of Energy which provided icl with a $197 million grant. On slide eight, you will see our potash results were sales were $556 million and EBITDA came in at $213 million. In late June, we agreed to supply our customers in China with an aggregate amount of 800,000 metric tons of potash during 2023 at an agreed upon price of $307 per ton, which was the prevailing rate. For the second quarter of this year, our potash price per ton was $403, down from $801 in the second quarter of last year, but nearly $115 higher than in the same quarter of 2021. Potash prices have recently stabilized. As mentioned earlier, our volumes increased over the past quarter, led by supply to China and India, and we benefited from decreases in energy and transportation costs. Turning to slide nine and our growing solutions business which delivered second quarter sales of $481 million and EBITDA of $22 million as prices in the specialty fertilizer market declined overall due in part to the stocking of high priced inventory. In addition to a later start to spring in some countries weather related issues caused farmers to maintain a wait and see strategy, even as affordability remained above average. Despite these challenges, Growing Solutions delivered record-free cash flow of about $100 million. The division remained focused on reducing working capital and destocking inventory, while executing against its saving and efficiency plan, with more to come in the second half of the year. Some products, like Fertilizer Plus, were impacted by the decline in potash prices, as well as the delayed start to the season, especially in Europe, where demand was weaker than expected. In other areas like India and China, the division made headway against its strategic plans and has been launching customized efforts to advance as a digital outreach and increase its share of wallet. We expect gradual improvement in the third quarter, as we work through these short term challenges and we remain focused on eminent opportunities and investments in innovative new product offerings targeting long term specialties growth. I would now like to draw your attention to slide 10 and a review of the key areas where we're focused. We are, of course, maintaining our commitment to our long-term strategy, notwithstanding the short-term highs of 2022 and some unexpected challenges in 2023. All of our businesses are committed to enhancing efficiencies and competitiveness, which helped us deliver strong cash flow in the second quarter. We remain dedicated to growing our specialties product portfolio while targeting M&A and strategic partnership opportunities. As I do every quarter, I want to thank the entire ICL family of employees all around the world for their hard work and significant contributions. I'm proud to lead this team of more than 12,500 global partners. And with that, I would now like to turn the call over to Aviram.

Thank you, Raviv, and to all of you for joining us today. Let us get started on slide 12, where you can see a review of the external macro pressures we have been discussing for several quarters now, with many of these remaining unchanged. Inflation rates started to decline year over year, but prices remain elevated for the end market consumers in the second quarter. As we've previously discussed, this forces families to make choices about their discretionary income. For example, home improvement and curb appeal projects are being delayed, while food demand remains resilient, as seen in our phosphate specialty results. In addition, these trends are further impacted by interest rates which remain elevated on a global basis. In general, global growth continues to be subdued, which is why it is important for companies like ICL to have a varied geographic footprint. We also benefit by participating in a wide array of end markets, not only across our four segments, but within each line of business as well. Being a global company means reacting swiftly to conditions around the world, which we did in the second quarter. Still, many geopolitical obstacles persisted as the situation in Ukraine remains unbalanced, the food insecurity crisis in Africa threatens to expand, and uncertainty regarding China's recoveries have increased. Just three months ago, China's economy appeared to be rebounding faster than anticipated. However, recent indicators suggest otherwise. Sluggish domestic demand in China, which represents the second largest economy in the world, is being compounded by ongoing concerns around the country's housing and construction markets. In terms of global agricultural demand, crop prices remain elevated above pre-COVID levels as farmer affordability continues to be resilient, especially in the US. While fertilizer prices have declined from the peaks we saw in 2022, they are beginning to show signs of stabilizing. On slide 13, you can see some of the trends I just discussed. While inflation rates generally trended down versus the second quarter of last year, they remain elevated on a historical basis. When this is combined with higher interest rates, it results in consumers being forced to prioritize their spending. In China, while the economy expanded by 6.3% in the second quarter, this was below expectations. Quarter of a quarter GDP growth in China slowed from 2.2% in the first quarter of this year to just 0.8% in the second quarter. Turning to slide 14, where we have a collection of key agricultural metrics, Commodity crop prices have stabilized in the second quarter, with the exception of rice, which is seeing prices moving even higher in recent days following India's recent export ban. In the U.S., farmer sentiment continued to improve, and the Purdue Ag Economy Barometer for July indicated that farmers remain cautiously optimistic about the agricultural economy. This improvement came after one month swoon in May, which was followed by an upswing in June as farmers took a more optimistic view of the future. On slide 15, you can see expected trends for electric vehicles over roughly the next decade. As Raviv already discussed, yesterday we broke ground at our battery material plant in St. Louis. As a reminder, this new facility will be able to support not only electrical vehicles, but also the infrastructure behind them, including energy storage. If you will now turn to slide 16, where on the left side you can see the sales bridge from the second quarter of last year to this year, for industrial products, sales of flame retardants remained weak. In potash, sales volume to China, India, and the US increased. However, prices were lower year over year. For phosphate solutions, higher prices for specialty food phosphates and lower raw material costs were unable to offset lower phosphate fertilizer volumes and prices. At Growing Solutions, we saw lower volumes and prices for our fertilizer plus and specialty agriculture products, while higher prices in our turf and ornamental business were unable to offset lower volumes. On the right side of the slide, you can see a year-over-year breakout of our second quarter sales by quantity and price. Turning to slide 17, for our adjusted EBITDA, which was $400,000, and $41 million and down year-over-year as expected, but up more than 20% versus the more normalized second quarter of 2021. The significant reduction in potash prices year-over-year had the biggest impact, which you can see on both the left and right-hand side of the slide. We have maintained our preferred cost position for our target potash markets and remain in an excellent location on the cost curve. As you can see on the left side of slide 18, we are in the first quartile. In addition to leading from a cost curve perspective, we are also leading from a price perspective, as you can see on the right side of this slide. I would now like to review a few highlights on slide 19. At quarter end, our net debt to EBITDA ratio was at 0.72 times. Each of our businesses tried to reduce working capital and inventory during the second quarter while executing against the savings and efficiency plans. We remain tightly focused on cost reduction and recorded a significant improvement in this area in the second quarter. Our prudent cash management resulted in strong cash conversion in the quarter, and we delivered operating and free cash flow of $391 million and $221 million, respectively. At quarter end, our available cash resources total $1.7 billion. For the second quarter, our dividend was approximately $81 million, or 6 cents per share. This brings our dividend yield for the past four quarters to 7.4%, an industry-leading rate. Also during the quarter, Fitch and S&P reaffirmed their ICL credit ratings, with both firms maintaining senior unsecured ratings of BBB-. Finally, on slide 20, you can see our 2023 guidance calling for adjusted EBITDA of between $1.6 to $1.8 billion in total and for our specialties businesses to contribute between $0.8 and $0.9 billion of that amount, which we indicated back on June 22nd. As a reminder, this guidance reflects the impact of the lower than anticipated potash price in China and the delay in the recovery of global demand for flame retardants. And with that, Peggy, we can begin the Q&A.