Q2 2022 ICL Group Ltd Earnings Call
And Jonathan then please hold we will begin shortly.
Sure.
Ladies and gentlemen, thank you for standing by and welcome to the ICL analysts call.
Prince 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 nine on your telephone keypad and wait for your name to be announced a.
I must advise you that this call is being recorded today I'd like to hand, the call over to our first speaker today, Peggy Reilly Tharp, Vice President of Global Investor Relations. Please go ahead ma'am.
Thank you Hello, everyone I'm, Peggy Reilly Tharp, Vice President of Global Investor Relations I'd like to welcome you and thank you for joining us today for our quarterly earnings call. The.
The event is being webcast live on our website at ICL Dash group Dotcom.
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.
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. Rajiv Zoller, followed by Mr. <unk> our CFO .
Following the presentation, we will open the line for the Q&A session levied place.
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 Companys strong performance was supported by increased demand and higher prices in most markets and was achieved even as raw material costs remain insulated and as global supply chain challenges continue.
To begin with slide three ICL delivered all time record sales and EBITDA and another consecutive quarter of profit and margin growth.
We saw record results from our specialty businesses industrial products phosphate solutions and innovative AD 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 benefitted 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 per share up more than 450% versus five point 26 cents in the second quarter of last year.
In total ICL will pay out of $375 million dividend for the fourth.
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 the skus regarding previous years and gained certainty regarding the future.
Well as Iran will have more specifics in his portion of the calls of todays call I would like to note that a 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.
<unk> five is 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 centers, which are 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 and while bromine prices in China have eased somewhat this year.
Still higher year over year.
End market demand in the quarter was Mitch 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 a strong clear brine fluid sales.
Consumer electronics continued to moderate as consumer demand shifted away from devices and toward experiences as the world Reopens post COVID-19.
Automotive demand was also subdued as automakers continue 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 either change.
We expect to bring on 65 more items sanction in the second half of the year as we look to maintain the efficiency and flexibility of our unique logistics 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 and all time quarterly production record and all time semi annual production records and an all time quarterly granular production records.
In Spain production improvements advanced cabin asked 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 mineral magnesium prices were higher than our average put us 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 the average <unk> 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 middle magnesium business sales in the second quarter increased on higher prices as a competitive space continued production constraints.
Turning to slide eight and our phosphate solutions division with 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 maintain a 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 the fertilizers, which offset cost increases raw materials production and logistics.
In Europe , our Lucas shopping site in Germany returned to full production following a fire related shut down last year.
Also in Germany, we invested in new equipment at our Ladenburg site, which resulted in improved quality and help make us more energy efficient.
In China, our white, aged joint venture saw higher prices for both specialty products and commodity fertilizers combined with increased production efficiency.
Demand also continues to grow for our specialty mono ammonium phosphate solutions destined for LSP batteries used in electric vehicles and other energy storage offerings.
Turning to slide nine.
And innovative AD solutions were 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 sales and EBITDA respectively.
Our Brazil expansion strategy delivered both synergies and robust results as this business contributed $177 million of sales in the quarter.
Up versus the prior year and beyond our expectations, even during its traditionally slower season.
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 Bally sulfate was a big winter.
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 competition.
In addition to growth in Europe , India, and China, Polysulfide gained new business with expansion into Indonesia.
ICL booby 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 tonne target in 2022.
Our turf and ornamental business remained solid but these products like all of our specialty fertilizers contended with higher cost and lower availability of raw materials in the quarter.
However.
We have been able to offset these increases across aes with higher pricing.
Now if you'll turn to slide 10, I would like to review some recent progress we've 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 my last the most comprehensive index for corporate responsibility in Israel.
We also received the double H 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 plan was selected out of a 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 Ypa's joint venture, we see the Green line certification from the Ministry of environment in recognition of its work as a leader in developing reassure cooler economy and an ecological protection.
White ph also joined the prestigious list of five a ranked companies, which is comprised of only six companies in China.
In terms of innovation, we've made several advancements including in the area of LSP battery production and we're 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 were also advancing our efforts to develop product offerings for liquid and solid electrolyte.
We are already a leading manufacturer of phosphorus chemicals to 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 U S.
We have also partnered with plant arc bio to boost crop yields through RNA eye.
The technology, he collaboratively developed 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 AD startup agnostic.
This offering will drive crop nutrition optimization by leveraging state of the art technology.
In 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 put Fs limited to supply organic fully sulfate through 2026.
As you know since probably sulfate 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 ICL was recently named one of the best companies to work for by DDI, 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 38 place in the prior year.
The company also received the highest possible corporate governance rating for the publicly traded companies from entropy, a leading Israeli ESG rating firm.
Icl's ranking improved to advance 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 U S. 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 the finalist by the St. Louis Business Journal towards 2022, corporate philanthropy and innovation Philanthropy Award.
One item in common for all of these endeavors and achievements through the fact that they span the globe.
From Israel to Spain, and onto China, India, and the U S and beyond ICL employees are leading innovating and improving conditions on earth through their sustainability efforts.
Finally, I would like to wrap up my portion of todays call by reviewing slide 11.
While this has been unusual year. So far we've 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 include.
Including the ability to grow through M&A.
<unk> and R&D capacity and new products among others.
We do not have clarity as to how the global macro environmental 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.
The southern Hemisphere enters its key planting ashish.
We also expect to see continued profitability from our businesses such as our white the Asian joint venture in China, and our polysulfide 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 OFC batteries and across the food and agricultural end markets.
Especially during this time, a food crisis 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.
Must remember that this is a temporary high and then 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 Ron.
Thank you Louise and total fuel for joining us today.
Why do you have already seen slide 13, I would like to call out a few additional highlights.
Second quarter adjusted operating income of $1.139 billion was up more than 390% and adjusted operating margin of 39, 5% was up dramatically from 14, 6% in the second quarter of last year.
For the quarter adjusted net income of $751 million was up more than 450% year over year.
If you'll turn to slide 14, you will see that many of the macro trends. We saw in the first quarter continued into the second global growth remained strong even as inflation continued to sold in most countries in both commodity and grain prices remained high the situation in Ukraine has not been resolved and it seems as if.
Each day brings changes and in some cases, even greater uncertainty.
There have been limited relief from the supply chain disruptions for ICL and others around the world. However, our supply chain procurement and logistics teams have worked tirelessly to overcome these challenges and we have continued to leverage our advantageous production locations and global supply chain capabilities in <unk>.
Asian currencies have continued to fluctuate with the U S dollar celgene to its highest level in nearly two decades at times hovering at parity with the euro.
On Slide 15, you can see prices for potash of Samsung continues to trend higher during the second quarter, while phosphoric acid prices paper and freight rates declined slightly.
Whether we're able to offset the increase in prices for raw materials in the quarter. This is expected to become more uncertain in the second half of deal.
Turning to slide 16, where.
Well you can see the trends for crop economics also remained elevated throughout the first half of this year prices for rice of soil. So small increases in the beginning of the quarter was the Reits declining as the quarter progressed, while soy moderated.
Home prices increases were higher but level off towards the end of the second quarter.
Understandably wheat prices with the most sharply elevated is Russia, and Ukraine combined export Canadian 30% of the was weak.
<unk> prices declined beginning in June and just last Friday. The two countries agreed to resume exports of millions of tons of Ukrainian grain via the Black Sea for the first time since the Russian invasion.
On the left side of Slide 17, you can see the impact of higher prices on our year over year sales growth for quantities. We saw positive contribution from our recent Brazilian acquisition and even joined the traditionally slower season in Brazil. These acquisitions comprise 25% of innovative AG solutions.
Sales in the second quarter for.
For phosphate solutions, even as prices for phosphate commodity. So we maintained our long term strategic focus on specialty sales, which represented 54% of total phosphate sales in the second quarter on.
On the right side of the slide you can see improvement in sales from all four of our segments with the impact of higher prices continuing to flow through to our results.
Turning to slide 18, you can see the significant contribution that higher prices made to adjusted EBITDA and once again on segment basis. All four of our businesses contributed to the yields of yield improvement for phosphate solutions phosphate specialties made up 42% of EBITDA for this segment.
I would now like to review a few highlights on slide 19 for the second quarter, our net debt to EBITDA ratio improved to six times from two one times in the second quarter of last year.
As Rajeev mentioned, we've continued to drive growth in cash flow generation through cost controls and efficiencies. We also continued to deliver shareholder value for the second quarter. Our deepened the deal is nearly 8% at the high end of our peer group.
Before we move to Q&A.
I'd like to address our recent settlement with the Israeli tax authority.
Previously discussed we have settled a significant tax dispute regarding the surplus profit levites on natural resources. This settlement provides final assessments for the next year 2016 through 2020 and also clients of calculation of the Levi for 2021 and onwards in the second quarter, We'll report.
The total tax expenses of $540 million, which.
<unk> expenses for prior years in the amount of $188 million.
Loading this amount our tax expense was $352 million, reflecting an effective tax rate of 31% for the second quarter of last year, our tax expense was $64 million and reflected an effective tax rate of 30%.
Total tax rate for the first half of 2022.
Excluding the $188 million of prior year tax expenses was 28% versus 23% for the first half of last year.
Company's relatively higher tax rate was a result of tax expenses relating to the surplus profit Levi's and represent an approximation of the impact of the above settlement on the current tax rate going forward, we expect our ongoing tax rate to be in the 30% range turning to slide 20, I would like to call your attention to our <unk>.
<unk> guidance, which reflects our very strong results in the first half we now expect to deliver an adjusted EBITDA range of between $3.800 billion and $4 billion in 2022, an increase from previous guidance of $3.500 billion to 3.750 billion.
<unk>.
Our specialty businesses are expected to contribute approximately 1.500 billion to $1.600 billion up from previous expectations holding for contribution of 1.300 billion to $1.400 billion.
One final note before we found the call back over to operate though I would like to recognize that our CEO of <unk> has been named an executive Board member of the International satellite vessel <unk> and this is in addition to his role as the chair of the sustainability Committee. This is a fantastic and <unk>.
Well deserved Ono, recognizing ICL as a sustainability leader among its fertilizer deals and on behalf of ICL I congratulate him and with that operator, we can begin the Q&A.
Thank you as a reminder, if you wish to ask a question. Please raise your hand, using your mobile or desktop application or press star nine on your telephone keypad. Once again, please raise your hand, using your mobile or desktop application.
Start nine on your telephone keypad. Our first question today comes from the line of a basher chartering. Please go ahead.
Hi can you hear me.
Yes. Thank you.
Perfect.
Hi, guys. Thank you for taking my questions.
Just a couple of installment on the potash market and then one on the industrial products sold.
On the potash side of things, we're hearing continued chatter around more tonnes coming out of better Ruth can you provide your thoughts on how you see the market for their SDN and whether you see.
Some of the supply pressures coming golf and then more specifically to your pricing. The ASP is still quite a bit at a discount to the average spot price for the quarter should.
Should we expect this discount to remain given your contracted volumes to India, and China or the is there a potential to close the gap. So the Doctor says first one caught us.
Then in industrial products and the commentary around the Chinese phosphorous coming back to the market in the in the press release.
Can you provide some thoughts on the size and do you expect prices to be to be preserved for the remaining part of the year or do you see them consulted Inc.
And to the rest of day. Thank you.
So first on potash pricing.
I'm not sure I understood why you think that.
Prices are.
Market.
Maybe a final question.
Okay.
I'm, sorry, you broke up a limit on the potash market. So we're seeing a lot more.
Better Russian tons coming out of the market.
Iteration homes coming into the market and I was wondering if that's having an impact.
On our part okay from the from the very beginning when when sanctions were.
We put in place.
The expectation was that without the boredom of PDI.
The deliberations would be able to get about a third of their product.
To the market and.
I think that they are not there yet but.
According to what we're hearing.
They're going up from.
About a little over 100000 tons of them.
<unk>, two a 200000 tons or better.
According to the information that we have.
About 250000 achievable through various small ports and rail to to China.
So our expectation is that six.
Six to 7 million tons will stay absent from the market.
So that's regarding Belarus, Russia.
That's a that's the existing information on <unk>.
The average price on put ash, our average prices as a mix of.
Contracts and.
Spot prices and.
We present the realized price so in the second quarter the average price in Brazil was up over $1000.
Contract prices as you know a 590.
In the second quarter, we expect the prices.
Will soften a bit.
So there will still be higher than the first quarter are significantly lower.
Lower than the second quarter, so our expectation for third quarter is around.
Around $700 for the third quarter.
Regarding your.
Last question on industrial.
Industrial products.
Currently we see relative strength in some sectors such as oil.
Oil and gas.
In our consumer electronics and also in automotive, we see a certain softness part of that has to do with.
With the situation in China, and Lockett juice.
And temporary a temporary change in demand, we think that the long term.
Automotive.
Demand coming from electric vehicle is very strong in the space for the long term. So we don't think that softness will hold.
All in all most of our industrial products business in bromine related business is contracted in the long long term contracts.
So we don't see any significant effect.
On the phosphorus based business, so, yes, there's Chinese product coming out.
Not a not like two years ago, but are quite a bit of product is coming out.
We see a we see less quantities are being sold but the prices are holding so the overall results are still a very very good we don't know.
What the policy in China will be going forward.
On phosphate, we know that they're quite.
Strict restrictions now on exports so on phosphate.
From the beginning of the year until mid year about 2 million tonnes have come out and in the second half of the year.
It's expected about another $3 million, so overall about $5 million compared to $11 million came into the market in 2021. So.
On phosphorus, it's not clear, where we're going to be a on phosphate he looks like.
Nothing like 6 million tons will be missing this year coming out of China.
Hope that answers.
That's very helpful. Thank you.
Just one note.
David If I May go ahead Sir.
We are seeing with Russia that are that the leaders in the market actually are upping the prices. These.
These days so oh.
I think I think that there's quite a lot of volatility and position, taking and most probably the the near future we fill that out.
I'd say in a way if I can say with this little amount that's actually happening I think it's quite unfolded as it makes sense.
Yes.
Maybe I'll sneak in a follow up just across industrial products and then across <unk>.
The the performance has been quite strong and I'm just wondering as we head into the third quarter and you've had a month of its all fall are you starting to see a little bit of a softening in demand and therefore your ability to pass on pricing is not quite as strong as it was in the one June two acute offset the rules.
Just from a slightly softer demand perspective.
Any thoughts around that would be helpful.
It depends what the softer demand that means because there's two things that are coming to play here first of all the seasonality. So there's a seasonal softness if you will.
And secondly, remember that once the war started there was a rush to the stock.
And to make sure that our supply was would be available. So our distributors stocked up in Brazil that takes about 12 million tons, a year took 7 million tons in the first half of the year.
So there's still a.
There's still no need.
For immediate supply in June or July , but but at the same time, Brazil is going to be taking a 12 million tonnes when it goes.
The put us as needed for the soil they can't skip.
They can skip.
A year.
Which is different than a different soil types and in Europe . For example, where we see about 20% demand disruption and are in.
Europe . So those 5 million songs are going to be acquired either.
There is some convergence of price because the price levels in different parts of the world has been.
<unk> has been quite it.
And a significant difference and what competition does is it makes.
Prices even out in the in our case, we sold to Brazil in the first half an 85% more than we did in the in the first half of last year, we sold.
Almost 750000 tons versus 400000 for the last year. So it means that.
About 80% of our allocation to Brazil was sold in the first half because we were opportunistic when prices were higher and we did what you do on competition.
But it's very natural and prices converge the the the <unk>.
Fundamentals of the market is at a six or 7 million tons are missing and the only way to balance supply and demand.
Is demand destruction through prices going higher.
Unfortunately, you know in today's world the geopolitical implications because those that are not getting the product or maybe the ones that needed. The most but that's a that's a secondary issue that we don't have enough time to discuss today.
That answers.
Thank you. Thank you.
Thank you. Our next question comes from the line of Joel Jackson from BMO Capital. Please go ahead.
Hi, Jeremy.
Yes go ahead, hi, good morning, or good afternoon, everybody I want to start high level.
Previous guidance looks conservative for the year, even though you've raised at when you look at it from a different perspective, some maybe I'll give you a couple of observations and then I'd appreciate your.
Your insight so youre, describing a full year were 42% of EBITDA will come in the second half of the year, that's not at all typical for Israeli chemical excuse me excuse me I apologize.
There's one here in the last 10 years that may have happened.
Describing a $600 million of lower EBITDA in the second half year number happier I appreciate the $7 from potash price that you are seeing happen in Q3, but that doesn't really explain it. All so are you being conservative here or odor modeling and a lot lower commodity prices in the second half in the first half of the year are there margin issues.
Again, I'm being conservative because it seems it doesn't seem like it seems like it would be hard for you to get below $4 million for thank you.
Okay, well thanks for the question Joe.
You know what I don't think that we're being conservative I think that we were conservative in the beginning of the year because there were no contracts in place in China, and India and at the same time.
Bella Russian sanctions were just being talked about so when we prepared our model for this year, we were in a different reality, but since we are.
Since we updated our our projections I don't think that much has changed.
The the new guidance does not reflect any change in the view of how we see commodities, maybe a tiny bit in phosphates, because I looked a little stronger than we expected again because of the Chinese exports.
Limitations.
Almost all of our upgrade of our projection has to do with the specialties are in our specialties business. So you've had some positive surprises and very good execution in the first half of the year.
So we've been positively.
Surprised by a better prospects for this year and you can see that most of the change in in the projection has to do with with.
With the specialties in commodities I think we're very much where we were we didn't get too excited about.
Rices in Brazil, going over 1100, or even reaching 1000 1200 at one point in Brazil, we were opportunistic. So we took advantage of those prices, but we didnt think they would hold for the long term.
So many concerns so.
That religion, Janet Hello, Jonathan.
On the 42%, it's pretty simple I think that the third quarter.
On potash prices like I said, they're going to be a little softer and most of the most of the difference between the first half in the second half has to do with the fourth quarter and a and if you check again on those 10 years, you'll see that the two are.
Our business divisions actually three of them.
All special all specialty businesses.
For seasonal reasons and in industrial product because of a very.
Very soft.
Very soft December is that we usually have.
It was one year last year, it didn't behave that way, but every year, we have a soft December so in phosphates are we have a seasonal weakness it.
In the fourth quarter, and our industrial product in December which hits into the fourth quarter. The only change there is that our innovative AG.
<unk> solution is going to be a little stronger this year, because our new newly acquired business in Brazil is performing very very well and it's actually expected to do better than last year. So.
But as prices in the second half lower than in the first half.
But in addition to that fourth quarter will be softer in industrial products and and phosphate.
And our phosphate division that's.
Not an unusual thing and it was factored into our original forecast I hope that helps.
Kind of.
Maybe I'll ask Joe down a little bit more into details in each business. So if I go to IP and I think you mentioned last call you thought that full year margins to be similar to Q1, Martin I think at about 38%.
Do you still see Asia about 39% in Q2 do you still see you be able to hold 38, 39% in Q3, maybe dropping down seedlings you board. So you can end up really high 30% margins in IP for the full year is that fair. So.
It is fair, but we.
We will go down somewhat on the revenue, especially in the fourth quarter, a little in the third quarter, but more in the fourth quarter. The reason, we can still maintain our margin is that because one of the growing components as the oil and gas clear brine fluids, which are a very very high margin. So.
We will have less sales that are a little lower in margin and perhaps.
Perhaps more sales in clear brine fluids, and that will even out and allow us to stay at the higher margin and we talked about.
Do you think that revenue decline year over year comp, which of course, you had really strong revenue growth for many quarters.
Revenue contraction.
<unk> will continue into the first half of 'twenty three.
We're not seeing that at all in fact with a one of the place where we see softness is.
<unk>, which is becoming more and more significant for us we don't see global demand for electric vehicles going down we think theres a current situation, where there are less deliveries than anybody understands but.
We don't think that's going to stay the case because the demand is enormous everybody wants to change to electric vehicles.
And the demand and the supply is coming out of China, and did electric vehicles and need components.
Components that need flame retardants. So we think we're in a very good position.
Okay, and then any bank AG solutions, when you bought <unk> from Compass.
I think it hit the books for Q3, and Q4 of last year a lot of it so should we all see in the second half of this year.
Little to none bill to know.
You said some growth organically map isn't as great, but there is little there is no.
Acquisition.
Gross increases that happy that it all happened in second half of last year did you did you I'm getting at it's al.
You are correct, it's organic but consider that a the organic pro forma growth was about 80% in those businesses in the first half of the year and we're realizing some synergies. So how do you expect to see growth.
And any margin contraction in that business in the second half versus first half margin Ias was really strong should you see a bit of contraction where should you hold.
It's hard to say at this point, we're taking into account a little bit of a contraction because we again, we see a little softness in the commodity market not typically.
Influences the specialties market as well so we don't see any drama there but.
We're taking into account a little bit of a contraction.
And my last question is I'm asking a lot in.
In potash you give them the $700 a ton ourselves Q3 asps.
So would your margins in that sort of look at you just to kind of dollar potash price Q1, seven BP Q2 would your Q3 margin in potash be a lot lower than Q2 would it be the same as Q1 some of the military in Q1 and Q2, because a lot of things on the cost rate how much of your margin.
<unk> for potash compared to Q1, and Q2 at $7 a ton price.
Great question, we kept everything we kept everything stable and obviously not everything is stable because the transportation prices are actually going down and our output is expected to be very very good which lowers cost per ton, but then again there's some.
Some uncertainties here, including our energy costs and including shifting from.
Some some geographies to others. It will have a lot of deliveries to our India and China and in the third quarter.
So that that requires.
Hi.
But net.
Net net we don't expect a big change in the components.
Uh huh.
Uh huh.
Their margin is lower.
I may just add two things John .
One if you look at the at all first half vis vis the second half if you take the upper posed by point, which is about 4 billion. We're actually delivering 50, 545% not 42, if you look at the $4 billion and the if you sum it up it comes from a significant part in Q4 well are we.
There obviously are much less visibility at the fifth season, then also feed because it is further out.
It is because there is a local uncertainty about prices and are we to hold these things into account when he came out with this guidance.
Of course, we follow it up quarter by quarter.
We may change that depends on the circumstances.
It's a bottoms up guidance.
Okay <unk>, thank you very much.
Thanks, Aldo welcome thank.
Thank you. Our next question will come from the line of will Tang from Morgan Stanley . Please go ahead.
Hey, guys.
Hey, guys the horizontal wells hang on for Vincent.
I know you touched on Brazil, a little bit earlier, but I guess can you comment on like the state of audits inventory.
Within the channel out of by geography elsewhere.
Some of your competitors have kind of equally.
Our products are material operate in the U S, which I think.
Many would've considered improbable team up against so I'm wondering if you have a view on.
Our backup and then maybe.
And elsewhere.
I think all the other trends show I mean, the stock to use and the actual actual inventories that are that you can view a.
Basically that the global situation is that our inventories are going down but at the same time keep in mind that there's a real change in that Ah Ah global.
Supply chains were very very stressed are there.
They are easing up a little bit, but it's a it's a long process and also consider that the key.
Cost of capital the cost of holding inventories increased significantly because you have in Brazil. For example at the beginning of the year. The interest rate was 2% now you're at 13% the reality lost almost 15% to the dollar.
So in terms of affordability and in terms of the risk taking or that you're a distributor and you have to hold inventory you want to are you willing to stretch yourself more.
And the conditions allow you distress yourself more because they're whenever you know any sanctions on on Russian fertilizers.
But there was some uncertainty in markets such as Brazil, whether the Russian product rule, we'll get there this year and now there's less uncertainty in the cost of capital is high.
And and other costs, such as labor cost it was an eye inflation inflation.
Inflation adjustment in our labor cost of over 8% so.
I think our the supply chain is going to be more stressed.
And one point I'm buying is going to become more massive than it currently is.
I think that are you know the north American or the Canadian leaders are probably in a better position to understand the full dynamics in in North America, and I guess it they know what they're doing.
We don't see any inventory buildup, we see our inventory starting to get tight.
Very tight and in India, and ER and even in China, and it's getting tighter where are where the world is changing quickly in terms of interest rates inflation and the and the certainty created by the availability of our Russian product.
At the end of the day are like I said before.
There's and put out there is 6 million tonnes missing missing in the market the only way for that to.
The only way for the markets to clearance for our prices to go up and demand destruction to happen and the only question is weird where demand destruction is going to happen.
We don't think there's going to be demand destruction in Brazil.
That helps.
Got it. Thank you and then I guess just given.
All the headlines around energy in Europe , I'm wondering how you'd characterize ICL production yet.
Particularly as we move into the winter months.
Their phosphate facilities in Germany there.
Okay. So I feel is in relatively good shape.
The reason is that most of our business has a long term fixed price and our non Russian dependent gas.
Gas or renewable energy actually.
Most of our European and U S businesses are linked into a renewable energy specifically and are Ladenburg site in Germany, we do have exposure.
In and that site we produce.
Some acid and many phosphorus salt.
Product.
But due for the food industry in the fertilizers and food are getting prioritized so.
We feel that whatever the rationing of gas could be we would be in better shape than others. At the same time, we have facilities in other countries, mainly in the U S where some of the product we can.
We can replace with with product coming from the U S. So our main exposure. We have is the in our site in Germany.
We have some exposure in the U K, but overall, a very small percentage of our revenues and our EBITDA is at risk from a from a gas disruption.
And again, the our main facilities are in Israel, where we have a long term fixed price.
Gas supply agreement.
Got it thank you.
Yeah.
Thank you. Our next question comes from the line of Alexander Jones from Bank of America. Please go ahead.
Great. Thanks for taking my questions.
I've got two if I may the first just on innovative AG solutions.
If you exclude the Brazilian M&A, then I think your EBITDA in the first half of the year is up about three X compared to the first half of last year.
How sustainable do you think that is if and when fertilizer prices fall or is a lot of that sort of a pricing related component.
And then the second question Ananda products, you indicated that you will be down year on year in the third quarter.
And just looking at the pricing that came through in the second quarter of 33%.
Does that imply that you expect call it a big deceleration in pricing such that revenue falls. Thank you.
I I didn't indicate that an IP, we were going to come out and pricing lower than last year.
So.
I don't know where that came from but.
Maybe there was a misunderstanding.
So that was a sequential comment.
Yeah. It was a sequential comment understood.
And regarding innovative AG solutions, it's not sustainable to a triple your margin every year by no means but I think what's happening here is that Oh, we're enjoying.
Going economies to scale and and good pricing related to new product lines.
And of course, the tailwind is coming from the market. So.
Like I like I mentioned earlier, we think that there would be some margin contraction if a market soften.
But I don't think it's going to be dramatic.
In the past, we had a relatively first of all smaller business.
And we've gone through significant organizational changes, including.
Consolidating our sales teams of commodities and specialties.
And changing some of the way we do business.
Using digital means and.
And other incentive related issues.
Issues that we put into place and so I think that.
Our business plan is working and we're achieving the kind of margins that we look for but our long term business plan talks about a 15% and and normal in normal times. So 20% is relatively high and it has to do with the tailings in the market.
Great. Thank you.
Yes.
The reminder of who want to ask a question. Please raise your hand, using your mobile or desktop application or press star nine on your telephone keypad. Our next question comes from the line of Brian Perry from Barclays. Please go ahead.
Great can you all hear me.
Yeah. Thank you.
Great I guess, just following up on the energy cost.
Is there anyway give a concrete number or percent of energy costs that are not <unk>.
Contracts are related to renewable energy and spirit Lake.
Danielle most license fairly Youre asking Inc.
I don't have exact numbers with me.
I think the the amount of our energy cost or the portion of energy costs that.
That we're exposed to our less than 15% of overall, but we'd be happy to.
We'd be happy to try to get you that information.
Don't want to give an accurate information.
Firstly I appreciate it. Thank you and then also thanks for the ESG update you provided earlier.
We were also wondering how your progress is going on 30% decrease and we have gases by trial or do you have that going on and he also mentioned great results in the dead Sea area. How are you keeping is Betsy workers' space are there any additions to protocol or just any updates for that.
Yes, so first of on how we're doing on our target to 30%.
We're well below our targets for the year.
Some of the the main efforts that were made this year has to do with them all to renewable energy we removed.
70% of our U S sites into two renewable energy this year.
We also are replaced a shale shale oil power generator with NASA natural gas and a large site in Israel, our finishing that in September .
So those are two big blocks for this year, but we have many many other initiatives and if you're interested thereon, our corporate responsibility report in great detail. We're also developing.
New measurement capabilities that allow us to track each and every one of our sites in terms of progress and we have kpis for each of our sites. We have an internal system, where every site gets a monthly reports of how it's doing towards its carbon emission targets. So we.
We are making a lot of progress on safety in our in the dead Sea.
We're very much on track this year and in general in recent years.
We've had better and better safety results.
And in the dead Sea.
Due to a lot of our hard work of our site management and.
Culture that is very much a.
Religious about safety.
We have some sites that are not.
Are not on their Kpis look they're a minority in ICL and of course, we're putting the proper focus to make them all like the dead Sea like the dead Sea site, which is doing very well.
That helps.
Yeah Thats it.
Thanks, so much.
Yes.
That does conclude our Q&A session for today Peggy. Please go ahead.
Thank you I'd like to thank you all for joining us today, and we look forward to speaking with you. When we report our third quarter earnings in November have a good rest of your summer.
Yes.