Q1 2022 ICL Group Ltd Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the ICL Analyst Conference call.
Finishing today will be followed by a question and answer session at which time if you wish to ask a quick question you will need to press star one on your telephone I must advise you that this is being recorded today.
If you experience any technical difficulties. Please press star zero on your telephone.
I'd like to hand, the call over to the first speaker today, Peggy Reilly Tharp, Vice President of Global Investor Relations. Please go ahead maam.
Thank you Hello, everyone I'm, Peggy Reilly Tharp, Vice President of Global Investor Relations.
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 Dash group Dotcom earlier.
Earlier today, we filed our reports with the securities authorities and the stock exchanges in the U S and in Israel those reports as well as the press release are available on our website.
There will be a replay of the webcast available after the meeting and a transcript will be available shortly thereafter.
The presentation, which will be reviewed today was also filed with the securities authorities and is available on our website. Please be sure to review the disclaimer on slide 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.
Company undertakes no obligation to update any financial information discussed on this call at any time.
We will begin with a presentation by our CEO Mr. Raviv Zoller, followed by Mr. Avi out I'm gonna have our CFO .
Following the presentation, we will open the line for the Q&A session Raviv. Please.
Thank you Peggy and welcome everyone.
Clearly a great deal of change in the World since we last reported and I want to try to give you the clearest picture possible the impact that you see and expect to see in our business and across our end markets.
To begin with slide three while we benefited from commodity market upside. This is not distracted us from continuing to focus on our long term specialties operations and on expanding this portion of our business.
Commodity cycles come and go but the upside is subject to external factors beyond our control and this is why we remain dedicated to our specialty strategy, which will benefit our shareholders in both the near term and into the future.
In the first quarter ICL delivered record results with all time record sales of more than $2 $5 billion, an increase of more than $1 billion and ahead of our expectations.
Adjusted EBITDA crossed $1 billion and was also an all time record as we leveraged our agility and diversity despite global uncertainty.
Okay.
Our specialties business industrial products phosphate specialties and innovative AD solutions all delivered record results in all four of our divisions contributed to the significant growth in sales and EBITDA.
Overall strong quarterly performance was supported by increased demand and higher prices in most markets as the disruption caused by the pandemic sanctions and the conflict in Ukraine radically shift in market dynamics.
During the quarter, we maintained our focus on long term cash generation by innovating with our specialty business as product portfolio and by driving cost efficiencies to deliver free cash flow of $218 million up more than 260%.
While it can be easy during an up cycle to lose focus on costs our initiatives in this area remain on track.
We continue to enrich and expand our existing customer relationships and build new ones by serving as a consistent and reliable supplier in the face of continued supply chain challenges.
We plan to continue to optimize both our customer and supplier relationships with emphasis on long term sustainability considerations as we manage through these issues and significantly high raw material cost and freight rates.
Finally, our policy to distribute a payout ratio of up to 50% of annual adjusted net income resulted in a dividend of $23 83 per share up more than 350% versus 525 cents in the first quarter of last year.
In total ICL, we'll pay out $306 $5 million in dividends for the quarter.
Now please turn to slide four for a look at the matrix I just discussed.
Sales were up nearly 70%, while adjusted EBITDA was up more than 230% each.
EBITDA margin for the first quarter increased nearly 40% from 20% in the first quarter of last year and were also up significantly when compared to the fourth quarter of 2021 rate of 29%.
We also added nearly $120 million of operating cash flow in the first quarter.
On slide five we have a snapshot of our first quarter results and once again you can see we demonstrated improvement in each key financial parameter with very significant improvement in most of them, including gross margin of nearly 50% and EBITDA margin, which doubled year over year to nearly 40%.
I would like to now begin our segment review with industrial products on slide six.
Record quarterly sales were $494 million and up 24%, while record EBITDA was $203 million and up 66% year over year.
This business continued to benefit from our strategic shift to long term contracts and today more than 70% of bromine compounds sales are under long term contracts.
This segment also saw higher pricing year over year, which helped offset increased raw materials and shipping costs.
Bromine prices in China increased year over year, they declined from record highs in the fourth quarter of 2021 still remaining significantly ahead of the pre COVID-19 rates seen in 2019.
Phosphorus supply from China rebounded in the first quarter following the elimination of environmental restrictions in the fourth quarter of 2021. However, this supply is expected to be impacted by the resumption of Covid shutdowns in China in the second quarter.
Most of our flame retardant products were sold out in the first quarter, which contributed to record sales.
Phosphorus based flame retardant sales increased 22% to record levels as the construction industry remains strong.
Other end markets continued to moderate including automotive and consumer electronics.
Automakers face continued production issues on a global basis, while the consumer electronics market has softened following exceptionally strong 2021.
The oil and gas industry maintained its momentum in the first quarter. However, some clear brine fluid orders shifted to the second quarter.
Turning to slide seven in our potash business, where sales of $795 million were up more than 120% year over year and EBITDA of $450 million was up 626%.
For the quarter, our average realized price per ton of $601 was up $344 year over year and up $114 over the fourth quarter.
In late February ICL sign framework agreements with customers in India, and China supply put asking 2022 at $590 per ton.
During the quarter.
As prices continued to increase due to global disruptions in availability related to sanctions on Belarus product.
This situation has been further exasperated by uncertainty evoke by the conflict in Ukraine, and Russia is also a significant player in the global potash market.
Pricing in the quarter for corn, rice, soybeans, and wheat were all up double digits once again due to strong demand and tight supply.
Concerns about global food security were amplified due to the recent unrest in Ukraine, as both Ukraine, and Russia are leading exporters of wheat, corn and other food staples.
At our dead Sea site, we concluded our annual maintenance shut down in March versus April last year and more than 70 projects were successfully completed.
Our P&I and pumping station also achieved its first quarter of full operations. Following commissioning late last year at.
That I feel Iberia production improvements continued to advance as we enter our first full year of production. Following the completion of the ramp project at the cabin asked this mine in 2021.
For the first quarter production increased by 38% to 182000 tons and we are in the process of completing additional projects in Spain, which will help us reach our 1 million ton annual run rate target.
Our metal magnesium sales increased in the first quarter due to higher prices and competitive challenges during the recovery of global end market demand.
As you recall during our fourth quarter call, we announced our <unk> operations would be moving from our <unk> segment, two innovative AG solutions and we will provide an update on this realignment during our Ias Division review.
This change helped us to consolidate our specialty agriculture business in one segment and to sharpen our focus on targeting long term growth of our organic fertilizer solutions.
Turning to slide eight and our phosphate solutions division, where record first quarter sales of $798 million were up nearly 60% year over year, while EBITDA of $247 million was up more than 160%.
This business saw record results for both commodities and specialties and maintained its strategic long term focus on driving specialty profitability. Despite the surge in commodity prices.
In the quarter, our phosphate specialties business benefited from increases in both prices and quantities.
Food specialty results were supported by higher volumes and prices globally, while industrial specialty results benefited from higher demand across most industries and regions with particular strength in the U S and Europe .
Pricing was up across all regions and offset higher input costs in the first quarter.
Our ypa's joint venture once again delivered record results with strength in both commodities and specialties, along with improved pricing for key products and better product mix versus last year.
Demand continued to grow for our specialty mono ammonium phosphate destined for electric vehicles and other energy storage offerings.
Record phosphate fertilizer sales were driven by surging prices amidst reduced supply in the market for sulfur and other raw materials also remained tight.
Raw material prices, especially sulfur are expected to have a more significant impact going forward. This year.
Turning to slide nine and innovative AG solutions, where ongoing momentum combined with continued strategy execution to help deliver record results.
In total first quarter innovative AG sales hit an all time record high of $566 million up.
Up nearly 70%.
EBITDA of $107 million was also an all time record and up more than 230%.
Existing fertilizer momentum was supplemented by increases in commodity prices related to Russia's invasion of Ukraine.
Two substantial participants in the commodity and food supply chains as raw material prices escalated and supply chain issues continue.
Regarding Brazil, our integration remains on track and the overall market remains durable.
First quarter results were ahead of expectations and benefited primarily from higher prices, but also increases in volume.
Our turf and ornamental business had a good first quarter as well and started the season with solid distributor demand.
Record specialty fertilizer sales in the quarter were driven by higher prices with polysulfide based products branded as fertilizer plus contributing both in terms of price and volume.
Fertilizer plus had record results due to improved market share and higher prices voiceover production, which is now housed under Ias was up 30% to 238000 tons, while sales volume increased 11%, helping ICL globally to achieve quarterly profit contribution for the very.
First time.
If you'll turn to slide 10, I would like to wrap up my portion of todays call by reviewing a few recent sustainable investments and innovations in our target areas of industrial food and agriculture solutions.
For industrial efforts, we've brought together a global and multi disciplinary team to address opportunities in sustainable energy storage.
This dedicated unit will expand on our company's existing capabilities and refine our product offerings, including phosphate bromine and phosphorus based specialty solutions for the rapidly growing energy storage market.
Additionally, during the first quarter, we monetize intellectual property developed by ICL, when we sold our 50% share of the Nova side joint venture for a capital gain of $22 million.
For our food focused business, we saw success with an innovative milk protein product created by our productive team, which naturally delivers superior taste and texture for products like yogurt and cheese.
In Turkey, our team developed an advanced cattle feed solution called buffer mix to help farmers increase the quantity and quality of their milk production, while reducing expenses.
While our alternative protein is still behind our initial expectations. The team is expanding its customer pipeline in new brands are using our solution as part of their planned product offerings.
As part of our efforts to offer sustainable agricultural solutions, we're consolidating and expanding our bio stimulant product offerings. This area is growing rapidly as the marketplace looks for more sustainable solutions. When it comes to crop inputs, especially in light of rising commodity prices.
Our acquisitions in Brazil have expanded our opportunities in this area and we are working together to maximize our existing potential and next steps in this exciting market.
This aligns with other sustainability efforts, including work completed our <unk> site in the Netherlands.
ICL recently became the first fertilizer producer in the world to obtain fertilizing products regulations certification from the European Union.
This certificate, which is based on the new EU fertilizer regulations addresses the biodegrade ability of polymer coatings for controlled release fertilizers or when combining mineral fertilizers with bio stimulants.
Once again I feel is at the forefront of sustainability and innovation in its efforts to help create impactful solutions.
Finally on slide 11, I'd like to summarize where we are and where we're going as a company.
First and foremost, we're keeping our eye on the ball.
While potash and phosphate prices are going to be even stronger in the second quarter. The commodities upside is external and unpredictable just like it is in every cycle.
Therefore, while we are enjoying the commodity upside wealth persists, we remain focused on our specialty offerings and our agility as we look to target consistent growth in sales and EBITDA.
We need to use this time to continue to drive our cost efficiency initiatives, while increasing capacity to enable continued growth in our specialties businesses.
We also need to invest in research and development to innovate and expand our specialty product portfolio, we must accelerate innovation and sustainability efforts to establish our business leadership for the future.
All the while we need to maintain our focus on our long term customer relationships as these drive our business.
By providing innovative and quality specialty solutions for our customers in a consistent and reliable manner. We are able to maintain our premium position, which in turn helped us to continue to deliver the goal of long term cash flow generation.
Combined these efforts will help us to not only keep our eye on the ball, but also to continue to create and return value to our shareholders.
As always I want to thank the entire ICL family of employees.
Read out across the globe for all their hard work and contributions during this quarter.
Our confidence and creativity in the face of global uncertainty helped ICL to once again deliver record results and with that I will turn the call over to others.
Thank you Aviv and to all of you joining us today.
Why do you have already seen slide 15, I would like to call out a few additional highlights.
First quarter adjusted operating income of $880 million was up more than 370% and adjusted operating margin of 34, 9% was up dramatically from 12, 3% in the fourth.
First quarter of last year.
Adjusted net income attributable $614 million was up more than 350% year over year and adjusted diluted earnings per share of <unk> 48 were up 37% or more than 350%.
As I've mentioned quite a lot has transpired since we reported our fourth quarter earnings as you can see on slide 14, while global growth rate strong inflation in most countries has sold to multiyear highs. The U S. Dollar has surged with highest level in nearly two decades, which is causing.
Swings for other currencies around the globe.
The combination of these dynamics and the situation in Ukraine has had a ripple effect around the world and resulted in even greater uncertainty as a result, the supply chain disruptions, we experienced throughout COVID-19 and into 2020 to have not only continued but conditions have become worse.
In addition to issues related to Ukraine.
There has also been delays due to resumed complete restrictions and shutdowns in China.
Commodity prices have continued on their upward trajectory and we expect additional impact going forward due to the invasion of Ukraine for potash in particular existing sanctions on bellows has been compounded by international sanctions on Russia, resulting in further tightening of supply.
Since these two countries account for approximately 40% of potash supply in 2021 on.
On slide 15, you can see prices for potash.
Direct acid and sulfur has continued to trend higher with prices, reaching new 10 year record highs.
The first quarter, while we were able to offset the increases in <unk>, which go into our specialty solutions. This is expected to become more difficult as the year progresses also while marine transportation cost declined in the fourth quarter rates trended up again in the first quarter.
Our supply chain procurement and logistics teams have worked tirelessly to overcome higher overall costs in global supply chain challenges, we will continue to optimize our customer and supplier relationships to manage through these challenges and work to ensure consistent and reliable product supply for our customers.
We will also continue to leverage our advantageous production locations and global supply chain capabilities.
On the left side of Slide 16, you can see the impact of higher prices on our year over year sales growth for quantities I would like to call out several items.
For potash as well.
As mentioned our annual maintenance shutdown shifted from April last year to March of this year for industrial products, we experienced production limitations in China, which impacted quantities of Brominated flame retardants in the quarter.
Yes, we.
<unk> been rebuilding our Ludwigshafen facility in Germany. Following the fire last fall and operations resumed just this month. We also made the conscious decision to focus on policy will fade it would be versus less profitable.
<unk> <unk>.
Additionally, we saw positive contribution from our recent Brazilian acquisitions, even during the off season. These businesses comprised 22% of innovative AG solutions sales in the first quarter.
For phosphate solutions, even as prices for phosphate commodity. So we maintained our long term strategic focus on specialty sales, which represented 55% of sales in the fourth quarter.
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.
I would also like to point out that in connection with Israeli taxation, which is a key component of our effective tax rate is prices of our products continued to trend upwards. Our effective tax rate is expected to increase due to the surplus profit Levi on our natural resources among others.
Turning to slide 17, you can see the significant contribution the tire prices made to adjusted EBITDA. Once again on a segment basis, all four of our businesses contributed to the year over year improvement for phosphate solutions, we continue to prioritize our phosphate specialties focused which made up 40.
7% of EBITDA for this segment.
Before we turn the call over to the operator for Q&A I would like to review a few highlights on slide 18 for the first quarter, our net debt to EBITDA ratio improved to one times from two four times in the first quarter of last year, we have continued to drive growth and cash flow generation through cost controls and efficiencies.
And continue to invest in our long term specialties businesses.
We also achieved our sustainability linked loan goals for 2021 as a reminder, our goals over the five year term of the loan include an annual reduction in direct and indirect scope, one and scope two C. O two emissions, resulting from our global operations and this progress is being monitored and verified.
By an independent third party organization in accordance with the BHG protocol and relevant ISO standards.
We also committed to expanding our participation in together for sustainability by adding qualified vendors meet criteria into areas of management environment Health and safety labor and human rights ethics, and governance and finally, we continued to expand the representation of women.
One of our senior management executive and board of director roles.
Turning to slide 19, I would like to call your attention to our updated guidance, which reflects our very strong results in the first quarter and significant changes market dynamics. As a result, we now expect to deliver an adjusted EBITDA range of between $3.500 billion and three.
Billion and $750 million in 2022, with our specialty businesses contributing approximately $1.300 billion to $1.400 billion.
This amount and with that I would like to turn the call back over to the operator for Q&A.
Ladies and gentlemen that does.
Stop the Q&A session.
And she was to register for Q&A. Please press star one on your telephone keypad. Once again, if you wish to register for the Q&A session. Please press star one on your telephone keypad.
Our first question comes from the line of Alex Jones from Bank of America. Please go ahead Sir.
Thanks, very much taking my questions.
Two if I may I'll go one by one.
First question on the margin and industrial products.
About 40% very very strong.
How should we think about that in the balance of the year.
Well so the continued price increase will sustain this level, while goal will not pressure push it down.
We'll start pushing it out a little bit at least I'll start with that and then come back with more thank you.
Okay. Thanks, Alex for the question.
The margin came out higher than we expected at the beginning of the year and the reason is that the.
Our long term contacts have and annual price update and that happens in the beginning of the year and.
The pricing came in higher on almost all of our contracts.
We expect the margin going forward not to vary too much from.
First quarter.
I kept us flat and just the second question I'll, just I'll just to make sure I'm accurate typically our fourth quarter is a weaker quarter, so could be a little weaker at the end of the year, but.
Don't expect anything different in the next quarter.
Okay. That's clear and then just a second question on the volumes of that division.
You called out in your comments the number of different drivers all time consumer electronics why there was an 11% decline year on year. This quarter, how should we think about that in second quarter.
Given sort of China Lockdowns.
But then into the balance of the year.
Do you think about that thank you.
So thanks for that question I want to point out.
If you look at the numbers it seems like quantities and IP division went down quarter over quarter, and what I want to point out is that Oh.
We shut down two of our plants in China last year.
Those two plants created quantities.
Negligible profitability also in our third site in China, we had a shutdown for over a month so.
That means that the realistic quantities.
Went up but because of our because of those.
Those are factors in China, mainly the shut down of <unk> rather.
Rather the sale of one one of our sites and the shutdown of the other.
Quantities went down in terms of quantities going forward.
We expect our quantities in the second quarter to be.
Similar to the first quarter may be.
Just a bit less in the electronics related but at the same time more unclear buying fluids, because some orders were postponed to the second quarter.
The visibility in the second half is not as high as in the first half yet and that's very natural.
We could see if if.
If the situation in China persists and unexpected logistic issues happen as a result of the walk down.
That could have an effect right now we're not seeing that in terms of our bookings.
And again most of our businesses is contracted over 70% and it's even higher in China.
As contracted annually, so we don't see anything dramatic but.
But we did want to point out that there could be.
Some are some effect due to the relative.
Weakness.
Coming about in electronics and automotive and again. These are a result of the lockdown in China.
Alright, Thank you very much.
My Mic is on.
So.
Actually in China, because it's a significant part of the division is the shipments might come in later, so on a quarterly basis.
Can be some delays because China the ports in China are theres, a massive lockdown going on these days it depends how we go about it.
If it makes sense to you I think it's a general issue.
Pervades, though.
I think that over time this must be resolved.
But at least in Q2 by the way it can be things would be playing between the quarters.
That's just an effect of the shipping itself.
We have another question coming from the line of Joseph <unk> from UBS. Please go ahead with your question.
Actually my question has been answered previously so.
Are there any task it thank you.
Thank you.
We have another question and it comes from the line of Shaun Jackson from Emo capital. Please go ahead with your question.
Hi, Good afternoon, you don't get off that easy with me [laughter].
Hum.
I wanted to have a potash, obviously, maybe I could start off with a high level question gentlemen.
If I look at your EBITDA expected EBITDA range midpoint, sorry for 'twenty two it's a 2 billion dollar increase for 2022 can you bridge that how much of the $2 billion of EBITDA increase in 'twenty two would come from potash price how much would come from other businesses. Other can you break down the bridge.
As granular as possible for your your business. Please.
Just the Delta.
Yes, the delta that $2 billion Delta from 'twenty, one 'twenty two how much of that is potash price how much of that is other things in other businesses as much as granular as possible would be very helpful.
So you can see we have we have a number for the specialties business right.
So the specialities accounts for about three.
300, and some are at.
At the midpoint.
The rest is about a 75% put ash and 25%.
Phosphate.
To give a.
To give a better sense to give a little more I mean, Q2, obviously potash prices are going to be higher than Q1.
First half sales are already behind.
Behind us so we already know the numbers for Q3 for our first half.
And for the second half of the year, we have a higher prices should put us in the third quarter, but the third quarters and not sold out yet. So we took a we took conservative numbers for the third and fourth quarter put us the average selling price in the second quarter for potash as expected.
To be around the 800.
Okay. That's very helpful. 800, 800 is the number before.
Before transport costs, so the realized price will be around 760 ish.
Thank you so if I do that math, it sounds like 60% to 65% at the 2022 EBITDA Delta is potash price.
That's pretty accurate yes.
Okay.
So then my next question would be.
So at least potash prices obviously.
We're seeing a lot of peers talk about demand destruction and price not going higher or lower what is your view right now on price price here demand here has the price hit the right level now to balance demand versus missing dollar Russian time, do you think we're going to see some softness.
What are your views on where the market goes and acts in potash.
Okay. So there's a short term and there is a long term in the short term on.
The basic facts are that there's a lack of supply in the market here's over 2 million tons of put us missing for Brazil.
Brazil has to have to put out honestly because the type of land that.
There's a is there in Brazil demands potash that they can't skip a season or something.
There will be some demand destruction in Europe , some in Europe , we'll skip the season.
That means that put us deliveries for this year will be lower.
It will be lower it may be lower in the states as well.
In the short term that doesn't do too much.
Because again the market is under supplied.
For the short for the short run it's actually a.
A better news for stability for prices because anybody that skips a season. This season, we'll need more put us next year, so that means that once more.
Market comes back and maybe if sanctions are lifted and product comes back.
There'll be more demand for for potash next year. So in terms of put us dynamics.
There will be demand disruption.
Hum.
Quite a quite a lot of uncertainty yet in terms of our decisions to be made by distributors and farmers.
A lot of Destocking, so our stock levels are low.
In China, and India, and even Brazil, they're getting a lower by the day now and in the U S.
Because of the wet season.
There wasn't as much application of put out should this season. So there was some some softness in the U S.
But I expect that to change towards.
The fall season.
So I think demand will be healthy enough to sustain these are these existing prices.
Difficult to speak about the higher prices because these are these are uncharted waters.
We've never been here before.
We can say that are.
There is a there is demand it's not going to get the product because some countries.
They don't have the means and don't have the access to Belarus, or even Russian product are not going to be able to get product that's going to cause a quite a lot of hunger problems in various places and that in itself can create additional dynamics, we do see.
That are in some countries governments are becoming aware of potential demand disruption that will cause hunger issues and as a result, India's raised subsidies very significantly for potash and phosphate.
Countries like the U K have supported a fertilizer companies directly.
I read a couple of days back.
But France is now giving grants to farmers.
Divot farmer level to make sure that applications happen because at the end of the day, if theres not enough application of fertilizers and fertilizers are responsible for about 50% of global production of our agriculture.
There won't be enough food the implications of very very significant and of course, the same with crop prices, especially wheat.
Because of the Ukraine, Russia situation I don't see week going lower.
Maybe the contrary so if we'd goes goes up and the other crop prices go up.
There could be room for price increase, but again I'm not expecting we're not modeling price increase quite the opposite we're trying to be as conservative as possible.
Phosphates are depend more on decisions made by.
Morocco.
In China.
In terms of our export policy and Moroccans in terms of how much D. E. P. They will produce they don't have the.
Quantities of ammonia necessary for DAP.
So that means that there will be a are there could be shortage and of course, there already is shortage of.
Of asset.
Al White phosphoric acid.
So.
There are all kinds of the supply dynamics that need to work themselves out.
And all in all we don't see we definitely don't see a softness in potash because below Russian.
Product is not coming out of the mines and not entering into the market and that's just product thats not going to come into the market to.
To get back to the production it'll be in the future and the future there will be higher demand because of.
Some demand destruction in this.
At these times.
So that's pretty much what I have to to give you a color on the market.
India, China, working very hard to to make sure that there's enough food for their populations.
Just a little bit of a softness because of weather issues.
We're up a quite a lot of demand destruction.
So less less fertilizers this year more next year.
Brazil, not clear still how theyre going to get the additional fertilizer that they need put us already mentioned.
Over $2 million or missing.
And other fertilizers were dependent on Russia, they depend on Russia. It depends how much product from us is going to come to Brazil currently we see that.
A lot of product came in in the past.
A month and a half but that product went out of Russia, a long time ago.
I'm not clear if a significant deliveries are going to be able to arrive in Brazil in June and July .
Let me just do not believe that the India and China together.
They comprise below 30% of the total.
But the ship sails full Oh I see it in the Yale So in the latter part of the deal at the spot prices can be quite beneficial to ICL.
If they continue to sustain obviously.
Joe That's a that's the best we can do for now.
Hmm.
Well you might be on mute can you mute yourself.
Okay.
We are moving to the follow up question and our question comes from the line of Laurence Alexander from Jefferies. Please go ahead with your question.
Hi, good morning, or good afternoon.
Just wanted to get your thoughts on the M&A landscape given.
How well your cash generation is doing and how poorly tech valuations are doing so are you seeing different kinds of opportunities are you changing the types of companies in your <unk>.
M&A pipeline.
Okay.
Oh, that's a fantastic question, we've been a little frustrated in the past a year year and a half because we're looking at M&A opportunities and we're excited to grow our business and at the same time valuations have been a little crazy.
Hopefully if there is a I mean I'm not hoping that the markets go down and don't get me wrong, but if if valuations are rationalized then definitely that creates more opportunity for us we want to have and we do have the liquidity and we're generating plenty of cash.
Cash and we're going to be generating even more cash.
So we want to be opportunistic.
We have our eyes on.
On a few interesting targets and we.
We hope to be able to.
Do more in terms of the M&A in the next couple of years than we did in the past couple of years.
And for innovative AG solutions, what do you see as the normalized run rate because it's kind of the underlying improvement in that segment is a little bit harder to track with a fly up you're saying.
Yeah for this year.
We're going to see a very nice growth of the growth that you saw in first quarter is going to continue for the rest of the year.
The growth in Brazil is phenomenal.
So much are much stronger than it was last year.
I do also want to point out like I pointed out in the IP Division that if you look at the Ies results. It would seem that quantities actually went down when.
When you put the Brazil on the side and look at the rest of the business. It looks like quantities actually went down a bit.
And that again it doesn't doesn't tell the right story because of two issues one.
In of Ron's remarks, he mentioned the fire we had in our facility in Germany are towards the end of last year and that facility was not working the whole first quarter. So the quantities that typically come.
In Europe from that site were not there in the first quarter and of course, that's going to change for the next for the next three quarters. The other thing is that in bowlby in order to reach our targets for poly sulfate production.
We took down our salt production, which is.
Low value.
And does not do anything for our P&L, but we took down production by 65000 tons.
And those two issues the the facility in Germany, and the salt.
Took the quantities of the division down but those of course are one time events that debt will not stay with us.
So all in all a b a b.
The growth in our in the legacy business of Ah I S.
<unk> has been around 20% and the growth in Brazil.
Even more than that.
And it's also a growth with a growing margin. So we see a margin expansion as we grow which is also which is also very nice.
Will we continue to see margin expansion.
Again that depends on what happens to overall fertilizer prices.
So, it's so I'd, rather be conservative and not a not project that we.
But we see very nice margins, we had a low single digits in this and this business just two years ago and now we're getting to high double digits and it's so it's nice to see that.
Thanks for the question just one clarification, if I may is.
How do you think about.
Mid cycle.
EBITDA for the business for your specialty businesses.
With the current conditions sort of normalize in two.
245, however, many years I mean, that's what she sees as a mid cycle kind of.
Mid cycle for IP business would be above 30% we saw.
Significantly above 30%, but a mid cycle I would say are at the minimum more than 30%. We had that in the past. The reason is we are a market leader or a price leader.
So that business is a very solid and safe yeah in.
E S business, we're targeting as we presented in our long term plan, we're targeting 15% plus and in our phosphate business mid cycle, we're also targeting above 10%.
So, but again phosphate plus 10%.
Is when our commodities business is making close to zero so on our specialty on our specialty phosphate business, we're targeting plus 17%.
That's the number that we had in a long term plan.
Okay, great. Thank you very much.
Thank you.
Our next question comes from line of Vincent Andrews from Morgan Stanley . Please go ahead with your question.
Hi, guys. This is well hang on for Vincent Thanks for taking my question.
No, but <unk> is a.
Turner prostate kind of given the higher prices and production can you talk about what your expectation is for the visits are for the rest of the year and I guess, whether we can expect it to continue turning to profit our long term from here on out.
Yeah. So we got to 238000 tons of production in the first quarter, which is a run rate of about 1 million tonnes. So we expect that to be relatively stable for the rest of the year and end up the year at about one 1 million tonnes.
In terms of pricing pricing went up from about $115 in the first quarter of last year to 210.
The first quarter of this year it has to do.
With commodities, but much more than that and it has to do with the positioning of the product.
We call we call the product we branded our the line of products is probably sulfate fertilizer plus.
The product is an organic product that has a somewhat as a lot of sulfur and and micro nutrients such as magnesium and calcium and the positioning is that its a high quality organic fertilizer with no chemical.
Cassez involved and the reliability of the product is high the results are very good.
And and looking forward, we expect that the premium that some markets will pay will be higher due to the organic certification that we have now both from the EU and from the U S.
And appreciate the growing appreciation to the results of the.
The product that we're selling it took us a.
Between three to four years to penetrate markets and now that we have a we expect to maintain our profitability maybe even grow it a second half of the year.
As long as no dramatic changes happen.
And we feel that over time, we will build a additional premium because of two reasons one because of the.
The positioning of the product as a as a.
High value organic product.
And second because we are developing a whole line of product.
That involves a combinations of polysorbate with other nutrients.
Granulated product.
That that create better use efficiency for plants.
And those are additional products that are that we're developing under the brand are being accepted very well very well and each one that comes out and proves its proves its successful value.
It gets us more premium so the product portfolio success together with the acceptability of the branding is going to give us additional premium into higher and higher prices in the future that will enable us to grow our margin.
Hope that answers.
Got it yeah. Thank you.
And then I guess, just as a follow up.
Between last quarter, and now you've kind of almost double your earnings expectations for 2022.
I know you've talked that you briefly touched on M&A, a little bit, but could you give us a rough figure again about how you're thinking about allocating that excess capital that maybe you weren't expecting three months ago.
So again remember you said are we doubled and we already said that.
Almost.
Two thirds of that is coming from put out prices remember that when we modeled it in.
And in the beginning of the year. We explained our we explained our conservative guidance. We were at the time selling are selling put us at 249 in China.
And a 440 or so and in India.
And you know just the China prices went up to 590, which is well over 100% and of course, our Brazil prices went up from.
From around 600 $5700 at the time that we are that we put together our original model to currently about a $1200 per ton.
So.
Pretty straightforward why that's changed.
Again, we're sold out for the second quarter. So I gave the number of about $760 realized price for the second quarter in terms of second half visibility its still too early because although like Ron mentioned, one third of our product is already sold at 592, China and India in wood.
We don't expect that to change the rest of the sales really depend on developments in the market in terms of prices and who knows what's going to happen in terms of the situation in Ukraine and potentially are the food and <unk>.
<unk>, causing the world hunger.
It's a it's too much there's too much volatility out there to to give an accurate projection at this point.
It's just the potential schools is the dominant factor, but firstly it goes very considerably between the time that we estimated and what we see now.
It's also about $400 million.
Uh huh.
Operating income to them. So that's another significant factor you put those two together together with the IP side.
Some of the I S side, and you'll get the difference being that bridges for you logically.
What's happened in the first estimate and what we see now.
Got it and then I guess as a follow up to that.
Can you kind of talk about how you're thinking about allocating that excess.
Okay. So you guys are expecting to generate.
Well, we are we're paying out the $306 million is the dividend, which is pretty much the net cash generation of the free cash flow generation this quarter.
Looking forward to the rest of the year, we're going to generate a significant amount of additional cash and AR, we're considering our M&A opportunities.
As well as.
As a having enough reserves to be able to protect our position or better our position in terms of the interests, we have with with government a concession.
And other issues that where we could be opportunistic.
To take care of to take advantage of these are very good times that we're going through in order to bidder or a long term situation.
Maybe just just one comment if I may on capital location to working capital side as we grow our business in Brazil.
It demands more capital than most probably most of the rest of the world.
Receivable times are long ago, especially around receivables trading films, along the margins are very nice, but we have to allocate some working capital too.
Brazil is what anybody that works, though it's a well known fact.
Got it thank you.
And we have a follow up question coming from the line of Joel Jackson from BMO capital. Please go ahead.
I got cut off at the end there.
I appreciate your color on poly sulfate on type two questions on that if you think the $215 a ton in selling price.
You.
Somehow in your mind come up with.
How do you divide the valued customers paying us <unk> between potassium sulfur calcium non chloride organic like is there how does your marketing. If you can think of the value of the customer got to choose 18, among all of those different buckets, if that makes sense been asking.
It's a good question I would say look the playoffs component is a 14%.
So I think that it'll take a long time until we get more than the put out value.
Hum.
For those 14%.
The rest is coming from the combination of the nutrients and their effect are the results that are that the yield.
So as the results become clear and as we go from one season to the next.
Our position improves because if you get higher yields then you're not going to pay 100% of the higher yields because youre not confident yet that the result is going to repeat itself. So I think we'll have to we'll need to have a repetitive good results with our customer.
<unk> to build the premium and again the combination of nutrients is not just the nutrients embedded in the poly sulfate, but were also are.
Creating now additional products there.
That combined poly sulfate with other nutrients in order to increase the combined value.
And again some of those products are being accepted very very well very well, including our pks and an M. P kase would probably sulfate.
Okay. So now I'm going to ask this question may be different because it's not like Debbie Downer, So I apologize.
On it so you got to a million ton production run rate and you were at the highest commodity prices ever potash prices cannot go higher sulfur price at Conoco higher you know, let's just say are as high as they've been and you're just barely turning a profit on this product now over a decade into it is that not assigning.
Cause you know commodity prices are going to be cycle I've Gotta go in cycles are going to go down is that not a sign that that business is never going to be anything other than really just around breakeven.
And that made encourage why nobody should be able to any more capacity of this product you or anybody else.
Okay. So first of all it's a very fair question, where not 10 years into this product. We're four years into this product are the mine used to be put us mine and we're building on our I, probably sofa business in the last four years or so.
The reality is that a it may not be a high margin business on its own but the given the results that are that we have so far we know that in combination with our with other nutrients, we get some tremendous results and.
Again this is for a very specific.
Types of land and markets. So.
No.
Does the fact that we think that we can make it a profitable business and we can command. Good are just as good pricing and commodity down cycles, because yes, the the embedded value of the potash will go down, but the premium and the acceptance will go up.
Does that mean that it's a it's a.
Multimillion a ton market the answer is no.
We think that our that the world needs, a one or 2 million tons it doesn't need more than that.
In order for somebody to sell more than that you know it.
They'll have to make a call.
What there are what their assessment of the market as our assessment of the market is that our debt we were nicely sized.
For a niche market. If you will that's why we were treating it as a specialties market as a specialties product is going to be sold to the specialties market. It has service around it.
It has logistics around it.
We don't think that that can be profitable selling is a commodity business and competing with our ESOP or other type products.
So the the short answer is.
Yes, it's not a it's not easy to get to where we want to get we're very happy that we're making money instead of losing money.
At this capacity and given our proven success with the product. We don't think that it will be bleeding business that will take us back anymore.
But at the same time, we still have a long way to go to get to the premiums that we want and get to the long term stability that we feel safe about making a nice margin in this business.
Thank you for all that color.
You're welcome Thanks for the question.
Yeah.
Thank you.
We have no further question at this point, so I had the conference back to you.
Okay, So oh before I hand, it over to Peggy I just wanted to.
Thank you.
Doody, who has been with us for a few years and he's moving to as.
Next assignment and we wish to thank him for years of a of a great work on I R and ICL can.
Gratulation on your new job and lots of success and we hope you continue to.
To be proud of us and what we're doing and I'll turn it over to Peggy.
And.
We will speak with you again next quarter.
Ladies and gentlemen, this concludes today's conference call.
You may now disconnect your lines.
Once again, thank you for your participation today.
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