Q2 2023 ICL Group Ltd Earnings Call
Yes.
Peggy Reilly Tharp: 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 event is being webcast live on our website at icl-group.com. Earlier today, we filed our reports with the securities authorities and the stock exchanges in the US and in Israel. Those reports, as well as the press release, are available on our website. There will be a replay of the webcast available after the meeting, and a transcript will be available shortly thereafter. The presentation, which will be reviewed today, was also filed with the securities authorities and is available on our website. Please be sure to review the disclaimer on slide two. Our comments today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
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 event is being webcast live on our website at ICR dashed 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 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.
Peggy Reilly Tharp: These statements are based on management's current expectations and are not guarantees of future performance. The company undertakes no obligation to update any financial information discussed on this call at any time. We will begin with the presentation by our CEO, Mr. Raviv Zoller, followed by Mr. Aviram Lahav, our CFO. Following the presentation, we will open the line to the Q&A session. Raviv, please.
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. Zoller, followed by Mr. Javier on the hub our CFO .
Following the presentation, we will open the line for the Q&A session. Please.
Raviv Zoller: Thanks, Peggy, and welcome, everyone. Earlier today, we announced our Q2 results, which are compared to an all-time record quarter last year. As you can see on slide three, Q2 sales of $1.83 billion were in line with revised expectations, down as expected versus an extraordinary Q2 2022, when commodity prices peaked. While the year-over-year decline in prices impacted all of our businesses and we generally saw lower volumes, our potash segment volumes increased in Q2 as we sold more product to China, India, and the United States. Lower prices in Q2 also significantly affected our adjusted EBITDA, which was $441 million. However, we did see some benefit from lower raw material and transportation costs. We continued destocking throughout Q2 and proactively adjusted production as needed.
Thanks, Peggy and welcome everyone.
Earlier today, we announced our second quarter results, which are compared to an all time record quarter last year.
As you can see on slide three second quarter sales of $1 $83 billion were in line with revised expectations, but down as expected versus an extraordinary second quarter in 2022, when commodity prices peaked.
While the year over year decline in prices impacted all of our businesses and we generally saw lower volumes or put our segment volumes increased in the second quarter as we sold more product to China, India and the United States.
Lower prices in the second quarter also significantly affected our adjusted EBITDA, which was $441 million. However, we did see some benefit from lower raw material and transportation costs.
We continued destocking throughout the second quarter and proactively adjusted production as needed.
Raviv Zoller: We adapted our savings and efficiency plans to react to the challenging near-term macro conditions. As a result, we were able to reduce costs, including through production improvements at our industrial products, at Growing Solutions in Brazil, and through additional G&A cost reduction efforts. While the cyclical decline was more rapid than expected, ICL delivered a well-executed quarter as we quickly adjusted to current market conditions, ensuring continued strong cash generation while adhering to our long-term strategy. We delivered operating cash flow of $391 million in Q2 and free cash flow of $221 million, which was identical to Q1 of this year. We continued to return value to our shareholders in Q2 as we reported diluted earnings per share of $0.13 and declared a quarterly dividend of $0.06 per share.
Also we adapted our savings and efficiency plans to react to the challenging near term macro conditions.
<unk>, we were able to reduce costs, including through production improvements at our industrial products and a growing solutions in Brazil and through additional G&A cost reduction efforts.
While the cyclical decline was more rapid than expected ICL delivered a well executed quarter as we quickly adjusted to current market conditions, ensuring continued strong cash generation, while adhering to our long term strategy.
We delivered operating cash flow of $391 million in the second quarter and free cash flow of $221 million, which was identical to the first quarter of this year.
We continued to return value to our shareholders in the second quarter as we reported diluted earnings per share of <unk> 13, and declared a quarterly dividend of <unk> per share.
Raviv Zoller: We also remain committed to our long-term specialty strategy through our investment in lithium iron phosphate battery materials production. Just yesterday, our board of directors and executive leadership were joined by Jennifer Granholm, Secretary of the Department of Energy, and Mike Parson, Governor of the State of Missouri, to break ground for this exciting project at our manufacturing campus in St. Louis. Our St. Louis facility will be the first large-scale battery materials manufacturing plant in the United States and is expected to help meet growing demand from the energy storage, electric vehicle, and clean energy industries for US-produced and sourced essential battery materials. In addition, we remain committed to introducing new technology and additional capacity to enhance this unique and timely opportunity. Let's turn to a three-year look at some of our key metrics on slide four.
We also remain committed to our long term specialty strategy through our investment in lithium iron phosphate battery materials production.
Just yesterday, our board of directors and executive leadership, we're joined by Jennifer Granholm Secretary of the Department of Energy and Mike Parson Governor of the state of Missouri to break ground for this exciting project at our manufacturing campus in St. Louis.
Our St. Louis facility will be the first large scale battery materials manufacturing plants in the United States and is expected to help meet growing demand from the energy storage electric vehicle and clean energy industries for U S produced in sourced essential battery materials.
In addition, we remain committed to introducing new technology and additional capacity to enhance this unique and find the opportunity.
Let's turn to a three year look at some of our key metrics on slide four.
Raviv Zoller: Again, while sales were down year-over-year as expected, they were up versus Q2 2021. While we had anticipated the H2 of this year to progress at a more normalized rate, we recognized some negative near-term developments and announced a change to our expected guidance in late June. At the time, we provided an update to the framework agreement with our potash customers in China. We also cited the delayed recovery in flame retardants, and I will speak more about these in our segment reviews. On slide five, you can see Q2 and year-to-date specialty sales, which followed a trend similar to our consolidated results. As expected, earnings per share were down versus an extraordinary 2022 and up when compared to 2021.
Again, while sales were down year over year as expected they were up versus the second quarter 2021.
While we had anticipated the second half of this year to progressed at a more normalized rate we recognized some negative near term development and announced the change to our expected guidance in late June .
At the time, we provided an update to the framework agreement with our put us customers in China.
We also cited the delayed recovery in flame Retardants and I will speak more about these in our segment reviews.
On slide five you can see second quarter and year to date specialty sales, which followed a trend similar to our consolidated results as.
As expected earnings per share were down versus an extraordinary 2022 and up when compared to 2021.
Raviv Zoller: Also, as I just mentioned, we saw significant year-over-year growth in both operating and free cash flow versus Q2 2021. I would now like to begin our segment review with industrial products on slide six. Q2 sales were $300 million, while EBITDA was $74 million, or 25%. The recovery in demand for flame retardants, which was expected in H2, has not materialized. For Q2, lower demand resulted in increased competition and lower prices. In addition, elemental bromine prices hit lows not seen since 2008 and 2009, and low-priced flame retardant supply remained in the market. Once again, results varied significantly by end market. Weakness in electronics continued and was magnified by a slow return to growth in China than had been projected, while the building and construction end markets remained soft as well.
Also as I just mentioned, we saw significant year over year growth in both operating and free cash flow versus the second quarter of 2021.
I would now like to begin our segment review with industrial products on slide six.
Second quarter sales were $300 million, while EBITDA was $74 million.
We're 25%.
The recovery in demand for flame Retardants, which was expected in the second half of the year has not materialized.
For the second quarter lower demand resulted in increased competition and lower prices. In addition, elemental bromine prices hit lows not seen since 2008, and 2009 and low price flame retardant supply remained in the market.
Once again results vary significantly by end market.
Weakness in electronics continued and was magnified by a slow return to growth in China and had been projected while the building and construction end markets remained soft as well.
Raviv Zoller: Meanwhile, demand for clear brine fluids and for our specialty minerals was stable in Q2. The recovery in flame retardants looks to be delayed until the end of this year, we expect the $200 million EBITDA reduction we estimated in June 2023 will negatively impact our 2023 results. During H1 of the year, we targeted cost savings and inventory reduction efforts, and we will continue to do so in Q3 and Q4. Despite this temporary setback, our industrial products business remains on track for the long term. We continue to work with our partners to improve our competitive position and to develop innovative flame retardants and other solutions. Our steps to create additional savings are also bearing fruit with more to come. We do not expect recent developments, which are predominantly external, to have a material impact on the execution of our five-year plan.
Meanwhile, demand for clear brine fluids and for our specialty minerals was stable in the second quarter.
As the recovery in flame retardants looks to be delayed until the end of this year, we expect the $200 million EBITDA reduction we estimated in June will negatively impact our 2023 results.
During the first half of the year, we targeted cost savings and inventory reduction efforts and we will continue to do so in the third and fourth quarters.
Despite this temporary setback our industrial products business remains on track for the long term, we continue to work with our partners to improve our competitive position and to develop innovative flame retardants and other solutions.
Our steps to create additional savings are also bearing fruit with more to come.
We do not expect recent developments, which are predominantly external to have a material impact on the execution of our five year plan.
Raviv Zoller: We also expect demand for flame retardants to keep in pace with the traditional electronics replacement cycle over the long term and to accelerate as the global conversion to electric vehicles continues and as the artificial intelligence trend materializes. Turning to slide seven in our Phosphate Solutions Division, where we reported sales and EBITDA of $605 million and $130 million respectively. For the quarter, phosphate specialties represented 65% of sales and nearly 65% of EBITDA. Food demand remained resilient with higher prices in North and South America as well as in Europe. For industrial end markets, prices were slightly higher in North America but offset by generally lower volumes in most regions. Overall end market demand in the US remained stable, but competitive price pressures continued to impact other regions. While conditions are below those we experienced in an exceptional 2022, the base phosphate specialties business remains very healthy.
We also expect demand for flame retardants to keeping pace with the traditional electronics replacement cycle over the long term and to accelerate as the global conversion to electric vehicles continues as the artificial intelligence trend materializes.
Turning to slide seven and our phosphate solutions Division, where we reported sales and EBITDA of $605 million and $130 million respectively.
For the quarter phosphate specialties represented 65% of sales nearly 65% of EBITDA.
Food demand remained resilient with higher prices in north and South America as well as in Europe .
For industrial end market prices were slightly higher in north and south got but offset by generally lower volumes in most regions.
Overall end market demand in the U S remains stable, but competitive price pressures continued to impact other regions.
And while conditions are below those we experienced in an exceptional 2020 to debase phosphate specialties business remains very healthy.
Raviv Zoller: As I already discussed, we broke ground yesterday for our new battery materials manufacturing facility in St. Louis in partnership with the Department of Energy, which provides ICL with a $197 million grant. On slide eight, you will see our potash results, where sales were $556 million and EBITDA came in at $213 million. In late June, we agreed to supply our customers in China with an aggregate amount of 800,000 metric tons of potash during 2023 at an agreed-upon price of $307 per ton, which was the prevailing rate. For Q2 of this year, our potash price per ton was $403, down from $801 in Q2 of last year, but nearly $115 higher than in Q2 of 2021. Potash prices have recently stabilized.
As I already discussed we broke ground yesterday for our new battery materials manufacturing facility in St. Louis in partnership with the Department of energy, which provided ico with a $197 million grant.
On slide eight you will see our put us results, where sales were $556 million and EBITDA came in at $213 million.
In late June we agreed to supply our customers in China with an aggregate amount of 800000 metric tonnes of put us during 2023 at an agreed upon price of $307 per ton, which was the prevailing rates.
For the second quarter of this year or put us price per ton was $403 down from $801 in the second quarter of last year, but nearly $115 higher than in the same quarter of 2021.
But as prices have recently stabilized as mentioned earlier, our volumes increased over the past quarter led by supply to China, and India, and we benefited from decreases in energy and transportation costs.
Raviv Zoller: As mentioned earlier, our volumes increased over the past quarter, led by supply to China and India, and we benefited from decreases in energy and transportation costs. Turning to slide nine in our Growing Solutions business, which delivered Q2 sales of $481 million and EBITDA of $22 million as prices in the specialty fertilizer market declined overall, due in part to destocking of high-priced inventory. In addition to a later start to spring in some countries, as well as a delayed start to the season, especially in Europe where demand was weaker than expected. In other areas like India and China, the division made headway against its strategic plans and has been launching customized efforts to advance its digital outreach and increase its share of wallet.
Turning to slide nine and our growing solutions business, which delivered second quarter sales of $481 million and EBITDA of $22 million.
As prices in the specialty fertilizer market declined overall due in part to Destocking of high priced inventory.
In addition to a later start to spring in some countries.
Prices as well as the delayed start to the season, especially in Europe , where demand was weaker than expected in.
In other areas like India, and China. The division made headway against its strategic plans and has been launching customized efforts to advance digital outreach and increase its share of wallet.
Raviv Zoller: We expect gradual improvement in Q3 as we work through these short-term challenges, and we remain focused on M&A opportunities and investments in innovative new product offerings targeting long-term specialties growth. Long-term strategy, notwithstanding the short-term highs of 2022 and some unexpected challenges in 2023. All of our businesses are committed to enhancing efficiencies and competitiveness, which helped us deliver strong cash flow in Q2. We remain dedicated to growing our specialties product portfolio while targeting M&A and strategic partnership opportunities. As I do every quarter, I want to thank the entire ICL family of employees all around the world for their hard work and significant contributions. I'm proud to lead this team of more than 12,500 global partners. With that, I would now like to turn the call over to Aviram.
We expect gradual improvement in the third quarter as we work through these short term challenges and we remain focused on M&A opportunities and investments in innovative new product offerings targeting long term specialties growth.
The long term strategy notwithstanding the short term highs of 2022 and some unexpected challenges in 2023.
All of our businesses are committed to enhancing efficiencies and competitiveness, which helped us deliver strong cash flow in the second quarter.
We remain dedicated to growing our specialties product portfolio, while targeting M&A and strategic partnership opportunities.
As I do every quarter I want to thank the entire ICL family of employees all around the world for their hard work and significant contributions.
I'm proud to lead this team more than 12500 global partners.
And with that I would now like to turn the call over to <unk>.
Aviram Lahav: Thank you, Raviv, and to all of you for joining us today. Let us get started on slide 12, where you can see a review of the external macro pressures we have been discussing for several quarters now, with many of these remaining unchanged. Inflation rates started to decline year over year, but prices remains elevated for the end market consumers in Q2. As we've previously discussed, this forces families to make choices about their discretionary income. For example, home improvement and curb appeal projects are being delayed while food demand remains resilient, as seen as our phosphate specialties results. In addition, these trends are further impacted by interest rates, which remain elevated on a global basis. In general, global growth continues to be subdued, which is why it is important for companies like ICL to have a varied geographic footprint.
Thank you Rajiv and to all of you for joining us today.
That does it get started on slide 12, where you can see a review of the external macro pressures we have been discussing for several quarters now with many of these remaining unchanged.
Inflation rates started to decline year over year, but pricing remains elevated.
End market to consume minutes in the second quarter as we've previously discussed this both the families to make choices about their discretionary income for example home improvement and killed a theater projects are being delayed while food demand remains resilient as soon as our phosphate specialties results. In addition.
These trends are further impacted by interest rates, which remain elevated on a global basis in.
In general Global growth continues to be subdued which is why it is important for companies like I said to have a very geographic footprint. We also benefit by participating in a wide array of end markets not only across our four segments, but within each line of business as well being.
Aviram Lahav: We also benefit by participating in a wide array of end markets, not only across our four segments, but within each line of business as well. Being a global company means reacting swiftly to conditions around the world, which we did in Q2. Still, many geopolitical obstacles persisted as the situation in Ukraine remains unbalanced. The food insecurity crisis in Africa threatens to expand, and uncertainty regarding China's recoveries have increased. Just three months ago, China's economy appeared to be rebounding faster than anticipated. However, recent indicators suggest otherwise. Sluggish domestic demand in China, which represents the second largest economy in the world, is being compounded by ongoing concerns around the country's housing and construction markets. In terms of global agricultural demand, crop prices remain elevated above pre-COVID levels as farmer affordability continues to be resilient, especially in the US.
Being a global company means reacting swiftly to conditions around the world, which we did in the second quarter.
Many geopolitical obstacles persistent is the situation in Ukraine remains in balance.
Food and security crises in Africa threatens to expand and uncertainty regarding China's recoveries have increased.
Just three months ago, China's economy appear to be rebounding faster than anticipated. However, recent indicators suggest otherwise sluggish domestic demand in China, which represents the second largest economy in the world is being compounded by ongoing concerns around the country's housing and construction markets.
In terms of global agriculture demand core prices remain elevated above pre COVID-19 levels.
Following an affordability continues to be resilient, especially in the U S. But it felt that as the prices have declined from the peak we saw in 2022 that beginning to show signs of stabilizing.
Aviram Lahav: While fertilizer prices have declined from the peaks we saw in 2022, they are beginning to show signs of stabilizing. On slide 13, you can see some of the trends I just discussed. While inflation rates generally trended down versus Q2 of last year, they remain elevated on a historical basis. When this is combined with higher interest rates, it results in consumers being forced to prioritize their spending. In China, while the economy expanded by 6.3% in the Q2, this was below expectations. Quarter-over-quarter GDP growth in China slowed from 2.2% in the Q1 of this year to just 0.8% in the Q2. Turning to slide 14, where we have a collection of key agricultural metrics.
On slide 13, you can see some of the trends I just discussed while the inflation rate.
Trended down versus second quarter of last year, they remain elevated when they've historically basis. When this is combined with higher interest rates. It results in consumer is being forced to prioritize their spending.
In China, while the economy expanded by six 3% in the second quarter. This was below expectations.
It was the quarter GDP growth in China slowed from two 2% in the first quarter of this year. So just <unk>, 8% in the second quarter.
Turning to slide 14, where we have a collection of key agricultural metrics commodity crop prices have stabilized in the second quarter with the exception of life, which is seeing prices moving even higher in recent days. Following India's recent export ban in the U S farmer sentiment continues to improve and the <unk>.
Aviram Lahav: Commodity crop prices have stabilized in Q2 with the exception of rice, which is seeing prices moving even higher in recent days following India's recent export ban. In the US, farmer sentiment continued to improve, and the Purdue Ag Economy Barometer for July indicated that farmers remain cautiously optimistic about the agricultural economy. This improvement came after a one-month swoon in May, which was followed by an up in June, as farmers took a more optimistic view of the future. On slide 15, you can see expected trends for electric vehicles over roughly the next decade. As Raviv already discussed, yesterday, we broke ground at our battery material plant in St. Louis. As a reminder, this new facility will be able to support not only electrical vehicles, but also the infrastructure behind them, including energy storage.
<unk> argued cannot be barometer for July indicated at 12 months, we remain cautiously optimistic about the agriculture economy.
This improvement came after one month swoon in May which was followed by the June solvency two more optimistic view of the future.
On Slide 15, you can see expected trends for electric vehicles over roughly the next decade.
We've already discussed yesterday, we broke ground at our backroom at Chile plant. This is Louis as a reminder, this new facility will be able to support that the only electric vehicles, but also the infrastructure behind them, including energy storage.
Aviram Lahav: If you will now turn to slide 16, where on the left side you can see the sales bridge from Q2 of last year to this year. For industrial products, sales of flame retardants remained weak. In potash, sales volumes to China, India, and the US increased. Prices were lower year-over-year. For phosphate solutions, higher prices for specialty food phosphates and lower raw material costs were unable to offset lower phosphate fertilizer volumes and prices. At Growing Solutions, we saw lower volumes and prices for our fertilizer plants and specialty agriculture products. While higher prices in our turf and ornamental business were unable to offset lower volumes. On the right side of the slide, you can see a year-over-year breakout of our Q2 sales by quantity and price.
I will now turn to slide 16, where on the left side you can see the sales bridge from the second quarter of last year to this year for industrial products sales of flame Retardants remained weak and potash sales volumes to China, India and the U S increased other prices were lower year over year for phosphate solutions.
Higher prices for specialty food phosphates, and lower raw material costs were unable to offset.
Great.
Volumes and prices at growing solutions, we saw lower volumes and prices for all fertilizer, plus and specialty agriculture products, while higher priced in our turf and ornamental business with unable to offset lower volumes on the right side of the slide you can see a year over year, a breakout of our second quarter sales by.
One city in price.
Aviram Lahav: Turning to slide 17, for our adjusted EBITDA, which was $441 million and down year-over-year as expected, but up more than 20% versus the more normalized Q2 of 2021. The significant reduction in potash prices year-over-year had the biggest impact, which you can see on both the left and right-hand side of the slide. We have maintained our preferred cost position for our target potash markets and remain in an excellent location on the cost curve. As you can see on the left side of slide 18, we are in the first quartile. In addition to leading from a cost curve perspective, we are also leading from a price perspective, as you can see on the right side of this slide. I would now like to review a few highlights on slide 19.
Turning to slide 17 for our adjusted EBITDA, which was $441 million and down year over year as expected, but up more than 20% versus the more normalized second quarter of 2021.
The significant reduction in bunker prices, even if the deal had the biggest impact which you can see on both the left and right hand side of the slide.
We have maintained our preferred cost position fall at target potash markets and.
And remain in an excellent location on the cost curve.
As you can see on the left side of Slide 18, we are in the first quartile in addition to leading from a cost perspective.
Also leading from a price perspective as you can see on the right side of this slide.
I would now like to review a few highlights on slide 19 at quarter end, our net debt to EBITDA ratio was at <unk>, 7% to tie each of our businesses drive to reduce working capital and inventory during the second quarter, while executing against our savings and efficiency plan, we remain tightly focused on cost reduction.
Aviram Lahav: At quarter end, our net debt to EBITDA ratio was at 0.72 times. Each of our businesses strived to reduce working capital and inventory during Q2 while executing against their savings and efficiency plans. We remain tightly focused on cost reduction and recorded a significant improvement in this area in Q2. Our prudent cash management resulted in strong cash conversion in the quarter, and we delivered operating and free cash flow of $391 million and $221 million respectively. At quarter end, our available cash resources totaled $1.7 billion. For Q2, our dividend was approximately $81 million, or $0.06 per share. This brings our dividend yield for the past four quarters to 7.4%, an industry-leading rate. Also, during the quarter, Fitch and S&P reaffirmed their ICL credit ratings, with both firms maintaining senior unsecured ratings of BBB-minus.
And reported a significant improvement in this area in the second quarter.
Our prudent cash management resulted in strong cash conversion in the quarter, and we delivered operating and free cash flow of $391 million and $221 million, respectively at quarter end.
<unk> cash resources totaled $1 7 billion.
For the second quarter, our dividend was approximately $81 million or <unk> <unk> per share. This brings our dividend yield for the platform what does two.
Seven 4% an industry leading rate.
Also during the quarter Fitch and S&P reaffirmed the ICL credit ratings with both of them maintaining senior unsecured rating of Triple B minus.
Aviram Lahav: Finally, on slide 20, you can see our 2023 guidance calling for adjusted EBITDA of between $1.6 to 1.8 billion in total and for our specialties businesses to contribute between $0.8 and 0.9 billion of that amount, which we indicated back on 22 June 2023. As a reminder, this guidance reflects the impact of the lower-than-anticipated potash price in China and the delay in the recovery of global demand for flame retardants. With that, Peggy, we can begin the Q&A.
Finally on slide 20, you can see our 2023 guidance, calling for adjusted EBITDA of between one six to one $8 billion in total and for our specialties businesses to contribute between eight and $9 billion of that amount, which we indicated back on June 22nd as a.
A reminder, this guidance reflects the impact of the lower than anticipated potash price in China and the delay in the recovery of global demand for flame retardant.
And with that Peggy we can begin the Q&A.
Peggy Reilly Tharp: Thank you, Aviram. If you'd like to ask a question, please 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. Our first question will be from Alex Jones at BofA.
Thank you I'll be wrong, if you'd like to ask a question. Please raise your hand, using mobile or desktop application.
Star nine on your telephone keypad and wait for your name to be announced.
Our first question will be from Alex Jones at Bofa.
Yes.
Alex Jones: Thanks. Good afternoon, everyone. Thanks for taking my questions. The first one on market dynamics. You talked about de-stocking and lower demand in Growing Solutions. Could you give us a little bit of color on how that's evolved into Q3? I guess some of the spot prices indicate that demand is improving. It'd be good to hear your thoughts on that and how it differs by region. The second question, if I may, on industrial products. I know that pricing in the division has turned negative for the first time since 2020, and I think, Raviv, you cited lower elemental spot prices. Could you talk a little bit about how you expect that to evolve in H2, whether that pricing will recover or turn more negative and maybe even into 2024, if you have any early thoughts? Thank you.
Thanks. Good afternoon, everyone is taking my questions. The first one on.
Okay dynamics, you talked about Destocking and lower demand and growing solutions could you give us a little bit of color on how thats evolved into the third quarter.
Yes, some of the spot prices indicate that demand is improving but it'd be good to get your thoughts on that and.
How it differs by region.
And then the second question.
You may all industrial products.
I know the pricing in the division as a negative for the first time since 2020.
You cited lower until spot prices could you talk a little bit about how you expect that to evolve in the second half at that pricing will recover or turn more negative and maybe even into 2024 ship any early thoughts. Thank you.
Aviram Lahav: Sure. Thanks, Alex, for the questions. I'll start with Growing Solutions. We've been going through de-stocking now for almost three quarters. The dynamics of the market are that the farmers were in a wait and see position given prices going down for such a long time. That has halted, now we're seeing prices stabilize and even go up. At the same time, we're still selling product with the raw materials from the past at least two quarters. Still, there is some high-cost inventory that's flowing through. We're not completely normalized Q3, at the same time, we're in much better shape because prices are not going down anymore, they're going up, and the raw materials were in a downwards trend. We expect to see an improvement already in Q3, especially in Brazil.
Sure. Thanks, Alex for the questions I'll start with growing solutions, we've been going through Destocking now for almost three quarters and the dynamics of the market are the farmers, we're in wait and see position given.
Are prices going up.
<unk> down for such a long time.
Dod has halted so now we're seeing prices stabilize and even go up but at the same time, we're still selling product with raw materials from the past at least two quarters. So still there is some.
High cost inventory, that's flowing through so we're not completely normalized third quarter, but at the same time, we're in much better shape, because our prices are not going down anymore, theyre going up and the raw materials were down.
Downwards trend, so we expect to see an improvement already in.
In Q3 spur.
Especially in.
Aviram Lahav: Please note that in terms of overall sales were actually pretty positive.
In Brazil. Please note that in terms of overall sales sales were actually pretty positive.
Raviv Zoller: B2C sales were very positive. B2B sales, we actually pulled a little bit because of profitability reasons. It was a conscious decision. Overall, going forward, we'll see better Q3 and better Q4 also because of seasonality in Brazil as well. As far as our IP division is concerned, yes, prices have trended downward, and we're seeing the lowest prices in the last 15 years or so. We don't see the prices trending further down for a simple reason that they're below the cost level of some of our Chinese competitors. We've actually seen a first bankruptcy of a small producer in China, and we expect that most of the Chinese producers are in bad shape at this point.
B to B to C sales were very positive <unk> sales, we actually.
Hold a little bit because because of profitability reasons, though was the <unk>.
Conscious decision. So overall going forward, we will see better third and better fourth quarter also because of the seasonality in Brazil as well.
As far as.
As.
Our IP division is concerned yes prices have trended downward and we're seeing the lowest prices in the last 15 years or so.
We don't see the prices trending further down for simple reason that they are below the cost levels as some of our Chinese competitors, we've actually seen a first bankruptcy small producer in China, and we expect that most of the Chinese producers are in bad shape at this point.
Raviv Zoller: There could be some, and we expect some, supply balancing and some supply capacity coming out of the market, which is, as far as we're concerned, it won't be too terrible if prices keep relatively low for a few more months, because we have some unstable supply that is good for us not to have in the future. Of course, we can't control the direction of the wind. We can only adjust our sails. Unfortunately, our discipline was not enough in the H1 of the year because there wasn't enough demand to exercise our value over volume strategy effectively enough. Now that we think that the market has gone through the downward process, we're actually keeping our market share in terms of actually exercising the volumes in our long-term contracts.
There could be some and we expect some supplied balancing some supply capacity coming out of the market.
<unk>.
As far as work inserted it won't be too terrible.
Prices keep.
Relatively low for a few more months.
Because we have some unstable supply that that.
That is good for us not to have and in.
In the future of course, we can't.
We can control.
The direction of the wind, we can only adjust our sales and.
Unfortunately, our discipline was not enough in the first half of the year because.
There wasn't enough demand to exercise our value over volume strategy effectively enough now that.
We think that the market has gone through the downward the downward process we're actually.
Keeping our market share in terms of actually exercising the volumes in the.
In our long term contract in the first half of the year, we sent some of our customers to buy cheaper product on the market rather than take volume from us.
Raviv Zoller: In H1 of the year, we sent some of our customers to buy cheaper products on the market rather than take volume from us. In fact, if you look at the overall ICL results, most of the volumes that we lost, or most of the values of the volumes we lost and the value attributed to lower quantities comes from the IP division. While at the same time, had we insisted on selling those volumes, the prices would have gone down faster or further. We would have seen the same kind of results, but more price effect and less volume effect. The short answer is we don't foresee prices going down further. We don't see them correcting very fast because the demand is still not back.
And in fact, if you look at the overall ICL results most of the volumes that we lost or most of the values of the volumes we lost in the valley.
<unk> attributed to lower quantities comes from the IP Division while at the same time had we insisted on selling those volumes than the prices would've gone down faster or further and so we would have seen the same kind of results, but more more price.
More price effect unless the volume effects so.
The short answer is we don't foresee prices going down further we don't see them correcting very fast.
The demand the demand is still not back.
Raviv Zoller: The supply chain is not full of stock anymore, so there has been plenty of destocking, but there's not enough front-end demand to take prices up quickly. At the same time, supply is strained. Some of the suppliers are strained. We think that we're reaching a new balance and expect that once demand picks up a little bit, the prices will pick up as well, and we'll return to a normalized situation. It is important to note that in this kind of business where in the worst times we can still achieve 25% EBITDA says a lot about how great this kind of business is. We're sure that over the long term, over the cycle, we'll do a lot better, of course. Hope that answers.
On the supply chain is not full of stock anymore. So there has been plenty of destocking, but theres not enough front end demand.
Take prices up quickly at the same time supply has strained some of the suppliers or strain. So we think that will.
We're reaching a new balance and expect that one.
Demand picks up a little bit the prices will pick up as well and we will return to a normalized situation.
It is important to note.
In this kind of business, where in the worst times, we can still achieve 25% EBITDA says a lot about what how great. This kind of business is and we're sure that over the long term and over the cycle, we'll do a lot better for us hope that answers.
Alex Jones: Thank you.
Thank you.
Peggy Reilly Tharp: Thanks, Alex. Our next call is from the line of Joel Jackson with BMO. Joel?
Thanks, Alex next call edge from the line of Joel Jackson with BMO.
Sure.
Joel Jackson: Good morning, good afternoon. A few questions in the potash business. Can you give a bit of your expectation for what pricing might be in Q3? It looks like potash production a little bit lower in Q1 and Q2 than it's been last year. Can you talk about what the production run rate would be like for the rest of the year in 2024?
Good morning, and good afternoon.
A few questions.
In the potash business.
So can you give a bit of your expectations for pricing might be in a third quarter and then it looks like potash production.
A bit lower in Q1 and Q2 than in last year can you talk about what the production that maybe would be like for the rest of the year in 2024.
Raviv Zoller: For us, the production in Q1 was lower than last year. Q2 was back to normal and even 100,000 more than originally planned because it was 100,000 tons deferred from Q1 to Q2. Going into the year, we expected that we'd be able to produce about 4.8 million. That's down a little bit because of some issues that we had in Spain. I won't go back into them, the bottom line is that we're going to produce about 4.7. We expect that the sales volumes in Q3 and Q4 will be relatively similar to Q2. In terms of the average potash price, that becomes easier now because we're completely sold out of granular product until the end of the year.
Yes, so for us.
The production in the first quarter was lower than last year's second quarter was.
Back to normal and even the 101000 more than originally planned because it was 100000 tons deferred from the first quarter to the second quarter going into the year, we expected that we'd be able to produce about $4 8 million.
That's down a little bit because of some issues that we had in Spain I won't go back into them, but the bottom line is that we're going to produce about $4 seven.
We expect that the sales volumes in Q3, and Q4 will be relatively similar to Q2.
In terms of the average <unk> price that becomes.
Now because we're still we're completely sold out of granular product until the end of the year.
Raviv Zoller: We still have some standard product to sell because the shipments to India were halted and we haven't supplied all of our India contract. There's ample demand. If we need to sell outside of India, of course we will. Given that we have clarity, we expect the average potash price for the H2 of the year to be around $340, maybe a couple of bucks more. That's pretty certain from our perspective. In terms of dynamics turned at the end of June. Right now we're seeing strong inland demand in China. The result is that the prices are actually moving up inland in China. We see Brazil prices rebounding from $310, $320 to over $350. Europe is relatively stable after somewhat of a downward spiral for a few months. The US looks relatively healthy even though it's fluctuating.
We still have some standard product to sell because the.
The shipments to India were halted and we Havent supplied all of our India contract.
There's ample demand.
If we need to sell outside of India of course, we will but given that we have clarity then we expect the average put us price for the second half of the year to be around 340, maybe a couple of bucks more.
But that's pretty certain from our perspective in terms of the dynamics.
<unk> turned at the end of it.
At the end of June .
Now we're seeing.
Strong inland demand from.
In China and the result is that prices are actually moving up in land in China, We see Brazil prices rebounding from 310 to 322 over 350.
Europe is relatively stable after a somewhat of a downward spiral.
For a few months in the U S looks relatively healthy even though it's fluctuating so I can't say that prices have been established in the U S.
Raviv Zoller: I can't say that prices have been established in the US. A little bit longer term, we do see some buying interest for January and February in Brazil, which is very positive because that was not happening last year at all. There was no spot buying last year in July and August. Like I said, we're not selling anymore this year, but we're starting to sell for next year. That's positive. I'd say the overall dynamics in the potash market, also given the new policy it seems of our Canadian competitors to curtail some of their production capacity, that also gives more stability from the supply side. That's in short, the potash dynamic at this point.
A little bit longer term.
We do see some.
Buying interest for January and February in Brazil, which is very positive because that was not happening last year at all there was no spot buying last year in July and August like I said, we're not selling any more this year, but we're starting to sell for next year.
So that's positive so I would say the overall dynamics put us market also given.
The new policy it seems of our Canadian competitors.
To curtail some of there.
Some of their production capacity that also gives us more stability from the supply side. So thats in short the playoffs dynamic at this point, maybe maybe to add.
Aviram Lahav: Maybe to add-
Raviv Zoller: Please
Aviram Lahav: Sorry. That I think we are seeing the Russian Belarus side stabilizing and not continuing to close the gap. There is some volume that is removed from the marketplace on that account as well. You put it all together and we do not have a situation, I believe, anymore, where supply is significantly higher than demand, which will lead to a constructive surrounding for pricing. Put it all together, I think that's the picture that we see, that's the picture our people see. I think it makes a lot of sense. That's it.
Alright.
I think with the Russian Malibu side stabilizing.
Continuing to close the gap. So there is some volume is removed from the market based on that account as well.
Put it all together and we do not have a situation I believe any more wells.
Supply.
Is significantly higher than demand.
<unk> will lead to constructive surroundings through pricing.
Put it all together I think that.
A big chunk that we see.
You will see.
And I think it makes a lot of sense.
Joel Jackson: Okay. Just finally, when you think about your current opportunities at Boulby or Cleveland Potash or for Polysulphate and the different variants that you have with the product, now potash prices globally back down to the 300s, sort of the higher end of the mid-cycle range. What is that business like? You're doing great production of polyhalite, Polysulphate. Is that business now generating a reasonable return to keep the business going? What kind of earnings are you making on it this year? What do you need to make it a viable long-term business?
Okay and just finally, when you think about your current opportunities, albeit Cleveland potash for probably some different variants that you have with the products.
Now potash prices globally, a background of three hundreds.
The higher end of the mid cycle range, what is that business like what youre doing great production.
Highway probably sulfate.
Is that business now generating significant return a reasonable return to keep the business going what do you need to have it.
Earnings are making this year, what do you need to make it a viable long term business.
Raviv Zoller: Okay. That's a great question. First of all, it's a profitable business, but it's not a very profitable business like it was last year. The potash price going down and the relatively weak demand all around for fertilizers in Europe has hurt that business. Yes, we're producing great, but we're not selling at the kind of global premium that we'd like. We're selling for a very nice premium in Europe because Europe appreciates the organic premium and the value of the product and has more experience with the product. Unfortunately, in Brazil and in China, customers still view this product or this family of products actually, because we've developed a whole family of products, still as too close to commodity and tend to negotiate, taking into account the effect of the potash price.
Okay. So that's a great question.
First of all it's a profitable business, but it's not.
It's not a very profitable business like it was last year that put us price going down.
The relatively weak demand all around for fertilizers Europe has hurt that business. So yes, we're producing great.
But we're not selling at the kind of prime at the kind of global premium that wed like our selling for.
A very nice premium in Europe , because Europe appreciates.
The organic premium and the value of the product and has more experience with the product Unfortunately in Brazil and in China.
Customers still view this product or this family of products actually because we've developed a whole family of products are still has to close to commodity and fenton negotiate taking into account the effect of the put out prices. So the bottom line is we're getting.
Raviv Zoller: The bottom line is, we're getting good business in Europe and not that great business in China and in Brazil. We need to continue to educate the market and to demonstrate the value that the products bring to the table. That will help us get from a business that has relatively normalized profitability to higher profitability. It's not a home run fertilizer with 30% EBITDA, but we believe that over time we could achieve a 15% plus EBITDA this year. It'll barely be double digits, whereas last year we made a very nice 20% plus EBITDA. I hope that answers.
We're getting good business in Europe , and not that great business.
In China, and in Brazil, and we need to continue to educate the market.
And to demonstrate the value that the products bring to the table and that will help us get from.
A business that has.
Relatively normalized profitability too.
Higher profitability.
It's not.
It's not.
Ron and fertilizer with <unk>.
30% EBITDA, but we believe that over time, we could achieve 15% plus EBITDA. This year, it'll barely be double digits, where whereas last year, we made a very nice 20 plus.
20, plus percent EBITDA I hope that answers.
Joel Jackson: Thank you.
Yeah.
Thank you.
Raviv Zoller: Thank you.
Thank you.
Peggy Reilly Tharp: Our next call is coming from the line of Rahi Parikh with Barclays. Rahi.
Our.
Call is coming from the line of Ryan Murray with Barclays Rohit.
Brian .
Rahi Parikh: Perfect. You guys can hear me?
Okay.
Perfect. Yeah can you hear me yes.
Raviv Zoller: Yes.
Aviram Lahav: Yes, yes.
Yes.
Rahi Parikh: Great. Well, I just have one question. For IP, obviously there's been some issues in the last quarter, though external. I'm just wondering, is there any game plan to help the sector besides what's been happening? Is there any strategy to go around the lower demand, the electronic slowdown? Just your thoughts on that. Thank you.
Great.
I just have one question so for IP.
And as Vince already seen last quarter that Nellix, China I'm, just wondering is there like any game plan.
Help the sector.
Right.
On happening is Danny chassis to go around.
And then Tony.
Slow down your thoughts on that.
Ken.
Raviv Zoller: Thanks for the question. Look, the flame retardants for electronics and construction are a very significant component of our offerings. It's not like we can circumvent that. We're suffering from the cycle like everybody else. It's a significant downturn because normally when there's a slowdown, we produce a little less, we take a disciplined approach. We demonstrate the value to our customers and are able usually to affect strong pricing. Currently, the drop in demand is so significant. There was so much stock built into the supply chain. It just has taken quite a while to get that stock out of the supply chain, and the demand still has not built back up. I'm talking about the demand for TVs, laptops, phones. Still the demand is not back. Construction, which is also a significant component, there the cycle is longer.
Thanks for the question look.
The flame Retardants for electronics and construction, a very significant component of our offerings.
So it's not like we can circumvent that were suffering from the cycle like everybody else.
It's a significant downturn because.
Normally when there is a.
A slowdown.
We produce.
Produce a little less I will take a disciplined approach.
We demonstrate the value to our customers.
Our able usually too.
To effect the strong pricing.
Currently the drop in demand is so significant there was so much stock built into the supply chain.
And it just.
It's taken quite a while to get that stock out of the supply chain and the demand still has not built back up I'm talking about the demand for.
Tvs.
Uh huh.
Laptops.
Phones.
Still the demand is not back.
Construction, which is also a significant component there the cycle is longer so electronics is expected to come back quickly.
Raviv Zoller: Electronics is expected to come back quickly for refill of product. On construction, given the interest rates and overall activity globally, it's going to take longer. Put that together with abundant supply, that, as I said, due to the dynamics that have caused the pricing to go down below the cost of some of our competitors, supply is going to come down somewhat in the coming months. As supply normalizes a little bit and as demand normalizes, we expect to go back to normal. In H1, we thought that if we didn't participate in the lower pricing game, we thought that we would get a better result. Unfortunately, we didn't because the cycle was longer than we expected.
The refill of product on construction, given the interest rates and overall activity globally, it's going to take longer.
But that together with abundant supply that as I said due to the dynamics that have caused the pricing to go down below the cost of some of our competitors supply is going to.
Supply is going to come down somewhat in the coming months and as.
Supply normalizes, a little bit now as demand normalizes, we expect to go back to normal in.
In the first half of the year, we thought that.
If we sold.
If we didn't.
If we didnt participate in a lower pricing game.
Thought that we would get a better result, Unfortunately, we didn't because of the cycle.
Longer than we expected we are keeping our market share with our long term customers now so we're going to lose less volume in the next few months and we're going to allow the market to take its course for a few more months.
Raviv Zoller: We are keeping our market share with our long-term customers now, so we're going to lose less volume in the next few months, and we're going to allow the market to take its course for a few more months until we get back to normal. The end game here is that we believe in the fundamental strength of the market. We believe that we're going through the bottom side of a cycle, a bottom that hasn't happened for 15 years. We're sure that the market is coming back, and the only question is how many more months we will have to endure the current situation. Right now, we're positive that we're not going to see a significant return to normalized business in Q3.
Until we get back to normal.
The end game here is that we believe in the fundamental strength of the market. We believe that we're going through the bottom side of the cycle bottomed. It hasnt happened for 15 years, and we were sure that the market is coming back and the only question is how many more months and we'll have to endure the current situation right.
Now we're positive that we're not going to see.
Significant returned to normalized business in the third quarter.
Raviv Zoller: Q4, the jury is still out, but typically, Q4 is a weaker quarter, and customers are not looking to build up stock towards the end of the year. my guess is that we'll start seeing some more significant improvement in the beginning of 2024.
Fourth quarter, the jury is still out but typically the fourth quarter is weaker.
A weaker quarter.
And customers are not looking to build up stock towards the end of the year. So my guess is that we'll start seeing.
The more significant improvement in the beginning of 2024, just as a reminder.
Aviram Lahav: Just as a reminder.
Rahi Parikh: Oh, sorry.
Aviram Lahav: Rahi, just as a reminder, in mid-June, when we came out with the new guidance, we did a pretty dramatic $200 million we chopped off directly on the bromine business, because already at that time, and that's what we guided, we did not see a recovery, most certainly Q3 and maybe not even Q4. In a way, it's covered by this. Again, it's a good question, and we're waiting for the recovery. Please.
Just as a reminder in mid June .
Came out with the new guidance.
Pretty dramatic $200 million.
The Choctaw directly on the bromine business because already at that time and that's what we guide that we did not see the recovery will certainly in Q3 and maybe not even in Q4.
In a way it's covered by Dave.
It's a good question and we're waiting for the recovery Keith.
Rahi Parikh: Yeah. Makes total sense. Thanks for the clarification. Just so that we can get the clarity, the stock that's built up, it's all high-cost stock that you're trying to get through.
Yes.
Total thanks, Thanks for the clarification and Justin.
We can get to parity.
Hi, Hi costs.
Hi.
Aviram Lahav: Yeah.
Okay.
Rahi Parikh: Correct? Because it's made probably H1 of the year, last year.
Correct.
Yes last year.
Aviram Lahav: Sure.
Rahi Parikh: Okay, perfect. Thank you so much.
Okay perfect. Thank you so much.
Aviram Lahav: Thank you.
Thank you.
Yeah.
Yes.
Yeah.
Raviv Zoller: I understand that we don't have any more questions, so I want to thank you all for participating in this call and joining us as usual. We appreciate your questions and appreciate you following us and supporting us. With that, thanks again to our employees at ICL. Thanks to my colleague, Aviram.
Okay. So I understand that we don't have any more questions. So I want to thank you all for participating in this call and joining us.
Usual.
We appreciate your questions and appreciate you following us and supporting us and with that thanks again to our employees that ico. Thanks to my colleague Rob. Thank you were building me on this call and looking forward to coming back to you next quarter and reporting about our progress. Thank you very much. Thank you.
Aviram Lahav: Thank you.
Raviv Zoller: joining me on this call. Looking forward to coming back to you next quarter and reporting about our progress. Thank you very much. Take care.
Aviram Lahav: Thank you.
Yes.
Hello.
Rahi Parikh: Goodbye
Goodbye.
