Israel Chemicals Limited Ordinary Shares (ICL) Q1 2022 Earnings Call Transcript

Israel Chemicals Limited Ordinary Shares (ICL 0.32%)
Q1 2022 Earnings Call
May 11, 2022, 7:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the ICL analyst conference call. [Operator instructions] 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 ma'am.

Peggy Reilly Tharp -- Vice President of Global Investor Relations

Thank you. Hello, everyone. I'm Peggy Reilly Tharp, vice president of global investor relations. I'd like to welcome you and thank you for joining us today for our quarterly earnings call.

The 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 2. Our comments today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are not guarantees of future performance.

The company undertakes no obligation to update any financial information discussed on this call at any time. We will begin with the presentation by our CEO, Mr. Raviv Zoller, followed by Mr. Aviram Lahav, our CFO.

Following the presentation, we will open the line for Q&A session. Raviv, please.

Raviv Zoller -- Chief Executive Officer

Thank you, Peggy, and welcome, everyone. Clearly, a great deal has changed in the world since we last reported, and I want to try to give you the clearest picture possible of the impact we have seen and expect to see in our business and across our end markets. To begin with Slide 3, while we've benefited from commodity market upside, this has 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. Our specialties business, industrial products, phosphate specialties and innovative ag solutions all delivered record results, and 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 shifted market dynamics.

During the quarter, we maintained our focus on long-term cash generation by innovating with our specialty businesses 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 continuing supply chain challenges. We plan to continue to optimize both our customer and supply relationships with emphasis on long-term sustainability considerations as we manage through these issues and significantly higher raw material costs 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 $0.2383 per share, up more than 350% versus $0.0525 in the first quarter of last year. In total, ICL will pay out $306.5 million in dividends for the quarter. Now, please turn to Slide 4 for a look at the metrics I just discussed. Sales were up nearly 70%, while adjusted EBITDA was up more than 230%.

EBITDA margin for the first quarter increased nearly 40% from 20% in the first quarter of last year and was also up significantly when compared to the fourth quarter 2021 rate of 29%. We also added nearly $120 million of operating cash flow in the first quarter. On Slide 5, 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 6. 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 compound sales are under long-term contracts. This segment also saw higher pricing year over year, which helped offset increased raw material and shipping costs.

While 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 rate 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 continue to moderate, including automotive and consumer electronics. Automakers faced 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 7 and 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 signed framework agreements with customers in India and China to supply potash in 2022 at $590 per ton.

During the quarter, potash prices continued to increase due to global disruptions and availability related to sanctions on Belarus product. This situation has been further exasperated by uncertainty evoked by the conflict in Ukraine as Russia is also a significant player in the global potash market. Price in the quarter for corn, rice, soybean 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 shutdown in March versus April last year, and more than 70 projects were successfully completed. Our P-9 pumping station also achieved its first quarter of full operations following commissioning late last year. At ICL lberia, production improvements continue to advance as we enter our first full year production following the completion of the ramp project at the Cabanasses mine in 2021. For the first quarter, production increased by 38% to 182,000 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 Boulby operations would be moving from our Potash segment to 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 8 in 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 quantity. 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 YPH 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 monoammonium phosphate destined for electric vehicles and other energy storage offerings. Record phosphate fertilizer sales were driven by surging prices amid reduced supply and 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 9, and innovative ag solutions were 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 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 in Ukraine to 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 polysulphate-based products, branded as FertilizerpluS, contributing both in terms of price and volume. FertilizerpluS had record results due to improved market share and higher prices. Polysulphate production, which is now housed under IAS, was up 30% to 238,000 tons, while sales volume increased 11%, helping ICL Boulby to achieve quarterly profit contribution for the very first time. If you will turn to Slide 10, I would like to wrap up my portion of today's call by reviewing a few recent sustainable investments and innovations in our target areas of industrial, food and agriculture solutions.

For industrial efforts, we have brought together a global and multidisciplinary 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 phosphorous-based specialty solutions for the rapidly growing energy storage market. Additionally, during the first quarter, we monetized intellectual property developed by ICL when we sold our 50% share of the Novetide 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 Prolactal 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 BufferMAX 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 and 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 biostimulant 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 at our Heerlen site in the Netherlands. ICL recently became the first fertilizer producer in the world to obtain Fertilizing Products Regulation certification from European Union. This certificate, which is based on the new EU Fertilizer Regulation, addresses the biodegradability of polymer coatings for controlled release fertilizers or when combining mineral fertilizers with biostimulants.

Once again, ICL 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 are 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 while it 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 imposition, which in turn helps 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 spread out across the globe for all their hard work and contributions during this quarter.

Your 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 Aviram.

Aviram Lahav -- Chief Financial Officer

Thank you, Raviv and to all of you joining us today. While you have already seen Slide 13, 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 first quarter of last year. Adjusted net income attributable of $613 million was up more than 350% year over year.

And adjusted diluted earnings per share of $0.48, are up $0.37 or more than 350%. As Raviv mentioned, quite a lot has transpired since we reported our fourth quarter earnings. As you can see on Slide 14, while global growth remains strong, inflation in most countries has soared to multi-year highs. The US dollar has surged to its 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 and into 2022 has not only continued, but conditions have become worse. In addition to issues related to Ukraine, there have also been delays due to resumed COVID 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 Belarus have been compounded by international sanctions in Russia, resulting in further tightening of supply, since these two countries accounted for approximately 40% of potash supply in 2021. On Slide 15, you can see prices for potash, phosphoric acid and sulfur have continued to trend higher with prices reaching new 10-year record highs. For the first quarter, while we were able to offset the increases of raw materials, 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 and 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 Raviv 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.

For IAS, we have been rebuilding our Ludwigshafen facility in Germany following the fire last fall and operations resumed just this month. We also made a conscious decision at IAS to focus on polysulphate at Boulby versus less profitable salt production. Additionally, we saw a 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 commodities soared, we maintained our long-term strategic focus on specialty sales, which represented 55% of sales in the first 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 as prices of our products continued to trend upwards, our effective tax rate is expected to increase due to the surplus profit levy on our natural resources among others. Turning to Slide 17, you can see the significant contribution that higher prices made to adjusted EBITDA. But 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 focus, which made up 47% 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 one times from 2.4 times in the first quarter of last year. We have continued to drive growth in 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, includes an annual reduction in direct and indirect Scope 1 and Scope 2 CO2 emissions resulting from our global operations. And this progress is being monitored and verified by an independent third-party organization in accordance with the GHG Protocol and relevant ISO standards. We also committed to expand our participation in together for sustainability by adding qualified vendors, meet criteria in the areas of management, environment, health and safety, labor and human rights, ethics and governance.

And finally, we continued to expand the representation of women among 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 a very strong results in the first quarter and significant changes in market dynamics. As a result, we now expect to deliver an adjusted EBITDA range of between $3,500,000,000 and $3,750,000,000 in 2022 with our specialty businesses contributing approximately $1,300,000,000 to $1,400,000,000 of this amount. And with that, I would like to turn the call back over to the operator for Q&A.

Questions & Answers:

Operator

[Operator instructions] Our first question comes from the line of Alex Jones from Bank of America. Please go ahead, sir.

Alex Jones -- Bank of America Merrill Lynch -- Analyst

Thanks very much for taking my questions. Two, if I may. I'll go one-by-one. The first question on the margin in industrial products.

Clearly about 40% very, very strong. How should we think about that in the balance of the year? Will sort of continued price increases sustain it to that level or will that pressure push it down or stop pushing it down a little bit at least. I'll start with that and then come back with more. Thank you.

Raviv Zoller -- Chief Executive Officer

OK, thanks, Alex for the question. The margin came out higher than we expected at the beginning of the year. And the reason is that our long-term contracts have an 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.

Alex Jones -- Bank of America Merrill Lynch -- Analyst

Thank you. That's clear. And just a second question on...

Raviv Zoller -- Chief Executive Officer

Just to make sure I'm accurate. Typically, fourth quarter is a weaker quarter. So it could be a little weaker at the end of the year, but don't expect anything different in the next quarter.

Alex Jones -- Bank of America Merrill Lynch -- Analyst

Thank you. That's clear. And just a second question on the volumes of that division, you called out in your comments, the number of different drivers auto, consumer electronics, why there was an 11% decline year on year this quarter. How should we think about that into the second quarter, given sort of China COVID lockdowns ongoing, but then into the balance of the year, how do you think about that? Thank you.

Raviv Zoller -- Chief Executive Officer

OK. So thanks for that question. I want to point out, if you look at the numbers, it seems like quantities in IP division went down quarter over quarter. And what I want to point out is that, we shut down two of our plants in China last year.

Those two plants created quantities, but 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 those factors in China, mainly the shutdown of -- rather the sale of one of our sites and the shutdown of the other, quantities went down. In terms of quantities going forward, we expect quantities in the second quarter to be similar to the first quarter, maybe just a bit less in electronics related.

But at the same time more on clear brine 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 the situation in China persist and unexpected logistic issues happen as a result of the lockdown 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 is contracted annually. So we don't see anything dramatic. But we did want to point out that there could be some effect due to the relative weakness coming about in the electronics and automotive. And again, these are a result of the lockdown in China.

Alex Jones -- Bank of America Merrill Lynch -- Analyst

Great. Thank you very much.

Aviram Lahav -- Chief Financial Officer

My mic is on. So potentially on China because it's a significant part of the division is that shipments might come in later. So on a quarterly basis, there can be some delays. Because China -- the ports in China, there is a massive lockdown going on these days, depends how it will go about, if it makes sense to you.

I think it's a general issue that prevails there. I think that over time this must be resolved, but at least in Q2, by the way it can be that things will be playing between the quarters. That's just an effect of the shipping itself.

Operator

We have another question coming from the line of Geoff Haire from UBS. Please go ahead with your question.

Geoff Haire -- UBS -- Analyst

Actually my question has been answered previously. So I don't have need to ask it. Thank you.

Operator

Thank you. We have another question, and it comes from the line of Joel Jackson from BMO Capital. Please go ahead with your question.

Joel Jackson -- BMO Capital Markets -- Analyst

Hi. Good afternoon. You don't get off that easy with me. I want to talk about 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 '22, it's a $2 billion increase for 2022. Can you bridge that? How much of the $2 billion of EBITDA increase in '22 would come from potash price? How much will come from other businesses, other -- can you break down that bridge as granular as possible for your business, please?

Raviv Zoller -- Chief Executive Officer

You mean just the delta?

Joel Jackson -- BMO Capital Markets -- Analyst

Yeah, the delta. The $2 billion delta from '21 to '22. How much of that is potash price? How much of that is other things and other businesses as much as granular as possible would be very helpful.

Raviv Zoller -- Chief Executive Officer

All right. So you can see, we have a number for the specialties business, right? So the specialties accounts for about 300 and some at the midpoint. And the rest is about 75% potash and 25% phosphate. 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 us, so you already know the numbers for first half. And for the second half of the year, we have higher prices for potash in the third quarter, but the third quarter is not sold out yet. So we took conservative numbers for the third and fourth quarter on potash. The average selling price in the second quarter for potash is expected to be around the 800.

Joel Jackson -- BMO Capital Markets -- Analyst

OK, so that's very helpful.

Raviv Zoller -- Chief Executive Officer

800 is the number before transport costs, so the realized price will be around 760-ish.

Joel Jackson -- BMO Capital Markets -- Analyst

Thank you. So if I do that math, it sounds like 60% to 65% of the 2022 EBITDA delta is potash price?

Raviv Zoller -- Chief Executive Officer

That's pretty accurate, yes.

Aviram Lahav -- Chief Financial Officer

A bit less.

Joel Jackson -- BMO Capital Markets -- Analyst

OK, so then my next question would be, so at these potash prices, obviously we're seeing a lot of peers talk about demand destruction and prices not going higher or lower. What is your view right now on price here or demand here? Has the price hit the right level now to balance demand versus missing Belarusian ton, do you think we're going to see some softness? What are your views on where the market goes next in potash?

Raviv Zoller -- Chief Executive Officer

OK, so there is a short-term and there is a long-term. In the short term, the basic facts are that there is a lack of supply in the market. It is over 2 million tons of potash missing for Brazil. Brazil has to have a potash because the type of land that is there in Brazil demands potash, they can't skip a season or something.

There will be some demand destruction in Europe, some in Europe will skip a season. That means that potash 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-run, it's actually a better news for stability for prices, because anybody that skips a season, this season will need more potash next year. So that means that once market comes back and maybe if sanctions are lifted and product comes back, there'll be more demand for potash next year. So in terms of potash dynamics, there will be demand destruction, there is quite a lot of uncertainty yet in terms of decisions to be made by distributors and farmers. There was a lot of de-stocking, so stock levels are low in China and India, and even in Brazil they're getting lower by the day now.

And in the U.S., because of the wet season, there wasn't as much application of potash this season. So there was some softness in the U.S., but I expect that to change toward the fall season. So I think demand will be healthy enough to sustain these existing prices. It's difficult to speak about the higher prices because these are uncharted waters.

We've never been here before. We can say that there is demand that's not going to get the product because some countries that 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 quite a lot of hunger problems in various places. And that in itself can create additional dynamics. We do see that in some countries governments are becoming aware of potential demand destruction that will cause hunger issues.

And as a result, India has raised subsidies very significantly for potash and for phosphate. Countries like the U.K. have supported the fertilizer companies directly. I read a couple of days back that France is now giving grants to farmers at the private farmer level to make sure that applications happen, because at the end of the day, if there is not enough application of fertilizers and fertilizers are responsible for about 50% of global production of agriculture, there won't be enough food, the implications are very, very significant.

And of course, the same with crop prices especially wheat because of Ukraine-Russian situation, I don't see wheat going lower. Maybe the contrary. So if wheat goes up, and 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.

Phosphate depend more on decisions made by Morocco and China. China in terms of export policy and Moroccans in terms of how much DAP they will produce. They don't have the quantities of ammonia necessary for DAP. So that means that there will be -- there could be shortage, and of course there already is shortage of acid, white phosphoric acid.

So there are all kinds of 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 Belarusian product is not coming out of the mines and not entering into the market. And that's just product that's not going to come into the market. If they get back to the production, it will be in the future.

In the future there will be higher demand because of some demand destruction in this -- at these times. And so, that's pretty much what I have to give you as color on the market. India, China working very hard to make sure that there is enough food for their population. U.S.

a little bit of softness because of weather issues. Europe, quite a lot of demand destruction, so less fertilizers this year and more next year. Brazil not clear still how they're going to get the additional fertilizer that they need. Potash, already mentioned over 2 million are missing.

And other fertilizers where they depended on Russia. They depend on Russia, it depends how much product from Russia is going to come to Brazil. Currently we see that a lot of product came in, in the past month and a half, but that product went out of Russia long time ago. Not clear if significant deliveries are going to be able to arrive in Brazil in June and July.

Aviram Lahav -- Chief Financial Officer

Let me just, Raviv, that India and China together, they comprise below 30% of the total potash sales for ICL in a year. So in the latter part of the year, this spot prices will be quite beneficial to ICL, if they continue to sustain obviously.

Raviv Zoller -- Chief Executive Officer

Joel, that's the best we can do for now.

Operator

OK. Joel, you might be on mute. Can you un-mute yourself? We are moving to the follow-up question. And the question comes from the line of Laurence Alexander from Jefferies.

Please go ahead with your question.

Laurence Alexander -- Jefferies -- Analyst

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 M&A pipeline?

Raviv Zoller -- Chief Executive Officer

It's a fantastic question. We've been a little frustrated in the past 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, I mean, I'm not hoping that the markets go down, don't get me wrong.

But if valuations rationalize, 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 and we're going to be generating even more cash. So we want to be opportunistic. We have our eyes on a few interesting targets. And we hope to be able to do more in terms of M&A in the next couple of years than we did in the past couple of years.

Laurence Alexander -- Jefferies -- Analyst

And for innovative ag solutions, what do you see as the normalized run rate because kind of the underlying improvement in that segment is a little bit harder to track with the fly ups we're seeing.

Raviv Zoller -- Chief Executive Officer

Yeah. For this year we're going to see a very nice growth. 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 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 IAS results, it would seem that quantities actually went down. When you put Brazil on the side and look at the rest of the business, it looks like quantities actually went down a bit. And that again doesn't tell the right story because of two issues.

One, in Aviram's remarks, he mentioned the fire we had in our facility in Germany, toward the end of last year, and that facility was not working in 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 three quarters. The other thing is that, in Boulby, in order to reach our targets for polysulphate production, we took down salt production, which is low value and does not do anything for our P&L, but we took down production by 65,000 tons. And those two issues, the facility in Germany and the salt took the quantities of the division down.

But those of course are one-time events that will not stay with us. So all in all, the growth in the legacy business of IAS has been around the 20%. And the growth in Brazil, even more than that. And it's also a growth with growing margins.

So we see margin expansion as we grow, 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 project that. But we see very nice margins, we had the low single-digits in this business just two years ago and now we're getting to high double digits.

And it's nice to see that. Thanks for the question.

Laurence Alexander -- Jefferies -- Analyst

Sorry, just one clarification, if I may is, how do you think about mid-cycle EBITDA for the business, for your specialty businesses, if the current conditions sort of normalize in two, four, five however, many years. I mean, just what do you see as the mid cycle kind of benchmark?

Raviv Zoller -- Chief Executive Officer

So mid cycle for IP business would be above 30%. We saw significantly above 30%. But mid-cycle, I would say, at the minimum more than 30%, we had that in the past. The reason is, we're a market leader, we're a price leader.

So that business is very solid and safe. In IAS 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 phosphate business we're targeting plus 17%. That's the number that we had in our long-term plan.

Laurence Alexander -- Jefferies -- Analyst

OK, great. Thank you very much.

Raviv Zoller -- Chief Executive Officer

Thank you.

Operator

Next question comes from the line of Vincent Andrews from Morgan Stanley. Please go ahead with your question.

Will Tang -- Morgan Stanley -- Analyst

Hi, guys. This is Will Tang on for Vincent. Thanks for taking my question. Now, that I feel Boulby has turned to profit kind of given the higher prices and production.

Can you talk about what your expectations for the business are for the rest of the year? And I guess whether we can expect it to continue to turn the profit long-term from here on out?

Raviv Zoller -- Chief Executive Officer

Yeah. So we got to 238,000 tons of production in the first quarter, which is a run rate of about 1 million tons. So we expect that to be relatively stable for the rest of the year and end up the year at about 1 million tons. In terms of pricing, pricing went up from about $115 in the first quarter of last year to $210 the first quarter this year.

It has to do with commodities, but much more than that it has to do with the positioning of the product. We call the product -- we branded the line of products as polysulphate FertilizerpluS. The product is an organic product that has some potash, a lot of sulfur and micronutrients such as magnesium and calcium. And the positioning is that, it's a high quality organic fertilizer with no chemical process involved.

And the reliability of the product is high, the results are very good. 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 US. And the growing appreciation to the result of the product that we're selling, it took us between three to four years to penetrate markets. And now that we have, we expect to maintain our profitability, may be even grow it at second half of the year, as long as no dramatic changes happen.

And we feel that over time, we will build additional premium because of two reasons. One, because of the positioning of the product is a high value organic product. And second, because we're developing a whole line of product that involves the combinations of polysulphate with other nutrients, granulated product that create better use efficiency for plants. And those additional products that we're developing under the brand are being accepted very well.

And each one that comes out and proves its successful value, get us more premium. So the product portfolio success together with the acceptability of the branding is going to give us additional premium and higher prices in the future that will enable us to grow our margin. Hope that answers.

Will Tang -- Morgan Stanley -- Analyst

Got it. Yes, thank you. And then I guess just as a follow-up. Between last quarter and now you've kind of almost doubled your earnings expectations for 2022.

I know you talked -- you briefly touched on M&A a little bit, but could you give us a run-through again about how you're thinking about, I guess, allocating that excess capital that maybe you weren't expecting few months ago.

Raviv Zoller -- Chief Executive Officer

So, again, remember, you said we doubled and we already said that almost two-thirds of that is coming from potash prices. Remember that when we modeled in the beginning of the year, we explained our conservative guidance. We're at the time selling potash at $249 in China and $440 or so in India. And just the China prices went to $590, which is well over a 100%.

And of course, Brazil prices went from around $650, $700 at the time that we put together our original model to currently about $1,200 per ton. So it's 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, it's still too early. Because although like Aviram mentioned, one--third of our product is already sold at $590 to China and India, and 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 the food inflation causing the world hunger.

It's too much -- there is too much volatility out there to give an accurate projection at this point.

Aviram Lahav -- Chief Financial Officer

I just add that, potash, of course, is the dominant factor, and phosphate is also up very considerably, between the time that we estimated and what we see now, it's also about $400 million in operating income terms. So that's another significant factor. You put those two together, together with the IP side and some on the IAS side and you get the difference, I think that bridges for you logically what happened in the first estimate and what we see now.

Will Tang -- Morgan Stanley -- Analyst

Got it. And then I guess as a follow-up to that, could you kind of talk about how you're thinking about allocating that excess cash that you guys are expecting to generate?

Raviv Zoller -- Chief Executive Officer

Well, we're paying out $306 million as a dividend, which is pretty much the net cash generation, 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 we're considering M&A opportunities as well as having enough reserves to be able to protect our position or better our position in terms of the interests we have with government concession and other issues that where we could be opportunistic to take care of -- to take advantage of these very good times that we're going through in order to better our long-term situation.

Aviram Lahav -- Chief Financial Officer

Maybe just one comment, if I may, on capital allocation. The 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 terms are longer, especially around receivables, trading terms are longer, the margins are very nice. But we have to allocate some working capital to Brazil as well.

Anybody that works there, it's a well-known fact.

Will Tang -- Morgan Stanley -- Analyst

Got it. Thank you.

Operator

And we have a follow-up question coming from the line of Joel Jackson from BMO Capital. Please go ahead.

Joel Jackson -- BMO Capital Markets -- Analyst

Hi. I got cut off at the end there. I appreciate your color on polysulphate. So I have two questions on that.

If you think the $215 a ton selling price, can you somehow, in your mind, come up with how you divide the value that customers paying at say, $215 between potassium, sulfur, calcium, non-chloride, organic? Like, is there -- how does your marketing team think of the value that customer gets at $215 among all of those different buckets? Does that makes sense when asking?

Raviv Zoller -- Chief Executive Officer

It's a good question. I would say, look, the potash component is 14%. So I think it will take a long time until we get more than the potash value for those 14%. The rest is coming from the combination of the nutrients and they effect the results that they 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 a 100% of the higher yields, because you're not confident yet that the result is going to repeat itself. So I think we'll have to -- we'll need to have repetitive good results with our customers to build the premium. And again, the combination of nutrients is not just the nutrients embedded in the polysulphate, but we're also creating now additional products that combine polysulphate with other nutrients in order to increase the combined value. And again some of those products are being accepted very, very well, including PKs and NPKs with polysulphate.

Joel Jackson -- BMO Capital Markets -- Analyst

OK. So now I'm going to ask this question a bit different. It's going to sound like Debbie Downer, so I apologize and I am being honest. So you got to the 1 million ton production run rate and you're at the highest commodity prices ever, potash prices cannot go higher, sulfur prices cannot go higher to say or as high as they've been.

And you're just barely churning a profit on this product now over a decade into it. Is that not a sign, because commodity prices are going to be cycled. They go in cycles, they're going to go down. Is that not a sign that the business is never going to be anything other than really just around break-even and not might encourage why nobody should build anymore capacity of this product you or anybody else?

Raviv Zoller -- Chief Executive Officer

OK. So first of all, it's a very fair question. We're not 10 years into this product, we're four years into this product. The mine used to be potash mine and we're building our polysulphate business in the last four years or so.

The reality is that it may not be a high margin business on its own. But given the results that we have so far, we know that in combination with other nutrients we get some tremendous results. And again, this is for very specific types of land and markets. So does the fact that we think that we can make it a profitable business and we can command good -- just as good pricing in commodity down cycles because, yes, 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 multi-million ton market? The answer is, no. We think that the world needs 1 million or 2 million tons. It doesn't need more than that. In order for somebody to sell more than that, they'll have to make a call, what their assessment of the market is.

Our assessment of the market is that, we are 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 it can be profitable selling as a commodity business and competing with SOP or other type products. So the short answer is, yes, 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 a 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.

Joel Jackson -- BMO Capital Markets -- Analyst

Thank you for all that color.

Raviv Zoller -- Chief Executive Officer

You're welcome. Thanks for the question.

Operator

Thank you. We have no further question at this point. So I hand the conference back to you.

Raviv Zoller -- Chief Executive Officer

OK. So before I hand it over to Peggy, I just wanted to thank Dudi, who has been with us for a few years and he is moving to his next assignment. And we wish to thank him for years of great work on IR in ICL. Congratulations on your new job and lots of success.

And we hope you continue to be proud of us in what we're doing. And I'll turn it over to Peggy.

Peggy Reilly Tharp -- Vice President of Global Investor Relations

Thanks, Raviv. And we will speak with you again next quarter.

Operator

[Operator signoff]

Duration: 61 minutes

Call participants:

Peggy Reilly Tharp -- Vice President of Global Investor Relations

Raviv Zoller -- Chief Executive Officer

Aviram Lahav -- Chief Financial Officer

Alex Jones -- Bank of America Merrill Lynch -- Analyst

Geoff Haire -- UBS -- Analyst

Joel Jackson -- BMO Capital Markets -- Analyst

Laurence Alexander -- Jefferies -- Analyst

Will Tang -- Morgan Stanley -- Analyst

More ICL analysis

All earnings call transcripts