ICL Group Ltd. Q3 FY2022 Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the ICL analyst conference call. Our presentation today will be followed by a question and answer session, at which time if you wish to ask a question, you will need to raise your hand using your mobile or desktop application or press star, nine on your telephone keypad and wait for your name to be announced. I must advise you that this call is being recorded today. I’d like to hand the call over to our first speaker today, Peggy Reilly Tharp, Vice President of Global Investor Relations. Please go ahead.

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 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 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 a presentation by our CEO, Mr. Raviv Zoller, followed by Mr. Aviram Lahav, our CFO. Following the presentation, we will open the line for the Q&A session. Raviv, please?

Thanks Peggy, and welcome to everyone. In the third quarter, we once again saw benefit from our strategic focus on our differentiated long-term specialty solutions which was in addition to upside from commodity prices. We delivered record third-quarter results on a consolidated basis for sales, operating income and EBITDA, as did all three of our specialties businesses. This quarter’s strong performance reinforces our recent investor day message as it reflects the significant contribution from our specialties businesses which are expected to help us deliver long-term sustainable shareholder value. While we expect the road to get a bit rougher in the future, we know we have the right fundamentals in place to build on our strong momentum and to leverage the significant opportunities ahead of us. On Slide 3, you can see an overview of the quarter which includes the records I just mentioned and also highlights one more, as our Dead Sea operations achieved production records for the third quarter and on a year-to-date basis. In addition, we’ve had record year-to-date operating cash flow totaling $1.6 billion and our focus on long-term cash generation resulted in very strong quarterly free cash flow of $429 million, which was up nearly 200%. Our year-to-date adjusted net income was a record $1.9 billion and our adjusted earnings per share for the quarter of $0.49 was up nearly 200% year-over-year, resulting in record year-to-date EPS of $1.55. We continued to return value to our shareholder through our policy to pay out 50% of annual adjusted net income which resulted in a third-quarter dividend of approximately $0.24 per share. In total, ICL will pay out $314 million in dividends for the quarter. Now please turn to Slide 4, where you can see once again significant year-over-year improvement. Sales of $2.5 billion were up more than 40% while adjusted EBITDA of $1 billion was up nearly 140%. EBITDA margin for the quarter increased to approximately 42%, up from approximately 24% in the third quarter of last year. We also generated more than $600 million of operating cash flow during the third quarter of 2022. There is an overview of our third-quarter results on Slide 5 which really speaks for itself and that Aviram will discuss in more detail later in the call. I’d now like to begin our segment review with industrial products on Slide 6. Record third-quarter sales were $437 million and up 13%, while record third-quarter EBITDA of $170 million was up 40% year-over-year. We continued to achieve margin expansion as EBITDA margin improved to 39% from 31% in the third quarter of last year. This business continued to benefit from a strategic focus on value over volume, especially as end market demand remained mixed. As a reminder, our bromine and phosphorus-based solutions go into almost everything from computers, appliances and cell phones to automotive, textiles and pharmaceuticals. Our products also represent key components in installation for homes and offices and are used as solutions for the oil and gas industry. It’s difficult to find an end market where we don’t make up a piece of the final puzzle, and this helps diversify our overall exposure. During the quarter, we saw some softness from consumer electronics, as we had discussed on our previous call, and from the construction industry as well as interest rates have continued to rise. We expect both of these markets to continue to moderate in the fourth quarter. Conversely, the oil and gas and specialty minerals end markets are expected to stay healthy in the fourth quarter. Clear brine fluids remain in demand, especially in the Middle East which is a region that has become more significant for us following the signing of the Abraham Accords. In the U.S., there is expected to be strong demand for magnesium chloride for deicing as inventories there are low and winter is approaching. Overall, our industrial products business saw higher prices, which helped offset higher raw material costs. While bromine prices in China declined from the peaks we saw at the end of last year and the higher prices we saw in the first half of this year, third-quarter prices were relatively in line with the third quarter of last year and have risen somewhat in recent weeks. Turning to Slide 7 and our potash business, where sales of $854 million were up more than 100% year-over-year, EBITDA of $537 million was up nearly 350%, and EBITDA margin of 63% was up significantly over the 30% margin we reported in the third quarter of last year. As I just mentioned, our operations in the Dead Sea delivered record production for both the third quarter and the first nine months of the year, and as expected our average potash price in the third quarter moderated from the second quarter; however, average potash realized price per ton came in at $652 or nearly $700 CIF, which was up $335 year-over-year. During the third quarter, we signed a long-term potash agreement with a customer in Europe to supply 300,000 metric tons annually. We’re also shifting our mineral magnesium business to long-term supply agreements and we already have approximately 50% of our production under contract for the years 2023 and 2024. This business delivered record third-quarter and year-to-date profits as it enjoyed both higher prices and increased production. We’ve firmly established our position as a global partner of choice for mineral magnesium as our customers for this business have been looking for reliable and consistent supply, something we strive to leverage across all of ICL. Turning to Slide 8 and our phosphate solutions division, where third-quarter sales of $766 million were up nearly 30% year-over-year while EBITDA of $239 million was up 70%. Once again, this business saw record quarterly results for both commodities and specialties. We continue to maintain our strategic long-term focus on driving specialty sales and profitability and are shifting to more long-term supply agreements. For the third quarter, specialties made up nearly 60% of sales and more than 45% of EBITDA. Overall, significant EBITDA margin expansion was achieved, improving to 31% from 24% in the third quarter of last year as phosphates specialty margin increased from 15% to 24%. For the quarter, higher prices helped offset significant increases in raw materials. Food solutions had a record quarter as we saw both higher prices and strong demand across all regions. Phosphates specialties for industrial applications were mixed by region with lower demand in the EU and China, while paints and coatings did very well in the U.S. The big news for phosphates specialties came after the quarter ended. In late October, we were awarded $197 million by the U.S. Department of Energy to invest in our efforts to develop a sustainable supply chain for energy storage solutions. In total, we’re building a $400 million plant in St. Louis where we will produce high-quality lithium iron phosphate material for the energy storage industry. This plant is expected to be operational by 2024 and to have two production lines with each capable of producing 15,000 metric tons of LFP material per year. This represents a significant expansion of our energy storage portfolio and demonstrates our commitment to being a key participant in the electric vehicle and energy storage solution markets. We made our first entry into these markets in China through our YPH joint venture. While this business was somewhat challenged during the quarter due to a planned overhaul and unexpected export limitations, demand for our food solutions and LFP battery materials remains strong. Turning to Slide 9 and growing solutions, formerly known as innovative ag solutions, this new name reflects how this business has changed over the past few years and how we expect it to continue to expand and grow. It better represents our growing portfolio of solutions and the fact that our business encompasses many different specialty categories as well as services. Our new identity also pairs us with our ultimate customers, the farmers who use our specialty products. Growing solutions delivered a record third quarter with sales of $629 million, up 25% over the prior year, and EBITDA of $127 million, which was up 90%. EBITDA margin expanded to 20%, an improvement over the 13% rate in the third quarter of last year. This record quarter also demonstrates the strong performance of our Brazilian acquisitions. We were very pleased with the seamless integration we have seen over the past two years and are looking forward to driving additional synergies as we continue to expand our product offerings both to and from this region. Third-quarter results also reflect a record-setting quarter for our FertilizerpluS products which are based on our organic polysulfate. ICL Boulby set new daily production records and has exceeded its 2021 production quantities. This site remains on track to achieve its one million ton target for 2022. Our turf and ornamental results were slightly ahead of last year with both businesses showing positive improvement in most regions, and like all our growing solutions, this business had to contend with both higher costs and lower availability of raw materials in the quarter; however, we have been able to offset these increases across growing solutions with premium pricing. During the quarter, we also made some announcements in the areas of new products, R&D, and for our digital ag offerings. Our investment in Lavie Bio, a leading ag biologicals company focused on microbian-based products, addresses all three of these aspects. Lavie Bio’s unique approach leverages big data and advanced artificial intelligence, and our collaboration with them focuses on developing novel bio-stimulant products to enrich fertilizer efficiency. Combining Lavie Bio’s ag biologicals experience and cutting-edge technology with our advanced knowledge of fertilizer use and farmers’ needs will help facilitate the development of new and innovative products for the agriculture industry. Now if you will turn to Slide 10, I would like to update you on additional progress we’ve made in the areas of sustainability, innovation and leadership. For sustainability, we were once again cited for our human resources efforts. In Israel, we were included in the Economy Ministry’s Diversity and Inclusion Index, and in Brazil we were recognized by the Great Place to Work global consultancy. While it is always a pleasure to be acknowledged for our efforts, it is especially gratifying when it comes to our own employees. During the quarter, we also became an early adopter of the United Nations Global Compact Communication on Progress. We are pleased to show our commitment to the U.N.’s 10 principles and sustainable development goals and to be able to receive insights to help us identify any gaps in our sustainability efforts and improve our performance. We also once again improved our Sustainalytics and MSCI scores. Finally, just this week we formally launched FruitMag, a food-grade magnesium product which replaces the toxic fungicides currently used to protect citrus fruits from decay. This product will help with post-harvest citrus preservation in a natural and safe manner. FruitMag is also an innovative solution and it joins several other products we have recently developed. This includes our exciting eqo.x product, which is a groundbreaking rapidly biodegradable release technology designed for open field agriculture. It not only increases nutrient use efficiency, it also allows for similar or increased yields with reduced fertilizer rates. eqo.x is the first offering of its kind in the market to provide a controlled release fertilizer which biodegrades rapidly and was specifically designed to meet future European fertilizer standards set to go into effect in 2026. This product joins Keep Green, our first bio fertilizer which was developed in Brazil. Keep Green provides protection for coffee tree leaves against excessive solar radiation, and its use has been shown to result in a 9% increase in coffee tree productivity. Also in Brazil, we recently received accreditation for a second research institute from the Ministry of Agriculture. This accreditation is unique as it is exclusively in the area of plant nutrition and allows us to expand our innovation efforts for new fertilizers and for the production of bio fertilizers, among others. We are pleased to be working with the Ministry to promote sustainable development and competitiveness of agribusiness for the benefit of Brazilian society. We also announced several digital innovations over the past few months, including ICLeaf. This revolutionary diagnostic tool rapidly provides farmers with a personal prescription for maximizing yield and allows them to make quick and data-driven decisions with immediate in-season improvements. Our Agmatix digital start-up partnered with the Consortium for Precision Crop Nutrition to launch a unique global platform designed to drive international research collaboration and expand open access to crop nutrient data to farmers, their advisors, and global policymakers. This platform serves as a critical open data resource for agricultural researchers and professionals who conduct field trials on soil fertility and crop nutrition and will enable users to both contribute to and benefit from the data sets. As we discussed during our investor day, we continue to focus on strengthening our leadership position across our specialties businesses. Foremost was our expansion into the energy storage solutions supply chain in the U.S., which I already discussed; however, this opportunity goes beyond our expansion in St. Louis to include one of the most significant innovations we are working on, the development of solid-state electrolytes based on bromine. We have already partnered with some of the world’s leading technology companies and research institutions to try to bring this vision to fruition. In the meantime, we see new potential in liquid electrolytes, which are currently produced in China and based on phosphorus. As Europe and the U.S. are looking to expand their supply chains in this area, we have been presented with a unique opportunity as a leader in phosphorus-based specialty solutions in both regions. We have production capacity available in Europe and are building additional capacity in the United States in order to produce PCl3 and PCl5 for LiPF6 electrolytes. We believe we are well positioned to become a leader in this space as we have the know-how, the capacity and the capability to develop the solution necessary. This puts us in a unique position where we have the potential to be a significant part of the liquid electrolytes market in Europe and in the U.S. at the same time, and also work as a disruptor in the area of solid-state electrolytes, so in the short and midterm we’re working on liquid electrolytes and raw materials for batteries and in the long term on electrolytes based on bromine solutions. In China, we inaugurated our new water-soluble NPK plant, which was completed in August after only eight months. The plant was designed to produce 30,000 tons of soluble fertilizers annually, of which approximately 5,000 tons are liquid fertilizers, representing a new product for our YPH joint venture. During the quarter, we gathered our employees together to celebrate the 100th anniversary of ICL. The story of our humble beginnings is a remarkable one with more chapters yet to be written. That would include the story of what ICL will look like as a company five years from now, and this brings us to Slide 11 and a summary of our recent investor day and an overview of our updated five-year plan, which we believe puts us firmly on track to become a global leader across all three of our specialty businesses. Towards 2027, we are targeting sustainable double-digit growth and continuous margin expansion. As you know we executed on our 2020 plan and delivered results much sooner than expected and with strong momentum. We plan to use this momentum to leverage the significant opportunities we see arising from the global sustainability challenges which impact each and every one of us. We have the right fundamentals in place and are well positioned to achieve our growth and margin expansion ahead. Finally, I would like to draw your attention once again this quarter to Slide 12. We remain focused on the future and are committed to growing our specialties impacts to the next level. I recognize it can become repetitive to say the same things each quarter, but there are three areas I would like to reinforce. First, we will continue to focus on the future and our long-term specialty strategy as this allows ICL to strengthen its leadership position in comparison to its more commodity-based peers. Second, our performance in the quarter once again reaffirms our specialty strategy, and we expect to leverage our strong balance sheet to focus on the right business expansion opportunities. Finally, as we have passed the peak of the current commodity cycle, we now more than ever need to continue to keep our eye on the ball and remain focused on the future of long-term cash generation and value creation for our shareholders. Now as always, I want to thank the entire ICL family of employees all around the world for their hard work and contributions as we delivered record results once again. On a very sad note, the day after our last earnings call, the ICL family lost two members when Anat Tal and Nitzan Moshe died in a tragic car accident in southern Israel. Anat was President of the Industrial Products Division and Nitzan was our EVP of Operations. Beyond their invaluable contribution to the company, Anat and Nitzan were first and foremost our friends and were always there to help and support us, managers and employees alike. They contributed significantly to building our strong foundations and will be sorely missed. Forever part of the ICL family, may they rest in peace. I would now like to turn the call over to Aviram.

Thank you Raviv and to all of you for joining us today. While you have already seen Slide 14, I would like to call out a few additional highlights. First quarter adjusted operating income of $928 million was up nearly 200%, and adjusted operating margin of 36.8% was up dramatically from 17.6% in the third quarter of last year. For the quarter, adjusted net income of $628 million was up more than 180% year-over-year. If you return to Slide 15, you will see an overview of the macro trends impacting ICL, our peers, suppliers and customers. Trends continue to evolve and general uncertainty persists. Inflation remains high due in part to soaring energy prices globally. The cost of living is higher overall and this includes food prices. Global forecasts are being slashed for 2023 with slower growth expected into 2024. Governments and central banks around the world are reacting to inflation, which is leading to rising interest rates. Many currencies are seeing a significant disparity versus the U.S. dollar, which has for now maintained a position of strength. Supply chain disruptions remain an issue for ICL and our customers. We have continued to leverage our advantageous production occasions and global supply chain capabilities which have enabled us to provide our customers with consistent and reliable supply, and to extend our relationships through long-term contracts. In the regions and end markets where we do business, we are seeing divergent trends; however, one factor remains in common, the continuation of geopolitical tensions. Despite this persistent theme, we have seen some moderation in commodity prices down from the peaks we saw in the second quarter of this year, and these trends are shown on Slide 16. Prices for potash are still elevated year-over-year but have declined quarter-over-quarter. Phosphoric acid prices were stable from the second quarter to the third, while freight rates continued their downward trend and are now in line with the first quarter of 2021. The biggest gap was for sulfur, which also declined to first quarter 2021 rates but with a much more rapid and pronounced downward trajectory. While we were still able to offset higher prices for raw materials in the third quarter, you can expect we will see some pressure in the fourth quarter as we work through some higher-priced inventory, especially for sulfur. Turning to Slide 17, where you can see crop prices remain high, reflecting the ongoing situation in Ukraine and decades-low grain stocks. Farmer affordability also remains high but uncertainty around higher input costs and availability combined with rising interest rates is weighing on overall sentiment. During the third quarter, we saw fertilizer prices begin to decline from second quarter peaks which followed the Russian invasion of Ukraine. It appears that approximately 80% of Russia’s annual potash production should make it to market this year, and while it is taking a bit longer than it used to, it looks like roughly 40% of Belarus’ product will find a home this year. This means a good portion of the global potash supply is still not getting to market, resulting in reduced fertilizer consumption which raises the risk for significantly lower crop yields. This potential combined with very low grain stocks increases the risk for a global food crisis. Unfortunately, this outcome will impact the poorest among us, a scenario no one wants. In addition to higher prices for food, consumers and businesses are being impacted by higher energy prices. These increases have interrupted some industrial operations in Europe and other regions. While the situation in Europe might not be as dire as initially projected, markets remain mired in uncertainty going into the winter and next year. On the left side of Slide 18, you can see an improvement in sales coming from all four of our segments. On the right side of the slide, you can see the impact of higher prices on our year-over-year sales. For quantities, we saw a decline as we continued to focus on value over volume for our specialties businesses. We have actively worked to extend our long-term agreements and maintain our premium positioning while offering consistent and reliable supply to our global customers. One example of this strategy at work is apparent in our phosphate solutions business. Once again, we maintain our focus on specialty sales which represented 59% of total phosphate solutions sales in the third quarter. Turning to Slide 19, higher prices also made a significant contribution to adjusted EBITDA, and once again on a segment basis, all four of our businesses contributed to the year-over-year improvement with significant margin expansion and cash generation across the board. For phosphate solutions, phosphates specialties comprised 46% of the EBITDA for this segment. I would now like to review a few highlights on Slide 20. For the third quarter, our net debt to EBITDA ratio improved to 0.5 from 2 times in the third quarter of last year. As Raviv mentioned, we saw substantial improvement in both operating and free cash flow. We also continued to deliver sustainable shareholder value, and for the third quarter our annual dividend yield was 9.2%, at the high end of our peer group. One final note, our effective tax rate for the third quarter was 30% and, as we mentioned last quarter, following our settlement with the Israeli tax authorities, we expect our annual tax rate to be in the 30% range. Turning to Slide 21, I would like to call your attention to our 2022 guidance as we now expect our results to be at the upper end of our previous ranges, which called for adjusted EBITDA of between $3.8 billion and $4 billion in total, and for our specialty business to contribute approximately $1.5 billion to $1.6 billion of that amount. With that, Operator, we can begin the Q&A.

Our first question today will come from the line of Joel Jackson from BMO Capital. Please go ahead, Joel.

Can you hear me?

Yes, go ahead.

Great, thanks. I have a few questions. I’ll try to ask them one by one. My first question has got multiple parts. In the potash segment, can you talk about where you see potash prices, your realized potash price shaping up in Q4? What’s your comment on potash inventories around the world, including Brazil? Yourself, you’ve been building inventory in potash now for a couple of quarters. Would you expect you would also build potash inventory across Q4 at the ICL level? Thanks.

Good morning, Joe. Regarding potash prices, we observe that the market in the U.S. is stabilizing, with current prices around $600, and we are seeing healthy demand beginning to emerge. In Brazil, the de-stocking process has taken place, and inventory levels are approaching normal. Although demand is not yet abundant, we have noted a reduction in shipping times from 11 to 12 weeks down to one to two weeks, indicating normalization at similar price levels. Right now, both Brazil and the U.S. offer the lowest prices for potash globally, and as history shows, prices across the world tend to stabilize over time. Overall, we anticipate deliveries this year will decrease by roughly 8 to 9 million tons compared to last year, but we expect a 5% increase next year in relation to this year. I mentioned price and inventory earlier. We are not increasing our inventory levels at ICL, so our operating levels of potash stocks will remain relatively minor, indicating a transitional phase rather than a buildup. Since we are price takers, we distribute our product where the best opportunities arise, and in the first half of the year, Brazil was that location, allowing us to allocate about 90% of our annual supply there. We will continue to look for the best price opportunities and do not plan to increase our stock levels. I hope this helps answer your questions.

Can you provide an estimate for the average selling price of potash in Q4? Will it be above or below $600 a ton?

It will be close to $600.

Okay, that’s helpful. Can you talk about the magnesium business, which, you know, no one ever talks about until the last couple of years. It’s always kind of been a loss leader, but now it’s been maybe a nice little kicker. Looking into ’23 and the way your different contracts work, do you have an idea of what magnesium earnings might be in ’23 versus ’22, and versus what we’ll call midcycle?

Currently, we have secured around 50% of our quantities for 2023 and 2024. Specifically, this is about 60% for 2023 and less than 50% for 2024. The 60% we have contracted is at a higher average price compared to this year. In the first nine months of the year, the magnesium business generated $56 million in operating income, a significant turnaround from the previous year when it incurred a loss of over $30 million.

Okay, that’s really helpful. I think that’s my questions. Thank you very much.

Thanks Joel.

Thank you. Our next call will come from the line of Alexander Jones from Bank of America. Please go ahead.

Great, thanks very much for taking my questions. Two, if I may, mainly around the LFP investment. I guess the first question is that you’re already making raw materials for LFP cathodes in China. Can you give us some details on the profitability and returns of your activities specifically in LFP in China? Then the second question is sort of translating that to the U.S. I suppose the difference at the moment in the U.S. is that you don’t have a captive source of raw material domestically. Do you see a risk that some of the domestic U.S. phosphate players move into this space, and what barriers to entry do you see to protect your return in that scenario? Thank you.

It’s a very good question. I’ll start from the basics. Our profitability in China is around 20% in this business. Looking forward, the opportunity is higher because we’re leveraging the situation now that new supply chains are being built, and we’re going further downstream and getting close to the customer and getting more value on our side. We have the right partnerships lined up both on the raw material side and on the customer side, so it’s sort of a closed loop operation where when we go into it, we know the input and the output, and that takes into account the plans of some of our competitors. Ultimately, some of our competitors are going to go into this business because it’s a relatively huge business and it increases significantly, everything that’s based on white phosphoric acid, so. Our competitors are also going to get into this business. We have not only a first mover’s advantage but we’re also at the next level, we’re downstream, so it wouldn’t be a surprise if we partnered with one or more of our suppliers.

Just to add for China, it’s China for China.

Yes.

Thank you. Just a follow-up on your comment, Raviv, around a huge chunk coming from nutrient, are you able to give us a split for the specialty phosphate business of what share of your raw material is internal versus externally sourced?

The overall internal is about 55%, but in North America it’s much less than that. Over 50% of our supply in North America is based on third party, and a huge chunk of that is nutrient.

Great, thank you.

Thank you.

Thank you. Our next call comes from the line of Ben Theurer from Barclays. Please go ahead.

Hey, good afternoon. Can you hear me?

Yes.

Okay, perfect. Thank you very much for taking my question. I wanted to follow up a little bit on the outlook you’ve presented and the challenges to overcome and the price environment. Obviously in light of what you’re talking about - you know, the long term contracts you’re targeting for with your customers, can you talk us through how you think about 2023, maybe early stages just given what we’re seeing on the crop economics being very favorable, but then at the same time we’re seeing some of the prices coming down, so how flexible, or what does that mean for some of your long-term contracts and relationships with your customers?

Okay, hi Ben, it’s Aviram. You asked a very relevant question. The answer is that I have to address the different markets. In the agricultural sector, we have one perspective going into 2023, but there are significant differences between our bio-stimulant products and the potash side, along with other agricultural components. The situation in other markets is different. Currently, when we look at 2023, the issues that troubled the world at the end of 2022 do not seem to be resolving. This includes persistent inflation, energy prices, geopolitical problems, and currency fluctuations. The macroeconomic environment suggests that we might see a continuation of the second half of 2022 without much clarity or change in direction. However, what could be different is that the world is adapting to this new reality. The circumstances in the first half of 2022 were unprecedented, leading to significant exaggerations in various areas, while the second half presented some corrections to those initial trends. We expect that 2023 will be analytically less volatile. In agriculture, certain actions that should have taken place in 2022 will need to be addressed in 2023, and we will have to monitor how the yields perform. There's a general expectation that yields will be affected, indicating a potential return to higher quantities. Prices, especially for potash, should hover around the 600 mark, which means that when commodity prices are high, agricultural commodities and potash will be more cost-effective, leading to higher usage. This reflects the competitive advantage of the larger companies within the industry. That's the overview of the agricultural side. In the industrial products sector, we see some areas performing very well while others are still feeling the effects of higher interest rates and lower demand. The electronics segment is likely to face this trend for a while. Similarly, the building sector will continue to be affected by high interest rates, leading to a slowdown. However, on the phosphate specialty front, we have a strong outlook, and this applies to most of our activities. The appetite of major customers to explore new products, particularly in the novel areas like proteins, seems to be subdued in the current environment. Overall, we view 2023 as a solid year, though not as explosive as the beginning of the year, and we hope for less volatility next year. Of course, this could change quickly due to external factors, particularly geopolitical ones. Regarding China, the restrictions being imposed suggest that there is little indication they will be eased next year.

To summarize by minerals, we anticipate that the markets for potash and phosphate will remain tight next year due to the absence of Belarussian potash and some missed Chinese phosphate products. As for bromine, being a market leader, we do not foresee significant price fluctuations in the renewal of contracts next year.

Perfect, and then just one last one, and thank you very much for all that. Clearly it’s a strong year and you’ve showed this on the cash flow side and the specialty business growing a lot. Do you still consider, and would you think about looking into opportunities maybe to accelerate the growth by focusing maybe some M&A capital into the specialty business, just taking advantage of the commodity environment, good cash flow, and we’ve seen it in the quarter, to just reinvest that maybe into growing pieces within specialty? Is that something on the table for next year? Do you think there’s some opportunities?

There's an increasing number of opportunities due to two main factors. First, we have a significant amount of liquidity, even after returning a billion dollars to shareholders this year. Our liquidity is growing, and our balance sheet is strengthening. At the same time, the world is becoming quite chaotic, leading to new opportunities emerging daily. This doesn't mean we will pursue every opportunity, but we aim to be strategic and focus on the right accretive acquisitions, similar to how we capitalized on an opportunity during COVID to acquire two outstanding Brazilian companies that have become integral to our expanding solutions. This experience has heightened our appetite for acquisitions, and we are definitely considering M&A in the future.

If I may, Ben, just to add that if you think about this analytically, what’s going on, the story of the very much tightening of the capabilities and abilities on the financial side, I’m not sure it is yet well understood by a lot of bodies that tend to think that times are as in the past. As time passes, that’s why for us it’s critical because we have a very strong balance sheet with a very, very focused strategy, analytically it would seem that there would be more opportunities in the near future rather than less, because I think still multiples are things that people are not exactly realistic on valuation, and I think this is coming, it’s going to be more and more clear in the coming periods.

Okay, thank you very much.

You’re welcome.

Thank you.

Thank you. As a reminder, if you wish to ask a question, please raise your hand using your mobile or desktop application, or press star, nine on your telephone keypad and wait for your name to be announced. Our next question today will come from the line of Mubasher Chaudry from Citi. Please go ahead.

Hi, thank you for taking my questions. The first one is on the potash side of things. Can you please talk about the discussions around the Chinese potash contracts? I assume you’ve been part of the discussions. Just interested in what level those contract prices are coming in at and what level we should be expecting for 2023.

I’m sorry, please proceed.

Sorry. The second question is about the decline in volume during the third quarter, specifically regarding IP. It seems that there have been volume declines every quarter from the first to the third quarter. I would like to get an update on the outlook, both in terms of ICL's production and how demand is shaping up as we move into the fourth quarter and into 2023.

There have been initial discussions regarding contract prices, but since we are not the major players in these talks, my information is limited. I don't believe there have been significant discussions about pricing yet, but it is clear to everyone that things are aligning for first quarter contracts. The situation in India is more urgent, as the country lacks the inventory needed for the next season, which could expedite the process. Previously, India signed contracts before China and managed to secure a better price, which might happen again. If a Chinese contract emerges first, it will likely be around the New Year, coinciding with the Chinese New Year, while an India-led contract would precede that. Regarding potash and phosphate quantities, we saw an increase in potash as well as a significant rise in specialty phosphate quantities this quarter. However, there were declines in two specific areas. One is bromine compounds, where we prioritize value over volume. In annual contracts, a surge in demand early in the year can lead to less availability later, particularly as the third and fourth quarters tend to be weaker with the fourth expected to be below the third, which is a normal cycle—again, we focus on value over volume. The decrease in phosphate quantities this quarter is mainly due to a two-week overhaul in our joint venture IPH and export restrictions that led to an inventory buildup, but this is temporary. We have navigated through the export limitations, and the outlook has improved in October. Over the past nine months, we experienced significant volume increases in specialty phosphates, without accumulating any phosphate commodity inventory. In potash, we're transitioning with a slight operational inventory, and in bromine compounds, maintaining our value-over-volume approach means that overall, we're seeing quantity increases across all businesses. In our growing solutions segment, we have reported that part of the improvement comes from selling more of our own products and fewer third-party products, which obscures the quantity growth that is occurring in three of our four businesses. The only area without a quantity increase this year is in bromine compounds within our industrial products division, again reflecting our value-driven strategy.

That’s very helpful. Just to follow up on the potash contracts, do you have any expectations regarding the potential pricing? I've seen reports suggesting that contract prices may begin with a 4.

I don’t think it would be prudent, but of course we don’t even think of anything that starts with a 4. We don’t have that in our mind process.

Understood, that’s very helpful. Thank you.

Thank you.

Thank you. That concludes our question and answer session for today. Please proceed.

All right, thanks all for joining us. We appreciate your attention and look forward to reporting back to you next quarter. Thank you very much. Have a great day.

Thank you.