ICL Group - Q1 2023
May 10, 2023
Transcript
Operator (participant)
Ladies and gentlemen, thank you for standing by. 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 the question, you'll need to raise your hand using your mobile or desktop application, or press Star nine on your telephone keypad and wait for your name to be announced. I must advise you that this call is being recorded today. I'd like to hand the call over to our first speaker today, Peggy Reilly Tharp, Vice President of Global Investor Relations. Please go ahead, ma'am.
Peggy Reilly Tharp (VP 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 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 to the Q&A session. Raviv, please.
Raviv Zoller (President and CEO)
Thanks, Peggy. Welcome everyone. Earlier today, we announced once again solid first-quarter results and our brief overview starts on Slide 3. Sales for the quarter were $2.1 billion, down 17% versus the sales we reported at this time last year, which were significantly influenced by sanctions on Belarus and the global reaction to the Ukraine war. In addition to an expected reduction in pricing this year, we also saw the shipment of approximately 100,000 metric tons of potash to India shift to the second quarter. Adjusted EBITDA for the first quarter was $610 million, also down year-over-year as prices have moderated considerably over the past 12 months. Like others in our space, in business and other industries and end markets, we continued to work through high cost inventories in the first quarter.
This destocking began towards the end of last year. We expect it to continue through the second quarter. As such, we also implemented cost efficiencies through our supply chain and are targeting additional initiatives during this year. Once again, general and administrative costs were down year-over-year. Despite the pullback from peak commodity prices in 2022, we maintained our focus on consistent cash generation and delivered operating cash flow in the first quarter of $382 million, and free cash flow of $220 million. Both new first quarter records. After the quarter ended, we announced a new $1.55 billion sustainability linked revolving credit facility. Aviram will talk more about that in a few minutes.
In the first quarter, we also returned value to shareholders as we reported adjusted diluted earnings per share of $0.23 and declared a quarterly dividend of $0.11 per share. Last year, ICL benefited from higher prices, which drove a significant increase in cash even after we made necessary investments in operations, settlement of tax and other disputes from the past, and paid our dividend, representing 50% of net income. We believe ICL offers investors the best of both worlds. Our outstanding commodity assets, combined with our varied and balanced specialties products, provide exposure to diversified end markets across our broad global footprint. Through our growing solutions, phosphate specialties, and industrial products businesses, we provide the resources to feed and protect the world, and with expansion to battery materials for the electric vehicle and energy storage markets, we will now be powering the world as well.
It is this combination of complementary businesses which help us reach our long-term strategic goals, and we will continue to leverage opportunities such as those created by geopolitical developments, global sustainability challenges, and the current capital markets backdrop to enhance long-term value creation. Let's turn to a three-year look at some of our key metrics on Slide 4. Again, while sales were down year-over-year as expected, they were up significantly over the first quarter of 2021, and we anticipate the remainder of this year will progress at this more normalized growth trend, with greater gains to be made in the second half. Adjusted EBITDA was down versus last year, but more than double the first quarter of 2021, and this included nice growth from our specialties businesses. For the quarter, EBITDA margin came in at 29%.
On Slide 5, you can see our specialties sales followed a similar trend as our consolidated results. As expected, specialties EBITDA was also lower versus last year as we reduced the amount of high-priced inventory in stock and remained disciplined in our flame retardants business. We expect this will be repeated in the next quarter as the destocking of supply chain continues, with margins expected to return to an expanding trajectory in the second half of the year and beyond. Finally, as I just mentioned, we saw year-over-year growth in free cash flow and a significant increase versus the first quarter of 2021. We are pleased with this improvement as we continue to execute in line with our planned specialties growth projections. Similarly, our adjusted diluted earnings per share was more than double what we recorded in 2021.
I would now like to begin our segment review with industrial products on Slide 6. First quarter sales were $361 million, while EBITDA was $105 million as demand for flame retardants was lower year-over-year. The weakness in electronics, which had accelerated in the latter part of last year, continued into this year as expected. We believe this trend will continue for the near term, with market conditions expected to begin improving in the second half of the year. Over the long term, demand for flame retardants is expected to keep pace with the natural electronics replacement cycle and accelerate due to the continued growth in electric vehicles and energy storage solutions. The building and construction end markets also remained softer in the first quarter as higher interest rates persisted on a global basis.
However, home buyers are gradually adapting to higher mortgage rates and inflation, while still elevated, seems to be cooling. One of the benefits of serving a variety of end markets is that they each have different characteristics. As you recall, in 2020, during the height of COVID, demand for flame retardants used in consumer electronics skyrocketed, while our clear brine fluids business suffered significantly. Today, demand from the oil and gas industry is very strong, and I would specifically like to call out the increase we have seen in sales to the Middle East since the signing of the Abraham Accords. We also continue to serve an array of industries through our specialties minerals business, where we delivered record quarterly results.
Turning to Slide 7 in our Phosphate Solutions division, where we reported sales and EBITDA of $714 million and $170 million, respectively. For the quarter, phosphate specialties results were ahead of expectations and represented 60% of sales and approximately 50% of EBITDA. Demand from our global customers in the food industry remained strong. Industrial demand was softer as this business saw some challenges in building infrastructure. In particular, Europe remained challenging for both our specialty food and industrial offerings as economic worries lingered and competition from China intensified. Despite these challenges, phosphate specialties delivered record first quarter free cash flow even as we battled force majeure at a major supplier, which resulted in higher costs for some of our raw materials. Our investment in St.
Louis to develop a cathode active materials plant for high-quality LFP batteries remains on track and groundbreaking is expected later this year. In addition to finalizing our selection for general contractor and other key items, we have been actively negotiating directly with automakers, OEMs, and other potential partners about future strategic engagements to achieve our long-term plan. This expansion into battery materials builds on our existing strong upstream positions in specialty phosphates and helps us develop a significant new growth platform. The time is right to make this move, and our vision and ambition are backed by highly attractive markets and a solid plan on how to seize first-mover advantage and win in the LFP cathode active materials market in North America and Europe.
On Slide 8, you will see our potash results, where sales were $583 million and EBITDA came in at nearly $300 million. Our potash price per ton was $541, down from $642 in the first quarter of last year, but elevated versus historical levels. Production was in line with last year as we completed our annual maintenance shutdown at the Dead Sea in March again this year. However, deliveries were down, mainly due to an unexpected delay in the India contract settlement. During the first quarter, we also successfully completed the sealing project for the feeder canal at the Dead Sea, which had created some concerns for us in 2022. Tragically, we had a fatal accident at the Cabanasses mine in Spain. This happened in the beginning of March.
As you know, safety is our top priority and we put in place extraordinary safety measures before we gradually ramp operations back up. We estimate that the resulting production loss was approximately 30,000 metric tons. Turning to Slide 9 in our growing solutions business, which delivered first quarter sales of $564 million, in line with the first quarter of last year, and in spite of the slow start to the spring season in both Europe and North America. For the quarter, EBITDA of $45 million was impacted by high-priced inventory and high-priced raw materials across the supply chain. While we actively worked to prudently reduce inventory in the first quarter, this process has continued into the second quarter. We are also looking at creating new efficiencies, maximizing operations, and developing innovative new products.
This included the shutdown of our Summerville, South Carolina production facility earlier this year, which came after we completed a review of ways to optimize production and improve our cost structure in North America. Across the Atlantic, our Boulby Polysulphate mine in the U.K. delivered record quarterly production of nearly 260,000 metric tons. In addition to this achievement, our Fertilizer Plus products, which are based on organic Polysulphate, saw higher pricing in the quarter, as did some of our other promising new products launched in recent months. I would now like to draw your attention to Slide 10 and a quick review of how 2023 is shaping up.
For our industrial products business, we expect to see improvement beginning in the second half of the year, following destocking of the supply chain, combined with the recovery of the Chinese economy and new momentum in electric vehicle deliveries. For our phosphate business, we remain focused on multiple long-term battery material solutions, including our LFP expansion in St. Louis. We remain extremely enthusiastic about the opportunities in this new sustainable market and continue to see it as a significant part of our long-term strategic growth. In our potash business, we expect to see an increase in production and quantity sold as global stocks-to-use ratios remain low and farmer affordability remains above average. Aviram will talk more about the macro trends in a few minutes.
These trends will also benefit our growing solutions business, where we plan to continue introducing new, innovative, and more importantly, sustainable solutions like our Keep Green biofertilizer in Brazil and our eqo.x controlled-release fertilizer in Europe. Finally, for the first quarter, I would like to note it was our second-highest ever for sales, adjusted operating income, and adjusted EBITDA. While we clearly do not expect to see the short-term upward trajectory we experienced last year as we benefited from peak prices, we do expect to continue to deliver on our long-term specialties growth strategy as we progress through 2020. As I do every quarter, I want to thank the entire ICL family of employees all around the world for their hard work and contributions.
Making progress against our long-term goals would not be possible without our dedicated team, and I'm pleased to share that ICL was recently named one of the best companies to work for by BDI, the largest business information group in Israel. We ranked first among all companies in the industrial sector, and second among top 35 companies traded on the Tel Aviv Stock Exchange. We also made an impressive improvement overall, moving up to 14th place from 21st place last year, and even more impressively, up from 84th place just five years ago. I would now like to turn the call over to Aviram.
Aviram Lahav (CFO)
Thank you, Raviv, and to all of you for joining us today. Let us get started on Slide 12. While the world is in a different place than it was a year ago, there are still a number of macro factors impacting ICL, our customers, and suppliers. While inflation is declining, it is still a concern for some end markets consumers who need to make decisions about what purchases to prioritize. However, as our phosphate specialty sales show, food remains resilient on a global basis. For our industrial end markets customers in the building and construction businesses, elevated interest rates continue to pressure home buyers. However, global monetary policies remain dynamic. China appears to be rebounding faster than anticipated. As the second-largest economy in the world, a more rapid recovery will benefit a wide variety of end markets and businesses, including the electric vehicle market.
When it comes to currencies, the U.S. dollar is softening from the peaks it hit last year. While this is true for some currencies, the dollar continues to appreciate versus the shekel, which is actually a benefit to ICL. Turning to agriculture portion of the spectrum, we see crop prices remain elevated while farmer affordability continues to improve as fertilizer prices have come down. While overall raw material prices are declining, for fertilizers and many of our other products, high price inventory remains in the market. This is not unique to ICL, and many in our industries and businesses and other industries and end markets are in the same position. As Raviv already discussed, this destocking began toward the end of last year, and we continued to work through high-cost inventories in the first quarter, with these efforts expected to extend through the second quarter.
On Slide 13, you can see some of the trends I just discussed with inflation rates generally trending down globally while interest rates remain persistently elevated. In the first quarter, China's economy grew 4.5%, the fastest pace the country has seen in the past year, as it looks like they are recovering from their emergence out of COVID restrictions. Turning to Slide 14, where we have a collection of key agricultural metrics. As you can see, commodity crop and fertilizer prices stabilized in the first quarter, resulting in an improvement in farmer sentiment from both the first quarter of last year and the start of this year. Moving from the world of agriculture to the world of energy on Slide 15, where you can see data we first introduced at our investor day last October.
Since that time, there has already been an increase in the forecast for electric vehicle adoption as countries around the world have implemented new environmental standards for cars and trucks with subsidies to help ease the transition for consumers. Automakers have responded with BMW, Ford, Stellantis, and Volkswagen all pledging to have 50% of their production based on electrification by 2030, while GM and Honda have set goals to be 100% electric by 2035 and 2040 respectively. There is real muscle behind these efforts. As Raviv already discussed, we're excited to be entering the battery materials market at this opportune time. If you will now turn to Slide 16, where on the left side you can see the sales bridge from the first quarter of last year to this year.
On industrial products, we saw slower flame retardant sales, as Raviv discussed, we saw 100,000 metric tons of potash shipments to India shift from the first quarter to the second quarter. On the right side of the slide, you can see the breakout by quantity, some of which will be shifting to the second quarter, and also price. Potash accounts for over 100% of the negative price effect of, on EBITDA year-over-year, and together with flame retardants for most of the negative quantity effect on sales and EBITDA. Turning to Slide 17 for our adjusted EBITDA, which was $610 million down year-over-year, more than double our EBITDA in the first quarter of 2021.
As the market leader in bromine, our industrial products business took a disciplined approach in the first quarter. This will continue into the second quarter in anticipation that long-term contract customers will increase orders in the second half of the year. I would now like to review a few highlights on Slide 18. At quarter end, our net debt to EBITDA ratio was at 0.56x. As Raviv already mentioned, in the first quarter, we delivered record operating and free cash flow of $382 million and $220 million respectively, which brings us to slide 19 and our first quarter dividend of approximately $146 million or $0.11 per share, bringing our dividend yield for the past four quarters to 9.2%.
After the first quarter ended, we announced that we had entered into a $1.55 billion sustainability-linked revolving credit facility agreement. This 5-year facility replaced our existing $1 billion credit facility with similar financial terms. We are pleased to expand on our commitment to sustainability by enhancing this facility to include targeted and specific sustainability metrics and milestones across 3 key performance indicators, which have been designed to align with ICL sustainability, strategy, and goals. This new facility will provide us with enhanced financial flexibility as we continue to invest in our business and target new opportunities both internally and externally, while continuing to expand and innovate. As Raviv discussed, we are making the most of our cash generation, which has continued from 2022 into 2023.
Finally, on Slide 20, we are reiterating our 2023 guidance calling of adjusted EBITDA of between $2.2 billion-$2.4 billion in total, and for our specialties businesses to contribute approximately $1.1 billion of that amount. With that, operator, we can begin the Q&A.
Operator (participant)
Thank you. In order 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 today comes from the line of Alexander Jones from Bank of America. Please go ahead.
Alexander Jones (Equity Research Analyst)
Great. Thanks very much for taking my questions. 2, if I can. The first just on the guidance that you mentioned, if I take the specialties EBITDA you did in Q1, which I think is just around $235 million and multiply by four very simplistically, I get to less than $1 billion. Obviously Q4 is usually smaller. It'd be great to get an idea of what gives you confidence in the $1.1 billion you're going for. Is there anything you're seeing already in terms of the inventories that you're going to be selling in 3-6 months time being lower priced or the order book in China improving? Is it more about what you expect to happen in terms of the order book improving in the second half of the year? Then the second question on capital allocation.
Last quarter, we talked about a possible buyback, which you said at the time you were discussing and would revert to the market with a decision either way by Q1 results. Now we're here, it'd be great to hear an update and, you know, what your reasoning was for not proceeding, if that is the decision. Thank you.
Raviv Zoller (President and CEO)
All right. Thanks, Alex. I'll start with specialties guidance. Our plan for the year is assumed and continues to assume that in two of our divisions in Industrial Products and in Growing Solutions, the first half of the year will be softer than the second half of the year. In fact, we mentioned in the past that we expect to get back to 2021 numbers this year in both those divisions. The way that the year is expected to progress is that we'll be less than those levels in the first half of the year and then higher in the second half of the year. In terms of on Phosphate Specialties, we'll be more straight line for the year, we don't expect a big change there.
That's where the, that's where our assumptions are, and we don't see any significant evidence that things should behave differently. We have been disciplined on in our bromine business. If you look year-over-year, actually, our prices went up, which means that we preferred value over volume and behaved disciplined, and this is something that we expected. It's in our control. That's on the specialties side.
Aviram Lahav (CFO)
Can I add something?
Raviv Zoller (President and CEO)
Yeah. You wanna add something? Sure.
Aviram Lahav (CFO)
Sorry. Hi, Alex, on top of what Raviv just explained to us, I want to reiterate the issue of the inventory. Basically, we are working through like, much and much of the industry, and I guess other industries as well, from a high, high-cost inventory. That obviously is a result of purchases and production of last year.
When we look inside, we see that in all three specialty businesses on the agricultural side, the IP side, and to a lesser extent, but some extent on the phosphate side, a replacement cost for our inventory would be lower. This has impacted our Q1. It's one, if you look at the waterfall, the high cost inventory is a part of why we came to $610 million of EBITDA, not beyond that. Our assumption, knowledge is that as the year progresses, this will have a lesser impact, and therefore, that's another contributing factor to the EBITDA of the specialties as we go along further into the year. You take the two, and I think you can paint for now the picture, what we're talking about.
Raviv Zoller (President and CEO)
Yeah. Both raw material costs, transportation costs, and energy costs are going down. On the second issue, I'm glad that you asked, because I promised to get back to shareholders and if you hadn't asked, I would've provided the information anyway. We had a constructive discussion at the board level about returning additional returns to shareholders. The general consensus is that we're happy with our policy of 50% dividend, which ended up at $1.1 billion of return to shareholders last year. We continue to return 50%. In the long run, we think that the return that we're providing on a normalized basis is appropriate.
There was also an understanding that when returns are abnormal, and definitely 2022 and to an extent 2023, are higher than normal profitability years. There is an understanding that in such cases, in terms of optimal capital allocation, there is room to consider additional return to shareholders. At the same time, there have been developments in the last few months. One main development is that as you know, we're moving into the cathode material business and new significant opportunities have opened up for us, opportunities we're very, very excited about, which will also require larger deployments of capital. Because to begin with, we're setting up the first cathode material plant in the U.S. in St. Louis.
Given the negotiations we have with potential customers and partners, it looks like we're going to be moving faster, more aggressively because of the opportunities that have opened up to us. Therefore, before we conclude on capital allocation, we're going to have additional discussion based on new data that management is going to provide regarding what our ultimate needs are going to be in the next 12-24 months. In short, there isn't an expectation that we will change the long-term policy in terms of returns to shareholders. At the same time, there is a constructive view regarding special distributions based on abnormal profitability.
Since at the current timing, it's all about what are the alternative uses for cash, for capital, that's where we are. We're going to look at some additional data. We also presented data regarding what some of our competitors did. The consensus was that we went back to decisions we made a year ago, and buying back at peak share prices is not turning out to be proper allocation of capital. We are feeling that we made the right decisions last year. We had better use of capital. We hope, and we're sure that we'll make the right choices once all the data is available.
Again, there are some moving parts, some very, very fast developments and opportunities we have due to partnership discussions that we're having with the leading automakers and OEMs. There's a lot of demand for what we are going to do. Let's look at it as good news because of the potential growth of the company. We're a value company and turning into a growth company. Getting back to the specialties question, this is a big way to grow specialties. We view a very significant opportunity around electric vehicles. We view the opportunity as up to $4 billion in revenue and up to $1 billion in EBITDA at 2030 levels. To achieve those levels, investments are needed and a lot of other factors come in.
That's our first priority, creating as much value as possible for shareholders. Hope that answers.
Aviram Lahav (CFO)
Thank you.
Operator (participant)
Thank you. Our next question comes from the line of Mubasher with Citi. Please go ahead.
Mubasher Chaudhry (Equity Research Analyst and Vice President on the Chemicals and Materials team)
Hi, I hope you can hear me. Just a couple of questions, please. The first one is on the volume development in industrial products. You're talking quite positively about the second half. Just wanted to kind of gauge where that confidence comes from and if that's, well, I assume that's predominantly market driven in terms of recovery. Just trying to understand what gives you the confidence that there will be a such a stark recovery in the second half, given maybe 30% volume decline in the first quarter? I know the comps get a little bit easier, but still just some comments around that would be helpful. Just some thoughts around the comments you just made on the cathode material side.
I think you talked about highlighting what the CapEx needs could be. I assume this is still within the framework of the $400 million you've been previously announced, or is it just more timing in the sense that you're gonna spend that money quicker than previously anticipated? Just on that project, are you able to highlight anything around returns for that project or if you've already contracted out volumes and you've kind of got firm sales or firm take or pays on the production from that plant? Thank you.
Raviv Zoller (President and CEO)
Right. Thanks. Let's start with the flame retardants market. Mind you that about 70% of our business is contracted for long term. We're not that worried about market share. In an environment where there's hardly any spot activity, and that was the case in recent month, we're not running after business and trying to endanger our long-term value over volume business. What is transpiring here is a cyclical situation, and we've been through quite a lot of cycles. Last time the market was in this place was during COVID, in the beginning of COVID. Typically these kinds of cycles take three or four quarters, and that's where we are.
We are quite a few months into the cycle. The reason we're confident about recovery is that ultimately, there are purchases of television sets and PCs and definitely electric vehicles, where even though in the short term, maybe because subsidies were halted in China and there was some issues in the supply chain, the long-term trend is definitely significant growth of electric vehicles. We're confident that the long-term growth of electric vehicles and the cyclical nature of consumer purchases is going to bring back the demand. We also see the destocking. We're very much aware of the data regarding destocking in these products.
We're in good touch with our customers, and we know where they're at. It's not to say that we have an exact date on when exactly the change is going to come, but we have a very good idea about it. Of course, we could be surprised, but we're not gonna be surprised in a major way. That's on flame retardants. Just to give you an idea, most of the volume loss, if you will, in flame retardants was around electronics. It was about $80 million in the quarter. Again, we didn't have to lose that volume. We actually did less business and at higher prices. But we didn't participate in the spot market, and we didn't lose market share.
We didn't lose any customers. We don't expect to lose customers. Our long-term contracts provide for security around volumes. At the same time, given the market, we're not pushing our customers to take more volume than they need, and they don't need a lot at this point. We expect that later this year, they will purchase the volumes that they need to purchase according to the agreements. Getting back to cathode material, yes, we announced a $400 million investment, out of which $200 million will be a DOE grant. What we're talking about now is more than that. We're going to need more than 30,000 tons in one plant.
That means that in terms of investments, we're talking about more than 1 plant and maybe more than 2 plants. I mean, I wanna be very careful about what I say, and the information that is going to be available is going to be available in the coming months. It's not gonna be a long time until we can go public with it. The, the type of business that we're talking about is basically offtake agreements. When we build a plant, we have a customer for the plant. Some customers would prefer 100%. We prefer 80% or 90% because we wanna be able to serve more than 1 than 1 customer. That's also part of the partnership arrangement.
like I said, once we have the information that we can provide, we will provide. It's not a timing issue because we know the timing. We're going to invest $400 million by 2025. The additional production capacity is not going to come after 2025, it's gonna come in parallel. We have the land available, we have the permits available, we have the renewable energy available, we have the passion to be number one in in the U.S. market. There's the window of opportunity. In order to be number one, we have to move fast and be very decisive about it, and that's what we intend to be. I hope that answers.
Operator (participant)
Very helpful. Thank you.
Raviv Zoller (President and CEO)
Thanks for the question.
Operator (participant)
Thank you. As a reminder, in order to ask a question, please raise your hand using your mobile or desktop application and wait for your name to be announced. Our next question today comes from the line of Ben Theurer from Barclays. Please go ahead.
Ben Theurer (Managing Director and Head of Latin America Equity Research)
All right. I hope this works. Perfect. Good afternoon to you, and, thank you very much for taking my question. Two quick ones. The first, if we kind of look at the guidance you've reaffirmed, and there were certain signs during the quarter where you've actually held up relatively well, particularly on potash, but also to a degree in phosphate. We've talked a little bit about the cadence, but I wanted to see if you can give us a little bit the scenarios, upside, downside, case as to the higher end of your guidance range versus the lower end of the guidance range, where you see the risks and opportunities within your outlook currently. I have a quick follow-up as well. Thank you.
Raviv Zoller (President and CEO)
All right. First of all, not everything went perfect. Thanks for your question, Ben, I forgot to say. First of all, on potash, we were expecting the India contract to be concluded at the end of February or beginning of March, and we were expecting it to be concluded at $450. That creates a little bit of a change in our view, but not really significant because the India contract is $422, but at the same time, transportation costs went down and also exchange rates work in our favor. That's a very small change. At the same time, we also delivered 100,000 tons less than we expected in the first quarter.
Because of the last minute delay in the India contract, we deferred 100,000 tons to Q2. That also changed the way we performed in the quarter versus what we expected. Also on growing solutions, our numbers came in a few million dollars less than we expected. Again, Ram talked about the inventory issue. We thought it would be a little better. Our Q1 is almost on budget, not entirely 100%. In terms of what the scenario could be, we think that potash prices are pretty stable right now around the U.S. Europe, of course, prices are going down slowly and surely, but they're still way above other markets. In India, of course, they're stable.
There's still some downside risk from China and Brazil, and I'll explain in a minute. We took into account, you know, certain flexibility in what can happen in the second half of the year, especially in the fourth quarter. I'll get back to the explanation on the market. In Brazil, it's like two different markets now. Canpotex, K+S, ICL are not selling product at less than Indian price. Ukrainians and Russians are in some places selling at lower prices, and we're not sure how that will play out. It won't have a large effect on us because we've sold most of our product for Brazil this year, so there's not a lot outstanding.
As a spot market, it could affect other markets. Another thing that has that still needs to be seen has to do with the China and Asia market. There's no China price. We didn't expect a China price before the end of the second quarter. It's not clear when there will be a price and if there will be a price. What happens in China could also have an effect on us. I would say that out of the range, there's at least a significant part of the range that has to do with what would happen with Chinese prices because we still have a few hundred thousand, the tons to sell to China this year.
The other less significant part of the range has to do with when the change on part of our specialties come? How late in the second half of the year the recovery happens? We think we can identify the range, but of course, it's not exact science, so there's some uncertainty there. I would say in general, prices in China and Asia for potash in the latter part of the year and specialty recovery in the second half of the year. Those are the things that we knew from the outset would be there, and they're still there. It hasn't changed, it hasn't changed since the beginning of the year and our original guidance.
Hope that helps.
Ben Theurer (Managing Director and Head of Latin America Equity Research)
Yeah, that help, that helps. Yes. Thank you.
Aviram Lahav (CFO)
Ben, this is Aviram. I think these are the main factors were obviously articulated by Raviv. I would like to draw your attention that also China as a market, we are also a manufacturer in China. It seems that we are on track, and that's what we factor in to deliver our budget for 2023. in China, as China, the Chinese part, the YPH part, again, the signs from China these days are good. I mean, initially the first quarter was on the vehicle side, on the EV side, was down, but it's picking up now. There's a lot of topics that relate around China, you know, the extent to which they open their market. That's that's maybe one more thing I would single out that we need to look at.
The final piece which give us, I would say, quite a lot of comfort at this time is the phosphate side. We assume that it will continue to be strong. It's currently very strong on the specialty side, and it's also holding up.
Raviv Zoller (President and CEO)
Yeah, you're right. I should have mentioned that, our phosphate results.
Aviram Lahav (CFO)
Yeah.
Raviv Zoller (President and CEO)
are beyond our original budget.
Aviram Lahav (CFO)
Yeah. Yeah.
Raviv Zoller (President and CEO)
That's the way that, we made our budget in the first quarter.
Aviram Lahav (CFO)
Mm-hmm. Yeah.
Ben Theurer (Managing Director and Head of Latin America Equity Research)
You actually already responded my second question, was all around China and what you're seeing there in terms of, like.
Raviv Zoller (President and CEO)
Mm.
Ben Theurer (Managing Director and Head of Latin America Equity Research)
the cadence, et cetera.
Raviv Zoller (President and CEO)
Yeah.
Ben Theurer (Managing Director and Head of Latin America Equity Research)
I'll leave it here. Thank you very much, and congrats on the results.
Raviv Zoller (President and CEO)
Thank you.
Aviram Lahav (CFO)
Thank you very much. Thank you, Ben.
Operator (participant)
Thank you. In order 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 comes from the line of Vincent Andrews from Morgan Stanley. Please go ahead. Vincent, can you hear us?
Will Tang (Equity Research Analyst)
Hello? Can you guys hear me now?
Raviv Zoller (President and CEO)
Yeah, we can hear you.
Operator (participant)
Yes, we can.
Will Tang (Equity Research Analyst)
Hey, this is Will Tang on for Vincent. Thanks for taking my question. You mentioned Boulby reaching record production this quarter, even as, you know, maybe fertilizer demand more broadly seems weaker than expected. Can you talk about kind of the demand drivers for Polysulphate, which may be business from maybe, may be different from, you know, commodity fertilizers and I guess the current profitability and the outlook for the business there?
Raviv Zoller (President and CEO)
I think the main drivers are good solubility, sulfur content, and the fact that it's an organic fertilizer, so more customers are getting to know the product, and they've gone through extensive field trials, so we can guarantee very good results. Having said that, it's not, you know, it's not a gigantic market. It's less than 1 million tons a year. Fortunately for us, we're alone in that market and we're developing it well. We see that as commodity prices are going down, the poly prices are going down marginally, okay? There's a potash component, so that tends to cause some reduction in price, but in general, the prices are holding up nicely.
By the way, poly, it's not just the pure product, it's also a whole family of products that we call Fertilizer Plus that we're developing. We combine the Polysulphate with other micronutrients and other characteristics.
Will Tang (Equity Research Analyst)
Gotcha. Maybe a different question here. I guess given the incident at ICL Iberia, what are your expectations for, you know, the production ramp-up schedule there? I think previously, you know, last time you spoke on it, you talked about maybe reaching a 1 million ton, you know, run rate by the end of 2023. Has that changed at all? Wondering if you could go into more detail on what you guys are expecting for that.
Raviv Zoller (President and CEO)
It hasn't changed, but at the same time, until we get there, we'll have some more pain. It has to do not just with the incident. The incident didn't take us back a lot, other than make us feel terrible. What the real issue is the geology there. The main thing that we have to get through is that we're working our way towards a mining area that's gonna last for a very long time and is much more rich in mineral than where we currently are. Unfortunately, we've been working our way for the past year or so. We still have about 9 to 10 months until we get to where we wanna get.
We're behind our ambitions all the time and then we'll for sure be below our higher expectations this year. The other side of that is that even though we'll be a few tens of thousands below, in terms of our overall sales forecast, it's not gonna change because we started the year with the inventory. We are going to be able to sell 4.7 million-4.8 million tons that we forecasted for the year.
Will Tang (Equity Research Analyst)
Got it. That's super helpful. Thank you.
Raviv Zoller (President and CEO)
Thank you.
Operator (participant)
You have no further questions. Please proceed.
Raviv Zoller (President and CEO)
All right. I just want to thank you all for participating in our call and continuing to following us, and give us your support. We look forward to getting back to you next quarter and reporting on our results and continuing to deliver on our plans. Thank you very much, and take care.
Aviram Lahav (CFO)
Thank you. Thank you very much.