ICL Group Ltd Q3 FY2025 earnings call

• CEO Elad Aharonson mentioned positive actions in Israel like cease fire, return of hostages, and renewed focus on stability, and ICL executing against new strategic principles.
• Reviewed division performances including Industrial Products, Specialty Minerals, Potash, Phosphate Solutions, and Growing Solutions.
• Discussed MOU with state of Israel regarding Dead Sea concession as a positive step providing long-term regulatory clarity and business certainty, avoiding potential disputes.
• CFO Aviram Lahav shared macro market metrics like global inflation and interest rates down, but industrial production and U.S. housing starts down; fertilizer market mixed; potash and phosphate prices improved; ocean freight rates reversed; Chinese bromine price improved; durable goods and remodeling activity metrics.
• Highlighted strong balance sheet with $1.6 billion available resources, net debt to adjusted EBITDA rate at 1.4x, operating cash flow of $308 million, and distributing 50% of adjusted net income to shareholders as dividend

Industrial Products

• Third quarter sales were $295 million, down slightly year-over-year. EBITDA was $67 million. Flame retardants performance mixed, phosphorus-based products sales improved, bromine-based impacted by construction end market softness, but other end markets stable.

Specialty Minerals

• Reported strong results for the third quarter with good demand from food end markets.

Potash division

• Third quarter sales were $453 million with EBITDA of $169 million. Average potash price was $353 per ton, improved 6% sequentially and nearly 20% year-over-year. Potash sales volume was 1,046,000 metric tons, roughly stable annually, and saw sequential increase in production.

Phosphate Solutions division

• Strong quarter sales of $605 million were up 5% on an annual basis. EBITDA of $134 million was in line with prior quarter but down slightly versus prior year due to higher raw material costs, especially for sulfur. Specialty Food Phosphates delivered strongest quarter in 2 years in China.

Growing Solutions business division

• Third quarter sales of $561 million improved 4% year-over-year. Continued strategic focus on global specialty solutions helped drive improvement in North America and Europe. Sales in Asia improved but impacted by rising raw material costs. Brazil market under pressure with lower volumes due to reduced farmer affordability and increased raw material costs

• Maintained 2025 guidance for specialties-driven businesses EBITDA to be between $0.95 billion to $1.15 billion.
• Maintained potash sales volumes expectation between 4.3 million and 4.5 million metric tons

• Dead Sea concession may face competitive tender and potential legal uncertainties.
• Brazil market under pressure with low soy prices, lower yields, increased farmer interest rates and costs, and farmers in wait-and-see mode
• Raw material cost increases, especially sulfur cost impacting margins

Q: So obviously, a lot to unpack here. And I'd like to pick up on some of these strategic highlights that you've presented over the last couple of minutes and really want to understand a little bit what you're seeing in terms of future potential in those 2 major areas, thinking of especially Crop Nutrition and Food Solutions. So starting off on Crop Nutrition, and you've nicely highlighted this, how you've achieved bigger -- basically a doubling in sales, but more than a tripling on EBITDA. So the margin still looks though below what some of the traditional businesses or the legacy businesses would be. So I just want to understand how you think about that business over time from a margin contribution as you evolve and grow that on Specialty Crop Nutrition. And then on Food Solutions, you've highlighted that you've talked about you want to expand beyond what might be phosphate-based. So can you help us maybe understand a little bit if that's more an M&A-driven idea, if that's a partnership? What are the things that you can do in order to expand beyond what is phosphate-based solutions?

A: Thank you, Ben. Great questions. And let me answer the first one first. So as for Specialty Crop Nutrition, so the potential is huge, and I do agree with you that even though we tripled the EBITDA in the last few years, still there is room for improvement. And in that respect, what we intend to do is, first, there are some R&D efforts that we invested in, in the last 2, 3 years that will bring fruits in the coming 2, 3 years. It takes time. And that brings some very unique solutions in which -- of which we can take premium prices that are really unique. But on top of it, there is another -- another effort, and that's about the portfolio mix. When we are talking about specialty fertilizers or specialty crop nutrition, it's not everything the same. And within this scale of different portfolio products, there are products with much better profitability like biostimulants, control release fertilizer and more unique stuff. On the other hand, there are less profitable products. I'll give you one example. That's a product based on polysulphate from Boulby mine in the U.K. And what we are doing now, and we start this journey in Europe already and we saw the results in Q3, but it's just the beginning of the journey is to change this to switch the mix of the portfolio to more profitable products. And I believe it will bring us to EBITDA mid-double digit. And that's our target in that respect on top of the growth itself, which will come from organic growth, but also M&A. So that's about the specialty crop nutrition. As for the food ingredients, this is a different story. We have a business of $500 million, give or take nowadays within the functional food ingredients. However, we are very focused on a subsegment of this, which is the phosphate-based solution. And we saw that very similar, very close by, we have some bigger potential market of $35 billion, which is the functional food ingredients, which are not only phosphate and that's what we are targeting. It will be based on 2 parallel efforts. One, organic growth in our labs, in our R&D labs and with our own workforce, we can do much better once we unlock this other market. But on top of it, for sure, we are going for acquisitions. Some of them will be more strategic, some of them will be bolt-on, but it will not be only organic growth. It will be also in nonorganic or M&A-based growth. And we are open also for partnerships.

Q: This is Kevin Estok on for Laurence. So thank you for really diving into your top priorities in specialty crop nutrition, Food Solutions. I guess my first question is sort of in the same vein as one of the -- one aspect of the previous analyst. And I guess you mentioned biostimulants, but I was wondering if you could share what else was in your pipeline currently? And maybe how much of your assumptions are around sort of acquiring incremental capabilities? And maybe how ICL was positioning itself against its competitors in these spaces?

A: Okay. So as you probably know, in the last few years, we already acquired 5 companies in this segment, the growing solutions, specialty fertilizers. And we intend to acquire more. One effort is to expand to some new territories and the other one is to put our hand on some new technology, which is obvious. As for the portfolio itself, I already mentioned, we are moving towards biostimulants, both botanic-based biostimulants and microbial based. So this is one element. The other one is nutrient use efficiency. So we are, I think, leader in controlled release fertilizers. Now we are bringing the new generation biodegradable controlled release fertilizers and also in the liquid and water soluble fertilizers that includes biostimulants, this is another area. There are some other developments that from commercial perspective, I would not like to disclose at this point, but we are working on. We have a very strong R&D teams across the globe, and we'll bring some news in the near future. We have a very strong R&D teams across the globe, and we'll bring some news in the near future. Again, the portfolio mix will be changed and the profitability, the gross profit of this new portfolio will be much better than the existing one. It will not be made in one time. It will take time, but we are on our way.

Q: I'll ask a few questions. Maybe first, short some -- maybe just first, a short-term question. Can you talk about your major businesses here in Q4 and talk about how each 1 is faring versus Q3 or whatever you want to say.

A: Look, I think I'll take it for a minute, but Elad obviously, will expand and give you his thoughts which are important. But look, we are confirming our guidance that has a lot after caretaking. We are there. We see in Q4 will probably be okay. But as now, there's the logic and continuation of what we're seeing right now, but I think that on a trajectory. I don't see something major changing. Okay.

Q: Finally, obviously, we all saw what happened last week with the MOU. You've laid out the transparency of it now and can you talk about what do you think the market has gotten wrong on ICL last week as this news came out?

A: Yes. That's a great point. I'll say, honestly, I think it's -- we have 2 dimensions here. One is the MOU itself. Is it good or bad? I can elaborate. I already talked about it during the presentation. I think it's good and positive step to ICL, more certainty, more clarity. We know what we get. And most important, I think it doesn't hurt our chances to be the next concession owner. But on the other side, we'll get better terms for the next concession better than the option that we were source or the only player on the field. And I can elaborate, but I know very well the dynamic with the state of Israel. If we were the only one to play in this game, the terms would have been much, much more severe. So that's -- in that respect, it's a good sign. I think part of the surprise was because people realized for the first time that the concession is going to end in 2030. Now everyone knows it or knew it, but it becomes a little bit more real. Still, I think with all the caveats, I think ICL has great chances to be the next concession owner. But not less important, I think this step will make sure that the economical terms will be much more reasonable than what it could have been.