ICL Reports Strong Q1 2019 Results

TEL AVIV, Israel, May 7, 2019 /PRNewswire/ -- ICL ICL ICL, a leading global specialty minerals and specialty chemicals company, today reported its financial results for the first quarter ended March 31, 2019.

Sales for the first quarter were $1,415 million compared to $1,404 million for the same period in 2018. Excluding divested businesses, sales increased by 4% compared to Q1 2018 and adjusted operating income increased by 65% to $241 million. Q1 2019 adjusted operating profit margin increased to 17% compared to 11% in Q1 2018 and EBITDA margin increased to 25% from 18% in Q1 2018. Q1 2019 marks the fifth consecutive quarter of operating profit and EBITDA margin expansion, highlighting ICL's focus on strategic initiatives and cost control.     

ICL's CEO, Raviv Zoller, stated, "We achieved a strong start to 2019, with significant profitability growth recorded in all of our three mineral value chains, as our value focused strategy continued to bear fruits. Our performance is even more meaningful in light of the slow start to the agricultural year in the US, Brazil and Israel which negatively impacted fertilizer sales and put pressure on the commodity phosphate market. During the quarter we continued to make significant progress towards long term value creation, by streamlining operations, empowering our workforce, improving the results of our YPH joint venture, increasing polysulphate production, realigning our R&D and signing an important agreement with the government of Israel to end a decade long dispute on royalties. This agreement will also simplify the royalty calculation in the future and it sets the ground for a new era of open dialogue and cooperation with Israeli authorities. I am confident that the strong start of 2019 puts us on track to achieve another year of solid performance."

FINANCIAL RESULTS

Results analysis:

Revenue: Sales were $1,415 million in Q1 2019, compared to $1,404 million for the comparable quarter in 2019, and compared to 1,363 million excluding the Fire Safety and Oil Additives (P₂S₅) businesses which were divested at the end of Q1 2018 as well as the Rovita business which was divested early in Q3 2018.  

Operating income: The Company reported an operating income of $227 million in Q1 2019, compared to $985 million for the first quarter of 2018. Excluding a provision of $14 million following the final ruling in the royalty arbitration with the state of Israel, adjusted operating income increased by 65% to $241 million compared to $146 million in Q1 2018, excluding the contribution of divested businesses. The increase was driven by higher prices, increase in sales volume in the bromine value chain and cost reductions across ICL's mineral chains. In addition, ICL's natural gas power plant which was launched in the second half of 2018 contributed to lower energy costs. These were partially offset by an increase raw materials costs. The strong sales of bromine based industrial solutions and an increase in phosphate fertilizers sales volumes more than offset lower sales quantities of potash, specialty fertilizers and acids. The negative impact of exchange rates on revenues, which derived mainly from the euro devaluation against the US dollar compared to the average rate in Q1 2018, was offset in the operating income, as the devaluation of the Israeli shekel, the euro and the Chinese yuan compared to their average rate in Q1 2018, contributed to lower costs in US dollar terms.

Financing expenses, net: The net financing expenses in Q1 2019 amounted to $35 million, compared to $15 million in the corresponding quarter last year. Q1 2018 financing expenses were particularly low mainly due to significant exchange rates impact. The current quarter was also impacted by $6 million due to the new implementation of IFRS 16. We expect that this item will continue to be highly volatile.

Tax expenses: Tax expenses in Q1 2019 were $51 million compared to $45 million in Q1 2018, reflecting an effective tax rate of about 27% and 5%, respectively. The adjusted effective tax rate (excluding the provision following the resolution of the royalty dispute with Israeli authorities), totaled 26% in Q1 2019. The Company's exceptionally low tax rate in the corresponding quarter last year derived mainly from exempt income from the divestiture of businesses. The tax rate in the first quarter of 2019 was negatively impacted by the appreciation of the Israeli shekel against the dollar during the quarter (compared to 2018 year-end).

Cash flow & debt level: In Q1 2019, operating cash flow was $173 million compared to $36 million in the corresponding quarter in 2018. The increase was driven mainly by the increase in net income (excluding the capital gain from divestitures), along with higher cash received from derivative transactions as well as lower tax payments. Cash flow used for the purchase of property, plant, equipment and intangible assets amounted to $131 million compared to $127 million in Q1 2018. The cash proceeds from the sale of property, plant and equipment in the amount of $35 million recorded in Q1 2019 derives from the sale and leaseback of office buildings in Israel and sale of a plant in Mexico.

The Company's net financial liabilities at the end of the first quarter amounted to $2,527 million, an increase of $315 million compared to December 31, 2018. The increase of the net financial liabilities derives mainly from an increase of $300 million of long term liabilities as a result of IFRS16 implementation on January 1^st, 2019. At the initial application date, the Company recognized a lease liability in the amount of about $300 million, according to the present value of the future lease payments discounted and concurrently recognized a right-of-use asset in the same amount. In the first quarter of 2019, the Company recognized depreciation expenses in the amount of $13 million in respect of the right-of-use asset and $6 million in finance expenses in respect of the lease liability, instead of the lease expenses in the amount of $15 million which would have been recorded according to the previous standard.

REVIEW OF OPERATING SEGMENTS

Starting from the first quarter of 2019, ICL's management measures, and accordingly present in its reports, the results of its business divisions (operating segments) after allocation of general and administrative (G&A) expenses per each division. The updated reporting format of the division results will also assist investors who are interested in calculating the EBITDA for each segment separately, and not merely on the corporate level. It should be noted that the allocation of G&A expenses in comparable periods was made for convenience purposes only, and changes may occur in the allocation methodology in future periods. For more information, please refer to the appendix in ICL's Q1 2019 presentation.

Industrial Products

The Bromine value chain segment achieved record quarterly operating income with operating margins of approximately 28% (after allocation of G&A expenses) compared to 21% in Q1 2018.  The results were driven by increased prices and volumes across most of the segment's products. 

Industrial Products accounted for 24.5% of sales and 40.2% of profit attributed to the business segments in the Q1 2019, compared to 22.4% of sales and 43.7% of profit attributed to the business segments in Q1 2018.

Significant Highlights and Business Environment

• Elemental bromine prices in China continued to increase during Q1 as the local bromine production continues to be affected by strict environmental-related regulation pressure and by the winter shutdown. The seasonal decline in bromine prices which usually begins in March has not occurred yet, as many producers have so far not returned from their winter shutdowns. Higher elemental bromine prices continued to drive higher bromine compound prices.
• Demand for bromine-based flame retardants remained relatively stable.
• Strong sales of clear brine fluids were driven by higher activity in the Gulf of Mexico, Alaska and South America, coupled with low availability of product in the market.
• The performance of ICL's phosphorous-based flame retardants business was stable compared to Q1 2018 as price increases were offset by lower sales volumes.
• The segment's specialty minerals sales were stable as higher sales of de-icing and de‑dusting salts were offset by lower sales of Dead Sea salts. The segment continues to focus on magnesia applications with higher margins such as pharma and nutraceutical.

Results of Operations for Q1 2019

Results analysis

The increase in the segment's profit in Q1 2019 over the corresponding period in 2018 resulted mainly from higher quantities sold of bromine‑based industrial solutions (mostly clear brine fluids and elemental bromine), as well as from an increase in the selling prices of bromine-based industrial solutions and flame retardants, together with an increase in the selling prices of phosphorous-based flame retardants.

Potash

Segment profit after G&A allocation increased by approximately 84% despite a decrease of 8% in potash sales volumes due to disruptions in the Israeli Railway Services and the cessation of potash production in the UK. The increase is mainly attributed to an increase of 13%, or $33/tonne in the Company's average realized price.

ICL Potash accounted for 24.5% of sales and 32.8% of profit attributed to segments in the first quarter of 2019, compared to 23.1% of sales and 28.5% of profit attributed to segments in Q1 2018.

Significant Highlights and Business Environment

• Potash prices were mostly stable during the first quarter of 2019 across global key spot markets, supported by low availability, and despite slow activity due to seasonality. Demand in the US was impacted by unfavorable weather which delayed fertilizer applications. The emergence of demand in Brazil was also delayed as buyers expected prices to moderate and due to the later than usual Carnival festivities, however, demand began to emerge towards the end of the quarter.
• Supply side developments: EuroChem (Russia) announced in January that it would continue the ramp up of its new Usolskiy mine (Russia) gradually, expecting to reach 70-90 thousand tonnes a month in Q2 2019. As of the end of the first quarter, Eurochem's other mine, Volgakaliy (Russia), had not yet commenced commercial sales. K+S (Germany) shipped granular potash from its Bethune (Canada) mine to Brazil and standard potash to the Eastern Hemisphere markets and is planning to continue the mine ramp up, forecasting production of 1.7-1.9 million tonnes in 2019. 
• At ICL Boulby the production of Polysulphate continued to ramp up. Production in the first quarter of 2019 reached a level of 140K tonne, an increase of 130% compared to Q1 2018. PotashpluS production amounted to 32k tonnes, following a successful commercial launch in Q4 2018.
• During March 2019, disruptions in the Israeli Railway Services led to delays of shipments of about 60 thousand tonnes. It also had a negative impact on ICL's land transportation costs.

Results of Operations for Q1 2019

Potash – Production and Sales

In Q1 2019, potash production was 12 thousand tonnes lower than in the corresponding quarter last year mainly due to the termination of potash production at ICL Boulby at the end of Q2 2018 as part of the transition to the Polysulphate production, together with a decrease at ICL Iberia. This decrease was partly offset by increased production in Sodom. The production in Sodom in Q1 2018 included 5 days of production shut down for maintenance purposes, while in 2019 the annual shutdown is scheduled for Q4, and is also expected to be longer than usual (approximately 3 weeks), in order to allow for increased production in the following years. The quantity of potash sold in Q1 2019 was 92 thousand tonnes lower than in the corresponding quarter last year, mainly due to a decrease in potash sales resulting from the disruptions in the Israeli Railway Services and the termination of potash production in the UK.

Results analysis

The increase in the segment's profit was driven primarily by higher potash prices as well as from a decrease in energy costs due to a new power plant in Sodom. The increase was offset by lower quantities sold of potash and increased sales of lower margin products, such as Polysulphate and electricity surplus from the new power plant. The positive impact of exchange rates derived from the devaluation in the average exchange rate of the Israeli shekel and the euro against the US dollar compared to Q1 2018, which led to lower costs in US dollar terms, more than offsetting the negative impact of the devaluation in the average exchange rate of the euro and the British pound on sales.

Phosphate Solutions

Phosphate Solutions results in Q1 2019 improved compared to the corresponding quarter last year with operating profit margin after G&A allocation increasing from 5.3% in Q1 2018 to 6.5% in Q1 2019. The improved performance was supported by improved performance of the YPH JV, which recorded an operating profit of $5.5 million, as well as higher prices across the phosphate value chain. These were partly offset by an increase in raw materials prices, mainly sulphur costs which are reflected in the quarter's sales, and MGA bought from third parties, as well as lower sales volumes of specialty phosphates in South America and of dairy proteins.

The Phosphate Solutions segment accounted for 36% of sales and 14.5% of income attributed to the segments in Q1 2019 compared to 36% of sales and 18.5% of income attributed to the segments in Q1 2018.

Significant Highlights and Business Environment

• Excluding the Rovita business, which was divested at the beginning of the third quarter of 2018, global sales of Phosphate Specialties decreased by approximately 6% compared to the corresponding quarter last year to $283 million, 52% of the segment sales (including inter-segment sales). The decrease is attributed to lower acid sales in South America and lower dairy proteins sales.
• Sales of phosphate salts in Europe and North America increased, driven by higher prices and increased sales volume of industrial salts, compensating for lower sales volumes of food salts in certain European markets.  Improved performance in China was driven by an increase of local market share for industrial and food salts, predominantly in the body care market.
• Phosphate acids' global sales were down compared to Q1 2018 due to lower sales volumes in South America, driven by increased Chinese imports. Performance in Europe and North America was positively impacted by favorable market conditions which allowed for higher pricing with only moderate volume losses. Stable market prices and increased sales volumes contributed to the business performance in China.
• In March 2019, ICL finalized the sale of assets related to the closure of its production facility in Mexico, recording a capital gain of $1 million.
• The downward trend in phosphate commodity prices during Q1 2019 was driven by excess supply and was intensified by a seasonally soft demand across global markets together with unfavorable weather in the US and relatively high DAP stocks in India. Sulphur prices also decreased during Q1 2019.
• Major suppliers reacted to the market trends: during February, eight major Chinese phosphate fertilizers producers (so called the '6+2' group) announced a production cut of 100,000 tonnes each (a total of 800,000 tonnes) of their 2019 planned production. Mosaic (US) and OCP (Morocco) published in March corresponding announcements of cutting 300,000 tonnes each of their planned 2019 production. In addition, slower than expected ramp up of major projects (Wa'ad al Shamal Joint Venture of Ma'aden, Sabic and Mosaic and OCP's projects at Jorf Lasfar and at Laâyoune) and the idling of Mosaic's Plant City (US) facility, moderated the price pressure.

Results of Operations

Results analysis

The increase in the segment's profit derived mainly from a positive price impact throughout most of the phosphate value chain including higher prices of phosphate fertilizers, as well as phosphate-based acids, salts and food additives. The negative impact of sales quantities on the operating profit, despite the positive contribution to sales was driven by higher sales volumes of lower margin products such as phosphate commodities, mainly fertilizers, coupled with a decrease in sales of higher margin products, mostly acids. The negative impact of raw materials derived mainly from higher prices of sulphur consumed during the quarter relative to sulphur consumed during Q1 2018. The negative impact on sales from the devaluation in the average exchange rates of the euro, the Israeli shekel and the Chinese yuan against the dollar compared to Q1 2018, was mostly offset by lower costs in US dollar terms due to the devaluation in the average exchange rates of the production currencies.

Innovative Ag Solutions

The IAS segment experienced a soft quarter due to weather related delays in fertilizer applications in North America and Israel and due to unfavorable exchange rates, mainly the devaluation in the average exchange rate of the euro against the dollar compared to Q1 2018.

ICL's Innovative Ag Solutions ("IAS") segment accounted for 14% of sales and 5.4% of profit attributed to the segments in Q1 2019, compared to 15% of sales and 12% of profit attributed to the segments in the Q1 2018.

Significant Highlights and Business Environment

• Sales to the specialty agriculture market were lower compared to the corresponding quarter last year due to weather delays and unfavorable exchange rates. 
• Nevertheless, sales volumes to the European market were stable while sales of straight fertilizers increased in North America. The segment recorded higher sales in India and Brazil for its water soluble NPKs and controlled release fertilizers as a result of the segment's focused sales and marketing, and also benefitted from price initiatives in Israel and Spain.
• Sales to the Turf and Ornamental market were stable. higher sales in Europe, which were supported by favorable weather conditions, advanced sales in the UK driven by concerns regarding the Brexit and higher prices, were offset by unfavorable dollar-euro exchange rate.

Results of Operations

Results analysis

Revenues of the IAS segment decreased over the comparable quarter in 2018 as a result of lower sales volumes of specialty agriculture products, primarily liquid fertilizers and chemicals. Operating profit was also negatively impacted by an increase in most of the segment's raw materials prices. This was offset somewhat by an increase in the selling prices of specialty agriculture products.

DIVIDEND DISTRIBUTION

In respect of ICL's first quarter 2019 results, the Board of Directors declared a dividend totaling 5.8 cents per share or about $76 million. The dividend will be paid on June 19, 2019, with a record date of June 5, 2019.

About ICL

ICL is a global specialty minerals and chemicals company operating bromine, potash, and phosphate mineral value chains in a unique, integrated business model. ICL extracts raw materials from well-positioned mineral assets and utilizes technology and industrial know-how to add value for customers in key agricultural and industrial markets worldwide. ICL focuses on strengthening leadership positions in all of its core value chains. It also plans to strengthen and diversify its offerings of innovative agro solutions by leveraging ICL's existing capabilities and agronomic know-how, as well as the Israeli technological ecosystem. ICL shares are dually listed on the New York Stock Exchange and the Tel Aviv Stock Exchange (NYSE and TASE: ICL). The company employs more than 11,000 people worldwide, and its sales in 2018 totaled approximately US$5.6 billion. For more information, visit the Company's website at www.icl-group.com.

Forward Looking Statement

This press release contains statements that constitute "forward-looking statements", many of which can be identified by the use of forward-looking words such as "anticipate", "believe", "could", "expect", "should", "plan", "intend", "estimate" and "potential" among others. Forward-looking statements include, but are not limited to assessments and judgments regarding macro-economic conditions and ICL's markets, operations and financial results. Forward-looking assessments and judgments are based on our management's current beliefs and assumptions and on information currently available to our management. Such statements are subject to risks and uncertainties, and actual results may differ materially from those expressed or implied in the forward-looking statements due to various factors, including, but not limited to, market fluctuations, especially in ICL's manufacturing locations and target markets ;the difference between actual resources and our resources estimates ;changes in the demand and price environment for ICL's products as well as the cost of shipping and energy, whether caused by actions of governments, manufacturers or consumers ;changes in the capital markets, including fluctuations in currency exchange rates, credit availability, interest rates;changes in the competition structure in the market;and the factors in "Item 3. Key Information—D. Risk Factors" in the Company's annual report on Form 20-F filed with the U.S. Securities and Exchange Commission on February 27, 2019. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update or revise them or any other information contained in this press release, whether as a result of new information, future developments or otherwise.

(Financial tables are available in Excel format on our website located at www.icl-group.com)

PRESS CONTACT
Maya Avishai                                                         
Head of Global External Communications     
+972-3-684-4477
Maya.Avishai@icl-group.com 

INVESTOR RELATIONS CONTACT
Limor Gruber
Head of Investor Relations
+972-3-684-4471
Limor.Gruber@icl-group.com

SOURCE ICL