ICL Reports Strong Q2 2019 Results

TEL AVIV, Israel, July 31, 2019 /PRNewswire/ -- ICL (NYSE: ICL) (TASE: ICL), a leading global specialty minerals and specialty chemicals company, today reported its financial results for the second quarter ended June 30, 2019.

Sales for the second quarter were $1,425 million compared to $1,371 million for the same period in 2018. Adjusted operating income increased by 22% to $230 million. Q2 2019 adjusted operating income margin increased to 16% compared to 14% in Q2 2018 and EBITDA margin increased to 24% from 22% in Q2 2018. Q2 2019 reflects the continuous improvement in the Company's business performance with higher prices in all divisions and higher sales volumes in the potash division. Results also highlighted the Company's strategic focus on cash generation, as reflected in strong operating and free cash flow.

ICL's President & CEO, Raviv Zoller, stated, "I am pleased with another quarter of improved performance for ICL compared to the second quarter of last year, highlighted by margin expansion and strong cash generation. Our diversified business model, as well as our leadership positions in key markets, helped us overcome challenging weather conditions in some of our markets. In addition, our strategic initiatives and value chain optimization continue to bear fruit. We also made additional progress on sustainability and corporate responsibility, as reflected by ICL's recent Platinum+ ranking by Maala. It is the highest ranking given by this leading organization in Israel, that promotes corporate social responsibility. Recently, Fitch Ratings increased our credit rating outlook to 'positive' from 'stable' and reaffirmed our BBB- investment grade rating, highlighting our balanced and responsible approach to capital allocation. The recognition awarded to our company by these entities testifies to our continuous efforts to achieve excellence and leadership in our business for the benefit of all of our stakeholders."

Revenue: Sales were $1,425 million in Q2 2019, compared to $1,371 million for the comparable quarter in 2018 and compared to $1,362 million excluding the contribution of the Rovita business which was divested in the beginning of Q3 2018.

Operating income: The Company reported an operating income of $240 million in Q2 2019, compared to $172 million for the Q2 2018. Excluding a reversal of impairment of assets in the amount of $10 million, following a divestment of previously written down assets in Germany, adjusted operating income amounted to $230 million, compared to adjusted operating income of $190 million in Q2 2018, which excludes a loss of $2 million recorded in the Rovita business as well as a write-off of Rovita's assets following its divestment and a write-off of an intangible asset regarding an R&D project related to ICL's phosphate-based products.

The increase in adjusted operating income was driven by an increase in the selling prices of potash (an increase of $23 in the average realized price per tonne compared to the corresponding quarter last year), phosphate fertilizers, phosphate-based acids, salts and food additives, together with a positive price impact throughout most of the Industrial Products division's business-lines. The contribution of sales quantities is attributed to higher quantities sold of potash, phosphate fertilizers, elemental bromine and bromine-based flame retardants. Energy expenses decreased following the activation of the new power plant in Sodom during the second half of 2018. These were partially offset by higher operating costs and other expenses, mainly due to the activation of a new salt plant in Spain as well as higher royalties, sales commissions and depreciation which impacted costs in the Potash segment. The negative impact from exchange rates fluctuations derived from the devaluation of the euro and the Chinese yuan against the dollar and the negative impact of raw materials is mainly attributed to higher prices of consumed sulphur, which increased costs throughout the phosphate value chain.

Financing expenses, net: The net financing expenses in the second quarter of 2019 amounted to $37 million, compared with $54 million in the corresponding quarter last year. This decrease derives mainly from net exchange rate differences and hedging transactions, in the amount of $11 million and financing expenses recorded in Q2 2018 as a result of costs relating to early redemption of debentures in the amount of $13 million. This decrease was partially offset by a $7 million increase in interest expenses due to IFRS16 implementation and due to changes in interest relating to provisions for long-term employee benefits.

Tax expenses: Tax expenses in Q2 2019 and in Q2 2018 amounted to $46 million and $20 million, respectively, reflecting an effective tax rate of about 23% and 17%, respectively. The Company's relatively low tax rate in the corresponding quarter last year derived mainly from the devaluation of the Israeli shekel against the dollar during Q2 2018, which reduced the Israeli subsidiaries tax obligations.

Cash flow & debt level: In Q2 2019, cash flow provided by operating activities increased by $75 million compared to Q2 2018 to $239 million. The increase is attributed to ICL's business growth and efforts to optimize working capital and was achieved despite an increase in interest, tax and royalty payments.

In Q2 2019, cash flow used in investing activities amounted to $143 million, similar to Q2 2018. Higher cash flow used in investment in property, plant, equipment and intangible assets was offset by transaction expenses following business divestitures recorded in Q2 2018.

ICL's net financial liabilities at the end of the second quarter amounted to $2,524 million, an increase of $312 million compared to December 31, 2018. The increase derives mainly from an increase of $301 million of long and short-term liabilities as a result of IFRS16 accounting standard implementation in January 2019.

On July 17, 2019, the credit rating company "Fitch Ratings" increased the company's credit rating outlook to 'positive' from 'stable', while reaffirming its long-term issuer default rating at BBB-.

REVIEW OF OPERATING SEGMENTS

Beginning in Q1 2019, ICL's management measures, and accordingly presents in its reports, the results of its business divisions (operating segments) after allocation of general and administrative (G&A) expenses per each division. For more information, please refer to the appendix in ICL's Q2 2019 presentation.

Industrial Products

The Bromine value chain segment achieved a significant increase in operating margins (after allocation of G&A expenses) from 24% in Q2 2018 to 28% in Q2 2019, matching the record margins achieved in Q1 2019. The segment's results were driven by higher prices and higher sales volumes of brominated flame retardants and elemental bromine, partially offset by lower sales volume of clear brine fluids. Value based strategy implementation led to higher sales prices and lower sales volumes of phosphorus- based flame retardants.

Industrial Products accounted for 23% of the group sales and 40% of adjusted operating income, compared to 24% of sales and 43% of adjusted operating income in Q2 2018.

Significant Highlights and Business Environment

• During the second quarter of 2019 elemental bromine prices in China moderately decreased compared to the first quarter of 2019, mainly as a result of the usual seasonal pattern, which is reflected in an increase in local production as the dry season in Shandong province begins. However, prices were significantly higher compared to the corresponding quarter last year.
• Market demand for bromine-based flame retardants continues to be stable. ICL's sales of bromine-based flame retardants were higher compared to the corresponding quarter last year, mainly due to increased production and sales of TBBA which is mainly used in printed circuit boards.
• Clear brine fluids sales were lower compared to the corresponding quarter last year mainly due to lower drilling activity in the Gulf of Mexico and North Sea.
• Sales of phosphorus‑based flame retardants moderately decreased as higher prices partially compensated for lower sales volumes due to an increase in Chinese imports to the US and Europe. During May, as part of the trade dispute between the US and China, the US imposed an additional 15% tariff on Chinese imports, following a 10% tariff imposed in September 2018.
• Sales of specialty minerals remained stable.

The increase in the segment's operating income in Q2 2019 is mainly attributed to an increase in the selling prices of elemental bromine, bromine‑based industrial solutions and flame retardants, an increase in the selling prices of phosphorus-based flame retardants and higher sales quantities of elemental bromine and bromine-based flame retardants. These were partially offset by lower sales quantities of phosphorus- based flame retardants and by the negative impact of the devaluation of the euro against the dollar.

Potash

Higher sales volume and prices drove a significant year-over-year increase in the Potash segment's operating margins from 16% in Q2 2018 to 23% in Q2 2019. The segment's sales volumes of 1.25 million tonnes, represented an increase of 14% over Q2 2018.

Potash accounted for 27% of ICL's sales and 46% of adjusted operating income, compared to 23% of sales and 30% of adjusted operating income in Q2 2018.

Significant Highlights and Business Environment

• Potash division's sales increased by 25% and operating profit increased by more than 80% compared to Q2 2018, driven by an increase of 14% in potash sales volumes and 9% in average realized price.
• Potash prices moderately decreased towards the end of the second quarter of 2019 due to lower demand in Brazil in light of lower soybean prices and unfavorable weather conditions in the US which impacted fertilizers application, as well as lower Palm oil prices in Southeast Asia.
• According to CRU (Fertilizer Week Historical Prices, June 2019) the average price of granular potash imported to Brazil in the second quarter of 2019 was $346 per tonne (CFR Spot), down by 1.5% compared to the first quarter of 2019 and up by 12.3% compared to the second quarter of 2018.
• According to Argus, potash imports to China in the first half of 2019 reached about 5.4 million tonnes, an increase of about 22% over the first half of 2018. This led to an increase in Chinese inventory levels.
• According to the FAI (Fertilizer Association of India), potash imports to India in the first five months of 2019 amounted to 1.9 million tonnes, a decrease of 14% compared to the first five months of 2018.
• According to Brazil's customs data, potash imports to Brazil in the second quarter of 2019 reached more than 2.6 million tonnes, similar to the second quarter of 2018.
• Production of Polysulphate at ICL's Boulby mine doubled compared to Q2 2018, reaching 136K tonnes. PotashpluS production amounted to 34K tonnes, following a successful commercial launch in Q4 2018.
• Demand for magnesium remains constrained in China in light of imposed duties in Brazil and the US on Chinese imports, and in Europe where prices continue to be under pressure due to Chinese imports. In the US, the magnesium market improved as a result of trade actions and favorable economic conditions.
• In May 2019, the US Department of Commerce issued a preliminary determination to impose 7.48% duties over magnesium imports from Israel, starting May 2019. In July 2019, the DOC issued a preliminary decision on antidumping duty, which applies from July 2019, at a rate of 193%. Final decisions are expected to be rendered during October 2019. The said duties imposed on Magnesium sales would not allow a competitive environment for the Company's magnesium activity in the US. The Company has the ability to shift sales from the US to other regions, nevertheless, it is considering all legal means in order to ensure its continued magnesium operations in the US, including discussions with various government officials to find economic alternatives. If the above preliminary decisions are not altered and/or no alternative understandings are reached, a negative effect on the results of the Company's activity is expected.

In Q2 2019, production of potash was 229 thousand tonnes lower than in the corresponding quarter last year. This was due to the termination of potash production at ICL Boulby in the second quarter of 2018, as part of the transition to Polysulphate, as well as due to lower production at in ICL's operation in the Dead Sea and Spain. Sales quantities in Q2 2019 were 156 thousand tonnes higher than in the corresponding quarter last year, mainly due to an increase in potash sales to China and Brazil which was partly offset by lower sales to India.

The significant contribution of sales quantities to operating income is attributed to higher potash sales volumes as well as a favorable site-mix. The contribution of prices was driven mainly by an increase of $23 per tonne in potash average realized price compared to the corresponding quarter last year. The contribution of the devaluation in the average exchange rate of the euro against the dollar, which decreased production costs, was fully offset by the devaluation in the average exchange rate of the euro and the British pound against the dollar, which decreased revenues. The decrease in energy costs is attributed mainly to lower electricity costs due to the activation of a new power plant in Sodom during the second half of 2018. These were offset somewhat by higher operational costs due to the activation of the new salt plant in Spain, an increase in royalties and sales commissions, higher depreciation and maintenance expenses.

Phosphate Solutions

The Phosphate Solutions segment's operating margins moderately improved in Q2 2019 compared to the corresponding quarter last year, despite challenging market conditions in commodity phosphates. This is attributed to optimization of sales mix and synergies which moderated the impact of the market downturn.

Sales of phosphate specialties decreased by approximately 13% compared to the corresponding quarter last year to $276 million, or by 11% excluding the Rovita business, which was divested in Q3 2018. Sales volume of Dairy proteins declined as a result of required production alignment. Phosphate salts and acid sales were impacted by competitive markets in Europe and in South America. Sales continue to be unfavorably impacted by the devaluation of the Euro and Chinese yuan against the US dollar.

Phosphate commodity performance benefitted from optimization of sales mix, an increase of about 7% in fertilizer sales volumes to 637 thousand tonnes and a significant improvement in the YPH JV's results, attributed to higher sales and production quantities as well as lower costs.

The Phosphate Solutions segment accounted for 35% of ICL's sales and 14% of adjusted operating income compared to 37% of sales and 16% of adjusted operating income in Q2 2018.

Significant Highlights and Business Environment

• Phosphate acids' sales decreased compared to the corresponding quarter last year due to lower sales volumes mainly in Europe, which was moderately impacted by lower green phosphoric acid price, and in South America, due to increased Chinese imports. This was offset by higher prices.
• Sales of phosphate salts decreased compared to Q2 2018 driven by lower volume, partially offset by higher prices.
• Global sales of Paints and Coatings decreased compared to Q2 2018 due to lower volumes. Prior year volumes were extraordinarily high towards an implementation of a regulatory change in the European market.
• Dairy protein sales were lower compared to Q2 2018 as a result of an on-going shift from milk commodities to value added ingredients and were impacted by required upgrades in production processes, resulting in temporary down-time of certain production lines.
• During Q2 2019 the downward trend in phosphate commodity prices continued due to low demand combined with abundant supply.
• In India, demand was negatively impacted by a decrease in the Maximum Retail Price (MRP), expectations for a decrease in the Nutrient Based Subsidy (NBS) rate for the 2019/20 agricultural year and relatively low Monsoon rainfalls. In the US, demand was negatively impacted by extremely high precipitation which limited field work.
• On the supply side, a group of Chinese DAP suppliers, representing about 70% of China's DAP capacity agreed to production cuts of 0.8 to 1.0 million tonnes in the third quarter of 2019. On the other hand, Mosaic began to gradually bring its Brazilian mines back to operations, after adjusting them to new regulations.
• According to CRU (Fertilizer Week Historical Prices, June 2019), Q2 2019 DAP average price (CFR India Spot) decreased by 7% and by 12% compared to Q1 2019 and Q2 2018, respectively, to $376/tonne. Q2 2019 TSP average price (CFR Brazil Spot) decreased by 9% compared to Q1 2019 and by 5% compared to Q2 2018 to $318/tonne. Q2 2019 SSP average price (CPT Brazil inland 18-20% P₂O₅ Spot) decreased by 4% compared to Q1 2019, but increased by 20% compared to Q2 2018 to $229/tonne.
• According to CRU (Fertilizer Week Historical Prices, June 2019) the average price of sulphur Bulk FOB Adnoc monthly contract in the second quarter of 2019 was $104 per tonne, a 9.7% decrease compared with the first quarter of 2019.

The division's operating income benefited from a positive price impact throughout most of the phosphate value chain. The increase derived mainly from higher selling prices of ICL's phosphate fertilizers, phosphate-based acids, salts and food additives as well as an increase in the sales quantities of phosphate commodities, mainly fertilizers. This was offset by a decrease in the sales volumes of phosphate specialties, mostly acids as well as lower sales volumes of dairy proteins. Operating income was also negatively impacted by the devaluation of the euro and the Chinese yuan against the dollar, which decreased revenues, as well by higher prices of sulphur consumed and phosphoric acid acquired from third parties.

Innovative Ag Solutions

During Q2, the IAS segment continued to experience challenging conditions due to weather related delays in fertilizer applications, mainly in the US and Israel, as well as unfavorable exchange rates, mainly the devaluation of the euro against the dollar compared to Q2 2018. The division continues to focus its efforts on higher value innovative products and solutions.

ICL's Innovative Ag Solutions ("IAS") segment accounted for 14% of the Company's sales and 5% of adjusted operating income, compared to 15% of sales and 8.5% of adjusted operating income in Q2 2018.

Significant Highlights and Business Environment

• Sales of specialty agriculture products were negatively impacted, compared to Q2 2018, mainly by unfavorable dollar-euro exchange rates, adverse weather conditions in some key regions, low availability of ammonia and plant maintenance in Israel. However, the overall decrease in sales volumes was partially offset by higher selling prices, deriving from the division's value initiatives, as well as growth in sales in emerging markets.
• Despite the negative impact of exchange rates, sales of Turf and Ornamental products were stable compared to Q2 2018. This was driven by improved demand in Europe, mainly for water soluble NPKs and grass seeds.

Revenues decreased compared to the corresponding quarter last year mainly due to the devaluation of the euro against the dollar and lower sales volumes. Operating income was also negatively impacted by an increase in raw material prices. This was offset somewhat by an increase in the selling prices of specialty agriculture products.

DIVIDEND DISTRIBUTION

In respect of ICL's second quarter 2019 results, the Board of Directors declared a dividend totaling 5.7 cents per share or about $74 million. The dividend will be paid on September 24, 2019, with a record date of September 10, 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.

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SOURCE ICL