ICL Reports Q2 2016 Results

TEL AVIV, Israel, Aug. 10, 2016 /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, 2016.

The company's performance during the quarter was supported by Specialty Solutions, which recorded 17% growth in sales and 18% growth in adjusted operating income primarily driven by a strong performance of Industrial Products and Advanced Additives. In addition, efficiency measures contributed $33 million to the quarter's operating income. The performance of the company's potash and phosphate businesses continues to be negatively impacted by low prices and a highly competitive market.

Q2 2016 Financial Highlights:

 

*Adjusted EBITDA calculation and reconciliation to adjusted measures are detailed in the Financial Appendix to this release.                 

ICL's CEO, Stefan Borgas, stated, "Our results for the second quarter reflect progress in creating a better balance between our Essential Minerals and Specialty Solutions divisions, thereby enhancing our resilience and agility in the face of dynamic and challenging markets. We are pleased with the strong performance of our Industrial Products and Advanced Additives businesses, as well as by the improvement that our efficiency and operational excellence initiatives have brought to our operations and financial position."

Mr. Borgas added, "I would like to take this opportunity to express our deep appreciation to Mr. Nir Gilad, Chairman of our Board of Directors, who will be retiring from the Board in September following nearly a decade of service in this position. Under his leadership, ICL has adjusted its structure to mitigate the unfavorable developments in some of our markets, enacting strategies that have broadened our business activities significantly, balanced our product portfolio and made us a much more resilient organization. At the same time, I would like to welcome Mr. Johanan Locker, who will take over as Chairman after a transition period. We look forward to benefiting from Mr. Locker's wealth of strategic, organizational and operational experience as we continue building ICL to the next level."

ICL's Chairman, Nir Gilad, reflected on the Company's past decade:

"In just a few more days, I will be concluding my term as Chairman of ICL's Board of Directors, bringing to an end an era of nearly 10 years during which I served on the Company's Board of Directors. It has been a privilege to work with the outstanding team that has led ICL, the flagship of Israel's industrial sector, and to help it grow to become a world leader in its markets. I am extremely proud of our record.

Over the past decade, ICL succeeded in doubling its revenues to $6 billion per year, generating $9.5 billion in cumulative profits that enabled us to distribute $7.5 billion in dividends to our shareholders (75% of whom were the public at large) and to make $6.5 billion in aggregate investments. With a clear vision and determined execution, we created a step-change in ICL's business, successfully navigating changes in the global economy and fertilizer markets, while also having to manage, unfortunately, extreme changes in the Israeli business environment, our "home port".

These changes required Management, working in concert with the Company's Board of Directors and controlling shareholders, Mr. Sami Ofer, may he rest in peace, and Mr. Idan Ofer, to make a series of strategic decisions, some of which were difficult and painful. The actions taken were necessary to enable ICL to continue serving as a source of livelihood and pride for tens of thousands of families throughout the world – and especially in Israel, the Company's home. Every decision was taken after careful consideration of how best to assure ICL's ability to successfully navigate rough and often unfriendly seas, to ensure its continued growth and to maintain its status as a world leader.

The strategic approach taken helped the Company move quickly and decisively, realizing strong profits when commodity prices rose sharply early in the decade, then preparing for and weathering the unfavorable market changes that followed. ICL's ability to take advantage of technology driven opportunities in specialty markets made that possible. Over the 10-year period, the Company paid more than $4 billion in taxes and royalties into the State's coffers – more than any other company operating in Israel. In parallel, we are proud to have invested $2.5 billion into Israel's Negev, the country's underdeveloped region in which ICL's main production activities are centralized, working in partnership with its capable governmental and social leadership to foster its transformation into an economically thriving region. No other company – from inside or outside of Israel – has made a contribution to the Negev that comes close to ICL's.

Nonetheless, the changing conditions that have been imposed on our Israeli business activities during the past several years have forced the Company to retreat from the expansion of its investments here at home. I hope that the relevant decision makers will come to understand the significance of the measures that they are imposing on ICL and will find a way to escort the Company back onto the path of export‑oriented investments and growth in Israel.

As I step down from the podium, it is with a feeling of immense accomplishment as well as considerable relief, all within an envelope of endless gratitude towards my colleagues and mentors at ICL: Mr. Idan Ofer and his father, the late Mr. Sami Ofer; Mr. Yossi Rosen, who preceded me as Chairman of the Board of Directors; the members of the Board of Directors with whom I have served throughout the years; my excellent CEOs, Mr. Akiva Moses and Mr. Stefan Borgas; and above all, the outstanding ICL family of employees in Israel and throughout the world.

I would like to close by offering sincere blessings to my successor, Mr. Johanan Locker, wishing him unbounded success in the enormous and important task that he has taken on."

Note: New Organizational Structure

In this report, the Company is presenting its results for the first time according to the new organizational structure announced earlier in the year. This organizational structure was introduced to improve the alignment of the company's structure with its '2020-Next Step Forward' strategy, creating a clear organizational distinction between two divisions: Essential Minerals, which includes ICL Potash & Magnesium and ICL Phosphate business units and focuses on efficiency, process innovation and operational excellence; and Specialty Solutions, which includes ICL Industrial Products, ICL Specialty Fertilizers, ICL Advanced Additives and ICL Food Specialties business units and concentrates on achieving growth through a highly tailored customer focus, product innovation and commercial excellence.  

FINANCIAL RESULTS

Sales: Sales for the second quarter of 2016 totaled $1.4 billion compared with $1.2 billion in the second quarter of 2015. The improvement over the prior year is related to the impact of the strike in Q2 2015, an increase of quantities sold and selling prices in the ICL Specialty Solutions Division (mainly the Industrial Products and Food business units), and the consolidation of the company's joint venture in China, offset by decreases in selling prices and quantities of potash and phosphate fertilizers.

Operating income and adjusted operating income: Reported operating income for the second quarter of 2016 totaled $149 million compared with $107 million in the second quarter of 2015.  Adjusted operating income for the quarter totaled $163 million, down 33% compared with $244 million in the comparison quarter of 2015. In Q2 2015 we adjusted back the strike impact at the amount of $149 million, representing a tougher comparison. Efficiency measures, stronger specialty contribution and lower material and energy costs only partially offset the impact of lower selling prices during the period.

For the second quarter of 2016, adjusted operating income excludes provisions for legal claims. In the second quarter of 2015, adjustments exclude the significant impact of the employee strike ($149 million), provisions for early retirement and legal claims, capital gains from divestitures of non-core businesses and income from the consolidation of a previous equity-method investee. See table, "Adjustments to Reported Operating and Net Income" in the Appendix.

Financing expenses, net: Net financing expenses in the second quarter of 2016 totaled $40 million compared with $14 million in the second quarter of 2015. The increase reflects changes in the fair value of the company's foreign currency, energy and marine transportation hedging transactions, an increase in interest expenses, and higher provisions for employee benefits. This was countered by changes related to the capitalization of credit costs.

Tax expenses: Tax expenses in the second quarter of 2016 totaled $5 million compared with $24 million in the second quarter of 2015. The decrease stemmed mainly from a reduction in deferred taxes, offset partially by tax expenses as a result of the Law for Taxation of Natural Resources in Israel and an unfavorable tax rate of Israeli subsidiaries related to the Dollar / Shekel exchange rate.

Net income: Net income for the second quarter of 2016 totaled $120 million compared to $75 million for the comparable period in 2015. Adjusted net income for Q2 2016 totaled $132 million compared with $171 million for Q2 2015.

Cash flow & debt movement: Net cash provided by operating activities during the second quarter of 2016 totaled $238 million, down $87 million compared with the second quarter of 2015. The decrease reflects higher working capital requirements as the effect of the strike in 2015 at ICL Dead Sea and ICL Neot Hovav reduced the Company's accounts receivables in the prior-year. Cash flow used for investment in property, plant and equipment totaled $154 million, consistent with the company's target to not exceed an annual capital expenditure of about $650 million in 2016 and 2017.

As of June 30, 2016, the company's net financial liabilities totaled $3.4 billion, similar to their level as of March 31, 2016, with cash flow from operations generally covering capital expenditure and dividend payout. 

REVIEW OF OPERATING DIVISIONS

Essential Minerals Division

Business highlights:

• Throughout the second quarter of 2016, the challenging global commodities market continued to negatively impact potash and phosphate sales. Agricultural commodity prices, which increased in the beginning of the quarter, resumed their downward trend towards the end of the period, due primarily to the publication of a U.S. Department of Agriculture (USDA) planting report predicting a substantial increase in the planted area of corn and soybean. According to USDA data published on July 10, 2016, the grain stock-to-use ratio will be approximately 24.0% for the 2016/2017 agricultural year, a slight decrease from its level of 24.4% in 2015/2016.
• Potash: the potash market operated in a "suspended mode" during the second quarter of 2016 due to delays in the renewal of contracts with Chinese and Indian importers. Potash imports into India during the first half of 2016 declined by 33% compared to the prior year to 875,000 tonnes due to high inventory levels and delays in signing a contract for 2016/17. A contract between Belarusian Potash Company (BPC) and Indian customers was signed only at the end of June 2016 at a price of $227 per tonne. Potash imports into China for the first half of the year declined by 11% to 3.4 million tonnes. A contract between BPC and Chinese importers was signed in mid-July 2016 at a price of $219 per tonne. In Brazil, demand continued to recover, mainly due to an increase in soybean prices. According to ANDA, potash imports into Brazil during the first half of 2016 increased by 5.3% compared for the corresponding period of 2015 to 3.9 million tonnes.

  According to a report issued by the International Fertilizers Association (IFA) in June 2016, moderate potash demand growth is projected for 2015-2020, with global demand for potassium for all uses reaching 43 million tonnes of K2O in 2020, representing an increase of 2.1% per year compared with 2015. The capacity/demand balance is expected to shift towards a growing surplus in the long run. Between 2015 and 2020, global potash capacity is expected to grow by 17%, while demand is projected to rise by 11%.

  On July 26^th, ICL announced the signing of contracts with its Chinese customers to supply 700,000 tonnes of potash (with an option for additional quantities) for delivery during 2016 at a price which is in-line with recent contract prices. Also during July 2016, ICL signed a contract with a customer in India for the 12-month period from July 1, 2016 through June 30, 2017. The Company is continuing to negotiate with additional customers in India. ICL's potash business in the second half of the year will experience higher sales quantities but lower average prices.

  Given current market conditions, the company has decided to accelerate the transition from extracting and producing potash to producing Polysulphate® at its ICL UK mine. These steps are expected to reduce the mine's potash production year-on-year, freeing up production capacity to the benefit of the manufacture of Polysulphate®. The company is currently reviewing and evaluating the economic and operational implications of these changes including the potential impact on workforce numbers.

• Phosphates: During the second quarter of 2016, the prices of phosphate fertilizers continued to trend lower. The decline is attributable to weaker global demand as well as to higher supply capabilities of global producers. However, a modest recovery of demand in India and Brazil, together with depleted inventories in the US and anticipation for healthy summer-fill volumes, is providing positive signals for the near term future.

  On July 12^th, it was reported that OCP had signed phosphoric acid price contracts with its Indian partners for shipments during Q2-Q4 at a reported price of $605 per tonne.

  The company's phosphate sales during the quarter continued to be affected by the challenging environment. Weaker domestic phosphate demand in China and lower prices also affected the results of the YPH JV, which recorded an operating loss of $15 million (before G&A) in the second quarter of 2016. ICL has accelerated its efficiency plan for the JV in China including through reductions in labor and G&A expenses. The gradual transformation into specialty products will also support our ability to improve the business performance in light of the weakness in the commodity phosphate market in China. In general, the company's phosphate results are expected to improve during the second half of the year, supported by seasonality and the contribution of the efficiency plan being implemented in the YPH joint venture in China.

• Metal magnesium: Global demand for magnesium continues to be impacted by the slowing growth rate of China, Brazil and Europe, as well as by excess production capacity in China. In the US, overall demand has been restrained by a slowdown in some key mature segments of industries that use magnesium. The aluminum industry continues to suffer from low aluminum prices, forcing several US customers to announce shutdowns.

Results of operations:

 

 

 

* Excluding G&A expenses

** Percentage of the division's total sales

*** Adjusted operating income in Q2 2016 excludes a $13 million provision taken for a legal claim filed in prior years. Adjusted operating income in Q2 2015 excludes the impact of the strike at ICL Dead Sea in the amount of $108 million and a $3 million provision for a legal claim.

Sales:

The increase in the sales of Potash & Magnesium is due to the impact of the strike on the Q2 2015 results, offset by a decrease in quantities sold (after excluding the impact of the strike on the comparable quarter) and selling prices.

Phosphate sales increased significantly during the second quarter of 2016, due primarily to the consolidation of the YPH joint venture in China, partially offset by a decrease in selling prices and quantities sold (excluding the contribution of YPH).

 

 

The increase in the quantity of potash produced and sold is due mainly to the strike at ICL Dead Sea, which impacted production levels in Q2 2015. The success of ICL Dead Sea's processing plant expansion, together with an increase in the production quantities at ICL UK and ICL Iberia, contributed to the increase in production.

             

* To external customers

Most of the increase in the quantity of fertilizers produced and sold in Q2 2016 derived from the consolidation of the YPH joint venture in China, offset partially by a decrease in quantities sold to South America and Europe. The increase in phosphate rock production is also attributed to the consolidation of the YPH JV.

Operating Income:

The adjusted operating income of the Essential Minerals Division declined primarily due to a decrease in selling prices and quantities sold, to the operating loss of the YPH joint venture in China, a provision related to an employment agreement at ICL Dead Sea, and depreciation expenses related to the revaluation of potash reserves at ICL UK. This decrease was partially offset by lower salary and operating costs, insurance recovery income in respect of the fire at ICL Rotem and a decrease in shipping, energy and raw‑material prices.

Potash Stand Alone Activities – Key Results and Analysis:

*Excluding G&A

** Adjusted operating income in Q2 2016 excludes a $13 million provision taken for a legal claim filed in prior years. Adjusted operating income in Q2 2015 excludes the impact of the strike at ICL Dead Sea in the amount of $108 million and a $3 million provision for a legal claim.

Sales

The increase in sales stems mainly from the impact of the strike at ICL Dead Sea in Q2 2015, offset by a decrease in selling prices and in quantities sold (after excluding the impact of the strike).

Operating Income

The decrease in adjusted operating income in the second quarter of 2016 stems mainly from a decrease in selling prices and in quantities sold, a provision related to the employment agreement at ICL Dead Sea and depreciation expenses related to the revaluation of potash reserves at ICL UK. This decrease was partially offset by a decline in salary costs and other operating expenses, due to implementation of efficiency plans.

Specialty Solutions Division

Results of Operations:

 

*Excluding G&A expenses

** Adjusted operating income in Q2 2016 excludes a $1 million provision for a legal claim. Adjusted operating income in Q2 2015 excludes the impact of the strike at ICL Dead Sea and ICL Neot Hovav in the amount of $41 million and a $6 million provision for an early retirement plan.

 

ICL Industrial Products

Sales: The increase in sales derives primarily from the strike at ICL Dead Sea and ICL Neot Hovav which impacted Q2 2015, an increase in the quantities sold (primarily of elemental bromine and bromine‑based flame retardants) and an increase in the selling prices of bromine‑based products.

Business Highlights:

• Strong performance: ICL Industrial Products delivered strong performance during the quarter, supported by higher volumes, lower raw materials costs, new product contribution and the implementation of efficiency measures which continue to be rolled out globally.
• Prices of elemental bromine in China declined in June as a result of the seasonal increase in the Chinese production, but increased again in the second half of July to approximately 30% higher than their level in Q3 2014, when price increases were initially announced. Throughout this period, ICL maintained its selling prices. The prices of bromine derivatives are increasing globally in proportion with their bromine content. Price increases are expected to further contribute to the unit's results in the second half of 2016 compared to the second half of 2015.
• FR demand from the printed circuit and automotive markets remained stable compared to the second quarter of 2015, as did demand for bromine from the butyl rubber industry. Demand for mercury emission control products (i.e. the company's Merquel^®) increased during the period due to the continuing implementation of mercury emissions regulations in the US.
• During the second quarter, the company's sales of FR122P, its new polymeric flame retardant for insulation materials, continued to grow in the wake of the European and Japanese phase-out of HBCD. In addition, interest is growing for FR122P in Asia Pacific and North America, and prices are increasing steadily. To date, the company has signed long‑term supply agreements with several strategic customers with additional agreements in the process of negotiation.
• Despite lower oil and gas prices, sales of clear brine fluids increased in the second quarter of 2016 compared to Q2 2015, especially in Asia and South America.
• Sales of phosphorus-based flame retardants during the second quarter were unfavorably impacted by increased competition from Chinese manufacturers, resulting in lower volumes and price pressure.

ICL Specialty Fertilizers

Sales: The stability in sales was achieved despite the decrease in commodity prices, which reduced market prices for our end-products, and despite weaker demand in Asia-Pacific due to lower crop prices.  Pricing declines were offset by higher volumes sold and expanding Chinese footprint.

Business Highlights: Markets were negatively impacted by signs of maturity and increased plant protection regulation in Europe. This was partially offset by the recovery of housing markets in the US and Europe, which contributed to demand for ornamental horticulture, and by increased demand for enhanced efficiency fertilizers in the US. 

ICL Advanced Additives

Sales: The increase in sales stems mainly from the impact of the strike on the company's Q2 2015 results, the consolidation of the joint venture in China and an increase in quantities sold of specialty minerals, fire safety and oil additives (P2S5) business lines, countered partially by a decrease in selling prices.

Business Highlights: Performance was favorably impacted by several factors: increased demand for P2S5 following destocking in previous periods, higher demand for fire safety products due to a large number of fires in Canada, the contribution of the YPH JV in China to the company's Industrial Specialties and Acids business lines, the improved performance of distribution partners in Europe, strong demand for coating products and new customers for the unit's magnesium-based products.

This contribution was partially offset by competitive markets in the EU due to the ban on the use of phosphate‑based products in automated dishwashers (ADW), the weakness in the Brazilian economy and low oil prices, which negatively affected sales to oil drilling companies.

ICL Food Specialties

Sales: The increase in sales derived from both higher quantities sold and higher selling prices, reflecting a significant rise in sales of dairy protein products, continued geographical expansion into emerging markets and growing demand for the unit's unique products. This was achieved despite the volatility of the political and economic climate of some target markets and currency fluctuations.

Business Highlights: Performance was favorably impacted by growing demand for protein-enriched, unprocessed ("clean label") and non-allergenic ("free-from") food as well as by increased manufacturing capacity in North America, South America and Europe. This was offset somewhat by the extension of cross‑sanctions between the West and Russia through the end of January 2017, competition for Euro‑denominated exports to Poland and the UK due to the weakness of local currencies, and increasingly competitive environment in North America.

Specialty Solutions Operating Income:

Growth in adjusted operating income for the reporting period stems primarily from an increase in quantities sold, a decline in the prices of energy and raw materials (mainly materials used in the manufacture of bromine-based and phosphorous-based products and white phosphoric acid) and a decrease in salary costs due to the implementation of the efficiency plan at ICL Industrial Products. This was partially offset by a decline in the selling prices of ICL Advanced Additives and ICL Specialty Fertilizers, a one‑time provision as a result of extension of the validity of the employment agreement at ICL Dead Sea, and an increase in other operating expenses.

Dividend Distribution

The Board of Directors declared that a dividend totaling $60 million, or approx. $0.05 per share, will be paid on September 27, 2016, in respect of ICL's second quarter 2016 results.

About ICL

ICL is a global manufacturer of products based on specialty minerals that fulfill humanity's essential needs primarily in three markets: agriculture, food and engineered materials.

ICL produces approximately a third of the world's bromine, and is the sixth largest potash producer, as well as the leading provider of pure phosphoric acid. It is a major manufacturer of specialty fertilizers, specialty phosphates and flame retardants. ICL's mining and manufacturing activities are located in Israel, Europe, the Americas and China, and are supported by global distribution and supply networks.

The agricultural products that ICL produces help to feed the world's growing population. The potash and phosphates that it mines and manufactures are used as ingredients in fertilizers and serve as an essential component in the pharmaceutical and food additives industries. The food additives that ICL produces enable people to have greater access to more varied and higher quality food. ICL's water treatment products supply clean water to millions of people as well industry around the world. Other substances, based on bromine and phosphates help to create energy that is more efficient and environmentally friendly, prevent the spread of forest fires and allow the safe and widespread use of a variety of products and materials.

ICL benefits from a number of unique advantages, including its vertically integrated activities and complementary and synergistic downstream operations for the production of unique end products; its balanced and varied product portfolio in growing markets; broad presence throughout the world and proximity to large markets, including in emerging regions.

ICL operates within a strategic framework of sustainability that includes a commitment to the environment, support of communities in which ICL's manufacturing operations are located and where its employees live, and a commitment to all its employees, customers, suppliers and other stakeholders.

ICL is a public company whose shares are dually listed on the New York Stock Exchange and the Tel Aviv Stock Exchange (NYSE and TASE: ICL).

The company employs approximately 13,000 people worldwide, and its sales in 2015 totaled US $5.4 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 the Group'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 March 16, 2016. 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 follow)

Appendix:

 

(1) Strike impact on Q2 2015 sales quantities were not recovered in the Q2 2016 period due to the weak market conditions.

(2) Total tax impact on the adjustments was calculated according to the effective tax rate of the relevant subsidiary.

Calculation of adjusted EBITDA:

 

Condensed Consolidated Statements of Income  

(In millions except per share data)

 

 

Condensed Consolidated Statements of Financial Position:

 

Condensed Consolidated Statements of Cash Flows:

 

Sales by Main Countries:

Sales by Geographical Regions:

 

The breakdown of sales in the second quarter of 2016 indicates an increase in sales in Asia, stemming mainly from an increase of the quantities of potash sold compared with the corresponding quarter last year, which was impacted by the strike at ICL Dead Sea, consolidation of the joint venture in China, an increase in the quantities sold and selling prices of flame retardants and elemental bromine, and an increase in the sales of phosphate salts and acids. The increase in sales in Europe stemmed mainly by an increase in the quantities sold of acids, bromine‑based products and potash, as well as due to the strike in the corresponding quarter last year which impacted the sales of the specialty minerals products at ICL Advanced Additives. This increase was partly offset by the sale of non-core businesses and a decline in the quantities and selling prices of phosphates fertilizers sold. The decrease in sales in South America stems mainly from a drop in the quantities of phosphate fertilizers sold, a decrease in the selling prices of potash, phosphate fertilizers and green acid, and a decrease in the sales of ICL Advanced Additives due to the economic slowdown in Brazil. The decrease in sales in North America is mainly attributed to the sale of non‑core activities, which was offset by an increase in the sales of fire safety products, P2S5, and an increase in the quantities sold of clear brine solutions, TBBA flame retardants and potash.

Operating Division Data:

 

 

Operating Division Data (cont'd):

PRESS CONTACT
Gadi Ohana
Debby Communication
+972-3-5683000 
gadi@debby.co.il

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

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SOURCE ICL