ICL: Q4 2014 and 2014 Year End Results

TEL AVIV, Israel, Feb. 11, 2015 /PRNewswire/ --

Financial Highlights

• Q4 revenues of approx.$1.4B, decrease of approx. 1% from Q4 2013
• Adjusted operating profit in Q4 of approx. $200M, 8% decrease compared to Q4 2013
• Adjusted net income for the fourth quarter of approx. $108M, 45% less than the parallel period in 2013 mainly due to higher financial expenses as a result of changes in fair value of hedging instruments and a higher tax rate as a result of the shekel depreciation vs. the US dollar, The effect of the shekel depreciation vs. the dollar will turn positive in the coming quarters. 
• 2014 revenues, adjusted operating profit and net income totaled $6.1B, $960M and $695M, respectively.

Important strategic milestones were achieved during the fourth quarter as ICL continues to implement its "Next Step Forward" strategy to grow its core businesses, achieve operational excellence and unify its global business activities:

• Efficiency improvements, which are expected to contribute $350M per annum to the operating profit by the end of 2016, delivered approx. $100M in 2014, more than offsetting the impact of labor interruptions at the Company's plants in Israel during the year.
• Strategic alliance with China's major phosphate producer, Yunnan Yuntianhua will provide ICL with an additional fully-backward integrated phosphate platform with significant expansion potential of the specialty phosphates business in the rapidly growing Chinese and Asian markets.
• As of the reporting date, ICL completed the divestiture of several non-core businesses with expected net proceeds after tax of over $300M, on track to achieve total net proceeds of $350-500M.
• Completion of the acquisition of 100% ownership in Fosbrasil, Latin America's main producer of purified phosphoric acid for the food, advanced additives and specialty fertilizers markets.
• Following the conclusion of the quarter:
  • ICL agreed to acquire Prolactal, a leading European dairy proteins manufacturer in line with ICL's strategy to expand its Food Specialties' business.
  • ICL inaugurated its European region headquarters in Amsterdam which will house ICL's European Shared Services Center and its Global Procurement Organization Center.  

ICL (NYSE & TASE: ICL), a global manufacturer of products based on specialty minerals that fulfills essential needs of the world's growing population in the agriculture, processed food and engineered materials markets, today reported its financial results for the fourth quarter ended December 31, 2014.

(*) Adjusted operating income is the operating income after elimination of unusual items. For 2013, primarily, a provision for early retirement at ICL Rotem, a provision for removing waste at Bromine, and an impairment of assets recognized in the fourth quarter of 2013. For 2014, mainly about $149 million ($135 million net of tax and finance) relating to a provision in respect of prior periods resulting from an arbitration decision in connection with the royalties' issue, about $71 ($55 million net of tax) million relating to an impairment of assets of subsidiaries in the US and Europe, about $36 (no tax effect)  million in income from entry into consolidation, stemming from the completion of the acquisition of all the shares of Fosbrasil, a loss of about $17 million relating to the strike at ICL Rotem ($14 million net of tax), and other expenses about $1 million.

Adjusted net income is net income net of unusual items (the impacts detailed above in the adjusted operating income and the financing expenses, net of tax), along with the impact of unusual items in the tax category: in 2013, in respect of trapped earnings, and in 2014 an amount of about $62 million in respect of unusual tax expenses stemming primarily from assessment agreements in European subsidiaries. (See note in page 12).

(**) See page 12.

ICL's Chairman, Nir Gilad stated: "Fundamental global mega trends that have occurred in recent years, such as the growth of the world's population, urbanization, rising standards of living, the importance of protecting the environment and technological development, are significantly affecting humanity's needs. ICL's unique business model and its areas of activity are transforming it into a company specializing in providing the essential needs of humanity in the agriculture, food and engineered materials markets, and they are the basis for ICL's success and business growth over the past decade. Providing for these essential needs of humanity is an excellent basis for conducting business, and ICL aims to sustain this activity over the next decade. For this reason, we developed our 'Next Step Forward' strategy whose purpose is to transform ICL into a leading company that provides the essential needs of humanity in our core markets, and in doing so, to ensure the continued success of the company in the coming decade as well. In addition, global changes in the business environment in which we operate, as well as the simultaneous increase in our tax burden by the Israeli government have intensified our need to accelerate the implementation of our strategic plan to invest in, and acquire growth drivers overseas, as well as to increase efficiency and operational excellence at ICL's plants. The Board of Directors views with satisfaction, appreciation and optimism the impressive process by which the various components of the strategy are being realized, and thank and congratulate ICL's management on its achievements."     

"During 2014 ICL made substantial progress in implementing key elements of our 'Next Step Forward' strategy," said ICL's President & CEO, Stefan Borgas, "We are strengthening our mineral assets position through the strategic alliance with Yunnan Yuntianhua in China, which will give ICL an additional backward-integrated, world-scale phosphate platform, through our capacity expansions of potash and vacuum salt at ICL Iberia and polysulphate at ICL UK, and through our alliance with Allana Potash to mine potash in Ethiopia. During 2014 ICL also solidified its value chain downstream operations as a leading provider of specialty fertilizers, purified phosphoric acid, next generation polymeric flame retardants and value ingredients for the food industry. On the other hand we were successful in divesting several non-core businesses to better owners, and we will use the proceeds to strengthen our positions in the agriculture, food and engineered materials markets. Financially 2014 was a transition year for ICL in which our results were negatively impacted by not only labor disruptions in Israel and macro issues in several of our markets, but also due to our pro-active efforts that included resolving a long-standing royalties issue, taking write offs related to non-core assets and implementing a range of measures to achieve cost reductions, all of which have laid a solid foundation for improved results in 2015 and beyond".

Business environment and major developments in ICL's segments:

ICL Fertilizers:

• Strong potash volume year was negatively impacted by labor disruptions in ICL Dead Sea in Q4
• Very satisfying phosphate performance supported by volumes, price increases and strong operating step-up
• In Specialty Fertilizers, weak environment in Eastern Europe was strongly offset by significant efficiency gains
• Continued solid demand in phosphates and operational improvements are expected to balance short term potash and Specialty Fertilizers uncertainties

ICL Industrial Products:

• Stable demand for flame retardants and bromine biocides is expected to continue whereas clear brine fluids business is expected to be negatively impacted by lower oil prices as of 2H2015
• Improved operating profit supported by product-mix effect and efficiencies, offset by the impact of labor interruption in the inefficient compound plant in Israel
• Margin expansion through implementation of cost reduction and selective price increases expected to take effect in 2015
• Following the conclusion of the quarter, in response to ICL's efficiency initiatives in its bromine compound plant in Israel, which includes an intention to reduce the labor force by 140 employees, the workers council announced a strike at the plant on February 2, 2015. ICL's management is taking measures to minimize damages resulting from the strike and to complete the efficiency programs, inter alia through negotiations with the workers council.

ICL Performance Products:

• Q4 results impacted by lower demand in Europe, increased competition in the US and the depreciation of the Euro
• In the last 5 months, Food Specialties launched 30 new multi ingredient solutions demonstrating growth of the core business
• Acquisitions of Fosbrasil and Prolactal will contribute to portfolio and geographic expansions

ICL achieved several important strategic milestones during and following the quarter:

Efficiency Plan:
In line with its 'Next Step Forward' strategic goal of achieving operational excellence and greater efficiency, ICL delivered  about $100 million in efficiency improvements in 2014 operating profit, offsetting the impact of labor interruptions at its Israel facilities. Approx. 71% of the company's improvements were achieved in ICL Fertilizers. The Company continues to implement efficiency initiatives in Israel – at the Dead Sea and at its Bromine Compound plant in Neot Hovav, notwithstanding disputes with the Company's labor unions. During 2015, ICL intends to open a Shared Services Centers Israel (Beer Sheva) in addition to the centers in Europe (Amsterdam) and in the US (St. Louis) to achieve additional efficiencies, and to implement other operational excellence initiatives at ICL sites around the world. It will also expand the responsibilities of the Company's recently launched Global Procurement Organization in order to achieve further savings. A new power plant at ICL Dead Sea is also expected to come on line during the year and contribute further savings in energy costs.

Strategic Alliance with Yunnan Yuntianhua:
ICL entered into an agreement with Yunnan Yuntianhua, China's second largest chemicals manufacturer (approx.$9 billion in revenues) and the third largest phosphate producer in the world. ICL and Yunnan Yuntianhua will create a new 50/50 joint venture company, controlled by ICL, of a fully backward integrated phosphate business with a world-scale phosphate rock mine and downstream operations. The total deal value is estimated at approx. $452 million. In order to strengthen the strategic partnership, and to create added value for their shareholders, approx. $269 million of the investment will be used to purchase a strategic holding in Yunnan Yuntianhua, China's leading producer of phosphate rock and fertilizers, traded on the Shanghai Stock Exchange (Shanghai: 600096). The new shared issued will represent 15% of the share capital of Yunnan Yuntianhua. The balance of the deal value, in the amount of $183 million, is in the phosphate JV (in addition to a net debt of $100M). The JV will leverage ICL's and Yunnan Yuntianhua's technical, marketing and production expertise, and will include a joint phosphate R&D platform for developing new processes and products. ICL expects to close the transaction in the first quarter of 2016, subject to governmental approvals.

The JV will increase ICL's phosphate platform by more than 50% and expand its phosphate end-to-end business model across additional attractive geographies. Coupled with ICL's existing $2 billion specialty phosphates business in Europe, North America and Brazil, the JV will grant ICL the following important abilities:

• Transform ICL into a larger and more competitive phosphate player by expanding its phosphate platform into the rapidly growing Chinese and Asian markets
• Nearly double ICL's global phosphate market share as it becomes a new major player in China's and Asia's growing specialty markets for fertilizers, food ingredients and engineered materials
• Build a world-scale, diverse and competitive specialty phosphates operation for three of ICL's target markets: China, SE Asia and India
• Strengthen ICL'S downstream phosphate business position as a leading global backward integrated phosphate player with the largest specialty products portfolio. 
• Balance ICL's global supply chain from two integrated sites, one in Israel and the other in China, in order to better serve ICL's customers in the Europe, the Americas and Asia, and generate supply chain and CAPEX synergies
• Potential for significant expansion and synergistic opportunities including upgrading and expanding the purified phosphoric acid production facilities, expanding downstream operations and altering the JV's commodity/specialty sales volume ratios from 90/10 to 50/50 by utilizing ICL's know-how; offering higher value added products; expanding bulk fertilizers production via debottlenecking; and improving utilization and processes.
• Timing of the deal enables ICL to take advantage of current low phosphate prices to secure long-term reserves and a market share in emerging markets.

The JV is expected to be cash EPS accretive from the first full year of operations, expand EBITDA margins and achieve synergies of at least $30 million per year within five years. The JV's CAPEX is estimated at approx. $340 million, spread over a five-year period from the closing of the transaction.  

Acquisition of Prolactal:
Following the end of the quarter, ICL's Food Specialties unit, part of ICL Performance Products, announced the acquisition of Prolactal GmbH, a leading European producer of dairy proteins for the food and beverage industries. The transaction is expected to close in Q2'2015, subject to regulatory approvals. Prolactal, a privately-held company with revenues (2014) of ~€100 million, produces a range of functional dairy proteins used by the beverage, dairy and meat industries to stabilize and improve the nutritional value of beverages and foods. Dairy proteins are an essential, easily absorbed ingredient widely used in health, sports, baby and infant foods. The combination of ICL's backward integrated specialty phosphate capabilities, Prolactal's protein capabilities and both companies' advanced know-how will enable ICL Food Specialties to provide a broader selection of innovative, value-added food additives for improvement of texture and stability that outperform other currently available solutions, and to meet the growing demand for healthy foods and beverages containing higher protein levels.

ICL expects the acquisition to contribute substantial sales and marketing synergies in several regions worldwide and to be EPS accretive from the first year of consolidation. The acquisition of Prolactal is a key milestone in ICL's strategy to strengthen and grow its core food business, and will help transform ICL Food Specialties into an integrated, global formulator supplying unique, value-added solutions for improvement of texture and stability.

Completion of the Fosbrasil acquisition:
During the fourth quarter, ICL completed its acquisition of 100% of Fosbrasil S.A. (increase from a rate of holdings of 44.25% to 100%), Latin America's leading producer of purified phosphoric acid for the food market and specialty fertilizers and a producer of downstream phosphate-based products and specialty fertilizers with annual revenues of approx. $100 million. ICL is a global producer of phosphoric acids and phosphate products with production facilities in Israel, the US, Mexico, Germany and China. The acquisition of Fosbrasil expands ICL's footprint in Brazil and will lead to a nearly 50% increase in ICL's purified phosphoric acid volumes, transforming ICL into a market leader in South America in specialty phosphates for food, agriculture and engineered materials markets. The consolidation will also enable ICL to broaden its product portfolio, achieve greater competitiveness and utilize synergies by optimizing its operations and increasing its control over production and marketing activities.

Divestitures of non-core businesses on track to achieve net proceeds of $300-500M:
During the quarter ICL signed agreements for the sale of several of its non-core businesses. The sale of ICL's APW (Alumina, Paper, Water) business units is expected to generate net proceeds (Enterprise Value net of taxes) of approx. $220 million. This sale and other divestitures agreed during the quarter, including Rhenoflex, the leather shoes reinforcement business, the Anti-Germ business and Medentech, are expected to generate net proceeds of more than $300M. ICL intends to use the proceeds to strengthen its core businesses.

Establishment of European Regional Headquarters:
Following the fourth quarter, ICL inaugurated its new European region headquarters in Amsterdam. The facility will house one of ICL's four global Shared Services Centers (together with an existing center in the US and the planned center in Israel), as well as ICL's Global Procurement organization. Among the 300 employees who will work at the headquarters following its completion in mid-2015 will be executives of ICL's business units in Europe and members of ICL's European M&A team. The new regional headquarters will serve as a platform for creating 'ONE ICL' and contribute to improved efficiency and operational excellence, strengthen ICL's European business activities and the Company's long-standing relationships with its European customers and suppliers. The Netherlands' positive business and regulatory environment will also provide an empowering work environment for the Company and its employees in Amsterdam.

Potash for Growth – Ethiopia:
Following the positive results of ICL's farmer education program in India, 'Potash for Life', 2014 the Company launched its 'Potash for Growth' program in Ethiopia in December 2014. The program is designed to unlock the potential of agriculture in Ethiopia by promoting balanced fertilization among Ethiopia's farmers to increase agricultural productivity and economic benefit, as well as to contribute to the creation of sustainable food production in Ethiopia. The program includes hundreds of potash demonstration plots, support of a nationwide soil fertility mapping effort to recommend optimal fertilizer applications on local levels as well as of research by graduate students at Ethiopian universities to increase knowledge of balanced fertilization and develop specialists in plant nutrition.

The program in India which was launched in 2013 has achieved substantial progress in providing Indian farmers with science-based evidence of the benefits and the improved profitability that derive from using potash fertilizers on over 20 crops that were tested.  

Additional strategic milestones and major events during 2014:

Expansion of Activities at ICL Iberia:
ICL is expected to invest $435 million to create the infrastructure for a long-term increase of production capacity at ICL Iberia in Catalonia, Spain, while significantly reducing its potash production cost per tonne to a very competitive level, with marginal cost per tonne similar to that of the Dead Sea. The investment, which will significantly reduce the plant's environmental footprint, consists of a step-by-step increase in capacity to about 1.4M tonnes p.a.; transforming plant output to nearly 100% granulated product; doubling vacuum salt capacity to about 1.5M tonnes p.a.; upgrading of infrastructure in the mine (entry ramp to the mine), site logistics  and port platform in Barcelona port to support production, transportation and export of approx. 2.3M tonnes; and a feasibility study of a new brownfield project aimed at expanding production by an additional 1M tonnes of potash annually.    

Agreement with AkzoNobel: 
ICL signed a non-binding MOU with AkzoNobel for long-term cooperation in the production and marketing of 1.5 million tonnes of high quality vacuum salt and 50,000 tonnes of white potash at the Company's ICL Iberia potash plant in Spain.

Strategic Alliance with Allana Potash: 
ICL entered into a strategic alliance with Allana Potash to develop Ethiopia's Danakhil potash deposit as part of its strategic effort to develop potash resources outside of Israel. The agreement includes a minority holding and an offtake agreement for shipment to ICL markets in Asia and Africa. Based on feasibility tests conducted by Allana, it is expected that up to one million tonnes of potash can be mined annually within a period of less than five years from commencement of the project.

Expansion of the polysulphate production capacity in ICL UK: 
ICL UK announced a £38 million investment program to expand its mining and production capacity of Polysulphate, a new multi-nutrient sulphate fertilizer, from its current 130 thousand tonnes per year to 600 thousand tonnes per year. The British government approved a grant of £4.9 million to the project.

Acquisition of AmegA Sciences: 
ICL's Specialty Fertilizers business unit acquired AmegA Sciences, an innovative and industry-leading UK-based developer of products for the specialty agriculture, horticulture and turf & amenity markets, including solutions related to water conservation, water retention and enhanced growth. The acquisition strengthens ICL Specialty Fertilizers' position in specialty agriculture markets by adding to its core technologies and product portfolio.

Polymeric flame retardant manufacturing agreement with Albemarle: 
The JV will operate a 2,400 tonnes per year plant in the Netherlands and a 10,000 tonnes per year plant in Israel of a new polymeric flame retardant which is the alternative to the HBCD, the industry standard flame retardant used in polystyrene foam applications that is being phased out in Europe, Japan and other countries. The JV will offer environmentally-friendly, fire safety products based on license from Dow Chemicals and the additional capacity will meet the market existing and future needs. The JV will create the largest producer of this polymeric flame retardant and will contribute to lower risk as well as lower costs due to economies of scale.

Listing on the New York Stock Exchange: 
ICL listed its ordinary shares on the New York Stock Exchange resulting in their dual listing on both the NYSE and the Tel Aviv Stock Exchange. The listing on the NYSE is meant to broaden ICL's global investor base, improve the liquidity of its shares, provide ICL with greater access to global capital markets and increase its flexibility in managing its capital structure.

Sheshinski Committee II Report: 
Following the unanimous approval by the Israeli government's Socio-Economic Cabinet of the recommendations of the Committee for Examination of the State's Share from Use of Natural Resources, and in light of deteriorating business conditions in Israel accompanied by a lack of regulatory certainty, ICL's Board of Directors decided to cancel planned investments of about $750 million in in Israel; to re-evaluate planned investments in Israel totaling approximately $1 billion; to re-evaluate the closure of ICL's Magnesium plant in January 2017 (subject to the government's recognition of the contribution of the synergies derived by the plant) and to focus on reducing costs as a key component for creating business value in Israel by implementing efficiency plans at ICL's plants in the Negev. ICL continues to work to materially change the business environment in Israel in order to justify future investments in Israel by ICL.

CDP Award: 
ICL was recognized as a world leader in reducing greenhouse gas emissions and mitigating climate change. For the second year in a row, ICL's 2014 report to the Carbon Disclosure Project (CDP) received a score of 98 (out of 100) in the CDP's Carbon Disclosure Index. It also received the highest grade (A) for its efforts to reduce its GHG emissions, placing ICL among the 150 top global companies and the second best overall among global fertilizer producers. ICL submits detailed reports to the CDP as part of its strategy of sustainability, corporate responsibility and transparency.

Results of Operations for 2014

Sales
ICL's sales in the period of the report amounted to about USD 6,111 million, compared with USD 6,272 million in the corresponding period last year. This decrease stems mainly from a decrease in selling prices, which led to a decrease in sales of about USD 431 million. This decrease was partly offset by an increase in quantities sold, including the first‑time consolidation of companies acquired during the period of the report, which contributed about USD 252 million, and from the impact of changes in currency exchange rates, in the amount of about USD 18 million. As a result of the labor interruptions at ICL Dead Sea during the fourth quarter, the Company's sales were unfavorably impacted, in the amount of about USD 60 million.

ICL's sales in the fourth quarter amounted to about USD 1,403 million, compared with USD 1,416 million in the corresponding period last year. This decrease stems mainly from the impact of changes in currency exchange rates, in the amount of about USD 45 million and from a decline in quantities sold, in the amount of about USD 20 million. This decrease was partly offset by an increase in selling prices, which led to an increase in sales of about $26 million and the first‑time consolidation of companies acquired during the period of the report which resulted in an increase in sales of about $26 million. As a result of the labor interruptions at ICL Dead Sea in the fourth quarter, the Company's sales were unfavorably impacted by about USD 60 million.

Below is a geographical breakdown of sales:

The breakdown of sales in the period of the report indicates an increase in sales in North America, primarily as a result of a higher sales volumes of potash, bromine‑based and chlorine‑based biocides for water treatment, inorganic bromine products and magnesium products. In addition, there was an increase in sales in Europe deriving from an increase in sales in the Performance Products segment, mainly as a result of the acquisition of Hagesued and an increase in the sales of P2S5. On the other hand, there was a decrease in sales in Asia, mainly due to a decrease in prices of potash compared with last year and a decrease in quantities of potash sold in Asia, except for China. The decline in South America stems mainly from a decline in quantities sold and selling prices of fertilizers and potash sold, compared with the corresponding period last year. The decline in quantities of fertilizer sold in South America, derives, mainly, from the impact of the strike at ICL Rotem and from a decline in the quantities of potash sold deriving from a lack of availability of granulated potash.

The breakdown of sales in the quarter indicates an increase in sales in North America, mainly as a result of an increase in quantities and prices of potash sold, along with an increase in the sales volumes of inorganic bromine products and magnesium products. The increase in sales in South America stems from an increase in quantities and prices of potash sold. On the other hand, there was a decrease in sales in Asia, mainly as a result of a decrease in quantities of potash sold to China as a result of the labor interruptions in ICL Dead Sea. The decline in Europe derives mainly from a decrease in quantities of potash sold and the impact of the weakness of the euro against the dollar on the dollar price of potash and on ICL Performance Products sales revenues. This decline was partly offset by the contribution of the acquisition of Hagesud along with an increase in sales of P2S5.

Cost of sales
The cost of sales in the period of the report amounted to about USD 3,915 million compared with about USD 3,862 million in the corresponding period last year – an increase of about USD 53 million. The increase in the cost of sales derives, primarily, from an increase in quantities sold, including the first‑time consolidation of companies acquired during the period of the report, in the amount of about USD 116 million, the impact of the change in currency exchange rates in the amount of about USD 35 million, from the impact of the strike at ICL Rotem in the amount of about USD 26 million, net of an amount of strike insurance received of about USD 9 million, and an increase in the royalties expenses in the current period due to the arbitration decision regarding this matter, in the amount of about USD 12 million. This increase was partly offset by a decline in the raw‑material and energy prices, in the amount of about USD 56 million, a decrease in salaries expenses, in the amount of about USD 39 million, mainly due to the impact of retirement of employees at ICL Rotem, and from decrease in other operating expenses, in the amount of about USD 32 million, stemming from, among other things, a decrease in the expenses for maintenance and subcontractors and a decline in royalties due to the drop in sales.

The cost of sales in the fourth quarter amounted to about USD 890 million compared with about USD 889 million in the corresponding period last year. The cost of sales was impacted, primarily, by an increase in the prices of raw materials, in the amount of about USD 27 million, first‑time consolidation of companies acquired during the period of the report, in the amount of about USD 20 million, and an increase in the royalties expenses in the current period as a result of the arbitration decision, in the amount of about USD 4 million. This increase was mostly offset by the change in the currency exchange rates, in the amount of about USD 41 million, and a receipt in respect of strike insurance at ICL Rotem, in the amount of about USD 9 million.

Energy costs constituted approximately 7% of ICL's total operating costs in the period of the report. Energy costs in the period of the report decreased compared with the corresponding period last year due to the increased use of natural gas which leads to a savings as a result of the switch from the use of expensive fuels, and from the undertaking to purchase electricity from OPC, at lower costs compared with the price of the electricity purchased from the Israel Electric Company, which contributed to a reduction in the energy costs in the period of the report.

Selling and marketing expenses 
Selling and marketing expenses in the period amounted to about USD 839 million, compared with about USD 850 million in the corresponding period last year. Selling and marketing expenses include, mainly, costs in respect of marine shipping, overland shipping, selling commissions and employee salaries. The decrease in the expenses stems mainly from a decrease in shipping expenses as a result of a decline in marine and overland shipping costs, and a change in the mix of destinations and products.

Selling and marketing expenses in the fourth quarter amounted to about USD 194 million, compared with about USD 220 million in the corresponding period last year. The decrease in expenses stems mainly from a decline in shipping expenses due to a decline in the marine and overland shipping costs, a change in the mix of destinations and products, and a reduction in quantities sold.

Marine transportation expenses constituted about 7% of ICL's total operating costs in the period of the report, totaling about $369 million. After several years of falling marine bulk transportation prices, commencing from mid-2013 there has been an increase in shipping prices which reached a record high for the last 3 years, at a level of 2,337 points in the middle of December 2013 (the BDI - Baltic Dry Index- marine shipping index). Starting from the first quarter of 2014, prices fell to their level prior to the increase and the average index for 2014 was 8% less than the average index for 2013. The average index for the quarter was 40% less than the average index for the fourth quarter of 2013, which is explained partly by a drop in fuel prices during this period. The impact of the decline in the marine shipping prices, as stated above, was partly offset by an increase in marine shipping resulting from an increase in quantities sold.

General and administrative expenses 
General and administrative expenses in the period of the report amounted to about USD 306 million, compared with about USD 281 million in the corresponding period last year. General and administrative expenses in the quarter amounted to about USD 80 million, compared with about USD 74 million in the corresponding period last year. General and administrative expenses increased as a result of, among other things, first‑time consolidation of companies acquired in the period of the report as well as due to consulting and other expenses in connection with updating and implementing the Company's strategy, issuance of the Company's shares on the New York Stock Exchange and additional processes.

Research and development expenses 
R&D expenses in the period amounted to about USD 87 million, an increase of about USD 4 million compared with the corresponding period last year.

R&D expenses in the fourth quarter amounted to about USD 20 million, a decrease of about USD 2 million compared with the corresponding period last year.

Other expenses 
Other expenses, net, in the period of the report, amounted to about USD 207 million, compared with about USD 94 million in the corresponding period last year. Other expenses include mainly  unusual items, in the amount of about USD 149 million (before interest expenses and tax impact) relating to prior periods, due to the arbitration decision regarding the royalties' issue, and from an impairment in value of assets in subsidiaries in the US and Europe, in the amount of about USD 71 million. This increase was partly offset by income of  about USD 36 million resulting from a capital gain following the completion of the acquisition of 100% holdings in Fosbrasil. Other expenses last year included primarily a provision for early retirement at ICL Rotem in the amount of about USD 60 million, a provision for treatment of waste in the amount of about USD 25 million, and an impairment in the value of assets in the amount of about USD 10 million.

Other expenses, net, during the quarter amounted to about USD 45 million. The expenses include income from a capital gain following the completion of the acquisition of 100% in Fosbrasil in the amount of USD 36 million, which was offset by an impairment in the value of assets in subsidiaries in the United States and in Europe, in the amount of about USD 71 million. Other expenses last year stemmed mainly from a provision for early retirement at ICL Rotem, in the amount of about USD 60 million, from a provision for treatment of waste, in the amount of about USD 25 million, and from an impairment in value of assets, in the amount of about USD 10 million.

Adjusted EBITDA for the periods of activity* 
Adjusted EBITDA for the fourth quarter and for 2014 was about USD 305 million and USD 1,344 million, respectively. Calculation of Adjusted EBITDA was made in millions of dollars, as follows:

(*) We disclose in this report financial measures titled Adjusted EBITDA, Adjusted operating income and Adjusted net income attributable to the Company's shareholders. We use Adjusted EBITDA, Adjusted operating income and Adjusted net income attributable to the Company's shareholders to facilitate operating performance comparisons from period to period. Adjusted EBITDA is defined as our income to Company shareholders plus depreciation and amortization plus financing expenses, net and taxes on income plus items we view as unusual which were adjusted for the operating income and net income attributable to the Company's shareholders.

We believe Adjusted EBITDA facilitates company‑to‑company operating performance comparisons by backing out potential differences caused by variations such as capital structures (affecting financing expenses, net), taxation (affecting taxes on income) and the age and book depreciation of facilities and equipment (affecting relative depreciation and amortization), which may vary for different companies for reasons unrelated to operating performance. Adjusted EBITDA is a non‑IFRS measure for reporting our total Company performance. Our management believes, however, that disclosure of Adjusted EBITDA provides useful information to investors, financial analysts and the public in their evaluation of our operating performance. Adjusted EBITDA should not be considered as the sole measure of our performance and should not be considered in isolation from, or as a substitute for, operating income or other statement of operations or cash flow data prepared in accordance with IFRS as a measure of our profitability or liquidity. Adjusted EBITDA does not take into account our debt service requirements and other commitments, including capital expenditures, and, accordingly, is not necessarily indicative of amounts that may be available for discretionary uses. In addition, Adjusted EBITDA, as presented in this report, may not be comparable to similarly titled measures reported by other companies due to differences in the way that these measures are calculated.

Financing expenses
Net financing expenses in the period of the report amounted to about USD 156 million, compared with net financing expenses of about USD 27 million in the corresponding period last year. Financing expenses include a provision, in the amount of about USD 32 million, mainly in connection with the arbitration decision dated May 19, 2014 regarding the royalties' issue. After elimination of the above‑mentioned provision, financing expenses amounted to about USD 124 million – an increase of about USD 97 million, compared with the corresponding period last year. The increase derives mainly from an increase in interest expenses, in the amount of about USD 21 million, expenses in respect of a change in the fair value of hedging, energy and marine shipping transactions in the period, in the amount of about USD 41 million, compared with revenues of about USD 20 million in the corresponding period last year, and as a result of expenses in respect of a change in the fair value of currency and interest transactions and the impact of exchange rate differences on provisions for employee benefits in the period, in the amount of about USD 6 million, compared with revenues of about USD 21 million in the corresponding period last year. On the other hand, there was a decrease in interest expenses in respect of provisions for employee benefits, in the amount of about USD 3 million. In addition, borrowing costs, in the amount of about USD 16 million, were capitalized during the period.

Net financing expenses in the fourth quarter amounted to about USD 66 million, compared with net financing expenses of about USD 6 million in the corresponding period last year, an increase of about USD 60 million. The increase in financing expenses in the quarter compared with the corresponding period last year stemmed mainly from an increase in interest expenses, in the amount of about USD 6 million, expenses in respect of a change in the fair value of hedging, energy and marine shipping transactions in the period, in the amount of about USD 23 million, compared with revenues of about USD 8 million in the corresponding period last year, and as a result of expenses in respect of a change in the fair value of currency and interest transactions and the impact of exchange rate differences on provisions for employee benefits in the period, in the amount of about USD 35 million, compared with revenues of about USD 4 million in the corresponding period last year. On the other hand, there was a decrease in interest expenses in respect of provisions for employee benefits, in the amount of about USD 6 million. In addition, borrowing costs, in the amount of about USD 13 million, were capitalized in the fourth quarter.

Tax expenses
Tax expenses in the period amounted to about USD 166 million, compared with tax expenses of about USD 280 million in the corresponding period last year. The tax rate on the pre‑tax income is about 26.3% compared to about 25.5% last year. The rate of tax expenses in the period of the report was impacted by unusual tax expenses, in the amount of about USD 62 million, mainly as a result of an assessment agreement in subsidiaries in Europe, from the change in the shekel/dollar exchange rate that gave rise to an increase in the tax rate of the companies operating in Israel the source of which are differences in the measurement basis, and an increase in the Israeli Corporate Tax rate to 26.5%. In the corresponding period last year, tax expenses included unusual tax expenses recognized in respect of the release of trapped earnings, in the amount of about USD 107 million.

Tax expenses in the fourth quarter amounted to about USD 36 million, compared with tax expenses of about USD 5 million in the corresponding quarter last year. The tax rate on the pre‑tax income is about 29.5%, compared with about 4.0% in the corresponding period last year. The rate of tax expenses in the quarter was impacted, mainly, by unusual tax expenses as a result of the reduction in the deduction for tax purposes in respect of investments made by a subsidiary in Europe in prior periods, in the amount of about USD 11 million, from the change in the shekel/dollar exchange rate that gave rise to an increase in the tax rate of the companies operating in Israel the source of which are differences in the measurement basis, an increase in the Israeli Corporate Tax rate to 26.5%, and withholding of tax relating to a dividend between foreign subsidiaries. The low tax expenses last year stemmed mainly from the change in the shekel/dollar exchange rate, which gave rise to a decrease in the tax rate of companies operating in Israel, where the source of the differences is the measurement basis.

On December 29, 2013, an assessment was received by the Tax Authority stating that the Company is required to make an additional tax payment in the amount of USD 230 million over and above the amount paid for the years 2009 to 2011. The Company filed an appeal of the assessment with the Tax Authority. On January 27, 2015, the Company received an order from the Tax Authority which puts the additional tax amount at about $200 million. The Tax Authority's main contention is that the ICL subsidiaries, Dead Sea Works and Rotem Amfert Negev, are not entitled to benefits under the Encouragement of Capital Investments Law, as of the effective date of Amendment No. 60 of the said Law in 2005. The Company disagrees with the position of the Tax Authority, and with the assistance of its legal advisors, it is preparing to file an appeal of the order. No provision for tax was included in the financial statements in respect of the said assessment.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report 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 appear in a number of places in this report and include, but are not limited to, statements regarding our intent, belief or current expectations. Forward‑looking statements are based on our management's 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, those identified in the "Risk factors" in the Company's registration statement on Form F-1 filed with the U.S. Securities and Exchange Commission on September 23, 2014 ("F-1"). These risks and uncertainties include factors relating to: loss or impairment of business licenses or mining permits or concessions; natural disasters; failure to raise the water level in evaporation Pond 5 in the Dead Sea; accidents or disruptions at our seaport shipping facilities or regulatory restrictions affecting our ability to export our products overseas; labor disputes, slowdowns and strikes involving our employees; currency rate fluctuations; rising interest rates; general market, political or economic conditions in the countries in which we operate; pension and health insurance liabilities; price increase or shortages with respect to our principal raw materials; volatility of supply and demand and the impact of competition; changes to laws or regulations (including environmental protection and safety and tax laws or regulations), or the application or interpretation of such laws or regulations; government examinations or investigations; the difference between actual reserves and our reserve estimates; failure to integrate or realize expected benefits from acquisitions and joint ventures; volatility or crises in the financial markets; cyclicality of our businesses; changes in demand for our fertilizer products due to a decline in agricultural product prices, lack of available credit, weather conditions, government policies or other factors beyond our control; decreases in demand for bromine‑based products and other industrial products; litigation, completion of acquisition/M&A, arbitration and regulatory proceedings; war or acts of terror; and other risk factors discussed under "Risk Factors" in the F-1.

Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them in light of new information or future developments or to release publicly any revisions to these statements in order to reflect later events or circumstances or to reflect the occurrence of unanticipated events.

PRESS CONTACT
Fleisher Communications and Public Relations
Amiram Fleisher
+972-3-6241241
[email protected]

SOURCE ICL

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