ICL Reports Q2 2018 Results

TEL AVIV, Israel, Aug. 1, 2018 /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, 2018.

Sales for the second quarter were $1,371 million compared to $1,322 million for the comparable period in 2017. The Company reported operating income of $172 million compared to $144 million for the second quarter of 2017. Excluding an impairment following the divestment of Rovita's business, adjusted operating income was $188 million, 23% higher than the $153 million recorded in the second quarter of 2017, and 47% higher excluding a profit of $25 million recorded in the second quarter of 2017 from assets that were divested at the end of the first quarter of 2018. The Company recorded strong performance across all its business lines with growth and profitability supported by higher prices throughout the Company's value chains, as well as higher sales volumes of bromine and its derivatives, specialty fertilizers and specialty phosphates. The successful implementation of a value oriented sales approach continued to increase operating income of the Company's Specialty Solutions division. Adjusted EBITDA for the first quarter was $296 million compared to $251 million in the prior-year quarter.

ICL's CEO, Raviv Zoller, stated, "We are pleased with our results in the second quarter, which exceeded management's expectations, following record breaking performance in June of our bromine and phosphate value chains. The Company's growth and profitability during the quarter are attributable to improving market conditions and cost controls, as well as the Company's ongoing efforts to optimize potash production and to implement a value-oriented sales approach in our bromine and phosphate value chains."

Zoller added, "The second quarter results also reflect some of ICL's competitive assets, such as its professional workforce, its strong corporate culture and substantial know-how that has been accumulated over decades. As part of our strategy, we intend to strengthen leadership positions in all of our core value chains. We also plan to build and diversify our offerings of innovative agro solutions by leveraging ICL's existing capabilities and agronomic know-how, as well as the Israeli technological ecosystem. The alignment of our organizational structure with our strategic focus, which we announced today, will allow us to further streamline the operation of our business, as well as make it easier to understand the relative contributions of our value chains to overall performance, thus creating greater transparency and value for our stakeholders."   

FINANCIAL FIGURES AND NON-GAAP FINANCIAL MEASURES

(1) See "Adjustments to reported operating and net income (Non-GAAP)" in the Appendix.
(2) See "Adjusted EBITDA for the periods of activity" in the Appendix.
(3) See "Condensed consolidated statements of cash flows (unaudited)" in the Appendix

Results analysis:

* See "Adjustments to reported operating and net income (Non-GAAP)" in the appendix.

Revenue: Consolidated sales were up by 3.7% to $1,371 million in Q2 2018, driven primarily by higher prices across the Company's value chains and the appreciation of the euro against the dollar, offset by the contribution of the divested businesses in Q2 2017. An increase in quantities sold of bromine-based industrial products and flame retardants in ICL Industrial Products, acids in ICL Advanced Additives and specialty agriculture products in ICL Specialty Fertilizers was offset by a minor decline in potash and phosphoric acid quantities sold in ICL Essential Minerals.

Operating income: The Company reported operating income of $172 million in Q2 2018 compared to $144 million for the second quarter of 2017. Excluding asset impairments of $16 million in Q2 2018 following the sale of the commodity milk proteins producer Rovita, adjusted operating profit amounted to $188 million, a 23% increase vs. Q2 2017. Operating profit was positively impacted by higher potash prices (an increase of $31 in the average FOB price per ton compared to the corresponding quarter last year), higher phosphate fertilizers prices, as well as an increase in the selling prices of ICL's specialty products. This was partly offset by higher energy, marine transportation and raw materials prices, mainly of sulphur (used in production in ICL phosphate value chain) and of various raw materials used by ICL Specialty Fertilizers. ICL benefitted from a positive mix effect due to higher quantities sold in ICL's specialty businesses, mainly of bromine products.

Financing expenses, net: Net financing expenses in Q2 2018 amounted to $54 million, compared to $49 million in Q2 2017, mainly due to the impact of exchange rate differences and hedging transactions, in the amount of $12 million. This increase was partially offset by a $7 million decrease in interest expenses due to a decrease in net financial liabilities and in provisions for employee benefits. In Q2 2018 and in Q2 2017 the Company recognized additional finance expenses as a result of early redemption of its debentures and loans, respectively, in the amount of $12 million and $13 million (see further information in 'Cash Flow and Debt Level' below).

Tax expenses:  Tax expenses for Q2 2018 amounted to $20 million, reflecting an effective tax rate of about 17%. The Company's tax rate in Q2 2018 was lower than the Company's usual tax rate mainly due to the devaluation of the Israeli shekel against the dollar during the quarter which reduced the tax obligations of Israeli subsidiaries.

Cash flow & debt level: In Q2 2018, operating cash flow decreased by $35 million compared to the corresponding quarter in 2017. The decrease derived from an increase in net working capital, mainly from trade receivables as a result of higher sales towards the end of the quarter, along with an increase of cash payments for employee benefits. The cash flow used in investing activities in the second quarter of 2018 was $143 million compared with $135 million in the corresponding quarter last year. This was impacted mainly from an increase in cash flow used for investments in property, plant, equipment and intangible assets to $121 million, along with payments related to the divestments which were completed in the first quarter of 2018.  

The Company's net financial liabilities at the end of the second quarter amounted to $2,267 million, a decrease of $770 million compared to December 31, 2017. The decrease derived mainly from proceeds received from the sale of ICL's Fire Safety and Oil Additives (P₂S₅) businesses.

As part of the Company's focus on optimizing its debt structure, on May 29, 2018, the Company completed a cash tender offer for all its debentures Series D, senior notes due in 2024 and in total repurchased an amount of $616 million out of the original principal of $800 million. In parallel, on May 31, 2018, the Company completed a private offering of senior unsecured notes (Series F Debentures) to institutional investors in a total amount of $600 million, due in 2038.

During the quarter, the S&P credit rating agency ratified the Company's international credit rating, BBB- with a stable rating outlook, and the S&P Ma'alot credit rating agency ratified ICL's credit rating, 'ilAA' with a stable rating outlook.

ICL'S ORGANIZATIONAL STRUCTURE

As part of management's efforts to enhance ICL's leading market position and promote its growth, the Company will align its organizational structure with its strategy. ICL's strategy is based on concentrating efforts on its three core‑mineral value chains: among the top three most competitive suppliers in each of ICL's target markets in potash; the global leader in bromine; and in phosphate - a leading provider of value added solutions for the Industrial, Food and Agriculture end markets.  In addition, ICL has identified a major growth potential in advanced crop nutrition solutions and agriculture innovation. In accordance, ICL's operations will be divided into four business divisions: Potash; Phosphate Solutions (P₂O₅ Chain); Industrial Products (bromine value chain and complementary business); and Innovative Ag Solutions. The alignment, which will be effective end of August 2018, will further serve to optimize the businesses of each of its value chains and will also provide the managers of ICL's business divisions with the tools to streamline communication, promote efficiency and eliminate redundancies. The alignment will further enable the Company to focus on creating leadership in areas where it is currently not an industry leader – mainly in advanced crop nutrition, and place an enhanced focus on leveraging technology and industrial know-how. (See an interim presentation of preliminary estimated sales and profit of the business divisions according to the aligned structure in the appendix below).

REVIEW OF OPERATING SEGMENTS

Specialty Solutions Segment

ICL's Specialty Solutions segment accounted for 46% of sales and 55% of profit attributed to segments in the second quarter. The segment recorded excellent results derived from record quarterly operating income in ICL Industrial Products driven by higher prices, continued environmental regulation pressure in China and strong clear brine fluids sales towards the end of the quarter; successful implementation of a value-oriented sales approach in ICL Advanced Additives which partially compensated for the impact of its divestment of its Fire Safety and Oil Additives (P₂S₅) businesses at the end of Q1 2018 and led to a 32% increase in pro-forma operating income; and a recovery in dairy proteins as well as value-oriented sales approach in ICL Food Specialties, which drove significant growth in the unit's sales and profit.

*The operating results in Q2 2017 include the sales and profit of ICL's Fire Safety and Oil Additives (P₂S₅) businesses which were sold at the end of the first quarter of 2018 in the amount of $68 million and $25 million, respectively.

Business highlights:

ICL Industrial Products

• ICL Industrial Products' exceptional results in the second quarter of 2018 were supported by higher prices, mainly due to environmental regulation pressure in China, higher sales volumes of clear brine fluids and favorable exchange rates.
• During Q2 2018 elemental bromine prices in China increased slightly compared to the end of Q1 as local bromine production was affected by environmental regulation pressure, which is expected to continue.
• Despite stable market demand, ICL's sales of bromine-based flame retardants increased compared to the corresponding quarter last year mainly due to higher prices and volumes of FR-245 as a result of a shortage in the market.
• Sales of phosphorous‑based flame retardants in ICL's markets (US and Europe) increased compared to the corresponding quarter last year as a result of environmental regulation pressure in China which impacted competitors' supply, supporting volume and prices. Revenue was also positively impacted by favorable exchange rates.
• Clear brine fluids sales were higher compared to the corresponding quarter last year mainly due to higher activity in the Gulf of Mexico and drilling activity in Israel. This is expected to continue in the third quarter of 2018, although at a slower pace.
• ICL Industrial Products recorded higher profitability for its magnesia products as a result of higher selling prices and by focusing on applications with higher margins.
• The business line also recorded higher sales of solid MgCl₂ for de-dusting compared to the corresponding quarter last year.

ICL Advanced Additives

Excluding the sales of the Fire Safety and Oil Additives (P₂S₅) businesses that were divested in March 2018, Advanced Additives sales increased by 10% and the business profit increased by 32% compared to Q2 2017.

• Global sales of salts and acids increased by approximately 15% compared to the corresponding quarter last year, despite stable global market demand. Overall global demand trend is expected to remain stable throughout the remainder of 2018.
• In Europe, the business line's performance was favorably impacted by increased prices and expansion of the customer base, together with higher volumes sold to the personal care and chemical processing industries.
• Continued growth of the P₂O₅ business in China was driven by YPH JV's increased local market share for acids and salts. Growth is being driven by increased sales and marketing efforts, improved product quality, and utilization of ICL's global synergies.
• In North America, revenue from acid and salts were above the level of the corresponding quarter in 2017 due to higher volumes and an improved pricing environment. The South American market continued its good performance as a result of an increase in acid exports from Brazil to other South American countries and higher market prices. This largely offset the negative effect of a Brazilian truck strike and the backlogs created in the value chain as a result.
• The Paints and Coatings sub-business line experienced ongoing strong performance globally during Q2 2018 and sales increased by approximately 22% compared to the corresponding quarter last year. This was driven both by increased volumes and higher selling prices.
• Average prices in the business line increased for the fourth consecutive quarter as a result of new value-oriented sales initiatives.
• The Fire Safety and Oil Additives (P₂S₅) businesses were divested at the end of the first quarter of 2018. In the corresponding quarter of 2017 these businesses reported sales and business profit of approximately $68 million and $25 million, respectively.

ICL Food Specialties

• Higher revenue in ICL Food Specialties in Q2 2018 was mainly driven by growing volumes of dairy proteins for the infant food market.
• The strong recovery in the dairy protein business during the quarter resulted from increased demand by a key account in the Chinese market, as well as ongoing diversification of the customer base and its continuing focus on developing organic dairy solutions for the infant food industry.
• Sales of food phosphates and multi-ingredient blends were slightly down compared to Q2 2017 and the business line experienced some cost pressures in certain raw materials. ICL Food Specialties adjusted its selling prices accordingly and put in place new global value-oriented sales initiatives. Sales of phosphate-based additives to the bakery and dairy markets were similar to the corresponding period last year. Sales to the meat market were lower as Europe was negatively impacted by the transition to a new distributor in Russia. The situation in Russia is expected to improve over the upcoming quarters. Quarterly sales were negatively affected by the Brazilian truck strike.
• On June 5, 2018, the Company entered into an agreement for the sale of the assets and business of its subsidiary, Rovita, for no consideration. Rovita produces commodity milk protein products, using by-products from the whey protein business line of Prolactal, which is part of ICL's Specialty Solutions segment. As part of the sale, the Company engaged with the buyer in a long term supply agreement whereby the buyer will continue to purchase by-products from the whey-protein business of prolactal. On July 2, 2018, the Company completed the sale transaction. As a result, the Company recognized a loss deriving from the write-off of all Rovita's assets in the amount of $16 million (about $12 million after tax) in its financial statements for the second quarter of 2018, presented under "other expenses" in the statement of income. Rovita's operations generated a loss of about $2 million in the second quarter of 2018. The divestiture is expected to moderately improve ICL Food Specialties' profit starting from the third quarter of 2018.

The decrease in divested businesses resulted from the sale of the Fire Safety and Oil Additives (P₂S₅) businesses at the end of Q1 2018. Increased quantities derived mainly from an increase in quantities sold by various sub-business lines at ICL Industrial Products, dairy protein quantities sold by ICL Food Specialties, mainly due to higher demand in the Chinese market, as well as acids quantities sold by ICL Advanced Additives. The increases were partly offset by decreases in quantities sold of food phosphates and multi-ingredient blends in ICL Food Specialties. Increased prices derived mainly from increased selling prices of bromine-based industrial products and flame retardants at ICL Industrial Products, acids in ICL Advanced Additives and food phosphates and multi-ingredient blends in ICL Food Specialties.  The negative impact of raw materials derived mainly from an increase in cleaner green phosphoric acid (4D) prices which is used for white phosphoric acid production in ICL Advanced Additives, mainly as a result of higher sulphur prices. The contribution of exchange rates fluctuations derived mainly from the revaluation of the euro against the dollar.

Essential Minerals Segment

ICL's Essential Minerals segment accounted for 53% of sales (before other activities and elimination of inter-segment sales) and 44% of profit attributed to segments in the second quarter of 2018. Higher prices across the segment's business lines, improved potash production and continuous growth in ICL Specialty Fertilizers more than compensated for higher sulfur and logistics costs, resulting in an increase of 37% in the segment's profit.

Results of Operations

For additional details regarding potash– see 'Potash – Stand-Alone Activities'.

Business Environment:

• The positive trend in the grain price index during Q2 was reversed mainly due to the threat of trade restrictions by China on US soybean imports, as a response to President Trump's threats to impose taxes on imports from China.
• The US/China trade dispute is a significant threat to soybean farming in the US. China imports 90% of its soy consumption and the US is the second largest supplier to China (after Brazil). Restrictions on soybean imports from the US may potentially result in a short-term reduction in soybean cultivation and fertilizers application. However, in the medium term, other suppliers, such as Brazil, Argentina and others may close the gap and balance in the global soybean market is expected to return.
• Although many market observers state that the decline in grain prices is a short term reaction and is completely devoid of market supply and demand factors, prices are down to a ten-year low level. Despite the above, fertilizers affordability is still favorable, mainly in Brazil, where farmers' position actually improved due to the expectations that China will increase soybean imports from the country and due to the depreciation of the Brazilian real, which could be reflected in good demand for all nutrients.
• Based on the WASDE report published by the USDA in July 2018, the grain stock to use ratio for 2018/2019 agricultural year is expected to decrease slightly to 22.3%, compared to 24.7% at the end of the 2017/2018 agricultural year, and compared to 25.5% in the 2016/2017 agricultural year.
• According to the Food and Agriculture Organization of the UN (FAO), the forecast for cereal production in 2018 is 2.6 billion tonnes, 3 million tonnes higher than the preliminary projection made in May 2018. However, at this level, global production would still decrease by about 41 million tonnes (1.5%) year over year. Consequently, world cereal stocks are set to decline – a decrease mostly driven by maize, as wheat and rice stocks are likely to increase further.
• An important pillar in the Company's strategy is to grow the semi-specialty fertilizers business, mainly utilizing Polysulphate as a base for a product portfolio including PotashpluS, PKpluS and others. During the first half of 2018, PotashpluS was produced for samples and trials towards a commercial launch in the second half of 2018. In addition, NPS fertilizer was launched in the YPH JV in China and is marketed mainly in China. The favorable quality of ICL's NPS compared to other NPS products is contributing to solid demand. In the first half of 2018, total sales of semi-specialty fertilizers were $52 million.

Significant Highlights

Potash and Magnesium

• Potash prices continued to firm during Q2 2018 supported by healthy demand and delayed entry of new capacity. According to CRU, the average CFR Brazil price (all supply sources) for the second quarter of 2018 was $308 per tonne, 5% higher than in the first quarter of 2018, and 18% higher than in the second quarter of last year. Prices are continuing to firm in the third quarter and current prices in Brazil are around $320 per tonne, according to CRU.
• Contract negotiations for export of potash to China continued with no conclusion reached to date. The gap between buyers and sellers continues to be wide.
• According to preliminary data by CRU, potash imports into China during January to June 2018 reached 4.45 million tonnes, a 14% increase compared to the corresponding period last year.
• According to the FAI (Fertilizer Association of India), potash imports during the first half of 2018 amounted to 2.5 million tonnes, a 20% increase over the first half of 2017. The Indian government announced that subsidy allocations for potash will decrease by around 10% in 2018/2019, reflecting a $12 decrease. This, combined with a projected increase in the 2018/2019 contract price, is expected to lead to an increase in the maximum retail price, which may impact demand.
• According to ANDA (Brazilian National Fertilizer Association), potash imports into Brazil during the first half of 2018 amounted to 4.3 million tonnes, similar to the first half of 2017.
• Ramp-up of new capacity appears to be slower than initially projected mainly due to technical challenges. In Russia, EuroChem commissioned its 2.3 million tonne per year Usolskiy mine in March this year. Ramp-up is reported to be slow. EuroChem's second mine, VolgaKaliy is said to be experiencing water inflow in its skip shaft forcing the company to convert one of its two cage shafts to enable ore extraction from the mine. The beginning of production at VolgaKaliy has been delayed until the end of 2018. Production during 2018 in both mines is projected to be about 600 thousand tonnes. The K+S Bethune mine in Canada is also ramping-up more slowly than planned, but no figures have been published. In Turkmenistan, the 1.4 million tonne per year Garlyk mine is reportedly struggling with water inflow and financial challenges. At present it is said to be producing at a rate of about 100 thousand tonnes per year (a 7% utilization rate).
• ICL continues to optimize its European mineral assets: ICL Iberia met its production targets in Q2 2018 and continues to implement an efficiency plan that is resulting in a lower cost per tonne, while progressing with construction of a new access tunnel to the mine at its Suria site that is scheduled to be completed in mid-2019.
• ICL UK ceased producing MOP at the end of Q2 2018 and reduced about 150 positions during the first half of 2018 as part of its transition to the production of Polysulphate. Further to the losses recorded in 2017, ICL UK recorded notable losses during Q2 2018 and is expected to continue to record losses through 2018 as Polysulphate production is still ramping up.
• On May 20, 2018, a collective labor agreement was signed between Dead Sea Works Ltd. ("DSW") and the DSW Workers' Council for five years starting from October 1, 2017, the termination date of the previous agreement. The main achievements for ICL included maintaining proper labor relations and cancellation of labor disputes which enable continuous production activity without interference, reduction of 20 operations positions and the completion of the execution of the DSW efficiency plan by September 30, 2021 during which period no collective dismissals will be implemented. The agreement includes wage increases for certain employees. In addition, a one-time signing bonus was paid on execution of the agreement as a result of which ICL recognized an expense in the amount of $5 million in Q2, presented under 'salary expenses'.
• The new power station in Sodom has completed all the necessary tests required by the Israel Electric Corporation and became operational in July 2018. The power station is expected to reduce energy costs in the Company's Sodom plants.
• Global demand for magnesium remains constrained in China, Brazil and Europe and prices are under pressure due to increased Chinese exports as well as imports to the US from Russian, Kazakh and Turkish producers. At the same time, trade actions by the US have pushed up prices for steel and aluminum, which in turn are resulting in a resumption of domestic production, and consequent demand for raw materials. In addition, several producers have announced investments in US magnesium operations geared toward supporting domestic automotive original equipment manufacturers (OEMs). As a result of the above, there is a trend of improvement in the US magnesium market.

Phosphate Commodities

• The phosphate market continued to moderately firm during Q2. Improved demand, slower than expected ramp-up of new production in Morocco and Saudi Arabia and the idling of capacity in the US, resulted in price increases. Higher sulphur prices and environmental related regulatory pressure increased Chinese production costs.
• Sulphur prices increased towards the end of the second quarter of 2018 and reached $150 per tonne (CFR China price basis). Prices are driven by strong demand in China and logistic challenges in Russia, where priority is given to grain shipments, resulting in expectations for an increase in sulphur prices in the second half of 2018.
• Major capacity increases are still expected, although the Moroccan producer, OCP, has delayed the commissioning of its million-tonne per year finished product plant in Jorf Lasfar. The Saudi Arabian producer, Ma'aden, is in the process of ramping-up its Wa'ad Al Shamal facility, but reportedly some technical problems are causing delays.
• According to preliminary data by CRU, Export of DAP fertilizers from China increased by 10% in the first half of 2018 compared to the corresponding quarter last year, to 2.5 million tonnes.
• Brazil phosphate fertilizers (SSP, TSP, MAP and DAP) imports in the first half of 2018 amounted to 2.6 million tonnes, a decrease of 2.6% compared to the first half of 2017. Imports of MAP and DAP were down 3.5% and 19% respectively, while imports of SSP and TSP increased slightly.
• Phosphate demand in the US was firm. According to TFI (The Fertilizer Institute) data, DAP and MAP imports in the first five months of 2018 increased by 27% and 57% reaching 508 thousand tonnes and 776 thousand tonnes, respectively.
• The Moroccan producer, OCP settled its third-quarter phosphoric acid contracts with Indian buyers at $758 per tonne P₂O₅ CFR, an increase of $28 per tonne compared to the second quarter of 2018.
• Increasing prices of phosphoric acid in India tilted the scale in favor of importing DAP rather than producing it from imported acid. According to the FAI (Fertilizer Association of India), DAP imports during Q2 2018 almost doubled to 1.42 million tonnes compared to Q2 2017, while domestic DAP production, decreased by 28% compared to Q2 2017, to 1.45 million tonnes.
• The average price of DAP in Q2 2018 was $419 per tonne FOB Morocco, a $4 increase compared to Q1 2018 and $45 (12%) increase compared to Q2 2017 (according to CRU - Fertilizer Week Historical Prices, June 28, 2018).
• The average price of MAP in Q2 2018 was $433 per tonne FOB Morocco, a $14 increase compared to Q1 2018 and $62 (17%) increase compared to Q2 2017 (according to CRU - Fertilizer Week Historical Prices, Jul 5, 2018).
• The average price of TSP in the second quarter of 2018 was $349 per tonne FOB Morocco, a $26 increase compared to Q1 2018 and a $73 (27%) increase compared to Q2 2017 (according to CRU - Fertilizer Week Historical Prices, Jul 5, 2018).
• The average price of phosphate rock (68-72% BPL) in Q2 was $89 per tonne FOB Morocco, a $5 (5%) decrease compared to Q1 2018 and to Q2 2017 (according to CRU - Fertilizer Week Historical Prices, June 28, 2018). No significant change in the phosphate rock market is expected.
• Market observers are forecasting stability in phosphate fertilizer prices until the middle of the third quarter of 2018, when higher supply is expected to come from the ramping-up of Saudi Arabia Wa'ad al Shamal facility and increased Chinese exports. Excess product availability is thus projected to put pressure on prices, which is going to continue through the fourth quarter of 2018.
• The business line's results were positively impacted by higher prices, partly offset by higher sulphur prices, logistics costs and annual maintenance at the sulphuric and phosphoric acid plants at ICL Rotem and YPH JV.
• YPH JV's results in Q2 were negatively impacted by maintenance activities.
• ICL Rotem reported better results in Q2 compared to the corresponding quarter last year, supported by higher prices, record fertilizer production and higher fertilizer sales, partly offset by lower phosphoric and sulphuric acid production.
• Based on the received permits for the gypsum ponds, commencing May 31, 2018, ICL Rotem shifted its operation to the Northern area of Pond 5. In connection with the administrative petition filed by ATD (Adam Teva V'Din, Israeli Association for Environmental Protection) against the Appeals Committee relating to the permits, see Note 6 to the Company's condensed consolidated interim financial statements as at June 30, 2018.

Specialty Fertilizers

• ICL Specialty Fertilizers' performance in Q2 improved as both sales and operating income increased compared to the corresponding quarter last year due to higher volumes, prices and the positive effect of the main transaction currencies against the dollar.
• The specialty agriculture sub-business line recorded an increase in sales of most product lines including coated Fertilizers, liquid NPK, straight fertilizers (i.e. MKP) and traded materials including traded chemical products.
  Sales increased mainly in Europe and China due to ICL's reputation as a stable and reliable supplier, while in the US, the market remains competitive.
• The Turf and Ornamental sub-business line recorded an increase in sales mainly in coated fertilizers, plant protection products and controlled release fertilizers. In Europe, strong sales during May and June compensated for lost sales caused by harsh winter conditions earlier in the year. In the US, business recovered from challenging conditions in the corresponding quarter in 2017.

The contribution of higher potash, phosphate fertilizers and phosphoric acid prices as well as higher sales quantities of specialty agriculture products was partly offset by a minor decrease in sales quantities of phosphoric acid and potash (mainly to South America and Asia). Price contribution was also offset by an increase in sulphur prices (used in the green phosphoric acid production in ICL Phosphate Commodities) and an increase in the prices of various raw materials used by ICL Specialty Fertilizers, as well as an increase in marine transportation prices. The positive impact of operating and other (expenses) is a result of an income from the sale of CPL's EUA (European Union Emissions Allowance) surplus in Q2 2018 and environment-related provision recorded in the corresponding quarter last year.

Potash Stand Alone Activities:

*Sales to other business lines of ICL including the magnesium business.

The potash stand-alone activities include, among others, Polysulphate produced in a mine in the UK, and salt produced in underground mines in the UK and Spain.

Higher potash prices more than offset lower sales quantities to South America and Asia, negative impact from the appreciation of the euro against the dollar compared to Q2 2017 and higher marine transportation prices.

Potash – Production and Sales

During Q2 2018, production of potash was 114 thousand tonnes higher than in the corresponding quarter last year. At ICL Iberia, an increase in production derived mainly from an efficiency plan implemented since the beginning of the year. ICL UK ceased production of MOP at the end of Q2 as part of its transition to production of Polysulphate. The quantity of potash sold to external customers during Q2 2018 was 49 thousand tonnes lower than in the corresponding quarter in 2017 mainly due to a decrease in potash sales to South America and Asia.

Phosphate Commodities– Stand-Alone Activities

* To external customers

Production of phosphate rock in Q2 was lower by 109 thousand tonnes than in the corresponding quarter of 2017 mainly due to maintenance activities at the YPH JV and at ICL Rotem facilities, together with adjusting production volumes to the business environment. Sales quantities of phosphate rock continue to be low mainly due to the challenging business environment and unattractive rock prices. Production of phosphate fertilizers in Q2 was higher by about 70 thousand tonnes than in the corresponding quarter last year primarily due to increased production of TSP at the YPH JV and record production at ICL Rotem. Phosphate fertilizer quantities sold in Q2 were 17 thousand tonnes higher than in the corresponding quarter last year, mainly due to an increase in sales to Europe and South America, partly offset by a decrease in sales to North America.

DIVIDEND DISTRIBUTION

In respect of ICL's second quarter 2018 results, the Board of Directors declared a dividend totaling $0.043 per share or about $56 million. The dividend will be paid on September 4, 2018, with a record date on August 21, 2018.

About ICL

ICL is a global specialty minerals and chemicals company operating potash, bromine 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 dual listed on the New York Stock Exchange and the Tel Aviv Stock Exchange (NYSE and TASE: ICL). The Company employs approximately 11,000 people worldwide, and its sales in 2017 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 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 March 7, 2018. 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 and are also available in Excel format on our website located at www.icl-group.com)

Appendix:

We disclose in this Quarterly press release non-IFRS financial measures titled adjusted operating income, adjusted net income and adjusted EPS attributable to the Company's shareholders, adjusted EBITDA and free cash flow. Our management uses these measures to facilitate operating performance comparisons from period to period and present free cash flow to facilitate a review of our cash flows in periods. We calculate our adjusted operating income by adjusting our operating income to add certain items, as set forth in the reconciliation table "Adjustments to reported operating and net income (Non-GAAP)" below. Certain of these items may recur. We calculate our adjusted net income attributable to the Company's shareholders by adjusting our net income attributable to the Company's shareholders to add certain items, as set forth in the reconciliation table "Adjustments to reported operating and net income (Non-GAAP)" below, excluding the total tax impact of such adjustments and adjustments attributable to the non-controlling interests. We calculate our adjusted EBITDA by adding back to the net income attributable to the Company's shareholders the depreciation and amortization, financing expenses, net, taxes on income and the items presented in the reconciliation table "Adjusted EBITDA for the periods of activity" below which were adjusted for in calculating the adjusted operating income and adjusted net income attributable to the Company's shareholders.   We calculate our free cash flow as our cash flows from operating activities net of our purchase of property, plant, equipment and intangible assets, and adding Proceeds from sale of property, plant and equipment and Dividends from equity-accounted investees during such period as presented in the reconciliation table under "Calculation of free cash flow".

You should not view adjusted operating income, adjusted net income attributable to the Company's shareholders or adjusted EBITDA as a substitute for operating income or net income attributable to the Company's shareholders determined in accordance with IFRS, or free cash flow as a substitute for cash flows from operating activities and cash flows used in investing activities, and you should note that our definitions of adjusted operating income, adjusted net income attributable to the Company's shareholders, adjusted EBITDA and free cash flow may differ from those used by other companies. However, we believe adjusted operating income, adjusted net income attributable to the Company's shareholders, adjusted EBITDA and free cash flow provide useful information to both management and investors by excluding certain expenses that management believes are not indicative of our ongoing operations. In particular for free cash flow, we adjust our Capex to include any Proceeds from sale of property, plant and equipment because we believe such amounts offset the impact of our purchase of property, plant, equipment and intangible assets. We further adjust free cash flow to add Dividends from equity-accounted investees because receipt of such dividends affects our residual cash flow. Free cash flow does not reflect adjustment for additional items that may impact our residual cash flow for discretionary expenditures, such as adjustments for charges relating to acquisitions, servicing debt obligations, changes in our deposit account balances that relate to our investing activities and other non-discretionary expenditures. Our management uses these non-IFRS measures to evaluate the Company's business strategies and management's performance. We believe that these non-IFRS measures provide useful information to investors because they improve the comparability of the financial results between periods and provide for greater transparency of key measures used to evaluate our performance.

We present a discussion in the period-to-period comparisons of the primary drivers of changes in the Company's results of operations. This discussion is based in part on management's best estimates of the impact of the main trends in its businesses. We have based the following discussion on our financial statements. You should read the following discussion together with our financial statements.

Additional Information

(1)   In 2018, capital gain from the sale of the Fire Safety and Oil Additives (P₂S₅) businesses. In 2017, additional consideration received regarding earn-out of 2015 divestitures, capital gain from IDE divestiture and capital gain from deconsolidation of Allana Afar in Ethiopia.

(2)   In Q2 2018, impairment following the sale of Rovita. In 2017, impairment of an intangible asset in Spain, write-down of an investment in Namibia and impairment of assets in China and the Netherlands.

(3)   Provision for early retirement and dismissal of employees in accordance with the Company's comprehensive global efficiency plan in its production facilities throughout the group. In 2018, provisions relating to the Company's facilities in the United Kingdom (CPL) and Israel (ICL Rotem). In 2017, provisions relating to ICL Rotem's facilities in Israel, and to subsidiaries in North America and Europe.

(4)   Provision for legal claims in 2017:  judgment relating to a dispute with the National Company for Roads in Israel regarding damage caused to bridges by DSW, a decision of the European Commission concerning past grants received by a subsidiary in Spain, claims for damages related to the contamination of the water in certain wells at the Suria site in Spain, a provision in connection with prior periods in respect of royalties' arbitration in Israel, reversal of the provision for retroactive electricity charges in connection with prior periods and settlement of the dispute with Great Lakes (a subsidiary of Chemtura Corporation).

(5)   An internal transaction in preparation of the low-synergy business divestitures, resulting in tax liabilities (see also capital gain from divestment of the Fire Safety and Oil Additives businesses above), and tax income relating to the resolution of the Appeals Court for Tax matters in Belgium.

Calculation of Adjusted EBITDA:

* See "Adjustments to reported operating and net income (Non-GAAP)" above.

Calculation of free cash flow:

Sales by Main Countries:

Sales by Geographical Regions:

Europe – the increase derives mainly from an increase in the sales quantities and prices of potash, quantities of specialty agriculture products sold, higher selling prices of phosphate fertilizers and the positive impact of the upward revaluation of the euro against the dollar.

Asia –the increase derives mainly from an increase in the sales quantities and prices of bromine-based flame retardants, selling prices of bromine-based industrial products and sales quantities of dairy proteins. The increase was partly offset by a decline in phosphoric acid and potash quantities sold.

North America – the decrease derives mainly from the divestiture of the Fire Safety and Oil Additives (P₂S₅) businesses and a decline in phosphate fertilizers quantities sold. The decrease was partly offset by an increase in the quantities sold of clear brine fluids.

Rest of the world – the increase derives mainly from an increase in the quantities of dairy protein products sold, together with an increase in potash quantities sold in Israel.

Effect of businesses divestiture

 (1) The consideration received in cash is net off a $10 million transaction expenses. Total consideration also includes preferred equity certificates in the amount of $57 million.

Aligned business divisions' sales and profit:

   * ICL Adjusted Operating Profit

The table includes interim presentation of preliminary estimated sales and profit reconciled to ICL's consolidated sales and adjusted operating income. The divisions' figures below have not been reviewed by the Company's independent auditors and are provided solely for convenience purposes.

Business lines' additional information:

* The operating results presented herein include the results of ICL's Fire Safety and Oil Additives (P2S5) businesses which were sold at the end of Q1 2018.

** The Company does not attribute general and administrative expenses, finance expenses or tax expenses by segment or to individual business lines.

Operating Segment Data:

SOURCE ICL

Related Links

http://www.icl-group.com

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