Business context and reporting period
ICL Group Ltd. (Israel Chemicals Ltd.; NYSE: ICL) filed this annual report on Form 20-F for the fiscal year ended December 31, 2019. Although the request specifies 2019 Q4, this filing reports full-year results; it does not provide a clear standalone fourth-quarter income statement or cash-flow summary. Financial statements are audited and prepared under IFRS as issued by the IASB, in U.S. dollars. ICL operates four segments: Industrial Products, Potash, Phosphate Solutions, and Innovative Ag Solutions.
Financial performance and position
| Metric | 2019 | 2018 |
|---|---|---|
| Sales | $5.271 billion | $5.556 billion |
| Gross profit / margin | $1.817 billion / 34.5% | $1.854 billion / 33.4% |
| Operating income / margin | $756 million / 14.3% | $1.519 billion / 27.3% |
| Adjusted operating income (non-IFRS) | $760 million | $753 million |
| Net income attributable to shareholders | $475 million | $1.240 billion |
| Basic and diluted EPS | $0.37 | $0.97 |
| Net cash from operating activities | $992 million | $620 million |
| Capital expenditures, cash basis | $576 million | $572 million |
| Cash, cash equivalents, short-term investments and deposits | $191 million | Not stated here on a directly comparable basis |
| Net financial liabilities | $2.410 billion | Not stated here on a directly comparable basis |
Gross margin improved despite lower sales. Operating income and reported net income fell sharply, primarily because 2018 included an $841 million gain from the sale of the fire safety and oil additives businesses. Adjusted operating income was broadly stable. Net finance expense declined to $129 million from $158 million; the effective tax rate rose to approximately 23% from 9%.
At year-end, total assets were $9.173 billion, total liabilities $5.112 billion, and total equity $4.061 billion. Long-term debt and debentures were $2.181 billion; short-term credit, including current maturities, was $420 million. ICL reported $870 million of unused long-term credit lines and stated that liquidity was adequate for expected needs over the next twelve months. It complied with its financial covenants, including net financial debt to EBITDA of 1.8 against a maximum of 3.5 and equity of $3.925 billion against a $2.0 billion minimum.
Operating cash flow rose 60% year over year. Investing activities used $525 million, compared with $331 million provided in 2018, which included $902 million of net divestiture proceeds. Financing activities used $490 million. The board’s dividend policy is to distribute up to 50% of annual adjusted net income, subject to board discretion; 2019 dividends declared totaled $0.22 per share, or $277 million gross.
Material changes versus the prior comparable period
- Sales declined 5%, reflecting lower potash volumes, no shipments to China from September amid high local inventories and delayed contract negotiations, reduced phosphate and dairy-protein sales, divestitures, and adverse currency effects. Higher product prices partly offset these factors.
- Potash segment sales fell 8% to $1.494 billion and segment profit fell 8% to $289 million. Potash sales volume was down 765,000 tonnes; production was down 721,000 tonnes. A nearly month-long Dead Sea plant shutdown for upgrades also affected results. Average realized potash price increased to $286 per tonne from $278.
- Phosphate Solutions sales declined 6% to $1.980 billion and segment profit declined 12% to $100 million. Innovative Ag Solutions sales fell 3% to $717 million and segment profit fell to $21 million from $29 million. Industrial Products sales rose 2% to $1.318 billion and segment profit increased 13% to $338 million.
- Operating cash flow increased, supported by lower working capital and derivative cash receipts, while 2018 cash flow had included comparatively high royalty payments. Cash capital expenditures were similar to 2018.
Outlook, management commentary, risks and unusual items
Management did not provide quantified consolidated earnings guidance. Its plans include completing Spain’s potash-capacity and logistics expansion, advancing the Dead Sea P-9 pumping station and salt-harvesting project, expanding bromine-product capacity, and continuing environmental investment. The company expected the Dead Sea upgrades, P-9 station, and salt-harvesting operations to progress or begin in 2020. A February 2020 acquisition of Growers Holdings for $27 million was reported as a subsequent event. The filing says its outlook did not include a measurable coronavirus impact because that impact could not then be reasonably estimated.
Key operational and regulatory uncertainties include renewal of Rotem phosphate-mining concessions due at the end of 2021, permits for gypsum ponds beyond 2020, and approvals for future phosphate reserves in Israel. Existing Rotem reserves were estimated to support only a few years of mining in certain areas; management said approval delays or failure could materially affect the business. Dead Sea operations also depend on a concession ending in 2030, the new pumping station, and the salt-harvesting solution. Other risks include commodity-price and agricultural demand volatility, competition and oversupply, currency and interest-rate exposure, energy and raw-material costs, environmental compliance, mine and plant safety, shipping disruptions, and geopolitical and public-health events.
Unusual or potentially material items include the 2018 divestiture gain; a $10 million partial reversal of a prior impairment in 2019; a $9 million 2019 income recognition related to expected short-term payments under the Abengoa settlement; and the $841 million 2018 capital gain. The Israeli natural-resources tax treatment remains uncertain: rejection of ICL’s position on the tax basis of certain assets could increase tax liabilities by approximately $180 million for 2016–2019. The filing also describes environmental claims, including claims arising from the 2017 Ashalim Creek spill, and a disputed $9 million water-fee bill; outcomes of several proceedings could not be estimated clearly.
The auditor issued an unmodified opinion on the IFRS financial statements and concluded internal control over financial reporting was effective. Critical audit matters included useful lives of Dead Sea concession assets and uncertain tax treatments under Israel’s natural-resources tax law.
Most important facts for investors to verify
- Review the reported-versus-adjusted earnings bridge, especially the effect of the 2018 divestiture gain and the recurring nature of adjustments.
- Check potash sales volumes, China contract and inventory conditions, realized prices, and the pace of recovery after the Dead Sea shutdown.
- Track Rotem permit and concession renewals, phosphate reserve alternatives, and progress on Pond 5 salt harvesting and the P-9 pumping station.
- Assess liquidity and refinancing needs against debt maturities, variable-rate exposure, unused facilities, and the company’s covenant headroom.
- Follow developments in the $180 million potential natural-resources tax exposure, environmental proceedings, and other material contingencies.
- Confirm whether the dividend remains consistent with cash generation, investment requirements, debt covenants, and the discretionary payout policy.