ICL Group Ltd. — FY2018 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2018. Although the request refers to 2018 Q4, this filing is an annual report and does not provide standalone fourth-quarter financial statements in the supplied text. Financial statements are prepared under IFRS in U.S. dollars.
Financial performance and position
| Metric | FY2018 | FY2017 |
|---|---|---|
| Sales | $5.556 billion | $5.418 billion |
| Gross profit / margin | $1.854 billion / 33.4% | $1.672 billion / 30.9% |
| Operating income / margin | $1.519 billion / 27.3% | $629 million / 11.6% |
| Adjusted operating income (non-IFRS) | $753 million | $652 million |
| Net income attributable to shareholders | $1.240 billion | $364 million |
| Adjusted net income attributable to shareholders (non-IFRS) | $477 million | $389 million |
| Basic and diluted EPS | $0.97 | $0.29 |
| Operating cash flow | $620 million | $847 million |
| Cash capital expenditures | $572 million | $457 million |
| Cash, short-term investments and deposits | $213 million | Not stated here as a combined figure |
| Net financial liabilities | $2.212 billion | Not stated here |
| Total assets / liabilities / equity | $8.776 billion / $4.861 billion / $3.915 billion | $8.714 billion / $5.784 billion / $2.930 billion |
Reported 2018 operating income includes an $841 million net capital gain from the sale of the fire-safety and oil-additives businesses. Adjusted operating income excludes specified items and is non-IFRS; it is not a substitute for reported results. Management reported a roughly 9% effective tax rate, reflecting primarily exempt divestiture income, shekel depreciation against the dollar, and lower Israeli tax provisions.
Segments
- Industrial Products: Sales $1.296 billion; segment profit $350 million, versus $1.193 billion and $303 million in 2017.
- Potash: Sales $1.623 billion; segment profit $393 million, versus $1.383 billion and $282 million. Average realized potash price rose to $278 per tonne from $236; sales volume declined to 4.895 million tonnes from 5.039 million.
- Phosphate Solutions: Sales $2.099 billion; segment profit $208 million, versus $2.037 billion and $149 million.
- Innovative Ag Solutions: Sales $741 million; segment profit $57 million, versus $692 million and $56 million.
Segment profit is a management measure before certain unallocated expenses and is not directly comparable with consolidated operating income.
Material changes versus FY2017
- Sales rose 3%; gross profit increased 11%. Management cited improved potash and phosphate product pricing, positive exchange-rate effects and selected volume gains, partly offset by lower volumes in potash and phosphate products and the divestitures.
- Reported operating income increased sharply, principally because the 2018 divestiture gain was substantially larger than gains in 2017. Adjusted operating income rose from $652 million to $753 million.
- Operating cash flow fell $227 million to $620 million, reflecting higher royalty payments, cash losses on derivatives and working-capital outflows, partly offset by a $40 million return of advance tax payments.
- Investing activities provided $331 million, mainly due to $902 million of net cash proceeds from business divestitures. Financing activities used $894 million, including debt repayments and dividends.
- Total liabilities declined by $923 million and total equity increased by $985 million. The company completed a $616 million repurchase of Series D notes, issued $600 million of 2038 notes at a 6.375% coupon, and reduced and extended its revolving credit facility to $1.2 billion, with stated maturity in 2023 and extension options.
Outlook, commentary and principal risks
- Outlook: The filing provides no formal consolidated earnings or revenue guidance. Management expected phosphate prices to moderate in the first half of 2019 and stabilize later in the year; it described potash market conditions as firm. The company planned continued investment in Spain, Dead Sea infrastructure, Israeli air-emissions compliance and a new white phosphoric acid facility in China.
- Capital and operations: ICL estimated 2019 environmental-protection spending of approximately $171 million, including $101 million of capital projects. The Dead Sea P-9 pumping station was expected to start operations in 2020; salt-harvesting work was underway, with the dredger expected to enter service toward the end of 2019. Boulby ceased potash production in mid-2018 and shifted to polysulphate; management expected continued losses during the transition.
- Mining rights and infrastructure: The Dead Sea concession expires in 2030; Israeli phosphate concessions expire in 2021 and renewal is uncertain. Approval and timing of South Zohar/Barir phosphate mining remain uncertain, with petitions challenging the planning decision. Pond 5 operations currently have permits through December 31, 2020, and further permits are needed. Delays or failures involving the P-9 station or salt-harvesting project could impair production.
- Environmental and legal matters: The 2017 Pond 3 dyke collapse and resulting Ashalim Stream impacts remain under investigation and have prompted class-action applications; the company said restoration costs could not yet be estimated. Other environmental claims include an application seeking approximately NIS 1.4 billion relating to alleged water contamination. A 2018 bromine-leak class-action application sought about NIS 1.5 million; a settlement at immaterial amounts was subject to court approval.
- Tax and royalties: The company is appealing a $73 million Israeli tax assessment for 2012–2014. It disclosed a possible additional tax liability of about $100 million for 2016–2018 if its interpretation of Israel’s natural-resources tax valuation rules is rejected; management believed its position was more likely than not to be accepted. Royalty arbitration generated a 2018 expense and payment; disputes over calculations remained. No natural-resources tax liability was payable at year-end under the company’s calculation.
- Other contingencies: ICL filed a $300 million claim against IBM concerning its discontinued global ERP project; outcome is uncertain. Abengoa disputes ICL’s claim of about €77 million (approximately $84 million) arising from the Sodom power-station construction contract and sought €15 million (approximately $17 million). A U.S. magnesium producer petitioned for antidumping and countervailing duties on Israeli magnesium; the investigation was at an early stage.
- Market and financial risks: Results remain exposed to commodity prices, agricultural conditions, competition, raw-material and shipping costs, currency and interest-rate changes, labor actions, environmental regulation, political instability and access to financing. Some borrowings bear variable rates; the filing also flags the planned end of LIBOR submissions after 2021.
- Concessions and reserves: Management cannot yet assess concrete implications of Israeli recommendations for the 2030 Dead Sea concession. The filing does not present current Spanish potash reserve estimates, and the Baitacun license in China expired in November 2018 while renewal was under review.
Key investor verification points
- Reconcile the $841 million divestiture gain to reported versus adjusted earnings, and assess recurring profitability excluding that gain.
- Review the decline in operating cash flow against $572 million of capital spending, $241 million of dividends paid in the cash-flow statement, and debt maturities and refinancing needs.
- Confirm liquidity and covenant headroom: ICL reported compliance at year-end, net financial debt/EBITDA of 1.62 versus a covenant limit below 4.0, and $1.134 billion of unused long-term credit lines.
- Track Dead Sea concession planning, salt-harvesting and P-9 milestones, Pond 5 permitting, and phosphate concession renewals and South Zohar/Barir approvals.
- Monitor the Israeli tax appeal and natural-resources tax interpretation, royalty arbitration, Ashalim-related proceedings, and the U.S. magnesium trade investigation.
- Check whether the planned 2019 environmental expenditure and other major projects affect cash generation, debt, or expected returns; the filing does not provide a full-year earnings forecast.
Audit: The independent auditor issued an unqualified opinion on the IFRS financial statements and concluded that internal control over financial reporting was effective as of December 31, 2018.