ICL Group Ltd. — FY2020 Form 20-F Summary
Reporting period: Year ended December 31, 2020. This is an annual report, not a standalone fourth-quarter filing. ICL is an Israeli specialty minerals and chemicals company operating in Industrial Products, Potash, Phosphate Solutions and Innovative Ag Solutions. Financial statements are audited and prepared under IFRS as issued by the IASB, in U.S. dollars.
Key financial metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Sales | $5.043 billion | $5.271 billion | Down 4% |
| Gross profit | $1.490 billion | $1.817 billion | Down 18% |
| Operating income | $202 million | $756 million | Down 73% |
| Net income attributable to ICL shareholders | $11 million | $475 million | Down 98% |
| Basic and diluted EPS | $0.01 | $0.37 | Down 97% |
| Adjusted operating income | $509 million | $760 million | Down 33% |
| Adjusted net income attributable to shareholders | $258 million | $479 million | Down 46% |
| Net cash from operating activities | $804 million | $992 million | Down 19% |
| Cash capital expenditures | $626 million | $576 million | Up $50 million |
Approximate gross margin was 29.5% versus 34.5% in 2019; operating margin was 4.0% versus 14.3%. At year-end, cash and cash equivalents were $214 million and short-term investments and deposits were $100 million. ICL reported net financial liabilities of $2.418 billion. It also had $1.1 billion of unused long-term credit facilities and a $300 million committed securitization facility, of which $183 million was used. Total assets were $9.664 billion, total liabilities $5.576 billion and equity $4.088 billion. ICL reported compliance with its financial covenants.
Business performance and changes versus 2019
- Sales fell primarily due to lower realized potash prices, weaker phosphate commodity prices and reduced demand for certain industrial products during the pandemic. Higher potash volumes, including record production at the Dead Sea, and growth in several specialty product lines partially offset those declines.
- Potash segment sales were $1.346 billion and segment profit $120 million, down 10% and 58%, respectively. Average realized potash price fell to $230 per tonne from $286; sales volumes increased.
- Phosphate Solutions sales were $1.948 billion, down 2%, and segment profit was $66 million, down 34%. Specialty phosphate sales rose 2% to $1.135 billion, while commodity phosphate sales fell 7% to $813 million. Commodity phosphate operating loss widened to $51 million from $2 million.
- Industrial Products sales declined 5% to $1.255 billion and segment profit fell 10% to $303 million, mainly reflecting lower demand for clear brine fluids and some flame retardants.
- Innovative Ag Solutions sales increased 2% to $731 million and segment profit rose to $40 million from $21 million, supported by specialty agriculture volumes and lower input costs.
- Other expenses rose to $256 million from $30 million. Adjustments used in ICL’s non-IFRS reconciliation totaled $307 million, principally $229 million for impairments, site closure and restoration provisions, and $78 million for early retirement. Reported results also reflected foreign-exchange pressure, pandemic-related costs and lower European production.
Liquidity, debt and capital allocation
Operating cash flow was $804 million; investing activities used $583 million and financing activities used $105 million. Debt and debentures totaled $2.732 billion at year-end, including $679 million of short-term debt and $2.053 billion of long-term debt and debentures. ICL issued or expanded Israeli Series G debentures and expanded its 2038 Series F notes during 2020. S&P affirmed its BBB- international rating with stable outlook; Fitch affirmed BBB- and revised its outlook from positive to stable.
ICL’s dividend policy targets distributions of up to 50% of annual adjusted net income, subject to Board approval and other considerations. The company reported dividends of $0.09 per share for 2020; $118 million was recorded as dividends paid in the financial statements.
Outlook, risks and contingencies
- Outlook: ICL expected pandemic-related effects to continue over the next few quarters, while noting the full impact was uncertain. Most Industrial Products end markets showed signs of recovery late in 2020, but management did not expect clear brine fluids to fully recover in 2021. No quantified company-wide earnings guidance is provided in the supplied filing text.
- Operations and investment: The P-9 Dead Sea pumping station was expected to begin operation in the second half of 2021; the Spain mine-access ramp was expected to start full operations in the first half of 2021. Management estimated 2021 environmental spending of about $134 million, including $54 million of capital projects.
- Permits and reserves: Rotem’s phosphate concessions were due to expire at the end of 2021; renewal recommendations had been received, but final approval remained outstanding. Rotem’s current phosphate reserves were described as limited, with estimated mine lives of about 4.5 years at Rotem and 3 years at Oron at then-current production rates. Barir field approvals and other permits are important to longer-term supply.
- Environmental and Dead Sea exposure: The salt-harvesting project at Pond 5 began operation in late 2020. ICL bears 80% of project costs, subject to the government’s capped contribution. Delays, cost overruns, harvesting performance, the receding Northern Basin level, sinkholes and the P-9 project could affect production, costs or nearby infrastructure.
- Tax uncertainty: ICL estimates that an adverse resolution of its Israeli natural-resources tax position could increase tax liabilities by about $185 million for 2016–2020. After year-end, the company learned the tax authority intended to assess approximately NIS 240 million for 2016–2017, excluding interest and linkage; ICL said it would object.
- Legal matters: Environmental class-action applications include a claim seeking at least NIS 3 billion relating to the Zin site and claims connected with the 2017 Ashalim Creek incident. The Ashalim-related criminal investigation remained open; the creek had reopened to visitors in 2020. ICL recorded no provision for certain significant claims where it could not estimate the outcome. A Spanish arbitration with Nobian included alternative claims of up to $152 million; ICL believed the claims would likely be rejected.
- Other risks: Key exposures include commodity prices and competition, COVID-19 and supply-chain disruption, energy and raw-material costs, foreign exchange and interest rates, environmental regulation, concessions, labor actions, logistics, cyber incidents and political or security instability. ICL also disclosed that LIBOR transition arrangements for affected loans and derivatives were not finalized at year-end.
KPMG issued an unqualified opinion on the IFRS financial statements and concluded that internal control over financial reporting was effective as of December 31, 2020. The auditor identified useful lives of assets tied to the Dead Sea concession and uncertain natural-resources tax treatment as critical audit matters.
Important facts for investors to verify
- Reconcile reported operating income and net income with adjusted figures, and assess the sustainability of the earnings decline and the $307 million of adjustments.
- Track Rotem concession and permit decisions, Barir phosphate development, and the implications of the disclosed reserve lives and production changes.
- Monitor Pond 5 salt-harvesting execution, total project costs, P-9 commissioning and related Dead Sea operating dependencies.
- Review the natural-resources tax assessment and objection, environmental claims and provisions, and the status and potential exposure of the Nobian arbitration.
- Confirm liquidity and debt-maturity assumptions, covenant headroom, refinancing access and the effect of variable rates and LIBOR transition.
- Evaluate whether the expected recovery in end markets and planned efficiency measures offset commodity-price, pandemic and environmental-compliance pressures.