ICL Group Ltd. — FY 2017 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2017. This is an annual report, not a quarterly filing; the provided text does not give standalone fourth-quarter results. Financial statements are prepared under IFRS and reported in U.S. dollars.
Business context and financial performance
ICL is an integrated specialty minerals and chemicals company, operating through Essential Minerals and Specialty Solutions. Its products serve agriculture, food and industrial markets; key resources include potash, phosphate and bromine.
| Metric (US$ millions, except per-share data) | 2017 | 2016 |
|---|---|---|
| Sales | 5,418 | 5,363 |
| Gross profit | 1,672 | 1,660 |
| Operating income (loss) | 629 | (3) |
| Adjusted operating income (non-IFRS) | 652 | 582 |
| Net income (loss) attributable to shareholders | 364 | (122) |
| Adjusted net income attributable to shareholders (non-IFRS) | 389 | 451 |
| Basic and diluted EPS | $0.29 | ($0.10) |
| Cash flow from operating activities | 847 | 966 |
| Cash capital expenditures | 457 | 632 |
Year-end total assets were $8.714 billion, total liabilities $5.784 billion and equity $2.930 billion. Cash and cash equivalents were $83 million, with $90 million of short-term investments and deposits. Short-term credit was $822 million and long-term debt and debentures were $2.388 billion; management reported net financial liabilities of $3.037 billion. Undrawn long-term credit facilities were $1.568 billion at year-end. The company reported $237 million of dividends paid in 2017.
Segment sales, including intersegment sales, were $3.008 billion for Essential Minerals and $2.650 billion for Specialty Solutions. Segment operating income was $359 million and $554 million, respectively, before unallocated group expenses and eliminations.
Material changes versus prior year
- Sales rose 1%, while gross profit was broadly stable. Operating income improved substantially from a small loss to $629 million; adjusted operating income increased to $652 million from $582 million.
- Net income attributable to shareholders recovered to $364 million from a $122 million loss. However, adjusted net income declined from $451 million to $389 million.
- The 2016 result included major write-downs, including $282 million related to the global ERP project and $202 million related to Allana Afar, alongside other charges. In 2017, other income included a $41 million gain on the IDE divestiture and a $7 million gain from deconsolidating Allana. Adjusted measures exclude specified items and are non-IFRS.
- Operating cash flow decreased to $847 million from $966 million, mainly reflecting higher tax and employee-retirement payments and less favorable working-capital movements. Cash used in investing activities fell to $333 million, including $168 million proceeds from the IDE sale; financing activities used $511 million, including $421 million of net long-term debt repayments.
- Essential Minerals segment operating income fell to $359 million from $398 million, while Specialty Solutions segment operating income rose to $554 million from $534 million. Phosphate sales and output declined; potash selling prices improved, but potash production and external sales volumes declined.
Outlook, management commentary, risks and unusual items
- Divestiture: ICL agreed to sell its fire-safety and oil-additives businesses for approximately $1 billion, including about $950 million cash and up to $53 million in preferred equity certificates. Closing was expected in the first half of 2018, subject to conditions and approvals. The company anticipated an approximately $840 million gain and expected net proceeds to reduce debt; the transaction was not completed as of the report date.
- Management targets: ICL targeted a 10–15% reduction in average potash cost per tonne within five years while maintaining about 5 million tonnes of potash production capability; growth in specialty fertilizer sales to more than $1 billion within five years; and growth in semi-specialty sales from about $100 million to about $400 million. These are strategic targets, not formal earnings guidance. Management estimated an effective tax rate of approximately 30% for 2018 and beyond.
- Operations and investment: The company planned to cease UK potash production around mid-2018 and transition to Polysulphate, targeting production of about 600,000 tonnes in 2018 and up to 800,000 tonnes in 2019. Major projects include Dead Sea salt harvesting and a new pumping station; ICL’s share of the salt-harvesting project was budgeted at about $280 million, and the pumping station was expected to start operating in 2020.
- Environmental and permitting exposure: A partial collapse of a phosphogypsum pond dyke in June 2017 caused a release into the Ashalim stream. Production resumed at full capacity after temporary approval for Pond 4, but permanent pond permits and Pond 5 approvals remained important. The company said it could not yet estimate the eventual stream-restoration costs; the recognized provision covered short-term costs and was immaterial.
- Other key risks: Dead Sea concession arrangements end in 2030 and future rights and asset valuation remain uncertain. Israeli phosphate concessions run to 2021; approval of additional reserves at Barir/South Zohar faced further health and planning review. Spanish salt-pile restoration and licensing, natural-resource tax interpretations, royalty arbitration, commodity prices, energy and shipping costs, currency movements, labor relations and leverage could affect results.
- Contingencies: ICL disclosed approximately $150 million of potential tax exposure for which no provision was recorded, and disputed an Israeli tax assessment of about $50 million. Dead Sea royalty arbitration and environmental and legal claims also remain subject to uncertainty. Fitch lowered ICL’s rating to BBB- with stable outlook; S&P affirmed BBB- with stable outlook.
Important facts for investors to verify
- Whether the fire-safety and oil-additives sale closed on the stated terms, the final net proceeds and their use for debt reduction.
- Progress, total cost and permitting for Pond 4/Pond 5, Ashalim stream restoration, the salt-harvesting project and the P-9 pumping station.
- Developments in Dead Sea royalty arbitration, tax disputes and the estimated unprovided tax exposure.
- Approvals and timing for Barir/South Zohar phosphate mining, Spanish operating and restoration requirements, and the UK shift to Polysulphate.
- Debt, liquidity and covenant headroom, including the effect of the additional $320 million facility draw reported after year-end, and whether operating cash flow supports planned investment and dividends.
- Realization of management’s cost and growth targets amid fertilizer-price volatility, higher energy and freight costs, and lower adjusted net income in 2017.