57% drop in Israel Chemicals (ICL) 's net profit in the first quarter - totaling $ 60 million

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by Ifi Reporter Category:Financial May 12, 2020

A fall in potash and phosphate prices resulted in a 57% drop in Israel Chemicals (ICL) 's net profit in the first quarter of 2020, totaling $ 60 million - 5 cents a share. ICL's revenue, managed by Reviv Zoller, fell 7% in the first quarter of 2020 compared to its corresponding quarter in 2019, totaling $ 1.3 billion - 4% more than the analysts' forecasts.
The decrease in ICL's revenues (-2.89% 1210) was due to a 15% ($ 44 per tonne) drop in potash prices in the last quarter compared to the corresponding quarter, to $ 250 per ton. ICL was also hit by a fall in the price of green phosphoric acid, and these two factors together subtracted $ 96 million from its revenues. The depreciation of the euro against the dollar reduced by $ 16 million to ICL's revenue this past quarter.
These factors were partially offset by a $ 16 million contribution to revenues due to a quantitative increase in sales of phosphate fertilizers and bromine-based clear solutions to balance oil and gas drilling pressures, as well as a quantitative increase in phosphate-based flame retardants sales. However, the increase in sales was also offset by a quantitative decline in phosphate rock sales, a commodity product whose global price is controlled by OCP from Morocco, as well as a continuing decline in milk protein sales in China.
ICL's operating profit fell 42% in the first quarter compared to the same period, totaling $ 132 million. The decline in operating profit was mainly due to a drop in potash and phosphate prices, which subtracted $ 96 million from operating profit, and an increase in operating expenses in the potash mines in Spain and the polysulfate multisolid mineral mine in Northern England - as a result of the decline in these sites due to the outbreak of the Corona virus. ICL was also affected by the strengthening of the shekel against the dollar, which increased operating expenses in dollar terms and reduced operating income by $ 12 million in the first quarter of 2020 compared with the corresponding in 2019. These factors were partially offset by a decrease in the price of sulfur - an important raw material in the production of phosphate fertilizers - which contributed $ 31 million to operating profit.
The bromine sector, in which ICL is the global leader, also continued in the past quarter to provide ICL with a significant portion of its operating profits, as it was in the fourth quarter of 2019 - also against the weakness of fertilizer prices. The sector includes the production of elemental bromine, bromine compounds for combustion inhibitors in electronic consumer appliances and clear solutions for balancing pressures in oil and gas drilling. Sector revenues grew 4% in the last quarter compared to the corresponding quarter, totaling $ 364 million.
The increase in sales was mainly due to a quantitative increase in phosphate-based flame retardants, as a result of the disruption of production sites in China as a result of the Corona crisis, and the increase in clear solution sales as a result of drilling in the Gulf of Mexico, Guyana and the North Sea. ICL warns that the oil price crash in the second quarter will adversely affect clear solution sales in the coming quarters. The quantitative increase in phosphate-based combustion inhibitor sales and clear solution sales contributed $ 14 million to sales.
The operating profit for the bromine sector grew 6% in the first quarter of 2020 compared with the corresponding period in 2019, totaling $ 103 million. This is thanks to a $ 10 million contribution from sales growth, as a result of the rise in the special mineral price that contributed $ 3 million to operating profit. ICL expects a decrease in its revenues in the second quarter as a result of a fall in demand for flame retardants in the automotive, construction and consumer electronics industries.
The potash sector was hit both by the continued pressure to reduce the price of potash as a result of the delay in signing new supply contracts in China, and the Spanish strike in Spain starting at the end of March. This mine returned to 60% of its output. ICL's sales of potash sales dropped 18% in the past quarter, compared to the same period, to $ 314 million. This is due to a 2% quantitative decline that subtracted $ 17 million, and due to a price drop that reduced sales by $ 51 million this past quarter.
The operating profit of the potash sector in ICL crashed 82% in the first quarter compared to the corresponding quarter, to $ 14 million - despite peak production of the Sodom production site following the expansion of production capacity. The collapse in operating profit was mainly due to the fall in prices, which subtracted $ 51 million from operating income, and from higher operating expenses in Spain and the UK, which reduced operating income by $ 12 million. ICL expects the Corona crisis to reduce the potash sector's operating profit by $ 20-10 million in the second quarter of 2020 as a result of the partial output of potash and polysulfate mines, in Spain and England, respectively.

ICL's current operations in the first quarter generated $ 166 million in cash flow, compared to $ 173 million in cash flow in the corresponding quarter of 2019. This is due to a decrease in profit and collection due to weak sales in the fourth quarter of 2019, and as a result of lower revenues from hedging transactions in the past quarter compared to its corresponding in 2019. ICL will distribute a $ 30 million dividend, in accordance with a policy of distributing up to 50% of net income.

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