Israel Chemicals Weighs $500m Dividend as 2nd-qtr Net Plunges

Management also plans to list on an overseas stock exchange that offers higher valuations

Israel Chemicals reported a 23% drop in net profit yesterday and said it was weighing a one-time dividend or stock buyback program of up to $500 million and a share listing overseas. The company also unveiled a strategic plan that would expand its offerings into agriculture, food and engineered materials.

ICL, the world’s six-largest maker of potash, faces a difficult future after Russian potash producer Uralkali last week bolted from one of the world’s two potash cartels in a move expected to cause prices of ICL’s flagship product to drop around 25% to $300 a ton. While ICL conceded that Uralkali’s move raised the risk of lower prices in the short run, “in the long term, higher demand would bring higher prices,” the company said in a statement.

The drop in ICL’s second-quarter profit to $316 million preceded the industry crisis precipitated by Uralkali; it was due to falling prices of potash and reduced sales in China. ICL’s revenue slipped 7.3% to $1.77 billion in the period, but the big hit came from a decline in ICL’s gross profit margin to 40.6% from 44.1%.

ICL said the dividend plan was part of a strategy approved by the board. The company is targeting profits above the industry average and seeks to boost revenues by a few hundred million dollars a year by 2016. It envisions regular distributions of dividends equal to up to 70% of net income.

“Even with current challenging market developments, ICL continues to believe in the potash market, both in the short term and in the long term, and will therefore explore options for increasing its potash production, both in its existing mines and in new locations around the world,” CEO Stefan Borgas said.

The overseas stock offering is part of a broader program by the parent company, Idan Ofer’s The Israel Corporation. Israel Corp. seeks to unlock value by listing subsidiaries on foreign exchanges where shares typically trade at higher valuations than in Tel Aviv, where ICL and Israel Corporation are both listed today.

Meanwhile, ICL declared a regular dividend of $221 million, or 17.4 cents a share, for the second quarter, up from 16.7 cents in the first quarter.

ICL shares, which have been pounded since the Uralkali announcement, rose 1.4% yesterday to close at NIS 27.99. Israel Corporation jumped 3% to close at NIS 1,689.

“The new strategy looks attractive at first glance,” said Citi analyst Andrew Benson in a note to clients. “ICL’s self-help measures will mitigate some of the pressure on EPS [earnings per share] from the current potash war.”

Benson said he continues to rate ICL a Buy since the company has low cash costs for potash - which is extracted from the Dead Sea rather than from underground mines. These low costs allow it to stay profitable at prices well below the level of many of its competitors.

Reuters