ICL Reports Q2 2017 Results

TEL AVIV, Israel, August 3, 2017 /PRNewswire/ --

- Second quarter 2017 sales of $1.32 billion compared to $1.37 billion for Q2 2016and $1.30 billion for Q1 2017 -

- Operating income of $144 million compared to $149 million in Q2 2016 and $116 million in Q1 2017 -

- Solid performance driven by Specialty Solutions division's Industrial Products and Advanced Additives business lines -

- Significant operational improvements at ICL's YPH Chinese joint venture -

ICL (NYSE: ICL & TASE: ICL), a leading global specialty minerals and specialty chemicals company, today reported its financial results for the second quarter ended June 30, 2017.

Consolidated sales for the second quarter were $1,322 million compared to $1,377 million recorded for the comparable period in 2016. Second quarter results were supported by continued growth in ICL's Specialty Solutions division's Industrial Products and Advanced Additives business lines.

The Company reported operating income of $144 million compared to $149 million for the second quarter of 2016 and adjusted operating income of $153 million compared to $163 million in the prior-year quarter. Q2 2016 operating income includes income from insurance in respect of a fire that occurred in a fertilizer production facility in Israel in 2015 in the amount of approximately $26 million.

During the quarter the Company continued to reduce G&A expenses, working capital and strictly manage capital expenditures thereby executing another quarter of strong positive free cash flow (operating cash flow net of CapEx) to mitigate the challenging business environment, primarily, lower commodity prices in the Company's agro division. This resulted in free cash flow of $86 million in the second quarter compared to $85 million in free cash flow recorded for the comparable quarter in 2016.

ICL's Acting CEO, Asher Grinbaum, stated, "During the second quarter we successfully continued our efforts to reduce our G&A expenses and to generate strong positive free cash flow. Our Specialty Solutions industrial division continued its solid performance based on its Advanced Additives business line, which recorded gains in its sales of fire safety products, and strong operating profit at the division's Industrial Solutions business line. In our agro division, we continued to see stabilization in spot potash market prices, supported by the recent price increase for Chinese potash contracts, while the phosphate fertilizers market continues to be volatile with further market price reductions recorded during the quarter. We are very pleased to have signed contracts with our Chinese customers for 925,000 metric tonnes of potash to be delivered in 2017 which will have a positive impact on our second half results. We continue to counter the challenging business environment in the commodities markets by maintaining a strong focus on efficiency and operational excellence in order to improve the competitive position of our assets. As a result, and due to a reduction of our exposure to phosphate commodity fertilizers, our YPH JV in China showed significant operational improvements during the quarter."

Mr. Grinbaum continued, "Several notable events occurred during the quarter, both positive and negative. We signed an agreement to divest our 50% ownership of IDE, a non-synergistic holding of the Company, in consideration of approximately $178 million, which will further improve our balance sheet. In addition, Spain's Catalan Supreme Court approved our suggested roadmap regarding the continuation of our operations at the Sallent site, allowing us to continue operating there for another year with an option for a second year until we complete our expansion of a second mine in Spain."

"At the end of the quarter our Rotem phosphate facilities in Israel unfortunately experienced a partial collapse of a dyke at one of its ponds which is used for accumulation of phosphogypsum water, a by‑product of a production process at the plant (see "Essential Minerals - Phosphates" below). We are and have always been fully committed to environmental responsibility and we are taking determined action in full coordination with the Israeli authorities to rectify the resulting environmental harm and to restore the ponds over the short and long term."

Mr. Grinbaum concluded, "We continue to successfully execute our strategy and generate cash. We are also increasing our efficiency and competitiveness through process and product innovation as well as operational excellence programs throughout our global operations. Above all, we remain firmly dedicated to meeting the evolving needs of our markets through our highly tailored focus on our customers throughout the world."

FINANCIAL RESULTS

Q2 2017 Financial Highlights:                              

Sales:

Lower sales in Q2 2017 derived from lower quantities sold of phosphate fertilizers in ICL Phosphate and dairy proteins at ICL Food Specialties. The decrease was partly offset by an increase in quantities of potash sold, mainly to Asia and South America, and acids at ICL Advanced Additives. There was also a decline in the selling prices of phosphate fertilizers and phosphoric acid at ICL Phosphate. Lower sales also resulted from the devaluation of the euro and the Chinese yuan against the dollar compared to the corresponding quarter last year.

Adjusted Operating Income:

The decrease in adjusted operating income derived mainly from a decline in the selling prices of phosphate fertilizers and phosphoric acid at ICL Phosphate, currency fluctuations, and a decrease in quantities sold, primarily at ICL Phosphate and ICL Food Specialties, as well as from insurance income received in the corresponding quarter last year in respect of a fire in a fertilizer production facility located in Israel, offset partly by operational cost saving measures at the YPH JV, G&A reduction initiatives and lower raw material prices.

Financing expenses, net: Net financing expenses in the second quarter of 2017 totaled $49 million compared with $40 million in the corresponding quarter last year. The increase derived mainly from $13 million in fees paid with respect to early repayment of a long-term loan.

Tax expenses: Tax expenses in the second quarter of 2017 amounted to $41 million, reflecting an effective tax rate of about 43%. The higher tax rate in 2017 is mainly due to an increase in the on-going Israeli effective tax rate on the Company's Israeli operations. In addition, the upward revaluation of the NIS vs. the US dollar had an impact on ICL's tax expenses. The lower than usual effective tax rate in the corresponding quarter last year was due to recognition of deferred tax assets in the amount of $27 million.

Net income: Net income for the second quarter of 2017 totaled $57 million compared to net income of $120 million for the comparable period in 2016, a reduction of 52.5%. Adjusted net income for Q2 2017 totaled $64 million compared with $132 million for Q2 2016.

Cash flow& debt movement: Second quarter net operating cash flow of $199 million decreased by $39 million compared to the prior-year period. The decrease stemmed mostly from changes to working capital in each of the comparable periods. 

REVIEW OF OPERATING DIVISIONS

Specialty Solutions Division

The Specialty Solutions division, which serves as ICL's industrial division, targets industrial markets and concentrates on achieving growth through a highly tailored customer focus, product innovation and commercial excellence. The segment includes three business lines: ICL Industrial Products, ICL Advanced Additives and ICL Food Specialties.

• Quantities: The decrease derived mainly from the decrease in dairy protein quantities sold in ICL Food Specialties (which was slightly offset by an increase in quantities of new products sold). This decrease was partly offset by an increase in quantities sold in the acids sub-business line of ICL Advanced Additives.
• Prices: The decrease stemmed from lower selling prices of acids in ICL Advanced Additives.
• Exchange rates: The decrease stemmed mainly from devaluation of the euro against the dollar compared to the corresponding quarter last year.

Business highlights:

ICL's Specialty Solutions division accounted for 46.5% of ICL's overall sales and 62.5% of operating income in the second quarter of 2017. The division recorded a strong quarter driven by higher acid and fire safety sales at the division's Advanced Additives business line despite a challenging business environment, as well as strong operating margins at its Industrial Products due to cost reductions and higher sales of phosphorus-based FRs and completion fluids and despite seasonally weaker bromine prices. Sales at the division's Food Specialties business line increased quarter over quarter despite significantly lower sales compared to the comparable period last year as a result of a customer's destocking activity, driven by higher dairy protein sales to other customers and a 45% increase in accelerated growth products.

ICL Industrial Products

• Seasonal-driven increased Chinese production resulted in a decrease in elemental bromine prices in China during May through mid-June. However, stricter environmental regulations and heavy rains impacted Chinese production leading to a change in the trend and an increase in prices.
• The business line recorded stable to moderate growth in demand for bromine-based flame retardants.
• A new flammability standard (CPR) in the wire & cables for the building and construction market in Europe is driving higher demand for magnesium hydroxide-based flame retardants.
• Higher sales of phosphorous‑based flame retardants were recorded compared to the second quarter of 2016, mostly as a result of higher pricing.
• Demand for clear brine solutions continues to be soft as a result of the low level of oil prices. Overall 2017 sales are expected to be in line with 2016.

ICL Advanced Additives

The performance of the Advanced Additives business line was favorable compared to the corresponding quarter last year, impacted by several factors:

• Global sales of salts and acids increased by 4% compared to the corresponding quarter last year as higher acid sales volumes in China and Europe partially offset price pressure resulting from declining merchant grade acid (MGA) market prices versus the previous year. The business line's successful P2O5 growth strategy in China was driven by the YPH JV's increased market share for acid.
• P2S5 performance improved mainly driven by higher demand from key customers in Europe.
• The Fire Safety business line was positively impacted by wildfire activity in North America and Europe towards the end of the quarter. Its Class B foam business is also showing continuing sales growth in both existing and new regions.

ICL Food Specialties

• New regulations for organic infant food in China continued to drive lower sales in dairy proteins, however these sales increased in the second quarter compared to the previous quarter as a result of strengthening and new commercial relationships with other customers in China and Europe. ICL Food Specialties is expecting further recovery during the second half of the year.
• The business line's phosphates business remained under pressure as the competitive business environment in North America and Europe was only partly offset by a recovery in sales in South America. Price increases in North America announced during the quarter had a favorable impact on the quarter's revenues, and are expected to have a further positive impact during the second half of the year.
• Sales volumes of integrated solutions and new products have continued to grow as the business line continues to launch new products globally. Moreover, increased orders during the quarter are adding to a positive outlook for the remainder of 2017.
• Devaluation of the euro, British pound and Mexican peso against the dollar negatively impacted results in the quarter.

Specialty Solutions Operating Income:

Quantities: ICL Advanced Additives recorded an increase in quantities sold deriving from its acids sub-business line, which amount was fully offset by a decrease in the dairy proteins sub-business line of ICL Food Specialties.
Prices: The decrease stemmed from lower selling prices of acids at ICL Advanced Additives.
Exchange rates: The decrease stemmed mainly from the devaluation of the euro against the dollar which decreased revenues, coupled with the upward revaluation of the shekel against the dollar which increased production costs.
Raw materials: The increase stemmed mainly from a decrease in sulfur prices used for products of ICL Advanced Additives.

Essential Minerals Division

The Essential Minerals division, which serves as the Company's agro division, includes three business lines (as of January 2017): ICL Potash & Magnesium, ICL Phosphate and ICL Specialty Fertilizers. The agro division focuses on efficiency, process innovation and operational excellence in order to improve the competitive position of its assets.

During Q2, the division experienced year over year and consecutive increases in potash volumes mainly due to an increase in sales to Asia and South America. Despite the challenging environment in the market for commodity phosphate fertilizers, ICL's YPH JV in China showed continued operational improvements resulting in a significantly lower operating loss. During the quarter, a dyke partially collapsed at a pond which accumulates phosphogypsum water at the divisions' ICL Rotem facility in Israel's Negev region. (See "Phosphates" below.) Results at the division's Specialty Fertilizers business line were largely flat compared to the corresponding quarter in 2016, as higher sales volumes and profitability in the Europe and APAC regions, especially in the water soluble NPK (WSNPK) product line, were offset by competitive price pressures.

Results of Operations

For additional details regarding potash– see 'Potash – Stand-Alone Activities'.

Quantities: The decrease in quantities stemmed mainly from a decline in phosphate fertilizers and phosphate rock quantities sold, which was partly offset by an increase in potash sales (mainly to Asia and South America) and an increase in the quantities of ICL Specialty Fertilizers products sold.

Prices: The decrease stems mainly from a decline in phosphate fertilizers and phosphoric acid selling prices, lower commodity fertilizers prices and a decline in potash selling prices.

Exchange rates: The decrease stems mainly from the devaluation of the euro, the Chinese yuan and the pound against the dollar compared to the corresponding quarter last year.

Business environment overview

Since the second half of 2016, economic activity of developed countries has shown signs of recovery. Global growth is expected, by the FAO (Food and Agriculture Organization of the UN), to continue to increase slowly beyond 2017 with 5% annual growth in emerging and developing economies.

Based on the WASDE report published by the USDA in July 2017, a small decrease is expected in the ratio of the inventories of grains to annual consumption, to 23.8% at the end of the 2017/2018 agricultural year, compared to 24.9% at the end of both the 2016/2017 and the 2015/2016 agricultural years.

Business highlights

Potash & Magnesium

• The conclusion of the new MOP contract between Uralkali and Chinese buyers following the conclusion of the quarter (July 13), at an increase of $11 per tonne, is expected to set a new benchmark price in the market. On July 28, Uralkali signed a new contract to supply potash to Indian Potash Limited (IPL) at $240 per tonne CFR (a $13 per tonne increase from the 2016/2017 contract), with 180 days' credit, from August 2017 through June 2018.
• On July 2017, ICL signed several contracts with its customers in China to supply an aggregate 925,000 tonnes of potash for delivery during 2017. The selling prices stipulated in the contracts are in line with the new contract prices in China mentioned above. The contracts are part of three-year framework agreements between ICL and its Chinese customers.
• According to customs data, China imported about 3.914million tonnes of potash during the first six months of 2017, about 16% more than during the corresponding period last year.
• Potash imports into India during the first half of 2017 amounted to 2.187 million tonnes, a 78% increase over the corresponding period last year. The sharp increase stems from the importers' projection of higher prices in the 2017/2018 contract and the 20% (about $28 per tonne) reduction of the NBS (Nutrient Based Subsidy) during the 2017/18 fiscal year (beginning on April 1, 2017). During the second quarter of 2017, ICL continued its potash deliveries under its 2016 supply contracts which ended in June 2017.
• Demand for potash in Brazil was particularly strong. According to ANDA (Brazilian National Fertilizer Association), potash imports into Brazil during the first half of 2017 amounted to 4.3million tonnes, a 10% increase over the corresponding period last year.
• ICL UK resumed its potash production in the beginning of Q2 after suspending potash operations in the first quarter due to an operational breakdown in ICL UK's mine tailings channel. Total 2017 production is expected to remain as planned at the level of about 290,000 tonnes. Production of polysulphate was not affected, and the business line continues to develop new polysulphate-based products and new markets.
• Regarding the salt pile at ICL Iberia's Sallent mine, on June 30, a Spanish court has extended ICL Iberia's permit to pile the salt for an additional year until June 30, 2018, and that ICL Iberia may request an extension of a further year subject to certain conditions of the Spanish authorities.
• During the quarter, after receiving all the permits required to execute the Salt Harvesting project at the Dead Sea from the Israeli Government, ICL's Board of Directors approved a budget of about $280 million to proceed with the project over the next 13 years. This amount represents ICL's 80% share of the cost of the project.
• Metal magnesium – global demand for magnesium continues to be constrained by lower economic activity in China, Brazil and Europe. Pure magnesium prices in the US market remain under pressure as a consequence of changes in supply dynamics.
• During the quarter, ICL Dead Sea continued commissioning the new power plant. Currently, the gas turbine is operational and connected to the national grid, while the steam turbine is still under commissioning.

Sales - Potash:

Production and Sales

The quantity of potash sold to external customers in the second quarter of 2017, was 41,000 tonnes higher than in the corresponding quarter last year, mainly due to an increase in sales to Asia and South America. Production of potash in the second quarter of 2017 was 131,000 tonnes lower than in the corresponding quarter last year, due to a decrease in the production of ICL UK as a result of the transition from extracting and producing potash to producing polysulphate.

Potash Stand Alone Activities – Key Results and Analysis:

* Sales to other business lines of ICL including the Magnesium business.

Potash stand-alone activities include, among others, polysulphate produced in a mine in the UK, and salt produced in underground mines in the UK and Spain.

Quantities: The increase derives from potash sales (mainly to Asia and South America).

Transportation: The decrease stems mainly from an increase in transportation prices and an increase in quantities of potash sold.

Phosphates

• With the exception of Brazil, where strong imports of MAP were recorded, demand for phosphate remained relatively low worldwide and prices continued their downward trend.
• In India, high inventories, increased domestic production and lower sales resulted in a reduction of DAP imports during the 2016/2017 financial year (April 2016 to March 2017).
• Phosphoric acid (100% P2O5) contracts in India for the third and fourth quarters of 2017 were set at $567 per tonne CFR including 30 days' credit, a $23 per tonne decrease from the second quarter contract price.
• Exports of phosphate fertilizers from China increased substantially in the first half of 2017, despite continued talk of production curtailments. During January to June 2017 China exported 4.035 million tonnes of phosphate fertilizers (DAP, MAP and TSP), a 26% increase over the corresponding period last year.
• Over-supply in the domestic market in China, along with lower international prices, continued to negatively affect the results of the YPH JV in China. Nevertheless, in the second quarter of 2017 the results of YPH significantly improved driven by lower exposure to commodity phosphate fertilizers and a shift to specialty products as well as by efficiency and cost reduction.
• Brazilian imports of phosphate fertilizers (MAP, DAP, TSP & SSP) during the first half of 2017 amounted to 2.642 million tonnes, a 26.6% increase over the corresponding period last year. The increase is attributable mainly to higher planted areas of soy beans and improvement in farmers' profitability.
• Despite the pressure on phosphate prices, most markets west of the Suez are showing stability.
• On June 30, 2017, a partial collapse occurred of a dyke at ICL Rotem's Pond 3, in Israel's Negev region, which is used for accumulation of phosphogypsum water that is created as a by‑product of the production processes at ICL Rotem's plants. The Company immediately ceased using the active phosphogypsum ponds. On July 3, 2017, the Company returned to production at full capacity under a temporary approval to activate Pond 4 by the Ministry of Environmental Protection, which also instructed the Company to submit a plan within the next few months relating to the future operation of the phosphogypsum water ponds. To the best of the Company's knowledge, investigations have been commenced by the Ministry of Environmental Protection and the Israeli authorities. The Company is taking action to explore solutions for, among other things, restoration of the ponds in the short and long‑term and to rectify any environmental harm caused, to the extent required. The Company's actions are being carried out in full coordination and close cooperation with the Israeli environmental authorities, including the Ministry of Environmental Protection and the Nature and National Parks Authority. The Company is committed to environmental responsibility, and for years has worked closely with the Israeli's environmental authorities to maintain the Negev's natural reserves in the area of its facilities. At this stage, ICL is unable to assess the costs related to the long term plan. (For further information, see Note 6 to the Condensed Consolidated Interim Financial Statements as at June 30, 2017 (Unaudited) filed with the Company's Form 6-K.)

Production and Sales

The quantity of phosphate rock sold in the second quarter of 2017 was112,000 tonnes lower than in the corresponding quarter last year due to low global demand and a challenging price environment. Production of phosphate rock was lower by 269,000 tonnes mainly due to decreased production at the YPH JV as a result of production optimization process. Sales of phosphate fertilizers sold in the second quarter of 2017 were 136,000 tonnes lower than in the corresponding quarter last year which stemmed mainly from a decrease in sales to Asia and South America. Production of phosphate fertilizers was lower by 107,000 tonnes, mainly due to decreased production at the YPH JV as a result of efficiency measures.

Specialty Fertilizers

• ICL Specialty Fertilizers' second quarter sales were largely flat compared to the corresponding quarter in 2016, as higher sales volumes and profitability in the Europe and Asia Pacific regions, especially in the water soluble NPK (WSNPK) product line, were offset by competitive price pressures. An increase in profitability stemmed from the implementation of cost reduction initiatives and slightly higher market prices of end customers' crops.
• During the second quarter, the business line was negatively impacted by a shortage of ammonia in Israel which led to lower sales and profitability of ammonia-based products in Israel and outside of Israel (mainly in North America).
• Higher demand in the ornamental horticulture markets, mainly in Europe and Asia Pacific regions, drove an increase in sales and margins compared to the corresponding quarter in 2016, which was partially offset by a decrease in sales in North America, mainly in coated fertilizers.
• A global increase in demand for MKP fertilizers was recorded during the second quarter compared to the corresponding quarter in 2016.
• In the Asia Pacific region, ICL Specialty Fertilizers' sales in the first half of 2017 increased by over 30% compared to the corresponding period in 2016, primarily due to higher sales volumes of straights fertilizers (MAP) and coated fertilizers (CRF).

Essential Minerals Division: Operating Income 

Quantities: Increased quantities of potash sold (mainly to Asia and South America) and of ICL Specialty Fertilizers products sold were offset by a decrease in quantities sold of phosphate fertilizers and phosphate rock.

Prices: The decrease stemmed mainly from a decline in phosphate fertilizers and phosphoric acid selling prices, together with lower commodity fertilizers prices.

Exchange rates: The decrease resulted mainly from the upward revaluation of the Israeli shekel against the dollar.                               

Energy: The decrease stemmed mainly from an increase in energy prices.

Other: The decrease derived mainly from insurance income in respect of the fire at a fertilizer production facility in Israel in 2016. The decrease was partly offset by a provision in 2016 resulting from the extension of the validity of the employment agreement at ICL Dead Sea.

About ICL

ICL is a global manufacturer of products based on specialty minerals that fulfill humanity's essential needs primarily in three markets: agriculture, food and engineered materials.

ICL produces approximately a third of the world's bromine, and is the sixth largest potash producer, as well as the leading provider of pure phosphoric acid. It is a major manufacturer of specialty fertilizers, specialty phosphates and flame retardants. ICL's mining and manufacturing activities are located in Israel, Europe, the Americas and China, and are supported by global distribution and supply networks.

The agricultural products that ICL produces help to feed the world's growing population. The potash and phosphates that it mines and manufactures are used as ingredients in fertilizers and serve as an essential component in the pharmaceutical and food additives industries. The food additives that ICL produces enable people to have greater access to more varied and higher quality food. ICL's water treatment products supply clean water to millions of people as well as industry around the world. Other substances, based on bromine and phosphates help to create energy that is more efficient and environmentally friendly, prevent the spread of forest fires and allow the safe and widespread use of a variety of products and materials.

ICL benefits from a number of unique advantages, including its vertically integrated activities and complementary and synergistic downstream operations for the production of unique end products; its balanced and varied product portfolio in growing markets; broad presence throughout the world and proximity to large markets, including in emerging regions.

ICL operates within a strategic framework of sustainability that includes a commitment to the environment, support of communities in which ICL's manufacturing operations are located and where its employees live, and a commitment to all its employees, customers, suppliers and other stakeholders.

ICL is a public company whose shares are dually listed on the New York Stock Exchange and the Tel Aviv Stock Exchange (NYSE and TASE: ICL). The company employs approximately 13,000 people worldwide, and its sales in 2016 totaled US$5.4 billion. For more information, visit the Company's website at www.icl-group.com.

Forward Looking Statement

This press release contains statements that constitute "forward-looking statements", many of which can be identified by the use of forward-looking words such as "anticipate", "believe", "could", "expect", "should", "plan", "intend", "estimate" and "potential" among others. Forward-looking statements include, but are not limited to assessments and judgments regarding macro-economic conditions and the Group's markets, operations and financial results. Forward-looking assessments and judgments are based on our management's current beliefs and assumptions and on information currently available to our management. Such statements are subject to risks and uncertainties, and actual results may differ materially from those expressed or implied in the forward-looking statements due to various factors, including, but not limited to, market fluctuations, especially in ICL's manufacturing locations and target markets ;the difference between actual resources and our resources estimates ;changes in the demand and price environment for ICL's products as well as the cost of shipping and energy, whether caused by actions of governments, manufacturers or consumers ;changes in the capital markets, including fluctuations in currency exchange rates, credit availability, interest rates;changes in the competition structure in the market;and the factors in "Item 3. Key Information—D. Risk Factors" in the Company's annual report on Form 20-F filed with the U.S. Securities and Exchange Commission on March 16, 2017. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update or revise them or any other information contained in this press release, whether as a result of new information, future developments or otherwise.

(Financial tables followand are also available in Excel format on our website located at www.icl-group.com)

Appendix:

Adjustments to Reported Operating and Net Income

(1)  Capital (gain) loss from sale of non-core businesses. In 2017, additional consideration received regarding earn-out of 2015 divestitures.

(2)  Provision for early retirement and dismissal of employees in accordance with the Company's comprehensive global efficiency plan from 2012 in its production facilities throughout the group. In 2017, provisions relating to the Company's facilities in Israel at ICL Rotem.

(3)  Provision for legal claims, mainly regarding two claims settled in 2016 related to prior periods. In Q2 2016, stemming mainly from the commercial price dispute with Haifa Chemicals which ended with the arbitration award agreement in Q3 2016.

Calculation of adjusted EBITDA:

* See "Adjustments to reported operating and net income" above.

We disclose in this Quarterly Report non-IFRS financial measures titled adjusted operating income, adjusted net income attributable to the Company's shareholders and adjusted EBITDA. Our management uses adjusted operating income, adjusted net income attributable to the Company's shareholders and adjusted EBITDA to facilitate operating performance comparisons from period to period. We calculate our adjusted operating income by adjusting our operating income to add certain items, as set forth in the reconciliation table under "Adjustments to reported operating and net income" above. Certain of these items may recur. We calculate our adjusted net income attributable to the Company's shareholders by adjusting our net income attributable to the Company's shareholders to add certain items, as set forth in the reconciliation table under "Adjustments to reported operating and net income"  above, excluding the total tax impact of such adjustments and adjustments attributable to the non-controlling interests. We calculate our adjusted EBITDA by adding back to the net income attributable to the Company's shareholders the depreciation and amortization, financing expenses, net, taxes on income and the items presented in the reconciliation table under "Adjusted EBITDA for the periods of activity" above which were adjusted for in calculating the adjusted operating income and adjusted net income attributable to the Company's shareholders.

You should not view adjusted operating income, adjusted net income attributable to the Company's shareholders or adjusted EBITDA as a substitute for operating income or net income attributable to the Company's shareholders determined in accordance with IFRS, and you should note that our definitions of adjusted operating income, adjusted net income attributable to the Company's shareholders and adjusted EBITDA may differ from those used by other companies. However, we believe adjusted operating income, adjusted net income attributable to the Company's shareholders and adjusted EBITDA provide useful information to both management and investors by excluding certain expenses that management believes are not indicative of our ongoing operations. Our management uses these non-IFRS measures to evaluate the Company's business strategies and management's performance. We believe that these non-IFRS measures provide useful information to investors because they improve the comparability of the financial results between periods and provide for greater transparency of key measures used to evaluate our performance.

We present a discussion in the period-to-period comparisons of the primary drivers of changes in the Company's results of operations. This discussion is based in part on management's best estimates of the impact of the main trends in its businesses. We have based the following discussion on our financial statements. You should read the following discussion together with our financial statements.

The accompanying notes are an integral part of these condensed consolidated financial statements.

Sales by Main Countries:

Sales by Geographical Regions:

The following table sets forth sales by geographical regions based on the location of the customer:

The breakdown of the sales in the second quarter of 2017 shows a decrease in sales to Europe, stemming mainly from a decline in quantities and selling prices of potash, partly offset by an increase in sales of clear brine solutions and dairy proteins. The minor increase in sales to Asia stems mainly from an increase in quantities sold of potash and phosphoric acid, mostly offset by decrease in phosphate fertilizers selling prices and in phosphate rock quantities sold. The sales to North America were stable compared to the corresponding quarter last year (with minor reduction) despite the challenging business environment.  The increase in sales to South America stems mainly from an increase in potash selling prices and quantities sold, partly offset by a decrease in phosphate fertilizers quantities sold. The decrease in sales to the rest of the world stems mainly from a decrease in the quantities of dairy proteins products sold and a decline in potash sales to an Israeli customer facing operational difficulties due to new local regulation.

* Less than $1 million.

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SOURCE ICL