May 18, 2016 / 12:58 PM / in a year

UPDATE 1-ICL profits drop on weak fertiliser sales, to cut dividend

(Adds details, data, CEO comments, share reaction)

By Tova Cohen

TEL AVIV, May 18 (Reuters) - Israel Chemicals (ICL) on Wednesday reported a 50 percent drop in first-quarter earnings due to a fall in fertiliser sales and said it would cut its dividend payout ratio because of weakness in agricultural markets.

“Our board has adjusted the company’s dividend policy to strengthen ICL’s financial position amid the volatile situation we are facing in the agricultural commodities market,” Chief Executive Stefan Borgas said.

The company said prices of agricultural commodities fell during the first months of 2016, weighing heavily on farmers’ decisions on how much fertiliser to buy.

Last month, the world’s biggest fertiliser company producer by capacity Potash Corp cut its full-year 2016 profit forecast due to lower demand and weak prices.

ICL, which has exclusive permits in Israel to extract minerals from the Dead Sea, earned 7 cents per diluted share, excluding one-time items, in the first quarter, down from 15 cents a year earlier. Sales fell to $1.27 billion from $1.4 billion, mainly due to a drop in potash prices and sales volumes.

ICL, one of the three largest suppliers of crop nutrient potash to China, India and Europe, was forecast to make adjusted earnings of 9 cents on sales of $1.3 billion, according to Thomson Reuters I/B/E/S.

The sale of non-core businesses and the weaker euro and pound against the dollar also hit revenue.

The potash market, in particular, has been hurt by the delay of 2016 contracts with China, usually a trigger for other markets and which sets a price benchmark for the year, ICL said. Weak sales to China and India also hit potash profit margins.

Potash sales in the quarter fell to 917,000 tonnes, including Israel, from 1.14 million a year earlier.

Borgas said the company was taking steps to strengthen its phosphates joint venture in China, which was affected by weaker domestic demand and lower prices. ICL will step up efficiency measures to cut the joint venture’s staff numbers and set up a marketing division in China to improve sales.

For 2016 and 2017, ICL’s dividend payout ratio will comprise up to 50 percent of its adjusted annual net income, compared with a prior policy of up to 70 percent.

ICL will pay a dividend of 3 cents a share, or a total of $35 million, for the quarter.

Shares in ICL, a subsidiary of Israel Corp, fell 2.8 percent to 15.78 shekels. (Reporting by Tova Cohen, Editing by Ari Rabinovitch and Jane Merriman)

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