REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
For the transition period fromto.
Commission File Number: 001-13742
ISRAEL CHEMICALS LTD.
(Exact name of Registrant as specified in its charter)
(Translation of Registrant’s name into English)
(Jurisdiction of incorporation or organization)
Millennium Tower, 23 Aranha Street, P.O. Box 20245 Tel Aviv, 61202 Israel
(Address of principal executive offices)
Lilach Geva Harel, Adv. EVP, Global General Counsel Millennium Tower, 23 Aranha St. Tel-Aviv 6120201 Israel Tel: +972 (3) 6844440
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Ordinary Shares, par value NIS 1.00 per share
The New York Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
The number of outstanding shares as of December 31, 2019 was:
Title of Class
Number of Shares Outstanding
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☒ No ☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ☐ No ☒
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer ☒ Accelerated Filer ☐ Non-accelerated Filer ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
☐ U.S. GAAP
☒ International Financial Reporting Standards as issued by the International Accounting Standards Board
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the Registrant has elected to follow.
Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
This Annual Report 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 appear in a number of places in this Annual Report and include, but are not limited to, statements regarding our intent, belief or current expectations. Forward‑looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. Such statements are subject to risks and uncertainties, and the actual results may differ materially from those expressed or implied in the forward‑looking statements due to various factors, including, but not limited to, those identified in “Item 3 - Key Information— D. Risk Factors” in this Annual Report. These risks and uncertainties include factors relating to:
Loss or impairment of business licenses or mineral extractions permits or concessions; volatility of supply and demand and the impact of competition; the difference between actual reserves and our reserve estimates; natural disasters; failure to raise the water level in evaporation Pond 5 in the Dead Sea; construction of a new pumping station; disruptions at our seaport shipping facilities or regulatory restrictions affecting our ability to export our products overseas; general market, political or economic conditions in the countries in which we operate; price increases or shortages with respect to our principal raw materials; delays in the completion of major projects by third party contractors and/or termination of engagements with contractors and/or governmental obligations; the inflow of significant amounts of water into the Dead Sea could adversely affect production at our plants; labor disputes, slowdowns and strikes involving our employees; pension and health insurance liabilities; risks related to health epidemics, such as the ongoing global epidemic as a result of the recent outbreak of the new coronavirus identified in Wuhan, Hubei Province, China, as any outbreak of a contagious disease, or other adverse public health developments, could have a material adverse effect on our business operations by disrupting our ability to purchase raw materials, impacting the demand for some of our products, disrupting our ability to sell and/or distribute products, and/or temporarily closing our facilities or the facilities of our suppliers or customers and their contract manufacturers, or restricting our ability to travel to support our sites or our customers around the world, any of which would likely impact our sales and operating results; changes to governmental incentive programs or tax benefits, creation of new fiscal or tax related legislation; changes in our evaluations and estimates, which serve as a basis for the recognition and manner of measurement of assets and liabilities; higher tax liabilities; failure to integrate or realize expected benefits from mergers and acquisitions, organizational restructuring and joint ventures; currency rate fluctuations; rising interest rates; government examinations or investigations; disruption of our, or our service providers', information technology systems or breaches of our, or our service providers', data security; failure to retain and/or recruit key personnel; inability to realize expected benefits from our cost reduction program according to the expected timetable; inability to access capital markets on favorable terms; cyclicality of our businesses; changes in demand for our fertilizer products due to a decline in agricultural product prices, lack of available credit, weather conditions, government policies or other factors beyond our control; sales of our magnesium products being affected by various factors that are not within our control; our ability to secure approvals and permits from the authorities in Israel to continue our phosphate mining operations in Rotem; volatility or crises in the financial markets; uncertainties surrounding the proposed withdrawal of the United Kingdom from the European Union; hazards inherent to mining and chemical manufacturing; the failure to ensure the safety of our workers and processes; cost of compliance with environmental legislative and licensing restrictions; laws, regulations and physical impacts of climate change and greenhouse gas emissions; litigation, arbitration and regulatory proceedings; exposure to third party and product liability claims; product recalls or other liability claims as a result of food safety and food-borne illness concerns; insufficiency of insurance coverage; closing of transactions, mergers and acquisitions; war or acts of terror and/or political, economic and military instability in Israel and its region; filing of class actions and derivative actions against the Company, its executives and Board members; and other risk factors discussed under ”Item 3 - Key Information— D. Risk Factors".
Forward‑looking statements speak only as at the date they are made, and we do not undertake any obligation to update them in light of new information or future developments or to release publicly any revisions to these statements in order to reflect later events or circumstances or to reflect the occurrence of unanticipated events.
This Annual Report contains forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from future results as a result of factors such as those set forth in “Item 3 - Key Information— D. Risk Factors” and ”Item 5 - Operating and Financial Review and Prospects.”
The financial information included in this Annual Report has been prepared in accordance with the International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). None of the financial information in this Annual Report has been prepared in accordance with accounting principles generally accepted in the United States.
This Annual Report contains translations of certain NIS amounts into U.S. dollars at specified rates solely for your convenience. Unless otherwise indicated, we have translated NIS amounts as at December 31, 2019, into U.S. dollars at an exchange rate of NIS 3.456 to $1.00, and euro amounts into U.S. dollars at an exchange rate of €0.891 to $1.00, the daily representative exchange rate reported by the Bank of Israel for December 31, 2019.
Market data and certain industry data used in this Annual Report were obtained from internal reports and studies, where appropriate, as well as estimates, market research, publicly available information and industry publications, including publications, reports or releases of the International Monetary Fund (“IMF”), the U.S. Census Bureau, the Food and Agriculture Organization of the United Nations (“FAO”), the International Fertilizers Association (“IFA”), the United States Department of Agriculture (“USDA”), the United States Geological Survey, the CRU Group ("CRU"), Fertecon, the Fertilizer Association of India (“FAI”) and the Brazilian National Fertilizer Association (“ANDA”). Industry publications generally state that the information they include has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. Similarly, internal reports and studies, estimates and market research, which we believe to be reliable and accurately extracted by us for use in this Annual Report, have not been independently verified. However, we believe such data is accurate. There is only a limited amount of independent data available about certain aspects of our industry, market and competitive position. As a result, certain data and information about our market rankings in certain product areas are based on our good faith estimates, which are derived from our review of internal data and information, information that we obtain from our customers, and other third-party sources. We believe these internal surveys and management estimates are reliable; however, no independent sources have verified such surveys and estimates.
In presenting and discussing our financial position, operating results and net income results, the management uses certain non-IFRS financial measures. These non-IFRS financial measures should not be viewed in isolation or as alternatives to the equivalent IFRS measures and should be used in conjunction with the most directly comparable IFRS measures. A discussion of non-IFRS measures included in this Annual Report and a reconciliation of such measures to the most directly comparable IFRS measures are contained in this Annual Report under “Item 5 – Operating and Financial Review and Prospects— A. Operating Results”.
In this Annual Report, unless otherwise indicated or the context otherwise requires, all references to “ICL,” the “Group,” the “Company,” “we,” “our,” “ours,” “us” or similar terms refer to Israel Chemicals Ltd., together with its consolidated subsidiaries. When we refer to our “parent company” or to “Israel Corporation,” we refer to our controlling shareholder, Israel Corporation Ltd. Unless otherwise indicated or the context otherwise requires, references in this Annual Report to “NIS” are to the legal currency of Israel, “U.S. dollars”, “$” or “dollars” are to United States dollars, “euro” or “€” are to the Euro, the legal currency of certain countries of the European Union, and “British pound” or “£” are to the legal currency of the United Kingdom. See “Item 4 - Information on the Company— A. History and Development of the Company”. We own or have rights to trademarks or trade names that we use in conjunction with the operation of our business. Solely for convenience, trademarks and trade names referred to in this Annual Report may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent of the law, our rights or the rights of the applicable licensor to these trademarks and trade names. In this Annual Report, we also refer to product names, trademarks, and trade names that are the property of other companies. Each of the trademarks and trade names of other companies appearing in this Annual Report belongs to its owners. Our use or display of other companies’ product names, trademarks, or trade names is not intended to and does not imply a relationship with, or endorsement or sponsorship by us of, the product, trademark, or trade name owner, unless we otherwise indicate.
GLOSSARY OF SELECTED TERMS
The following is a glossary of selected terms used in this Annual Report.
A chemical element used as a basis for a wide variety of uses and compounds, and mainly as a component in flame retardants or fire prevention substances. Unless otherwise stated, the term “bromine” refers to elemental bromine.
Carbon Disclosure Project - A non-profit leading organization in the greenhouse gas emissions reporting field.
Cost and freight. In a CFR transaction, the prices of goods to the customer includes, in addition to FOB expenses, marine shipping costs and all other costs that arise after the goods leave the seller’s factory gates and up to the destination port.
Classification, Labeling and Packaging of Substances and Mixtures– EU regulation.
The Consumer Price Index, as published by the Israeli Central Bureau of Statistics.
Intelligence company providing information on global mining, metal and fertilizers market.
Dead Sea Bromine Company
Dead Sea Bromine Company Ltd., included in Industrial Products segment.
Diammonium Phosphate - a fertilizer containing nitrate and phosphorus oxide.
US Environmental Protection Agency.
The Food and Agriculture Organization of the United Nations.
Free on board expenses are expenses for overland transportation, loading costs and other costs, up to and including the port of origin. In an FOB transaction, the seller pays the FOB expenses and the buyer pays the other costs from the port of origin onwards.
ICL Haifa (Fertilizers & Chemicals)
Fertilizers and Chemicals Ltd., included in Innovative Ag Solutions segment.
Greenhouse gases – air emissions contributing to climate change.
Fertilizer having granular particles.
A United Kingdom company included in the Potash segment.
ICL Iberia (Iberpotash)
Iberpotash S.A., a Spanish company included in Potash segment.
Israel Corporation Ltd.
ICL Dead Sea (DSW)
Dead Sea Works Ltd., included in Potash segment.
ICL Magnesium (DSM)
Dead Sea Magnesium Ltd., included in Potash segment.
ICL Neot Hovav
Subsidiaries in the Neot Hovav area in the south of Israel, including facilities of Bromine Compounds Ltd. Included in Industrial Products segment.
Rotem Amfert Negev Ltd., included in Phosphate Solutions segment.
The International Fertilizers Industry Association, an international association of fertilizers manufacturers.
Israel Land Authority.
International Monetary Fund.
The element potassium, one of the three main plant nutrients.
Potassium Nitrate, soluble fertilizer containing N&P used as a stand-alone product or as a key component of some water-soluble blends.
Potassium hydroxide 50% liquid.
Merchant grade phosphoric acid.
Israel Ministry of Environmental Protection.
The element nitrogen, one of the three main plant nutrients.
Complex fertilizer comprised primarily of 3 primary nutrients (N,P,K).
The New York Stock Exchange.
The element phosphorus, one of the three main plant nutrients, which is also used as a raw material in industry.
Phosphate rock that contains the element phosphorus. Its concentration is measured in units of P2O5.
A mineral marketed by ICL under the brand name Polysulphate™, composed of potash, sulphur, calcium, and magnesium. Used in its natural form as a fully soluble and natural fertilizer, which is also used for organic agriculture and as a raw material for production of fertilizers.
A chemical compound containing a long chain of repeating units linked by a chemical bond and created by polymerization.
Potassium chloride (KCl), used as a plant’s main source of potassium.
Registration, Evaluation, Authorization and Restriction of Chemicals, a framework within the European Union.
Sulphur – a chemical used for the production of sulfuric acid for sulfate and phosphate fertilizers, and other chemical processes.
Soluble fertilizer containing the three basic elements for plant development (nitrogen, phosphorus and potash).
Fertilizer having small particles.
Tami (IMI) Research and Development Institute Ltd., the central research institute of ICL.
Tel Aviv Stock Exchange, Ltd.
United States Department of Agriculture.
White Phosphoric Acid, purified from MGA.
A white granular or prill solid fertilizer containing 46% nitrogen.
The Chinese partner in the Company’s joint venture YPH in China.
Clean green phosphoric acid, used as a raw material for purification processes.
Item 1 – IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
Item 2 – OFFER STATISTICS AND EXPECTED TIMETABLE
Item 3 – KEY INFORMATION
A. SELECTED FINANCIAL DATA
We have derived the consolidated statements of income data for the years ended December 31, 2019, 2018, 2017, 2016 and 2015 and the consolidated statements of financial position as of December 31, 2019, 2018, 2017, 2016 and 2015 from our audited consolidated financial statements which have been prepared in accordance with IFRS, as issued by the IASB for the years ended, December 31, 2019, 2018, 2017, 2016 and 2015. You should read the consolidated financial data set forth below in conjunction with our consolidated audited financial statements and related notes and the information under “Item 5 - Operating and Financial Review and Prospects”, appearing elsewhere in this Annual Report. Our reporting currency is the U.S. dollar. Our historical results are not necessarily indicative of our results to be expected in any future period.
1 Israel Chemicals Limited
For the Year Ended December 31,
US$ millions, except for the share data
Operating income (loss)
Income (loss) before income taxes
Net income (loss) attributable to the shareholders of the Company
Earnings (loss) per share (in dollars) :
Basic earnings (loss) per share
Diluted earnings (loss) per share
Weighted average number of ordinary shares outstanding:
Basic (in thousands)
Diluted (in thousands)
Dividends declared per share (in dollars)
As at December 31,
Statements of Financial Position Data :
B. CAPITALIZATION AND INDEBTEDNESS
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
2 Israel Chemicals Limited
D. RISK FACTORS
Our business, liquidity, financial condition and results of operations could be materially and adversely affected if any of the risks described below occur. As a result, the trading price of our securities could decline, and investors could lose all or part of their investment. This Annual Report also contains forward‑looking statements that involve risks and uncertainties, see “Special Note Regarding Forward‑Looking Statements.” Our actual results could differ materially and adversely from those anticipated, as a result of certain factors, including the risks facing the Company as described below and elsewhere in the Annual Report.
Risks Related to Our Business
Our minerals extraction operations are dependent on concessions, licenses and permits granted to us by the respective governments in the countries wherein they are located
Our minerals extraction businesses depend on concessions granted to us by the respective governments in the countries in which we operate. Loss of concessions, as well as material changes to the conditions of these concessions could materially and adversely affect our business, financial condition and results of operations.
We extract potash, phosphate, bromine, magnesium and certain other minerals in Israel, potash and salt in Spain, Polysulphate®, salt, and certain other minerals in the United Kingdom and phosphate in China, pursuant to concessions and permits in those countries.
In Israel, we hold a concession that was granted by the government to utilize the resources of the Dead Sea (mainly potash, bromine and magnesium) which ends on March 31, 2030. There is no assurance that the Company will continue to hold the concession beyond the aforementioned period. In accordance with section 24 (a) of the Supplement to the Concession Law, 1961 (hereinafter - the Concession Law), as amended in 1986, in the event the concession is granted to another holder, all the tangible assets at the concession area will be transferred to the government, in exchange of their amortized replacement value as at the end of the concession period.
There could be other interpretations to the manner of implementation of the Concession Law’s provisions with respect to the valuation methodology, hence, the estimated value with respect to the Concession Law could materially differ from the value estimated by the Company, even with respect to the same assets and dates. There is no certainty as to the manner of interpretation of the provisions of the Concession Law in this context as will be adopted in a legal proceeding, to the extent such proceeding would occur. It is expected that the value of the Property, Plant and Equipment, at the end of the concession period, will change, even materially, from their current value as time passes and as a result of purchase and disposal of assets. For additional information, see Note 19 to our Audited Financial Statements.
Furthermore, we mine phosphate rock from phosphate deposits in the Negev desert in accordance with two mining concessions from the State of Israel, which are valid until the end of 2021. In addition, Rotem Amfert Israel has two lease agreements in effect until 2024 and 2041 and an additional lease agreement of the Oron plant, which the Company has been working to extend since 2017, by exercising the extension option provided in the agreement. The Company is acting to renew the said concessions and leases, and believes that it is likely to occur since it is the only entity with appropriate production facilities; nevertheless, there is no certainty that these concessions and leases will be renewed under the same terms or at all. Failure to renew the said concessions and leases could materially and adversely affect our business, financial condition and results of operations.
3 Israel Chemicals Limited
Our existing phosphate mines in the Negev desert hold limited reserves of phosphate rock designated for phosphoric acid production. The Company is working to promote the plan for mining phosphates in Barir field, which is located in the southern part of the South Zohar deposit in the Negev Desert. There is no certainty regarding the timelines for the submission of the plan, the approval, or further developments with respect to the South Zohar deposit. If such mining approval is not received, there will be a significant negative impact on the Group’s future mining reserves in the medium and long term. Our business, financial condition and results of operations will be adversely affected, even materially, in case of failure to receive such approval or a significant delay in receiving it or finding alternative sources of phosphates in Israel. For more information, see “Item 3 - Key Information— D. Risk Factors— Securing the future of the phosphate mining operations at Rotem depends on obtaining several approvals and permits from the authorities in Israel”.
For additional information, see Note 19 to our Audited Financial Statements and “Item 4 ‑ Information on the Company— D. Property, Plant and Equipment— Mineral Extraction and Mining Operations”, “Concessions and Mining Rights” and “Reserves”.
A subsidiary in Spain (hereinafter – ICL Iberia) was granted mining rights based on legislation of Spain’s Government from 1973 and the regulations accompanying this legislation. Further to the legislation, as stated, the Government of the Catalonia region published special mining regulations whereby ICL Iberia received individual licenses for each of the 126 different sites that are relevant to the current and possible future mining activities. Some of the licenses are valid up to 2037 and the rest are effective up to 2067. The concession for the "Reserva Catalana", an additional site wherein mining has not yet been commenced, expired in 2012. The Company is acting in cooperation with the Spanish Government to obtain a renewal of the concession. According to the Spanish authorities, the concession period is valid until a final decision is made regarding the renewal. Maintaining the mining activity in Spain requires municipal and environmental licenses. If such licenses are not renewed, this would be expected to affect, possibly in a substantial manner, the mining activity at certain sites in Spain and the Company’s financial results. For additional information, see Note 19 to our Audited Financial Statements and “Item 4 - Information on the Company— D. Property, Plant and Equipment— Mineral Extraction and Mining Operations” and “Concessions and Mining Rights” and “Reserves”.
The mining rights of a subsidiary in the United Kingdom (hereinafter – ICL Boulby), are based on approximately 114 mining leases and licenses for extracting various minerals, in addition to numerous easements and rights of way from private owners of land under which ICL Boulby operates, and mining rights under the North Sea granted by the British Crown (Crown Estates). This lease with the Crown Estates, includes provisions to explore and exploit all targeted and known Polysulphate mineral resources of interest to ICL Boulby. The said mineral leases cover a total area of about 720 square kilometers (onshore leases totaling around 90 square kilometers and the offshore leases from the Crown Estates covering around 630 square kilometers). As at the date of this report, all the lease periods, licenses, easements and rights of way (hereinafter – the Rights) are effective, some up to June 2020 whereas some will continue up to 2038. The Company is currently in a process of renewing some of the Rights which expire in June 2020 and are still needed for the mining operation or alternatively will seek to obtain ownership of these Rights. The Company believes that it is more likely than not, that it will obtain renewal or ownership of all the needed Rights. Nevertheless, in the event such Rights are not obtained, the mining activity in the UK may be substantially affected. For additional information, see Note 19 to our Audited Financial Statements and “Item 4 - Information on the Company— D. Property, Plant and Equipment— Mineral Extraction and Mining Operations” and “Concessions and Mining Rights”.
4 Israel Chemicals Limited
In China, the Company holds a joint venture (“YPH JV”) with Yunnan Phosphate Chemicals Group (“YPC”), a phosphate producer operating in China. YPH JV holds two phosphate mining licenses that were issued in July 2015, by the Division of Land and Resources of the Yunnan district in China. With reference to the Haikou Mine (hereinafter – Haikou), the mining license is valid up to January 2043, whereas regarding the Baitacun Mine (hereinafter – Baitacun), the mining license expired in November 2018. The mining activities at Haikou are carried out in accordance with the above‑mentioned license. Regarding Baitacun, the Company is examining the option to renew the concession, subject to a phosphate reserves soil survey results and achieving the required understanding with the authorities. If Haikou license is not renewed, this would be expected to affect, possibly in a substantial manner, the mining activity in China and the Company’s financial results. For additional information, see Note 19 to our Audited Financial Statements and “Item 4 - Information on the Company— D. Property, Plant and Equipment— Mineral Extraction and Mining Operations” and “Concessions and Mining Rights" and “Reserves”.
Our ability to operate and/or expand our production and operating facilities worldwide is dependent on our receipt of, and compliance with, permits issued by governmental authorities. A decision by a government authority to deny any of our permit applications may impair the Company’s business and its operations
Existing permits are subject to challenges with respect to their validity, revocation, modification and non‑renewal, including as a result of environmental events or other unforeseeable occurrences. Any successful challenges with respect to the validity of our permits or the revocation, modification or non‑renewal of our permits could lead to significant costs and materially adversely affect our operations and financial condition. In addition, a failure to comply with the terms of our permits could result in payment of substantial fines and subject us and the Company’s managers to criminal sanctions.
Furthermore, our production processes generate byproducts, some of which are saleable while others must be reused or disposed of as waste. Storage, transportation, reuse and waste disposal are generally regulated by governmental authorities in the jurisdictions in which we operate. Permits issued by governmental authorities are contingent on our compliance with relevant regulations in the jurisdictions in which we operate. If the validity of our permits or the revocation, modification or non renewal of our permits occurs as a result of our noncompliance with regulations relating to storage, transportation, reuse and waste disposal, production may be interrupted or even ceased, which can lead to significant costs adversely affecting our operations and financial condition.
For example, gypsum ponds are used for accumulation of phosphogypsum fluid that is created as part of the production processes in Rotem plants in Israel - in November 2018, construction and use permits for pond 5 were received until December 31, 2020. The Company is working with the relevant authorities to obtain all the required permits, for the continued operation of the gypsum ponds beyond 2020, in accordance with the requirements set by law and/or instructions of the Planning and Building Committee.
5 Israel Chemicals Limited
Our operations and sales are exposed to volatility in the supply and demand, mergers of key producers\customers\suppliers, expansion of production capacity and competition from some of the world’s largest chemical and mining companies
In addition to seasonal and cyclical variations, the Company’s businesses are exposed to fluctuations caused, in part, by factors on the supply side, such as entry into the market of new manufacturers and products, mergers of key players (producers\suppliers), expansion of the production capacity of existing manufacturers, and changes on the demand side, such as mergers or collaborations between key customers. Our competitors include some of the world’s largest chemical and mining companies, some of which are state‑owned or government‑subsidized. The potential production capacity is currently greater than the global demand, which has affected price levels. In light of the fact that some of our products are commodities available from several sources, the primary competitive factor with respect to our products is the price. The prices of our products are influenced by the prices prevailing in the market, while the oversupply as compared to demand constitutes a negative factor in the field of commodity prices such as potash and phosphates, as do low prices in the agricultural sector. Additional competitive factors include product quality, customer service and technical assistance. If we are unable to compete effectively with these companies, our results of operations would almost certainly be significantly and adversely affected.
Moreover, some of our products are marketed through distributors, mainly as pertains to the activity of the Phosphate Solutions segment and Specialty Fertilizers business. Any replacement of or modification in the composition of our distributors might adversely affect the Company’s competitive ability and cause a decrease in sales in certain markets, at least in the short term.
Overestimation of mineral and resource reserves could result in lower than expected sales and/or higher than expected costs and may have a material adverse effect on our business, financial condition and results of operations
We base our estimates of mineral and resource reserves on engineering, economic and geological data that is compiled and analyzed by our engineers and geologists. However, reserves estimates are by nature imprecise and rely to some extent on statistical inferences drawn from available drilling data, which may prove unreliable/inaccurate. There are numerous inherent uncertainties in estimating quantities and qualities of mineral deposits and reserve deposits, as well the quality of the ore, and the costs of mining recoverable reserves and the economic feasibility thereof, including many factors beyond our control. Estimates of economically feasible commercial reserves necessarily rely on a number of factors and assumptions, all of which may vary considerably from the actual results, such as:
Geological and mining conditions and/or effects of prior mining that may not be fully identified/assessed within the available data or that may differ from those based on experience;
Assumptions concerning future prices of products, operating costs, mining technology improvements, development costs and reclamation costs; and
Assumptions concerning future effects of regulation, including the issuance of required permits and taxes imposed by governmental agencies.
If these factors and assumptions change, we may need to revise our mineral and resource reserves estimates.
6 Israel Chemicals Limited
Any revisions to our previous reserve estimates or inaccuracies in our estimates related to our existing mineral and resource reserves could result in lower than expected sales and/or higher than expected costs and may have a material adverse effect on our business, financial condition and results of operations.
In October 2018, the SEC adopted a final rule that will replace SEC Industry Guide 7 with new disclosure requirements that are more closely aligned with current industry and global regulatory practices and standards. Commencing with our annual report for the fiscal year ended December 31, 2021, we must comply with these new disclosure requirements, although early voluntary compliance is permitted. As at the date of this report, we have not adopted these new disclosure requirements and have not determined when we will elect to adopt them. When we implement the new methodology in connection with adoption of these disclosure requirements, we will present resource and reserve estimates, and the information presented may differ materially from the reserve estimates to those presented historically and in this Annual Report under the existing SEC rules.
In addition, we do not currently present reserves estimates in the UK (because currently we don't believe that the Polysulphate® we are producing there is material to the overall Group results). In the absence of published reserves, we are unable to provide life of mine estimates in accordance with SEC Industry Guide 7, that determine how long we are able to continue production, and the life of mine may be shorter than you expect.
For additional information, see “Item 4 - Information on the Company— D. Property, Plant and Equipment— Reserves”.
The locations of some of our mines and facilities expose us to various natural disasters
We are exposed to natural disasters, such as flooding and earthquakes which may cause material damage to our business. For example, in Israel, some of our plants are located on the Jordan Rift Valley, or Syro-African Depression, a seismically active area. Furthermore, in recent years sinkholes and underground cavities have been discovered in the area of the Dead Sea, which could cause harm to the Company’s plants. In addition, an “undermining” process has begun in the northern part of the Arava stream, at the end of which there are located, on both banks, evaporation ponds of the Company’s plants at the Dead Sea. There is a risk that this phenomenon would jeopardize the stability of the Company’s dikes and evaporation ponds. In the Sodom area, where many of the Company’s plants in Israel are located, there are occasional flash floods in the streambeds. While we have insurance coverage that covers these types of damage, subject to payment of deductibles, the insurance may not be sufficient to cover all of these damages. In addition, we have underground mines in the United Kingdom and Spain and a mine in China. Water leakages into these mines or other natural disasters might cause disruptions to mining or even loss of the mine. We do not have full property insurance with respect to all our property/assets.
7 Israel Chemicals Limited
The accumulation of salt at the bottom of the salt Pond 5, the central evaporation pond in our solar evaporation pond system used to extract minerals from the Dead Sea, requires the water level of the pond to be constantly raised in order to maintain the production capacity of extracted minerals
The minerals from the Dead Sea are extracted by way of solar evaporation, whereby salt precipitates onto the bed of one of the evaporation ponds at Sodom (Pond 5), in one of the sites of Dead Sea Works. The precipitated salt creates a layer on the Pond bed of approximately 20 million tonnes annually. The process of production of the raw material requires that a fixed brine volume is preserved in the Pond. To this end, the solutions level of the Pond is raised each year according to the rate at which the pool floor rises.
Failure to maintain a fixed brine volume in the pond will cause a reduction in our production capacity. However, raising the water level of the Pond above a certain level is likely to cause structural damage to the foundations of the hotel buildings situated close to the water’s edge, to the settlement of Neve Zohar and to other infrastructures located along the western shoreline of the Pond.
We are working with the Israeli government both with respect to construction of the coastline defenses and with respect to the permanent solution (the Salt Harvesting Project), which consists of harvesting of the salt in such a manner whereby raising the water level in Pond 5 would no longer be required. The coastline defenses are supposed to provide protection pending the implementation of the permanent solution, which is supposed to provide protection until the end of the current concession period in 2030.
There is no assurance that the coastline defenses or the permanent solution will be fully implemented or that the implementation will prevent damage to the surrounding infrastructure or our operations at the salt Pond 5. Failure to provide solutions, or any damage caused as aforesaid, could materially and adversely affect our business, financial condition and results of operations.
For more information about the coastline defenses and the permanent solution (the Salt Harvesting Project), see “Item 4 - Information on the Company— D. Property, Plant and Equipment— Mineral Extraction and Mining Operations” and Note 19 to our Audited Financial Statements.
The receding water level in the Northern Basin of the Dead Sea, may require capital and/or operational expenses in order to enable the continuation of the Company's operations in the Dead Sea
Due to the hydrological deficit, the water level of the Northern Basin of the Dead Sea is receding at the rate of over 1 meter per year. As part of our production process in Israel, we pump water from the Northern Basin of the Dead Sea through a special pumping station and deliver it throughout a feeding channel to the salt and carnallite evaporation ponds in the Southern Basin. As the water level recedes, we may be pressured to reduce our usage of minerals from the Dead Sea, which could have a material adverse effect on our business, financial condition and results of operations.
Our ability to pump water relies on an active pumping station at the water line of the Northern Basin of the Dead Sea. Due to the receding water level in this area, the water line is receding from the current pumping station area and construction of a new pumping station (hereinafter – the P‑9 Pumping Station) is therefore necessary. The P-9 Pumping Station is expected to commence its operation during the year 2020 and we expect it will be able to pump water during the upcoming years. Failure to construct and operate the new pumping station or a significant delay in the planned timetables or failure to extend its life in future years could have a material adverse effect on the Company’s business, its financial condition and results of operations.
8 Israel Chemicals Limited
For information respecting the petition that was filed in the Israeli Court for Water Matters by Adam Teva V’Din, wherein the Court was requested to order the Government Water and Sewage Authority to issue a production license to DSW pursuant to the Water Law with respect to the transfer of water from the Northern Basin of the Dead Sea to the evaporation ponds in the Sea’s Southern Basin, see Note 19 to our Audited Financial Statements.
Additional risk of the decline of the Dead Sea level is the erosion of Arava stream, which flows along the international border between Israel and Jordan and into the Dead Sea. This erosion could endanger the stability of the eastern dykes in the future in the array of salt and carnallite ponds and any breach or damage to the salt and carnallite ponds could materially and adversely affect our business, financial condition and results of operations. The Company is endeavoring to analyze the matter and to find solutions for preventing or retarding this occurrence in the long term. The Company is carrying on ongoing monitoring and taking action on the site in order to protect the dykes. As part of these efforts, joint research was commenced with the Jordanian potash company APC (Arab Potash Company), designed to gather information for the detailed planning of a project to prevent the continued erosion of the stream. The research phase is expected to be completed during 2020. Prior to commencing the project, obtaining permits from the authorities is required, due to its engineering complexity, proximity to the border, soil instability and environmental sensitivity of the entire area. Insofar as it is decided to commence with the project, the Company estimates that its completion is likely to take several years.
Furthermore, as a result of the decline of the Dead Sea level, sinkholes and underground cavities have been discovered in the area of the Dead Sea. The appearance of sinkholes in the Dead Sea area is increasing over the years. Most of the sinkholes develop in the Northern Basin of the Sea, where there is low activity by ICL Dead Sea. However, in recent years there has been a steady development of sinkholes in the area of the feeding channel, through which water is pumped from the Northern Basin to the Southern Basin. ICL Dead Sea takes actions to monitor the development of these sinkholes and to fill them when they appear. the development of sinkholes in areas where we operate, together with a failure to detect and treat those sinkholes can cause significant damage and could materially and adversely affect our business, financial condition and results of operations.
Any malfunction in the transportation systems we use to ship our products could have a material adverse effect on our business, financial condition and results of operations.
Part of our sales turnover is comprised of sales of bulk products characterized by large quantities. Most of this production quantity is shipped through dedicated facilities from two seaports in Israel, one seaport in Spain and another seaport in United Kingdom. It is not possible to ship large quantities in bulk from other facilities in Israel. Any significant disruption with regard to the seaport facilities and/or the array of transportation from the seaports, including due to strikes by port workers, regulatory restrictions and changes in the rights of use of seaport facilities, could delay or prevent exports of our products to our customers, which could materially and adversely affect our business, financial condition and results of operations. In addition, any significant disruption in the array of transportation to the seaports and between various sites, primarily through trains and trucks, might materially and adversely affect the Company’s operations, its financial condition and results of operations.
For information regarding the Company's subsidiaries application to join the petition against the decision to approve a plan for the construction of a residential area in proximity to the Ashdod Port, see “Securing the future of the phosphate mining operations at Rotem depends on obtaining several approvals and permits from the authorities in Israel” below.
9 Israel Chemicals Limited
In addition, the Company transports hazardous materials through the use of specialized transport facilities, such as isotanks for the transportation of bromine. A malfunction in the transportation of hazardous materials in one of our specialized facilities might have an environmental impact and\or cause harm to the welfare of local residents, and, as a result, expose the Company to lawsuits and\or administrative proceedings or fines, and also cause a shutdown of such materials’ transportation systems for a certain period until the cause for such malfunction has been discovered and\or for purposes of preventative maintenance and improvement of the transportation array, and as a result have material adverse effect on the Company’s operations, financial condition and results of operations.
We are exposed to risks associated with our international sales and operations, which could adversely affect our sales to customers in various countries as well as our operations and assets in various countries. Some of these factors may also make it less attractive to distribute cash generated by our operations outside Israel to our shareholders, use cash generated by our operations in one country to fund our operations or repayments of our indebtedness in another country and support other corporate purposes or the distribution of dividends
As a multinational company, we sell in many countries where we do not produce. A considerable portion of our production is designated for export. As a result, we are subject to numerous risks and uncertainties relating to international sales and operations, including:
Difficulties and costs associated with complying with a wide variety of complex laws, treaties and regulations, including the U.S. Foreign Corrupt Practices Act (the “FCPA”), the UK. Bribery Act of 2010 and Section 291A of the Israeli Penal Law;
Unexpected changes in regulatory environments and Increased government ownership and regulation in the countries in which we operate;
Political and economic instability, including civil unrest, inflation and adverse economic conditions resulting from governmental attempts to reduce inflation, such as imposition of higher interest rates and wage and price controls;
Public health crises, such as pandemics and epidemics; and
The imposition of tariffs, exchange controls, trade barriers, new taxes or tax rates or other restrictions, including the current trade dispute between the US and China.
The occurrence of any of the above in the countries in which we operate or elsewhere could jeopardize or limit our ability to transact business there and could materially adversely affect our revenue and operating results and the value of our assets. For example, in December 2019, a strain of coronavirus (also known as COVID 19) was reported to have surfaced in Wuhan, Hubei Province, China and which has now spread to a number of other countries including in Asia, Europe and the Middle East. At this point, the extent to which the coronavirus may impact our results in China and globally is uncertain. However, any outbreak of a contagious disease, or other adverse public health developments, could have a material adverse effect on our business operations by disrupting our ability to purchase raw materials, impacting the demand for some of our products up to the point of skipping a season of fertilization in China, disrupting our ability to sell and/or distribute products, and/or temporarily closing our facilities or the facilities of our suppliers or customers and their contract manufacturers, or restricting our ability to travel to support our sites or our customers around the world , any of which could materially impact our sales and operating results.
10 Israel Chemicals Limited
Our operations could be adversely affected by price increases or shortages with respect to water, energy and our principal raw materials, as well as by increases in transportation costs
We use water, energy and various raw materials as inputs and we could be affected by higher costs or shortages in these materials, as well as by changes in transportation prices.
For example, our phosphate facilities use large quantities of water purchased from Mekorot, Israel’s national water company, at prices set by the government. If these prices rise significantly, our costs will rise as well. In our plants in Sodom, we obtain water from an independent system that is not part of the national water system. A shortage of water at the water sources in proximity to the plants or the imposition of additional costs/charges for water usage would force the Company to obtain water from sources located further away and/or at a higher cost. See Note 19 to our Audited Financial Statements regarding the Israeli Water Law amendment, according to which saline water of the kind produced by Dead Sea plants is charged with water fees.
Our plants consume large amounts of energy. Moreover, energy is a significant component of the shipping costs of a considerable share of our products. Significant price increases for energy, or energy shortages, would affect shipping costs, production costs and/or quantities.
The supply of electricity to our production processes and facilities in Israel is provided by our power station in Sodom and the national power grid. Our operations in Israel is dependent on these two sources, so significant malfunctions at the power station and/or interruption of power supply from the national grid in Israel may lead to additional financial liabilities and potential shutdowns at our production facilities, which could negatively affect ICL's ability to supply its products to both external customers and other ICL's sites using them as raw materials and reduce revenue from decreased production capacity. In addition, our magnesium plant requires a continuous supply of electricity, so any interruption in the power supply to the magnesium plant may cause a significant damage to our magnesium production process.
The current supply of natural gas to our power plant and to our subsidiaries in Israel is dependent on a single supplier and also on a single gas pipeline with limited transmission capacity.
While our plants are prepared for the use of alternative energy sources (fuel oil and/or diesel fuel), an increase in our energy costs, or energy shortages, could materially and adversely affect our business, financial condition and results of operations.
Furthermore, an increase in price or shortage of raw materials, inter alia: ammonia, sulphur, WPA and 4D (which we purchase from third parties) could adversely and materially affect our results of operations financial position, and our business.
We can provide no assurance that we will be able to pass on to our customers increased costs with respect to water, energy and our principal raw materials, as well as by increases in transportation costs, and our inability to pass on such cost increases could adversely affect our margins. For additional information, see “Item 4 ‑ Information on the Company— B. Business Overview— Segment Information”.
11 Israel Chemicals Limited
Completion of certain of the Company’s major projects may be dependent on third‑party contractors and/or governmental obligations. Furthermore, termination of engagements with contractors might entail additional costs
In the coming years, the Company plans to complete several key projects, whose completion is very important to the Company’s continued operation and ability to significantly improve its competitive position in some markets. Thus, for example, we are advancing the salt harvest project in Pond 5 in the Dead Sea, the construction of the new pumping station (P-9) in the Dead Sea, the consolidation of potash mines in Spain including completion of the new mine access tunnel at Suria, and significant environmental investments. The completion of key projects of the Company could also be dependent upon third-party contractors. In Spain, for example, the project incurred several delays and budget expansions that were associated, among others, with the third-party contractor. Situations wherein such contractors encounter financial or operational difficulties or other significant disagreements with the Company could cause a significant delay in the planned timetables for completion of a project and\or material deviations from the project’s budget, may even jeopardize completion of the project altogether, and could adversely and even materially affect the Company’s business, its financial condition and results of operations.
The inflow of significant amounts of water into the Dead Sea could adversely affect production at our plants
The inflow of significant amounts of water into the Dead Sea could adversely affect production at our plants. The inflow of significant amounts of water into the Dead Sea might alter the composition of the Dead Sea water, in a manner that would lower the concentration of sodium chloride (NaCl) in the water, which could adversely affect production at ICL plants. This risk may materialize, among other things, as a result of the construction of a canal connecting the Mediterranean Sea with the Dead Sea, the inflow of water from the Sea of Galilee (Kinneret) to the Dead Sea via the Jordan River, or the construction of a canal from the Red Sea to the Dead Sea.
If the above potential inflows result in a lower concentration of sodium chloride in the water in the Dead Sea, it could adversely and materially affect production at our plants, our results of operations financial position, and our business.
We are exposed to the risk of labor disputes, slowdowns and strikes
From time to time we experience labor disputes, slowdowns and strikes. A significant part of our employees is subject to collective labor agreements, mainly in Israel, China, Germany, United Kingdom, Spain and the Netherlands. Prolonged slowdowns or strikes at any of our plants could disrupt production and cause the non-delivery of products that had already been ordered, and time is needed in order to return to full production capacity at the facilities. Furthermore, due to the mutual dependency between ICL plants, slowdowns or strikes in any ICL plant may affect the production capacity and/or production costs at other ICL plants. Labor disputes, slowdowns or strikes, as well as the renewal of collective labor agreements, may lead to significant costs and loss of profits, which could adversely, and even materially, affect our operating results and our ability to implement future operational changes for efficiency purposes. In the course of labor disputes, the workers union may impose certain sanctions which may include blocking or delaying the transfer of goods through the factory gates; such disputes may escalate into a strike.
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Some of our employees have pension and health insurance arrangements that are our responsibility
Some of our employees have pension and health insurance arrangements that are our responsibility. Against some of these liabilities, we have monetary reserves that are invested in financial assets. Changes in life expectancy, changes in the capital market or changes in other parameters by which undertakings to employees and retirees are calculated, as well as statutory amendments could increase our net liability for these arrangements. For information about our employee benefits liabilities and composition of plan assets, see Note 17 to our Audited Financial Statements.
The discontinuation, cancellation or expiration of government incentive programs or tax benefits; entry into force of new or amended legislation or regulations with respect to additional and/or increased fiscal liabilities to be imposed on us; or imposition of new taxes or changes to existing tax rates, could all adversely affect our business results
Any of the following may have a material adverse effect on our operating expenses, effective tax rate and overall business results:
Some government incentive programs may be discontinued, expire or be cancelled;
Governments may initiate new legislation or amend existing legislation in order to impose additional and/or increased fiscal liabilities on our business, such as additional royalties, natural resource taxes or required investments, as has occurred in Israel;
The applicable tax rates may increase;
We may no longer be able to meet the requirements for continuing to qualify for some incentive programs;
Such incentive programs and tax benefits may be unavailable at their current levels;
Upon the expiration of a particular benefit, we may not be eligible to participate in a new program or qualify for a new tax benefit that would offset the loss of the expiring tax benefit.
Changes in trade agreements between countries, such as in the trade agreements between the United States and China.
Changes in international taxation laws as may be adopted by several countries we operate in, or sell to, may result in additional taxes being imposed on our operations.
Changes in our evaluations and estimates, which serve as a basis for the recognition and manner of measurement of assets and liabilities, including provisions for the removal of waste and the reclamation of mines, may adversely affect our business results and financial situation
As part of the preparation and composition of our financial statements, we are required to exercise discretion, make use of evaluations and estimates and make assumptions that affect, among other things, the amounts of assets and liabilities, income and expenses. When formulating such estimates, the Company is required to make assumptions concerning circumstances and events that involve uncertainty, even great uncertainty. We exercise our discretion based on our past experience, various facts, external factors and reasonable assumptions according to the circumstances relevant to each estimate. It should be noted that actual results may differ from such estimates and therefore may adversely affect our financial results. For more information, see Note 2 to our Audited Financial Statements.
13 Israel Chemicals Limited
For example, regarding the estimation of the projected costs for the closure and restoration of the Sallent site, as part of the restoration solution, the Company is taking action to treat the salt pile, among other things, by utilizing the salt for production and sale for De-icing purposes. The provision for the salt pile treatment is based on a long‑term forecast, covering a period of more than 50 years, along with observed estimates and, accordingly, the actual amount that will be required to restore the Sallent site could change, even significantly, from the amount of the present provision.
Concession agreements and/or licenses include obligations relating to the expiration of the concession and/or licenses at some of the various activity sites, including reclamation and clearing of the sites (restoring the site to its former state). The scope of restoration required is uncertain, as is estimating what actions would need to be executed upon expiration of the concession and/or license period, and the costs involved in such actions.
For more information, see Note 19 to our Audited Financial Statements.
Our tax liabilities may be higher than expected
Our tax expenses and the resulting effective tax rate reflected in our consolidated financial statements may increase over time as a result of changes in corporate income tax rates and other changes in tax laws in the various countries in which we operate. We are subject to taxes in many jurisdictions, including jurisdictions in which we have a limited presence, and discretion is required in determination of the provisions for our tax liability. In light of recent trends in international tax law and OECD recommendations, significant changes to international tax laws and practices may be adopted by various jurisdictions. Such changes could result in us being subject to tax in jurisdictions in which we currently are not subject to tax (including jurisdictions in which we have limited or no operations other than preforming sales to). Similarly, we are subject to examination by the tax authorities in many different jurisdictions. As part of these examinations, the relevant tax authorities may disagree with the amount of taxable income reported, deriving from our inter‑company agreements and may also dispute our interpretation of the applicable tax legislation. For example:
The Law for Taxation of Profits from Natural Resources
The Law for Taxation of Profits from Natural Resources in Israel (hereinafter – the Law) is a new law that entered into effect with respect to the bromine, phosphate and magnesium minerals in 2016, and with regard to the potash mineral, in 2017. As at the date of the report, no regulations have yet been issued under the Law (except regarding advances on account of tax payments regulations published in July 2018), no circulars have been published and no court decisions have been rendered as to the implementation of this new Law that was imposed, to the best of the Company's knowledge, only on one other company. The subsidiaries Dead Sea Works, Dead Sea Bromine and Dead Sea Magnesium financial statements, serve as a basis for the mineral based financial reports required to be filed for tax calculation under the Law. Such calculation involves interpretations and assumptions on a number of significant matters, which require management’s judgment.
The tax authority's positions could be materially different, even in very significant amounts, as a result of different interpretations regarding the implementation of the Law, including regarding matters other than the carrying amount for natural resources tax purposes of the property, plant and equipment. If the above‑mentioned tax position regarding the carrying amount of the property, plant and equipment is rejected by the Israeli tax authority, meaning measurement of the property, plant and equipment, for this purpose, should have been in accordance with depreciated historical cost, the result would be an increase in the company's tax liabilities in an aggregate amount of about $180 million for the years 2016-2019. For more information, see Note 16 to our Audited Financial Statements.
14 Israel Chemicals Limited
The Company operates in many countries around the world. Under certain conditions, the tax law in certain countries considers passive activities from Controlled Foreign Companies ("CFC") as taxable income even if not distributed. The conditions include, among other, the ratio between active and passive income and tax rates applied in the foreign countries. Although the Company is acting in accordance with the relevant tax legislation, there is a risk that the tax authorities will require additional tax payment, to the extent that the Company's position regarding meeting the conditions of a Controlled Foreign Companies (CFC) will not be accepted.
The Base Erosion and Profit Shifting (“BEPS”) project undertaken by the Organization for Economic Cooperation and Development (“OECD”) may have adverse consequences to our tax liabilities. The BEPS project contemplates changes to numerous international tax principles, as well as national tax incentives, and these changes, when adopted by individual countries, could adversely affect our provision for income taxes. Countries have only recently begun to translate the BEPS recommendations into specific national tax laws, and it remains difficult to predict the magnitude of the effect of such new rules on our financial results.
We have expanded our business through mergers and acquisitions or organizational restructuring and various initiatives designed to increase production capacity and reduce costs of our existing operations. This could result in a diversion of resources and significant expenses, a disruption of our existing business operations and an adverse effect on our financial condition and results of operations
Negotiation processes with respect to potential acquisitions or joint ventures, as well as the integration of acquired or jointly developed businesses, require management to invest time and resources, in addition to significant financial investments, and we may not be able to realize or benefit from the potential involved in such opportunities. Future acquisitions could lead to substantial cash expenditures, dilution due to issuances of equity securities, the incurrence of debt and contingent liabilities, including liabilities for environmental damage caused by acquired businesses before we acquired them, a decrease in our profit margins, impairment of intangible assets and goodwill; and increased governmental oversight over the Company’s activity in certain areas. There is no guarantee that businesses that have been or will be acquired or joint ventures will be successfully integrated with our current products and operations, and we may not realize the anticipated benefits of such acquisitions or joint ventures and even incur losses as a result thereof, particularly if such acquisitions or joint ventures disrupt our operations.
Some of our partners or potential partners in these business initiatives are governments, governmental bodies or publicly owned companies. We may face certain risks in connection with our investments in the joint ventures and/or partnerships including, for example, if our partners' needs, desires or intents change, if the government changes or if the ownership structure of our partners changes.
In addition, we are employing a number of initiatives to improve our existing operations, including initiatives to increase production and reduce operating costs at our facilities. In ICL Iberia in Spain we are consolidating all our facilities into a single site which includes a mine and a processing plant, which expected to reduce costs per ton and allow for the elimination of additional bottlenecks and further expansion. In YPH JV in China we are expanding the JV’s activities in the field of specialty phosphate solutions, among other things through the construction of a white acid (WPA) facility. These initiatives involve high costs and/or take longer than we anticipate and may not be realized and\or ultimately achieve their goals. If these initiatives will not succeed, our financial situation and results of business and operations, as well as competitive position, could be materially and adversely affected.
15 Israel Chemicals Limited
As a multinational company, our sales may be adversely affected by currency fluctuations and restrictions, as well as by credit risks
Our global activities expose us to the impact of currency exchange rate fluctuations. Our financial statements are prepared in U.S. dollars. Our sales are made in a variety of currencies, primarily in U.S. dollars and euros. As a result, we are currently subject to significant foreign currency risks and may face greater risks as we enter new markets. We may also be exposed to credit risks in some of these markets. The imposition of price controls and restrictions on the conversion of foreign currencies could also have a material adverse effect on our financial results. Part of our operating costs are incurred in currencies other than U.S. dollars, particularly in euros, ILS, GBP, BRL and RMB. As a result, fluctuations in exchange rates between the currencies in which such costs are incurred and the U.S. dollar may have a material adverse effect on the results of our operations, the value of the balance sheet items measured in foreign currencies and our financial condition.
We use derivative financial instruments and "hedging" measures to manage some of our net exposure to currency exchange rate fluctuations in the major foreign currencies in which we operate. However, not all of our potential exposure is covered, and certain elements of the Company’s financial statements, such as operating profit and equity, are not fully protected against foreign currency exposures. Therefore, our exposure to exchange rate fluctuations could have a material adverse effect on our financial results.
See “Item 11 - Quantitative and Qualitative Disclosures about Market Risk— Exchange Rate Risk”.
Because some of the Company’s liabilities bear interest at variable rates, we are exposed to the risk of interest rate increases, including in connection with the end of LIBOR rate calculations in 2021
A portion of our liabilities bear interest at variable rates and therefore, we are exposed to the risk stemming from an increase in interest rates, which would increase our financing expenses and adversely affect our results. Such increase in interest rates may also occur as a result of downgrade in our rating.
Further, a portion of ICL's loans bear variable interest rates based on the short‑term London interbank offered rate for deposits of US dollars (LIBOR) rate for a period of one to twelve months, plus a margin as defined in each loan agreement. LIBOR tends to fluctuate based on general interest rates, rates set by the Federal Reserve and other central banks, the supply of and demand for credit in the London interbank market and general economic conditions. In July, 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, is considering replacing U.S. dollar LIBOR with a newly created index, calculated with a broad set of short-term repurchase agreements backed by treasury securities. Any new benchmark rate will likely not replicate LIBOR exactly, and it is not possible to predict the effect of these changes, other reforms or the establishment of alternative reference rates in the US or elsewhere. To the extent these interest rates increase, our interest expense will increase, in which event we may have difficulties making interest payments and funding our other fixed costs, and our available cash flow for general corporate requirements may be adversely affected. See “Item 11 - Quantitative and Qualitative Disclosures about Market Risk— Interest Rate Risk”.
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We are exposed to material fines, penalties and other sanctions and other adverse consequences arising out of FCPA investigations and related matters
We are required to comply with the U.S. Foreign Corrupt Practices Act (the "FCPA"), the UK Bribery Act and similar anti-corruption laws in other jurisdictions around the world, in the countries where we operate. We operate and sell in countries that may be considered to be of high risk in this regard. Compliance with these laws has been subject to increasing focus and activity by regulatory authorities, both in the United States and elsewhere, in recent years. Actions by our employees, as well as third party intermediaries acting on our behalf, in violation of such laws, whether carried out in the United States or elsewhere in connection with the conduct of our business could expose us to significant liability for violations of the FCPA or other anti-corruption laws and accordingly may have a material adverse effect on our reputation and our business, financial condition and results of operations.
Significant disruptions in our, or our service providers’, information technology systems or breaches of our, or our service providers’, information security systems could adversely affect our business
Information technology systems, including our hardware, software and telecommunications networks, as well as data centers and other information technology systems of third parties are critical to the operation of our business and essential to our ability to successfully perform day-to-day operations. Our operations also depend on the timely maintenance, upgrade and replacement of such systems, as well as pre-emptive expenses to mitigate the risks of failures. An intrusion, interruption, destruction or breakdown of our, or our service providers’, information technology systems and/or infrastructure by authorized or unauthorized persons could adversely affect our business and operations and in some cases even lead to environmental damage. In addition, a significant disruption to our, or our service providers’, computerized systems could cause harm of damage to the civilian population located in the vicinity of our production facilities. Moreover, we could experience business interruption, information or money theft and/or reputational damage as a result of cyber-attacks, which may compromise our, or our service providers’, systems, lead to data leakage and to disruption of sensitive production facilities and/or the security thereof, whether internally or at our third-party providers. Our, and some of our service providers’, systems have been, and are expected to continue to be, the target of malware and other cyber-attacks. In spite of our investment in measures to reduce these risks, we cannot guarantee that these measures will be successful in preventing compromise and/or disruption of our information technology systems and related data or that such systems and data held and operated by our service providers will be secure. We may also have a limited ability to control the operations and security of the information technology systems used on our behalf or provided to us by our service providers and may have limited recourse with such service providers in the event an issue arises. In addition, as we become more dependent on information technologies to conduct our operations, and as the number and sophistication of cyber-attacks increase, the risks associated with cyber security increase. These risks apply both to us, and to third parties on whose systems we rely for the conduct of our business. Cyber threats are persistent and constantly evolving and include, but are not limited to, installation of malicious software, ransomware, viruses, social engineering (including phishing attacks), denial of service or other attacks, employee theft or misuse, unauthorized access to data and other electronic security breaches. Threats may derive from human error, fraud or malice on the part of employees or third parties, or may result from accidental technological failure. Such threats have increased in frequency, scope and potential impact in recent years, which increase the difficulty of detecting and successfully defending against them. As cyber threats continue to evolve, we may be required to incur additional expenses in order to enhance our protective measures or to remediate any information security vulnerability. Cyber-attacks and other intrusion, interruption, destruction or breakdown of our information technology systems and/or infrastructure also could require significant management attention and resources, expose us to legal liabilities, negatively impact our reputation among our customers, business partners and the public, and cause us to incur significant costs, any of which could have a material adverse effect on our business, financial condition and results of operations.
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Our operations also depend on the timely maintenance, upgrade and replacement of networks, equipment, and information technology systems, as well as pre-emptive expenses to mitigate the risks of failures. We also regularly evaluate the need to upgrade and/or replace our information technology systems to protect our information technology environment, to stay current on vendor supported products and to improve the efficiency and scope of our systems and information technology capabilities. The implementation of new systems and information technology could adversely impact our operations by requiring substantial capital expenditures, diverting management’s attention, and/or causing delays or difficulties in transitioning to new systems. In addition, our systems implementations may not result in productivity improvements at the levels anticipated. Systems implementation disruption and any other information technology disruption, if not anticipated and appropriately mitigated, could have an adverse effect on our business.
Failure to retain and\or recruit key personnel, or to attract additional executive and managerial talent, could adversely affect our business
Given our complexity and the global reach of our businesses, we greatly rely upon our ability to recruit and retain skilled management and other employees including: engineers, agronomists, scientists, technical equipment operators, programmers, data scientists, and other employees with special expertise. Much of our competitive advantage is based on the expertise, experience and know-how of our key management personnel. Any loss of service of key members of our organization, or any diminution in our ability to continue to attract high-quality employees may delay or prevent the achievement of major business objectives and may have a material adverse effect on our business, financial condition and results of operations.
We may not succeed in reducing our operating expenses within the framework of various efficiency programs implemented by the Company in its various sites
In order to cope with the challenging business environment prevailing in recent years and the increasing level of competition, we constantly review our total expenses and cost structure, and accordingly implement, from time to time, various efficiency programs designed to reduce costs. Such programs are subject to risks and uncertainties, and actual results may materially differ from those planned or expected and might adversely affect our operations as well as our ability to realize other aspects of our strategy.
The Company borrows money from various sources to fund its operations and it frequently engages in refinancing activities, and therefore rely on access to the capital markets
The level at which the Company is leveraged could affect our ability to obtain additional financing for acquisitions, refinancing of existing debt, working capital or other purposes, could adversely affect our credit rating, and could make us more vulnerable to industry downturns and competitive pressures, as well as to interest rate and other refinancing risks. In addition, capital markets have been more volatile in recent years. Such volatility may adversely affect our ability to obtain financing on favorable terms at times in which we need to access the capital markets. Our ability to refinance existing debt and meet our debt service obligations will be dependent upon our future performance and access to capital markets, which will be subject to financial, business and other factors affecting our operations (including our long-term credit ratings), many of which are beyond our control. Our credit rating may be downgraded, among other things, due our future performance, the degree to which we are leveraged and deterioration of the business environment.
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The instruments relating to our debt contain covenants and, in some cases, require us to meet certain financial ratios. Any failure to comply with these covenants could result in an event of default under the applicable instrument, which could result in the related debt and the debt issued under other instruments becoming immediately due and payable. In such event, we would need to raise funds from alternative sources, which may not be available to us on favorable terms or at all. Alternatively, any such default could require us to sell our assets or otherwise curtail operations in order to satisfy our obligations to our creditors.
Risks Related to Our Industry
Sales of our fertilizer products are subject to the situation in the agricultural industry
Most of our fertilizer products are sold to producers of agricultural produce. Fertilizer sales may be adversely affected as a result of a decline in agricultural produce prices or the availability of credit, or other events that cause farmers to plant less and consequently reduce their use of fertilizers. For example, periods of high demand, increasing profits and high capacity utilization tend to lead to new investment in crops and increased production. This growth increases supply until the market is over‑saturated, leading to declining prices and declining capacity utilization until the cycle repeats. As a result, the prices and quantities of fertilizer products sold have been volatile. As potash and phosphate prices and quantities sold have a very significant influence on our business results, low prices and/or low quantities could cause our results of operations to fluctuate and, potentially, materially deteriorate.
The price at which we sell our fertilizer products and our sales volumes could fall in the event of industry oversupply conditions, which could have a material adverse effect on our business, financial condition and results of operations. Alternatively, high prices may lead our customers to delay purchases in anticipation of lower prices in the future, thereby decreasing our sales volumes. These factors could materially and adversely affect our business, financial condition and results of operations.
In addition, government policies, and specifically, subsidy levels, may affect the amount of agricultural crops and, as a result, sales of our fertilizer products. Generally, reductions in agricultural subsidies to the farmer or increases in subsidies to local fertilizer manufacturers in countries where we sell our products have an adverse effect on our fertilizer business. In addition, the ongoing trade dispute between the United States and China may also affect the sales of some of the Company’s products through continued imposition of existing tariffs or increased tariffs or other trade barriers that may negatively affect our sales directly and\or indirectly by affecting our customers’ business and operations, which could materially and adversely affect our business, financial condition and results of operations.
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Finally, the agricultural industry is strongly affected by local weather conditions. Conditions such as heavy storms, long periods of drought, floods, or extreme seasonal temperatures could affect the local crop’s quality and yield and cause a reduction in the use of fertilizers. Loss of sales in an agricultural season in a target country as a result of weather‑related events can cause a loss of sales for the whole year.
In addition, our Polysulphate® business in ICL Boulby mine in the UK, is exposed to new potential producers entering the market. Polysulphate® is the basis for many of the products in the Company's FertilizerpluS premium fertilizers business line. It would be noted in this context that, a new potential producer, holds a concession to develop a polyhalite mine with a capacity of up to 20 million tonnes per year in a mine, which is located in the same area of our Boulby mine. If eventually, this producer will be able to proceed with its project, ICL will cease to be the sole producer of Polysulphate®, and will not be the market leader, which is inconsistent with the Company's strategy to obtain leadership positions in all its activities. ICL is constantly monitoring the competitive environment and will continue to seek ways to adhere with its strategy. If we are unable to compete effectively with new producers, our business, financial condition and results of operations could be materially and adversely affected. For more information, see “Item 4 - Information on the Company— B. Business Overview— Segment Information - Potash Segment”.
Sales of our Industrial Products and Phosphate Solutions segments’ products are affected by various factors that are not within our control, including developments in the end markets of industrial materials and food, legislative changes, recession or economic slowdown and changes in currency exchange rates
Sales of our Industrial Products and Phosphate Solutions segments’ products are affected by global economic conditions in the markets in which we operate. For example, our sales may be affected by the slow economic recovery or any reversal thereof in Europe. In addition, we have significant manufacturing operations in Europe and a large portion of our European sales are in euros, while some of our competitors are manufacturers located outside Europe whose operational currency is the U.S. dollar. As a result, a strengthening of the euro exchange rate against the U.S. dollar increases the competitive advantage of these competitors.
The sales of oil drilling products depend on the extent of operations in the oil drilling market, mainly in deep-sea drilling, which in turn is dependent on oil prices, and on the decisions of oil companies regarding rates of production and areas of production of oil and gas.
The operation of the Phosphate Solutions segment in the food industry is affected by legal provisions and licensing regulations relating to health. This area is characterized by stringent regulatory requirements that are updated from time to time by enforcement agencies. Adjustments of our operations to the changes in regulation, including the technological complexity and feasibility of such adjustments, may adversely affect the sales of our products, incidental to any specific prohibitions and/or adjustments required in order to meet regulatory requirements.
In addition, the ongoing trade dispute between the United States and China may also affect the sales of some of our products through continued imposition of the existing tariffs or increased tariffs or other trade barriers that may negatively affect our sales directly and\or indirectly by affecting our customers’ business and operations, which could materially and adversely affect our business, financial condition and results of operations.
Sales of our magnesium products are affected by various factors that are not within our control, including developments in the end markets of magnesium, legislative changes, recession or economic slowdown, changes in currency exchange rates, antidumping and countervailing duties
Sales of our magnesium products are affected by global economic conditions in the markets in which we operate. For example, our sales may be affected by any economic reversal in the aluminum sector, steel sector, and the casting sector of parts made of magnesium alloys (mainly for uses in the vehicle industry).
In addition, environmental regulations, significant changes in the USD against the ILS exchange rate and trade barriers may negatively affect our sales directly and\or indirectly by affecting our customers’ business and operations, which could materially and adversely affect our business, financial condition and results of operations.
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The Company’s magnesium activities may be subject to antidumping and countervailing duties on imports of magnesium, that are imposed in order to protect the local producer in the target markets. For example, during 2019, ICL's magnesium production was negatively impacted as a result of the antidumping claim against ICL's magnesium business in the US. If such duties are imposed, it may result difficulties or inability to sell our magnesium products in these markets and thus negatively affect the Company's magnesium activities economic viability.
Securing the future of the phosphate mining operations at Rotem depends on obtaining several approvals and permits from the authorities in Israel
Securing the future of the phosphate mining operations at Rotem depends on obtaining several approvals and permits from the authorities in Israel, as follows:
Emission permit under the Israeli Clean Air Act (hereinafter - the Law): In 2018, the Company conducted two risk assessments by external experts regarding the possibility to execute all the clean air tasks required by the emission permit as per their approved timeline. The risk assessments focused on the technical and safety considerations arising from implementation of a large number of parallel projects in an industrial site. The assessments indicated that there is no operational feasibility to implement the full requirements of the permit within the defined timeline, and accordingly the Company is unable to meet the timeline set in the current permit. In 2019, following discussions with the Israeli Ministry of Environmental Protection (hereinafter - MoE), the MoE informed the Company that during the course of discussions to renew Rotem's emission permit, which currently remains unchanged, they will consider the safety constraints, the complexity and multiplicity of projects, as well as the Company's diligence to comply with the present permit conditions and their schedules, while prioritizing projects with significant environmental impact. The Company provided the MoE with its updated projects' outline, schedule and completion status. The Company continuously updates the MoE on its compliance with the updated projects’ outline.
Extension of the mining concessions: Rotem has two mining concessions, which are valid until the end of 2021. The Company is working with the relevant authorities to extend the concessions.
Extension of a lease agreement: Rotem has two lease agreements in effect until 2024 and 2041 and an additional lease agreement of the Oron plant, which the Company has been working to extend since 2017, by exercising the extension option provided in the agreement.
Gypsum Ponds are used for accumulation of phosphogypsum fluid - in November 2018, construction and use permits for pond 5 were received until December 31, 2020. The Company is working with the relevant authorities to obtain all the required permits, for the continued operation of the gypsum ponds beyond 2020, in accordance with the requirements set by law and/or instructions of the Planning and Building Committee.
Finding economically feasible alternatives to the continued mining of phosphate rock in Israel – according to the Company's assessment of economic phosphate reserves in the existing mining areas, the estimated useful life of Rotem's phosphate rock reserves, which are essential for some of our production lines, is limited to only a few years. As described above, the Company is working to obtain permits and approvals which will provide an economic alternative for future mining of phosphate rock in Israel.
The Company believes that it is more likely than not that the said approvals and permits will be granted within a timeframe which will not materially impact the Company's results. Nevertheless, there is no certainty as to the receipt of such approvals and permits and/or the date of their receipt. These approvals and permits depend on active government support, which has been latent recently due to multiple election processes. Failure to obtain these approvals and permits and/or a significant delay in receiving them can lead to a material impact on the Company's business, financial position and results of operations.
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As at December 31, 2019, Rotem employs more than 1,500 people, and the overall book value of its property, plant and equipment amounts to approximately $800 million.
Our operations are subject to a crisis in the financial markets
We are a multinational company and our financial results are affected by global economic trends, changes in the terms of trade and financing and fluctuations of currency exchange rates. A crisis in the financial markets could cause a reduction in the international sources of credit available for the purpose of financing business operations. The impact of such a crisis might be expressed in terms of availability of credit to us and our customers, as well as the price of credit. In addition, the volatility and uncertainty in the European Union affect our activities in this market.
The uncertainty surrounding the proposed withdrawal of the United Kingdom from the European Union may materially and adversely affect our business
There is considerable uncertainty concerning the terms and timing of the withdrawal of the UK from the European Union, referred to as “Brexit”. The United Kingdom officially left the European Union on January 31, 2020, with a transitional period set to end on December 31, 2020. The terms of the withdrawal are subject to ongoing negotiation that has created significant uncertainty about the future relationship between the UK and the EU. As a result, the full impact of Brexit is not yet known and depends on any agreements the UK and European Union may make to retain access to each other's markets, either during a transition period or more permanently. In the absence of a future trade deal, the UK’s trade with the European Union and the rest of the world would be subject to tariffs and duties set by the World Trade Organization. Additionally, the movement of goods between the UK and the remaining member states of the European Union will be subject to additional inspections and documentation checks, leading to possible delays at ports of entry and departure. These changes to the trading relationship between the UK and European Union would likely result in increased cost of goods imported into and exported from the UK and may decrease the profitability of our UK and other operations. In 2019, 6% of our revenues were generated from our UK operations and 39% of our revenues were generated from our European operations.
In addition, Brexit could lead to legal uncertainly and potentially divergent national laws and regulations, including with respect to data privacy. In particular, it is unclear how data transfers to and from the United Kingdom will be regulated. More broadly, it is also unclear what financial, trade, legal and employment implications the withdraw of the UK from the European Union would have and how the withdrawal would affect us. Adverse consequences such as reduced consumer spending, deterioration in economic conditions, volatility in exchange rates, and prohibitive laws and regulations could materially and adversely affect our business, financial situation and results of operation.
As a mining and industrial chemicals company, we are inherently, and by the nature of our activity, exposed to hazards relating to materials, processes, production and mining
Although we take precautions to enhance the safety of our operations and minimize the risk of disruptions, we are subject to hazards inherent in chemical manufacturing and the related storage and transportation of raw materials, products and waste. These hazards include explosions, fires, mechanical failures, remediation complications, chemical spills and discharges or releases of toxic or hazardous substances. During our mining operations, particularly underground mining, additional hazards may occur, such as high levels of temperature requiring proper ventilation of the mine, high levels of dust which negatively affect the mining operation, flooding of the mine and others. These hazards can cause severe damage to or destruction of property and equipment, environmental damage, personal injury and loss of life and may result in suspension of operation and the imposition of civil or criminal penalties.
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Our manufacturing facilities contain sophisticated manufacturing equipment. In the event of a major disruption in the operations of any of this equipment, we may not be able to resume manufacturing operations for an extended period of time. The occurrence of material operating problems at our facilities may have a material adverse effect on us, during and after the period of such operational difficulties, as we are dependent on the continued operation of our production facilities and we may be exposed to substantial liabilities and costs under these circumstances.
For additional information, see “Item 4 - Information on the Company— B. Business Overview— Regulatory and Environmental, Health and Safety Matters” and Note 19 to our Audited Financial Statements.
Accidents occurring during our industrial and mining operations and failure to ensure the safety of workers and processes, could adversely affect our business
Various occupational hazards are inherent in our industrial and mining operations. Thus, our operations require taking special precautionary measures to maintain a safe and healthy work environment. To ensure the safety of workers and others in the Company's facilities, the Company is subject to strict occupational health and safety standards, prescribed by local, national and international laws, regulations and standards. Additionally, we are exposed to operational risks associated with industrial or engineering activities, such as maintenance problems or equipment failures.
Failure in implementation or deviation from our safety measures and standards, or failure to prevent or appropriately respond to a safety-related incident, or other operational risks may result in personnel injuries or fatalities, production shutdowns, disruption of operations and significant legal and financial liabilities. The occurrence of material safety incidents at our facilities could have a material adverse effect on us, and we may be exposed to substantial liabilities and costs under such circumstances.
For additional information, see “Item 4 - Information on the Company— B. Business Overview— Regulatory and Environmental, Health and Safety Matters“.
As an industrial chemicals company, we are exposed to various legislative and licensing restrictions in the areas of environmental protection and safety. Related compliance costs and liabilities may adversely affect the results of our operations
As an industrial chemicals company, we are significantly affected by the legal provisions and licensing regime in the areas of environmental protection and safety. Recent years have been characterized by a substantial increase in the stringency and enforcement of legal provisions and regulatory requirements in these areas; the cost of adjustment to and compliance with such regulatory changes, including the technological complexity of such adjustment, as well as compliance with standardization, have all shown a significant upward trend.
Legislative changes around the world may prohibit or restrict use of our products, due to environmental protection, health or safety considerations. Standards adopted in the future may affect us and change our methods of operation. Furthermore, some of our licenses, including business licenses and mining licenses, are for fixed periods and must be renewed from time to time. Renewal of such permits is not certain and may be made contingent on additional conditions and significant costs. Difficulties in obtaining such permits could have an adverse effect on our operations, business and results of operations. For example, in Israel, emission permits are received under the Israeli Clean Air Law. In order to comply with the emission permits received in connection with some of our operations in Israel, we are required to make significant capital investment over the next few years. For more information, see "Securing the future of the phosphate mining operations at Rotem depends on obtaining several approvals and permits from the authorities in Israel” above, “Item 4 - Information on the Company— B. Business Overview— Regulatory and Environmental, Health and Safety Matters” and “B. Business Overview— Business Licenses and Other Permits”.
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Current and future laws and regulations regarding climate change and greenhouse gas (GHG) emissions, as well as the physical impacts of climate change, may affect our operations and businesses
Over the past several years, climate change and GHG emissions have been of increasing concern worldwide. In addition to legislative, regulatory, business and market impacts related to climate change, such as current and future legislation and regulation regarding GHG emissions, there may be significant physical effects of climate change including changes in the weather patterns, such as, water shortages or changes in water quality, changing sea and temperature levels, increases in storm intensities, as well as changes in availability of natural resources and damage to facilities or equipment.
Acute and/or chronic physical risks to our installations could potentially reduce ICL's production capacities. Climate change is expected to increase the frequency and likelihood of extreme weather events such as floods. ICL’s Dead Sea facilities, for example, are located in an area that has already been impacted by severe floods in the past. Another (less likely) risk could be rising sea levels that could damage several of ICL sites which are in proximity of the ocean. Such extreme floods and/or rising sea levels could cause significant property damages and loss of profits. Physical climate change risks could also involve upstream raw material supply and/or downstream distribution. For instance, the ICL Ludwigshafen site is located on the bank of the Rhine river in Germany. Freight boats carry Phosphate rocks into the site and carry produced phosphate fertilizers to customers. However, in dry seasons, the river level could be lowered to a point not allowing these freight boats to transport the raw materials/products, and climate change increases the potential frequency of such dry periods. The potential impact is the added cost of transporting these raw materials/products via road, in freight trucks.
Regulatory-related climate risks could cause additional costs to the Company, through emerging carbon taxes or mandatory cap-and-trade emission trading schemes. These taxes/schemes have become more likely since the 2015 global climate Paris accord. Currently, this risk impacts three of ICL Europe's sites (ICL Iberia Suria and Sallent, and ICL Boulby) which are included in the EU-ETS carbon trade program. Until now, these sites were allocated sufficient EUA emission credits to avoid the need for purchasing external EUA's. However, it is still unclear how much EUA's will be freely allocated in phase 4 of the EU-ETS (or in ICL Boulby's case - in the upcoming local replacement trading scheme, following Brexit). In addition, in 2017, China also initiated a national emission trading scheme. YPH JV, in China, is one of the Company's largest production sites and produces GHG emissions (directly and indirectly). For now, this trading scheme does not include the business sector relevant to this site. However, the plan could potentially expand to additional business sectors in the future. There has not been an indication of upcoming carbon taxes/trading schemes in Israel or the US states where ICL operates, but this option could become viable in the future, with even further concerns regarding climate change. The potential impact for these risks could be the need to purchase external carbon credits through the specific programs and/or new Capex expenses for reduction engines for the site.
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Climate change also causes market risks. ICL is a producer of fertilizers for the global agricultural industry. One of the main effects of climate change is expected to be an increased frequency of extreme weather events, which impact the agricultural industry. Storms, long periods of drought, floods and extreme temperature change can affect crop quality and quantity, resulting potentially in decreased fertilizer usage. If these affect regions where ICL is a significant fertilizer supplier, and the demand for fertilizers drops, lCL might need to reduce its prices, thereby reducing its profits, or otherwise lose sales.
The potential impact of climate change and associated laws and regulations on the Company's operations and business, and those of our customers and suppliers is uncertain. The cost of adjustment to and compliance with legislative and regulatory changes regarding climate change and GHG emissions, and adjustments to the physical impacts of climate change, could materially and adversely affect our business, financial situation and results of operation. Apart from implementing physical measures to deal with extreme weather conditions, ICL has acquired insurance to protect itself from exposure to natural disasters.
For additional information, see “Item 4 - Information on the Company— B. Business Overview— Regulatory and Environmental, Health and Safety Matters”.
Due to the nature of our Company, we are exposed to administrative and legal proceedings, both civil and criminal, including as a result of alleged environmental contamination caused by certain of our facilities
From time to time we are exposed to administrative and legal proceedings, both civil and criminal, including as a result of alleged environmental contamination caused by certain of our facilities. It should be noted, in that regard, that the Company may be exposed to criminal proceedings, fines and significant impairment of the operation of our facilities as a result of failing to meet the requirements of our emissions permits including the provisions of the Clean Air Law, and particularly, regarding the scope of current and future requirements as prescribed by the Ministry of Environmental Protection respecting the implementation of the Law’s provisions at the Company’s plants in Rotem, Israel, as well as compliance with the timeframes for implementation of such requirements. In addition, from time to time examinations and investigations are conducted by enforcement authorities.
Furthermore, from time to time we are exposed to claims alleging physical or property damage, which may cause us financial harm.
In addition, some of the manufacturing or marketing activities (and sometimes transportation and storage as well) entail safety risks that we attempt to minimize but are not able to eliminate. In various countries, including Israel and the United States, legislation exists that can impose liability on us irrespective of our actual intent or negligence. Other laws impose liability on defendants jointly and severally, and sometimes retroactively, and therefore can cause us to be liable for activities executed jointly with others and at times solely by others. We may also be found liable for claims related to land treatment where mining operations and other activities were conducted, even after such activities have ceased.
In addition, over the past several years, there has been an upward trend in the filing of claims together with a request for their certification as class and derivative actions. Due to the nature of such actions, these claims may be for very high amounts and the costs of defending against such actions may be substantial, even if the claims are without merit from the outset. In addition, our insurance policies include coverage limitations, are restricted to certain causes of action and may not cover claims relating to certain types of damages, such as intangible damages, etc.
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For information respecting legal proceedings and actions, see Note 19 to our Audited Financial Statements and “Item 8 - Financial Information— A. Consolidated Statements and Other Financial Information— Legal Proceedings”.
We are exposed to the risk of third‑party and product liability claims
We are also exposed to risk of liability related to damage caused to third parties by our operations or by our products. We have third‑party liability insurance for damages caused by our operations and for product liability. However, there is no certainty that this insurance will fully cover all damage for such liability. Moreover, sale of defective products by us might lead to a recall of products by us or by our customers who had used our products. In addition, the sale of defective products, as well as damage caused to third parties by our activities or our products may harm our public image and reputation and, as a result, materially and adversely affect our business, financial situation and results of operation.
Product recalls or other liability claims as a result of food safety and food-borne illness concerns could materially and adversely affect us
We develop and produce functional food ingredients and phosphate additives for the food industry. Selling ingredients and additives that will be used in products sold for human consumption involves inherent legal and other risks, including product contamination, spoilage, product tampering, allergens, or other adulteration. We could decide to, or be required to, recall products due to suspected or confirmed product contamination, adulteration, misbranding, tampering, or other deficiencies. Product recalls or market withdrawals could result in significant losses due to their costs, the destruction of product inventory, and lost sales due to the unavailability of the product for a period of time.
Because food safety issues could be experienced at the source or by food suppliers or distributors, food safety could, in part, be out of our control. Regardless of the source or cause, any report of food-borne illness or other food safety issues such as food tampering or contamination of products that contain our ingredients or additives could adversely impact our reputation, hindering our ability to renew contracts on favorable terms or to obtain new business, and have a negative impact on our sales. Even instances of food-borne illness, food tampering or contamination of products that do not contain our ingredients or additives could result in negative publicity and could negatively impact our sales.
We may also suffer losses if our products or operations violate applicable laws or regulations, or if our products cause injury, illness, or death. A significant product liability or other legal judgment or a related regulatory enforcement action against us, or a significant product recall, may materially and adversely affect our reputation and profitability. Awards of damages, settlement amounts and fees and expenses resulting from such claims and the public relations implications of any such claims could have an adverse effect on our business. The availability and price of insurance to cover claims for damages are subject to market forces that we do not control, and such insurance may not cover all the costs of such claims and would not cover damage to our reputation. Moreover, even if a product liability or fraud claim is unsuccessful, has no merit, or is not pursued, the negative publicity surrounding assertions against our products or processes could materially and adversely affect our business, financial condition and results of operations.
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Our insurance policies may not be sufficient to cover all actual losses that we may incur in the future
We maintain, among others, property, environmental, business interruption, casualty and malpractice insurance policies. However, we are not fully insured against all potential hazards and risks incidental to our business, including to damages which may be caused to us by the negligence of our employees. We are subject to various self‑retentions and deductibles under these insurance policies. As a result of market conditions, our loss experience and other factors, our premiums, self‑retentions and deductibles for insurance policies can increase substantially and, in some instances, certain insurance may become unavailable or available only for reduced amounts of coverage. In addition, significantly increased costs could lead us to decide to reduce, or possibly eliminate, coverage. As a result, a disruption of the operations at one of our key facilities or a significant casualty could have a material adverse effect on our financial condition and results of operations. Furthermore, our insurance may not fully cover our expenses related to claims and lawsuits that may be filed against us, or expenses related to legislation that is being promoted and enacted with adverse effect on us. In addition, it is possible that there are risks that we did not identify and are thus not covered by the insurance policies acquired by the Company.
Risks Related to the Company’s Operations in Israel and/or to the Company being an Israeli company
Due to our location in Israel and/or being an Israeli company, our operations may be exposed to war or acts of terror. In addition, we are exposed to risks of terrorist acts, war and governmental instability in the regions outside Israel where we operate
War, acts of terror and\or governmental instability in the regions where we operate are likely to negatively impact us. This impact may manifest itself in production delays, distribution delays, loss of property, injury to employees, and increased insurance premiums. In addition, our plants may be targets for terrorist acts due to the chemicals they store. We do not have property insurance against war or acts of terror, other than compensation from the State of Israel pursuant to Israeli law, which covers only physical property damage, without accounting for reinstatement values.
It is noted that since the construction of our initial facilities in the 1950s, we have never experienced material business interruptions as a result of war or acts of terror, but we can provide no assurance that we will not be subject to any such interruptions in the future.
Our computer and communications networks, and production technologies constitute a basic platform for operational continuity and are also potential targets for acts of terror. Potential cyber threats can cause damage to systems and plants, data loss, software vulnerability and external and internal access to sensitive and confidential information. We have implemented a plan for safeguarding and backing up the information systems. The activities include: separation of our information networks from the computerized process systems, physical protection of the computer rooms and terminals and training of employees. However, there is no assurance that the Company will successfully accomplish its goals.
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We conduct operations in Israel and therefore our business, financial condition and results of operations may be materially and adversely affected by political, economic and military instability in Israel and its region
Our headquarters, some of our operations, and some of our mining facilities are located in Israel and many of our key employees, directors and officers are residents of Israel. Accordingly, political, economic and security conditions in Israel and the surrounding region may directly affect our business. Since the establishment of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors, Hamas (an Islamist militia and political group in the Gaza Strip) and Hezbollah (an Islamist militia and political group in Lebanon). Any hostilities involving Israel or the interruption or curtailment of trade within Israel or between Israel and its trading partners could materially and adversely affect our business, financial condition and results of operations and could also make it more difficult for us to raise capital. Recent political uprisings, social unrest and violence in various countries in the Middle East and North Africa, including Israel’s neighbors Egypt and Syria, are affecting the political stability of those countries. This instability may lead to deterioration of the political relationships that exist between Israel and these countries and has raised concerns regarding security in the region and the potential for armed conflict. In addition, Iran has threatened to attack Israel and is widely believed to be developing nuclear weapons.
In addition, the assessment is that Iran has a strong influence among parties hostile to Israel in areas that neighbor Israel, such as the Syrian government, Hamas in Gaza and Hezbollah in Lebanon. Any armed conflicts, terrorist activities or political instability in the region could materially and adversely affect our business, financial condition and results of operations. In addition, the political and security situation in Israel may result in parties with whom we have agreements involving performance in Israel claiming that they are not obligated to comply with their undertakings under those agreements pursuant to force majeure provisions in such agreements. In addition, because we are an Israeli company, our sales may be subject to economic boycotts or other sanctions on our products.
Our operations may be disrupted as a result of the obligation of Israeli citizens to perform military reserve service
Many Israeli citizens are obligated to perform one month, and in some cases more, of annual military reserve service until the age of 45 (or older, for reservists with certain occupations) and, in the event of a military conflict, may be called to active duty. Although periods of significant call‑ups of military reservists which occurred in the past in response to terrorist activities have had no significant impact on our operations, it is possible that military reserve duty call‑ups will occur in the future, which might disrupt our operations.
It may be difficult to enforce a U.S. judgment against us and our directors and officers, in Israel or the United States, or to serve process on our directors and officers
We are incorporated under Israeli law. Many of our directors and executive officers reside outside the United States, and most of our assets are located outside the United States. Therefore, a judgment obtained in the United States against us or many of our directors and executive officers, including one based on the civil liability provisions of the U.S. federal securities laws, may not be collectible in the United States and may not be enforced by an Israeli court. It also may be difficult for an investor to effect service of process on these persons in the United States or to assert claims under the U.S. securities laws in original actions instituted in Israel.
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The rights and responsibilities as a shareholder are governed by Israeli law which may differ in some respects from the rights and responsibilities of shareholders of U.S. companies
We are incorporated under Israeli law. The rights and responsibilities of the holders of our ordinary shares are governed by our Articles of Association and Israeli law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders in typical U.S. corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith toward the company and other shareholders and to refrain from abusing its power in the company, including, among other things, in voting at the general meeting of shareholders on matters such as amendments to a company’s articles of association, increases in a company’s authorized share capital, mergers and acquisitions and interested party transactions requiring shareholder approval. In addition, a shareholder who knows that it possesses the power to determine the outcome of a shareholder vote or to appoint or prevent the appointment of a director or executive officer in the company has a duty of fairness toward the company. There is limited case law available to assist us in understanding the implications of these provisions that govern shareholders’ actions.
These provisions may be interpreted to impose additional obligations and liabilities on holders of our ordinary shares that are not typically imposed on shareholders of U.S. corporations.
In addition, in light of the Company’s listing for trading on a stock exchange in the United States, and also considering the fact that our parent company is subject only to the Israeli securities law, we are subject, in certain aspects, to both Israeli law and U.S. law, a fact which may cause us to face both reporting and legal conflicts.
In recent years we have seen a significant rise in the filing of class actions in Israel against public Companies, including derivative actions against the Company, its executives and Board members
In recent years we have seen a significant rise in the filing of class actions and derivative actions in Israel against companies, executives and Board members. While the vast majority of such claims are dismissed, companies like us are forced to increasingly invest resources, including monetary expenses and investment of management attention due to these claims. This state of affairs could adversely affect the willingness of our executives and Board members to make decisions which could have benefitted our business operations. Such legal actions could also be taken with respect to the validity or reasonableness of the decisions of our Board of Directors.
Risks Related to Our Ordinary Shares
We have one key shareholder who is our controlling shareholder. This controlling shareholder may influence the making of decisions with which other shareholders may disagree
As at December 31, 2019, the Israel Corporation Ltd. (“Israel Corp.”) holds the controlling interest in the Company.
The interests of Israel Corporation may differ from the interests of other shareholders. Israel Corporation exercises control over our operations and business strategy and has sufficient voting power to control many matters requiring approval by our shareholders, including:
The composition of our Board of Directors (other than external directors, as described under “Item 6 - Directors, Senior Management and Employees— C. Board Practices— External Directors”);
Mergers, acquisitions, divestitures or other business combinations;
Future issuances of ordinary shares or other securities;
Amendments to our Articles of Association, excluding provisions of the Articles of Association that were determined by virtue of the Special State Share; and
Dividend distribution policy.
In addition, this concentration of ownership may delay, prevent or deter a change in control, or deprive the investor of a possible premium for his ordinary shares as part of a sale of our Company. Moreover, as a result of the Company’s control structure, our shares may be subject to low tradability, which may hinder the sale and/or exercise of our shares. Furthermore, Israel Corp. may conduct material transactions in our shares, such as its existing margin loans that are secured by pledges of ICL shares, and/or in their organizational structure, that we will not be able to influence but that may have a material adverse effect on our share price.
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The existence of a Special State Share gives the State of Israel veto power over transfers of certain assets and shares above certain thresholds, and may have an anti‑takeover effect
The State of Israel holds a Special State Share in our Company and in some of our Israeli subsidiaries. The Special State Share entitles the State of Israel, among other things, to restrict the transfer of certain assets and some acquisitions of shares by any person that would become a holder of specified amounts of our share capital. Because the Special State Share restricts the ability of a shareholder to gain control of our Company, the existence of the Special State Share may have an anti‑takeover effect and therefore depress the price of our ordinary shares. Furthermore, the existence of the Special State Share may prevent us from realizing and developing business opportunities that we may come across. To the best of the Company’s knowledge, during the second half of 2018, an inter-ministerial team was set up, headed by the Ministry of Finance, whose purpose is, among other things, to regulate the authority and supervision in respect of the Special State of Israel Share, as well as reduce the regulatory burden. In January 2019, the work of this team was put on hold until further notice due to the dissolution of the Knesset and lack of permanent Government. As at the date of the report, the Company is unable to estimate the implications of this process over the Company, if any, but it is possible that the introduction of an additional array of regulatory provisions, coupled with strict enforcement, may increase the uncertainty in the management of Company operations relating to natural resources in Israel and may have a material adverse effect on our business, our financial condition and results of operations.
The market price of our ordinary shares is subject to fluctuation, which could result in substantial losses for our investors
The stock market in general and the market price of our ordinary shares in particular, are subject to fluctuation, and changes in our share price may occur unrelated to our operating performance. The market price of our ordinary shares on the TASE or NYSE has fluctuated in the past, and we expect it will continue to do so. The market price of our ordinary shares is and will be subject to a number of factors, including:
Expiration or termination of licenses and/or concessions;
General stock market conditions;
Decisions by governmental entities that affect us;
Variations in our and our competitors’ results of operations;
Changes in earnings estimates or recommendations by securities analysts; and
General market conditions and other factors, including factors unrelated to our operating performance.
These factors and any corresponding price fluctuations may materially and adversely affect the market price of our ordinary shares and result in substantial losses for our investors.
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If equity research analysts issue unfavorable commentary or cease publishing reports about our ordinary shares, the price of our ordinary shares could decline
The trading market for our ordinary shares relies in part on the research and reports that equity research analysts publish about us and our business. The price of our ordinary shares could decline if one or more securities analysts downgrade our ordinary shares or if those analysts issue other unfavorable commentary or cease publishing reports about us or our business.
You may be diluted by the future issuance of additional ordinary shares, among other reasons, for purposes of carrying out future acquisitions, financing needs, and also as a result of our incentive and compensation plans
As at the date of this Annual Report, we have approximately 181 million ILS 1 par value (approximately $48 million) shares authorized but unissued. We may choose to raise substantial equity capital in the future in order: to acquire or invest in businesses, products or technologies and other strategic relationships and to finance unanticipated working capital requirements in order to respond to competitive pressures. The issuance of any additional ordinary shares in the future, or any securities that are exercisable for or convertible into our ordinary shares, will have a dilutive effect on our shareholders as a consequence of the reduction in the percentage ownership.
For example, as at the date of the report, there are about 30 million outstanding options for our ordinary shares that were issued under our incentive and compensation plan. For additional information, see “Item 6 - Directors, Senior Management and Employees— E. Share Ownership”. Any ordinary shares that we issue, including under any option plans, would dilute the percentage ownership held by investors.
We may not be able to maintain our dividend payment
The Company's dividend distribution policy since 2016, is that the Company’s dividend distribution rate will be up to 50% of the annual adjusted net profit. In addition, dividends will be paid as declared by the Board of Directors and may be discontinued at any time. All decisions regarding dividend distributions are made by the Board of Directors, which takes into account various factors including our profits, investment plans, financial position and additional factors as it deems appropriate. Dividend payments are not guaranteed and our Board of Directors may decide, in its exclusive discretion, at any time and for whatever reason, not to pay dividends, to reduce the rate of dividends paid, to pay a special dividend, to modify the dividend payout policy or to adopt a share buyback program.
Our ordinary shares are traded on different markets which may result in price variations
Our ordinary shares have been traded on the TASE since 1992 and have been listed on the NYSE since September 2014. Trading in our ordinary shares on these markets occurs in different currencies (U.S. dollars on the NYSE and ILS on the TASE) and takes place at different times (resulting from different time zones, different trading days and different public holidays in the United States and Israel). The trading prices of our ordinary shares on these two markets may differ due to these and other factors. Any decrease in the price of our ordinary shares on one of these markets could cause a decrease in the trading price of our ordinary shares on the other market.
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As a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of applicable SEC and NYSE requirements, which may result in less protection than is afforded to investors under rules applicable to domestic issuers
As a foreign private issuer, we are permitted to follow certain home country corporate governance practices instead of those otherwise required by the NYSE for domestic issuers. For instance, we have elected to follow home country practices in Israel with respect to, among other things, composition and function of the Audit and Finance Committee and other committees of our Board of Directors and certain general corporate governance matters. In addition, in certain instances we will follow our home country law, instead of NYSE rules applicable to domestic issuers, which require that we obtain shareholder approval for certain dilutive events, such as an issuance that will result in a change of control of our Company, certain transactions other than a public offering involving issuances of a 20% or more interest in our Company and certain acquisitions of the stock or assets of another company. Following our home country corporate governance practices as opposed to the requirements that would otherwise apply to a U.S. company listed on the NYSE may provide less protection than is afforded to investors under the NYSE rules applicable to domestic issuers.
In addition, as a foreign private issuer, we are exempt from the rules and regulations under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), related to the furnishing and content of proxy statements and the requirements of Regulation FD (Fair Disclosure), and our directors, officers and principal shareholders are exempt from the reporting and short‑swing profit recovery provisions of Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as domestic companies whose securities are registered under the Exchange Act.
The Company has a history of quarterly fluctuations in the results of its operations due to the seasonal nature of some of its products and its dependence on the commodities markets. We expect these fluctuations to continue. Fluctuations in the results of our operations may disappoint investors and result in a decline in our share price
We have experienced, and expect to continue to experience, fluctuations in our quarterly results of operations. Our sales have historically, and less significantly so over the last three years, been stronger in the second and third quarters of each year. This is due to the mix of products we sell in those quarters, as well as the mix of sales in different countries. If, for any reason, our revenues in the second and third quarters are below seasonal norms, we may not be able to recover these sales in subsequent quarters and our annual results of operations may not meet expectations. If this occurs, the market price of our ordinary shares could decline.
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Item 4 – INFORMATION ON THE COMPANY
A. HISTORY AND DEVELOPMENT OF THE COMPANY
Our legal name is Israel Chemicals Ltd. and our commercial name is ICL. We are a public company and operate today as a limited liability company under the laws of Israel. Our registered headquarters is located at Millennium Tower, 23 Aranha Street, P.O. Box 20245, Tel Aviv 61202, Israel. The telephone number at our registered office is +972‑3‑684‑4400. Our website address is www.icl‑group.com. The reference to our website is intended to be an inactive textual reference and the information on, or accessible through, our website is not intended to be part of this Annual Report.
ICL was established in Israel in 1968 as a government-owned and -operated company in Israel, and operates today as a limited liability company under the laws of Israel. In 1975, the shares of certain companies (including, among others, ICL Dead Sea, the consolidated companies ICL Rotem, the bromine companies and Tami) were transferred to ICL. In 1992, following a decision of the Israeli government to privatize ICL, the State published its tender prospectus, 20% of the Company's shares were sold to the public and its shares were registered for trading on the Tel‑Aviv Stock Exchange. Prior to our public share issuance, a Special State Share in our Company and our main Israeli subsidiaries was issued to the State of Israel (for additional details regarding the terms of the Special State Share, see “Item 10 - Additional Information— B. Memorandum, Articles of Association and Special State Share”). In 1995, the State of Israel sold its controlling interest in the Company (representing approximately 24.9% of our shares) to Israel Corporation Ltd., a public traded Company on the TASE (ILCO), which was controlled at that time by the Eisenberg family. A majority of the ordinary shares held by the state of Israel were sold during the following years. In 2000, the State of Israel ceased to be a stakeholder in terms of holding any of our ordinary shares, but it retained the Special State Share. In 1999, the Ofer Group acquired the Eisenberg family’s shares in Israel Corporation. In September 2014, we listed our shares on the New York Stock Exchange, and they are currently traded in Tel Aviv and in New York.
As of December 31, 2019, Israel Corporation Ltd. holds approximately 45% of our outstanding ordinary shares and approximately 46% of the shareholders' voting rights.
The following is a list of significant acquisitions, divestitures and joint ventures over the last several years:
In February 2020, the Company completed the acquisition of Growers Holdings, Inc., an innovator in the field of process and data-driven farming. For additional information see "Item 5 – Operating and Financial Review and Prospects – C. Research and Development, Patents and Licenses, etc. – Research and Development".
In March 2018, the Company completed the sale transaction of the fire safety and oil additives businesses, for a total consideration of $1,010 million, of which $953 million is in cash and $57 million is in the form of a long-term loan to a subsidiary of the buyer.
In 2017, the Company completed the sale of its holdings in IDE Technologies Ltd., constituting 50% of IDE’s share capital.
In 2016, ICL completed the sale of Clearon (chlorine-based biocide activities in USA).
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In 2015, ICL, together with YPC, completed the formation of YPH JV. YPH JV’s activities include operation of a phosphate rock mine and other phosphate operations. In January 2016, ICL completed the investment in 15% of the issued and outstanding share capital on a fully diluted basis of YTH (Chinese traded company which holds YPH JV together with ICL).
For information about our principal capital expenditures and divestitures during the last three fiscal years, see “Item 5 - Operating and Financial Review and Prospects— B. Liquidity and Capital Resources— Principal Capital Expenditures and Divestitures”.
B. BUSINESS OVERVIEW
ICL is a global specialty minerals and chemicals company operating bromine, potash and phosphate mineral value chains in a unique, integrated business model. ICL extracts raw materials from well-positioned mineral assets and utilizes technology and industrial know-how to add value for customers in key agricultural and industrial markets worldwide. ICL focuses on strengthening leadership positions in all of its core value chains. It also plans to strengthen and diversify its offerings of innovative agro solutions by leveraging ICL's existing capabilities and agronomic know-how, as well as the Israeli technological ecosystem. Our operations are organized under four segments: Industrial Products (Bromine), Potash, Phosphate Solutions and Innovative Ag Solutions.
Commencing in fiscal year 2019, segment profit is measured based on the operating income after allocation of general and administrative expenses and without the allocation of certain expenses, as presented in the reports regularly reviewed by the Chief Operating Decision Maker. The comparative data has been restated accordingly.
Our principal assets include:
Access to one of the world’s richest, longest‑life and lowest‑cost sources of potash and bromine (the Dead Sea).
Two potash mines and processing facilities in Spain. The Company is in the process of consolidating the operations in Spain into one site.
Bromine compounds processing facilities located in Israel, the Netherlands and China.
A unique integrated phosphate value chain, from phosphate rock mines in Israel and in China to our value‑added downstream products in Israel, Europe, the United States, Brazil and China. Our specialty phosphates serve the food industry by providing texture and stability solutions to the meat, meat alternatives, poultry, sea food, dairy and bakery markets and many industrial markets such as metal treatment, water treatment, oral care, carbonated drinks, asphalt modification, paints and coatings and more.
Vast Polysulphate® resources in the United Kingdom.
Production of tailor-made, highly-effective specialty fertilizers offering both improved value to the grower and precise nutrition which is essential for plant development, optimization of crop yields and reduced environmental impacts.
A focused and highly experienced group of technical experts developing production processes, new applications, formulations and products for our agricultural and industrial markets.
An extensive global logistics and distribution network with operations in over 30 countries.
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In the year ended December 31, 2019, we generated total sales of $5,271 million, operating income of $756 million, and net income attributable to the shareholders of the company of $475 million. See "Item 5 – Operating and Financial Review and Prospects – A. Operating Results – Results of Operations".
Sales of the Industrial Products segment amounted to $1,318 million and the operating profit attributable to the segment amounted to $338 million, sales of the Potash segment amounted to $1,494 million and the operating profit attributable to the segment amounted to $289 million, sales of the Phosphate Solutions segment amounted to $1,980 million and the operating profit attributable to the segment amounted to $100 million, and sales of the Innovative Ag Solutions segment amounted to $717 million and the operating profit attributable to the segment amounted to $21 million.
For a breakdown of sales and a geographic market by segments, see “Item 5 - Operating and Financial Review and Prospects— A. Operating Results”.
Markets and Industries
ICL's businesses are based on three main minerals – potash, phosphate and bromine, which are the main raw materials for most of the downstream products along the integrated value chains that we have developed throughout the years. ICL is organized in four segments: Industrial Products, Potash, Phosphate Solutions and Innovative Ag Solutions (IAS). Three of the four segments represent a specific value chain: The Industrial Products segment includes mainly the bromine value chain (elemental bromine and bromine compounds for various industrial applications) as well as several complementary businesses, mainly phosphorous based compounds (mostly flame retardants) and additional Dead Sea minerals for the pharma, food, oil & gas and de-icing industries. The Potash segment is based on our potash value chain and includes mainly potash fertilizers, as well as Polysulphate®-based fertilizers for the agriculture market. This segment also includes the magnesium activity. The Phosphate Solutions segment is mostly based on ICL's phosphate value chain. It includes specialty phosphate salts and acids for various industrial applications as well as commodity phosphates, used mostly as fertilizers. In each of the segments ICL benefits from leadership position, whether it is in market share or in cost competitiveness. The fourth segment, IAS, currently includes the specialty fertilizers business. ICL aims to achieve leadership position in specialty fertilizers through portfolio enhancement and geographic expansion, potentially including bolt-on M&A.
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ICL’s Industrial Products segment and ICL's specialty phosphates business serve various industrial markets.
Bromine is a member of the halogen family and is found naturally in seawater, underground brine deposits and other water reservoirs, such as the Dead Sea. The concentration and method of extraction of bromine varies depending upon the nature of its source. The lower the concentration of bromine in the brines, the more difficult and expensive it is to extract. The Dead Sea is the world’s premier source of bromine, and it accounts for about half of the global supply (together with the production on the Jordanian side of the Dead Sea). The Dead Sea is the most competitive supply source of bromine as it has the highest concentration, and as a result, the least amount of water must be extracted and evaporated to produce bromine, which minimizes the energy costs.
ICL's bromine solutions are embedded in numerous products, making consumer goods safer and industrial production more efficient and sustainable. Demand for the products manufactured by ICL Industrial Products, which mainly include solutions based on bromine and phosphorus, is driven by population growth, increased standards of living, higher environmental and safety awareness and increased focus on cost effective production. The largest commercial use of bromine is in bromine‑based flame retardants which are used as inputs in manufacturing processes and end products, such as plastic enclosures for consumer electronics, printed circuit boards, insulation materials for construction, furniture, automobiles, and textiles, in order to meet fire-safety requirements. Bromine and its derivatives are used in various additional industries: rubber production, oil and gas drilling, water purification, intermediate materials for production of medicines and pesticides, and others. Increased regulation and environmental awareness also drives demand for polymeric and reactive flame retardants, which are considered more environmentally friendly. ICL estimates that bromine demand is relatively stable and market growth is linked to global population growth. On the supply side, Chinese supply has decreased significantly in the past few years due to resource depletion and increased environmental-related regulatory pressure. This, together with shortage of economically viable bromine resources globally, resulted in a tight supply‑demand balance and price increases.
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ICL’s specialty phosphates business is based on ICL's backward integration into phosphate rock and fertilizer-grade phosphoric acid ("green phosphoric acid") which is cleaned to reach purified phosphoric acid (also referred to as food grade or technical grade acid). ICL produces and markets purified acids and phosphate salts based on it, thus adding value on top of commodity phosphates. Phosphate salts are used as functional food ingredients and phosphate additives, providing texture and stability solutions for the processed meat, poultry & seafood industries, meat alternatives, dairy, beverage and baked goods. ICL's specialty phosphates serve many additional industries such as cola beverages, water treatment, cleaning materials, paints and coatings, metal treatment, oral care, construction and more.
According to ICL's estimates, the Company has a leading position in specialty phosphates in Europe, North America and Latin America. According to CRU's estimates from September 2018, demand for purified phosphoric acid is expected to grow by a CAGR of 1.5% between 2018 to 2023 while supply is expected to grow by less than 0.5%. According to CRU, demand for water soluble fertilizers, of which purified phosphoric acid is a major raw material, has been growing sharply, driven by rapid growth in fruit & vegetable consumption and changing agricultural production systems. Phosphate salts used in processed meats, cheeses and baking goods, have seen strong consumption growth in developing countries. At the same time, there are several capacity expansions on the horizon, which are likely to be almost entirely offset by expected closures of TPA (thermal phosphoric acid) plants in China.
Consumer demand for different food products has changed dramatically over the last several decades, driven by increased income per capita, demographic shifts and lifestyle changes. Longer working hours, changing family structures, increased awareness of nutrition and health issues and access to a broader variety of food products result in growing demand for more sophisticated, protein-enriched, unprocessed (“clean label”) and non-allergenic (“free from”) food products with longer shelf lives along with improved flavor, texture and appearance. An increasingly longer supply chain and consumer awareness of food waste also drives the demand for longer shelf‑life and food stability. These trends act as long‑term drivers of demand for food additives, such as phosphate derivatives, phosphate and protein containing formulations and hygiene products for the processed meat, bakery, dairy and beverages industries.
Fertilizers serve an important role in global agriculture by providing vital nutrients that help increase both the yield and the quality of crops. Nitrogen, phosphorus and potassium (N, P and K) constitute the three major nutrients required for plant growth. There are no artificial substitutes for potassium and phosphorous. Although these nutrients are naturally found in soil, they are depleted over time by farming, which could lead to declining crop yields and land productivity. To replenish these nutrients, farmers must apply fertilizers.
Each of these three nutrients plays a different role in plant development and helps crops achieve their growth potential. Potassium and phosphorus are vital for physiological processes of the plant, including strengthening cereal stalks, stimulating root development, leaf and fruit health, and accelerating the growth rate of crops. Potassium also enhances a plant’s ability to withstand drought and cold, improves the efficient use of nitrogen and other nutrients necessary for plant development, and improves the durability of agricultural products in storage and transportation, thereby prolonging the shelf life of products.
In the short term, demand for fertilizers is volatile and seasonal, and is affected by factors such as weather in the world’s key agricultural growing regions, fluctuations in planting main crops, agricultural input costs, agricultural product prices and developments in biotechnology. Some of these factors are influenced by subsidies and lines of credit granted to farmers or to producers of agriculture inputs in various countries, and by environmental regulations. In addition, currency exchange rates, legislation and international trade policies have an impact on the supply, demand and level of consumption of fertilizers worldwide. Nevertheless, the common perception is that the policy of most countries is to ensure an orderly and high‑quality supply of food to the population and to this end, to encourage agricultural production. Therefore, we expect the long‑term growth trend of the fertilizers market to be maintained.
Global fertilizer demand is also driven by the supply/demand balance in grains and other agriculture products markets, which impacts their prices. Supply of agriculture products is influenced by weather, planted areas and input usage, while demand is primarily influenced by population growth and dietary changes in the developing world:
Population and Income Growth per Capita. Historically, growth in fertilizer consumption globally has been closely correlated with growth in the world’s population, which is expected to increase by over 2.0 billion and to reach 9.7 billion by 2050, according to the FAO (Food and Agriculture Organization of the UN). Currently, developed countries use fertilizers more intensively than developing countries and, therefore, produce crops at much higher yields. Economic growth in emerging markets supports food demand and thus fertilizer use. In addition, growth in income per capita in developing markets results in a shift to more protein‑rich diets through higher meat consumption, which requires larger quantities of grain for their growth, thus leading to an increased demand for seeds used in animal feed. According to estimates published by the IMF (International Monetary Fund), GDP per capita in emerging markets and developing economies is expected to grow by 4.6% and 4.8% in 2020 and 2021, respectively.
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Declining Arable Land per Capita. As the world’s population grows, mainly in cities, farmland per capita decreases and more food production is required from each acre of farmland. This, in turn, requires increased yield per planted area. According to the FAO, the amount of arable land per capita is expected to decrease from 0.22 hectares per person to 0.18 hectares per person between 2020 and 2050. Effectively, new arable land is available only in limited quantities, and is concentrated mainly in Brazil. Therefore, the only viable path to increase crop production is through a yield increase in developing countries, mainly in China, India, Russia, Africa and Central America, by optimizing the use of fertilizers (especially improving the balance in the use of potash, which is underutilized versus the use of nitrogen fertilizers), together with water availability and better seeds. According to the FAO, world crop production will increase by 33.8% between 2020 and 2050, while 33.9% of the growth is expected to be attributed to increase in yields.
Grain Stock‑to‑Use Ratio. As illustrated by the chart below, starting from the year 2000 and until the 2012/3 agriculture season, pressure on food demand and unfavorable weather in the main growing areas resulted in low levels of the grain stock‑to‑use ratio (a metric index of the level of carryover stock). Since then, several years of favorable weather led to a trend of increasing yields, resulting in an increase in the grain stock-to-use ratio. An increase in the grain stock-to-use ratio generally indicates that grain prices may decline (due to higher grain supply) and vice versa.
During 2019, corn, soybean and rice prices increased by 2.2%, 3.3% and 24.1% respectively, while wheat price decreased by 5.6%. However, the prices of such grains increased towards 2019 year-end due to drought conditions in Thailand, which may impact the production of rice, and in Australia, which may impact the production of wheat. WASDE report published by the USDA in February 2020 showed a decrease in the expected ratio of the global inventories of grains to annual consumption, to 29.7% for the 2019/20 agriculture year, compared to 30.3% for the 2018/19 agriculture year, and 31.4% for the 2017/18 agriculture year. The decrease in the global stock-to-use ratio resulted from a decrease in the ratio for corn compared to the previous agricultural year, due to an increased consumption with regard to production in China and in Brazil.
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Specialty fertilizer markets are growing faster than the markets for conventional fertilizers and are estimated to be growing at a rate of 4-10% a year, depending on the market segment (Luclntel, 2019, Markets&Markets, 2018, IFA, RAMSַ&CO, 2018, IHS, CRF, 2014). Farmers use specialty fertilizers that are customized to meet the needs of specific crops, soil types and climates, to achieve a more efficient and effective fertilization and to maximize yield and quality. The specialty fertilizers allow more precise application of the critical foundations for development of the plant (phosphorus acid, potassium and nitrogen) and micro‑nutrients. Specialty fertilizers are generally used for specialty crops (such as fruits and vegetables, greenhouses and horticulture) but are also expanding into usage for larger specialty field crops. Increase in the demand for food is expected to drive an increase in the use of specialty fertilizers. These fertilizers include, among others, “enhanced efficiency fertilizers” such as controlled release fertilizers (CRF), which allow for precision in the release of nutrients over time, and delayed or slow release fertilizers (SRF), which allow for a very slow release of nutrients (nitrogen and potassium only), liquid fertilizers integrated in irrigation systems and in herbicides and fully water soluble fertilizers, which are most commonly used for fertilization by means of drip irrigation systems and foliar spraying.
The expected market growth is supported by the following global trends:
The need for an increase in yield and crop quality
Enhanced Efficient Fertilizers, which include controlled release fertilizers (CRF), increase the quality and yield of crops through a more efficient crop uptake of the nutrients. Many specialty-fertilizers field trials in specific growing regions have already demonstrated the benefits of using new fertilizer technologies. The Enhanced Efficiency Fertilizers category is rapidly growing globally.
Regulatory pressure and environmental trends
Environmental regulations impose restrictions on the level of nutrient usage. This results in a movement towards more efficient nutrient solutions, such as Controlled Release Fertilizers (CRFs) or Water Soluble Fertilizers.
China’s Zero Growth Fertilizers 2020 is one example of such a regulation. In order to achieve the goal of a zero increase in fertilizer consumption by 2020, China is promoting new fertilization technologies including Controlled Release Fertilizers and fertigation; raising customized fertilizer application; promoting new fertilizers and new technologies; promoting organic fertilizer application and strengthening of high-standard ploughing (Agronews, 2015). CRFs are representative of new fertilizers, so hastening their adoption will play a pivotal role in reducing the consumption volume of chemical fertilizers and improving their utilization rates (CCM, Data & Business Intelligence, 2016). Another example is the EU Nitrate Directive, which sets a limit to the amount of nitrates in the water. Specialty Fertilizers, such as CRFs, can optimize the availability of nitrogen to the crop. (EU Nitrate Directive, European Commission, 2014). In recent years, there has been a growing trend among commercial companies, such as supermarket chains and other retailers, of setting their own internal rules related to growers’ practices. For instance, some supermarket chains are demonstrating their commitment to reduce environmental impacts by setting specific rules regarding fertilizer usage by their fruits and vegetables suppliers. Other voluntary organizations, such as “GAP - Good Agriculture Practice”, publish guidelines and issue certificates to farmers who comply with their regulations. Many food processing companies and retailers adopt these guidelines as a standard their suppliers should comply with.
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New Grower Practices
Grower practices have a substantial impact on the growth of the Specialty Fertilizers market. Fertigation usage is growing since applying fertilizers via fertigation systems is much more efficient when using specialty fertilizers, thus increasing the demand for soluble fertilizers such as Water-Soluble NPKs.
The ongoing improvements in agricultural technology have resulted in a significant increase in the usage of drip irrigation (more than 10% per year) and an increase in demand for liquid and water soluble fertilizers.
All of the above are expected to contribute to a higher long-term demand for specialty fertilizer solutions.
Our Competitive Strengths
ICL attributes its business strength to the following competitive advantages:
Unique portfolio of mineral assets. ICL benefits from access to one of the world’s richest, longest‑life and lowest‑cost resources of potash and bromine. ICL’s access to these resources is based on an exclusive concession from the State of Israel for extraction of minerals from the Dead Sea. ICL also holds licenses to mine potash and salts from underground mines with vast resources in Spain. ICL is the only global producer of polyhalite, a mineral used as fertilizer and consisting potassium, Sulphur, calcium and magnesium. In addition, ICL has access to phosphate rock in the Negev Desert based on mining licenses from the State of Israel and it holds a license for mining phosphates in China. Access to these assets provides ICL with a consistent, reliable supply of raw materials, allowing for large scale-production and supporting ICL’s integrated value chain of specialty, value added products.
Dead Sea in Israel: ICL’s potash and bromine production facilities at the Dead Sea enjoy lower production costs compared to mining potash from underground deposits or extracting bromine from less concentrated sources. This is attributed to the high concentration and virtually unlimited supply of minerals in the Dead Sea and to the unique solar evaporation production process which is less energy intensive. Furthermore, the Dead Sea’s hot and dry climate allows ICL to store outdoors very large amounts of potash (exceeding annual production) at a low cost. This advantage enables ICL to operate its potash facilities at full production capacity despite periodic fluctuations in demand, and to react faster in periods of higher demand. In addition, ICL benefits from lower transportation and logistics costs compared to its competitors and faster time to market due to the geographic proximity of its facilities in Israel to seaports and due to Israel’s geographic positioning vis‑à‑vis its main geographical markets (especially the fast‑growing markets of India, China and Brazil). While ICL benefits from these advantages, it incurs infrastructure‑related costs in connection with harvesting salt from Pond 5 at its Dead Sea complex, which is its central evaporation pond, to avoid the need to continue to raise the water level in the pond. In addition, while the supply in the Dead Sea is virtually unlimited, ICL’s access to this supply of potash and bromine pursuant to the concession is subject to the need to construct a new pumping station (P-9). Both projects (salt harvest from pond 5 and construction of a new pumping station) are expected to become operational during 2020. Moreover, the Law for Taxation of Profits from Natural Resources in Israel which entered into effect on January 1, 2016, and January 1, 2017 with respect to ICL's potash operation in the Dead Sea, will impact the Company's net profit if the mineral's price environment will increase to a level that its effect on the profitability of the subsidiaries resulted to a natural resources tax liabilities. See “Item 3 - Key Information— D. Risk Factors— Risks Related to Our Business”.
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United Kingdom and Spain mineral assets: In addition to its operations in Israel, ICL mines potash in Spain and Polysulphate in the United Kingdom. The geographical proximity to Europe, the primary market of these assets, provides ICL with logistical advantages reflected in lower transportation costs, faster time-to‑market and higher net-back prices. In Spain, ICL is progressing with its project to consolidate the two existing mines and processing facilities into one complex which operates a ramp instead of a shaft, thus aiming to increase the mine’s capacity and contributing to lower costs. The access ramp is expected to be completed towards the end of 2020. The project also consists of expanding the above-mentioned processing facility’s capacity, logistics adjustments and improvements as well as the construction of a new terminal in the Port of Barcelona which was completed in early 2020. In the UK, the Company is ramping up the production of Polysulphate,a unique mineral containing four nutrients (potassium, sulphur, calcium and magnesium) which can be used as a natural fertilizer and provides a very cost-effective solution, as its production does not require chemical processing.
Integrated phosphate value chain: ICL’s access to phosphate rock in the Negev Desert and in China is the foundation for the Company's sizeable downstream, fully backward integrated specialty phosphate business. ICL mines and processes phosphate rock from three open‑pit mines in the Negev Desert under mining licenses from the State of Israel and from an open-pit mine in Haikou (China), using conventional methods, under a phosphate mining license that was issued in July 2015 by the Division of Land and Resources of the Yunnan district in China. About 87% of the phosphate rock produced is used internally to manufacture phosphate fertilizers, fertilizer-grade and pure phosphoric acid, with the balance being sold to third parties. ICL’s phosphate assets are the base for its vast and diversified specialty phosphates product portfolio used in industrial applications as well as food additives and specialty fertilizers, adding additional value to the commodity business while reducing ICL’s exposure to the volatility in the commodity markets. See “Item 3 - Key Information— D. Risk Factors— Our minerals extraction operations are dependent on concessions, licenses and permits granted to us by the respective governments in the countries wherein they are located”.
Diversification into higher value‑added specialty products leveraging ICL’s integrated business model. ICL’s integrated production processes are based on a synergistic value chain that allows it to both efficiently convert raw materials into value‑added downstream products and to utilize the by‑products. For example, in phosphates, ICL utilizes its backward integration to produce specialty phosphates used in the food industry and for industrial applications. These businesses benefit from higher growth rates, higher margins and lower volatility compared to commodity phosphates. In addition, as a by‑product of the potash production at the Dead Sea, ICL generates brines with the highest bromine concentration globally. ICL’s bromine‑based products serve various industries such as the electronics, construction, oil and gas and automotive industries.
Leading positions in markets with high entry barriers. ICL obtains leadership positions in many of the key markets in which it operates. It is the clear leader in the bromine market, with 40% of market capacity, about third of production as well as most of the excess capacity in the market. In the potash market the Dead Sea operations has a leading competitive positions and according to CRU, the Dead Sea is among the 3 most competitive potash suppliers to China, India and Brazil. ICL also has the largest market share in specialty phosphates in the combined markets of North America, Europe and Latin America and is the sole producer of Polysulphate®. ICL has leadership positions in additional product lines such as phosphorous-based flame retardants, PK fertilizers in Europe and soluble phosphate‑based fertilizers.
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Most of ICL’s businesses rely on natural resources that are scarce and concentrated in the hands of a few market participants. ICL’s exclusive concessions, intellectual property (unique knowledge, technologies and patents for various products and applications), world‑wide marketing and distribution network and high industry start‑up costs for new market entrants add further significant barriers to entry.
Strategically located production and logistics assets. ICL benefits from the proximity of its facilities, both in Israel and Europe, to developed economies (Western Europe) and emerging markets (such as China, India and Brazil). For example, in Israel, ICL ships from two seaports: The Port of Ashdod (with access to Europe and South America) and the Port of Eilat (with access to Asia, Africa and Oceania). As a result of their geographical positions, access to these two ports provides ICL with two distinctive advantages versus its competitors: (1) it has lower plant gate‑to‑port, ocean freight, and transportation costs from ports to target markets, which lower its overall cost structure; and (2) it has faster time to markets due to its proximity to end‑markets, allowing it to opportunistically fill short lead‑time orders, strengthening its position with its customers. In addition, ICL is the sole producer with the ability to transport potash and phosphates from the same port (which it does in Israel). ICL’s sales are balanced between emerging markets (approximately 41% of 2019 sales) and developed economies (approximately 59% of 2019 sales).
Strong cash generation and closely monitored capital allocation approach. Continuous focus on cash generation, optimization of the capital expenditures (CAPEX) and working capital as well as the implementation of efficiency measures enabled the Company to generate operating cash flow of $992 million in 2019, an increase of 60% compared to 2018. These cash flows were used in accordance with the Company’s strict approach in connection with allotment of equity, whereby the Company examines, on an ongoing basis, the work plan and its investments. ICL's capital allocation approach balances between driving its long‑term value creation through investments in its growth, providing a solid dividend yield while aiming to maintain an investment grade rating (at least BBB- by S&P and Fitch). On February 12, 2020, the Company’s Board of Directors resolved to extend the Company's current dividend policy of a payout ratio of up to 50% of annual adjusted net income, until further notice. In respect to 2019 adjusted net income, the Company declared total dividends in the amount of $238 million, reflecting a dividend yield rate of approximately 3.7% (based on the average share price for the year). See “Item 8 - Financial Information— A. Consolidated Statements and Other Financial Information— Dividend policy”.
Professional expertise and culture of collaboration and determination. ICL’s operations are managed by an international management team with extensive industry experience. ICL develops leaders with strong experience in their fields in order to drive change and innovation within the Company. ICL focuses on nurturing and empowering talent through a global platform of qualification, collaboration and communication that reinforces innovation.
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ICL’s integrated business model is based on its unique access to essential minerals that support its specialty downstream activities – with the focus on crop nutrition and industrial markets. Our model creates significant operational synergies, which derive from the combination of our attractive assets and broad value‑added solutions. Over the years, we have developed a balanced portfolio that supports long‑term stability and growth.
In 2018 ICL launched its “Business Culture of Leadership” strategy, focused on enhancing market leadership across its three core mineral value chains of bromine, potash and phosphate, as well as realizing the growth potential of Innovative Ag Solutions. To align the organization with this strategy, ICL operates through four business divisions: Industrial Products (bromine), Potash, Phosphate Solutions and Innovative Ag Solutions.
ICL’s global leadership in the bromine industry is driven by its focus on delivering value to its customers rather than increasing volume. ICL is able to generate more value by leveraging its unique assets and know-how and by fostering innovation through the development of new applications, such as new bromine and phosphorus-based flame retardants, magnesia and salt products, as well as other solutions. ICL continues to leverage its unique logistical advantages and unparalleled experience related to the safety and environmental aspects of its bromine business.
ICL leverages its well-positioned and unique potash assets, as well as its logistical advantages, to be among the three most competitive suppliers in its key target markets, including Brazil, Europe, India, South-East Asia and China. ICL’s cost competitiveness is driven by its lower logistics costs due to its facilities’ proximity to ports and customers, as well as by continuous optimization of its potash production processes at ICL Dead Sea and ICL Iberia, reducing costs and efficiently utilizing its capacity potential. At ICL Boulby, the Company focuses on continuous ramp-up the production of Polysulphate, and development of the market for this unique fertilizer, in which ICL is the world's first and sole supplier. ICL also continues to enhance its competitive production of Magnesium and to optimize synergies with its potash operations at the Dead Sea.
ICL is a global leader in providing phosphate-based solutions to the Industrial, Food and Agriculture end-markets. ICL’s strategy is to continue to outgrow these markets by increasingly focusing on specialty phosphate solutions and further promoting commercial excellence and value-based product positioning, while enhancing customer relationships. Leveraging on its backward integration into the phosphate resources of ICL Rotem in Israel and YPH in China. ICL continues to optimize its production capabilities to support growth and margin expansion of its specialty phosphate products and solutions.
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Innovative Ag Solutions
ICL is striving to create global leadership for Innovative Ag solutions by enhancing its global positions in its core markets of Specialty Agriculture, Ornamental Horticulture, Turf and Landscaping, targeting high growth markets such as Latin America, India and China. By leveraging its unique R&D capabilities, as well as seeking M&A opportunities, ICL is working to expand its broad product portfolio of Controlled Release Fertilizers (CRF), Water Soluble Fertilizers (WSF), Liquid Fertilizers, Slow Release Fertilizers (SRF) and Straights (MAP/MKP/Pekacid), to further boost growth. ICL is also developing a service portfolio focused on creating global and regional Agro-professional based solutions, leveraging digital innovation.
ICL fosters a “Business Culture of Leadership”, which focuses on business leadership, by creating a leading and sustainable work environment, with strong commitment to all stakeholders. Culture at ICL, means placing safety as the company’s top priority and making every effort and investment to achieve top safety results. Culture at ICL, also means operating with a clear commitment to the environment, even beyond regulatory compliance. ICL strives to be an “Employer of Choice” by strengthening the company’s value proposition to employees and by promoting ICL’s core values. ICL also fosters an innovation-driven culture that leverages its technology and know-how, to better serve its customers and increase their loyalty. To ensure we live up to our values, culture at ICL also means accountability, transparency and top-tier corporate governance.
ICL’s growth initiatives will be supported by our strong financial position. ICL is focused on maintaining a solid its capital structure and generating funds for future growth, by maintaining its financial leverage at investment grade levels and improving the maturity profile, optimizing capital expenditures and working capital, implementing cost reductions and divesting low‑synergy assets.
We are a leading multinational company that operates mainly in the areas of fertilizers and specialty chemicals, through four segments – Industrial Products, Potash, Phosphate Solutions and Innovative Ag Solutions.
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Industrial Products Segment
The Industrial Products segment produces bromine out of a solution that is a by‑product of the potash production process in Sodom, Israel, as well as bromine‑based compounds. Industrial Products uses most of the bromine it produces for self‑production of bromine compounds at its production sites in Israel, the Netherlands and China. In addition, the Industrial Products segment produces several grades of potash, salt, magnesium chloride and magnesia products. Industrial Products is also engaged in the production and marketing of phosphorous-based flame retardants and additional phosphorus‑based products.
In 2019, the total sales of the Industrial Products segment totaled $1,318 million (including sales to other segments), constituting approximately 25% of ICL’s total sales, an increase of 2% compared to 2018. The segment's operating profit totaled $338 million, constituting approximately 45% of the total operating profit attributable to the segments, an increase of 13% compared to 2018. For additional information see “Item 5 - Operating and Financial Review and Prospects— A. Operating Results— Results of Operations”.
Industrial Products focuses on three main sub-business lines:
Flame retardants – bromine, phosphorus and magnesium-based flame retardants are used in electronics, building and construction, automotive, textile and furnishing applications. Flame retardants are added to plastics, textiles and other combustible materials to inhibit or delay fire or flames and to prevent the spread of fire.
Industrial solutions – elemental bromine has a range of uses in the chemical industry, while bromine and phosphorous compounds are used in a number of industries worldwide, such as: rubber, pharmaceuticals, electricity, agro and polyester (in production of plastic fabrics and bottles). Clear brine fluids are used for balancing pressure in the oil and gas drilling industry. In addition, this sub-business line includes bromine‑based biocides used for treating industrial water.
Specialty minerals – specialty minerals include magnesia and salt products. The main applications of magnesia products are food and pharma, oil and fuel additives, catalysts and many other small applications. The salts include sodium chloride, magnesium chloride and KCl which are mainly used for the food industry, deicing (MgCl2) and various industrial applications. Due to the uniqueness and high quality/purity of our products, most of our sales are to niche markets.
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The following table sets forth the principal products of the Industrial Products segment, as well as their primary applications and end‑markets:
Bromine-, Phosphorus- and magnesium Based Flame Retardants
Additives used in plastic, building materials and textile production
Electronics, automotive, building and construction, furniture and textiles
Tire manufacturing, pharmaceuticals and agro
Phosphorus-Based Industrial Compounds
Fire resistant fluids in turbines & power generation hydraulic systems and phosphorus-based inorganic intermediates
Power plants and agro
Organic Bromine Compounds
Insecticides, solvents for chemical synthesis and chemical intermediates
Pharmaceuticals and agro
Oil and gas drillings
Oil and gas
Mercury emission control
Emission control in coal‑fired power plants
Water treatment and disinfection
Swimming pools, cooling towers, paper plants and oil and gas drillings
Pharma and food, transformer steel, catalysts, fuel and oil additives.
Food additives, multivitamins, transformer steel, automotive rubber and plastic, health care
Solid MgCl2, KCl
Deicing, food, oil drilling, pharma
Deicing, sodium replacement, KCl for drugs. multivitamins, oil drilling companies, small industrial niche markets
Industrial Products also develops innovative products and new applications for existing products. The new products introduced in recent years include, among others, FR122P flame retardant (a polymeric bromine‑based flame retardant used in insulation material in the construction industry), TexFRon® 4002 (a polymeric flame retardant product for textiles), bromine compounds for energy storage (a wide range of products used in bromine-based flow batteries), VeriQuel™R100 (a phosphorus-based reactive flame retardant for rigid polyisocyanurate and polyurethane spray foam), VeriQuel F series (flexible halogen free active flame retardants for flexible polyurethane), CareMag D (a new natural raw material for deodorants), PolyQuel® P100 (polymeric phosphorus‑based flame retardant for high end epoxy printed circuit boards) and Phosphorus Acid of 80%, which enables customers to improve productivity and yield.
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The Industrial Products segment's major manufacturing facilities are located in Israel (production of bromine, bromine compounds, magnesia and salts products), the Netherlands (bromine compounds), Germany (phosphorus compounds), France (magnesia and calcium carbonate based products), the United States (phosphorus compounds) and China (bromine compounds).
The Industrial Products segment's principal manufacturing plants and marketing companies are set forth in the map below:
In 2019, ICL produced approximately 180 thousand tonnes of elemental bromine out of potential annual maximum production capacity of approximately 280 thousand tonnes. Approximately 75% of the elemental bromine produced is used internally for the production of bromine compounds.
During 2019, ICL's elemental bromine production was negatively impacted as a result of the antidumping petition against ICL's magnesium business in the U.S. (resolved in December 2019) resulted in lower magnesium production, impacting elemental bromine production due to lower chlorine availability. In addition, during the fourth quarter of 2019 production of elemental bromine was negatively impacted by the shutdown for upgrade at ICL's Dead Sea facilities. Nevertheless, the annual bromine production in 2019 was higher than in 2018.
ICL Industrial Products is the world's largest manufacturer of elemental bromine. Based on internal estimates, ICL and its two main competitors, Albemarle and Lanxess, accounted for the majority of the worldwide production of bromine in 2019. Chinese and Indian production accounted for most of the remainder of the global production from various different sources, including, from brine produced from wells, seawater and desalinization plants. In recent years, Chinese authorities have been gearing-up their enforcement of regulations regarding safety and ecology in the local bromine industry. During 2017-2018, the MEP (Ministry of Environmental Protection) performed inspections in the province of Shandong (main Bromine production area in China). As a result of the inspections, producers are required to execute large investments in order to meet the ecological requirements. Due to these regulations, favorable conditions were developed in the Chinese bromine and bromine compounds market. The reduction of produced volume by Chinese local manufacturers continued throughout 2019. Imports of Bromine and Bromine compounds to China have increased.
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Lanxess and Albemarle produce bromine primarily from underground brine sources in the United States. Albemarle also has a joint venture with a Jordanian company for the production of bromine and bromine compounds which is located on the Jordanian side of the Dead Sea sharing the same source of raw materials with ICL. Lanxess purchases bromine and some other bromine compounds from the Industrial Products segment under a long‑term contract.
The main barrier to entry into the bromine and bromine compound market is access to an economically viable source of bromine having a sufficiently high concentration. In addition, the bromine business requires a complex logistics system, including special containers (isotanks) for transporting the bromine. The need for the logistics system is a barrier to entry of competitors into the global bromine trade.
In the phosphorus‑based flame retardants market, competition is mainly from Chinese manufacturers operating in the local market and in markets outside China, mainly Europe and the United States. The Chinese manufacturers have access to a source of high‑quality, low‑cost phosphorus, which improves their capacity to compete in this market.
The segment benefits from the following competitive advantages:
The Dead Sea operations offer the world’s highest bromine concentration. As a result, the segment's relatively low production cost of elemental bromine gives it a competitive advantage. An additional competitive advantage derives from ICL’s complex logistic system, which includes isotanks fleet, which is the largest in the world. In addition, the segment has a widespread worldwide marketing, sales and supply chain network and a range of high‑quality products, combined with a technical support system that works closely with customers, providing a good competitive position in its target markets.
Raw Materials and Suppliers
The principal raw materials used by the Industrial Products segment for the manufacture of the end products are bromine, chlorine, phosphorus and magnesia. The production process also uses significant amounts of water and energy. The Company produces a significant portion of its raw materials through the Dead Sea minerals extraction operations. For further information on the extraction operations, see “Item 4 - Information on the Company— D. Property, Plant and Equipment— Mineral Extraction and Mining Operations”.
Bromine is produced from the end brines (salt solutions) that are a by‑product of the process of production of potash. The brine is pumped into ICL Industrial Products’ plant in Sodom, where bromine is produced in an oxidation process using chlorine and steam.
Chlorine is produced by electrolysis of sodium chloride and as a by‑product of the metal magnesium production process of Dead Sea Magnesium Ltd. (“Dead Sea Magnesium”). The electrolysis facility and the magnesium plant are located next to the bromine facility in Sodom. The sodium chloride used in the electrolysis process is also a by‑product of the potash production in Sodom.
Industrial Products’ uses elemental bromine to manufacture bromine compounds at its facilities in Israel, the Netherlands, and China. The rest of the bromine is sold to third parties. Most bromine compounds are manufactured by a chemical process involving bromine together with a range of other raw materials, of which the largest are Bisphenol A, which is used to manufacture the bromine‑based flame retardant TBBA. Furthermore, the Industrial Products segment purchases many other raw materials that are required for production of its various products.
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The following is a graphic representation of the production process.
Elemental phosphorus (P4) is produced in a roasting process from ores originating in Central Asia (Kazakhstan), the United States and China. The Industrial Products segment uses elemental phosphorus to produce phosphorus compounds at its factories (mainly phosphorous-based flame retardants). The basic phosphorus compound, POCl3, is manufactured in a chemical process that combines phosphorus, chlorine and oxygen. The reaction of this compound with a variety of other raw materials (such as propylene oxide) creates the commercial phosphorus compounds.
Following is a graphic representation of the production process:
Industrial Products uses magnesium chloride to manufacture magnesia products and MgCl2 flakes and pellets at its facilities in Israel. In addition, The Industrial Products segment uses KCl from the Potash segment to manufacture pure and industrial grades of KCl.
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Following is a graphic representation of the production process:
Industrial Products maintains raw‑material inventories in quantities that take into account the projected level of production based on consumption, supply dates, distance from the supplier, and other operational and logistical considerations.
Sales, Marketing and Distribution
Industrial Products’ principal markets are the United States, western Europe, China, Japan, and Taiwan. Industrial Products sells its products primarily through a network of marketing companies, while a smaller part of sales is conducted through agents and distributors throughout the world. Commissions are paid to agents as is customary in the sector. Approximately half of our sales in the Industrial Products segment are conducted via long‑term agreements with an initial term of one year or more. Nevertheless, the Industrial Products segment also sell it products via current orders close to the date of supply.
Industrial Products’ policy is to maintain adequate inventory levels, which varies from product to product, in order to ensure orderly supply to customers in light of the customers’ distance from the production centers and their demand for inventory availability, while optimizing the inventory storage costs. Therefore, portions of finished product inventories are held in storage facilities in the destination countries.
Industrial Products extends credit terms to its customers according to its credit policy. Sales are generally covered by trade credit risk insurance or by letters of credit from banks with high credit ratings.
During 2019, ICL announced it has signed several strategic agreements with customers in Asia and as a result, will increase its annual bromine compounds capacity and its bromine isotank fleet. ICL expects to invest approximately $50 million for these capacity expansions and anticipates that they will generate additional annual revenues of up to $110 million, beginning in 2021.
Industrial Products’ operations are not characterized by seasonal fluctuations. However, sales of some of its products fluctuate between the various seasons. Agricultural products are characterized by relatively high sales in the second and third quarters. Biocides for swimming pools are characterized by relatively lower sales in the fourth quarter. MgCl2 for de‑icing are characterized by relatively higher sales in the first and fourth quarters. The aggregate impact of these diverse seasonal differences on the Industrial Products segment is not significant.
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Natural Resources Tax
The Law for Taxation of Profits from Natural Resources entered into effect on January 1, 2016. For additional information, see Note 16 to our Audited Financial Statements.
The Potash segment produces and sells mainly potash, salt, Polysulphate®, magnesium and electricity. Potash is produced in Israel and Spain, using an evaporation process to extract potash from the Dead Sea in Israel and conventional mining from an underground mine in Spain. In its ICL Boulby mine in the UK, the Company produces Polysulphate®, which is composed of sulphur, potash, calcium and magnesium. The Company's FertilizerpluS product line is based mainly on Polysulphate®. The segment also includes magnesium activity under which it produces, markets and sells pure magnesium and magnesium alloys, and also produces chlorine and sylvinite. In addition, the segment sells salt that is produced in its potash and Polysulphate® underground mines in Spain and the UK, respectively. The Company has a power plant in Sodom, which supplies electricity to ICL companies in Israel (electricity surplus is sold to external customers) and steam to all facilities in the Sodom site.
In 2019, the total sales of the Potash segment were $1,494 million (including sales to other segments), constituting approximately 28% of ICL's total sales, a decrease of 8% compared to 2018. The segment's operating profit totaled $289 million, constituting approximately 38% of the total operating profit attributable to the segments, a decrease of 8% compared to 2018. For additional information, see “Item 5 - Operating and Financial Review and Prospects— A. Operating Results— Results of Operations”.
Potash is the common name for potassium chloride, which is the most common source of potassium for plants, one of the three essential nutrients for plant development, which assists in protection of plants from diseases and damaging agents, helps them to adapt to different weather conditions, regulates the water level in the plant, strengthens the plant stems and strengthens the plant's ability to absorb nourishing substances. ICL sells potash for direct application as a fertilizer and to compound fertilizer manufacturers.
Potash is produced from the Dead Sea and from underground mines in Spain. The potash production process in Israel is based on extracting carnallite. The carnallite, which is a compound of potassium chloride and magnesium chloride mixed with table salt, precipitates in some of the largest solar evaporation ponds in the world, which contain brines drawn from the Dead Sea. The carnallite is transferred to the plants where a chemical and physical process breaks down the carnallite crystal into potash using two distinct parallel technologies, cold crystallization and hot leach. Potash production in Spain is carried out in underground mines extracting sylvinite, a mixture of potash (KCl) and salt (NaCl) with varying potash concentrations. The potash is separated from the salt by a flotation process in the production plants situated near the mines.
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The principal production facilities of the Potash business include its plants in Israel and Spain.
The manufacturing plants, distribution centers and marketing companies of the Potash business are set forth in the map below:
In 2019, the Potash business produced approximately 4.2 million tonnes of potash. The potential annual production capacity of potash is about 5 million tonnes. The potential production capacity of our various plants is based on the hourly output of the plants, multiplied by potential hours of operation per year. This calculation assumes continuous production over the year, 24 hours a day, with the exception of a few days for planned maintenance and renovations. Actual production is usually lower than the potential production capacity due to unexpected breakdowns, special maintenance operations, non‑availability of raw materials and market conditions.
In December 2019, an annual upgrade was completed in ICL's Dead Sea facilities, which is expected to enable increased production.
Production-related developments throughout the Potash business:
The new power station in Sodom, which became operational during 2018, supplies electricity and steam required to support the production of ICL's plants at the Sodom site and sells its surplus electricity to other ICL companies and to external customers via the national grid in Israel. In 2019, the new power station continued to reduce energy costs. Due to its full natural gas operation, high efficiency and advanced pollution reduction technologies, the new plant also allows for significant reductions in direct air emissions and is expected to reduce ICL's greenhouse gas emissions. For more information regarding the new power station and the settlement agreement signed with the former contracting company Abengoa of the new power station, see “Item 4 - Information on the Company— D. Property, Plant and Equipment— Mineral Extraction and Mining Operations” and Note 19 to our Audited Financial Statements.
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During the fourth quarter of 2019, production at ICL Dead Sea was curtailed for almost one month to allow for a facilities upgrade which is expected to enable increased production in the following years. The project was successfully completed and though the shutdown had a negative impact on the Potash segment results in the fourth quarter of 2019, following a ramp-up period, production increased in early 2020.
The Company is in the process of consolidating the activities of ICL Iberia into one site by means of expanding the Suria production site (which includes a mine and a plant) and discontinuing the mining activities at the Sallent site.
As part of the above-mentioned consolidation process, the Company is building an access tunnel to the Cabanasses mine (Suria), expanding the production capacity and compaction of potash, and constructed a plant for production of vacuum salt. The Company estimates that implementation of these actions will reduce expenses and contribute to streamlining, which will reduce potash production costs and contribute to alignment of the production activities with advanced environmental standards. The access tunnel is expected to be operational towards the end of 2020.
In 2015, AkzoNobel (AkzoNobel Industrial Chemicals B.V.) and ICL Iberia signed a partnership agreement for production and marketing of high quality vacuum salt and pure potash. High purity vacuum salt is used in a variety of applications in various industries, such as the chemicals industry (for instance in electrochemical companies), the leather and textile industries, the food and feed industries, and water treatment applications. Pursuant to this agreement, subject to certain conditions, ICL constructed a vacuum salt manufacturing facility on its mining site in Suria, which commenced operation in the third quarter of 2018.
This partnership agreement provides a specific deadline (July 1, 2018) by which certain condition precedent had to be fulfilled. Since such condition precedent was not met by the agreed deadline, the Company formally informed AkzoNobel that, the agreement had to be deemed automatically terminated once that deadline passed. The Company will continue to supply salt to AkzoNobel until July 2020 pursuant to the supply agreements, which remain in force. Following correspondence between AkzoNobel and the Company, in which AkzoNobel challenged the automatic termination of the agreement, in August 2018, AkzoNobel commenced arbitration proceeding according to the agreement between the parties. For additional information regarding the arbitration proceeding, see Note 19 to our Annual Financial Statements.
The production of potash in Spain is expected to be about 1 million tonnes per year and to reach a level of up to about 1.3 million tonnes per year in the future after completion of additional necessary adjustments in the production facilities. In addition, in Spain, the Company is in the process of setting up a new designated facility in the Barcelona port that will replace the current facility. The new facility will allow the Company to significantly increase its annual loading capacity (both potash and salt) and is expected to be operational in the first quarter of 2020.
The salt produced as part of the potash production process is being treated mainly by a collector from the Company's sites in Suria and Sallent through Manresa to the sea. In 2015, Generalitat Catalunya launched a new project to build a new brine collector from Abrera up to Suria and Sallent. The collector will be constructed and operated by Generalitat Catalunya. The new collector will allow to secure the future operation of the Company's production sites and enable it to increase the capacity and to improve the existing salt treatment of ICL. The Company is negotiating with the authorities regarding the new collector's financial and operational terms.
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The potash market is characterized by a relatively small number of manufacturers, some of which export jointly. See“Item 3 - Key Information— D. Risk Factors— Our operations and sales are exposed to volatility in the supply and demand, mergers of key producers\customers\suppliers, expansion of production capacity and competition from some of the world’s largest chemical and mining companies”. The ability to compete in the potash market is dependent mainly on production costs and logistic capabilities. Moreover, there are high entry barriers for new players due to the significant investment and length of time required to establish potash operations. In addition, this industry requires appropriate concessions and proximity of production facilities to the mines.
The current significant competitors of ICL in the international trade of the potash market are Nutrien (Canada), Uralkali (Russia), Mosaic (USA), Belaruskali (Belarus), K+S (Germany), QSL (China), APC (Jordan), EuroChem (Russia) and SQM (Chile).
The Company believes its potash business benefits from the following competitive advantages:
The relatively low average cost of potash production at the Dead Sea by using the sun as a solar energy source in the evaporation process.
Logistical advantages due to its geographical location, access to nearby ports in Israel and Europe and relative proximity to its customers, which are reflected in particularly competitive marine and overland shipping costs and delivery times.
Climate advantages due to the hot and dry climate of the Dead Sea that enable the Company to store, at very low cost, a large quantity of potash in an open area thereby allowing it to constantly produce at Sodom at full capacity, independent of fluctuations in global potash demand.
Our mine in Spain is one of the last mines in Western Europe.
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Raw Materials and Suppliers
The Potash segment produces potash in Israel and Spain. Potash does not require additional chemical conversion to be used as a plant‑nutrient fertilizer.
The other primary utilities used by ICL in order to support the potash production are natural gas, electricity, industrial water and neutralization materials.
Sales, Marketing and Distribution
The primary markets of the Potash business are Europe, Brazil, China and India. The Potash business sells its fertilizers products primarily via a network of its own sales offices as well as sales through agents throughout the world.
Most of the potash sales are not made by means of contracts or long‑term orders but, rather, through current orders proximate to the supply date (except for annual agreements with customers in India and China). Accordingly, the Potash segment does not have a significant orders' backlog.
In the Indian and Chinese markets, it is customary to carry on protracted negotiations regarding the potash contracts, part of which with commercial entities related to the governments of those countries. In other markets, potash is usually imported by a larger number of customers. In these markets, the Company has trade relations with most of the major customers.
The prices of potash are determined in negotiations between the manufacturers and the customers and are affected mainly by the relationship between the market demand, the available supply and the outstanding inventories among suppliers and customers, at that date as well as the size of the customer and period of the agreement. Prices for relatively long‑term contracts are not necessarily similar to the “SPOT” prices (current/casual sale transactions).
In December 2018, ICL signed for the first time a five-year potash supply agreement with Indian Potash Limited ("IPL"), India's largest importer of potash. According to the agreement, ICL is expected to supply IPL with 600 thousand tonnes per year in 2019 and 2020, increasing to 650 thousand tonnes per year in 2021-2023 (including optional quantities). Prices will be determined in accordance with the prevailing market prices in India at the relevant date of supply. On October 2019, Uralkali (Russia) and Belaruskali (Belarus) signed new potash supply contracts with IPL, at a price that reflects a decrease of $10 per tonne from the 2018/2019 contracts. Following this, ICL signed an agreement with IPL to update the price accordingly, for all shipments from October 2019 to March 2020, which are expected to be in line with its five-year supply agreement.
The Potash segment grants credit terms to its clients according to customary practices in their locations. The segment's credit sales are generally covered by trade credit risk insurance or by letters of credit from banks with high credit ratings.
The Potash business transports potash from Israel to customers overseas by ships (mainly in bulk) that it leases in the market and loads using designated facilities in the ports of Ashdod on the Mediterranean Sea and Eilat on the Red Sea. The Potash business also has designated facilities for bulk loading at ports in Barcelona (Spain) and Teesside (UK). In Israel, short mine-to-port distances and shorter shipping routes to emerging markets grants the Potash business a significant and a unique advantage over its main competitors. For information regarding the new designated facility in the Barcelona port, see “Item 4 – Information on the Company— D. Property, Plant and Equipment— Logistics".
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The seasonal nature of the demand for the Potash business’s products gives rise generally to quarterly sales fluctuations, as sales levels in the second and third quarters are generally higher than sales in the first and fourth quarters. In recent years, due to various influences on the timing of sales, primarily price fluctuations and the effects of negotiations in China and India and changes in the timing of fertilizer imports to Brazil, the effects of seasonality explained above have been reduced as compared to earlier periods. In the years 2016 to 2018, the delay in signing of the contracts with the Chinese and Indian customers caused a situation wherein the total sales in the second half of the year were higher than in the first half of the year, while in 2019 there were no sales to China since September due to the Chinese decision to halt potash imports in light of high levels of potash inventory domestically.
Natural Resources Tax
The Law for Taxation of Profits from Natural Resources, entered into effect on January 1, 2016, except with respect to the Potash operations at the ICL Dead Sea regarding which the effective date was January 1, 2017. For additional information, see Note 16 to our Audited Financial Statements.
The Potash segment produces and sells additional products, including Polysulphate®, magnesium-based products, salt produced in underground mines in UK and Spain, electricity surplus produced in Israel and others.
FertilizerpluS is ICL's premium fertilizers line, based mainly on polyhalite (marketed by the Company as Polysulphate®) and other products. FertilizerpluS products, which include different compounds of phosphorus, sulphur, potassium, magnesium and calcium, are tailored for various types of soil and wide range of crops, intended to enhance crops, improve yields and increase fertilizer efficiency. ICL produces and markets its FertilizerpluS products through both the Potash and the Phosphate Solutions segments. See below a list of products that included in the FertilizerpluS line.
Polyhalite is a mineral that is exclusively mined by ICL through the Potash segment in an underground mine in the UK (ICL Boulby) and is marketed under the brand name Polysulphate®. Polysulphate® is used in its natural form as a fully soluble and natural fertilizer, which is also used for organic agriculture and as a raw material for production of fertilizers. Polysulphate® is composed of sulphur (SO3 48%), potash (K2O 14%), calcium (CaO 17%) and magnesium (MgO 6%), which are essential components for improvement of crops and agricultural products. Polysulphate® is the basis for many of the Company's FertilizerpluS products.
The Company sees the Polysulphate® as a unique product for ICL and is synergistic with the Company’s other raw materials for purposes of development of downstream products. In order to develop downstream products, the Company is acting to expand the Polysulphate® market by means of, among other things, development of a wide variety of innovative Polysulphate®-based products.
In 2019, ICL's total sales of FertilizerpluS amounted to $160 million (including sales of the Potash and the Phosphate Solutions segments), constituting 3% of ICL's total sales.
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The Company believes that the FertilizerpluS product line benefits from the following competitive advantages:
Currently, ICL is the sole producer of Polysulphate® worldwide.
The ability to increase production at a relatively low capital expenditure.
The Polysulphate® and Polysulphate®-based fertilizers, customized to meet the needs of different crops and soil types, maximize yield and allow more precise and efficient applications.
Polysulphate® contributes to and follows the main market trends in the fields of increased nutrient-use efficiency, low carbon footprint and organic fertilizers.
Following are several examples of Polysulphate®-based products and additional products that are included in the FertilizerpluS line:
PotashpluS – a compressed mixture of Polysulphate® and potash. The product includes potassium, sulphur, calcium and magnesium and is marketed by the Potash segment. In 2019, the Company made a significant sales rump up and plans a further quantity increase in 2020.
PKpluS – a unique combination of phosphate, potash and Polysulphate®. In 2019, the Company, through the Phosphate Solutions segment, increased significantly PKpluS sales and plans to continue with this trend in 2020.
NovaPhos – ensures an effective supply of slow-release phosphorus, calcium, magnesium and micronutrients for crops, specifically tailored for use in acidic soil.
NPS – a nitrogen-phosphate fertilizer compounded with sulphur, which provides exceptional effectiveness for the enhancement of a wide range of crops through the combination of these three nutrients in one product.
PK+Micronutrients – a tailor-made fertilizer, with precise micronutrient composition for the specific type of crop.
PKpluS, NovaPhos, NPS and PK+Micronutrients are marketed by the Phosphate Solutions segment.
In 2019, the Company produced approximately 635 thousand tonnes of Polysulphate®. The production of Polysulphate® in UK is in the ramp-up stages and is expected to reach full production capacity towards the end of 2023. The current annual potential production capacity of Polysulphate® is above 1 million tonnes. The potential production capacity is based on the hourly output of the plants, multiplied by potential hours of operation per year. This calculation assumes continuous production over the year, 24 hours a day, with the exception of a few days for planned maintenance and renovations. Actual production is usually lower than the potential production capacity due to unexpected breakdowns, special maintenance operations, non‑availability of raw materials and market conditions.
As of the date of this report, ICL's Boulby mine, located in North Yorkshire in the UK is the sole producer of Polysulphate® worldwide. However, a new potential producer, holds a concession to develop a polyhalite mine with a capacity of up to 20 million tonnes per year, in the same area of the Boulby mine. After failing to raise the funds required for the start of the development and as its cash resources were quickly depleting, this producer announced it is reviewing its strategy. After the date of the report, in early January 2020, another mining company announced it was in advanced discussions to buy this new potential producer. If the development of the new mine materializes, ICL will cease to be the sole producer of Polysulphate®, and will not be the market leader, which is inconsistent with the Company's strategy to obtain leadership positions in all its activities. ICL is constantly monitoring the competitive environment and will continue to seek ways to adhere with its strategy.
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The Potash segment includes magnesium activities, operated by Dead Sea Magnesium Ltd., which is the second largest magnesium producer in the western world after the US magnesium producer “US Magnesium LLC”. The magnesium business produces, markets and sells pure magnesium and magnesium alloys, and also produces dry carnallite, chlorine and sylvinite.
Magnesium is considered to be the lightest structural metal. One of the main characteristics of magnesium is a higher strength-to‑weight ratio compared with other metals – mainly steel and aluminum. The main uses of magnesium are in the following industrial sectors: the aluminum sector, steel sector, and the casting sector of parts made of magnesium alloys (mainly for uses in the vehicle industry).
Production of the magnesium is based on the carnallite gathered from the Dead Sea and acquired from ICL Dead Sea. During the electrolysis process, the magnesium chloride present in the carnallite is separated into metal magnesium and chlorine gas.
In 2019, the Potash segment produced approximately 21 thousand tonnes of magnesium. The current annual potential production capacity of the magnesium facilities is 24 thousand tonnes of metal magnesium. The actual quantity of the magnesium produced depends on the demand for chlorine (used in the production of bromine) and, therefore, it is possible that the actual production will be lower than the production capacity. Additional factors that can reduce the actual production are unexpected breakdowns, special maintenance operations, non‑availability of raw materials and market conditions. The potential production capacity of our various plants is based on the hourly output of the plants, multiplied by potential hours of operation per year. This calculation assumes continuous production over the year, 24 hours a day.
In October 2018, a petition was filed to the International Trade Administration of the US Department of Commerce (the Commerce Department) and the US International Trade Commission (ITC) by a US Magnesium company, to impose antidumping and countervailing duties on imports of magnesium from Israel. In December 2019, the ITC unanimously resolved that no material injury or threat of injury has been caused to the magnesium industry in the US by imports of magnesium from Israel. The said ITC decision brings to an end the administrative investigation against the import of magnesium products and also cancels the customs duty rates set by the Commerce Department. For more information, see Note 19 to our Annual Financial Statements and “Item 3 - Key Information— D. Risk Factors— Sales of our magnesium products are affected by various factors that are not within our control, including developments in the end markets of magnesium, legislative changes, recession or economic slowdown, changes in currency exchange rates, antidumping and countervailing duties”.
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Phosphate Solutions Segment
The Phosphate Solutions segment is based on a phosphate value chain which uses phosphate commodity products, such as phosphate rock and fertilizer-grade phosphoric acid (“green phosphoric acid”), to produce specialty products with higher added value. The segment also produces and markets phosphate-based fertilizers. The strategy of the segment is to be a leading provider of value added specialty solutions based on phosphate for the industrial, food and agriculture markets.
Phosphate Solutions: Backward Integrated Value Chain
In 2019, the total sales of the Phosphate Solutions segment were $1,980 million (including sales to other segments), constituting approximately 38% of ICL's total sales, a decrease of 6% compared to 2018. Total sales of Phosphate Specialties in 2019 were $1,111 million, reflecting a decrease of 7% compared to 2018. Total sales of Phosphate Commodities in 2019 were $869 million, reflecting a decrease of 4% compared to 2018. The segment operating profit totaled $100 million, constituting approximately 13% of the total operating profit attributable to the segments, a decrease of 12% compared to 2018. The operating profit of Phosphate Specialties in 2019 totaled $102 million, reflecting a decrease of 13% compared to 2018. The operating loss of Phosphate Commodities in 2019 totaled $2 million, $2 million lower than the $4 million operating loss in 2018. For additional information, see “Item 5 - Operating and Financial Review and Prospects— A. Operating Results— Results of Operations”.
The Phosphate Solutions segment produces a variety of products based on its backward integrated value chain.
Phosphate rock contains phosphorus, one of the three essential nutrients for plant development, which directly contributes to a wide range of physiological processes in a plant, including production of sugars (including starch), photosynthesis and energy transfer. Phosphorus strengthens plant stems, stimulates root development, promotes flower formation and accelerates crop development. Phosphate rock can be utilized for the production of phosphoric acid and can be sold as a raw material to other fertilizer producers. Our phosphate rock is mined and processed from open pit mines and undergoes a beneficiation process, after which high‑grade, multi‑purpose phosphate products are received.
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Green phosphoric acid is produced by using beneficiated rock and sulphuric acid (produced by the segment, by using sulphur acquired from third parties). Most of the green phosphoric acid is used to produce phosphate-based fertilizers and pure phosphoric acid, and in some cases is sold to external costumers.
Phosphate fertilizers are produced by using green phosphoric acid or sulphuric acid, depending on the fertilizer type. The segment manufactures various types of fertilizers (PK products, GSSP, GTSP and others) for different uses.
The segment manufactures pure phosphoric acid by purifying green phosphoric acid. Pure phosphoric acid and green phosphoric acid are used to manufacture downstream products with high added value, such as phosphate salts and acids for a wide range of food and industrial applications. Phosphate salts and acids are used in various industrial end markets, such as oral care, cleaning products, paints and coatings, water treatment, asphalt modification, construction, metal treatment and more. The segment's products for the food industry include functional food ingredients and phosphate additives, which provide texture and stability solutions for processed meat, meat alternatives, poultry, seafood, dairy, beverage and baked goods.
In addition, the segment supplies pure phosphoric acid to ICL’s specialty fertilizers business, produces milk proteins and whey proteins for the food ingredients industry and offers spices and spice blends for the processed meat and poultry industries.
In 2019, ICL introduced its Rovitaris® alternative protein technology for the meat alternatives market. ROVITARIS® is a proprietary technology developed by ICL, that supports the production of allergen free plant-based food. For more information, see "Item 5 – Operating and Financial Review and Prospects – C. Research and Development, Patents and Licenses, etc. – Research and Development".
In addition, the Phosphate Solutions segment, together with the Potash segment, produces and markets FertilizerpluS products. FertilizerpluS is ICL's premium fertilizers line, based mainly on polyhalite (marketed by the Company as Polysulphate®) and other products. For more information, see “Item 4 - Information on the Company— B. Business Overview— Potash Segment”.
Phosphate Solutions segment has a developed production setup from phosphate rock mining, along with production and purchase of different grades of phosphoric acid, and up to production of specialties products and commodities in different facilities around the world.
Phosphate rock is mined and processed from open pit mines, three of which are located in the Negev Desert in Israel while the fourth is situated in Yunnan province in China. Phosphate Solutions segment produces sulphuric acid, green phosphoric acid and phosphate fertilizers at its facilities in Israel and in China. The segment also operates facilities for the production of phosphate fertilizers in the Netherlands and Germany, as well as animal‑feed additives facilities in Turkey. The segment's specialty products are manufactured in its facilities in Germany, the United States, Israel, Brazil, China, UK, Argentina and Australia. These facilities enable the segment to produce customer-specific solutions meeting the requirement of the different markets. Additionally, the segment produces milk and whey proteins for the food ingredients industry in its facility in Austria.
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The Phosphate Solutions segment's principal manufacturing plants, distribution centers and marketing companies are set forth in the map below:
The current annual potential production capacity is as follows: approximately 6.7 million tonnes of phosphate rock (including 2.2 million tonnes of YPH's production capacity), approximately 2.7 million tonnes of phosphate fertilizers (including 0.9 million tonnes of YPH's production capacity), approximately 1.3 million tonnes of green phosphoric acid (including 0.7 million tonnes of YPH's production capacity), approximately 345 thousand tonnes of purified phosphoric acid (as Phosphorus Pentoxide, including 64 thousand tonnes of YPH's production capacity) and approximately 385 thousand tonnes of phosphate salts (including 52 thousand tonnes of YPH's production capacity). The potential production capacity of the various plants is based on the hourly output of the plants multiplied by the potential hours of operation per year. This calculation assumes continuous production over the year, 24 hours per day, with the exception of a few days for planned maintenance and renovations. Actual production is usually lower than potential production capacity, due to unexpected breakdowns, special maintenance operations, availability of raw materials and market conditions.
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In 2019, Phosphate Solutions segment produced approximately: 4,331 thousand tonnes of phosphate rock, 1,204 thousand tonnes of green phosphoric acid, 2,286 thousand tonnes of phosphate fertilizers, 254 thousand tonnes of pure phosphoric acid (as Phosphorus Pentoxide), 267 thousand tonnes of phosphate salts and 72 thousand tonnes of food multi-blends.
Production-related developments throughout the segment:
Due to the weak global phosphate rock demand and prices, ICL Rotem curtailed production in its Zin plant at the end of the third quarter of 2019 for three months. The plant resumed operation towards the end of 2019.
YPH, the joint venture in China, improves the competitiveness and flexibility of ICL’s phosphate activities, as a result of access to phosphate rock with extensive reserves. The joint manufacturing platform includes activities over the entire value chain. The performance of YPH JV significantly improved during 2019, mainly due to reduction in costs.
In December 2019, ICL launched its new food-grade phosphoric acid plant in the YPH JV in China. The plant will add an additional 70 thousand tonnes of food grade acid capacity to the existing 60 thousand tonnes of technical-grade acid capacity and is scheduled to produce commercial quantities in 2020. The new plant is expected to strengthen ICL Phosphate specialty operations and enable the diversification into higher value-added products.
Sales of YPH in 2019 amounted to $349 million, which comprised from $124 million of green phosphoric acid, $116 million of phosphate fertilizers, $38 million of purified phosphoric acid and $33 million of specialty fertilizers products, and other products. Total sales of ICL to customers in China in 2019 amounted to $802 million.
In 2019, the Company optimized its production structure in the Americas by closing the production facility in Mexico and continued the business by transferring the production to the Phosphate Specialty facilities in San Jose dos Campos (Brazil) and Carondelet (US).
Both fertilizer facilities in Europe, ICL Germany Ludwigshafen and ICL The Netherlands, successfully increased the utilization of Polysulphate® within a new range of PK products, which are part of the FertilizerpluS product line. For more information, see “Item 4 - Information on the Company— B. Business Overview— Potash Segment”.
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The competitive characteristics of the segment vary according to the type of products it manufactures and the markets in which they are sold.
The commodity phosphates market is extremely competitive, and the competitors include multi‑national companies and government‑owned companies. Many producers operate in this market and the main competitive factor is price. The ability to compete in the market is dependent mainly on raw material costs, production costs and logistics. For this reason, companies located in proximity to sources of raw materials, ports, and customers, benefit from competitive advantages. A key factor in the area of raw materials (in addition to phosphate rock) is the accessibility to and the price of the sulphur and ammonia required to manufacture the main phosphate fertilizers. Additional factors that affect competition to a certain extent include product quality, range of products, service and the capability to develop new products that provide unique solutions.
Phosphate mines and production facilities are located in many countries, including Morocco, which possess the world’s largest phosphate rock reserves, Saudi Arabia, China, Russia, the United States, Brazil, Tunisia, Jordan, Senegal, Israel and others. The main phosphate producers who compete with ICL are: Office Chérifien des Phosphates (OCP, from Morocco), Mosaic (US and its part in the Wa'ad Al-Shamal JV), Ma'aden (Saudi Arabia), Groupe Chimique Tunisien (GCT), Agropolychim, (Bulgaria), Lebanon Chemical Company, Jordan Phosphate Mines Co (JPMC), Jordan India Fertilizer Company (JIFCO), Nutrien (Canada), Industries Chimiques du Senegal (ICS) and other various Russian and Chinese producers. According to CRU (Phosphate rock Market Outlook, November 2019), in 2019 China owned 36% of the global phosphate rock production capacity.
Phosphate Solutions segment has a global leading position in the pure phosphoric acid market based on its in-house technology and its downstream products, as well as in the food-grade phosphates and dairy proteins markets. The segment's competitors are large and mid-sized international companies serving the chemical and food industries, which carry on manufacturing and marketing activities in various countries, as well as local companies serving local markets.
The primary competitors of the segment in the chemical and food fields are Chemische Fabrik Budenheim KG, Innophos Inc., Prayon S.A, Nutrien, Adithya Birla, Haifa Chemicals Ltd., FOSFA and various Chinese producers.
Significant competitors exist in the dairy protein field, including Bayrische Milchindustrie, Arla, Fonterra, Milei, Lactoprot and Sachsenmilch. Competitiveness is primarily determined by product quality, access to raw materials, supply chain capabilities and technical know‑how.
Phosphate Solutions segment benefits from the following competitive advantages:
An integrated value chain uses the phosphate rock mined in Israel (ICL Rotem) as well as in China (YPH JV) for the production of its green phosphoric acid, which serves mainly as a raw material for the production of the segment's products and for the production of ICL's specialty fertilizers business products.
Logistical advantages due to the segment's geographical location and diversification, close proximity to ports in Israel and Europe and relative proximity to its customers.
ICL is a global fertilizer producer that is able to combine potash and phosphate fertilizers in the same shipment, which enables it to service smaller customers, particularly in Brazil and the United States.
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The segment enjoys a competitive advantage in the specialty phosphates field deriving from product features, quality, service, technical application support, a global manufacturing footprint and a very broad product line.
The YPH JV provides an integrative phosphate platform in China with better access to the Chinese market. In addition, the segment enjoys a competitive cost advantage with respect to its phosphate activities due to access to low‑cost phosphate rock with long‑term reserves. In 2019 the JV constructed a food-grade phosphoric acid facility, which is scheduled to produce commercial quantities in 2020.
Raw Materials and Suppliers
Phosphate Solutions segment produces most of the raw materials it uses for the production of its commodities and specialties products.
The segment produces phosphate rock as the primary raw material for its backward integrated value chain, commencing from mining of phosphate rock, through production of green phosphoric acid and up to the production of phosphate-based fertilizers, pure phosphoric acid and specialty phosphates.
The primary raw materials acquired from external sources are mainly sulphur, ammonia, different grades of pure phosphoric acid and caustic soda.
For information regarding the sulphur prices during 2019, see “Item 5 - Operating and Financial Review and Prospects— A. Operating Results— Trends Affecting Phosphate Solutions”.
For the dairy protein business, securing organic quality raw materials (whole milk, skimmed milk and whey) is a key element of the operations. In order to secure the supply, there are long term agreements in place with all major suppliers, which are valid for the next 1–3 years.
Phosphate Solutions segment maintains inventories of sulphur, phosphate rock, green phosphoric acid and other raw materials in quantities that take into account the projected level of production based on consumption characteristics, supply times, distance from suppliers and other logistical considerations.
Sales, Marketing and Distribution
The Phosphate Solutions segment sells and markets its products worldwide. The primary markets of phosphate commodities products are Europe, China, Brazil, Israel, the United States and Turkey. Phosphate specialties products are primarily marketed to industrial, food and commercial customers in Europe, North America, Asia and South America. The marketing network is based mainly on an extensive internal marketing and sales organization and, to a lesser extent, on external distributors and sales agents.
The Phosphate Solutions segment extends credit terms to its customers according to the customary practice in their locations. The segment's sales are generally covered by trade credit risk insurance or by letters of credit from banks with high credit ratings.
Most of the segment's sales do not take place according to long‑term orders or contracts but are regularly ordered close to the time of supply. Accordingly, there is no significant orders' backlog.
The Phosphate Solutions segment ships its products from Israel to customers overseas by ships (mainly in bulk) that it leases in the global marine transportation market, which are loaded by using designated facilities in the ports of Ashdod on the Mediterranean Sea and Eilat on the Red Sea. The segment also has special port facilities for bulk loading in Amsterdam (the Netherlands) and Ludwigshafen (Germany). YPH JV sells most of its products in China and is preparing to provide a logistical solution to marine shipping outside China when it will be required.
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The prices of phosphate-based fertilizers are determined in negotiations between the manufacturers and the customers and are affected mainly by the relationship between the market demand and the available supply at that date as well as the size of the customer and the period of the agreement. Prices for relatively long‑term contracts are not necessarily similar to spot prices (current/casual sales transactions).
Most sales of the phosphate specialties products are made under agreements with terms of one or two years, or through “spot” orders placed close to the date of supply. In addition, for these products framework agreements with specific customers exist, through which the customer may purchase up to agreed maximum quantities of products during the term, on the basis of which the customer issues purchase orders from time to time.
For purposes of marketing and selling many of its products effectively, especially food products, technical sales and applications personnel work closely with customers in order to tailor the products to the customers’ needs.
The strategy regarding phosphate specialties products is to maintain adequate inventories to ensure orderly supply to customers in light of the customers’ distance from the manufacturing locations and their demand for inventory availability, in conjunction with optimization of inventory storage costs. Therefore, portions of the finished product inventories are held in storage facilities in the destination countries.
The seasonal nature of demand for phosphate commodities products is usually characterized by higher sales in the second and third quarters than sales in the first and fourth quarters. In recent years, due to various influences on the timing of sales, primarily price fluctuations, the effects of seasonality have been reduced as compared to earlier periods.
The target markets of phosphate specialties products are not characterized by significant seasonality. However, the fourth quarter of the year is relatively weak due to the holiday season and customers’ destocking towards the end of the year.
Natural Resources Tax
The Law for Taxation of Profits from Natural Resources, which entered into effect on January 1, 2016. For additional information, see Note 16 to our Audited Financial Statements.
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Innovative Ag Solutions Segment
The Innovative Ag Solutions segment aims to achieve global leadership in specialty agriculture markets by enhancing its global positions in its core markets of specialty agriculture, ornamental horticulture, turf and landscaping, targeting high-growth markets such as Brazil, India and China, by leveraging its unique R&D capabilities, vast agronomic experience, global footprint, backward integration to potash and phosphate and chemistry know-how, as well as seeking M&A opportunities. ICL is working to expand its broad product portfolio of controlled release fertilizers (CRF), water soluble fertilizers (WSF), liquid fertilizers and straights (MKP/MAP/PeKacid).
The Innovative Ag Solutions segment develops, manufactures, markets and sells fertilizers that are based primarily on nitrogen, potash (potassium chloride) and phosphate. It produces water soluble specialty fertilizers in Belgium, liquid fertilizers and soluble fertilizers in Israel and Spain, and controlled‑release fertilizers in the Netherlands and the United States. ICL's specialty fertilizers business markets its products worldwide, mainly in Europe, Asia, North America, Brazil and Israel.
In 2019, sales of the Innovative Ag Solutions segment totaled $717 million (including sales to other segments), constituting approximately 14% of ICL's total sales, a decrease of 3% compared to 2018. The segment's operating profit totaled $21 million, constituting 3% of the total operating profit attributable to the segments, a decrease $8 million compared to 2018. For additional information, see “Item 5 - Operating and Financial Review and Prospects— A. Operating Results— Results of Operations”.
Specialty fertilizers offer improved value to the grower compared to the use of regular fertilizers as they are more efficient, maximize yield and quality and require lower labor costs. The following pyramid presents the different fertilizer product lines – the high‑value products are usually accompanied by a higher price per tonne. ICL's Innovative Ag Solutions segment produces most of the high value products, except for potassium nitrate and calcium nitrate.
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The Specialty Fertilizers business operates in 2 main markets:
This market includes high-value agricultural crops such as fruits and vegetables. Enhanced efficiency fertilizers are used and applied mainly to these crops. The use of specialty fertilizers in row crops such as sugar cane, corn and wheat can also be beneficial – subject to climate and soil conditions. One of the main markets for ICL is related to the drip irrigation/fertigation market, which is growing as the use of drip irrigation systems is growing across the globe, mainly in the emerging markets, such as China and India. The use of enhanced efficiency fertilizers such as controlled release fertilizers is growing due to their environmental and economic advantages, although such growth is still dependent on the price levels of crops and raw-material prices (e.g., urea, potassium and phosphorus).
Turf & Ornamental (T&O)
The Ornamental Horticulture market consists of growers of outdoor ornamental plants (nurseries) and pot and bedding plants (greenhouses). The growers require high quality fertilization programs to grow plants at the quality level required by the garden centers, DIY (Do‑It‑Yourself) outlets and retail chains. The IAS segment has a large specialized sales force, advising growers on the optimal nutrition of the plants. ICL has a specialized distributor network in the Ornamental Horticulture market. ICL's main product lines for this market are CRFs (controlled release fertilizers) and WSFs (water soluble fertilizers) with well-known brand names such as Osmocote, Peters & Universol. In specific markets, such as North America and the UK, a range of unique plant protection products is also included in the proposals for growing healthy plants. In the UK, ICL is a leading growing media supplier providing a total solution for the ornamental growers.
Turf & Landscape
The professional turf market includes the following user groups: golf courses green keepers, sport field grounds men, landscapers, contractors & lawn service
These groups demand high-quality inputs to secure strong, high-quality turf. The users require an integrated approach for keeping the turf strong and maintaining its health, without creating an environment that is conducive to the development of disease. There is an environmental need to limit the inputs and, therefore, an integrated approach of unique, high-quality products is needed. The most important inputs are controlled release- and slow release fertilizers, grass seeds and plant protection products. ICL offers all three product lines in an integrated program. ICL has a dedicated and experienced team of unique professional grass experts, along with a distribution network serving its key markets, mainly in Europe and Asia.
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Specialty fertilizers are highly effective fertilizers that allow more precise feeding of plants for their major nutrients needs (nitrogen, phosphorous and potassium) as well as secondary nutrients and micronutrients. These fertilizers allow efficient fertilizing through special applications among others, through drip irrigation systems and foliar spraying, and help growers obtain higher yields and quality. These fertilizers include, among others, controlled release fertilizers (CRF), slow release fertilizers (SRF), soluble fertilizers and liquid fertilizers as follows:
Controlled‑release fertilizers (CRF) allow accurate release of nutrients over time. CRFs have a special coating that allows prolonged release of nutrients over several weeks and up to 18 months - compared to regular fertilizers that dissolve in the soil and are immediately available but therefore leach partially in the soil. ICL Innovative Ag Solutions has leading global brand-name products such as, Osmocote, Agroblen and Agrocote. Osmocote is the most used controlled‑release fertilizers by ornamental growers worldwide. The brand is known to deliver high quality ornamental plants due to its consistent release of nutrients and unique patterned and programmed release technologies. ICL continues to invest in new technologies as well as field trials to test and confirm the high reliability of its products. During the past few years, ICL developed several new technologies such as the “Dual Coating Technology” (which optimizes the release to ornamental plants) and the “E-Max Release Technology” (a new coating technology with improved release characteristics, mainly for urea). Furthermore, ICL is also selling slow‑release fertilizers (SRF) which, due to their low solubility and hydrolysis, release nutrients slowly (generally up to a period of two months). Main markets for this fertilizers are in the Turf and Amenity markets.
Soluble fertilizers, which are fully water‑soluble, and fully‑soluble NPK compound fertilizers, are commonly used for fertilization through drip irrigation systems to optimize fertilizer efficiency in the root zone to maximize yields. These fully soluble fertilizers are sometimes also used for foliar applications. ICL's well-known brands for fertigation are Peters, Universol, Agrolution, NovaNPK and Novacid. ICL develops specific formulations for different applications and circumstances. There are specific formulations for specific crops, greenhouses and/or open fields, as well as for different water types.
ICL is also selling ‘Straight fertilizers’ which are crystalline, free‑flowing and high purity phosphorus soluble fertilizers such as MKP, MAP and PeKacid. Key brands are NovaPeak & NovaMAP. PeKacid is the only solid highly acidifying, water soluble fertigation product that contains both phosphorus and potassium. The product is ideal for specific water conditions where an acidifying effect is required as well as keeping the dripping lines clean.
Liquid fertilizers are used for intensive agriculture and are integrated in irrigation systems (mainly drip systems). The product line includes mostly tailor‑made formulations designed for specific soil & water/climate conditions and crop needs.
Peat, a growing medium for various crops, where generally controlled‑release fertilizers and plant‑protection products are mixed in. Specific formulations of growing media are designed for specific plant needs, such as greenhouse bedding plants and outdoor nurseries. A well-known ICL brand is the “Levington” brand. Inclusion of growing media products in the portfolio in the UK allows ICL to offer an effective total solution to its customers.
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Water conservation and soil conditioning products are new product lines developed by ICL's IAS segment. Water conservation products are used in professional turf to keep water in the root-zone. Key brands are H2Flo and H2Pro. These products significantly reduce irrigation requirements. This new technology is also used in agriculture to allow better water availability around the root-zone of the crops.
ICL Innovative Ag Solutions’ principal production facilities include its plants in Israel (special compound fertilizers, liquid fertilizers and soluble fertilizers), Spain (liquid fertilizers, and soluble NPK fertilizers), the United Kingdom (products for water conservation and peat incorporated in growing media), China (compound specialty fertilizers and soluble fertilizers), the Netherlands (controlled‑release fertilizers and fertilizer blends), Belgium (soluble NPK fertilizers) and the United States (controlled‑release fertilizers).
ICL Innovative Ag Solutions’ main manufacturing plants and marketing companies are set forth in the map below:
ICL Innovative Ag Solutions’ annual potential production capacity is approximately 300 thousand tonnes of soluble fertilizers, 450 thousand tonnes of liquid fertilizers, 125 thousand tonnes of controlled‑release fertilizers and 400 thousand m3 of growing media. The potential production capacity of our various plants is based on the hourly output of the plants, multiplied by potential hours of operation per year. This calculation assumes continuous production over the year, 24 hours a day, with the exception of a few days for planned maintenance and renovations. Actual production is usually lower than potential production capacity, due to special maintenance operations, lack of availability of raw materials, market conditions and seasonality in demand.
During 2019, ICL innovation Ag Solutions completed an expansion of the production capacity at our controlled-release fertilizers facility in the US.
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Specialty Fertilizers’ market size is estimated at approximately $13 billion per year, accounting for about 4% of the total fertilizers market. According to the Company's estimation, the market volume is growing at an average rate of about 4%-6% per year.
The Specialty Fertilizers market is diversified, with a few global companies and many small to medium-size local producers. The market operates mainly on a local basis and most producers sell their products in nearby territories rather than globally. ICL’s specialty fertilizers business may be considered one of the largest global players in the specialty fertilizers market with production plants in Israel, Netherlands, Belgium, Spain, the UK, the USA and China.
The Capex needed for new production capacities is not considered high compared to the commodity fertilizers market. Nevertheless, in order for a new player to enter this market with different product groups, extensive knowledge is needed, both of chemical production and agronomical know-how, as well as customer support capabilities.
Besides ICL, other companies globally active in the specialty fertilizers market are: SQM, Yara, Haifa Chemicals and Compo. Other companies such as Nutrien and Koch (USA), Compass Minerals (USA & Brazil) and Kingenta (China) are more regional players.
ICL specialty fertilizers business benefits from the following competitive advantages:
A strong, efficient and integrated supply chain with in-house access to high quality raw materials, such as phosphate and potash, which is based on an extensive product portfolio and multi-location production.
Unique R&D and product development activities, creating a strong platform for future growth in controlled-release fertilizers, fertigation, foliar soluble fertilizers, enhanced nutrients, water efficiency and innovative next generation products.
Added value production process technology – custom-made formulations to meet our customers’ unique needs.
Highly skilled global agronomic sales team providing professional advice, consultation and distributor loyalty.
Full product portfolio (one-stop shop).
ICL’s well-known and leading brands.
Raw Materials and Suppliers
The primary raw materials acquired from external sources are mainly KNO3, SOP, ammonia, NPK granules, Urea, KOH and coating materials.
During 2019, the Company used isotanks to import ammonia for the production of required products and ammonia derivatives. Some of the products were produced based on importation of other alternative raw materials. During the year, imported ammonia costs slightly decreased, mainly by optimizing supplier portfolio and logistics.
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Innovative Ag Solutions endeavors to hold inventories of the above raw materials in quantities that take into account the projected level of production based on consumption characteristics, supply dates, distance from suppliers and other logistical considerations.
Sales, Marketing and Distribution
The primary markets of the Specialty Fertilizers business line are Europe, particularly Spain and Israel, USA, Asia, Australia and Brazil. The Specialty Fertilizers business line sells its fertilizer products primarily via a network of its own sales offices as well as distributers throughout the world.
In general, the business model relies on brand-name, premium specialty products which are marketed by a strong agronomist sales network at the end‑user level, while sales are invoiced through distributor-partners that distribute the products. The technical sales force emphasizes the agronomic advantages of the specialty products to the end users (farmers, growers of containerized plants, golf courses, etc.) and provides advice to and training of distributor sales representatives.
Most of the specialty fertilizers business sales are not made by means of contracts or long‑term orders but, rather, through current orders made close to the supply date. Accordingly, there is no significant orders’ backlog.
Prices are determined via negotiations between ICL and its customers and are affected mainly by the relationship between market demand and the business production cost, as well as by the size of the customer and terms of the agreement.
ICL Innovative Ag Solutions grants credit terms to its customers according to customary practices in their respective locations. ICL Innovative Ag Solutions credit sales are generally covered by trade credit risk insurance or by letters of credit from banks with high credit ratings.
The stronger sales season for Specialty Fertilizers is the first half of the year. The use and application of the fertilizers is related to the main growing seasons of the specialty crops around the globe. The main factors impacting seasonality are geographical location, type of crop, product and market.
As an example, some specialty products, such as soluble fertilizers in the Ornamental Horticulture market are sold and applied throughout the entire year with limited seasonality, whereas controlled release fertilizers are sold during the potting season of container nursery stock and pot‑plants (before spring time).
Business activities which include, among other things, ICL’s innovative arm, promoting innovation, developing new products and services as well as digital platforms and technological solutions for farmers and agronomists. These activities are not presented as reportable segments since they do not meet the required quantitative thresholds.
For additional information please see "Item 5 – Operating and Financial Review and Prospects – C. Research and Development, Patents and Licenses, etc. – Research and Development".
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Corporate Responsibility, Sustainability and Donations
The Company applies an overall policy of corporate responsibility and sustainability that seeks to integrate social, economic and environmental considerations into all of our business activities. This policy includes responsible management and continues improvement in all sustainability fields: reducing all types of environmental impact; responsible use of natural and land resources; climate change mitigation; promoting a circular economy; sustainable products and solutions; product stewardship throughout the entire product life cycle; health and safety; fair and diverse employment; business ethics; sustainable procurement; community engagement, social contribution and volunteering by employees; transparency and other fields. For additional details on our practices and performance in all sustainability fields, see “ICL Corporate Responsibility Report 2018” in our current report on Form 6-K (File no. 001-13742) furnished to the SEC on August 1, 2019. In addition, the Corporate Responsibility web-report (which constitutes the aforementioned report), is publicly available on ICL's website at www.icl-group.com. Neither such current report on Form 6-K nor our website are incorporated by reference into this Annual Report, and the reference to our website is intended to be an inactive textual reference and the information on, or accessible through, our website is not intended to be a part of this annual report.
ICL has a policy of involvement and investment in the society and the community, which was formulated and approved by its Board of Directors in 2001 and was revised in 2014. Each activity and donation is executed in accordance with the policy and is reviewed by the relevant authorized parties according to the type and amount of the donation.
ICL focuses its cooperation with the community and its involvement in the communities in and outside of Israel from which its employees come and within which it operates. ICL's main activities are in communities in Israel's southern region, namely: Dimona, Yerucham, Beer Sheva, and the Bedouin settlements in the South. ICL focuses its activities on life sustenance areas (e.g., the society, economy and environment), education and excellence of students in the science area (with emphasis on chemistry), strengthening of the local communities through performance of various social projects for the benefit of the local residents and support of underprivileged populations and those having special needs.
In addition, ICL supports the ongoing activities of “A Password for Each Student” in Israel, an initiative that provides basic and comprehensive solutions for the educational system, from the user, through the classroom, school and educational system, comprising a computerized community for the residents of the area. ICL’s support provides 15,000 students in the Negev with digital accessibility, tutorial assistance and accessibility to knowhow, learning processes and organization, as well as an ongoing contact between all program users, wherever they are located. ICL's board has approved a three-year commitment for the years 2018-2020. Total annual donation is NIS 3.5 million. The chairman of this project is Mr. Ehud Angel who serves as a chairman for no consideration. Mr. Ehud Angel indirectly holds in XT Holdings Inc., which is a stakeholder in Millennium Investment Elad Ltd., which is the controlling shareholder of IC, our parent company.
ICL’s donations in 2019 amounted to approximately $7.5 million (including the amount invested in the "Heritage site of the Israeli Potash Company"). In addition, during 2019 ICL has contributed, on the Company's expense, about 17,500 hours of volunteer work of its employees. This amount does not include about 20,000 hours of volunteer work after working hours, sponsored by ICL.
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Regulatory and Environmental, Health and Safety Matters
ICL is a mining and chemical company and as such, it is subject to various complex and strict environmental requirements under international and local laws, regulations and permits in every country we operate in. In order for ICL to operate and sell its products, all of the Company's activities and processes, including mineral extraction, production, distribution, marketing and use of products, must comply with these environmental requirements. These requirements include among other: product requirements, liquid and solid waste discharge, climate change and air quality, energy issues, land reclamation, hazardous substances and others. Furthermore, the Company is required to hold certain environmental permits and licenses, such as air emission, waste discharge permits and others, that aim to protect the health and safety of humans and the environment. In order to continue its operations, ICL must comply with the requirements and conditions of these permits and licenses and to remedy any discrepancies in case of deviations from such requirements and conditions.
In addition to the existing environmental regulations that may develop over time and become more stringent, the Company can become subject to new environmental regulations. New regulations and amendments, can be challenging and present uncertainty regarding the Company's ability to comply with them and the significant capital and operating costs that may be imposed on the Company. Adjusting Company's facilities, production processes and operations may be required, in order to comply with such requirements. In addition, in light of such new requirements, the Company may be required to obtain new permits and licenses in order to continue its operations. The Company is closely monitoring the development of any environmental requirements and evaluating the potential impact on its operations.
As a major producer of fertilizers and chemicals, ICL is responsible for manufacturing products that are part of the everyday life. Some of ICL's products, if not managed properly, are potentially harmful to the environment and to the health and safety of those who are exposed to them during their production, transportation, storage or use. This applies also to effluents, air emissions and waste that are generated during production of some of the products. These substances can cause pollution that necessitates remediation, clean up or other responsive actions. ICL's existing products undergo an evaluation process at every stage in their production process and supply chain and the Company makes an ongoing and consistent assessment of the risks of its new products prior to entering them into commerce. ICL invests resources to develop sufficient information and data with respect to its products in order to create a full characterization of their safety features with reference to human health hazards and environmental threats and takes actions to increase its positive impact and minimize any negative impacts.
In order to prevent potential occupational hazards that might occur during the Company's operations, and to ensure safe and healthy work environment, ICL seeks to comply with strict occupational safety and health standards prescribed by local and international laws and standards. The health of employees is checked regularly, and all required and agreed upon safety equipment is provided to our employees. ICL conducts regular monitoring of environmental and hygiene issues in the occupational work areas, as required by regulations and company procedures. In addition, ICL invests extensive resources in training and mentoring, as well as other safety measures, in order to continually improve occupational safety and health and prevent accidents. ICL is continuing to enhance its procedures and measures and aims to become a leader in safety and environmental performance.
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The Company routinely invests in capital projects in the areas of environmental protection, health and safety, and also incurs current costs in connection with these matters. In 2019, ICL spent approximately $110 million on environmental matters, of which approximately $50 million were capital projects in property, plant and equipment and approximately $60 million were current expenses. ICL is continuing to invest in order to reduce its impact on the environment. In order to comply with the Israeli Clean Air Law and the emission permits, over the next few years the Company will make significant capital investments in the areas of environmental protection. For more information, see “Item 3 - Key Information— D. Risk Factors— Securing the future of the phosphate mining operations at Rotem depends on obtaining several approvals and permits from the authorities in Israel”. The Company estimates that in 2020, it will spend approximately $130 million on environmental protection matters, of which approximately $70 million will be capital projects in property, plant and equipment while approximately $60 million on current expenses.
For more information, see “Item 3 - Key Information— D. Risk Factors— As a mining and industrial chemicals company, we are inherently, and by the nature of our activity, exposed to hazards relating to materials, processes, production and mining“ and “Item 3 - Key Information— D. Risk Factors— Accidents occurring during our industrial and mining operations and failure to ensure the safety of workers and processes, could adversely affect our business”.
Limitations, Regulation and Registration of our Products
As a global chemical company, ICL is subject to multiple rules and regulations in the area of product safety. ICL ensures that the chemical substances it produces and sells are handled in accordance with all such rules and regulations throughout their life cycle. Such rules and regulations, among other things, impose limitations on the use of specific substances and products, require to register and label some of our products and more. ICL continuously monitors these rules and regulations and takes necessary operational measures to ensure that it remains in material compliance with them.
New European Fertilizer Product Regulation
One of the future regulatory changes that might impact our products is the new European Fertilizer Product Regulation (FPR formally known as NFR), which was entered into force on July 2019 with the application date of July 2022. The FPR covers a broad scope of materials including all types of fertilizers, liming materials, biostimulants, growing media, soil improvers, inhibitors and other blends of these materials. The new regulation requires fertilizer producers to monitor new contaminating elements in fertilizer products and for this purpose, additional analytical and monitoring methods will be incorporated to comply. In addition, pursuant to FPR, fertilizer producers will have to demonstrate the ability to track their products to ensure the quality thereof in the production and supply chain. The labelling of fertilizer products will need to change and conformity assessment methodologies will need to be updated. Moreover, new tolerances levels for fertilizer contaminants are included in the FPR. One focus area is the level of cadmium for phosphate containing fertilizers. The current FPR version requires a maximum cadmium level of 60 mg/kg P2O5, which was the level supported by the majority of the European fertilizer industry. In addition, the FPR includes very challenging biodegradation requirements for the polymer coatings on controlled release fertilizers. If these requirements are not met until July 2026, it won't be possible to sell controlled release fertilizers using today's coatings as CE fertilizers and the impact on ICL could be considerable. ICL is undertaking steps to adjust to these new regulations for all relevant products.
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Limitations on the use of specific chemicals used as flame retardants, biocides and other uses
Below are details regarding the main proceedings known to the Company as of the date of this Annual Report:
European Ecodesign E-Display regulation published by the European Commission on December 5, 2019, is aiming to ban the use of halogenated flame retardants in electronic display enclosures (mainly used in large screen TVs) beginning in mid-2021.
We believe the regulation approval process involves major irregularities and ICL and BSEF (The International Bromine Council) are intending to appeal against the decision: (1) Contacting European members states to have the regulation corrected. (2) Preparing to file an appeal against the regulation. One of the arguments is that the EU already has a legislation addressing hazardous substances in electronic waste, named RoHS.
Tetrabromobisphenol A (TBBPA or TBBA) flame retardant, is under review as part of the Chemicals Regulation in Europe (REACH). The results of the review are expected in 2021. During 2018, TBBPA was nominated for review under the European directive on the restriction of the use of certain hazardous substances in electrical and electronic equipment (RoHS). The draft assessment was published on December 5, 2019 and was open for an eight-week consultation period. The draft report includes a proposal to restrict TBBPA for its additive uses in plastics for EE&E (Electric and Electronic Equipment). ICL reviewed the draft assessment with its scientific and technical experts and formally responded to the consultation in collaboration with other stakeholders.
Ammonium Bromide: Sweden has filed a dossier supporting proposed classification as reproductive toxin category 1B under the Classification, Labelling & Packaging (CLP) EU Regulation.
If the above-mentioned proposals will be accepted and become officially binding, we do not expect significant impact on ICL.
Additional specific products of the Industrial Products segment are in the process of evaluation under the Chemical Regulation in the EU (REACH). For some products, there are draft or final decisions by ECHA to perform more studies, a process that will take a few years until the evaluation is completed. Other products are in the process of evaluation under the Biocides Products Regulation (BPR).
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Chemicals Regulation and Registration
REACH - is a regulation setting up a framework for registration, evaluation, authorization and restriction of chemicals in the European Union, which became effective as of June 1, 2007 and is being implemented under the authority of the ECHA (European Chemicals Agency). The REACH covers chemicals not regulated under other specific regulations in the EU (e.g. pesticides, biocides, food, pharma, etc.).
All ICL segments are implementing REACH and are registering their chemicals as required by law. ICL has submitted applications for registrations for all the chemicals relevant for its businesses in EU (production and sale). As at the date of this Annual Report, there are several substances which are under evaluation by the Authorities (ECHA and a Member State), some of which have been listed as Substances of Very High Concern (SVHCs), which may result in various regulatory restrictions.
Apart from very significant costs of REACH implementation and development of new data in support of REACH registrations, there is a risk of removal of certain substances from the EU markets or prohibition of certain uses of a substance in the EU. However, this may enable the Company to introduce newly developed substances as alternatives to substances in products that will be restricted or removed from use in the EU markets. ICL is closely monitoring the regulatory developments, worldwide, in order to be ready on time with alternatives.
For more details, see “Item 4 - Information on the Company— B. Business Overview—Regulatory and Environmental, Health and Safety Matters — Limitations on the Use of Specific Chemicals Used as Flame Retardants, Biocides and Other Uses”.
CLP regulation (Classification, Labeling and Packaging of substances and mixtures) - CLP is another important regulation in the EU, where an outcome of a severe classification may have an impact on a specific product's market in the EU and even lead to additional implications outside of Europe.
The Toxic Substances Control Act of 1976 (TSCA), which was reformed in 2016, addresses the production, importation, use, and disposal of specific chemicals in the USA. The TSCA is administered by the US Environmental Protection Agency (EPA), which regulates the introduction of new and existing chemicals. Under TSCA, certain substances are prioritized by EPA for its risk assessment. EPA publishes projected timelines for prioritized substances and the risk evaluation process. ICL is closely monitoring these publications which might entail regulatory decisions on restrictions in order to be ready with comments and information, such as hazard and exposure data on ICL products.
In addition to the REACH requirements in EU, other countries, including South Korea, Turkey and EAEU (Eurasian Economic Union), have adopted or in the process of adoption of similar restrictive regulations to REACH, which may affect our ability to manufacture and sell certain products in this countries in the future.
On January 1, 2019 amendments to South Korea's version of REACH (known as K-REACH) entered into force. ICL has completed on time the notification process under K-REACH, which is a pre-requisite for the full registration (pre-registration phase), and it allows ICL the continuation of sales in South Korea during the transitional period, prior to registration. ICL is getting prepared for the registration stage starting in 2021 and per the schedule defined by K-REACH legislation.
In June 2017, Turkey's version of REACH, KKDIK Regulation, was published. ICL is working with Turkish service providers to initiate the regulatory process.
Eurasia REACH requires companies, manufacturing or importing substances and mixtures into the EAEU (Eurasian Economic Union) countries (Russia, Armenia, Belarus, Kazakhstan and Kyrgyzstan) at any tonnages to register these substances and mixtures. Although the requirement to notify of any such substances is on a voluntary basis, it is important for ICL to participate in this process in order to ensure that its relevant substances will be listed in the EAEU inventory. ICL is participating in the inventory build-up process and submitted relevant substances for inclusion by the Russian authorities.
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Climate Change and Greenhouse Gas Emissions
Climate change is of increasing concern to governments, non‑governmental organizations, and the general public. Increasing regulation of greenhouse gases (“GHGs”) could impact ICL’s operations by requiring changes to its production processes or increasing raw‑material, energy, production and transportation costs. As such, climate change considerations must be included in the strategy of companies such as ICL, as all climate-related risks and opportunities (physical, regulatory, market, and others) must be managed.
ICL is striving to become a leader in reduction of emissions, in general, and GHG emissions, in particular. The Company has therefore set a target of reducing 25% of the base year 2008 emissions, by 2022. ICL’s reduction efforts include a strategic conversion of its main plants to the use of natural gas, utilization of new technologies to reduce production emissions, and comprehensive energy efficiency initiatives. The combined result of these efforts has resulted in a 21% reduction in the GHG emissions of ICL between 2008 and 2018. This reduction constitutes 84% of our planned reduction target by 2022. It should be noted that excluding ICL’s acquisition of YPH JV, the Company has already surpassed it’s 25% reduction target.
The total ICL global GHG emissions for 2018 are 3,323,817 tonnes CO2e (Scope 1‑ 2,277,666 tonnes CO2e, Scope 2- 952,040 tonnes CO2e, Scope 3- 93,111 tonnes CO2e). The 2019 emissions will be finalized after the publication of this annual report. The Company currently expects a decrease in total emissions in 2019, with the first full-year regular operation of the new Sodom power plant, supplying less-carbon intense electricity to ICL's sites in Israel. Another reason for the expected reduction in 2019 is the voluntary transition undertaken through this year of several ICL sites in Europe to 100% renewable externally-supplied electricity. This transition was undertaken for ICL sites in the Netherlands (Amsterdam, Heerlen and Terneuzen), Germany (Ladenburg and Hemmingen) and Belgium (Grobbendonk). ICL Hartberg Austria has already been working with 100% renewable electricity and steam for several years. To further reduce GHG emissions, the Company plans to convert further ICL sites to renewable electricity in the upcoming years, and to also start establishing PV capacity (solar energy panel) in appropriate and available areas within ICL sites.
In addition, ICL promotes the development of new products that contribute to reduction of GHG emissions and up to now has analyzed the carbon footprint of over 60 of its products.
ICL annually reports its emissions data and its efforts in the climate change field to the CDP (Carbon Disclosure Project), a non-profit leading organization in the greenhouse gas (GHG) emissions reporting field. For its 2019 report, ICL has received a general CDP ranking of "A-", which is best among all Israel-based companies and tied for best among global fertilizer producers. This achievement recognizes ICL's advanced climate change management practices and successful endeavors to reduce GHG emissions. ICL has also received an 'A-' score in the sub‑ranking for Supplier Engagement Rating (CDP SER). This achievement was mostly possible due to the significant expansion in ICL’s sustainable procurement practices in recent years through the comprehensive TfS (Together for Sustainability) supplier engagement program. Our 2019 CDP report is publicly available on ICL's website at www.icl-group.com. The reference to our website is intended to be an inactive textual reference and the information on, or accessible through, our website is not intended to be part of this Annual Report.
For additional information regarding ICL's climate change related risk management and GHG emissions, see “Item 3 - Key Information— D. Risk Factors— Current and future laws and regulations regarding climate change and greenhouse gas (GHG) emissions, as well as the physical impacts of climate change, may affect our operations and businesses”.
European Plan for Trade in GHG Emissions
The European Union, as a party that signed the Kyoto Protocol (the framework treaty of the United Nations for dealing with climate changes), has agreed on a mandatory target for reducing the emissions of greenhouse gases. The main tool for achieving the reduction targets is the EU Emissions Trading Scheme (“ETS”), which was launched on January 1, 2005. In the first and second phases of the ETS, the European countries agreed that every industrial company that emits GHGs above the agreed minimum threshold is required to report its emissions and to limit them to the gradually decreasing periodic quota. In addition, companies were allowed to realize a monetary gain or benefit by trading and selling unused emission permits (or ‘carbon allowances’). The third phase of the ETS commenced on January 1, 2013 and will run up to December 31, 2020. This phase includes a further decrease in the free allocation of carbon allowances to all industrial companies. Three of ICL's sites in Europe (Boulby in the UK, Suria and Sallent in Spain) are currently participants in the ETS, and therefore receive annual carbon allowances ("EUA's") and are then obligated to emit up to the annual allowances and/or purchase extra EUA's. Unused allocated EUA's can be sold. ICL's participating sites have applied to be included in Phase IV of the EU ETS (2021 and onwards). However, ICL Boulby will be leaving the EU ETS at the end of 2020 due to the Brexit process. The UK is currently establishing its own Emissions Trading Scheme (UK ETS), which is expected to be similar in methodology to the EU-ETS. ICL is closely monitoring the developments and emission allocation policies of the ETS and is taking them into account when establishing/purchasing new sites in Europe and when considering potential significant expansions of existing sites.
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Through ICL's production processes, pollutants are emitted, which could be harmful to people or to the environment if they were to be emitted into the environment in concentrations or amounts exceeding the permitted levels. The materials emitted are mainly inorganic compounds and particles and a minority of volatile organic compounds. The Company regularly and continuously measures the emission of these pollutants in order to monitor and locate uncontrolled emissions, in accordance with the provisions of the law and the conditions set forth in the business licenses and emission permits. The Company is advancing execution of projects to reduce emissions into the atmosphere in accordance with the terms of the emission permits.
The Israeli Clean Air Law – Air Emission Permits
In Israel, air emissions are regulated under the Clean Air Law (hereinafter - the Law). The Law aims to improve air quality, to prevent and reduce air pollution by implementing both prohibitions and obligations, to protect the health and quality of life of human beings, as well as to protect the environment. The Law addresses, emission sources (including the Company’s plants) and is intended to serve as a platform for implementing the regulatory principles currently in place in the European Union (EU), specifically the principles of the IED (The Industrial Emissions Directive) that was adopted by the EU. The Law applies to all ICL's plants and production in Israel.
In order for an emission source to meet the conditions set by the Law, it must obtain an air emission permit issued by the Ministry of Environmental Protection (MoE). The air emission permits include provisions regarding the application of the Best Available Technology (BAT), as well as provisions with respect to monitoring, control and reporting to the MoE. The Company is also taking steps to implement a plan to address the requirements of the air emission permits in coordination with the MoE. As of the date of this Annual Report, all ICL’s plants in Israel have received air emission permits. In case of deviations from the emission permits conditions and failure to remedy such deviations, the Company might be subject to certain restrictions on our operations and significant capital investments might be imposed on us. ICL has invested significantly, and will continue to do so over the next few years, to comply with emission permits granted under the Law. As a result, some of ICL’s main air emissions have already decreased considerably, and further reductions are expected in the upcoming years.
Over the next few years, the Company will make additional measures and significant capital investments in order to comply with the emission permits received.
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Air quality at ICL's plants in Israel
ICL Rotem (Rotem) - In September 2016, plants at the Rotem site received an emission permit pursuant to the Law. The Company is striving to implement the requirements of the permit, through a multi-year plan which includes several significant reduction projects.
During 2017, the Company filed an appeal for changing 46 permit tasks. The MoE agreed to change 43 of them and a revised permit was received in July 2018. Until December 2018, the Company has completed 50 of the 180 specific tasks required by the Clean Air permit. In 2018, the Company conducted two risk assessments by external experts regarding the possibility to execute all the clean air tasks required by the emission permit as per their approved timeline. The risk assessments focused on the technical and safety considerations arising from implementation of a large number of parallel projects in an industrial site. The assessments indicated that there is no operational feasibility to implement the full requirements of the permit within the defined timeline, and accordingly the Company is unable to meet the timeline set in the current permit. In 2019, following discussions with the MoE, the MoE informed the Company that during the course of discussions to renew Rotem's emission permit, which currently remains unchanged, they will consider the safety constraints, the complexity and multiplicity of projects, as well as the Company's diligence to comply with the present permit conditions and their schedules, while prioritizing projects with significant environmental impact. The Company provided the MoE with its updated projects' outline, schedule and completion status. The Company continuously updates the MoE on its compliance with the updated projects’ outline.
During the years 2017-2019, ICL Rotem was summoned to several administrative hearings in the MoE, in connection with alleged violations of its emission permit. At the publication date of this report, no additional enforcement steps had been taken by the MoE. Nevertheless, ICL Rotem is taking action to address the above mentioned deviations as part of the multi-year plan, including the implementation of the provisions of the Law, in accordance with discussions with the MoE regarding the implementation of the Law.
During the years 2018 and 2019, both sulphuric acid plants in Rotem (plant 10 in 2018 and plant 11 in 2019) replaced and upgraded their catalyst systems in order to reduce SO2 emissions, by over 30%. These replacements have reduced overall SO2 emissions at Rotem by 50%. In addition and to further reduce emissions, in 2019 the site covered 4 green acid storage pools and 3 Isoamil recovery line were connected in the WPA plant. The site has installed in recent years on‑fence monitoring systems that report on-line parameters to the environmental authorities. The monitoring systems are in the final stage of receiving ISO 17025 permit. In addition, the Law has set new challenges regarding the liquid waste management and additional GHG emissions, which are related to some of the required new air emissions measures. In 2019, to meet these challenges, Rotem operated 6 pilots involving new technologies to reduce these impacts.
ICL Dead Sea (DSW) - The site operates three air quality monitoring stations that were renewed during 2019. The data is measured on a continuous basis and is automatically transmitted to the MoE and is accessible to the general public. In 2018, the new NG-based and highly efficient CHP (combined heat and power) plant in Sodom became fully operational. The plant now supplies the majority of electricity to all ICL Israel sites. The high efficiency of the new plant and its boilers have significantly reduced the site's Nitrogen Oxide emissions (despite the significant increase in natural gas combustion in the new plant, with the switch to self-produced electricity).
ICL Dead Sea Magnesium (DSM) - The site produces mainly inorganic emissions. Some of the exhaust stacks are monitored in accordance with the terms of the emission permits issued to the Company. On-site detectors send on‑line computerized warnings to the environmental authorities.
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In coordination with the MoE, the site has initiated a major project to install an additional system, aimed to reduce the PM (Particulate Matter) emissions from the main stack, the completion of which is expected in the coming years. The expected result will be a stable reduction, according to the requirements.
ICL Neot Hovav – The site operates advanced monitoring and detection methods to identify malfunctions and applies IED methodologies which provide guidance regarding all of the techniques for preventing and monitoring emissions into the environment. Investments were made to improve recycling and recovery and reduce emissions of solvents and other organic materials via activated carbon systems. The site also installed catalytic oxidizing technologies that reduce VOC (volatile organic compounds) emissions and complies with advanced values in accordance with the BAT (Best Available Technology). Absorption systems were installed/upgraded in the site's inorganic production systems. Filters were installed and upgraded of to prevent PM emissions from the solids’ handling systems. Sealing of diffused emissions in the loading and unloading areas was made. Ongoing work is being executed for the LDAR (Leak Detection and Repair) program – control and treatment of fugitive emissions with the assistance of a European external company.
ICL Periclase - The site is installing a new air emissions treatment facility for the Magnesia manufacturing process. In 2019 a success run was performed which meets the air emissions permit, and currently the installation of the new facility continues.
ICL Haifa (Fertilizers & Chemicals) - The site has converted to natural gas (from heavy fuel oil) during 2018, causing a significant reduction in NOx emissions. The site is also currently installing a new treatment equipment in its Nitrous Acid plant, aimed to reduce NOx and N2O emissions.
In Europe, emissions are regulated under the EU IED – Industrial Emission Directive. Preventive measures and Best Available Technology (BAT) are applied. These regulations are translated to national legislation. Emission limit values for relevant substances are included as part of the authority approvals. There are rules guaranteeing protection of air, soil and water. In Europe, relevant emissions control is conducted by authority inspection, through independent technical supervisory associations and by self-inspection. ICL plants are subject to the European SEVESO directive and conduct regular safety inspections and prepare reports.
Relevant potential sources for emissions are registered and controlled also by the authorities on a regular basis. If required, on-line-monitoring systems are installed. In addition, investments were made in the installation and upgrading of filter, separation and absorption systems in order to keep the air emission limits.
Air quality at ICL's plants in Europe
ICL Boulby – The site's air emissions are permitted under the Environmental Permitting Regulations (England and Wales) 2010 (as amended), and regulated by the Local Authority and the Environment Agency. As required within these permits, the emission sources are monitored both periodically and continuously, and results are reported as required by the regulators.
ICL Iberia (Suria and Sallent) - The sites' air emissions are permitted under the Environmental Impact Assessment approved by the Generalitat de Catalunya. In 2007, the sites adopted ISO 14001:2004, and in 2017 adopted ISO 14001:2015 which was renewed in 2019, both are part of the ISO 14001 global standard that sets out the criteria for an environmental management system. Moreover, in order to have a sustainable strategy based on environment, social and financial, these sites measure the carbon footprint according the standard ISO 14064-1:2012, that defines principles and requirements at the company's level for quantification and reporting of GHG emissions and removals, based on The Greenhouse Gas Protocol. Emission monitoring is conducted periodically according to the permits. The sites operate in compliance with their permits.
ICL Germany Bitterfeld and Ladenburg - In Germany emissions are regulated under the EU IED and the related German emission law. Preventive measures and Best Available Technology (BAT) are applied. Emission limit values for relevant substances are included as part of our authority approvals. The sites hold operational permits based on the “German Emission Control Act”. Emission monitoring is conducted periodically according to the permits. Most of the monitored emission points are equipped with emission control devices. Monitoring reports have consistently showed that the corresponding guideline levels are met at every emission point. In addition, the sites regularly perform functional tests of emission control devices in place, to identify possible malfunctions in its production units, as legally required. We are operating and comply with limit values. All requested controls and documentations are in place.
ICL Prolactal - In Austria, emissions are regulated under the EU IED and the related emission Austrian law. Preventive measures and Best Available Technology (BAT) are applied. Emission limit values, especially for dust emissions, are included as part of the authority approvals. The required controls and documentations are in place. In addition, in Austria, the regulation of food products falls under European Food laws which, among others, include hygiene regulations, as well as European regulations respecting organic products. Local food safety authorities regularly conduct inspections to ensure compliance with these regulations. Local veterinary authorities are part of such food safety authorities, as the production of animal source food or food ingredients must be approved by the said local authorities. In accordance with these regulations, the FSSC 22000 certification is implemented including the HACCP concept. As at the date of this Annual Report, we are in compliance with the relevant regulation.
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ICL France Scora - The site operates according to the work permit given by the French authorities (DREAL). Recent regulatory inspections have examined the site's cooling towers and have found no deviations.
ICL The Netherlands Terneuzen - Recent monitoring of emission levels were within the permit requirements. The operating permits will be updated in 2020. Local authorities have updated the list of ‘substances of very high concern’ (SVHC) for environmental issues. For the listed substances, minimization will be obligated. One such substance, Chrome 6, exists as part of the catalyst in the production equipment, used to purify the exhaust air of the plant. The site is searching for an alternative and is generally learning the subject in order to adapt to the new requirements.
Air emissions in the Americas are managed through operating permits issued by the relevant agency responsible for each individual site. In the United States, air permits are issued under the authority of the US EPA’s Clean Air Act. In Brazil, air emissions are managed under the site’s operation license issued by the Sao Paulo State environmental agency – CETESB.
Air pollution control equipment is employed throughout the region to ensure that ICL’s facilities comply with the emission parameters established by the regulators. Continued maintenance of pollution control equipment and improvement of control efficiencies is the focus.
Air quality at ICL's plants in the Americas
ICL US Lawrence, Carondelet and Hammond – Air emissions in the Americas are managed through operating permits issued by the relevant agency responsible for each individual site. In the United States, air permits are issued under the authority of the US EPA’s Clean Air Act.
Equipment is employed to ensure that we comply with the emission parameters established by the regulators. Relevant emissions and air pollution controls are in place.
ICL US Gallipolis Ferry Plant – The site operates under both a West Virginia Regulation 13 Permit, and a Federal US Title V permit. The facility operates in compliance with its permitted limits and is undergoing a ‘fugitive emissions’ reevaluation project, designated to spot focus areas for fugitive emission elimination.
ICL Brazil - In the state of Sao Paulo, where the two ICL plants (Sao Jose dos Campos and Cajati) in South America are located, the control of the emissions is made by CETESB, which is the state environmental agency, through the process of granting the operation license. According to the license requirements, the plants have a Monitoring Plan for Atmospheric Emissions and the results of the chimney sampling are presented to CETESB, with the comparative reports of the previous monitoring.
ICL China YPH - The 3C plant is tested once every six months by the Center for Environmental Protection regarding gas emissions. The site has adapted its facilities by means of installation of systems monitoring gas emissions in order to comply with local regulations and regulatory schemes. All YPH sites are in compliance with all the laws and regulations.
ICL China LYG - The site strictly implements the Measures for Pollutant Discharge Permitting Administration (for trial implementation) and other environmental protection laws and regulations, controlling the emission concentrations of corresponding pollutants from inorganic emission sources, meeting emission standards. The site installed online monitoring systems in its perimeter and on point VOC (volatile organic compound) emission sources in 2018 and 2019, according to requirements of the regulatory authorities. LDAR technology (leakage detection and repair) was adopted to repair or replace the leakage points for exceeding the standard every year, so as to reduce leakage emissions.
ICL China SBCL- the site has set up an alkali liquid environmental scrubbing tower, a solid environmental scrubbing tower and bag filter systems in accordance with regulatory requirements.
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The European Energy Efficiency Directive (EED)
The latest Energy Efficiency Directive of the European Union came into effect on December 4, 2012. The requirements in the Energy Efficiency Directive must be implemented by companies operating in the European Union. The Energy Efficiency Directive provides a joint framework to advance energy efficiency in the European Union in order to achieve the European Union’s energy goals by 2020. These goals include the reduction of GHG emissions by 20% compared with the levels in 1990, an increase in the rate of consumption of renewable energy sources to 20% of the total energy consumption and an improvement in energy efficiency by 20%. Accordingly, all countries that are members of the European Union are required to increase the efficiency of their energy consumption in all stages of the energy chain — conversion, transportation and final use. ICL is developing and adopting strategies and procedures at all of its European plants to comply with the local interpretations of the Directive.
Since 2010, ICL has been undertaking a strategic transition to increasingly use natural gas (NG) instead of ‘heavy’ fossil fuels (fuel oil, diesel and naphtha) to power its largest production plants in Israel. The transition is now near completion, and 95% (40/42) of ICL Israel’s main energy‑consuming installations were converted to NG. Currently, over 90% of the total remote fuel consumption of ICL Global facilities is derived from NG (compared to only about 25% pre‑transition). This transition has significantly reduced emissions of air pollutants (such as NOx and PM) in the area surrounding ICL facilities, improved the quality of the output, reduced maintenance expenses and has led to a significant monetary savings due to the transition from the use of more expensive fuels. The transition was also one of the main GHG reduction engines taken by the Company, as NG is less carbon-intense than ’heavy’ fossil fuels. In addition, the employment of new, more efficient NG-based CHP plants effectively reduces ICL's dependency on the purchase of more carbon-intense external electricity.
For more information, including details of the specific NG purchasing agreements undertaken by the Company, see Note 19 to our Audited Financial Statements.
Liquid, Solid Waste and Land Contamination
During the production processes at ICL’s facilities, industrial liquid and solid waste are produced. Storage, transportation, reuse and disposal of waste are generally regulated by governmental authorities in every country we operate in. Wastewater quality and quantity must comply with local regulations and with permits at relevant sites. The various production sites have adapted their treatment systems to the standards applicable to them. The Company tracks and manages all of its waste and takes various steps to reduce, to identify and to maximize potential reuse and recycling of relevant waste. Most of the waste is either directly treated by ICL or treated by an external certified vendor, with whom the disposal method is directly confirmed. In case of difficulties in reuse or disposal of waste generated in our facilities, interruptions or production stoppage might occur and significant costs might be imposed on us. For more information, see “Item 3 - Key Information— D. Risk Factors— Our ability to operate and/or expand our production and operating facilities worldwide is dependent on our receipt of, and compliance with, permits issued by governmental authorities. A decision by a government authority to deny any of our permit applications may impair the Company’s business and its operations”.
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All of the Company's plants in Israel have conducted historical land surveys, based on a demand received as part of the conditions for receipt of a business license regarding an integrated arrangement, submitted them to the Ministry of Environmental Protection and are awaiting the Ministry's instructions.
Liquid and solid waste treatment and land contamination at ICL's plants in Israel
ICL Rotem (Rotem) – The site is implementing a master plan for wastewater treatment with the principal goal of reducing effluent quantities, converting some effluents into products, wastewater recycling, reducing water consumption, treatment/neutralization of wastewater. and restoration of the wastewater ponds. The plan now includes additional wastewater streams, created by the air emission purification processes required by the Israeli Clean Air Law.
As part of the liquid and solid waste treatment, Rotem site is treating the gypsum waste by ponds and storage. In 2018, the new Pond 5 started to operate. The Company started reclamation planning for gypsum ponds 1 through 4 that were used by Rotem in the past. In 2019, the regional planning authority, after taking into account all environmental aspects, decided that long term gypsum storage will be set on the western side of road 258.
Gypsum that is created in the dry part of the production processes, is mostly stored in a large gypsum storage pile, in proximity of the site. Future expansions of the storage pile would need to be positioned on new protective infrastructure, according to current regulatory requirements. Another requirement is the establishment of restoration methodologies for these large storage piles. The site is making adjustments to comply with these requirements and is striving to find alternative uses for the gypsum with external industry partners.
In 2017, ICL Rotem experienced a significant environmental incident in which approximately 100,000 cubic meters of acidic phosphogypsum liquid were released into the surrounding environment as a result of a breach in the number 3 detainment pond. The liquid entered the nearby Ashalim Creek (Nahal Ashalim), which flows through an area designated as a nature reserve. The incident has since been under investigation led by Israel’s Ministry of Environmental Protection. The Company is taking intensive action to restore the Creek, in full cooperation with the relevant authorities. Following the incident, the INPA (Israel Nature and Parks Authority) closed the nature reserve to the public. During the 2018-2019 rainy season the Creek flowed vigorously with rainfall on several occasions. Findings of the monitoring program (operated by the Israeli authorities) indicated that pH levels in the water holes have returned to normal levels, and improvement in chemical and biological parameters has continued. Nonetheless, indications of the incident’s impact are still present along the Creek, and the environmental impact continues to be examined by the authorities. ICL conducted in 2019 a risk assessment process along the Creek, with leading experts in this field. The assessment was meant to assure that the Creek’s hiking trails can be reopened and do not pose risks to the returning hikers health, pending approval of reopening by the necessary authorities. The assessment was completed in late 2019 and the results were presented to the authorities. All risk levels were found to be acceptable. For additional information, see Note 19 to our Audited Financial Statements.
The site has also completed the implementation of a multi‑year master plan to prevent ground pollution by fuels or oils.
ICL Dead Sea (DSW) - Effluents are directed to the Dead Sea according to the requirements listed in the relevant permit, issued by the Ministry of Environmental Protection (valid up to 2024).
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Salt waste is transferred to a large salt open air depot, in proximity of the site. The open air depot's dimensions (height and area) are limited by statuary requirements. The site is examining alternatives for salt storage/treatment.
In addition, historical crude oil contamination has been found near the operational salt depot. The site has submitted a plan to the Ministry of Environmental Protection for treatment at the site and is awaiting the Ministry's instructions. Furthermore, a groundwater study in ICL Dead Sea’s old power station's contaminated fuel tank farm showed no groundwater contamination; however, soil rehabilitation is expected in the future. The site is currently establishing a new petrol/diesel station for local vehicles. A treatment plan will be undertaken for the soil at the old (and soon to be decommissioned) gas station.
ICL Neot Hovav - The site operates a designated installation for independent treatment of the sanitary effluents. The treated wastewater is sent as an input feed into the cooling towers. In addition, an installation was constructed for treating industrial wastewater, in accordance with the requirements of the plant’s business licenses. The treatment of the industrial wastewater includes a transmission system, a physicochemical unit, and a MBR (Membrane Bio Reactor) unit. All the site’s treated wastewater is flown into evaporation ponds, which were built in 2013 according to US standards, including advanced monitoring for leakage and air emissions. In addition, the site operates a special authorized laboratory for monitoring and analyzing wastewater quality.
Pursuant to the requirements of the Ministry of Environmental Protection, in the coming years the site is required to treat the existing hazardous waste (historical). This waste is stored on a designated defined area on the site's premises, in coordination with the Ministry of Environmental Protection. Some of the currently produced waste is also still stored in this area. The treatment is partly conducted through a combustion facility, which recovers hydro-bromine acid. Additional waste quantities will be sent to external designated treatment.
ICL Periclase - The site has a valid permit for discharging brine into the Dead Sea (valid up to 2021). The site has established a thickening and filtration facility to treat wastewater.
In 2019, approximatly 16 thousand tonnes of historic Magnesia waste, stored in a designated waste area, were successfully sent to re-usage in concrete production by an external industry partner. The Company is now examining the usage of the rest of this historic waste in production processes in Rotem.
ICL Haifa (Fertilizers & Chemicals) – In the site, several biological and other pilots were conducted to find possible solutions for compliance with the standards covering treatment of the facility’s wastewater flowing into the Kishon River, as directed by the Inbar Committee. After careful considerations, the solution that was chosen and approved by the authorities is to drill to the underground water zone in order to channel the treated wastewater into the underground water. The investment is expected to be carried out during 2020.
Liquid and solid waste and emissions are regulated under the European IED – Industrial Emission Directive. The Company implements waste monitoring and management measures, and is obligated to inform the authorities of the results. Wastewater regulations, including effluent limits, are regulated by states and partly by communities. ICL has provisions regarding the avoidance of pollution and conditions for assessing compliance with the emission limit values.
Wastewater is partly pretreated and sent to municipalities and third parties for final treatment before discharging or is at levels that it can be discharged to surface waters without treatment. The production processes, in general, are not generating significant volumes of direct solid waste. In case solid waste needs to be disposed of, the required documentation and approvals under the European regulations are fulfilled.
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Liquid and solid waste treatment and land contamination at ICL's plants in Europe
ICL Boulby - All wastewater leaving the site is permitted by the Environment Agency. The site's wastewater consists of extracted sea water, mine brine, gathered surface rainwater, and water treated on the on-site sewage plant. Multiple parameter limits are imposed upon the site by the wastewater permit, and no compliance breaches have occurred since the transition to producing Polysulphate®.
ICL Iberia - In Spain, a multi‑year program is underway to restore the large salt piles while paying close attention to the issue of wastewater drainage and sludge treatment. For additional information regarding the restoration plan in Spain, see Note 19 to our Audited Financial Statements.
ICL Germany Bitterfeld - There are three independent drainage systems on the site, transporting (separately) run-off water from non-hazardous areas; sanitary waste water which is routed directly to the chemical park’s waste water treatment (WWT) plant; and industrial wastewater from the production processes that is routed to the site's pre-treatment facility. Pre-treatment consists of heating and hydrolysis, after which, these effluents are also starred to the chemical park’s waste water treatment (WWT) plant. The discharge to the WWT is regulated by a designated permit (in terms of quantity and quality of wastewater). The site also operates a special authorized laboratory for monitoring and analyzing wastewater quality.
The site's wastes are handled according to operating procedures required by the ISO 14001 standard. Most of the hazardous waste relevant to the site are residues generated during phosphorus trichloride production and exhausted activated carbon (for off gas purification and product cleaning). A certified company has been contracted for waste disposal.
ICL Germany Ladenburg - Due to phosphate pollution in the subsoil of the site, the phosphate concentration is monitored at several wells and reported regularly to the authorities. There is no material risk related to the ground water monitoring and no additional environmental impact or costs are expected.
ICL France Scora - The site fulfils its commitments according to the work permit given by the French authorities (DREAL). Recent regulatory inspections of wastewater have shown no deviations from the permit requirements. The permit was modified by the authorities in October 2018. The modifications concern the quantity and quality of the output wastewater from the site, which are in compliance with the updated requirements.
ICL The Netherlands Terneuzen - the site's wastewater output is within the permit requirement.
The liquid and solid wastes in the Americas sites are managed under country and state specific regulatory requirements. In the US, solid and hazardous wastes are regulated under the US EPA’s Resource Conservation and Recovery Act. In Brazil, waste is managed under the site’s operation license issued by the Sao Paulo State environmental agency – CETESB.
ICL follows a qualification process for waste vendors, which assists in ensuring that waste is properly profiled, treatment standards are followed and disposal processes meet regulatory requirements. Wastewater is managed through site industrial discharge permits that are managed through federal, state or local agencies. Waste water treatment is mainly focused on chemical treatment. The wastewater treatment systems are maintained on a regular basis.
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Liquid and solid waste treatment and land contamination at ICL's plants in the Americas
ICL US Gallipolis Ferry - The site operates under a National Pollutant Discharge Elimination System (NPDES) Permit. The NPDES Permit regulates water discharge from point sources and is renewed every 5 years. The next renewal is in February 2022. The site operates a large Wastewater Treatment Plant (WWTP). The NPDES permit allows the site to discharge process wastewater, sanitary wastes, cooling water, groundwater, and non-process area stormwater. Discharge limitations are continually decreasing, which puts a strain on the treatment capabilities for some parameters being treated within the current WWTP. Therefore, the site is evaluating alternatives and improvements to the current treatment processes.
The site has been very active in pursuing recycling initiatives, which helped achieve a landfill to recycling ratio of 50%. Additionally, the facility has entered into a Voluntary Remediation Agreement (VRA) with the former owner of the facility, and the West Virginia Department of Environmental Protection (WVDEP). Per the agreement, sampling of various media, including surface water, sediment, subsurface soils, and groundwater were conducted throughout the site. The negatively impacted media were identified and mapped. The mapped areas have either been remediated or are currently in the process of remediation. These remedial activities, have included, capping certain areas throughout the facility, as well as the installation and operation of a groundwater recovery and treatment system. This system is allowing the Light-Non-Aqueous Phase Liquid (LNAPL) that is floating on top of the groundwater to be recovered. Per the sales agreement, these activities are being financed by the former property owner.
ICL China YPH - The Company has received a license for unloading contaminating materials and strict environmental licenses and it is in compliance with all the laws and regulations. Furthermore, annual land examinations are conducted in accordance with the regulatory requirements.
In order to comply with the local regulations, the YPH 3C site has installed systems for removal of wastewater and diversion thereof from clean water sources, including transferring phosphogypsum water (which is created as a by-product of the production processes) into designated ponds for further treatment. Since 2009, YPH has conducted a major project designed to eliminate all wastewater output. This “zero discharge” project has been achieved via cascade and grade utilization, recycling collection, reuse systems and other actions.
YPH is tested once every six months by the Center for Environmental Protection regarding gathering of solid waste and hazardous waste.
ICL China SBCL - The sites' discharge wastewater and the HCL solution from FR-1410 production, are delivered (by agreement) to an external industrial business partner, which uses it as raw materials for bromine production.
ICL China LYG - The site's sewage station was upgraded in 2018, significantly improving the efficiency of wastewater treatment. In 2019, the site purchased testing instruments for its characteristic pollutants laboratory, so as to enhance the Company’s ability to detect water pollutants and ensure the standard discharge of sewage. At the end of 2018, the Company set up a rainwater retention pond in accordance with the new environmental requirements and completed its open channel drainage project for rainwater in 2019.
The site operates under the requirements of the local city ecological environment department, among other requirements. In 2019, in line with these requirements, the site carried out improvement projects for gas waste collection, sewage treatment stations and its hazardous solid waste warehouses. Also, in 2019, the site transferred and disposed 50 tonnes of accumulated hazardous solid waste, successfully completing the waste reduction plan requested by the government.
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As part of ICL’s operations, it produces, stores, transports, and uses materials that are defined as hazardous materials according to the Israeli Hazardous Substances Law, 1993. Handling such substances requires a special permit ("poisons permit") that is renewed annually. All ICL companies have poisons permits as required by law and they operate according to the special conditions defined in these permits. Leakage or loss of control of these materials could cause an environmental incident and cause damage to people and/or to the environment. ICL takes measures to prevent such occurrences, and, at the same time, it prepares for such occurrences by means of emergency teams and appropriate equipment for dealing with these types of events.
Some of the substances used in ICL’s facilities in Europe (such as raw materials, etc.) are considered to be hazardous substances. Required approvals and registrations for these substances are acquired and maintained. Relevant safety measures and procedures for storage and handling are implemented and maintained. In addition to these measures, only qualified suppliers and transport companies are used, and qualification and training of employees are conducted on a regular basis. All requirements based on the GHS (Globally Harmonized System of Classification, Labelling and Packaging of Chemicals) are acquired and maintained.
Hazardous substances are utilized at ICL’s facilities in Americas as raw materials and can also be found as finished products. Where required, registrations for the storage, handling and transportation of these materials are acquired and maintained. Measures are taken to reduce the likelihood of releases of hazardous materials by way of supplier and transporter qualification, training of employees, contractors and vendors on the proper handling of these materials.
Business Licenses and Other Permits
Our sites in Israel have valid toxic substance permits under the Israeli Hazardous Materials Law, 1993. These permits were issued by the Ministry of Environmental Protection for a period of one year. Renewal of these permits is performed on an ongoing basis. The toxic substances permit includes conditions and requirements being managed by the Company at ongoing operation.
In addition, our sites in Israel obtain valid business licenses according to the Business Licensing Law, 1968.
Industrial Products plant in Neot Hovav discharges industrial wastewater into the evaporation ponds in accordance with the requirements of the plant’s business licenses.
Periclase plant in Mishor Rotem has a valid permit for discharging brine into the Dead Sea (valid up to 2021).
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ICL Haifa has a valid permit for discharging industrial wastewater into the Kishon River. ICL Haifa holds a permission to drill to the underground water in order to channel the treated wastewater into the underground water, a solution which is accepted by the authorities.
ICL Dead Sea has a valid permit for discharging industrial wastewater into the Dead Sea (valid up to 2024) under the Israeli Prevention of Sea Pollution from Land‑Based Sources Law, 1988.
The Ministry of Environmental Protection is expected to add further conditions regarding discharge of wastewater into the Dead Sea, as part of the terms of the business license. At this stage, it is not possible to estimate what the additional conditions will be or the impact thereof.
The companies also hold emissions permits under the Israeli Clean Air Law, 2008.
As part of the production process in Rotem Amfert Israel, the Company builds and operates ponds that accumulate phosphogypsum fluid created in the production processes. For additional information relating the ponds’ permits for construction and operation, see Note 19 to our Audited Financial Statements and “Item 3 - Key Information— D. Risk Factors”.
In the Netherlands the fertilizers site operates under the Dutch Radiation Protection Decree, due to the emission of solid particulates containing natural occurring radioactivity (NORM).
ICL operates in accordance with conditions set out in the licenses and permits. If there is any discrepancy in respect of the requirements of these conditions, the Company takes action to remedy the discrepancy in coordination with the Ministry of Environmental Protection.
Our Global IT team handles the operational cybersecurity policies and measures regarding the Group’s global infrastructures.
ICL’s cyber security strategy resides on three fundamental pillars: (a) plants and operational security, (b) critical assets & data protection, and (c) fraud prevention. For each pillar, there is a program that seeks to reduce the risks identified. All these programs are periodically reviewed by internal governance structures to assess their effective impact on the Group’s risks. For the purpose of critical plants protection, we continuously cooperate with the National Cyber Directorate - the National CERT - and the Ministry of Energy in Israel.
As cyberattacks evolve and become more sophisticated, the Group has had to strengthen its prevention and monitorization efforts. As part of such efforts, ICL routinely reviews, reinforces and tests its security processes and procedures through simulation exercises in the areas of physical security and cyber security. The outcome of such exercises is an important part of a feedback process designed to improve the Group’s cybersecurity strategies.
As part of our ongoing efforts to strengthen our cyber defenses, we conducted a comprehensive Cyber Maturity survey in 2019 in cooperation with a leading international consulting firm. We also conducted a risk assessment of our sensitive IT systems in cooperation with a number of leading Israeli and international companies in the field of cyber defense. The Group also tests its continuity plans in order to improve disaster recovery in instances where an incident or vulnerability threatens the continuity of one or several critical processes, services or platforms.
Other lines of action also include the adequate training of ICL's management members in the area of security and incident management. Periodically ICL carries out simulation exercises in order to raise the level of awareness and preparedness of certain key personnel. We maintain cybersecurity and fraud insurance policies. These insurance policies are subject to certain loss limits, deductions and exclusions and we can provide no assurance that all losses related to a cybersecurity or fraud incident will be covered under our policies. See “Item 3 - Key Information— D. Risk Factors— Significant disruptions in our, or our service providers’, information technology systems or breaches of our, or our service providers’, information security systems could adversely affect our business”.
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C. ORGANIZATIONAL STRUCTURE
* A list of our subsidiaries, including name and country of incorporation or residence is provided in an exhibit to our Form 20-F filed with the U.S. Securities Exchange Commission, which can be found at www.sec.gov.
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D. PROPERTY, PLANT AND EQUIPMENT
The Company operates production facilities in its worldwide locations, including the following:
Israel: under the Israeli Dead Sea Concession Law, 1961, as amended in 1986 (the “Concession Law”), we have lease rights until 2030 for the salt and carnallite ponds, pumping facilities and productions plants at Sodom. We have other production facilities in Israel, situated on land with a long‑term lease, including the plants at Mishor Rotem, the Oron and Zin sites of Phosphate Solutions segment (the Company has been working to extend the Oron plant lease agreement since 2017, by exercising the extension option provided in the agreement. As of the date of the report, the agreement is under an extension process), production facilities at Naot Hovav of Industrial Products segment (leased until 2024-2048), as well as production, storage and transportation facilities together with chemicals and research laboratories at Kiryat Ata that belong to Innovative Ag Solutions segment (leased until 2046‑2049). We also use warehouses and loading and unloading sites at the Ashdod (leased until 2030) and Eilat ports (negotiations are underway to extend the agreement).
Germany: the production plants of Phosphate Solutions segment are at Ludwigshafen, Ladenburg and Hemmingen (Hagesüd). The production plants of Industrial Products segment are at Bitterfeld. All the plants, besides Ludwigshafen, are owned by the Company.
The Netherlands: the production plants of Industrial Products segment at Terneuzen are owned by the Company. A facility of Phosphate Solutions segment in Amsterdam held under a lease until 2040 and a production facility in the southern Netherlands is located on land that is partly owned by the Company and partly held under a long‑term lease.
Spain: the concessions at the potash and salt mines are held under the concession agreements described below. The potash and salt production plants, and the warehouses, as well as the loading and unloading facilities of the Potash segment at Catalonia, are owned by the Company. Innovative Ag Solutions segment also owns a liquid fertilizer and soluble fertilizer production plant in Totana, owns another plant for mixing solid fertilizers in Los Patohos and has a concession in Cartagena port until 2024.
The United Kingdom: the rights to the polyhalite and salt mines are held under the concession agreements described below. The polyhalite and salt production plants and the warehouses of the Potash segment in Cleveland are owned by the Company. The warehouses and bulk loading and unloading facilities at the port are leased until 2034. Two peat moors of Innovative Ag Solutions segment are owned by the Company and one is leased. In addition, Innovative Ag Solutions segment owns a plant for producing growing media in the north of the United Kingdom and another plant in Daventry for producing liquid plant nutrition products.
Belgium: Innovative Ag Solutions segment owns a production facility in Grobbendonk for producing water soluble fertilizers.
Austria: the dairy protein production plant of Phosphate Solutions segment at Hartberg (Prolactal) is owned by the Company.
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North and South America:
United States: the production plants of Industrial Products segment in West Virginia are mainly owned by the Company. The production plants of Phosphate Solutions segment in Lawrence, Kansas and St. Louis, Missouri are owned by the Company. The production plants of Innovative Ag Solutions segment in South Carolina are operated under leases ending in 2025.
Brazil: the production plants of Phosphate Solutions segment at Sao Jose dos Campos and Cajati are leased by the Company.
China – phosphate rock mining rights in Haikou Mine are derived from mining licenses that are described below. The plants of YPH JV are owned by the Company, some of them are located on land that is owned by the Company, while some are situated on leased land.
The following table sets forth certain additional information regarding ICL’s principal properties as at December 31, 2019:
Size (square feet)
Mishor Rotem, Israel
Phosphate Solutions products
Owned on leased land
Mishor Rotem, Israel
Industrial Products products
Owned on leased land
Neot Hovav, Israel
Industrial Products products
Owned on leased land
Phosphate Solutions products
Owned on leased land
Kiryat Ata, Israel
Innovative Ag Solutions products
4,413,348 (not including phosphate reserve)
Phosphate Solutions products
Owned on leased land
13,099,679 (not including ponds and Magnesium factory)
Owned on leased land
Magnesium products (Potash segment)
Owned on leased land
Industrial Products products
Owned on leased land
Transportation facility for Potash
Owned on leased land
Pumping station for Potash segment
Owned on leased land
Industrial Products products
Owned on leased land
Power and steam production for Potash segment
Owned on leased land
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Warehouse and loading facility
Warehouse for Potash and Phosphate Solutions products
Beer Sheva, Israel
Owned and leased
Mishor Rotem, Israel
Phosphate Solutions products
Owned on leased land
Warehouse and loading facility
Warehouse for Potash and Phosphate Solutions products
Tel Aviv, Israel
Mines, manufacturing facilities and warehouses for Potash
Innovative Ag Solutions products
Innovative Ag Solutions products
Warehouse and loading facility
Storage for Innovative Ag Solutions products
Industrial Products products
Owned on leased land
Shan Dong, China
Industrial Products products
Owned on leased land
Kunming, Yunnan, China
Production Plant of Phosphate Solutions
Owned on leased land
Lian Yungang, China
Industrial Products products
Owned on leased land
Kunming, Yunnan, China
Phosphate Solutions products
Owned on leased land
Kunming, Yunnan, China
A pumping station for Phosphate Solutions
Owned on leased land
Nutberry and Douglas Water, United Kingdom
Peat mine -Innovative Ag Solutions
Cleveland, United Kingdom
Polysulphate products (Potash segment)
Warehouse and loading facility
Cleveland, United Kingdom
Polysulphate products (Potash segment)
Creca, United Kingdom
Peat mine - Innovative Ag Solutions
Nutberry, United Kingdom
Innovative Ag Solutions products
93 Israel Chemicals Limited
Daventry, United Kingdom
Innovative Ag solutions products
Owned and leased
Terneuzen, the Netherlands
Industrial Products products
Heerlen, the Netherlands
Innovative Ag solutions products
Owned and leased
Amsterdam, the Netherlands
Phosphate Solutions products and logistics center
Owned on leased land
Amsterdam, the Netherlands
European Company headquarters
Gallipolis Ferry, West Virginia, United States
Industrial Products products
Lawrence, Kansas, United States
Phosphate Solutions products
Carondelet, Missouri, United States
Phosphate Solutions products
North Charleston, South Carolina, United States
Innovative Ag solutions products
Summerville, South Carolina, United States
Innovative Ag solutions products
St. Louis, Missouri, United States
US Company headquarters
Phosphate Solutions products and Infrastructure
Phosphate Solutions products
Industrial Products products
Phosphate Solutions products
Phosphate Solutions products
Sao Jose dos Campos, Brazil
Phosphate plant: 137,573 Blending plant: 80,729
Phosphate Solutions products
Owned on (free of charge) leased land
Innovative Ag solutions products
Industrial Products products
Phosphate Solutions products
Phosphate Solutions products
Phosphate Solutions products
94 Israel Chemicals Limited
Other Leases, Licenses and Permits
Well Production Permits
The water supply to ICL Dead Sea is executed via approximately 40 drillings, most of which are located within the concession area. Seven drillings - the Ein Ofarim drillings - are located outside the concession area, and ICL Dead Sea is therefore required to sign, from time to time, lease contracts for limited periods with the Israel Land Authority (ILA).
Renewal of the contracts is a lengthy process and ICL Dead Sea has been working for several years to renew the contracts, which expired in 2016.