Company Quick10K Filing
Israel Chemicals
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 1,305 $7,464
20-F 2019-02-27 Annual: 2018-12-31
20-F 2018-03-07 Annual: 2017-12-31
20-F 2017-03-16 Annual: 2016-12-31
20-F 2016-03-16 Annual: 2015-12-31
ICL 2018-12-31
Item 1 - Identity of Directors, Senior Management and Advisors
Item 2 - Offer Statistics and Expected Timetable
Item 3 - Key Information
Item 4 - Information on The Company
Item 4A - Unresolved Staff Comments
Item 5 - Operating and Financial Review and Prospects
Item 6 - Directors, Senior Management and Employees
Item 7 - Major Shareholders and Related (And Interested) Party Transactions
Item 8 - Financial Information
Item 9 - The Offer and Listing
Item 10 - Additional Information
Item 11 - Quantitative and Qualitative Disclosures About Market Risk
Item 12 - Description of Securities Other Than Equity Securities
Item 13 - Defaults, Dividend Arrangements and Delinquencies
Item 14 - Material Modifications To The Rights of Security Holders and Use of Proceeds
Item 15 - Controls and Procedures
Item 16A - Audit and Accounting Committee Financial Expert
Item 16B - Code of Ethics
Item 16C - Principal Accountant Fees and Services
Item 16D - Exemptions From The Listing Standards for Audit Committees
Item 16E - Purchase of Equity Securities By The Issuer and Affiliated Purchasers
Item 16F - Change in Registrant's Certifying Accountant
Item 16G - Corporate Governance
Item 16H - Mine Safety Disclosure
Item 17 - Financial Statements
Item 18 - Financial Statements
Item 19 - Exhibits
Note 1 - General
Note 2 - Basis of Preparation of The Financial Statements
Note 2 - Basis of Preparation of The Financial Statements (Cont'D)
Note 3 - Significant Accounting Policies
Note 3 - Significant Accounting Policies (Cont'D)
Note 4 - Determination of Fair Values
Note 4 - Determination of Fair Values (Cont'D)
Note 5 - Operating Segments
Note 5 - Operating Segments (Cont'D)
Note 6 - Inventories
Note 7 - Other Receivables
Note 8 - Investments in Subsidiaries
Note 9 - Other Non-Current Assets
Note 10 - Business Divestiture
Note 11 - Property, Plant and Equipment
Note 11 - Property, Plant and Equipment (Cont'D)
Note 12 - Intangible Assets
Note 12 - Intangible Assets (Cont'D)
Note 13 - Impairment Testing
Note 13 - Impairment Testing (Cont'D)
Note 14 - Derivative Instruments
Note 15 - Credit From Banks and Others
Note 15 - Credit From Banks and Others (Cont'D)
Note 16 - Other Current Liabilities
Note 17 - Taxes on Income
Note 17 - Taxes on Income (Cont'D)
Note 18 - Employee Benefits
Note 18 - Employee Benefits (Cont'D)
Note 19 - Provisions
Note 20 - Commitments, Concessions and Contingent Liabilities
Note 20 - Commitments, Concessions and Contingent Liabilities (Cont'D)
Note 21 - Equity
Note 21 - Equity (Cont'D)
Note 22 - Details of Income Statement Items
Note 22 - Details of Income Statement Items (Cont'D)
Note 23 - Financial Instruments and Risk Management
Note 23 - Financial Instruments and Risk Management (Cont'D)
Note 23- Financial Instruments and Risk Management (Cont'D)
Note 24 - Earnings per Share
Note 24 - Earnings per Share (Cont'D)
Note 25 - Related and Interested Parties
Note 25 - Related and Interested Parties (Cont'D)
Note 26 - Group Main Entities
EX-4.8 exhibit_4-8.htm
EX-12.1 exhibit_12-1.htm
EX-12.2 exhibit_12-2.htm
EX-8.1 exhibit_8-1.htm
EX-13.1 exhibit_13-1.htm
EX-15.1 exhibit_15-1.htm

Israel Chemicals Earnings 2018-12-31

ICL 20F Annual Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
CF 11,150 12,863 9,797 4,675 1,134 651 1,936 15,042 24% 7.8 5%
MOS 9,315 20,644 10,171 7,268 1,498 262 1,236 13,439 21% 10.9 1%
ICL 7,464 8,776 4,861 0 0 0 0 7,464 0%
SMG 5,478 3,467 2,662 3,092 1,004 372 671 7,376 32% 11.0 11%
CLXT 585 111 23 0 0 -31 -31 499 91% -16.4 -28%
UAN 452 1,190 699 408 81 -2 75 1,013 20% 13.6 -0%
AVD 424 666 332 456 182 21 54 582 40% 10.9 3%
MBII 182 52 43 26 14 -16 -12 184 53% -15.1 -30%
EVGN 81 59 0 0 0 0 79 0%
SNES 38 5 1 0 0 -10 -9 36 34% -3.8 -182%

20-F 1 zk1922742.htm 20-F

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 20-F
 
(Mark One)
 
 
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR
 
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the fiscal year ended December 31, 2018
 
OR
 
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR
 
 
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 from                                 to                                .
 
Commission File Number: 001-13742
 
ISRAEL CHEMICALS LTD.
(Exact name of Registrant as specified in its charter)
 
N/A
(Translation of Registrant’s name into English)
 
Israel
(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.
SVP, 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:
 
None
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
 
None
 
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, 2018 was:
 
Title of Class
Number of Shares Outstanding
Ordinary shares
1,304,890,778
 
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
 
           Other
 
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).
 
Yes                       No
 
 

 

 
TABLE OF CONTENTS
 
   
PART I
Page
       
     
     
     
 
1
 
1
 
1
 
33
 
131
 
131
 
187
 
220
 
228
 
233
 
233
 
247
 
256
       
   
PART II
 
       
 
256
 
256
 
257
 
258
 
258
 
259
 
259
 
260
 
260
 
260
 
262
 
262
 
262
 
262
     
FS-1

 

 
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
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 mining 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; changes to governmental 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 information technology systems or breaches of our 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; Imposing of antidumping and countervailing duties on imports of magnesium from Israel to U.S.; volatility or crises in the financial markets; cost of compliance with environmental legislative and licensing restrictions; hazards inherent to chemical manufacturing; 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.
 
INTRODUCTION
 
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, 2018, into U.S. dollars at an exchange rate of NIS 3.748 to $1.00, and euro amounts into U.S. dollars at an exchange rate of €0.873 to $1.00, the daily representative exchange rate reported by the Bank of Israel for December 31, 2018.
 
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.
 
Bromine
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.
CFR
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.
CPI
The Consumer Price Index, as published by the Israeli Central Bureau of Statistics.
Dead Sea Bromine Company
Dead Sea Bromine Company Ltd., included in Industrial Products segment.
EPA
US Environmental Protection Agency.
FAO
The Food and Agriculture Organization of the United Nations.
FOB
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.
F&C
Fertilizers and Chemicals Ltd., included in Innovative Ag Solutions segment.
Granular
Fertilizer having granular particles.
ICL Boulby
A United Kingdom company included in the Potash segment.
ICL Iberia (Iberpotash)
Iberpotash S.A., a Spanish company included in Potash segment.
IC
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.
ICL Rotem
Rotem Amfert Negev Ltd., included in Phosphate Solutions segment.
IFA
The International Fertilizers Industry Association, an international association of fertilizers manufacturers.
ILA
Israel Land Authority
IMF
International Monetary Fund.
K
The element potassium, one of the three main plant nutrients.
KNO3
Potassium Nitrate, soluble fertilizer containing N&P used as a stand-alone product or as a key component of some water-soluble blends.
KOH
Potassium hydroxide 50% liquid.
N
The element nitrogen, one of the three main plant nutrients.
NYSE
The New York Stock Exchange.
P
The element phosphorus, one of the three main plant nutrients, which is also used as a raw material in industry.
Phosphate
Phosphate rock that contains the element phosphorus. Its concentration is measured in units of P2O5.
Polyhalite
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.
Polymer
A chemical compound containing a long chain of repeating units linked by a chemical bond and created by polymerization.
Potash
Potassium chloride (KCl), used as a plant’s main source of potassium.
P2O5
Phosphorus pentoxide.
P2S5
Phosphorus pentasulfide.
REACH
Registration, Evaluation, Authorization and Restriction of Chemicals, a framework within the European Union.
Red MOP
Natural or artificially reddish color MOP.
Salt
Unless otherwise specified, sodium chloride (NaCl).
Soluble NPK
Soluble fertilizer containing the three basic elements for plant development (nitrogen, phosphorus and potash).
 

SOP
Potassium of Sulfate or 0-0-50, used as low chloride potassium source.
Standard
Fertilizer having small particles.
Tami
Tami (IMI) Research and Development Institute Ltd., the central research institute of ICL.
TASE
Tel Aviv Stock Exchange, Ltd.
 
USDA
United States Department of Agriculture.
 
Urea
A white granular or prill solid fertilizer containing 46% nitrogen.
YTH/YPC
The Chinese partner in the Company’s joint venture YPH in China.
4D
Clean green phosphoric acid, used as a raw material for purification processes.



 
Item 1 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
 
Not Applicable.
 
Item 2 OFFER STATISTICS AND EXPECTED TIMETABLE
 
Not Applicable.
 
Item 3 KEY INFORMATION

A. SELECTED FINANCIAL DATA
 
We have derived the consolidated statements of income data for the years ended December 31, 2018, 2017, 2016, 2015 and 2014 and the consolidated statements of financial position as of December 31, 2018, 2017, 2016, 2015 and 2014 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, 2018, 2017, 2016, 2015 and 2014. 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


 
 
 
For the Year Ended December 31,
 
2018
2017
2016
2015
2014
 
US$ millions, except for the share data

Sales
 5,556
 5,418
 5,363
 5,405
 6,111
Gross profit
 1,854
 1,672
 1,660
 1,803
 2,196
Operating income (loss)
 1,519
 629
 (3)
 765
 758
Income (loss) before income taxes
 1,364
 505
 (117)
 668
 632
Net income (loss) attributable to the shareholders of the Company
 1,240
 364
 (122)
 509
 464
Earnings (loss) per share (in dollars) :
         
Basic earnings (loss) per share
 0.97
 0.29
 (0.10)
 0.40
 0.37
Diluted earnings (loss) per share
 0.97
 0.29
 (0.10)
 0.40
 0.37
Weighted average number of ordinary shares outstanding:
         
Basic (in thousands)
 1,277,209
 1,276,072
 1,273,295
 1,271,624
 1,270,426
Diluted (in thousands)
 1,279,781
 1,276,997
 1,273,295
 1,272,256
 1,270,458
Dividends declared per common share (in dollars)
 0.18
 0.13
 0.18
 0.28
 0.67

 
 
As at December 31,
 
2018
2017
2016
2015
2014
 
US$ millions

Statements of Financial Position Data:
         
Total assets
 8,776
 8,714
 8,552
 9,077
 8,348
Total liabilities
 4,861
 5,784
 5,893
 5,889
 5,348
Total equity
 3,915
 2,930
 2,659
 3,188
 3,000

 
B. CAPITALIZATION AND INDEBTEDNESS
 
Not Applicable.
 
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
 
Not Applicable.
 

2

 
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 mining operations are dependent on concessions, licenses and permits granted to us by the respective governments in the countries wherein they are located
 
Our mining business depends 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.
 
Israel
 
In Israel, the concession that was granted by the government to utilize the resources of the Dead Sea (mainly potash, bromine and magnesium) ends on March 31, 2030. In consideration, we pay royalties to the Israeli government. There is no assurance that the concession will be renewed at that time.
 
In 2015, the Minister of Finance appointed a team to determine the “governmental activities to be conducted towards the end of the concession period”. The public’s comments in this matter were submitted to the team. Based on the interim report and its recommendations published in May 2018, and following a public hearing, on January 21, 2019, the Israeli Ministry of Finance released the final report of the inter-ministry team headed by Mr. Yoel Naveh, former Chief Economist, which includes a series of guidelines and recommendations regarding the actions that the government should take towards the end of the concession period. As at the date of the report, since the report includes guiding principles and a recommendation to establish sub-teams to implement such principles, the Company is unable to assess, at this stage, the concrete implications, manner in which the recommendations would be implemented in practice and on which schedules. In addition, there is no certainty as to how the Government would interpret the Concession Law and the manner in which this process and methodology would ultimately be implemented.
 
In addition, in 2015, the Minister of Finance appointed a team headed by the (former) Accountant General to evaluate the manner in which, according to the current concession, the replacement value of DSW’s tangible assets would be calculated assuming that these assets would be returned to the government at the end of the concession period. The determination date of the actual calculation is only in 2030. As far as the Company is aware, this work has not yet been completed.
 
3

 
In December 2018, the Company received an opinion from an independent appraiser regarding the fair value of the property, plant and the remaining useful life of the fixed assets of the subsidiaries Dead Sea Works, Dead Sea Bromine and Dead Sea Magnesium in Israel (hereinafter – the Subsidiaries). The Opinion was prepared mainly for the Subsidiaries’ financial statements for 2016 and onward, which serve as a basis for the reports filed pursuant to the provisions of the Taxation of Natural Resources Law. There is no resulting change in the Company's consolidated financial statements.
 
The Property, Plant and Equipment value provided in the opinion is based on the Replacement Cost methodology which is one of the methods in international accounting standards (IFRS) for the measurement of fixed assets and is estimated at about $6 billion, as at December 31, 2015, and at December 31, 2016.
 
Though the assets assessed for tax purposes and the assets that may be valuated under the Concession Law are highly correlated, there is no complete identity between them. The Company believes that the applied Replacement Cost Methodology used in the opinion for estimating the fair value coincides with the methodology mentioned in the Concession Law for future valuation of the Property, Plant and Equipment upon termination of the concession period. Nevertheless, 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 provided in the said opinion, 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, as time passes and as a result of purchase and disposal of assets included in the future valuation.
 
See “Item 4 - Information on the Company— D. Property, Plant and Equipment— Mineral Extraction and Mining Operations and “Concessions and Mining Rights.
 
Furthermore, we mine phosphate rock from phosphate deposits in the Negev desert in accordance with three concessions from the State of Israel that are valid until the end of 2021. In consideration thereof, we are required to pay royalties to the Israeli government. Our existing phosphate mines in the Negev desert hold limited reserves of phosphate rock designated for phosphoric acid production. The Company is acting for renewal of said concessions, and is the only entity having the appropriate production facilities; however, there can be no certainty that these concessions will be renewed on the same terms or at all following their expiration in 2021, failure to extend the said concessions could materially and adversely affect our business, financial condition and results of operations.
 
The Company is working to promote the plan for mining phosphates in Barir field (which is located in the southern part of South Zohar field) in the Negev Desert. In 2015, the National Planning and Building Council (hereinafter – the National Council) approved the Policy Document regarding Mining and Quarrying of Industrial Minerals, which included a recommendation to permit phosphate mining in the Barir field. In February 2017, the Committee for Principle Planning Matters, decided to continue advancement of the mining in the South Zohar field. Concurrently, and based on a decision of the National Council, instructions were prepared by the competent authorities with respect to the performance of an environmental survey of the Barir field for purposes of its further advancement. In April 2017, the National Council recommended to the government to approve National Outline Plan (hereinafter – NOP 14B), which includes South Zohar field, and determined that Barir field will be advanced as part of a detailed National Outline Plan, which was approved by the government’s Housing Cabinet in January 2018.
 
4

 
In January 2018, the Minister of Health filed an appeal of the said approval, requiring compliance with the Ministry of Health’s recommendation to conduct a survey regarding the health impact in each site included in NOP 14B. As part of a discussion regarding the appeal, which was held in the Housing Cabinet, it was decided, with the consent of the Ministries of Health, Finance and Energy, to remove the appeal and to approve the NOP 14B. In addition, it was decided to establish a team with representatives of the ministries of Treasury, Health, Transportation, Environmental Protection and Energy, which will present to the Housing Cabinet a report that includes health aspects for NOP 14B. In April 2018, the NOP 14B was formally published.
 
In July 2018, a petition was submitted to the Israeli Supreme Court of Justice by the municipality of Arad against the National Planning and Building Council, the Ministry of Health, the Ministry of Environmental Protection and Rotem, to revoke the approval of NOP 14B. In January 2019, residents of the Bedouin diaspora in the "Arad Valley" submitted a petition to the High Court of Justice (hereinafter – the Court) against the National Council, the Government of Israel and Rotem, in which the Court was requested to cancel the provisions of NOP 14B and the decision of the National Council from December 5, 2017, regarding to the advancement of a detailed plan for phosphate mining in the South Zohar field. In addition, the Court was requested to issue an interim injunction preventing the implementation of the NOP 14B instructions and the National Council's said decision until a final resolution. On January 22, 2019, the Supreme Court consolidated the hearing of the petition together with the other petition filed against NOP 14B and decided that at this stage there is no basis for granting the interim injunction. On February 5, 2019, the Company filed its response.
 
There is no certainty regarding the timelines for the submission of the Plans, the approval thereof, or of further developments with respect to the South Zohar. If mining approval is not received for South Zohar, there will be a significant impact on the Group’s future mining reserves in the medium and long term. Our business, financial condition and results of operations may be adversely affected, even materially, in case of failure to receive such approval and to find alternative sources of phosphates in Israel. For additional information on phosphate rock reserves, concessions and mining activities, see “item 4 - Information on the Company— D. Property, Plant and Equipment— Mineral Extraction and Mining Operations, “Concessions and Mining Rights” and “Reserves”.
 
Spain
 
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. In consideration thereof, ICL pays royalties to the Spanish government. 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 respecting issues relating to mining permits in Spain, see Note 20 to our Audited Financial Statements.
 
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United Kingdom
 
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), which includes provisions to explore and exploit the resources of the Polysulphate mineral. The said mining rights cover a total area of about 374 square kilometers. As at the date of this report, all the lease periods, licenses, easements and rights of way are effective until 2038.
 
China
 
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 the phosphate reserves soil survey results and achieving the required understanding with the authorities. With respect to the mining rights, the Company pays royalties and a resource tax to the Chinese government. See “Item 4 - Information on the Company— D. Property, Plant and Equipment— Concessions and Mining Rights”.
 
In addition, our 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.
 
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.
 
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It would be noted in this context that relating to the active gypsum Pond 5 in Rotem Amfert plants in Israel, and the process of obtaining a permit for its operation, in January 2018, an appeal was filed by Adam Teva V’Din - Israeli Association for Environmental Protection (hereinafter - ATD) to the District Planning and Building Appeals Committee of the Southern District (hereinafter – the Appeals Committee) against the Local Council and Rotem, in connection with the decision of the Local Committee from December 2017, to dismiss ATD’s objection to approval of the leniency and issuance of a building permit for Pond 5. In light of the Appeals Committee's dismissal of ATD's said claims, in May 2018 ATD filed an administrative petition against the Appeal Committee requesting the Court to order that: (1) the Appeals Committee's ruling is void, as well as any permit issued by virtue thereof; (2) the “relief” in implementation of the outline plan applying to the region, as provided in the Appeals Committee ruling, constitutes a breach of the provisions of the outline plan applying to the region; and (3) the Local Committee shall act to enforce the law and abstain from further planning procedures and permits until such enforcement actions are taken.
 
On October 11, 2018, the Court approved a settlement agreement between ATD and the Company, the main points of which are: withdrawing the abovementioned petition, in return for a re-deliberation of the Appeals Committee on its decision regarding the implementation of the relief for obtaining building permits for the operation of Pond 5 and future restoration of Ponds 1-4. On October 24, 2018, the Appeals Committee approved the issuing of the building permits for the operation of Pond 5, until the date of December 31, 2020. In November 2018, the building and use permits for Pond 5 were received. The Company is working with the relevant authorities to obtain all the required permits, for the continued operation of the gypsum ponds beyond 2020, and this is in accordance with the requirements set by law and/or instructions of the Planning and Building Committee.
 
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.
 
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Any replacement of or modification in the composition of our distributors might adversely affect the Company’s competitive ability and cause a decrease in the scope of 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.
 
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. We must comply with these new disclosure requirements beginning with our fiscal year ended December 31, 2021, 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 Spain (because we continue to evaluate our reserves there) and in the UK (because we don't believe that the polysulphate we are producing there is material).  In the absence of published reserves, we are unable to provide life of mine estimates 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”.
 

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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. 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, this being a reaction to the recession of the Dead Sea water level. 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.
 
The accumulation of salt at the bottom of 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 (hereinafter – DSW). 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 correspondingly raise the water level will cause a reduction in our production capacity. However, raising the water level of the pond above a certain level may cause structural damage to the foundations of the hotel structures situated close to the water’s edge and to other infrastructures on the western shoreline of Pond 5.
 
We are currently working with the Israeli government both with respect to construction of the coastline defenses and with respect to the permanent solution, which consists of harvesting of the salt in such a manner whereby raising the water level in Pond 5 would no longer be necessary after completion of the harvesting. 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.
 
In 2015 and in 2016, the National Infrastructures Committee and the Israeli Government, respectively, approved National Infrastructures Plan 35A (hereinafter – the Plan), which includes the statutory infrastructure for establishment of the Salt Harvesting Project in Pond 5, and construction of the P-9 pumping station in the northern basin of the Dead Sea. As at the date of the report, the building permits for the Salt Harvesting Project and the P-9 pumping station have been received and the construction work has commenced.
 
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The Company will bear 80% and the Government will bear 20% of the cost of the Salt Harvesting Project, however the Government's share will not exceed NIS 1.4 billion.
 
In October 2017, DSW signed an agreement for the execution of the first stage of the Salt Harvesting Project, with a contracting company Holland Shallow Seas Dredging Ltd., which includes, among others, the construction of a special dredger that is designed to execute the salt harvesting. The dredger is expected to enter into service towards the end of 2019.
 
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 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, see “Item 4 - Information on the Company— D. Property, Plant and Equipment— Mineral Extraction and Mining Operations” and “Concessions and Mining Rights”.
 
Construction of a new pumping station is required due to the receding water level in the northern basin of the Dead Sea
 
As part of our production process in Israel, we pump water from the Dead Sea through a special pumping station and deliver it to the salt and carnallite ponds. Due to the receding water level in the northern basin of the Dead Sea, the water line is receding from the current pumping station and construction of a new pumping station (hereinafter – the P‑9 Pumping Station) is therefore necessary. We expect that the P-9 pumping station will be able to pump water until the end of the current concession period. 
 
In 2017, DSW signed agreements with several execution and infrastructure companies for construction of the P-9 pumping station. The P-9 Pumping Station is expected to commence its operation during the year 2020.
 
Failure to construct the new pumping station as aforesaid or a significant delay in the planned timetables could have a material adverse effect on the Company’s business, its financial condition and results of operations.
 
In addition, as the water level of the northern basin of the Dead Sea 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.
 
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.
 
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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;
 
·
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; 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 adversely affect our revenue and operating results and the value of our assets.
 
Some of the above risks might make it economically unattractive to utilize cash generated by our operations in one country to fund our operations or repayments of liabilities in another country, support other corporate purposes and needs or distribute dividends.
 
11

 
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.
 
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.
 
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 production processes and facilities at our magnesium plant require a continuous supply of electricity. While our magnesium plant has two power supply sources — our power station in Sodom and the national power grid in Israel — there is a risk of damage to the power supply from these two sources concurrently. Prolonged damage to regular power supply may damage the plants and the environment.
 
In addition, during the third quarter of 2018, the Company’s new power plant in Sodom became operational. The new power plant is fueled by natural gas.
 
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, such as 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 relating to water, energy or other raw materials, such as sulphur, ammonia and white acid that are supplied by third parties. Our inability to pass on such cost increases could adversely affect our margins. In addition, shortages in our principal raw materials may disrupt our production capacity and adversely affect our business performance.
 
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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 construction of the white acid (WPA) facility in the YPH JV in China, 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.
 
There is a risk that the outcome of this proceeding, or related proceeding, could amount to a significant monetary expense for us and it may have a material adverse effect on our business, our 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 due to 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.
 
An examination conducted by the World Bank, which is reviewing the construction of the canal connecting the Red Sea and the Dead Sea indicated that, a discharge of up to 400 million cubic meters into the Dead Sea will have no adverse environmental effects, as no layering effect will be caused, and the water will evaporate and/or mix with the water of the Dead Sea. For this reason it appears that inflow on such a scale will also create no significant damage to our plants, although the actual impacts may be different. However, if the Red Sea-Dead Sea Canal results 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.
 
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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 are 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.
 
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 18 to our Audited Financial Statements.
 
The discontinuation, cancellation or expiration of government 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 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 or natural resource taxes, 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 programs;
 
·
Such 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.
 
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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 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 utilize the salt for production and sale as a product in the De-icing business. In light of changes in market conditions, mainly in the future selling prices of the said product, the Company updated its provision.
 
The provision is based on a long‑term forecast, covering a period of more than 50 years, along with observed estimates and, accordingly, the final amount that will be required to restore the Sallent site could change, even significantly, from the amount of the present provision. In the Company’s estimation, the provision in its books reflects the best estimate of the expense required to settle this obligation.
 
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, and discretion is required in determination of the provisions for our tax liability. 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 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 to advanced 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 Law. The manner of application of the Law, including preparation of the financial statements for each mineral, involves interpretations and assumptions as per a number of significant matters, which require management’s judgment
 
Based on the law's interpretation, the Company’s position is that the carrying amount of the property, plant and equipment for the purpose of preparation of the Subsidiaries’ financial statements for 2016 and onward, which serve as a basis for the reports filed pursuant to the provisions of the Law,  can be presented on the basis of fair value revaluation, on the date the Law enters into effect. Presenting property, plant and equipment based on fair value revaluation is in accordance with one of the permitted methods in International Financial Reporting Standards (IFRS), which apply to the Company and its Subsidiaries and are accepted accounting principles in Israel. There is no resulting change in the Company's consolidated financial statements.
 
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The tax authority's position could be materially different, even in very significant amounts, as a result of different interpretation regarding implementation of the Law, including matters other than the measurement of the property, plant and equipment. If the above‑mentioned tax position is rejected by the Israel tax authority, meaning measurement of the property, plant and equipment, for this purpose, should have been in accordance with historical values, the result would be an increase in the company's tax liabilities in an aggregate amount of about $100 million for the years 2016-2018.
 
The Company estimates that it is more likely than not that its position will be accepted. As at the date of the report, the Company believes that the tax provision in its financial statements represents the best estimate of the tax payment expected to be incurred with reference to the Law.
 
Given the mineral's price environment, its effect on the profitability of the subsidiaries and after deduction of a 14% return on the balance of property, plant and equipment, as stated in the law, as at December 31, 2018, no natural resources tax liability was payable.
 
In December 2017, the U.S. tax reform was approved through legislation, and became effective on January 1, 2018. The Tax Act is comprehensive and complex and may lead to future interpretations regarding the manner of its implementation, which may impact the Company’s estimations and conclusions. For further details, see Note 17 to our Audited Financial Statements.
 
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.
 
16

 
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. 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.
 
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.
 
If future acquisitions disrupt our operations, our business may be materially and adversely affected.
 
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 in Spain and Israel 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 would reduce costs per ton and allow for the elimination of additional bottlenecks and further expansion. In ICL Boulby we have made a transition from the production of potash to the production of Polysulphate™ and have expanded the mining area in order to provide more resources. In YPH JV in China we are expanding the JV’s activities in the field of specialty phosphate solution, among other things through the construction of a white acid (WPA) facility. These initiatives may involve very 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.
 
17

 
In addition, as part of our plan to create available sources for funding further investments, as well as decrease our current leverage level, we are considering, among other things, various opportunities for divesting of subsidiaries and/or assets having low synergies with our minerals chain and/or portfolio. Accordingly, in 2018 the Company completed the sale of its fire safety, oil additives and Rovita businesses. These divestments, at least in the short-term, cause a decrease in the scope of our business activities and there is no certainty that we will be able to decrease by an identical proportion the fixed costs required in order to manage our business activities, which would adversely the results of our ongoing operations. 
 
See “Item 4 - Information on the Company— B. Business Overview— Our Strategy”.
 
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. On July 27, 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. 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”.
 
18

 
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 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 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 information technology systems or breaches of our information security systems could adversely affect our business
 
Our information technology systems are critical to the operation of our business and essential to our ability to successfully perform day-to-day operations. An intrusion, interruption, destruction or breakdown of our 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 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 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 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. 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. 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, negatively impact our reputation among our customers, business partners and the public, any of which could have a material adverse effect on our business, financial condition and results of operations.
 
19

 
Failure to retain and\or recruit key personnel, or to attract additional executive and managerial talent, could adversely affect our business
 
Given our increasing size, complexity and the global reach of our businesses, each of which could constitute a significant stand-alone company, we greatly rely upon our ability to recruit and retain highly qualified and skilled management and other employees. 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. For example, in ICL Iberia in Spain we are consolidating all our sites into a single mine with a single processing plant, which is expected to lead to decreased cost per tonne and create the possibility of removing other bottlenecks and further expansion. The plan involves significant capital investments, as well as manpower reduction. The plan is subject to risks and uncertainties, and actual results may materially differ from those planned or expected and could adversely affect our operations.   
 
In recent years, the Company’s leverage degree has changed significantly and we frequently engage in refinancing activities, and we 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.
 
20

 
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.
 
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.
 

21

 
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
 
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.
 
Sales of our Industrial Products and Phosphate Solutions segments’ products are also 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 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.
 
Our magnesium sales in the Unites States are under investigation by the International Trade Administration of the U.S. Department of Commerce and the U.S. International Trade Commission
 
In October 2018, a petition was filed to the International Trade Administration of the U.S. Department of Commerce and the U.S. International Trade Commission by a US Magnesium company (hereinafter - US Magnesium), to impose antidumping and countervailing duties on imports of magnesium from Israel. US Magnesium claims that imports of magnesium produced in Israel by Dead Sea Magnesium Ltd. are being subsidized and sold at less than fair value in the U.S. market. The US Department of Commerce is expected to issue its preliminary determination with respect to subsidies on May 2, 2019. If these petitions proceed and are successful, these petitions could result in the imposition of tariffs on future imports of our magnesium sales in the United States. 
 
A decision by U.S. authorities to impose antidumping and countervailing duties on the Company’s magnesium activities in the U.S. and the Company's inability to sell its magnesium on other markets could adversely and materially affect our magnesium business. 
 

22

 
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 decision by British voters to exit the European Union may materially and adversely affect our business.
 
Currently, the UK is scheduled to leave the European Union effective March 29, 2019, but the relationship between the UK and the European Union following a UK departure has not been determined yet. As a result, the 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 U.K 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 2018, 7% of our revenues were generated from our UK operations and 35% 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. It is 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 chemical industry 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. These and other hazards are also inherent in our mining operations, particularly underground mining. These hazards can cause personal injury and loss of life, severe damage to or destruction of property and equipment and environmental damage and may result in suspension of operation and the imposition of civil or criminal penalties. For example, in connection with the 2017 event of the partial collapse of the dyke in Pond 3, which is used for accumulation of phosphogypsum water that is created as part of the production processes in Rotem plants in Israel, the Company is taking action to rectify environmental impacts caused to the Ashalim Stream and its surrounding area, to the extent required. The Company’s actions are being carried out in full coordination and close cooperation with the Israeli environmental authorities. The Company is committed to the matter of environmental protection, and for years has worked closely with the Israeli environmental protection authorities to maintain the Negev’s natural reserves in the area of its facilities. As at the date of this report, the event is being investigated by the Ministry of Environmental Protection and the Nature and Natural Parks Authority.
 
23

 
In addition, in October 2018, an application for certification of a class action was filed with the Beer Sheva Magistrate Court against Dead Sea Works Ltd. and Dead Sea Bromine Company Ltd., with respect to a bromine leak that occurred in June 2018, within the premises of Dead Sea Works. According to the plaintiff, the alleged air pollution caused an environmental hazard and a health risk to passersby and to those present in the vicinity of the plant, as well as in the settlements Neot Hakikar and Ein Tamar, and the blocking of Route 90. According to the statement of claim, the Court is requested to award compensation for the alleged damages, in the total amount of about NIS 1.5 million (about $0.4 million). In December 2018, the parties signed a settlement agreement at immaterial amounts to conclude the application proceeding for certification of a class action. The agreement is subject to the Court's approval.
 
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, including, but not limited to, the events described above, 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 20 to our Audited Financial Statements.
 
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 a chemical industry 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. For example, 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. See “Item 4 - Information on the Company— B. Business Overview— Regulatory and Environmental, Health and Safety Matters” and “D. Property, Plant and Equipment— Other Leases, Licenses and Permits”.
 
24

 
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.
 
For information respecting legal proceedings and actions, see Note 20 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. For example, we are subject to claims alleging liability for the impacts from the rising water level at one of our evaporation ponds at the Dead Sea. See Note 20 to our Audited Financial Statements. 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.
 
25

 
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.
 
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.
 
26

 
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.
 
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.
 
27

 
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.
 
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.
 
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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 and 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, 2018, 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, an inter-ministry team has recently been established, headed by the Ministry of Finance, tasked with arranging the issue of authority and oversight relating to special state shares, interest decrees and reduction of the regulatory burden. As at the date of this report, the Company is unable to estimate what implications this process would have on 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.
 
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.
 
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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.
 
Moreover, these securities may have rights, preferences or privileges senior to those of our existing shareholders. For example, as at the date of the report, there are about 18.9 million outstanding options for our ordinary shares that were issued under our incentive and compensation plan. For additional information, see Note 21 to our Audited Financial Statements and “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, as determined by our Board of Directors on May 2016 with respect to 2016 and 2017, and again in March 2018 with respect to 2018 and 2019, is that the Company’s dividend distribution rate will be up to 50% of the annual adjusted net profit, compared with the prior dividend distribution policy of up to 70% of the net profit. Our Board of Directors will reexamine the dividend policy at the end of the said period. There is no certainty that our Board of Directors will make changes to the updated dividend policy. 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, 2018, Israel Corporation Ltd. holds approximately 45% of our outstanding ordinary shares and approximately 45.87% of the shareholders' voting rights.
 
The following is a list of significant acquisitions, divestitures and joint ventures over the last several years:
 
·
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).
 
·
In 2015, ICL completed the divestiture of the following non‑core business activities: the alumina, paper and water industry (APW), the thermoplastic products for the footwear industry (Renoflex), the hygiene products for the food industry (Anti‑Germ) and the pharmaceutical and gypsum businesses (PCG).
 
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
 
Company 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 expects to strengthen and diversify its offerings of innovative agro solutions by leveraging its existing capabilities and agronomic know-how, as well as the Israeli technological ecosystem. In August 2018, we commenced working under an aligned organizational structure according to which the Company's operations are divided into four segments: Industrial Products (Bromine), Potash, Phosphate Solutions and Innovative Ag Solutions. Comparative data has been restated to reflect the change in the structure of the reportable segments, as stated above.
 
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 restructuring the operations in Spain from two sites 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, 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.
 
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·
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.
 
In the year ended December 31, 2018, we generated total sales of $5,556 million, operating income of $1,519 million, adjusted operating income of $753 million, net income attributable to the shareholders of the company of $1,240 million and adjusted net income attributable to the shareholders of the company of $477 million. See "Item 5 – Operating and Financial Review and Prospects – A. Operating Results – Adjustments to reported operating and net income (Non-GAAP financial measures)".
 
Sales of the Industrial Products segment amounted to $1,296 million and the operating income attributable to the segment amounted to $350 million, sales of the Potash segment amounted to $1,623 million and the operating income attributable to the segment amounted to $393 million, sales of the Phosphate Solutions segment amounted to $2,099 million and the operating income attributable to the segment amounted to $208 million, and sales of the Innovative Ag Solutions segment amounted to $741 million and the operating income attributable to the segment amounted to $57 million.
 
For a breakdown of sales and a geographic market by segments for each of the last three fiscal years, see “Item 5 - Operating and Financial Review and Prospects— A. Operating Results”.
 
Our Industries
 
The majority of our businesses compete in the global fertilizer and specialty chemicals industries.
 
Fertilizers
 
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. ICL sells phosphorus‑based and potassium‑based products. 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. 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. Without these nutrients, crops cannot achieve their growth potential. 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 produce in storage and transportation, thereby prolonging the shelf life of produce.
 
 
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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. In spite of the volatility that may be caused in the short term as a result of these factors, we believe 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. Due to the existing entry barriers and the excess of supply over demand, in the long term we expect a reduction in the entry of new players into the market and the expansion of production capacity, until a new breakeven point between the supply and the demand is reached.
 
Potash helps regulate a plant’s physiological functions and improves plant resilience, providing crops with protection from drought, disease, parasites and cold weather. Unlike phosphate and nitrogen, potash does not require additional chemical conversion to be used as a nutrient fertilizer. Potash is mined either from underground mines or, less frequently, from solutions found in nature, such as the Company’s operations in the Dead Sea. According to estimates of the United States Geological Survey, nine countries account for approximately 94% of the world’s potash natural reserves and according to the Fertecon Potash Outlook December 2018 report, worldwide sales of potash in 2018 were higher than in 2017 due to increased demand, mainly in China and Brazil.
 
The entry barriers facing new competitors into the potash market are significant, and include a long period of time and an investment of billions of dollars of capital per operation. For example, economically recoverable potash deposits are scarce, typically deep in the earth and geographically concentrated. Nonetheless, several fertilizer companies are in the process of commissioning new potash mines.
 
Phosphate is essential for the development of the plant’s root, and is required for photosynthesis, seed germination and efficient usage of water. The main raw materials for phosphate fertilizers are phosphate rock and sulphuric acid, as well as ammonia. The principal phosphate fertilizer producing regions have plentiful reserves of high quality phosphate rock that can be mined at a low cost. In 2018, the vast majority of the world’s phosphate rock production was in China, Morocco, the United States and Russia. In the phosphate market, the need for access to competitive sources of multiple raw material feedstocks (phosphate rock, sulphuric acid and ammonia), combined with the complexity of developing an economically feasible downstream value chain, constitute a significant entry barrier with respect to new competitors.
 
The specialty fertilizers market is growing faster than the markets for conventional fertilizers. Specialty fertilizers are generally used for specialty crops (such as greenhouses and horticulture) but are also expanding into usage for larger specialty field crops. Farmers use fertilizers that are customized to meet the needs of specific crops, soil types and climates, 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. In addition to reduction of the environmental impacts, the specialty fertilizers contribute to a more efficient and effective fertilization of different types of agriculture products (fruits, vegetables, etc.). Increase in the demand for food is expected to give rise to an increase in the use of specialty fertilizers. These fertilizers include, among others, “enhanced efficiency fertilizers” which include controlled release fertilizers (CRF), which allow for precision in the release of nutrients over time, and delayed/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.
 
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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. FertilizerpluS includes, among others, the following products:
 
· Polysulphate™ – polyhalite is a mineral that is exclusively mined by ICL through the Potash segment in an underground mine in the UK 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.
 
·
PotashpluS – a compressed mixture of Polysulphate™ and potash. The product includes potassium, sulphur, calcium and magnesium.
 
·
PKPlus – a unique combination of phosphate, potash and Polysulphate™.
 
·
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.
 

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Specialty Chemicals Industries
 
Specialty phosphates - ICL’s specialty phosphates products are based on ICL's backward integrated value chain, which uses phosphate rock and fertilizer-grade phosphoric acid (“green phosphoric acid”), for the production of specialty phosphates products with higher added value, such as pure phosphoric acid and salts for various applications. These products provide ICL with additional value on top of commodity phosphates. One of the major applications for specialty phosphates provides solutions based on specialty phosphate salts and acids for the diversified industrial end markets, such as oral care, cleaning products, paints and coatings, water treatment, asphalt modification, construction and metal treatment. Another major application is for the food industry, as functional food ingredients and phosphate additives, which provide texture and stability solutions for the processed meat, poultry, seafood, dairy, beverage and baked goods markets. Demand for specialty phosphates is driven by global economic and population growth and improved living standards, which promote the adoption of more sophisticated food products as well as improved industrial products and production technologies.
 
Bromine is a member of the halogen family and known for its diverse uses in many industries. Based on a study conducted in 2014 at Vanderbilt University, among 92 naturally occurring chemical elements, bromine falls within a class of 28 chemical elements that are essential for human life. Bromine is used in the production of a range of bromine compounds.
 
The largest commercial use of bromine is in the area of bromine‑based flame retardants, which, based on ICL’s internal estimations, accounts for approximately 40% of the demand for bromine. In order to meet fire-safety requirements, flame retardants 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. Additional commercial uses of bromine are in the following industries: rubber production, oil and gas drilling, water purification, intermediate materials for production of medicines and pesticides, and others. ICL and its competitors focus on R&D to introduce new products and uses for bromine on an ongoing basis.
 
Bromine is found naturally in seawater, underground brine deposits and other water reservoirs, such as the Dead Sea. The concentration of bromine varies depending upon its source. The method for extracting bromine depends on the nature of its source and its concentration. 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, with concentration levels significantly higher than in regular seawater, 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 operation 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.
 
The bromine industry is highly concentrated, with three companies accounting for the majority of the worldwide capacity in 2018 (ICL, Albemarle and Lanxess). Lack of access to a low-cost source of supply, such as the Dead Sea, constitutes a significant barrier to entry for aspiring competitors, as well as the requirement for a logistical supply system and specialized transport containers (isotanks). The Company estimates that the majority of the global elemental bromine production is consumed internally by the bromine manufacturers, since there is a very small market for elemental bromine. Development of complex production facilities for downstream products is required in order to increase the global use of elemental bromine.
 
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 magnesium market is characterized by concentration of production, where about 85% of the production is in China.There are a small number of western producers, including US Magnesium in the United States, ICL Magnesium in Israel and RIMA in Brazil.
 
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Markets
 
ICL is built around 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. The segments 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 but also functions as ICL's innovative arm, focusing on R&D and digital innovation. 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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Industrial Markets
 
ICL’s Industrial Products segment and ICL's specialty phosphates business serve various industrial markets, benefitting from its integrated phosphate and bromine value chains.
 
Industrial Products
 
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 awareness and increased focus on cost effective production. These trends drive demand for more environmentally friendly and safer industrial products, as well as efficient and reliable service suppliers. ICL’s products serve a diverse number of industries, such as, construction, electronics, automotive, energy (including renewable energy), water and pharma & nutraceutical. Increased regulation and environmental awareness also drive demand for flame retardants including polymeric and reactive flame retardants, bromine‑based biocides for water treatment, bromine, magnesia and potassium chloride‑based intermediates for the pharmaceutical industry and oil additive solutions. ICL estimates that bromine demand is relatively stable and market growth is linked to global population growth. On the supply side, Chinese supply is in a downward trend due to resource depletion and increased environmental-related regulatory pressure in China. This, together with shortage of economically viable bromine resources globally, result in a tight supply‑demand balance and price increases.
 
Specialty Phosphates
 
ICL’s specialty phosphates business is based on ICL's backward integration into phosphate rock and fertilizer grade phosphoric acid which is cleaned to reach purified phosphoric acid (also referred to as food grade or technical grade acid). ICL markets purified acids and also produces phosphate salts based on it. ICL's phosphoric acids and salts serve many industries such as cola beverages, water treatment, cleaning materials, paints and coatings, metal treatment, oral care, construction and more. Phosphate salts used as food additives serve the dairy, bakery, meat, poultry and seafood industries.
 
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.
 
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, these are likely to be almost entirely offset by expected closures of TPA (thermal phosphoric acid) plants in China.
 
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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.
 
Agriculture Markets
 
ICL's potash, commodity fertilizers, FertilizerpluS and specialty fertilizers businesses serve agriculture markets worldwide. Global fertilizer demand is driven mainly by the supply/demand balance in respect of grains and other agriculture products, 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 9.8 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 3.3% and 6.5% in 2019 and 2020, respectively.
 
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 0.17 hectares per person between 2014 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 existing farms 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 double between 2007 and 2050. 77% of the growth is expected to be attributed to increase in yields.
 

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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 2018, corn and wheat prices increased by 8.4% and 19.3%, respectively, while soybean and rice prices decreased by 4.8% and 9.9%, respectively. WASDE report published by the USDA in February 2019 showed a decrease in the expected ratio of the global inventories of grains to annual consumption, to 29.2% at the end of the 2018/19 agriculture year, compared to 31.3% at the 2017/18 agriculture year, and 30.6% in the 2016/17 agriculture year. The decrease in the global stock-to-use ratio is mainly a result of a decrease in the ratio for wheat and corn compared to the previous agricultural year, due to a decrease in wheat production in Australia which is facing a drought and in Argentina due to a smaller crop on the background of an increased consumption and due to higher consumption of corn.
 
Specialty Agriculture
 
Specialty Agriculture markets are estimated to be growing at a rate of 5-15% a year, depending on the market segment (IFA, 2017). The decrease in arable land per capita due to population growth and the increasing pursuit of an improved quality of life are leading to a higher consumption of fruits and vegetables, which are considered specialty crops, and support the use of more sophisticated fertilizers that will enable higher yields. Increased environmental awareness is also contributing to the use of specialty fertilizers (since they result in higher nutrient efficiency).
 

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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.
 
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.
 

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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 in Spain, with vast resources. 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). Moreover, the Law for Taxation of Profits from Natural Resources in Israel which entered into effect on January 1, 2016, 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”.
 
United Kingdom and Spain mineral assets:  In addition to its operations in Israel, ICL mines potash in Spain and Polysulphate in the United Kingdom (potash production in the United Kingdom halted completely in mid-2018). 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 project also consists of expanding the above-mentioned processing facility’s capacity, logistics adjustments and improvements and construction of a new terminal in the Port of Barcelona. 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.
 
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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 90% 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 mining 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 and about third of production and in the potash market the Dead Sea operations has a leading competitive positions. 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.
 
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.
 
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·
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 39% of 2018 sales) and developed economies (approximately 61% of 2018 sales).
 
·
Available cash flows from operating activities and closely monitored capital allocation approach. Continuous focus on cash flow 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 $620 million in 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 (BBB- by S&P and Fitch). On March 6, 2018, the Company’s Board of Directors revisited the dividend distribution policy and decided that for 2018 and 2019 calendar years the Company’s dividend payment rate will continue to be up to 50% of the adjusted net income. In 2018, the Company declared and paid total dividends of $244 million, in respect of the fourth quarter of 2017 as well as the first, second and third quarters of 2018. Dividend payments in 2018 reflects a dividend yield rate of 3.8% (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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Our Strategy
 
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 better align the organization with this strategy, ICL Realigned the company into four business divisions: Industrial Products (bromine), Potash, Phosphate Solutions and Innovative Ag Solutions.
 
Industrial Products
 
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.
 
Potash
 
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 has shifted towards production of Polysulphate, becoming the first and sole supplier of this new and unique fertilizer. ICL also continues to enhance its competitive production of Magnesium and to optimize synergies with its potash operations at the Dead Sea.
 
Phosphate Solutions
 
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 to the phosphate resources of ICL Rotem in Israel and YPH in China, ICL will continue optimizing its 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.
 
Culture 
 
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.
 
Capital Structure
 
ICL’s growth initiatives will be supported by our strong financial position. ICL has taken several steps to solidify its capital structure and generate funds for future growth, by reducing debt and improving the maturity profile, optimizing capital expenditures and working capital, implementing cost reductions and divesting low‑synergy assets.
 
As part of this strategy, 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.
 
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Segment Information
 
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.
 
 
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 2018, the total sales of the Industrial Products segment totaled $1,296 million, constituting approximately 23% of ICL’s total sales (including sales to other segments), an increase of 9% compared to 2017 Sales. The segment operating profit totaled $350 million, constituting 35% of the total operating profit attributable to the segments. For additional information see “Item 5 - Operating and Financial Review and Prospects— A. Operating Results— Results of Operations”.
 
Products
 
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.
 
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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.
 
The following table sets forth the principal products of the Industrial Products segment, as well as their primary applications and end‑markets:
 
Sub-business line
Product
Primary Applications
Primary End‑Markets
Flame retardants
Bromine-, Phosphorus- and magnesium Based Flame Retardants
Additives used in plastic, building materials and textile production
 
 
Electronics, automotive, building and construction, furniture and textiles
Industrial solutions
Elemental Bromine
Chemical reagent
Tire manufacturing, pharmaceuticals and agro
 
Phosphorus-Based Industrial Compounds
Fire resistant fluids in turbines & power generation hydraulic systems and phosphorous-based inorganic intermediates
 
Power plants and agro
Organic Bromine Compounds
Insecticides, solvents for chemical synthesis and chemical intermediates
Pharmaceuticals and agro
 
Clear Brines
Oil and gas drillings
Oil and gas
 
Merquel
Mercury emission control
Emission control in coal‑fired power plants
 
Bromine‑Based Biocides
Water treatment and disinfection
 
Swimming pools, cooling towers, paper plants and oil and gas drillings
Specialty minerals
Magnesia Products
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 use in bromine-based flow batteries), VeriQuel™R100 (a phosphorus-based reactive flame retardant for rigid polyisocyanurate and polyurethane spray foam) and PolyQuel® P100 (polymeric phosphorous flame retardant for high end epoxy printed circuit boards).
 
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FR-122P Flame Retardant: Industrial Products has successfully introduced FR-122P as a sustainable polymeric flame retardant alternative to HBCD (hexabromocyclododecane) in the EU and Americas for expanded (EPS) and extruded (XPS) polystyrene foams used as insulation materials in the construction industry. Industrial Products is now focused on providing the same value chain support for the upcoming ban of HBCD in China expected in December 2021. For additional information, see “Item 4 - Information on the Company— B. Business Overview— Regulatory and Environmental, Health and Safety Matters - Limitations on the use of flame retardants and other products”.
 
TexFRon® flame retardant products for textiles:  In 2015, ICL began selling TexFRon® 4002, a polymeric flame retardant product for textiles developed as part of the R&D activities of the Industrial Products segment. TexFRon® 4002, which is designed to provide high‑level fire retardant solutions for textile and adhesive products, is an effective substitute for DECA, which the Company discontinued the production and marketing thereof, following a regulation prohibiting its use, which is expected to take effect in Europe in 2019. In December 2014, the TexFRon® 4002 polymeric product was recognized by Oekotex, a European standard for textile products. This product is the first bromine-based flame retardant that has received such recognition.
 
Energy storage: Bromine-based flow batteries are highly effective for storing large amounts of energy and offer important advantages compared to alternatives. ICL provides a high‑purity, tailor-made electrolyte solution together with a recycling process to assure that this technology is fully sustainable (in its post-use phase as well). Bromine-based flow batteries can be produced at lower cost, last longer and have greater capacity. ICL’s energy storage products were developed in order to address the developing needs deriving from the increased use of renewable energy. ICL supports technology developers with its world class experts and advanced laboratories, and its bromine-based energy storage technology provides environmental benefits.
 
VeriQuel™ R100 - Reactive flame retardant alternative to a legacy additive flame retardant (TCPP) in rigid polyurethane insulation applications.  VeriQuel™ R100 provides a timely drop-in replacement for TCPP due to the increased regulatory pressure against TCPP for its reported ubiquity in living environments. The strength of VeriQuel™ R100 is that it is reactive and thus helps avoid leaching or migration from the polymer into living environments as is reported with TCPP.  
 
PolyQuel® P100 - ICL has recently launched a new proprietary flame retardant PolyQuel® P100 targeting the high end printed circuit board market. PolyQuel® P100 offers a high performance solution for printed circuit boards. Being an active ester curing agent, this polymeric, non-halogen flame retardant provides higher flame-retardant efficiency, and lower dielectric values than other commercial phosphorus-based flame retardants. With this unique performance PolyQuel® P100 can be a high end solution for the telecommunication, server and transportation growing markets. This product was developed independently by ICL and is manufactured solely by ICL.
 
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Production
 
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 2018, ICL produced approximately 175 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.
 
In January 2018, a Central Control Room (CCR) was launched in Neot Hovav site. The CCR aligns Neot Hovav site with the industry's best practices in a way that supports information flow and allows remote control over the entire site. The new approach is based on centralized operational management which brings opportunities for innovation, economic of scale, benefits of safety, emergency response and management.
 
Competition
 
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 2018. 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.
 
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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 based on 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.
 
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 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. In China, for example, the segment's network includes three production facilities, a sales network and technical support. In the Netherlands, the segment has a bromine compound production facility, which gives it a competitive advantage over materials imported into Europe. The phosphorous‑based flame retardant and functional fluids production plants in the United States and Europe are situated in close proximity to the Industrial Products’ principal customers.
 
In the phosphorous‑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.
 
There are many competitors in the biocides market for water treatment. The major barrier to entry into the market is related to the process of obtaining approval from the regulatory authorities to supply the biocide. During 2015, a new regulation (BPR Art. 95) entered into effect in Europe permitting only holders of the biocide approvals to sell. This acted to remove Chinese producers from supplying directly to the market. ICL is a registered and approved biocide producer.
 
In the magnesia field, as well as in fields of the solid MgCl2, packed KCl and salts, there are many competitors that have a cost advantage compared to us, which forces us to look for niche markets where our uniqueness and our high quality products are important.   
 
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Raw Materials and Suppliers
 
The principal raw materials used by the Industrial Products segment for 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 from carnallite. The brine is pumped into ICL Industrial Products’ plant in Sodom, where bromine is produced in an oxidation process using chlorine.
 
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.
 
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.
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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.
 
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.
 
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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. Most of the sales are not executed under long‑term contracts or orders, but rather via current orders close to the date of supply. Nevertheless, the Industrial Products segment has several longer-term contracts (a year or more) and working to achieve additional long-term agreements.
 
Industrial Products’ policy is to maintain adequate inventory, which varies from product to product, in order to ensure orderly supply to customers in light of the customers’ distance from 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.
 
Seasonality
 
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.
 
Natural Resources Tax
 
The Law for Taxation of Profits from Natural Resources entered into effect on January 1, 2016. For additional information, see Note 17 to our Audited Financial Statements.
 
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Potash Segment
 
The Potash segment uses an evaporation process to extract potash from the Dead Sea and uses conventional mining to produce potash and salt from an underground mine in Spain. The segment markets its potash fertilizers globally and also carries on certain other operations not solely related to the potash activities. At the end of the second quarter of 2018, the Company ceased the production of potash in the ICL Boulby mine in the UK and shifted to sole production of Polysulphate™. The Polysulphate™ is produced in an underground mine at ICL Boulby in the UK, and is the basis for a significant part of the Company's FertilizerpluS product line. The segment also includes magnesium activities under which it produces, markets and sells pure magnesium and magnesium alloys, and also produces related by-products, including chlorine and sylvinite. In addition, the Potash segment sells salt that produced in its underground mines in Spain and UK.
 
In 2018, the total sales of the Potash segment were $1,623 million, constituting 29% of ICL's total sales (including sales to other segments), while the operating income of the segment totaled $393 million, constituting 39% of the operating income attributable to the segments. For additional information, see “Item 5 - Operating and Financial Review and Prospects— A. Operating Results— Results of Operations”.
 
Potash
 
Products
 
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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Production
 
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:
 
 

 
*The facilities in ICL Boulby were used for potash, in addition to Polysulphate, until the end of the second quarter of 2018. For more information, see "United Kingdom" below.
 
In 2018, the Potash business produced approximately 4.9 million tonnes of potash and reached an annual production record level of approximately 3.8 million tonnes in Israel which derived mainly from efficiency activity in planning, maintenance and operational excellence.
 
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.
 
The Potash business is focusing on improving the efficiency of its operations and streamlining its cost structure in order to improve its competitive position in the market and to develop new, specialized products based on the main raw materials of the segment by utilizing the existing production facilities and sales and logistics array. Under this framework, the following actions were taken:
 
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Israel
 
During the third quarter of 2018, the new power plant in Sodom, Israel became operational. The power plant is expected to reduce energy costs and support production of ICL's plants in Israel. The power plant produces steam that satisfies the Sodom site consumption and sells surplus electricity to other ICL companies and external customers. In 2018, the power plant contributed to ICL an operating income of about $10 million. For additional information, see Note 20 to our Audited Financial Statements.
 
Spain
 
In 2011, ICL’s Board of Directors approved the restructuring of ICL Iberia’s operations from two sites to one site, as part of an efficiency plan, while maintaining the current level of production. According to this plan, production at the Suria site in Spain, which includes a mine and a plant, will be expanded gradually, whereas the mining and production activities at the second site (Sallent) will be discontinued.
 
As part of the above-mentioned plan, 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 the environmental standards.
 
At the end of 2016, the compaction and flotation plants were operated. Towards the third quarter of 2018 the commissioning of the vacuum salt plant was completed and the plant became operational. Construction of the new access tunnel to the mine, which is designed to significantly reduce production costs and improve production capacity at the Suria site in Spain, is progressing and the completion is expected to take place at the end of 2019, the operation is expected to begin in the first quarter of 2020. 
 
In order to help implement these expansion plans in Spain, in 2015, AkzoNobel (AkzoNobel Industrial Chemicals) and ICL Iberia signed an 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.
 
All of the production and pure potash marketing was planned to be performed by ICL and the vacuum salt marketing was planned to be performed by AkzoNobel by way of an off-take agreement for acquisition of the partnership’s products.
 
Pursuant to the agreement mentioned above, subject to certain conditions, ICL agreed to finance and construct two manufacturing facilities on its mining site in Suria in Spain. Each vacuum facility planned to have a production capacity of 750 thousand tonnes of vacuum salt per year. The commissioning of the first facility was completed towards the third quarter of 2018.
 

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The 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 during the next two years 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, on August 2018, AkzoNobel commenced arbitration proceedings according to the agreement between the parties. The Company filed its response on October 2018. On January 2019, three arbitrators were appointed to follow the proceeding.
 
In September 2018, a definitive Urban Master Plan (PDU) was approved, constituting the next stage in the Suria site expansion. The PDU allows, among other things, to expand the industrial area to new facilities in Suria needed for increasing the capacity.
 
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 after completion of the necessary adjustments. In order to support the expected operational expansion 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 and is making preparations for transition to use thereof. The new facility is expected to be constructed and operative towards the end of 2019.
 
In 2015, Generalitat Catalunya launched a new project to renovate and duplicate the existing brine collector from Abrera up to Suria and Sallent. The new trench will allow to increase the capacity and improve the existing salt treatment of ICL. The Company is negotiating with the authorities regards the new collector from the production site, in order to secure the future operation.
 
United Kingdom
 
Further to the Company’s decision to accelerate the transition from extraction and production of potash to production of Polysulphate™ in the ICL Boulby mine in the UK, at the end of the second quarter of 2018 the Company ceased the production of potash and shifted to sole production of Polysulphate. The workforce reduction as a result of the transition to production of Polysulphate was about 180 positions. Further to the losses recorded in 2017, ICL Boulby recorded notable losses during 2018 and is expected to continue to record losses throughout the transition process from potash to Polysulphate. For additional information, see “Item 4 - Information on the Company— D. Property, Plant and Equipment— Mineral Extraction and Mining Operations” and “Reserves”.
 
Competition
 
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.
 
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During 2018, the new (Greenfield) mines experienced slower than expected ramp-up, partly due to operational challenges. According to market observers, K+S experiences some difficulties with the granulation stage production process in its Bethune mine in Saskatchewan (Canada), which started producing potash in June 2017, led it to deliver standard MOP to the Far East including China. In addition, K+S, closed its Sigmundshall site in Germany (capacity of 0.75 million tonnes per year in 2017). EuroChem, has cut its forecast for 2018 output from its new mines in Russia, Usolskiy (expected nameplate capacity of 3.7 million tonnes per year in 2024) and Volgakaliy (expected nameplate capacity of 4.6 million tonnes per year in 2024) to a total of about 0.3 million tonnes. Turkmenhimiya's new potash mine (Garlyk) in Turkmenistan, which was inaugurated in March 2017 (nameplate capacity of 1.4 million tonnes per year), is believed to be inoperable. Slavkaliy's Nezhinsky potash project in Belarus (expected nameplate capacity of 2 million tonnes per year) ramp-up is expected to be delayed from 2020 to 2022. Belaruskali's Petrikov project (expected nameplate capacity of 1.5 million tonnes per year in 2022) ramp-up is expected in 2020. 
 
Mosaic commissioned the new production skip at its Esterhazy K3 mine in Saskatchewan (Canada) in December 2018. This Brownfield project is expected to reach its full operational capacity (7.35 million tonnes per year) by 2024. In Russia, there were reports of flooding at Uralkali's Solikamsk 2 mine, although it seems like there was not a significant impact on the Uralkali's production as it continued its production from the adjacent Solikamsk 1 mine. Lao Kaiyuan is expected to expand the nameplate capacity of its Khammouans site in Laos from 0.5 to 1.5 million tonnes per year until 2021. It should be mentioned that nameplate capacities are in accordance with Informa (Fertecon) Potash Outlook Report - December 2018. Other information is in accordance with CRU Fertilizer Week.  
 
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).
 
 
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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.
 
·
A professional agronomic sales team that focuses on individually‑tailored agronomic consulting to customers based on an analysis of the different growing conditions of each particular customer.
 
·
A leading R&D set‑up in the area of potash production.
 
·
Synergies between the various production plants in Sodom site.
 
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, China, Brazil 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, see below). Accordingly, the Potash segment does not have a significant orders' backlog.
 
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 and the available supply 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 the Indian and Chinese markets, it is customary to carry on concentrated negotiations regarding the potash contracts – part of which with commercial entities related to the governments of those countries.
 

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In August 2018, ICL signed a potash supply contract with its Indian customers, in the total amount of 775 thousand tonnes (including optional quantities), for delivery between September 2018 and June 2019. The contract price is $290 per tonne CFR (an increase of $50 per tonne compared with the 2017 contract price).
 
In September 2018, ICL signed a potash supply contract with its Chinese customers, in the total amount of 905 thousand tonnes (not including additional optional quantities), for delivery up to June 2019. The contract price is $290 per tonne CFR (an increase of $60 per tonne compared with the 2017 contract price).
 
In November 2018, ICL has signed framework agreements with its customers in China for 2019-2021, to supply 3 million tonnes of potash, with additional options for 750 thousand tonnes. Prices for the quantities to be supplied are subject to the prevailing market prices in China at the relevant date of supply.
 
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.
 
In other markets, potash is usually imported by a larger number of customers, and the potash price is determined between the suppliers and the customers for shorter periods (quarterly, monthly or even for individual shipments). In these markets, the Company has trade relations with most of the major customers.
 
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. In order to support the expected operational expansion 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 and is making preparations for transition to use thereof. The new facility is expected to be constructed and operative towards the end of 2019.
 
The Potash segment grants credit terms to its clients according to customary practices in their locations. The segments’s credit sales are generally covered by trade credit risk insurance or by letters of credit from banks with high credit ratings.
 
ICL involved in number of activities dealing with the need for increasing food quality, as well as for increased efficiency in the agriculture sector, to respond to the world’s growing population, decreasing agricultural land and the urgent need for greater environmental stewardship:
 
Potash for Life (India) - In 2018, the Company continued the “Potash for Life” project in India, in light of its position in this market and the relatively low use of potassium fertilization in this country. About 1,000 demonstration plots were conducted in farmers' fields in ten states and more than 42 districts. Other educative activities, like farmers' field days, potash campaigns and crop seminars were also conducted.
 
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Feed the Future (Tanzania) - In May 2017, the United States Agency for international development (USAID) sent out a call for proposal of funding under the Feed the Future Tanzania Mboga na Matunda (Fruit and Vegetables) program. Over 70 agricultural companies applied, ICL was one of the few companies that won the co-funding award. Through the USAID funded project, ICL seeks to strengthen the fertilizer input supply system by providing high quality and innovative products through demonstrations and training on balanced fertilization. It will also create awareness of ICL's fertilizers products and the adoption of sustainable fertilization practices.
 
Research Center for Fertilizers & Plant Nutrition – Global Knowledge - In 2015, ICL established a Center for Fertilization and Plant Nutrition (CFPN). The CFPN is a global center for research and knowledge in the field of fertilizers and plant nutrition in conjunction with Israel’s Agricultural Research Organization (ARO). Research is conducted by ARO scientists in partnership with colleagues from other research institutions. The CFPN offers scholarships and research grants to graduate and Ph.D. students in Israel and from abroad. CFPN trains and works with foreign students from Asia and East Africa. Training courses and workshops are conducted for Israeli farmers and agronomists from the world.
 
International Potash Institute (IPI) - ICL is part of IPI, a non-governmental and non-profit organization whose mission is to develop and promote balanced fertilization for the production of higher yields and more nutritious food, together with ensuring sustainability of production through conservation of soil fertility for future generations. IPI conducted in 2018 dozens of field experiments and research projects worldwide. In addition, several farmers' days and workshops were conducted in Asia, Africa, Europe and Latin America.
 
Seasonality
 
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.
 
Natural Resources Tax
 
The Law for Taxation of Profits from Natural Resources, entered into effect on January 1, 2016, except with respect to ICL Dead Sea (potash operation) regarding which the effective date was January 1, 2017. For additional information, see Note 17 to our Audited Financial Statements.
 
Additional products
 
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.
 

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FertilizerpluS
 
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.
 
Polyhalite is a mineral that is exclusively mined by ICL through the Potash segment in a underground mine in the UK 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 addition, in order to develop the Polysulphate™ market for both existing and new uses, the Potash segment has set up a team of agronomists that are performing dozens of tests on various crops in different countries. The favorable results of these tests are the basis for expansion of the sales to new customers and markets.
 
The Company believes that the FertilizerpluS product line benefits from the following competitive advantages:
 
·
ICL is the sole producer of Polysulphate™ worldwide.
 
·
ICL Boulby's infrastructure supporting Polysulphate production (previously used for potash production) is already in place, including mine, shaft and transportation logistics.
 
·
The ability to increase production at a relatively low capital expenditure.
 
·
The Polysulphate™ and Polysulphate™-based fertilizers, which include different compounds of phosphorus, sulphur, magnesium and calcium, are tailored for various types of soil and a wide range of crops, achieved high performance in enhancing crops, improving yields and increasing fertilizer efficiency.
 
·
Polysulphate™ contributes to and follows the main market trends in the fields of increased nutrient-use efficiency, low carbon footprint and organic fertilizers.
 
·
The FertilizerpluS product line is part of ICL’s strong market position in fertilizers.
 
·
The FertilizerpluS product line has an inherent potential for the development of new products and applications.
 

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Following are several examples of Polysulphate™-based products 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 the third quarter of 2018, the segment finalized the industrialization process for the production of PotashpluS and in 2019 plans to increase significantly the production and the sales quantities of the product.
 
·
PKpluS – a unique combination of phosphate, potash and Polysulphate™. In 2018, the Company, through the Phosphate Solutions segment, sold the product in commercial quantities and in 2019 plans to increase the production and the sales quantities of the product.
 
At the end of the second quarter of 2018, the Company ceased the production of potash in ICL Boulby mine in the UK and shifted to sole production of Polysulphate™ and salt.
 
In 2018, the Company produced approximately 350 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 2020. 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 is the sole producer of Polysulphate worldwide. However, in North Yorkshire in the UK, where ICL's Polysulphate operations are located, there is an additional concession owned by another potential producer, which, according to its formal publications, plans to develop a polyhalite mine with a production capacity of up to 10 million tonnes, subject to its ability to raise several billions of dollars for the mine development. If successful in raising the funds and build the mine and operations, 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.  
 
Magnesium
 
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 and related by‑products, including 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).
 
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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 2018, the Potash segment produced approximately 21 thousand tonnes of magnesium.
 
The current annual potential production capacity of the magnesium facilities is 33 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.
 
About 85% of the production in the magnesium market is in China. There are a small number of western producers, including in the United States, Brazil and Russia. In the United States and Brazil, import of magnesium and magnesium alloys from China is subject to anti-dumping duties that are imposed in order to protect the local producer in these countries.
 
In October 2018, a petition was filed to the International Trade Administration of the US Department of Commerce and the US International Trade Commission by a US magnesium competitor (hereinafter - US Magnesium), to impose antidumping and countervailing duties on imports of magnesium from Israel. US Magnesium claims that imports of magnesium produced in Israel by Dead Sea Magnesium Ltd. are being subsidized and sold at less than fair value in the US market. The US Department of Commerce is expected to issue its preliminary determination with respect to subsidies on May 2, 2019. As at the date of the report, considering the early stage of the proceedings, there is a difficulty in estimating the chances the petition will be accepted or whether tariffs will be imposed in the future. Market reaction has seen impact through increased prices coupled with future supply concerns by consumers. For additional information, see “Item 3 - Key Information— D. Risk Factors— Risks Related to Our Business— Our magnesium sales in the Unites States are under investigation by the International Trade Administration of the U.S. Department of Commerce and the U.S. International Trade Commission.”
 
The Company believes that the magnesium business benefits from the following competitive advantages: the level of the magnesium cleanliness and quality that permits its use in sensitive and unique industries, the Company's developed magnesium alloys and intellectual property that allows the production of advanced magnesium applications and the utilization of by-product produced during the magnesium production for other activities in ICL (e.g. chlorine, etc.).
 
The global magnesium markets can be divided in two in terms of prices: regulated markets (based on prices of the local producers in US and Brazil) and ROW markets (Rest of the World - based on Chinese magnesium prices). Chinese magnesium prices have increased during 2018 mainly due to tightness of environmental regulations imposed in China. However, they are still significantly lower than the prices in the regulated markets. Most of DSM's sales are designated for the regulated markets and specific niche markets. The price levels in the regulated markets has slightly increased during 2018, despite this increase, their relatively low level resulted in DSM's negative results over the last few years as well as in 2018.
 
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Phosphate Solutions Segment
 
The strategy of the Phosphate Solutions segment is to be a leading provider of value added specialty solutions based on phosphate for the industrial, food and agriculture markets. The segment’s goal is to outgrow the market by enhancing its customer relationships and at the same time optimizing its upstream capabilities directed towards specialties products. The segment operates in two main streams: Phosphate Specialties and Phosphate Commodities. The diversification into higher value-added specialty products leverages ICL's integrated business model and provides it with additional margins on top of the commodity margin.
 
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.
 
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 located in Yunnan province in China. Sulphuric acid, green phosphoric acid and phosphate fertilizers are produced in facilities in Israel, China and Europe.
 
The Phosphate Solutions segment purifies some of its green phosphoric acid and manufactures thermal phosphoric acid to provide solutions based on specialty phosphate salts and acids for diversified industrial end markets, such as oral care, cleaning products, paints and coatings, water treatment, asphalt modification, construction and metal treatment. The specialty phosphate salts and acids are mainly produced in the Company’s facilities in US, Brazil, Germany and China. The segment is also a leader in developing and producing functional food ingredients and phosphate additives, which provide texture and stability solutions for the processed meat, poultry, seafood, dairy, beverage and baked goods markets. In addition, the segment supplies pure phosphoric acid to ICL’s specialty fertilizers business and produces milk and whey proteins for the food ingredients industry.
 
Phosphate Solutions: Backward Integrated Value Chain 
 
 
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In 2018, the total sales of the Phosphate Solutions segment were $2,099 million, constituting 38% of ICL's total sales (including sales to other segments), while the operating income of Phosphate Solutions totaled $208 million, constituting 21% of the operating income attributable to the segments.
 
In 2018, total sales of Phosphate Specialties, were $1,197 million (constituting 57% of the Phosphate Solutions segment’s sales), reflecting an increase of $71 million or 6% compared to 2017. The operating income of Phosphate Specialties, in 2018 totaled $171 million, reflecting an increase of $45 million or 36% compared to 2017.
 
In 2018, total sales of Phosphate Commodities, were $1,069 million (constituting 51% of the Phosphate Solutions segment’s sales and including sales to Phosphate Specialties), reflecting an increase of $17 million or 2% compared to 2017. The operating income of Phosphate Commodities in 2018 totaled $37 million, reflecting an increase of $14 million or 61% compared to 2017. For additional information, see “Item 5 - Operating and Financial Review and Prospects— A. Operating Results— Results of Operations”.
 
Products
 
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.
 
Green phosphoric acid (fertilizer-grade 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 (TSP, SSP, GTSP and others) for different uses.
 
The segment manufactures pure phosphoric acid in Israel by purifying green phosphoric acid and also manufactures technical-grade purified phosphoric acid and green phosphoric acid in China, pure phosphoric acid in Brazil, and food grade and industrial phosphate salts in Israel, Germany, Brazil, the US and Mexico. 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. In addition, the segment supplies pure phosphoric acid to ICL’s specialty fertilizers business.
 
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 a variety of other industries.
 
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The segment's products for the food industry include functional food ingredients and phosphate additives, which provide texture and stability solutions for the processed meat, poultry, seafood, dairy, beverage and baked goods markets. In addition, the segment produces milk proteins and whey proteins for the food ingredients industry and offers spices and spice blends for the processed meat and poultry industries.
 
Some of ICL's products for the chemical and the food industries are based on its intellectual property and have well-known brand names in their relevant markets.
 
Production
 
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 commodities and specialties products 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, Australia and Mexico. 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 7 million tonnes of phosphate rock, approximately 2.7 million tonnes of phosphate fertilizers, approximately 1.3 million tonnes of green phosphoric acid, approximately 345 thousand tonnes of purified phosphoric acid (as Phosphorus Pentoxide), approximately 385 thousand tonnes of phosphate salts. 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 2018, Phosphate Solutions segment produced approximately: 5,006 thousand tonnes of phosphate rock, 1,195 thousand tonnes of green phosphoric acid, 2,304 thousand tonnes of phosphate fertilizers, 289 thousand tonnes of pure phosphoric acid (as Phosphorus Pentoxide), 269 thousand tonnes of phosphate salts, 71 thousand tonnes of food multi-blends.
 
In the second half of 2018, green phosphoric acid production at ICL Rotem was unfavorably impacted by technical operation challenges. During the third quarter of 2018, activities at ICL Rotem's Zin plant stopped for 2 months in order to adjust phosphate rock production volumes to the business environment. In November 2018, the Company signed an agreement with the worker's council which regulates the transition to a five-day workweek at ICL Rotem's Zin plant.
 
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 and shifted to profitability during 2018, mainly due to reduction in costs, increased production and sales and an increase in phosphate products prices.
 
Competition
 
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, China, Russia, Jordan, the United States, Brazil, Saudi Arabia, Tunisia and others. The main phosphate producers who compete with ICL are Office Chérifien des Phosphates (OCP, from Morocco), Ma’aden (Saudi Arabia), Mosaic (United States and Saudi Arabia via JV with Ma'aden), Jordan Phosphate Mines Co. (Jordan), Nutrien (Canada), Group Chimique Tunisienne (GCT, from Tunisia), the Roullier Group (Europe) and other various Russian and Chinese producers.
 
 
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The planned production expansion during 2018 of world's major phosphates' fertilizers producers was slower than expected: although first exports of phosphate fertilizers were executed in July 2017 from Ma'aden, Sabic and Mosaic owned project of Wa'ad Al Shamal (Saudi Arabia), its ramp–up rate during 2018 was lower than planned. Moreover, during 2018 Mosaic had shut down its Plant City (US) operations which had a capacity of about 1.2 million tonnes P2O5, due to its partnership in the Wa'ad Al Shamal project. Following that, Mosaic idled all its South Pasture mine operations in Hardee County, Florida, during September 2018. OCP (Morocco) had commissioned its fourth granular phosphate hub at Jorf Lasfar (JPH-4) during the first half of 2018, bringing its overall granular phosphates capacity to around 12 million tonnes per year. However, according to CRU Fertilizer Week, OCP adjusted its planned development strategy at this site in November 2018, and it now plans to reach 15 million tonnes per year granular phosphate capacity by the end of 2020, rather than the end of 2019. The increase includes the addition of three new granulation units of 1 million tonnes per year capacity each and are expected to have flexibility to produce SSP and TSP. OCP is also set to start up a new sulphuric acid unit in the first quarter of 2019 with a further two sulphuric acid plants, also planned to start by mid‑2020. In addition, Nutrien (Canada) closed in December 2018 its 0.2 million tonnes per year phosphoric acid production plant in Geismar (US). This shutdown, together with the conversion of Nutrien's Redwater (Canada) MAP unit to ammonium sulfate production, have led for its being fully self-sufficient in phosphate rock.
 
China is a significant player in the commodity phosphate market. Its industry is fully integrated based on its local phosphate rock reserves, and it is a net exporter of phosphate rock, although it may import phosphate rock due to both economic as well as to quality considerations. China is a major phosphate fertilizer exporter. DAP export during 2018 was 7.49 million tonnes, an increase of 17% year on year, mainly due to an increase of 51% in exports to India to 3.04 million tonnes. MAP export during 2018 was 2.49 million tonnes, a decrease of 8.2% year on year, mainly as a result of a decrease of 19% in exports to Brazil to 815 thousand tonnes, while exports to India increased by 20% to 154 thousand tonnes, according to China's General Administration of Customs. These figures were supported by higher than expected prices as a consequence of high import demand, mainly in India as the result of on Indian rupee depreciation against the US dollar, the Indian domestic fertilizers subsidy policy and in light of the above described slower than expected phosphates production expansion.
 
Phosphate Solutions segment has a leading position in the field of pure phosphoric acid and its downstream products, as well as in the field of food grade phosphate and dairy proteins area.
 
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.
 
ICL's competitive advantage in specialty phosphates field derives from product features, quality, service and the ability to meet the customers’ needs.
 
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 access to raw materials, supply chains and technologic know‑how.
 
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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) 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 its geographical location, close proximity to ports in Israel and Europe and relative proximity to its customers. In addition, ICL is a unique 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.
 
·
A professional agronomic sales team that focuses on individually‑tailored agronomic consulting to customers based on analysis of their specific combination of agricultural products and growing conditions.
 
·
Phosphate Solutions segment is the only fully integrated global producer of downstream phosphate-based products and its geographical diversification provides a competitive advantage in logistics, as a supplier to global food companies.
 
·
As a result of the acquisition of YPH, the JV in China, ICL has an integrative phosphate platform in China with better access to the Chinese market. In addition, Phosphate Solutions segment enjoys a competitive cost advantage with respect to its phosphate activities due to access to low‑cost phosphate rock with long‑term reserves, as well as low‑cost green phosphoric acid.
 
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 in Israel and China, through production of green phosphoric acid and up to the production of phosphate-based fertilizers, pure phosphoric acid and specialty phosphate.
 
The primary raw materials acquired from external sources are mainly sulphur, ammonia, different grades of pure phosphoric acid and caustic soda.
 
Sulphur prices increased during most of 2018 but started to moderate from November 2018. Average sulphur prices in 2018 (bulk crushed lump and gran CFR price China) were $154 per tonne, compared to $122 per tonne in 2017 and compared to $126 currently (according to CRU - Fertilizer Week Historical Prices, February 7, 2019). Market observers are forecasting that the downward trend will continue during the first half of 2019, mainly due to the weakening of the phosphates market.    
 
During the fourth quarter of 2017, towards the expected termination of the long-term contract for the supply of pure phosphoric acid with the supplier Nutrien at the end of 2018, the Company signed a new contract with Nutrien which guarantees regular supply of this raw material through December 31, 2025. The terms of the new contract will result in a modest margin reduction; however, ICL expects that most of the margin reduction will be recovered via market pricing actions and/or cost reductions in other areas.
 
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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, India, the United States and Turkey. Phosphate specialties products are primarily marketed to industrial, food and commercial customers in Europe, North America, South America and Asia. 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.
 
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 an 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.
 
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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.
 
Seasonality
 
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 17 to our Audited Financial Statements.
 
Innovative Ag Solutions Segment
 
The Innovative Ag Solutions segment was established on the foundations of ICL’s specialty fertilizers business. The segment aims to achieve global leadership 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, 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, slow release fertilizers (SRF) 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 and the US, 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 and Israel.
 
The segment will also function as ICL’s innovative arm, which will seek to focus on R&D, as well as implementing digital innovation.
 
In 2018, the sales of the Innovative Ag Solutions segment totaled $741 million, constituting approximately 13% of ICL's total sales (including sales to other segments), an increase of 7% compared to 2017 sales. The segment operating profit totaled $57 million, constituting 6% of the total operating profit attributable to the segments. For additional information, see “Item 5 - Operating and Financial Review and Prospects— A. Operating Results— Results of Operations”.
 
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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.
 
 
 
The Specialty Fertilizers business operates in 2 main markets:
 
Specialty Agriculture
 
This market includes high-value agricultural crops such as fruits and vegetables. Enhanced efficiency fertilizers are used and applied mainly in these crops. The use of specialty fertilizers in crops such as sugar cane can also be beneficial – subject to climate and soil conditions. The main market for ICL is related to the drip irrigation/fertigation market. This market is growing as the use of drip irrigation systems is growing across the globe. The use of enhanced efficiency 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 phosphorous).
 
Turf & Ornamental (T&O)
 
Ornamental Horticulture
 
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, and its main product lines for this market are specialty fertilizers such as 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 company providing a total solution for the ornamental growers as it produces and markets unique, high-quality peat and growing media products under the brand name Levington Advance.
 
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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 (specialty) fertilizers (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.
 
Innovation
 
The IAS segment will function as ICL’s innovative arm, promoting innovation, developing new products and services as well as digital platforms and technological solutions for farmers and agronomists. The segment will drive collaborations with innovative technologies and its goal is to introduce and integrate new digital solutions for the agricultural world by utilizing, among other things, external knowledge and platforms.
 
The ICL specialty fertilizers business has grown substantially through both organic growth and M&A. Over the past few years, the business has proven its ability to successfully integrate businesses into its existing platforms (R&D, sales & marketing, distribution channels), such as:
 
·
Everris, a company that manufactures and sells high‑quality controlled‑release, slow‑release and soluble fertilizers,
 
·
Fuentes Fertilizantes, a leading company in Spain that manufactures and distributes liquid and soluble fertilizers, NPK compounds and conventional fertilizers,
 
·
ICL Belgium, a manufacturer of soluble NPK fertilizer components,
 
·
AmegA, which develops advanced solutions for water conservation.
 
·
YPH in China also manufactures specialty fertilizers, contributing to the business line’s growth in Asia.
 
Products
 
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 among others 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:
 
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·
Controlled‑release fertilizers (CRF) allow accurate release of nutrients over time. CRF’s 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. 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 the release. 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 2 months). Main market for this is in the Turf and Amenity market.
 
·
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 and to maximize yields. These fully soluble fertilizers are also sometimes 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. 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 added too. 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 bedding and pot plant growers and nurseries.
 
·
Water conservation and soil conditioning products is a new product line developed by ICL's IAS segment. Water conservation products are used in professional turf to keep water in the root-zone. A key brand is 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.
 

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Production
 
ICL Innovative Ag Solutions’ principal production facilities include its plants in Israel (special compound fertilizers, liquid fertilizers and soluble NPK 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, 110 thousand tonnes of controlled‑release fertilizers and 400 thousand M3 of peat. 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 unexpected breakdowns, special maintenance operations, lack of availability of raw materials, market conditions and seasonality in demand.
 
Competition
 
The 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 is growing at an average rate of about 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.
 
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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 of agronomical know-how, as well as customer support capabilities. ICL focuses and relies on a worldwide experienced R&D team, allowing it to stay significantly ahead of the competition in many of the specialty-fertilizers product lines, especially in the controlled-release, water soluble and liquid fertilizers markets. ICL provides high-level professional support to customers by means of experienced and professional marketing and agronomist teams with strong customer relationships that have been developed over decades of service, and through the offer of an extensive product portfolio.
 
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), Produquimica (Brazil) and Kingenta (China) are 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 and 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.
 
On March 1, 2017, the District Court in Haifa (Israel) decided that the ammonia tank operated by Haifa Chemicals must be emptied no later than April 1, 2017, and that ships transporting ammonia are forbidden to enter Israel’s seaports. Ammonia is a raw material used for various purposes by ICL’s Innovative Ag Solutions, and is also sold to external customers as an end product and/or as ammonia derivatives. During 2017, the Company started to import ammonia in tanks and other nitric raw materials as alternative for ammonia imports in vessels until better alternatives will be approved by the Israeli Authorities. Where needed, ICL Innovative Ag Solutions is examining the production alternatives of the business-line in order to ensure continuous supply to the end customers. The total impact on the Company’s business results is not material. During 2018, the Company used isotanks to import ammonia for the production of all the required products and ammonia derivatives. During the year, imported ammonia costs decreased, mainly by optimizing supplier portfolio.
 
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ICL specialty fertilizers business 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 the USA and Europe, particularly Spain and Israel, 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 sales agents 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 which distribute the products exclusively or semi-exclusively. 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 line’s 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.
 
Seasonality
 
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).
 

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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 environmental impacts; health and safety; product stewardship throughout the entire product life cycle; responsible use of natural and land resources; advanced mine reclamation; fair employment; business ethics; community contribution; transparency and additional fields. For additional details on our practices and performance in all sustainability fields, see “ICL Corporate Responsibility Report 2017” in our current report on Form 6-K (File no. 001-13742) furnished to the SEC on December 31, 2018. In addition, the Corporate Responsibility web-report (which constitutes the aforementioned report), is available on ICL's website. Neither this current report on Form 6-K nor our website is incorporated by reference into 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 on 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.
 
ICL’s charitable contributions in 2018 totaled approximately $5 million. This amount does not include the numerous volunteer hours of the employees, partly at the employer’s expense.
 
Regulatory and Environmental, Health and Safety Matters
 
ICL is a mining and chemical company. Some of its products are defined as hazardous substances and are potentially harmful to the environment and to the health and safety of the public if not managed properly. 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. In addition, some of ICL’s products may be hazardous to those who are exposed to them during their production, transportation, storage or use. The Company operates in accordance with environmental, health and safety regulation.
 
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 2018, ICL spent approximately $121 million on environmental matters, of which approximately $47 million were capital projects in property, plant and equipment and approximately $74 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 "Air Monitoring and Treatment Rotem” below. The Company estimates that in 2019, it will spend approximately $171 million on environmental protection matters, of which approximately $101 million will be capital projects in property, plant and equipment while approximately $70 million on current expenses.
 
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Industrial production in general, and the chemicals industry in particular, requires taking special precautionary measures to maintain a safe and healthy work environment. Some of ICL’s products, raw materials and production processes represent a potentially high risk to anyone who deviates from the required professional safety standards or from the mandatory means of safety. ICL invests considerable efforts to ensure that it complies with the requirements of the authorities and acts in accordance with their instructions.
 
To ensure the safety of workers and others in its plants, ICL seeks to comply with strict occupational safety and health standards prescribed by local and international laws and standards. 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.
 
Regulations addressing environmental and other issues, which may have an impact on ICL’s activities:
 
The Company makes an ongoing and consistent assessment of the risks of its new products prior to entering them into commerce. In addition, existing products undergo an evaluation process at every stage in their production process and supply chain. 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.
 
New Fertilizer Regulation
 
The new future European Fertilizers Regulation, which is still in progress, will require 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 the new Law, fertilizer producers will have to demonstrate the ability to track their products to ensure the quality thereof in the production and supply chain.
 
In Europe the legislative process for the New Fertilizer Regulation ("NFR") is still in progress. The negotiators of the EU Parliament, Council and EU commission have made a compromise text which was approved by the Coreper (Committee of the Permanent Representatives of the Governments of the Member States to the European Union). Further approvals are needed (e.g. from the Parliament) before it is finalized. Fertilizers Europe (the branch organization of major fertilizer manufacturers in Europe), of which ICL is a member, expects that the NFR could be implemented from September 2019.
 
The NFR has a broad scope from all types of fertilizers, liming materials, biostimulants, growing media, soil improvers, inhibitors and blends of these materials. The impact to ICL will be considerable. Not only the labelling of products will need to change and the way to assess conformity, but also new tolerances and levels of contaminants are included in the NFR. Especially the level of cadmium for phosphate containing fertilizers was a point of long discussions. The current version is requiring a maximum cadmium level of 60 mg/kg P2O5 which was the level supported by the majority of the European fertilizer industry. Also for the polymer coatings on controlled release fertilizers very challenging biodegradation requirements are included in the NFR. If the criteria are not met in 7 years, it will not be possible to sell controlled release fertilizers using today's coatings as EC fertilizers. In addition, proposal requested by the EU commission to ECHA will likely influence the polymer coating for controlled release fertilizers. This proposed restriction was published in January 2019 by ECHA and will be open for public consultation.
 
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Limitations, regulation and registration on the use of products under the Industrial Products segment
 
Various countries are assessing possible limitations on the use of specific chemicals. Below are details regarding the main proceedings known to the Company as of the date of this Annual Report.
 
·
Tetrabromobisphenol A (TBBPA) 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 assessment is expected to be completed by the end of 2019. In October 2018, the California Office of Environmental Health and Hazard Assessment (OEHHA) added TBBPA to the Proposition 65 list, this process does not have a significant impact on the Industrial Products segment.
 
·
Hypobromous Acid (HOBr): The Netherlands has filed a Registry of Intent (ROI) to the European Chemicals Agency (ECHA), with a proposed classification of HOBr as a reproductive toxin category 1B under the Classification, Labelling & Packaging (CLP) EU Regulation. HOBr is the active biocide formed from a few products of the Industrial Products segment. If this proposal will be accepted and becomes officially binding, it may have significant implications on the bromine-based biocidal products in the EU.
 
·
Ammonium Bromide: Sweden has filed a dossier supporting proposed classification as reproductive toxin category 1B under the Classification, Labelling & Packaging (CLP) EU Regulation. If this proposal will be accepted and becomes officially binding, it may have significant implications on the bromides use in the EU (biocides and as chemicals).
 
·
Biocides: in a number of countries, a biocidal substance and any product containing it must be registered prior to import or sale in those countries. Sale is limited to those commercial uses for which registration has been granted in a given country. The registration is generally for a limited time and needs to be renewed in order to continue selling. In the EU, biocides are regulated by the Biocides Products Regulation (BPR) under the EU Chemicals Agency (ECHA). All of the Industrial Products segment's biocide registration submissions under the BPR are currently in the stage of evaluation by the relevant Member State performing the review.
 
On November 29, 2017, the European Commission published its delegated regulation, setting out the criteria for identifying endocrine disrupting chemicals (EDCs) under the EU Biocides Products Regulation (BPR) in the EU Official Journal, and it entered in to force on June 7, 2018. BPR is the first regime to apply the ED criteria, however, it will become applicable across sectors of EU law, such as REACH, cosmetics, and food contact materials. It is to be expected that some of ICL's biocides and other chemicals might be identified as ED, and as a result might be affected by various regulatory restrictions.
 
Biocides have also specific regulatory requirements, depending on the specific use, in many other countries. ICL has registered all its biocides under the USA FIFRA (Federal Insecticide, Fungicide and Rodenticide Act) and in all relevant states in the US and maintains full compliance under this law. ICL also registers its biocides as needed in all target markets as required by the local regulations.
 
·
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.
 
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Chemicals Regulation and Registration
 
Europe
 
REACH
 
A regulation setting up a framework for registration, evaluation, authorization and restriction (REACH) of chemicals in the European Union became effective as of June 1, 2007. The regulation applies to both chemicals already on the market, as well as to new chemicals. The regulation is being implemented gradually, between 2008 and 2018, under the authority of the ECHA (European Chemicals Agency). The regulation covers chemicals not regulated under other specific regulations in the EU (e.g. pesticides, biocides, food, pharma, etc.).
 
Pursuant to this legislation, manufacturers and importers of chemicals in the European Union are required to register each chemical above one ton per year. For each chemical a Lead Registrant is assigned, who produces a joint dossier with data on the chemical. Other registrants are co-registrants, who are required to produce a short dossier with company‑specific information and share the cost of the joint dossier. The amount and content of the information submitted in the dossier depends on the volume of production and/or sales in the EU, and the nature of the product in terms of its effect on health and the environment. Some of the products will undergo a thorough chemical evaluation by the ECHA and by a Member State based on the information that has been submitted. As part of the process, ECHA regularly publishes and updates a list of substances defined as “Substances of Very High Concern” (SVHC). The process defines, later on, substances which are candidates for authorization. Such authorization will only be granted on the basis of quantified evidence relating to management of the product with regard to health and environmental aspects, a lack of appropriate alternatives, and a socio‑economic evaluation. An authorization will be granted to a substance defined as SVHC for a specific use(s) and for a limited period of time. It is expected that for such substances, alternatives will be developed and introduced to the EU market.
 
Apart from higher production and raw material costs following implementation of REACH, under the law our subsidiaries incur costs in the field of registration, control and implementation of product stewardship programs with customers. Another possible risk caused by the REACH legislation is removal of certain substances from the European Union markets or prohibition of certain uses of a substance in the EU. However, there will be opportunities to introduce newly developed substances as alternatives to substances in products that will be restricted or removed from use in the European Union markets.
 
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) within the timetables set in the law. ICL has also volunteered to lead and prepare a large number of joint dossiers for the entire industry (as a Lead Registrant).
 
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As at the date of this Annual Report, there are several substances which are under evaluation by the Authorities, some of which have been listed as Substances of Very High Concern (SVHCs). 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 Flame Retardants and Other Products”.
 
CLP Regulation
 
Another important regulation in the EU is the CLP regulation (Classification, Labeling and Packaging of substances and mixtures), that entered into effect in the European Union in December 2010. Under this regulation the European Chemicals Agency (ECHA) is reviewing classifications of substances and mixtures. 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.
 
USA
 
The Toxic Substances Control Act of 1976 (TSCA), addresses the production, importation, use, and disposal of specific chemicals in the USA. The TSCA is administered by the US Environmental Protection Agency (EPA) that regulates the introduction of new and existing chemicals.
 
During 2016, the TSCA was reformed and some new requirements were implemented. One of the significant changes is the inventory reset rule, which required all manufacturers and importers to the USA to submit a report of all non-exempt substances imported or manufactured for commercial use during the years 2006-2016. This report is in order to ascertain the substances which will be classified as "Active" or "Inactive" in the TSCA inventory. ICL completed the submission prior to the deadline of February 2018.
 
Asia
 
K-REACH
 
On March 20, 2018, Korea’s Ministry of Environment (MoE) announced amendments to Act on Registration and Evaluation etc. of Chemicals (known as K-REACH), which has entered into force on January 1, 2019 and is similar to the EU REACH.
 
K-REACH includes registration requirements for all substances manufactured or imported into Korea above defined thresholds, at defined timelines, similarly to EU REACH. Basically, registration timelines for K-REACH are volume based, starting December 31, 2021, and ending December 31, 2030 (registration grace period for existing substances above 1 ton).  Some substances or uses (e.g. R&D substances, export only, polymer of low concern) are exempt from registration. However, a confirmation on exemption must be applied for.
 
Strict penalties are to be imposed on the manufacture, import, or sale of hazardous chemicals without registration.
 
ICL is getting prepared by collecting information towards the incoming pre-registration step, which is the first stage of K-REACH regulation, that starts on January 2019 and ends on June 2019. Completion of this step will allow continuation of ICL sales to Korea, to be subsequently followed by full registration processes.
 

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Air Quality
 
Climate Change and Greenhouse Gas Issues
 
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. 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 30% of the base year 2008 emissions, by 2020.
 
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 23% reduction in the GHG emissions of ICL between 2008 and 2017. This reduction constitutes 77% of our planned reduction target by 2020. It should be noted that excluding ICL’s acquisition of YPH JV, the Company has already surpassed it’s 30% reduction target.
 
The total ICL global GHG emissions for 2017 are 3,225,551 tonnes CO2e (Scope 1‑ 1,908,948 tonnes CO2e, Scope 2- 1,138,502 tonnes CO2e, Scope 3- 178,101 tonnes CO2e). The 2018 emissions will be finalized after the publication of this annual report. The Company currently expects a decrease in total emissions in 2018, with the full operation of the new Sodom power plant, supplying less-carbon intense electricity to ICL's sites in Israel.
 
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 2018 report, ICL has received a general CDP ranking of "B", which is tied for second place among global fertilizer companies. Also in 2018, for the CDP's new second sub-score, the Supplier Engagement Rating (SER), ICL has received the maximum score of "A". Only 120 of 5000  (2.5%) reporting companies achieved this score. ICL is the only fertilizer company and the only Israeli company, to make this "A" list.
 
This achievement reflects the enhancement of ICL's sustainable procurement practices in recent years. In October 2018, ICL has also joined the TFS (Together For Sustainability) initiative, a global supplier sustainability initiative which will enable our global procurement organization to enhance its engagement with the supply chain and increase ICL's confidence in the good practices of its suppliers.
 
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Israel
 
The Israeli Clean Air Law – Air Emission Permit
 
The Clean Air Law addresses, inter alia, fixed sources (including the Company’s plants) and is intended to serve as a platform for implementing the IPPC directive that was adopted by the European Union in 1996.
 
As of the date of this Annual Report, all ICL’s plants in Israel have received air emission permits. The air emission permits include provisions regarding the application of the Best Available Technologies (BAT), as well as provisions with respect to monitoring, control and reporting to the Ministry of Environmental Protection. The Company is taking steps to implement a plan to address the requirements of the air emission permits in coordination with the Ministry of Environmental Protection.
 
Examinations made by the Ministry of Environmental Protection in ICL Magnesium’s plant indicated that there are alleged discrepancies between the values measured in a number of stacks compared with the requirements provided in the emission permit. The plant was summoned to a hearing and clarification of the matter. As at the date of the report, it is not clear whether the findings relating to the plant are reliable and the matter was addressed with the Ministry’s personnel during the hearing. Notwithstanding the said uncertainty, in order to ensure compliance with the required values, the plant has initiated three projects for dealing with emissions. All were completed by December 31, 2018. Furthermore, ICL Magnesium initiated the installation of additional system to reduce the level of emissions in the plant's main stack, the completion of which is expected in the coming years.
 
In 2016, ICL Rotem received a new emission permit, as part of the Clean Air Law, requiring compliance with more strict conditions than the ones in the previous permit. In order to meet the requirements set in the new emission permit, ICL Rotem began implementing a multi-year plan for several projects. During 2017 and 2018, ICL Rotem was summoned to an administrative hearings in the Ministry of Environmental Protection, 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 Ministry. 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 Clean Air Law, in accordance with disscussions with the Ministry of Environmental Protection regarding the implementation of the law.
 
Over the next few years, the Company will make significant capital investments in order to comply with the emission permits received.
 
Air Quality – Monitoring and Treatment
 
During the Company’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.
 
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Rotem - In September 2016, plants at Mishor Rotem received an emission permit pursuant to the Israeli Clean Air Law. The Company is striving to implement the requirements of the permit. During 2017, the Company filed an appeal for changing 46 permit tasks. The Ministry of Environmental Protection (MOE) agreed to change 43 of them and a final 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 the second half of 2018 the Company conducted two risk assessments by external experts regarding the ability to execute all of the Clean Air tasks on time. The risk assessments focused on the safety and technical issues of implementing the large number of tasks according to the timetable. The risk assessments show that Rotem cannot implement the Clean Air requirements safely and with reasonable quality in the permit defined time line. After the risk assessments were completed the Company started a new negotiation, now ongoing, with the MOE in order to reschedule the implementation period.
 
During 2018, the sulphuric acid plant replaced and upgraded a catalyst system in order to reduce specific emissions by more than 30%.
 
In Rotem, there are 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.
 
Fertilizers & Chemicals (F&C) - ICL’s Haifa factory in Israel was converted to natural gas during 2018. This is conducted as part of ICL’s shift to environmentally-friendly energy sources throughout its facilities.
 
DSW - In the area of the Sodom Industrial Zone, Dead Sea Works operates three air quality monitoring stations, pursuant to the Clean Air Law. The data, which is measured on a continuous basis, is automatically sent to the Internet site of the National Monitoring Center of the Ministry of Environmental Protection, which is accessible to the general public. The main production facilities of Dead Sea Works in Sodom have been fully converted to natural gas and are connected to the gas transport network.
 
During the third quarter of 2018, the new power plant in Sodom became operational. The power plant is expected to reduce energy costs and is more environmental friendly.
 
DSM - The production facilities of the Dead Sea Magnesium plant produce mainly inorganic emissions. Some of the exhaust stacks are monitored in accordance with the directives in the emission permits issued to the Company. In the Dead Sea Magnesium plant, detectors were installed that send on‑line computerized warnings to the environmental authorities.
 
Neot Hovav - the Industrial Products segment operates advanced monitoring and detection methods to identify malfunctions in its plants’, such that before a malfunction occurs the facility's manufacturing activities are halted, and thus steps are taken to minimize uncontrolled emissions according to the laws and the conditions set out in its business license, its poisons permit, and its emissions permit. In addition, integrated pollution prevention and control (IPPC) methodologies are also applied, which provide guidance regarding all of the techniques for preventing and monitoring emissions into the environment. The main actions taken by the Industrial Products segment in the area of air quality are: investments were made in the production facilities in order to improve recycling and recovery of solvents and other organic materials emitted into the air via activated charcoal systems, in order to achieve reduction of the amount of these materials emitted into the air; investments were made in catalytic oxidizing technologies that reduce volatile organic compound emissions and comply with advanced values in accordance with the BAT (Best Available Technique); investments were made in the installation and upgrading of absorption systems in the inorganic systems; investments were made in the installation and upgrading of filters to prevent emissions of particles 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 company.
 
During 2018, Periclase installed an air emissions treatment facility for the Magnesia manufacturing process.
 
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Europe
 
Air Emission
 
In Europe, emissions are regulated under the EU IED – Industrial Emission Directive. Preventive measures and Best Available Technologies (BAT) are applied. Emission limit values for relevant substances are included as part of our 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 falling under the European SEVESO directive 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.
 
ICL Boulby’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.
 
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. Some of ICL's largest sites in Europe are 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. In 2018, ICL sold some surplus EUA's from its UK Boulby site. 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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Americas
 
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 Mexico, air emissions are managed through the site’s single environmental license or the LAU issued by SEMARNAT. 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.
 
China
 
The phosphate plant in China is tested once every six months by the Center for Environmental Protection regarding gas emissions. In the phosphate plant, the Company has adapted its facilities by means of installation of systems monitoring gas emissions in order to comply with local regulations and regulatory schemes. The plant is in compliance with all the laws and regulations. In 2017, the ammonia complex, which was located near the residential area proximate to the plant, was moved to the plant’s premises.
 
Energy
 
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.
 
Natural Gas
 
In 2012 the Company signed agreements for supply of natural gas to the Group’s manufacturing facilities in Israel with the “Tamar” reservoir. On December 5, 2017, ICL signed an agreement with Energean Israel Ltd. for the supply of up to 13 BCM of natural gas over a period of 15 years, amounting to approximately $1.9 billion. On November 2018, all conditions precedent to the agreement with Energean have been met. The signing of this agreement marked an important milestone for securing a consistent supply of gas to the Company’s facilities in Israel at a competitive price in relation to current gas supply agreements. 
 
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In February 2018, the Company entered into two supply agreements with the “Tamar" and “Leviathan” reservoirs to secure the gas supply needs of the Company until the end of 2025 or until the entry of the “Karish” and “Tanin” reservoirs into service (Energean) ‑ whichever occurs first.
 
The increased use of natural gas in ICL’s facilities has significantly reduced emissions of air pollutants in the area surrounding our 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.
 
For more information, see “Item 5 - Operating and Financial Review and Prospects— A. Operating Results— Principal Factors Affecting our Results of Operations and Financial Condition”.
 
Liquid, Solid Waste and Land Contamination
 
During the production processes at ICL’s facilities, industrial solid waste and wastewater are produced. According to the discharge permit, wastewater is channeled into water sources or evaporation ponds. The various production sites have adapted their treatment systems to the standards applicable to them.
 
Israel
 
Rotem – At the Rotem site, a master plan for treating waste is being implemented with the principal goal to reduce the effluent quantities, turning part of the effluents into products, recycling the wastewater, reducing the water consumption, treatment of wastewater and neutralization and restoration of the wastewater ponds, including the wastewater caused by the air emmision purificatio process 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 June 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 October 2018, the Court approved a settlement agreement between ATD (Adam Teva V’Din - Israeli Association for Environmental Protection) and the Company. Based on the agreement, Rotem will submit a plan for building a future gypsum pond on the west side of road 258. In addition, to the authorities' request, Rotem will submit an alternative location. The final location will be determined based on a full environmental survey, that will be held in the first half of 2019. For additional information, see Note 20 to our Audited Financial Statements.
 
The Company has conducted several pilots for wastewater recovery for the plants of WPA, MGA and fertilizers.
 
In 2017, as a result of a partial collapse of a dyke in Pond 3 in the plants of Rotem Amfert Israel, a leak occurred into Ashalim stream. Rotem Amfert Israel takes intensive action to restore the stream, in full cooperation with the relevant authorities. For additional information, see Note 20 to our Audited Financial Statements.
 
Fertilizers & Chemicals (F&C) – In ICL Haifa facility, several biological pilots 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 expected to be carried out during 2019.
 

93

 
Neot Hovav - At the Bromine Compounds plant a sanitary facility for independent treatment of the sanitary effluents is operated. The treated wastewater is sent as an input feed into the cooling towers. In addition, a facility was constructed for treating industrial wastewater, which includes a transmission system, physicochemical unit, MBR (Membrane Bio Reactor) unit and evaporation ponds. The system was built according to a US standard, which includes leakage monitoring and air monitoring. In 2013, construction of the evaporation ponds was completed, and all the plant’s wastewater is presently being pumped into these evaporation ponds.
 
Pursuant to the requirements of the Ministry of Environmental Protection, in the coming years ICL is required to treat the existing hazardous waste (historical), which is stored on a special site on the facility's premises (Area 14) in coordination with the Ministry of Environmental Protection, as well as the ongoing waste that is produced in the facility's present manufacturing processes. The treatment is partly through a combustion facility, which recovers hydro-bromine acid, while part of the waste will be sent to an outside source for treatment. The total provision for waste treatment amounts to about $56 million.
 
Industrial Products operates a special authorized laboratory for monitoring and analyzing wastewater quality.
 
ICL established a thickening and filtration facility to treat waste at the Periclase plant in Mishor Rotem. 
 
Europe
 
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. 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.
 
Due to phosphate pollution in the subsoil of the Ladenburg site, the phosphate concentration is monitored at several wells and reported regularly to the authorities.
 
In Spain, a multi‑year program is underway to restore salt piles while paying close attention to the issue of wastewater drainage and sludge treatment. In 2015, in accordance with the provisions of the Spanish Waste Management regulation, ICL Iberia submitted to the Government of Catalonia a mining site restoration plan for the two production sites Suria and Sallent, which includes a plan for handling the salt piles and dismantling of facilities. The restoration plan for the Suria site is scheduled to run up to 2094, whereas for the Sallent site up to 2070. In June 2018, the new restoration plan was approved. For additional information, see Note 20 to our Audited Financial Statements. 
 
94

 
Americas
 
The liquid and solid wastes in the Americas sites are managed under country and state specific regulatory requirements. In the USA, solid and hazardous wastes are regulated under the US EPA’s Resource Conservation and Recovery Act. In Mexico, waste is managed through the site’s single environmental license or the LAU issued by SEMARNAT. 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.
 
China
 
The phosphate plant in China is located in a rural area. The Company’s facilities in China are tested once every six months by the Center for Environmental Protection regarding gathering of solid waste and hazardous waste. In order to comply with the local regulations, the Company has adapted its plant by means of installation of 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. The plant 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.
 
Land contamination
 
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.
 
At the Sodom site, historical crude oil contamination has been found near the operational salt reservoir. ICL Dead Sea submitted a plan to the Ministry of Environmental Protection for treatment at the site and is awaiting the Ministry's instructions.
 
In addition, a groundwater study in ICL Dead Sea’s old power stations’ contaminated fuel tank farm showed no groundwater contamination; however, soil rehabilitation is expected in the future. At the old gas station, boreholes were drilled and diesel fuel is being pumped from the contaminated groundwater.
 
Furthermore, the implementation of a multi‑year master plan to prevent ground pollution by fuels or oils at our Rotem sites was completed.
 
95


 
Hazardous Substances
 
Israel
 
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.
 
Europe
 
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.
 
Americas
 
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.
 
96


 
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.
 

97

 
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 (Oron 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).
 
·
Europe:
 
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 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 2034 (or under certain conditions up to 2044) 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 Cartagena 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 March 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.
 
98

 
·
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.
 
Mexico: the production plant of Phosphate Solutions segment at Nuevo León is owned by ICL. 
 
Brazil: the production plants of Phosphate Solutions segment at Sao Jose dos Campos and Cajati are leased by the Company.
 
·
Asia:
 
China – phosphate rock mining rights in Haikou Mine are derived from mining licenses that are described below. The scrubbing plant is owned by the Company and situated on leased land.
 

99

 
The following table sets forth certain additional information regarding ICL’s principal properties as at December 31, 2018.
 
Property Type
Location
Size (square feet)
Products
Owned/Leased

Plant
Mishor Rotem, Israel
27,094,510
Phosphate Solutions products
Owned on leased land
         
Plant
Mishor Rotem, Israel
10,763,910
Industrial Products products
Owned on leased land
         
Plant
Neot Hovav, Israel
9,601,591
Industrial Products products 
Owned on leased land
         
Plant
Zin, Israel
8,484,123
Phosphate Solutions products
Owned on leased land
         
Plant
Kiryat Ata, Israel
6,888,903
Innovative Ag Solutions products
Leased
         
Plant
Oron, Israel
4,413,348 (not including phosphate reserve)
Phosphate Solutions products
Owned on leased land
         
Plant
Sodom, Israel
13,099,679 (not including ponds and Magnesium factory)
Potash products
Owned on leased land
       
Plant
4,088,800
Magnesium products (Potash segment)
Owned on leased land
       
Plant
2,326,060
Industrial Products products
Owned on leased land
       
Conveyor belt
1,970,333
Transportation facility for Potash
Owned on leased land
       
Pumping station
920,314
Pumping station for Potash segment
Owned on leased land
       
Plant
667,362
Industrial Products products
Owned on leased land
       
Power plant
645,856
Power and steam production for Potash segment
Owned on leased land
         
Warehouse and loading facility
Ashdod, Israel
664,133
Warehouse for Potash and Phosphate Solutions products
Leased
         
Office
Beer Sheva, Israel
495,883
Industrial Products
Owned
         
Plant
Mishor Rotem, Israel
430,355
Phosphate Solutions products
Owned on leased land
 
100

 
Warehouse and loading facility
Eilat, Israel
152,557
Warehouse for Potash and Phosphate Solutions products
Leased
         
Headquarters
Tel Aviv, Israel
25,318
Company headquarters
Leased
         
Plant
Catalonia, Spain
48,491,416
Mines, manufacturing facilities and warehouses for Potash
Owned
         
Plant
Totana, Spain
2,210,261
Innovative Ag Solutions products
Owned
         
Plant
Cartagena, Spain
209,853
Innovative Ag Solutions products 
Owned
         
Warehouse and loading facility
Cartagena, Spain
184,342
Storage for Innovative Ag Solutions products
Leased
         
Plant
Jiaxing, China
828,017
Industrial Products products
Owned on leased land
         
Plant
Shan Dong, China
692,045
Industrial Products products
Owned on leased land
         
Plant
Kunming, Yunnan, China
458,394
Production Plant of Phosphate Solutions
Owned on leased land
         
Plant
Lian Yungang, China
358,793
Industrial Products products
Owned on leased land
         
Plant
Kunming, Yunnan, China
290,420
Phosphate Solutions products
Owned on leased land  
         
Pumping station
Kunming, Yunnan, China
2,231
A pumping station for Phosphate Solutions
Owned on leased land
         
Peat Moor
Nutberry and Douglas Water, United Kingdom
17,760,451
Peat mine -Innovative Ag Solutions
Owned
         
Plant
Cleveland, United Kingdom
13,239,609
Polysulphate products (Potash segment)
Owned
         
Peat Moor
Creca, United Kingdom
4,305,564
Peat mine - Innovative Ag Solutions
Leased
         
Plant
Nutberry, United Kingdom
322,917
Innovative Ag Solutions products
Owned
         
Plant
Daventry, United Kingdom
81,539
Innovative Ag solutions products
Owned and leased
         
Plant
Terneuzen, the Netherlands
1,206,527
Industrial Products products
Owned
         
Plant
Heerlen, the Netherlands
481,802
Innovative Ag solutions products
Owned and leased
         
Plant
Amsterdam, the Netherlands
349,827
Phosphate Solutions products and logistics center
Owned on leased land
         
European Headquarters
Amsterdam, the Netherlands
59,055
European Company headquarters
Leased
         
Plant
Gallipolis Ferry, West Virginia, United States
1,742,400
Industrial Products products
Owned
         
Plant
Lawrence, Kansas, United States
179,689
Phosphate Solutions products
Owned
         
Plant
Carondelet, Missouri, United States
172,361
Phosphate Solutions products
Owned
         
Plant
North Charleston, South Carolina, United States
100,000
Innovative Ag solutions products
Leased
 
101

 
Plant
Summerville, South Carolina, United States
40,000
Innovative Ag solutions products
Leased
         
US headquarters
St. Louis, Missouri, United States
45,595
US Company headquarters
Leased
         
Plant
Ludwigshafen, Germany
6,996,541
Phosphate Solutions products and Infrastructure
Owned
         
Plant
Ladenburg, Germany
1,569,764
Phosphate Solutions products
Owned
         
Plant
Bitterfeld, Germany
514,031
Industrial Products products
Owned
         
Plant
Hemmingen, Germany
175,042
Phosphate Solutions products
Owned
         
Plant
Cajati, Brazil
413,959
Phosphate Solutions  products
Owned
         
Plant
Sao Jose dos Campos, Brazil
Phosphate plant: 137,573 Blending plant: 80,729
Phosphate Solutions products
Owned on (free of charge) leased land
         
Plant
Belgium
128,693
Innovative Ag solutions products
Owned
         
Plant
Calais, France
546,290
Industrial Products products
Owned
         
Plant
Nuevo Leon, Mexico
152,408
Phosphate Solutions  products
Owned
         
Plant
Bandırma, Turkey
375,187
Phosphate Solutions products
Owned
         
Plant
Hartberg, Austria
692,937
Phosphate Solutions products
Owned
         
Plant
Heatherton, Australia
64,583
Phosphate Solutions products
Leased
 
102

 
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.
 
In addition, every new drilling requires a drilling license issued by the Water Authority, and at the beginning of every year the Water Authority issues ICL Dead Sea with a water production license that defines the production capacity of each drilling. There is no guarantee that the Water Authority will issue ICL Dead Sea a water production license or that the Water Authority will amend the production license if ICL Dead Sea will exceed the production capacity for such drilling.
 
During 2017, a revision was made to the Water Law whereby monetary charges will be imposed on private water producers in respect of water drawn from the wells, subject to the quality of the water and other factors. The meaning of the legislative revision for ICL Dead Sea is imposition of costs for the wells, from which ICL Dead Sea has drawn water up to now with no additional charge beyond its actual costs of drawing the water. The Company is examining application of the revision on ICL Dead Sea, in light of the Concession Law that applies to the Company and relevant for the wells located in the concession area. If the revision to the Law does apply to wells located in the concession area, in the Company’s estimation, the monetary impact on the Company is not expected to be material. 
 
Business Licenses and Other Permits
 
In November 2013 a reform in the Business Licensing Law, 1968 came into effect, providing, among other things, that business licenses in Israel will no longer be perpetual, but rather each business license will be valid for a term of between one and fifteen years, depending on the type of activity covered by the license. In addition, licensable activities in accordance with the Business License Ordinance (Licensable Businesses), 2013, will be subject to unified specifications to be issued by the authorities as specified in the Ordinance, including the Ministry of Environmental Protection.
 
Up to now, we have been issued valid business licenses for our sites in Israel in perpetuity, in accordance with the law. Under the abovementioned reform, all of our business licenses will expire and require renewal three years after the applicable “Unified Specifications” are published, and after receiving a notification from the Licensing Authority, except those issued to power stations and fertilizer storage facilities that currently hold a permanent business license, and which will remain in perpetuity.
 
In addition, 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 issued to Bromine Compounds sets forth additional conditions, including requirements of risk management and seismic surveys in accordance with the Ministry’s guidelines.
 
Industrial Products plant in Neot Hovav discharges industrial wastewater into the evaporation ponds in accordance with the requirements of the plant’s business licenses.
 
103

 
Periclase plant in Mishor Rotem has a valid permit for discharging brine into the Dead Sea (valid up to 2021).
 
ICL Haifa has a valid permit for discharging industrial wastewater into the Kishon River. At the end of November 2018, ICL Haifa received 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 2020), under the Israeli Prevention of Sea Pollution from Land‑Based Sources Law, 1988.
 
Commencing from December 2017, discharging of wastewater from the magnesium plant into the Dead Sea was discontinued and, thus, the permit for discharging of wastewater into the Sea, which had been issued by the Ministry of Environmental Protection, became superfluous.
 
The Ministry of Environmental Protection is expected to add further conditions regarding discharge of wastewater, 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 (the “Clean Air Law”).
 
As part of the production process in Rotem Amfert Israel, the Company builds and operates ponds that accumulate phosphogypsum water created in the production processes. For additional information relating the ponds’ permits for construction and operation, see Note 20 to our Audited Financial Statements, “Item 3 - Key Information— D. Risk Factors”.
 
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.
 
Mineral Extraction and Mining Operations
 
ICL’s mining activities are dependent on concessions, authorizations and permits granted by the governments of the countries in which the mines are located.
 
In consideration of the concessions, ICL pays royalties and taxes to the governments of Israel, China, UK and Spain. Below are the royalties amounts paid in 2018, 2017 and 2016: 
 
 
Israel
Total in Israel
Out of Israel
Total
Year Ended December 31,
$ millions

2018
71
*62
133
4
137
2017
64
*68
132
4
136
2016
58
-
58
9
67


*In 2018 and 2017, the Company paid additional amounts of $62 million and $68 million, respectively in respect of royalties in Israel relating to prior periods. For additional information regarding royalties paid for prior periods, see Note 20 to our Audited Financial Statements.
 
104

 
Following is a description of the material properties from which ICL extracts minerals and conducts mining. For additional information regarding the total cost of the Company’s property, plant and equipment and its intangible assets (including concession and mining rights) see Note 11 and Note 12, respectively, to our Audited Financial Statements.
 
The Dead Sea
 
The concentration of the minerals extracted from the Dead Sea (including potash and bromide), constituting the raw materials for production, is on the rise due to the hydrological deficit the Dead Sea has been experiencing during the past 40 years.
 
ICL’s extraction of minerals from the Dead Sea begins with an evaporation process facilitated by the hot and dry desert climate of the Dead Sea region, which is the lowest point on the earth’s surface. Due to the hydrological deficit, the sea is declining at the rate of 1.1 meters per year and is now about 430 meters below sea level. As a result of the said decline, the Dead Sea is divided into two parts: the natural Northern Basin and the Southern Basin, on the basis of which dams were installed and artificial evaporation ponds were constructed.
 
The production process begins with the flowing of water from the Northern Basin into the evaporation ponds (a distance of about 12 kilometers). The Company’s pumping station P‑88 has a pumping capacity of 100,000 cubic meters per hour. In 2018, ICL flowed approximately 420 million cubic meters of water from the Northern Basin into the evaporation ponds, of this quantity, approximately 260 million cubic meters of brine were rechanneled into the Northern Basin of the Dead Sea at the end of the process. In 2018, the Company produced from the Dead Sea approximately 3.8 million metric tonnes of potash, approximately 175 thousand metric tonnes of bromine, 21 thousand metric tonnes of metal magnesium, 187 thousand metric tonnes of salt and 132 thousand metric tonnes of solid magnesium chloride. The Company built a new pumping station (hereinafter – the P‑9 Pumping Station) from the Northern Basin to the evaporation ponds, this being in light of retirement of pumping station P‑88 from service due to the receding water level. The Company made an additional investment and extended the life of the present pumping station (P‑88) so that it will be able to function up to 2021. In 2017, the Board of Directors approved the investment in construction of the P‑9 Pumping Station. In 2017 and 2018, DSW signed agreements with several execution and infrastructure companies, in a total amount of $160 million (out of the total project cost of about $250 million), for construction of the P-9 Pumping Station. The P-9 Pumping Station is expected to commence its operation during the year 2020.
 
In 2015, an appeal was filed in the Israeli Court for Water Matters by Adam Teva V’Din - Israeli Association for Environmental Protection (ATD) 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 North Basin of the Dead Sea to the evaporation ponds in the Sea’s South Basin in order to regulate and supervise, within the framework of the production license, transfer of the water, as stated, in connection with certain aspects, including limitation of the quantities transferred. In August 2016, the Government Water and Sewage Authority issued directives to DSW (not in the framework of the production license), after hearing the latter’s position, which included limitations on the quantities of water transferred, as well as mechanisms for reporting of pumping volume. As at the reporting date, summaries have been filed by all the parties and the case is waiting for the Court's judgement. In the Company’s estimation, the legal proceedings in this matter will end without material influence on its operations. For additional information, see Note 20 to our Audited Financial Statements.
 
105

 
The evaporation ponds extend over an area of approximately 150 square kilometers and are divided into two sub‑systems – an array of ponds for sinking salt (mineral waste from the production process), and a series of ponds for sinking carnallite (the target mineral constituting a raw material for production of potash).
 
The salt pond known as Pond 5 is the largest pond in the series of ponds, having an area of approximately 80 square kilometers. Pond 5 was built during the 1960s by construction of a large dam, where in the center of the dyke surrounding it a partition (separation clay core) was installed for sealing and prevention of potential leakage of solutions. This dam demarks the Southern basin of the Dead Sea on the Israeli side and allowed the continued existence of the Southern Basin due to the system of pumping stations and flowing channels that are operated as part of the industrial operational system of the evaporation ponds. In order to continue and operate Pond 5, the dyke was raised several times during the last 50 years. In 2013 ICL Dead Sea completed the cut off project that aimed to minimize the seepage from the Northern pond. As part of the project sheet piles were inserted up to the depth of 33 meters to the ground along the length of 18.6 km. The evaporation processes give rise to concentration of the brines and the sinking of the salt to the floor of the pond. The remaining brines are rich in potash, magnesium and bromide. These brines are pumped into the systems of other ponds, and as a result of the continued evaporation, the "carnallite" precipitates. Carnallite is the raw material used for production of potash, metal magnesium and chlorine. The carnallite is harvested by floating barges and is sent as slurry to our production plants. The brine from the edge of the carnallite ponds is used as a raw material in the production of bromine and magnesium chloride.
 
About 20 million tonnes of sea salt precipitates every year and creates a layer of approximately 20 centimeters on the floor of Pond 5. Precipitation of the salt causes a reduction in the volume of the solutions in the pond. As the production process requires maintaining a fixed volume of solutions (brines) in the pond, the level of the solutions in the pond is raised each year according to the rate at which the pool floor rises.
 
The Ein Boqeq and Hamei Zohar hotels, the settlement of Neve Zohar and other facilities and infrastructures are located on the western beach of the Pond. Raising the water level of the Pond above a certain level is likely to cause structural damage to the foundations and 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. This situation requires establishment of defenses for the facilities and infrastructures of the hotels located on the shores of the Pond.
 
The project for construction of the coastline defenses with respect to the hotels and infrastructures on the coastline of the Pond has been underway for several years. As part of such defenses, from time to time, the dyke along the western beachfront of the Pond, across from the hotels, is raised, together with, in many places, a system for lowering subterranean water. As at the date of the report, the construction work with respect to the hotels coastline is complete, and the related dykes have been raised to accommodate the maximal brine level (15.1 meters). The current brine level is 14.6 meters. Nevertheless, there is additional ongoing work on raising the roads level along pond 5.
 
There is an agreement between DSW and the Government of Israel that the Company will bear 39.5% of the costs of financing the coastline defenses and the Government will finance the balance thereof. In July 2012, an agreement was signed with the Government of Israel, regarding "Execution and Funding of the Dead Sea Protection Project and Increase of the Royalties Paid to the State" (hereinafter – the Salt Harvesting Project). The purpose of the Salt Harvesting Project is to provide a permanent solution for raising the water level in the Pond and stabilizing of the water therein at a fixed level by harvesting of the salt from this pond and transferring it to the Northern Basin of the Dead Sea.
 
106

 
The highlights of the agreement are set forth below:
 
A.     The planning and execution of the Salt Harvesting Project will be performed by DSW.
 
B.    The Salt Harvesting Project as well as the project for the new pumping station that is to be constructed (hereinafter – the P-9 Pumping Station), constitute an Israeli national infrastructure project that will be promoted by the Israeli Committee for National Infrastructures.
 
C.    Starting from January 1, 2017, the water level in the pond will not rise above 15.1 meters in DSW’s network (about 390 meters below sea level). DSW will be required to pay compensation in respect of any damages caused, if at all, as a result of a rise of the water level beyond the level determined. In the case of a material deviation from the timetables for the execution of the Salt Harvesting Project as a result of a requirement for changes by the planning institutions, as a result of which the Plan is not approved on time, or due to a decision of a judicial tribunal that caused a delay of at least one year in provision of effect to the Salt Harvesting Project by the planning institutions, without the Company having violated its obligations, the Company will be permitted to request raising of the water level above that stated above.
 
D.    Increase in the rate of the royalties from 5% to 10% of sales, for quantities of chloride potash DSW sells in excess of 1.5 million tonnes annually. This increase applies to sales starting January 1, 2012. In July 2012, as part of the agreement, the Government committed that at this time it sees no need to make additional changes to its specific fiscal policy regarding mining from the quarries at the Dead Sea, including the commercial utilization thereof and, accordingly, at this time, it will not initiate and will even object to, as applicable, proposed laws regarding this matter. The Company’s consent to the increase of the rate of the royalties is contingent on implementation of the Government of Israel’s decision.
 
The agreement further provides that if legislation is enacted that changes the specific fiscal policy in connection with profits or royalties deriving from mining of quarries from the Dead Sea, the Company’s consent to the increase of royalties' rate on the surplus quantities referred to above will not apply, after the enactment of the legislation, to the period in which such additional tax is collected as stated in the said legislation. In January 2016, the Law for Taxation of Profits from Natural Resources, which includes the Sheshinski Committee’s recommendations that address royalties and taxation of excess profits from Dead Sea minerals (hereinafter – the Law), entered into effect. Accordingly, the rate of the royalties' provision was update to 5%.
 
The Company will bear 80% and the Government will bear 20% of the cost of the Salt Harvesting Project, however the Government's share will not exceed NIS 1.4 billion.
 
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In 2015 and in 2016, the National Infrastructures Committee and the Israeli Government, respectively, approved National Infrastructures Plan 35A (hereinafter – the Plan), which includes the statutory infrastructure for establishment of the Salt Harvesting Project in Pond 5, and construction of the P-9 pumping station in the northern basin of the Dead Sea. As at the date of the report, the building permits for the Salt Harvesting Project and the P-9 pumping station have been received and the construction work has commenced. The P-9 pumping station is expected to commence its operations during 2020. For further information see item A above relating commitments.
 
In April 2017, after receiving all the permits for execution of the Salt Harvesting with the Government of Israel, ICL’s Board of Directors approved a budget of about $280 million to further proceed with the execution of the Salt Harvesting in the Dead Sea. This budget will be executed over the next 12 years and constitutes ICL’s share (80%) in the cost of performing this part. In October 2017, DSW signed an agreement, the cost of which for ICL is $280 million, for the execution of the first stage of the Salt Harvesting Project, with a contracting company Holland Shallow Seas Dredging Ltd., which includes, among others, the construction of a special dredger that is designed to execute the salt harvesting. The dredger is expected to enter into service towards the end of 2019. By then, the engineering and operational preparations and the extensive infrastructure works that have been underway during the past few years are planned to be completed and the salt harvesting operations are expected to begin.
 
The receding level of the Dead Sea is not to be confused with the rise of the water level in Pond 5 discussed above, and the two seemingly contradictory phenomena are occurring simultaneously, as Pond 5 is located in the Southern Basin on a different plane than the main body of the sea lying to its north, necessitating a special pumping station to constantly feed the pond with water. See “Item 3 - Key Information— D. Risk Factors— Construction of a new pumping station is required due to the receding water level in the northern basin of the Dead Sea”. While the water level of Pond 5 is rising due to the accumulation of salt on its floor and the continuous pumping of water from the Northern Basin of the Dead Sea, the water level of the Northern Basin is receding. As a result of the decline of the Dead Sea level, sinkholes appear. 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 little operation by ICL Dead Sea. However, the development of sinkholes in areas where ICL Dead Sea facilities exist can cause significant damage. 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.
 
Additional risk factor is the erosion of Nahal Arava, which flows along the international border between Israel and Jordan. This erosion could endanger the stability of the eastern dykes in the future in the array of salt and carnallite ponds. 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. In addition, ICL Potash intends to execute a preliminary project, in order to examine possible solutions and alternatives
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In 2012, the Company started the construction of a new cogeneration power station (EPC) in Sodom, Israel (hereinafter – the Station). The Station has a production capacity of about 330 tonnes of steam per hour and about 230 MW, which supply electricity and steam requirements for the production plants at the Sodom site and for third party customers. In August 2018, the process of certification approval was completed, and the Power Station started operating in full. The Company intends to operate the Station concurrently with the existing power station, which will continue operating on a partial basis in a "hot back‑up" format, for production of electricity and steam. The total power produced at both stations can reach up to 245 MW. The Plant is producing as designed and exporting surplus electricity sold to third parties via the National Grid. Regarding to the construction agreement of the Station, in light of the continued violations by the executing contractor (the Spanish Company - Abengoa), in September 2017, the Company notified of the cancellation of the agreement. Due to financial disputes between the Company and Abengoa, in November 2018, the Company announced the initiation of an arbitration proceeding, in accordance with the provisions of the agreement.
 
In the Company's estimate, the damages caused by Abengoa amounted to about euro 77 million (about $ 84 million). On January 30, 2019, Abengoa submitted its response, denying ICL's claims, and claiming a payment of euro 15 million ($17 million) for the contract's termination, which was, allegedly, done unlawfully and for convenience. As at the date of the report, considering the early stages of the proceedings, there is a difficulty in estimating the chances of the outcome.
 
Transport from the Company's plant in the Dead Sea is by means of a conveyor belt from the plant to the railway in the direction of the Ashdod port and from Highway 90 in the direction of the Eilat port.
 
The Negev Desert
 
ICL currently operates large surface phosphate mining sites at Oron, Rotem and Zin, which are located in the southern part of the State of Israel in the Negev region. The Israeli Minister of Energy under the Israeli Mines Ordinance, through the Supervisor of Mines in his Office (“the Supervisor”), has decided to extend the area of the Rotem field concession (valid until the end of the 2021) so that it covers the Hatrurim field. The area of the Rotem concession has been so extended, and the matter has been transferred to the Israel Land Authority (“ILA”) to deal with the extension of the area of the mining permit for the Rotem field, in line with the extension of the concession area.
 
The Company is working to promote the plan for mining phosphates in Barir field (which is located in the southern part of South Zohar field) in the Negev Desert. In 2015, the National Planning and Building Council (hereinafter – the National Council) approved the Policy Document regarding Mining and Quarrying of Industrial Minerals, which included a recommendation to permit phosphate mining in the Barir field. In February 2017, the Committee for Principle Planning Matters, decided to continue advancement of the mining in the South Zohar field. Concurrently, and based on a decision of the National Council, instructions were prepared by the competent authorities with respect to the performance of an environmental survey of the Barir field for purposes of its further advancement. In April 2017, the National Council recommended to the government to approve National Outline Plan (hereinafter – NOP 14B), which includes South Zohar field, and determined that Barir field will be advanced as part of a detailed National Outline Plan, which was approved by the government’s Housing Cabinet in January 2018.
 
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In January 2018, the Minister of Health filed an appeal of the said approval, requiring compliance with the Ministry of Health’s recommendation to conduct a survey regarding the health impact in each site included in NOP 14B. As part of a discussion regarding the appeal, which was held in the Housing Cabinet, it was decided, with the consent of the Ministries of Health, Finance and Energy, to remove the appeal and to approve the NOP 14B. In addition, it was decided to establish a team with representatives of the ministries of Treasury, Health, Transportation, Environmental Protection and Energy, which will present to the Housing Cabinet a report that includes health aspects for NOP 14B. In April 2018, the NOP 14B was formally published.
 
In July 2018, a petition was submitted to the Israeli Supreme Court of Justice by the municipality of Arad against the National Planning and Building Council, the Ministry of Health, the Ministry of Environmental Protection and Rotem, to revoke the approval of NOP 14B. In January 2019, residents of the Bedouin diaspora in the "Arad Valley" submitted a petition to the High Court of Justice (hereinafter – the Court) against the National Council, the Government of Israel and Rotem, in which the Court was requested to cancel the provisions of NOP 14B and the decision of the National Council from December 5, 2017, regarding to the advancement of a detailed plan for phosphate mining in the South Zohar field. In addition, the Court was requested to issue an interim injunction preventing the implementation of the NOP 14B instructions and the National Council's said decision until a final resolution. On January 22, 2019, the Supreme Court consolidated the hearing of the petition together with the other petition filed against NOP 14B and decided that at this stage there is no basis for granting the interim injunction. On February 5, 2019, the Company filed its response.
 
For a description of certain risks relating to receipt of a license for mining in the Barir Field, see “Item 3 - Key Information— D. Risk Factors”.
 
Each of the said fields in Israel has a similar layered structure and geological composition, with the phosphate preserved as relatively thin layers along the margins and within the axes of two northeast to southwest trending asymmetrical synclines (basins or trough‑shaped folds). Oron and Rotem lie within a single syncline located northwest of the Zin syncline. The three deposits have been proved over extensive distances in terms of length (Rotem 10 kilometers, Oron 16 kilometers and Zin 22 kilometers) and width (4 kilometers each). The Campanian (Upper Cretaceous period) phosphate rock deposits of Israel are part of the Mediterranean phosphate belt extending from Turkey, through Jordan and Israel, and westward through Egypt, Tunisia and Morocco. The Company began operations at Oron in the 1950s and at Rotem and Zin in the 1970s. These sites are accessible by road and rail. ICL has long‑term leases covering all the land on which its Israeli facilities are located, and it operates under mining concessions and licenses granted to it by the Israeli Minister of Energy and by the ILA. Regarding Oron, its long-term lease is under a renewal process. See “Item 4 - Information on the Company— D. Property, Plant and Equipment— Concessions and Mining Rights”.
 
In November 2016, the District Board for the Southern District approved a detailed site plan for mining phosphate in the Zin‑Oron area. This plan, which covers an area of about 350 square kilometers, will permit the continued mining of phosphate located in the Zin valley and in the Oron valley for a period of 25 years or up to exhaustion of the raw material – whichever occurs first, with the possibility for extension (under the authority of the District Planning Board).
 
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