The Second Sheshinski Committee –
Draft Recommendations
Mr. Stefan Borgas – President & CEO
4 August 2014
Government Take (GT) from the Industry that Extracts
Natural Resources
ICL acknowledges the right of the Israeli public*
to optimize the benefits it receives from the
extraction of Israel’s natural recourses
What does “optimize benefits” mean?
* within legal boundaries
2
ICL’s World Markets Suffer Under Significant Overcapacity
in Which ICL-Israel is a Small Player
Mineral
(world market size)
Global Overcapacity Israel’s Total
Capacity
Potash
(55 Mio t)
15 million ton
3.6 million ton
Phosphate
(200 Mio t)
30 million ton
3.5 million ton
Magnesium
(700,000 t)
> 200,000 ton
29,000 ton
3
The Deteriorating Business Environment in Israel for ICL
(NIS Until the End of the Concession)
2011
Exclusion from the Investment Encouragement Law
NIS 10 billion
2012
Undertaking to finance most of the harvesting project
NIS 5.5 billion
2012
Increase in the rate of royalties on potash sales
NIS 1.75 billion
2013
Retroactive tax assessments for 2009-2011
NIS 1 billion
2014
Arbitration ruling on downstream products
NIS 700 million
Weakened phosphate industry
Significant increase of labor cost
Draft recommendations of the Committee
NIS 7
billion?
4
Government Take (GT) From Potash in Comparison
 GT Around the World
⁻ Committee: 25%-47%
⁻ ICL’s experts: average 29%
 GT in Israel following the Recommendations
⁻ Committee: 46%-57%
⁻ ICL’s experts: 70%-74%
•
Including salt harvesting, signature bonus & dividend tax
5
ICL Optimizes its Business Opportunities Worldwide
Available natural
resources
ICL’s technological
“know how”
Market environment
(customers & logistics)
Worldwide
opportunities
for ICL
Conditions for
investments
6
Investment Opportunities Worldwide
Comparative advantages of other countries:
 Rate on return for investment in Potash: over 20%
 Production costs are decreasing
 Governments provide incentives for investments:
- Netherlands and UK – “patent box”
- Germany – subsidies for corporate research
- UK – subsidies investments
- China – 10% pts tax rate reduction for “high tech”
businesses
7
Investment Opportunities Worldwide
- Ethiopia – 0% income tax; accelerated
depreciation
- China – reduced Income tax on phosphate; 3%
royalty
- West Africa – tax exemption for many years
- Spain – no royalties; accelerated depreciation;
reserve free of taxes; certain deductions in
Corporate Income Tax
8
Challenges in the Global Market
 Deteriorating prices of potash ($287 FOB) and
phosphate ($80-$100/t)
 Stagnant demand
 Significant overcapacity
 Shrinking bromine market – new downstream
products must be developed
Reduced availability of capital for ICL
9
Decisions Must Be Taken – What Would You Do?
Investment
Opportunities
Worldwide
Continuation
of Investments
in Israel
Business
Environment
In Israel
Global Market
Challenges &
Opportunities
10
Decisions Must Be Taken
1. Unavoidable changes in ICL’s activities
 Magnesium
 Bromine compounds
 Phosphate downstream products
2. Investment plans in Israel are frozen
 First step: NIS 2,500–3,800 million (next 5 years)
3. Aggressive cost reduction
 Elimination or loss of direct and indirect jobs,
mostly in the Negev: approximately 3,400
11
Decisions Must Be Taken
4. New investments or business acquisitions in
other regions must be accelerated
 Spain, Ethiopia, UK, South East Asia, Latin
America, West Africa, Netherlands and
China
5. Research and marketing functions will
migrate over time to regions of value creation
 3-5 years
12
In Conclusion, the Committee Should Consider ….
Universities
Communities
Government
ICL’s
Profits
Employees
Shareholders
… the total picture for the Israeli economy
… a truthful outlook on ICL’s profitability vs. competitors
… How to GROW the pie: ICL and its industry IN ISRAEL
13
Thank You