Draft Recommendations by Mr. Stefan Borgas , President & CEO, ICL

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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)

Phosphate

(200 Mio t)

Magnesium

(700,000 t)

15 million ton

30 million ton

> 200,000 ton

3.6 million ton

3.5 million ton

29,000 ton

3

2011

The Deteriorating Business Environment in Israel for ICL

(NIS Until the End of the Concession )

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

2014

Retroactive tax assessments for 2009-2011

Arbitration ruling on downstream products

NIS 1 billion

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)

Conditions for investments

Worldwide opportunities for ICL

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 ….

Government

Universities

Communities

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

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