ICL(US:ICL)2023-02-28 11:04PART I Key Information This section presents ICL Group's selected financial data for 2020-2022, including IFRS to non-GAAP reconciliation, and a comprehensive overview of business, industry, operational, and share-related risk factors Selected Financial Data ICL Group reported substantial 2022 growth, with sales reaching $10,015 million and operating income surging to $3,516 million, alongside non-GAAP adjusted figures for performance comparison Selected Financial Data (2020-2022) | | For the Year Ended December 31, | | | | :--- | :--- | :--- | :--- | | | 2022 (US$ millions) | 2021 (US$ millions) | 2020 (US$ millions) | | Sales | 10,015 | 6,955 | 5,043 | | Gross profit | 5,032 | 2,611 | 1,490 | | Operating income | 3,516 | 1,210 | 202 | | Net income attributable to shareholders | 2,159 | 783 | 11 | | Basic earnings per share (in dollars) | 1.68 | 0.61 | 0.01 | | Diluted earnings per share (in dollars) | 1.67 | 0.60 | 0.01 | | Dividends declared per share (in dollars) | 0.91 | 0.21 | 0.09 | | Total assets | 11,750 | 11,080 | 9,664 | | Total equity | 5,713 | 4,736 | 4,088 | Reconciliation of IFRS to Non-GAAP Measures (2020-2022) | | For the Year Ended December 31, | | | | :--- | :--- | :--- | :--- | | | 2022 (US$ millions) | 2021 (US$ millions) | 2020 (US$ millions) | | Operating income (IFRS) | 3,516 | 1,210 | 202 | | Total adjustments to operating income | (7) | (16) | 307 | | Adjusted operating income (Non-GAAP) | 3,509 | 1,194 | 509 | | Net income attributable to shareholders (IFRS) | 2,159 | 783 | 11 | | Total adjustments to operating income | (7) | (16) | 307 | | Total tax adjustments | 198 | 57 | (60) | | Total adjusted net income - shareholders (Non-GAAP) | 2,350 | 824 | 258 | Risk Factors The company faces diverse risks, including those related to business operations, industry conditions, Israeli operations, and ordinary shares, which could materially affect its financial performance - The company's business, financial condition, and results of operations could be materially and adversely affected by a variety of risks, including dependence on governmental permits, environmental regulations, supply and demand volatility, and international operational risks4243 - Risks related to business operations include dependence on government concessions and permits in Israel, Spain, the UK, and China, which are critical for mineral extraction, and failure to renew these could materially impact operations444652 - Industry-related risks stem from volatility in the agricultural sector, affecting fertilizer sales, and economic conditions in end-markets for industrial and phosphate products, alongside significant competition from large, state-owned or subsidized companies146150 - Risks specific to Israeli operations include political, economic, and military instability in the region, which could directly affect headquarters and key mining facilities, and the Special State Share granting the Israeli government veto power over certain asset transfers and share acquisitions178189 - Shareholder risks include the significant influence of its controlling shareholder, Israel Corporation Ltd., holding approximately 44% of voting rights, and potential share price fluctuation and dilution from future share issuances187188191 Information on the Company This section details ICL's history, corporate development, business overview across four segments, and extensive information on global properties, plants, equipment, and mineral extraction operations History and Development of the Company ICL Group, established in 1968, underwent privatization in 1992, with shares listed on TASE and NYSE (2014), and Israel Corporation Ltd. becoming the controlling shareholder - ICL was established in 1968, privatized in 1992, and listed on the NYSE in 2014, with Israel Corporation Ltd. as the controlling shareholder holding approximately 43.16% of outstanding ordinary shares as of December 31, 2022204205 - Significant recent transactions include the 2021 acquisitions of Agro Fertiláqua Participações S.A. and the South American Plant Nutrition business of Compass Minerals, strengthening its position in Brazil's specialty plant nutrition market206208 Business Overview ICL is a global specialty minerals company operating through four segments, leveraging unique assets and innovation to achieve market leadership, with a strong commitment to ESG principles and cybersecurity - ICL operates an integrated business model structured around three mineral value chains: bromine, potash, and phosphate, organized into four segments: Industrial Products, Potash, Phosphate Solutions, and Growing Solutions207213 - The company's strategy is to achieve leadership in its business segments by leveraging unique assets, agronomic and chemical knowledge, and access to Israel's innovation ecosystem, with a focus on growth in agriculture, food, and industrial solutions257258259 - ICL is committed to sustainability and ESG, with a focus on reducing GHG emissions, increasing renewable energy use, and promoting a circular economy, aiming to reduce Scope 1 & 2 GHG emissions by 30% by 2030 (vs. 2018) and achieve carbon neutrality by 2050437483 - The company has a robust cybersecurity strategy focused on plant and operational security, critical asset protection, and fraud prevention, which includes continuous cooperation with national cyber authorities in Israel641642 Property, Plant and Equipment This section details ICL's global production facilities, mines, and logistical assets, providing technical summaries of mineral extraction operations, including concessions, geology, production data, and resource/reserve estimates for key sites - ICL operates a global network of production facilities, with key sites in Israel (Sodom, Mishor Rotem), Europe (Spain, UK, Germany, Netherlands), the Americas (US, Brazil), and China (Yunnan)655660661 - The company's mineral extraction activities are dependent on concessions and permits from governments in the countries where it operates, including Israel, Spain, the UK, and China670 Mineral Reserves as of December 31, 2022 | Commodity | Location | Proven Reserves (Mt) | Probable Reserves (Mt) | Total Reserves (Mt) | Grades/Qualities | | :--- | :--- | :--- | :--- | :--- | :--- | | K2O | United Kingdom | - | 7.6 | 7.6 | 13.5% | | KCl | Spain | 29.8 | 66.9 | 96.7 | 25.4% | | KCl | Israel | 159.5 | - | 159.5 | 20.0% | | P2O5 | Israel | 40.1 | - | 40.1 | 25.9% | | P2O5 | China | 54.5 | - | 54.5 | 21.8% | Mineral Resources as of December 31, 2022 (Exclusive of Reserves) | Commodity | Location | Measured (Mt) | Indicated (Mt) | Measured + Indicated (Mt) | Inferred (Mt) | | :--- | :--- | :--- | :--- | :--- | :--- | | K2O | United Kingdom | - | 23.4 | 23.4 | 6.9 | | KCl | Spain | 85.9 | 58.9 | 144.8 | 294.2 | | KCl | Israel | 225.0 | 1,500.0 | 1,725.0 | 445.0 | | P2O5 | Israel | 265.4 | 10.0 | 275.4 | - | | P2O5 | China | 3.0 | 2.3 | 5.3 | 0.2 | Financial Results and Business Overview This section analyzes ICL's 2022 operating results, highlighting significant sales and operating income growth driven by pricing, discusses liquidity, capital resources, major expenditures, and R&D activities Operating Results In 2022, ICL's sales surged 44% to $10,015 million and operating income grew 191% to $3,516 million, primarily driven by higher selling prices across all four segments Results of Operations (2021 vs. 2022) | | For the Years Ended December 31, | | | :--- | :--- | :--- | | | 2022 ($ millions) | 2021 ($ millions) | | Sales | 10,015 | 6,955 | | Gross profit | 5,032 | 2,611 | | Operating income | 3,516 | 1,210 | | Net income attributable to shareholders | 2,159 | 783 | | Basic earnings per share (in dollars) | 1.68 | 0.61 | - The primary driver for the $3,060 million increase in sales was a positive price impact of $3,541 million, partially offset by a negative quantity impact of $178 million and unfavorable exchange rates10011002 Geographical Sales Breakdown (2021 vs. 2022) | Region | 2022 ($ millions) | 2021 ($ millions) | | :--- | :--- | :--- | | Europe | 2,809 | 2,159 | | Asia | 2,743 | 1,876 | | South America | 2,315 | 1,305 | | North America | 1,577 | 1,186 | | Rest of the world | 571 | 429 | | Total | 10,015 | 6,955 | Liquidity and Capital Resources As of December 31, 2022, ICL maintained a solid liquidity position with $508 million cash, $748 million unutilized credit, and $2,025 million operating cash flow, supported by investment-grade credit ratings Cash Flow Summary (2021 vs. 2022) | | Year Ended December 31, | | | :--- | :--- | :--- | | | 2022 ($ millions) | 2021 ($ millions) | | Net cash provided by operating activities | 2,025 | 1,065 | | Net cash used in investing activities | (754) | (579) | | Net cash used in financing activities | (1,303) | (244) | - As of year-end 2022, the company had $508 million in cash and cash equivalents, $748 million in unutilized long-term credit facilities, and net financial liabilities of $2,316 million1036 - Principal capital expenditures have focused on the Salt Harvest Project at the Dead Sea, the new P-9 pumping station, a new WPA facility in China, and consolidation projects in Spain105510581059 - The company's credit ratings were reaffirmed at 'BBB-' by S&P and Fitch in mid-2022, both with a stable outlook10471048 Research and Development, Intellectual Property and Licenses, etc. ICL's RD&I strategy aligns with global megatrends and UN SDGs, focusing on next-generation solutions and digital agriculture, supported by approximately 770 granted patents and 3,500 registered trademarks - ICL's RD&I focuses on key areas including next-generation fertilizers, food technology (e.g., alternative proteins), e-mobility solutions (e.g., battery materials), novel materials, circular economy, Industry 4.0, and digital agriculture106910701071 R&D Expenses by Segment (2022) | Segment | R&D Expense ($ millions) | | :--- | :--- | | Industrial Products | 24 | | Potash | 7 | | Phosphate Solutions | 8 | | Growing Solutions | 16 | - As of December 31, 2022, the company holds approximately 770 granted patents across 220 patent families and over 3,500 registered trademarks, including key brands like Osmocote®, Peters®, Joha®, and Rovitaris®10891090 Directors, Senior Management and Employees This section details ICL's corporate governance, including Board and executive composition, compensation policies, board practices, and a breakdown of its 13,619 employees by segment and geography, emphasizing diversity and inclusion Directors and Officers ICL's Board of Directors comprises twelve members, including external and independent directors, while the executive management team is led by President & CEO Raviv Zoller - The Board of Directors is composed of 12 members, including an Executive Chairman, two external directors, and several independent directors, ensuring compliance with both Israeli and NYSE governance standards109611611162 - The executive leadership team is headed by President & CEO Raviv Zoller and includes divisional presidents for Industrial Products, Potash, Phosphate Solutions, and Growing Solutions, along with heads of key corporate functions like Finance, HR, and Innovation11141115 Compensation Director compensation for non-executive directors totaled approximately $824,000 in 2022, while senior management compensation, including the Executive Chairman, is performance-based and incorporates ESG metrics - Aggregate compensation for non-executive directors in 2022 was approximately $824,000, consisting of annual and per-meeting fees1138 2022 Compensation for Five Highest Earning Senior Officers (US$ thousands) | Name | Position | Base Salary | Compensation | Bonus (STI) | Equity based (LTI) | Total | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Raviv Zoller | President & CEO | 756 | 1,094 | 995 | 2,691 | 4,780 | | Yoav Doppelt | Executive Chairman | 226 | 870 | 171 | 1,503 | 2,544 | | Aviram Lahav | CFO | 339 | 805 | 425 | 688 | 1,918 | | Elad Aharonson | President, Growing Solutions | 412 | 577 | 367 | 809 | 1,753 | | Anat Tal-Ktalav (Deceased) | Former President, Industrial Products | 177 | 1,026 | - | 719 | 1,745 | - The company's compensation philosophy links pay to performance, with the 2022 Short-Term Incentive (STI) plan for executive officers incorporating ESG targets related to health, safety, environmental performance, and diversity11431150 Board Practices ICL's Board of Directors, currently with 12 members, ensures diverse composition and operates through statutory committees like Audit & Accounting and HR & Compensation, alongside a Climate, Sustainability & Community Relations Committee - The Board of Directors has between 7 and 20 members, with the current board at 12, and a majority must be Israeli citizens and residents11601161 - Key board committees include the Audit & Accounting Committee, HR & Compensation Committee, Climate, Sustainability & Community Relations Committee, and Financing Committee, with the Audit and Compensation committees being statutory and chaired by external directors11771178 - The company has two external directors as required by Israeli law, who serve on the Audit and Compensation committees to ensure independence11701174 - The company maintains a directors' and officers' liability insurance policy with a total liability limit of up to $350 million, which includes a joint primary tier with its controlling shareholder, Israel Corp1195 Employees As of December 31, 2022, ICL employed 13,619 people globally, with a significant portion covered by collective bargaining agreements, and is actively promoting a Diversity, Inclusion & Belonging strategy Employee Breakdown by Segment (2022) | Segment | Number of Employees | | :--- | :--- | | Phosphate Solutions | 3,961 | | Growing Solutions | 3,792 | | Potash | 2,120 | | Industrial Products | 1,624 | | Global functions and headquarters | 1,236 | | Temporary employees | 886 | | Total | 13,619 | Employee Breakdown by Geography (2022) | Geography | Number of Employees | | :--- | :--- | | Israel | 4,534 | | China | 1,999 | | Brazil | 1,711 | | Spain | 940 | | USA | 830 | | Germany | 717 | | UK | 715 | | Netherlands | 612 | | All other | 675 | | Temporary employees | 886 | | Total | 13,619 | - ICL is committed to Diversity, Inclusion & Belonging (DIB) and has set targets to employ 25% females in senior leadership (T100) and 25% females on its Board of Directors by the end of 2024, with 2022 figures at 23% and 33% respectively12131222 Major Shareholders and Related Party Transactions This section identifies ICL's major shareholders, including controlling shareholder Israel Corporation Ltd. (44% voting rights), and details related party transactions, including the termination of a management services agreement Major Shareholders As of February 26, 2023, Israel Corporation Ltd. is ICL's controlling shareholder with 43.98% voting rights, alongside other significant institutional shareholders and the State of Israel's Special State Share Major Shareholders (as of Feb 26, 2023) | Shareholder | Ordinary Shares Beneficially Owned (%) | | :--- | :--- | | Israel Corporation Ltd. | 43.98% | | State of Israel | 1 Special State Share | | Migdal Insurance & Financial Holdings Ltd. | 5.77% | | Harel Insurance Investments & Financial Services Ltd. | 5.40% | | Altshuler Shaham Ltd. | 5.00% | - Israel Corporation Ltd. has decisive influence at shareholder meetings and the power to appoint most directors, effectively controlling the company's operations and business strategy1243 Related (and Interested) Party Transactions ICL's related party transactions are governed by Israeli law, requiring specific approvals, with key agreements including a registration rights agreement and a joint D&O insurance policy, and the termination of a management services agreement with Israel Corp - Extraordinary transactions with a controlling shareholder require approval from the Audit Committee, the Board of Directors, and a special majority of shareholders1255 - The management services agreement with the controlling shareholder, Israel Corp., under which ICL paid an annual fee of $1 million, was terminated as of July 1, 20221263 - The company maintains a joint directors' and officers' liability insurance policy with Israel Corp., with a total liability limit of up to $350 million under the approved framework1262 Financial Information This section covers ICL's financial information, including legal and tax proceedings, its status as a monopoly in certain Israeli products, the Ashalim Stream settlement, and its dividend policy targeting up to 50% of adjusted net profit Consolidated Statements and Other Financial Information ICL's 2022 fixed operating costs were approximately $2,687 million, with the company subject to Israel's Concentration Law and ongoing legal proceedings, including a NIS 115 million Ashalim Stream settlement, and a dividend policy of up to 50% of adjusted net profit - ICL is subject to Israel's Concentration Law and has been declared a monopoly in Israel for several key products, including potash, phosphates, and bromine, though Israeli sales accounted for only about 3% of total sales in 202212721275 - A settlement agreement was signed in December 2022 regarding the 2017 Ashalim Stream incident, with total compensation amounting to NIS 115 million (approx. $33.5 million)177417791780 - The company's dividend policy targets a distribution rate of up to 50% of the annual adjusted net profit, subject to board approval and legal requirements, with distributable profits as of December 31, 2022, amounting to $5,125 million12891291 Additional Information This section details ICL's share capital structure, the significant rights of the Special State Share held by the State of Israel, and key tax considerations for both Israeli and US investors Share Capital As of December 31, 2022, ICL had 1,313,768,690 ordinary shares issued and outstanding, plus one Special State Share, with approximately 15 million additional shares issuable from employee options - As of December 31, 2022, ICL had 1,313,768,690 ordinary shares issued and outstanding, and one Special State Share1299 - Approximately 15 million additional ordinary shares were issuable upon the exercise of outstanding employee options at a weighted average exercise price of NIS 26.28 (about $7.47) per share1300 Memorandum, Articles of Association and Special State Share The Special State Share grants the State of Israel veto power over material asset transfers and significant share ownership changes (e.g., 14% or more) to protect vital national interests and maintain ICL's Israeli identity - The Special State Share held by the State of Israel provides veto power over the transfer of material assets and invalidates any acquisition of 14% or more of the company's share capital without state consent130413051307 - The state's vital interests protected by the share include keeping ICL as an Israeli company, monitoring natural resources, and preventing influence by hostile entities1311 Taxation This subsection outlines key tax considerations for ICL, including Israeli corporate tax rates and natural resource levies, and for investors, covering Israeli capital gains and dividend taxes, plus US federal income tax implications for US Holders - The statutory corporate income tax rate in Israel is 23%, and the company is also subject to the Law for Taxation of Profits from Natural Resources, which imposes a progressive surplus profit levy on minerals like potash, bromine, and phosphates131816681688 - For Israeli resident individuals, capital gains tax on shares is generally 25% (30% for a 'significant shareholder'), and dividend tax is also 25% (or 30%)13211326 - Non-Israeli residents are generally subject to a 25% or 30% withholding tax on dividends, which may be reduced under an applicable tax treaty, such as the US-Israel Tax Treaty13281329 - For US Holders, dividends are generally treated as foreign-source income and may be eligible for qualified dividend tax rates, and the company believes it was not a Passive Foreign Investment Company (PFIC) for 202213371341 Quantitative and Qualitative Disclosures About Market Risk ICL is exposed to market risks from currency exchange rates, interest rates, and commodity prices, which are mitigated using derivative financial instruments, with sensitivity analyses provided for potential impacts Exchange Rate Risk ICL's primary currency exposures are to NIS, EUR, GBP, BRL, and CNY, which are hedged using derivatives, with sensitivity analyses showing the impact of exchange rate changes on financial instrument fair value - The company's main currency exposures are to the Israeli Shekel, Euro, British Pound, Brazilian Real, and Chinese Yuan, where a strengthening of these currencies against the US dollar adversely affects profitability135613571361 Sensitivity to 10% Increase in Exchange Rates vs. USD (Impact on Fair Value, $ millions) | Currency | Net Impact on Financial Instruments (as of Dec 31, 2022) | | :--- | :--- | | USD/NIS | $(80.1) million | | EUR/USD | $81.7 million | | GBP/USD | $(3.7) million | | BRL/USD | $(9.6) million | | CNY/USD | $(23.4) million | Interest Rate Risk ICL is exposed to interest rate risk from variable and fixed-rate debt, managed through hedging instruments like swaps, with a 1% USD interest rate increase potentially impacting fair value by $85.3 million - The company is exposed to cash flow risk from variable-rate debt and fair value risk from fixed-rate debt, and it uses hedging instruments like swaps to manage this exposure13751376 Sensitivity to Changes in USD Interest Rate (as of Dec 31, 2022) | Change in Interest Rate | Impact on Fair Value ($ millions) | | :--- | :--- | | Increase of 1% | $85.3 | | Increase of 0.5% | $43.8 | | Decrease of 0.5% | $(45.8) | | Decrease of 1% | $(94.6) | PART II Controls and Procedures This section confirms the effectiveness of ICL's disclosure controls and internal controls over financial reporting as of December 31, 2022, as concluded by management and attested by the independent public accounting firm - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 20221389 - Management assessed the internal control over financial reporting as effective as of December 31, 2022, based on the COSO 2013 framework1391 - The independent registered public accounting firm issued an unqualified attestation report on the effectiveness of the company's internal control over financial reporting1393 Corporate Governance As a foreign private issuer, ICL follows Israeli corporate governance practices, utilizing exemptions from certain NYSE listing standards regarding board independence, committees, and shareholder approvals for equity compensation - ICL, as a foreign private issuer, follows Israeli home country governance practices in lieu of certain NYSE listing standards1405 - Exemptions are utilized for NYSE requirements regarding: a majority independent board, a nominating/corporate governance committee, and shareholder approval for equity compensation plans and certain other share issuances14061408