Israel Corporation Ltd.
Periodic Report
As at March 31, 2010 In Millions of U.S. Dollars
Israel Corporation Ltd.
Report of the Corporation’s Board of Directors and
Condensed Interim Consolidated Financial Statements
At March 31, 2010
Unaudited
Contents
Page Report of the Board of the Corporation’s Directors A – AA Auditors’ Review Report 2 Condensed Interim Consolidated Statements of Financial Position 3 – 4 Condensed Interim Consolidated Statements of Income 5 Condensed Interim Consolidated Statements of Comprehensive Income 6 Condensed Interim Consolidated Statements of Changes in Equity 7 – 8 Condensed Interim Consolidated Statements of Cash Flows 9 – 10 Notes to the Condensed Interim Consolidated Financial Statements 11 – 26 Condensed Interim Separate-Company Financial Data 27 – 35
Israel Corporation Ltd.
Report of the Corporation’s Board of Directors
For the Three Months Ended March 31, 2010
Israel Corporation Ltd. (hereinafter –“the Corporation”) is a holding company engaged in the initiation, promotion and development of businesses in and outside Israel. In order to execute its investments, including through its subsidiaries, from time to time the Corporation examines investment opportunities in companies and ventures in various activity sectors, including foreign ventures and international operations, while focusing on entities having broad-scoped activities or with the potential for reaching such dimensions, with any eye toward acquiring significant holdings therein.
The Corporation is held at the rate of 55% by the Ofer Group and 18% by Bank Leumi Le-Israel B.M.
The Corporation is involved in management of the Group companies, particularly those companies in which it holds a significant interest.
The Corporation operates through an array of investee companies, mainly in the chemicals, shipping and energy sectors, and also has additional investments, including in the areas of advanced technology, vehicles, infrastructure s for electric vehicles, power stations and “clean” energy. The Corporation’s headquarters provides management services, through a wholly controlled subsidiary, and is also actively involved in the strategic planning and business development of the investee companies. In addition, the Group endeavors to establish and develop additional businesses.
The Corporation’s strategy is designed to adapt its business structure to the commercial situation existing in Israel and globally, while expanding the Group’s g eographic dispersion and its penetration into additional activity areas in flourishing markets.
This Directors’ Report is submitted as part of the financial statements for the period ended March 31, 2010, and on the assumption that the reader is also in possession of the said financial statements. This report has been prepared in a condensed format for the aforementioned period on the assumption that the reader is also in possession of the periodic report for 2009.
FINANCIAL POSITION
–The total assets, as at March 31, 2010, amounted to about $12,589 million, compared with about $14,195 million, as at March 31, 2009.
–The current assets net of current liabilities, as at March 31, 2010 amounted to about $1,753 million, compared with current assets net of current liabilities of about $435 million as at March 31, 2009.
–The balance of the non-current assets, as at March 31, 2010 amounted to about $8,539 million, compared with about $8,943 million as at March 31, 2009.
–The non-current liabilities, as at March 31, 2010, amounted to about $6,801 million, compared with about $5,683 million, as at March 31, 2009.
–The total sales for the three months ended March 31, 2010 amounted to about $2,253 million, compared with about $2,565 million for the three months ended March 31, 2009.
–The capital attributable to the owners of the Corporation as at March 31, 2010 amounted to about $1,992 million, compared with $1,660 million as at March 31, 2009, and about $1,811 million as at December 31, 2009.
In the first quarter of 2009, the Corporation’s consolidated financial statements included the data of Oil Refineries Ltd., which exited the consolidation at the end of 2009.
CHANGES IN THE INVESTMENT PORTFOLIO
1. Better Place LLC (hereinafter –“Better Place”)
A. In January 2010, the Corporation transferred to Better Place LLC the amount of $15.4 million and
thus completed its investment in a total amount of $100 million that the Corporation’s
management decided to invest in Better Place.
B. In January 2010, Better Place initiated another fundraising round wherein it expects to raise $350
million, this being from both new investors and from some of its existing shareholders.
Subsequent to the period of the report, the round of investments in shares of Better Place was
completed wherein the Corporation invested about $72 million. Upon completion of the
transactions, the Corporation’s share in Better Place dropped from about 50% to about 39% and
the Corporation realized a capital gain of about $52 million. See also Note 5A1.
2. I.C. Green Energy Ltd. (hereinafter –“I.C. Green”)
A. In January 2010, an investment agreement was signed between I.C. Green, the founding
shareholders (hereinafter –“the Founders”) of Helufocus Ltd. (hereinafter –“Helufocus”), and a
Chinese company for investment in the shares of Helufocus. Pursuant to the agreement, Helufocus
will issue shares to I.C. Green and to the Chinese company in exchange for the amount of about
$2.31 million, to be invested by I.C. Green, and about $9.25 million, to be invested by the Chinese
company.
The transaction was completed and the Corporation realized a capital gain of about $9.7 million.
B. In February 2010, Petrotech A.G. (hereinafter –“Petrotech”), an associated company of I.
C.
Green, signed an agreement with a German bank whereby Petrotech will repay a loan from the
ban k, the balance of which at that time was about €18.9 million, in exchange for the amount of
about €2.2 million. For purposes of repayment of the loan from the bank by Petrotech, I.C. Green
made a loan to Petrotech in the amount of about €2.2 million. As a result of the transaction,
Petrotech recorded a capital gain of about €16.7 million (the Corporation’s share about €8
million).
See also Note 5D to the financial statements.
3.In January 2010, the Corporation sold 8 million ordinary shares of Israel Chemicals Ltd. (hereinafter –
“ICL”)it held, constituting about 0.63% of ICL’s issued and paid-up share capital, in exchange for about $106 million. As a result of the sale, the Corporation recorded an increase in capital attributable to the Corporation’s s hareholders, in the amount of about $85 million. After the sale, the Group holds about
52.5% of ICL’s issued and paid-up share capital.
4.During the period of the report, the Corporation transferred $100 million to ZIM as part of the
rehabilitation plan, as described in the Report of the Corporation’s Board of Directors as at December 31, 2009.
RESULTS OF OPERATIONS
The Corporation finished the period of the report with income allocable to the owners of the Corporation of about $49 million, compared with income of about $48 million in the corresponding period last year.
Set forth below are the factors which impacted the results of operations in the period of the report:
–Israel Chemicals Ltd. (hereinafter –“ICL”) finished the period of the report wi th income of about $241 million, compared with income of about $159 million in the corresponding period last year.
–Oil Refineries Ltd. (hereinafter –“ORL”) finished the period of th e report with a loss of about $4 million, compared with income of about $75 million in the corresponding period last year.
–ZIM Integrated Shipping Services Ltd. (hereinafter –“ZIM”) finished the period of the report with a loss of about $82 million, compared with a loss of about $119 million in the corresponding period last year.
–Inkia Energy Ltd. (hereinafter –“Inkia”) finished the period of the report with income of about $15 million, compared with income of about $5 million in the corresponding period last year.
–Better Place LLC (hereinafter –“Better Place”) fin ished the period of the report with a loss of about $20 million, compared with a loss of about $16 million in the corresponding period last year.
–Tower Semiconductor Ltd. (hereinafter –“Tower”) finished the period of the report (in accordance with IFRS) with a loss of about $34 million, compared with a loss of about $29 million in the corresponding period last year.
–The net financing expenses in the consolidated report (including financing expenses of the headquarters company) in the period of the report amount to about $16 million, compared with net financing income of about $105 million in the corresponding period last year.
In the corresponding period last year, the net financing income derived mainly from an increase in revaluation to fair value of financial instruments through the statement of income and from erosion of the shekel financial liabilities, mainly the debentures, due to devaluation of the dollar at the rate of 10%. As an investment company, the Corporation’s financial results are a ffected by the results of its investee companies.
Presented below are details of the contribution of the principal investee companies to the Corporation’s results:
Three months ended March 31
2010 2009
$ Millions
ICL 126 84
ORL (1) 34
ZIM (82) (117)
Inkia 15 5
Tower (13) (11)
Better Place 9 (8)
Following is a brief summary of the financial results of the Corporation and the principal investees: ISRAEL CHEMICALS LTD.
ICL finished the period of the report with income of about $241 million, compared with income of about $159 million in the corresponding period last year.
The ICL Group’s sales in the period of the report amounted to about $1,382 million, compared with about $898 million corresponding period last year – an increase of about 54%.
This increase reflects a sharp increase in the quantities sold in all of the ICL Group’s activity sectors. There was also a decline in the sale prices, particularly in the fertilizers’ area.
There is a mutual interdependency between the agricultural areas available for cultivation and the quantity of food needed by the population, on the one hand, and the use of fertilizers, on the other hand. The natural increase in the population, the change in the composition of the food consumption (transition to richer nutrition, largely based on animal protein, which increases the cereal consumption) as a result of a rise in the standard of living, primarily in the developing countries, along with environmental considerations and the aspiration of the Western countries to reduce dependency on fuel imports, which have strengthened the tendency for production of fuels from agricultural sources (bio-fuels), have affected the increased demand for cereals (grains, rice, soybeans, corn, etc.). In recent years these trends have led to a decline in the worldwide level of inventories of grains and, in turn, to higher prices of agricultural products, increased cereal planting worldwide, and a trend of increasing yield per unit of agricultural land, mainly by increasing the application of fertilizers.
In the short run, the demand for fertilizers is volatile and is impacted by factors such as the weather in the main agricultural growing areas worldwide, changes in the scope of the planting of the main items grown, cost of the agricultural inputs, prices of the agricultural products and the bio-technological developments. Some of these items are impacted by subsidies and credit lines granted to farmers or producers of agricultural inputs in the various countries and environment protection regulation. The changes in the exchange rates, legislation and policies in connection with international trade also have an impact on the worldwide supply, demand and consumption levels of fertilizers. Notwithstanding the volatility that may be caused in the short run due to the above-mentioned factors, in ICL’s estimation, the policy in most countries is to see to an orderly supply of high quality food to the residents, and as a result to encourage the agricultural production. Accordingly. the growth trend is expected to be maintained over the long run1.
In 2009, the levels of demand for fertilizers were low compared with prior years. The contracts for supply of potash to China were not renewed in 2009 by the international suppliers and the imports into the country, which is the world’s largest potash consumer, declined to a level of less than 2 million tons, compared with an import level of about 9 million tons and about 5 million tons in 2007 and 2008, respectively. The demand for potash in Europe in 2009 was also lower. After an unprecedented low point in the global economy and, as a result, in the consumption of fertilizers, the farmers began gradually to return to use of fertilizers in larger quantities. The trend of increasing demand for fertilizers returned in the second half of 2009 and has also continued up to the present time.
1 The estimates with respect to future trends included in the section constitute “forward-looking information” and there is no certainty if and when they will be realized, and at what rate. The said estimates may change due to fluctuations in the world and local markets, particularly in locations where ICL manufactures and in the target markets for ICL’s products, including, among other things, changes in the levels of supply and demand, prices of the products, merchandise and seeds,
At the end of December 2009, contracts were signed for supply of potash in 2010 between Chinese importers (CNAMPGC, SINOFERT) and BPC, a trading company representing Uralkali and Belaruskali in quantities about the same as those supplied by BPC in 2008 and at price of $350 per ton CFR. This price constitutes a significant decline compared with the estimated price of about $600 per ton CFR in 2008. During January 2010, ICL signed a number of contracts with several Chinese customers for supply of potash in the total amount of 620 thousand tons in 2010 (including an optional quantity of 100 thousand tons), on terms similar to those provided in the BPC contracts.
At the beginning of 2010, the government of India published its new policies with respect to subsidies for fertilizers, which entered into effect on April 1, 2010. The main thrust of the plan is a transition to subsidizing products according to a subsidy list based on food types. In addition, the trend of the subsidy policies is to gradually change the payment mechanism from the present system of payment to the manufacturers/importers, to payment of the subsidy directly to the farmer. As far as the subsidy for potash and imported phosphoric acid is concerned, in 2010-2011 a policy was set whereby the maximum final retail price will be cancelled, however limits were set regarding changes in the price to the ultimate consumer, where the intention is that the price will be maintained at a level about the same as the present level.
In the middle of February 2010, the Canadian export firm CANPOTEX signed an agreement for sale of potash to its customers in India in the overall amount of 600 thousand tons, for delivery during the second quarter of 2010 at a price of $370 per ton CFR. During March 2010, BPC agreed with respect to supply of 900 thousand tons of potash for a period of about a year on similar terms. ICL Fertilizers also signed an agreement in March 2010 with a number of customers in India for sale of potash in the aggregate amount of 1,430 thousand tons (including an optional quantity of 90 thousand tons) for a period of about a year commencing from April 2010, at a price of $370 per ton CFR.
The first quarter of 2010 signaled a trend of increasing demand for the fall fertilizers in the United States, improvement in the level of demand for potash fertilizers in Europe, and demand for potash in the Chinese and Brazilian markets. Deliveries of potash to India, as a result of closing the contracts for 2010/11, indicated a positive continuation of demand in the Indian market (along with a high demand for potash and nitrogen fertilizers), which are also continuing into the second quarter of the year. Favorable demand for potash and phosphate fertilizers in Brazilian market in the first and second quarters signals a good year of growth in demand in this market as well and return to the pattern of continuing growth in the demand for fertilizers. The European market, which underwent a sharp decline in the total amount of fertilizers in 2009, is also showing signs of recovery and stronger demand for phosphate fertilizers and potash as the upcoming fertilizer season approaches2.
The forecast of the United States Department of Agriculture (USDA), from April 2010, projects an increase in the inventories of wheat, corn and soya as a result of favorable weather conditions in the world’s main growing regions, which will give rise to a small increase compared with the inventory for consumption, however, this matter has not yet had a significant impact on the agricultural commodity and fertilizer prices, and the prices have remained stable over the past several weeks. On the other hand, the large harvests, as they were over the past several years, have hastened utilization of the land fertilizer balances and, therefore, in the upcoming years it is expected that there will be a need for a large amount of fertilization for purposes of making of the deficiency.
2 The estimates with respect to future trends included in the section constitute “forward-looking information” and there is no certainty if and when they will be realized, and at what rate. The said estimates may change due to fluctuations in the world and local markets, particularly in locations where ICL manufactures and in the target markets for ICL’s products, including, among other things, changes in the levels of supply and demand, prices of the products, merchandise and seeds,
The activities of ICL Industrial Products are affected, to a significant extent, by the level of activity in the electronics (mainly printed circuits), construction, automotive, oil drilling, furniture, textiles, and water treatment markets. In 2009, there was a large decline in demand for flame-retardants as a result of the global financial crisis and its impact on the electronics, construction and automotive markets. Commencing from the third quarter of 2009, a trend of improved demand began that has continued on into the first quarter of 2010 as well, where the demand for most of ICL’s products are much higher than the demand in the corresponding quarter last year. The sale prices of th e segment’s products declined gradually during 2009 as a result of the global financial crisis. With resurgence of the demand, the segment has commenced a process of raising the selling prices.
Production of bromine in China has continued to fall, due to dilution of the sources of bromine, a tough winter, and high production costs. These factors have also resulted in an increase in the prices of bromine and flame-retardants using a bromine base in the Chinese market, along with a significant decrease in the production of flame-retardants in China. Subsequent to the period of the report, the trend of increasing demand for the segment’s products continued, particularly flame-retardants, with a concurrent trend of increasing selling prices concurrent with an increase in the prices of the raw materials used in their production.
The activities of ICL Performance Products are affected by competition in some of the target markets. The downward pressure on prices in the European market continued in 2009, as part of the availability of cheaper alternatives, particularly due to the increased competition resulting from the increased imports. On the other hand, there was less pressure on prices in North America and the relatively high prices, which existed in 2008, remained at about the same level in the first three quarters of 2009, however there was a fall in the quantities sold. In the fourth quarter of 2009, there was a drop in the selling prices in the U.S. as well. During the first quarter of 2010, a trend of improvement in demand over 2009 is visible. The demand in the U.S. for clean phosphoric acid stabilized in January and February 2010 with a trend of improvement during March, where a continuing improvement is apparent in this areas of activities in Europe. In addition, there has been an increase in demand for other phosphate and phosphorous-based products in the first quarter of 2010 compared with 2009. The downward price pressure that characterized 2009 has moderated, where a trend of stabilization of prices is visible in the first quarter of 2010.
Marine transportation costs constituted about 7% of ICL’s total operating costs in the period of the report. The bulk transportation prices have been characterized over the past several years by extreme volatility. Since the beginning of 2009, there has been a trend of increasing bulk marine transportation prices up to a level of 3,005 points (based on the Baltic Dry Index (BDI) marine transportation index) at the end of the year. During the first quarter of 2010, the increase in marine transportation prices continued, and the index stood at an average of about 3,027 points – 94% higher than the average price in the corresponding quarter last year.
The energy costs constituted about 8% of ICL’s total operating costs i n the period of the report. As a result of the economic crisis, the energy costs have begun to fall, commencing from the fourth quarter of 2008. The average prices of crude oil and naphtha in 2009 were lower than the prices in 2008. Starting from the third quarter of 2009, the trend reversed and the energy prices began to rise. In the first quarter of 2010, the energy prices were high compared with the first quarter of 2009.
At the beginning of December 2009, the project for laying a gas pipeline to Sdom was completed. On this date, gas began to run to the power plant of Dead Sea Work in Sdom. The transition to natural gas gives rise to a significant decrease in the pollution in the area of the plants, improves the product quality, decreases the maintenance costs and contributes to a large monetary savings as a result of changing over from use of expensive fuels.
Netivei Gas Ltd. is supposed to complete connection of the rest of the company’s facilities at Rotem and Ramat Hovev to the national gas pipeline during 2010, while at the same actions are being taken to convert the facilities to use of gas.
The gross profit rate in the period of the report was about 40% of the sales, compared with about 41% in the corresponding period last year. The changes in the profit rate stem mainly from an increase in the quantities sold of most of the products of the ICL Group, a decline in the prices of the main raw materials, a decline in the selling prices and an unfavorable impact from the strengthening of the exchange rate of the shekel vis-à-vis the dollar.
In the period of the report, there was an increase in the selling and marketing expenses, compared with the corresponding period last year, which derived mainly from the increase in the total sales, mainly in the fertilizers’ segment, as well as from an increase in the bulk marine transportation prices.
In the period of the report, ICL realized net financing income in the amount of about $0.1 million, compared with financing income of about $23 million, in the corresponding period last year. The financing income/expenses in the period were impacted by the change in the dollar–shekel exchange rate with respect to the liabilities for employee benefits, an increase in the average interest, revaluation of the net short-term financial liabilities, and transactions in financial derivatives.
During January 2010, ICL signed a number of contracts with several customers in China for supply of potash in the overall amount of 520 thousand tons in 2010.
During March 2010, ICL Fertilizers agreed with a number of customers in India with respect to sale of potash, where ICL Fertilizers will supply 1,430 thousand tons (including an optional quantity of 90 thousand tons) for a period of about a year commencing from April 2010, at a price of $370 per ton CFR. As at the date of this report, the India customers have contractual liabilities for acquisition of a total quantity of potash in excess of 5 million tons.
In January 2010, the Board of Directors of ICL approved issuance of up to 11 million non-marketable options for no consideration to 318 officers and senior employees in the ICL Group. See also Note 5B to the financial statements.
OIL REFINERIES LTD.
ORL completed the period of the report with a loss of about $4 million, compared with income of about $75 million in the corresponding period last year.
The total sales in the period of the report totaled about $1,705 million, compared with about $984 million in the corresponding period last year. The increase in the total sales derived mainly from an increase in the average price of the fuel products. The average price per ton of the main products’ basket in the Mediterranean Sea area that is roughly the same as the basket produced by ORL was about $659 in the period of the report, compared with about $385 in the corresponding period last year.
The gross profit in the period of the report amounted to about $36 million, compared with about $102 million in the corresponding period last year.
OIL REFINERIES LTD. (Cont.)
Set forth below is data and the impact thereof on the refining margins (dollar per ton):
January–March
2010 2009 Neutralized margin 23.1 32.4 Less –
Impact of application of method for recording derivatives (under IFRS) (4.9) (0.1)
Impact of timing differences of purchases and sales 5.0 (18.1)
Provision for decline in value of inventory 0.9 42.7 Accounting margin 24.1 56.9
The selling administrative and general expenses in the period of the report amounted to about $40 million, compared with about $22 million in the corresponding period last year.
The net financing expenses the period of the report amounted to about $12 million, compared with financing income of about $14 million in the corresponding period last year.
The financing income/expenses in the period of the report were impacted mainly by an increase in the short-term interest due to an increase in scope of the credit and as a result of the impact of the revaluation to fair value of the financial derivatives held by ORL.
The net other expenses in the period of the report amounted to about $15 million and constitute amortization of the excess cost of acquisition of shares of Carmel Olefins and Haifa Basic Oils.
In the period of the report, Maal ot gave notice of reduction of the rating of ORL’s debentures to A– with a stable rating outlook.
ZIM INTEGRATED SHIPPING SERVICES LTD.
Set forth below is significant data from ZIM’s statements of operations:
Three months ended March 31
2010 2009
$ Millions Revenues from shipping and accompanying services 745 622 Costs of shipping and accompanying services (754) (703) Operating depreciation (35) (30) Gross loss (44) (111) Other operating expenses, net (6) (4) Administrative and general expenses (33) (41) Operating loss (83) (156) Financing expenses, net ––
Share in income (losses) of associated companies, net 1 (1)
Tax benefit (taxes on income) (1) 37 Holders of non-controlling interest (1) (1) Loss for the period attributed to the owners of the Corporation’s (82) (119)
Set forth below is significant data from ZIM’s statements of cash flows:
Three months ended March 31
2010 2009
$ Millions
Cash used in operating activities *(18) (60) Acquisition of ships and equipment (157) (62) Proceeds from sale of ships and equipment 8 118 Cash provided by (used in) financing activities *220 (133) Total depreciation and amortization 49 34
* Restated – see Note 2E to the financial statements
Set forth below is significant data from ZIM’s statements of financial position:
As at March 31
2010 2009
$ Millions
Total financial liabilities 2,412 2,143 Total monetary assets 200 254 Deferred tax liabilities, net 4 (29) Total equity attributable to the owners 533 378 Total assets 3,495 2,964 Payments on account of construction of ships 418 737
Set forth below is the movement in ZIM’s shareholders’ equity:
Three Months
Ended
March 31
2010
$ Millions
Balance as at January 1, 2010 502
Issuance of shares 100
Loss for the year (82)
Reserve in respect of transactions with controlling shareholders 11
Reserve for translation differences, from hedging and other transactions 2
Balance as at March 31, 2010 533
Brief description of ZIM’s results:
ZIM’s loss in the period of the report attributed to the owners of its owners amounted to about $82 million, compared with a loss of about $119 million in the corresponding period last year.
ZIM’s revenues in the period of the report amounted to about $745 million, compared with about $622 million in the corresponding period last year –an increase of about 20%. The increase in the total revenues stems, mainly, from an increase in the quantities shipped, revenues from uncompleted voyages and income from the subsidiaries, which was offset by a decline in the average shipping price per container. In the period of the report, the average shipping price per container declined by about 12% from about $1,369 per container to about $1,200 per container
In the period of the report, ZIM transported 509 thousand TEUs, compared with 410 thousand TEUs in the corresponding period last year – an increase of about 24%.
In the period of the report, there was an increase in the fuel expenses at the rate of about 46%, a decrease in the ship leasing expenses (including volume leases) at the rate of about 32% and an increase in the expenses accompanying cargo handling at the rate of about 19%.
In the period of the report, the net other operating expenses amounted to about $6 million, compared with net other operating expenses of about $4 million in the corresponding period last https://www.doczj.com/doc/af11874300.html,st year, ZIM reported a capital gain from sale of a ship in the amount of about $33 million and there was a decline in the provisions in respect of cancellation of ship construction.
In the period of the report, the administrative and general expenses decreased at the rate of about 20%. The decrease stems mainly from a decline in the expenses in connection with early retirement.
ZIM’s operating loss in the period of the report amounted to about $83 million, compared w ith a loss of about $156 million in the corresponding quarter last year and compared with a loss of about $143 million in the preceding quarter (the final quarter of 2009).
The improvement in ZIM’s operating results compared with the preceding quarter stems, mainly, from an increase in ZIM’s revenues at the rate of about 8%, primarily due to an increase in the average shipping prices per container and revenues of subsidiaries. The average shipping price in the period of the report amounted to about $1,200 per container, compared with about $1,136 per container in the preceding quarter. In addition, the quantity shipped increased by about 2%, from about 498 thousand containers in the preceding quarter to about 509 thousand containers in the current quarter.
The loss attributable to the holders of ZIM’s capital in the period of the report amounted to about $82 million, compared with income of about $81 million in the final quarter of 2009.
The change derives mainly from a decline in income stemming from the debt arrangement of about $233 million, which was partially offset by an operating improvement in the amount of about $60 million.
ZIM’s negative EBITDA in the period of the report amounted to about $33 million, compared with about $122 million in the corresponding quarter last year, an improvement of about $89 million. After eliminating ship leasing fees that do not produce cash flows, the negative EBITDA in the period of the report amounted to about $8 million, compared with about $122 million in the corresponding quarter last year.
ZIM’s negative EBITDA in the preceding quarter (the final quarter of 2009) amounted to about $100 million, compared with EBITDA of about $33 million in the current quarter – an improvement of about $67 million. After eliminating ship leasing fees that do not produce cash flows, the negative EBITDA in the period of the report amounted to about $8 million, compared with about $75 million in the final quarter of 2009 –an improvement of about $67 million.
Other developments in the period of the report and thereafter:
A. As described in the Report of the Corporation’s Board of Directors as at December 31, 2009 and in the
quarterly reports in 2009, along with and as part of the global financial crisis, there have been a number of negative developments in the international shipping market, among others, a high supply of ships compared with a moderate demand, a fact that has led to an increasing decline in utilization of the ships and the shipping fees. Continuation of the difficult conditions in the international shipping market has had an adverse impact on ZIM and on, among other things, the results of its operations, its compliance with financial covenants and its ability to raise money, as well as on its financing conditions.
Similar to many other international shipping companies, ZIM has taken and is continuing to take various steps aimed at coping with the changes in the market situation, including changing its strategic plan, whereby ZIM planned significant increases in the upcoming years – both in its shipping capacity and in the quantities shipped. As part of adaptation of the strategic plan to the present market conditions, ZIM has taken various steps, such as: conducting of negotiations with shipyards from which it ordered ships;
return of certain leased ships (based on ZIM’s needs) to their owners at the end of the lease contract;
preparation for the necessary changes in the shipping routes, including contraction of the activities in certain markets: idling of ships that will not be utilized due to the cutback in the shipping routes;
examination of the viability of exiting investments in items auxiliary to the shipping line activities; and reduction of administration expenses, including termination of employees, etc.
ZIM estimated that in the years 2009 to 2013 it is expected to encounter a situation of negative cash flows (deriving from the business operations, investments and loan repayments) in an amount estimated at about $1 billion. In light of this, ZIM (with the assistance of its professional advisors) formulated a rehabilitation plan (hereinafter –“the Rehabilitation Plan”).
In 2009, ZIM held contacts and negotiations with various financial creditors (including foreign and local banks, leasing companies and debenture holders) (hereinafter –“the Financial Creditors”) and other parties (including ship owners leasing ships to ZIM, which included related companies, and shipyards from which it ordered ships) (hereinafter –“the Other Parties”) in an attempt to formulate an agreed plan of rehabilitation.
In November 2009, Israel Corporation’s General Meeting approved, among other things, the arrangements with the related companies in the framework of the Rehabilitation Plan, as well as Israel Corporation’s investment as part of the said plan – all as detailed in the Immediate Reports submitted by Israel Corporation. For details and an expanded treatment of ZIM’s agreed-to rehabilitation plan along with the details thereof, loans and investments made by Israel Corporation to/in ZIM in the year of the report, and decisions of Israel Corporation’s General Meeting in connection with ZIM’s agreed-to rehabilitation plan –see the Immediate Reports of Israel Corporation: (A) Immediate Report (Transaction Report) published by the Corporation on September 9, 2009; (B) Supplemental Immediate Report dated September 24, 2009; (C) Supplemental Immediate Report No. 2 dated October 7, 2009;
(D) Supplemental Immediate Report No. 3 dated October 18, 2009; (E) Immediate Report (Combined
Report) dated October 25, 2009; (F) Immediate Report regarding Notification of Related Companies in connection with Decisions of the General Meeting that is the subject of the Transaction Report dated November 3, 2009; and (G) Immediate Reports dated November 3, 2009 and November 4, 2009 regarding the results of the General Meeting.
As part of the negotiation aimed at formulation of a plan of rehabilitation, on August 16, 2009, ZIM held
a General Meeting of the debenture holders during which ZIM provided an update regarding its business
position and a discussion was held with respect appointment of representatives of the debenture holders and their authorities. As a result of the said meeting, representatives were appointed for the debenture holders with which ZIM held negotiations regarding the terms of the arrangement that will apply to the debenture holders. In November 2009, the General Meeting of the debenture holders approved the arrangement documents as agreed to with the representatives. On January 6, 2010, all the conditions for entry into effect of the trust indenture were formally completed, and this date was set as the effective date of the arrangement as defined in the trust indenture.
B. During the first quarter of 2009, ZIM requested to terminate the lease agreement of the ship “Car
Star 1”, which is leased from a related company until April 13, 2011. The parties agreed as follows:
The period between the actual return date of the ship, which is February 15, 2009 (hereinafter –“the Return Date”) and the return date based on the original agreement (April 13, 2011) will be considered the balance of the lease period (hereinafter –“the Balance of the Lease Period”).
ZIM reserves the right, during 9 months from the Return Date (hereinafter –“the Option Period”), to notify the related company by means of an advance notice of 3 months (hereinafter –“the Notice Period”) of its interest in leasing a car shi p from the related company (or any of its subsidiaries) that has characteristics similar to those of “Car Star 1” for a period equal to the Balance of the Lease Period and for the lease payments specified in the original agreement ($20,000 per day) and the related company will make significant efforts to buy or lease a ship as stated for purposes of its lease to ZIM on these conditions.
If at the end of the Option Period and the Notice Period ZIM has not exercised its right, ZIM will pay the related company (or its subsidiary) the lease payments less the operating cost component of the ship, in the amount of $5,750 per day, throughout the Balance of the Lease Period (hereinafter –“the Compensation”). The Compensation, in the amount of $14,250 per day duri ng the Balance of the Lease Period is to be paid in 24 equal monthly payments beginning from the end of the Option Period.
If ZIM exercised its option, however the related company did not succeed in buying or leasing a substitute ship up to the end of the Notice Period, the related company will give notice to the related company of the estimated purchase or lease date as stated, and if ZIM is interested in waiting up to this date, execution of the lease arrangement will be delayed up to the date the substitute ship is received.
If during the above-mentioned deferral period the related company gives notice that it is unable to buy or lease a substitute ship, or if ZIM decides it is not interested in waiting until such a substitute ship is located and transferred to it, payment of the Compensation will begin from notification date of the inability as stated, however, in any case, not before the passage of 12 months from the Return Date. The parties agreed to extend the Option Period by 3 months up to February 15, 2010, and subsequent to the balance sheet date an additional extension was agreed to, up to May 15, 2010.
On March 23, 2010 ZIM’s Audit Committee and Board of Directors approved, as a transaction that is not an extraordinary transaction, a settlement reached with the related party whereby ZIM will exercise its right for a replacement vessel in a way that the balance of the charter term of the said vessel will be realized starting from the end of the charter term of the alternate vessel which shall be made available to “Car Bridge I”as detailed in Section C below.
C. Replacement of the Car Bridge I vessel: On March 23, 2010 ZIM’s Audit Committee and Board of
Directors approved, as a transaction that is not an extraordinary transaction, replacement of the Car Bridge I vessel, which is chartered from a related party, with a remaining contract term until March 2011 at a price of $20,000 per day, with an alternate and more modern vessel (“the Alternate Vessel”) under the same conditions as set out in the charter agreement of the Car Bridge I vessel (including the balance of the charter term and the charter fees). In the detailed agreement between the parties relating to the said replacement, various provisions were determined arranging the relationships between the parties in
a case of overlapping/difference in the periods between return of the Car Bridge I vessel and delivery of
the replacement vessel, including: (a) in a case where Car Bridge I was returned and the replacement vessel has not yet been delivered, the lease period will be stayed, and will be restarted upon delivery of the replacement vessel; (b) in a case where the replacement vessel was delivered prior to return of Car Bridge I, in respect of the overlap period lease fees will be paid of $1 (one dollar) per day for the replacement vessel; (c) in a case where the related company chooses to put the replacement vessel in for maintenance servicing after its delivery (and prior to its entry into service) ZIM will pay lease fees will be paid of $1 (one dollar) for every day the replacement vessel is under maintenance servicing; (d) in a case where for purposes of maintenance servicing, as stated, the replacement vessel is diverted from its regular voyage route a diversion exceeding 14 ship-travel hours, the fuel costs in respect of the excess diversion will be borne by the related company. It was also approved, as noted, that after the end of the lease period of Car Bridge I, the replacement vessel will continue to be leased by ZIM for the balance of the lease period of Car Bridge I, as stated in Section B., above.
D. On November 8, 2009, ZIM published an offer to its shareholders to acquire ordinary shares of ZIM of
NIS 0.03 par value, by means of rights.
On December 1, 2009, Israel Corporation notified ZIM of its interest in this rights’ offer and in this framework Israel Corporation:
1) Executed a bank transfer to the credit of the special account, as provided in the offer, the amount
of $100 million.
2) Gave a written instruction to ZIM with respect to conversion of loans it made to ZIM (by means
of repayment of the above-mentioned loans and concurrently transferring to ZIM the amount of
loans repaid as stated) in the amount of $200 million.
3) Signed a liability certificate whereby Israel Corporation committed to transfer to ZIM the balance
of the consideration ($150 million), in a lump-sum or in increments, based on ZIM’s request.
Against the activities detailed in subsections (1) and (2), on December 7, 2009 ZIM issued to Israel Corporation 37,963,915 of its ordinary shares.
In the period of the report, Israel Corporation invested in ZIM, as part of its commitment is subsection (3) above the amount of $100 million and in exchange, Israel Corporation was issued an additional 12,654,637 of ZIM’s ordinary shares.
After the investments, the Corporation’s investments in ZIM reached about 99.6% of ZIM’s share capital.
E. On January 10, 2010, Maalot informed ZIM that it reduced the rating of the debentures from ilCC with a
negative outlook to D. Reduction of the rating of the debentures to D stems from entry into effect of the arrangement for payment of the debt raised under the debentures –based on Maalot’s customary methodology.
On January 11, 2010, Maalot informed ZIM that after a re-examination of the rating of the debentures under the new conditions after completion of the debt arrangement, the rating of the debentures rose to ilB with a stable outlook.
F. 1. On June 6, 2010, a non-binding memorandum of understanding was signed between ZIM and its
related companies, on the one side, and an unrelated foreign company and its related company
(hereinafter –“the Foreign Corporation”), on the other side, in connection with a sale, directly or
indirectly, of ZIM’s rights, of any type or kind, in a foreign company engaged in shipping-related
activities (and that does not hold ships) (hereinafter –“the Foreign Company” and “the
Memorandum of Understanding”, respectively).
2. Pursuant to the Memorandum of Understanding, which is not binding as stated, if and to the
extent a sale agreement is signed and completed between the parties (hereinafter –“the Sale
Agreement”), the Foreign Corporation will acquire (directly or indirectly) ZIM’s rights in th e
Foreign Company. In ZIM’s estimation, the total consideration in respect of sale of its rights in
the Foreign Company will be in the range of $130 million to $170 million, taking into account,
among other things, the amount of the consideration and the mechanisms for adjustment of the
consideration as provided in the Memorandum of Understanding (hereinafter –“the Total
Consideration”).
3. It was agreed between the parties that the undertaking which is the subject of the Sale Agreement,
will be subject to, among other things, fulfillment of various preconditions. In this regard, it is
noted that concurrent with signing of the Memorandum of Understanding, an agreement in
principle was signed between ZIM, the Foreign Corporation and a third party related to the
Foreign Company, wherein the parties expressed agreement in principle, subject to certain
4. Concurrent with signing of the Memorandum of Understanding, an exclusivity agreement was
signed whereby, subject to certain conditions, in the period up to July 9, 2010 (which may be
shortened under certain circumstances), ZIM will not be permitted to carry on contacts with third
parties for sale of its rights in the Foreign Company (hereinafter –“the Exclusivity Period”). In
addition, ZIM granted the Foreign Corporation an option to extend the Exclusivity Period by an
additional 45 days, under certain conditions provided. During the Exclusivity Period, the Foreign
Corporation will perform a due diligence examination with respect to the Foreign Company.
G. 1. On June 9, 2010, an agreement was signed between ZIM and an unrelated foreign company
(hereinafter –“the Foreign Company”)for sale of ZIM’s rights in a joint venture in China
(about 8% of the joint venture’s capital and the rights related thereto) the main activities of which
are establishment and operation of about 18 terminals for cargo trains in China (hereinafter –“the
Joint Venture” and “the Agreement”, respectively).
2. The consideration to be paid to ZIM in respect of its rights in the Joint Venture stands at about
RMB 197 million (about $29 million based on the exchange rate known close to the date of this
report). About one-third of the said amount was paid to ZIM 10 days after signing of the
Agreement. The balance of the consideration will be paid to ZIM within 10 days of fulfillment of
the precondition, as detailed below:
3. Completion of the undertaking that is the subject of the Agreement is contingent on receipt of
approval from the Ministry of Industry and Commerce in China within a period of up to 6 months
from the signing date of the Agreement, or a longer period to the extent agreed to between the
parties (hereinafter –“the Precondition”). In any case where the Precondition is not fulfilled, ZIM
will return to the Foreign Company the amount of the advance deposit paid to it (return of the
deposit was secured by a guarantee provided by a subsidiary of ZIM).
4. Pursuant to the Agreement, in addition to the consideration to be paid to ZIM, the Foreign
Company (which is the holder of the rights in the Joint Venture) will pay the Joint Venture the
amount of about RMB 111 million (about $16 million based on the exchange rate known close to
the date of this report), in respect of ZIM’s share in the third investment round that was not
invested in the Joint Venture by ZIM on the date scheduled for the investment.
5. As part of the Agreement it was provided that ZIM’s refraining from participation in the third
investment round in the Joint Venture will not unfavorably impact the validity of the Agreement
and will not be considered a breach of the Agreement by ZIM (including in a case of contentions
by the Joint Venture or the holders of rights therein against ZIM in connection with the said
investment round) and such matter will not unfavorably impact continuation of implementation of
the transaction. In addition, in a case where transfer of the rights in the Joint Venture is not
approved due to ZIM’s refraining from participation in the prior investment round, such refraining
will not constitute a breach of the Agreement between the parties and none of the parties have any
claims stemming from this. It was further provided that to the extent there are demands or
contentions in connection with ZIM’s refraining from participation in the investment round as
stated, ZIM will be required to settle every claim or demand regarding this matter independently.
As indicated to ZIM in regard to this matter, ZIM is required, pursuant to the investment
agreements in the Joint Venture, to make a compensatory payment to the Joint Venture at the rate
of about 3% of the amount of the investment not made on time (about $490 thousand based on the
exchange rate known close to the date of this report), and it is likely to be exposed to (under the
Companies Law in China) to a demand for payment to the Authorities in China in amounts that
are not significant.
INKIA ENERGY LTD.
Inkia finished the period of the report with income of about $14.5 million, compared with income of about $5.3 million in the corresponding period last year.
After eliminating the financing expenses to Israel Corporation and the non-recurring items of income/expense, its income for the period amounted to about $15.3 million, compared with income of about $6.8 million in the corresponding period last year.
Inkia’s total revenues in the period of the repo rt amounted to about $116 million, compared with about $68 million in the corresponding period last year.
Inkia’s EBITDA in the period of the report amounted to about $30.3 million (including a proportionate amount of the EBITDA of an associated company), compared with about $13.2 million in the corresponding period last year.
As at the date of the report, Inkia’s net debt (excluding the loan from Israel Corporation) amounted to about $323 million, compared with a net debt of about $310 million last year.
Set forth below are the main factors affecting Inkia’s income in the period of the report:
1. Significant improvement in the results of the subsidiary due to commencement of operation of the
second turbine in the second half of 2009, and a decrease in prices in the electricity market, compared with the corresponding quarter last year that served to decrease the cost of sales.
2. Impact of “El Ninyo” in El Salvador –due the “El Ninyo” effect, which is characterized by a decline in
the number of investors in Central America, there was a significant increase in the production of the power station in El Salvador concurrent with an increase in electricity prices, which had a favorable impact on the results in the period of the report.
3. Improvement of the hydrology in Bolivia gave rise to an improvement in the results of the subsidiary in
Bolivia, most of the production of which is executed using hydroelectric facilities.
4. In the Dominican Republic in the period of the report, a number of producers were idled for maintenance
purposes and, as a result, there was an increase in production of the subsidiary. In addition, the increase in fuel prices had a favorable impact on the margin.
5. In the period of the report, there was a decline in Inkia’s share in the results of associated companies,
mainly due to a decline in the net income of the associated company in Peru.
6. Increase in the financing expenses compared with the corresponding period last year due to
commencement of accrual of financing expenses in respect of the second gas turbine on the Kallpa site that commenced operation in June 2009.
Developments in Kallpa Generacion S.A. (Peru) (hereinafter –“Kallpa”):
1. In March 2010, the third gas turbine at Kallpa commenced operation and now the capacity on the site
has reached about 570 megawatts.
2. In April 2010, Kallpa signed a number of long-term agreements with local distribution companies, for
periods of 8-10 years, whereby Kallpa will sell electricity to those distribution companies, commencing from 2014, in a scope of 560 megawatts. The total financial scope of the agreements is estimated at $1.5 billion, which will be spread over the period of the agreements.
TOWER SEMICONDUCTOR LTD.
In the period of the report, Tower’s sales amounted to abo ut $114 million, compared with about $58 million in the corresponding period last year –an increase of about 96%, while the cost of sales increased by only about 30%. The cost of sales amounted to about $97 million, compared with about $75 million in the corresponding period last year.
Tower finished the period of the report (pursuant to IFRS) with a loss of about $34 million, compared with a loss of about $29 million in the corresponding period last year.
The financing expenses in the period of the report amounted to about $31 million, compared with about $1 million in the corresponding period last year.
The increase in the financing expenses in the period of the report stems mainly from accounting expenses recorded in accordance with generally accepted accounting principles as a result of the significant increase in the share value and fair value of Tower’s securities (which are not cash basis expenses).
SOURCES OF FINANCING FOR THE CORPORATION AND THE HEADQUARTERS COMPANIES
As at March 31, 2010, the total financial liabilities of the Corporation and of the wholly owned and controlled headquarters companies (hereinafter –“the Headquarters Companies”) amounted to about $2,133 million, including elimination of the impact of interest rate and index SWAP transactions in respect of debentures, in the amount of about $151 million.
As at the date of the report, the investments of the Corporation and of the Headquarters Companies in liquid assets amounted to about $161 million. The investments are mainly in dollar deposits.
The net debt of the Corporation and of the Headquarters Companies as at the date of the report was about $1,972 million.
In the period of the report, the Corporation paid current maturities of debentures and long-term loans, in the amount of $12 million.
As at March 31, 2010, the aggregate scope of the shekel exposure of the Headquarters Companies was about $240 million. The scope of the exposure to the Consumer Price Index was about $150 million and to a change in the Libor interest rate about $530 million.
As at the signing date of the financial statements, there was no significant change in the exposure. Subsequent to the date of the report, the Corporation published a shelf prospectus for the issuance of shares, options for shares, debentures, convertible debentures and options for debentures.
EXPOSURE TO MARKET RISKS AND RISK MANAGEMENT
Corporation’s Consolidated Derivative Positions as at March 31, 2010
Par value in $ millions Fair value in $ millions
Long Short Long Short Hedging changes in variable LIBOR
interest rates on dollar loans
Over one year – recognized for accounting
CAP options 91 –0.5 –FLOOR options 91 –(4.6) –IRS transactions 140 –(7.6) –Over one year – not recognized for accounting
CAP options 654 – 4.2 –FLOOR options 654 –(30.0) –IRS transactions 1,278 68 (56.4) 5.8 IRS transactions up to one year – not
recognized for accounting purposes – 38 – 4.9 Hedging changes in exchange rate and
interest rate swaps on loans, over one year
SWAP to dollar liability with variable interest
from index-linked liability with fixed interest
over one year – not recognized – 1,067 – 200.3 SWAP to dollar liability with variable interest
from shekel liability with fixed interest – not
recognized – 98 – 2.8 SWAP to dollar liability with fixed interest from
index-linked liability with fixed interest – not
recognized – 13 – 1.9 SWAP to dollar liability with fixed interest from
shekel liability with fixed interest – not recognized – 48 – 4.7 SWAP to shekel liability with variable interest from
shekel liability with fixed interest – not recognized – 69 –(0.5) SWAP to dollar liability with fixed interest from
shekel liability with fixed interest – recognized for
accounting purposes – 179 – 3.6 SWAP to dollar liability with fixed interest from
Suli liability with fixed interest – recognized for
accounting purposes – 88 –(2.1) Hedging changes in the exchange rates and
SWAP of interest rate on loans – up to one year
SWAP contract to dollar liability with fixed interest
from index-linked liability with fixed interest – not
recognized – 45 –18.2 Hedging changes in the CPI on cash flows –
not recognized for accounting purposes
Forward contract for acquisition of CPI differences –
more than one year 148 – 1.0 –
Corporation’s Consolidated Derivative Positions as at March 31, 2010
Par value in $ millions Fair value in $ millions
Long Short Long Short Other derivatives in subsidiary – more than
one year – not recognized for accounting purposes
Option for issuance of debt 50 –9.8 –Forward transaction for early repayment of
debentures of subsidiary 114 –109 –Option issued for lease price of ships –––(2.0) Hedging changes in the CPI on cash flows – up to
one year – not recognized for accounting
purposes
Shekel/Dollar
Forward contract – 289 – 2.7 Call options – 147 –(0.9) Put options – 247 – 5.2 Euro/Dollar
Forward contract 159 –(1.0) –Call options 53 –(0.2) –Put options 53 – 4.5 –Yen/Dollar
Forward contract 12 – 0.6 –Call options 18 – 0.4 –Put options 16 –(0.1) –British Pound/Dollar
Forward contract 1 –––Call options 3 –––Put options 3 – 0.3 –SWAP transactions for hedging fuel prices 28 – 1.7 –