Note 22 - Financial Instruments and Risk Management

A. General

The Group has extensive international operations wherein it is exposed to credit, liquidity and market risks (including currency, interest and other price risks). In order to reduce the exposure to these risks, the Group holds financial derivative instruments, (including forward transactions, SWAP transactions, and options) to reduce the exposure to foreign currency risks, commodity price risks, energy and marine transport and interest risks. Furthermore, the Group holds derivative financial instruments to hedge the exposure and changes in the cash flows.

The transactions in derivatives are executed with large Israeli and non-Israeli financial institutions, and therefore Group management believes the credit risk in respect thereof is low.

This Note presents information about the Group’s exposure to each of the above risks, and the Group’s objectives, policies and processes for measuring and managing risk.

We regularly monitor the extent of our exposure and the rate of the hedging transactions for the various risks described below. We execute hedging transactions according to our hedging policy with reference to the actual developments and expectations in the various markets.

B. Groups and measurement bases of financial assets and financial liabilities

As at December 31, 2019
Financial assets			Financial liabilities
Measured at fair value through the statement of income	Measured at fair value through the statement of comprehensive income	Measured at amortized cost	Measured at fair value through the statement of income	Measured at amortized cost
$ millions	$ millions	$ millions	$ millions	$ millions

Cash and cash equivalents	-	-	95	-	-
Short-term investments and deposits	-	-	96	-	-
Trade receivables	-	-	778	-	-
Other receivables	11	40	105	-	-
Investments at fair value through other comprehensive income	-	111	-	-	-
Other non-current asset	57	-	6	-	-
Total financial assets	68	151	1,080	-	-
Short term credit	-	-	-	-	(420)
Trade payables	-	-	-	-	(712)
Other current liabilities	-	-	-	(8)	(128)
Long term debt and debentures	-	-	-	-	(2,181)
Other non- current liabilities	-	-	-	(6)	(38)
Total financial liabilities	-	-	-	(14)	(3,479)
Total financial instruments, net	68	151	1,080	(14)	(3,479)

Note 22 - Financial Instruments and Risk Management (cont'd)

B. Groups and measurement bases of financial assets and financial liabilities (cont'd)

As at December 31, 2018
Financial assets			Financial liabilities
Measured at fair value through the statement of income	Measured at fair value through the statement of comprehensive income	Measured at amortized cost		Measured at fair value through the statement of income	Measured at amortized cost
$ millions	$ millions	$ millions		$ millions	$ millions

Cash and cash equivalents	-	-	121	-	-
Short-term investments and deposits	-	-	92	-	-
Trade receivables	-	-	990	-	-
Other receivables	13	-	30	-	-
Investments at fair value through other comprehensive income	-	145	-	-	-
Other non-current assets	15	-	66	-	-
Total financial assets	28	145	1,299	-	-
Short term credit	-	-	-	-	(610)
Trade payables	-	-	-	-	(715)
Other current liabilities	-	-	-	(21)	(131)
Long-term debt and debentures	-	-	-	-	(1,815)
Other non-current liabilities	-	-	-	-	(6)
Total financial liabilities	-	-	-	(21)	(3,277)
Total financial instruments, net	28	145	1,299	(21)	(3,277)

C. Credit risk

(1) General

(a) Customer credit risks

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and it arises mainly from the Group’s receivables from customers and from other receivables as well as from investments in securities.

The Company sells to a wide range and large number of customers, including customers with material credit balances. On the other hand, the Company does not have a concentration of sales to individual customers.

The Company has a regular policy of insuring the credit risk of its customers by means of purchasing credit insurance with insurance companies, other than sales to government agencies and sales in small amounts. Most of all other sales are executed only after receiving approval of coverage in the necessary amount from an insurance company or other collaterals of a similar level.

Note 22 - Financial Instruments and Risk Management (cont'd)

C. Credit risk (cont'd)

(1) General (cont'd)

(a) Customer credit risks (cont'd)

The use of an insurance company as aforementioned ensures that the credit risk is managed professionally and objectively by an expert external party and transfers most of the credit risk to third parties. Nevertheless, the common deductible in credit insurances is 10% (even higher in a small number of cases) thus the Group is still exposed to part of the risk, out of the total insured amount.

In addition, the Group has an additional deductible cumulative annual amount of approximately $6 million through a wholly‑owned captive reinsurance Company.

Most of the Group’s customers have been trading with the Group for many years and only rarely have credit losses been incurred by the Group. The financial statements include specific allowance for doubtful debts that appropriately reflect, in Management’s opinion, the credit loss in respect of accounts receivables which are considered doubtful.

(b) Credit risks in respect of deposits

The Group deposits its balance of liquid financial assets in bank deposits and in securities. All the deposits are with a diversified group of leading banks preferably with banks that provide loans to the Group.

(2) Maximum Exposure to credit risk

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:

	As at December 31
	Carrying amount ($ millions)
	2019	2018

Cash and cash equivalents	95	121
Short term investments and deposits	96	92
Trade receivables	778	990
Other receivables	116	43
Other non-current assets	63	81
	1,148	1,327

Note 22 - Financial Instruments and Risk Management (cont'd)

C. Credit risk (cont’d)

(2) Maximum Exposure to credit risk (cont'd)

The maximum exposure to credit risk for trade receivables, at the reporting date by geographic region was:

	As at December 31
	Carrying amount ($ millions)
	2019	2018

Europe	252	294
Asia	249	342
North America	114	150
South America	74	106
Israel	72	72
Other	17	26
	778	990

(3) Aging of debts and impairment losses

The aging of trade receivables at the reporting date was:

As at December 31
2019		2018
Gross	Impairment	Gross	Impairment
$ millions	$ millions	$ millions	$ millions

Not past due	686	-	829	-
Past due up to 3 months	65	-	114	-
Past due 3 to 12 months	26	(1)	38	(1)
Past due over 12 months	4	(2)	12	(2)
	781	(3)	993	(3)

The movement in the allowance for doubtful accounts during the year was as follows:

	2019	2018
	$ millions	$ millions

Balance as at January 1	3	11
Additional allowance	2	1
Write offs	(1)	(7)
Reversals	(1)	(1)
Changes due to translation differences	-	(1)
Balance as at December 31	3	3

Note 22 - Financial Instruments and Risk Management (cont'd)

D. Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to timely meet its liabilities, under both normal and stressed conditions, without incurring unwanted losses.

The Company manages the liquidity risk by holding cash balances, short-term deposits and secured bank credit facilities.

The following are the contractual maturities of financial liabilities, including estimated interest payments:

As at December 31, 2019
Carrying amount	12 months or less	1-2 years	3-5 years	More than 5 years
$ millions

Non-derivative financial liabilities
Short term credit (not including current maturities)	358	361	-	-	-
Trade payables	712	712	-	-	-
Other current liabilities	128	128	-	-	-
Long-term debt, debentures and others	2,281	157	645	1,101	1,288
	3,479	1,358	645	1,101	1,288
Financial liabilities – derivative instruments utilized for economic hedging
Foreign currency and interest derivative instruments	11	5	-	-	6
Derivative instruments on energy and marine transport	3	3	-	-	-
	14	8	-	-	6

Note 22 - Financial Instruments and Risk Management (cont'd)

D. Liquidity risk (cont'd)

As at December 31, 2018
Carrying amount	12 months or less	1-2 years	3-5 years	More than 5 years
$ millions

Non-derivative financial liabilities
Short term credit (not including current maturities)	544	556	-	-	-
Trade payables	715	715	-	-	-
Other current liabilities	131	131	-	-	-
Long-term debt and debentures	1,887	152	453	1,084	1,166
	3,277	1,554	453	1,084	1,166
Financial liabilities – derivative instruments utilized for economic hedging
Foreign currency and interest derivative instruments	16	16	-	-	-
Derivative instruments on energy and marine transport	5	4	1	-	-
	21	20	1	-	-

E. Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the fair value or future cash flows of a financial instrument.

1. Interest risk

The Group has loans bearing variable interests and therefore its financial results and cash flows are exposed to fluctuations in the market interest rates.

ICL uses financial instruments, including derivatives, in order to hedge this exposure. The Group uses interest rate swap contracts mainly in order to reduce the exposure to cash flow risk in respect of changes in interest rates.

As part of the global reform in interest rate benchmarks, there is uncertainty as to the timing and the methods of transition for replacing existing benchmark London interbank offered rates (LIBOR) with alternative rates. Notwithstanding this uncertainty, LIBOR continues to be used as a reference rate and in valuation of instruments with maturities that exceed the expected end date for LIBOR. As at December 31, 2019, the Company's LIBOR-based debt, net of derivatives, is $220 million.

Note 22 - Financial Instruments and Risk Management (cont'd)

E. Market risk (cont'd)

1. Interest risk (cont'd)

(a) Interest Rate Profile

Set forth below are details regarding the type of interest on the Group’s non-derivative interest‑bearing financial instruments:

	As at December 31
	2019	2018
	$ millions	$ millions

Fixed rate instruments
Financial assets	164	151
Financial liabilities	(1,947)	(1,728)
	(1,783)	(1,577)
Variable rate instruments
Financial assets	100	128
Financial liabilities	(669)	(714)
	(569)	(586)

(b) Sensitivity analysis for fixed rate instruments

Most of the Group’s instruments bearing fixed interest are not measured at fair value through the statement of income. Therefore, changes in the interest rate as at the date of the report will not be expected to have any impact on the profit or loss in respect of changes in the value of assets and liabilities bearing fixed interest.

The below analysis assumes that all other variables (except for the interest rate), in particular foreign currency rates, remain constant.

As at December 31, 2019
Impact on profit (loss)
Decrease of 1% in interest	Decrease of 0.5% in interest	Increase of 0.5% in interest	Increase of 1% in interest
$ millions	$ millions	$ millions	$ millions

Changes in U.S Dollar interest
Non-derivative instruments	4	2	(2)	(4)
SWAP instruments	(14)	(7)	7	14
	(10)	(5)	5	10
Changes in Israeli Shekel interest
SWAP instruments	16	8	(8)	(16)
Changes in Euro interest
SWAP instruments	(1)	-	-	1

Note 22- Financial Instruments and Risk Management (cont'd)

E. Market risk (cont’d)

1. Interest risk (cont’d)

(d) Terms of derivative financial instruments used to hedge interest risk

As at December 31, 2019
Carrying amount (fair value)	Stated amount	Maturity date	Interest rate range
$ millions	$ millions	Years	%

U.S Dollar
SWAP contracts from variable interest to fixed interest	(6)	150	2024	2.47%-2.599%
Israeli Shekel
SWAP contracts from fixed ILS interest to fixed USD interest	57	482	2024	2.45%-4.474%
Euro
SWAP contracts from variable USD interest to fixed EUR interest	(3)	447	19/02/2020	1-month libor

As at December 31, 2018
Carrying amount (fair value)	Stated amount	Maturity date	Interest rate range
$ millions	$ millions	Years	%

U.S Dollar
SWAP contracts from variable interest to fixed interest	-	250	2019-2024	1.7%-2.6%
Israeli Shekel
SWAP contracts from fixed ILS interest to fixed USD interest	15	486	30/3/2024	2.45%-4.74%
Euro
SWAP contracts from variable USD interest to fixed EUR interest	(1)	334	15/2/2019	1-month Libor

Note 22- Financial Instruments and Risk Management (cont'd)

E. Market risk (cont’d)

2. Currency risk

The Group is exposed to currency risk with respect to sales, purchases, assets and liabilities that are denominated in a currency other than the functional currency of the Group. The main exposure is the NIS, Euro, British Sterling, Chinese Yuan and Turkey Lira.

The Group enters into foreign currency derivatives – forward exchange transactions and currency options – all in order to protect the Group from the risk that the eventual cash flows, resulting from existing assets and liabilities, and sales and purchases of goods within the framework of firm or anticipated commitments (based on a budget of up to one year), denominated in foreign currency, will be affected by changes in the exchange rates.

(a) Sensitivity analysis

A 10% increase at the rate of the US$ against the following currencies would have increased (decreased) profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant.

	As at December 31
	Impact on profit (loss)
	2019	2018
	$ millions	$ millions

Non-derivative financial instruments
U.S Dollar/Euro	(95)	(64)
U.S Dollar/Israeli Shekel	98	92
U.S Dollar/British Pound	(4)	(3)
U.S Dollar/Chinese Yuan	(1)	(12)
U.S Dollar/Turkey Lira	(1)	(1)

A 10% decrease of the US$ against the above currencies at December 31 would have the same effect but in the opposite direction.

Note 22 - Financial Instruments and Risk Management (cont'd)

E. Market risk (cont'd)

2. Currency risk (cont'd)

(a) Sensitivity analysis (cont'd)

Presented hereunder is a sensitivity analysis of the Group’s foreign currency derivative instruments as at December 31, 2019. Any change in the exchange rates of the principal currencies shown below would have increased (decreased) profit and loss and equity by the amounts shown below. This analysis assumes that all other variables remain constant.

As at December 31, 2019
Increase 10%	Increase 5%	Decrease 5%	Decrease 10%
$ millions	$ millions	$ millions	$ millions

Euro/ U.S Dollar
Forward transactions	7	3	(3)	(6)
Options	4	2	(2)	(4)
SWAP	45	22	(22)	(45)

U.S Dollar/Israeli Shekel
Forward transactions	(28)	(15)	16	34
Options	(38)	(8)	22	52
SWAP	(52)	(27)	30	63

British Pound/U.S Dollar
Forward transactions	(4)	(2)	2	3
Options	(1)	-	-	1

U.S Dollar/Japanese Yen
Forward transactions	1	-	-	(1)

Note 22 - Financial Instruments and Risk Management (cont'd)

E. Market risk (cont'd)

2. Currency risk (cont'd)

(b) Terms of derivative financial instruments used to reduce foreign currency risk

As at December 31, 2019
Carrying amount	Stated amount	Average
$ millions	$ millions	exchange rate

Forward contracts
U.S Dollar/Israeli Shekel	-	309	3.5
Euro/U.S Dollar	(1)	61	1.1
U.S Dollar/British Pound	-	33	1.3
U.S Dollar/Chinese Yuan Renminbi	-	28	7.1
Other	4	56	0.9
Currency and interest SWAPs
U.S Dollar/Israeli Shekel	57	482	3.7
Euro/U.S Dollar	(3)	447	1.1
Put options
U.S Dollar/Israeli Shekel	4	600	3.4
Euro/U.S Dollar	-	45	1.1
U.S Dollar/Japanese Yen	-	1	108.5
U.S Dollar/British Pound	-	15	1.3
Call options
U.S Dollar/Israeli Shekel	-	440	3.4
Euro/U.S Dollar	1	45	1.1

Note 22 - Financial Instruments and Risk Management (cont'd)

E. Market risk (cont'd)

2. Currency risk (cont'd)

(b) Terms of derivative financial instruments used to reduce foreign currency risk (cont’d)

As at December 31, 2018
Carrying amount	Stated amount	Average exchange rate
$ millions	$ millions

Forward contracts
U.S Dollar/Israeli Shekel	2	352	3.7
Euro/U.S Dollar	2	86	1.2
Euro/British Pound	1	19	0.9
U.S Dollar/British Pound	-	32	1.3
U.S Dollar/Chinese Yuan Renminbi	-	29	6.5
Other	-	37	-
Currency and interest SWAPs
U.S Dollar/Israeli Shekel	15	486	3.7
Euro/U.S Dollar	(1)	334	1.1
Put options
U.S Dollar/Israeli Shekel	1	695	3.6
Euro/U.S Dollar	2	45	1.2
U.S Dollar/Japanese Yen	-	3	114.3
U.S Dollar/British Pound	-	11	1.3
Call options
U.S Dollar/Israeli Shekel	(15)	695	3.6
Euro/U.S Dollar	-	45	1.2
U.S Dollar/Japanese Yen	-	3	114.3
U.S Dollar/British Pound	-	11	1.3

The maturity date of all of the derivatives used to economically hedge foreign currency risk is up to a year.

Note 22 - Financial Instruments and Risk Management (cont'd)

E. Market risk (cont'd)

2. Currency risk (cont'd)

	As at December 31, 2019
	US Dollar	Euro	British Pound	Israeli Shekel	Brazilian Real	Chinese Yuan Renminbi	Others

Non-derivative instruments:
Cash and cash equivalents	18	19	4	4	6	33	11
Short term investments and deposits	89	1	-	-	-	3	3
Trade receivables	381	177	37	50	22	48	63
Other receivables	84	16	-	3	-	40	2
Investments at fair value through other comprehensive income	-	-	-	-	-	111	-
Other non-current assets	3	1	-	-	2	-	-
Total financial assets	575	214	41	57	30	235	79
Short-term credit	198	95	18	58	4	47	-
Trade payables	172	178	22	247	9	79	5
Other current liabilities	19	44	4	47	-	12	2
Long term debt, debentures and others	1,452	72	29	596	7	60	4
Total financial liabilities	1,841	389	73	948	20	198	11
Total non-derivative financial instruments, net	(1,266)	(175)	(32)	(891)	10	37	68
Derivative instruments:
Forward transactions	-	61	33	309	-	28	56
Cylinder	-	45	15	600	-	-	-
SWAPS – U.S Dollar into Israeli Shekel	-	-	-	482	-	-	-
SWAPS – U.S Dollar into Euro	-	447	-	-	-	-	-
Total derivative instruments	-	553	48	1,391	-	28	56
Net exposure	(1,266)	378	16	500	10	65	124

Note 22 - Financial Instruments and Risk Management (cont'd)

E. Market risk (cont'd)

2. Currency risk (cont'd)

	As at December 31, 2018
	US Dollar	Euro	British Pound	Israeli Shekel	Brazilian Real	Chinese Yuan Renminbi	Others

Non-derivative instruments:
Cash and cash equivalents	41	21	4	2	5	37	11
Short term investments and deposits	74	3	-	-	-	12	3
Trade receivables	516	222	60	60	25	72	35
Other receivables	6	12	-	12	-	-	-
Investments at fair value through other comprehensive income	-	-	-	-	-	145	-
Other non-current assets	60	1	-	1	4	-	-
Total financial assets	697	259	64	75	34	266	49
Short-term credit	201	166	19	34	6	184	-
Trade payables	150	188	23	265	11	72	6
Other current liabilities	38	28	4	53	-	4	4
Long term debt, debentures and others	1,322	5	-	480	13	1	-
Total financial liabilities	1,711	387	46	832	30	261	10
Total non-derivative financial instruments, net	(1,014)	(128)	18	(757)	4	5	39
Derivative instruments:
Forward transactions	-	86	51	352	-	29	37
Cylinder	-	45	11	695	-	-	3
SWAPS – U.S Dollar into Israeli Shekel	-	-	-	486	-	-	-
SWAPS – U.S Dollar into Euro	-	334	-	-	-	-	-
Total derivative instruments	-	465	62	1,533	-	29	40
Net exposure	(1,014)	337	80	776	4	34	79

Note 22 - Financial Instruments and Risk Management (cont'd)

E. Market risk (cont’d)

3. Other price risk

A. Investment in shares

The Company has an investment of 15% of the issued and outstanding share capital on a fully diluted basis of YYTH, in the amount of approximately $151 million (as at December 31, 2019). The investment is measured at fair value, and fair value updates, are recognized directly in the consolidated statement of comprehensive income.

B. Hedging of marine shipping and energy transactions

The Company is exposed to risk in respect of marine shipping and energy costs. The Company uses marine shipping and energy derivatives to hedge the risk that its cash flows will be affected by changes in marine shipping and energy prices. As at December 31, 2019, the fair value of the marine shipping and energy derivatives was approximately $2 million.

F. Fair value of financial instruments

The carrying amounts in the books of certain financial assets and financial liabilities, including cash and cash equivalents, investments, short-term deposits and loans, receivables and other debit balances, long-term investments and receivables, short-term credit, payables and other credit balances, long-term loans bearing variable interest and other liabilities, and derivative financial instruments, correspond to or approximate their fair value.

The following table details the book value and the fair value of financial instrument groups presented in the financial statements not in accordance with their fair value:

As at December 31, 2019		As at December 31, 2018
Carrying amount	Fair value	Carrying amount	Fair value
$ millions	$ millions	$ millions	$ millions

Loans bearing fixed interest (1)	74	82	238	244
Debentures bearing fixed interest
Marketable (2)	1,237	1,395	1,201	1,217
Non-marketable (3)	281	293	281	279
	1,592	1,770	1,720	1,740

The fair value of the shekel and euro loans issued bearing fixed interest is based on calculation of the present value of the cash flows in respect of the principal and the interest and is discounted at the market interest rates on the measurement date for similar loans having similar characteristics and is classified as Level 2 in the fair value hierarchy. The average discount interest as at December 31, 2019, for the shekel and euro loans was 1.4% and 1.3%, respectively (December 31, 2018, for the shekel and euro loans 2.8% and 1.7%, respectively).

Note 22 - Financial Instruments and Risk Management (cont'd)

F. Fair value of financial instruments (cont'd)

(2) The fair value of the marketable debentures is based on the quoted stock exchange price and is classified as Level 1 in the fair value hierarchy.

(3) The fair value of the non‑marketable debentures is based on calculation of the present value of the cash flows in respect of the principal and the interest and is discounted at the Libor rate customary in the market for similar loans having similar characteristics and is classified as Level 2 in the fair value hierarchy. The average discount interest as at December 31, 2019 was 3.7% (December 31, 2018 – 5.3%).

G. Hierarchy of fair value

The following table presents an analysis of the financial instruments measured by fair value, using the valuation method. (See Note 4).

The following levels were defined:

Level 1: Quoted (unadjusted) prices in an active market for identical instruments

Level 2: Observed data (directly or indirectly) not included in Level 1 above.

Level 1	As at December 31, 2019	As at December 31, 2018
Level 1	$ millions	$ millions

Investments at fair value through other comprehensive income (1)

151

Level 2	As at December 31, 2019	As at December 31, 2018
Level 2	$ millions	$ millions

Investments at fair value through other comprehensive income (1)	-	145
Derivatives used for economic hedging, net	(3)	7
Derivatives used for accounting hedging, net	57	-
	54	152

An investment of 15% in the capital share of YYTH was subject to a three-year lock up period, as required by Chinese law, which expired in January 2019. Due to the said expiration, the investment is presented under level 1, as per its quoted price in the market.