This is the Conflict Minerals Report for Magal Security Systems Ltd. (“Magal”, “the Company”, “we”, “us” or “our”), filed with the SEC pursuant to Rule 13p-1 under the Securities Exchange Act of 1934 (the “Rule”) for the reporting period from January 1, 2020 to December 31, 2020. The Rule was adopted by the SEC to implement reporting and disclosure requirements related to Conflict Minerals as directed by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). The Rule imposes certain reporting obligations on Securities and Exchange Commission (the “SEC”) registrants whose manufactured or contracted to manufacture products contain, or likely contain, Conflict Minerals that are necessary for the functionality or production of those products. “Conflict Minerals” are defined as cassiterite, columbite-tantalite, gold, wolframite, and their derivatives, which are limited to tin, tantalum, tungsten, and gold (“3TG”) for the purposes of this assessment.

 

If a registrant cannot establish with complete certainty that the Conflict Minerals that are necessary for the manufacture or functionality of its products originated or likely originated from sources other than the Democratic Republic of the Congo or the adjoining countries (together referred to as “Covered Countries”), or that they originate from entirely recycled or scrap sources, the registrant must submit a specialized disclosure report under the Form SD that describes the steps that the registrant took to determine the origin or likely country of origin of the Conflict Minerals in its products.

If a registrant has reason to believe that the Conflict Minerals in its supply chain may have originated in Covered Countries, or if the registrant is unable to determine the likely country of origin of those Conflict Minerals, then the registrant must exercise due diligence on the Conflict Minerals’ source and chain of custody, and the registrant must annually submit a Conflict Minerals Report (a “CMR”) as an exhibit to its Form SD to the SEC that includes a description of those due diligence measures.

Our goal in designing and implementing our Conflict Minerals risk management strategy is not to eliminate sourcing from Covered Countries, but to encourage participation with the Responsible Minerals Initiative ("RMI") and other relevant independent third-party auditing bodies, where possible.

As permitted by the Rule and the SEC, this report has not been subject to an independent private sector audit.

Magal is a leading international provider of turn-key projects, solutions and products for physical security, as well as site management. Since 1969, we have delivered our products as well as tailor-made security solutions and turnkey projects to customers in over 100 countries under some of the most challenging conditions. We offer comprehensive integrated solutions for critical sites, which leverage our broad portfolio of homegrown PIDS (Perimeter Intrusion Detection Systems), advanced VMS (Video Management Software) with native IVA (Intelligent Video Analytics) security solutions, as well as a proprietary command and control platform.

Based on our multi-decade industry experience and interaction with customers, we have developed a comprehensive set of solutions and products, optimized for perimeter, outdoor and general security applications. Our broad portfolio of critical infrastructure protection and site protection technologies includes a variety of smart barriers and fences, fence mounted sensors, virtual gates, buried and concealed detection systems and sophisticated sensors for sub-surface intrusion such as to secure pipelines, as well as advanced video analytics software and video management systems. Our turnkey solutions are typically integrated and managed by sophisticated modular command and control software, supported by expert systems for real-time decision support.

Our products often require the use of tin, tantalum and gold, or 3TG, as defined, which fall under the definition of Conflict Minerals, per the Rule.

Our supply chain is global and complex, and there are multiple tiers between our Company and the sources or mines of the Conflict Minerals that are necessary to the functionality or production of our products. Therefore, the Company or its suppliers purchase 3TG-related materials after processing by Smelters or Refiners (“SoRs”).   Accordingly, we rely on our direct suppliers to provide information on the origin of the Conflict Minerals contained in components that are included in our products.

In order to conduct a Reasonable Country of Origin Inquiry (“RCOI”) on the source or origin, or the likely country of origin, of Conflict Minerals that are necessary to the functionality or production of our products, we developed a risk-based approach that focuses on suppliers involved in manufacturing the relevant abovementioned products that contain or use the necessary Conflict Minerals. We identified 37 relevant suppliers that we concluded provide us with products and components that contain or may contain 3TG necessary to functionality or production of our products, and which accounted for 90% of all applicable materials purchased by Magal in 2020.

Utilizing the Responsible Minerals Initiative's (“RMI”), formerly the Conflict Free Sourcing Initiative’s, standard Conflict Minerals Reporting Template (“CMRT”) of, at a minimum version 6.01, and the services of a third-party data management provider, we surveyed the relevant suppliers that supply us, or likely supply us, with products or product components that contain, or likely contain the necessary Conflict Minerals. As noted, we do not purchase the necessary Conflict Minerals directly from the facilities that process the 3TG, given our constitution as a downstream company, and therefore we purchase the 3TG from our direct suppliers, who also purchase these minerals from their own upstream suppliers, or the SoRs themselves. Additionally, we sent letters to our relevant suppliers, informing them of the Rule and the Company's Conflict Minerals Policy. We reviewed the responses and followed up on what we perceived as inconsistent, incomplete, or inaccurate responses, as well as sent reminders to suppliers who did not respond to our requests for information or did not provide adequate responses per information compared against Third Party Audit bodies’, such as the RMI’s, lists of conformant and active SoRs. We received responses from 86% of the suppliers we approached.

The majority of suppliers from which we requested information indicated in their response that the information provided was at a company level (69%). Based on those responses, the majority of suppliers and manufacturers were unable to accurately report the SoRs that were part of their supply chain and that were applicable to the components or products that were sold to us in 2020.

Based on information obtained in the RCOI, and considering the complexities of our supply chain, we do not have sufficient information from our suppliers to determine the country of origin, or likely country of origin, of the Conflict Minerals used in our products or the facilities used to process those Conflict Minerals. Therefore, we cannot exclude the possibility that some of these Conflict Minerals may have originated in Covered Countries and are not from recycled or scrap sources.

In accordance with the Rule, Magal undertook due diligence on the source and chain of custody of the Conflict Minerals that were necessary to the functionality or production of its products during 2020. There is significant overlap between the RCOI efforts and the due diligence measures employed.

 

Based on the findings of our RCOI, we designed our mineral supply chain due-diligence process in reference to the Organization for Economic Co-operation and Development (“OECD”) Due Diligence Guidance (2016) for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (“OECD Guidance”) and its related Supplements for 3TG.

 

Magal has processes in place for the purpose of exercising due diligence on its supply chain. The design of the due diligences processes conforms with the OECD Guidance as it relates to downstream purchasers of products and components. The due diligence processes are described below under sub-headings corresponding to the five-step framework of the OECD Guidance.

 

Magal, As a downstream company does not have a direct relationship with 3TG SoRs and is significantly removed from the SoRs that process the Conflict Minerals. As such, we do not perform direct audits of SoRs in our supply chain, but rather rely on due diligence performed by organizations such as the RMI and compare SoR data received with the RMI's Standard Smelter List of SoRs conformant and active in the RMAP program.

 

We currently, subject to SEC guidelines, report annually on our supply chain due diligence through Form SD. Our reports on Form SD are publicly available at https://magalsecurity.com/about-magal/corporate-governance.

Based on the results of our due diligence thus far, we believe it is likely that years of engagement and communication of expectations through many tiers of the supply chain will be necessary before information returned to downstream companies, such as ours, may be considered accurate and complete.

In addition, the following factors materially affect the results of our assessment:

 

 

 

 

We conducted a supply-chain survey of 37 of our direct suppliers that we identified may contribute necessary Conflict Minerals to our products. The overall response rate to this survey was 86%.

Response analysis:

Out of the total responses received, 32 responses were defined as complete responses and 5 responses were incomplete or inconsistent.

Declaration scope:

 

Based on the responses that we received, most of our suppliers delivered declaration in company level as shown below:

As such, Magal was unable to identify the country of origin of the Conflict Minerals used in the Company’s products in 2020.

 

Based on the information provided by our suppliers, we believe that the facilities that may have been used to process the Conflict Minerals in our products may include the SoRs listed in Exhibit A below. Based on our due diligence efforts, we do not have sufficient information to determine the countries of origin, or likely countries of origin, of the Conflict Minerals in our products or whether the Conflict Minerals in our products are from entirely recycled or scrap sources. Pursuant to the Rule, this report is not subject to an independent private sector audit.

Due to the breadth and scope of our product categories, the resulting complexity of our supply chain, and the human and financial resources available to us, we acknowledge that the process of successfully tracing all of the Conflict Minerals used in our manufactured or contracted to manufacture products to their country of origin will take additional time and resources. Moving forward, subject to the legal requirements and any changes to the Rule, we will continue to implement commercially reasonable processes to improve the quantity and quality of supplier responses.

 

Failure to obtain reliable information from any level of our supply chain could materially impact our future ability to report on the presence of Conflict Minerals with any degree of certainty. There can be no assurance that our suppliers will continue to cooperate with diligence inquiries and requests for certifications or provide documentation or other evidence that we consider reliable or provided to us within a time frame sufficient to allow us to make our own assessment following appropriate further diligence measures, if any. The information provided in this Conflict Mineral Report speaks only as of its date. Subsequent events, including future guidelines by the SEC, and the inability or unwillingness of participants in our supply chain to provide complete and accurate information requested, may affect our future determinations under the Rule.

 

 

Subject to the requirements of the Rule, the Company expects to continue working with its global supply chain to improve responsible sourcing and compliance with applicable international regulations. As we continue to implement our due diligence program, we currently intend to take measures to continue to mitigate any possible risk that the necessary Conflict Minerals in our products could directly or indirectly fund or benefit armed groups in the DRC or adjoining countries.

 

Cautionary Statement about Forward-Looking Statements

Statements in this Conflict Minerals Report, which express a belief, expectation or intention, as well as those that are not historical fact, are forward-looking statements. These forward-looking statements are subject to various risks, uncertainties and assumptions, including, among other things, our customers’ requirements to use certain suppliers, our suppliers’ responsiveness and cooperation with our due diligence efforts, our ability to implement improvements in our Conflict Minerals program and our ability to identify and mitigate related risks in our supply chain. It is possible that the COVID-19 shut-down has also impacted the quality and number of supplier responses to our conflict minerals inquiries. If one or more of these or other risks materialize, actual results may vary materially from those expressed. For a more complete discussion of these and other risk factors, see our other filings with the SEC, including our Annual Report on Form 20-F for the year ended December 31, 2020. We caution that undue reliance should not be placed on these forward-looking statements, which speak only as of the date of this report, and we undertake no obligation to update or revise any forward-looking statement, except to the extent required by applicable law.

 

 

 

 

Based on Magal's Conflict Minerals due diligence efforts, the SoRs listed above may process Conflict Minerals in one or more of the following countries of origin: