FOX-WIZEL LTD. PRESENTATION OF FINANCIAL INFORMATION FROM THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS ATTRIBUTABLE TO THE COMPANY

Transcription

1 PRESENTATION OF FINANCIAL INFORMATION FROM THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS ATTRIBUTABLE TO THE COMPANY AS OF JUNE 30, 2017 INDEX Special Report pursuant to Regulation 38D 60 Special Auditors' Report on the Interim Separate Financial Information 61 Financial Data from the Consolidated Statements of Financial Position attributable to the Company Financial Data from the Consolidated Statements of Profit or Loss attributable to the Company 64 Financial Data from the Consolidated Statements of Comprehensive Income attributable to the Company 65 Financial Data from the Consolidated Statements of Cash Flows attributable to the Company Additional Information Page

2 Special Report pursuant to Regulation 38D Financial Data and Financial Information from the Interim Consolidated Financial Statements Attributable to the Company Below are separate financial data and financial information attributable to the Company from the Group's interim consolidated financial statements as of 2017, published as part of the periodic reports ("consolidated financial statements"), presented in accordance with Regulation 38D to the Israeli Securities Regulations (Periodic and Immediate Reports),

3 Kost Forer Gabbay & Kasierer 3 Aminadav St. Tel-Aviv , Israel Tel: Fax: ey.com To The shareholders of Fox-Wizel Ltd. Dear Sirs/Mmes., Re: Special Auditors' Report on the Separate Interim Financial Information in accordance with Regulation 38D to the Israeli Securities Regulations (Periodic and Immediate Reports), 1970 Introduction We have reviewed the separate interim financial information disclosed in accordance with Regulation 38D to the Israeli Securities Regulations (Periodic and Immediate Reports), 1970 of Fox-Wizel Ltd. ("the Company") as of 2017 and for the periods of six and three months then ended. The Company's board of directors and management are responsible for the separate interim financial information. Our responsibility is to express a conclusion on the separate interim financial information based on our review. We did not review the separate interim financial information derived from the financial statements of investees, whose assets less attributable liabilities, net, total approximately NIS 61,760 thousand as of 2017 and the Company's share of the earnings of those investees amounted to approximately NIS 2,423 thousand and NIS 3,679 thousand for the periods of six and three months then ended, respectively. The financial statements of those investees were reviewed by other auditors, whose review reports have been furnished to us, and our conclusion, insofar as it relates to the financial statements in respect of those investees, is based on the review reports of the other auditors. Scope of review We conducted our review in accordance with Review Standard 1 of the Institute of Certified Public Accountants in Israel, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity." A review of the separate interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards in Israel and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review and the review reports of other auditors, nothing has come to our attention that causes us to believe that the separate interim financial information is not prepared, in all material respects, in accordance with Regulation 38d to the Israeli Securities Regulations (Periodic and Immediate Reports), Tel-Aviv, Israel August 17, 2017 KOST FORER GABBAY & KASIERER A Member of Ernst & Young Global

4 Financial Data from the Consolidated Statements of Financial Position Attributable to the Company ASSETS December 31, Unaudited Audited NIS in thousands CURRENT ASSETS: Cash and cash equivalents 205, , ,361 Short-term investments 176, , ,262 Current maturity of securities measured at amortized cost 20,335 4,889 21,747 Trade receivables 106,437 98, ,089 Other accounts receivable 41,127 58,320 33,120 Current accounts with investees 19,882 20,612 8,717 Inventories 274, , , , , ,110 NON-CURRENT ASSETS: Securities measured at amortized cost 28,796 48,318 30,002 Loan to investee partnership 3, Investments in companies/partnerships accounted for at equity 189, , ,201 Property, plant and equipment 241, , ,267 Store removal fees 13,312 15,705 14,277 Other intangible assets 11,548 13,056 12,828 Goodwill 8,631 8,631 8,631 Deferred taxes 8,122 6,359 6, , , ,379 1,349,221 1,268,522 1,291,489 The additional information attached to the separate financial information forms an integral part thereof

5 Financial Data from the Consolidated Statements of Financial Position Attributable to the Company LIABILITIES AND EQUITY December 31, Unaudited Audited NIS in thousands CURRENT LIABILITIES: Credit from banks 104,838 49,655 72,987 Trade payables 91, ,259 84,629 Current accounts with investees 1,448-3,686 Other accounts payable 154, , , , , ,017 NON-CURRENT LIABILITIES: Loans from banks 395, , ,022 Employee benefit liabilities, net 6,881 7,940 6,881 Deferred taxes 4,322 5,062 4, , , ,371 EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY: Share capital Share premium 189, , ,351 Reserve for transaction with controlling shareholder Reserve for share-based payment transactions 1, Retained earnings 397, , ,704 Foreign currency translation reserve 1,007 1,451 1,346 Total equity 589, , ,101 1,349,221 1,268,522 1,291,489 The additional information attached to the separate financial information forms an integral part thereof. August 17, 2017 Date of approval of the Abraham Zaldman Harel Wizel Shahar Renia financial statements Chairman of the Board CEO and Member of the Board CFO

6 Financial Data from the Consolidated Statements of Profit or Loss Attributable to the Company Six months ended Three months ended Year ended December 31, Unaudited Audited NIS in thousands Revenues from sales and rendering of services 669, , , ,220 1,353,826 Cost of sales 287, , , , ,027 Gross profit 381, , , , ,799 Selling and marketing expenses 346, , , , ,977 General and administrative expenses 7,206 6,910 4,035 3,531 15,452 Other expenses (income) (641) Group's share of earnings of companies/partnerships accounted for at equity, net 8,215 3,651 8,109 4,427 7,811 Operating income 36,657 29,160 45,692 47,544 92,168 Finance income 3,716 4,886 1,542 7,999 6,839 Finance expenses (25,677) (7,820) (8,788) (3,192) (14,991) Income before taxes on income 14,696 26,226 38,446 52,351 84,016 Taxes on income 1,473 5,562 7,231 11,974 18,670 Net income attributable to the Company 13,223 20,664 31,215 40,377 65,346 The additional information attached to the separate financial information forms an integral part thereof

7 Financial Data from the Consolidated Statements of Comprehensive Income Attributable to the Company Six months ended Three months ended Year ended December 31, Unaudited Audited NIS in thousands Net income 13,223 20,664 31,215 40,377 65,346 Other comprehensive income (loss) (net of tax effect): Items not to be reclassified to profit or loss in subsequent periods: Actuarial gain on defined benefit plans ,805 Group's share of net other comprehensive loss of companies accounted for at equity (34) Items to be reclassified to profit or loss when specific conditions are met: Group's share of net other comprehensive income (loss) of companies accounted for at equity (339) (178) (150) 115 (283) Total other comprehensive income (loss) (339) (178) (150) 115 1,488 Total comprehensive income 12,884 20,486 31,065 40,492 66,834 The additional information attached to the separate financial information forms an integral part thereof

8 Financial Data from the Consolidated Statements of Cash Flows Attributable to the Company Cash flows from operating activities: Six months ended Three months ended Year ended December 31, Unaudited Audited NIS in thousands Net income 13,223 20,664 31,215 40,377 65,346 Adjustments to reconcile net income to net cash provided by operating activities: Adjustments to the profit or loss items: Depreciation of property, plant and equipment 21,650 19,291 12,200 9,986 40,451 Interest expenses, net 1,727 1, ,298 3,773 Amortization of intangible assets 2,126 2, ,296 4,497 Loss (gain) from sale of property, plant and equipment 53 - (10) - 14 Revaluation of liabilities to banks and other long-term liabilities (63) (10) (25) 14 (10) Group's share of earnings of companies/partnerships accounted for at equity, net (8,215) (3,651) (8,109) (4,427) (7,811) Taxes on income 1,473 5,562 7,231 11,974 18,670 Change in employee benefit liabilities, net ,123 Decrease (increase) in value of securities measured at fair value through profit or loss 1,376 (1,087) 88 (1,518) 330 Revaluation of securities measured at amortized cost Cost of share-based payment Loss (gain) from forward transactions 14,262 5,422 1,796 (5,087) 8,620 34,942 29,724 15,313 13,595 69,836 Changes in asset and liability items: Decrease (increase) in trade receivables 16,653 29,463 8,282 (19,076) 4,459 Decrease (increase) in other accounts receivable (15,651) (24,441) (4,131) (19,166) 12,260 Decrease (increase) in inventories 37,815 (16,032) 26,676 15,068 (32,028) Increase in trade payable 4,683 33,779 5,454 9,761 4,148 Increase (decrease) in other accounts payable 3,255 26,376 (15,319) 32,248 50,499 46,755 49,145 20,962 18,835 39,338 Cash paid and received during the period for: Interest paid (4,733) (4,493) (2,333) (2,695) (9,250) Interest received 3,574 2,810 1,607 1,372 5,395 Taxes paid (11,085) (11,983) (5,349) (8,622) (23,748) Taxes received - 7,281-7,281 7,281 Dividend received 1,272 3, ,869 (10,972) (3,113) (5,439) (2,028) (9,453) Net cash provided by operating activities 83,948 96,420 62,051 70, ,067 The additional information attached to the separate financial information forms an integral part thereof

9 Financial Data from the Consolidated Statements of Cash Flows Attributable to the Company Cash flows from investing activities: Six months ended Three months ended Year ended December 31, Unaudited Audited NIS in thousands Purchase of property, plant and equipment (23,810) (13,885) (10,241) 73 (38,201) Sale of activity ,087 Purchase of intangible assets and removal fees (748) (2,081) (216) (1,327) (3,398) Proceeds from sale of property, plant and equipment Purchase of securities measured at fair value through profit or loss, net (23,948) (47,045) (26,585) (1,234) (44,687) Redemption of securities measured at amortized cost, net 2, ,270-1,550 Grant of long-term loan to investee (700) - (700) - - Repayment of short-term loan from investee 2,945-2, Net cash used in investing activities (43,394) (62,860) (32,517) (2,488) (82,432) Cash flows from financing activities: Dividend paid (32,672) (19,018) (32,672) (19,018) (19,018) Repayment of long-term loans and other long-term liabilities from banks and others (31,161) (13,494) (15,247) (2,580) (31,988) Receipt of long-term loans from banks and others 75, ,000 75, ,000 Receipt (repayment) of short-term credit from banks and others 8,937 (56,360) 8,937 (7,802) (56,360) Net cash provided by (used in) financing activities 20,104 11,128 36,018 (29,400) (7,366) Increase in cash and cash equivalents 60,658 44,688 65,552 38,891 75,269 Cash and cash equivalents at beginning of period 144,361 69, ,467 74,889 69,092 Cash and cash equivalents at end of period 205, , , , ,361 (a) Significant non-cash transaction: Purchase of assets on credit 10,250 10,400 1,575 6,488 8,526 The additional information attached to the separate financial information forms an integral part thereof

10 Additional Information NOTE 1:- GENERAL This separate financial information has been prepared in a condensed format as of 2017 and for the periods of six and three months then ended, in accordance with Regulation 38D to the Israeli Securities Regulations (Periodic and Immediate Reports), NOTE 2:- DISCLOSURE OF NEW IFRS IN THE PERIOD PRIOR TO THEIR ADOPTION a. IFRIC 23, "Uncertainty over Income Tax Treatments": In June 2017, the IASB issued IFRIC 23, "Uncertainty over Income Tax Treatments" ("the Interpretation"). The Interpretation clarifies the rules of recognition and measurement of assets or liabilities in keeping with the provisions of IAS 12, "Taxes on Income", in situations of uncertainty involving taxes on income. The Interpretation provides guidance for determining whether some tax treatments should be considered collectively, addresses the position of the tax authorities, measures the implications of uncertainty involving income taxes on the financial statements and prescribes the accounting treatment of changes in facts and circumstances underlying the uncertainty. The Interpretation is to be applied in financial statements for annual periods beginning on January 1, Early adoption is permitted. Upon initial adoption, the Company will apply the Interpretation using one of two approaches: 1. Full retrospective adoption, without restating comparative figures, by carrying the cumulative effect through the date of initial adoption to the opening balance of retained earnings. 2. Full retrospective adoption with restating comparative figures. The Company is evaluating the possible impact of the adoption of the Interpretation but is presently unable to assess its effect, if any, on the financial statements. b. IFRS 15, "Revenue from Contracts with Customers": IFRS 15 ("the Standard") was issued by the IASB in May The Standard replaces IAS 18, "Revenue", IAS 11, "Construction Contracts", IFRIC 13, "Customer Loyalty Programs", IFRIC 15, "Agreements for the Construction of Real Estate", IFRIC 18, "Transfers of Assets from Customers" and SIC-31, "Revenue - Barter Transactions Involving Advertising Services"

11 Additional Information NOTE 2:- DISCLOSURE OF NEW IFRS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.) The Standard introduces a five-step model that will apply to revenue earned from contracts with customers: Step 1: Identify the contract with a customer, including reference to contract combination and accounting for contract modifications. Step 2: Identify the separate performance obligations in the contract Step 3: Determine the transaction price, including reference to variable consideration, financing components that are significant to the contract, non-cash consideration and any consideration payable to the customer. Step 4: Allocate the transaction price to the separate performance obligations on a relative stand-alone selling price basis using observable information, if it is available, or using estimates and assessments. Step 5: Recognize revenue when a performance obligation is satisfied, either at a point in time or over time. The Standard is to be applied retrospectively for annual periods beginning on January 1, Early adoption is permitted. At this stage, the Company does not intend to adopt IFRS 15 early. The Standard allows the option of modified retrospective adoption with certain reliefs according to which the new Standard will be applied to existing contracts from the initial period of adoption and thereafter with no restatement of comparative data. Under this option, the Company will recognize the cumulative effect of the initial adoption of the Standard as an adjustment to the opening balance of retained earnings (or another component of equity, as applicable) as of the date of initial application. Alternatively, the Standard permits full retrospective adoption with certain reliefs. After having evaluated the effects of the application of the Standard, the Company believes that the adoption is not expected to have a material effect on the Company's financial statements. NOTE 3:- SIGNIFICANT EVENTS DURING THE REPORTING PERIOD a. On June 15, 2017, the Company reported the advanced negotiations being held with Urban Outfitters Inc. ("Urban") for setting up and operating a retail chain of the Urban brands, Urban Outfitters, Anthropologie and Free People, in Israel ("the Urban brands") and for selling the Urban brands on a multi-brand retail website that is currently under construction, subject to the successful completion of the negotiations and the signing of a binding agreement. The Company plans to establish a wholly-owned subsidiary that will set up and operate a retail chain for selling the Urban brands in Israel. The stores will be opened based on a business plan agreed upon between the parties

12 Additional Information NOTE 3:- SIGNIFICANT EVENTS DURING THE REPORTING PERIOD (Cont.) b. On June 11, 2017, the Company received a long-term loan in the amount of NIS 25 million from a large Israeli bank. The loan is repayable from September 11, 2017 and bears fixed annual interest at a rate of 2.49% to be paid in 24 quarterly installments from September c. On June 8, 2017, the Company received a long-term loan in the amount of NIS 50 million from a large Israeli bank. The loan is repayable from September 8, 2017 and bears fixed annual interest at a rate of 2.49% to be paid in 24 quarterly installments from September d. On September 27, 2016, the Company signed an agreement with Horowitz Yang Holdings Ltd. ("Horowitz Yang Holdings") for establishing a limited partnership, Terminal X Online Limited ("the partnership"), which will serve as a platform for a multi-brand retail website. The partnership was established in January 2017 and began operating in April The Company will hold 75% of the partnership's share capital and Horowitz Yang Holdings will hold the remaining 25% (in the first two years of the partnership's operation, the distribution of profits between the partners will be 90% to the Company and 10% to Horowitz Yang Holdings). e. In its meeting on March 19, 2017, the Company's Board decided to distribute a dividend totaling approximately NIS 32,672 thousand which was paid on April 25, The dividend represents approximately NIS 2.42 per Ordinary share. f. Balance of long-term loan granted to partnership: Unaudited NIS in thousands Terminal X Online Limited 3,119 - The loan is unlinked and bears annual interest at a rate of 2.56% which is paid quarterly. g. In keeping with the matter discussed in Note 20a(4) to the Company's annual consolidated financial statements for 2016 regarding a motion for approval of a claim as a class action filed against the Company alleging that the Company failed to mark ads posted in its branches in conformity with the provisions of the Consumer Protection Regulations (Size of Letters in a Standard Contract and in the Terms Included in the Other Information Intended to the Consumer), 1995 ("Consumer Protection Regulations"), in the reporting period, the petitioner's legal representative contacted the Company's legal counsel and a mutual petition was filed by the parties to dismiss the motion without issuing an order for expenses. The Court approved the petition and the claim was stricken

13 Additional Information NOTE 4:- REMUNERATION PLAN In June 2017, following the approval of the Company's Board, Remuneration Committee and General Meeting, the Company adopted a remuneration plan ("the 2017 remuneration plan") for the Company's senior officers. The remuneration plan is based on policies and parameters according to which the Company will determine the remuneration payable to acting and/or employed senior officers as they are and/or will be from time to time in the Company and in the Group. It should be clarified that the 2017 remuneration plan supersedes any other remuneration plan previously adopted by the Company. Notwithstanding the aforementioned, stock options that had been granted to the Company's senior officers in 2011 and have not yet been exercised or expired will remain in effect according to the 2017 remuneration plan. The 2017 remuneration plan is in effect from January 1, 2017 for a period of three years unless the Remuneration Committee recommends to extend the plan beyond said period, subject to the provisions of applicable law. The 2017 remuneration plan consists of three remuneration components: a. Monthly salary and related benefits: According to the 2017 remuneration plan, senior officers will be entitled to a monthly salary and related benefits. The monthly salary of each senior officer will be determined based on their education, qualifications, expertise, professional experience, achievements, contribution to the Company, areas of responsibilities and former salary agreements signed therewith. b. Annual bonus: The annual bonus will be derived from the Company's annual net income and will not form part of the recipient's fixed salary, including accrual of related pension and/or termination rights. The bonus will be determined based on specific measurable targets as prescribed in the Company's annual work plan that is established by the Company's qualified entities at the beginning of each year. The Company may decide that an immaterial portion of the remuneration, which does not exceed three monthly salaries a year, will be granted based on non-measurable criteria in keeping with the contribution of the officer who is not a controlling shareholder or their relative to Company. The annual bonus will be given to five groups: the Group's CEO, the Group's Senior Deputy CEO, the group of senior officers - three officers who are not "controlling shareholders" or "their relatives" (excluding the Group's Senior Deputy CEO), the group of senior officers who are "controlling shareholders" or "their relatives" - two officers who are "controlling shareholders" or "their relatives" (excluding the Group's CEO) and the Deputy CEO of Purchasing & Logistics, a controlling shareholder's relative

14 Additional Information NOTE 4:- REMUNERATION PLAN (Cont.) The overall bonus as a percentage of net annual income of the Company for the Company's entire key management personnel (senior officers as defined in the 2017 remuneration plan and other managers that are not officers and are not included in the 2017 remuneration plan) will be as follows: 6.5% of the annual net income if the annual net income is between NIS 50 and NIS 70 million; 8.0% of the annual net income if the annual net income is more than NIS 70 but less than NIS 110 million; and 8.5% of the annual net income if the annual net income is more than NIS 110 million. If the Company's annual net income is less then NIS 50 million, no annual bonus will be distributed but the Remuneration Committee will have the authority to decide to distribute an annual bonus to the Company's entire key management personnel (senior officers as defined in the 2017 remuneration plan and other managers that are not officers and are not included in the 2017 remuneration plan) of up to a total of NIS 2 million, at its discretion. The Remuneration Committee and the Board are authorized to reduce the annual bonus for each group of senior officers described above or for any of the managers, at any rate, to the extent of not awarding any bonus, among others, in accordance with the mechanisms to be approved by the Remuneration Committee and the Board at the beginning of each year. c. Share-based payment: The Company will grant the Group's CEO serving on the date of the plan ("the optionee") equity-settled remuneration in the form of restricted stock units ("the allocated RSUs") based on the terms of an option plan. The Company granted the optionee 134,617 RSUs representing about 1% of the Company's issued and outstanding share capital. The RSUs are non-marketable and non-transferrable and are exercisable into 134,617 Ordinary shares of the Company of NIS 0.01 par value each. The shares will be allocated against an exercise increment of at least NIS 0.30 per share and at least at the par value of the Company's shares. The allocated RSUs will be distributed in three equal portions and will vest subject to compliance with the following performance targets. The optionee will be entitled to exercise each RSU portion at the end of its respective vesting period. The vesting periods all begin on the date of the General Meeting's approval of the grant of 134,617 RSUs (on June 22, 2017) for 36 months for the first portion, 48 months for the second portion and 60 months for the third portion. The vesting period begins in 2017 and ends in 2020 for the first portion, in 2021 for the second portion and in 2022 for the third portion. It should be clarified that the RSUs of each portion will be blocked until the end of their respective vesting period

15 Additional Information NOTE 4:- REMUNERATION PLAN (Cont.) The vesting of the allocated RSUs is subject to compliance with the following performance targets: 1. First portion -the net income in 2017 is not below NIS 50 million; 2. Second portion - the net income in 2018 is not below NIS 60 million; 3. Third portion - the net income in 2019 is not below NIS 70 million. If the optionee fails to meet any of the above performance targets but the aggregate net income in is at least NIS 200 million, the optionee will be entitled to exercise all three portions of RSUs based on their respective vesting periods. As of the reporting date, the Company expects the performance targets underlying the vesting of the allocated RSUs as described above to be achieved. The Company hired an independent outside appraiser for estimating the fair value of the allocated RSUs. The fair value of the allocated RSUs as of the date of grant is NIS 8,130 thousand F:\W2000\w2000\12553\M\17\EC6-FOX-WIZEL-IFRS-SOLO.docx