FINANCIAL STATEMENTS UNAUDITED AS OF JUNE 30, 2016

Transcription

1 FINANCIAL STATEMENTS UNAUDITED AS OF JUNE 30, 2016 Official Sponsor of the Israeli Delegation to the Olympic Games, Rio 2016

2 IMPORTANT This document is an unofficial translation for convenience only of the Hebrew original of June 30, 2016 financial report of Delek Group Ltd. that was submitted to the Tel-Aviv Stock Exchange and the Israeli Securities Authority on August 30, The Hebrew version submitted to the TASE and the Israeli Securities Authority shall be the sole binding legal version.

3 FINANCIAL STATEMENTS UNAUDITED AS OF JUNE 30, 2016 Table of Contents Chapter A Corporate Description Chapter B Board of Directors Report on the State of the Company s Affairs Chapter C Financial Statements Chapter D Report on the Effectiveness of Internal Controls for Financial Reporting and Disclosure

4 Corporate Description Chapter A

5 Update of Chapter A (Description of the Corporation s Business) to the Board of Directors Report of the Delek Group Ltd. ( The Company ) for General Development of the Company's Business: Referring to Section 1.4 to the Periodic Report - Distribution of Dividends On May 29, 2016, the Company s Board of Directors decided to distribute a total of NIS 80 million in dividends. This dividend was paid on June 21, For more information, see the Company s immediate report of May 30, 2016 (ref. no ), included herein by way of reference. Description of Company Operations by Segment: 1. Energy A. Referring to Section 1.7.4(d) to the Periodic Report concerning actual and planned work plans for the Tamar Project - On June 30, 2016, the Tamar Partners decided to drill the development and production well 'Tamar-8', and to build the accompanying infrastructure in the Tamar Field. For more information, see the immediate report of July 3, 2016 (ref. no ), included herein by way of reference. B. Referring to Sections 1.7.4(d)(2) and (d)(3) to the Periodic Report - Development Plan for the Tamar Project and Gas Supply Agreement Between the Tamar Partners and Israel Electric Corporation Ltd. ( IEC ). The operational running period for the compressor system in the Tamar Project ended in the second quarter of Furthermore, the Tamar Partners and IEC agreed that the exact date for increasing the gas quantities will be coordinated between them in the third quarter of 2016 or near thereto. As of the publication date of this report, this date has not yet been decided. C. Referring to Section to the Periodic Report - The Leviathan Project 1. On June 2, 2016, the Ministry of National Infrastructures, Energy and Water's Oil Commissioner ("the Energy Ministry" and "the Commissioner", respectively) approved the updated development plan for the Leviathan Reservoir, with a maximum supply volume of 21 BCM a year ("the Development Plan"). For more information, see the Company s immediate report of June 2, 2016 (ref. no ), included herein by way of reference. 2. On June 5, 2016, following publications in the press, Delek Drilling Limited Partnership and Avner Oil Exploration Limited Partnership (jointly - "the Partnerships") clarified that no change had occurred in the natural gas and condensate resources assessment for the Leviathan Reservoir. For more information, see the Company s immediate report of June 5, 2016 (ref. no ), included herein by way of reference. 3. On June 22, 2016, the Partnerships announced that they had given their approval for the Leviathan Project operator, Noble Energy Mediterranean Ltd., to sign agreements with an aggregate value of USD 120 million (100%) for receiving engineering services, including detailed engineering design (FEED), for the production and processing rig, as approved in 1 The update contains material changes or developments in the Company s business during the second quarter of 2016 and up to immediately prior to the date of this report, in any matter which must be disclosed in the periodic report and which was not updated in the quarterly report for the first quarter of The update refers to the section numbers in Chapter A (Description of the Corporation s Business) of the periodic report for 2015 (ref. no ), and supplements the content disclosed therein. A-1

6 the development plan. For more information, see the immediate report of June 22, 2016 (ref. no ), included herein by way of reference. In this context, it is noted that, in July 2016, the Leviathan Partners approved a development budget of USD 119 million (100%) for the Leviathan Project in 2016 and until the end of January This budget covers the actions required to enable on-time completion of the development plan, once the latter is approved by the Leviathan Partners as part of the final investment decision (FID). D. Referring to Section 1.7.6(c) to the Periodic Report - License 351/Hannah ("the Hannah License") On July 21, 2016, the Commissioner announced his decision not to recognize the Dolphin natural gas reservoir, located in the Hannah License, as a discovery under the Oil Law, For more information, see the Company s immediate report of July 21, 2016 (ref. no ), included herein by way of reference. It is noted, that on August 18, 2016, the partners in the Hannah License appealed the Commissioner's decision to the Minister of National Infrastructures, Energy and Water ("the Energy Minister"). E. Referring to Section 1.7.7(a) to the Periodic Report - Leases I/16 Tanin and I/17 Karish ( "the Leases") On August 16, 2016, the Partnerships signed an agreement to sell all the Partnerships' and Noble Energy Mediterranean Ltd.'s rights in the I/16 Tanin and I/17 Karish leases to Ocean Energean Oil and Gas Ltd. For more information, see the Company s immediate report of August 17, 2016 (ref. no ), included herein by way of reference. F. Referring to Section to the Periodic Report - License 399/Roy ( "the Roy License") On August 7, 2016, Ratio Oil Exploration (1992) Limited Partnership ("Ratio") announced that the Commissioner had approved the updated work plan for the Roy License, as follows: Term Key Milestones in the Work Plan By April 14, 2017 By September 1, Filing a summary report on the specific analysis of pore pressure and the rock fracture gradient at the drilling target depths using 3D seismic data and additional data. By September 15, Submitting an environmental document according to the Energy Ministry s guidelines. By October 15, Submitting a signed contract with a drilling contractor for drilling in the Roy License. By December 15, Start of drilling operations in the Roy License according to the approved drilling plan, while submitting all geological and engineering reports as specified in the Energy Ministry s guidelines. Three months from completion of drilling - Filing a summary end of well report and submitting all findings including rotary tests, electrical logs, core samples and test results (if conducted), and other tests carried out in the well as specified in the Energy Ministry guidelines. It is clarified, that in light of the fact that the Partnerships are only granted an option in the Roy License, and they do not have access to information concerning the joint endeavor, the description of the work plan and schedule for the above activities is based solely on publicly available information published by Ratio. Warning concerning forward-looking information - The above description concerning planned activities in the Roy License, including corresponding schedules, constitutes forward-looking information as defined in the Securities Law, 1968, and is based solely on publications made by Ratio. Actual implementation of the work plan, including its associated timeframes, may differ materially from the above and depends, among other things, on applicable regulation, technical ability, and economic viability. A-2

7 G. Referring to Section to the Periodic Report - License 353/Eran ("the Eran License") As part of a petition filed by the partners in the Eran License to the Supreme Court of Israel ("the Supreme Court") against the Energy Minister and the Commissioner, concerning the Energy Minister's decision to deny an appeal filed by the partners in the Eran License against the Commissioner's decision not to extend the Eran License, on June 2, 2016, the Supreme Court ratified the parties' agreement to pursue mediation at the Court's suggestion. With the parties' consent, Supreme Court President (Ret.) A. Gronis was appointed as mediator, and the parties' first meeting was held on June 29, An additional meeting has yet to be scheduled. According to the Supreme Court's decision, the parties must update the Court on the results of said mediation no later than November 1, H. Referring to Section (b)(2)d to the Periodic Report - Participation in a Tender for Acquiring Oil and/or Gas Exploration Rights in Cyprus On July 22, 2016, the Partnerships submitted their bid in a tender issued by the Cypriot government, for acquiring oil and/or natural gas exploration rights in the Cypriot offshore economic zone, as part of a consortium comprising the Partnerships and Capricorn Oil Limited. For more information, see the immediate report of July 24, 2016 (ref. no ), included herein by way of reference. I. Referring to Section (j)(1)(4) to the Periodic Report - Licenses 337/Avia and 338/Keren ("the Licenses") On March 30, 2016, a hearing was held on the petition filed by the Partnerships (jointly - "the Petitioners") with the Supreme Court, against the Energy Minister and the Commissioner (jointly - "the Respondents"), concerning the Energy Minister's decision to reject the appeal filed by the Petitioners against the Commissioner's decision not to extend the Licenses. At the end of this hearing, the Supreme Court issued a conditional injunction requiring the Respondents to explain why the petitioners are not being granted a license to the Avia and Keren licenses for a limited and specified period of time, establishing an extremely strict schedule for formulating a partnership and starting drilling. The Respondents submitted their reply on August 21, A hearing on the petition has yet to be scheduled. J. Referring to Section to the Periodic Report - Legal Actions - As part of an application filed with the Tel Aviv District Court for approval as a class action by a consumer of the Israel Electric Corporation Ltd. ( "IEC") against the Tamer Partners concerning the price in which the Tamar Partners sell natural gas to IEC ( "the Application for Approval) - On April 20, 2016, the Tamar Partners filed an application for dismissing the Application for Approval along with an application to instruct the Attorney General of Israel to consider filing a statement of his position in these proceedings. On May 15, 2016, the Court ordered the Attorney General of Israel to consider filing a statement of his position in the proceedings to submit it (at his discretion) by June 1, The Court also stated that the application for dismissal will be decided once the Attorney General of Israel has stated his position (should he choose to submit it). The Attorney General of Israel has submitted a statement of his position, whereby the Application for Approval should be dismissed. On July 7, 2016, a hearing was held on the application for dismissal. The decision on the application for dismissal is expected to be given in the coming months (if the claim is not dismissed). K. Referring to Section to the Periodic Report - Business Strategy and Goals - Re-Structuring - On April 14, 2016, the board of directors of each of the general partner, Avner Oil and Gas Ltd., and the board of directors of the general partner, Delek Drilling Management (1993) Ltd., appointed a special, independent board committee to study options for conducting a structural change by way of a merger between the partnerships Delek Drilling Limited Partnership and Avner Oil Exploration Limited Partnership. At this time, the subsidiaries, Delek Energy Systems Ltd. and Cohen Development and Industrial Buildings Ltd. are studying the possible implications of the said restructuring, and the decisions required of their respective organs in carrying out this initiative. A-3

8 L. Natural Gas and condensate production data from the Tamar Project for the first and second quarter of 2016: 2 Total output (attributable to equity holders of the Company) for the period (in MMCF for natural gas and MBBL for condensate) Average price per output unit (attributable to equity holders of the Company) (USD per MCF and BBL) Average royalties (each payment derived from the output of the producing asset, including the gross income from the oil asset) paid per output unit (attributable to equity holders of the Company) (USD per MCF and BBL) Receipts for average royalties (each payment derived from the output of the producing asset, including the gross income from the oil asset) received per output unit (attributable to the Company s share) (USD per MCF and BBL) Average production costs per output unit (attributable to equity holders of the Company) (USD per MCF and BBL) 3 Average net proceeds per output unit (attributable to equity holders of the Company) (USD per MCF and BBL) Natural gas Condensate Q1 Q2 Q1 Q2 13,652 14, The State Third parties Principal shareholders Insurance Operations in Israel A. Referring to Section 1.9.1(a) to the Periodic Report - On August 21, 2016, the Company signed a binding agreement for selling all of the Company's holdings in The Phoenix Holdings Ltd. (52.3%) to Yango Investment PTE LTD., a privately-held company incorporated in Singapore, and a subsidiary of Yango Group Co. Ltd. Fujian - a major holdings group incorporated and conducting diverse operations in China. The consideration under the agreement was set at NIS 1,948 million, bearing 4.75% annual interest from January 1, 2017 and until the closing date and payable in full in cash on the closing date. For more information, see the Company s immediate report of August 22, 2016 (ref. no ), included here by way of reference. B. Referring to Section to the Periodic Report - On June 2, 2016, The Phoenix Investment and Finance Ltd. ("The Phoenix Investment") completed a full purchase offer for buying 10.19% of the issued and paid-up capital of Excellence Investments Ltd. ("Excellence Investments") in consideration for NIS million. Post-purchase, The Phoenix Investment holds 100% of Excellence Investments' issued and paid-up capital. 3. Additional Operations Referring to Section (a) to the Periodic Report - On August 16, 2016, a wholly-owned Company subsidiary signed a sales agreement with a partnership currently being established which will encompass a group of institutional and private investors, for selling all of the Company's holdings (100%) in IPP Delek Ashkelon Ltd., which holds a power plant producing 87 MW of electricity located adjacent to the desalination facility in Ashkelon. The consideration for selling these shares is payable in cash upon closing and was set at NIS 200 million. The consideration will be utilized both as consideration for the sold shares, and for repayment of shareholder loans. For more information, see the Company s immediate report of August 17, 2016 (ref. no ), included here by way of reference. 2 3 Percentage of output, royalties, production costs and net proceeds attributable to holders of the Company's equity rights rounded to two decimal digits. It is emphasized that the average production costs per output unit only include current production costs and do not include reservoir exploration and development costs. A-4

9 4. Chapter D Matters Relating to the Company as a Whole A. Referring to Section 1.16 of the Periodic Report - Financing Referring to Section b to the Periodic Report - In July 2016, the Company issued the public two new debenture series (Series B32 and B33) for an overall amount of NIS 1,112 million. For more information, see the Company s immediate reports of July 27, 2016 (ref. no ) and of July 28, 2016 (ref. no ), included herein by way of reference. B. Referring to Section to the Periodic Report: 1. On June 22, 2016, Midroog updated its rating for debentures issued by the Group from A1.il to A2.il (the rating outlook remained stable). Following this update, Midroog's rating for the Group's debt matches the current debt rating issued for the Group by S&P Maalot (A). For more information, see the Company s immediate reports of June 22, 2016 (ref. no and ref. no ), included herein by way of reference. 2. On July 18, 2016, Midroog announced a A2.il/stable rating for up to NIS 400 million in debentures to be issued by the Company, and on July 27, 2016 Midroog announced that it was confirming this rating for up to NIS 1,200 thousand instead of the NIS 400 million. For more information, see the Company s immediate report of July 27, 2016 (ref. no ), included here by way of reference. 3. On July 18, 2016, Standard & Poor's Maalot announced an ila rating for up to NIS 400 million in debentures to be issued by the Company, and on July 27, 2016 Midroog announced that it was confirming this rating for up to NIS 1,200 thousand instead of the NIS 400 million. For more information, see the Company s immediate report of July 27, 2016 (ref. no ), included here by way of reference. C. Referring to Section of the Periodic Report - Goals and Business Strategy On July 18, 2016, the Company announced that, as part of its strategy to identify investment opportunities in the global energy industry, it had entered negotiations with EnQuest PLC ("EnQuest") which conducts natural gas and oil exploration, development and production operations, to acquire a 20% working interest in the exploration and production licenses in the Kraken Field, located in the British part of the North Sea, as well as a joint operating agreement (JOA) and additional agreements connected with this project. As part of these negotiations, a wholly-owned foreign subsidiary of the Company has signed a non-binding memorandum of understanding and is negotiating the signing of a binding agreement with EnQuest Britain Limited, a wholly-owned subsidiary of EnQuest. For more information, see the Company s immediate report of July 18, 2016 (ref. no ), included here by way of reference. As of the publication date of this report, the Company is in the advanced stages of signing a binding agreement for acquiring a 20% working interest in the exploration and production licenses in the Kraken Field. It is clarified, that there is no guarantee that a binding agreement will be signed and that all the conditions for completing the deal will be met. Delek Group Ltd. Date: August 29, 2016 Names and titles of signatories: Gabriel Last, Chairman of the Board Asaf Bartfeld, CEO A-5

10 Chapter B Board of Directors Report on the State of the Company s Affairs

11 Board of Directors Report Delek Group Ltd. August 29, 2016 Delek Group Ltd. Board of Directors' report on the state of the Company's affairs For the six and three month periods ended June 30, 2016 The Board of Directors of the Delek Group Ltd. ("the Company") hereby presents the Company's Directors' Report for the six and three month periods ended June 30, A. The Board of Directors explanations on the state of the Company's affairs 1. Description of the Company and its business environment The Company engages in oil and gas exploration and production in Israel and abroad through investee companies and partnerships, and markets fuel products in Israel. In addition, the Company maintains holdings in several other operations, some of which are in various stages of disposal. The main operations which the Company intends to sell off comprise its Insurance and Finance in Israel segment. Desalination operations are also designated for sale. In 2015, the Company invested in an international energy company with proven operator experience, and is continuing to study options for acquiring companies and/or assets abroad which are synergistic and complementary to the Group's current core operations. The Company's financial data and its operating results are affected by the financial data and operating results of its investee companies, and by its sale or acquisition of holdings. The Company's cash flow is affected, among other things, by dividends and management fees received from its investees, by inflows originating from the disposal of its holdings therein, by its ability to raise financing in Israel and abroad which depends, inter alia, on the value of its holdings, financial market conditions in Israel and abroad, and by investments made by the Group and the dividends it distributes to its shareholders. 2. Principal Operations Gas and oil Oil and gas exploration and production in the first half of 2016 yielded a profit of NIS 183 million, as compared to a profit of NIS 127 million in the same period last year. 1 This year-on-year increase in profit for the reporting period was mainly due to an increase in revenues from natural gas and condensate sales in the Tamar Project. On April 14, 2016, the board of directors of the general partner, Avner Oil and Gas Ltd., and the board of directors of the general partner, Delek Drilling Management (1993) Ltd. (each), appointed a special, independent board committee for studying a possible re-structuring by way of a merger of Delek Drilling Limited Partnership and Avner Oil Exploration Limited Partnership. For more information, see Note 5G to the financial statements. 1 In this translation of the Board of Directors' Report, all amounts should be understood by the reader to be rounded to the nearest billion, million, or thousand, as the case may be. B-1

12 Board of Directors Report Delek Group Ltd. On May 22, 2016, the government re-affirmed its decision of August 16, 2015 concerning the Gas Framework, and established an alternative arrangement for a 'stable regulatory regime' to guarantee a regulatory regime that would encourage investment in the natural gas exploration and production segment. The Limited Partnerships, together with their partners in the various projects, are working to implement the Gas Framework (as amended), pursuant to its terms and the terms of the leases. In addition, the Limited Partnerships are working to continue making the necessary investments and taking the necessary actions for the rapid development of the Leviathan Reservoir and for planning an additional expansion of the production systems in the Tamar Project, for negotiating agreements to sell natural gas produced from the Tamar Project and the Leviathan Project, for considering options for financing investments in Tamar and Leviathan including through loans from financial entities, debentures, various capital instruments and other possible alternatives, as part of the implementation of the Gas Framework. On June 2, 2016, the Ministry of National Infrastructures, Energy and Water s Oil Commissioner approved the updated development plan for the Leviathan Reservoir, with a maximum annual supply volume of 21 BCM. For more information, see Note 5A to the financial statements. On June 22, 2016, the Partnerships announced that they had given their approval for the Leviathan Project operator, Noble Energy Mediterranean Ltd., to sign agreements with an aggregate value of USD 120 million (100%) for receiving engineering services, including detailed engineering design (FEED) services, for the production and processing rig, as approved in the development plan. Subsequent to the financial position statement date, on August 16, 2016, an agreement was signed between the Limited Partnerships and Ocean Energean Oil and Gas Ltd. for selling all of the Limited Partnerships' and Noble's rights in the I/16 Tanin and I/17 Karish leases, for a total amount of USD million (in equal parts), covering past expenditure invested in these leases by the Limited Partnerships and Noble plus royalties for future natural gas and condensate production from these leases. For more information, see Note 5C to the financial statements. Subsequent to the financial position statement date, on July 18, 2016, the Company announced that, as part of the Company's strategy to identify investment opportunities in the global energy industry, it is conducting negotiations with EnQuest PLC ("EnQuest"), which engages in oil and natural gas exploration, development and production, for acquiring a 20% working interest in the exploration and production licenses in the Kraken Field located in the British part of the North Sea and in the joint operating agreement (JOA) and additional agreements connected with the project. As part of these negotiations, a wholly-owned foreign subsidiary of the Company has signed a non-binding memorandum of understanding and is negotiating the signing of a binding agreement with EnQuest Britain Limited, a wholly-owned subsidiary of EnQuest. Other operations Subsequent to the financial position statement date, on August 16, 2016, a wholly-owned subsidiary partnership of the Company, Delek Power Plants Limited Partnership ( Delek Power Plants ) signed an agreement for selling the power plant in Ashkelon by selling all of its holdings in the shares of IPP Delek Ashkelon Ltd. The consideration (which will be utilized both as consideration for the sold shares and for repayment of shareholder loans) totals NIS 200 million, payable upon closing. The Group is expected to post a NIS 40 million gain once the transaction is completed. For more information, see Note 3 to the financial statements. The Company is continuing to work towards selling its shares in The Phoenix Holdings Ltd. ( The Phoenix ). Subsequent to the financial position statement date, on August 21, 2016, the Company signed a binding agreement for selling all of its holdings (52.3%) in The Phoenix. The buyer in the agreement is Yango Investment PTE. Ltd., a private company incorporated in Singapore, which is a subsidiary of Yango Group Co. Ltd. Fujian a holdings group incorporated and conducting diverse operations in China, including finance, education, healthcare, real estate, and international trade. The consideration specified in the agreement totalled NIS 1,948 million, and will bear 4.75% annual interest from January 1, 2017 and until the closing date ( the Consideration ). The Consideration will be payable in full and in cash on the closing date. For more information, see Note 3 to the financial statements. B-2

13 Board of Directors Report Delek Group Ltd. In September 2015, the Company, through its wholly-owned subsidiary Delek Finance US ("Delek Finance"), signed an agreement with AmTrust Financial Services Inc. ("AmTrust") for selling all of Delek Finance's holdings in Republic Companies Inc. ("Republic") (66% of Republic's issued capital), in consideration for USD 140 million. Simultaneous to signing the sales agreement, AmTrust also signed agreements with Republic's other shareholders ("the Investor Group") for buying their shares, so that following these transactions AmTrust will hold 100% of Republic's share capital. As part of the overall transaction, Delek Finance revoked the call options given to the Investor Group. In April 2016, the transaction was completed and the consideration was received as per the contract - 25% of the consideration, or USD 35 million (NIS 132 million) were paid to Delek Finance in cash on the closing date. The remaining USD 105 million (NIS 393 million) were provided as a seller's loan for a period of 4 years, payable in 4 equal installments and bearing 5.75% annual interest. Following the transaction s completion, the Company recognized gains of NIS 16 million (see also Note 3 to the financial statements). Debenture issuance Subsequent to the financial position statement date, in July 2016, the Company issued two series of convertible debentures (Debentures (Series B32) and Debentures (Series B33)). The overall consideration (net of issuance costs) received for the debentures totaled NIS 1,103 million. For more information on these debentures, see Note 7 to the financial statements. Dividend In March 2016, the Company s Board of Directors resolved to distribute a dividend of NIS 100 million. The dividend was distributed in April In May 2016, the Company s Board of Directors resolved to distribute a dividend of NIS 80 million. The dividend was distributed in June Subsequent to the financial position statement date, on August 29, 2016, the Company s Board of Directors resolved to distribute a dividend of NIS 80 million. The dividend will be distributed in September B-3

14 Board of Directors Report Delek Group Ltd. 3. Results of Operations A) Contribution to net profit (attributable to Company shareholders) from principal operations (NIS millions): Q Q H Q Q H Oil and gas exploration and (1) production operations Fuel operations in Israel Automotive operations Contribution to net profit from continuing operations before finance, capital gains and others Finance and other income (2) (66) 4 (62) 50 (121) (71) (472) (expenses) Net profit attributable to Company shareholders ) It is noted that the Group's share in the earnings of the Avner Partnership are affected by the write-down of excess acquisition costs, as the investment in the Avner Partnership was previously revalued. For more information, see Section 6(A) below. Furthermore, data for the reporting period includes the Company's share in the results of Ithaca Energy ("Ithaca"), consisting of a loss of NIS 4 million (NIS 13 million in the second quarter). 2) Data for the reporting period includes NIS 73 million in losses on impairment of investments in the Company's marketable securities portfolio. On the other hand, the Company included NIS 65 million in tax income as a result of a reduction in the tax rate in Israel (see also Notes 4 and 9 to the financial statements). In the reporting period, the item also included gains of NIS 16 million on the disposal of the investment in Republic, and gains of NIS 21 million on the disposal of financial investments. Furthermore, the item also includes the results of other operations, unattributed finance expenses, other expenses, the results of discontinued operations, and tax expenses. B) Revenues from continuing operations (NIS millions): Oil and gas exploration and production operations 1-6/ / / / ,677 Fuel operations in Israel 1,662 2, ,206 4,262 Other segments including adjustments Total revenues 2,726 3,222 1,437 1,677 6,356 See also Note 11 to the financial statements - Information Regarding Operating Segments. 417 C) Operating profit (NIS millions): Oil and gas exploration and production operations 1-6/ / / / Fuel operations in Israel Other segments including adjustments (2) (39) 7 1 (51) Total operating profit ,003 See also Note 11 to the financial statements - Information Regarding Operating Segments. B-4

15 Board of Directors Report Delek Group Ltd. D) The Group s share in the profits of associate companies and partnerships, net (NIS millions): The following table details the Group's share in the results of its principal associates: 1-6/ / / / Delek Automotive Ithaca (4) - (13) - - IDE Other (1) (17) 1 1 (19) Total (3) E) Highlights from the Company's consolidated income statements (NIS millions): 1-6/ / / / Revenues 2,726 3,217 1,437 1,677 6,356 Cost of revenues 1,756 2, ,221 4,592 Gross profit ,764 Sales, marketing and gas station operating expenses General and administrative expenses Other income (expenses), net (32) 1 (23) 7 (24) Operating profit ,003 Finance income Finance expenses ,244 Profit after finance expenses, net Gains (loss) from disposal of investments in investees and others, net Group's share in earnings (loss) of associate companies and partnerships, net (2) (3) Profit before income tax Income tax (tax benefit) (97) Profit from continuing operations Profit from discontinued operations, net Net profit Attributable to - Company shareholders Non-controlling interest B-5

16 Board of Directors Report Delek Group Ltd. F) Movement in comprehensive income (loss) (NIS millions): 1-6/ / / / Net profit Other comprehensive income (loss) from operating activities (post-tax) Actuarial gain on defined benefit plans, net Gain (loss) from available-for-sale financial assets, net Transfer to profit or loss from disposal of available-for-sale financial assets Transfer to profit or loss for impairment of available-for-sale financial assets (154) 64 (96) (300) (21) (4) (18) - (2) Gain (loss) from cash flow hedges (2) (1) Adjustments from translation of overseas operations Group's share of other comprehensive income (loss) of associates, net Total other comprehensive income (loss) from continuing operations Total other comprehensive income (loss) from discontinued operations, net (147) (298) 200 (507) 37 (6) (70) 6 (35) (55) (114) (526) 254 (632) (17) 24 (137) (23) Total comprehensive income (loss) 402 (143) 489 (645) 459 Attributable to: Company shareholders 147 (152) 253 (440) (5) Non-controlling interests (205) (143) 489 (645) Financial Position The Group's total assets as of June 30, 2016, amounted to NIS 127 billion, similar to the balance as of December 31, Below is a description of the principal changes in assets and liabilities as of June 30, 2016, compared with December 31, 2015: Cash and cash equivalents and short-term investments The Group has cash and short-term investment balances of NIS 2.7 billion, consisting mainly of balances of NIS 0.8 billion in the headquarters companies, and NIS 1.8 billion in Delek Energy and the Limited Partnerships. Total current and non-current assets (excluding held-for-sale assets) No material changes have occurred in the Group's current and non-current assets as of June 30, 2016, as compared to December 31, 2015 (excluding The Phoenix's assets, which were presented under held-for-sale assets). It is noted that, as of June 30, 2016, the Group classified NIS 566 million in costs attributable to Tanin and Karish Reservoirs as held-for-sale assets. B-6

17 Board of Directors Report Delek Group Ltd. Short- and long-term financial liabilities (excluding liabilities for The Phoenix assets) Financial liabilities (to banks and others and debenture-holders), as of June 30, 2016, amounted to NIS 17.5 billion, as compared to NIS 18.1 billion as of December 31, Contingent claims In their review, the Company's auditors draw attention to legal actions brought against the Company and Group companies. For details, see Note 8 to the financial statements. Additional information For additional information regarding payment dates for principal and interest on the debts of headquarter companies, see Appendix A to the Board of Directors' Report. 5. Sources of Finance and Liquidity The net financial debt of the Company and the headquarters companies as of June 30, 2016: (2) NIS millions Liabilities Debentures (6,862) Bank loans (382) Other liabilities (288) Total liabilities (7,532) Assets Cash and cash equivalents 162 Financial investments 685 Loans (*) 1,878 Treasury shares (**) 477 Total assets 3,202 Net financial debt - headquarters companies (4,330) (*) Composition of loans extended as of June 30, 2016: Borrower Loan balances as of June 30, 2016 (NIS millions) Seller loan - Delek Europe (1) 690 Seller loan - Barak Capital 46 Power Plants 397 Seller loans - Republic (2) 407 Other 338 Total 1,878 (1) The seller s loan (including accrued interest) for the sale of Delek Europe totals EUR 191 million (NIS 820 million). The loan is recognized based on a valuation measuring fair value at the loan issue date plus effective interest derived from the valuation. (2) The seller's loan for the sale of Republic totals USD 104 million (NIS 407 million). (**) As of June 30, 2016, there are a total of 637,045 shares. (1) Headquarters companies: Delek Group, Delek Petroleum, Delek Power Plants Limited Partnership, and Delek Hungary. B-7

18 Board of Directors Report Delek Group Ltd. As of the financial statements approval date, the Company and the headquarters companies have liquid balances of NIS 1.75 billion (furthermore and in addition to these liquid balances, the Company has guaranteed, unutilized credit facilities of NIS 1 billion). 6. Analysis of Operations by Segment A) Oil and gas exploration and production operations Operations are carried out through the Limited Partnerships, which mainly engage in the production and sale of natural gas and condensate from the Tamar Project, in promoting and planning an additional expansion of the Tamar Project production system, in promoting and planning the commercialization of gas and development of the Leviathan Reservoir located in the Leviathan South and Leviathan North leases and the Aphrodite Reservoir (in Cyprus), and in exploration activities in the oil assets held by the Partnerships. The Group s results also include the Group s share in the results of Ithaca Energy ("Ithaca"), which operates mainly in the North Sea. 1) Below are the results of the Limited Partnerships' oil and gas exploration and production operations as included in the Group's results (NIS millions): 1-6/ / / / Revenues from gas sales net of royalties ,677 Operating profit EBITDA ,435 Finance expenses, net Net profit attributable to Company shareholders Gas sales in BCM (*) Condensate sales - thousands of barrels (**) (*) The data relate to sales of natural gas (100%) from the Tamar Project, rounded to one tenth of one BCM. (**) The data relate to condensate sales (100%) from the Tamar Project, rounded to thousands of barrels. Analysis of the results of operations in the gas segment: Net profit attributable to Company shareholders Oil and gas exploration and production in the second quarter of 2016 yielded a profit of NIS 85 million, as compared to a profit of NIS 60 million in the same quarter last year. This year-on-year increase in the present quarter was mainly due to greater revenues from natural gas and condensate sales to customers in the Tamar Project. In the reporting period, oil and gas exploration and production operations yielded a profit of NIS 187 million, as compared to a profit of NIS 127 million in the corresponding period last year. This year-on-year increase in profit for the reporting period was mainly due to an increase in revenues from natural gas and condensate sales in the Tamar Project. Revenues Data for the reporting period includes revenues from oil and gas sales net of royalties to the amount of NIS 865 million, as compared to NIS 772 million in the same period last year. Revenues were up in the present period, mainly due to an increase in the volumes of natural gas and condensate sold from the Tamar Project, which was offset by lower average prices per output unit of natural gas and barrel of condensate. B-8

19 Board of Directors Report Delek Group Ltd. Operating profit Operating profit in the reporting period amounted to NIS 545 million, compared to NIS 456 million in the same period last year. Operating profit was up mainly due to an increase in revenues from the Tamar Project. Finance expenses, net Net finance expenses in the reporting period amounted to NIS 136 million, compared to NIS 131 million in the same period last year. Adjustment of the Limited Partnerships' results to the Group's share in oil and gas exploration and production operations (NIS millions), for the first half of 2016: Delek Drilling Avner Total Net profit Indirect holdings 61.9% 51.2% Group's share Tax expenses Revenues from overriding royalty and management fees Results of direct holdings in Yam Tethys (4.44%) (5) Write-down of surplus acquisition costs (*) (48) General and administrative expenses (2) Finance expenses (15) (43) 19 Contribution to net profit from oil and gas exploration and production 187 (*) Mainly a current write-down of the revaluation of the Tamar Project (previously recognized as part of the Cohen Development deal) on the Avner Partnerships' holdings in the Tamar Project. B-9

20 Board of Directors Report Delek Group Ltd. 2) Ithaca In October 2015, a wholly-owned foreign subsidiary of the Company signed an agreement to invest in the shares of Ithaca, whereby a private placement was made to the subsidiary of 19.99% of Ithaca's issued and paid-up share capital, at a price of CAD 1.05 per share, for a total consideration of USD 66 million (NIS 260 million). Ithaca is an independent oil and gas operator operating in the North Sea, holding both producing assets and assets under development. Ithaca's shares are traded on the Toronto Stock Exchange (TSX) and on the AIM exchange in London. Data from Ithaca's public financial statements (USD millions): Revenues from oil and gas sales 1-6/ / / / Cost of sales (69) (133) (25) (59) (233) Gross profit (loss) (11) (3) - 1 (26) Finance income (expenses) from hedges Impairment of oil and assets and goodwill (28) 19 (33) (10) (401) Other expenses (4) (9) (2) (2) (12) Finance expenses (18) (25) (9) (15) (42) Loss before taxes (61) (18) (44) (26) (326) Tax benefit Net profit (loss) attributable to Company shareholders 6 14 (12) 40 (121) Average output (Mboepd) The Group accounts for its investment in Ithaca as per the equity method. In the reporting period, the Company's share in Ithaca's earnings after adjustments (and accounting for the excess acquisition cost study, which has yet to be completed) yielded a loss of NIS 4 million, and in the second quarter of 2016 the Company's share yielded a loss of NIS 13 million (after the said adjustments). Additional information For more information on oil and gas exploration operations, see Notes 3 and 5 to the financial statements. B-10

21 Board of Directors Report Delek Group Ltd. B) Fuel operations in Israel Data from the financial statements of Delek Israel, in which the Group holds a 100% interest (NIS millions): Statement of Financial Position June 30, 2016 June 30, 2015 December 31, 2015 Cash and cash equivalents Current assets (excluding cash and cash equivalents) 1,273 1,467 1,255 Property, plant and equipment 1,383 1,378 1,382 Other long-term assets Total assets 3,262 3,494 3,245 Short-term credit from banks and others Current liabilities (excluding credit) Long-term loans from banks and others Other long-term liabilities Equity attributable to Company shareholders 954 1,156 1,024 Non-controlling interests Total liabilities and equity 3,262 3,494 3,245 Statement of Income 1-6/ / / / Revenues 1,662 2, ,206 4,262 Gross profit Other income (expenses), net (32) 19 (31) 2 11 Operating profit EBITDA Finance expenses, net Net profit attributable to Company shareholders Analysis of the results of fuel operations in Israel Revenues Revenues in the reporting period amounted to NIS 1,662 million, compared with NIS 2,231 million in the same period last year, a decrease of 26%. This decrease in revenues was due to a world-wide drop in distillate prices. This decrease was partially offset by higher sales volumes in refueling and retail areas. Sales turnover in self- and franchise-operated Menta convenience stores in the first half of 2016 totaled NIS 211 million, as compared to NIS 193 million in the same period last year. In the reporting period, sales in Delek Israel-operated convenience stores totaled NIS 118 million, as compared to NIS 106 million in the same period last year. B-11

22 Board of Directors Report Delek Group Ltd. Gross profit Gross profit in the reporting period amounted to NIS 382 million, compared with NIS 377 million in the same period last year, an increase of 1%. Gross profit was up in the reporting period, mainly due to a moderate increase in gross profit in refueling areas, driven by greater fuel sales as well as an increase in convenience store profits. The increase in gross profit was further attributable to a reduction in inventory losses of NIS 4 million. However, profit in direct marketing operations was down. Other income (expenses), net In the reporting period, other expenses totaled NIS 32 million, compared with an income of NIS 19 million in the same period last year. This change was mostly attributable to recognition of a capital loss and one-time expenses in the present reporting period, as compared to capital gains recognized in the last-year period. Finance expenses, net Net finance expenses in the reporting period amounted to NIS 27 million, as compared to NIS 24 million in the same period last year. Dividend In March 2016, Delek Israel declared a dividend of NIS 75 million. The dividend was distributed at the end of March For more information concerning Delek Israel's operations, see Note 8 to the financial statements. B-12

23 Board of Directors Report Delek Group Ltd. C) Insurance and finance operations in Israel As of June 30, 2016, the Group holds 52.3% of the shares of The Phoenix Holdings Ltd. ("The Phoenix"). For more information concerning the sale of control in The Phoenix, see Note 3 to the financial statements. Below are the principal data from The Phoenix's consolidated income statements (NIS millions): 1-6/ / / / Gross premiums earned 4,265 4,036 2,177 2,065 8,725 Premiums earned in retention 3,897 3,713 1,995 1,912 8,025 Net gains on investments, and finance income 945 1, (15) 2,045 Income from management fees Payments and changes in liabilities for insurance contracts and investment contracts in retention Commission, marketing, and other purchasing expenses General and administrative expenses 4,151 4,791 2,385 1,328 8, ,475 1,106 Other expenses Finance expenses Share in the profits of investees accounted for as per the equity method (5) 56 Net profit for the period Profit for the period attributable The Phoenix shareholders A significant part of The Phoenix's asset portfolio is invested on the capital market. Therefore, capital market returns for the various investment channels have a material effect on the yields achieved for The Phoenix's customers and on The Phoenix's profits. Gains and losses on investments and changes in the CPI and the NIS exchange rate against main currencies materially affect the reported results. Results for the reporting period were materially affected by the lower market interest curve. Lower interest rates affected the increase in insurance obligations by NIS 289 million pre-tax (NIS 185 million post-tax). Results for the reporting period were also affected by greater insurance obligations in general, compulsory auto, and liability and other insurance operations, to the amount of NIS 131 million pre-tax (NIS 84 million post-tax), following new regulations issued based on the Winograd Committee's recommendations. Results for the second quarter of the year were also affected by the lower market interest curve. Lower interest rates affected the increase in insurance obligations by NIS 93 million pre-tax (NIS 60 million post-tax). Results for the reporting period were also affected by greater insurance obligations in general, compulsory auto, and liability and other insurance operations, to the amount of NIS 12 million pre-tax (NIS 8 million post-tax), following new regulations issued based on the Winograd Committee's recommendations. Revenues from management fees were down NIS 106 million in the reporting period, as compared to the same period last year. The bulk of this decrease was due to a reduction in variable management fees in the present period. These fees totaled NIS 50 million in the reporting period, as compared to NIS 139 million in the same period last year. The decrease was due to lower real yields achieved by The Phoenix as compared to the same period last year. B-13

24 Board of Directors Report Delek Group Ltd. Key data according to The Phoenix s operating segments (NIS millions): Profit from life insurance and long term savings segment 1-6/ / / / (124) (59) (52) (29) (94) Profit from health insurance segment (12) (151) (46) Profit from general insurance segment Profit from financial services segment Total comprehensive income (loss) from operating segments Profit not attributed to reporting segments Company s share in the net results of investees not included in the reported segments (41) (52) (4) (11) 15 Profit before income tax Income tax (tax benefit) (12) (11) Profit for the period Net profit for the period attributable to The Phoenix shareholders For more information on The Phoenix s operations, see Notes 3 and 8 to the financial statements. B-14

25 Board of Directors Report Delek Group Ltd. D) Automotive operations As of the financial position statement date, the Group holds 22.5% of Delek Automotive Systems Ltd. ("Delek Automotive") (Delek Automotive is a public company which publishes its financial statements). The investment in Delek Automotive is presented as per the equity method. The results of Delek Automotive s operations are included under the Group s share in the profits of associates, net item. Below are the results of Delek Automotive's operations (as included in the Delek Group s statements (*)) (NIS millions): 1-6/ / / / Revenues 2,147 1, ,315 Gross profit Sales, marketing, and general and administrative expenses Operating profit EBITDA Finance income (expenses), net (*) (117) 404 (96) Net profit attributable to Delek Automotive shareholders (*) In the first half of 2015, Delek Automotive recognized the revaluation of its investment in Mobileye in profit or loss, while the Group recognized the changes in the fair value of the investment in other comprehensive income and recognizes them in profit or loss only upon disposal. In that period, Delek Automotive sold its shares in Mobileye, after which in 2015 the Delek Group recognized gains of NIS 65 million (the Company's share) on attributing part of the other comprehensive income previously recognized on the revaluation of Mobileye, to profit or loss. Breakdown of Delek Automotive's sales by number of cars sold: 1-6/ / / / MAZDA vehicles 9,663 10,171 3,621 3,352 17,087 FORD vehicles 2,469 1, ,463 BMW vehicles 2,227 1, ,041 Total vehicles sold 14,359 13,652 5,586 4,791 22,591 Delek Automotive's share of all new vehicles sold in Israel (based on Licensing Bureau data) 9% 9% 7% 7% 9% Additional information For more information concerning Delek Automotive s operations, see Note 3 to the financial statements. B-15

26 Board of Directors Report Delek Group Ltd. E) Additional Operations Infrastructures The Group s infrastructures operations are carried out through Delek Power Plants Limited Partnership ("Delek Power Plants"), which coordinates the development and operation of power plants in Israel through its subsidiaries. The Group also holds 50% of IDE Technologies Ltd. ("IDE"). In the reporting period, the infrastructures segment contributed profits of NIS 14 million, as compared to profits of NIS 21 million in the same period last year. For more information on the sale of IPP Delek Ashkelon Ltd. - see Note 3 to the financial statements. For more information on infrastructure operations, see Note 3 to the financial statements. B-16

27 Board of Directors Report Delek Group Ltd. B. Market Risk Exposure and Management 1. A) Company operations focus mainly on holding and managing shares in its subsidiaries. These are long-term investments and therefore these holdings are not hedged. Risk management in subsidiary and associate companies is determined and carried out directly by the investees. Some of these companies are public companies and are listed on the stock exchange, and therefore proper disclosure of this subject is made in their financial statements. B) The currency risk management officer in the Company is Mr. Ido Adar, MBA. In recent years, Mr. Adar has serve as Company Treasurer. 2. Description of market risks A) As stated above, the Group is mainly a holdings and management company, and its principal exposure results from the market risks of its subsidiaries and associates ( Investees"). B) In the reporting period, no material changes occurred in the Company's policy mitigating managing exposure to market risks, including the effects of sensitivity tests on the Group's reports in this matter in the year ended December 31, The following table details Israeli CPI data and exchange rates for the primary currencies used by the Company: USD representative exchange rate Known CPI As of NIS Points June 30, June 30, December 31, % Change % % June 30, 2016 (6 months) (1.4) (0.4) June 30, 2016 (3 months) June 30, 2015 (6 months) (3.1) (0.5) June 30, 2015 (3 months) (5.3) (12 months) 0.3 (0.9) B-17

28 Board of Directors Report Delek Group Ltd. 3. Linkage bases report as of June 30, 2016: Assets Israeli currency Un-linked CPI-linked USD Foreign currency Other currency (mainly EUR) June 30, 2016 Fair value NIS millions Monetary items in overseas operations USD Held-forsale assets Nonmonetary item Current assets 1, , ,908 Held-for-sale assets ,102-99,102 Non-current assets ,168 23,290 Total assets 1, ,657 99,102 21, ,300 Liabilities Current liabilities 2, , ,484 Insurance business liabilities ,933-94,933 Non-current liabilities 3,700 3, ,095-2,616 16,329 Total liabilities 6,243 4, ,837 94,933 2, ,746 Assets less liabilities, net (4,434) (4,364) (5,180) 4,169 18,841 10,554 Total B-18

29 Board of Directors Report Delek Group Ltd. C. Disclosure relating to the Company's financial reporting 1. Critical accounting estimates No material changes have occurred in the reporting period as compared to the 2015 annual report. 2. Events after the financial position statement date For details of material events after the financial position statement date, see Chapter A to the Board of Directors' Report. D. Dedicated disclosure for debenture holders B-19

30 Board of Directors Report Delek Group Ltd. Series Issue date Original par value Par value balance as of June 30, 2016 Nominal interest rate Linkage Carrying amount as of June 30, 2016 Interest accrued in the books as of June 30, 2016 NIS millions NIS millions NIS millions NIS millions Repayment years B11 7/ % Israeli CPI B12 11/2006 1, % Israeli CPI B13 3/ B14 B15 B18 7/ /2010 7/ / / / / / /2015 Until listing %, after listing - 4.6% Israeli CPI , Stock exchange value as of June 30, 2016 Nonmarketable Nonmarketable % Un-linked , % Un-linked ,062 1, % Israeli CPI 1, ,324 B19 11/ % Israeli CPI B22 6/ % Israeli CPI B31 2/ / /2015 2,280 2, % Un-linked 2, , Trustee Hermetic Trust (1975) Ltd. 113 Hayarkon St. Tel Aviv Tel: Dan Avnon Reznik Paz Nevo RPN Trusts 2007 Ltd., 14 Yad Harutzim St., Tel Aviv Tel: , Elad Sirkis Hermetic Trust (1975) Ltd. 113 Hayarkon St. Tel Aviv Tel: Dan Avnon Reznik Paz Nevo RPN Trusts 2007 Ltd., 14 Yad Harutzim St., Tel Aviv Tel: , Elad Sirkis Reznik Paz Nevo RPN Trusts 2007 Ltd., 14 Yad Harutzim St., Tel Aviv Tel: , Elad Sirkis Reznik Paz Nevo RPN Trusts 2007 Ltd., 14 Yad Harutzim St., Tel Aviv Tel: , Elad Sirkis Gafni Trusts Ltd. 4 Hataas St., Ramat Gan Tel: Tzuri Galili Aurora Fidelity Trust Ltd. 12 Menachem Begin Rd., Ramat Gan Tel: Iris Shalbin (1) Hermetic Trust (1975) Ltd. 113 Hayarkon St. Tel Aviv Tel: Dan Avnon (1) On June 27, 2016, Aurora Fidelity Trust Ltd. notified the Company of its desire to cease serving as trustee for the holders of Debentures (Series B22). Consequently, on July 5, 2016, the meeting of the holders of Debentures (Series B22) approved the appointment of Mishmeret Trust Services Company Ltd. (48 Menahem Begin Street, Tel Aviv, Tel.: /4, Contact: Atty. Rami Katzav, CPA) as trustee for the Company's Debentures (Series B22) instead of Aurora Fidelity Trust Ltd. (2) Subsequent to the financial position statement date, in July 2016, the Company issued two convertible debenture series - B32 and B33. The trustee for these debenture series is Hermetic Trust (1975) Ltd., of 113 Hayarkon Street, Tel Aviv., Tel: Dan Avnon For more information, see Note 7 to the financial statements. B-20

31 Board of Directors Report Delek Group Ltd. Notes: 1. The Company meets all the terms of the debentures. Furthermore, the Company meets all the terms of its obligations under the deed of trust. 2. Debenture ratings as of the financial statements' approval date: Series Rating company Current rating Rating upon issue Rating company Current rating Rating upon issue B11 Midroog A2 - S&P Maalot A AA B12 Midroog A2 - S&P Maalot A AA B13 Midroog A2 - S&P Maalot A AA B14 Midroog A2 A1 S&P Maalot - - B15 Midroog A2 A1 S&P Maalot - - B18 Midroog A2 A1 S&P Maalot - - B19 Midroog A2 A1 S&P Maalot - - B22 Midroog A2 - S&P Maalot A AA B31 Midroog A2 A1 S&P Maalot A A B32 Midroog A2 A2 S&P Maalot A A B33 Midroog A2 A2 S&P Maalot A A The current rating reports from Midroog and Maalot are attached by way of reference to the immediate reports of July 27, 2016, ref. no and , respectively. Financial covenants The deed of trust for Series B31 issued in 2015 specified the following financial covenants: A) Minimum equity: The Company's minimum equity will not fall below NIS 2,400 million according to its audited or reviewed consolidated financial statements, as applicable, for three consecutive quarters. B) Ratio of equity to balance sheet total: The Company's equity will not fall below 15% of its balance sheet total according to the Company's audited or reviewed separate financial statements, as applicable, for three consecutive quarters. Equity, meaning the Company's total equity attributable to Company shareholders, excluding minority interests, as defined in GAAP. As of the financial statements' approval date, the Company is in compliance with these financial covenants. Subsequent to the financial position statement date, the Company issued Debentures (Series B32 and B33). The deeds of trust for these series stipulated the aforesaid financial covenants. For more information, see Note 7 to the financial statements. B-21

32 Board of Directors Report Delek Group Ltd. E. Additional information 1. Buyback of securities In December 2015, the Company's Board of Directors approved a buy-back plan for the Company's shares by the subsidiary partnership, of up to NIS 100 million until December 22, In December 2015 and until the financial statements' publication date, the subsidiary partnership bought 130,021 shares of NIS 1 par value each of the Company, for a total consideration of NIS 85 million. 2. Dividends In March 2016, the Company s Board of Directors resolved to distribute a dividend of NIS 100 million. The dividend was distributed in April In May 2016, the Company s Board of Directors resolved to distribute a dividend of NIS 80 million. The dividend was distributed in June Subsequent to the financial position statement date, on August 29, 2016, the Company s Board of Directors resolved to distribute a dividend of NIS 80 million. The dividend will be distributed in September Company employees The Board of Directors would like to thank the Company's management, the management of the Company's investees, and to all the employees for their dedicated work and their contribution to the advancement of the Company. Sincerely Gabriel Last Chairman of the Board Asaf Bartfeld CEO Signature date: August 29, 2016 B-22

33 Board of Directors Report Delek Group Ltd. Appendix A to the Board of Directors' Report Breakdown of principal and interest payments on the debentures and bank loans of the headquarters companies as of June 30, 2016 (NIS millions): Delek Group - Headquarters Debentures Bank loans *) Q3-Q4 / onwards Total Principal ,208 6,964 Interest ,495 Principal Interest Total 926 1,024 1, ,534 8,628 *) Excluding NIS 220 million in credit facilities utilized as of June 30, The Delek Group also has (unutilized) guaranteed bank credit facilities of NIS 1 billion. As of the financial statements approval date these credit facilities are unutilized. B-23

34 Financial Statements Chapter C

35 Delek Group Ltd. Consolidated Interim Financial Statements as of June 30, 2016 Unaudited Contents Page Consolidated Balance Sheets 2-3 Consolidated Statements of Income 4 Consolidated Statements of Comprehensive Income 5 Consolidated Statements of Changes in Equity 6-10 Consolidated Statements of Cash Flows Notes to the Consolidated Interim Financial Statements

36 Delek Group Ltd. Consolidated Balance Sheets Current assets June 30 December Unaudited Audited NIS Million Cash and cash equivalents 590 1,661 1,009 Other short-term investments 2,104 2,125 2,251 Trade receivables 1,310 1,422 1,287 Other receivables Current tax assets Financial derivatives Inventories ,908 6,144 5,337 Assets held for sale 99,102 99,001 98, , , ,396 Non-current assets Long-term loans, deposits and receivables 2,152 1,631 2,047 Available-for-sale financial assets Financial assets at fair value through profit or loss Investments in associates 1,603 1,463 1,680 Investment property Investments in oil and gas exploration and production 15,867 16,146 16,472 Property, plant and equipment, net 2,426 2,274 2,393 Goodwill Other intangible assets, net Deferred taxes ,290 23,182 23, , , ,023 The accompanying notes are an integral part of the consolidated interim financial statements

37 Delek Group Ltd. Consolidated Balance Sheets Current liabilities June 30 December Unaudited Audited NIS million Interest bearing loans and borrowings 3,878 1,979 4,141 Trade payables Other payables Current tax liabilities Financial derivatives ,484 4,072 5,743 Liabilities attributable to assets classified as held for sale 94,933 95,572 93,943 Non-current liabilities 100,417 99,644 99,686 Loans from banks and others 1,095 1,075 1,133 Debentures 12,579 14,243 12,776 Liabilities for employee benefits Provisions and other liabilities Deferred taxes 2,291 2,334 2,438 Capital 16,329 17,993 16,703 Share capital Share premium 1,917 1,917 1,917 Retained earnings 2,431 2,862 2,437 Exchange differences on translation of foreign operations Capital reserve from transactions with holders of non-controlling interests Other reserves 133 (297) 60 Treasury shares (433) (294) (368) Total equity attributable to equity holders of the Company 4,313 4,686 4,486 Non-controlling interests 6,241 6,004 6,148 Total capital 10,554 10,690 10, , , ,023 The accompanying notes are an integral part of the consolidated interim financial statements. August 29, 2016 Date of approval of the financial statements Gabriel Last Asi Bartfeld Barak Mashraki Chairman of the Board CEO CFO - 3 -

38 Delek Group Ltd. Consolidated Statements of Income Six months ended June 30 Three months ended June 30 Year ended December Unaudited NIS million (Other than earnings (loss) per share) Audited Revenue 2,726 3,222 1,437 1,677 6,356 Cost of revenues 1,756 2, ,221 4,592 Gross profit ,764 Selling, marketing and gas station operating expenses General and administrative expenses Other revenues (expenses), net (32) 1 (23) 7 (24) Operating income ,003 Finance income Finance expenses (488) (510) (209) (302) (1,244) Profit (loss) from disposal of investments in partnerships and investees, net - (2) Group share in profits (losses) of associates, net (3) Income before taxes on income Taxes on income (tax benefit) (97) Profit from continuing operations Income from discontinued operations, net Net income Attributable to: Equity holders of the Company Non-controlling interests Net earnings (loss) per share attributable to equity holders of the Company (NIS) Basic and diluted earnings (loss) from continuing operations (2.1) (8.2) Basic and diluted earnings per share from discontinued operations Basic and diluted earnings The accompanying notes are an integral part of the consolidated interim financial statements

39 Delek Group Ltd. Consolidated Statements of Comprehensive Income Six months ended June 30 Three months ended June 30 Year ended December Unaudited NIS million Audited Net income Other comprehensive income (loss) (net of tax effect): Amounts not reclassified to profit or loss: Actuarial gain for defined benefit plans Total Amounts classified or reclassified to profit or loss under specific conditions: Loss from available-for-sale financial assets, net 21 (154) 64 (96) (300) Transfer to statement of income for disposal of availablefor-sale financial assets (21) (4) (18) - (2) Transfer to statement of income for impairment of available-for-sale financial assets Profit (loss) for cash flow hedges (2) (1) Exchange differences on translation of foreign operations (147) (298) 200 (507) 37 Other comprehensive income (loss) attributable to associates, net (6) (70) 6 (35) (55) Total (114) (527) 254 (634) 20 Total other comprehensive income (loss) from continuing operations (114) (526) 254 (632) 21 Total other comprehensive income (loss) from discontinued operations, net 68 (17) 24 (137) (23) Total other comprehensive income (loss) (46) (543) 278 (769) (2) Total comprehensive income (loss) 402 (143) 489 (645) 459 Attributable to: Equity holders of the Company 147 (152) 253 (440) (5) Non-controlling interests (205) (143) 489 (645) 459 The accompanying notes are an integral part of the consolidated interim financial statements

40 Delek Group Ltd. Consolidated Statements of Changes in Equity Attributable to equity holders of the Company Capital Shares Premium on Shares Retained Profit Exchange differences on translation of foreign operations Reserve from transactions with noncontrolling interests Other reserves *) Treasury shares Total Noncontrolling interests Total Capital Unaudited NIS million Balance as of January 1, 2016 (audited) 13 1,917 2, (368) 4,486 6,148 10,634 Net income Other comprehensive income (loss) (91) (18) (28) (46) Total comprehensive income (loss) (91) **) 402 Dividends - - (171) (171) - (171) Acquisition of treasury shares (65) (65) - (65) Company incorporated in the past (2) (2) Acquisition of shares from holders of non-controlling interests (84) - - (84) (78) (162) Dividend to holders of non-controlling interests (82) (82) Balance as of June 30, ,917 2, (433) 4,313 6,241 10,554 *) Mainly capital reserve for available-for-sale financial assets. As at June 30, 2016, including a credit balance of NIS 110 million for investments held for sale. See also Note 3 below. **) Composition of comprehensive income of non-controlling interests: Net income attributable to non-controlling interests 283 Profit from available-for-sale financial assets, net 37 Exchange differences on translation of foreign operations (65) Total comprehensive income attributable to non-controlling interests 255 The accompanying notes are an integral part of the consolidated interim financial statements

41 Delek Group Ltd. Consolidated Statements of Changes in Equity Attributable to equity holders of the Company Capital Shares Premium on Shares Retained Profit Exchange differences on translation of foreign operations Reserve from transactions with noncontrolling interests Other reserves *) Treasury shares Total Noncontrolling interests Total capital Unaudited NIS million Balance as of January 1, 2015 (audited) 13 1,917 2, (77) (223) 5,204 6,024 11,228 Net income Other comprehensive income (loss) 1 (165) - (220) - (384) (159) (543) Total comprehensive income (loss) (165) - (220) - (152) 9 **) (143) Acquisition of treasury shares (71) (71) - (71) Dividends - - (295) (295) - (295) Dividend to holders of non-controlling interests (29) (29) Balance as of June 30, ,917 2, (297) (294) 4,686 6,004 10,690 *) Mainly capital reserve for available-for-sale financial assets. as of June 30, 2015, including a credit balance of NIS 80 million for investments held for sale. See also Note 3 below. **) Composition of comprehensive income of non-controlling interests: Net income attributable to non-controlling interests 168 Loss from available-for-sale financial assets, net (12) Exchange differences on translation of foreign operations (147) Total comprehensive income attributable to non-controlling interests 9 The accompanying notes are an integral part of the consolidated interim financial statements

42 Delek Group Ltd. Consolidated Statements of Changes in Equity Attributable to equity holders of the Company Capital Shares Premium on Shares Retained Profit Exchange differences on translation of foreign operations Reserve from transactions with noncontrolling interests Other reserves *) Treasury shares Total Noncontrolling interests Total Capital Unaudited NIS million Balance as of April 1, ,917 2,427 (34) (417) 4,180 6,085 10,265 Net income Other comprehensive income (loss) Total comprehensive income **) 489 Dividends - - (76) (76) - (76) Acquisition of treasury shares (16) (16) - (16) Acquisition of shares from holders of non-controlling interests (28) - - (28) (76) (104) Dividend to holders of non-controlling interests (4) (4) Balance as of June 30, ,917 2, (433) 4,313 6,241 10,554 *) Mainly capital reserve for available-for-sale financial assets. As at June 30, 2016, including a credit balance of NIS 110 million for investments held for sale. See also Note 3 below. **) Composition of comprehensive income of non-controlling interests: Net income attributable to non-controlling interests 131 Profit from available-for-sale financial assets, net 10 Exchange differences on translation of foreign operations 95 Total comprehensive income attributable to non-controlling interests 236 The accompanying notes are an integral part of the consolidated interim financial statements

43 Delek Group Ltd. Consolidated Statements of Changes in Equity Attributable to equity holders of the Company Capital Shares Premium on Shares Retained Profit Exchange differences on translation of foreign operations Reserve from transactions with noncontrolling interests Other reserves *) Treasury shares Total Noncontrolling interests Total Capital Unaudited NIS million Balance as of April 1, ,917 2, (122) (294) 5,274 6,220 11,494 Net income Other comprehensive income (loss) (289) - (175) - (462) (307) (769) - Total comprehensive income (loss) (289) - (175) - (440) (205) **) (645) Dividends - - (148) (148) - (148) Dividend to holders of non-controlling interests (11) (11) Balance as of June 30, ,917 2, (297) (294) 4,686 6,004 10,690 *) Mainly capital reserve for available-for-sale financial assets. as of June 30, 2015, including a credit balance of NIS 80 million for investments held for sale. See also Note 3 below. **) Composition of comprehensive loss of non-controlling interests: Net income attributable to non-controlling interests 102 Loss from available-for-sale financial assets, net (67) Exchange differences on translation of foreign operations (240) Total comprehensive loss attributable to non-controlling interests (205) The accompanying notes are an integral part of the consolidated interim financial statements

44 Delek Group Ltd. Consolidated Statements of Changes in Equity Attributable to equity holders of the Company Capital Shares Premium on Shares Retained Profit Exchange differences on translation of foreign operations Reserve from transactions with noncontrolling interests Other reserves *) Treasury shares Total Noncontrolling interests Total Capital Unaudited NIS million Balance as of January 1, ,917 2, (223) 5,204 6,024 11,228 Net income Other comprehensive income (loss) (30) - (12) 10 (2) Total comprehensive income (loss) (30) - (5) 464 **) 459 Total net effect of the change in insurance reserves in general insurance as of December 31, (6) (6) (6) (12) Acquisition of treasury shares (145) (145) - (145) Dividends - - (489) (489) - (489) Dividend to holders of non-controlling interests (251) (251) Acquisition of shares from holders of non-controlling interests (73) - - (73) (84) (157) Share-based payment Balance as of December 31, ,917 2, (368) 4,486 6,148 10,634 *) Mainly capital reserve for available-for-sale financial assets. As at December 31, 2015, including a credit balance of NIS 70 million for investments held for sale. See also Note 3 below. **) Composition of comprehensive income of non-controlling interests: Net income attributable to non-controlling interests 454 Loss from available-for-sale financial assets, net (14) Actuarial gain for defined benefit plans, net 1 Exchange differences on translation of foreign operations 23 Total comprehensive income attributable to non-controlling interests 464 The accompanying notes are an integral part of the consolidated interim financial statements

45 Delek Group Ltd. Consolidated Statements of Cash Flows Six months ended June 30 Three months ended June 30 Year ended December Unaudited Audited NIS million Cash flows from operating activities Net income Adjustments to reconcile cash flows from operating activities (a) 1,145 1, ,178 4,416 Net cash from operating activities 1,593 2, ,302 4,877 Cash flows from investing activities Purchase of property, plant and equipment, investment property and intangible assets (381) (239) (87) (126) (642) Proceeds from sale of property, plant and equipment and investment property Proceeds (investment) from sale of financial assets, net (81) 142 Repayment (providing) of loans to associates, net - (29) - (24) 22 Short-term investments, net (152) Proceeds from disposal (investment) in longterm bank deposits, net (77) (212) (7) (214) (297) Increase in joint ventures for oil and gas exploration (345) (392) (89) (177) (546) Proceeds from lease of oil and gas assets Proceeds from sale of investments in associates, net (including taxes paid) Investment in associate companies and partnerships (3) (7) - (7) (271) Repayment (provision) of loans to others, net (39) Cash from disposal of investments in companies incorporated in the past (C) (13) - (13) - - Net cash from (used in) finance activities (256) (217) 224 (253) (1,558) The accompanying notes are an integral part of the consolidated interim financial statements

46 Delek Group Ltd. Consolidated Statements of Cash Flows Six months ended June 30 Three months ended June 30 Year ended December Unaudited Audited NIS million Cash flow from finance activities Short-term loans from banks and others, net (231) (761) (275) (182) (58) Acquisition of shares from holders of noncontrolling interests (104) - (104) - (156) Receipt of long-term loans Repayment of long-term loans (180) (335) (70) (71) (578) Dividend paid (171) (295) (171) (295) (489) Dividend paid to holders of non-controlling interests in subsidiaries (82) (29) (72) (11) (251) Tax advances constituting distribution of profits for non-controlling interests (24) - (24) - - Acquisition of treasury shares by a subsidiary partnership (65) (71) (16) - (145) Payment of contingent liability for a put option to holders of non-controlling interests (28) Taxes for sale of shares to non-controlling interests - (36) - (22) (166) Issue of debentures (less issuance expenses) ,496 Issuance expenses for debenture exchange - (4) - (4) - Repayment of debentures (311) (147) - (53) (1,043) Net cash used for finance activities (793) (566) (357) (556) (959) Exchange differences on balances of cash foreign operations 22 (13) 8 (25) 45 Change in cash and cash equivalents attributable to operations held for sale (985) (4,981) (786) (4,981) (6,603) Increase (decrease) in cash and cash equivalents (419) (3,546) (3) (4,513) (4,198) Cash and cash equivalents at the beginning of the period (including performance-based balance) 1,009 5, ,174 5,207 Cash and cash equivalents at the end of the period 590 1, ,661 1,009 The accompanying notes are an integral part of the consolidated interim financial statements

47 Delek Group Ltd. Consolidated Statements of Cash Flows Six months ended June 30 Three months ended June 30 Year ended December Unaudited NIS Million Audited (A) Adjustments to reconcile cash flows from operating activities: Adjustments to profit or loss Depreciation, depletion, amortization and impairment of assets Deferred taxes, net (117) Increase (decrease) in employee benefit liabilities, net (1) Decrease (increase) of loans granted, net (56) 27 (35) (13) (23) Gain from the sale of property, plant and equipment, real estate and investments, net 5 (21) 5 (11) - Group s share of results of associates, net (1) (40) (35) 103 Loss (profit) from disposal of an available for sale financial asset (21) - (21) - (25) Change in fair value of financial assets and financial derivatives, net 88 (196) Increase (decrease) in long-term liabilities, net 81 (20) Decrease (increase) in deferred acquisition costs (53) (75) 1 (13) (103) Cost of share-based payment Change in financial investments of insurance companies, net (673) (1,305) (766) 469 (1,249) Investments net of proceeds from the sale of available-for-sale assets in insurance companies, net (593) (440) (240) (472) (781) Increase in reserves and other provisions in insurance companies 2,647 3,710 1,452 1,023 5,115 Acquisition of investment property for performancebased contracts and other investment property in insurance companies (162) 34 (115) (69) (12) Decrease (increase) in reinsurance assets (39) Change in value of investment property, net 2 6 (10) (13) (51) Changes in operating assets and liabilities: Decrease (increase) in trade receivables (32) 74 (60) (62) 182 Increase in other receivables (231) (233) (143) Decrease (increase) in inventory (5) Increase in other assets, net (65) (81) (32) (33) (128) Increase (decrease) in trade payables (9) (45) (89) Decrease in other payables (20) (218) (98) (141) (78) 1,145 1, ,178 4,416 (1) Net of dividends and earnings received

48 Delek Group Ltd. Consolidated Statements of Cash Flows (C) Six months ended June 30 Three months ended June 30 Year ended December Unaudited NIS Million Audited Deconsolidation Working capital (excluding cash and cash equivalents) (14) - (14) - - Property, plant and equipment (2) - (2) - - Intangible assets and goodwill Deferred taxes Non-controlling interests (2) - (2) - - (13) - (13) - - (D) Significant non-cash activities Purchase of property, plant and equipment and intangible assets Dividend payable by associates Investment in oil and gas assets against liability Provision of a loan for the sale of a subsidiary (E) Cash and cash equivalents Cash and cash equivalents at the beginning of the period: Cash and cash equivalents 1,009 2, ,900 2,556 Performance-based cash and cash equivalents in insurance companies *) - 2,651-3,274 2,651 1,009 5, ,174 5,207 Cash and cash equivalents at the end of the period Cash and cash equivalents 590 1, ,661 1,009 Performance-based cash and cash equivalents in insurance companies *) , ,661 1,009 (F) Additional information on cash flows Cash paid during the year for: Interest Taxes on income Cash received during the year for: Interest Dividends Taxes (G) See Note 3A for information about cash flows from discontinued operations. The accompanying notes are an integral part of the consolidated interim financial statements

49 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 1: GENERAL These financial statements have been prepared in condensed format as of June 30, 2016 and for the six and three months then ended ( the Consolidated Interim Financial Statements ). The financial statements should be read in the context of the Company s annual financial statements as of December 31, 2015 for the year then ended, and their accompanying notes ( the Annual Financial Statements ). NOTE 2: SIGNIFICANT ACCOUNTING POLICIES Preparation format of the Consolidated Interim Financial Statements The Consolidated Interim Financial Statements have been prepared in accordance with generally accepted accounting principles for the preparation of interim financial statements as prescribed in IAS 34, Interim Financial Reporting and in accordance with the disclosure requirements of Chapter D of the Securities Regulations (Periodic and Immediate Reports), 1970, insofar as the provisions of these standards apply to insurance subsidiaries. The main accounting policy and calculation methods applied in the preparation of these Consolidated Interim Financial Statements are consistent with those applied in the preparation of the Annual Financial Statements. NOTE 3: INVESTMENTS IN INVESTEES AND PARTNERSHIPS A. The Phoenix Holdings Ltd. ("The Phoenix") 1) Further to Note 14F to the Annual Financial Statements, in the first quarter of 2016, the Company and Fosun International Limited announced the cancellation of their agreement for the sale of the Company's holdings in The Phoenix, due to failure to fulfil the preconditions in the agreement. In addition, in this period, the memorandum of understanding between the Company and a foreign company for the sale of at least 47.5% of the share capital of The Phoenix was cancelled. 2) Subsequent to the balance sheet date, on August 21, 2016, the Company signed a binding agreement for the sale of all of the Company's holdings (52.3%) in The Phoenix. The buyer is Yango Investment PTE Ltd. a private company incorporated in Singapore and a subsidiary of Fujian Yango Group Co. Ltd. a significant holding group incorporated and operating in China in diverse fields, including finance, education, health, real estate and international trading. The consideration as set out in the agreement amounts to NIS 1,948 million and bears annual interest at the rate of 4.75% from January 1, 2017, and until the closing date ( the Consideration ). The consideration will be paid in full in cash upon closing the transaction. The agreement includes detailed representations of the Company concerning The Phoenix Group and the Company's undertakings from the date of signature until completion of the transaction, including for continuation of the business of The Phoenix and how it will be managed, as well as undertakings following the completion date of the transaction concerning non-competition with the business of The Phoenix. The agreement also includes an undertaking for indemnification limited by amount and term for breach of the representations and undertakings, and specific indemnities for special events. The agreement contains preconditions, which include approvals from governmental bodies, including a control permit from the Commissioner of Capital Markets, Insurance and Savings at the Ministry of Finance, approval from the Israel Securities Authority, the Tel-Aviv Stock Exchange Ltd. and the absence of a material adverse event (MAE) affecting the business of The Phoenix before the completion date of the transaction. The agreement stipulates terms for its cancellation by the Company or the buyer in the event of various breaches, and it also stipulates that if the terms for completion of the transaction have not been fulfilled within six months after signing the agreement, either of the parties to the agreement may notify the other party that it is cancelling the agreement

50 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 3: INVESTMENTS IN INVESTEES AND PARTNERSHIPS (CONTD.) A. The Phoenix Holdings Ltd. ("The Phoenix") (contd.) 3) As of June 30, 2016, the investment in shares of The Phoenix is recognized in accordance with the provisions of IFRS 5 as part of a group of assets held for sale and under liabilities attributable to assets held for sale. In addition, the operating results of The Phoenix, including investment value adjustments, are recognized in the statement of income under profit from discontinued operations, net. In the reporting period, the Company included its share in the comprehensive income of The Phoenix amounting to NIS 42 million. In addition, in the reporting period, the Company recognized an impairment loss of NIS 28 million, due to its estimated fair value less costs to sell of the investment in The Phoenix, as set out below. In addition, the Company included its share in other comprehensive income and capital funds in an amount of NIS 7 million. As of June 30, 2016, the Company's investment in The Phoenix amounts to NIS 1,824 million, which is the estimated fair value net of selling costs of the investment, and further to recent agreements for the sale of the investment in The Phoenix to which the Company was a party, including an agreement signed subsequent to the balance sheet date, as described above (for information about the estimated fair value of the investment, see also Note 14F to the Annual Financial Statements). The value of the Company's investment in The Phoenix shares as of June 30, 2016, at the TASE price of a single share of The Phoenix, amounts to NIS 1,150 million. 4) Financial information for The Phoenix: A) Group of assets and liabilities relating to the operations of The Phoenix classified as held for sale: June 30 December Unaudited Audited NIS Million Current assets Cash and cash equivalents Performance-based cash and cash equivalents 6,596 4,406 5,970 Short-term investments of the finance sector (mainly exchange-traded funds and deposits) 28,537 33,509 30,189 Short-term investments 362 1, Short-term investments in insurance companies 1, ,152 Insurance premium receivable Other receivables Current tax assets Reinsurance assets Deferred acquisition costs ,480 42,731 41,284 Non-current assets Financial investments of insurance companies 50,360 47,819 48,672 Long-term loans, deposits and receivables Investments in associates Investment property 3,173 2,913 3,016 Reinsurance assets Property, plant and equipment, net Deferred acquisition costs Structured bonds 343 1, Goodwill Other intangible assets, net Deferred taxes ,056 56,270 56,208 Total assets 98,536 99,001 97,

51 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 3: INVESTMENTS IN INVESTEES AND PARTNERSHIPS (CONTD.) A. The Phoenix Holdings Ltd. ("The Phoenix") (contd.) Group of assets and liabilities relating to the operations of The Phoenix classified as held for sale (contd.): June 30 December Unaudited Audited NIS Million Current liabilities Interest bearing loans and borrowings Trade payables Other payables 1,946 1,869 2,028 Exchange-traded funds and deposit 27,311 32,646 29,076 Current tax liabilities Liabilities for insurance contracts 4,409 4,094 4,577 34,176 38,970 36,084 Non-current liabilities Loans from banks and others Debentures 2,367 2,375 2,332 Structured bonds Liabilities for employee benefits Liabilities for insurance contracts 57,331 53,215 54,454 Provisions and other liabilities Deferred taxes ,757 56,602 57,822 Total liabilities 94,933 95,572 93,

52 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 3: INVESTMENTS IN INVESTEES AND PARTNERSHIPS (CONTD.) A. The Phoenix Holdings Ltd. ("The Phoenix") (contd.) B) The table below presents information on the results of operations attributable to the discontinued operations of The Phoenix: Six months ended June 30 Three months ended June 30 Year ended December Unaudited NIS million Audited Revenue 5,556 6,101 3,238 2,139 11,560 Cost of revenues 4,151 4,791 2,386 1,328 8,455 Gross profit 1,405 1, ,105 Sales expenses ,475 General and administrative expenses ,125 Other expenses (income), net (3) Operating income Finance expenses, net Share in earnings (losses) of associates (5) 56 Profit (loss) before tax 80 (5) Taxes on income (tax benefit) (9) (24) Adjusted to fair value less selling costs (28) 54 (21) 16 (53) Earnings from The Phoenix operations Attributable to: Equity holders of the Company Non-controlling interests C) Composition of net cash flows attributable to the discontinued operations of The Phoenix: Six months ended June 30 Three months ended June 30 Year ended December Unaudited NIS million Audited Net cash from operating activities 1,163 1, ,273 3,665 Net cash used for investment activities (106) (107) (48) (55) (228) Net cash from (used in) finance activities (71) (66) 103 (93) (164) 986 1, ,125 3,

53 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 3: INVESTMENTS IN INVESTEES AND PARTNERSHIPS (CONTD.) A. The Phoenix Holdings Ltd. ("The Phoenix") (contd.) 4) On June 2, 2016, The Phoenix Investments and Finance Ltd. ("The Phoenix Investments") completed a full tender offer for the acquisition of 10.19% of the issued and paid up share capital of Excellence Investments Ltd. ("Excellence Investments") for NIS million. Subsequent to the acquisition, The Phoenix Investments holds 100% of the issued and paid up share capital of Excellence Investments. As a result, the Company recognized a negative capital reserve (transactions with holders of non-controlling interests) in the amount of NIS 29 million. B. Republic Companies Inc. ("Republic") Further to Note 14F(c) to the Annual Financial Statements, on April 18, 2016, the transaction for the sale of all of the Company's holdings (66%) in Republic was completed, for a total consideration of NIS 532 million (approximately USD 140 million) to AmTrust Financial Services Inc. ("the Buyers"), after all the approvals were received for completion, including regulatory approvals. An amount of NIS 132 million of the consideration (approximately USD 35 million) was paid in cash at the closing date and the remaining USD 105 million was provided to the buyers as a seller loan for four years, which will be repaid in four equal installments and will bear annual interest at a rate of 5.75%. Following completion of the transaction, in the second quarter of 2016, the Company recognized a profit of NIS 16 million C. Ithaca Energy Inc. ("Ithaca") 1) Further to Note 14M to the Annual Financial Statements, in October 2015, the Group acquired (by way of allocation) 19.99% of the issued and paid up share capital of Ithaca (by way of allocation) for a total consideration of USD 68 million (approximately NIS 267 million). Ithaca is an independent oil and gas operator in the North Sea, which owns producing oil assets and assets under development. Ithaca's shares are traded on the Toronto Stock Exchange (TSX) and the Alternative Investment Market (AIM) in London. The Group applies the equity-accounting method for the balance of its investment in Ithaca. The Group is continuing its assessment of attribution of the consideration for the acquisition to the assets and liabilities of Ithaca, but has not yet completed the attribution. As of June 30, 2016, the investment in Ithaca shares amounts to USD 67 million. It is noted that the Group's share in the equity of Ithaca as of June 30, 2016 (based on the financial statements of Ithaca) amounts to USD 155 million and the market value of the investment amounts to USD 79 million. The market value of the investment in Ithaca shares shortly before the approval date of the financial statements amounts to USD 71 million. 2) In the reporting period, the Company included its share in the losses of Ithaca amounting to NIS 4 million. This amount includes income of NIS 18 million for tax on income from oil production in the UK, which was cancelled in the first quarter of 2016 (retroactively from January 1, 2016). It is further noted that a bill in UK, which has not yet been ratified, reduces the additional tax applicable to income by 20% to 10%. In accordance with the financial statements of Ithaca, the Company's share in the reduction in Ithaca's deferred tax assets is expected to amount to a loss of approximately USD 17.4 million, which will be recognized in the statement of income once the bill is ratified. It is further noted that these tax effects on the Group are subject to change following completion of attribution of the consideration for the acquisition, as described above

54 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 3: INVESTMENTS IN INVESTEES AND PARTNERSHIPS (CONTD.) D. Subsequent to the balance sheet date, on August 16, 2016, Delek Power Stations - Limited Partnership, a wholly owned partnership of the Company ("Delek Power Stations") signed an agreement for the sale of all of the Company's holdings in IPP Delek Ashkelon Ltd. ("Delek Ashkelon") which it holds. Delek Ashkelon engages in the operation and maintenance of a power station and the sale of electricity to various customers. The consideration for the sale (which will be used as consideration for the sold shares as well as to repay the owners' loans) is NIS 200 million, which will be paid at the completion date of the transaction. Under the agreement, the buyer undertook to indemnify or release Delek Power Stations and the Company, including related parties, from any guarantees and undertakings relating to the operations of Delek Ashkelon and/or the power station. The agreement also includes arrangements for payment of additional proceeds, subject to completion of various third-party proceedings, the conclusion of which is uncertain. The agreement establishes several preconditions, which are generally accepted for this type of transaction, and the closing date will be shortly after fulfillment of all of the preconditions, and no later than February 25, At this stage, the Company is expected to recognize a profit of NIS 40 million for the sale. E. Condensed information for companies accounted for at equity 1) The Group holds 22.5% of the shares of Delek Automotive. The Group s investment in Delek Automotive is accounted for using the equity method. Following is condensed information from the financial statements of Delek Automotive for each reporting period (in accordance with the accounting policy of Delek Group): June 30 December Unaudited Audited NIS million Current assets 1,629 1,733 1,506 Non-current assets 1, Current liabilities 1,863 1,672 1,505 Non-current liabilities Equity attributable to equity holders of the investee Excess cost attributable to the investment Six months ended June 30 Three months ended June 30 Year ended December Unaudited NIS million Audited Revenue 2,147 1, ,315 Gross profit Operating income Finance income (expenses), net (117) 404 (96) Net earnings attributable to equity holders of the investee Amortization of excess cost attributable to the investment

55 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 3: INVESTMENTS IN INVESTEES AND PARTNERSHIPS (CONTD.) E. Condensed information for companies accounted for at equity (contd.) 2) The Group owns 50% of the shares of IDE Technologies Ltd. ( IDE ). The Group s investment in IDE is accounted for using the equity method. Following is condensed information from the financial statements of IDE for each reporting period: June 30 December Unaudited Audited USD millions Current assets Non-current assets Current liabilities Non-current liabilities Equity attributable to holders of non-controlling interests Equity attributable to equity holders of the investee *) Goodwill attributable to the investment *) On March 31, 2016, IDE completed a transaction for acquisition of the shares of non-controlling interests in its subsidiary and became the sole shareholder in this company. Following this transaction, IDE recognized a negative capital reserve, which decreased its equity by USD 29 million. The Group's share in the capital reserve amounts to NIS 55 million and this amount is included under shares from holders of non-controlling interests in the statement of changes in equity. Six months ended June 30 Three months ended June 30 Year ended December Unaudited NIS million Audited Revenue Gross profit Operating income Finance income (expenses), net (1) Net earnings attributable to equity holders of the investee The exchange rate as of June 30, 2016, used to translate the financial statements of IDE, is USD 1 = NIS (change in the reporting period a decrease of 1.5%). The exchange rate as of December 31, 2015 is NIS and as of June 30, 2015, NIS

56 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 4: FINANCIAL ASSETS A. Further to Note 6 to the Annual Financial Statements, as of June 30, 2016, the Group's financial investments include investments in the shares of foreign companies amounting to NIS 603 million, mainly in companies operating in the energy sector. These investments are accounted for as available-for-sale financial assets. On December 31, 2015, the Group recognized the cumulative impairment of some of these investments in the statement of income, in view of their significant and/or continuous impairment. The total loss recognized in the statement of income in 2015 amounted to NIS 338 million. It is noted that for these investments, revenues from a dividend amounting to NIS 45 million were included in In the reporting period, the Company recognized a net expense of NIS 12 million for these financial investments in its statement of income. This expense arises from the impairment of the market value of some of these financial investments, and on the other hand, from the disposal of certain financial investments and dividends received from these investments. The proceeds from the disposal of the foregoing investments amounted to NIS 150 million. B. Further to Note 14G to the Annual Financial Statements, the investment in the shares of Delek US is recognized at market value. As of June 30, 2016, the investment in the shares of Delek US amounts to NIS 51 million. In the reporting period, the Group recognized a loss of NIS 46 million under finance expenses (the total effect on the Group's net profit after tax amounted to NIS 34 million). NOTE 5: INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION The Group operates mainly through Delek Drilling - Limited Partnership and Avner Oil Exploration - Limited Partnership (jointly: "the Limited Partnerships") in a number of joint ventures for the exploration, development, and production of oil, natural gas, and condensate in the exclusive economic zone of Israel and Cyprus, and sells natural gas and condensate to a variety of customers (see also Note 16 to the Annual Financial Statements). The main changes in the reporting period appear below: A. Ratio Yam joint venture 1) Outline for development of the Leviathan reservoir In February 2016, the Leviathan project partners submitted an outline plan for the development of the Leviathan reservoir to the Commissioner of Petroleum Affairs ("the Commissioner"), including the supply of natural gas and condensate to the local market and for export ("the Development Plan" or "the Plan"), the main points of which are as follows: A) Eight production wells (two of which have already been drilled and will be completed for production under the development plan) will be connected by a subsea pipeline to a fixed platform ("the Platform"), which will be built offshore in accordance with the provisions of the National Outline Plan TAMA 37/H (the amendments of TAMA 37/H were approved in March 2016) and will include all gas treatment systems. Gas will flow from the platform to the northern entrance of the national pipeline of Israel National Gas Lines ("INGL") as defined in TAMA 37/H ("the Connection Point to INGL). On April 5, 2016, the National Planning and Building Council approved the main points of the development plan, in accordance with the National Outline Plan. B) Production capacity, handling and transmission of the platform wells, the pipeline connecting it to the field, and the related facilities (jointly below: "the Production System") are designed for 21 BCM per year and the capacity of the pipeline from the platform to the Connection Point to INGL is designed for 12 BCM per year. The gas to be supplied at the Connection Point to INGL is targeted for the local market and for supply through the national pipeline to neighboring countries. The platform will also include another exit point intended for connection to the offshore pipeline with an annual capacity of up to 12 BCM, mainly targeted for export to neighboring countries

57 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 5: INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.) A. Ratio Yam joint venture (contd.) 1) Outline for development of the Leviathan reservoir (contd.) C) Based on a preliminary assessment, the cost of the full development plan until natural gas starts to flow, as described above, is USD 5-6 billion (for 100% of the rights in the Leviathan project). D) The development plan may be implemented in full or in two stages, depending on the maturity of the relevant markets, as follows: The first stage includes four development wells (including the completion of two existing wells for production) and installation of the platform with treatment facilities with an annual capacity of up to 12 BCM, which based on a preliminary assessment, will cost USD 3.5 billion to USD 4 billion (for 100% of the rights in the Leviathan project). The second stage includes another four wells and the expansion of the annual treatment capacity of the platform by an additional 9 BCM. E) It is noted that to allow production in the capacity as may be required from time to time, and to use the resources at the Leviathan reservoir during the life of the project, additional production wells are required. F) Parallel to arrangement of the stability section in the Gas Outline Plan (as described in section F below), the Leviathan partners intend to advance the necessary regulatory approvals and finalization of binding agreements for gas sales to allow a final investment decision (FID) for the development plan in the fourth quarter of 2016, with the aim of starting production of gas from the Leviathan project in the fourth quarter of G) It is clarified that if demand for gas increases beyond the capacity of the production system, as defined in the development plan, the Leviathan partners will act to update the development plan to allow the incorporation of additional treatment facilities that are currently not included in the development plan. It is noted that the above information about the development plan, the preliminary evaluation of the cost of the development plan, the dates for a final investment decision, the start of gas production from the projects, and the target markets for the sale of natural gas contains estimates only, and there can be no certainty that they will materialize, in whole or in part, and they might materialize in a substantially different manner. In June 2016, the Commissioner approved the development plan, for the production of a maximum of 21 BCM per year, as set out above. The Commissioner stipulated the procedures for implementation of the development plan and noted, among other things, that at this stage, in view of the data of the Ministry of National Infrastructures, Energy and Water Resources ("The Ministry of Energy) and based on the opinion of an international company that was submitted to the Ministry of Energy, the estimate amount of natural gas that would be produced from the Leviathan field is 17.6 TCF, based on the production plan that was submitted ("the Estimated Production Amount"). The Commissioner also noted that after receiving additional data and in particular, after drilling Leviathan 5, and after receiving data obtained during production from the field, the Estimated Production Amount will be updated, in order to calculate export permits, if required, among other things. It is noted the Limited Partnerships believe that the Estimated Production Amount is adequate for full implementation of the development plan at an annual production volume of 21 BCM as approved, and adequate for full implementation of the export agreements relevant to a development plan of this scope. In addition, there has been no change in the assessment of natural gas and condensate in the Leviathan reservoir, based on the resources report prepared by NSAI, as described in Note 16(I) to the Annual Financial Statements

58 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 5: INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.) A. Ratio Yam joint venture (contd.) 1) Outline for development of the Leviathan reservoir (contd.) In June 2016, the Leviathan partners authorized Noble to enter into agreements for a cumulative value of USD 120 million for the entire project period (for all the partners) to receive engineering services, including a front end engineering design (FEED) for the production platform, as approved in the development plan. It is noted that the Leviathan partners are working to close other agreements for the purchase of equipment and/or services related to the development plan, as approved, and they are expected to sign them in the near future. Subsequent to the balance sheet date, in July 2016, the Leviathan partners confirmed a budget of USD 119 million (100%) for development of the Leviathan reservoir for 2016 and up to the end of 2017, to carry out the actions that are required to complete the development plan on time when approved by the Leviathan partners as part of the final investment decision (FID). As of the approval date of the balance sheet, the Leviathan partners have not yet made a FID for the development plan. 2) Agreement for the supply of natural gas between the Limited Partnerships and the other Leviathan partners and Edeltech Ltd. ("Edeltech"). In January 2016, the Limited Partnerships and the other Leviathan partners signed an agreement for the supply of natural gas with Edeltech ("the Buyer"). Under the agreement, the Buyer will acquire natural gas from the Leviathan partners to operate power plants that it plans to construct, together with its Turkish partner, in Ashdod and Mishor Rotem ("the Supply Agreement"). In accordance with the Supply Agreement, the Leviathan partners undertook to supply the Buyer with a total quantity of 6 BCM of natural gas, in accordance with the terms set out in the Supply Agreement. For further information, see Notes 16K(2) and 16K(4) to the Annual Financial Statements. 3) Agreement for the supply of natural gas between the Limited Partnerships and the other Leviathan partners and IMP Beer Tuvia Ltd. In May 2016, the Leviathan partners and IMP Beer Tuvia Ltd. ("the Buyer") signed an agreement according to which the Buyer will acquire natural gas from the Leviathan partners to operate the power station it plans to construct in the Beer Tuvia industrial zone ("the Supply Agreement"). In accordance with the Supply Agreement, the Leviathan partners undertook to supply the Buyer with a total quantity of 13 BCM of natural gas ("the Total Contract Quantity"), in accordance with the terms set out in the Supply Agreement. The term of the Supply Agreement will start when gas starts to flow in commercial quantities from the Leviathan reservoir to the Buyer and is expected to end on the earlier of the following dates: (1) when the Buyer consumes the Total Contract Quantity; (2) 18 years from the start of commercial operation of the Buyer's power station or from the start of commercial operation of the Leviathan project (whichever is earlier). The parties may extend the term of the supply agreement by up to two additional years, or until consumption of the Total Contract Quantity, whichever is earlier. The Buyer has a take or pay agreement for a minimum annual quantity of gas as set out in the Supply Agreement ("the Minimum Annual Quantity"). The Supply Agreement determines a mechanism whereby the Buyer will be entitled to reduce the quantities purchased (including the Total Contract Quantity) until finalization of the Buyer's funding, and in any event, no later than six months after the Supply Agreement is signed, based on the size of the power plants that will be built and the gas quantities that it will require at such time, all subject to the restrictions set out in the agreement

59 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 5: INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.) A. Ratio Yam joint venture (contd.) 3) Agreement for the supply of natural gas between the Limited Partnerships and the other Leviathan partners and IMP Beer Tuvia Ltd. (contd.) In accordance with the mechanisms set out in the Gas Outline Plan, the Supply Agreement stipulates that the price of gas will be linked to the electricity generation rate, as set from time to time by the Public Utility Authority, and includes a minimum price. The Supply Agreement includes several preconditions, the main ones being approval of the development plan for the Leviathan reservoir, obtaining a license for the gas transportation system from the Leviathan reservoir in accordance with the Natural Gas Sector Law, 2002 adoption of a final investment decision (FID) by the Leviathan partners by the end of 2016, and finalization of the Buyer's funding. 4) The Limited Partnerships are taking steps to sign agreements with banks to finance their share in the development costs of the Leviathan project, which, under the terms, are expected to bear variable Libor interest plus a margin that will be set ("the Expected Loan"). Consequently, the Limited Partnerships are exposed to potential changes in cash flows that may result from changes in the Libor interest. As part of the risk management policy of the Limited Partnerships, the Limited Partnerships decided to enter into IRS cash flow hedges for changes in the Libor interest. At of the approval date of the financial statements and the subsequent to the balance sheet date, the Limited Partnerships entered into cash flow hedge transactions amounting to USD 900 million. B. Michal and Matan joint venture 1) Further to Note 16K(1)(d) to the Annual Financial Statements, in February 2016, Eastern Mediterranean Marketing Limited ("NBL") signed an agreement with Arab Potash Company and Jordan Bromine Company to increase the daily and annual supply, as set out in the supply agreement of February 2014, to a total volume of up to 2 BCM. 2) Further to Note 16K(1)(c) to the Annual Financial Statements, the operational running in period for the compressor system came to an end in the second quarter of The Tamar partners and IEC agreed that the exact date for increasing the amount of gas will be agreed between them in the third quarter of 2016 or shortly before this time. 3) On April 14, 2016, the Minister of National Infrastructure, Energy and Water Resources ("the Minister of Energy") resolved to dismiss the appeal filed by the Tamar partners on the Commissioner's decision, regarding approval of the operation of the natural gas and condensate production system from the Tamar project, according to which the Tamar partners, among other things, are required to provide guarantees in an amount of NIS 100 million (100%). In view of the decision of the Minister of Energy, the Tamar partners are assessing the legal options available to them. 4) On June 30, 2016, the Tamar partners made a decision to drill the Tamar 8 development and production well and construct related infrastructure in the Tamar field ("the Well"). The offshore drilling is 100 kilometres west of Haifa and is expected to reach a final depth of 5,050 m below sea level. Drilling is expected to begin in the fourth quarter of 2016 and to continue for four months (including completion and connection to the production system). The purpose of the Well is to allow optimum production from the Tamar reservoir. Drilling of the well and its connection to the subsea production system of the Tamar project are expected to be carried out continuously. The Commissioner of Petroleum Affairs approved the updated development plan for the Tamar project, according to which the Tamar 8 well will be drilled and connected to the production system of the Tamar field. The Tamar partners intend to advance the receipt of the remaining approvals for the drilling from the Ministry of Energy, including approval for an environmental survey submitted in April 2016 and approval for the drilling plan, when submitted

60 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 5: INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.) B. Michal and Matan joint venture (contd.) The drilling budget, including the completion and development of the subsea system and connection of the Well to the existing Tamar infrastructure, is USD 265 million (100%), of which USD 37 million is for equipment that was acquired for development of the South-West Tamar reservoir ("Tamar SW"). It is noted that development of the Tamar SW field is planned for the future, in accordance with the development and production plan of the Tamar project. 5) On June 30, 2016, the Limited Partnership, together with the other Tamar project partners, signed an amendment to the joint operating agreement, according to which, as from January 1, 2016, the operator will be paid indirect costs (indirect services costs and overheads) at a rate of 1% of all direct costs, as defined in the agreement, subject to certain exceptions. In addition, the Limited Partnerships together with the other project partners signed a settlement agreement, according to which they will pay the operator indirect costs of USD 22.4 million (100%) for the period from July 24, 2006 until December 31, 2015 (in addition to USD 15.6 million, 100%, paid in 2013), most of which were capitalized to oil and gas assets. C. Karish and Tanin leases 1) Further to Note 16M to the Annual Financial Statements, on August 16, 2016, the Limited Partnerships ("the Sellers") and Ocean Energean Oil and Gas Ltd.("the Buyer" or "Energean") signed an agreement. The main terms set out in the agreement are as follows: A) Energean will acquire from the Sellers all the rights of the Sellers and Noble in the I/16 Tanin and I/17 Karish leases ("the Leases") in accordance with their holdings as follows: % of the rights of each of the Limited Partnerships and % of the Noble's rights ("the Sold Rights" and "the Agreement", respectively). B) The Buyer will pay the Sellers a total of USD million (in equal parts), which constitutes reimbursement of the past expenses invested in the Leases by the Sellers and Noble, plus royalties in connection with the natural gas and condensate to be produced from the Leases, as follows: 1) A cash payment of USD 10 million which will be deposited in an escrow account shortly after the agreement is signed and will be transferred to the sellers on the closing date of the transaction 2) An additional cash payment of USD 30 million will be paid to the Sellers on the closing date of the transaction. 3) The balance of the consideration, in a total amount of USD million, will be paid to the Sellers in ten equal annual instalments, plus interest in the mechanism and at the rate stipulated in the agreement, starting on the date on which the final investment decision (FID) is made in connection with the development of the Leases or on the date on which the sum of the Buyers expenses in connection with development of the leases exceeds USD 150 million, whichever is earlier. 4) The Sold Rights will be transferred to the Buyer together with the royalties in the Leases, which each of the Sellers covered for their original share in the Leases ( % for each of the Sellers) ("the Existing Royalties"), and accordingly, the duty to pay the same to the royalty holders, including the Company, will apply as from the completion date of the transaction to the Buyer. 5) The Buyer will transfer to each of the Sellers a right to royalties for the natural gas and condensate to be produced from the Leases, at a rate of 7.5% (for 100% of the rights in the Leases), before payment of the oil profits tax under the Taxation of Profits from Natural Resources Law, 2011 ("the Levy ) for the Leases, and at the rate of 8.25% (for 100% of the rights in the Leases) immediately upon commencement of payment of the Levy, net of the rate of the Existing Royalties for each of the Sellers' share in the Leases, as set out in subsection (4) above

61 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 5: INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.) C. Karish and Tanin leases (contd.) C) In accordance with the provisions of the Gas Outline, the Agreement stipulates that the Buyer will transfer to the Sellers and to the other Leviathan partners the export quota from the Leases. D) The Agreement includes several conditions preconditions, which are mainly receipt of the approval of the Commissioner and the approval of the general meetings of the holders of the Limited Partnerships' participation units for the Agreement, or the approval of the supervisors, insofar as required under the circumstances. E) The closing date of the transaction has been scheduled for three business days after fulfilment of the preconditions. Each one of the parties has been given the right to terminate the transaction if the preconditions are not fulfilled within 45 days after the signing date. At this stage, the Limited Partnerships are assessing the accounting implications of the transaction in the Agreement, if the transaction will be completed. 2) As part of the agreement that was completed in January 2016, as described in Note 16G to the Annual Financial Statements, each of the Limited Partnerships paid a total of USD 36 million to Noble for acquisition of the right to sell Noble's rights in Karish and Tanin. It is noted that the Commissioner approved the registration in the Oil Register of a "benefit" arising from the right to sell the rights of Noble. 3) As at June 30, 2016 the balance of the investment in the Karish and Tanin leases, of NIS 566 million, were included under assets held for sale. D. Block 12, Cyprus 1) In January 2016, the Limited Partnerships announced that the Cyprus government has waived the requirement for another appraisal drilling (beyond the boundaries of the Aphrodite finding), as required in the work plan for Block 12 in Cyprus ("Block 12"), as part of completion of the transfer of 50% of the rights of Noble Energy International Ltd. in Block 12 to BG Cyprus Limited. 2) In April, 2016, the Block 12 partners submitted a revised plan for development of the Aphrodite reservoir in a format that is basically similar to that described in Note 16 H(5) to the Annual Financial Statements, alongside the application for a production license. It is noted that the validity of the Block 12 license ended on May 23, 2016 ("the Expiry Date of the Exploration License"). In addition, government of Cyprus has not yet approved the development plan and the application for a production license. To the best of the Limited Partnerships' understanding, once the exploration license expires, the exploration areas that are not included in the area of the Aphrodite reservoir will be returned, and in the interim period after the Expiry Date of the Exploration License and before receiving the production license, as described above, the license partners have the right to receive a production license in the area of the Aphrodite reservoir, upon approval of the development plan (if approved). The Aphrodite reservoir partners are working with the government of Cyprus to obtain these approvals, while negotiations are underway for the supply of natural gas to the local market in Cyprus and for the export of natural gas through the pipeline to other markets, including the Egyptian market

62 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 5: INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.) E. Licenses 1) In July 2016, the Commissioner notified the partners in the license of his decision not to recognize the Dolphin reservoir in the license area as a discovery. The partners in the license believe that they have reached a discovery which establishes entitlement to a lease under the provisions of the Petroleum Law. On August 18, 2016, the partners filed an appeal with the Minister of National Infrastructures, Energy and Water Resources. The Limited Partnerships believe, based on the opinion of their legal counsel, that it is more likely than not that the appeal will be accepted. In view of the above, the drilling cost of NIS 98 million was included under investments in oil and gas assets. 2) Further to Note 16B to the Annual Financial Statements, regarding the petition to the High Court of Justice filed by the partners against the Minister of Energy and the Commissioner ("the Respondents") on the decision of the Minister of Energy to dismiss the appeal filed by the Partners on the Commissioner's decision not to extend the validity of the Eran License, on April 18, 2016, a hearing was held, and the High Court of Justice recommended that the parties to turn to mediation. The partners agreed to the recommendation, and on June 2, 2016, the agreement was given the validity of a ruling. With the consent of the parties, a mediator was appointed, and the first meeting between the parties was held on June 29, Another date has not yet been scheduled. In accordance with the ruling of the court, the parties are required to update the court on the results of the mediation, no later than November 1, F. The Gas Outline Plan On August 16, 2015, the government resolved to approved the outline for increasing the quantity of natural gas produced from the Tamar natural gas field and swift development of the Leviathan, Karish, and Tanin gas fields and other gas fields ("the Gas Outline Plan" or "the Government Decision"), which came into effect on December 17, 2015 after the Prime Minister, acting as Minister of the Economy, granted an exemption from provisions in the Antitrust Law to the Limited Partnerships, Ratio Oil Exploration (1992) - Limited Partnership, and Noble, in accordance with the provisions of section 52 of the Antitrust Law ("the Exemption"). After the Gas Outline Plan came into effect, petitions were filed at the High Court of Justice, as set out in Note 31A(7) to the Annual Financial Statements. On March 27, 2016, the High Court of Justice handed down a ruling on the petitions, as follows: (A) The validity of the entire Gas Outline Plan (apart from the stability section) is not conditional on being anchored in primary legislation. (B) Section 52 of the Antitrust Law, exempting the provisions of this law from foreign policy and security considerations, was applied with due authority. (C) The stability section in its wording in the Gas Outline Plan, as defined in Note 16M to the Annual Financial Statements, cannot stand and the government has been given one year to reorganize the stability section in the Gas Outline Plan. If an arrangement is not completed one year after the ruling, the Gas Outline Plan will be canceled. On May 22, 2016, the government again adopted the decision regarding the Gas Outline Plan, setting an alternative arrangement for a "stable regulatory environment", to ensure a regulatory environment that encourages investments in natural gas exploration and production. The Limited Partnerships are taking steps, together with their partners in the various projects, to implement the Gas Outline Plan (as amended), in accordance with its terms and the terms of the leases. In addition, the Limited Partnerships are taking steps to continue the investments and activities that are required for the rapid development of the Leviathan reservoir and for planning the additional extension of the Tamar project production system, to advance negotiations for signing agreements for the supply of natural gas from the Tamar and Leviathan projects, to assess financing alternatives for the investments in Tamar and Leviathan, including financing by way of loans from financial institutions, debentures, capital instruments, and any other alternatives, as part of the implementation of the Gas Outline Plan. On August 16, 2016, the Limited Partnerships signed an agreement for the sale of all of their rights and the rights of Noble in the Karish and Tanin leases, as set out in section C above, and are assessing alternatives for the sale of all of their rights in Tamar, including by way of a sale to a third party and/or a sale by way of a public offering and/or appropriate capital instruments

63 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 5: INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.) G. Possibility of restructuring by way of a merger of the Limited Partnerships On April 14, 2016, each of the board of directors of the general partners in the Limited Partnerships ("the Board of Directors") appointed a special board committee ("the Committee ). The Committee, which is made up of independent directors only was authorized, among other things, to examine any issue relating to the possible merger of the Limited Partnerships ("the Merger Transaction"); to take any required action, at its sole discretion, to carry out its duties, including engaging with outside and independent professional advisors, including for the purpose of providing legal and financial advice in connection with determining the Merger Transaction; to hold independent negotiations between the parties for the Merger Transaction, which will resemble, to the extent possible, negotiations between unaffiliated parties, all in accordance with the best interests of the Limited Partnerships and of the participation unit holders; to formulate a merger agreement and determine its terms (if and to the extent that it deems fit); and to formulate a recommendation for the audit committees and for the boards of directors of each of the Limited Partnerships regarding the Merger Transaction. It is noted that the Committee is authorized to decide not to perform the Merger Transaction or to stipulate conditions for its approval. Further to discussions held by the Committee with respect to the merger transaction, the Limited Partnerships received, on August 4, 2016 (subsequent to the balance sheet date), notice from the Committee, the main principles of which are as follows: 1) The merger of the Limited Partnerships is in the best interests of each of the partnerships. 2) It was decided to recommend to the audit committee and the board of directors of the general partner in each partnership that the Surviving Partnership will be Delek Drilling and Avner will merge with Delek Drilling so that all of its assets and liabilities will be transferred to Delek Drilling and Avner will be dissolved without liquidation and participation units of Delek Drilling will be issued to the holders of participation units of Avner. 3) It was decided that the conversion ratio that the Committee will recommend will be one participation unit of Delek Drilling per 5.32 participation units of Avner (1:5.32). According to the notice of the committee of each of the Limited Partnerships, in the upcoming period, the committees intend to act, together with their legal counsel, to draw up a final and agreed draft of a merger agreement, and to draw up final recommendations in respect of the merger procedure and presentation of the recommendations to the competent organs at the limited partnerships for approval. If and insofar as a draft merger agreement is drawn up, the final recommendations of the committees, which include the merger agreement, will be presented for the approval of the audit committees, the boards of directors of the general partners in the limited partnerships and the general meetings of the holders of the participation units, at each of the limited partnerships. It is noted that finalization of the merger is contingent on the receipt of additional approvals, including approvals from third parties, approvals and/or consents of government authorities, including the Commissioner of Petroleum Affairs, approval of the Cypriot authorities, a pre-ruling of the Tax Authority regarding the taxation arrangements for the merger, the Israel Securities Authority, Tel Aviv Stock Exchange Ltd. and approval of the Registrar of Partnerships for finalization of the merger. It is clarified that there is no certainty that all of the consents and approvals will be received, and there is no certainty that the merger will be finalized, whether according to the principles set out above or in any other format. At this stage, the Company is reviewing the possible effects of the restructuring process as described above, and the decisions that will be required by the Company and its subsidiaries in respect of this process. In addition, Delek Energy Systems Ltd. is reviewing the option of holding the general partner's entire management rights in the Partnerships created following the merger, if it is completed, by acquiring the management rights held by Cohen Development and Industrial Buildings Ltd

64 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 6: OFFICE BUILDING Further to Note 12(4) to the Annual Financial Statements, In November 2015, the Company entered into an agreement with a third party to acquire all the rights in an office and retail building in Herzliya (the building has four floors above ground, covering 11 thousand square meters, and three floors of underground parking. The consideration for the property is NIS 245 million. As of December 31, 2015, the Company paid NIS 116 million on account of the building. The transaction was completed on January 21, In the reporting period, the Company paid another NIS 144 million to a third party. The office building is intended partly for use by the Company and mainly for use as investment property. NOTE 7: DEBENTURES A. Subsequent to the balance sheet date, on July 28, 2016, the Company issued 410,533,000 par value Debentures (Series B32) ( the B32 Debentures ). The B32 Debentures are payable in one payment on July 10, 2019 and bear annual interest of 1.72%, payable twice a year on January 10 and July 10 of each of the years 2017 to 2019, inclusive. The B32 Debentures are unlinked. The B32 Debentures are convertible into ordinary shares of NIS 1 par value each of the Company, such that as from their listing on the TASE through to June 30, 2019, each NIS 1,280 par value B32 Debenture will be convertible into one ordinary share of NIS 1 par value of the Company, subject to adjustments for distribution of a dividend and so on. The consideration of the issuance amounted to NIS 408 million (after offsetting issuance expenses of NIS 2.5 million). According to IFRS 32, Financial Instruments: Presentation, the consideration for the convertible debentures will be split such that in the first stage, the value of the liability was defined, based on the value of similar liabilities without a conversion right and the proceeds attributed to the equity component will be set as a residual value. B. Subsequent to the balance sheet date, on July 28, 2016, the Company issued 704,626,000 par value Debentures (Series B33) ( the B33 Debentures ). The B33 Debentures are payable in one payment on January 10, 2019 and bear annual interest of 2.8%, payable twice a year on January 10 and July 10 of each of the years 2017 to 2021, inclusive, and on January 10, 2022, for the six months then ended. The B33 Debentures are unlinked. The B33 Debentures are convertible into ordinary shares of NIS 1 par value each of the Company, such that as from their listing on the TASE and up to June 10, 2019, each NIS 1,280 par value B33 Debenture will be convertible into one ordinary share of NIS 1 par value of the Company, subject to adjustments for distribution of a dividend and so on, while as from June 11, 2019 and up to December 31, 2021, each NIS 1,600 par value B33 Debenture will be convertible into one ordinary share of NIS 1 par value of the Company, subject to adjustments for distribution of a dividend and so on. The consideration of the issuance amounted to NIS 695 million (after offsetting issuance expenses of NIS 6.3 million). According to IFRS 32, Financial Instruments: Presentation, the consideration for the convertible debentures will be split such that in the first stage, the value of the liability was defined, based on the value of similar liabilities without a conversion right and the proceeds attributed to the equity component will be set as a residual value. The deed of trust for Debentures (Series B32 and B33) established financial covenants for the Company, as stipulated in B31 Debentures. See Note 26(C)(4) to the Annual Financial Statements. NOTE 8: CONTINGENT LIABILITIES There are contingent claims against the Company and certain investees for significant sums, including certification for class actions (mainly against Delek Israel and The Phoenix) that might reach billions of shekels. In some cases, it is not possible to assess their outcome at this stage, and therefore no provision was recorded in the financial statements (see Note 31A to the Annual Financial Statements). Breakdown of the main changes that occurred in the reporting period:

65 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 8: CONTINGENT LIABILITIES (CONTD.) A. Delek Israel 1. In March 2016, a motion for certification as a class action suit was filed against Delek Israel at the District Labor Court in Haifa. According to the applicant, he was not paid overtime and leave pay, and his pension and social welfare rights were violated, and he claims that these are class action allegations. The applicant further alleges that the plaintiff's basic salary was reduced. The total amount of the claim is NIS 98 million. The management of Delek Israel believes, partially based on the opinion of its legal counsel, that in view of the preliminary stage of the proceedings, the outcome of the motion cannot be assessed at this stage. 2. Subsequent to the balance sheet date, in August 2016, a motion for certification as a class action was filed at the Central District Court against Delek Israel and other fuel companies. According to the applicant, the customer is charged for a larger quantity of fuel than the actual quantity pumped to his vehicle, while taking advantage of the rechargeable recovery action of the vapor recovery systems. Delek Israel's share in the total claim amounts to NIS 10 million. B. The Phoenix The management of Delek Israel believes, partially based on the opinion of its legal counsel, that in view of the preliminary stage of the proceedings, the outcome of the motion cannot be assessed at this stage. 1. Further to Note 31A(2)(b) to the Annual Financial Statements regarding the claim that was filed against The Phoenix Insurance Ltd. ("The Phoenix Insurance") and other insurance companies about excessive collection of the sub-annual factor and the motion for certification as a class action. Subsequent to the balance sheet date, on July 19, 2016, the Tel Aviv District Court approved the motion as a class action. The Phoenix Insurance is reviewing the ruling and is considering whether to file a motion for leave to appeal at the Supreme Court. 2. Additional claims were filed in the reporting period against The Phoenix and/or its investees and others, including a motion for certification of these claims as class actions. The claims refer to charging employees for management fees regarding products marketed to their managers by the pension arrangement managers, the collection of travel insurance fees, the refusal to allow withdrawal of compensation funds due to the employer's refusal to release them, and the reduction of indemnification and/or compensation payment to a third party due to vehicle damage, and knowingly selling a faulty product (collective long-term care insurance) to policyholders. The plaintiffs estimated the amounts of the claims at hundreds of million NIS. At this stage, The Phoenix Insurance is studying the details of the claims, therefore it is not possible to estimate the likelihood of their certification as a class action suit, and if it approved as a class action suit, it is not possible to estimate the likelihood of their success. For further information see The Phoenix financial statements that have been published

66 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 8: CONTINGENT LIABILITIES (CONTD.) C. As provided in Note 31A(4), on May 20, 2014, a claim and motion for certification as a class action was filed against the Company, the chairman of the board of directors and the CEO of the Company, for alleged impairment of the value of the shares of the subsidiary Delek Energy Systems Ltd.. The relief requested in the class action is financial compensation estimated at NIS 100 million (which was subsequently amended). On October 20, 2014, the applicant petitioned the court to amend the motion so that the controlling shareholder in the Company will be added to the respondents. In December 2014, the court hearing was held and shortly thereafter, a ruling accepted the motion for the amendment. In January 2015, the applicant filed an amended motion for certification and an amended statement of claim, including amendments that were not in the original motion, including an increase of the amount of the claim to NIS 400 million. Subsequent to the balance sheet date, in April 2016, an evidentiary hearing was held in the case, which concluded in the court's recommendation that the parties conduct a dialog between them in an attempt to end the dispute and render a judicial decision unnecessary by May 31, The talks between the parties did not lead to a settlement and consequently the parties have filed a joint statement to the court to set deadlines for filing of summations and the court set dates for filing of summations. The parties are currently negotiating (on the advice of the court) to reach an agreement, however such agreement has not yet been reached. The management of the Company estimates, based partially on the opinion of its legal counsel, that in view of the stage of the proceeding, the outcome or risks of the motion cannot be assessed at this stage, therefore a provision for this motion was not included in the financial statements. D. Further to Note 31A(5) the Annual Financial Statements, as part of the motion for certification as a class action filed with the Tel Aviv District Court by a consumer of Israel Electric Corporation Ltd. ("IEC") against the Tamar partners regarding the price at which the Tamar partners sell natural gas to IEC ("the Motion for Certification"), on April 20, 2016, the Tamar partners filed a motion for summary dismissal together with a motion to order the Attorney General to consider the submission of his position on the proceedings. On May 15, 2016, the court ordered the Attorney General to consider submitting a position in the proceedings and to file it (if he wishes to do so) by June 1, 2016 and determined that the motion for dismissal will be decided on after receiving the position of the Attorney General (if submitted). The Attorney General filed his position whereby the motion for certification should be summarily dismissed. Subsequent to the balance sheet date, on July 7, 2016, a hearing on the motion for dismissal was held. The ruling on the motion for dismissal is expected to be handed down in the coming months (if the claim is not summarily dismissed). NOTE 9: CAPITAL A. Further to Note 33 to the Annual Financial Statements, in the reporting period Delek Financial Investments 2012, Limited Partnership ("the Subsidiary Partnership") acquired 99,126 shares of NIS 1 par value each of the Company for a total consideration of NIS 65.4 million. Subsequent to the acquisitions, the subsidiary partnership holds 637,045 Company shares of NIS 1 par value each. B. On March 30, 2016, the Company declared a dividend of NIS 100 million, which was distributed on April 21, The dividend per share is NIS NIS 5.1 million was distributed to the Subsidiary Partnership. C. On May 29, 2016, the Company declared a dividend of NIS 80 million, which was distributed on June 21, The dividend per share is NIS NIS 4.3 million was distributed to the Subsidiary Partnership. D. Subsequent to balance sheet date, on August 29, 2016, the Company announced a dividend in the amount of NIS 80 million. The dividend will be paid in September

67 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 10: TAXES ON INCOME Further to Note 41 to the Annual Financial Statements, on January 4, 2016, in the second and third reading, the Knesset plenum approved the bill to amend the Income Tax Ordinance (No. 217) (Reduction in Corporate Tax), 2015, which includes a reduction in the rate of corporate tax from 26.5% to 25%. The effect of the change in the tax rate resulted in a reduction of NIS 170 million in deferred tax liabilities in the Annual Financial Statements as of December 31, The effect was recognized in the Group's statement of income (the Group's share is NIS 70 million). The effect on other comprehensive income was immaterial. NOTE 11: OPERATING SEGMENTS A. General In accordance with IFRS 8, the Group s operating segments are determined on the basis of management reports, which are mainly based on the investments in each subsidiary. The operating segments are as follows: Oil and gas exploration and production: The main operation is in the Tamar joint venture, the Ratio Yam joint venture, the Yam Tethys joint venture, and other oil rights, mainly offshore the coast of Israel. Fuel in Israel: The main operation is marketing and sale of fuels and commodities at gas stations and other outlets, and storage and production of fuels in facilities. Automotive and spare parts: The main operation is importing and marketing of Mazda, Ford and BMW vehicles and spare parts, through the associate Delek Automotive. Other: The main operation is investment in infrastructure, including mainly desalination and establishment of power stations, trading in derivatives through Barak Capital and the biochemical operation that includes mainly production and marketing of fructose, citric acid and ingredients for nutritional additives. It is noted that following classification of the operating results of The Phoenix under income from discontinued operations, The Phoenix and its operations are no longer a reportable segment

68 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 11: OPERATING SEGMENTS (CONTD.) B. Segment reporting 1) Revenue Six months ended June 30 Three months ended June 30 Year ended December Unaudited NIS million Audited Revenue from external sources Oil and gas exploration and production ,677 Fuel in Israel 1,662 2, ,206 4,262 Other segments Inter-segment *) (12) (10) (8) (3) (24) Total in statement of income 2,726 3,222 1,437 1,677 6,356 *) Inter-segment sales are mainly for the sale of gas to other segments. 2) Segment results Six months ended June 30 Three months ended June 30 Year ended December Unaudited NIS million Audited Oil and gas exploration and production Fuel in Israel Other segments 14 (16) 6 8 (9) Adjustments (16) (23) 1 (7) (42) Operating income ,003 3) Contribution to net profit (loss) from continuing operations attributable to equity holders of the Company Six months ended June 30 Three months ended June 30 Year ended December Unaudited NIS million Audited Oil and gas exploration and production Fuel in Israel Automotive Other segments 10 (8) (5) 35 (24) Adjustments *) (90) (119) (33) (199) (548) Net earnings (loss) from continuing operations attributable to equity holders of the Company (24) (93) *) Mainly administrative and general expenses and financing attributable to headquarter companies

69 Delek Group Ltd. Financial Information from the Interim Consolidated Financial Statements Attributed to the Company As at June 30, 2016 Unaudited 1

70 Special Report in accordance with Regulation 38D Financial Figures and Financial Information from the Interim Consolidated Financial Statements Attributed to the Company Below are the separate figures and financial information attributed to the Company from the interim consolidated financial statements of the Group as at June 30, 2016, published as part of the periodic reporting ("Special Reports"), presented in accordance with Regulation 38D of the Securities Regulations (Periodic and Immediate Reports), 1970: 2

71 Delek Group Ltd. Breakdown of Financial Information from the consolidated statement of financial position attributable to the Company Current assets As at June 30 December Unaudited Audited NIS million Cash and cash equivalents Short-term investments Customers Financial derivatives Other receivables ,015 1,764 1,517 Asset held for sale 1,702 1,650 1,682 Total current assets 2,717 3,414 3,199 Non-current assets Investments in investees and partnerships 6,498 7,396 7,020 Loans and capital notes to investees 1,028 1,096 1,351 Long-term loans 1, Investments in oil and gas exploration and production Office building Property, plant and equipment, net Total non-current assets 9,008 8,648 9,389 11,725 12,062 12,588 The accompanying additional information is an integral part of the financial information and of the separate financial information. 3

72 Delek Group Ltd. Breakdown of Financial Information from the consolidated statement of financial position attributable to the Company Current liabilities As at June 30 December Unaudited Audited NIS million Current maturities of debentures Current bank borrowings and loan maturities Creditors and credit balances (particularly interest to be paid) Total current liabilities 1, ,386 Non-current liabilities Long-term loans from banks Loans from wholly owned subsidiary Debentures 6,163 6,164 6,171 Other liabilities (primarily liability for decommission of long term assets) Non-current liabilities 6,301 6,549 6,716 Equity attributable to equity holders of the parent Share capital Share premium 1,917 1,917 1,917 Retained earnings 2,431 2,862 2,437 Adjustments arising from translation of financial statements of foreign operations Reserve from transactions with holders of non-controlling rights Other reserves 133 (297) 60 Treasury shares (433) (294) (368) Total capital 4,313 4,686 4,486 11,725 12,062 12,588 The accompanying additional information is an integral part of the financial information and of the separate financial information. August 29, 2016 Date of approval of the financial statements Gabriel Last Asi Bartfeld Barak Mashraki Chairman of the Board CEO CFO 4

73 Delek Group Ltd. Breakdown of Financial Information from the consolidated statement of income attributable to the Company Six months ended June 30 Three months ended June 30 Year ended December Unaudited Audited NIS million Revenue from overriding royalties and gas sales (net of royalties) Earnings (loss) from disposal of an investee, net - (2) Company's share in earnings of partnerships and investees, net Management fees from investees Total revenue Production cost for gas sold General and administrative expenses Other expenses (income), net (2) 5 (9) 2 14 Operating income Net financing income with respect to loans to investees and others Financing income (expenses) (mainly for financial investments), net (6) (238) Finance expenses (mainly with respect to debentures) Pre-tax income (23) (90) Taxes on income Income (loss) from continuing operations (24) (93) Income from discontinued operations, net Net earnings attributable to equity holders of the Company The accompanying additional information is an integral part of the financial information and of the separate financial information. 5

74 Delek Group Ltd. Breakdown of Financial Information from the consolidated statement of comprehensive income attributable to the Company Six months ended June 30 Three months ended June 30 Year ended December Unaudited Audited NIS million Net earnings attributable to shareholders of the Company Other comprehensive income (loss) Amounts not reclassified to profit and loss Other comprehensive profit attributable to investees and partnerships (net of tax effect) Total Amounts classified or reclassified to profit and loss under specific conditions: Gain (loss) for available-for-sale financial assets, net 10 (143) 62 (91) (283) Transfer to statement of income for disposal of available-for-sale financial assets (21) (4) (18) - 1 Transfer to statement of income for impairment of available-for-sale financial assets Adjustments for translation of financial statements of foreign operations (4) (1) 5 (2) - Other comprehensive income (loss) attributable to investees and partnerships (after effect of (81) (228) 109 (298) (56) Total (55) (376) 159 (391) - Total other comprehensive income (loss) from continuing operations (55) (375) 159 (389) 1 Total other comprehensive income (loss) from discontinued operations (net of tax effect): 37 (9) 14 (73) (13) Total other comprehensive income (loss) (18) (384) 173 (462) (12) Total comprehensive income attributed to Company shareholders 147 (152) 253 (440) (5) The accompanying additional information is an integral part of the financial information and of the separate financial information. 6

75 Delek Group Ltd. Breakdown of Financial Information from the consolidated statement of cash flow attributable to the Company Cash flows from the Company's operating activities Six months ended June 30 Three months ended June 30 Year ended December Unaudited NIS million Audited Net Profit Attributed to the Company s Shareholders: Adjustments to reconcile statement of cash flows from the Company's continuing operating activities (a): (233) (306) (155) (177) (24) Net cash used for the Company's ongoing operations (68) (74) (75) (155) (17) Cash flows from the Company's investment activities Purchase of office building (144) - (2) - (118) Receipts for leasing of oil and gas assets Proceeds from disposal of financial assets Proceeds from disposal and repayments of investment in investees Investments in investees and partnerships (157) Short-term investments, net (5) (5) Investment in available-for-sale financial assets - (220) - (152) (293) Collection of loans to others, net Provision of loans and capital investments of investees, net (135) (230) (15) 5 (652) Net cash from (used for) the Company's investment operations 62 (244) 264 (61) (879) Cash flows from the Company's financing activities Dividend paid to shareholders of the Company (180) (300) (180) (300) (500) Receipt (repayment) of loans from investees, net - (9) Short term credit from banks and others, net (263) (525) (144) - (40) Issue of debentures ,496 Issue expenses for debenture swap - (4) - (4) - Repayment of long-term loans from banks and debentures (690) Net cash from (used for) the Company's financing operations (443) (48) (324) (304) 514 Decrease in cash and cash equivalents (449) (366) (135) (520) (382) Balance of cash flow and cash equivalents for beginning of period , Cash balance and cash equivalents at end of period The accompanying additional information is an integral part of the financial information and of the separate financial information. 7

76 Delek Group Ltd. Breakdown of Financial Information from the consolidated statement of cash flow attributable to the Company (A) Adjustments to reconcile statement of cash flows from the Company's continuing operating activities: Six months ended June 30 Three months ended June 30 Year ended December Unaudited NIS thousands Audited Adjustments for profit and loss items of the Company: Depreciation, depletion and amortization Loss from disposal of investment in an investee (2) 2 Increase in value of investments and loans provided, net (79) (31) (49) (16) (96) Company's share in the expenses of subsidiaries*) (174) (220) (97) (153) (258) Cost of share-based payment (1) 1-1 (2) Impairment of liabilities, net (6) (18) (4) Change in fair value of short-term investments, net (1) (49) (3) (2) (8) Loss (earnings) from disposal of investment in availablefor-sale financial assets (21) - (18) - 1 Impairment of available-for-sale financial assets 41 (4) Changes in the Company's asset and liability items: Decrease (increase) in other receivables (26) Increase (decrease) in other accounts payable (5) 6 (17) (53) 18 (233) (306) (155) (177) (24) *) Net of dividends received (B) Company's significant non-cash activities Dividend received against repayment of a loan provided to an investee Expenses to be paid for acquisition tax Dividend to be receivable from investees and partnerships Seller's loan received, incidental to sale of subsidiary 393 Loan received as dividend in kind from an investee Acquisition of treasury shares by a subsidiary (C) Additional information on cash flows Cash paid by the Company during the period for: Interest Cash received by the Company during the period for: Interest Dividends The accompanying additional information is an integral part of the financial information and of the separate financial information. 8

77 Additional Information Delek Group Ltd. NOTE 1 GENERAL A. This separate financial information was drafted in a condensed format pursuant to the provisions of article 38(D) of the Securities Regulations (Periodic and Immediate Reports), This separate financial information should be reviewed in relation to the separate financial information to the annual financial statements as at December 31, 2015 and for the year then ended and their accompanying notes, and in relation to the consolidated interim financial statements as at June 30, 2016 ("Consolidated Interim Financial Statements"). NOTE 2 OFFICE BUILDING In November 2015 the Company engaged in a purchase agreement with a third party to acquire all the rights in an office and commercial building in Herzlia. The building has 4 above ground floors covering 11,000 sq.m and 3 underground parking levels for total cost of NIS 245 million. As at December 31, 2015, the Company has paid NIS 118 million on account of the building. In the reporting period the Company paid a further NIS 144 million to the third party. The office building is intended partly for use by the Company and mainly for use as investment property. NOTE 3 CONTINGENT LIABILITIES There are certain contingent claims against the Company and certain investees for significant sums, including petitions to grant class actions that might reach billions of shekels. In some cases, it is not possible to assess their outcome at this stage, and therefore no provision was recorded in the financial statements as set forth in Note 8 to the Consolidated Interim Financial Statements. NOTE 4: CAPITAL With regard to the distribution of dividends by the Company and the acquisition of shares of the Company by Delek Financial Investments Limited Partnership, a wholly owned partnership of the Company, see Note 9 to the Consolidated Interim Financial Statements F:\W2000\w2000\923266\M\16\6-IFRS-SOLO.docx 9

78 Chapter D Report on the Effectiveness of Internal Controls for Financial Reporting and Disclosure