FINANCIAL STATEMENTS UNAUDITED

Transcription

1 FINANCIAL STATEMENTS UNAUDITED AS OF MARCH 31, 2017

2 IMPORTANT This document is an unofficial translation for convenience only of the Hebrew original of the March 31, 2017 financial report of Delek Group Ltd. that was submitted to the Tel-Aviv Stock Exchange and the Israeli Securities Authority on May 29, 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 MARCH 31, 2017 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 Part One Description of the General Development of the Company's Business: Referring to Section 1.4 to the Periodic Report - Distribution of Dividends On March 29, 2017, the Company s Board of Directors decided to distribute a total of NIS 200 million in dividends. This dividend was paid on May 4, For more information, see the Company's immediate report of March 30, 2017 (ref. no ). Part Three Description of the Company s Business by Operating Segment: 1. Energy A. Referring to Section (b) to the Periodic Report - Purchase of Ithaca's Entire Share Capital Concerning an offer to buy the entire share capital of Ithaca Energy Inc. ("Ithaca" or "the Offer"), respectively) made on April 21, 2017, the Company announced that 70.3% of all offerees had accepted the Offer, and the Offer had been accepted. According to the Offer documents, shareholders who had not accepted the Offer were granted an extension of the purchase offer until May 3, At the end of the extension period, and after acceptance by additional Ithaca shareholders, the Company holds 94.2% of Ithaca's ordinary shares. On May 12, 2017, the Company announced that it will make a forced purchase of Ithaca's remaining shares, so that after completion of said forced purchase the Company, through a subsidiary, will hold 100% of Ithaca's shares. For more information, see the Company s immediate reports dated: April 21, 2017 (ref. no ), May 4, 2017 (ref. no ) and its supplementary report (ref. no ), and May 12, 2017 (ref. no ), included herein by way of reference. B. Referring to Sections 1.7.4(d) and 1.7.5(d) to the Periodic Report - Actual and Planned Work Plan for the Tamar Project and the Leviathan Project With the completion of the Tamar-8 development and production well and its connection to the existing underwater production system in the Tamar Project, in April 2017 the well started supplying natural gas, and drilling began on the Leviathan-7 development and production well, as well as the Leviathan-5 assessment and production well. 1 The update contains material changes or developments in the Company s business in the first quarter of 2017 and up to immediately prior to the date of this report, in any matter which must be disclosed in the periodic report. The updated refers to the section numbers in Chapter A (Description of the Company s Business) of the periodic report for 2016 (ref. no ), and supplements the content disclosed therein. A-1

6 C. Referring to Section to the Periodic Report - License 353/Eran ("the Eran License") In accordance with the decision of the Supreme Court of Israel ("the Supreme Court') in the petition filed by the partners in the Eran Licence with the Supreme Court against the Minister of National Infrastructures, Energy and Water ("the Energy Minister") and the Ministry of National Infrastructures, Energy and Water's Oil Commissioner ("the Commissioner"), concerning the Commissioner's decision to extend the Eran License, the parties have pursued mediation. As of the report date, mediation proceedings are still underway, and the parties are awaiting the mediator's suggestion for continuing the proceedings. According to the Supreme Court's decision, the parties must update the Court on the results of said mediation no later than June 4, D. Referring to Section (d)(j) to the Periodic Report - Agreements for Domestic Sales of Natural Gas from the Tamar Partners In May 2017, the Leviathan Partners notified their customers in the domestic market that all the pre-conditions for the sellers (the Leviathan Partners) had been met, as specified in the relevant natural gas supply agreements. It is noted, that upon serving such notice to Paz Oil Refineries Ashdod Ltd. ("Paz"), all the pre-conditions stipulated in the gas supply agreement signed by the Leviathan Partners and Paz on November 24, 2016, had been met. E. Referring to Section to the Periodic Report - Agreement for Financing the Partnerships' Share in the Leviathan Project's Development Concerning compliance with all pre-conditions for the first withdrawal of funds, under the credit terms and the financing agreement between Delek Drilling Limited Partnership and Avner Oil Explorations Limited Partnership (jointly: "the Partnerships") and a consortium of local and foreign creditors headed by HSBC Bank Plc and J.P. Morgan Limited, whereby the Partnerships would be provided USD 1.75 billion in limited-recourse loans to finance their share in the Leviathan Project's development costs ("the Financing Agreement"), and concerning an amendment to the Financing Agreement, see the Company's immediate report of May 11, 2017 (ref. no ), included herein by way of reference. F. Referring to Section (a)(4)(h) to the Periodic Report - The Gas Outline Plan - Milestones for Developing the Leviathan Reserfoir On April 5, 2017, the operator of the Leviathan Reservoir, Noble Energy Mediterranean Ltd., notified the Commissioner that the Leviathan Partners had signed binding agreements for buying equipment and services for the Leviathan Reservoir's development, to a total amount of USD 1.52 billion, thus meeting their obligations under the government's decision. G. Referring to Section to the Periodic Report - The Partnerships' Merger Concerning completion of a merger between the Partnerships, see the Company's immediate report of May 17, 2017 (ref. no ), included herein by way of reference. H. Referring to Section a to the Periodic Report - Goals and Business Strategy in the Tamar Project Concerning a planned outline for selling up to 10% of the rights in the Tamar and Dalit natural gas reservoirs located in the I/12 Tamar and I/13 Dalit leases, respectively, by the Partnerships A-2

7 (in equal parts), see the Company's immediate report of April 25, 2017 (ref. no ), included herein by way of reference. I. Natural Gas and condensate production data from the Tamar Project for the first quarter of 2017: 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) Proceeds 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 14, The State Third parties Principle shareholders Insurance and finance Referring to Section 1.9 to the Periodic Report: Concerning an agreement for selling the Company's holdings in The Phoenix Holdings Ltd. ("the Phoenix") to Yango Investment PTE Ltd. ("Yango"), on April 5, 2017, the Company signed an amendment to the agreement with Yango, among other things concerning the consideration and extension of the transaction completion deadline. For more information, see the Company s immediate report of April 6, 2017 (ref. no ), included herein by way of reference. On April 30, 2017, the Company received notice from Yango that the latter had signed a share purchase and cooperation agreement with Mr. Yonel Cohen, through a company under his control ("Yonel"), whereby Yonel would buy 4% of The Phoenix's share capital so that 2.2% of The Phoenix's share capital would be bought directly by Yango upon the sales agreement's completion, and 1.8% would be bought by Yonel on the open market. For more information, see the Company s immediate report of May 3, 2017 (ref. no ), included herein by way of reference. 3. Additional operations Referring to Section to the Periodic Report Power Plants A. Ashkelon Power Plant The malfunctions in the plant s power-generation units continued, and the plant did not produce electricity at full capacity from the beginning of Near the financial statements publication date, the plant resumed power generation at full capacity. 2 Percentage of output, royalties, production costs and net proceeds attributable to holders of the Company's equity rights rounded to two decimal digits. 3 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-3

8 B. Soreq Power Plant As of the financial statements publication date, the plant has yet to start commercial power generation. The construction contractor is not meeting the schedule and arbitration proceedings are continuing. Part Four Matters Relating to the Company as a Whole A. Referring to Section to the Periodic Report - Officers and Senior Management in the Group On April 2, 2017, the Company's general meeting approved an updated compensation policy for Company officers, and extended and amended the employment agreement for the Company's CEO, Mr. Asaf Bartfeld. For more information, see the Company s immediate reports of April 2, 2017 (ref. no ) and March 19, 2017 (ref. no ), included herein by way of reference. B. Referring to Section 1.21 to the Periodic Report - Legal Actions Following on Note 23A.3 to the Company's financial statement for 2016, concerning an appeal of the Tel Aviv-Jaffa District Court's decision concerning the performance of a transaction by the Company to acquire control in Cohen Development and Industrial Buildings Ltd., on May 16, 2017, the Supreme Court handed down its ruling on the appeal, approving the filing of a class action against the Cohen and Tadmor families (the former controlling shareholders in Cohen Development and Industrial Buildings Ltd.), on the ground of unjust enrichment, and against the Company on the grounds of violating a statutory duty. For more information, see the Company s immediate report of May 17, 2017 (ref. no ), included herein by way of reference. Delek Group Ltd. Date: May 28, 2017 Names and titles of signatories: Gabriel Last, Chairman of the Board Asaf Bartfeld, CEO A-4

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

10 Board of Directors Report Delek Group Ltd. May 28, 2017 Delek Group Ltd. Board of Directors' report on the state of the Company's affairs For the three months ended March 31, 2017 The Board of Directors of the Delek Group Ltd. ("the Company"), hereby presents the Company's Directors' Report for the three months ended March 31, 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. In 2015, the Company, through a wholly-owned foreign subsidiary, invested in the international energy company Ithaca Energy Inc. ("Ithaca") with proven operator experience, and is continuing to study options for acquiring additional companies and/or gas and oil assets abroad which are synergistic and complementary to the Group's current core operations. In this context it is noted that, subsequent to the financial position statement date, the Company bought another 74% of Ithaca's share capital. Following this purchase, the Group holds 94% of Ithaca's share capital. It is further noted that the Group announced that it has decided to buy Ithaca's remaining public float. For more information, see Note 3B to the financial statements. The Company's financial data and its operating results are affected, among other things, 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 Contribution to operating results Oil and gas exploration and production in the reporting period yielded a profit of NIS 119 million, as compared to a profit of NIS 101 million in the corresponding period last year. 1 This year-onyear increase in profit for the reporting period was mainly due to greater volumes of natural gas and condensate sold in the Tamar Project. 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

11 Board of Directors Report Delek Group Ltd. The Partnerships' merger On May 17, 2017, Delek Drilling Limited Partnership ( Delek Drilling ) and Avner Oil Exploration Limited Partnership ( Avner ) (jointly the Partnership ) announced the fulfilment of all the preconditions specified in the merger agreement (as amended) for Avner s merger with and into Delek Drilling. For more information concerning the merger s completion, see Note 5 to the financial statements. Gas Outline Plan On May 22, 2016, the government re-affirmed its decision of August 16, 2015 concerning the Gas Outline Plan, 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 Partnerships, together with the partners in the various projects, are working to implement the Gas Outline Plan (as amended), according to its respective terms and the terms of the leases. According to the terms of the said Outline Plan, in 2016 the Partnerships disposed of their holdings in the Karish and Tanin leases, adopted an investment decision to develop Leviathan, and are also studying various options for selling all of their rights in the Tamar Project. For more information concerning the outline for selling part of the Partnerships interest in the rights to the Tamar and Dalit reservoirs, see Note 5B(2) to the financial statements. Leviathan Project On February 20, 2017, the Partnerships signed financing agreements with a consortium of local and foreign banks, headed by HSBC Bank Plc and J.P. Morgan Limited. Under these agreements, the Partnerships would receive a limited-recourse loan of USD 1.75 billion, to finance the Partnerships' share in the remaining investment needed to develop the Leviathan Project. For more information, see Note 5E to the financial statements. On February 23, 2017, the Leviathan Partners adopted a final investment decision (FID) to develop Phase 1A of the Leviathan reservoir development plan, with an annual capacity of 12 BCM, at a total budget (100%) of USD 3.75 billion, so as to allow the supply of natural gas from the Leviathan reservoir to start by the end of For more information, see Note 5A to the financial statements. Additional investments In the reporting period, the Company held a 17% stake in the equity of Ratio Petroleum Energy Limited Partnership ("Ratio Petroleum"), which began trading on the Tel Aviv Stock Exchange in January The total consideration paid for buying participation units totaled NIS 21 million. In addition to issuing participation units, Ratio Petroleum allocated, without consideration, to investors including the Company warrants exercisable into participation units in Ratio Petroleum. For more information, see Note 4 to the financial statements. Investment in Ithaca On March 14, 2017, DKL Investments Limited (a wholly-owned foreign subsidiary of the Company, "DKL") submitted documents offering to buy all of Ithaca's share capital not held by the bidder (80%), at a price of CAD 1.95 per share ("the Offer"), following an agreement signed with Ithaca in February 2017 for issuing the Offer as aforesaid. The Offer was open for subscription until April 20, After securing majority acceptance, the Offer was automatically extended for another period until May 3, The Offer was accepted by the holders of 318,833,909 ordinary shares, and DKL bought these shares for a total consideration of CAD 622 million (NIS 1,685 million). Following this purchase, DKL holds 400,699,334 ordinary shares in Ithaca, accounting for 94.2% of its ordinary share capital. On May 12, 2017, DKL announced that, under the terms of the Offer, it plans to perform a forced purchase of Ithaca's remaining ordinary shares not held by DKL, so that after such purchase DKL will hold all of Ithaca's share capital. The forced purchase will be made at the share price specified in the Offer and for a total consideration of CAD 48 million (NIS 130 million). The forced purchase is expected to be completed by the end of June 2017, at which time Ithaca's shares will be delisted from the AIM exchange in London and the Toronto stock exchange. After assuming control of Ithaca, the Group will start consolidating Ithaca s financial statements starting from the date that control was assumed. Furthermore, the Group will recognize gains of NIS 150 million as its investment in Ithaca prior to the Offer was measured at fair value. For more information, see Note 3B to the financial statements. B-2

12 Board of Directors Report Delek Group Ltd. Other Operations On August 21, 2016, the Company signed a binding agreement for selling all of its holdings (52.3%) in The Phoenix Holdings Ltd. ("The Phoenix"). The buyer under the said agreement is Yango Investment PTE Ltd., a private firm incorporated in Singapore and a subsidiary of Yango Group Co. Ltd. Fujian, which is a holdings group incorporated in China and engaging in a diverse range of activities including finance, education, healthcare, real estate, and international trade. The consideration under the agreement was set at NIS 1.95 billion, bearing 4.75% annual interest from January 1, 2017 and until the closing date. The agreement includes various preconditions, including regulatory approvals such as: control permit from the Ministry of Finance Commissioner of the Capital Market, Insurance and Savings; approval from the Israel Securities Authority; approval from the Tel Aviv Stock Exchange Ltd.; and the lack of any event having a material adverse effect (MAE) on The Phoenix's business as of the transaction completion date. On February 16, 2017, the parties signed an amendment to the agreement extending the period until March 31, Subsequent to the financial position statement date, on April 5, 2017, the parties signed an amendment to the agreement specifying, among other things, that the consideration for all of the Company's holdings in The Phoenix's shares will total NIS 2,152 million. A sum of NIS 1,987 million out of the total consideration will be payable in cash on the closing date, with the remainder being paid in three installments, the first of which will be made no later than 30 days from the closing date, and the last no later than April 30, The last date for meeting the pre-conditions was set for June 4, 2017, after which date either party may notify the other of cancellation. In light of the above, The Phoenix s contribution to net profit attributable to Company shareholders totaled NIS 165 million in the reporting period. For more information, see Note 3A to the financial statements. In February 2017, the Company issued debentures through an expansion of Series B31. Overall consideration (after issuance costs) received for the debentures totaled NIS 1 billion. For more information on these debentures, see Note 6 to the financial statements. Dividend distributions On March 29, 2017, the Company s Board of Directors resolved to distribute a dividend of NIS 200 million. The dividend was distributed in May Subsequent to the financial position statement date, on May 28, 2017, the Company s Board of Directors resolved to distribute a dividend of NIS 200 million, which will be paid in June Results of Operations A) Contribution to net profit attributable to Company shareholders from principal operations (NIS millions): 1-3/ / Oil and gas exploration and production operations Fuel operations in Israel Automotive operations Contribution of continuing operations before discontinued operations and capital and other gains Gains on the sale of gas and oil assets Finance, tax and other expenses 55 (65) (142) Net profit attributable to equity holders of the parent For information concerning each operating segment's contribution to profits, see this report below. B-3

13 Board of Directors Report Delek Group Ltd. B) Revenues from operating activities (NIS millions) The Group s revenues in the reporting period totaled NIS 1.5 billion, as compared to NIS 1.3 billion in the same period last year, as detailed in the table below (NIS millions): 1-3/ / Oil and gas exploration and production operations ,821 Fuel operations in Israel ,588 Other segments including adjustments Total revenues 1,542 1,289 5,778 See also Note 10 to the financial statements - Information Regarding Operating Segments. C) Operating profit (NIS millions): 1-3/ / Oil and gas exploration and production operations ,581 Fuel operations in Israel Other segments, incl. adjustments (17) (9) (163) Total operating profit ,486 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: 1-3/ / Delek Automotive Ithaca 8 9 (3) IDE Other 3 (2) 1 Total B-4

14 Board of Directors Report Delek Group Ltd. E) Highlights from the Company's consolidated income statements (NIS millions): 1-3/ / Revenues 1,542 1,289 5,778 Cost of revenues 1, ,744 Gross profit ,034 Sales, marketing and gas station operating expenses General and administrative expenses Other income (expenses), net 2 (9) 201 Operating profit ,486 Finance income Finance expenses )828( Profit after financing ,049 Gains from disposal of investments in investees, net The Group's share in the profits of associate companies and partnerships, net Profit before income tax ,099 Income tax (tax benefit) 49 (122) )118( Profit from continuing operations ,217 Profit (loss) from discontinued operations, net 288 (14) 343 Net profit ,560 Attributable to - Company shareholders Non-controlling interest ,560 B-5

15 Board of Directors Report Delek Group Ltd. F) Movement in comprehensive income (loss) (in NIS millions): 1-3/ / Net profit ,560 Other comprehensive income (loss) from operating activities (post-tax) Gain (loss) on available-for-sale financial assets, net )44( (43) 99 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 - (3) (58) Gain (loss) from cash flow hedges )23( (3) 26 Adjustments from translation of overseas operations (*) )541( (347) (107) Group's share of other comprehensive loss of associates, net )20( (12) (9) Total other comprehensive loss from continuing operations Total other comprehensive income from discontinued operations, net )627( (368) (8) Total comprehensive income (loss) )154( (87) 1,622 Attributable to: Company shareholders )150( (106) 669 Non-controlling interests )4( )154( (87) 1,622 (*) The Group has material investments in investee companies and partnerships whose functional currency is not the New Israeli Shekel (mainly USD). Thus, changes in currency exchange rates may have a material effect on the Group s other comprehensive income or loss and the equity attributable to Company shareholders. In the reporting period, the USD lost 5.5% against the NIS (as compared to a 3.5% drop in the same period last year, and a 1.5% drop in all of 2016). B-6

16 Board of Directors Report Delek Group Ltd. 4. Financial Position The Group's total assets as of March 31, 2017, amounted to NIS billion, compared with NIS billion as of December 31, It is noted that, in light of Company's intention to sell the Company's holdings in The Phoenix's shares, The Phoenix's assets and liabilities are presented in the financial position statement as of March 31, 2017, and 2016, and as of December 31, 2016, under separate items - held-for-sale assets and corresponding liabilities. Below is a description of the principal changes in assets and liabilities as of March 31, 2017, compared with December 31, 2016: Cash and cash equivalents and short-term investments As of March 31, 2017, the Group had cash and short-term investment balances of NIS 4.2 billion, consisting mainly of balances of NIS 2.5 billion in the headquarters companies, and NIS 1.7 billion in Delek Energy and the Limited Partnerships. It is noted that, subsequent to the financial position statement date, following the investment in Ithaca s shares, there was a NIS 1.7 billion decrease in these balances. 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 March 31, 2017, as compared to December 31, 2016 (excluding The Phoenix's assets, which were presented separately as aforesaid). The main reason for the reduction in net investment in oil and gas exploration and production was, among other things, the lower USD exchange rate as detailed below. Short- and long-term financial liabilities (excluding liabilities for The Phoenix assets) Financial liabilities (to banks and others and debenture-holders), as of March 31, 2017, amounted to NIS 18.3 billion, as compared to NIS 17.8 billion as of December 31, For information on debenture raising activities in the reporting period, see Note 6 to the financial statements. Contingent claims In their review, the Company's auditors draw attention to legal actions brought against Group companies. For details, see Note 7 to the financial statements. Additional information For additional information regarding repayments of principal and interest on the debts of headquarter companies, see Appendix A to the Board of Directors' Report. B-7

17 Board of Directors Report Delek Group Ltd. 5. Sources of Finance and Liquidity The net financial debt of the Company and the headquarters companies as of March 31, 2017:( 2 ) NIS millions Liabilities Debentures 8,257 Bank and other loans 282 Other liabilities 294 Total liabilities 8,833 Assets Cash and deposits 2,021 Financial investments 739 Loans (*) 1,102 Treasury shares (**) 554 Total assets 4,416 Net financial debt - headquarters companies 4,417 (*) Composition of loans extended as of March 31, 2017: Borrower Loan balance as of Mar. 31, 2017 (NIS millions) Seller loans - Barak Capital 28 Power Plants 452 Seller loan - Republic 285 Other 337 Total 1,102 (**) As of March 31, 2017, shareholdings totaled 637,045 shares. As of the financial statements approval date, the Company and the headquarters companies have liquid balances of NIS 0.5 billion (furthermore and in addition to these liquid balances, the Company has guaranteed, unutilized credit facilities of NIS 1.05 billion). (1) Headquarters companies: Delek Group, Delek Petroleum, Delek Financial Investments Limited Partnership, Delek Power Plants Limited Partnership, DKL Investments Ltd., and Delek Hungary. B-8

18 Board of Directors Report Delek Group Ltd. 6. Analysis of Operations by Segment A) Oil and gas exploration and production operations Operations are carried out mainly through the Partnerships (see also Note 5 to the financial statements, concerning completion of the Partnerships merger), which mainly engage in the production and sale of natural gas and condensate from the Tamar Project, 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, which operates mainly in the North Sea. Below are the results of the Limited Partnerships' oil and gas exploration and production operations as included in the Group's results (NIS millions): 1-3/ / Revenues from gas sales net of royalties ,821 Operating profit ,175 EBITDA ,602 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 operating segment s results: Net profit attributable to Company shareholders Oil and gas exploration and production in the reporting period yielded a profit of NIS 119 million, as compared to a profit of NIS 101 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 473 million, as compared to NIS 429 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. Operating profit Operating profit in the reporting period amounted to NIS 325 million, compared to NIS 272 million in the same period last year. Operating profit was up mainly due to an increase in revenues from the Tamar Project, as aforesaid. Finance expenses, net Net finance expenses in the reporting period amounted to NIS 48 million, compared to NIS 60 million in the same period last year. This decrease was mainly due to differences in currency exchange rates following depreciation of the USD in the present period, as compared to the B-9

19 Board of Directors Report Delek Group Ltd. same period last year, as well as recognition of income on the revaluation of a contingent consideration on Karish and Tanin. Adjustment of the Limited Partnerships' results to the Group's share in oil and gas exploration and production operations (NIS millions), for the first quarter of 2017: 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%) (28) 10 (1) Write-down of surplus acquisition costs (*) (17) General and administrative expenses - Finance expenses Other income Contribution to net profit from oil and gas exploration and production (12) (*) Current write-down of the revaluation attributed to the Tamar Project for the Avner Partnership's holdings in the project (previously recognized as part of the Cohen Development deal). Ithaca Energy Ithaca is an independent oil and gas operator operating in the North Sea, holding both production and development assets. Ithaca's shares are traded on the Toronto Stock Exchange (TSX) and on the AIM exchange in London. As of the reporting date, the Company holds 19.7% of Ithaca s shares. Subsequent to the financial position statement date, in April and May 2017, the Company bought additional shares in Ithaca. After these purchases, the Group holds 94% of Ithaca's share capital, and after completion of the forced purchase, the Company will hold 100% of Ithaca s share capital (for more information, see Note 3B to the financial statements). Data from Ithaca's public financial statements (USD millions): 1-3/ / Revenues from oil and gas sales Cost of sales (30) (44) (146) Gross loss 7 (11) (2) Finance income from hedges 6 5 (40) Impairment of oil and assets and goodwill - - (5) Other expenses - (2) (1) Finance expenses (9) (9) (36) Profit (loss) before income tax 4 (17) (84) Tax benefit Net profit (loss) attributable to Company shareholders (54) Average output (Mboepd) B-10

20 Board of Directors Report Delek Group Ltd. The Group accounts for its investment in Ithaca as per the equity method. In the reporting period, the Company's share in Ithaca's results after adjustments, and considering that attribution of excess acquisition costs has been completed, amounted to a profit of NIS 8 million. In the same period last year, the Group included profits of NIS 9 million. Additional information For more information on oil and gas exploration operations, see Notes 3, 5 and 7 to the financial statements. B) Fuel operations in Israel Data from the financial statements of Delek Israel, a wholly-owned (100%) Group subsidiary (NIS millions): Statement of Financial Position March 31, 2017 March 31, Cash and cash equivalents Current assets (excluding cash and cash equivalents) 1,398 1,248 1,416 Property, plant and equipment 1,344 1,394 1,337 Other long-term assets Total assets 3,318 3,227 3,347 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 Total liabilities and equity 3,318 3,227 3,347 Statement of Income 1-3/ / Revenues ,588 Gross profit Operating profit before income (expenses) Other expenses Operating profit EBITDA (adjusted for other income (expenses)) Finance expenses, net Net profit attributable to Company shareholders B-11

21 Board of Directors Report Delek Group Ltd. Analysis of the results of fuel operations in Israel Revenues Revenues net of government fees ( Net Revenues ) totaled NIS 990 million, as compared to NIS 757 million in the same period last year, an increase of 31%. This increase was due to a global increase in distillate prices and greater sales volumes. Sales turnover in self- and franchise-operated Menta convenience stores in the reporting period totaled NIS 97 million, as compared to NIS 93 million in the same period last year, an increase of 4%. In the reporting period, sales in Company-operated convenience stores totaled NIS 88 million, as compared to NIS 86 million in the same period last year, an increase of 2%. Gross profit Gross profit in the reporting period amounted to NIS 188 million, compared with NIS 173 million in the same period last year, an increase of 9%. After adjusting for inventory gains/losses, gross profit in the reporting period totaled NIS 182 million, as compared to NIS 184 million in the same period last year. This decrease in gross profit, after adjusting for inventory gains/losses, was mainly due to lower profit in direct marketing operations. EBITDA Delek Israel s EBITDA in the first quarter of 2017 totaled NIS 55 million, compared with NIS 39 million in the same period last year. The year-on-year change was mainly due to changes in inventory gains/losses and a decrease in other expenses. After adjusting for other income/expenses and inventory gains/losses, Delek Israel s EBITDA for the first quarter of 2017 totaled NIS 49 million, as compared to NIS 51 million in the same period last year. Other income (expenses), net In the reporting period, Delek Israel recognized NIS 0.3 million in other expenses, as compared to NIS 1 million in other expenses recognized in the same period last year. Finance expenses, net Net finance expenses in the reporting period amounted to NIS 3 million, as compared to NIS 11 million in the same period last year, a decrease of 73%. This decrease in net finance expenses was mainly due to lower finance expenses on fuel trades. For more information concerning Delek Israel's operations, see Note 7 to the financial statements. B-12

22 Board of Directors Report Delek Group Ltd. C) Insurance and finance operations in Israel As of March 31, 2017, the Group held 52.3% of the shares of The Phoenix Holdings Ltd. For information concerning the sale of control in The Phoenix, see Note 3A to the financial statements. Highlights from The Phoenix's consolidated income statements (NIS millions): 1-3/ / Gross premiums earned 2,443 2,088 8,856 Premiums earned in retention 2,252 1,902 8,105 Net gains on investments, and finance income ,171 Income from management fees Payments and changes in liabilities for insurance contracts and investment contracts in retention 2,484 1,765 9,230 Commission, marketing, and other purchasing expenses ,527 General and administrative expenses ,135 Other expenses Finance expenses Share in the profits of investees accounted for as per the equity method Profit (loss) for the period 258 (24) 621 Profit (loss) for the period attributable to The Phoenix's shareholders 254 (29) 608 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. Revenues from management fees were up NIS 50 million in the reporting period, as compared to the same period last year. The bulk of this increase was due to growth in variable management fees in the present period. These fees totaled NIS 72 million in the reporting period, as compared to NIS 28 million in the same period last year. This increase was due to higher real yields achieved by The Phoenix as compared to the same period last year. Year-on-year results in the present period were affected by changes in market interest rates. In the reporting period, higher interest rates increased profit by NIS 66 million, pre-tax (NIS 43 million, post-tax), as compared to the same quarter last year, where insurance obligations grew by NIS 196 million, pre-tax, and NIS 126 million, post-tax. Furthermore, results for the last-year period were materially affected by an increase in insurance obligations in the compulsory and liabilities segments of general insurance operations, to a total amount of NIS 119 million pre-tax, and NIS 76 million post-tax, following the publication of the Winograd Commission s recommendations. Results for the last-year period were also affected by the reduction in the corporate tax rate starting January 1, 2016, which lowered tax reserves by NIS 23 million. B-13

23 Board of Directors Report Delek Group Ltd. Key data according to The Phoenix s operating segments (NIS millions): 1-3/ / Profit (loss) from life insurance and long term savings operations 122 (72) 189 Profit (loss) from health insurance operations 49 (39) 110 Profit (loss) from general insurance operations 68 (79) 197 Profit (loss) from financial services operations Total comprehensive income (loss) from operating segments 269 (168) 592 Profit not attributed to reporting segments Company s share in the net results of investees not included in the reported segments Profit (loss) before income tax 369 (94) 802 Income tax (tax benefit) 111 (70) 181 Profit (loss) for the period 258 (24) 621 Net profit (loss) for the period attributable to The Phoenix's shareholders 254 (29) 608 For more information on The Phoenix s operations, see Notes 3 and 7 to the financial statements. 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 is an analysis of the results of automotive operations. The results of Delek Automotive's operations (NIS millions): 1-3/ / Revenues 1,074 1,236 3,427 Gross profit Sales, marketing, and general and administrative expenses Operating profit EBITDA Finance income (expenses), net (*) (3) (21) (12) Net profit B-14

24 Board of Directors Report Delek Group Ltd. Breakdown of Delek Automotive's sales by number of cars sold: 1-3/17 1-3/ MAZDA vehicles 4,478 6,042 14,321 FORD vehicles 1,096 1,495 4,371 BMW vehicles 1,157 1,236 3,684 Total vehicles sold 6,731 8,773 22,376 Delek Automotive's share of all new vehicles sold in Israel (based on Licensing Bureau data) 7% 10% 8% For more information on Delek Automotive, see Note 3C(1) to the financial statements. 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 two power plants in Israel (in Ashkelon and Soreq) through its subsidiaries. The Group also holds 50% of IDE Technologies Ltd. ("IDE"). In the reporting period, the infrastructures segment yielded a loss of NIS 5 million, as compared to profits of NIS 6 million in the same period last year. For more information on additional operations, see Note 3C(2) to the financial statements. B-15

25 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 Mar. 31, Mar. 31, Dec. 31, % Change % % Mar. 31, 2017 (Q1/2017) (5.5) (0.2) Mar. 31, 2016 (Q1/2016) (3.5) (1.1) 2016 (1.5) (0.3) B-16

26 Board of Directors Report Delek Group Ltd. 3. Linkage bases report for the first quarter of 2017: As of March 31, 2017 Israeli Currency Foreign Currency Unlinked CPI-linked USD Other currency Fair value Monetary items in overseas operations USD Held for sale assets Nonmonetary item Total NIS Millions Assets Current assets 2, , ,271 Insurance business assets , ,921 Non-current assets ,265-20,149 22,947 Total assets 2, , , ,921 20, ,139 Liabilities Current liabilities 2, ,250 Insurance business liabilities ,771-98,771 Non-current liabilities 5,448 3, ,193-2,439 18,487 Total liabilities 7,931 4, ,596 98,771 2, ,508 Assets less liabilities, net (4,954) (3,900) (4,720) 4,150 17,955 10,631 B-17

27 Board of Directors Report Delek Group Ltd. C) Disclosure relating to the Company's financial reporting 1. Critical accounting estimates No changes have occurred in the reporting period as compared to the 2016 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 - 18

28 Board of Directors Report Delek Group Ltd. Series Issue date Original par value NIS millions Par value balance as of Mar. 31, 2017 NIS millions Nominal interest rate Linkage Carrying amount - Mar. 31, 2017 NIS millions Interest accrued in the books as of Mar. 31, 2017 NIS millions Repayment years B11 7/ % Israeli CPI B12 11/2006 1, % Israeli CPI B13 3/ B14 B15 B18 7/2009 6/2010 7/2009 7/ / / /2009 6/2010 7/2015 Until listing %, after listing - 4.6% Israeli CPI Stock exchange value as of Mar. 31, 2017 Trustee Nonmarketable Nonmarketable % Un-linked , % Un-linked , % Israeli CPI ,159 B19 11/ % Israeli CPI B22 6/ % Israeli CPI B31 2/2015 6/ /2015 2/2017 3,276 3, % Un-linked 3, ,367 B32 7/ % B33 7/ % Convertible and non-linked Convertible and non-linked 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 Mishmeret - Trusts Services Company Ltd., 48 Menahem Begin St., Tel Aviv, Tel: /4, Atty. Rami Katzav, CPA. Hermetic Trust (1975) Ltd. 113 Hayarkon St. Tel Aviv Tel: Dan Avnon Hermetic Trust (1975) Ltd. 113 Hayarkon St. Tel Aviv Tel: Dan Avnon Hermetic Trust (1975) Ltd. 113 Hayarkon St. Tel Aviv Tel: Dan Avnon B-19

29 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 hereby attached by way of reference to the Company's immediate reports of February 21, 2017, ref. no , and , respectively, included herein by way of reference. Financial covenants The deed of trust for Debentures (Series B31) issued in 2015, and the deeds of trust for Series B32 and B33 issued in July 2016, 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 March 31, 2017, and the financial statements' approval date, the Company is in compliance with these financial covenants. B-20

30 Board of Directors Report Delek Group Ltd. E) Additional information 1. Buyback of securities As of March 31, 2017 and the financial statements' publication date, the Company s wholly-owned subsidiary partnership, Delek Financial Investments Limited Partnership, holds 637,045 shares in the Company. 2. 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: May 28, 2017 B-21

31 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 March 31, 2017 (NIS millions): Delek Group - Headquarters Q2-Q4/ onwards Total Debentures Principal , ,990 8,380 Interest ,565 Principal Bank loans Interest Total 998 1,314 1,418 1,124 1,097 4,309 10,260 The Delek Group also has guaranteed, unutilized bank credit facilities of NIS 1.05 billion (as of March 31, 2017). As of the financial statements' approval date, these credit facilities were unutilized. B-22

32 Financial Statements Chapter C

33 Delek Group Ltd. Consolidated Interim Financial Statements as of March 31, 2017 Unaudited Contents Page Consolidated Balance Sheets 2-3 Consolidated Statements of Income 4 Consolidated Statements of Comprehensive Income 6 Consolidated Statements of Changes in Equity 6-8 Consolidated Statements of Cash Flows 9-12 Notes to the Consolidated Interim Financial Statements

34 Delek Group Ltd. Consolidated Balance Sheets Current assets March 31 December Unaudited Audited NIS million Cash and cash equivalents 2, ,730 Short-term investments 1,322 2,110 1,113 Trade receivables 1,333 1,250 1,419 Other receivables Current tax assets Inventories ,271 4,645 6,060 Assets held for sale 102,921 97, ,739 Non-current assets 109, , ,799 Long-term loans, deposits and receivables 2,215 1,963 2,254 Other financial assets Investments in associates 1,582 1,644 1,603 Investment property Investments in oil and gas exploration and production, net 15,239 16,121 15,877 Fixed assets, net 2,523 2,418 2,487 Goodwill Other intangible assets, net Deferred taxes ,947 23,376 23, , , ,442 The accompanying notes are an integral part of the consolidated interim financial statements. 2

35 Delek Group Ltd. Consolidated Balance Sheets Current liabilities March 31 December Unaudited Audited NIS million Interest bearing loans and borrowings 2,253 4,096 1,966 Trade payables Other payables 1, ,044 Current tax liabilities Financial derivatives Dividend payable ,250 5,836 3,771 Liabilities attributable to assets classified as held for sale 98,771 93,688 97, ,021 99, ,657 Non-current liabilities Loans from banks and others 1,058 1,014 1,567 Debentures 13,857 12,429 13,271 Debentures convertible into Company shares 1,082-1,080 Liabilities for employee benefits Provisions and other liabilities Deferred taxes 2,124 2,223 2,215 Capital 18,487 16,022 18,508 Share capital Share premium 1,917 1,917 1,917 Proceeds for conversion options Retained earnings 2,675 2,445 2,644 Exchange differences on translation of foreign operations (240) (34) 76 Capital reserve from transactions with holders of non-controlling interests Other reserves Treasury shares (433) (417) (433) Total equity attributable to equity holders of the Company 4,273 4,198 4,612 Non-controlling interests 6,358 6,085 6,665 Total capital 10,631 10,283 11, , , ,442 The accompanying notes are an integral part of the consolidated interim financial statements. May 28, 2017 Date of approval of the financial statements Gabriel Last Asi Bartfeld Barak Mashraki Chairman of the CEO CFO Board of Directors 3

36 Delek Group Ltd. Consolidated Statements of Income Three months ended Year ended March 31 December Unaudited Audited NIS million (other than earnings (loss) per share) Revenue 1,542 1,289 5,778 Cost of revenues 1, ,744 Gross profit ,034 Selling, marketing and gas station operating expenses General and administrative expenses Other revenues (expenses), net 2 (9) 201 Operating profit ,486 Financial income Finance expenses (241) (279) (828) ,049 Profit from disposal of investments in partnerships and investees, net Group s share in profits of associates, net Income before taxes on income ,099 Taxes on income (tax benefit) 49 (122) (118) Profit from continuing operations ,217 Profit (loss) from discontinued operations, net 288 (14) 343 Net profit ,560 Attributable to: Equity holders of the Company Non-controlling interests Net earnings (loss) per share attributable to equity holders of the Company (NIS) ,560 Basic earnings from continuing operations Basic profit (loss) from discontinued operations (1.33) 4.09 Basic earnings Diluted earnings from continuing operations Diluted profit (loss) from discontinued operations (1.33) 3.97 Diluted earnings The accompanying notes are an integral part of the consolidated interim financial statements.. 4

37 Delek Group Ltd. Consolidated Statements of Comprehensive Income Three months ended Year ended March 31 December Unaudited Audited NIS million Net income ,560 Other comprehensive income (loss) (net of tax effect): Amounts classified or reclassified to profit or loss under specific conditions: Profit (loss) for available-for-sale financial assets (44) (43) 99 Transfer to statement of income for disposal of available-for-sale financial assets - (3) (58) Transfer to statement of income for impairment of available-for-sale financial assets Profit (loss) for cash flow hedges (23) (3) 26 Exchange differences on translation of foreign operations (541) (347) (107) Other comprehensive loss attributable to associates, net (20) (12) (9) Total other comprehensive loss from continuing operations (627) (368) (8) Total other comprehensive income from discontinued operations, net Total other comprehensive income (loss) (611) (324) 62 Total comprehensive income (loss) (154) (87) 1,622 Attributable to: Equity holders of the Company (150) (106) 669 Non-controlling interests (4) (154) (87) 1,622 The accompanying notes are an integral part of the consolidated interim financial statements. 5

38 Delek Group Ltd. Consolidated Statements of Changes in Equity Attributable to equity holders of the Company Share capital Share premium Proceeds for conversion options Retained earnings Exchange differences on translation of foreign operations Reserve for transactions with holders of noncontrolling interests Other reserves *) Treasury shares Total Noncontrolling interests Total capital (Unaudited) NIS million Balance as of January 1, 2017 (audited) 13 1, , (433) 4,612 6,665 11,277 Net profit Other comprehensive loss (316) - (54) - (370) (241) (611) Total comprehensive income (loss) (316) - (54) - (150) (4) **) (154) Dividends (189) (189) - (189) Dividend to holders of non-controlling interests (303) (303) Balance as of March 31, , ,675 (240) (433) 4,273 6,358 10,631 *) Mainly capital reserve for available-for-sale financial assets; As of March 31, 2017, including a credit balance of NIS 130 million for investments held for sale. **) Composition of comprehensive loss of non-controlling interests: Net profit attributable to non-controlling interests 237 Gain from available-for-sale financial assets, net 11 Exchange differences on translation of foreign operations (252) Total comprehensive loss attributable to non-controlling interests (4) The accompanying notes are an integral part of the consolidated interim financial statements. 6

39 Delek Group Ltd. Consolidated Statements of Changes in Equity Attributable to equity holders of the parent Share capital Share premium Retained earnings Exchange differences on translation of foreign operations Reserve for transactions with holders of 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) 4,504 6,148 10,652 Net profit Total other comprehensive income (loss) (204) (191) (133) (324) Total comprehensive income (loss) (204) (106) 19 **) (87) Dividends - - (95) (95) - (95) Acquisition of treasury shares (49) (49) - (49) Acquisition of shares from holders of noncontrolling interests (56) - - (56) (4) (60) Dividend to holders of non-controlling interests (78) (78) Balance as of March 31, ,917 2,445 (34) (417) 4,198 6,085 10,283 *) Mainly capital reserve for available-for-sale financial assets; As of March 31, 2016, including a credit balance of NIS 100 million for investments held for sale. **) Composition of comprehensive income of non-controlling interests: Net profit attributable to non-controlling interests 152 Gain from available-for-sale financial assets, net 27 Exchange differences on translation of foreign operations (160) Total comprehensive income attributable to non-controlling interests 19 The accompanying notes are an integral part of the consolidated interim financial statements. 7

40 Delek Group Ltd. Consolidated Statements of Changes in Equity Attributable to equity holders of the Company Share capital Share premium Proceeds for conversion options Retained earnings Exchange differences on translation of foreign operations Reserve for transactions with holders of noncontrolling interests Other reserves *) Treasury shares Total Noncontrolling interests Total capital Audited NIS million Balance as of January 1, ,917-2, (368) 4,504 6,148 10,652 Net profit ,560 Other comprehensive income (loss) (94) Total comprehensive income (loss) (94) **) 1,622 Acquisition of treasury shares (65) (65) - (65) Proceeds for conversion option in the issue of convertible debentures (net of issue expenses) Dividends (436) (436) - (436) Dividend to holders of non-controlling interests (322) (322) Acquisition of shares from holders of noncontrolling interests (87) - - (87) (114) (201) Balance as of December 31, , , (433) 4,612 6,665 11,277 *) Mainly capital reserve for available-for-sale financial assets; As of December 31, 2016, including a credit balance of NIS 120 million for investments held for sale. **) Composition of comprehensive income of non-controlling interests: Net profit attributable to non-controlling interests 935 Gain from available-for-sale financial assets, net 42 Profit from cash flow hedges 4 Exchange differences on translation of foreign operations (28) Total comprehensive income attributable to non-controlling interests 953 The accompanying notes are an integral part of the consolidated interim financial statements 8

41 Delek Group Ltd. Consolidated Statements of Cash Flows Three months ended Year ended March 31 December Unaudited Audited NIS million Cash flows from operating activities Net income ,560 Adjustments to reconcile cash flows from operating activities (a) Net cash from operating activities ,574 Cash flows from investment activities Purchase of fixed assets, investment property and intangible assets (125) (294) (641) Proceeds from sale of fixed assets and investment property 1-11 Proceeds from sale of oil and gas assets Proceeds from sale (acquisition) of financial assets, net (22) Repayment of loans to associates, net Short-term investments, net (240) Investment in long-term bank deposits, net (67) (70) 76 Increase in joint ventures for oil and gas exploration (227) (256) (554) Cash derecognized from disposal of investments in previously consolidated subsidiaries (b) - - (13) Investment in associate companies and partnerships (1) (3) (1) Repayment of loans to others, net Net cash flows from (used in) investment activities (584) (480) 1,204 The accompanying notes are an integral part of the consolidated interim financial statements. 9

42 Delek Group Ltd. Consolidated Statements of Cash Flows Three months ended Year ended March 31 December Unaudited Audited NIS million Cash flow from finance activities Short-term loans from banks and others, net (205) 44 (634) Acquisition of shares from holders of non-controlling interests - - (132) Receipt of long-term loans Repayment of long-term loans (281) (110) (558) Proceeds from disposal of hedging transactions Dividends paid - (436) Dividend paid to holders of non-controlling interests in subsidiaries (426) (10) (91) Acquisition of treasury shares by a subsidiary partnership - (49) (65) Payment of contingent liability for a put option to holders of noncontrolling interests (1) - (14) Tax advances as part of distribution of profits for non-controlling interests - - (84) Issue of debentures and debentures convertible into shares (less issuance expenses) 1,462-2,801 Repayment of debentures (105) (311) (2,579) Net cash from (used for) finance activities 675 (436) (965) Exchange differences on balances of cash foreign operations (82) Change in cash and cash equivalents attributable to operations held for sale (333) (199) (112) Increase (decrease) in cash and cash equivalents 155 (416) 1,721 Cash and cash equivalents at the beginning of the year: 2,730 1,009 1,009 Balance of cash and cash equivalents at the end of the period 2, ,730 The accompanying notes are an integral part of the consolidated interim financial statements. 10

43 Delek Group Ltd. Consolidated Statements of Cash Flows (A) Adjustments to reconcile cash flows from operating activities: Three months ended Year ended March 31 December Unaudited Audited NIS million Adjustments to profit or loss Depreciation, depletion, amortization and impairment of assets ,173 Deferred taxes, net 150 (184) 1 Increase (decrease) in employee benefit liabilities, net 7 - (67) Decrease (increase) of loans granted, net 24 (21) (38) Group s share of results of associates, net (1) (43) (58) (12) Profit from the sale of an oil and gas asset - - (405) Profit from early repayment of a loan - - (116) Profit from disposal of available-for-sale financial assets - - (60) Impairment of available-for-sale financial assets Change in fair value of financial assets and financial derivatives, net 7 83 (14) Increase in long-term liabilities, net (40) (122) 101 Increase in deferred acquisition costs (60) (54) (78) Cost of share-based payment - (1) (2) Change in financial investments of insurance companies, net (1,189) 94 (2,472) Investments net of proceeds from the sale of available-for-sale assets in insurance companies, net (331) (353) (2,722) Increase in reserves and other provisions in insurance companies 1,740 1,195 5,454 Acquisition of investment property for performance-based contracts and other investment property in insurance companies (62) (47) (315) Increase in reinsurance assets (127) (44) (1) Change in value of investment property, net Exchange differences for cash and cash equivalents, net Revaluation of other long-term assets (16) - - Changes in operating assets and liabilities: Decrease (increase) in trade receivables (182) Increase in other receivables (157) (245) (24) Increase in inventory (21) (18) (11) Increase in other assets, net (128) (33) (201) Increase (decrease) in trade payables 13 (57) (27) Increase (decrease) in other payables (15) (1) Net of dividends and earnings received

44 Delek Group Ltd. Consolidated Statements of Cash Flows (B) Cash derecognized from disposal of investments in previously consolidated companies Three months ended Year ended March 31 December Unaudited Audited NIS million Working capital, net - - (14) Non-current assets Non-controlling interests - - (2) - - (13) (C) Significant non-cash activities Purchase of fixed assets and intangible assets Dividend payable by associates Loans provided to buyers of investees Investment in oil and gas assets against liability Dividend payable to equity holders of the Company Dividend payable to holders of non-controlling interests in subsidiary partnerships Proceeds from sale of gas and oil assets (D) Additional information on cash flows Cash paid during the period for: Interest Taxes on income Cash received during the period for: Interest Dividends Taxes (E) See Note 3A for information about cash flows from discontinued operations. The accompanying notes are an integral part of the consolidated interim financial statements. 12

45 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 1: GENERAL These financial statements have been prepared in condensed format as of March 31, 2017 and for the 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, 2016 for the year then ended, and their accompanying notes ( the Annual Financial Statements ). NOTE 2: SIGNIFICANT ACCOUNTING POLICIES A. 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 10F(A) to the Annual Financial Statements, on August 21, 2016, the Company signed a binding agreement for the sale of all 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 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 canceling the agreement. On February 16, 2017, the parties signed an amendment to the agreement which extended the period for the preconditions to March 31, Subsequent to the balance sheet date, on April 5, 2017, the parties signed an amendment to the agreement, in which it was determined, among other things, that the consideration for the Company's full holdings in the shares of The Phoenix will amount to NIS 2,152 million, of which NIS 1,987 million will be paid in cash at the closing date and the balance will be paid in three payments. The first payment will be paid up to 30 days after the closing date and the last payment will be no later than April 30, The deadline for completion of the terms for closing has been set for June 4, After this date, each of the parties may inform the other party of its cancellation. Subsequent to the balance sheet date, on April 30, 2017, Yango informed the Company that it had signed an agreement for the acquisition of shares and for cooperation with Yonel Cohen, through a company under his control ("Yonel") in which it was determined, among other things, as follows: Yonel will acquire 4% of the share capital of The Phoenix at a value of NIS 3.2 billion, so that 2.2% of the share capital of The Phoenix will be purchased directly from Yango at the closing date of the agreement for the sale ("the Shares Purchased from Yango") and 1.8% will be purchased by Yonel on the free market ("the Additional Shares"). Yonel will pay Yango NIS 72.3 million for the shares purchased from Yango (most of which will be paid at the closing date), and the parties set out arrangements for the participation of Yango in the purchase cost of the additional shares by Yonel. Following the sale, Yango will hold 50.1% of the share capital in The Phoenix. 13

46 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.) The agreement sets out corporate governance principles in The Phoenix and in some of the companies under its control, including the following: The board of directors of The Phoenix and The Phoenix Insurance Company Ltd. ("The Phoenix Insurance") will have a majority of Israeli directors; the mechanism for the participation of Yonel in the appointment of members of the board of directors of The Phoenix, The Phoenix Insurance and the other regulated entities of The Phoenix Group; Yonel Cohen will (personally) serve as chairman of the board of directors of The Phoenix and The Phoenix Insurance and will also serve as a director on the investments committee (nostro) and on the boards of directors of the other regulated entities of The Phoenix Group; any investment of the regulated entities of The Phoenix Group in a non-marketable asset outside of Israel requires the approval of the audit committee and the board of directors; Yonel will receive certain veto rights, including for transactions with interested parties; in addition, the agreement sets out arrangements between the parties for future requirements for raising capital in The Phoenix, if any. Yonel undertakes not to sell his shares in the controlling core in The Phoenix for 15 years from the completion of the sale agreement, at the end of which an agreed mechanism is set for a mutual sale, if he wishes to do so. The agreement also provides Yonel with a tag along right if Yango sells its shares in the controlling core. The agreement between the parties is subject to the completion of the sale agreement and receipt of all the regulatory approvals required for Yonel to join the controlling core in The Phoenix, including a control permit from the Commissioner of Capital Markets, Insurance and Savings. 2) As of March 31, 2017, 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. As of March 31, 2017, the Company's investment in The Phoenix amounts to NIS 2,036 million, which represents the fair value estimate net of costs to sell of the investment, in accordance with the consideration set out in the amendment to the agreement signed between the parties as set out above. In the reporting period, the Company included its share in the profits of The Phoenix amounting to NIS 135 million and its share in the other comprehensive loss of The Phoenix amounting to NIS 8 million. In addition, in the reporting period, the Company recognized an additional gain, arising from elimination of the provision for impairment amounting to NIS 30 million, due to its estimated fair value less costs to sell of the investment in The Phoenix, as set out above. As of March 31, 2017, the value of the Company's investment in The Phoenix shares at the TASE price of a single share of The Phoenix, ("the Market Value"), amounts to NIS 1,896 million (shortly before the approval date of the financial statements, the Market Value of the Company's investment in the shares of The Phoenix amounts to NIS 2,189 million). 14

47 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 3: INVESTMENTS IN INVESTEES AND PARTNERSHIPS (CONTD.) 2) Financial information for The Phoenix: A) Group of assets and liabilities relating to the operations of The Phoenix classified as held for sale: March 31 December Unaudited Audited NIS million Current assets Cash and cash equivalents ,040 Performance-based cash and cash equivalents 6,243 6,236 5,839 Short-term investments of the finance sector (mainly exchange-traded funds and deposits) 27,572 29,031 28,752 Short-term investments 1, Short-term investments in insurance companies 1,889 2,386 1,913 Insurance premium receivable Other receivables Current tax assets Reinsurance assets Deferred acquisition costs ,036 40,782 39,821 Non-current assets Financial investments of insurance companies 55,039 48,844 54,252 Long-term loans, deposits and receivables Investments in associates Investment property 3,434 3,050 3,376 Reinsurance assets Fixed assets, net Deferred acquisition costs 1, ,026 Structured bonds Goodwill Other intangible assets, net Deferred taxes ,885 56,479 61,918 Total assets 102,921 97, ,739 15

48 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 3: INVESTMENTS IN INVESTEES AND PARTNERSHIPS (CONTD.) Group of assets and liabilities relating to the operations of The Phoenix classified as held for sale: March 31 December Unaudited Audited NIS million Current liabilities Interest bearing loans and borrowings Trade payables Other payables 1,883 1,950 1,968 Exchange-traded funds and deposit 26,221 27,890 27,387 Current tax liabilities Liabilities for insurance contracts 4,962 4,374 4,480 33,418 34,537 34,412 Non-current liabilities Debentures 2,836 2,219 2,247 Structured bonds Liabilities for employee benefits Liabilities for insurance contracts 61,500 55,881 60,194 Provisions and other liabilities Deferred taxes ,353 59,115 63,474 Total liabilities 98,771 93,651 97,886 16

49 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 3: INVESTMENTS IN INVESTEES AND PARTNERSHIPS (CONTD.) B) The table below presents information on the results of operations attributable to the discontinued operations of The Phoenix: Three months ended March 31 Year ended December Unaudited Audited NIS million Revenue 3,500 2,318 12,768 Cost of revenues 2,484 1,765 9,230 Gross profit 1, ,538 Sales expenses ,527 General and administrative expenses ,143 Other expenses (income), net 4 (3) 7 Operating profit (loss) 357 (92) 861 Finance expenses Share in earnings of associates Profit (loss) before tax 368 (67) 795 Taxes on income (tax benefit) 110 (60) 174 Elimination of impairment (impairment) of the investment in The Phoenix shares 30 (7) (278) Profit (loss) from operations of The Phoenix 288 (14) 343 Attributable to: Equity holders of the Company 165 (19) 46 Non-controlling interests (14) 343 C) Composition of net cash flows attributable to the discontinued operations of The Phoenix: Three months ended March 31 Year ended December Unaudited Audited NIS million Net cash from operating activities Net cash used in investing activities (44) (55) (220) Net cash used for finance activities 301 (179) (112)

50 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 3: INVESTMENTS IN INVESTEES AND PARTNERSHIPS (CONTD.) B. Ithaca Energy Inc. ("Ithaca") 1. Further to Note 10F(l) to the Annual Financial Statements, on March 14, 2017, DKL Investments Limited (a wholly-owned foreign subsidiary of the Company, hereinafter "DKL") submitted an offer to acquire the entire share capital of Ithaca not held by DKL (80%), for CAD 1.95 per share ("the Offer"), following the agreement with Ithaca in February 2017 to publish the Offer. The Offer was open to acceptance notice until April 20, 2017, and after it was accepted for the most part, it was extended mandatorily until May 3, The Offer was accepted by the holders of 318,833,909 ordinary shares and DKL acquired their shares for a total consideration of CAD 622 million (approximately NIS 1,685 million). Following the sale, DKL holds 400,699,334 ordinary shares of Ithaca, representing 94.2% of its ordinary share capital. On May 12, 2017, DKL announced that, in accordance with the terms of the Offer, it intends to carry out a compulsory acquisition of the remaining ordinary shares of Ithaca that are not held by DKL, so that following the acquisition, DKL will hold the entire share capital of Ithaca, at the price per share set out in the Offer and for a total consideration of CAD 48 million (approximately NIS 130 million)the compulsory acquisition is expected to be completed by the end of June 2017, after which Ithaca's shares will be delisted from the AIM in London and the Toronto Stock Exchange. It should be noted that following the Offer, Ithaca received waivers from banks and other entities holding short- to medium-term liabilities that include change of control items, according to which these entities will not exercise their right for immediate payment due to the change of control following the Offer. 2. In view of the gain of control in Ithaca, the Group will start to consolidate Ithaca's financial statements as from the date control was gained, and in addition, one of the accounting implications is that in accordance with IFRS 3 regarding a step acquisition, the Group's investment in Ithaca shares prior to the Offer will be measured at its fair value, while the difference between the fair value and its carrying amount will be recognized in the statement of income. At this stage, the difference (profit) is estimated at NIS 150 million. 18

51 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 3: INVESTMENTS IN INVESTEES AND PARTNERSHIPS (CONTD.) C. 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: March 31 December Unaudited Audited NIS million Current assets 1,641 1,437 1,710 Non-current assets 1,034 1,048 1,048 Current liabilities 1,828 1,498 1,885 Non-current liabilities Equity attributable to equity holders of the investee Three months ended Year ended March 31 December Unaudited Audited NIS million Revenue 1,074 1,236 3,428 Gross profit Operating profit Finance expenses, net (3) (21) (12) Net earnings attributable to equity holders of the investee

52 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 3: INVESTMENTS IN INVESTEES AND PARTNERSHIPS (CONTD.) C. 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: March 31 December Unaudited Audited USD million Current assets Non-current assets Current liabilities Non-current liabilities Equity attributable to non-controlling interests Equity attributable to equity holders of the investee Three months ended March 31 Year ended December Unaudited Audited USD million Revenue Gross profit Operating loss (2) (2) (1) Finance income, net Net earnings attributable to equity holders of the investee The exchange rate as of March 31, 2017, used to translate the financial statements of IDE, is USD 1 = NIS (change in the reporting period a decrease of 5.5%). 20

53 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 3: INVESTMENTS IN INVESTEES AND PARTNERSHIPS (CONTD.) C. Condensed information for companies accounted for at equity (contd.) 3) As of March 31, 2017, the Group held 20% of the shares of Ithaca and the Group's investment in Ithaca was accounted at equity (for the acquisition of control in Ithaca subsequent to the balance sheet date, see section B above). Following is condensed information from the financial statements of Ithaca for each reporting period: March 31 December Unaudited Audited USD million Current assets Non-current assets 1,711 1,705 1,705 Current liabilities Non-current liabilities Equity attributable to equity holders of the investee Three months ended March 31 Year ended December Unaudited Audited USD million Revenue Gross profit 7 (11) (2) Finance expenses, net (3) (4) (76) Net earnings (loss) attributable to equity holders of the investee (54) The exchange rate as of March 31, 2017, used to translate the financial statements of Ithaca, is USD 1 = NIS (change in the reporting period a decrease of 5.5%). NOTE 4: INVESTMENTS IN FINANCIAL ASSETS On November 27, 2016, the Company signed an agreement with Ratio Petroleum Energy - Limited Partnership ("Ratio Petroleum"), whereby the Company will invest in the participating units of Ratio Petroleum. The agreement will come into effect after their issue on the Tel Aviv Stock Exchange. On January 23, 2017, the participating units were listed on the TASE. The total consideration for the acquisition of 20,069,392 participating units, representing 17% of the partnership's capital, amounted to NIS 21 million. Concurrently with the issue of the participating units, Ratio Petroleum allotted options exercisable for the participating units of Ratio of Petroleum to investors, including the Company, for no consideration. The Company may appoint one director to serve on the board of directors of the general partner, Ratio Petroleum, so long as it holds 10% of the participating units of Ratio Petroleum. These securities are locked up in accordance with the guidelines of the TASE. 21

54 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 5: INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION The Group operates mainly through Delek Drilling - Limited Partnership ("Delek Drilling") and Avner Oil Exploration - Limited Partnership ("Avner") (jointly: "the Partnerships" or "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 12 to the Annual Financial Statements). Further to Note 12(N) to the Annual Financial Statements, regarding the merger of the Limited Partnerships, subsequent to the balance sheet date, on May 17, 2017, the merger was completed. As part of the merger, Delek Drilling allocated its participating units to all holders of Avner's participating units and all Avner's assets and liabilities were transferred to Delek Drilling. After completion of the merger, the Group holds approximately 56% of Delek Drilling's participating units. See also Note 7D below regarding the motion for certification as a class action in connection with the merger transaction. The main changes in the reporting period appear below: A. Ratio Yam joint venture 1. Plan for development of the Leviathan reservoir Further to Note 12E to the Annual Financial Statements, on February 23, 2017, the Leviathan partners made a final investment decision (FID) for the development of Stage 1A in the development plan of the Leviathan reservoir, with an annual capacity of 12 BCM, at a budget of USD 3.75 billion, to allow the supply of natural gas from the Leviathan reservoir to start by the end of Appraisal, development and production drillings under the development plan: In December 2016, the Leviathan partners made a decision regarding the appraisal and production drilling of Leviathan-5 in the area of the I/15 Leviathan North lease ("the Well"). The offshore drilling is 130 kilometers west of Haifa and is expected to reach a final depth of 5,200 m below sea level. The objective of the Well is to confirm the partners' estimates of the extent and nature of the reservoir, which will also serve as a production well. The drilling budget is USD 77 million (100%), without the cost of its completion and connection to the production system of the Leviathan reservoir. In March 2017, the Leviathan partners made a decision regarding the development and production drilling of Leviathan 7 in the area of the I /14 Leviathan South lease ("the Well"). The Well is 120 kilometers west of Haifa and is expected to reach a final depth of 5,100 m below sea level. The Well is a development well and it will be connected as a production well to the Leviathan project production system at a later stage. The drilling budget is USD 71 million (100%), without the cost of its completion and connection to the production system of the Leviathan reservoir. These wells began to be drilled continuously in April 2017 and are expected to continue for seven months, excluding their completion and their connection to the production system. It is noted that the cost of wells as set out above is included in the Stage 1A development budget in the development plan. 22

55 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. In February 2017, the Minister of National Infrastructures, Energy and Water ("the Minister of Energy") granted a special purpose company owned by the Leviathan partners, Leviathan Transmission System Ltd., a license to transport natural gas from the production platform of the Leviathan project to the northern entry point of INGL. 4. On April 5, 2017, the operator of the Leviathan reservoir, Noble Energy Mediterranean Ltd., informed the Commissioner of Oil Affairs at the Ministry of Energy ("the Commissioner") that the Leviathan partners have entered into binding agreements for the purchase of equipment and services to develop the Leviathan reservoir for a total amount of USD 1.52 billion, thus fulfilling their obligation in accordance with the Government's decision. B. Michal Matan joint venture (Tamar and Dalit Leases) 1. In October 2016, drilling began and the Tamar-8 development and production well, which is designed, among other things, to increase the redundancy in the production system and allow maximum supply from the Tamar reservoir during peak demand. The drilling was completed (including completion and connection to the production system) in April 2017 and natural gas started to flow from the well. The cost of the drilling as of March 31, 2017, including the completion and development of the subsea system and connection of the well to the existing infrastructure of the Tamar project, is USD 240 million (100%). 2. Outline for the sale of part of the Partnerships' holdings in the Tamar and Dalit reservoirs Subsequent to the balance sheet date, on April 25, 2017, the Partnerships announced that they intend to establish a corporation through which the Partnerships will sell up to 10% of the rights in the Tamar and Dalit reservoirs in the areas of the I/12 Tamar and I/13 Dalit leases, respectively (together: the SPC and the Reservoirs). The sole activity of the SPC will be a holding of the sold rights in the Reservoirs. Under the outline for the planned sale, the SPC will issue securities to the public, including debentures that will be listed on the Tel Aviv Stock Exchange Ltd. ("the Offering" and "the TASE", respectively) and the SPC will use the consideration from the offering to purchase the sold rights in the reservoirs from the Partnerships. Concurrently with the advancing the Offering, the Partnerships are continuing to assess various alternatives for the sale of the remainder of their holdings in the Reservoirs, as required by the Gas Outline Plan. The Partnerships' assessments regarding the outline for the planned sale are subject to obtaining all the approvals required by law, including the approval of the board of directors of the general partner, the Commissioner's approval to transfer the rights to the SPC, approval of the Petroleum Commissioner, receipt of a permit from the Israel Securities Authority to publish the Offering prospectus, approval from the TASE to list the issued securities, and others; and the existence of suitable market conditions for the Offering by the SPC, and there is no certainty that they will be fulfilled. C. Block 12, Cyprus Further to Note 12H to the Annual Financial Statements regarding the application for a production license in the Aphrodite reservoir in Cyprus, the partners in the Aphrodite reservoir are working with the Government of Cyprus to obtain the approvals, and in this context, steps are being taken to submit an updated development plan, while continuing to conduct negotiations for the supply of natural gas to the local market in Cyprus, and to export natural gas to other markets, including the Egyptian market. 23

56 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 5: INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.) D. Further information about the licenses of the Limited Partnerships Further to Note 12B to the Annual Financial Statements, and in accordance with the ruling of the High Court of Justice regarding the petition to the High Court of Justice filed by the Leviathan partners against the Minister of Energy and the Commissioner, on the Minister of Energy's decision to dismiss the appeal filed by the Leviathan partners on the Commissioner's decision not to extend the 353/Eran license, on June 2, 2016, the High Court of Justice gave the parties' consent to mediation the force of a ruling. As of the approval date of the financial statements, the mediation process has not yet been exhausted and the parties are waiting for the mediator's proposal regarding the continuation of the proceeding. In accordance with the ruling of the High Court of Justice, the parties are required to report the results of the mediation to the Court no later than June 4, E. Agreement to finance the partnership's share in the costs of developing the Leviathan project: On February 20, 2017, Delek Drilling signed the financing documents ("the Financing Agreement" or "the Agreement") with a consortium of local and foreign financers headed by HSBC Bank Plc and JP Morgan Limited ("the Lenders ). Under the Financing Agreement, Delek Drilling will receive a limitedrecourse loan of USD 875 million ("the Loan") to finance its share in the investment in the development of the Leviathan project ("the Leviathan Project"). Concurrently with the signing of the Financing Agreement by Delek Drilling, a financing agreement was signed with the same terms and for the same purposes between the Lenders and Avner for a loan of the same amount. The loans to be provided to the Limited Partnerships amount to USD 1.75 billion. The Loan is divided into facilities, in accordance with the dates and conditions in the agreement. The Loan agreement includes another facility of USD 375 million for each Partnership (a total of USD 2.5 billion for the two Partnerships), which is contingent on signing agreements for the supply of gas at a minimum total annual volume defined in the Agreement, and a decision to increase the capacity of the production and transmission system to Phase 1B of the development plan or its alternative, which may be given by the Lenders, in whole or in part, or by other lenders, however, there is no undertaking by the Lenders to provide this facility. For further information about the terms of the Loan, see Note 12J(3) to the Annual Financial Statements. Under the terms of the Financing Agreement as set out above, the Partnerships are exposed to potential changes in cash flows that may arise from changes in the Libor interest rate. As part of the risk management policy of the Partnerships, in April 2017, the Partnerships entered into IRS cash flow hedges for changes in the Libor interest rate, amounting to USD 550 million for each Partnership. The hedges are for changes in the Libor interest rate (three months) from the dates of the transactions until the expiry dates of the hedge transactions (October 2017). In effect, these transactions hedge against interest rate changes until the expected settlement of the transaction. If there is an increase in the interest rate by October 2017, the Partnerships will be credited with the difference in the exercise price of each transaction. On the other hand, if there is a decrease in the interest rate, the Partnerships will be charged with the difference in the exercise price, accordingly. In May 2017, the Partnerships announced that all the preconditions for the first withdrawal of funds were fulfilled, in accordance with the terms of the loan, as set out above. F. Letter of intent for the supply of natural gas from the Leviathan project to Edeltech Further to Note 12K(2) to the Annual Financial Statements, on January 16, 2017, the Leviathan partners and Edeltech Ltd. signed a non-binding letter of intent, in which the parties confirmed their intention to negotiate for an agreement to supply natural gas from the Leviathan project to the Buyer, in an estimated scope of 14.8 BCM over 17 years. The binding agreement, if signed, is in addition to the supply agreements signed in January

57 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 5: INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.) G. Agreement for the export of natural gas from the Leviathan project to the National Electric Power Company of Jordan Further to Note 12K(2)b to the Annual Financial Statements, in February 2017, approval was received from the Commissioner for the export of natural gas under this agreement. H. Further to Note 12K(2) to the Annual Financial Statements, on May 4, 2017, the Partnerships together with the Leviathan partners ("the Sellers") notified their customers in the local market that all the preconditions of the Sellers have been fulfilled, as set out in the natural gas supply agreements signed with them. It should be noted that following the notice to Paz Ashdod Refinery Ltd. ("Paz"), all the preconditions in the gas supply agreement of November 24, 2016 between the Leviathan partners and Paz were fulfilled. I. Royalties to the State 1. In February 2017, a letter was received from the Ministry of Energy regarding advances on royalties for 2017, stating that the effective royalty rate to be paid as advances in 2017in the Tamar project will amount to 11.65%. It was further clarified that this rate was set as an advance payment alone. The Operator and the other Tamar partners believe that calculation of the actual royalty rate to the state for revenue from the Tamar Project, should reflect the complexity and risks involved in the project, and the scope of investments in the project, compared to the Yam Tethys Project. 2. In February 2017, a letter was received from the Ministry of Energy regarding advances on royalties for 2017, stating that the royalty rate for the Yam Tethys project in 2017 will be 0%. It is noted that, if during the year, production will be significantly higher in the reservoir, this rate will be adjusted. J. Further to Note 12M(1) to the Annual Financial Statements, on April 2, 2017, the Tamar partners clarified the following in a notice to the Minister of Energy, the Budget Director in the Ministry of Finance, and the Antitrust Commissioner: 1. If there is a delay in the initial supply of gas by a new gas supplier, the Tamar partners will allow their customers, in accordance with gas supply agreements signed from the date of the Gas Outline Plan until four years after the Commissioner's approval of the transfer of the rights in the Karish and Tanin gas reservoirs (the opening date of the options), which were supposed to start purchasing gas from the new supplier, fully or in part, to extend the contract with them until the new supplier is able to supply gas in commercial quantities (but no more than eight years after signing the agreement with them), without changing the terms of the agreement. 2. The Tamar partners also clarified that they will grant a consumer that is an electricity producer or other consumer wishing to construct new facilities and is forced by the financing requirements of the facilities to sign a long-term gas supply agreement, the option of signing an agreement that is longer than eight years, and according to the supply capacity of the Tamar project. K. In the reporting period, the contingent consideration for the rights from the sale of the Karish and Tamar leases was amended by the Company and the Partnerships as set out in Note 12G to the Annual Financial Statements. The amendment was mainly due to the passage of time and the depreciation of the USD. The profit arising from the amendment in the reporting period, attributable to the Company's shareholders (after tax) amounted to NIS 8 million, and on the other hand, an impairment loss of NIS 6 million was recognized for the depreciation of the USD, and was recognized in the statement of comprehensive income. 25

58 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 6: DEBENTURES As set out in Note 19E to the Annual Financial Statements, on February 21, 2017, the Company issued NIS 995,933,000 par value Debentures (Series B31) by way of expansion of the existing series for NIS 1,006 million (after offsetting issuance expenses of NIS 10 million). The effective annual interest rate of the debenture is 4.2%. NOTE 7: CONTINGENT LIABILITIES There are contingent claims against the Company and certain investees for significant sums, including certification for class actions that might reach hundreds or 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 out below (see Note 23A to the Annual Financial Statements). A. Further to Note 23A(2) to the Annual Financial Statements, several lawsuits have been filed against The Phoenix, its investees and others, including motions for certification of class actions, amounting to significant sums (for further information see also the reports of The Phoenix, which are available to the public). B. Further to Note 23A(4) to the Annual Financial Statements, 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. In 2016, evidentiary hearings were held and summations were submitted to the court in respect of the motion for certification. On February 20, 2017, the Tel Aviv District Court handed down a ruling in respect of the motion for certification as a class action. In accordance with the court ruling, the motion for certification against the Company was accepted on the grounds of discrimination of the minority, and against the CEO of the Company and the chairman of the board of directors on the grounds of breach of duty of care and fiduciary duty. The court dismissed the motion for certification against the controlling shareholder. In accordance with the Court's ruling, the date for filing a motion for a rehearing of the motion for certification will be June 21, 2017 and it was ruled that the hearing of the claim will be postponed until the ruling of the Supreme Court on the appeal and the rehearing filed by the respondents. The Company dismissed the allegations of the applicants as reflected in the court documents filed at the court. The Company intends to file a motion for a rehearing before a panel of three judges at the Tel Aviv District Court by June 21, At this stage, the results and risks of these proceedings cannot be assessed. C. Further to Note 23A(3) to the Annual Financial Statements, on September 2, 2012, a motion for certification of a class action was filed against Cohen Development and Industrial Buildings Ltd., the Company and some members of the Cohen and Tadmor family, former controlling shareholders of Cohen Development and Industrial Buildings Ltd. ("the Respondents") regarding the procedure for acquiring control in Cohen Development and Industrial Buildings Ltd. by the Company. The remedies sought in the class action include monetary relief, which the applicant estimates at no less than NIS 49 million and declaratory relief that the shares acquired from the respondents shall not confer any rights and shall be dormant shares as long as they are held by Delek Group. 26

59 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 7: CONTINGENT LIABILITIES (CONTD.) C. (contd.) After litigation at the Tel Aviv-Jaffa District Court (Economic Division), in April 2014 the court dismissed the motion for certification as a class action against the Cohen and Delek Group, regarding the procedure for the transaction to gain control of Cohen, but partially upheld the motion for the Cohen family. On June 12, 2014, the applicants appealed the decision of the District Court at the Supreme Court, raising claims against the partial approval of their application and against the dismissal of the motion for certification regarding the Company and Cohen Development and Industrial Buildings Ltd. In addition, on June 26, 2014, the Cohen and Tadmor families filed a petition for a rehearing of the ruling of the District Court. On November 26, 2014, the Supreme Court ordered that the hearing of the appeals of the applicants and the Cohen and Tadmor families should be joined. In 2015, mediation failed, and as a result, the appeal was heard at the Supreme Court in June Subsequent to the balance sheet date, on May 16, 2017, the Supreme Court handed down its judgment, in which the applicant's appeal was partially accepted and the claim was certified as a class action against the Company on grounds of breach of statutory duty (due to the failure to publish a tender offer under section 328 of the Companies Law, and against the members of the Cohen family on grounds of unjust enrichment (according to which the proceeds of the sale of control in Cohen Development were received by them). The motion for certification in the matter of Cohen Development was dismissed. The Company believes, based on the opinion of its legal counsel, that at this stage, the chances that the claim will be accepted or the extent of any financial liability cannot be determined, therefore no provision was included in the financial statements. D. Further to Note 23A(8) to the Annual Financial Statements regarding the motion for certification of a class action in connection with the merger of Delek Drilling with Avner and in accordance with the court ruling of May 9, 2017, responses to the motion for certification of a class action in connection with the merger transaction, which was filed against Avner Partnership, the general partner in Avner Partnership and the members of its board of directors, the Company, as the controlling shareholder in Avner Partnership (linked), and against PricewaterhouseCoopers Consulting Ltd. PWC, as the economic advisor of an independent board of directors' committee established by the Avner Partnership, will be filed by July 8, The Company and the Partnerships believe, based on the opinion of their legal counsel, that it is unlikely that the claim will be certified as a class action. E. Further to Note 23A(5) to the Annual Financial Statements regarding the motion for certification of a class action filed at the Tel Aviv District Court by a consumer of IEC against the Tamar partners, in December 2016, the Supreme Court ruled that the Partnerships' motion to dismiss the motion for certification of the class action in limine will be heard before a panel as soon as possible, and ordered the applicant of the motion for certification and the Attorney General to submit responses to the motion for leave to appeal. On March 9, 2017, the Attorney General submitted his response to the motion for leave to appeal, whereby the motion to dismiss should be accepted and court should have dismissed the case in limine. A hearing of the motion for leave to appeal is scheduled for March 16, The ruling on the motion is expected to be handed down in the coming months. The Partnerships believe, based on the opinion of its legal counsel, that it is unlikely that the claim will be certified as a class action. NOTE 8: CAPITAL On March 29, 2017, the Company declared a dividend of NIS 200 million, which was paid in May The dividend per share is NIS An amount of NIS 11 million was distributed to a wholly-owned subsidiary partnership, Delek Financial Investments - Limited Partnership. Subsequent to the balance sheet date, on May 28, 2017, the Company declared a dividend of NIS 200 million, which will be paid in June The dividend per share is NIS

60 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 9: TAXES ON INCOME A. Further to Notes 31C and 31D to the Annual Financial Statements, regarding the best judgment assessments (Stage A, Assessment 03) issued to the Company in March 2016 for the tax years, according to which most of the Company's finance expenses for these years were not approved, subsequent to the balance sheet date, in April 2017, the Company reached an agreement with the Income Tax Authority for these tax years, according to which most of the finance expenses were permitted and it was determined that part of the finance expenses will only be permitted upon the disposal of certain assets. In view of the agreement, as of December 31, 2016, carryforward losses amounted to NIS 2.3 billion. The agreement had no material effect on the Group's financial statements. B. Subsequent to the balance sheet date, in April 2017, the subsidiaries (Delek Petroleum Ltd. and Delek Europe Holdings Ltd.) were issued assessments (Stage A, Assessment 03) for the tax years. The subsidiary partnerships dispute the assessment that was issued for them. The dispute in the assessments is mainly about the tax liability for revenues from dividends between Group companies, which were received from the profits for which corporate tax was paid in Israel, among other things. However, it should be noted that the Income Tax Authority believes that a credit can be granted for the disputed taxes paid by the companies. The assessments amount to hundreds of millions of NIS, and on the other hand, the amount of the credit may also amount to hundreds of millions of NIS, based on the opinion of the legal counsel and the tax advisors of the companies. As aforesaid, the subsidiaries dispute the income tax position, among other things, because they believe it involves double taxation, and they have submitted objections to these assessments. At this stage, the subsidiaries believe, among other things, based also on the opinion of their legal counsel, that the tax assessments are not expected to have a material effect on the Group's financial statements.. NOTE 10: 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. In addition, the results of the investments in Ithaca are included. It is noted that following classification of the operating results of The Phoenix under income from discontinued operations, The Phoenix is no longer a reportable segment. 28

61 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 10: OPERATING SEGMENTS (CONTD.) B. Segment reporting 1) Revenue Three months ended Year ended March 31 December Unaudited Audited NIS million Revenue from external sources Oil and gas exploration and production ,821 Fuel in Israel ,588 Other segments Inter-segment *) (6) (4) (21) Total in statement of income 1,542 1,289 5,778 *) Inter-segment sales are mainly for the sale of natural gas to other segments. 2) Segment results Three months ended Year ended March 31 December Unaudited Audited NIS million Oil and gas exploration and production ,581 Fuel in Israel Other segments (5) 8 (71) Adjustments *) (12) (17) (92) Operating profit ,486 *) Mainly administrative and general expenses attributable to headquarter companies 3) Contribution to net profit from continuing operations attributable to equity holders of the Company Three months ended Year ended March 31 December Unaudited Audited NIS million Oil and gas exploration and production Fuel in Israel Automotive Other segments 4 15 (44) Adjustments *) (106) (56) (102) Net earnings from continuing operations attributable to equity holders of the Company *) Mainly administrative and general expenses, financing and taxes attributable to headquarter companies 29

62 Delek Group Ltd. Financial Information from the Interim Consolidated Financial Statements Attributed to the Company As of March 31, 2017 Unaudited

63 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 March 31, 2017, published as part of the periodic reporting ("Consolidated Reports"), presented in accordance with Regulation 38D of the Securities Regulations (Periodic and Immediate Reports), 1970: 3

64 Delek Group Ltd. Breakdown of Financial Information from the consolidated statement of financial position attributable to the Company Current assets At At March 31 December Unaudited Audited NIS millions Cash and cash equivalents 1, Short-term investments Trade receivables Other receivables ,609 1,107 1,686 Asset held for sale 1,906 1,689 1,739 Total current assets 4,515 2,796 3,425 Non-current assets Investments in investees and partnerships 6,717 6,870 6,940 Loans and capital notes to investees 1,086 1,010 1,074 Financial assets Long term loans and debit balances Investments in oil and gas exploration and production Advance payments on account of the acquisition of a building Investment property Property, plant and equipment, net Total non-current assets 8,695 9,050 8,929 13,210 11,846 12,354 The accompanying additional information is an integral part of the financial information and of the separate financial information. 4

65 Delek Group Ltd. Breakdown of Financial Information from the consolidated statement of financial position attributable to the Company Current liabilities At At March 31 December Unaudited Audited NIS millions Current maturities of debentures Current bank and other borrowings and loan maturities Dividend declared Other payables (particularly interest payable) Total current liabilities 1,192 1, Non-current liabilities Long Term Bank Loans Debentures 6,478 6,144 5,475 Debentures convertible into Company shares 1,082-1,080 Deferred taxes Other liabilities (primarily liability for decommission of long term assets) Non-current liabilities 7,745 6,281 6,860 Equity attributable to equity holders of the Company Share capital Share premium 1,917 1,917 1,917 Proceeds for conversion option Retained earnings 2,675 2,445 2,644 Adjustments from the translation of financial statements of foreign operations (240) (34) 76 Reserve from transactions with holders of non-controlling rights Other reserves Treasury shares (433) (417) (433) Total capital 4,273 4,198 4,612 13,210 11,846 12,354 The accompanying additional information is an integral part of the financial information and of the separate financial information. May 28, 2017 Date of approval of the financial statements Gabriel Last Asi Bartfeld Barak Mashraki Chairman of the Board CEO CFO of Directors 5

66 Delek Group Ltd. Breakdown of Financial Information from the consolidated statement of income attributable to the Company Three months ended Year ended March 31 December Unaudited Audited NIS millions Revenue from overriding royalties and gas sales (net of royalties) Company's share in earnings of partnerships and investees, net Management fees from investees Total revenue Production cost of gas sold General and Administrative Expenses Other expenses, net Operating profit Net financing income with respect to loans to investees and others Financing income (expenses) (mainly for financial investments), net 17 (27) 56 Financing expenses (mainly with respect to debentures) Pre-tax income Taxes on income - - (18) Profit from continuing operations Profit (loss) from discontinued operations, net 165 (15) 46 Net earnings attributed to Company shareholders The accompanying additional information is an integral part of the financial information and of the separate financial information. 6

67 Delek Group Ltd. Breakdown of Financial Information from the consolidated statement of comprehensive income attributable to the Company Three months ended Year ended March 31 December Unaudited Audited NIS millions Net earnings attributed to Company shareholders Other comprehensive income (loss) Amounts classified or reclassified to profit and loss under specific conditions: Gain (loss) for available-for-sale financial assets, net (45) (52) 88 Transfer to the statement of income for disposal of available-for-sale financial assets - (3) (60) Transfer to the statement of income for impairment of available-for-sale financial assets Loss from cash flow hedges (23) - - Other comprehensive income (loss) attributable to investees and partnerships (after tax effect) (315) (199) (66) Total other comprehensive income (loss) from continuing operations (382) (214) 3 Total other comprehensive income from discontinued operations Total other comprehensive income (loss) (370) (191) 44 Total comprehensive income (loss) attributed to Company shareholders (150) (106) 669 The accompanying additional information is an integral part of the financial information and of the separate financial information. 7

68 Delek Group Ltd. Financial Information from the consolidated statements of cash flows attributable to the Company Cash flows from the Company's operating activities Three months ended Year ended March 31 December Unaudited Audited NIS millions Net profit attributed to Company shareholders Adjustments to reconcile statement of cash flows from the Company's continuing operating activities (a) (190) (91) (810) Net cash derived from (used for) the Company s continuing operations 30 (6) (185) Cash flows from the Company's investment activities Investments in property, plant and equipment and investment property (1) (129) (151) Proceeds from disposal of financial assets (6) Proceeds from sale of investments in investees Short-term investments, net (141) Investment in available-for-sale financial assets (16) - (201) Collection of loans to others, net Provision of loans and capital investments of investees, net (216) (120) (164) Net cash from (used for) the Company's investment operations 10 (189) 753 Cash flows from the Company's financing activities Dividend paid to shareholders of the Company - - (460) Short term borrowings from banks and others, net - (119) (486) Issue of Debentures 1,006-1,103 Loans received from banks and others Repayment of long-term bank loans and debentures - - (740) Net cash from (used for) the Company's financing operations 1,006 (119) (423) Increase (decrease) in cash and cash equivalents 1,046 (314) 145 Cash and cash equivalents at the beginning of the period: Exchange differences for cash and cash equivalents (21) - - Cash balance and cash equivalents at end of period 1, The accompanying additional information is an integral part of the financial information and of the separate financial information. 8

69 Delek Group Ltd. Financial Information from the consolidated statements of cash flows attributable to the Company Three months ended Year ended March 31 December Unaudited Audited NIS millions (A) Adjustments to reconcile statement of cash flows from the Company's continuing operating activities: Adjustments for profit and loss items of the Company: Depreciation, depletion and amortization 1-3 Deferred taxes, net Profit from early repayment of a recognized loan - - (116) Decrease (increase) in value of loans granted, net 27 (29) (98) Decrease (increase) in value of investments and loans provided, net 2 - (17) Company's share in the expenses of subsidiaries*) (209) (77) (634) Cost of share-based payment - (1) (2) Impairment of liabilities, net (1) (28) 12 Change in fair value of financial derivatives, net (6) 4 (14) Earnings from disposal of investment in available-for-sale financial assets - (3) (60) Impairment of available-for-sale financial assets Exchange differences for cash and cash equivalents, net Loss from impairment in investment property Changes in the Company's asset and liability items: Decrease in other receivables Increase (decrease) in other accounts payable (18) (4) 8 (190) (91) (810) Net of dividends received (B) (C) Company's significant non-cash activities Dividend receivable from investees and partnerships Acquisition of Company shares by a subsidiary Proceeds from sale of assets against long-term receivables Provision of a loan against the sale of a subsidiary Dividend declared Repayment of a loan from an investee against collection of a capital note issued by an investee 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. 9

70 Delek Group Ltd. Additional Information NOTE 1 GENERAL This separate financial information was drafted in a condensed format pursuant to the provisions of article 38D of the Securities Regulations (Periodic and Immediate Reports), This separate financial information should be reviewed in conjunction with the separate financial information to the annual financial statements as of December 31, 2016, and for the year then ended and their accompanying notes, and in conjunction with the consolidated interim financial statements as of March 31, 2017 ("Consolidated Interim Financial Statements"). NOTE 2 CONTINGENT LIABILITIES There are certain contingent claims against the Company and certain investees for significant sums, including petitions to grant class actions, that might amount to anywhere from hundreds of million to several 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 7 to the consolidated interim financial statements. NOTE 3 CAPITAL With regard to distribution of dividends by the Company, see Note 8 to the Consolidated Interim Financial Statements

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