Financial Statements

Transcription

1 Financial Statements Unaudited As of March 31, 2018

2 IMPORTANT This document is an unofficial translation for convenience only of the Hebrew original of the March 31, 2018 financial report of Delek Group Ltd. that was submitted to the Tel-Aviv Stock Exchange and the Israeli Securities Authority on May 31, 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, 2018 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 Chapter A Corporate Description

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 General Developments in the Company's Business: A. Referring to Section 1.2 to the Periodic Report - the Group's Operating Segments On April 12, 2018, the Company announced that, as part of its purchase offer to buy shares issued by Delek Energy ("Delek Energy"), the subscription rate required for a forced purchase under Section 337(a) to the Companies Law, 1999 had not been reached, and so the condition for the purchase offer to come into effect was not met and Delek Energy's shares were not purchased from the offerrees who accepted the purchase offer. For more information, see the Company s immediate report of April 12, 2018 (ref. no ), included herein by way of reference. B. Referring to Section 1.4 to the Periodic Report - Distribution of Dividends On April 29, 2018, the Company s Board of Directors decided to distribute a total of NIS 120 million in dividends. This dividend was paid on May 24, For more information, see the Company s immediate report of April 29, 2018 (ref. no ), included herein by way of reference. 2. Part Three Description of the Company s Business by Operating Segment: A. Energy operations in Israel (1) Referring to Section 1.7.5(e) to the Periodic Report - Leviathan Reservoir Development Plan As of the date of this report, the Ensco DS-7 rig had completed drilling the bottom part of the Leviathan 3 well to its final depth, and is currently drilling the bottom part of the Leviathan 7 well to its final depth. Afterward, the drilling rig will undertake completion of the Leviathan Project production wells. (2) Referring to Section to the Periodic Report - License 399/Roy ("the Roy License") On April 15, 2018, Ratio Oil Exploration (1992) Limited Partnership ("Ratio") announced that the Ministry of Energy Oil Commissioner ("the Commissioner") had declared that he would extend the Roy License until July 14, 2018, subject to the following changes in the Roy License work plan: Term Key Milestones in the Work Plan 2018 onward The binding work plan for the Roy License requires the following actions be carried out: By July 1, signing a contract with a drilling contractor and submitting such contract to the Commissioner. By January 15, start of drilling in the Roy License. Three months from completion of drilling - submitting a summary report of drilling results. It is clarified, that in light of the fact that Delek Drilling Limited Partnership ("the Partnership") is only granted an option in the Roy License, and it does not have access to information concerning the joint endeavor, the description of the work plan and schedule for the above activities is based solely on publicly available information published by Ratio. Warning concerning forward-looking information - The above description concerning planned activities in the Roy License, including corresponding schedules, constitutes forward-looking information as defined in the Securities Law, 1968, and is based solely on publications made by Ratio. 1 The update contains material changes or developments in the Company s business in the first quarter of 2018 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 2017 (ref. no ), and supplements the content disclosed therein.. A-1

6 Actual implementation of the work plan, including its associated timeframes, may differ materially from the above and depends, among other things, on applicable regulation, technical ability, and economic viability. (3) Referring to Section (d)(2) to the Periodic Report - GSPAs for the Leviathan Project For information concerning compliance with all preconditions in the GSPA between the Leviathan partners and IPM Beer Tuvia Ltd., see the Company's immediate report of May 9, 2018 (ref. no ), included herein by way of reference. (4) Referring to Section of the Periodic Report - Financing 1. Following on Section (c)(4) to the Periodic Report concerning financing agreements signed on February 20, 2017 (as amended on May 9, 2017 and on August 24, 2017) between the Partnership and a consortium of local and foreign lenders headed by HSBC Bank Plc and J.P. Morgan Limited, whereby the Partnership would receive a limited-recourse loan of up to USD 1.75 million (in this section - "the Financing Agreement" and "the Loan", respectively), to finance its share in the remaining investment for developing the Leviathan Project, it is noted that on March 29, 2018, all preconditions were met for withdrawing funds from the second facility, under the Loan terms. 2. Following on Section (c)(8)a to the Periodic Report, it is noted that the Partnership complied with the financial covenants undertaken in the issue of debentures to the public, as detailed in Section (c)(7), as follows: Financial Covenant Examined ratio as of March 31, 2018 and the reporting date Partnership's economic capital Economic capital to debt ratio 11 Distribution - USD 4,441 million 3. Following on Section (c)(8)a to the Periodic Report, it is noted that the Partnership complied with the financial covenants undertaken in the Financing Agreement, as detailed in Section (c)(4), as follows: Financial Covenant Examined ratio as of March 31, 2018 Examined ratio as of April 26, the withdrawal date 2 Examined ratio as of the reporting date Required debt coverage ratio (5) Referring to Section (n) to the Periodic Report - Agreement to Sell the Partnership's Rights in the I/16 Tanin and I/17 Karish Leases of August 16, 2016 ("the Agreement" and "the Leases", respectively) For information concerning Energean Israel Limited's announcement whereby, on March 22, 2018, it made a final investment decision (FID) for developing the Leases, see the Company's immediate report of March 27, 2018 (ref. no ), included herein by way of reference. (6) Referring to Section (b) to the Periodic Report - Targets and Business Strategy - Exercise of the Company's Rights to Royalties from the Tamar Project On May 23, 2018, Delek Royalties (2012) Ltd. ("the Royalties Company"), a wholly-owned subsidiary of Delek Energy, published a shelf prospectus and a supplementary prospectus for the initial public offering of securities by the Royalties Company (shares and debentures). Proceeds from this offering will be utilized by the Royalties Company to buy Delek Energy's rights to overriding royalties from the Tamar and Dalit leases from Delek Drilling - Limited Partnership and Tamar Petroleum Ltd. 2 Following on Section (a) to the Periodic Report, compliance with the required debt coverage ratio will be measured, among other times, upon any withdrawal. From March 21, 2018 (the Periodic Report's publication date) and until the publication date of this report, the Partnership performed 3 withdrawals, the last occurring on April 26, On each of the 3 withdrawal dates, the Partnership met the required ratio. A-2

7 (7) Natural Gas and condensate production data from the Tamar Project for the first quarter of 2018: 3 4 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) 5 Average net proceeds per output unit (attributable to equity holders of the Company) (USD per MCF and BBL) Natural gas Condensate 12, The State Third parties Principal shareholders B. Energy operations abroad (1) Referring to Section 1.8.5(c)(5)a to the Periodic Report - Stella License In the next few years, Ithaca plans to drill in other reservoirs in the Greater Stella Area, and to connect these other wells to the FPF-1 production facility. Ithaca also plans to increase its holdings in the Great Stella Area reservoirs either through direct purchases or through tenders. Warning concerning forward-looking information - The above description concerning planned activities in the Stella License, including corresponding schedules, constitutes forward-looking information as defined in the Securities Law, Actual implementation of the work plan, including its associated timeframes, may differ materially from the above and depends, among other things, on applicable regulation, technical ability, and economic viability. (2) Referring to Section 1.8.5(c)(5)c to the Periodic Report - Vorlich Licenses FPF-1 was chosen as the production facility by the partnership holding the Vorlich reservoir (Ithaca's share - 34%). Production from this reservoir is planned to begin in The UK Oil and Gas Authority's approval for the reservoir's development plan is expected around mid Vorlich is an oil and condensate field with an estimated 25 mmbl in proven and probable reserves. Works for the field's development began in the first quarter of Drilling the underwater wells and connection to FPF-1 are planned for Ithaca's share in the reservoir's development costs is estimated at USD 100 million. Warning concerning forward-looking information - The above description concerning planned activities in the Vorlich License, including corresponding schedules, constitutes forward-looking information as defined in the Securities Law, Actual implementation of the work plan, including its associated timeframes, may differ materially from the above and depends, among other things, on applicable regulation, technical ability, and economic viability. 3 Percentage of output, royalties, production costs and net proceeds attributable to holders of the Company's equity rights rounded to two decimal digits. 4 In addition to the Partnership s direct holdings in the Tamar Project, production data also include the Partnership s share in Tamar Petroleum Ltd. s production data, as follows: from January 1, 2018 until March 13, 2018 direct and indirect holdings in the Tamar Project at a rate of 25.7%; and from March 14, 2018 until March 31, 2018 (the completion date for the deal between Tamar Petroleum Ltd. and Noble for purchasing 7.5% of the Tamar and Dalit leases) direct and indirect holdings in the Tamar Project at a rate of %. 5 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 (3) Referring to Section 1.8.5(d) to the Periodic Report Oil and Gass Assets Held through Ithaca in the North Sea the Other Assets In March 2018, a transaction was completed for selling Ithaca's rights in the Wytch Farm oil field. Consideration for this sale totaled USD 51 million, and was used to repay part of Ithaca's bank debt as detailed in Section to the Periodic Report. (4) Production data for Ithaca's producing oil assets: Production data attributable to the Company in the first quarter of 2018 from the Stella Reservoir project (part of the GSA project): Oil bbl Q1 Natural gas mcf Condensate bbl Total output in the period 217,142 3, ,469 Average price per output unit (attributable to equity holders of the Company) (USD per unit) Average royalties to third parties (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 unit) Average production costs per output unit (USD per unit)* Average net proceeds per output unit (USD per unit) Depletion rate in the reporting period from the total gas quantities in the project (%) * The above amount represents net costs, excluding a USD 20.7/unit refund to production platform (FPF-1) owners Production data attributable to the Company in the first quarter of 2018, from Ithaca's other producing oil assets, outside the GSA and Stella Reservoir: Oil bbl Q1 Natural gas mcf Total output in the period 686, ,178 Average price per output unit (attributable to equity holders of the Company) (USD per unit) Average production costs per output unit (USD per unit) Average net proceeds per output unit (USD per unit) 37.8 (3.6) 13.5 Depletion rate in the reporting period from the total gas quantities in the project (%) Condensate bbl C. Additional operations - Gadot Referring to Section to the Periodic Report - On April 30, 2018, the Company signed an agreement with Fortissimo Capital Fund IV, L.P. ("the Buyer") to sell all of the Company's holdings in Gadot Biochemical Industries Ltd. ("Gadot"), in consideration for NIS 40 million (USD 11 million), subject to such terms as stipulated in the agreement. The sale did not include the land on which Gadot s facility is built, which was transferred to the Delek Group and leased to Gadot for 20 years. The transaction was completed on May 22, 2018, and as of the publication date of this report, the Company does not hold any shares in Gadot and only the land on which the facility is built has been 6 The depletion rate is the percentage of oil produced in the relevant reporting period, from the remaining proven and probable reserves at the later of either the start of the reporting period or the start of production. 7 The depletion rate is the percentage of natural gas produced in the relevant reporting period, from the remaining proven and probable reserves at the later of either the start of the reporting period or the start of production. A-4

9 transferred to the Company s ownership. For more information, see the Company s immediate reports of May 1, 2018 (ref. no ) and May 22, 2018, (ref. no ), included herein by way of reference. 3. Part 4 Matters Relating to the Company as a Whole Referring to Section 1.16 to the Periodic Report - Financial Investments On April 4, 2018, the Company signed an agreement with a third party to sell all of the Company's holdings in Faroe Petroleum PLC ("Faroe"), accounting for 15.3% of Faroe's share capital, in consideration for NIS 350 million in cash. For more information, see the Company s immediate report of April 4, 2018 (ref. no ), included herein by way of reference. Delek Group Ltd. Date: May 30, 2018 Names and titles of signatories: Gabriel Last, Chairman of the Board Asaf Bartfeld, CEO A-5

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

11 Board of Directors Report Delek Group Ltd. May 30, 2018 Delek Group Ltd. Board of Directors' report on the state of the Company's affairs For the three months ended March 31, 2018 The Board of Directors of the Delek Group Ltd. ("the Company" and/or "the Group"), hereby presents the Company's Board of 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 an investee partnership, 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. The Group continues to study options for acquiring additional overseas oil and gas assets and/or companies which will be synergistic and complementary to the Group's existing core operations. The Group'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, among other things, 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 Oil and gas operations in Israel and its surrounding areas General The Group's gas and oil operations in Israel are carried out through Delek Drilling Limited Partnership ("Delek Drilling"). As of the financial statements' approval date, Delek Drilling mainly deals in the exploration, development and production of natural gas, condensate and oil, including the production and sale of natural gas and condensate from the Tamar Reservoir located in the Tamar lease ("the Tamar Project"), in promoting the expansion of the Tamar Project production system, in developing Phase 1A of the Leviathan Reservoir and promoting the commercialization of its natural gas and condensate, in promoting and planning Phase 1B of the Leviathan Reservoir development plan for additional target markets, in promoting and planning the commercialization of natural gas and development of the Aphrodite Reservoir, in studying various infrastructure alternatives for supplying natural gas to additional target markets, in exploration activities in Partnership-held oil assets including for oil purposes, and considering entry into additional oil assets in Israel and the Mediterranean Basin. Delek Drilling also deals in promoting various natural gas-based projects, in order to increase the sales of natural gas from Delek Drilling-held oil assets, and in considering and promoting various options for selling Delek Drilling s holdings in the Tamar Project, in accordance with the Gas Outline Plan (for more information concerning the Gas Outline Plan, see Note 12N(1) to the annual financial statements). B-1

12 Board of Directors Report Delek Group Ltd. Leviathan Project As of the financial statements' approval date, the Ensco DS-7 drilling rig has completed drilling the bottom part of the Leviathan 3 well to its final depth, and has started to drill the bottom part of the Leviathan 7 well to its final depth. After completing the Leviathan 7 well, the drilling rig will undertake completion of the Leviathan Project production wells. Karish and Tanin leases On March 27, 2018, Energean (a company that bought all of Delek Drilling's rights in the Karish and Tanin leases) notified Delek Drilling that it had made an FID to develop the leases. Under the terms of the rights-sale agreement, from the date of such FID, Delek Drilling is entitled to a total of USD million, in ten equal annual payments, plus interest as specified in the agreement. In addition, Delek Drilling, Delek Energy and the Company are entitled to royalties on gas and condensate produced from these leases. In the reporting period, the Group updated the fair value of the amounts and royalties due as aforesaid. Following such updates, the Group recognized finance income to a total amount of NIS 258 million (post-tax profit attributable to the Company's shareholders totaled NIS 141 million). 1 For more information, see Note 5J to the consolidated financial statements. Additional information 1. In February 2018, Delek Drilling and Noble Energy signed an agreement with Dolfinus to export 32 BCM of natural gas from the Tamar Project and 32 BCM from the Leviathan Project to Egypt. The export agreements are subject to certain preconditions. 2. In March 2018, all preconditions were met as stipulated in the agreement to export natural gas from the Leviathan Project to the National Electric Power Company of Jordan. 3. In March 2018, Tamar Petroleum (Delek Drilling's associate company) acquired an additional 7.5% of the rights to the Tamar and Dalit leases from Noble Energy, in consideration, among other things, for a private placement of its shares. Following these actions, Delek Drilling's interest in Tamar Petroleum interest in Tamar Petroleum went down to 22.6%, while voting rights remained unchanged. 4. Subsequent to the financial position statement date, on May 22, 2018, Delek Energy's board of directors approved an agreement whereby Delek Energy would transfer its rights to receive royalties from the Tamar Project to a subsidiary, Delek Royalties (2012) Ltd. ("Delek Royalties") against a cash consideration funded through the offering of Delek Royalties debentures and shares to the public, and under certain conditions against an allocation of Delek Royalties shares to Delek Energy. For more information, see Note 5G to the consolidated financial statements. Oil and gas operations in the North Sea In June 2017, the Company completed a purchase offer for acquiring 80% of Ithaca's capital, and became the sole shareholder in Ithaca. After assuming control of Ithaca, the Group has started to consolidate Ithaca's financial statements, starting from the financial statements for the second quarter of At this time, Ithaca's development operations focus on developing reservoirs in the Greater Stella Area. Production in the Greater Stella Area is conducted through the FPF-1 floating production facility, co-owned by Ithaca (49.9%) and additional partners. Production from the Stella reservoir started in February Furthermore, in September 2017, the drilling plan for the Harrier reservoir (Ithaca's share %) was completed, and production is planned to begin in the second half of Ithaca's share in the reservoir's development costs is estimated at USD 65 million. Furthermore, FPF-1 was chosen as the production facility by a partnership holding the Vorlich reservoir (Ithaca's share - 34%). Production from this reservoir is planned to begin in The UK Oil and Gas Authority's approval for the reservoir's development plan is expected around mid Vorlich is an oil and condensate field with an estimated 25 mmbl in proven and probable reserves. Works for the field's development began in the first quarter of Drilling the underwater wells and connection to FPF-1 are planned in Ithaca's share in the reservoir's development costs is estimated at USD 100 million. In the next few years, Ithaca plans to drill in other reservoirs in the Greater Stella Area, and to connect these other wells to FPF-1. Ithaca also plans to increase its holdings in the Great Stella Area reservoirs either through direct purchases or through tenders. In this context, it is noted that 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-2

13 Board of Directors Report Delek Group Ltd. subsequent to the financial position statement date, in May 2018, Ithaca won three additional licenses. Two of these licenses are located in the Greater Stella Area. In March 2018, a transaction was completed for selling Ithaca's rights in the Wytch Farm oil field. Consideration for this sale totaled USD 51 million, and was used to repay part of Ithaca s bank debt. Ithaca has begun studying options for refinancing its debt (debentures and RBL). Oil and gas operations in the Gulf of Mexico On January 8, 2018, Delek GOM Investments LLC, a wholly-owned foreign subsidiary of the Company ("the Buyer") signed an agreement to buy oil and gas rights (in this report - "the Agreement" or "the Rights Purchase Agreement") with GulfSlope Energy Inc. and Texas South Energy Inc. ("GulfSlope" and "Texas South", respectively, and jointly - "the Transferors"). The Transferors are public companies whose shares are listed for trading in the US (OTC). The oil assets in the Agreement constitute 12 federal licenses for shallow-water (water depth of less than 150 meters) exploration, development and production of oil and gas in the Gulf of Mexico, US ("the Licenses" and "the Oil Assets"). The Transferors have identified 9 main prospects in the Oil Assets for exploratory drilling ("the Prospects"), of which 7 prospects are to deep layers and 2 prospects are to shallow layers. In the Agreement, the Buyer has undertaken to finance 90% of the cost of the first two wells in the Tau and Canoe prospects ("the First Stage Assets"), in consideration for 75% of the rights to the First Stage Assets in which the wells will be drilled, to an amount not to exceed USD 50 million. The Buyer will also have an option to buy rights in the remaining Prospects subject to the mechanism set forth in the Agreement. The Company will provide the Buyer a shareholders' loan to finance the cost of drilling the two wells from its own sources. For more information concerning he said transaction, see Note 5 to the consolidated financial statements. Gulf Slope, which operates the wells ("the Operator") has signed an agreement with Rowan Companies to lease the Ralph Coffman drilling rig ("the Drilling Rig") to drill the two exploration wells in the second half of In early May, the Drilling Rig reached the Gulf of Mexico, and is currently carrying out all the necessary tests, including regulatory tests, in preparation for drilling the wells in the next few months. At the same time, the Operator has filed two drilling plans for the first-phase assets for approval by the regulator for the Gulf of Mexico - the Bureau of Ocean Energy Management. The regulator approved drilling of the Canoe well in May, and in the coming days is expected to grant approval for Tau. As of the financial statements' approval date, development costs for the reservoirs have totaled USD 6 million. For more information, see Note 5 to the consolidated financial statements. Other Operations Developments concerning sale of the Company's investment in The Phoenix: On September 14, 2017, the Company and Sirius International Insurance Group Ltd. ("the Buyer") signed a binding agreement for selling all of the Company's holdings in The Phoenix, for a total consideration of NIS 2.5 billion, plus interest, subject to such adjustments as stipulated in the agreement. To the best of the Company's knowledge, the Buyer is an international insurance company with insurance operations in 140 countries. As part of this deal, on September 18, 2017, the Company sold 4.9% of The Phoenix's share capital to the Buyer for a total consideration of NIS 208 million in cash (this consideration will be adjusted by a further NIS 25 million which the Buyer will pay the Company, should the sale of The Phoenix's remaining shares be completed, as detailed below). The Company also granted the Buyer a call option to buy its remaining holdings in The Phoenix ("the Second Phase of the Agreement"). In November 2017, an irrevocable notice of exercise was received from the Buyer, stating its intention to buy the Company's remaining holdings in The Phoenix's shares (46.2%). The agreement specified preconditions for completing the transaction, including receiving a control permit from the Ministry of Finance's Capital Market, Insurance and Savings Commissioner ("the Commissioner"), and receiving the necessary regulatory approvals. The agreement also specified deadlines for meeting these preconditions. As of the publication date of this report, regulatory approvals had not yet been received for completing the transaction. The Buyer is continuing to work to receive the control permit from the Capital Market Commissioner. B-3

14 Board of Directors Report Delek Group Ltd. It is noted that The Phoenix's contribution to the net profit attributable to Company shareholders totaled NIS 41 million in the first quarter of For more information, see Note 3A to the consolidated financial statements. Financial investments: Subsequent to the financial position statement date, on April 4, 2018, the Company sold all its holdings in Faroe's shares to a third party, for a total cash consideration of NIS 350 million (GBP million). In the first quarter of 2018, the Company recognized NIS 20 million in gains from an increase in the market price of Faroe's shares, and in the second quarter of 2018, the Company is expected to recognize an additional gain of NIS 53 million, following the above sale. Subsequent to the financial position statement date, on April 30, 2018, the Company signed an agreement with the private equity fund Fortissimo to sell all of the Company's holdings in the consolidated subsidiary, Gadot Biochemical Industries Ltd. ("Gadot"), in consideration for USD 11 million, subject to such adjustments as specified in the agreement. The sale did not include the land on which Gadot's facility is located. This land was transferred to the Company and will be leased to Gadot for a period of 20 years. In May 2018, the transaction was completed. For more information, see Note 3E to the consolidated financial statements. Debenture issuance In February 2018, the Company issued Debentures (Series B34). Overall consideration (after issuance costs) received for the debentures totaled NIS 0.5 billion. For more information on these debentures, see Note 6 to the financial statements. Dividend distributions Subsequent to the financial position statement date, on April 29, 2018, the Company s Board of Directors resolved to distribute a dividend of NIS 120 million. The dividend was paid on May 24, B-4

15 Board of Directors Report Delek Group Ltd. 3. Results of Operations A) Contribution to net profit attributable to Company shareholders from principal operations (NIS millions): 1-3/ / Oil and gas exploration and production in and around Israel *) Oil and gas exploration and production in the North Sea **) Fuel operations in Israel Automotive operations Contribution of continuing operations before discontinued operations and capital and other gains Other gains (losses) from oil and gas operations ***) Finance, tax, and other income (expenses) (63) 47 (190) Net profit attributable to Company shareholders ,216 *) Excluding gains on the sale of oil and gas asset operations and the revaluation of contingent considerations and the right to royalties from the Karish and Tanin and Tamar and Dalit leases, which were included under other gains from oil and gas operations. **) In excluding profits from acquiring control of Ithaca and one-time write-downs included under the 'Other gains from oil and gas operations' item. ***) In the reporting period, the item includes NIS 132 million in profit attributable to Company shareholders (post-tax) from the revaluation of contingent considerations following the sale of Karish and Tanin, and the revaluation of the right to royalties following the sale of 9.25% of the Tamar and Dalit leases (in the first quarter of NIS 6 million, in all of NIS 18 million). Furthermore, in 2017, this item included: a NIS 40 million write-down (part attributable to the Company's shareholders) following the Commissioner's decision not to recognize the Dolphin reservoir as a discover; NIS 148 million in gains from accounting treatment after acquiring control of Ithaca; NIS 873 million in gains (post-tax) following the sale of 9.25% of Delek Drilling's rights in the Tamar and Dalit gas leases (for more information, see also Note 12 to the annual financial statements), and NIS 142 million (USD 42 million) in impairment losses from the Greater Stella Area reservoirs. For information concerning each operating segment's contribution to profits, see this report below. B) Revenues from operating activities (NIS millions): The Group s revenues in the reporting period totaled NIS 1.8 billion, as compared to NIS 1.5 billion in the same period last year, as detailed in the table below (NIS millions): 1-3/ / Oil and gas exploration and production in and around Israel ,588 Oil and gas asset development and production in the North Sea Fuel operations in Israel 1, ,143 Other segments including adjustments Total revenues 1,781 1,542 6,835 See also Note 9 to the financial statements - Information Regarding Operating Segments. B-5

16 Board of Directors Report Delek Group Ltd. C) Operating profit (NIS millions): 1-3/ / Oil and gas exploration and production in and around Israel ,390 Oil and gas asset development and production in the North Sea Fuel operations in Israel Other segments including adjustments (29) (15) (157) Total operating profit ,537 See also Note 9 to the financial statements - Information Regarding Operating Segments. D) The Group s share in the profits (losses) of associates, net (NIS millions): The Group's share in the results of its principal associates: 1-3/ / Delek Automotive *) (11) 18 (101) Ithaca **) IDE Tamar Petroleum (18) - 35 Others Total (14) 31 (40) *) In the first quarter of the year, the item includes an additional provision for impairment to the amount of NIS 20 million (in 2017, a provision for impairment of an investment was recognized, to the amount of NIS 164 million). **) Reflects the Group's share in Ithaca's results (20%) prior to it becoming a wholly-owned Group company, and subsequently Ithaca's share in the results of its associate investee. B-6

17 Board of Directors Report Delek Group Ltd. E) Highlights from the Company's consolidated income statements (NIS millions): 1-3/ / Revenues 1,781 1,542 6,835 Cost of revenues 1,231 1,017 4,900 Gross profit ,935 Sales, marketing and gas station operating expenses General and administrative expenses Group's share in earnings (loss) of associates, net (3) 8 54 Other income (expenses), net (32) 4 1,303 Operating profit ,537 Finance income Finance expenses (265) (241) (1,191) Profit after finance expenses, net ,720 Group's share in earnings (losses) of associates, net (11) 23 (94) Profit before income tax ,626 Income tax Profit from continuing operations ,512 Profit from discontinued operations, net Net profit ,438 Attributable to - Company shareholders ,216 Non-controlling interests , ,438 B-7

18 Board of Directors Report Delek Group Ltd. F) Movement in comprehensive income (loss) (in NIS millions): 1-3/ / Net profit ,438 Other comprehensive income (loss) from continuing operations (post-tax): Loss on available-for-sale financial assets, net (11) (44) (50) Transfer to profit or loss from disposal of available-forsale financial assets - - (20) Transfer to profit or loss from impairment of availablefor-sale financial assets Gain (loss) from cash flow hedges 3 (23) (35) Transfer to profit or loss from cash flow hedges (2) - - Attribution to the hedged asset from the results of cash flow hedges Adjustments from translation of overseas operations (*) 131 (541) (947) Transfer to profit or loss from adjustments from translation of overseas operations Group's share of other comprehensive income (loss) of associates, net 3 (20) (76) Total other comprehensive income (loss) from continuing operations 124 (627) (1,078) Total other comprehensive income (loss) from discontinued operations, net (13) Total other comprehensive income (loss) 111 (611) (921) Total comprehensive income (loss) 587 (154) 1,517 Attributable to: Company shareholders 316 (150) 582 Non-controlling interests 271 (4) (154) 1,517 (*) The Group has material investments in investee companies and an investee partnership whose functional currency is not NIS (mainly USD). Thus, changes in currency exchange rates materially affect the Group's other comprehensive income or loss and the equity attributable to Company shareholders. In the first quarter of 2018, the USD strengthened against the NIS by 1.4%, as compared to a 5.5% drop in the same quarter last year (in a decrease of 9.8%). B-8

19 Board of Directors Report Delek Group Ltd. 4. Financial Position The Group's total assets as of March 31, 2018, amounted to NIS billion, compared with NIS billion as of December 31, It is noted that, in light of Company's intentions and actions 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, 2018, and December 31, 2017, under separate items - held-for-sale assets and corresponding liabilities. As of March 31, 2018, Gadot's assets and liabilities are also presented as aforesaid. Below is a description of the principal changes in assets and liabilities as of March 31, 2018, compared with December 31, 2017: Cash and cash equivalents and short-term investments As of March 31, 2018, the Group had cash and short-term investment balances of NIS 3.2 billion, consisting mainly of balances of NIS 1 billion in the headquarters companies, and NIS 1.8 billion in Delek Energy and Delek Drilling. 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, 2018, as compared to December 31, 2017 (excluding The Phoenix's assets, which were presented separately as aforesaid). The main reason for the increase in net investment in oil and gas exploration and production was, among other things, the increase in the USD exchange rate as detailed below and additional investments made in the reporting period, mainly in connection with the Leviathan Project. Short- and long-term financial liabilities (excluding liabilities for The Phoenix assets) Financial liabilities (to banks and others and to debenture-holders and holders of convertible debentures), as of March 31, 2018, amounted to NIS 20.9 billion, as compared to NIS 20.2 billion as of December 31, The NIS 0.7 billion increase was mainly attributable to the issue of NIS 0.5 billion in the Company s Debentures (Series B34). Contingent claims In their review of the financial statements, the Company's auditors draw attention to legal actions brought against Group companies. For details, see Note 7 to the consolidated 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-9

20 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, 2018: (2) NIS millions Liabilities Debentures 8,204 Bank and other loans 528 Other liabilities 368 Total liabilities 9,100 Assets Cash and deposits 907 Financial investments 462 Loans (*) 1,289 Other payables 82 Treasury shares (**) 431 Total assets 3,171 Net financial debt - headquarters companies 5,929 (*) Composition of loans extended as of March 31, 2018: Borrower Loan balance as of March 31, 2018 (NIS millions) Power Plants 586 Seller loan - Republic 192 Ithaca 357 Other 154 Total 1,289 (**) As of March 31, 2018, and as of the financial statements' approval date, Delek Financial Investments 2012 Limited Partnership, a wholly-owned subsidiary partnership of the Delek Group, holds 726,968 shares of NIS 1 par value in the Delek Group. For more information, see Section e below. As of the financial statements approval date, the Company and the headquarters companies have liquid balances of NIS 1 billion (furthermore and in addition to these liquid balances, the Company has guaranteed, unutilized credit facilities of NIS 1 billion). (2) Headquarters companies: Delek Group, Delek Petroleum, Delek Financial Investments 2012 Limited Partnership, Delek Power Plants Limited Partnership, DKL, and Delek Hungary. B-10

21 Board of Directors Report Delek Group Ltd. 6. Analysis of Operations by Segment A) Oil and gas exploration and production in and around Israel As aforesaid, Oil and gas exploration and production in and around Israel and carried out mainly through Delek Drilling. Results of Delek Drilling's 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 ,588 Operating profit (adjusted for gains from oil and gas asset sales) Gains on oil and gas asset sales (*) - - 1,446 EBITDA ,435 Finance income (expenses), net 199 (48) (171) Net profit attributable to Group shareholders ,217 Gas sales in BCM (**) Condensate sales - thousands of barrels (***) (*) In 2017, includes gains on the sale of 9.25% of the rights in the Tamar and Dalit leases. (**) 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. B-11

22 Board of Directors Report Delek Group Ltd. Analysis of the Oil and Gas Exploration and Production in and around Israel s segment results: General In the reporting period, oil and gas exploration operations yielded a profit of NIS 211 million, as compared to a profit of NIS 119 million in the same period last year. Profit was up in the reporting period, mainly due to NIS 141 million in gains recognized on the revaluation of amounts receivable (contingent considerations) attributable to the Company s shareholders. It is further noted that, following the sale of 9.25% of Delek Drilling s rights in the Tamar and Dalit leases at the start of the third quarter of 2017, as aforesaid, a corresponding decrease was recorded in revenue and expense items. This decrease reflects the fact that Delek Drilling s share in the Tamar Project went down from 31.25% to 22% at the start of the third quarter. The Partnership's share in the earnings of Tamar Petroleum were included under the Group's share in the earnings (losses) of operational associates, net. Revenues from gas sales, net of royalties In the reporting period, the segment's revenues from oil and gas sales, net of royalties, totaled NIS 328 million, compared with NIS 473 million in the same period last year. The year-on-year decrease in revenues in the reporting period was mainly due to the decrease in Delek Drilling s holdings in the Tamar reservoir as aforesaid. Operating profit (excluding gains from oil and gas asset sales) Operating profit in the reporting period amounted to NIS 210 million, compared to NIS 325 million in the same period last year. This decrease in operating profit was mainly due to the decrease in Delek Drilling s holdings in the Tamar reservoir, as aforesaid. Finance income (expenses), net In the reporting period, net finance income totaled NIS 199 million, as compared to finance expenses of NIS 48 million in the same period last year. The increase in net finance income was mainly due to recognition of income from the revaluation of amounts receivable (contingent considerations) in connection with the sale of the Karish and Tanin leases, to the amount of NIS 258 million. This update was mainly attributable to changing estimates concerning the reservoirs' development date and the gas quantities in the reservoirs, as detailed in Note 5F to the consolidated financial statements. B-12

23 Board of Directors Report Delek Group Ltd. Adjustment of the Partnership's post-merger results to the Group's share in oil and gas exploration and production operations (NIS millions): 1-3/ / Net profit from Delek Drilling's statements ,934 Indirect holdings (%) 56.2% 56.2% 56.2% Group's share ,649 Revenues from overriding royalty and management fees Results of direct holdings in Yam Tethys (4.44%) - (1) (8) Write-down of excess acquisition costs *) (9) (17) (51) De-recognition of excess costs following the sale of 9.25% of the rights in Tamar and Dalit - - (535) General and administrative expenses (5) (12) (14) Finance income (expenses), net 72 - (38) Other income (from first-time revaluation of overriding royalties at fair value) Tax expenses (50) (28) (192) Contribution to net profit from oil and gas exploration and production ,217 (*) Current write-down of the excess acquisition cost attributed to the Tamar Project (which previously arose as part of the Cohen Development deal). Additional information For more information on oil and gas exploration in and around Israel, see Notes 5 and 7 to the consolidated financial statements. B-13

24 Board of Directors Report Delek Group Ltd. B) Oil and gas exploration and production in the North Sea Ithaca Energy ("Ithaca") is an independent oil and gas operator operating in the North Sea, and holding both production and development oil and gas assets. In the second quarter of 2017, the Group bought additional shares in Ithaca. Following these purchases, the Group's interest in Ithaca grew from 19.7% to 100%. After assuming control of Ithaca as aforesaid, the Group is consolidating Ithaca's financial statements starting from the second quarter of Ithaca's financial data as included in the financial statements (including attribution of excess acquisition costs incurred upon assuming control) (USD millions): Statement of Financial Position March 31, 2018 Cash and cash equivalents 77 Current assets (excluding cash and cash equivalents) 176 Investments in oil and gas exploration and production 586 Investment in an associate (FPF-1) 210 Other long-term assets, net (mainly deferred taxes and limited deposits) 690 Goodwill 184 Total assets 1,923 Current liabilities (trade and other payables) 295 Long-term loans (RBL, bank loans, and debentures) 598 Long-term loans from Delek Group 100 Other long-term liabilities (mainly obligation to disassemble assets and debt to Petrofac) Equity attributable to Ithaca s shareholders 598 Total liabilities and equity 1, B-14

25 Board of Directors Report Delek Group Ltd. Income statement 1-3/ /2017 *) 2017 *) Revenues from oil and gas sales Cost of sales (excluding depreciation and inventory turnover) (39) - (100) Depreciation expenses (24) - (58) Change in gas and oil inventory 39 - (1) Gross profit Impairment of gas and oil assets - - (35) General and administrative and other expenses (3) - (2) Finance income (expenses) from hedges (11) - (31) Finance expenses, net (17) - (30) Group's share in the profits of associates, net Profit (loss) before income tax 2 2 (58) Tax benefit Net profit (loss) for the period attributable to Ithaca's shareholders 15 2 (36) Average output (KBoed) *) In the first quarter of 2017, the investment in Ithaca was presented as per the equity method, and so in this period the Group included its share in Ithaca's results under the earnings of associate companies. In the second quarter of 2017, the Group acquired Ithaca's remaining shares, so that post-purchase, the Group holds 100% of Ithaca's share capital. From the date of this purchase, the Group consolidates Ithaca in its financial statements. As aforesaid, the Group started consolidating Ithaca's financial statements from the second quarter of It is noted that Ithaca's financial statements are publicly available. General The average daily output in the first quarter of 2018 stood at 18.2 Kboed, as compared to an average daily output of 13.9 Kboed in all of 2017, and 9.3 Kboed in the first quarter of This increase in output was mainly attributable to the ramping up of production from the Stella reservoir since it first came online in the first quarter of The average production cost per barrel in the first quarter of 2018 totaled USD 18/barrel, as compared to USD 19/barrel in all of 2017, and USD 21/barrel in the first quarter of Sales revenues Revenues from Ithaca's sales in the reporting period totaled USD 53 million, as compared to revenues of USD 37 million in the same period last year. Revenue composition was as follows: Sales revenues (USD millions) 1-3/ /2017 Oil Natural gas 25 1 NGL (Natural Gas Liquids) and other revenues 6 - Total Finance expenses Ithaca periodically conducts hedges on gas and oil prices. As of March 31, 2018, Ithaca had option and swap hedges on a total output of 1.3 MMbl for the period up to June 2019, with an average price of USD 57/barrel. Ithaca also has hedges on gas prices for a total output of 54 million therms, at an average price of GBP 46/therm, for the period up to March The loss B-15

26 Board of Directors Report Delek Group Ltd. recognized in the reporting period on these hedges and on hedges exercised in the reporting period, totaled USD 11 million. Ithaca's finance expenses in the first quarter of 2018 totaled USD 16 million. Ithaca's finance expenses in the first quarter of 2017 (before the start of Ithaca's consolidation) totaled USD 9 million. The bulk of this increase in Ithaca's finance expenses was due to cessation of discounting the reservoir's financing costs in the first quarter of 2017, once the Stella reservoir came online. Additional information For more information on Ithaca's operations, see Notes 3B and 5 to the consolidated financial statements. C) 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, 2018 December 31, 2017 Cash and cash equivalents Current assets (excluding cash and cash equivalents) 1,446 1,267 Held-for-sale assets Property, plant and equipment 1,279 1,285 Other long-term assets Total assets 3,289 3,211 Short-term credit from banks and others Current liabilities (excluding credit) Liabilities attributed to held-for-sale assets - 70 Long-term loans from banks and others Other long-term liabilities Equity attributable to Delek Israel s shareholders 1,053 1,070 Non-controlling interests 2 5 Total liabilities and equity 3,289 3,211 B-16

27 Board of Directors Report Delek Group Ltd. Profit and loss 1-3/ / Revenues 1, ,143 Gross profit Sales and gas station operating expenses General and administrative expenses Other income (expenses), net 13 - (2) Profit from operating activities Finance expenses, net Profit before income tax Income tax Net profit attributable to Delek Israel's shareholders EBITDA (excluding other income (expenses)) Analysis of the results of fuel operations in Israel General In the reporting period, Delek Israel's net profit totaled NIS 32 million, as compared to a profit of NIS 20 million in the same period last year. The increase in net profit was due to NIS 12 million (pre-tax) from the sale of a consolidated company, Delek Industries Ltd, and an increase in the Company's operating profit. As of March 31, 2018, Delek Israel had 245 public gas stations (of which 192 were operated by Delek Israel) and 199 convenience stores (of which 173 were operated by Delek Israel, with the rest operated by franchises). Sales Sales net of government fees ("Net Sales") totaled NIS 1,111 million in the reporting period, as compared to NIS 990 million in the same period last year, an increase of 12%. This increase in sales was due to a global increase in distillate prices and greater sales volumes. Sales turnover in self- and franchise-operated Menta convenience stores totaled NIS 104 million in the reporting period, as compared to NIS 97 million in the same period last year, an increase of 7%. Gross profit Gross profit in the reporting period amounted to NIS 186 million, compared with NIS 188 million in the same period last year. This decrease in gross profit was attributable to the gross profit of a consolidated company whose result were included in the same quarter last year but not included in the reporting period following its sale in the reporting period. Adjusted for the profits of said consolidated company, gross profit was up. Sales, gas station operation and general and administrative expenses In the reporting period, sales and gas station operation expenses totaled NIS 134 million, compared with NIS 137 million in the same period last year. In the reporting period general and administrative expenses totaled NIS 17 million, compared with NIS 20 million in the same period last year. Expenses were down mainly due to Delek Israel's streamlining efforts in Delek Israel s headquarters, and non-inclusion of expenses from a consolidated company that were sold off in the reporting period. B-17

28 Board of Directors Report Delek Group Ltd. Other income and expenses, net In the reporting period, Delek Israel recognized NIS 13 million in other income, mainly on the sale of a consolidated company. Finance expenses, net Net finance expenses in the reporting period amounted to NIS 8 million, as compared to NIS 3 million in the same period last year. This increase in net finance expenses was mainly due to finance income from fuel trades recognized by Delek Israel in the same period last year. For more information concerning fuel operations in Israel, see Notes 3C and 7 to the consolidated financial statements. D) Insurance and finance operations in Israel As of March 31, 2018, the Group held 46.2% of the shares of The Phoenix Holdings Ltd. For information concerning the sale of control in The Phoenix, see Note 3A to the consolidated financial statements. Highlights from the consolidated income statements of The Phoenix whose results are presented under discontinued operations (NIS millions): 1-3/2018 (*) 1-3/ Gross premiums earned 2,451 2,443 9,691 Premiums earned in retention 2,182 2,252 8,801 Net gains on investments, and finance income ,880 Revenues from management fees ,099 Payments and changes in liabilities for insurance contracts and investment contracts in retention 1,928 2,484 11,545 Commission, marketing, and other purchasing expenses ,581 General and administrative expenses ,193 Other expenses Finance expenses Share in the profits of investees accounted for as per the equity method Net profit for the period Net profit for the period attributable The Phoenix shareholders Other comprehensive income (loss), net of taxes (23) Comprehensive income for the period Comprehensive income for the period attributable The Phoenix shareholders (*) Starting from the first quarter of 2018, the Group is implementing IFRS 9 - Financial Instruments, without adjusting comparative data. The Phoenix's results for the first quarter of 2018 were adjusted for the Standard's implementation as aforesaid, since the Standard has not yet been implemented in The Phoenix's financial statements. 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 reflect capital market performance in Israel and abroad, as well as changes in the Consumer Price index and the NIS exchange rates against the main currencies. The aggregate effect of these factors on the financial margin is the main reason for fluctuations in The Phoenix's reported results. B-18

29 Board of Directors Report Delek Group Ltd. Revenues from management fees in the reporting period amounted to NIS 217 million, compared to NIS 263 million in the same period last year. The bulk of this year-on-year decrease in management fees in the reporting period was due to a decrease in variable management fees due to lower real yields achieved by The Phoenix as compared to the same period last year. Results for the reporting period and for the corresponding period last year were affected by changes in the market interest rates. In the reporting period, changes in interest rates reduced insurance liabilities and consequently increased profit by NIS 15 million, pre-tax (NIS 10 million, post-tax). This, compared to the same quarter last year, where profit grew by NIS 66 million, pre-tax (NIS 43 million, post-tax). Comprehensive income according to The Phoenix s operating segments (NIS millions): 1-3/2018 (*) 1-3/ Comprehensive income from life insurance and long term savings segment Comprehensive income from healthcare insurance segment Comprehensive income from general insurance segment Comprehensive income (loss) from financial services segment (2) Total comprehensive income from operating segments Comprehensive income not attributed to reporting segments The Phoenix s share in the net results of investees not included in the reported segments Comprehensive income before income tax ,272 Income tax Comprehensive income for the period Comprehensive income for the period attributable The Phoenix shareholders (*) Starting from the first quarter of 2018, the Group is implementing IFRS 9 - Financial Instruments, without adjusting comparative data. The Phoenix's results for the first quarter of 2018 were adjusted for the Standard's implementation as aforesaid, since the Standard has not yet been implemented in The Phoenix's financial statements. For more information on The Phoenix s operations and the contract to sell the Company's holdings in The Phoenix, see Notes 3A and 7 to the consolidated financial statements. E) 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. The results of Delek Automotive's operations (NIS millions): 1-3/ / Revenues 1,181 1,074 3,406 Gross profit Sales, marketing, and general and administrative B-19

30 Board of Directors Report Delek Group Ltd. expenses Appreciation of investment property and other income Operating profit EBITDA Finance income (expenses), net (44) (3) 27 Net profit attributable to Delek Automotive's shareholders Breakdown of Delek Automotive's sales by number of cars sold: 1-3/18 1-3/ MAZDA vehicles 5,602 4,478 13,215 FORD vehicles 889 1,096 3,306 BMW vehicles 1,416 1,157 4,132 Total vehicles sold 7,907 6,731 20,653 Delek Automotive's share of all new vehicles sold in Israel (based on Licensing Bureau data) 8% 7% 7% Analysis of the results of automotive operations: In the first quarter of 2018, Delek Automotive sold 7,907 vehicles which, according to Licensing Bureau data, reflect an 8% market share of all vehicles sold in Israel. This, compared with 6,731 vehicles sold in the same period last year (reflecting a 7% market share). As part of Delek Automotive's plans to move into other fields, while continuing to develop its existing operations and with the aim of expanding its long-term growth drivers, Delek Automotive is considering entry into additional operations outside this market. Therefore, on March 4, 2018, Delek Automotive announced that it had signed an agreement (whose preconditions have not yet been met) to buy 70% of the shares in the Veridis Group, in consideration for NIS 1 billion. Veridis operates in the environmental and infrastructures industries in Israel and works, among other things, to develop and implement services and projects in three key fields - environmental protection, desalination, and energy solutions. Revenues Turnover in the reporting period amounted to NIS 1,181 million, compared with NIS 1,074 million in the same period last year, an increase of 10%. This increase was mainly due to an increase in the number of vehicles sold in the reporting period, as aforesaid, partially offset by changes in the mix of models sold and by market competition. Gross profit Gross profit in the reporting period amounted to NIS 177 million, similar to the figure for the same period last year. In the reporting period, the gross margin was 15%, down from 16.5% in the same period last year, mainly due to changes in the mix of models sold. Sales, marketing, and general and administrative expenses Sales, marketing, and general and administrative expenses amounted to NIS 51 million in the reporting period, compared to NIS 40 million in the same period last year. This increase was mainly due to an increase in advertising expenses associated with Delek Automotive's new showroom. Net profit attributable to Delek Automotive's shareholders B-20

31 Board of Directors Report Delek Group Ltd. Net profit attributable to Delek Automotive's shareholders in the reporting period totaled NIS 63 million, as compared to a net profit of NIS 100 million in the same period last year. The decrease in net profit was mainly due to a change in the net finance item. In the reporting period, Delek Automotive recorded NIS 44 million in net finance expenses, as compared to net finance expenses of NIS 3 million in the same period last year. This increase in finance expenses in the reporting period was mainly due to the stronger JPY, which is Delek Automotive's import currency. For more information on Delek Automotive's operations, see Note 3D to the consolidated financial statements. F) 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 16 million, as compared to a loss of NIS 5 million in the same period last year. The Company is studying various options for disposing of its infrastructures operations. Gadot For information concerning Gadot s sale subsequent to the financial position statement date, see Chapter A to the Board of Directors Report and Note 3E to the consolidated financial statements. B-21

32 Board of Directors Report Delek Group Ltd. B) Market Risk Exposure and Management Following the amendment to the Securities Regulations (Periodic and Immediate Reports) in 2017, the Board of Directors' Report for 2017 does not include information concerning market risk exposure and management. This is due, among other things, to the fact that the Group is of the position that there is no material financial operations as defined in the Regulations, considering that the Company's investment in The Phoenix shares is presented under held-for-sale assets and it does not constitute a reporting segment. 1. The following table details Israeli CPI data and exchange rates for the primary currencies used by the Group: EUR representative exchange rate USD representative exchange rate GBP representative exchange rate Known CPI As of NIS NIS NIS Points *) March 31, March 31, Dec. 31, Change during the period % % % % Q1/ (0.3) Q1/2017 (4.0) (5.5) (4.2) (0.2) *) 2014 = base index. B-22

33 Board of Directors Report Delek Group Ltd. 2. Linkage bases report as of March 31, 2018: As of March 31, 2018 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, , ,028 Held-for-sale assets , ,903 Non-current assets ,472-24,670 27,828 Total assets 2, ,000 3, ,903 25, ,759 Liabilities Current liabilities 2, , ,271 Held-for-sale liabilities , ,651 Non-current liabilities 4,697 3, ,035-2,370 21,350 Total liabilities 6,914 4, , ,651 2, ,272 Assets less liabilities, net (4,313) (4,563) (8,733) 5,252 22,610 11,487 B-23

34 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 2017 periodic report. 2. Events after the financial position statement date For information on material events subsequent to the financial position statement date, see Chapter A to the Board of Directors' Report. B - 24

35 Board of Directors Report Delek Group Ltd. D) Dedicated disclosure for debenture holders Series Issue date Par value Origin al NIS million s Par value balance as of Mar. 31, 2018 NIS millions Nominal interest rate Linkage Carrying amount - Mar. 31, 2018 NIS millions Interest accrued in the books as of Mar. 31, 2018 NIS millions B11 7/ % Israeli CPI B13 3/ B14 B18 7/2009 6/ /2009 6/2010 7/2015 Until listing %, after listing - 4.6% Israeli CPI Repayment years Stock exchange value as of March 31, 2018 Trustee NIS millions Nonmarketable % Un-linked , % Israeli CPI B19 11/ % Israeli CPI B22 6/ % Israeli CPI B31 2/2015 6/ /2015 2/2017 B32 7/ % B33 7/ % 3,276 3, % Un-linked 3, ,403 Convertible and non-linked Convertible and non-linked B34 2/ % Un-linked Hermetic Trust (1975) Ltd. 113 Hayarkon St. Tel Aviv Tel: Dan Avnon 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 Hermetic Capital Ltd. 113 Hayarkon St. Tel Aviv 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 Hermetic Trust (1975) Ltd. 113 Hayarkon St. Tel Aviv Tel: Dan Avnon B-25

36 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 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 B 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 October 8, 2017, ref. no ) and February 8, 2018 (ref. no ), 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 two consecutive quarters. B. Ratio of equity to balance sheet total: The Company's equity will not fall below 20% of its balance sheet total according to the Company's audited or reviewed separate financial statements, as applicable, for two consecutive quarters. Equity, meaning the Company's total equity attributable to Company shareholders, excluding minority interests, as defined in GAAP. As of March 31, 2018, and the financial statements' approval date, the Company is in compliance with these financial covenants. In February 2018, the Company issued Debentures (Series B34). The deed of trust to Debentures (Series B34) includes the above financial covenants, and as concerns minimum equity, the deed stipulates that the Company's minimum equity will not fall below NIS 2,600 million. As of March 31, 2018, and the financial statements' approval date, the Company is in compliance with these financial covenants. B - 26

37 Board of Directors Report Delek Group Ltd. E) Additional information 1. Buyback of securities As of March 31, 2018, and the financial statements' approval date, the subsidiary partnership (wholly-owned by the Company) holds 726,968 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 30, 2018 B-27

38 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, 2018 (NIS millions): Delek Group - Headquarters onward Total Debentures Principal 839 1, ,779 2,654 8,204 Interest ,405 Principal Bank loans *) Interest Total 1,097 1,442 1,267 1,158 1,948 2,948 9,860 *) Excluding withdrawn credit facilities as of March 31, 2018, to the amount of NIS 300 million. The Delek Group also had guaranteed, unutilized bank credit facilities of NIS 0.7 billion (as of March 31, 2018). As of the financial statements' approval date, the Delek Group had unutilized credit facilities of NIS 1 billion. B-28

39 Board of Directors Report Delek Group Ltd. Appendix B to the Board of Directors' Report Information concerning a material valuation as of March 31, 2018 (Regulation 49(a) to the Securities Regulations (Periodic and Immediate Reports), 1970) 1. Valuation of the royalties component in connection with the sale of the Karish and Tanin leases In the reporting period a material valuation was prepared concerning the royalties component that the Group companies are entitled to receive from the Karish and Tanin leases. Company entitled to royalties Value of royalties Value of royalties USD millions NIS millions Delek Drilling Limited Partnership Delek Energy Systems Ltd Cohen Development and Industrial Buildings Ltd The Company Total Information concerning the said valuation: Focus of valuation: Study date: March 31, 2018 Value immediately prior to the valuation date had Israeli GAAP, including depreciation and amortization, not required a change in value pursuant to the valuation: Value following assessment: Identity and details of appraiser: The valuation model employed: Assumptions used by the appraiser in the valuation, under the valuation model: The royalties component that the Group companies are entitled to receive in connection with the sale of rights in the Karish and Tanin leases. Royalties were valued at USD 161 million (NIS 557 million) The royalties were valued at USD 216 million (NIS 756 million) according to the above breakdown. This value was included in the Group's long-term payables and loans items. The gain attributable to the Company's shareholders (net of taxes) following the said valuation totaled NIS 113 million. The study was prepared by GSE Economic Consulting Ltd. a subsidiary of Giza Singer Even Ltd., a leading financial consulting and investment banking firm in Israel. The firm has extensive experience working with leading major companies, key privatizations, and the major transactions in the Israeli market, gained over its 30 years of operations. The analysis team was headed by Mr. Eitan Cohen, CPA, a partner and head of the Economic Department in Giza Singer Even. Mr. Cohen has more than ten years of experience in economic and commercial consulting. The appraiser is independent of the Group. The contract with the appraiser includes an indemnification clause. Discounted cash flow projections method. The key assumptions underlying the valuation include assumptions concerning schedules for the reservoirs' development, annual production flows and quantities, forecast natural gas prices, forecast condensate prices, the effective royalties rate, an oil profits tax, an 11% discounting rate. B-29

40 Board of Directors Report Delek Group Ltd. 2. Purchase price allocation for Ithaca's shares upon assuming control In the reporting period, a PPA study was completed for Ithaca s shares. Highlights from this economic study: Focus of valuation: Study date: April 21, 2017 Value immediately prior to the valuation date had Israeli GAAP, including depreciation and amortization, not required a change in value pursuant to the valuation: Value following assessment: Purchase price allocation for Ithaca s shares N/A As detailed in Note 3B to the consolidated financial statements and Note 10J to the annual financial statements. Identity and details of appraiser: The valuation model employed: Assumptions used by the appraiser in the valuation, under the valuation model: The study was prepared by Duff & Phelps, a global consulting firm with more than 70 offices world-wide. The company was founded in 1932, and provides consulting services to numerous clients, including more than 50% of the S&P500 companies. The company provides a range of consulting services, including valuations, tax services, and M&A consultancy. The company's valuations team comprises more than 1,200 professional staff and experts in financial consulting, including PPAs, impairment analysis for goodwill and intangible assets, and valuation analysis. According to the contract with the appraiser, except in the event of improper conduct or fraud by the appraiser, its liability is limited to its fees. The Company also undertook to indemnify the appraiser for any damage it may incur as a result of third party lawsuits, except if a competent court decides that the lawsuit was caused by gross negligence, intentional improper conduct or fraud by the appraiser. Discounted cash flows The key assumptions underlying the valuation include revenue and expense forecasts bearing in mind, among other things, production flows and quantities, oil and gas price forecasts, the inflation rate, and Ithaca s expected investments in developing existing reservoirs. Cash flows were discounted at a rate of 9%- 10%. B-30

41 Chapter C Financial Statements

42 Delek Group Ltd. Consolidated Interim Financial Statements March 31, 2018 Unaudited Contents Page Consolidated Balance Sheets 2-3 Consolidated Statements of Income 4 Consolidated Statements of Comprehensive Income 5 Consolidated Statements of Changes in Equity 6-8 Consolidated Statements of Cash Flows 9-13 Notes to the Consolidated Interim Financial Statements

43 Consolidated Balance Sheets Current assets March 31 December Unaudited Audited NIS million Cash and cash equivalents 1,922 2,885 1,357 Short-term investments 1,276 1,322 1,137 Trade receivables 1,923 1,333 1,908 Receivables Current tax assets Inventory ,028 6,271 5,526 Assets held for sale 111, , ,735 Non-current assets 117, , ,261 Long-term loans, deposits and receivables 2,870 2,215 2,668 Other financial assets Investments in associates 2,252 1,582 2,303 Investment property Investments in exploration and production of oil and gas assets, net 16,192 15,239 15,519 Fixed assets, net 2,209 2,523 2,277 Goodwill 1, ,486 Other intangible assets, net Deferred taxes 2, ,147 27,828 22,947 27, , , ,330 The accompanying notes are an integral part of the consolidated interim financial statements

44 Delek Group Ltd. Consolidated Balance Sheets March 31 December Unaudited Audited NIS million Current liabilities Interest bearing loans and borrowings 3,172 2,253 3,404 Trade payables Other payables 1,786 1,033 1,841 Current tax liabilities Financial derivatives Dividend payable ,271 4,250 6,509 Liabilities attributable to assets classified as held for sale 106,651 98, , , , ,221 Non-current liabilities Loans from banks and others 4,850 1,058 4,321 Debentures 11,824 13,857 11,417 Debentures convertible into Company shares 1,091 1,082 1,089 Liabilities for employee benefits Provisions and other liabilities 1, ,670 Deferred taxes 1,930 2,124 1,865 21,350 18,487 20,374 Capital Share capital Share premium 1,924 1,917 1,924 Proceeds for conversion options Retained earnings 3,587 2,675 3,122 Foreign currency translation differences for foreign operations (492) (240) (576) Capital reserve from transactions with holders of non-controlling interests Other reserves Treasury shares (469) (433) (469) Total equity attributable to shareholders of the Company 4,653 4,273 4,255 Non-controlling interests 6,834 6,358 6,480 Total capital 11,487 10,631 10, , , ,330 The accompanying notes are an integral part of the consolidated interim financial statements. May 30, 2018 Date of approval of the financial statements Gabriel Last Asi Bartfeld Barak Mashraki Chairman of the CEO CFO Board of Directors - 3 -

45 Delek Group Ltd. Consolidated Statements of Income Three months ended Year ended March 31 December Unaudited Audited NIS million (Other than net earnings per share) Revenue 1,781 1,542 6,835 Cost of revenues 1,231 1,017 4,900 Gross profit ,935 Selling, marketing and gas station operating expenses General and administrative expenses Group share in profits (losses) of operational associates, net (3) 8 *) 54 Other financing income (expenses), net (32) 4 *) 1,303 Operating profit ,537 Finance income Finance expenses (265) (241) (1,191) ,720 Group share in profits (losses) of associates, net (11) 23 *) (94) Profit before taxes on income ,626 Taxes on income Profit from continuing operations ,512 Profit from discontinued operations, net Net profit ,438 Attributable to: Shareholders of the Company ,216 Non-controlling interests ,222 Net earnings per share attributable to shareholders of the Company (NIS) ,438 Basic earnings from continuing operations Basic earnings from discontinued operations Basic earnings Diluted earnings from continuing operations Diluted earnings from a discontinued operation Diluted earnings *) Restated, see Note 2E The accompanying notes are an integral part of the consolidated interim financial statements

46 Delek Group Ltd. Consolidated Statements of Comprehensive Income Three months ended Year ended March 31 December Unaudited Audited NIS million Net profit ,438 Other comprehensive income (loss) (net of tax effect): Amounts classified or reclassified to profit or loss under specific conditions: Loss from available-for-sale financial assets (11) (44) (50) Transfer to statement of income for disposal of available-for-sale financial assets - - (20) Transfer to statement of income for impairment of available-for-sale financial assets Profit (loss) for cash flow hedges 3 (23) (35) Transfer to profit or loss for cash flow hedges (2) - - Recognition of the hedged asset of cash flow hedging results Foreign currency translation differences for foreign operations 131 (541) (947) Transfer to statement of income for foreign currency translation differences for foreign operations Other comprehensive income (loss) attributable to associates, net 3 (20) (76) Total other comprehensive income (loss) from continuing operations 124 (627) (1,078) Total other comprehensive income (loss) from a discontinued operation, net (13) Total other comprehensive income (loss) 111 (611) (921) Total comprehensive income (loss) 587 (154) 1,517 Attributable to: Shareholders of the Company 316 (150) 582 Non-controlling interests 271 (4) (154) 1,517 The accompanying notes are an integral part of the consolidated interim financial statements

47 Delek Group Ltd. Consolidated Statements of Changes in Equity Attributable to shareholders of the Company Share capital Share premiu m Proceeds for conversion options Retained earnings Foreign currency translation differences for foreign operations Reserve for transactions with holders of noncontrolling interests Other reserves *) Treasury shares Total Noncontrolling interests Total capital (Unaudited) NIS million Balance as at December 31, 2017 (audited) 13 1, ,122 (576) (469) 4,255 6,480 10,735 Cumulative effect of adoption for the first time of IFRS 9 as at January 1, see Note 2D (148) Balance as at January 1, , ,344 (576) (469) 4,329 6,484 10,813 Net profit Other comprehensive income (loss) (11) Total comprehensive income (loss) (11) **) 587 Issue of shares to holders of non-controlling - interests Dividend to non-controlling interests (24) (24) Balance as at March 31, , ,587 (492) (469) 4,653 6,834 11,487 *) Mainly capital reserve for financial assets at fair value through other comprehensive income As at March 31, 2018, including a credit balance of NIS 48 million for investments held for sale. **) Composition of comprehensive profit of non-controlling interests: Net profit attributable to non-controlling interests 233 Loss for financial assets measured through other comprehensive income, net (14) Loss from cash flow hedges (1) Foreign currency translation differences for foreign operations 53 Total comprehensive income attributable to non-controlling interests 271 The accompanying notes are an integral part of the consolidated interim financial statements

48 Delek Group Ltd. Consolidated Statements of Changes in Equity Attributable to shareholders of the Company Share capital Share premium Proceeds for conversion options Retained earnings Foreign currency translatio n difference s for foreign operation s Reserve for transaction s with holders of noncontrolling interests Other reserves *) Treasury shares Total Noncontrollin g interests Total capital (Unaudited) NIS million Balance as at 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 non-controlling interests (303) )303( Balance as at March 31, , ,675 (240) (433) 4,273 6,358 10,631 *) Mainly capital reserve for available-for-sale financial assets; as at 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 Profit from available-for-sale financial assets, net 11 Foreign currency translation differences for 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

49 Delek Group Ltd. Consolidated Statements of Changes in Equity Attributable to shareholders of the Company Share capital Share premium Proceeds for conversion options Retained earnings Foreign currency translation differences for foreign operations Reserve for transactions with holders of noncontrolling interests Other reserves *) Treasury shares Total Noncontrollin g interests Total capital Audited NIS million Balance as at January 1, , , (433) 4,612 6,665 11,277 Net profit , ,216 1,222 2,438 Other comprehensive income (loss) (652) (634) (287) (921) Total comprehensive income (loss) ,216 (652) **) 1,517 Acquisition of treasury shares (51) (51) - (51) Issue of treasury shares Dividends (738) (738) - (738) Dividend to non-controlling interests (1,536) (1,536) Transactions with holders of non-controlling interests (155) (17) - (172) Balance as at December 31, , ,122 (576) (469) 4,255 6,480 10,735 *) Mainly capital reserve for available-for-sale financial assets; as at December 31, 2017, including a credit balance of NIS 184 million for investments held for sale. **) Composition of comprehensive profit of non-controlling interests: Net profit attributable to non-controlling interests 1,222 Profit from available-for-sale financial assets, net 87 Loss from cash flow hedges (7) Foreign currency translation differences for foreign operations (367) Total comprehensive income attributable to non-controlling interests 935 The accompanying notes are an integral part of the consolidated interim financial statements - 8 -

50 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 profit ,438 Adjustments to reconcile cash flows from operating activities (a) (484) 22 (1,217) Net cash from (used for) operating activities (8) 479 1,221 Cash flows from investing activities Purchase of fixed assets, investment property and intangible assets (92) (125) (419) Proceeds from sale of fixed assets and investment property Proceeds from sale of oil and gas assets 220-2,967 Proceeds from sale (acquisition) of financial assets, net (6) (22) 197 Repayment of loans to associates, net Short-term investments, net (86) (240) (307) Investment in long-term bank deposits, net (2) (67) (158) Increase in joint ventures for oil and gas exploration (395) (227) (2,011) Cash added from disposal of investments in previously consolidated subsidiaries (b) Acquisition of a company consolidated for the first time (c) - - (1,829) Investment in associate companies and partnerships - (1) (11) Collection of loans to others, net Net cash used for investment activities (222) (584) (1,097) The accompanying notes are an integral part of the consolidated interim financial statements

51 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 (188) (205) 122 Transactions with holders of non-controlling interests Receipt of long-term loans ,529 Repayment of long-term loans (277) (281) (772) Payments for disposal of hedging transactions - - (14) Dividend paid - - (738) Dividend paid to holders of non-controlling interests in subsidiaries (106) (426) (1,542) Acquisition of treasury shares by a subsidiary partnership - - (51) Reissuance of treasury shares Issue of debentures and debentures convertible into shares (less issuance expenses) 785 1,461 1,780 Repayment of debentures (129) (105) (2,395) Net cash from (used for) finance activities (815) Exchange differences on cash balances of foreign operations 8 (82) (122) - Change in cash and cash equivalents attributable to operations held for sale (3) (333) (560) Increase (decrease) in cash and cash equivalents (1,373) Cash and cash equivalents at the beginning of the year: 1,357 2,730 2,730 Balance of cash and cash equivalents at the end of the period 1,922 2,885 1,357 The accompanying notes are an integral part of the consolidated interim financial statements

52 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 ,060 Deferred taxes, net Increase (decrease) in employee benefit liabilities, net 8 7 (2) Decrease (increase) of loans granted, net (12) Profit from the sale of fixed assets, real estate and investments, net (30) - (153) Group s share of results of associates, net (1) - (43) 128 Loss (profit) from the sale of oil and gas assets 8 - (1,450) Profit from disposal of available-for-sale financial assets - - (13) Impairment of available-for-sale financial assets Change in fair value of financial assets and financial derivatives, net (35) 1 39 Increase (decrease) in long-term liabilities, net (12) (40) 21 Increase in deferred acquisition costs of insurance companies (26) (60) (79) Change in financial investments of insurance companies, net (19) (1,189) (4,237) Investments net of proceeds from the sale of financial assets at fair value through other comprehensive income in insurance companies, net (1,537) (331) (3,606) Increase in reserves and other provisions in insurance companies 1,296 1,740 7,785 Acquisition of investment property for performance-based contracts and other investment property in insurance companies (15) (62) (168) Increase in reinsurance assets (187) (127) (403) Change in value of investment property, net 11 3 (11) Changes in operating assets and liabilities: Decrease (increase) in trade receivables (31) Decrease (increase) in other receivables 43 (157) (293) Decrease (increase) in inventory (91) (21) 151 Increase in other assets, net (66) (128) (508) Increase in liabilities for trade payables Increase (decrease) in other accounts payable (129) (484) 22 (1,217) (1) Net of dividends and earnings received The accompanying notes are an integral part of the consolidated interim financial statements

53 Delek Group Ltd. Consolidated Statements of Cash Flows (B) Cash added from disposal of investments in previously consolidated companies reported Three months ended Year ended March 31 December Unaudited Audited NIS million Assets held for sale, net Profit from disposal of an investment (C) Acquisition of a company consolidated for the first time Working capital, net Investments in oil and gas exploration and production - - (2,310) Investments in associates - - (505) Deferred taxes - - (2,168) Goodwill - - (744) Other non-current property - - (29) Non-current liabilities - - 3, (1,829) (D) Significant non-cash activities Purchase of fixed assets and intangible assets Dividend payable by associates Investment in oil and gas assets against liability Dividend payable to shareholders of the Company Dividend payable to holders of non-controlling interests in a subsidiary partnership Proceeds from sale of oil and gas assets The accompanying notes are an integral part of the consolidated interim financial statements

54 Delek Group Ltd. Consolidated Statements of Cash Flows Three months ended Year ended March 31 December Unaudited Audited NIS million (E) Additional information on cash flows Cash paid during the period for: Interest ,002 Taxes on income Cash received during the period for: Interest Dividends Taxes on income 25-6 (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

55 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 1: GENERAL These financial statements have been prepared in condensed format as at March 31, 2018 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 at December 31, 2017 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, except for the following: B. Revenue from contracts with customers As set out in Note 2D(1) regarding initial application of IFRS 15, Revenue from Customer Contracts ( IFRS 15 ), the Company elected to apply the standard retroactively with expedients and without a restatement of comparative data. For information about the accounting treatment applied up to December 31, 2017 for revenue recognition, see section Z in Note 2 to the Annual Financial Statements. The accounting policy applied as from January 1, 2018 for recognition of income is as follows: 1. Revenue recognition Under IFRS 15, revenue from contracts with customers is recognized in the statement of income when control of the asset or service is transferred to the customer. The revenue is measured and recognized at the fair value of the consideration expected to be received in accordance with the terms of the contract, less the amounts collected for third parties (such as taxes). Revenue is recognized in the statement of income when it is expected that the economic benefits will flow to the Group and if the revenues and costs, if relevant, can be measured reliably. In determining the amount of revenue from contracts with customers, the Company assesses whether it acts as a principal or as an agent in the contract. The Company is a principal when it controls the promised goods or services to the customer. In such cases, the Company recognizes revenue in the gross amount of the consideration. In cases where the Company acts as an agent, the Company recognizes revenue on a net basis, net of the amounts due to the principal. 2. Revenue from the sale of goods Revenue from the sale of goods is recognized in the statement of income at a point in time, when the goods sold are transfered to the customer. Generally, control is transferred when the goods are delivered. 3. Rental revenue Rental revenue is recognized on a straight-line basis over the term of the lease. A fixed increase in rent over the term of the contract is recognized as income on a straight-line basis over the lease term

56 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (CONTD.) 4. Revenue from production of fuels, storage, and charter of tankers Revenue from such services is recognized over time, over the period in which the customer receives and consumes the benefits provided by the Company's performance. The revenue is recognized in the reporting periods in which the services are provided. 5. Revenues from the rendering of services (including management fees) Revenue from services rendered is recognized over time, over the period in which the customer receives and consumes the benefits provided by the Company's performance. The revenue is recognized in the reporting periods in which the services are provided. The Company charges its customers in accordance with the payment terms in specific agreements. Payments may be made before or after the services are rendered, and accordingly the Company recognizes an asset or liability for the contract with the customer. 6. Revenue from royalties Revenue from royalties for gas and oil assets is recognized over time, in accordance with the nature of the agreement and its terms. 7. Revenue from oil and gas sales Revenue from the sale of oil and gas is recognized in profit or loss at a point in time, when control is transferred to the customer. Control is generally transferred when ownership of the oil or gas is transferred to the customer. The Company charges its customers in accordance with the payment terms in specific agreements. Payments may be made before or after control is transferred, and accordingly the Company recognizes an asset or liability for the contract with the customer. 8. Variable consideration The Company is required to determine the transaction price separately for each contract with a customer. When applying such judgment, the Company estimates the effect of each variable consideration in the contract, taking into account discounts, penalties, variations, claims and noncash consideration. In determining the effect of the variable consideration, the Company generally uses the most likely amount method set out in IFRS 15, according to which the transaction price is based on the single most likely amount in a range of possible consideration amounts in the contract. The Company includes amounts of variable consideration only if it is highly probable that a significant reversal in the amount of the revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. 9. Credit transactions For some transactions, the Company grants the customer payment terms extending over more than one year. In such cases, the Company recognizes revenue according to the amount reflecting the price the customer would have paid in cash on the date the goods or services are received and the balance is recognized in finance income. The Company elected to apply the optional expedient in the standard of not separating the credit component in transactions with credit terms that are less than one year and recognizing revenue according to the consideration determined in the agreement, even if the customer paid for the goods or services after they are received

57 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (CONTD.) 10. Revenue from insurance businesses A) Premiums 1) Premiums in life insurance and health insurance, including savings premiums and with the exception of intakes for investment contracts, are recognized as revenue when the Group is entitled to receive such premiums. Cancellations are recorded when the notification is received from the policyholder or when initiated by The Phoenix due to arrears in payments, subject to legal provisions. The policyholder's participation in profits is deducted from the premium. 2) General insurance premiums are accounted for as income based on monthly reports. Insurance premiums usually refer to an insurance period of one year. Gross income from premiums and changes in unearned premium are accounted for under earned premiums, gross. In the motor act branch of insurance in Israel, the insurance comes into effect only after payment of the insurance premium, therefore the premium is accounted for on the date of payment. Insurance premiums for policies that come into effect after the balance sheet date or premiums for policies for a period exceeding one year are recorded as a prepaid income. Some of the premiums in Israel, primarily in the motor casco and comprehensive residential branches, include automatic renewals of policies due for renewal. The income included in the financial statements is after cancellations requested by policyholders and net of cancellations and provisions due to non-payment of the premiums, subject to the law, and net of the policyholder's participation in profits, based on valid agreements. B) Management fees and commissions 1) Management fees for performance-based insurance contracts Management fees include the following components: For policies sold as at January 1, 2004 fixed management fees only For policies sold until December 31, 2003 fixed and variable management fees The management fees are computed in accordance with the Commissioner's directives on the basis of the yield and the accumulated saving of the policyholders in the profitparticipating portfolio. The fixed management fees are computed at fixed percentages of the accumulated saving and are recorded on a cumulative basis. The variable management fees are computed as a percentage of the annual real profit (from January 1 to December 31) attributed to the policy, less the fixed management fees collected from that policy. Only positive variable management fees can be collected, net of negative amounts accumulated in the preceding years. During each period, the variable management fees are recorded on an accrual basis in accordance with the real monthly yield if it is positive. In months when the real yield is negative, the variable management fees are reduced to the amount of the aggregate variable management fees collected since the beginning of the year. Negative yield for which a reduction of the management fees was not made during a current year, will be deducted for the purpose of computing the management fees from the positive yield in the subsequent year

58 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (CONTD.) 2) Management fees of non-insurance subsidiaries Income from the management of pension funds and provident funds is recognized on the basis of the balances of the managed assets and on the basis of the receipts from the members. Income from the management of mutual funds and income from the management of customer portfolios are recognized on the basis of the managed asset balance. Income from general insurance commission in insurance agencies is recognized as incurred. Income from life insurance commissions are recognized on the basis of the date of entitlement for payment of the commissions according to agreements with the insurance companies, net of provisions for refunds of commissions due to expected cancellations of insurance policies. 3) Net investment income (losses) and other finance income Interest income is recognized as it accrues using the effective interest method. Revenues from dividends from investments not accounted for using the equity method are recognized when the right to receive the dividend is established. Investment income includes the profits or losses realized for available-for-sale financial assets. Profits or losses from the disposal of investments are calculated as the difference between the proceeds from the sale, net, and the initial or amortized cost and are recognized at the time of the sale. Investment income includes profits or losses from revaluation of financial assets measured at fair value through profit or loss. C) Recognition of revenues from underwriting and distribution and from brokerage fees 1. Revenues from underwriting and distribution - revenues from commission for underwriting and distribution are recognized when the issuance and distribution is carried out, after fulfillment of the terms in the agreement with the company and/or issuer. 2. Revenues from brokerage fees - revenues from commissions relating to transactions in securities are recognized on completion of the transactions

59 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (CONTD.) C. Financial instruments As set out in Note 2D(2) regarding initial application of IFRS 9, Financial Instruments ( IFRS 9 ), the Company elected to apply the standard retroactively with expedients and without a restatement of comparative data. For information about the accounting policy applied up to December 31, 2017 for financial instruments, see sections K to M of Note 2 to the Annual Financial Statements. The accounting policy applied as from January 1, 2018 for recognition of income is as follows: 1. Financial assets At the date of initial recognition, financial assets within the scope of the standard are measured at fair value plus transaction costs that are directly attributable to acquisition of the financial asset, except in the case of a financial asset measured at fair value through profit or loss, when transaction costs are recognized in profit or loss. The Company classifies and measures the debt instruments in its financial statements on the basis of the following criteria: (A) The Company s business model for managing financial assets (B) The contractual cash flow characteristics of the financial asset The Company measures debt instruments at amortized cost when: The Company's business model is the holding of financial assets with the objective of collecting contractual cash flows and their contractual terms give rise on specific dates to cash flows representing solely payments of principal and interest for the amount of the unpaid principle. Subsequent to initial recognition, instruments in this class will be presented according to their terms at cost plus direct transaction costs, at amortized cost. In addition, an entity may irrevocably designate a debt instrument for measurement at fair value through profit or loss on initial application if such designation eliminates or considerably reduces measurement or recognition inconsistency, for example, when the related financial liabilities are also measured at fair value through profit or loss. The Company measures debt instruments at fair value through other comprehensive income when: The Company's business model is the holding of financial assets with the objective of collecting contractual cash flows and selling financial assets, and their contractual terms give rise on specific dates to cash flows representing solely payments of principal and interest for the amount of the unpaid principle. Subsequent to initial recognition, instruments in this group are measured at fair value. Gains or losses arising from fair value adjustments, other than interest and exchange rate differentials, are recognized in other comprehensive income. The Company measures debt instruments in profit or loss when: They are held for trade or if they fail to comply with the required criteria for measuring at amortized cost or at fair value through other comprehensive income, as aforesaid. Equity instruments Financial assets that are investments in equity instruments do not meet the above criteria and are therefore measured at fair value through profit or loss. For equity instruments not held for trading, at initial recognition, the Company may elect irrevocably to present subsequent fair value changes in other comprehensive income that would otherwise not have been measured at fair value through profit or loss. These changes will not be recognized in profit or loss in the future, even when the investment is derecognized

60 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (CONTD.) 2. Impairment of financial assets The Company assesses at each reporting date the provision for loss in respect of financial debt instruments that are not measured at fair value through profit or loss. The Company differentiates between two situations of recognition of a provision for loss: A) Debt instruments with no significant impairment in credit quality since initial recognition or with a low credit risk - the provision for loss recognized for this debt instrument will take into account expected credit losses in the 12 months period after the reporting date. B) Debt instruments with significant deterioration in credit quality since initial recognition and their credit risk is not low - the provision for loss recognized will take into account the expected credit losses - over the balance of the useful life of the instrument. The Company applies the expedient in the standard, according to which it assumes that the credit risk of a debt instrument did not increase significantly from the date of initial recognition, if it was determined on the reporting date that the instrument has a low credit risk, for example when the instrument has an external rating of "investment grade". Impairment of debt instruments measured at amortized cost is recognized in profit or loss against a provision, while impairment of debt instruments measured at fair value through other comprehensive income is recognized against capital reserve and will not reduce the carrying amount of the financial asset in the statement of financial position. The Company has financial assets with short credit periods, such as trade receivables, for which it may apply the expedient set out in the model, meaning that the Company will measure the provision for loss in an amount equal to expected credit losses throughout the useful life of the instrument. The Company elected to apply the expedient for these financial assets. 3. Derecognition of financial assets The Company derecognizes a financial asset when and only when: (A) The contractual rights to the cash flows from the financial asset expire. (B) The Company transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or the Company retains some of the risks and rewards but it can be said that it had transferred control on the asset. (C) The Company retains the contractual rights to receive the cash flows from the financial asset, but assumes a contractual obligation to pay these cash flows in full to a third party without substantial delay. 4. Financial liabilities At the date of initial recognition, the Company measures financial liabilities in the scope of the Standard at fair value less transaction costs directly attributable to the issuance of the financial liability, except in the case of a financial liability measured at fair value through profit or loss, when transaction costs are recognized in profit or loss. Subsequent to initial recognition, the Company measures financial liabilities at amortized cost in their entirety, except for: (A) Financial liabilities at fair value through profit or loss, such as derivatives (B) Financial liabilities created when transfer of the financial asset is not qualified for derecognition or where the continuing involvement approach applies (C) Financial guarantee contracts (C) Commitments to provide a loan at an interest rate that is lower than the market interest rate (E) Contingent consideration recognized by a buyer in a business combination meeting the definition in IFRS

61 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (CONTD.) 5. Derecognition of financial liabilities The Company derecognizes a financial liability when, and only when, it is settled - that is, when the obligation defined in the contract expires or when it is discharged or cancelled. A financial liability is extinguished when the debtor pays the liability by a cash payment, other financial assets, goods or services, or is legally discharged of the liability. In the event of a change in the terms of an existing financial liability, the Company examines whether the terms of the liability are materially different from the existing conditions. When there is a material change in the terms of an existing financial liability, the change is accounted for as derecognition of the original liability and recognition of a new liability. The difference between these two financial liabilities in the financial statements is recognized in profit or loss. In the case of an immaterial change, the Company is required to adjust the amount of the liability, meaning to discount the new cash flows at the original effective interest rate, with the difference being recognized in profit or loss. When assessing whether there is a significant change in the terms of an existing liability, the Company takes into account qualitative and quantitative considerations. 6. Offsetting financial instruments Financial assets and liabilities are offset and the net amount is presented in the statement of financial position if there is a legally enforceable right to set off the recognized amounts and there is an intent to dispose of the asset and liability on a net basis or realize the asset and dispose of the liability simultaneously. The right to offset must not only be legally enforceable in the normal course of business, but must also be enforceable in the event of bankruptcy or insolvency of one of the counterparties. Offset must not be contingent on a future event or periods of time in which they will not apply, or may be removed by a future event. 7. Put option granted to holders of non-controlling rights When the Group grants a put option to non-controlling interests, these interests are classified as a financial liability that do not confer rights but rather their share in the profits of the subsidiary. At each reporting date, the financial liability is measured at the present value of the estimated consideration to be transferred when the put option is exercised/at the fair value of the consideration determined. Changes in the liabilities are recognized in profit or loss. 8. Embedded derivatives According to the Standard, embedded derivatives in financial assets will not be separated from a host contract. These hybrid contracts will be measured in their entirety at amortized cost or at fair value, in accordance with the criteria of the business model and contractual cash flows. When a host contract does not meet the definition of a financial asset, an embedded derivative is separated from the host contract and accounted for as derivative when the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract, the embedded derivative meets the definition of a derivative, and the instrument involved is not measured at fair value when changes are recognized in profit or loss. Reassessment of the deed for separation only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required. 9. Hedge accounting The Company has elected to continue to apply IAS 39 for hedge accounting as permitted in the standard. For information about the Company's policy for hedge accounting, see Note 2M to the Annual Financial Statements

62 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (CONTD.) 10. Liability for exchange-traded funds The liability for exchange-traded funds (ETF) is a compound financial instrument that includes a host contract and an embedded derivative (index to which the ETF is linked). The host contract is recognized initially at fair value less transaction costs. In subsequent periods, the host contract is measured using the effective interest method. Changes in the amortized cost of the host contract are recognized in profit or loss. In the Group s opinion, presentation of the components of the ETF together is the most appropriate presentation of the economic character of the liability for the ETF, since this reflects (before accounting for the issuance costs) the amount that the Group might be required to pay to index certificate holders, which may be redeemed at any time. 11. Financial assets (marketable and non-marketable) in investment portfolios of insurance companies regarding policies participating in investment profits are measured at fair value through profit and loss. D. Initial application of new standards and amendments to existing standards 1. Initial application of IFRS 15 - Revenue from Contracts with Customers In May 2014, the IASB published IFRS 15 - Revenue from Contracts with Customers ( the New Standard ), which supersedes IAS 18, Revenue; IAS 11, Construction Contracts; IFRIC 13, Customer Loyalty Programs; IFRIC 15, Agreement for the Construction of Real Estate; IFRIC 18, Transfer of Assets from Customers; and SIC 31, Revenue - Barter Transactions Involving Advertising Services. The New Standard provides a five-step model to be applied to all revenue arising from contracts with customers: Step 1: Step 2: Step 3: Step 4: Step 5: Identify the contract with the customer, including reference to combining contracts and accounting for contract modifications. Identify the distinct performance obligations in the contract. Determine the transaction price, including reference to variable consideration, significant financing component, non-cash consideration, and consideration payable to a customer. Allocate the transaction price to each distinct performance obligation based on relative standalone selling prices, using observable prices if available, or estimates and assessments. Recognize revenue when the entity satisfies a performance obligation, differentiating between an obligation at a point in time and an obligation over time. The Standard was applied in these financial statements for the first time. The Company elected to retroactively apply the Standard with certain expedients and without restatement of comparative figures. The Company recognizes any difference between the prior carrying amount and the carrying amount at the date of initial application of the opening balance of retained earnings (or other component of capital, as appropriate). Initial application of the standard did not have a material effect on the consolidated financial statements of the Group

63 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (CONTD.) 2. Initial application of IFRS 9, Financial Instruments In July 2014, the IASB published the full and final version of IFRS 9, Financial Instruments, which replaces IAS 39, Financial Instruments: Recognition and Measurement. IFRS 9 ( the New Standard ) focuses mainly on the classification and measurement of financial assets and it applies to all financial assets within the scope of IAS 39. The New Standard is applied in these financial statements for the first time. The New Standard is applied retrospectively without restatement of comparative figures as permitted under the New Standard. The Company recognizes any difference between the prior carrying amount and the carrying amount at the date of initial application of the opening balance of retained earnings (or other component of capital, as appropriate). The main effect of application of the New Standard on the Group's financial statements is as follows: A) Classification and measurement 1. The Group (mainly the Company and The Phoenix) has several investments in shares that are measured at fair value through profit or loss. The Group continues measuring these investments at fair value through profit or loss under the provisions of the New Standard. In addition, the Company had several investments in shares classified as "investments available for sale", and the profit or loss for these investments is recognized according to IAS 39 in other comprehensive income. Under the provisions of the New Standard, the Group measures these investments at fair value through profit or loss. The balance of the capital reserve, net for available-for-sale investments as at January 1, 2018, was classified to the balance of the Group's retained earnings without affecting the total capital of the Group. 2. In recent years, the Company and The Phoenix amended the terms of the debentures it issued in the past, and the amendments were accounted for as an immaterial change. Accordingly, the Group accounted for the amendments in accordance with the principles of section 7A of IAS 39, meaning, adjustment of effective interest, so that the updated cash flow, discounted at the new interest rate, will be equal to the carrying amount of the debentures before the terms were adjusted. In accordance with the provisions of the New Standard, the principles of section 8A should be applied for the amendments, meaning, discounting the updated cash flows after the change in terms, at the original effective interest rate of the debentures, with the difference being recognized in profit or loss on the date of the change. Since the provisions of section 8A are to be applied retrospectively, the effect of the above on January 1, 2018 is a decrease in the liability (debentures) and an increase in the Group s profit. B) Impairment The New Standard requires the Group to apply a new model for the recognition of expected credit losses for a period of 12 months or throughout the life of the Group s debt instruments that are not measured at fair value through profit or loss. The New Standard includes an expedient for the measurement of full lifetime expected credit loss on trade receivables. The Group elected to apply the expedient. For the other debt instruments, and after the Group examined the effect of the New Model for recognition of credit losses on its financial assets, the Group concluded that the provision for impairment for the financial debt instruments measured at amortized cost (primarily for its investments in The Phoenix) as at January 1, 2018 against a decrease in the Group s retained earnings at that date

64 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (CONTD.) In addition, the Group (mainly The Phoenix) has an investment in financial debt instruments classified under IAS 39 as available for sale investments. Under the New Standard, the investments are classified as an investment in debt instruments at fair value through other comprehensive income. As a result of the above and of the expected credit loss model in the New Standard, on January 1, 2018, the Group recognized a decrease in retained earnings against an increase in capital reserves for the investments for which no impairment was recognized under IAS 39, and as an increase in retained earnings against a decrease in capital reserves for investments for which impairment was recognized under IAS 39. C) The total effects of the above in respect of adoption of the new standard on January 1, 2018, including an update of the provision for impairment of the Company's investment in the shares of The Phoenix held for sale (following the adjustment of the value of the investment in The Phoenix after application of the New Standard, for a fair value estimate less selling costs, see Note 3A) amounted to immaterial amounts in relation to the equity attributable to the Company's shareholders - an increase of NIS 74 million. The increase in capital attributable to the Company s shareholders consists mainly of an increase of NIS 222 million in profit and a decrease of NIS 148 million in capital reserves for available-for-sale securities. E. Restatement of comparative figures In the fourth quarter of 2017, the Group elected to classify and include its share in the results of some associates operating in the Group's core activities (mainly oil and gas exploration and production) due to changes and investments in these associates in In view of the aforesaid, the information in the statements of income for the three months ended March 31, 2017 was reclassified. NOTE 3: INVESTMENTS IN INVESTEES AND PARTNERSHIPS A. The Phoenix Holdings Ltd. ("The Phoenix") 1. On January 10, 2018 The Phoenix issued 5,249,900 ordinary shares of NIS 1 nominal value each. The total proceeds (gross) that The Phoenix received for this issue amounted to NIS 104 million. As a result of the issue of these shares, the Company s holdings of The Phoenix shares declined from 47.2% to 46.2%. The foregoing issue did not have any significant effect on the equity attributable to the Company s shareholders. 2. Further to Note 10F(a) to the Annual Financial Statements, on September 14, 2017, the Company and Sirius International Insurance Group Ltd. ("the Buyer ) signed a binding agreement for the sale of all of the Company s holdings in The Phoenix for a total consideration of NIS 2.5 billion plus interest and subject to the adjustments stipulated in the agreement. As part of the transaction, on September 18, 2017, the Buyer acquired from the Company 4.9% of the share capital of The Phoenix, for a total consideration of NIS 208 million in cash (this consideration will be adjusted to another NIS 25 million to be paid to the Company by the Buyer, if the balance of The Phoenix shares are sold, as set out below). In addition, the Company granted the Buyer a call option for the balance of its holdings in The Phoenix ( the Second Stage of the Agreement ). In November 2017, a notice of irrevocable exercise was received from the Buyer of its intention to acquire the remaining holdings of the Company in The Phoenix (46.2%). The agreement contains preconditions, which include approvals from governmental bodies. Timetables for the receipt of regulatory approvals and completion of the second of the agreement were also set. As at the approval date of the financial statements, the regulatory approvals required to complete the transaction have not yet been received and the Buyer is continuing to act to obtain a control permit from the Commissioner of Capital Markets

65 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 3: INVESTMENTS IN INVESTEES AND PARTNERSHIPS (CONTD.) 2. (contd.) Insofar as the Second Stage of the Agreement is completed, the Company will be paid the balance of the consideration of NIS 2,284 million in cash plus interest and subject to the adjustments set out in the agreement. For further information about the agreement, see Note 10F(a) to the Annual Financial Statements. 3. In view of the Company s efforts and commitment to sell its holdings in The Phoenix in accordance with the Concentration Law, including the sale agreements described in Note 10F(a) to the Annual Financial Statements and section 1 above, and in view of the Company s assessment regarding the expected disposal of the Company s investment in The Phoenix shares, the Company believes that it is still in compliance with the criteria set out in IFRS 5, Non-current Assets Held for Sale and Discontinued Operations ( IFRS 5 ) regarding the classification of its investment in The Phoenix as assets and liabilities held for sale. Accordingly, 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 in each reporting period, under profit from a discontinued operation, net. In accordance with the provisions of IFRS 5, the Company measures the balance of its investment in The Phoenix at fair value less costs to sell. As at March 31, 2018, the Company's investment in The Phoenix (46.2%) amounts to NIS 2,278 million, which represents the fair value estimate net of costs to sell of the investment, in accordance with the consideration set out in the agreement signed with the buyer as set out in section 1 above, and further to the valuation that the Company received from an independent external assessor on September 30, 2017, as set out in Note 10F(a) to the Annual Financial Statements. In the reporting period, the Company included its share in the profits of The Phoenix amounting to NIS 96 million and its share in the other comprehensive loss of The Phoenix amounting to NIS 11 million. In addition, in the reporting period, the Company recognized an additional loss, arising from the provision for impairment amounting to NIS 46 million, due to its estimated fair value less costs to sell of the investment in The Phoenix, as set out above. As at March 31, 2018, 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 2,280 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 2,278 million)

66 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 3: INVESTMENTS IN INVESTEES AND PARTNERSHIPS (CONTD.) 3) 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 millions Current assets Cash and cash equivalents 1, ,318 Performance-based cash and cash equivalents 5,911 6,243 6,120 Short-term investments of the finance sector (mainly exchange-traded funds and deposits) 27,044 27,572 28,743 Short-term investments 1,209 1,233 1,332 Short-term investments in insurance companies 2,019 1,889 1,715 Insurance premium receivable Receivables Current tax assets Reinsurance assets Deferred acquisition costs ,183 40,036 41,554 Non-current assets Financial investments of insurance companies 63,089 55,039 61,668 Long-term loans, deposits and receivables Investments in associates Investment property 3,590 3,434 3,574 Reinsurance assets 1, ,172 Fixed assets, net Deferred acquisition costs 1,053 1,042 1,064 Structured bonds Goodwill Other intangible assets, net Deferred taxes ,611 62,885 70,082 Total assets 111, , ,

67 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 3: INVESTMENTS IN INVESTEES AND PARTNERSHIPS (CONTD.) 3) Financial information for The Phoenix (contd.): A) Group of assets and liabilities relating to the operations of The Phoenix classified as held for sale (contd.): March 31 December Unaudited Audited NIS millions Current liabilities Interest bearing loans and borrowings Trade payables Other payables 2,387 1,883 2,315 Exchange-traded funds and deposit 25,765 26,221 27,335 Current tax liabilities Liabilities for insurance contracts 5,307 4,962 4,600 33,920 33,418 34,719 Non-current liabilities Debentures 3,062 2,836 2,886 Structured bonds Liabilities for employee benefits Liabilities for insurance contracts 68,512 61,500 67,988 Provisions and other liabilities Deferred taxes ,648 65,353 71,923 Total liabilities 106,568 98, ,

68 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 3: INVESTMENTS IN INVESTEES AND PARTNERSHIPS (CONTD.) 3) Financial information for The Phoenix (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 millions Revenue 2,835 3,500 15,516 Cost of revenues 1,928 2,484 11,545 Gross profit 907 1,016 3,971 Selling expenses ,581 General and administrative expenses ,193 Other expenses, net Operating profit ,190 Finance expenses Share in earnings of associates Profit before tax ,099 Taxes on income Elimination of impairment of the investment (47) Income from discontinued operations of The Phoenix Attributable to: Shareholders of the Company Non-controlling interests 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 millions Net cash from (used for) operating activities (200) Net cash used for investment activities (41) (44) (230) Net cash provided by financing activities

69 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 3: INVESTMENTS IN INVESTEES AND PARTNERSHIPS (CONTD.) B. Investment in shares of Ithaca Energy Inc. ( Ithaca ) Further to Note 10J to the Annual Financial Statements regarding acquisition of control in Ithaca, in the reporting period, the Company, through an independent external appraiser, completed the attribution of the consideration for the acquisition of the assets and liabilities of Ithaca. It should be noted that according to the attribution, there was no material change in the value of Ithaca's identifiable assets and liabilities, and in the goodwill at the date control was acquired compared to the value of these assets and liabilities based on temporary measurement. C. Delek - The Israel Fuel Corporation Ltd. ( Delek Israel ) 1. Further to Note 10L(1) to the Annual Financial Statements, subsequent to the balance sheet date, on April 30, 2018, the Prices Committee of the Ministry of Energy published its decision, according to which the controlled marketing margin for 95 octane gasoline at self-service pumps will be reduced by NIS per liter (excluding VAT). The price for receiving service at pumps from gas station attendants per liter of 95 octane gasoline is NIS 0.21 (including VAT), an increase of NIS 0.01 (including VAT). The decision and the order are likely to adversely affect the financial results of Delek Israel. Delek Israel is taking steps to minimize this effect through a range of activities. 2. Further to Note 10L(2) to the Annual Financial Statements, in February 2018, the transaction for the sale of all of Delek Israel's shares in Delek Industries Ltd. (which is engaged mainly in the production of oils) was completed for a consideration of NIS 49 million. The pre-tax profit from the transaction amounts to NIS 12 million (NIS 10 million after tax) and is recognized in other income (expenses), net. D. Delek Automotive Systems Ltd. ( Delek Automotive ) 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. Further to Note 10I to the Annual Financial Statements regarding the assessment of the value of the investment in Delek Automotive, in view of the additional impairment in Delek Automotive shares in the reporting period and the decrease in profitability of Delek Automotive in this period, the Group assessed the recoverable amount (value in use) of its investment in Delek Automotive as at March 31, The value in use was estimated by an independent external assessor, estimating the value in use of the Group s investment of NIS 555 million in Delek Automotive (based on discounting the cash flow at a discount rate of 12% before tax, assuming the representative cash flows as from the six years will increase by 2.5% annually). Due to the difference between the value of the investment in Delek Automotive in the Group's financial statements and its recoverable amount, the Group included an additional provision of NIS 20 million in its financial statements for impairment of its investment in Delek Automotive, which was recognized in the Group's share in earnings (losses) of associates, net. As at March 31, 2018, the market value of the investment in Delek Automotive amounted to NIS 555 million and shortly before the approval date of the financial statements, NIS 462 million)

70 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 3: INVESTMENTS IN INVESTEES AND PARTNERSHIPS (CONTD.) D. Delek Automotive Systems Ltd. ( Delek Automotive ) (contd.) 2. Following is condensed information from the financial statements of Delek Automotive for each reporting period: March 31 December Unaudited Audited NIS millions Current assets 1,566 1,641 1,401 Non-current assets 1,127 1,034 1,130 Current liabilities 1,793 1,828 1,687 Non-current liabilities Equity attributable to shareholders of the investee *) In addition, as at March 31, 2018, the excess cost, net attributable to the investment in Delek Automotive amounts to NIS 631 million (after tax) and the impairment amounts to NIS 233 million. Three months ended March 31 Year ended December Unaudited Audited NIS millions Revenue 1,181 1,074 3,406 Gross profit Operating profit Finance expenses, net (44) (3) 27 Net earnings attributable to shareholders of the investee * In addition, in the reporting period, the Group included amortization of excess cost, net, attributable to the investment in Delek Automotive in the amount of NIS 4 million (corresponding quarter last year, NIS 4 million; 2017, NIS 16 million). In the first quarter of 2018, the Group included an additional provision for impairment in the amount of NIS 20 million, as set out above (in 2017 the Group included a write-down of NIS 164 million). E. Other operating segments Subsequent to the balance sheet date, on April 30, 2018, the Company entered into an agreement for the sale of all of its holdings in a subsidiary, Gadot Biochemical Industries Ltd. ("Gadot") for a consideration of NIS 40 million (USD 11 million), subject to adjustments set out in the agreement. The sale does not include the land on which the Gadot plant is located, which is transferred to the Company, as set out below, and will be leased to Gadot for 20 years. Shortly before entering into the agreement, the land on which the Gadot plant is located was sold to the Company against repayment of the capital notes issued by Gadot to the Company. The value of the land is assessed at NIS 32 million (USD 9 million). On May 22, 2018, ( the Closing Date ), the transaction was completed and the buyer paid the Company USD 8 million of the consideration in cash and the balance of the consideration will be paid in six equal quarterly payments bearing interest, the first being three months after the closing date. As at March 31, 2018 (in view of the advanced negotiations with the buyer at that time), the investment in Gadot is accounted for as an asset held for sale. Accordingly, the investment in shares of Gadot is recognized in accordance with IFRS 5, as part of a group of assets held for sale (NIS 109 million) and under liabilities attributable to assets held for sale (NIS 83 million). The Company measured the investment in Gadot shares at the exercise value, and as a result, the Company recognized a loss of NIS 20 million in the reporting period under other financing income (expenses), net. It should be noted that in the second quarter of 2018, the Company will recognize a profit of NIS 16 million due to realization of capital reserves for foreign currency translation differences for foreign operations in view of completion of the transaction

71 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 4: INVESTMENTS IN FINANCIAL ASSETS Further to Note 9 to the Annual Financial Statements regarding the Company's holding of 15.3% of the share capital of the Faroe Petroleum PLC ("Faroe"), subsequent to the balance sheet date, on April 4, 2018, the Company sold of all its holdings in Faroe to a third party for a cash consideration of NIS 350 million in cash (GBP million). In the first quarter of 2018, the Company recognized a profit of NIS 20 million from the increase in the market value of Faroe shares, and in the second quarter of 2018 the Company is expected to recognize an additional profit of NIS 53 million as a result of the sale. NOTE 5: INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION The Group operates mainly through Delek Drilling - Limited Partnership ("Delek Drilling") 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. The Group also operates through Ithaca in oil and gas exploration and production of oil and gas in the North Sea, after the Company acquired the entire holding in Ithaca in (See also Note 12 to the Annual Financial Statements). The main changes in the reporting period appear below: A. Ratio Yam joint venture Development drillings under the development plan Further to Note 12E(3) to the Annual Financial Statements, as at the approval date of the financial statements, the Ensco DS-7 drilling rig completed the drilling to the lower part of the Leviathan 3 well to its final depth and began drilling the lower part of the Leviathan 7 well to the final depth. After completion of the Leviathan 7 drilling, the drilling rig will complete the production drillings in the Leviathan project. B. Further information about the licenses of Delek Drilling 1. Further to Note 12I(3) to the Annual Financial Statements, prior to completion of the mediation proceedings in respect of the 353/Eran license, on May 6, 2018, the parties petitioned the Court to permit them to receive an update if its results by July 6, As at the approval date of the financial statements, a ruling of the motion has not yet been handed down. 2. On January 16, 2018, the operator submitted to the Commissioner of Petroleum Affairs in the Ministry of Energy ( the Commissioner ) a revised work plan for the Alon D license. C. Agreements for the export of natural gas from the Tamar project 1. Agreement for the export of natural gas from the Tamar project to Dolphinus: In February 2018, Delek Drilling and Noble (jointly below: the Sellers ) and Dolphinus Holdings Limited ( Dolphinus ) signed an agreement for the export of natural gas from the Tamar project to Egypt ( the Tamar Export Agreement ). The scope of this agreement is significantly larger than the agreement for the supply of natural gas signed between the Tamar partners and Dolphinus on March 17, 2015, which was signed with the intention of replacing it. The Sellers approached the other partners in the Tamar project with the aim of assigning the Tamar Export Agreement to the other Tamar partners or entering into agreements with them for the purchase of natural gas from the Tamar project, in accordance with the terms of the Tamar Export Agreement, for the purpose of selling it to Dolphinus. As at the approval date of the financial statements, the Tamar Export Agreement has not yet been assigned and agreements have not yet been signed with the other Tamar partners

72 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 5: INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.) C. Agreements for the export of natural gas from the Tamar project (contd.) 1. Agreement for the export of natural gas from the Tamar project to Dolphinus (contd.) Under the Tamar Export Agreement, the supply of natural gas to Dolphinus will initially be on an interruptible basis. Under the Tamar Export Agreement, the Sellers are given the option to notify Dolphinus that the supply of natural gas (in whole or in part) will be on a firm basis (in this section: "the Option"). The Option may be exercised by the Sellers, in whole or in part, during the period from July 2020 until December 2021, or during any other period as agreed on by the Sellers and Dolphinus. Upon exercise of the Option, the Sellers will be required to supply Dolphinus with an annual quantity of up to 3.5 BCM (according to the quantity for which the Option is exercised) and Dolphinus undertook to take or pay for a minimum annual quantity of natural gas according to the mechanism set out in the Tamar Export Agreement. The total contract quantity of gas set out in the Tamar export agreement is 32 BCM. The price of gas supplied to Dolphinus under the Tamar Export Agreement will be calculated by a formula based on the price of a barrel of Brent oil. Supply according to the Tamar Export Agreement is expected to begin once the infrastructure for the delivery of natural gas to Egypt is operational. Supply will continue until the total contract quantity set out in the Tamar Export Agreement has been supplied or until December 2030, whichever is earlier. The Tamar Export Agreement includes a number of preconditions, the main ones being the receipt of regulatory approvals in Israel and Egypt (including receipt of permits for the import and export of gas); signing of agreements that will allow the use of the transmission infrastructure, including transmission agreements between the Sellers and INGL (as required); the receipt of guarantees in favor of the Sellers as required by the Tamar Export Agreements; and approvals from the Israeli tax authorities for the transactions in the Tamar Export Agreement. It should be clarified that there is no certainty that the sale of the gas to Dolphinus under the Tamar Export Agreement will occur, due to non-fulfillment of all or part of the preconditions in the Tamar Export Agreement. It should be noted that as at the approval date of the financial statements, Delek Drilling, together with its partners, is assessing various options for delivering natural gas from Israel to Egypt, including through Jordan (use of the pan-arab pipeline), the construction of a new pipeline to Egypt, and the construction of a new onshore connection between the Israeli pipeline to Egypt (in the Nitzana or Kerem Shalom area). At the same time, Delek Drilling together with Noble and Egyptian entities, is negotiating with the various rights holders in EMG to examine the acquisition of rights in EMG in order to use the gas pipeline owned by EMG to deliver natural gas from Israel to Egypt. It should be emphasized that these negotiations are not binding until binding agreements are signed and that there is no certainty that such binding agreements will be signed. It should further be noted that the entry into force of binding agreements (if and to the extent that they are signed) will be subject to the fulfillment of various preconditions, including the receipt of all regulatory approvals required by law, technical tests to examine and approve the option of using the EMG pipeline, and settling the open mediations of EMG and its shareholders

73 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 5: INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.) C. Agreements for the export of natural gas from the Tamar project (contd.) 2. On February 21, 2018, the Tamar partners and Israel Chemicals Ltd. ("ICL") signed an agreement on an interruptible basis for the supply of natural gas ( the ICL-Tamar Agreement ). Under the ICL-Tamar Agreement, supply will commence on February 1, 2018 and end on September 1, Under the ICL-Tamar Agreement, if there is a delay in the commencement of commercial production from the Tanin and Karish reservoirs, the period of the ICL-Tamar Agreement will be extended automatically for additional periods of six months each, until the date of commercial production from the Tanin and Karish reservoirs or until December 31, 2025, whichever is earlier. It was further determined that ICL will be entitled to notify the Tamar partners of the cancellation of the supply agreement at the end of each of the extension periods. If the agreement for the supply of natural gas to ICL from the Tanin and Karish reservoirs is canceled, the ICL-Tamar Agreement will be automatically extended until December 31, D. Agreements for the supply of natural gas from the Leviathan project 1. Further to Note 12L(2)(b) to the Annual Financial Statements regarding the agreement for the export of natural gas from the Leviathan project to the National Electric Power Company of Jordan ("the Export Agreement"), on March 7, 2018, Delek Drilling announced that all the preconditions in the Export Agreement had been fulfilled. 2. Further to Note 12L(2)(a) to the Annual Financial Statements regarding agreements for the sale of natural gas from the Leviathan project, subsequent to the balance sheet date, on May 9, 2018, Delek Drilling announced the fulfillment of all the preconditions in the agreement for the supply of natural gas from the Leviathan project to IMP Beer Tuvia Ltd. 3. Letter of intent for the export of natural gas from the Leviathan project to Dolphinus: In February 2018, the Delek Drilling and Noble (jointly below in this section: the Sellers ) and Dolphinus (in this section: the Buyer ) signed an agreement for the export of natural gas from the Leviathan project to Egypt (in this section: the Leviathan Export Agreement ), which was signed further to the letter of intent of November The Sellers approached the other partner in the Leviathan project ( the Other Partner ) with the aim of assigning the Leviathan Export Agreement to the Other Partner or entering into agreements with it for the purchase of natural gas from the Leviathan project, in accordance with the terms of the Leviathan Export Agreement, for the purpose of selling it to Dolphinus. As at the approval date of the financial statements, the Leviathan Export Agreement has not yet been assigned and agreements have not yet been signed with the Other Partner. Under the Leviathan Export Agreement, the supply of natural gas to the Buyer will be on a firm basis. The Sellers undertook to supply the Buyer with an annual quantity of 3.5 BCM and the Buyer undertook a take or pay agreement for a minimum quantity according to the mechanism set out in the agreement. The total contract quantity of gas set out in the Leviathan Export Agreement is 32 BCM

74 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 5: INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.) D. Agreements for the supply of natural gas from the Leviathan project (contd.) 3. Letter of intent for the export of natural gas from the Leviathan project to Dolphinus (contd.) The price of gas supplied to the Buyer under the Leviathan Export Agreement will be calculated by a formula based on the price of a barrel of Brent oil. Under the Leviathan Export Agreement, supply is expected to begin when production from the Leviathan reservoir starts. Supply will continue until the total contract quantity set out in the Leviathan Export Agreement has been supplied or until December 2030, whichever is earlier. The Leviathan Export Agreement includes a number of preconditions, the main ones being the receipt of regulatory approvals in Israel and Egypt (including receipt of permits for the import and export of gas); signing of agreements that will allow the use of the transmission infrastructure, including transmission agreements between the Sellers and INGL (as required); the receipt of guarantees in favor of the Sellers as required by the Leviathan Export Agreements; and approvals from the Israeli tax authorities for the transactions in the Leviathan Export Agreement. It should be clarified that there is no certainty that the sale of natural gas to the Buyer under the Leviathan Export Agreement will occur, due to non-fulfillment of all or part of the preconditions in the Leviathan Export Agreement. It should be noted that as at the approval date of the financial statements, Delek Drilling, together with its partners in the Leviathan project, are continuing the assessment of various options for delivering natural gas from Israel to Egypt, including through Jordan (using of the pan-arab pipeline), through the northern pipeline to Jordan and/or the construction of a new pipeline to Egypt, and the construction of a new onshore connection between the Israeli pipeline to Egypt (in the Nitzana or Kerem Shalom area). At the same time, Delek Drilling together with Noble and Egyptian entities, is negotiating with the various rights holders in EMG to examine the acquisition of rights in EMG in order to use the gas pipeline owned by EMG to deliver natural gas from Israel to Egypt. It should be emphasized that these negotiations are not binding until binding agreements are signed and that there is no certainty that such binding agreements will be signed. It should further be noted that the entry into force of binding agreements (if and to the extent that they are signed) will be subject to the fulfillment of various preconditions, including the receipt of all regulatory approvals required by law, technical tests to examine and approve the option of using the EMG pipeline, and settling the open mediations of EMG and its shareholders. 4. On February 21, 2018, the Leviathan project partners and ICL signed an agreement for the supply of natural gas ("the ICL-Leviathan Agreement"). The term of the supply agreement will commence when gas starts to flow in commercial quantities from the Leviathan project and will end on September 1, As ICL reported to Leviathan's partners, ICL entered into an agreement for the purchase of natural gas from the Tanin and Karish leases ("the Tanin and Karish Agreement" and "the Tanin and Karish Reservoirs, respectively). Accordingly, under the provisions of the Gas Outline Plan and the directives of the Antitrust Authority, the Leviathan partners and ICL agreed that in the event of a delay in the commencement of commercial production from the Tanin and Karish Reservoirs, the agreement period will be extended automatically for additional periods of six months each, until the date of commercial production from the Tanin and Karish Reservoirs or until December 31, 2025, whichever is earlier. It was further determined that ICL will be entitled to notify the Leviathan partners of the cancellation of the supply agreement at the end of each of the extension periods. The agreement also included a provision that if the Tanin and Karish Agreement is canceled, then the term of the supply agreement will be automatically extended until December 31,

75 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 5: INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.) D. Agreements for the supply of natural gas from the Leviathan project (contd.) 4. (contd.) The Leviathan partners undertook to supply ICL with an annual quantity of natural gas of 0.38 BCM, in accordance with the terms set out in the supply agreement. ICL undertook a take or pay arrangement. The supply agreement also sets out a mechanism for increasing the quantity of gas supplied to the buyer, up to an annual quantity of 0.76 BCM. The supply agreement stipulates that the price of gas will be partially linked to the price of a Brent barrel and partially to the electricity generation rate, as set from time to time by the Public Utility Authority, and includes a minimum price. E. Further to Note 12D(1)(i)(4) to the Annual Financial Statements, in March 2018, Tamar Petroleum acquired from Noble 7.5% (of 100%) of the rights in the Tamar and Dalit leases, among other things, in return for a private allotment of 43.5% of the shares of Tamar Petroleum (after the allotment). As a result, the holdings of Delek Drilling in Tamar Petroleum fell to 22.6% of the equity rights. It should be clarified that the voting rights of Delek Drilling in Tamar Petroleum (16.67%) following completion of the transaction with Nobel remain unchanged, due to Noble's waiver of all the voting rights attached to the Tamar Petroleum shares allotted to it. The total effect on profit or loss after recording of the share of Delek Drilling in the profits of Tamar Petroleum amounted to a loss of NIS 18 million in the reporting period (the total effect on the profit attributable to the Company's shareholders amounted to NIS 10 million). F. Further to Note 12G to the Annual Financial Statements regarding an agreement for sale of rights in the I/17 Karish and I/16 Tanin leases ( the Leases ), on March 27, 2018, Delek Drilling received a notice from Energean that on March 22, 2018, Energean had made a final investment decision (FID) for development of the Leases. Under the terms of the agreement, as from the date of the FID, Delek Drilling is entitled to USD million, in ten equal annual payments, plus interest at the mechanism and rate set out in the agreement, as well as royalties for the natural gas and condensate produced from the holdings. It should be noted that in March 2018, Delek Drilling received the first payment. In the reporting period, the fair value of the amounts receivable for the future production-based royalties component and the amounts receivable for the FID arising from the sale of the Karish and Tanin leases was adjusted. The effect of the adjustment on the profit attributable to the Company's shareholders (after the effect of taxes) amounted to a profit (appreciation) of USD 40 million (NIS 141 million), mainly due to a change in capitalization rates, the earlier FID for development of the Leases, an update of the contingent resources and hydrocarbon liquid (condensate and liquid natural gas) published by Energean, and the projected production rate. Below are the main parameters of the valuations used to measure the royalties and the receivables: The capitalization rate for the receivables in respect of the FID is estimated at 7.5%; the capitalization rate for the royalty component is estimated at 11%; the total contingent resources of natural gas and hydrocarbon liquids used for the valuation to measure the royalties were estimated at 67 BCM and 33 MMbbl, respectively. G. Subsequent to the balance sheet date, on May 22, 2018, the Board of Directors of Delek Energy approved an agreement according to which Delek Energy will transfer its rights to royalties from the Tamar project to the subsidiary, Delek Royalties (2012) Ltd. ("Delek Royalties"), for a cash consideration (arising from the issue of Delek Royalties debentures and shares to the public), and under certain conditions, for the allocation of the shared of Delek Royalties to Delek Energy, subject to the preconditions described below: 1. Completion of the issuance of the offered securities, provided that at least 60% of the shares offered under the prospectus are purchased by the public. 2. The receipt of approvals from the Commissioner of Petroleum Affairs in accordance with the Petroleum Law, 1952 ( the Petroleum Law ) and registration of the right to royalties in the name of Delek Royalties in the Petroleum Register in accordance with the Petroleum Law

76 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 5: INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.) 3. The approval of the Tel-Aviv Stock Exchange Ltd. to list the securities offered under the prospectus It should be noted that, based on a tender for the acquisition of debenture units held on May 29, 2018, Delek Royalties allotted NIS 425,498,000 nominal value debentures, subject to the foregoing preconditions. As of approval of the financial statements, the tender for the public issue of Delek Royalties shares has not yet been completed. The Group is reviewing the effects of the foregoing agreement and securities issue, if any, on its financial statements. The Group is assessing the implications of the agreement, if any, on its financial statements. H. Further to Note 12B(2) to the Annual Financial Statements, on January 18, 2018, Ithaca signed an agreement for the sale of all of its rights in Wytch Farm for USD 54 million. This sale did not have a material effect on the results of the Company s results in the reporting period. I. As described in Note 12P to the Annual Financial Statements, on January 8, 2018, Delek GOM Investments LLC ("the Buyer") signed an agreement for the purchase of oil and gas rights (in this report: the Agreement or the Rights Purchase Agreement ) with GulfSlope Energy, Inc. and Texas South Energy Inc. ( GulfSlope, Texas South, respectively, and jointly: the Transferors ). The Transferors are public companies whose shares are listed for trading in the USA (OTC). The oil assets under the Agreement are 12 federal leases for exploration, development and production of oil and gas in the Gulf of Mexico, USA, in shallow waters (less than 150 m depth) ( the Leases and the Oil Assets ). In the area of the Oil Assets, the Transferors identified nine major prospects for exploration drilling ( the Prospects ), seven of which are in deep layers and two in shallow layers. In the Agreement, the Buyers undertook to finance 90% of the cost of the two initial drillings in the Tau and Canoe Prospects ( the First Stage Assets ), in return for 75% of the rights in the First Stage Assets, in the area in which the drillings will be carried out, at a total amount that will not exceed USD 50 million and in addition, the Buyer will have an option to purchase rights in the remaining prospects based on the mechanism set out in the Agreement. The Company will provide the Buyer with a shareholders loan to finance the cost of these two drillings from independent sources. NOTE 6: DEBENTURES Further to Note 19E to the Annual Financial Statements, in February 2018, the Company issued NIS 520,700,000 par value Debentures (Series B34), for NIS 515 million. The debentures will be repaid in eight unequal payments: At the end of 2020 and 2021, NIS 39 million; at the end of 2023 to 2026, NIS 65 million; and at the end of , NIS 91 million. The debentures bear interest at a rate of 4.48%, payable twice a year, on June 30 and on December 31 of each year from 2018 to The effective rate of interest on the foregoing debentures is 4.7%. The deed of trust for the debentures established, among other things, financial covenants for the Company, as set out below, and compliance with all the other obligations of the Company to the debenture holders in accordance with the deed of trust and terms of the debentures will be subject to the following: (1) Minimum equity: The Company's equity will not fall below NIS 2,600 million in accordance with the Company's audited or reviewed consolidated statements, as the case may be, in two consecutive quarters. (2) Equity to balance sheet ratio The Company's equity will not fall below 20% of the total balance sheet in accordance with the Company's audited or reviewed separate statements, as the case may be. The Company may distribute a dividend as defined in the Companies Law, subject to fulfillment of the following terms: (a) The distribution is in accordance with section 302 of the Companies Law. (b) The Company does not violate the financial covenants set out in the deed of trust of Debentures (Series B31, Series B32 and Series B33) prior to the distribution and due to the distribution. (c) The Company's equity will not fall below NIS 2,800 million due to the distribution. (d) There are no grounds to call for immediate repayment of the Debentures (Series B31, Series B32 and Series B33). (e) As at the approval date of the distribution, there is no material breach of the terms of the deed of trust

77 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements 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. Several lawsuits, including motions to certify class actions, that amount to substantial sums, have been filed against Delek Israel, its investees and others (for further information see Note 23A(1) to the Annual Financial Statements) 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 hearing of the claim will be postponed until the ruling of the Supreme Court on the appeal and the rehearing filed by the respondents. In April and May 2017, the applicant filed an appeal at the Supreme Court in connection with the dismissal of the motion against the controlling shareholder of the Company, as well as a motion to reduce the amount of the guarantee set in the appeal and to extend the date for its deposit. On November 22, 2017, the Court dismissed the motion. On July 5, 2017, the Company filed a motion for a re-hearing on its behalf, and a similar application was filed simultaneously on behalf of the officers. On July 9, 2017, a ruling was handed down according to which the hearing of the motions for a re-hearing filed on behalf of the Company and on behalf of its officers will be consolidated. On November 15, 2017, a single response was filed on behalf of the respondent to the motion for a re-hearing. At the same time, the respondent filed an "urgent motion to dismiss or strike out the motions for a re-hearing and as an alternative only, a motion to delete the opinion that was attached and to delete sections of the motion. On December 31, 2017, the Company filed a response to the motion to dismiss the motion for a re-hearing. On March 19, 2018, the parties informed the court that they are in advanced negotiations to formulate a settlement and have reached agreements in principle that may obviate the continuation of the proceedings. Therefore, the parties requested a further 60-day stay of proceedings in the case and the court approved the request. Once the settlement between the parties has been prepared, it will be filed for the court's approval in accordance with the law. The Company believes that the settlement agreement set out above is not expected to have a material effect on the financial statements

78 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 7: CONTINGENT LIABILITIES (CONTD.) C. Further to Note 23A(7) to the Annual Financial Statements, on December 25, 2016, a motion for certification of a class action was filed (below in this section: "the Motion") on the grounds that the merger transaction between the Delek Drilling and Avner Partnership was approved in an unfair process and the consideration paid to the holders of the non-controlling units in Avner, as set out in the merger agreement, is unfair. The Motion was filed against Avner Partnership, the general partner in Avner Partnership and members of its board of directors, Delek Group as the controlling shareholder in Avner Partnership (linked), and against PricewaterhouseCoopers Consulting Ltd. (PWC), as the economic advisor of an independent board committee established by Avner Partnership. The Motion includes allegations that the members of the committee, board of directors of Avner Partnership and companies of the general partner in Avner Partnership, breached the duty of care towards Avner Partnership, and that Avner Partnership acted in a way that discriminated against the non-controlling interests. The plaintiffs estimate that the damage amounts to NIS 320 million. On February 13, 2017, the court approved a procedural arrangement whereby the motion for certification as a class action will be amended by adding a claim of discrimination against a minority by Delek Group. In should be noted that on July 6, 2017, the Court ordered Delek Drilling to join as a respondent, at the request of Delek Drilling. On July 27, 2017, responses to the motion for certification were filed, and on January 14, 2018, the applicants filed their response to the responses. The pre-trial hearing of the Motion for Certification is scheduled for June 13, In the opinion of the legal counsel of the Company and Delek Drilling, it is more likely than not that the motion for certification will be dismissed. D. Further to Note 23A(6) to the Annual Financial Statements concerning the claim for the return of royalties, the court changed the scheduled date of the pretrial hearing to July 18, E. Further to Note 23A(5) to the Annual Financial Statements regarding the motion for certification of a class action filed by a consumer of Israel Electric Corporation, in April 2018, counsel for the deceased applicant filed a consented motion to replace the deceased applicant by his widow, subject to the filing of her supplementary affidavit, and on the same day the motion was approved by the court. On May 6, 2018, the State s witnesses took the stand for direct examination of their affidavits. Other witnesses took the stand on May 22, 2018 and further examination was scheduled for June 26, Delek Drilling believes, based on the opinion of its legal counsel, that the likelihood of the claim being certified as a class action is lower than 50%. NOTE 8: CAPITAL Subsequent to the balance sheet date, on April 29, 2018, the Company declared a dividend of NIS 120 million, which was paid in May The dividend per share is NIS An amount of NIS 7 million was distributed to a wholly-owned subsidiary partnership of the Company, Delek Financial Investments Limited Partnership

79 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 9: 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 in Israel and its surroundings: 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. Development and production of gas and oil assets in the North Sea: The activity is carried out by Ithaca, which owns rights in oil and gas assets in the North Sea region. The activity includes mainly production and marketing of oil and gas from the producing reservoirs and the development of additional reservoirs. The Group s share in the results of Ithaca in the three months ended March 31, 2017 (prior to acquisition of control) was reclassified from other segments to the development and production of gas and oil assets in the North Sea sector. 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, and the immaterial biochemical operation of Gadot, which was disposed of subsequent to the balance sheet date, as set out in Note 3E above. It is noted that following recognition of the operating results of The Phoenix under income from discontinued operations, The Phoenix is not presented as a reportable segment

80 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 9: OPERATING SEGMENTS (CONTD.) B. Segment reporting 1) Revenue Three months ended March 31 Year ended December Unaudited Audited NIS millions Revenue from external sources Oil and gas exploration and production in Israel and its surroundings *) ,588 Development and production of oil and gas assets in the North Sea Fuel in Israel 1, ,143 Other segments Inter-segment *) (6) (7) (21) Adjustments Total in statement of income 1,781 1,542 6,835 *) Inter-segment sales are mainly for the sale of natural gas to other segments. 2) Segment results Three months ended March 31 Year ended December *) 2017 Unaudited Audited NIS millions Oil and gas exploration and production in Israel and its surroundings ,390 Development and production of oil and gas assets in the North Sea Fuel in Israel Other segments (6) (5) (77) Adjustments **) (23) (10) (80) Operating profit ,537 *) Restated, see Note 2E and section A above. **) Mainly administrative and general expenses attributable to headquarter companies

81 Delek Group Ltd. Notes to the Consolidated Interim Financial Statements NOTE 9: OPERATING SEGMENTS (CONTD.) B. Segment reporting (contd.) 3) Contribution to net profit from continuing operations attributable to the shareholders of the Company Three months ended March 31 Year ended December Unaudited Audited NIS millions Oil and gas exploration and production in Israel and its surroundings ,217 Development and production of oil and gas assets in the North Sea 53 8 *) 10 Fuel in Israel Automotive (11) 18 (101) Other segments (18) (4) *) (97) Adjustments **) (65) (106) (467) Net profit from continuing operations attributable to shareholders of the Company (*) Reclassified, see section A above **) Mainly administrative and general expenses, financing and taxes attributable to headquarter companies

82 Delek Group Ltd. Financial Information from the Interim Consolidated Financial Statements Attributed to the Company as at March 31, 2018 Unaudited

83 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, 2018, 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

84 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 870 1, Short-term investments Trade receivables Other receivables ,189 2, Assets held for sale 2,128 1,906 2,048 Total current assets 3,317 4,515 2,978 Non-current assets Investments in investees and partnerships 5,978 6,717 5,895 Loans and capital notes to investees 3,253 1,086 3,178 Financial assets Long term loans and debit balances Investments in oil and gas exploration and production Investment property Fixed assets, net Total non-current assets 10,143 8,695 9,935 13,460 13,210 12,913 The accompanying additional information is an integral part of the financial information and of the separate financial information. 4

85 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 1,487 1,192 1,748 Non-current liabilities Long Term Bank Loans and Others Debentures 5,988 6,478 5,661 Debentures convertible into Company shares 1,091 1,082 1,089 Deferred taxes Other liabilities (primarily liability for decommission of long term assets) Non-current liabilities 7,320 7,745 6,910 Equity attributable to equity holders of the Company Share capital Share premium 1,924 1,917 1,924 Proceeds for conversion option Retained earnings 3,587 2,675 3,122 Adjustments from the translation of financial statements of foreign operations (492) (240) (576) Reserve from transactions with holders of non-controlling rights Other reserves Treasury shares (469) (433) (469) Total capital 4,653 4,273 4,255 13,460 13,210 12,913 The accompanying additional information is an integral part of the financial information and of the separate financial information. May 30, 2018 Date of approval of the financial statements Gabriel Last Asi Bartfeld Barak Mashraki Chairman of the Board CEO CFO of Directors 5

86 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 investees and partnerships, net ,048 Management fees from investees Total revenue ,071 Production cost of gas sold General and Administrative Expenses Other income (expenses), net (16) (1) 32 Operating profit ,046 Net financing income with respect to loans to investees and others Financing income (expenses) (mainly for financial investments), net (6) Financing expenses (mainly with respect to debentures) (88) (124) (439) Profit before tax benefit Tax benefit 1-15 Profit from continuing operations Income from discontinued operations, net Net earnings attributed to Company shareholders ,216 The accompanying additional information is an integral part of the financial information and of the separate financial information. 6

87 Delek Group Ltd. Breakdown of Financial Information from the consolidated statement of comprehensive income attributable to the Company Three months ended Year ended At March 31 December Unaudited Audited NIS millions Net earnings attributed to Company shareholders ,216 Other comprehensive income (loss) Amounts classified or reclassified to profit and loss under specific conditions: Loss from available-for-sale financial assets, net - (45) (64) Transfer to the statement of income for disposal of available-for-sale financial assets - - (13) Transfer to statement of income for impairment of available-for-sale financial assets Loss from cash flow hedges - (23) (20) Attributed to a hedged asset of the results of cash flow hedges Adjustments for translation of financial statements of foreign operations - - (11) Transfer to statement of income for exchange differences on translation of foreign operations Other comprehensive income (loss) attributable to investees and partnerships (after tax effect) 84 (315) (655) Total other comprehensive income (loss) from continuing operations 84 (382) (713) Total other comprehensive income (loss) from discontinued operations (11) Total other comprehensive income (loss) 73 (370) (634) Total comprehensive income (loss) attributed to Company shareholders 316 (150) 582 The accompanying additional information is an integral part of the financial information and of the separate financial information. 7

88 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 income attributable to Company shareholders ,216 Adjustments to reconcile statement of cash flows from the Company's continuing operating activities (a) (147) (190) (56) Net cash from the Company's ongoing operations ,160 Cash flows from the Company's investment activities Investments in property, plant and equipment and investment property (17) (1) (28) Proceeds from disposal of financial assets Acquisition of financial assets (6) (6) (4) Proceeds from sale of investments in investees Short-term investments, net Investment in available-for-sale financial assets - (16) (70) Collection of loans for others, net Collection (provision) of loans and capital investments of investees, net 72 (216) (2,262) Net cash from (used for) the Company's investment operations (1,461) Cash flows from the Company's financing activities Dividend paid to shareholders of the Company - - (780) Short term borrowings from banks and others, net (274) Issue of Debentures 515 1,006 1,006 Loans received from banks Repayment of long-term bank loans and others (125) - (12) - - (700) Net cash from the Company's financing operations 196 1, Increase (decrease) in cash and cash equivalents 341 1,046 (213) Balance of cash flow and cash equivalents for beginning of period Exchange differences for cash balance and cash equivalents (1) (21) (7) Cash balance and cash equivalents at end of period 870 1, The accompanying additional information is an integral part of the financial information and of the separate financial information. 8

89 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 Deferred taxes, net - - (17) Decrease (increase) of loans granted, net (26) 27 (1) Impairment (appreciation) of investments and loans provided, net (30) 1 - Company's share in the expenses of partnerships and investees *) (73) (209) (48) Impairment (improvement) of liabilities, net (3) (1) 36 Change in fair value of financial derivatives, net 5 (6) 5 Other income (regarding disposal of gas and oil assets) - (92) Revaluation of other long-term assets (16) 1 7 Earnings from disposal of investment in available-for-sale financial assets - - (13) Impairment of available-for-sale financial assets Exchange differences for cash balance and cash equivalents, net Loss from impairment in investment property Changes in the Company's asset and liability items: Decrease in trade receivables Decrease (increase) in other receivables 12 3 (6) Increase (decrease) in other payables (28) (18) 18 (147) (190) (56) Net of dividends received ,554 (b) Company's significant non-cash activities Dividend received from partnerships and investees Acquisition of Company shares by a subsidiary Dividend declared (c) Additional information on cash flows Cash paid by the Company during the period for: Interest Cash received by the Company during the period for: Interest 2-26 Dividends ,560 The accompanying additional information is an integral part of the financial information and of the separate financial information. 9

90 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, 2017, and for the year then ended and their accompanying notes, and in conjunction with the consolidated interim financial statements as of March 31, 2018 ("Consolidated Interim Financial Statements"). NOTE 2 DEBENTURES For information regarding the issue of Debentures (Series B34), see Note 6 to the Consolidated Interim Financial Statements. NOTE 3 CONTINGENT LIABILITIES There are certain contingent claims against the Company and certain investees for significant sums, including motions to certify class actions, that might amount to anywhere between NIS hundreds of million to several billion. 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 4 CAPITAL With regard to distribution of dividends by the Company, see Note 8 to the Consolidated Interim Financial Statements E:\Alan Clayman\Delek\2018\Q1\Formatted\Delek Q Separate Financial Information_Formatted.docx 10

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