Chapter A Board of Directors' Report on the state of the Company's Affairs. Chapter B Financial Statements (Unaudited) for September

Transcription

1 מכתשים אגן תעשיות בע"מ Makhteshim Agan Industries Ltd. Quarterly Report for September 30, 2013 Chapter A Board of Directors' Report on the state of the Company's Affairs Chapter B Financial Statements (Unaudited) for September 30, 2013 Chapter C Report Regarding the Effectiveness of the Internal Auditing of Financial Reporting and Disclosure The information contained herein constitutes an unofficial translation of the Quarterly Report for the third quarter of 2013 published by the Company in Hebrew. The Hebrew version is the binding version. This translation was prepared for convenience purposes only.

2 Makhteshim Agan Industries Ltd. Board of Directors' Report for the Quarter ended September 30, 2013 The Board of Directors of the Company is pleased to present the Directors' Report on the state of the Company s affairs as of September 30, 2013 and for the cumulative nine-month period then ended ("the Reporting Period"). The Directors' Report for the Reporting Period is limited in scope and should be read together with the Periodic Report for 2012 published on March 10, 2013 (Ref: ) ("the Periodic Report for 2012"). A. Board of Directors' remarks on the state of the Company's affairs 1. Brief description of the corporation and its business environment Makhteshim Agan Industries Ltd. and its subsidiaries ("the Company") specialize in the chemical industry and as at the reporting date, focus primarily on the agriculture-related chemical industry (agrochemicals). As such, the Company develops, manufactures and markets crop protection products. Furthermore, the Company has other operations which are based on its core capacities (in the agricultural and chemical industries), the scope of which, as at the reporting date, is insignificant. At the reporting date the Company is the leading global generic manufacturer of crop protection products, and sells its products in approximately 120 countries worldwide. The Company's key success factors are primarily wide global deployment, a broad portfolio of specialty products adapted to the farmer s needs, its goodwill, know-how, exceptional agronomical experience and ability, excellent technological-chemical capacities, first-rate research and development capacities and product licensing expertise, adherence to stringent ecological standards, strict quality control, global marketing and distribution system, comprehensive production system from R&D through manufacture, cooperation with multinational companies for the production and marketing of the products, financial robustness and available cash resources. Steady and consistent R&D investment facilitates the launching of new generic products, compounds and formulations at opportune times. For a description of the Company's business strategy and goals, including its plan following completion of the merger transaction with a company from the ChemChina group, see section 31 in Chapter A of the Periodic Report for Brief review of the changes in the industry and in the Company's operations In the third quarter of 2013 the Company posted an increase in sales, reflecting the highest sales presented by the Company in any third quarter and also an increase in amount and rate of gross profit, operating profit and net profit. Such increase stemmed primarily from an increase in quantities sold in most regions of operation (especially in Brazil), the increasing of selling prices, a better product mix, despite the weakening 1

3 of various currencies in some of the regions in which the Company operates and an increase in the prices of raw materials and in production costs. The crop protection product market and the Company's operations were influenced by the following trends in the third quarter of 2013: a. A significant growth in the Company s sales in Brazil as a result of the continued improvement in all aspects of the Company s activities in Brazil due to the execution of the re-organization measures that the Company initiated in Brazil and as a result of the growth in the agrochemical market in Brazil resulting, inter alia, from the increase in agricultural land in the country and relatively convenient climate conditions. b. The Company has increased its sales in all regions in which it operates, including Asia-Pacific, despite the significant weakening of some of the currencies in which the Company operates in Eastern Asia and the Pacific, this, inter alia, by raising selling prices in some of the regions in which the Company operates. c. Raising the selling prices of some of the Company s products has compensated on the increase in the prices of raw materials and production costs. 2. Results of Operations Condensed Statement of Income Accounting Statement of Income for Q (in USD millions): % 7-9/2013 % 7-9/2012 Change % of change Revenue % Gross profit 32.0% % % Operating expenses 2832% % % Operating profit (EBIT) 8737% % % Finance expenses, net 83.% % % Pre-tax profit 330% % % Net profit after noncontrolling interest 235% % % EBITDA 8838% % % * The Company's revenue in the third quarter of 2013, eliminating currency effects, increased by 15.8% compared with the corresponding quarter last year. Accounting statement of profit and loss for the Reporting Period (in USD millions) % 1-9/2013 % 1-9/2012 Change % of change Revenue , % Gross profit.23.% % % Operating expenses 2737% % % Operating profit (EBIT) 823.% % % Finance expenses, net 332% % % Pre-tax profit.3.% % % Net profit after noncontrolling interest.38% % % EBITDA 8038% % % * The Company's revenue in the Reporting Period, eliminating currency effects, increased by 8.9% compared with the corresponding period last year. 2

4 3. Analysis of business results A. Breakdown of revenues by geographical region Company sales in the third quarter of 2013 amounted to USD million, compared with USD million in the corresponding quarter last year, an increase of USD 88.5 million. Company sales in the Reporting Period amounted to USD 2,420.7 million, compared with USD million in the corresponding period last year, an increase of USD million. The increase in total sales stemmed mainly from an increase in quantities sold and the raising of selling prices, which compensated on the weakening of various currencies in some of the regions in which the Company operates. See below for a specific description of trends unique to the principal regions of operation. Breakdown of quarterly sales (in USD millions): % 7-9/2013 % 7-9/2012 Change % of Change Europe 31.1% % % Latin America 32.5% % % North America 12.8% % % Asia Pacific and Africa 20.0% % % Israel 3.6% % % Total 100.0% % % Breakdown of sales in the Reporting Period (in USD millions) % 1-9/2013 % 1-9/2012 Change % of Change Europe 41.5% 1, % % Latin America 20.9% % % North America 16.1% % % Asia Pacific and Africa 18.1% % % Israel 3.4% % % Total 100.0% 2, % 2, % Breakdown of quarterly sales by percentage: Asia Pacific and Africa 20.2% Israel 3.9% Q Europe 32.9% North America 13.8% Latin America 29.2% 3

5 Europe Sales in the third quarter of 2013 amounted to USD million, compared with USD million in the corresponding quarter last year, an increase of USD 15.8 million. The increase in sales in the quarter stemmed primarily from an increase in quantities sold and from raising the selling prices despite the effective exchange rate level in the quarter which was lower than the level at which the Company operated in the corresponding quarter last year. In the Reporting Period sales in Europe amounted to USD 1,004.1 million compared with USD million in the corresponding period last year, an increase of USD 48.3 million. The increase in sales in the Reporting Period stemmed mainly from an increase in quantities sold and raising the selling prices. Latin America Sales in the third quarter of 2013 amounted to USD million, compared with USD million in the corresponding quarter last year, an increase of USD 49.5 million. Sales in Latin America in the Reporting Period amounted to USD million compared with USD million in the corresponding period, an increase of USD 73.0 million. The increase in sales in the quarter and the Reporting Period stemmed mainly from a significant increase in quantities sold, together with the raising of selling prices, mainly in Brazil. North America Sales in the third quarter of 2013 amounted to USD 93.6 million, compared with USD 88.5 million in the corresponding quarter, an increase of USD 5.1 million. The increase in sales in the quarter stemmed primarily from an increase in quantities sold that was partially offset by lower selling prices. Sales in North America in the Reporting Period amounted to USD million compared with USD million in the corresponding period, an increase of USD 0.3 million. The stability in sales in the Reporting Period stemmed primarily from the raising of selling prices which compensated on the decrease in quantities sold, mainly due to severe climate conditions in the second quarter of Asia Pacific and Africa Sales in the third quarter of 2013 amounted to USD million, compared with USD million in the corresponding quarter, an increase of USD 16.5 million. The increase in sales in the quarter stemmed primarily from an increase in quantities sold and from the raising of selling prices which were partially offset by the weakening of various currencies in the region. Sales in Asia Pacific and Africa in the Reporting Period amounted to million compared with USD million in the corresponding period, an increase of USD 40.0 million. The increase in total sales in the Reporting Period stemmed mainly from an increase in quantities sold, which was partially offset by the weakening of various currencies the region and by lower selling prices in part of the region s countries. Israel Sales in the third quarter of 2013 amounted to USD 26.6 million, compared with USD 25.0 million in the corresponding quarter, an increase of USD 1.6 million. Sales in Israel in the Reporting Period amounted to USD 81.6 million compared with USD 77.5 million in the corresponding period, an increase of USD 4.1 million. 4

6 B. Revenues by segment of operation Breakdown of quarterly sales by segment of operation (in USD millions) % 7-9/2013 % 7-9/2012 Change % of Change Crop protection products 93.4% % % Other operations 6.6% % % Breakdown of sales in the Reporting Period by segment of operation (in USD millions) % 1-9/2013 % 1-9/2012 Change % of Change Crop protection products 93.7% 2, % 2, % Other operations 6.3% % % Sales of crop protection products in the third quarter of 2013 amounted to USD million, compared with USD million in the corresponding quarter. Sales from the Company s other operations in the third quarter of 2013 amounted to USD 48.2 million, compared with USD 42.9 million in the corresponding quarter. Sales of crop protection products in the Reporting Period amounted to USD 2,268.5 million, compared with USD 2,115.1 million in the corresponding period. Sales from the Company s other operations in the Reporting Period amounted to USD million, compared with USD million in the corresponding period. C. Gross profit Gross profit in the third quarter of 2013 amounted to USD million (32.0% of sales), compared with USD million (31.0% of sales) in the corresponding quarter. The increase in the amount and rate of the gross profit in the quarter stemmed mainly from an increase in quantities sold, a better product mix and from the raising of selling prices which were partially offset by the increase in the prices of raw materials and production costs and the weakening of some of the currencies in which the Company operates vs. the USD. Gross profit in the Reporting Period amounted to USD million (32.3% of sales) compared with USD million (32.9% of sales) in the corresponding period. The increase in gross profit in the Reporting Period stemmed mainly from an increase in quantities sold, the raising of selling prices and a better product mix and which were partially offset by the increase of prices of raw materials and of production costs and the weakening of some of the currencies in which the Company operates vs. the USD. D. Operating income Operating income in the third quarter of 2013 amounted to USD 73.5 million (10.0% of sales) compared with USD 52.8 million (8.2% of sales) in the corresponding quarter last year. Operating income in the Reporting Period amounted to USD million (12.3% of sales) compared with USD million (12.4% of sales) in the corresponding period. Operating expenses in the third quarter of 2013 amounted to USD million (21.9% of sales), compared with USD million (22.8% of sales) in the corresponding quarter last year. 5

7 Operating expenses in the Reporting Period amounted to USD million (20.0% of sales) compared with USD million (20.5% of sales) in the corresponding period. R&D expenses in the third quarter of 2013 amounted to USD 8.0 million (1.1% of sales), compared with USD 6.7 million (1.0% of sales) in the corresponding quarter last year. R&D expenses in the Reporting Period amounted to USD 24.9 million (1.0% of sales) compared with USD 22.5 million (1.0% of sales) in the corresponding period. The increase in R&D expenses stemmed primarily from the Company s decision to increase the resources allocated to research and development. Selling expenses in the third quarter of 2013 amounted to USD million (17.6% of sales), compared with USD million (17.9% of sales) in the corresponding quarter last year. Selling expenses in the Reporting Period amounted to USD million (15.9% of sales) compared with USD million (16.2% of sales) in the corresponding period. The increase in selling expenses stemmed, inter alia, from an increase in variable expenses as a result of an increase in quantities sold and an increase in marketing expenses. General and administrative expenses in the third quarter of 2013 amounted to USD 28.0 million (3.8% of sales), compared with USD 25.8 million (4.0% of sales) in the corresponding quarter last year. General and administrative expenses in the Reporting Period amounted to 83.1 million (3.4% of sales) compared with USD 76.9 million (3.4% of sales) in the corresponding period. The increase in General and administrative expenses stemmed primarily from an increase in provisions. E. Finance expenses Finance expenses (net) in the third quarter of 2013 amounted to USD 38.9 million, compared with USD 27.5 million in the corresponding quarter last year. Finance expenses (net) in the Reporting Period amounted to USD million compared with USD 83.0 million in the corresponding period. The finance expenses in the quarter and in the Reporting Period increased compared to the corresponding periods due mainly to an increase in the Company's debt, inter alia as a result of the issue of debentures by way of expansion of series B in January 2013, and the effect of changes in the CPI to which most of the Company s debentures are linked. F. Income tax Tax expenses in the third quarter of 2013 amounted to USD 16.3 million compared with USD 9.9 million in the corresponding quarter last year. The increase in the tax expense in the quarter compared with the corresponding quarter last year stems mainly from the increase in the pre-tax profit. Tax expenses in the Reporting Period amounted to USD 43.7 million compared with USD 43.8 million in the corresponding period. G. Net profit Net profit in the third quarter of 2013 amounted to USD 18.0 million (2.5% of sales), compared with USD 13.1 million (2.0% of sales) in the corresponding quarter last year. Net profit in the Reporting Period amounted to USD million (6.5% of sales) compared with USD million (6.4% of sales) in the corresponding period. 6

8 H. EBITDA EBITDA in the third quarter of 2013 amounted to USD million (15.5% of sales), compared with USD 89.6 million (13.9% of sales) in the corresponding quarter last year. EBITDA in the Reporting Period amounted to USD million (17.1% of sales) compared with USD million (17.2% of sales) in the corresponding period. 4. Financial Condition and Liquidity Commencing January 1, 2013, the Company has been implementing IFRS 10 Consolidated Financial Statements ("IFRS 10"). IFRS 10 was implemented by way of increasing the balance of customer debts sold under the securitization transaction for which the consideration was received in cash, while recording a shortterm loan in the same amount. For more information about the effect on the financial condition report and on the cash flow report, including the impact of retrospective application of IFRS 10 on the comparison data for September 30, 2012 and December 31, 2012, see Note 3B to the financial report as of June 30, For more information about the securitization agreement, see section 22.3 in Chapter A of the Periodic Report for A. Cash flow The Company's current cash flow in the third quarter of 2013 was positive at USD 99.6 million, compared with a negative current cash flow of USD 38.0 million in the corresponding quarter last year. Current cash flow in the Reporting Period was positive at USD million compared with a negative cash flow of USD 46.2 million in the corresponding period. The change in cash flow from operating activities in the quarter and the Reporting Period stemmed primarily from an improved operating working capital. The Company's investments in the third quarter of 2013 amounted to USD million, compared with approx. USD 60.4 million in the corresponding quarter last year. These investments were mostly in product registration, intangible assets, fixed assets, and long term and short terms deposits. The investment in fixed assets (net of grants), which included investment in equipment and facilities, including facilities for the maintenance and protection of environmental standards, amounted to approx. USD 19.7 million, compared with approx. USD 26.2 million in the corresponding quarter last year. Investments in the Reporting Period amounted to USD million compared with USD million in the corresponding period. B. Current assets Total current assets as of September 30, 2013 amounted to USD 2,937.6 million compared with USD million on September 30, 2012 and USD million on December 31, C. Investments in fixed assets See the section on cash flows above. 7

9 D. Cash, current liabilities and long-term loans The volume of the Company's credit (bank loans and debentures) as of September 30, 2013 amounted to USD 1,882.6 million (of which 31.6% short term), compared with USD million (of which.23.% short term) on September 30, 2012 and USD million (of which.330% short term) on December 31, The Company's balances of cash and short-term investments as of September 30, 2013 amounted to USD million, compared with USD million on September 30, 2012 and USD.7237 million on December 31, The Company's net debt (bank loans, debentures and finance of securitization net of cash and short-term investments and the effects of hedging transactions attributed to debt and long term deposits) as of September 30, 2013 amounted to USD million, compared with USD million on September 30, 2012 and USD million on December 31, For details regarding the issuance of NIS 600 million par value debentures (series B) on January 9, 2013, in a private placement by way of series expansion, see the chapter Material Changes and Innovations in the Company's Business. According to the bank finance documents for the long-term loans of the Company and its subsidiaries, the Company is required to comply with financial covenants towards certain banks ("the Finance Documents"), the principal of which at September 30, 2013 and at the date of publication of this report, are these: (1) The ratio between the Company's interest-bearing financial liabilities and its equity will not exceed At September 30, 2013, the actual ratio was 0.8; (2) The ratio between the Company's interest-bearing financial liabilities and its earnings before finance expenses, taxes, depreciation and amortization (EBITDA) will not exceed 4. At September 30, 2013, the ratio between the Company's interest-bearing financial liabilities and EBITDA was 2.6; (3) The Company's equity will be no less than USD 1.22 billion. At September 30, 2013, equity totaled USD 833. billion. (4) The Finance Documents of one of the banks further provide that the balance of Company's surpluses or of its retained earnings according to the financial statements for every date, shall not be less than USD 700 million. At September 30, 2013, the Company's surplus balance is USD million. In addition, some of the Finance Documents contain sections providing that a Change of Control (as defined in the relevant Finance Documents) in the Company or in a number of subsidiaries, which is effected without the prior written consent of the relevant banks, shall constitute cause for immediate and full foreclosure on the relevant liabilities. The customer debt securitization agreement of the Company and its subsidiaries (as detailed in section 22.3 in Chapter A of the Periodic Report for 2012) ("the Securitization Agreement") includes undertakings by the Company to comply with financial covenants, of which the key covenants are: (1) The ratio between the Company's financial liabilities and its equity will not exceed At September 30, 2013, the ratio was 0.8; (2) The ratio between the Company's interest-bearing financial liabilities and EBITDA will not exceed 4. At September 30, 2013, the ratio was 236; (3) The Company's equity will be no less than USD 1 billion. At September 30, 2013, the equity totaled USD 833. billion. 8

10 At September 30, 2013 and during the third quarter of 2013, and at the date of publication of this report, the Company was in compliance with the financial covenants applicable to it under the Finance Documents and the Securitization Agreement. For more information, see section 23.4 in Chapter A of the Periodic Report for 2012, and Note 20(c) and (d) to the financial statements as of December 31, According to the arrangement with the bank with which the Company signed the securitization agreement and with the banks towards which the Company is required to fulfill financial covenants pursuant to the Finance Documents, the outstanding debt under the securitization agreement is not included as part of the financial liabilities for the purpose of reviewing the financial covenants, even though the Company changed its accounting treatment regarding the securitization agreement after having applied IFRS 10, and includes the outstanding debt under the securitization agreement within its balance sheet. E. Equity The Company's Equity as of September 30, 2013 amounted to USD million, compared with USD million on September 30, 2012 and USD 1,328.8 million on December 31, Equity as a proportion of the total balance sheet was.832% as of September 30, 2013,.83.% on September 30, 2012, and.237% on December 31, The Company's issued and paid-up share capital as of September 30, 2013 is 430,531,550 ordinary shares of NIS 1 par value each. F. Financial ratios Ratio of current assets to current liabilities (current ratio) Ratio of current assets, excluding inventory, to current liabilities (quick ratio) Ratio of financial liabilities to total gross balance sheet Ratio of financial liabilities to total equity, gross September % 41.0% 129.2% 131.1% December % 122.4% G. Finance resources The Company finances its business operations from its equity and from non-bank credit (mainly debentures), bank loans (short- and long-term), customer debt securitization, and supplier credit. H. Warning Signs The Board of Directors of the Company reviewed the existence of Warning Signs in the Company, as these are defined in Article 10B(14) of the Securities regulations (Periodic and Immediate Reports), In view of the consolidated financial structure of the Company and its subsidiaries and based on the financial data appearing in the Company's consolidated financial statements as reviewed by the Company's management, the Board of Directors determined that the fact that the Company's separate reports indicate an ongoing negative cash flow from operating activities does not point to a liquidity problem, and accordingly and as of the date of the report, there are no Warning Signs in the Company. The main considerations behind the resolution of the Board of Directors include, inter alia, these: 9

11 1. The Company's consolidated financial statements reflect a positive working capital. Furthermore, the consolidated annual financial statements reflect and ongoing positive cash flow from operating activities. This positive working capital, which includes, at the reporting date, a cash balance of approx. USD 416 million, is the principal source for payment of the Company's liabilities. 2. Based on the structure of the operations of the Group, the manufacturing subsidiaries in Israel, Makhteshim and Agan ("the Manufacturing Companies") are the principal manufacturers of the Group's products that are sold by the Group's marketing companies all over the world, so that there is a current liability of the marketing companies towards the manufacturing Companies. 3. The proceeds from the debentures issued by the Company were granted as loans to the manufacturing Companies on the same terms as the terms of the debentures, including the dates of payment. B. Summary of Key Developments See the chapter on Material Changes and Innovations in the Company's business. C. Market Risks Exposure and Management 1. General The Company conducts its business in business environments that operate in various currencies. Due to its activities, the Company is exposed to market risks, mainly exchange rate fluctuations, partial adjustment of the prices of products to reflect the prices of raw materials, change in the rate of rise of the Consumer Price Index (CPI), and changes in the LIBOR interest rate. The Company's Board of Directors approved a policy of use of accepted financial instruments (such as options, forward contracts and swap transactions) for hedging against exposure stemming from the Company's operations to exchange rate fluctuations and a rise in the CPI. The Company effects these transactions only through banks and stock exchanges which must comply with capital adequacy requirements or maintain a scenario-based level of collateral. For details of the credit risk and the liquidity risk, see Note 30 to the consolidated financial statements of the Company as of December 31, Exchange rate data for the Company's principal functional currencies vis-à-vis the US dollar and LIBOR: 1-9 average 7-9 average September 30, 2013 Change Change Change % % % % % % (2.9%) (3.2%) (1.4%) % % % (5.4%) (11.9%) (10.8%) (2.0%) (1.9%) (0.5%) (5.6%) (10.0%) (9.6%) (40.5%) 0.47% 0.28% (37.9%) 0.43% 0.27% (28.3%) 0.37% 0.26% EUR/USD USD/BRL USD/PLN USD/ZAR AUD/USD GBP/USD USD/ILS USD L 3M The exchange rate fluctuations of these currencies during the Reporting Period are attributed to the various items in the Company's financial statements. The net impact of the changes in currency exchange rates in 11

12 the period after the date of the financial statements on the equity exposure is not material, due to the high rate of balance sheet hedging carried out by the Company as noted above. 2. Risk Management Officer The Company s CFO, Mr. Aviram Lahav, is responsible for the Company's market risk management. For information about his education, qualifications and business experience, see section 26A in Chapter D of the Periodic Report for Description of Market Risks For details of the Company's exposure to market risks and how they are managed, see the Directors' report of the Company as of December 31, 2012 and Note 30 to the Company's financial statements as of December 31, D. Corporate Governance 1. Approval of the financial statements Since February 27, 2012, the Company has a Financial Statements Review Committee whose members are members of the Audit Committee Messrs. Yehezkel Ofir (Chairman of the committee, who is an independent external director with accounting and financial expertise), Shoshan Haran (independent external director who reads and understands financial statements), and Zhang Gong (independent director with accounting and financial expertise) ("the Committee Members"). All the Committee Members gave a declaration prior to their appointment, concerning their education and experience, as noted in section 26 of Chapter D of the Periodic Report for 2012, based on which the Company sees them as having accounting and financial expertise or as having the ability to read and understand financial statements, as the case may be. As part of the process for approval of the financial statements as of September 30, 2013, the CFO presented to the committee a detailed presentation of the financial results, and the committee discussed them as reflected in the financial statements, as well as the assessments and estimates made in connection with them, the internal controls relating to the financial statements, the integrity and appropriateness of the disclosure in them, and the accounting policy adopted and the accounting treatment applied in matters that are material to the Company. The committee also discussed other important issues. The committee met on November 4, 2013 to review the financial statements for the period ended September 30, Other than the Committee Members, the meeting was attended by interested parties and senior officers Aviram Lahav CFO, Michal Arlosoroff SVP and General Counsel, and Keren Yonayov Controller. The Committee Members and the members of the Board of Directors received a draft of the financial statements several days prior to the meeting. Representatives of the Company's auditors, who comment and respond to questions from the Committee Members and members of the Board of Directors on the material issues arising from the data presented in the financial statements under discussion, are invited to the meetings of Committee and the Board of Directors at which the financial statements are discussed and approved. The Company's Internal Auditor was notified of the committee's meeting and invited to attend. After discussing the financial statements, the committee drafted its recommendations concerning their approval and submitted them in writing to the Board of Directors prior to the date of the Board's discussions. 11

13 On November 7, 2013, when presenting the financial statements to the Board of Directors, the Company's CEO, Mr. Erez Vigodman, presented the main results of the Company's operations during the period under review and referred to material events that occurred during the period. In addition, the CFO, Mr. Aviram Lahav, gave a detailed presentation of the Company's financial results in the period, while comparing them with prior periods and emphasizing substantial issues arising from them. During the reviews, the Company's management responded to questions from the members of the Board of Directors on all areas of the Company's operations. The Board of Directors of the Company discussed the Company's financial statements as of September 30, 2013 and resolved to approve them. E. Disclosure in financial reporting 1. Critical accounting estimates As of the date of the report, no material changes occurred during the third quarter of 2013 in the critical accounting estimates used by the Company for its financial statements. 2. Events after the date of the report on the state of the Company's affairs With regard to the process of assessing the purchase of all or part of the shares or assets of several companies and their subsidiaries, controlled by CNAC, including the type A shares of Hubei Sanonda Co. Ltd ("Sanonda"), on October 11, Pursuant to receipt of approval of the Chinese Government Companies Authority ( SASAC ) and the Chinese Securities Authority ( CSRC ), the Company published a partial Tender Offer through its wholly-owned and wholly controlled subsidiary for the purchase of up to 148,480,805 type B shares held by the public shareholders of Sanonda,a public company operating in the Agro-chemical field, which is controlled by CNAC (representing 25% of the issued and paid up capital and approx. 65% of the type B shares held by the public shareholders of Sanonda), for a consideration of HKD 6.58 for each type B share. It is noted that the weighted average price at which type B shares were traded in the last 30 trading days prior to submission of the application to the CSRC was HKD On October 28, 2013, the Company updated the purchase price to 7 HKD for each type B share. For additional details about Sanonda and about the Tender Offer, see the Company's Immediate Reports of August 5, 2013, September 10, 2013, October 9, 2013 and October 13, 2013 (ref. no , , and respectively) and also see note 7 to the Company s Condensed Consolidated Interim Financial Statements as at September 30, The last date for submitting acceptance letters is November 11, F. Information pertaining to the Company s Debentures See the table attached hereto as an appendix. 1 Approvals from the special independent committee and the audit committee and from the Board of directors and the general meeting of shareholders were obtained at July 28, 2013, August 4, 2013 and September 8, 2013, respectively. 12

14 Yang Xingqiang Chairman of the Board Erez Vigodman President & CEO Aviram Lahav CFO November 7,

15 Appendix Details of the Company's Liability Certificates Fair value at September 30, 2013 (in USD millions) Carrying value of interest payable on September 30, 2013 (in USD millions) Carrying value of debenture balances at September 30, 2013 (in USD millions) CPI-linked nominal par value at September 30, 2013 (in NIS millions) Nominal par value at September 30, 2013 (in NIS millions) Linkage basis Dates of principal payments Dates of interest payments Stock exchange value on Septemb er 30, 2013 (NIS) Effective interest at report date Stated interest Type of interest Total par value on date of issue (in NIS millions) Rating Date of issue Series (8) 15.8 (8) (8) 3,241.8 (8) 2,683.1 (8) CPI for October 2006 Nov. 30 of each of the years Twice a year on May 31 and on Nov, 30 in each of the years ,360.3 (8) 5.0% 5.15% CPI-linked annual interest 1, ila+ (7) Dec. 06 Jan. 12 Jan. 13 Series B (1)(3) (4)(5) CPI for October 2006 Nov. 30 of each of the years Twice a year on May 31 and Nov. 30 in each of the years % 4.45% CPI-linked annual interest 465 ila+ (7) Dec. 06 Series C (2)(3) (6) 661 Mar Unlinked Nov. 30 of each of the years Twice a year on May 31 and Nov. 30 of each of the years % 6.50% Annual interest ila+ (7) Dec. 06 Mar. 09 Jan.12 Series D (2)(3) (5)(6) 14

16 (1) The trustee for Debentures (Series B) is Aurora Fidelity Trust Company Ltd., 12 Menachem Begin Road, Ramat Gan (Tel: ; Fax: ). Contact person: Adv. Iris Shlevin, CEO. Series B is considered a material liability of the Company. (2) The trustee for Debentures (Series C and D) is Hermetic Trust (1975) Ltd., 113 Hayarkon Street, Tel Aviv, Israel; (Tel: , Fax: ). Contact person: Dan Avnon or Meirav Ofer. hermetic@hermetic.co.il. Series C and D are considered a material liability of the Company. (3) At the date of the report, the Company was in compliance with all the terms and undertakings under the Deed of Trust and no conditions existed giving rise to a cause of action for immediate repayment of the debentures. (4) On January 9, 2013 the Company issued, in a private placement by way of series expansion, NIS 600,000,000 par value of Debentures (Series B). For details, see the Company's immediate reports dated January 6 and 8, 2013 (Refs and ). (5) On January 16, 2012 the Company issued, by way of series expansion under a shelf prospectus published by the Company in May 2010, NIS 513,527,000 par value debentures (Series B) and NIS 540,570,000 par value of debentures (Series D). For more details, see the Company's immediate report dated January 17, 2012 (Ref: ) and the amending report of the same date (Ref: ). (6) On March 25, 2009 the Company issued, by way of series expansion under a shelf prospectus published by the Company in May 2008, NIS 661,000,000 par value of debentures (Series C) and NIS 472,000,000 par value of debentures (Series D). For more details, see the Company's immediate report dated Match 26, 2009 (Ref: ). (7) On July 6, 2011, Standard & Poor's Maalot ("Maalot") announced that it was lowering the rating for Debentures (Series B, C and D) from ilaa to ila+ with stable outlook (Ref ). On January 4, 2012 Maalot announced that it had set a rating of ila+ for Debentures (Series B and/or D), issued by way of series expansion pursuant to a shelf prospectus, of up to NIS 950 million (Ref ). On January 12, 2012 Maalot announced that the above rating will be valid also for additional expansions of these series up to NIS 200 million, so that the total expansion will amount to up to NIS 1,150 million par value (Ref: ). On August 20, 2012, Maalot confirmed the rating of ila+ for the Company's debentures (Ref ). On December 31, 2012 Maalot confirmed a rating of ila+ for Debentures (Series B) issued in a private placement by way of series expansion, of up to NIS 600 million par value (Ref ). On September Maalot confirmed a rating of ila+ for the Company s Debentures (Ref ). (8) Net of debentures purchased by a wholly-owned subsidiary, which at the date of this report holds 67,909,858 debentires (Series B), accounting for 2.46% of total issued debenturs (Series B). 15

17 Material changes or innovations in matters described in Chapter A Description of the Corporation's Business in the Periodic Report as of December 31, Section Structural Changes in the Group's Development: Material M&A's As part of the business opportunities that the Company is evaluating in China, that will support the creating of a significant R&D, operational and commercial infrastructure in the country, in a way that will contribute to the Company s presence in the Chinese market, to strengthen its presence in the Asia- Pacific region and strengthen its global capabilities, the Company is in negotiations with Shenzhen Noposion Agrochemicals Co., Ltd ("Noposion"), a Chinese distribution company in the field of marketing and formulations of agrochemical products, whose shares are traded on the Shenzhen stock exchange in China, regarding a transaction which the company estimates may be material if results in a definitive agreement, pertaining to the incorporation of a joint company, to which part of the distribution activity of Noposion will be transferred, and regarding collaboration in distribution in China. As of the date of this report, the negotiations between the parties have not been completed. The Company is working to complete the negotiations, but, the Company cannot assess, at this time, whether a binding agreement will be signed between the parties or if the transaction will indeed mature and what the final consideration of the transaction would be. For additional information, see the Company's immediate report of August 27, 2013 (Ref ). 2. Section Shareholders agreement Asset Injection On June 30, 2013, the Board of Directors of the Company authorized the Audit Committee of the Company to serve as a special independent committee for the purpose of reviewing the purchase of assets controlled directly and/or indirectly by ChemChina, as noted in section of the Period Report. The Company continues to promote the process of assessing the purchase of all or part of the shares or assets of several companies or their subsidiaries, controlled by China National Agrochemical Corporation ( CNAC ), the Company s controlling shareholder including the type A shares of Hubei Sanonda Co. Ltd ("Sanonda" and "the Process"). With regard to the Process, the Company has published a partial tender offer to purchase all or part of the type B shares of Sanonda, held by the public shareholders. For additional information about the tender offer and Sanonda see the above disclosure regarding Events after the date of the report on the state of the Company's affairs and also the Company s immediate reports of August 5, 2013, September 10, 2013, October 9, 2013 and October 13, 2013 (ref. no , , and respectively) and also see note 7 to the Company s Condensed Consolidated Interim Financial Statements as at September 30, For additional information about the Company s activities to exhaust the potential in the merger transaction between the Company and CNAC, see the Company s immediate reports of July 2, 2011, 16

18 July 31, 2011 and August 5, 2013 (ref. no , , respectively). 3. Section 7.7 Product return and product liability policy The Company has purchased an insurance policy for the first insurance layer in respect of third party liability and faulty products, after expiration of such a policy with a former insurer during June Section 23.3 Debentures issued by the Company On January 9, 2013 the Company issued in a private placement by way of series expansion, NIS 600,000,000 par value of debentures (series B) in consideration for 94.8% of their par value. The total consideration in USD amounted to million. For additional information, see the Company's immediate reports of January 6 and 8, 2013 (Refs and ). 5. Section 29 Corporate governance (a) The Board of Directors of the Company, at its meeting on March 7, 2013, reviewed the need to revise the Company's negligible transactions procedure in view of the volume of purchasing transactions made during the normal course of business with companies directly and/or indirectly controlled by China National Chemical Company, and resolved to revise the quantitative measure criterion without changing the other criteria. For information about the negligible transactions procedure, including its aforementioned revision, see Note 29 to the financial statements of the Company as of December 31, (b) On June 6, 2013 the Audit Committee, the Board of Directors and the shareholders of the Company confirmed that Mr. Chen Lichtenstein will be able to be appointed, while serving as Deputy CEO of the Company, to the position of President and CEO of CNAC, in accordance with the provisions of Section 275(c) of the Companies Law, The same bodies also approved an arrangement to prevent concerns of conflict of interests in connection with Mr. Lichtenstein's appointment in that the Company and CNAC would have opposing interests with regard to engagements between the Company and ChemChina and companies within its group (including CNAC) in general, and particularly the integration process and the asset-acquisition transaction. For more information, see the Company's immediately report dated June 9, 2013 (Ref ). 6. Section 30 Legal proceedings For an update on material legal proceedings to which the Company is a party, see Note 6 to the condensed interim consolidated financial statements as of June 30,

19 Condensed Consolidated Interim Financial Statements (Unaudited) As at September 30, 2013 In U.S. Dollars

20 Condensed Consolidated Interim Financial Statements as at September 30, 2013 (Unaudited) Contents Page Auditors' Review Report 2 Condensed Consolidated Interim Statement of Financial Position 3 Condensed Consolidated Interim Statement of Income 5 Condensed Consolidated Interim Statement of Comprehensive Income 6 Condensed Consolidated Interim Statement of Changes in Equity 7 Condensed Consolidated Interim Statement of Changes in Cash Flows 12 Notes to the Condensed Consolidated Interim Financial Statements 14

21 Somekh Chaikin Telephone KPMG Millennium Tower Fax Ha'arba'a Street, PO Box 609 Internet Tel Aviv Israel Review Report to the Shareholders of Makhteshim Agan Industries Ltd. Introduction We have reviewed the accompanying financial information of Makhteshim Agan Industries Ltd. and its subsidiaries (hereinafter the Group ) consisting of the condensed consolidated interim statement of financial position as of September 30, 2013 and the related condensed consolidated interim statements of income, comprehensive income, changes in equity and cash flows for the nine and three month periods then ended. The Board of Directors and Management are responsible for the preparation and presentation of this interim financial information in accordance with IAS 34 Interim Financial Reporting, and are also responsible for the preparation of financial information for these interim periods in accordance with Section D of the Securities Regulations (Periodic and Immediate Reports), Our responsibility is to express a conclusion on this interim financial information based on our review. We did not review the condensed interim financial information of certain consolidated subsidiaries whose assets constitute 6.1% of the total consolidated assets as of September 30, 2013 and whose revenues constitute 8.7% and 8.3% of the total consolidated revenues for the nine and three month periods then ended, respectively. Furthermore, we did not review the condensed interim financial information of equity-accounted investees, the investment in which was about $7,412 thousand, as at September 30, 2013, and the Group s share in their profits (losses) amounted to about $899 thousand and about ($224) thousand, for the nine and three month periods then ended, respectively. The condensed interim financial information of those companies was reviewed by other auditors whose review reports thereon were furnished to us, and our conclusion, insofar as it relates to amounts emanating from the financial information of such companies, is based solely on the said review reports of the other auditors. Scope of Review We conducted our review in accordance with Standard on Review Engagements 1, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" of the Institute of Certified Public Accountants in Israel. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards in Israel and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review and the review reports of other auditors, nothing has come to our attention that causes us to believe that the accompanying financial information was not prepared, in all material respects, in accordance with IAS 34. In addition to that mentioned in the previous paragraph, based on our review and the review reports of other auditors, nothing has come to our attention that causes us to believe that the accompanying interim financial information does not comply, in all material respects, with the disclosure requirements of Section D of the Securities Regulations (Periodic and Immediate Reports), Somekh Chaikin Certified Public Accountants (Isr.) November 7, 2013 Somekh Chaikin, a partnership registered under the Israeli Partnership Ordinance, is the Israeli member firm of KPMG International, a Swiss cooperative.

22 Condensed Consolidated Interim Statement of Financial Position as at September 30 September 30 December (Unaudited) (Unaudited) (Audited) $ thousands $ thousands $ thousands Current assets Cash and cash equivalents 415, , ,412 Short-term investments 30,932 2,938 1,607 Trade receivables 1,187,889 *1,069,217 *875,047 Prepaid expenses 17,537 20,854 16,313 Financial and other assets, including derivatives 138,609 98, ,712 Current tax assets 10,247 6,267 17,329 Inventories 1,136,900 1,149,380 1,239,154 Total current assets 2,937,620 2,769,664 2,569,574 Long-term investments, loans and receivables Investments in equity-accounted investees 16,431 Other financial investments and receivables 95,581 74,354 47,970 Other non-financial investments and receivables 25,294 27,309 42, , ,663 90,698 Fixed assets Cost 1,462,900 1,399,642 1,419,563 Less accumulated depreciation 750, , , , , ,539 Deferred tax assets 72,855 74,002 78,792 Intangible assets Cost 1,513,233 1,406,595 1,440,047 Less accumulated amortization 801, , , , , ,510 Total non-current assets 1,634,238 1,572,409 1,584,539 Total assets 4,571,858 4,342,073 4,154,113 * Retroactive application see Note 3A(1) with respect to first-time application of the new set of standards regarding consolidation of financial statements. 3