FINANCIAL STATEMENTS UNAUDITED AS OF SEPTEMBER 30, 2016

Transcription

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

2 IMPORTANT This document is an unofficial translation for convenience only of the Hebrew original of September 30, 2016 financial report of that was submitted to the Tel-Aviv Stock Exchange and the Israeli Securities Authority on November 29, The Hebrew version submitted to the TASE and the Israeli Securities Authority shall be the sole binding legal version.

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

4 Corporate Description Chapter A

5 Update of Chapter A (Description of the Corporation s Business) to the Board of Directors Report of the ( The Company ) for General Development of the Company's Business: Referring to Section 1.4 to the Periodic Report - Distribution of Dividends On August 29, 2016, the Company s Board of Directors decided to distribute a total of NIS 80 million in dividends. This dividend was paid on September 28, For more information, see the Company s immediate report of August 30, 2016 (ref. no ), included herein by way of reference. Description of Company Operations by Segment: 1. Energy A. Referring to Section 1.7.5(i) to the Periodic Report - Leviathan Reservoir On November 3, 2016, Delek Drilling Limited Partnership and Avner Oil Exploration Limited Partnership (jointly - "the Partnerships") published discounted cash flow data for part of the contingent resources in the Leviathan Reservoir located in the I/14 Leviathan South and I/15 Leviathan North leases. For more information, see the Company s immediate report of November 3, 2016 (ref. no ), included herein by way of reference. B. Referring to Section to the Periodic Report - License 399/Roy ("the Roy License") On October 18, 2016, Ratio Oil Exploration (1992) Limited Partnership ("Ratio"), announced that in the start of October 2016 the operator in the Roy License filed an application with the Ministry of National Infrastructures, Energy and Water's Oil Commissioner ("the Commissioner") to update the schedule specified in the work plan for the Roy License. As part of its application, the operator included a signed contract with a drilling contractor for drilling operations in the Roy License, whose submission date had been set for October 15, As of the date of this report, the Commissioner's reply to the application has yet to be received. It is clarified, that in light of the fact that the Partnerships are only granted an option in the Roy License, and they do not have access to information concerning the Roy Licenses, the said update is based solely on publicly available information. C. Referring to Section to the Periodic Report - License 353/Eran ("the Eran License") As part of a petition filed by the partners in the Eran License to the Supreme Court of Israel ("the Supreme Court") against the Minister for National Infrastructures, Energy and Water ("the Energy Minister") and the Commissioner, concerning the Energy Minister's decision to deny an appeal filed by the partners in the Eran License against the Commissioner's decision not to extend the Eran License, on June 2, 2016, the Supreme Court ratified the parties' agreement to pursue mediation at the Court's suggestion. With the parties' consent, the President (Ret.) of the Supreme Court, Mr. A. Grunis, was appointed. According to the Supreme Court's decision, the parties must update the Court on the results of said mediation no later than February 1, The update contains material changes or developments in the Company s business during the third quarter of 2016 and up to immediately prior to the date of this report, in any matter which must be disclosed in the periodic report and which was not updated in the quarterly report for the first and second quarter of The updated refers to the section numbers in Chapter A (Description of the Corporation s Business) of the periodic report for 2015 (ref. no ), and supplements the content disclosed therein. A-1

6 D. Referring to Section (d)(1)(3) to the Periodic Report - Gas Supply Agreement between the Tamar Partners and Israel Electric Corporation Ltd. ("the Agreement" and "IEC", respectively) On September 1, 2016, the Tamar Partners including the Partnerships, and IEC signed an amendment to the Agreement concerning the exercise of the option to increase the gas quantities consumed by IEC. For more information, see the Company s immediate reports of September 4, 2016 and November 20, 2016 (ref. no and , respectively), included herein by way of reference. E. Referring to Section (k)(2) to the Periodic Report - Contracts for Exporting Natural Gas from the Leviathan Project On September 26, 2016, an agreement for the supply of natural gas was signed between NBL Jordan Marketing Limited, a distributor wholly-owned by the partners in the Leviathan Project, including the Partnerships, and Jordan's National Electric Power Company. For more information, see the Company s immediate report of September 26, 2016 (ref. no ), included herein by way of reference. In this regard, it is noted that on November 4, 2016, the partners in the Leviathan Project applied to the Commissioner for approval to export natural gas to Jordan. F. Referring to Section (a) to the Periodic Report - Marketing and Distribution to the Domestic Market On November 24, 2016, an agreement for the supply of natural gas was signed between the Leviathan partners and Paz Oil Refineries Ashdod Ltd. ("the Buyer"), whereby the Buyer will buy natural gas from the Leviathan partners for operating the Buyer's facilities in Ashdod. For more information, see the Company s immediate report of November 24, 2016 (ref. no ), included here by way of reference. G. Referring to Section to the Periodic Report - Financing 1. On November 26, 2016, a letter of commitment was signed between the Partnerships and HSBC Bank PLC and J.P. Morgan Limited, for underwriting a limited-recourse project financing transaction, to finance the Partnerships share in developing the Leviathn Project, to the amount of USD 1.5 to 1.75 billion (100%). For more information, see the Company s immediate report of November 27, 2016 (ref. no ), included herein by way of reference. 2. To the best of the Company's knowledge, as of the date of this report, the Partnerships are considering options for issuing debentures, which will be listed for trading on the Tel Aviv Stock Exchange Ltd. ("the TASE"). It is clarified that the issue of such debentures is subject to approval by the boards of the Partnerships' general partners, and receipt of all approvals required by law for their issue and listing on the TASE. It is further clarified that there is no certainty that such issue will indeed be completed. 3. On September 6, 2016, the special-purpose subsidiary, Delek and Avner (Tamar Bond) Ltd., held by the Partnerships in equal parts (50%-50%), notified the debenture holders, through the trustee, of the early repayment of the first series with a total (original) value of USD 400 million out of 5 different series of debentures with a total (original) value of USD 2 billion. For more information, see the Company s immediate report of September 7, 2016 (ref. no ), included herein by way of reference. The said repayment was made on October 6, H. Referring to Section (j)(1) to the Periodic Report - Licenses 337/Avia and 338/Keren ("the Licenses") On March 30, 2016, a hearing was held on the Partnerships' petition to the Supreme Court, against the Energy Minister and the Commissioner (jointly - "the Respondents"), concerning the Energy Minister's decision to deny the Partnerships appeal against the Commissioner's decision not to extend the Licenses. A hearing in this petition was held on September 4, 2016, following which the Supreme Court ordered the Respondents to respond whether, and under what terms, the Partnerships could bid for new licenses in the areas covered by the Licenses. On October 31, 2016, the Respondents replied that the Partnerships could not bid for new licenses under an A-2

7 upcoming competitive process. In accordance with the Court's decision from the aforesaid hearing, on November 13, 2016, the Partnerships replied that they stand by their petition that there is no justification, competitive or otherwise, to prevent them from bidding on the new licenses within the Avia and Keren Licenses, and that they reserve all their rights in this matter. As of the date of this report, the Court's decision on the petition has not yet been received. I. Natural Gas and condensate production data from the Tamar Project for the first and second quarter of 2016: 2 Total output (attributable to equity holders of the Company) for the period (in MMCF for natural gas and MBBL for condensate) Average price per output unit (attributable to equity holders of the Company) (USD per MCF and BBL) Average royalties (each payment derived from the output of the producing asset, including the gross income from the oil asset) paid per output unit (attributable to equity holders of the Company) (USD per MCF and BBL) Receipts for average royalties (each payment derived from the output of the producing asset, including the gross income from the oil asset) received per output unit (attributable to the Company s share) (USD per MCF and BBL) Average production costs per output unit (attributable to equity holders of the Company) (USD per MCF and BBL) 3 Average net proceeds per output unit (attributable to equity holders of the Company) (USD per MCF and BBL) Natural gas Condensate Q1 Q2 Q3 Q1 Q2 Q3 13,652 14,207 15, The State Third parties Principal shareholders Chapter D Matters Relating to the Company as a Whole A. Referring to Section to the Periodic Report - Ratings On September 21, 2016, Standard & Poor's Maalot re-affirmed its ila rating for the Company's debentures. For more information, see the Company s immediate report of September 21, 2016 (ref. no ), included here by way of reference. B. Referring to Section to the Periodic Report - Seller Loans On November 20, 2016, the Company announced that the loan provided by Delek Europe Holdings Ltd. ("the Seller") to a foreign fund ("the Buyer") as part of a transaction to sell its rights in Delek Europe BV, to a total amount of EUR 195 million (NIS 820 million) had been full repaid and the amount had been received by the Company. For more information, see the Company s immediate reports of October 26, 2016 (ref. no ), and November 20, 2016 (ref. no ), included herein by way of reference. C. Referring to Section to the Periodic Report - Goals and Business Strategy 1. On November 27, 2016, the Company signed an agreement with Ratio Petroleum Energy Limited Partnership ( Ratio Petroleum ), whereby the Company will invest in Ratio Petroleum by purchasing securities reflecting a 17.5% stake in Ratio Petroleum s equity as part of an issuance planned by Ratio Petroleum. Subject to completion of the said 2 3 Percentage of output, royalties, production costs and net proceeds attributable to holders of the Company's equity rights rounded to two decimal digits. It is emphasized that the average production costs per output unit only include current production costs and do not include reservoir exploration and development costs. A-3

8 issuance, Ratio Petroleum will have an interest in oil rights in international licenses, directly and/or indirectly through its investees. For more information, see the Company s immediate report of November 28, 2016 (ref. no ), included herein by way of reference. 2. On November 10, 2016, the Company announced that it, through a wholly-owned foreign subsidiary, had submitted a bid in a tender to participate in rights in offshore exploration licenses in eastern Newfoundland, Canada, as part of a second annual tender, in a program comprising several annual tenders, in which the Canadian government was granting licenses in this area for the first time. On November 9, 2016, the results of the tender were announced, indicating that the Company, through the subsidiary, had won the rights to a license in Block 7, covering an area of 2,000 square kilometers with an estimated target depth of 4,500 meters below sea-level. For more information, see the Company s immediate report of November 10, 2016 (ref. no ), included herein by way of reference. 3. On September 15, 2016, the Company announced that after considering options to invest in a reservoir known as Kraken and located in the North Sea, it had decided not to pursue the signing of a binding agreement. For more information, see the Company s immediate reports of July 18, 2016 (ref. no ), and September 15, 2016 (ref. no ), included herein by way of reference. Date: November 28, 2016 Names and titles of signatories: Gabriel Last, Chairman of the Board Asaf Bartfeld, CEO A-4

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

10 Board of Directors Report November 28, 2016 Board of Directors' report on the state of the Company's affairs For the nine and three month periods ended September 30, 2016 The Board of Directors of the ("the Company"), hereby presents the Company's Board of Directors' Report for the nine and three month periods ended September 30, A. The Board of Directors explanations on the state of the Company's affairs 1. Description of the Company and its business environment The Company engages in oil and gas exploration and production in Israel and abroad through investee companies and partnerships, and markets fuel products in Israel. In addition, the Company maintains holdings in several other operations, some of which are in various stages of disposal. The main operations which the Company intends to sell off comprise its Insurance and Finance in Israel segment. In 2015, the Company invested in an international energy company (Ithaca Energy Inc.) with proven operator experience, and is continuing to study options for acquiring oil and gas companies and/or assets abroad which are synergistic and complementary to the Group's current core operations. The Company's financial data and its operating results are affected by the financial data and operating results of its investee companies, and by its sale or acquisition of holdings. The Company's cash flow is affected, among other things, by dividends and management fees received from its investees, by inflows originating from the disposal of its holdings therein, by its ability to raise financing in Israel and abroad which depends, inter alia, on the value of its holdings, financial market conditions in Israel and abroad, and by investments made by the Group and the dividends it distributes to its shareholders. 2. Principal Operations Gas and oil Oil and gas exploration and production in the nine month period of 2016 yielded a profit of NIS 294 million, as compared to a profit of NIS 214 million in the same period last year. 1 This year-onyear increase in profit for the reporting period was mainly due to an increase in revenues from natural gas and condensate sales in the Tamar Project. On April 14, 2016, the board of directors of the general partner, Avner Oil and Gas Ltd., and the board of directors of the general partner, Delek Drilling Management (1993) Ltd. (each) ("the General Partners"), appointed a special, independent board committee to study options for implementing a restructuring by way of a merger between the partnerships Delek Drilling Limited Partnership and Avner Oil Exploration Limited Partnership. On September 29, 2016, after obtaining approvals from the General Partners' audit committees and boards, the Partnerships 1 In this translation of the Board of Directors' Report, all amounts should be understood by the reader to be rounded to the nearest billion, million, or thousand, as the case may be. B-1

11 Board of Directors Report signed a merger agreement which is subject to approval in the Partnerships' general meetings, scheduled for December 22, For more information concerning the merger agreement and its approval, see Note 5G to the financial statements. On May 22, 2016, the government re-affirmed its decision of August 16, 2015 concerning the Gas Framework, and established an alternative arrangement for a 'stable regulatory regime' to guarantee a regulatory regime that would encourage investment in the natural gas exploration and production segment. The Limited Partnerships, together with the partners in the various projects, are working to implement the Gas Framework (as amended), according to its respective terms and the terms of the leases. Furthermore, the Limited Partnerships are working to continue making the necessary investments and carrying out the necessary actions for rapidly developing the Leviathan Reservoir and for planning another expansion of production facilities in the Tamar Project, for negotiating agreements for supplying natural gas from the Tamar Project and the Leviathan Project, for studying alternatives for financing the investments in Tamar and Leviathan including financing through loans from financial entities, debentures, various capital instruments, and other possible alternatives, as part of the Gas Framework's implementation. In June 2016, the Ministry of National Infrastructures, Energy and Water's Oil Commissioner approved the updated development plan for the Leviathan Reservoir, with a maximum annual supply volume of 21 BCM. For more information, see Note 5A to the financial statements. In August 2016, an agreement was signed between the Limited Partnerships and Ocean Energean Oil and Gas Ltd. for selling all of the Limited Partnerships' and Noble's rights in the I/16 Tanin and I/17 Karish leases, for a total amount of USD million (in equal parts between them), covering past expenditure invested in these leases by the Limited Partnerships and Noble, plus royalties for future natural gas and condensate production from these leases. For more information, see Note 5C to the financial statements. In September 2016, a detailed natural gas supply agreement was signed between NBL Jordan Marketing Limited ("the Distributor") and Jordan's National Electric Power Company ("NEPCO", and "the Export Agreement", respectively). The Distributor is a wholly-owned subsidiary of the partners in the Leviathan Project. Under the Export Agreement, the Distributor undertook to supply NEPCO with natural gas for a period of 15 years from either the start of commercial supply or once overall supply volumes hit 45 BCM (billions of cubic meters) ("the Total Contractual Amount"). Supply under the Export Agreement is expected to begin with the start of supply from the Leviathan Reservoir and completion of the pipelines needed to pump the natural gas to NEPCO in Israel and in Jordan. Additional marketing agreements have also been signed with Israeli customers to a total volume of 22 BCM. For more information, see Note 5A to the financial statements. In October, drilling began on the Tamar 8 development and production well, along with construction work on the accompanying infrastructure in the Tamar Field ("Drilling"). Drilling is expected to continue four months (including completion and connection to the production systems). The Drilling is intended to enable optimal production from the Tamar Reservoir. The budget for the Drilling, including completion and development of the underwater system and connecting the Drilling to existing Tamar infrastructure, totals USD 265 million (100%), of which USD 37 million for equipment purchased for the Tamar South-West Reservoir ("Tamar SW"). For more information, see Note 5B to the financial statements. On November 26, 2016, a letter of commitment was signed between the Limited Partnerships and various underwriters for signing a financing transaction, all of whose terms had been agreed upon. According to the financing agreements, the underwriters, whom the Limited Partnerships had exclusively appointed to organize the loan, undertook to provide the Limited Partnerships (in equal parts - 50%-50%) with limited-recourse project financing, to finance their share in the development of the Leviathan Project, to an amount of USD 1.5 to 1.75 billion (100%). Each of the Limited Partnerships, separately, may sign the finance agreement according to the above preagreed terms, no later than February 20, For more information, see Note 5A6 to the financial statements. B-2

12 Board of Directors Report As part of the Company's strategy to expand its international energy operations, the Company submitted a bid in a tender to participate in the rights to offshore exploration licenses in eastern Newfoundland in Canada. On November 9, 2016, the results of the tender were announced, indicating that the Company, through a subsidiary, had won the rights to a license in Block 7, covering an area of 2,000 square kilometers with an estimated target depth of 4,500 meters below sea-level (sea depth being 1,400 meters). The subsidiary participated in the tender together with Navitas Petroleum Limited, with the Company, through said subsidiary, holding 70% of the rights to the license, with the remainder held by Navitas Petroleum Limited ("the Partners"). The criteria for selecting the winning bid in the tender was the overall amount which the bidder committed to investing in exploration activities in the relevant area. The Partners' bid totaled CAD 48 million (USD 36 million as of the reporting date; the Company's share in this amount - 70%). For more information, see Note 5H to the financial statements. Other Operations On August 16, 2016, a wholly-owned subsidiary partnership of the Company, Delek Power Plants Limited Partnership ("Delek Power Plants"), signed an agreement to sell the power plant in Ashkelon by selling all of its holdings in the shares of IPP Delek Ashkelon Limited. The consideration (which will be used both as consideration for the sold shares and for repaying a shareholder's loan) totaled NIS 200 million, payable on the closing date. Upon completion, the transaction is expected to yield the Group gains of NIS 40 million. For more information, see Note 3 to the financial statements. On August 21, 2016, the Company signed a binding agreement for selling all of its holdings (52.3%) in The Phoenix Holdings Ltd. ( The Phoenix ). The buyer under the said agreement is Yango Investment PTE Ltd., a private firm incorporated in Singapore and a subsidiary of Yango Group Co. Ltd. Fujian, which is a holdings group incorporated in China and engaging in a diverse range of activities in China, from finance to education, healthcare, real estate, and international trade. The consideration under the agreement was set at NIS 1,948 million, bearing 4.75% annual interest from January 1, 2017 and until the closing date ("the Consideration"). The Consideration is payable in full in cash upon closing. For more information, see Note 3 to the financial statements. In September 2015, the Company, through its wholly-owned subsidiary Delek Finance US ("Delek Finance"), signed an agreement with AmTrust Financial Services Inc. ("AmTrust") for selling all of Delek Finance's holdings in Republic Companies Inc. ("Republic") (66% of Republic's issued capital), in consideration for USD 140 million. Simultaneous to signing the sales agreement, AmTrust also signed agreements with Republic's other shareholders ("the Investor Group") for buying their shares, so that following these transactions AmTrust will hold 100% of Republic's share capital. As part of the overall transaction, Delek Finance revoked the call options given to the Investor Group. In April 2016, the transaction was completed and the consideration was received as per the contract - 25% of the consideration, or USD 35 million (NIS 132 million) were paid to Delek Finance in cash on the closing date. The remaining USD 105 million (NIS 393 million) were provided as a seller's loan for a period of 4 years, payable in 4 equal installments and bearing 5.75% annual interest. Upon completion of this deal, the Company recognized gains of NIS 16 million (see also Note 3 to the financial statements). As part of a deal to sell the shares of Delek Europe, carried out in 2014, a loan of EUR 175 million was extended to Delek Europe's buyer. As of September 30, 2016, the balance of this loan totaled EUR 195 million (principal plus accrued interest). Subsequent to the financial position statement date, in November 2016, the loan was repaid by way of early repayment (in lieu of the original repayment date of 2020). The Company was paid the sum of EUR 195 million (NIS 800 million). As a result of said early repayment, the Company is expected to recognize EUR 28 million (NIS 115 million) in gains in the fourth quarter of the year. For more information, see Note 3E to the financial statements. Debenture issuance In July 2016, the Company issued two series of convertible debentures (Debentures (Series B32) and Debentures (Series B33)). Overall consideration (after issuance costs) received for the debentures totaled NIS 1,103 million. For more information on these debentures, see Note 7 to the financial statements. B-3

13 Board of Directors Report Dividends In March 2016, the Company s Board of Directors resolved to distribute a dividend of NIS 100 million. The dividend was distributed in April In May 2016, the Company s Board of Directors resolved to distribute a dividend of NIS 80 million. The dividend was distributed in June On August 29, 2016, the Company s Board of Directors resolved to distribute a dividend of NIS 80 million. The dividend was distributed in September Subsequent to the financial position statement date, on November 28, 2016, the Company s Board of Directors resolved to distribute a dividend of NIS 200 million. The dividend will be distributed in December B-4

14 Board of Directors Report 3. Results of Operations A) Contribution to net profit (attributable to owners of the parent) from principal operations (NIS millions): Q Q Q /2016 Q Q Q / (3) Oil and gas exploration and production operations (1) Fuel operations in Israel Automotive operations Contribution to net profit from continuing operations before finance, capital gains and others Finance and other income (expenses) (2) (66) 4 (77) (139) 50 (118) (379) (447) (472) Net profit (loss) attributable to Company shareholders (261) (29) 25 (1) It is noted that the Group's share in the earnings of the Avner Partnership are affected by the write-down of excess acquisition costs, as the investment in the Avner Partnership was previously revalued. For more information, see Section 6A below. Furthermore, data for the reporting period includes the Company's share in the results of Ithaca Energy ("Ithaca"), consisting of a loss of NIS 13 million (a loss of NIS 9 million in the third quarter). (2) In the third quarter of 2016, the Company recognized gains of NIS 12 million on its marketable securities portfolio (in the reporting period, the marketable securities portfolio did not materially affect the Company's results). On the other hand, in the reporting period the Company included NIS 65 million in tax income following a reduction in the tax rate in Israel (see also Notes 4 and 9 to the financial statements). In the reporting period, the item also includes gains of NIS 16 million on the disposal of the investment in Republic. The item also includes the results of other operations, unattributed finance expenses, other expenses, expenses from discontinued operations, and tax expenses. (3) Retrospectively adjusted, see Note 3C to the financial statements. B-5

15 Board of Directors Report B) Revenues from continuing operations (NIS millions): 1-9/ / / / Oil and gas exploration and production operations 1,358 1, ,677 Fuel operations in Israel 2,632 3, ,096 4,262 Other segments including adjustments Total revenues 4,280 4,924 1,554 1,702 6,356 See also Note 11 to the financial statements - Information Regarding Operating Segments. C) Operating profit (NIS millions): 1-9/ / / / Oil and gas exploration and production operations Fuel operations in Israel Other segments including adjustments (35) (54) (33) (15) (51) Total operating profit ,003 See also Note 11 to the financial statements - Information Regarding Operating Segments. D) The Group s share in the profits of associate companies and partnerships, net (NIS millions): The following table details the Group's share in the results of its principal associates: 1-9/ / / / Delek Automotive Ithaca (13) - (9) - 18 *) IDE Other 4 (20) 5 (3) (19) Total *) *) Retrospectively adjusted, see Note 3C. B-6

16 Board of Directors Report E) Highlights from the Company's consolidated income statements (NIS millions): 1-9/ / / / Revenues 4,280 4,924 1,554 1,702 6,356 Cost of revenues 2,742 3, ,168 4,592 Gross profit 1,538 1, ,764 Sales, marketing and gas station operating expenses General and administrative expenses Other expenses, net (50) (9) (18) (10) (24) Operating profit ,003 Finance income Finance expenses (694) 1,051 (206) 541 1,244 Profit after finance expenses, net (178) 214 Gains (loss) from disposal of investments in investees and others, net - (2) The Group's share in the profits of associate companies and partnerships, net *) Profit (loss) before income tax (172) 359 *) Income tax (tax benefit) (48) Profit (loss) from continuing operations (196) 225 *) Profit from discontinued operations, net Net profit (loss) (115) 479 *) Attributable to - Company shareholders 250 (29) 85 (261) 25 *) Non-controlling interest (115) 479 *) *) Retrospectively adjusted, see Note 3C. B-7

17 Board of Directors Report F) Movement in comprehensive income (loss) (NIS millions): 1-9/ / / / Net profit (115) 479 *) Other comprehensive income (loss) from operating activities (post-tax) Actuarial gain on defined benefit plans, net Gain (loss) from available-forsale financial assets, net Transfer to profit or loss from disposal of available-for-sale financial assets Transfer to profit or loss for impairment of available-for-sale financial assets (334) 15 (180) (300) (28) (7) (7) (3) (2) Gains from cash flow hedges Adjustments from translation of overseas operations Group's share of other comprehensive income (loss) of associates, net (369) (16) (223) (12) (55) (6) 15 (55) Total other comprehensive income (loss) from continuing operations Total other comprehensive income (loss) from discontinued operations, net (327) (72) (213) (38) 6 (21) (23) Total comprehensive income *) Attributable to: Company shareholders 120 (49) (27) Non-controlling interests *) *) Retrospectively adjusted, see Note 3C. B-8

18 Board of Directors Report 4. Financial Position The Group's total assets as of September 30, 2016, amounted to NIS 129 billion, similar to the balance as of December 31, Below is a description of the principal changes in assets and liabilities as of September 30, 2016, compared with December 31, 2015: Cash and cash equivalents and short-term investments The Group has cash and short-term investment balances of NIS 3.9 billion, consisting mainly of balances of NIS 1.5 billion in the headquarters companies, and NIS 2.3 billion in Delek Energy and the Limited Partnerships. Total current and non-current assets (excluding held-for-sale assets) No material changes have occurred in the Group's current and non-current assets as of September 30, 2016, as compared to December 31, 2015 (excluding The Phoenix's assets, which were presented under held-for-sale assets). It is noted that, as of September 30, 2016, the Group classified NIS 554 million in costs attributable to the Tanin and Karish Reservoirs, as well as NIS 345 million in Delek Ashkelon assets, as held-for-sale assets. Short- and long-term financial liabilities (excluding liabilities for The Phoenix assets) Financial liabilities (to banks, and others and debenture-holders), as of September 30, 2016, amounted to NIS 18 billion, as compared to NIS 18.1 billion as of December 31, Contingent claims In their review, the Company's auditors draw attention to legal actions brought against the Company and Group companies. For details, see Note 8 to the financial statements. Additional information For additional information regarding payment dates for principal and interest on the debts of headquarter companies, see Appendix A to the Board of Directors' Report. B-9

19 Board of Directors Report 5. Sources of Finance and Liquidity The net financial debt of the Company and the headquarters companies as of September 30, 2016: (2) NIS millions Liabilities Debentures Bank loans (7,958) (119) Other liabilities (313) Total liabilities (8,390) Assets Cash and cash equivalents 964 Financial investments 601 Loans (*) 1,894 Treasury shares (**) 497 Total assets 3,956 Net financial debt - headquarters companies (4,434) (*) Composition of loans extended as of September 30, 2016: Borrower Loan balances as of September 30, 2016 (NIS millions) Seller loan - Delek Europe (1) 693 Seller loan - Barak Capital 46 Power Plants 410 Seller loans - Republic (2) 403 Other 342 Total 1,894 (1) The seller s loan (including accrued interest) for the sale of Delek Europe totals EUR 195 million (NIS 800 million). The loan is recognized based on a valuation measuring its fair value at the loan issue date, plus accrued effective interest derived from this valuation. Subsequent to the financial position statement date, in November 2016, this loan was repaid, and a total of EUR 195 million (NIS 800 million) was received. (2) The seller's loan for the sale of Republic totals USD 104 million (NIS 403 million). (**) As of September 30, 2016, share holdings total 637,045 shares. As of the financial statements approval date, the Company and the headquarters companies have liquid balances of NIS 1.8 billion (furthermore and in addition to these liquid balances, the Company has guaranteed, unutilized credit facilities of NIS 1 billion). (1) Headquarters companies: Delek Group, Delek Petroleum, Delek Power Plants Limited Partnership, and Delek Hungary. B-10

20 Board of Directors Report 6. Analysis of Operations by Segment A) Oil and gas exploration and production operations Operations are carried out through the Limited Partnerships, which mainly engage in the production and sale of natural gas and condensate from the Tamar Project, in promoting and planning an additional expansion of the Tamar Project production system, in promoting and planning the commercialization of gas and development of the Leviathan Reservoir located in the Leviathan South and Leviathan North leases and the Aphrodite Reservoir (in Cyprus), and in exploration activities in the oil assets held by the Partnerships. The Group's results also include the Group's share in the results of Ithaca Energy ("Ithaca"), which operates mainly in the North Sea. 1) Below are the results of the Limited Partnerships' oil and gas exploration and production operations as included in the Group's results (NIS millions): 1-9/ / / / Revenues from gas sales net of royalties 1,358 1, ,677 Operating profit EBITDA 1,195 1, ,435 Finance expenses, net Net profit attributable to Company shareholders Gas sales in BCM (*) Condensate sales - thousands of barrels (**) (*) The data relate to sales of natural gas (100%) from the Tamar Project, rounded to one tenth of one BCM. (**) The data relate to condensate sales (100%) from the Tamar Project, rounded to thousands of barrels. Analysis of the results of operations in the gas segment: Net profit attributable to Company shareholders Oil and gas exploration and production in the third quarter of 2016 yielded a profit of NIS 120 million, as compared to a profit of NIS 87 million in the same quarter last year. In the reporting period, oil and gas exploration and production operations yielded a profit of NIS 307 million, as compared to a profit of NIS 214 million in the corresponding period last year. This year-on-year increase in profit for the reporting period and the third quarter was mainly due to an increase in revenues from natural gas and condensate sales in the Tamar Project. Revenues In the reporting period, the segment's revenues from oil and gas sales, net of royalties, totaled NIS 1,358 million, compared with NIS 1,275 million in the same period last year. This year-on-year increase in revenues in the reporting period was mainly due to greater volumes of natural gas and condensate sold from the Tamar Project, offset by lower average prices per unit of natural gas output and barrel of condensate. Operating profit Operating profit in the reporting period amounted to NIS 876 million, compared to NIS 771 million in the same period last year. Operating profit was up mainly due to an increase in revenues from the Tamar Project. B-11

21 Board of Directors Report Finance expenses, net Net finance expenses in the reporting period amounted to NIS 203 million, compared to NIS 223 million in the same period last year. Finance expenses were down in the reporting period and the third quarter, mainly due to a decrease in the liabilities of the subsidiary Delek Energy Systems Ltd., as well as the weaker US dollar. Adjustment of the Limited Partnerships' results to the Group's share in oil and gas exploration and production operations (NIS millions), for the nine month period of 2016: Delek Drilling Avner Total Net profit Indirect holdings 61.9% 51.2% Group's share Tax expenses (74) Revenues from overriding royalty and management fees Results of direct holdings in Yam Tethys (4.44%) 30 (6) Write-down of surplus acquisition costs(*) (74) General and administrative expenses (3) Finance expenses (20) Contribution to net profit from oil and gas exploration and production 307 (*) Mainly a current write-down of the revaluation of the Tamar Project (previously recognized as part of the Cohen Development deal) for the Avner Partnerships' holdings in the Tamar Project. B-12

22 Board of Directors Report 2) Ithaca In October 2015, a wholly-owned foreign subsidiary of the Company signed an agreement to invest in the shares of Ithaca, whereby a private placement was made to the subsidiary of 19.99% of Ithaca's issued and paid-up share capital, at a price of CAD 1.05 per share, for a total consideration of USD 66 million (NIS 260 million). Ithaca is an independent oil and gas operator operating in the North Sea, holding both producing assets and assets under development. Ithaca's shares are traded on the Toronto Stock Exchange (TSX) and on the AIM exchange in London. Data from Ithaca's public financial statements (USD millions): 1-9/ / Revenues from oil and gas sales Cost of sales (114) (46) (233) Gross loss (12) (2) (26) Finance income (expenses) from hedges (25) Exploration expenses - Impairment of oil and assets and goodwill - - (401) Other expenses (1) (1) (12) Finance expenses (28) (7) (42) Loss before taxes (66) (7) (326) Tax benefit 3 (64) 205 Loss attributable to Company shareholders (63) (71) (121) Average output (Mboepd) The Group accounts for its investment in Ithaca as per the equity method. In the reporting period, the Company's share in Ithaca's results after adjustments, and considering that attribution of excess acquisition costs has not yet been completed, amounted to a loss of NIS 13 million. In the third quarter of 2016, the Company's share amounted to a loss of NIS 9 million (after said adjustments). For more information on the accounting treatment of the Company's investment in Ithaca and completion of the attribution of excess acquisition costs, see Note 3C to the financial statements. Additional information For more information on oil and gas exploration operations, see Notes 3 and 5 to the financial statements. B-13

23 Board of Directors Report B) Fuel operations in Israel Data from the financial statements of Delek Israel, a wholly-owned (100%) Group subsidiary (NIS millions): Statement of Financial Position September 30, 2016 September 30, 2015 December 31, 2015 Cash and cash equivalents Current assets (excluding cash and cash equivalents) 1,320 1,282 1,255 Property, plant and equipment 1,381 1,370 1,382 Other long-term assets Total assets 3,308 3,322 3,245 Short-term credit from banks and others Current liabilities (excluding credit) Long-term loans from banks and others Other long-term liabilities Equity attributable to Company shareholders 993 1,084 1,024 Non-controlling interests Total liabilities and equity 3,308 3,322 3,245 Statement of Income 1-9/ / / / Revenues 2,632 3, ,096 4,272 Gross profit Other income (expenses), net (32) Operating profit EBITDA Finance expenses, net Net profit attributable to Company shareholders Analysis of the results of fuel operations in Israel Revenues Revenues in the reporting period amounted to NIS 2,632 million, compared with NIS 3,327 million in the same period last year, a decrease of 21%. This decrease in revenues was due to a world-wide drop in distillate prices. This decrease was partially offset by higher sales volumes in refueling and retail areas. Sales turnover in self- and franchise-operated Menta convenience stores in the reporting period totaled NIS 335 million, as compared to NIS 306 million in the same period last year. In the reporting period, sales in Delek Israel-operated convenience stores totaled NIS 305 million, as compared to NIS 283 million in the same period last year. Gross profit Gross profit in the reporting period amounted to NIS 599 million, compared with NIS 574 million in the same period last year, an increase of 4%. B-14

24 Board of Directors Report Gross profit was up in the reporting period, mainly due to a moderate increase in gross profit in refueling areas, driven by greater fuel sales as well as an increase in convenience store profits. The increase in gross profit was further attributable to a reduction in inventory losses of NIS 11 million. However, profit in direct marketing operations was down. Other income (expenses), net In the reporting period, other expenses totaled NIS 32 million, compared with an income of NIS 20 million in the same period last year. This change was mostly attributable to capital losses and a one-time expense recognized in the present reporting period, as compared to capital gains recognized in the last-year period. Finance expenses, net Net finance expenses in the reporting period amounted to NIS 34 million, as compared to NIS 33 million in the same period last year. Dividend In March 2016, Delek Israel declared a dividend of NIS 75 million. The dividend was distributed at the end of March For more information concerning Delek Israel's operations, see Note 8 to the financial statements. C) Insurance and finance operations in Israel As of September 30, 2016, the Group holds 52.3% of the shares of The Phoenix Holdings Ltd. ("The Phoenix"). For more information concerning the sale of control in The Phoenix, see Note 3 to the financial statements. Below are the principal data from The Phoenix's consolidated income statements (NIS millions): 1-9/ / / / Gross premiums earned 6,565 6,082 2,301 2,046 8,725 Premiums earned in retention 6,001 5,577 2,104 1,864 8,025 Net gains on investments, and finance income 2,197 1,201 1,252 (433) 2,045 Income from management fees Payments and changes in liabilities for insurance contracts and investment contracts in retention 6,865 5,757 2, ,455 Commission, marketing, and other purchasing expenses 1,121 1, ,475 General and administrative expenses ,106 Other expenses Finance expenses Share in the profits of investees accounted for as per the equity method (1) 56 Net profit for the period Profit for the period attributable The Phoenix shareholders A significant part of The Phoenix's asset portfolio is invested on the capital market. Therefore, capital market returns for the various investment channels have a material effect on the yields achieved for The Phoenix's customers and on The Phoenix's profits. Gains and losses on investments and changes in the CPI and the NIS exchange rate against main currencies materially affect the reported results. B-15

25 Board of Directors Report Results for the reporting period were materially affected by the lower market interest curve. Lower interest rates affected the increase in insurance liabilities by NIS 235 million pre-tax. Results for the reporting period were also affected by increased insurance liabilities in general, compulsory auto, and liability and other insurance operations, to the amount of NIS 136 million pre-tax (NIS 87 million post-tax), following new regulations issued based on the Winograd Committee's recommendations. Results for the third quarter of the year were also affected by the higher market interest curve. Changes in the risk-free interest rate reduced insurance liabilities by NIS 54 million pre-tax, and NIS 35 million post-tax. Revenues from management fees were up NIS 36 million in the reporting period, as compared to the same period last year. The bulk of this increase was due to growth in variable management fees in the present period, to the amount of NIS 117 million in the reporting period, as compared to NIS 69 million in the same period last year, due to higher real yields achieved by the Company as compared to the same period last year. Revenues from management fees were up NIS 142 million in the reporting period, as compared to the same quarter last year. The change was mostly attributable to growth in variable management fees, which totaled NIS 66 million, as compared to a refund of management fees to the amount of NIS 70 million in the same quarter last year. This growth was attributable to positive real yields in the third quarter of the year, as compared to negative yields in the same quarter last year. Key data according to The Phoenix s operating segments (NIS millions): 1-9/ / / / Profit from life insurance and long term savings segment 9 (138) 133 (79) (94) Profit from health insurance segment 52 (89) (46) Profit from general insurance segment Profit from financial services segment Total comprehensive income from operating segments Profit not attributed to reporting segments (40) 112 Company s share in the net results of investees not included in the reported segments (6) 15 Profit before income tax Income tax Profit for the period Net profit for the period attributable The Phoenix shareholders For more information on The Phoenix s operations, see Notes 3 and 8 to the financial statements. B-16

26 Board of Directors Report D) Automotive operations As of the financial position statement date, the Group holds 22.5% of Delek Automotive Systems Ltd. ("Delek Automotive") (Delek Automotive is a public company which publishes its financial statements). The investment in Delek Automotive is presented as per the equity method. The results of Delek Automotive s operations are included under the Group s share in the profits of associates, net item. Below are the results of Delek Automotive's operations (as included in the Delek Group s statements (*)) (NIS millions): 1-9/ / / / Revenues 2,973 2, ,315 Gross profit Sales, marketing, and general and administrative expenses Operating profit EBITDA Finance income (expenses), net (*) (107) (55) 368 Net profit attributable to Delek Automotive's shareholders (*) In the first half of 2015, Delek Automotive recognized the revaluation of its investment in Mobileye in profit or loss, while the Group recognized the changes in the fair value of the investment in other comprehensive income and recognizes them in profit or loss only upon disposal. In that period, Delek Automotive sold its shares in Mobileye, after which in 2015 the Delek Group recognized gains of NIS 65 million (the Company's share) on attributing part of the other comprehensive income previously recognized on the revaluation of Mobileye, to profit or loss. Breakdown of Delek Automotive's sales by number of cars sold: 1-9/ / / / MAZDA vehicles 12,873 13,908 3,210 3,737 17,087 FORD vehicles 3,644 2,163 1, ,463 BMW vehicles 3,031 2, ,041 Total vehicles sold 19,548 18,746 5,189 5,094 22,591 Delek Automotive's share of all new vehicles sold in Israel (based on Licensing Bureau data) 8% 9% 6% 8% 9% Additional information For more information concerning Delek Automotive s operations, see Note 3 to the financial statements. B-17

27 Board of Directors Report E) Additional Operations Infrastructures The Group s infrastructures operations are carried out through Delek Power Plants Limited Partnership ("Delek Power Plants"), which coordinates the development and operation of power plants in Israel through its subsidiaries. The Group also holds 50% of IDE Technologies Ltd. ("IDE"). In the reporting period, the infrastructures segment contributed profits of NIS 17 million, as compared to profits of NIS 2 million in the same period last year. For information on the sale of IPP Delek Ashkelon Ltd. - see Note 3 to the financial statements. For more information on infrastructure operations, see Note 3 to the financial statements. B-18

28 Board of Directors Report B. Market Risk Exposure and Management 1. A) Company operations focus mainly on holding and managing shares in its subsidiaries. These are long-term investments and therefore these holdings are not hedged. Risk management in subsidiary and associate companies is determined and carried out directly by the investees. Some of these companies are public companies and are listed on the stock exchange, and therefore proper disclosure of this subject is made in their financial statements. B) The currency risk management officer in the Company is Mr. Ido Adar, MBA. In recent years, Mr. Adar has served as Company Treasurer. 2. Description of market risks A) As stated above, the Group is mainly a holdings and management company, and its principal exposure results from the market risks of its subsidiaries and associates ("Investees"). B) In the reporting period, no material changes occurred in the Company's policy for mitigating and managing exposure to market risks, including the effects of sensitivity tests on the Group's reports in this matter for the year ended December 31, The following table details Israeli CPI data and exchange rates for the primary currencies used by the Company: USD representative exchange rate Known CPI As of NIS Points September 30, September 30, December 31, % Change % % September 30, 2016 (9 months) (3.7) 0 September 30, 2016 (3 months) (2.3) 0.4 September 30, 2015 (9 months) 0.9 (0.2) September 30, 2015 (3 months) (12 months) 0.3 (0.9) B-19

29 Board of Directors Report 3. Linkage bases report as of September 30, 2016: Israeli Currency Unlinked CPI-linked USD Foreign Currency Other currency (mainly EUR) Fair value Monetary items in overseas operations USD Held for sale assets Nonmonetary item Total NIS Millions Assets Current assets 1, , ,068 Held-for-sale assets , ,941 Non-current assets ,640 22,332 Total assets 2, , ,941 21, ,341 Liabilities Current liabilities 2, , ,839 Insurance business liabilities ,525-96,525 Non-current liabilities 4,865 3, ,959-2,595 17,396 Total liabilities 6,872 4, ,750 96,525 2, ,760 Assets less liabilities, net (4,627) (4,283) (4,858) 4,416 18,383 10,581 B-20

30 Board of Directors Report C. Disclosure relating to the Company's financial reporting 1. Critical accounting estimates No material changes have occurred in the reporting period as compared to the 2015 annual report. 2. Events after the financial position statement date For information on material events subsequent to the financial position statement date, see Chapter A to the Board of Directors' Report. D. Dedicated disclosure for debenture holders B-21

31 Board of Directors Report Series Issue date Par value original NIS millions Par value balance as of September 30, 2016 NIS millions Nominal interest rate B11 7/ % B12 11/2006 1, % B13 3/ Until listing %, after listing - 4.6% Linkage Israeli CPI Israeli CPI Israeli CPI Carrying amount as of September 30, 2016 (before discounting) NIS millions Interest accrued in the books as of September 30, 2016 NIS millions Repayment years , Stock exchange value as of September 30, 2016 Nonmarketable Nonmarketable B14 7/2009+6/ % Un-linked B15 B18 7/ / / / /2009 6/2010+7/2015 1, % Un-linked ,062 1, % B19 11/ % B22 6/ % B31 2/2015+6/ /2015 Israeli CPI Israeli CPI Israeli CPI 713 1, , ,280 2, % Un-linked 2, ,322 B32 7/ % Un-linked B33 7/ % Un-linked Trustee Hermetic Trust (1975) Ltd. 113 Hayarkon St. Tel Aviv Tel: Dan Avnon Reznik Paz Nevo RPN Trusts 2007 Ltd., 14 Yad Harutzim St., Tel Aviv Tel: , Elad Sirkis Hermetic Trust (1975) Ltd. 113 Hayarkon St. Tel Aviv Tel: Dan Avnon Reznik Paz Nevo RPN Trusts 2007 Ltd., 14 Yad Harutzim St., Tel Aviv Tel: , Elad Sirkis Reznik Paz Nevo RPN Trusts 2007 Ltd., 14 Yad Harutzim St., Tel Aviv Tel: , Elad Sirkis Reznik Paz Nevo RPN Trusts 2007 Ltd., 14 Yad Harutzim St., Tel Aviv Tel: , Elad Sirkis Gafni Trusts Ltd. 4 Hataas St., Ramat Gan Tel: Tzuri Galili Mishmeret - Trusts Services Company Ltd., 48 Menahem Begin St., Tel Aviv, Tel: /4, Atty. Rami Katzav, CPA. Hermetic Trust (1975) Ltd. 113 Hayarkon St. Tel Aviv Tel: Dan Avnon Hermetic Trust (1975) Ltd. 113 Hayarkon St. Tel Aviv Tel: Dan Avnon Hermetic Trust (1975) Ltd. 113 Hayarkon St. Tel Aviv Tel: Dan Avnon B-22

32 Board of Directors Report Notes: 1. The Company meets all the terms of the debentures. Furthermore, the Company meets all the terms of its obligations under the deed of trust. 2. Debenture ratings as of the financial statements' approval date: Series Rating company Current rating Rating upon issue Rating company Current rating Rating upon issue B11 Midroog A2 - S&P Maalot A AA B12 Midroog A2 - S&P Maalot A AA B13 Midroog A2 - S&P Maalot A AA B14 Midroog A2 A1 S&P Maalot - - B15 Midroog A2 A1 S&P Maalot - - B18 Midroog A2 A1 S&P Maalot - - B19 Midroog A2 A1 S&P Maalot - - B22 Midroog A2 - S&P Maalot A AA B31 Midroog A2 A1 S&P Maalot A A B32 Midroog A2 A2 S&P Maalot A A B33 Midroog A2 A2 S&P Maalot A A The current rating reports from Midroog and Maalot are hereby attached by way of reference to the immediate reports of July 27, 2016, ref. no , and , respectively. Financial covenants The deed of trust for Series B31 issued in 2015, and the deeds of trust for Series B32 and B33 issued in July 2016, specified the following financial covenants: A) Minimum equity: The Company's minimum equity will not fall below NIS 2,400 million according to its audited or reviewed consolidated financial statements, as applicable, for three consecutive quarters. B) Ratio of equity to balance sheet total: The Company's equity will not fall below 15% of its balance sheet total according to the Company's audited or reviewed separate financial statements, as applicable, for three consecutive quarters. Equity, meaning the Company's total equity attributable to Company shareholders, excluding minority interests, as defined in GAAP. As of the financial statements' approval date, the Company is in compliance with these financial covenants. B-23

33 Board of Directors Report E. Additional information 1. Buyback of securities In December 2015, the Company's Board of Directors approved a buy-back plan for the Company's shares by the subsidiary partnership, of up to NIS 100 million until December 22, In December 2015 and until the financial statements' publication date, the subsidiary partnership bought 130,021 shares of NIS 1 par value each of the Company, for a total consideration of NIS 85 million. 2. 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: November 28, 2016 B-24

34 Board of Directors Report 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 September 30, 2016 (NIS millions): Delek Group - Headquarters Q onwards Total Debentures Principal , ,916 8,096 Interest ,541 Principal Bank loans Interest Total 808 1,054 1,255 1,358 1,018 4,271 9,764 The Delek Group also has guaranteed bank credit facilities of NIS 1 billion. As of the financial statements' approval date, these credit facilities are unutilized. B-25

35 Financial Statements Chapter C

36 Consolidated Interim Financial Statements as of September 30, 2016 Unaudited Contents Page Consolidated Balance Sheets 2-3 Consolidated Statements of Income 4 Consolidated Statements of Comprehensive Income 5 Consolidated Statements of Changes in Equity 6-10 Consolidated Statements of Cash Flows Notes to the Consolidated Interim Financial Statements 15-39

37 Notes to the Consolidated Interim Financial Statements Consolidated Balance Sheets Current assets September 30 December Unaudited Audited NIS millions Cash and cash equivalents 966 1,042 1,009 Short-term investments 2,891 2,288 2,251 Trade receivables 1,302 1,360 1,287 Other receivables Current tax assets Financial derivatives Inventories ,068 5,506 5,337 Assets held for sale 100,941 97,577 98, , , ,396 Non-current assets Long-term loans, deposits and receivables 1,732 1,754 2,047 Available-for-sale financial assets Financial assets at fair value through profit or loss Investments in associates 1,627 1,467 1,698 *) Investment property Investments in oil and gas exploration and production 15,489 16,742 16,472 Property, plant and equipment, net 2,245 2,297 2,393 Goodwill Other intangible assets, net Deferred taxes ,332 23,365 23,645 *) 129, , ,041 *) *) Retrospective reconciliation - see Note 3C The accompanying notes are an integral part of the consolidated interim financial statements

38 Notes to the Consolidated Interim Financial Statements Consolidated Balance Sheets Current liabilities September 30 December Unaudited Audited NIS million Interest bearing loans and borrowings 3,177 2,119 4,141 Trade payables Other payables 978 1, Current tax liabilities Financial derivatives ,839 4,020 5,743 Liabilities attributable to assets classified as held for sale 96,525 93,587 93,943 Non-current liabilities 101,364 97,607 99,686 Loans from banks and others 1,361 1,041 1,133 Debentures 12,328 14,356 12,776 Debentures convertible into Company shares 1, Liabilities for employee benefits Provisions and other liabilities Deferred taxes 2,276 2,456 2,438 Capital 17,396 18,207 16,703 Share capital Share premium 1,917 1,917 1,917 Proceeds for conversion options Retained earnings 2,459 2,484 2,455 *) Exchange differences on translation of foreign operations (50) Capital reserve from transactions with holders of non-controlling interests Other reserves 150 (149) 60 Treasury shares (433) (338) (368) Total equity attributable to equity holders of the Company 4,254 4,555 4,504 *) Non-controlling interests 6,327 6,079 6,148 Total capital 10,581 10,634 10,652 *) 129, , ,041 *) *) Retrospective reconciliation - see Note 3C The accompanying notes are an integral part of the consolidated interim financial statements. November 28, 2016 Date of approval of the financial statements Gabriel Last Asi Bartfeld Barak Mashraki Chairman of the Board CEO CFO - 3 -

39 Notes to the Consolidated Interim Financial Statements Consolidated Statements of Income Nine months ended September 30 Three months ended September 30 Year ended December Unaudited Audited NIS million (Other than earnings (loss) per share) Revenue 4,280 4,924 1,554 1,702 6,356 Cost of revenues 2,742 3, ,168 4,592 Gross profit 1,538 1, ,764 Selling, marketing and gas station operating expenses General and administrative expenses Other expenses, net Operating income ,003 Finance income Finance expenses (694) (1,051) (206) (541) (1,244) (178) 214 Profit (loss) from disposal of investments in partnerships and investees, net - (2) Group s share in profits of associates, net *) Profit (loss) before taxes on income (172) 359 *) Taxes on income (tax benefit) (48) Profit (loss) from continuing operations (196) 225 *) Income from discontinued operations, net Net income (loss) (115) 479 *) Attributable to: Equity holders of the Company 250 (29) 85 (261) 25 *) Non-controlling interests Net earnings (loss) per share attributable to equity holders of the Company (NIS) (115) 479 *) Basic and diluted earnings (loss) from continuing operations (11.54) 5.17 (26.56) (6.60) *) Basic and diluted earnings per share from discontinued operations Basic and diluted earnings (2.53) 7.66 (22.88) 2.10 *) *) Retrospective reconciliation - see Note 3C The accompanying notes are an integral part of the consolidated interim financial statements

40 Notes to the Consolidated Interim Financial Statements Consolidated Statements of Comprehensive Income Nine months ended September 30 Three months ended September 30 Year ended December Unaudited Audited NIS million Net income (loss) (115) 479 *) Other comprehensive income (loss) (net of tax effect): Amounts not reclassified to profit or loss: Actuarial gain for defined benefit plans Total Amounts classified or reclassified to profit or loss under specific conditions: Gain (loss) for available-for-sale financial assets, net 36 (334) 15 (180) (283) Transfer to statement of income for disposal of available-for-sale financial assets (28) (7) (7) (3) (19) Transfer to statement of income for impairment of available-for-sale financial assets Profit from cash flow hedges Exchange differences on translation of foreign operations (369) (16) (222) Other comprehensive income (loss) attributable to associates, net (12) (55) (6) 15 (55) Total (327) (73) (213) Total other comprehensive income (loss) from continuing operations (327) (72) (213) Total other comprehensive income (loss) from discontinued operations, net 74 (38) 6 (21) (23) Total other comprehensive income (loss) (253) (110) (207) 433 (2) Total comprehensive income *) Attributable to: Equity holders of the Company 120 (49) (27) *) Non-controlling interests *) *) Retrospective reconciliation - see Note 3C The accompanying notes are an integral part of the consolidated interim financial statements

41 Notes to the Consolidated Interim Financial Statements Consolidated Statements of Changes in Equity Attributable to equity holders of the Company Share capital Share premium Proceeds for conversion options Retained earnings Exchange differences on translation of foreign operations Other reserves *) Treasury shares Total Reserve from transactions with noncontrolling interests Unaudited NIS million Noncontrolling interests Total equity Balance as of January 1, 2016 (audited) 13 1,917-2,455 **) (368) 4,504 **) 6,148 10,652 **) Net income Other comprehensive income (loss) (220) (130) (123) (253) Total comprehensive income (loss) (220) ***) 497 Dividends (246) (246) - (246) Proceeds for conversion option in the issue of convertible debentures (net of issue expenses) Acquisition of treasury shares (65) (65) - (65) Company previously consolidated (2) (2) Acquisition of shares from holders of non-controlling interests (86) - - (86) (112) (198) Dividend to holders of non-controlling interests (84) (84) Balance as of September 30, , ,459 (50) (433) 4,254 6,327 10,581 *) Mainly capital reserve for available-for-sale financial assets As of September 30, 2016, including a credit balance of NIS 115 million for investments held for sale. See also Note 3 below. **) Retrospective reconciliation - see Note 3C ***) Composition of comprehensive income of non-controlling interests: Net income attributable to non-controlling interests 500 Profit from available-for-sale financial assets, net 39 Exchange differences on translation of foreign operations (162) Total comprehensive income attributable to non-controlling interests 377 The accompanying notes are an integral part of the consolidated interim financial statements

42 Notes to the Consolidated Interim Financial Statements Consolidated Statements of Changes in Equity Share capital Premium on shares Attributable to equity holders of the Company Retained earnings Exchange differences on translation of foreign operations Reserve from transactions with noncontrolling interests Other reserves *) Treasury shares Total Noncontrolling interests Total equity Unaudited NIS million Balance as of January 1, 2015 (audited) 13 1,917 2, (77) (223) 5,204 6,024 11,228 Net income (loss) - - (29) (29) Total other comprehensive income (loss) (72) - (20) (90) (110) Total comprehensive income (loss) - - (28) 51 - (72) - (49) 224 **) 175 Acquisition of treasury shares (115) (115) - (115) Acquisition of shares from holders of non-controlling (73) - - (73) (83) (156) interests Dividends - - (412) (412) - (412) Dividend to holders of non-controlling interests (86) (86) Balance as of September 30, ,917 2, (149) (338) 4,555 6,079 10,634 *) Mainly capital reserve for available-for-sale financial assets As of September 30, 2015, including a credit balance of NIS 66 million for investments held for sale. See also Note 3 below. **) Composition of comprehensive income of non-controlling interests: Net income attributable to non-controlling interests 314 Loss from available-for-sale financial assets, net (26) Exchange differences on translation of foreign operations (64) Total comprehensive income attributable to non-controlling interests 224 The accompanying notes are an integral part of the consolidated interim financial statements

43 Notes to the Consolidated Interim Financial Statements Consolidated Statements of Changes in Equity Attributable to equity holders of the Company Share capital Premium on shares Proceeds for conversion options Retained earnings Exchange differences on translation of foreign operations Treasury shares Total Reserve from transactions with noncontrolling Other interests reserves *) Unaudited NIS million Noncontrolling interests Total equity Balance as of July 1, ,917-2,449 **) (433) 4,331 **) 6,241 10,572 **) Net income Total other comprehensive income (loss) (129) (112) (95) (207) Total comprehensive income (loss) (129) (27) 122 ***) 95 Dividends (75) (75) - (75) Proceeds for conversion option in the issue of convertible debentures (net of issue expenses) Acquisition of shares from holders of non-controlling interests (2) - - (2) (34) (36) Dividend to holders of non-controlling interests (2) (2) Balance as of September 30, , ,459 (50) (433) 4,254 6,327 10,581 *) Mainly capital reserve for available-for-sale financial assets As of September 30, 2016, including a credit balance of NIS 115 million for investments held for sale. See also Note 3 below. **) Retrospective reconciliation - see Note 3C ***) Composition of comprehensive income of non-controlling interests: Net income attributable to non-controlling interests 217 Profit from available-for-sale financial assets, net 2 Exchange differences on translation of foreign operations (97) Total comprehensive income attributable to non-controlling interests 122 The accompanying notes are an integral part of the consolidated interim financial statements

44 Notes to the Consolidated Interim Financial Statements Consolidated Statements of Changes in Equity Attributable to equity holders of the Company Share capital Premium on shares Retained earnings Exchange differences on translation of foreign operations Reserve from transactions with noncontrolling interests Other reserves *) Treasury shares Total Noncontrolling interests Total equity Unaudited NIS million Balance as of July1, ,917 2, (297) (294) 4,686 6,004 10,690 Net income (loss) - - (261) (261) 146 (115) Total other comprehensive income Total comprehensive income (loss) - - (261) **) 318 Acquisition of treasury shares (44) (44) - (44) Acquisition of shares from holders of non-controlling interests (73) - - (73) (83) (156) Dividends - - (117) (117) - (117) Dividend to holders of non-controlling interests (57) (57) Balance as of September 30, ,917 2, (149) (338) 4,555 6,079 10,634 *) Mainly capital reserve for available-for-sale financial assets As of September 30, 2015, including a credit balance of NIS 66 million for investments held for sale. See also Note 3 below. **) Composition of comprehensive income of non-controlling interests: Net income attributable to non-controlling interests 146 Loss from available-for-sale financial assets, net (14) Exchange differences on translation of foreign operations 83 Total comprehensive income attributable to non-controlling interests 215 The accompanying notes are an integral part of the consolidated interim financial statements

45 Notes to the Consolidated Interim Financial Statements Consolidated Statements of Changes in Equity Share capital Share premium Retained earnings Attributable to equity holders of the Company Exchange Reserve from differences on transactions translation of with noncontrolling foreign operations interests Audited NIS million Other reserves*) Treasury shares Total Noncontrolling interests Total equity Balance as of January 1, ,917 2, (223) 5,204 6,024 11,228 Net income 25 **) **) **) Other comprehensive income (loss) (30) - (12) 10 (2) Total comprehensive income (loss) **) 17 - (30) - 13 **) 464 ***) 477 **) Total net effect of the change in insurance reserves in general insurance as of December 31, (6) (6) (6) (12) Acquisition of treasury shares (145) (145) - (145) Dividends - - (489) (489) - (489) Dividend to holders of non-controlling interests (251) (251) Acquisition of shares from holders of non-controlling interests (73) - - (73) (84) (157) Share-based payment Balance as of December 31, ,917 2,455 **) (368) 4,504 **) 6,148 10,652 **) *) Mainly capital reserve for available-for-sale financial assets; As of December 31, 2015, including a credit balance of NIS 70 million for investments held for sale See also Note 3 below. **) Retrospective reconciliation - see Note 3C ***) Composition of comprehensive income of non-controlling interests: Net income attributable to non-controlling interests 454 Loss from available-for-sale financial assets, net (14) Actuarial gain for defined benefit plans, net 1 Exchange differences on translation of foreign operations 23 Total comprehensive income attributable to non-controlling interests 464 The accompanying notes are an integral part of the consolidated interim financial statements

46 Consolidated Statements of Cash Flows Nine months ended September 30 Three months ended September 30 Year ended December Unaudited Audited NIS million Cash flows from operating activities Net income (115) 479 *) Adjustments to reconcile cash flows from operating activities (a) 448 3,176 (697) 1,345 4,398 *) Net cash from (used for) operating activities 1,198 3,461 (395) 1,230 4,877 Cash flows from investing activities Purchase of property, plant and equipment, investment property and intangible assets (508) (327) (124) (88) (642) Proceeds from sale of property, plant and equipment and investment property Proceeds (investment) from sale of financial assets, net (214) 142 Repayment of loans to associates, net Short-term investments, net (426) (10) (464) (214) (152) (Disposal of) investment in long-term bank deposits, net (61) (279) 16 (67) (297) Increase in joint ventures for oil and gas exploration (415) (456) (70) (64) (546) Proceeds from lease of oil and gas assets Proceeds from sale of investments in associates, net (including taxes paid) Investment in associate companies and partnerships - (7) - - (271) Repayment (provision) of loans to others, net (81) (39) Derecognized cash from disposal of investments in previously consolidated subsidiaries (b) (13) Net cash from (used in) investing activities (855) (826) (599) (609) (1,558) *) Retrospective reconciliation - see Note 3C The accompanying notes are an integral part of the consolidated interim financial statements

47 Notes to the Consolidated Interim Financial Statements Consolidated Statements of Cash Flows Nine months ended September 30 Three months ended September 30 Year ended December Unaudited Audited NIS million Cash flow from finance activities Short-term loans from banks and others, net (774) (551) (543) 210 (58) Acquisition of shares from holders of noncontrolling interests (128) (156) (24) (156) (156) Receipt of long-term loans Repayment of long-term loans (318) (425) (138) (90) (578) Dividend paid (246) (412) (75) (117) (489) Dividend paid to holders of non-controlling interests in subsidiaries (84) (42) (2) (13) (251) Acquisition of Company shares by a consolidated partnership (65) (115) - (44) (145) Tax advances representing distribution of profits to non-controlling interests (82) (56) (58) (20) - Payment of contingent liability for a put option to holders of non-controlling interests (28) Taxes for sale of shares to non-controlling interests - (166) - (166) (166) Issue of debentures (less issuance expenses) 1, ,103-1,496 Repayment of debentures (498) (433) (187) (286) (1,043) Net cash from (used for) finance activities (249) (1,134) 544 (568) (959) Exchange differences on balances of cash foreign operations 9 7 (15) Change in cash and cash equivalents attributable to operations held for sale (146) (5,673) 841 (692) (6,603) Increase (decrease) in cash and cash equivalents (43) (4,165) 376 (619) (4,198) Cash and cash equivalents at the beginning of the period (including performance-based balance) 1,009 5, ,661 5,207 Cash and cash equivalents at the end of the period 966 1, ,042 1,009 The accompanying notes are an integral part of the consolidated interim financial statements

48 Notes to the Consolidated Interim Financial Statements Consolidated Statements of Cash Flows (A) Adjustments to reconcile cash flows from operating activities: Adjustments to profit or loss Nine months ended September 30 Three months ended September 30 Year ended December Unaudited Audited NIS million Depreciation, depletion, amortization and impairment of assets Deferred taxes, net Decrease in employee benefit liabilities, net (62) (1) (73) (11) (1) Decrease in loans granted, net (76) (22) (20) (49) (23) Loss (profit) from the sale of property, plant and equipment, real estate and investments, net 4 (5) (1) 16 - Group s share of results of associates, net (1) (33) *) Profit from disposal of available for sale financial assets (30) (7) (9) (3) (25) Change in fair value of financial assets and financial derivatives, net (25) Increase in long-term liabilities, net (26) Increase in deferred acquisition costs (71) (98) (18) (23) (103) Cost of share-based payment (1) 2 (1) (3) 3 Change in financial investments of insurance companies, net (1,735) (634) (1,062) 671 (1,249) Investments net of proceeds from the sale of available-for-sale assets in insurance companies, net (2,082) (427) (1,489) 13 (781) Increase(decrease) in reserves and other provisions in insurance companies 4,333 3,697 1,686 (13) 5,115 Acquisition of investment property for performance-based contracts and other investment property in insurance companies (253) - (91) (34) (12) Decrease (increase) in reinsurance assets (11) (45) 207 Change in value of investment property, net (4) 2 (6) (4) (51) Changes in operating assets and liabilities: Decrease (increase) in trade receivables (72) 134 (40) Increase in other receivables (274) (321) (43) (88) (143) Decrease in inventory Increase in other assets, net (105) (96) (40) (15) (128) Increase (decrease) in trade payables 10 (148) 19 (103) (89) Increase (decrease) in other accounts payable 103 (208) (78) 448 3,176 (697) 1,345 4,398 (1) Net of dividends and earnings received *) Retrospective reconciliation - see Note 3C

49 Notes to the Consolidated Interim Financial Statements Consolidated Statements of Cash Flows Nine months ended September 30 Three months ended September 30 Year ended December Unaudited Audited NIS million (B) Deconsolidation Working capital (excluding cash and cash equivalents) (14) Property, plant and equipment (2) Intangible assets and goodwill Deferred taxes Non-controlling interests (2) (13) (C) Significant non-cash activities Purchase of property, plant and equipment and intangible assets Dividend payable by associates Investment in oil and gas assets against liability Provision of a loan for the sale of a subsidiary Dividend payable to holders of noncontrolling interests in subsidiary partnerships (D) Cash and cash equivalents Cash and cash equivalents at the beginning of the period: Cash and cash equivalents 1,009 2, ,661 2,556 Performance-based cash and cash equivalents in insurance companies *) - 2, ,651 (E) Additional information on cash flows 966 5, ,661 5,207 Cash paid during the year for: Interest Taxes on income Cash received during the year for: Interest Dividends Taxes (F) See Note 3A for information about cash flows from discontinued operations. The accompanying notes are an integral part of the consolidated interim financial statements

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

51 Notes to the Consolidated Interim Financial Statements NOTE 3: INVESTMENTS IN INVESTEES AND PARTNERSHIPS (CONTD.) A. The Phoenix Holdings Ltd. ("The Phoenix") (contd.) 3) As of September 30, 2016, the investment in shares of The Phoenix is recognized in accordance with the provisions of IFRS 5 as part of a group of assets held for sale and under liabilities attributable to assets held for sale. In addition, the operating results of The Phoenix, including investment value adjustments, are recognized in the statement of income under profit from discontinued operations, net. In the reporting period, the Company included its share in the income of The Phoenix amounting to NIS 165 million. In addition, in the reporting period, the Company recognized an impairment loss of NIS 123 million, due to its estimated fair value less costs to sell of the investment in The Phoenix, as set out below. In addition, the Company included its share in other comprehensive income and capital reserve amounting to NIS 7 million. As of September 30, 2016, the Company's investment in The Phoenix amounts to NIS 1,851 million, which represents the fair value estimate net of costs to sell of the investment, in accordance with the consideration set out in the sale agreement that was signed, as described above (for information about the estimated fair value of the investment, see also Note 14F to the Annual Financial Statements). The value of the Company's investment in The Phoenix shares as of September 30, 2016, at the TASE price of a single share of The Phoenix, amounts to NIS 1,345 million (shortly before the approval date of the financial statements, the market value of the Group s investment in the shares of The Phoenix amounts to NIS 1,609 million). 4) Financial information for The Phoenix: A) Group of assets and liabilities relating to the operations of The Phoenix classified as held for sale: September 30 December Unaudited Audited NIS millions Current assets Cash and cash equivalents Performance-based cash and cash equivalents 6,111 5,084 5,970 Short-term investments of the finance sector (mainly exchange-traded funds and deposits) 28,409 31,291 30,189 Short-term investments Short-term investments in insurance companies 2,192 1,778 2,152 Insurance premium receivable Other receivables Current tax assets Reinsurance assets Deferred acquisition costs ,766 41,427 41,284 Non-current assets Financial investments of insurance companies 52,610 47,107 48,672 Long-term loans, deposits and receivables Investments in associates Investment property 3,270 2,950 3,016 Reinsurance assets Property, plant and equipment, net Deferred acquisition costs 1, Structured bonds 337 1, Goodwill Other intangible assets, net Deferred taxes ,276 55,580 56,208 Total assets 100,042 97,007 97,

52 Notes to the Consolidated Interim Financial Statements NOTE 3: INVESTMENTS IN INVESTEES AND PARTNERSHIPS (CONTD.) A. The Phoenix Holdings Ltd. ("The Phoenix") (contd.) Group of assets and liabilities relating to the operations of The Phoenix classified as held for sale (contd.): September 30 December Unaudited Audited NIS millions Current liabilities Interest bearing loans and borrowings Trade payables Other payables 1,822 2,025 2,028 Exchange-traded funds and deposit 27,137 30,271 29,076 Current tax liabilities Liabilities for insurance contracts 4,270 4,125 4,577 33,877 36,838 36,084 Non-current liabilities Debentures 2,248 2,381 2,332 Structured bonds Liabilities for employee benefits Liabilities for insurance contracts 59,178 53,317 54,454 Provisions and other liabilities Deferred taxes ,457 56,691 57,822 Total liabilities 96,334 93,529 93,

53 Notes to the Consolidated Interim Financial Statements NOTE 3: INVESTMENTS IN INVESTEES AND PARTNERSHIPS (CONTD.) A. The Phoenix Holdings Ltd. ("The Phoenix") (contd.) B) The table below presents information on the results of operations attributable to the discontinued operations of The Phoenix: Nine months ended September 30 Three months ended September 30 Year ended December Unaudited Audited Revenue 9,307 7,850 3,751 1,749 11,560 Cost of revenues 6,865 5,757 2, ,455 Gross profit 2,442 2,093 1, ,105 Sales expenses 1,121 1, ,475 General and administrative expenses ,125 Other expenses (income), net (16) 30 Operating income Finance expenses, net Share in earnings (losses) of associates (1) 56 Income before tax Taxes on income Adjustment to fair value less costs to sell (123) 63 (95) (7) (53) Income from operations of The Phoenix Attributable to: Equity holders of the Company Non-controlling interests C) Composition of net cash flows attributable to the discontinued operations of The Phoenix: Nine months ended September 30 Three months ended September 30 Year ended December Unaudited Audited Net cash from (used for) operating activities 393 2,504 (769) 679 3,596 Net cash used for investment activities (155) (150) (50) (43) (228) Net cash from (used for) finance activities (92) (10) (22) 56 (95) 146 2,344 (841) 692 3,

54 Notes to the Consolidated Interim Financial Statements NOTE 3: INVESTMENTS IN INVESTEES AND PARTNERSHIPS (CONTD.) A. The Phoenix Holdings Ltd. ("The Phoenix") (contd.) 5) On June 2, 2016, The Phoenix Investments and Finance Ltd. ("The Phoenix Investments") completed a full tender offer for the acquisition of 10.19% of the issued and paid up share capital of Excellence Investments Ltd. ("Excellence Investments") for NIS million. Subsequent to the acquisition, The Phoenix Investments holds 100% of the issued and paid up share capital of Excellence Investments. As a result, the Company recognized a negative capital reserve (transactions with non-controlling interests) amounting to NIS 29 million. B. Republic Companies Inc. ("Republic") Further to Note 14F(c) to the Annual Financial Statements, on April 18, 2016, the transaction for the sale of all of the Company's holdings (66%) in Republic was completed, for a total consideration of NIS 532 million (approximately USD 140 million) to AmTrust Financial Services Inc. ("the Buyers"), after all the approvals were received for completion, including regulatory approvals. An amount of NIS 132 million of the consideration (approximately USD 35 million) was paid in cash at the closing date and the remaining USD 105 million was provided to the buyers as a seller loan for four years, which will be repaid in four equal installments and will bear annual interest at a rate of 5.75%. Following completion of the transaction, in the second quarter of 2016, the Company recognized a profit of NIS 16 million. C. Ithaca Energy Inc. ("Ithaca") 1) Further to Note 14M to the Annual Financial Statements, in October 2015, the Group acquired (by way of allocation) 19.99% of the issued and paid up share capital of Ithaca (by way of allocation) for a total consideration of USD 68 million (approximately NIS 267 million). Ithaca is an independent oil and gas operator in the North Sea, which owns producing oil assets and assets under development. Ithaca's shares are traded on the Toronto Stock Exchange (TSX) and the Alternative Investment Market (AIM) in London. The Group applies the equity-accounting method for its investment in Ithaca. In the third quarter of 2016, the Company completed, through an independent external appraiser, attribution of the consideration for the acquisition of the assets and liabilities of Ithaca. The Company's share in the fair value of the identifiable assets and liabilities of Ithaca at the acquisition date are as follows: Fair value USD million Cash and cash equivalents 16 Trade receivables 43 Receivables 20 Inventories 4 Oil and gas assets 145 Other non-current assets 17 Deferred tax assets Current liabilities 59 Long-term liabilities 93 Deferred tax liabilities 174 Identifiable assets, net *) 94 Cost of acquisition 68 Surplus identifiable assets, net of paid consideration (negative goodwill) (26)

55 Notes to the Consolidated Interim Financial Statements NOTE 3: INVESTMENTS IN INVESTEES AND PARTNERSHIPS (CONTD.) C. Ithaca Energy Inc. ("Ithaca") (contd.) 2) Accordingly, the cost of the investment at the acquisition date (the Company's share in the fair value of net identifiable assets) amounted to USD 94 million, and an opportunity gain of USD 26 million was created for the Company. In addition, at that date, the Group also assessed the fair value of the investment in Ithaca shares as a whole, through an appraiser (accounted for in accordance with the equity method), whereby the fair value was estimated as an amount close to the acquisition consideration. Accordingly, the Group included a provision of USD 26 million for impairment of the investment. Attribution of the acquisition cost, as described above, and the assessment of impairment of the investment as a whole, did not have a material effect on the Company's results at the acquisition date. In addition, after completing attribution of the acquisition consideration, the Group updated its share in the profits of Ithaca attributable to the fourth quarter of 2015 in an additional amount of USD 4.6 million. The effect of the update is included in these financial statements by way of retroactive reconciliation of the Group's results for It is noted that the effect of attribution of the acquisition consideration on the Group's share in the results of Ithaca for the first and second quarter of 2016, was insignificant. In the reporting period, the Group included its share in the losses of Ithaca amounting to NIS 28 million, including USD 29 million in the third quarter of This amount includes income of USD 5 million for income tax that was cancelled in the first quarter of 2016 (retroactively from January 1, 2016), applicable to income from oil production in the UK and a loss of USD 31 million that was included in the third quarter of 2016, due to the effect of the reduction in the tax rate from 50% to 40% on the deferred tax assets of Ithaca, including deferred taxes arising from attribution of the acquisition consideration. After recognizing the Group's share in the losses of Ithaca in the reporting period, the Group's investment in Ithaca amounted to USD 43 million. In view of the significant difference between the market value of the Group's investment in Ithaca shares and the investment as of September 30, 2016, and in view of further indications regarding the increase in value of the Group's investment in Ithaca in relation to its carrying amount, and following the estimated value of the Group s investment in Ithaca shares, which was performed through an independent external appraiser, the Group canceled the full provision for impairment of its investment in Ithaca in the amount of NIS 26 million, which had been previously recognized. As of September 30, 2016, the investment in the shares of the Ithaca Group amounts to USD 69 million. The market value of Ithaca shares held by the Group amounts to USD 72 million at that date (shortly before the approval date of the financial statements, the market value amounted to USD 82 million). D. On August 16, 2016, Delek Power Stations - Limited Partnership, a wholly owned partnership of the Company ("Delek Power Stations") signed an agreement for the sale of all of the Company's holdings in IPP Delek Ashkelon Ltd. ("Delek Ashkelon") which it holds. Delek Ashkelon operates and maintains the power station in Ashkelon and sells the electricity to various customers. The consideration for the sale (which will be used as consideration for the sold shares as well as to repay the owners' loans) is NIS 200 million, which will be paid at the completion date of the transaction. Under the agreement, the buyer undertook to indemnify or release Delek Power Stations and the Company, including related parties, from any guarantees and undertakings relating to the operations of Delek Ashkelon and/or the power station. The agreement also includes arrangements for payment of additional proceeds, subject to completion of various third-party proceedings, the conclusion of which is uncertain. The agreement establishes several preconditions, which are generally accepted for this type of transaction, and the closing date will be shortly after fulfillment of all of the preconditions, and no later than February 25, At this stage, the Company is expected to recognize a profit of NIS 40 million for the sale, under the terms of the agreement. On September 30, 2016, the assets of Delek Ashkelon amounting to NIS 345 million were recognized under the Group's assets held for sale and the liabilities of Delek Ashkelon amounting to NIS 191 million were recognized under liabilities attributable to assets held for sale

56 Notes to the Consolidated Interim Financial Statements NOTE 3: INVESTMENTS IN INVESTEES AND PARTNERSHIPS (CONTD.) E. Delek Europe Further to Note 14F(h) to the annual financial statements, regarding the loan of EUR 175 million provided to the buyer of Delek Europe, the balance of which amounted to EUR 167 million as of September 30, 2016 (principal plus accrued interest and net of discounting), subsequent to the balance sheet date, in November, 2016, the buyer repaid the loan prematurely and an amount of EUR 195 million was received. As a result of early repayment of the loan, the Group will recognize a profit of EUR 28 million (approximately NIS 115 million) in the fourth quarter of F. Condensed information for companies accounted for at equity 1) The Group holds 22.5% of the shares of Delek Automotive. The Group s investment in Delek Automotive is accounted for using the equity method. Following is condensed information from the financial statements of Delek Automotive for each reporting period (in accordance with the accounting policy of Delek Group): September 30 December Unaudited Audited NIS million Current assets 1,399 1,342 1,506 Non-current assets Current liabilities 1,553 1,340 1,505 Non-current liabilities Equity attributable to equity holders of the investee Excess cost attributable to the investment Nine months ended September 30 Three months ended September 30 Year ended December Unaudited Audited NIS million Revenue 2,973 2, ,315 Gross profit Operating income Finance income (expenses), net (107) (55) 368 Net earnings attributable to equity holders of the investee Amortization of excess cost attributable to the investment

57 Notes to the Consolidated Interim Financial Statements NOTE 3: INVESTMENTS IN INVESTEES AND PARTNERSHIPS (CONTD.) F. Condensed information for companies accounted for at equity (contd.) 2) The Group owns 50% of the shares of IDE Technologies Ltd. ( IDE ). The Group s investment in IDE is accounted for using the equity method. Following is condensed information from the financial statements of IDE for each reporting period: September 30 December Unaudited Audited USD millions Current assets Non-current assets Current liabilities Non-current liabilities Equity attributable to holders of non-controlling interests Equity attributable to equity holders of the investee *) Goodwill attributable to the investment *) On March 31, 2016, IDE completed a transaction for acquisition of the shares of noncontrolling interests in its subsidiary and became the sole shareholder in this company. Following this transaction, IDE recognized a negative capital reserve, which decreased its equity by USD 29 million. The Group's share in the capital reserve amounts to NIS 55 million and this amount is included under shares from holders of non-controlling interests in the statement of changes in equity. Nine months ended September 30 Three months ended September 30 Year ended December Unaudited Audited USD millions Revenue Gross profit Operating income Finance income (expenses), net 5 (2) 1 1 (1) Net earnings attributable to equity holders of the investee The exchange rate as of September 30, 2016, used to translate the financial statements of IDE, is USD 1 = NIS (change in the reporting period a decrease of 3.7%). The exchange rate as of December 31, 2015 is NIS and as of September 30, 2015, NIS

58 Notes to the Consolidated Interim Financial Statements NOTE 4: FINANCIAL ASSETS A. Further to Note 6 to the Annual Financial Statements, as of September 30, 2016, the Group's financial investments include investments in the shares of foreign companies amounting to NIS 536 million, mainly in companies operating in the energy sector. These investments are accounted for as available-for-sale financial assets. On December 31, 2015, the Group recognized the cumulative impairment of some of these investments in the statement of income, in view of their significant and/or continuous impairment. The total loss recognized in the statement of income in 2015 amounted to NIS 338 million. It is noted that for these investments, revenues from a dividend amounting to NIS 45 million were included in In the reporting period, the Company disposed of shares from these investments for a total consideration of NIS 233 million. In the reporting period, the effect of the investments in securities on the Company s results amounted to insignificant amounts. Subsequent to the reporting date, the Company disposed of additional shares from the investments in these securities for a total consideration of NIS 165 million. The Company expects to recognize a profit of NIS 20 million due to the increase in the value of the shares that were disposed of. B. Further to Note 14 F(g)to the Annual Financial Statements, the investment in the shares of Delek US is presented at market value. As of September 30, 2016, the investment in Delek US shares amounts to NIS 65 million. In the reporting period, the Group recognized a loss of NIS 31 million under finance expenses (the total effect on the Group's net profit after tax amounted to NIS 22 million. NOTE 5: INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION The Group operates mainly through Delek Drilling - Limited Partnership ("Delek Drilling") and Avner Oil Exploration - Limited Partnership ("Avner") (jointly: "the Limited Partnerships") in a number of joint ventures for the exploration, development, and production of oil, natural gas, and condensate in the exclusive economic zone of Israel and Cyprus, and sells natural gas and condensate to a variety of customers (see also Note 16 to the Annual Financial Statements). In addition, the Company is taking steps to develop oil and gas operations outside of Israel, including through its holdings in Ithaca (see Note 3C above) and the acquisition of oil and gas exploration rights. The main changes in the reporting period appear below: A. Ratio Yam joint venture 1) Outline for development of the Leviathan reservoir In February 2016, the Leviathan project partners submitted an outline plan for the development of the Leviathan reservoir to the Commissioner of Petroleum Affairs ("the Commissioner"), including the supply of natural gas and condensate to the local market and for export ("the Development Plan" or "the Plan"), the main points of which are as follows: A) Eight production wells (two of which have already been drilled and will be completed for production under the development plan) will be connected by a subsea pipeline to a fixed platform ("the Platform"), which will be built offshore in accordance with the provisions of the National Outline Plan TAMA 37/H (the amendments of TAMA 37/H were approved in March 2016) and will include all gas treatment systems. Gas will flow from the platform to the northern entrance of the national pipeline of Israel National Gas Lines ("INGL") as defined in TAMA 37/H ("the Connection Point to INGL). On April 5, 2016, the National Planning and Building Council approved the main points of the development plan, in accordance with the National Outline Plan. B) Production capacity, handling and transmission of the platform wells, the pipeline connecting it to the field, and the related facilities (jointly below: "the Production System") are designed for 21 BCM per year and the capacity of the pipeline from the platform to the Connection Point to INGL is designed for 12 BCM per year. The gas to be supplied at the Connection Point to INGL is targeted for the local market and for supply through the national pipeline to neighboring countries. The platform will also include another exit point intended for connection to the offshore pipeline with an annual capacity of up to 12 BCM, mainly targeted for export to neighboring countries

59 Notes to the Consolidated Interim Financial Statements NOTE 5: INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.) A. Ratio Yam joint venture (contd.) C) Based on a preliminary assessment, the cost of the full development plan until natural gas starts to flow, as described above, is USD 5-6 billion (for 100% of the rights in the Leviathan project). D) The development plan may be implemented in full or in two stages, depending on the maturity of the relevant markets, as follows: The first stage includes four development wells (including the completion of two existing wells for production) and installation of the platform with treatment facilities with an annual capacity of up to 12 BCM, which based on a preliminary assessment, will cost USD 3.5 billion to USD 4 billion (for 100% of the rights in the Leviathan project). The second stage includes another four wells and the expansion of the annual treatment capacity of the platform by an additional 9 BCM. E) It is noted that to allow production in the capacity as may be required from time to time, and to use the resources at the Leviathan reservoir during the life of the project, additional production wells are required. F) Parallel to arrangement of the stability section in the Gas Outline Plan (as described in section F below), the Leviathan partners intend to advance the necessary regulatory approvals and finalization of binding agreements for gas sales to allow a final investment decision (FID) for the development plan in the fourth quarter of 2016, with the aim of starting production of gas from the Leviathan project in the fourth quarter of G) It is clarified that if demand for gas increases beyond the capacity of the production system, as defined in the development plan, the Leviathan partners will act to update the development plan to allow the incorporation of additional treatment facilities that are currently not included in the development plan. The above information about the development plan, the dates for a final investment decision, the start of gas production from the projects, and the target markets for the sale of natural gas contains estimates only, and there can be no certainty that they will materialize, in whole or in part, and they might materialize in a substantially different manner, In June 2016, the Commissioner approved the development plan, for the production of a maximum of 21 BCM per year, as set out above. The Commissioner stipulated the procedures for implementation of the development plan and noted, among other things, that at this stage, in view of the data of the Ministry of National Infrastructures, Energy and Water Resources ("The Ministry of Energy) and based on the opinion of an international company that was submitted to the Ministry of Energy, the estimate amount of natural gas that would be produced from the Leviathan field is 17.6 TCF, based on the production plan that was submitted ("the Estimated Production Amount"). The Commissioner also noted that after receiving additional data and in particular, after drilling Leviathan 5, and after receiving data obtained during production from the field, the Estimated Production Amount will be updated, in order to calculate export permits, if required, among other things. It is noted the Limited Partnerships believe that the Estimated Production Amount is adequate for full implementation of the development plan at an annual production volume of 21 BCM as approved, and adequate for full implementation of the export agreements relevant to a development plan of this scope. In addition, there has been no change in the assessment of natural gas and condensate in the Leviathan reservoir, based on the resources report prepared by NSAI, as described in Note 16(I) to the Annual Financial Statements. In June 2016, the Leviathan partners authorized Noble to enter into agreements for a cumulative value of USD 120 million for the entire project period (for all the partners) to receive engineering services, including a front end engineering design (FEED) for the production platform, as approved in the development plan. It is noted that the Leviathan partners are working to close other agreements for the purchase of equipment and/or services related to the development plan, as approved, and they are expected to sign them in the near future

60 Notes to the Consolidated Interim Financial Statements NOTE 5: INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.) A. Ratio Yam joint venture (contd.) In July 2016, the Leviathan partners confirmed a budget of USD 119 million (100%) for development of the Leviathan reservoir for 2016 and up to the end of 2017, to carry out the actions that are required to complete the development plan on time when approved by the Leviathan partners as part of the final investment decision (FID). As of the approval date of the financial statements, the Leviathan partners have not yet made a FID for the development plan. 2) Agreement for the export of natural gas from the Leviathan project to the National Electric Power Company of Jordan Further to Note 16K(2) to the Annual Financial Statements, on September 26, 2016, a detailed agreement for the supply of natural gas was signed between NBL Jordan Marketing Limited ("the Marketing Company") and the National Electric Power Company of Jordan ("NEPCO" and "the Export Agreement", respectively). The Marketing Company is a wholly owned subsidiary of the partners in the Leviathan project, including the Partnerships ("the Leviathan Partners"), which hold it in proportion to their interests in the Leviathan project. According to the Export Agreement, the Marketing Company undertook to supply natural gas to NEPCO for 15 years after commercial supply begins or when supply reaches 45 BCM ("the Total Contract Quantity"). Supply of gas under the Export Agreement is expected to begin with the commencement of supply from the Leviathan reservoir and the completion of the systems for delivery of natural gas to NEPCO in Israel and Jordan. The Export Agreement stipulates that natural gas will be delivered to NEPCO at the exit of the Israeli pipeline at the Israel-Jordan border. NEPCO has a take or pay commitment for a minimum annual volume of gas according to a mechanism set out in the Export Agreement. The Export Agreement includes a number of preconditions, mainly a final investment decision (FID) by the Leviathan partners for development of the Leviathan field, obtaining regulatory and governmental approvals in Israel and in Jordan, the signing of a transmission agreement between the Marketing Company and INGL, and the signing of a transmission agreement between NEPCO and the Jordanian company for transmission and supply of natural gas (FAJR). The Marketing Company will purchase natural gas from the Leviathan partners and sell it to NEPCO, in accordance with the Export Agreement (back to back). In this context, it is noted that subsequent to the balance sheet date, on November 4, 2016, the Leviathan project partners applied to the Commissioner for approval to export natural gas to Jordan. 3) Agreement for the supply of natural gas between the Limited Partnerships and the other Leviathan partners and Edeltech Ltd. ("Edeltech") In January 2016, the Limited Partnerships and the other Leviathan partners signed an agreement for the supply of natural gas with Edeltech ("the Buyer"). Under the agreement, the Buyer will acquire natural gas from the Leviathan partners to operate power plants that it plans to construct, together with its Turkish partner, in Ashdod and Mishor Rotem ("the Supply Agreement"). In accordance with the Supply Agreement, the Leviathan partners undertook to supply the Buyer with a total quantity of 6 BCM of natural gas, in accordance with the terms set out in the Supply Agreement. For further information, see Notes 16K(2) and 16K(4) to the Annual Financial Statements

61 Notes to the Consolidated Interim Financial Statements NOTE 5: INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.) A. Ratio Yam joint venture (contd.) 4) Agreement for the supply of natural gas between the Limited Partnerships and the other Leviathan partners and IMP Beer Tuvia Ltd. In May 2016, the Leviathan partners and IMP Beer Tuvia Ltd. ("the Buyer") signed an agreement according to which the Buyer will acquire natural gas from the Leviathan partners to operate the power station it plans to construct in the Beer Tuvia industrial zone ("the Supply Agreement"). In accordance with the Supply Agreement, the Leviathan partners undertook to supply the Buyer with a total quantity of 13 BCM of natural gas ("the Total Contract Quantity"), in accordance with the terms set out in the Supply Agreement. The term of the Supply Agreement will start when gas starts to flow in commercial quantities from the Leviathan reservoir to the Buyer and is expected to end on the earlier of the following dates: (1) when the Buyer consumes the Total Contract Quantity; (2) 18 years from the start of commercial operation of the Buyer's power station or from the start of commercial operation of the Leviathan project (whichever is earlier). The parties may extend the term of the supply agreement by up to two additional years, or until consumption of the Total Contract Quantity, whichever is earlier. The Buyer has a take or pay commitment for a minimum annual quantity of gas as set out in the Supply Agreement ("the Minimum Annual Quantity"). The Supply Agreement determines a mechanism whereby the Buyer will be entitled to reduce the quantities purchased (including the Total Contract Quantity) until finalization of the Buyer's funding, and in any event, no later than six months after the Supply Agreement is signed, based on the size of the power plants that will be built and the gas quantities that it will require at such time, all subject to the restrictions set out in the agreement. The Supply Agreement includes several preconditions, the main ones being approval of the development plan for the Leviathan reservoir, obtaining a license for the gas transportation system from the Leviathan reservoir in accordance with the Natural Gas Sector Law, 2002 adoption of a final investment decision (FID) by the Leviathan partners by the end of 2016, and finalization of the Buyer's funding. 5) Agreement for the supply of natural gas between the Limited Partnerships and the other Leviathan partners and Paz Ashdod Refinery Ltd. Subsequent to the balance sheet date, on November 24, 2016, the Leviathan partners and Paz Ashdod Refinery Ltd. ("the Buyer") signed an agreement for supply of natural gas, whereby the Buyer will purchase natural gas from the Leviathan partners to operate the Buyer's facilities in Ashdod ( the Supply Agreement ). In accordance with the Supply Agreement, the Leviathan partners undertook to supply the Buyer with a total quantity of 3.12 BCM of natural gas ("the Total Contract Quantity"), under the terms set out in the Supply Agreement. The period of the Supply Agreement will start once the Supply Agreement is signed and is expected to expire on the earlier of the following dates: (1) the date on which the Buyer consumes the Total Contract Quantity; (2) 15 years after commercial quantities of gas have been supplied from Leviathan reservoir to the Buyer. The parties may extend the supply agreement period by up to one additional year, or until the Total Contract Quantity is consumed, whichever is earlier. The Buyer has a take or pay commitment for a minimum annual quantity of gas as set out in the Supply Agreement ("the Minimum Annual Quantity"). In accordance with the provisions of the Gas Outline Plan, the Buyer may reduce the Minimum Annual Quantity as set out in the Supply Agreement

62 Notes to the Consolidated Interim Financial Statements NOTE 5: INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.) A. Ratio Yam joint venture (contd.) In accordance with the arrangements set out in the Gas Outline Plan, 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. The Supply Agreement includes several preconditions, the main ones being approval of the development plan for the Leviathan reservoir, obtaining a license for the gas transportation system from the Leviathan reservoir in accordance with the Natural Gas Sector Law, 2002 and adoption of a final investment decision (FID) by the Leviathan partners. 6) Financing the share of the Limited Partnerships share in the development costs of the Leviathan project: Subsequent to the balance sheet date, on November 26, 2016, a letter of commitment ("the Letter of Commitment") was signed between the Limited Partnerships and HSBC Bank Plc and JP Morgan Limited (hereinafter together: "the Underwriters") to sign a financing transaction. All of the terms in the financing transaction have been agreed on and the agreed text of the financing documents is attached as an appendix to the Letter of Commitment ( the Financing Agreement ). In accordance with the Financing Agreements, the Underwriters, who were appointed exclusively by the Limited Partnerships to organize the loan, undertook to provide the Limited Partnerships (in equal parts) limited recourse project finance to finance their share in the development of the Leviathan project, in an amount of USD 1.5 billion billion (100%) ( the Loan ). The Limited Partnerships may sign the Financing Agreement in accordance with the terms that were agreed on, by February 20, The loan will be divided into tranches, each of which will be available for withdrawal on fulfillment of a number of preconditions, as described in the Financing Agreement. The loan principal will be repaid in a single bullet payment 48 months after the date of signature of the Financing Agreement. The loan is in US dollars and bears variable interest that will be paid every three months, calculated at three-month Libor plus a margin. To secure repayment of the loan, the Limited Partnership pledged their interests in the assets related to the Leviathan project. The Loan will be a limited recourse loan and the lenders will have no right of recourse against the Limited Partnerships' assets that were not pledged in their favor. The Underwriters may cancel their commitments to provide the loan up until the date of signing the Financing Agreement if events or circumstances occur that represent a material adverse change or are likely to represent a material adverse change, as set out in the Letter of Commitment. The Partnerships are entitled to cancel the Letter of Commitment up to and no later than February 20, 2017, in return for payment of cancellation fees. As part of the risk management policy of the Limited Partnerships, the Limited Partnerships entered into IRS cash flow hedges for changes in the Libor interest, amounting to USD 900 million. As of September 30, 2016, the fair value of the hedge transactions amounts to USD 646 thousand for each partnership, most of which is recognized in capital reserve for hedging transactions. The cash flow hedge transactions were exercised by the Limited Partnerships in November 2016, prior to their original termination date, for USD 6 million for each partnership. In accordance with the risk management policy, the Limited Partnerships are continuing to assess hedges for exposure to market risks

63 Notes to the Consolidated Interim Financial Statements NOTE 5: INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.) B. Michal and Matan joint venture 1) Further to Note 16K(1)(d) to the Annual Financial Statements, in February 2016, Eastern Mediterranean Marketing Limited ("NBL") signed an agreement with Arab Potash Company and Jordan Bromine Company to increase the daily and annual supply, as set out in the supply agreement of February 2014, to a total volume of up to 2 BCM. 2) Further to Note 16K(1)(c) to the Annual Financial Statements, and after the operational running-in period for the compressor system came to an end in the second quarter of 2016, on September 1, 2016, the Limited Partnerships together with the Tamar partners and Israel Electric Corporation Ltd. ("IEC") signed an amendment to the agreement for exercising the option to increase the quantities of gas to be consumed by IEC ("the Amendment to the Agreement"). The Amendment to the Agreement stipulates that the first option period and the increase in the quantity of gas to be supplied to IEC will be effective from January 2017 and will continue until the end of 2018 (instead of until the end of 2019, as stipulated in the agreement), and the second option period and the increase in the quantity of gas to be supplied to the IEC will be effective from January 2019 (instead of until the beginning of 2020 as stipulated in the agreement) and will continue until the end of the agreement period. In other words, the annual take or pay quantity will be 3 BMC as from January 1, 2019 until the end of the agreement period. The Total Contract Quantity (for the entire period) remains unchanged at 87 BCM. The Antitrust Authority approved the amendment to the option dates in the agreement. The Amendment to the Agreement is subject to obtaining the approval of the financers of the Tamar partners. As of the approval date of the balance sheet, approval was received from the financers of the Tamar partners, to the extent required. 3) On April 14, 2016, the Minister of National Infrastructure, Energy and Water Resources ("the Minister of Energy") resolved to dismiss the appeal filed by the Tamar partners on the Commissioner's decision, regarding approval of the operation of the natural gas and condensate production system from the Tamar project, according to which the Tamar partners, among other things, are required to provide guarantees in an amount of NIS 100 million (100%). In view of the decision of the Minister of Energy, the Tamar partners are assessing the legal options available to them. 4) On June 30, 2016, the Tamar partners made a decision to drill the Tamar 8 development and production well and construct related infrastructure in the Tamar field ("the Well"). The offshore drilling is 100 kilometers west of Haifa and is expected to reach a final depth of 5,050 m below sea level. Drilling began in October 2016 and is expected to continue for four months (including completion and connection to the production system). The purpose of the Well is to allow optimum production from the Tamar reservoir. Drilling of the well and its connection to the subsea production system of the Tamar project are expected to be carried out continuously. The Commissioner of Petroleum Affairs approved the updated development plan for the Tamar project, according to which the Tamar 8 well will be drilled and connected to the production system of the Tamar field. The drilling budget, including the completion and development of the subsea system and connection of the Well to the existing Tamar infrastructure, is USD 265 million (100%), of which USD 37 million is for equipment that was acquired for development of the South-West Tamar reservoir ("Tamar SW"). It is noted that development of the Tamar SW field is planned for the future, in accordance with the development and production plan of the Tamar project

64 Notes to the Consolidated Interim Financial Statements NOTE 5: INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.) B. Michal and Matan joint venture (contd.) 5) On June 30, 2016, the Limited Partnerships, together with the other Tamar project partners, signed an amendment to the joint operating agreement, according to which, as from January 1, 2016, the operator will be paid indirect costs (indirect services costs and overheads) at a rate of 1% of all direct costs, as defined in the agreement, subject to certain exceptions. In addition, the Limited Partnerships together with the other project partners signed a settlement agreement, according to which they paid the operator indirect costs of USD 22.4 million (100%) for the period from July 24, 2006 until December 31, 2015 (in addition to USD 15.6 million, 100%, paid in 2013), most of which were capitalized to oil and gas assets. 6) Subsequent to the balance sheet date, on October 6, 2016, the Limited Partnerships repaid, ahead of the repayment date, the first series of debentures that were issued, amounting to USD 400 million (the share of each partnership is USD 200 million) ("the Principal"), the original repayment date of which is on December 30, The amount of the early repayment includes the Principal, plus accrued interest amounting to USD 3 million (the share of each partnership is USD 1.5 million) plus an early repayment fee of USD 1.8 million (the share of each partnership is USD 0.9 million) ("the Early Repayment Fee"). It is noted that the amount of the Early Repayment Fee is lower than the interest, which the issuer would have paid if the first series of the debentures had been repaid at its original date. At the same, the Limited Partnerships are assessing the issuance of marketable debentures to the public to finance their ongoing activities in the coming years. C. Karish and Tanin leases 1) Further to Note 16M to the Annual Financial Statements, on August 16, 2016, the Limited Partnerships ("the Sellers") and Ocean Energean Oil and Gas Ltd.("the Buyer" or "Energean") signed an agreement. The main terms set out in the agreement are as follows: A) Energean will acquire from the Sellers all the rights of the Sellers and Noble in the I/16 Tanin and 1/17 Karish leases ("the Leases") in accordance with their holdings as follows: % of the rights for each of limited partnership and % of the rights in Noble ("the Sold Rights" and "the Agreement", respectively). B) The Buyer will pay the Sellers a total of USD million (in equal parts), which constitutes reimbursement of the past expenses invested in the Leases by the Sellers and Noble, plus royalties in connection with the natural gas and condensate to be produced from the Leases, as follows: 1) A cash payment of USD 10 million which will be deposited in an escrow account shortly after the agreement is signed and will be transferred to the sellers on the closing date of the transaction 2) An additional cash payment of USD 30 million will be paid to the Sellers on the closing date of the transaction. 3) The balance of the consideration, in a total amount of USD million, will be paid to the Sellers in ten equal annual installments, plus interest in the mechanism and at the rate stipulated in the agreement, starting on the date on which the final investment decision (FID) is made in connection with the development of the Leases or on the date on which the sum of the Buyers expenses in connection with development of the leases exceeds USD 150 million, whichever is earlier. 4) The Sold Rights will be transferred to the Buyer together with the royalties in the Leases, which each of the Sellers covered for their original share in the Leases ( % for each of the Seller) ("the Existing Royalties"), and accordingly, the duty to pay the same to the royalty holders, including the Group, will apply as from the completion date of the transaction to the Buyer

65 Notes to the Consolidated Interim Financial Statements NOTE 5: INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.) C. Karish and Tanin leases (contd.) 5) The Buyer will transfer to the Limited Partnerships a right to royalties for the natural gas and condensate to be produced from the Leases, at a rate of 7.5% (for 100% of the rights in the Leases), before payment of the oil profits tax under the Taxation of Profits from Natural Resources Law, 2011 ("the Levy ) for the Leases, and at the rate of 8.25% (for 100% of the rights in the Leases) immediately upon commencement of payment of the Levy, net of the rate of the Existing Royalties for the seller's share in the Leases, as set out in subsection 4 above. C) In accordance with the provisions of the Gas Outline, the Agreement stipulates that the Buyer will transfer to the Sellers and to the other Leviathan partners the export quota from the Leases. D) The Agreement includes several conditions preconditions, which are mainly receipt of the approval of the Commissioner and the approval of the general meetings of the holders of the Limited Partnerships' participation units for the Agreement, or the approval of the supervisors, insofar as required under the circumstances. As of the approval date of the balance sheet, the supervisors approved the agreement. E) The closing date of the transaction has been scheduled for three business days after fulfillment of the preconditions. Each one of the parties has been given the right to terminate the transaction if the preconditions are not fulfilled within 45 days after the signing date. At this stage, the Limited Partnerships are assessing the accounting implications of the transaction in the Agreement, if the transaction is completed. 2) As part of the agreement that was completed in January 2016, as described in Note 16G to the Annual Financial Statements, each of the Limited Partnerships paid a total of USD 36 million to Noble for acquisition of the right to sell Noble's rights in Karish and Tanin. It is noted that the Commissioner approved the registration in the Oil Register of a "benefit" arising from the right to sell the rights of Noble. 3) As of September 30, 2016, the investment of NIS 554 million in the Karish and Tanin leases was included under assets held for sale. D. Block 12, Cyprus 1) In January 2016, the Limited Partnerships announced that the Cyprus government has waived the requirement for another appraisal drilling (beyond the boundaries of the Aphrodite finding), as required in the work plan for Block 12 in Cyprus ("Block 12"), as part of completion of the transfer of 50% of the rights of Noble Energy International Ltd. in Block 12 to BG Cyprus Limited. 2) In April, 2016, the Block 12 partners submitted a revised plan for development of the Aphrodite reservoir in a format that is basically similar to that described in Note 16 H(5) to the Annual Financial Statements, alongside the application for a production license. It is noted that on May 23, 2016, the validity of the exploration license for Block 12 expired ("the Expiry Date of the Exploration License"). In addition, government of Cyprus has not yet approved the development plan and the application for a production license. To the best of the Limited Partnerships' understanding, once the exploration license expires, the exploration areas that are not included in the area of the Aphrodite reservoir will be returned, and in the interim period after the Expiry Date of the Exploration License and before receiving the production license, as described above, the license partners have the right to receive a production license in the area of the Aphrodite reservoir, upon approval of the development plan (if approved). The Aphrodite reservoir partners are working with the government of Cyprus to obtain these approvals, while negotiations are underway for the supply of natural gas to the local market in Cyprus and for the export of natural gas through the pipeline to other markets, including the Egyptian market

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

67 Notes to the Consolidated Interim Financial Statements NOTE 5: INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.) G. Review of possible restructuring by merging the Limited Partnerships On April 14, 2016, each of the board of directors of the general partners in the Limited Partnerships ("the Board of Directors") appointed a special board committee, independent of the holder of the controlling interest in the Limited Partnership ("the Committee ). The Committee, which is made up of independent directors only was authorized, among other things, to examine any issue relating to the possible merger of the Limited Partnerships ("the Merger Transaction"); to take any required action, at its sole discretion, to carry out its duties, including engaging with outside and independent professional advisors, including for the purpose of providing legal and financial advice in connection with determining the Merger Transaction price; to hold independent negotiations between the parties for the Merger Transaction, which will resemble, to the extent possible, negotiations between unaffiliated parties, all in accordance with the best interests of the limited partnership and of the participation unit holders; to formulate a merger agreement and determine its terms (if and to the extent that it deems fit); and to formulate a recommendation for the audit committee and for the board of directors of each of the limited partnerships regarding the Merger Transaction. It is noted that the Committee is authorized to decide not to perform the Merger Transaction or to stipulate conditions for its approval. The Committee was authorized to receive all of the relevant information from the Limited Partnerships, and to request any relevant information or document from the Limited Partnership or from the general partners in the Limited Partnerships. Further to discussions held by the committees with respect to the merger transaction, on August 4, 2016, the Limited Partnerships received notice from the committees. The main points of the notice are as follows: 1) The merger of the Limited Partnerships is in the best interests of each of the partnerships. 2) It was decided to recommend to the audit committee and the board of directors of the general partner in each partnership that the surviving partnership will be Delek Drilling, and Avner will be merged into Delek Drilling such that all its assets and liabilities will be transferred to Delek Drilling, Avner will be dissolved without liquidation and the holders of participation units in Avner will receive participation units in Delek Drilling. 3) It was decided that the conversion ratio that the Committee will recommend will be one participation unit of Delek Drilling per 5.32 participation units of Avner (1:5.32). On September 29, 2016 and November 22, 2016, after receiving the approvals of the audit committee and board of directors of the general partner of Delek Drilling, and subject to the approval of the general meeting of the holders of the participation shares in Delek Drilling, Delek Drilling signed a merger agreement (as amended) with Avner ("the Merger Agreement"). In accordance with the Merger Agreement, subject to fulfillment of the preconditions in the agreement, at the merger date (as described below), Avner will merge with and into Delek Drilling, in accordance with the provisions of the Partnerships Order and the Companies Law, such that all the assets and liabilities of Avner (including leases, licenses, permits, agreements, the duty to pay management fees and the duty to pay royalties) will be transferred to Delek Drilling, and as a result, Avner Partnership will be liquidated without dissolution, in accordance with the Companies Law, and will be struck off from the records of the Registrar of Partnerships, and Delek Drilling Trusts will allot the merger consideration to all holders of the participation units of Avner Partnership (as described below). On completion of the merger, the participation units of Avner Partnership will be delisted from the TASE. It is noted that concurrently, on September 29, 2016 and November 22, 2016, the Merger Agreement was approved (as amended) by the audit committee and board of directors of the general partner of Avner

68 Notes to the Consolidated Interim Financial Statements NOTE 5: INVESTMENTS IN OIL AND GAS EXPLORATION AND PRODUCTION (CONTD.) The Merger Agreement stipulates that the merger consideration will allocate to Delek Trusts, at the merger date, 626,847,903 participation units granting the right to participate in the rights of Delek Trust in Delek Drilling, for each holder of participation rights in Avner Partnership, pro-rata to their holdings in the participation units in Avner Partnership at the closing date (see below) and in accordance with the ruling under Section 103A of the Income Tax Ordinance, under which the merger will be completed without a tax liability. The Merger Agreement defines "the closing date" as the date to be agreed on by the parties and in coordination with the TASE, and when the partnerships publish an immediate report on the receipt of the merger certificate from the Registrar of Partnerships under Section 323 of the Companies Law, provided that it comes into effect within thirty (30) days from the date of the approval of the general meeting of each partnership, and fifty (50) days from the date on which the merger proposals were submitted to the Registrar of Partnerships. Completion of the merger is subject to the fulfillment of several preconditions. If all the preconditions are not fulfilled within one hundred and eighty (180) days from approval of the general meetings of the partnerships, and no later than July 31, 2017, the merger agreement will be void ab initio, and neither party will have the right or grounds for a claim. On November 10, 2016, Delek Drilling published a shelf offering memorandum for the issuance of participation units to holders of the participation units in Avner. As aforesaid, the merger transaction will be presented for approval at the general meetings of the holders of the Partnerships participation units, which are scheduled for December 22, H. Bid for participation in the rights in exploration licenses in Canada Subsequent to the balance sheet date, the Company submitted, through a wholly-owned foreign subsidiary, DKL Investments Limited, a bid for participation in the rights for maritime exploration licenses in an area east of Newfoundland Canada. On November 9, 2016, the tender results were announced, awarding the Company, through its subsidiary, the rights to the license in Block 7, covering 2,000 sq. km. at an estimated target depth of 4,500 m (the water depth is 1,400 m). The subsidiary submitted the bid together with Navitas Petroleum Limited. The Company, through its subsidiary, will hold 70% of the license rights and Navitas Petroleum Limited will hold the balance (jointly: "the Partners"). The criterion for selection of the winning bid is the total amount that the bidder committed to invest in exploration in the tender area. The Partners' bid amounted to CAD 48 million for the period (approximately USD 36 million as of the reporting date, and the Company's share is 70%). Under the tender, the Company provided guarantees of 25% of the commitment, based on the distribution of the license rights (approximately CAD 8 million). If the Partners invest money in seismic work and exploration in the block, they will be entitled to release the guarantee for up to 25% of actual investments as defined in the license, on an annual basis. In addition to the guarantee, the Partners are committed to annual payments for environmental and other works. In accordance with the tender, the license will be granted for six years, with an option for an extension of three more years. At the end of the period, the license will expire and the license areas will be returned, with the exception of areas in which a discovery is declared, if any, and a discovery or development license will be received for these areas. Within six months from the date set in the license (not yet received), the license parties are required to sign a standard joint operating agreement (JOA). In accordance with a report published by the Government of Newfoundland and Labrador, the West Orphan geological basin, which includes Block 7, has a potential for 25.5 billion barrels of oil and TCB of natural gas in place. It is clarified that the estimate is for the entire basin and not for Block 7 alone. NOTE 6: OFFICE BUILDING Further to Note 12(4) to the Annual Financial Statements, In November 2015, the Company entered into an agreement with a third party to acquire all the rights in an office and retail building in Herzliya (the building has four floors above ground, covering 11 thousand square meters, and three floors of underground parking. The consideration for the property is NIS 245 million. As of December 31, 2015, the Company paid NIS 116 million on account of the building. The transaction was completed on January 21, In the reporting period, the Company paid another NIS 149 million to a third party. The office building serves partly for use by the Company and mainly for use as investment property

69 Notes to the Consolidated Interim Financial Statements NOTE 7: DEBENTURES A) On July 28, 2016, the Company issued 410,533,000 par value Debentures (Series B32) ( the B32 Debentures ). The B32 Debentures are payable in one payment on July 10, 2019 and bear annual interest of 1.72%, payable twice a year on January 10 and July 10 of each of the years 2017 to 2019, inclusive. The B32 Debentures are unlinked. The B32 Debentures are convertible into ordinary shares of NIS 1 par value each of the Company, such that as from their listing on the TASE through to June 30, 2019, each NIS 1,280 par value B32 Debenture will be convertible into one ordinary share of NIS 1 par value of the Company, subject to adjustments for distribution of a dividend and so on. The consideration of the issuance amounted to NIS 408 million (after offsetting issuance expenses of NIS 2.5 million). According to IAS 32, Financial Instruments: Presentation, the consideration for the convertible debentures was split such that in the first stage, the value of the liability was defined, based on the value of similar liabilities without a conversion right and the proceeds attributed to the equity component was set as a residual value. The amount attributable to the equity component amounted to NIS 8.6 million and is recognized under proceeds from the conversion option. The calculated effective annual interest rate of the debenture is 2.7%. B) On July 28, 2016, the Company issued 704,626,000 par value Debentures (Series B33) ( the B33 Debentures ). The B33 Debentures are payable in one payment on January 10, 2022 and bear annual interest of 2.8%, payable twice a year on January 10 and July 10 of each of the years 2017 to 2021, inclusive, and on January 10, 2022, for the six months then ended. The B33 Debentures are unlinked. The B33 Debentures are convertible into ordinary shares of NIS 1 par value each of the Company, such that as from their listing on the TASE and up to June 10, 2019, each NIS 1,280 par value B33 Debenture will be convertible into one ordinary share of NIS 1 par value of the Company, subject to adjustments for distribution of a dividend and so on, while as from June 11, 2019 and up to December 31, 2021, each NIS 1,600 par value B33 Debenture will be convertible into one ordinary share of NIS 1 par value of the Company, subject to adjustments for distribution of a dividend and so on. The consideration of the issuance amounted to NIS 695 million (after offsetting issuance expenses of NIS 6.3 million). The consideration for the convertible debentures was split such that in the first stage, the value of the liability was defined, based on the value of similar liabilities without a conversion right and the proceeds attributed to the equity component was set as a residual value. The amount attributable to the equity component amounted to NIS 18.5 million and is recognized under proceeds from the conversion option. The calculated effective annual interest rate of the debenture is 3.6%. The deed of trust for Debentures (Series B32 and B33) established financial covenants for the Company, similar to those stipulated in Debentures (Series B31). See Note 26(C)(4) to the Annual Financial Statements. In addition, terms were stipulated, which, on their fulfillment, the Company will perform a forced conversion of the debentures

70 Notes to the Consolidated Interim Financial Statements NOTE 8: CONTINGENT LIABILITIES There are contingent claims against the Company and certain investees for significant sums, including certification for class actions (mainly against Delek Israel and The Phoenix) that might reach billions of shekels. In some cases, it is not possible to assess their outcome at this stage, and therefore no provision was recorded in the financial statements. For further information, see Note 31A to the Annual Financial Statements. Below is a description of the main changes in the reporting period: A. Delek Israel 1) In March 2016, a motion for certification as a class action suit was filed against Delek Israel at the District Labor Court in Haifa. According to the applicant, he was not paid overtime and leave pay, and his pension and social welfare rights were violated, and he claims that these are class action allegations. The applicant further alleges that the plaintiff's basic salary was reduced. The total amount of the claim is NIS 98 million. The management of Delek Israel believes, partially based on the opinion of its legal counsel, that in view of the preliminary stage of the proceedings, the outcome of the motion cannot be assessed at this stage. 2) Subsequent to the balance sheet date, in August 2016, a motion for certification as a class action was filed at the Central District Court against Delek Israel and other fuel companies. According to the applicant, the customer is charged for a larger quantity of fuel than the actual quantity pumped to his vehicle, while taking advantage of the rechargeable recovery action of the vapor recovery systems. Delek Israel's share in the total claim amounts to NIS 10 million. The management of Delek Israel believes, partially based on the opinion of its legal counsel, that in view of the preliminary stage of the proceedings, the outcome of the motion cannot be assessed at this stage. B. The Phoenix 1) Further to Note 31A(2)(b) to the Annual Financial Statements regarding the claim that was filed against The Phoenix Insurance Ltd. (The Phoenix Insurance") and other insurance companies about excessive collection of the sub-annual factor and the motion for certification as a class action. On July 19, 2016, the Tel Aviv District Court approved the motion as a class action. The Phoenix Insurance is reviewing the ruling and is considering whether to file a motion for leave to appeal at the Supreme Court. 2) Further to Note 31A(2)(g) to the Annual Financial Statements, regarding the motion for certification of a class action in respect of "the policy factor", on November 21, 2016, the Central District Court handed down a ruling in the parallel case, whereby it does not approve the settlement agreement filed for its approval by the parties, and it partially approves the motions for certification as a class action, on the grounds of breach of the insurance policy due to collection of policy factor fees, without any legal basis, in a way that impairs the savings accrued in favor of the insured party, starting seven years prior to the date the claim was filed. The group in whose name the class action will be administered includes holders of the defendants' life insurance policies combined with savings between 1992 and 2003, in which the savings accrued in their favor were impaired due to collection of the policy factor and the remedies that will be claimed are the correction of the breach by way of the cumulative saving in favor of the policy holder in the amount of the additional saving that would have been accumulated in their favor had the policy factor not been collected or compensation for the policy holder in that amount, and to cease collecting the policy factor from now onwards. The Phoenix Insurance is studying the decision in the parallel case and its implications in its respect. The parties in the case against The Phoenix Insurance are required to notify the court as to how they intend to continue to administer the process, by December 15, It is further noted that the immediate reports issued by the insurance companies in the parallel case indicate that they intend to appeal the decision of the District Court

71 Notes to the Consolidated Interim Financial Statements NOTE 8: CONTINGENT LIABILITIES (CONTD.) B. The Phoenix (contd.) In the reporting period, several additional claims were filed against The Phoenix and/or its investees and others, including a motion for certification of these claims as class actions. These claims refer to charging employees management fees for products marketed to managers by the pension arrangement administrations, charging travel insurance fees, refusal to withdraw compensation due to the employer's refusal to release them, reduction of indemnification fees and/or compensation to a third party due to motor damage of policy holders and the sale of a defective product to the policy holder, knowingly (collective long-term insurance). The plaintiffs estimated the amounts of the claims at hundreds of million NIS. At this stage, The Phoenix Insurance is studying the details of the claims, therefore it is not possible to estimate the likelihood of their certification as a class action suit, and if it approved as a class action suit, it is not possible to estimate the likelihood of their success. For further information, see also the statements of The Phoenix that are available to the public. C. Further to Note 31A(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 April 2016, an evidentiary hearing was held in the case, which concluded in the court's recommendation that the parties conduct a dialog between them in an attempt to end the dispute and render a judicial decision unnecessary by May 31, The negotiations between the parties did not result in a settlement agreement, therefore the parties submitted a joint notice to the court to schedule dates for filing summations and the court scheduled dates for filing summations. The parties are currently negotiating (on the advice of the court) to reach an agreement, however such agreement has not yet been reached. The management of the Company estimates, based partially on the opinion of its legal counsel, that in view of the stage of the proceeding, the outcome or risks of the motion cannot be assessed at this stage, therefore a provision for this motion was not included in the financial statements. D. Further to Note 31A(5) the Annual Financial Statements, as part of the motion for certification as a class action filed with the Tel Aviv District Court by a consumer of Israel Electric Corporation Ltd. ("IEC") against the Tamar partners regarding the price at which the Tamar partners sell natural gas to IEC ("the Motion for Certification"), on April 20, 2016, the Tamar partners filed a motion for summary dismissal together with a motion to order the Attorney General to consider the submission of his position on the proceedings. On May 15, 2016, the court ordered the Attorney General to consider submitting a position in the proceedings and to file it (if he wishes to do so) by June 1, 2016 and determined that the motion for dismissal will be decided on after receiving the position of the Attorney General (if submitted). The Attorney General filed his position whereby the motion for certification should be summarily dismissed. On July 7, 2016, a pretrial hearing was held for the motion to dismiss. On November 23, 2016, the motion to dismiss the motion for certification was dismissed in limine. The Limited Partnerships are reviewing their legal options and they intend to apply for leave to appeal the decision to dismiss the motion for dismissal with the Supreme Court. The Limited Partnerships believe, based on the opinion of its legal counsel, that it is unlikely that the claim will be certified as a class action

72 Notes to the Consolidated Interim Financial Statements NOTE 9: CAPITAL A. Further to Note 33 to the Annual Financial Statements, in the reporting period, Delek Financial Investments 2012 Limited Partnership ("the Subsidiary Partnership") acquired 99,126 shares of NIS 1 par value each of the Company for a total consideration of NIS 65.4 million. Subsequent to the acquisitions, the subsidiary partnership holds 637,045 Company shares of NIS 1 par value each. B. On March 30, 2016, the Company declared a dividend of NIS 100 million, which was distributed on April 21, The dividend per share is NIS and a total of NIS 5.1 million was distributed to the Subsidiary Partnership. C. On May 29, 2016, the Company declared a dividend of NIS 80 million, which was distributed on June 21, The dividend per share is NIS and a total of NIS 4.3 million was distributed to the Subsidiary Partnership. D. On August 29, 2016, the Company declared the distribution of a dividend of NIS 80 million. The dividend was paid in September The dividend per share is NIS and a total of NIS 4.3 million was distributed to the Subsidiary Partnership. E. Subsequent to the balance sheet date, the Company declared the distribution of a dividend of NIS 200 million. The dividend will be paid in December The dividend per share is NIS NOTE 10: TAXES ON INCOME Further to Note 41 to the Annual Financial Statements, on January 4, 2016, in the second and third reading, the Knesset plenum approved the bill to amend the Income Tax Ordinance (No. 217) (Reduction in Corporate Tax), 2015, which includes a reduction in the rate of corporate tax from 26.5% to 25%. The effect of the change in the tax rate resulted in a reduction of NIS 170 million in deferred tax liabilities in the Annual Financial Statements as of December 31, The effect was recognized in the Group's statement of income (the Group's share is NIS 70 million). The effect on other comprehensive income was immaterial. NOTE 11: OPERATING SEGMENTS A. General In accordance with IFRS 8, the Group s operating segments are determined on the basis of management reports, which are mainly based on the investments in each subsidiary. The operating segments are as follows: Oil and gas exploration and production: The main operation is in the Tamar joint venture, the Ratio Yam joint venture, the Yam Tethys joint venture, and other oil rights, mainly offshore the coast of Israel. Fuel in Israel: The main operation is marketing and sale of fuels and commodities at gas stations and other outlets, and storage and production of fuels in facilities. Automotive and spare parts: The main operation is importing and marketing of Mazda, Ford and BMW vehicles and spare parts, through the associate Delek Automotive. Other: The main operation is investment in infrastructure, including mainly desalination and establishment of power stations, trading in derivatives through Barak Capital and the biochemical operation that includes mainly production and marketing of fructose, citric acid and ingredients for nutritional additives. It is noted that following classification of the operating results of The Phoenix under income from discontinued operations, The Phoenix and its operations are no longer a reportable segment

73 Notes to the Consolidated Interim Financial Statements NOTE 11: OPERATING SEGMENTS (CONTD.) B. Segment reporting 1) Revenue Nine months ended September 30 Three months ended September 30 Year ended December Unaudited Audited NIS million Revenue from external sources Oil and gas exploration and production 1,358 1, ,677 Fuel in Israel 2,632 3, ,096 4,262 Other segments Inter-segment *) (19) (19) (7) (7) (24) Adjustments Total in statement of income 4,280 4,924 1,554 1,702 6,356 *) Inter-segment sales are mainly for the sale of gas to other segments. 2) Segment results Nine months ended September 30 Three months ended September 30 Year ended December Unaudited Audited NIS million Oil and gas exploration and production Fuel in Israel Other segments (2) (21) (16) (5) (9) Adjustments (33) (33) (17) (10) (42) Operating income ,

74 Notes to the Consolidated Interim Financial Statements NOTE 11: OPERATING SEGMENTS (CONTD.) B. Segment reporting (contd.) 3) Contribution to net profit (loss) from continuing operations attributable to equity holders of the Company Nine months ended September 30 Three months ended September 30 Year ended December Unaudited Audited NIS million Oil and gas exploration and production Fuel in Israel Automotive Other segments (12) (19) (22) (7) (24) Adjustments *) (179) (531) (89) (414) (530) **) Net earnings (loss) from continuing operations attributable to equity holders of the Company 210 (132) 59 (303) (75) **) *) Mainly administrative and general expenses and financing attributable to headquarter companies **) Retrospective reconciliation - see Note 3C

75 Financial Information from the Interim Consolidated Financial Statements Attributed to the Company as at September 30, 2016 Unaudited

76 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 September 30, 2016, published as part of the periodic reporting ("Special Reports"), presented in accordance with Regulation 38D of the Securities Regulations (Periodic and Immediate Reports), 1970: 2

77 Breakdown of Financial Information from the consolidated statement of financial position attributable to the Company Current assets September 30 December Unaudited Audited NIS million Cash and cash equivalents Short-term investments Customers Financial derivatives Other receivables ,707 1,373 1,517 Asset held for sale 1,730 1,681 1,682 Total current assets 3,437 3,054 3,199 Non-current assets Investments in investees and partnerships 6,559 7,765 7,038 *) Loans and capital notes to investees 1,035 1,123 1,351 Long-term loans 1, Investments in oil and gas exploration and production Office Building Property, plant and equipment, net Total non-current assets 9,078 9,048 9,407 *) 12,515 12,102 12,606 *) *) Retrospective reconciliation - see Note 2 The accompanying additional information is an integral part of the financial information and of the separate financial information. 3

78 Breakdown of Financial Information from the consolidated statement of financial position attributable to the Company Current liabilities September 30 December Unaudited Audited NIS million Current maturities of debentures Current bank borrowings and loan maturities Creditors and credit balances (particularly interest to be paid) Total current liabilities ,386 Non-current liabilities Long Term Bank Loans Loans from wholly owned subsidiary Debentures 6,182 6,183 6,171 Debentures convertible into Company shares 1, Other liabilities (primarily liability for decommission of long term assets) Non-current liabilities 7,397 6,825 6,716 Equity attributable to equity holders of the parent Share capital Share premium 1,917 1,917 1,917 Proceeds for conversion option Retained earnings 2,459 2,484 2,455 *) Adjustments from the translation of financial statements of foreign operations (50) Reserve from transactions with holders of non-controlling rights Other reserves 150 (149) 60 Treasury shares (433) (338) (368) Total capital 4,254 4,555 4,504 *) *) Retrospective reconciliation - see Note 2 12,515 12,102 12,606 *) The accompanying additional information is an integral part of the financial information and of the separate financial information. November 28, 2016 Date of approval of the financial statements Gabriel Last Asi Bartfeld Barak Mashraki Chairman of the Board of Directors CEO CFO 4

79 Breakdown of Financial Information from the consolidated statement of income attributable to the Company Nine months ended September 30 Three months ended September 30 Year ended December Unaudited NIS million Audited Revenue from overriding royalties and gas sales (net of royalties) Loss from disposal of investee, net - (2) Company's share in earnings of partnerships and investees, net *) Management fees from investees Total revenue *) Production cost for gas sold General and administrative expenses Other expenses, net Operating income *) Net financing income with respect to loans to investees and others Financing income (expenses) (mainly for financial investments), net 8 (233) 14 (329) (238) Financing expenses (mainly with respect to debentures) (298) (321) (112) (121) (407) Pre-tax income 211 (130) 59 (302) (72) *) Taxes on income Gain (loss) from continuing operations 210 (132) 59 (303) (75) *) Income from discontinued operations, net Net profit (loss) attributed to Company shareholders 250 (29) 85 (261) 25 *) *) Retrospective reconciliation - see Note 2 The accompanying additional information is an integral part of the financial information and of the separate financial information.. 5

80 Breakdown of Financial Information from the consolidated statement of comprehensive income attributable to the Company Nine months ended September 30 Three months ended September 30 Year ended December Unaudited NIS million Audited Net profit (loss) attributed to Company shareholders 250 (29) 85 (261) 25 *) Other comprehensive income (loss) Amounts not reclassified to profit and loss Other comprehensive income attributable to investees and partnerships (net of tax effect) Total Amounts classified or reclassified to profit and loss under specific conditions: Gain (loss) for available-for-sale financial assets, net 29 (323) 19 (180) (283) Transfer to the statement of income for disposal of available-for-sale financial assets (28) (4) (7) - 1 Transfer to the statement of income for impairment of available-for-sale financial assets Adjustments for translation of financial statements of foreign operations (10) 1 (6) 2 - Other comprehensive income (loss) attributable to investees and partnerships (after effect of (200) (11) (119) 217 (56) Total (168) (1) (113) Total other comprehensive income (loss) from continuing operations (168) - (113) Other comprehensive income (loss) from discontinued operations (net of tax effect): 38 (20) 1 (11) (13) Total other comprehensive income (loss) (130) (20) (112) 364 (12) Total comprehensive income attributed to Company shareholders 120 (49) (27) *) *) Retrospective reconciliation - see Note 2 The accompanying additional information is an integral part of the financial information and of the separate financial information. 6

81 Financial Information from the consolidated statements of cash flows attributable to the Company Cash flows from the Company's operating activities Nine months ended September 30 Three months ended September 30 Year ended December Unaudited NIS million Audited Net profit (loss) attributed to Company shareholders 250 (29) 85 (261) 25 *) Adjustments to reconcile statement of cash flows from the Company's continuing operating activities (a): (383) 18 (150) 324 (42) *) Net cash from (used for) continuing operations (133) (11) (65) 63 (17) Cash flows from the Company's investment activities Acquisition of office building (149) - (5) - (118) Receipts for leasing of oil and gas assets Proceeds from sale and reimbursements of investments in investees Investments in investees and partnerships - (157) - (157) (157) Short-term investments, net (171) (7) (207) (2) (5) Investment in available-for-sale financial assets - (293) - (82) (293) Proceeds from disposal of financial assets Collection of loans for others, net Provision of loans and capital investments of investees, net (139) (263) (4) (33) (652) Net cash used for the Company's discontinued investing activities (43) (508) (105) (264) (879) Cash flows from the Company's financing activities Dividend paid to shareholders of the Company (260) (420) (80) (120) (500) Receipt of loans from investees, net Short term credit from banks and others, net (485) (525) (222) - (40) Issue of debentures (less issuance expenses) 1, ,103-1,496 Issuance expenses for debenture exchange - (4) Repayment of long-term loans from banks and debentures (41) (175) (41) (175) (690) Net cash from (used for) the Company's financing operations 317 (51) 760 (3) 514 Increase (decrease) in cash and cash equivalents 141 (570) 590 (204) (382) Cash and cash equivalents at the beginning of the period: Cash balance and cash equivalents at end of period *) Retrospective reconciliation - see Note 2 The accompanying additional information is an integral part of the financial information and of the separate financial information. 7

82 Financial Information from the consolidated statements of cash flows attributable to the Company (A) Adjustments to reconcile statement of cash flows from the Company's continuing operating activities: Nine months ended September 30 Three months ended September 30 Year ended December Unaudited NIS thousands Audited Adjustments for profit and loss items of the Company: Depreciation, depletion and amortization Loss from disposal of investment in an investee Increase in value of investments and loans provided, net (92) (57) (13) (26) (96) Company's share in the expenses of subsidiaries*) (324) (288) (150) (68) (276) **) Cost of share-based payment (1) (1) - (2) (2) Impairment of liabilities, net (4) Change in fair value of short-term investments, net (8) Change in fair value of financial derivatives, net (18) (18) (16) 31 1 Impairment of available-for-sale financial assets Losses (earnings) from disposal of investment in available-for-sale financial assets (28) (4) (7) - 1 Changes in the Company's asset and liability items: Decrease (increase) in other receivables (3) (26) Increase (decrease) in other accounts payable (357) 18 (150) 324 (42) **) Net of dividends received (B) Company's significant non-cash activities Dividend received against repayment of a loan provided to an investee Expenses payable with regard to purchase tax Dividend receivable from investees and partnerships Receipt of a sellers' loan due to liquidation of an investee Loan received as dividend in kind from an investee Acquisition of treasury shares by a subsidiary (C) Additional information on cash flows Cash paid by the Company during the period for: Interest Cash received by the Company during the period for: Interest Dividends *) Retrospective reconciliation - see Note 2 The accompanying additional information is an integral part of the financial information and of the separate financial information. 8

83 Additional Information NOTE 1 GENERAL This separate financial information was drafted in a condensed format pursuant to the provisions of regulation 38(d) of the Securities Regulations (Periodic and Immediate Reports), This separate financial information should be reviewed in relation to the separate financial information to the annual financial statements as at December 31, 2015, and for the year then ended and their accompanying notes ("Annual Financial Statements"), and in relation to the consolidated interim financial statements as at September 30, 2016 ("Consolidated Interim Statements". NOTE 2 RETROSPECTIVE RECONCILIATION OF COMPARATIVE INFORMATION As set out in Note 14M to the Annual Financial Statements, in October 2015 the Company acquired (by way of allotment) 19.99% of the issued and paid up share capital of Ithaca Energy Inc. ("Ithaca"). In the third quarter of 2016 the Company completed, through an external independent appraiser, attribution of the purchase consideration to Ithaca's assets and liabilities. Due to completing attribution of the purchase consideration, the Company updated the Ithaca part of the financial results for the fourth quarter of 2015, which amounted to a profit of USD 4.6 million. The effect of the update is included by way of retrospective reconciliation of the Company's financial results for For further information see Note 3C to the consolidated annual financial statements. NOTE 3 OFFICE BUILDING With regard to the acquisition of full rights in an office and commercial building in Herzliya, see Note 6 to the Consolidated Interim Statements. NOTE 4 DEBENTURES CONVERTIBLE TO SHARES OF THE COMPANY With regard to the issue of debentures convertible for Company shares see Note 7 to the consolidated interim financial statements. NOTE 5 CONTINGENT LIABILITIES There are certain contingent claims against the Company and certain investees for significant sums, including petitions to grant class actions, that might reach several billion shekels. In some cases, it is not possible to assess their outcome at this stage, and therefore no provision was recorded in the financial statements as set forth in Note 8 to the consolidated interim financial statements. NOTE 6 CAPITAL With regard to the Company's distribution of dividends and acquisition of Company shares by Delek Financial Investments Limited Partnership, which is wholly owned by the Company, see Note 9 to the consolidated interim financial statements

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