PMdesigners LTD. OIL COMPANY PAZ 2018 Annual Report .... PAZ OIL COMPANY PAZ OIL COMPANY LTD. Euro Park, Holland Building 2018 Annual Report Yakum 6097200, Israel www.paz.co.il WorldReginfo - a24960f5-0d54-4505-b315-b464a838fbc6 PAZ OIL COMPANY LTD. 2018 Annual Report WorldReginfo - a24960f5-0d54-4505-b315-b464a838fbc6 Disclaimer This document is a convenience translation from the Hebrew original of the separate financial data dated December 31, 2018 (the "Statements") issued by Paz Oil Company Ltd. (the "Company"). Only the Hebrew original of the Statements is legally binding. No reliance may by placed for any purpose whatsoever on the completeness, accuracy or fairness of information contained in this document. No warranty or representation, express or implied, is made or given by or on behalf of the Company or any of its directors, officers or employees or any other person as to the accuracy, completeness or fairness of the information contained in this document and no responsibility or liability is accepted by any person for such information. WorldReginfo - a24960f5-0d54-4505-b315-b464a838fbc6 PAZ OIL COMPANY LTD. Table of Contents A. Description of the Company’s Business B. Report of the Board of Directors on the State of Affairs of the Corporation C. Consolidated Financial Statements D. Additional Details about the Company E. Separate Financial Data as of December 31, 2018 WorldReginfo - a24960f5-0d54-4505-b315-b464a838fbc6 A. Description of the Company’s Business WorldReginfo - a24960f5-0d54-4505-b315-b464a838fbc6 Chapter A - Description of the Company's Business Description of the Company's Business – Contents Part One: Description of the General Development of the Company's Business ........................................................ 6 1.1. The Company's Activity and Description of its Business Development ............................................................ 6 1.2. The Company's Areas of Activity .................................................................................................................... 15 1.3. Investments in the Company's Capital and Transactions in its Shares ............................................................. 16 1.4. Distribution of Dividends ................................................................................................................................ 17 Part Two: Other Information ........................................................................................................................................ 19 2.1 Financial Information regarding the Company's Operating Segments ............................................................ 19 2.2 General Environment and Effect of External Factors on the Company's Activity ........................................... 22 Part Three: The Retail and Wholesale Division ........................................................................................................... 37 3.1 The Structure of the Division and Changes therein ......................................................................................... 37 3.2 Products and Services in the Division.............................................................................................................. 57 3.3 Breakdown of Income and Profits from Products and Services in the Division .............................................. 60 3.4 New Products in the Division .......................................................................................................................... 61 3.5 Customers of the Division ............................................................................................................................... 61 3.6 Marketing and Distribution in the Division ..................................................................................................... 66 3.7 Order Backlog in the Division ......................................................................................................................... 68 3.8 Competition in the Division ............................................................................................................................. 69 3.9 Seasonal Factors in the Division ...................................................................................................................... 73 3.10 Production Capacity in the Division ................................................................................................................ 73 3.11 Fixed Assets, Land and Installations in the Division ....................................................................................... 73 3.12 Research and Development in the Division ..................................................................................................... 74 3.13 Intangible Assets in the Division ..................................................................................................................... 74 3.14 Human Capital in the Division ........................................................................................................................ 75 3.15 Raw Materials and Suppliers in the Division ................................................................................................... 75 3.16 Investments in the Division ............................................................................................................................. 76 3.17 Environmental Risks in the Division and Methods of Managing them ........................................................... 77 3.18 Restrictions and Supervision of the Company's Activity in the Division ........................................................ 85 3.19 Significant Agreements in the Division ......................................................................................................... 102 3.20 Collaboration Agreements in the Division ..................................................................................................... 103 Part Four: The Industries and Services Division ....................................................................................................... 104 4.1 The Structure of the Division and the Changes therein ................................................................................. 104 4.2 Products and Services in the Division............................................................................................................ 112 4.3 Breakdown of Income and Profits from Products and Services in the Division ............................................ 113 4.4 New Products in the Division ........................................................................................................................ 114 4.5 Customers of the Division ............................................................................................................................. 114 4.6 Marketing and Distribution in the Division ................................................................................................... 116 4.7 Order Backlog in the Division ....................................................................................................................... 117 4.8 Competition in the Division ........................................................................................................................... 118 4.9 Seasonal Factors in the Division .................................................................................................................... 119 4.10 Production Capacity in the Division .............................................................................................................. 120 4.11 Fixed Assets, Land and Installations in the Division ..................................................................................... 120 4.12 Research and Development in the Division ................................................................................................... 125 4.13 Intangible Assets in the Division ................................................................................................................... 125 4.14 Human Capital in the Division ...................................................................................................................... 126 4.15 Raw Materials and Suppliers in the Division ................................................................................................. 126 A-1 WorldReginfo - a24960f5-0d54-4505-b315-b464a838fbc6 Chapter A - Description of the Company's Business 4.16 Investments in the Division ........................................................................................................................... 129 4.17 Environmental Protection in the Division Environmental Risks and Ways of Managing them .................... 129 4.18 Restrictions and Supervision of the Company's Activity in the Division ...................................................... 134 4.19 Significant Agreements in the Division ......................................................................................................... 145 Part Five: The Refining and Logistics Division .......................................................................................................... 147 5.1 The Structure of the Division and the Changes therein ................................................................................. 147 5.2 Products and Services in the Division............................................................................................................ 153 5.3 Breakdown of