Africa Israel Investments Ltd. Consolidated Financial Statements At December 31, 2015 Africa Israel Investments Ltd. Consolidated Financial Statements At December 31, 2015 Contents Page Auditors‟ Reports 2 – 3 Consolidated Statements of Financial Position 4 – 5 Consolidated Statements of Income 6 Consolidated Statements of Comprehensive Income 7 Consolidated Statements of Changes in Shareholders‟ Equity 8 – 10 Consolidated Statements of Cash Flows 11 – 12 Notes to the Financial Statements 13 – 270 Appendix – List of Group Companies 271 – 280 Report of the Auditors to the Shareholders of Africa Israel Investments Ltd. regarding Audit of Internal Control Components over Financial Reporting In accordance with Section 9B(c) of the Securities Regulations (Periodic and Immediate Reports), 1970 We have audited internal control components over financial reporting of Africa Israel Investments Ltd. and its subsidiaries (hereinafter – “the Company”) as at December 31, 2015. These internal control components were determined as explained in the following paragraph. The Company‟s Board of Directors and Management are responsible for maintenance of effective internal control over financial reporting and for their evaluation of the effectiveness of internal control components over financial reporting attached to the Periodic Report for the above-mentioned date. Our responsibility is to express an opinion on internal control components over the Company‟s financial reporting based on our audit. Internal control components over financial reporting audited by us were determined in accordance with Audit Standard 104 of the Institute of Certified Public Accountants in Israel “Audit of Internal Control over Financial Reporting” (hereinafter – “Audit Standard 104”). These components are: (1) controls at the level of the organization, including controls over the preparation and closing process of financial reporting and general controls of information systems; (2) controls over investments in investee companies; (3) controls over investment property and investment property under construction; (4) controls over inventory of land and buildings held for sale; (5) controls over other inventory; (6) controls over sales and trade receivables; and (7) controls over management and control of projects in process (all of these will be referred to hereinafter as – “the Audited Control Components”). We conducted our audit in accordance with Audit Standard 104. Pursuant to this Standard we are required to plan and perform the audit with the goal of identifying the Audited Control Components and to obtain a reasonable level of certainty whether these control components were effectively maintained in all material respects. Our audit included gaining an understanding of the internal control over financial reporting, identification of the Audited Control Components, evaluation of the risk that a significant weakness exists in the Audited Control Components, and examination and evaluation of the effectiveness of the planning and operation of those control components based on the assessed risk. Our audit, with respect to those control components, also included performance of other procedures such as those we considered necessary under the circumstances. Our audit referred solely to the Audited Control Components, as opposed to internal control over the overall significant processes in connection with the financial reporting and, therefore, our opinion relates solely to the Audited Control Components. In addition, our audit did not refer to reciprocal impacts between the Audited Control Components and those not audited and, therefore, our opinion does not take into account these possible impacts. We believe our audit provides a reasonable basis for our opinion in the context described above. Due to built-in limitations, internal control over financial reporting, in general, and components thereof, in particular, may not prevent or discover a material misrepresentation. In addition, reaching conclusions with respect to the future on the basis of evaluation of any present effectiveness whatsoever is exposed to risk that the controls will become inappropriate due to changes in circumstances or the extent of compliance with the policies or the procedures will change for the worse. In our opinion, the Company effectively maintained, in all material respects, the Audited Control Components as at December 31, 2015. We have also audited, in accordance with generally accepted auditing standards in Israel, the Company‟s consolidated financial statements as at December 31, 2015 and 2014 and for each of the three years the last one of which ended on December 31, 2015 and our report, dated March 28, 2016, included an unqualified opinion on those financial statements, based on our audits and the reports of the other auditors, as well as a direction of attention, as stated below: A. That stated in Note 1B to the financial statements regarding the Company‟s financial position in light of the situation of the Russian economy and the impacts thereof on the Company‟s activities. There is uncertainty regarding the Company‟s ability to orderly and/or timely execute its business plans in connection with obtaining the cash it needs for payment of its liabilities. These plans include, among other things, selling real-estate assets, realizing investments in investee companies and receiving dividends, which do not depend solely on the Company and require obtaining consents of third parties. These factors, together with a negative net asset value in a significant amount (based on the present market values of the Company‟s marketable holdings plus the book value of its other assets and less its liabilities) along with additional factors detailed in the above-mentioned Note, raise significant doubts the continued existence of the Company as a “going concern”. In the financial statements, no adjustments were made with respect to the value of the assets and liabilities and the classification thereof, which may be required if the Company is not able to continue operating as a “going concern”. B. That stated in Note 2F to the financial statements regarding correction of an error found in the subsidiary, Africa Israel Industries Ltd., as a result of which the Company restated its financial statements as at December 31, 2014, 2013 and 2012 and for each of the years ended on those dates, in order to retroactively reflect therein the impact of the correction of the said error. Somekh Chaikin Breitman Almagor Zohar & Co. Certified Public Accountants (Isr.) Certified Public Accountants (Isr.) March 28, 2016 2 Auditors‟ Report to the Shareholders of Africa Israel Investments Ltd. We have audited the accompanying consolidated statements of financial position of Africa Israel Investments Ltd. (hereinafter – “the Company”) as at December 31, 2015 and 2014, and the consolidated statements of income, comprehensive income, changes in shareholders‟ equity, and cash flows for each of the three years in the period ended on December 31, 2015. These financial statements are the responsibility of the Company‟s Board of Directors and of its Management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of consolidated subsidiaries and joint ventures, whose assets constitute about 1% and about 2% of the total consolidated assets as at December 31, 2015 and 2014 respectively, and whose revenues constitute about 1%, about 3% and about 3% of the total consolidated revenues for the years ended on December 31, 2015, 2014 and 2013, respectively. In addition, we did not audit the financial statements of investee companies and jointly controlled entities accounted for using the equity method of accounting, the investment in which totaled about NIS 7,194 thousand and about NIS 135,308 thousand, as at December 31, 2015 and 2014, respectively, and the Group‟s share in their income (losses) was about NIS 23,234 thousand, about NIS 8,062 thousand and about NIS (22,090) thousand for the years ended December 31, 2015, 2014 and 2013, respectively. The financial statements of those companies were audited by other auditors, whose reports thereon were furnished to us, and our opinion, insofar as it relates to amounts included in respect of those companies, is based on the reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards in Israel, including standards prescribed by the Auditors‟ Regulations (Manner of Auditor‟s Performance), 1973. Such standards require that we plan and perform the audits in order to obtain reasonable assurance that the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Company‟s Board of Directors and by its Management, as well as evaluating the overall financial-statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and on the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of the Company and its subsidiaries as at December 31, 2015 and 2014, and the results of their operations, the changes in the shareholders‟ equity and their cash flows, for each