FOX-WIZEL LTD. PERIODIC REPORT FOR 2018 Index Chapter A - Description of the Corporation's Business Chapter B - Board of Directors' Report on the State of the Corporation's Affairs Chapter C - Financial Statements as of December 31, 2018 and the Corporation's Separate Financial Information Chapter D - Additional Information on the Corporation Chapter E - Corporate Governance Questionnaire Chapter F - Report on the Effectiveness of Internal Control over Financial Reporting and Disclosure INDEX CHAPTER A - DESCRIPTION OF THE GROUP'S BUSINESS .......................................................................... - 3 - 1. Description of the general development of the Group's business ..................................................................... - 3 - 1.1 The Group's activities and description of its business development ................................................. - 3 - 1.2 The operating segments ......................................................................................................................... - 3 - 1.2.1 The operating segment of fashion and home fashion ...................................................................... - 3 - 1.2.2 The operating segment of aromatic bath and body care products ................................................... - 6 - 1.2.3 The Company has other activities that do not constitute a reportable segment as follows.............. - 6 - 1.3 Investments in the Company's equity and share transactions ......................................................... - 11 - 1.4 Dividend distribution ........................................................................................................................... - 11 - 1.4.1 Distribution of dividends in 2018 and 2017 .................................................................................. - 11 - 1.4.2 Dividend distribution policy.......................................................................................................... - 11 - 2. Other information......................................................................................................................................... - 12 - 2.1 Financial information regarding the Group's operating segments ................................................. - 12 - 2.2 The economic environment and the effect of external factors on the Group's operations ............ - 13 - 2.2.1 General overview .......................................................................................................................... - 13 - 2.2.2 The political-security situation ...................................................................................................... - 13 - 2.2.3 Political and economic changes in China and Southeast Asian countries ..................................... - 13 - 2.2.4 The market's position and changes in the standard of living ......................................................... - 14 - 2.2.5 The competition in the fashion industry ........................................................................................ - 14 - 2.2.6 Change in customs duty and tax rates in Israel ............................................................................. - 15 - 2.2.7 Employment terms ........................................................................................................................ - 15 - 2.2.8 Costs of commodities .................................................................................................................... - 15 - 2.2.9 Shutdown of seaports .................................................................................................................... - 16 - 2.2.10 Foreign currency exchange rate fluctuations ................................................................................. - 16 - 2.2.11 Changes in interest and the CPI .................................................................................................... - 16 - 3. Description of the Group's business in its operating segment .................................................................. - 17 - 3.1 The fashion and home fashion operating segment ............................................................................ - 17 - 3.1.1 General information - the fashion and home fashion segment ...................................................... - 17 - 3.1.2 Products ......................................................................................................................................... - 20 - 3.1.3 Segmentation of revenues and product profitability ..................................................................... - 21 - 3.1.4 Customers ..................................................................................................................................... - 24 - 3.1.5 Marketing and distribution ............................................................................................................ - 24 - 3.1.6 Order backlog ................................................................................................................................ - 26 - 3.1.7 Competition ................................................................................................................................... - 27 - 3.1.8 Seasonality .................................................................................................................................... - 27 - 3.1.9 Production capacity ....................................................................................................................... - 29 - 3.1.10 Quality control .............................................................................................................................. - 29 - 3.1.11 Fixed assets and facilities .............................................................................................................. - 29 - 3.1.12 Intangible assets ............................................................................................................................ - 33 - 3.1.13 Suppliers ....................................................................................................................................... - 34 - 3.1.14 Working capital ............................................................................................................................. - 35 - - 1 - 3.1.15 Limitations and supervision in the operating segment .................................................................. - 37 - 3.1.16 Condensed results of the operating segment ................................................................................. - 39 - 3.2 The aromatic bath and body care products operating segment ...................................................... - 40 - 3.2.1 General information - the aromatic bath and body care products segment ................................... - 40 - 3.2.2 Products ......................................................................................................................................... - 42 - 3.2.3 Segmentation of revenues and product profitability ..................................................................... - 43 - 3.2.4 Customers ..................................................................................................................................... - 44 - 3.2.5 Marketing and distribution ............................................................................................................ - 44 - 3.2.6 Order backlog ................................................................................................................................ - 49 - 3.2.7 Competition ................................................................................................................................... - 49 - 3.2.8 Seasonality .................................................................................................................................... - 50 - 3.2.9 Production capacity ....................................................................................................................... - 51 - 3.2.10 Quality control .............................................................................................................................. - 51 - 3.2.11 Fixed assets and facilities .............................................................................................................. - 51 - 3.2.12 Intangible assets ............................................................................................................................ - 54 - 3.2.13 Suppliers ....................................................................................................................................... - 54 - 3.2.14 Working capital ............................................................................................................................. - 55 - 3.2.15 Limitations on and supervision of Laline's activities and products ............................................... - 57 - 3.2.16 Collaboration agreements .............................................................................................................. - 58 - 3.2.17 Condensed results of the operating segment ................................................................................. - 58 - 3.3 Additional information regarding the entire Group's activities ...................................................... - 59 - 3.3.1 Human capital ..............................................................................................................................