FOX-WIZEL LTD. INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 2017 UNAUDITED INDEX. Review of Interim Consolidated Financial Statements 38

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FOX-WIZEL LTD.

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

AS OF JUNE 30, 2017

UNAUDITED

INDEX

Page

Review of Interim Consolidated Financial Statements 38

Consolidated Statements of Financial Position 39 - 40

Consolidated Statements of Profit or Loss 41

Consolidated Statements of Comprehensive Income 42

Consolidated Statements of Changes in Equity 43 - 45

Consolidated Statements of Cash Flows 46 - 47

Notes to Interim Consolidated Financial Statements 48 - 58

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Auditors' review report to the shareholders of Fox-Wizel Ltd. Introduction

We have reviewed the accompanying financial information of Fox-Wizel Ltd. and subsidiaries ("the Group"), which comprises the condensed consolidated statement of financial position as of June 30, 2017 and the related condensed consolidated statements of profit or loss, other comprehensive income, changes in equity and cash flows for the periods of six and three months then ended. The Company's board of directors and management are responsible for the preparation and presentation of interim financial information for these periods in accordance with IAS 34, "Interim Financial Reporting" and are responsible for the preparation of this interim financial information in accordance with Chapter D of the Securities Regulations (Periodic and Immediate Reports), 1970. Our responsibility is to express a conclusion on this interim financial information based on our review.

We did not review the condensed interim financial information of subsidiaries, whose assets constitute approximately 0.18% of total consolidated assets as of June 30, 2017 and whose revenues constitute approximately 0% of total consolidated revenues for the periods of six and three months then ended, respectively. Furthermore, we did not review the condensed interim financial information of companies that are accounted for at equity the investment in which amounted to approximately NIS 59,775 thousand as of June 30, 2017 and the Group's share of their earnings amounted to approximately NIS 2,298 thousand and NIS 2,941 thousand for the periods of six and three months then ended, respectively. The condensed interim financial information of those companies was reviewed by other auditors, whose review reports have been furnished to us, and our conclusion, insofar as it relates to the financial information in respect of those companies, is based on the review reports of the other auditors.

Scope of review

We conducted our review in accordance with Review Standard 1 of the Institute of Certified Public Accountants in Israel, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity." A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards in Israel and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion

Based on our review and the review reports of other auditors, nothing has come to our attention that causes us to believe that the accompanying interim financial information is not prepared, in all material respects, in accordance with IAS 34.

In addition to the abovementioned, based on our review and the review reports of other auditors, nothing has come to our attention that causes us to believe that the accompanying interim financial information does not comply, in all material respects, with the disclosure requirements of Chapter D of the Securities Regulations (Periodic and Immediate Reports), 1970.

Tel-Aviv, Israel KOST FORER GABBAY & KASIERER

August 17, 2017 A Member of Ernst & Young Global

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CONSOLIDATED STATEMENTS OF FINANCIAL POSITION June 30, December 31, 2017 2016 2016 Unaudited Audited NIS in thousands ASSETS CURRENT ASSETS:

Cash and cash equivalents 209,070 118,304 151,083

Short-term investments 176,831 158,038 154,262

Current maturity of securities measured at amortized

cost 20,335 4,889 21,747

Trade receivables 116,125 105,806 133,465

Other accounts receivable 62,308 74,563 37,067

Inventories 300,048 313,089 330,713

884,717 774,689 828,337

NON-CURRENT ASSETS:

Securities measured at amortized cost 28,796 48,318 30,002

Investments in companies accounted for at equity 172,796 174,746 168,859

Property, plant and equipment 261,712 252,823 251,502

Store removal fees 19,410 18,644 18,295

Other intangible assets 15,492 16,265 15,754

Goodwill 15,504 15,504 15,504

Deferred taxes 9,275 7,130 6,963

522,984 533,430 506,879

1,407,701 1,308,119 1,335,216

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CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

June 30, December 31,

2017 2016 2016

Unaudited Audited

NIS in thousands LIABILITIES AND EQUITY

CURRENT LIABILITIES:

Credit from banks 114,439 51,855 79,688

Trade payables 124,554 137,906 106,089

Other accounts payable 164,057 116,564 145,491

403,050 306,325 331,268

NON-CURRENT LIABILITIES:

Loans from banks 401,067 424,171 381,244

Employee benefit liabilities, net 7,136 8,279 7,076

Deferred taxes 4,970 5,632 5,115

413,173 438,082 393,435

EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY:

Share capital 139 139 139

Share premium 189,351 189,351 189,351

Reserve for transaction with controlling shareholder 786 786 786

Reserve for share-based payment transactions 1,232 775 775

Retained earnings 397,255 370,251 416,704

Foreign currency translation reserve 1,007 1,451 1,346

589,770 562,753 609,101

Non-controlling interests 1,708 959 1,412

Total equity 591,478 563,712 610,513

1,407,701 1,308,119 1,335,216

The accompanying notes are an integral part of the interim consolidated financial statements.

August 17, 2017

Date of approval of the Abraham Zaldman Harel Wizel Shahar Renia

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CONSOLIDATED STATEMENTS OF PROFIT OR LOSS

Six months ended June 30,

Three months ended June 30,

Year ended December 31,

2017 2016 2017 2016 2016

Unaudited Audited

NIS in thousands (except per share data) Revenues from sales and rendering of

services 736,681 680,940 387,261 371,802 1,463,611

Cost of sales 321,566 299,384 146,946 144,647 630,683

Gross profit 415,115 381,556 240,315 227,155 832,928

Selling and marketing expenses 375,023 346,759 195,321 179,018 725,985 General and administrative expenses 7,760 7,400 4,329 3,778 16,186

Other expenses (income) (641) - 86 - (21)

Group's share of earnings of companies

accounted for at equity, net 5,395 2,972 5,953 3,873 4,758

Operating income 38,368 30,369 46,532 48,232 95,536

Finance income 3,665 4,810 1,525 8,002 6,724

Finance expenses (25,973) (7,968) (8,936) (3,293) (15,296)

Income before taxes on income 16,060 27,211 39,121 52,941 86,964

Taxes on income 2,544 6,310 7,754 12,425 20,932

Net income 13,516 20,901 31,367 40,516 66,032

Attributable to:

Equity holders of the Company 13,223 20,664 31,215 40,377 65,346

Non-controlling interests 293 237 152 139 686

13,516 20,901 31,367 40,516 66,032

Basic net earnings per share (in NIS) 0.98 1.53 2.32 3.00 4.85 Diluted net earnings per share (in NIS) 0.98 1.53 2.31 2.99 4.84

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three months ended June 30, Year ended December 31, 2017 2016 2017 2016 2016 Unaudited Audited NIS in thousands Net income 13,516 20,901 31,367 40,516 66,032

Other comprehensive income (loss) (net of tax effect):

Items not to be reclassified to profit or loss in subsequent periods:

Actuarial gain on defined benefit plans - - - - 1,850

Group's share of net other comprehensive loss of companies accounted for at

equity - - - - (75)

Items to be reclassified to profit or loss when specific conditions are met: Adjustments arising from translating

financial statements of foreign operation (152) (181) (67) (65) (286) Group's share of net other comprehensive

income (loss) of companies accounted

for at equity (187) 3 (83) 180 3

Total other comprehensive income (loss) (339) (178) (150) 115 1,492 Total comprehensive income 13,177 20,723 31,217 40,631 67,524 Attributable to:

Equity holders of the Company 12,884 20,486 31,065 40,492 66,834

Non-controlling interests 293 237 152 139 690

13,177 20,723 31,217 40,631 67,524

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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Share capital Share premium Reserve for transaction with controlling shareholder Reserve for share-based payment transactions Retained earnings Foreign currency translation reserve Total Non-controlling interests Total equity Unaudited NIS in thousands Balance at January 1, 2017 (audited) 139 189,351 786 775 416,704 1,346 609,101 1,412 610,513 Net income - - - - 13,223 - 13,223 293 13,516

Other comprehensive loss - - - (339) (339) - (339)

Total comprehensive

income (loss) - - - - 13,223 (339) 12,884 293 13,177

Non-controlling interests in newly consolidated

partnership (see Note 5d) - - - 3 3

Cost of share-based payment - - - 457 - - 457 - 457 Dividend paid - - - - (32,672) - (32,672) - (32,672) Balance at June 30, 2017 139 189,351 786 1,232 397,255 1,007 589,770 1,708 591,478 Share capital Share premium Reserve for transaction with controlling shareholder Reserve for share-based payment transactions Retained earnings Foreign currency translation reserve Total Non-controlling interests Total equity Unaudited NIS in thousands Balance at January 1, 2016 (audited) 139 189,351 786 775 368,605 1,629 561,285 722 562,007 Net income - - - - 20,664 - 20,664 237 20,901

Total comprehensive

income (loss) - - - - 20,664 (178) 20,486 237 20,723

Dividend paid - - - - (19,018) - (19,018) - (19,018)

Balance at June 30, 2016 139 189,351 786 775 370,251 1,451 562,753 959 563,712

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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Share capital Share premium Reserve for transaction with controlling shareholder Reserve for share-based payment transactions Retained earnings Foreign currency translation reserve Total Non-controlling interests Total equity Unaudited NIS in thousands Balance at April 1, 2017 139 189,351 786 775 366,040 1,157 558,248 1,553 559,801 Net income - - - - 31,215 - 31,215 152 31,367

Total comprehensive

income (loss) - - - - 31,215 (150) 31,065 152 31,217

Non-controlling interests in newly consolidated

partnership (see Note 5d) - - - 3 3

Cost of share-based payment - - - 457 - - 457 - 457 Balance at June 30, 2017 139 189,351 786 1,232 397,255 1,007 589,770 1,708 591,478 Share capital Share premium Reserve for transaction with controlling shareholder Reserve for share-based payment transactions Retained earnings Foreign currency translation reserve Total Non-controlling interests Total equity Unaudited NIS in thousands Balance at April 1, 2016 139 189,351 786 775 329,874 1,336 522,261 820 523,081 Net income - - - - 40,377 - 40,377 139 40,516 Other comprehensive income - - - 115 115 - 115 Total comprehensive income - - - - 40,377 115 40,492 139 40,631 Balance at June 30, 2016 139 189,351 786 775 370,251 1,451 562,753 959 563,712

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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Share capital Share premium Reserve for transaction with controlling shareholder Reserve for share-based payment transactions Retained earnings Foreign currency translation reserve Total Non-controlling interests Total equity Audited NIS in thousands Balance at January 1, 2016 139 189,351 786 775 368,605 1,629 561,285 722 562,007 Net income - - - - 65,346 - 65,346 686 66,032 Other comprehensive income (loss) - - - - 1,771 (283) 1,488 4 1,492 Total comprehensive income (loss) - - - - 67,117 (283) 66,834 690 67,524 Dividend paid - - - - (19,018) - (19,018) - (19,018) Balance at December 31, 2016 139 189,351 786 775 416,704 1,346 609,101 1,412 610,513

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CONSOLIDATED STATEMENTS OF CASH FLOWS

Three months ended June 30, Year ended December 31, 2017 2016 2017 2016 2016 Unaudited Audited NIS in thousands

Cash flows from operating activities:

Net income 13,516 20,901 31,367 40,516 66,032

Adjustments to reconcile net income to net cash provided by operating activities:

Adjustments to the profit or loss items:

Depreciation of property, plant and

equipment 22,662 20,121 12,760 10,473 42,112

Interest expenses, net 1,817 1,753 836 1,430 4,004

Amortization of intangible assets 2,727 2,942 1,144 1,595 5,588

Loss (gain) from sale of property,

plant and equipment 53 - (10) - 14

Revaluation of liabilities to banks and

other long-term liabilities (63) (10) (69) 15 (12)

Group's share of earnings of companies accounted for at equity,

net (5,395) (2,972) (5,953) (3,873) (4,758)

Taxes on income 2,544 6,310 7,754 12,425 20,932

Change in employee benefit liabilities,

net 61 119 61 63 1,140

Decrease (increase) in value of securities measured at fair value

through profit or loss 1,376 (1,087) 88 (1,518) 330

Revaluation of securities measured at

amortized cost 96 120 50 59 179

Cost of share-based payment 457 - 457 - -

Loss (gain) from forward transactions 14,262 5,422 1,796 (5,087) 8,620

40,597 32,718 18,914 15,582 78,149

Changes in asset and liability items: Decrease (increase) in trade

receivables 17,291 29,527 8,537 (18,836) 1,868

Decrease (increase) in other accounts

receivable (16,331) (24,311) (1,889) (22,629) 12,632

Decrease (increase) in inventories 30,665 (16,822) 24,098 12,179 (34,446)

Increase in trade payable 16,698 33,312 10,031 15,234 1,524

Increase (decrease) in other accounts

payable 2,830 26,982 (15,927) 32,289 52,425

51,153 48,688 24,850 18,237 34,003

Cash paid and received during the period for: Interest paid (4,815) (4,620) (2,366) (2,822) (9,481) Interest received 3,574 2,810 1,607 1,372 5,395 Taxes paid (12,071) (12,066) (6,062) (8,650) (23,940) Taxes received 479 7,281 479 7,281 7,281 Dividend received 1,272 3,272 636 636 10,869 (11,561) (3,323) (5,706) (2,183) (9,876)

Net cash provided by operating

activities 93,705 98,984 69,425 72,152 168,308

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CONSOLIDATED STATEMENTS OF CASH FLOWS

Three months ended June 30, Year ended December 31, 2017 2016 2017 2016 2016 Unaudited Audited NIS in thousands

Cash flows from investing activities: Purchase of property, plant and

equipment (32,869) (16,757) (19,632) 103 (42,388)

Sale of activity - - - - 2,087

Purchase of intangible assets and

removal fees (3,582) (2,421) (1,354) (1,468) (4,206)

Proceeds from sale of property, plant

and equipment 345 - 13 - 217

Purchase of securities measured at fair

value through profit or loss, net (23,948) (47,045) (26,585) (1,234) (44,687)

Redemption of securities measured at

amortized cost, net 2,522 151 2,270 - 1,550

Grant of loans to others - (1,000) - - (1,000)

Net cash used in investing activities (57,532) (67,072) (45,288) (2,599) (88,427) Cash flows from financing activities:

Dividend paid (32,672) (19,018) (32,672) (19,018) (19,018)

Repayment of long-term loans and other long-term liabilities from banks

and others (32,261) (14,594) (15,753) (3,130) (34,188)

Receipt of long-term loans from banks

and others 75,000 100,000 75,000 - 100,000

Receipt (repayment) of short-term

credit from banks and others 11,839 (56,360) 16,336 (9,602) (51,860)

Net cash provided by (used in)

financing activities 21,906 10,028 42,911 (31,750) (5,066)

Adjustment arising from translating balances of cash and cash

equivalents (92) (162) (15) (286) (258)

Increase in cash and cash equivalents 57,987 41,778 67,033 37,517 74,557

Cash and cash equivalents at

beginning of period 151,083 76,526 142,037 80,787 76,526

Cash and cash equivalents at end of

period 209,070 118,304 209,070 118,304 151,083

(a) Significant non-cash transaction:

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NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1:- GENERAL

These financial statements have been prepared in a condensed format as of June 30, 2017 and for the periods of six and three months then ended ("interim consolidated financial statements"). These financial statements should be read in conjunction with the Company's annual financial statements as of December 31, 2016 and for the year then ended and accompanying notes ("annual consolidated financial statements").

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation of the financial statements:

Basis of preparation of the interim consolidated financial statements:

The interim consolidated financial statements have been prepared in accordance with IAS 34, "Interim Financial Reporting" and in accordance with the disclosure requirements of Chapter D of the Securities Regulations (Periodic and Immediate Reports), 1970.

The accounting policies adopted in the preparation of the interim consolidated financial statements are consistent with those followed in the preparation of the annual consolidated financial statements.

NOTE 3:- DISCLOSURE OF NEW IFRS IN THE PERIOD PRIOR TO THEIR ADOPTION

a. IFRIC 23, "Uncertainty over Income Tax Treatments":

In June 2017, the IASB issued IFRIC 23, "Uncertainty over Income Tax Treatments" ("the Interpretation"). The Interpretation clarifies the rules of recognition and measurement of assets or liabilities in keeping with the provisions of IAS 12, "Taxes on Income", in situations of uncertainty involving taxes on income. The Interpretation provides guidance for determining whether some tax treatments should be considered collectively, addresses the position of the tax authorities, measures the implications of uncertainty involving income taxes on the financial statements and prescribes the accounting treatment of changes in facts and circumstances underlying the uncertainty.

The Interpretation is to be applied in financial statements for annual periods beginning on January 1, 2019. Early adoption is permitted. Upon initial adoption, the Company will apply the Interpretation using one of two approaches:

1. Full retrospective adoption, without restating comparative figures, by carrying the cumulative effect through the date of initial adoption to the opening balance of retained earnings.

2. Full retrospective adoption with restating comparative figures.

The Company is evaluating the possible impact of the adoption of the Interpretation but is presently unable to assess its effect, if any, on the financial statements.

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NOTE 3:- DISCLOSURE OF NEW IFRS IN THE PERIOD PRIOR TO THEIR ADOPTION (Cont.)

b. IFRS 15, "Revenue from Contracts with Customers":

IFRS 15 ("the Standard") was issued by the IASB in May 2014.

The Standard replaces IAS 18, "Revenue", IAS 11, "Construction Contracts", IFRIC 13, "Customer Loyalty Programs", IFRIC 15, "Agreements for the Construction of Real Estate", IFRIC 18, "Transfers of Assets from Customers" and SIC-31, "Revenue - Barter Transactions Involving Advertising Services".

The Standard introduces a five-step model that will apply to revenue earned from contracts with customers:

Step 1: Identify the contract with a customer, including reference to contract combination and accounting for contract modifications.

Step 2: Identify the separate performance obligations in the contract

Step 3: Determine the transaction price, including reference to variable consideration, financing components that are significant to the contract, non-cash consideration and any consideration payable to the customer.

Step 4: Allocate the transaction price to the separate performance obligations on a relative stand-alone selling price basis using observable information, if it is available, or using estimates and assessments.

Step 5: Recognize revenue when a performance obligation is satisfied, either at a point in time or over time.

The Standard is to be applied retrospectively for annual periods beginning on January 1, 2018. Early adoption is permitted. At this stage, the Company does not intend to adopt IFRS 15 early.

The Standard allows the option of modified retrospective adoption with certain reliefs according to which the new Standard will be applied to existing contracts from the initial period of adoption and thereafter with no restatement of comparative data. Under this option, the Company will recognize the cumulative effect of the initial adoption of the Standard as an adjustment to the opening balance of retained earnings (or another component of equity, as applicable) as of the date of initial application. Alternatively, the Standard permits full retrospective adoption with certain reliefs.

After having evaluated the effects of the application of the Standard, the Company believes that the adoption is not expected to have a material effect on the Company's financial statements.

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NOTE 4:- SEASONALITY

The Company's revenues are affected by seasonality, which is usually reflected in higher sales during Passover, the Jewish New Year holidays and the fourth quarter of the year. The operating results should be viewed considering this seasonality.

NOTE 5:- SIGNIFICANT EVENTS DURING THE REPORTING PERIOD

a. On June 15, 2017, the Company reported the advanced negotiations being held with Urban Outfitters Inc. ("Urban") for setting up and operating a retail chain of the Urban brands, Urban Outfitters, Anthropologie and Free People, in Israel ("the Urban brands") and for selling the Urban brands on a multi-brand retail website that is currently under construction, subject to the successful completion of the negotiations and the signing of a binding agreement. The Company plans to establish a wholly-owned subsidiary that will set up and operate a retail chain for selling the Urban brands in Israel. The stores will be opened based on a business plan agreed upon between the parties.

b. On June 11, 2017, the Company received a long-term loan in the amount of NIS 25 million from a large Israeli bank. The loan is repayable from September 11, 2017 and bears fixed annual interest at a rate of 2.49% to be paid in 24 quarterly installments from September 2017.

c. On June 8, 2017, the Company received a long-term loan in the amount of NIS 50 million from a large Israeli bank. The loan is repayable from September 8, 2017 and bears fixed annual interest at a rate of 2.49% to be paid in 24 quarterly installments from September 2017.

d. On September 27, 2016, the Company signed an agreement with Horowitz Yang Holdings Ltd. ("Horowitz Yang Holdings") for establishing a limited partnership, Terminal X Online Limited ("the partnership"), which will serve as a platform for a multi-brand retail website. The partnership was established in January 2017 and began operating in April 2017. The Company will hold 75% of the partnership's share capital and Horowitz Yang Holdings will hold the remaining 25% (in the first two years of the partnership's operation, the distribution of profits between the partners will be 90% to the Company and 10% to Horowitz Yang Holdings).

e. On April 21, 2017, the subsidiary, Retailors Ltd. ("Retailors"), signed an agreement with Nike Canada Corp. ("Nike"), a subsidiary of Nike Inc., according to which Nike granted Retailors a seven-year franchise for setting up and operating a store chain in Canada, excluding British Columbia ("the territory"), for the sale of Nike footwear, clothing and sports apparel. Each Nike approved new operated store will be granted a seven-year franchise.

In Canada, similarly to Israel and worldwide, there are retail multi-brand sports stores and chains that sell a variety of sports brands including the Nike brand. The operation franchised by Retailors will focus on setting up and operating mono-brand stores that carry the Nike brand only.

f. In its meeting on March 19, 2017, the Company's Board decided to distribute a dividend totaling approximately NIS 32,672 thousand which was paid on April 25, 2017. The dividend represents approximately NIS 2.42 per Ordinary share.

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NOTE 5:- SIGNIFICANT EVENTS DURING THE REPORTING PERIOD (Cont.)

g. On October 26, 2016, the subsidiary, Retailors Ltd. ("Retailors"), signed an agreement with Foot Locker Europe BV ("Foot Locker") according to which Foot Locker granted Retailors a franchise to set up and operate a store chain in Israel that will sell footwear and sports apparel of top international life style brands under the "Foot Locker" brand. The franchise period is ten years from the date of signing. Foot Locker is a wholly-owned subsidiary of the US public company, Foot Locker Inc. As of the reporting date, Retailors operates four stores under the Foot Locker brand in Israel (the first two stores were opened in March 2017).

h. In keeping with the matter discussed in Note 20a(4) to the Company's annual consolidated financial statements for 2016 regarding a motion for approval of a claim as a class action filed against the Company alleging that the Company failed to mark ads posted in its branches in conformity with the provisions of the Consumer Protection Regulations (Size of Letters in a Standard Contract and in the Terms Included in the Other Information Intended to the Consumer), 1995 ("Consumer Protection Regulations"), in the reporting period, the petitioner's legal representative contacted the Company's legal counsel and a mutual petition was filed by the parties to dismiss the motion without issuing an order for expenses. The Court approved the petition and the claim was stricken.

NOTE 6:- FINANCIAL INSTRUMENTS

a. Fair value of securities measured at amortized cost:

The carrying amount of securities measured at amortized cost as of June 30, 2017 and 2016 and as of December 31, 2016 was NIS 49,131 thousand, NIS 53,207 thousand and NIS 51,749 thousand, respectively.

The fair value of securities measured at amortized cost as of June 30, 2017 and 2016 and as of December 31, 2016 was NIS 48,385 thousand, NIS 52,187 thousand and NIS 51,067 thousand, respectively.

The value of the Company's remaining financial assets and liabilities approximates their fair value.

b. Classification of financial instruments by fair value hierarchy:

Financial assets (liabilities) measured at fair value:

June 30, 2017 (unaudited)

Level 1 Level 2

NIS in thousands

Marketable securities 176,831 -

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NOTE 6:- FINANCIAL INSTRUMENTS (Cont.)

Financial assets measured at fair value:

June 30, 2016 (unaudited)

Foreign exchange forward contracts - 914

Financial assets (liabilities) measured at fair value:

December 31, 2016 (audited)

Foreign exchange forward contracts - (2,284)

The fair value of the Company's financial instruments measured at fair value that are not traded in active markets is determined using valuation techniques. These techniques maximize, to the extent possible, the use of observable market inputs because they are available and minimize valuations of the entity itself. Because all significant inputs that are needed to prepare fair value valuations of the Group's financial instruments measured at fair value are observable, these instruments are classified as level 2. The valuation was performed based on the Black & Scholes valuation model.

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NOTE 7:- OPERATING SEGMENTS

a. General:

The operating segments are identified on the basis of information that is reviewed by the chief operating decision maker ("CODM") to make decisions about resources to be allocated and assess its performance. Accordingly, for management purposes, the Group is organized into operating segments based on the businesses of the Group as follows: Fashion and home

fashion in Israel and abroad

- Design, production (through foreign sub-producers), distribution, marketing and selling of fashion products under the Fox brand through retail sales in the Company's stores in Israel, wholesales in Israel and sales to franchisees and wholesalers abroad.

- Marketing, distribution and selling home fashion products such as housewares and textile products through the Fox Home chain stores.

- Marketing, distribution and selling fashion products under the American Eagle brand and underwear products under the Aerie brand in the chain stores in Israel.

- Marketing, distribution and selling fashion products under The Children's Place brand in the chain stores in Israel.

- Marketing, distribution and selling footwear, bags and accessories under the Charles & Keith brand in the chain stores in Israel. - Marketing, distribution and selling fashion accessories under the

Mango brand in the chain stores in Israel. Aromatic bath and

body care

- This business comprises the activity of the subsidiary Laline Candles and Soaps Ltd. which is engaged in the production (through sub-manufacturers in Israel) of soaps, candles, bath and aromatic products and their sale in chain stores in Israel, wholesales to institutional stores and entities in Israel and sales to franchisers abroad.

Others unallocated to segment

- Other activities of the Company comprise the companies A.H. Fashion Manufacture and Marketing 3020 Ltd., Billy Haus Ltd., Yanga Ltd., Retailors Ltd. and Terminal X Online Limited.

In furtherance to the application of IFRS 11, the reported results of the companies (Laline Candles and Soaps Ltd., A.H. Fashion Manufacture and Marketing 3020 Ltd., Billy Haus Ltd., Yanga Ltd. and FWS) are now accounted for using the equity method. In order to present segment reporting results based on the areas of operation of the Company and the information that is reviewed by the CODM, the data of sales and segment income of companies that are accounted for at equity are presented as per full holding rate (100%) and a corresponding adjustment of sales and segment income was made to present the segment's results based on the actual holding rate under the "adjustments" column.

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NOTE 7:- OPERATING SEGMENTS (Cont.)

b. Reporting on operating segments:

Fashion and home fashion

Aromatic bath and

body Others

Israel Abroad care unallocated Subtotal Adjustments Total NIS in thousands

Six months ended June 30, 2017 (unaudited):

Revenues from external entities 807,013 11,051 89,465 158,077 1,065,606 (328,925) 736,681 Total revenues 807,013 11,051 89,465 158,077 1,065,606 (328,925) 736,681 Segment income 25,262 3,355 7,880 14,109 50,606 (12,238) 38,368

Finance expense, net 22,308

Income before taxes on income 16,060

body Others

Six months ended June 30, 2016 (unaudited):

Revenues from external entities 768,461 13,804 80,138 140,591 1,002,994 (322,054) 680,940 Total revenues 768,461 13,804 80,138 140,591 1,002,994 (322,054) 680,940 Segment income 15,707 4,305 4,895 13,540 38,447 (8,078) 30,369

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NOTE 7:- OPERATING SEGMENTS (Cont.)

body Others

Three months ended June 30, 2017 (unaudited):

Revenues from external entities 428,496 5,600 47,605 89,957 571,658 (184,397) 387,261 Total revenues 428,496 5,600 47,605 89,957 571,658 (184,397) 387,261 Segment income 38,943 1,640 6,674 11,958 59,215 (12,683) 46,532

Finance expenses, net 7,411

body Others

Three months ended June 30, 2016 (unaudited):

Revenues from external entities 421,643 8,032 40,521 76,947 547,143 (175,341) 371,802 Total revenues 421,643 8,032 40,521 76,947 547,143 (175,341) 371,802 Segment income 37,651 2,655 3,111 11,343 54,760 (6,528) 48,232

Finance income, net 4,709

body Others

Year ended December 31, 2016 (audited):

Revenues from external entities 1,634,109 24,528 163,237 288,370 2,110,244 (646,633) 1,463,611 Total revenues 1,634,109 24,528 163,237 288,370 2,110,244 (646,633) 1,463,611 Segment income 70,535 6,631 8,122 24,497 109,785 (14,249) 95,536

The Company grouped the following operating segments: Fox, Fox Home, American Eagle, Aerie, Mango, Charles & Keith and The Children's Place into one reportable segment - fashion and home fashion in Israel. For the grouping, the Company has made judgments which are based on the following factors: the essence of the products, the essence of the production process, the profile or group of customers for the products and services and the distribution method of the products. The Company also examined the

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NOTE 8:- REMUNERATION PLAN

In June 2017, following the approval of the Company's Board, Remuneration Committee and General Meeting, the Company adopted a remuneration plan ("the 2017 remuneration plan") for the Company's senior officers. The remuneration plan is based on policies and parameters according to which the Company will determine the remuneration payable to acting and/or employed senior officers as they are and/or will be from time to time in the Company and in the Group.

It should be clarified that the 2017 remuneration plan supersedes any other remuneration plan previously adopted by the Company.

Notwithstanding the aforementioned, stock options that had been granted to the Company's senior officers in 2011 and have not yet been exercised or expired will remain in effect according to the 2017 remuneration plan.

The 2017 remuneration plan is in effect from January 1, 2017 for a period of three years unless the Remuneration Committee recommends to extend the plan beyond said period, subject to the provisions of applicable law.

The 2017 remuneration plan consists of three remuneration components: a. Monthly salary and related benefits:

According to the 2017 remuneration plan, senior officers will be entitled to a monthly salary and related benefits. The monthly salary of each senior officer will be determined based on their education, qualifications, expertise, professional experience, achievements, contribution to the Company, areas of responsibilities and former salary agreements signed therewith.

b. Annual bonus:

The annual bonus will be derived from the Company's annual net income and will not form part of the recipient's fixed salary, including accrual of related pension and/or termination rights. The bonus will be determined based on specific measurable targets as prescribed in the Company's annual work plan that is established by the Company's qualified entities at the beginning of each year. The Company may decide that an immaterial portion of the remuneration, which does not exceed three monthly salaries a year, will be granted based on non-measurable criteria in keeping with the contribution of the officer who is not a controlling shareholder or their relative to Company.

The annual bonus will be given to five groups: the Group's CEO, the Group's Senior Deputy CEO, the group of senior officers - three officers who are not "controlling shareholders" or "their relatives" (excluding the Group's Senior Deputy CEO), the group of senior officers who are "controlling shareholders" or "their relatives" - two officers who are "controlling shareholders" or "their relatives" (excluding the Group's CEO) and the Deputy CEO of Purchasing & Logistics, a controlling shareholder's relative.

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NOTE 8:- REMUNERATION PLAN (Cont.)

The overall bonus as a percentage of net annual income of the Company for the Company's entire key management personnel (senior officers as defined in the 2017 remuneration plan and other managers that are not officers and are not included in the 2017 remuneration plan) will be as follows: 6.5% of the annual net income if the annual net income is between NIS 50 and NIS 70 million; 8.0% of the annual net income if the annual net income is more than NIS 70 but less than NIS 110 million; and 8.5% of the annual net income if the annual net income is more than NIS 110 million.

If the Company's annual net income is less then NIS 50 million, no annual bonus will be distributed but the Remuneration Committee will have the authority to decide to distribute an annual bonus to the Company's entire key management personnel (senior officers as defined in the 2017 remuneration plan and other managers that are not officers and are not included in the 2017 remuneration plan) of up to a total of NIS 2 million, at its discretion. The Remuneration Committee and the Board are authorized to reduce the annual bonus for each group of senior officers described above or for any of the managers, at any rate, to the extent of not awarding any bonus, among others, in accordance with the mechanisms to be approved by the Remuneration Committee and the Board at the beginning of each year. c. Share-based payment:

The Company will grant the Group's CEO serving on the date of the plan ("the optionee") equity-settled remuneration in the form of restricted stock units ("the allocated RSUs") based on the terms of an option plan.

The Company granted the optionee 134,617 RSUs representing about 1% of the Company's issued and outstanding share capital. The RSUs are non-marketable and non-transferrable and are exercisable into 134,617 Ordinary shares of the Company of NIS 0.01 par value each. The shares will be allocated against an exercise increment of at least NIS 0.30 per share and at least at the par value of the Company's shares.

The allocated RSUs will be distributed in three equal portions and will vest subject to compliance with the following performance targets.

The optionee will be entitled to exercise each RSU portion at the end of its respective vesting period. The vesting periods all begin on the date of the General Meeting's approval of the grant of 134,617 RSUs (on June 22, 2017) for 36 months for the first portion, 48 months for the second portion and 60 months for the third portion. The vesting period begins in 2017 and ends in 2020 for the first portion, in 2021 for the second portion and in 2022 for the third portion. It should be clarified that the RSUs of each portion will be blocked until the end of their respective vesting period.

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NOTE 8:- REMUNERATION PLAN (Cont.)

The vesting of the allocated RSUs is subject to compliance with the following performance targets:

1. First portion -the net income in 2017 is not below NIS 50 million; 2. Second portion - the net income in 2018 is not below NIS 60 million; 3. Third portion - the net income in 2019 is not below NIS 70 million.

If the optionee fails to meet any of the above performance targets but the aggregate net income in 2017-2019 is at least NIS 200 million, the optionee will be entitled to exercise all three portions of RSUs based on their respective vesting periods.

As of the reporting date, the Company expects the performance targets underlying the vesting of the allocated RSUs as described above to be achieved.

The Company hired an independent outside appraiser for estimating the fair value of the allocated RSUs. The fair value of the allocated RSUs as of the date of grant is NIS 8,130 thousand.

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