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Israel Electric Corp. Investor Presentation Business update as of 06 / 30 / 2019 August 2019

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Page 1: Investor Presentation Investor... · This Presentation does not constitute or form part of and should not be construed as an offer to sell or issue, or the solicitation of an offer

Israel Electric Corp.

Investor

Presentation

Business update as of 06/30/2019

August 2019

Page 2: Investor Presentation Investor... · This Presentation does not constitute or form part of and should not be construed as an offer to sell or issue, or the solicitation of an offer

Disclaimer

Investor Relations 2

The Company is a public company, with all it entails, and this information provided to you, all or part of it, may constitute “Inside Information” in

accordance with Israel’s Securities Law, 1968, and making use of this information (including, but not only, by way of carrying out a transaction in a

security of IEC, and/or delivering this information, or an opinion regarding a security of IEC, to any third party who may use this information for

purposes of such transaction) may constitute a criminal offence pursuant to that Law.

Please treat this information as CONFIDENTIAL and do not disclose, publish or deliver all or any part of this information, directly or indirectly, to

any third party, except for your employees, officers and any person acting for you or on your behalf, strictly on a “need to know” basis, and only

after you have notified the person receiving any of this information that the information is confidential and that making use of this information may

constitute a criminal offence as specified above

This Presentation does not constitute or form part of and should not be construed as an offer to sell or issue, or the solicitation of an offer to buy or

acquire, securities of the Company. This Presentation is solely for informational purposes. The information contained in this presentation regarding

the Company's operations is concise and presented for convenience purposes only. To get a complete picture of the Company's operations, please

refer to the reports of the Company to the Israeli Securities authority and the Tel-Aviv Stock Exchange.

This presentation includes forward-looking information, as per its definition in the Securities Law, 1968, including forecasts and other information

whose realization is uncertain and depends on factors that are not under the control of the Company. These factors are based, among other things,

on data that is in the possession of the Company as of this date, internal estimates and expectations of the Company regarding trends in the

Company's fields of activity and regarding the implementation of the company's plans. The Company's forecast and expectations included in this

presentation may not be realized, in whole or in part, or may be realized in a different manner than expected, inter alia due to factors that some of

them are not under the control of the Company, including changes in the market conditions and the Company's business environment, regulatory

changes, or the realization of any of the risk factors of the Company.

The information contained in this presentation is provided as of the date of this presentation. The Company is not under any obligation to

update the information in this presentation or to update the forward-looking statements contained in it.

Page 3: Investor Presentation Investor... · This Presentation does not constitute or form part of and should not be construed as an offer to sell or issue, or the solicitation of an offer

Executive Summary

3

Page 4: Investor Presentation Investor... · This Presentation does not constitute or form part of and should not be construed as an offer to sell or issue, or the solicitation of an offer

Gas turbine (internal

combustion) /

Combined-cycle

(internal combustion

and steam)

Steam (dual

purpose)

400 kV lines

161 kV lines

Israel Electric Corp. at a Glance

IEC Power Grid Established in 1923, 96 years of operation, the Israel Electric Corporation Limited (“IEC”) is the

sole vertically integrated electric utility company in Israel and generates, transmits, distributes and

supplies the majority of the electricity used in Israel

IEC is appx. 99.85% owned by the State of Israel

IEC had total assets of NIS 85.8 billion and 11,383 employees as of June 30, 2019

As of December 31, 2018, IEC serves 2.8 million residential, commercial, agricultural and

industrial customers throughout the State of Israel including East Jerusalem and the Palestinian

Authority

Total electricity sales of 25,106 GWh for the period ended June 30, 2019

13.3 GWInstalled capacity

17Power stations

Generation (1)

5,586 kmHigh and ultra-high voltage

transmission grid

213 (2)

Switching stations &sub-stations

Transmission (1)

64,264 kmMedium and low

voltage lines

2.8 mnCustomers

Distribution (1)

H1-2019 Key Financials Credit Ratings as of June 30, 2019

Revenues

NIS 11.4 billion

EBITDA

NIS 3.5 billion

IEC GlobalBaa2 / BBB

Positive / Stable(Moody’s / S&P)

IEC Local Aa2.il / ilAA+Stable / Stable

(Midroog / Maalot S&P)

State of Israel (3)

A1 / AA- / A+Positive / Stable / Stable

(Moody’s / S&P / Fitch)

Source: IEC Financial Statements for 2018A and for H1-2019.1) As of December 31, 2018.2) 52 substations are privately owned.3) A State of Israel guarantee for the existing loans of IEC are negligible compared to the company’s overall financial debt.

Denotes USD figures USD/NIS exchange rate of 3.57 as of June 28, 2019.

Investor Relations

$3.2 $1.0

4

Page 5: Investor Presentation Investor... · This Presentation does not constitute or form part of and should not be construed as an offer to sell or issue, or the solicitation of an offer

Israel - a Modern Economy

Source: The Israeli Central Bureau of Statistics, Bank of Israel.1) Credit rating refers to long-term foreign currency debt only. A State of Israel guarantee for the existing securities of IEC are negligible compared to the company’s overall Financial debt 2) The Israeli Ministry of Finance and Bank of Israel.

Denotes USD figures USD/NIS exchange rate of 3.75 as of December 31, 2018.

Israel Public Debt to GDP(2)

Israel Rating History(1)

Inflation Environment

1

2

3

2011 2013 2015 2017 2019Moody's S&P Fitch

Nov 2016

Fitch upgrade

Israel to A+

Sep 2011

S&P upgrade

Israel to A+

A2 / A

A1 / A+

Aa3 / AA-

68.567.1

65.863.7

62.160.5 61.0

50

55

60

65

70

75

80

2012 2013 2014 2015 2016 2017 2018

(% of GDP)

1.6% 1.8%

-0.2%-1.0%

-0.2%

0.4%

0.8%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2012 2013 2014 2015 2016 2017 2018

(YoY Inflation %) 1%-3%

Government

Inflation Target

1.4%

Average inflation in

the last decade

Investor Relations

Key Figures

5

$347 bn

$38,513

Aug 2018

S&P upgrade

Israel to AA-

Area 22,072 km2

Population (June 2019) 9.1 million

GDP (2018) NIS 1.3 trillion

GDP per Capita (2018) NIS 144,425

Avg. GDP Growth (2012-2018) 3.6%

Unemployment (June 2019) 4.1%

Foreign Currency LT Debt

Ratings (Moody’s / S&P / Fitch) (1)A1 / AA- / A+

Page 6: Investor Presentation Investor... · This Presentation does not constitute or form part of and should not be construed as an offer to sell or issue, or the solicitation of an offer

Essential

Service Provider

Owned by the

State of Israel

Robust Growth in

Electricity Demand

Fully Regulated

Across all Segments

Efficiency and

Reliability

Financial

Robustness

Natural Gas

Fuel

Independence

IEC is an essential service provider of

electricity in Israel and the sole vertically

integrated provider in the electricity chain

Appx. 99.85% owned

by the State of Israel

(A1/AA-/A+)

Strong electricity demand

growth in the Israeli market

Tariff is based on costs and

return on equity

Set by the Electricity Authority

Continuous improvement of

efficiency & reliability

IEC has over 96 years of experience in

developing and managing the electricity

sector in Israel

Rated investment grade by both S&P

(BBB) and Moody’s (Baa2)

IEC total liquidity(1) of NIS 5.6 bn as of

December 31, 2018

Natural gas from Tamar and

other significant natural gas

discoveries in Israel have paved

the way towards potential fuel

independence

Key Investment Highlights

Investor Relations

1) Source: IEC Financial Statements for 2018A.IEC defines “Liquidity” as cash and equivalents, short term investments and available credit facilities.

6

Page 7: Investor Presentation Investor... · This Presentation does not constitute or form part of and should not be construed as an offer to sell or issue, or the solicitation of an offer

Key Strategic Targets

Investor Relations 7

Israel's

Electricity Supplier•Continuing to guarantee reliability of the

electricity supply and maintaining

adequate electricity reserves

Page 8: Investor Presentation Investor... · This Presentation does not constitute or form part of and should not be construed as an offer to sell or issue, or the solicitation of an offer

Operational Overview

8

Page 9: Investor Presentation Investor... · This Presentation does not constitute or form part of and should not be construed as an offer to sell or issue, or the solicitation of an offer

Source:1) IEC Financial Statements for 2015A-2018A and for H1-2019, IEC Statistical Report for 2008A.2) The Israeli Central Bureau of Statistics.

Denotes USD figures at USD/NIS exchange rate of 3.84, 3.85, 3.47, 3.75, 3.65 & 3.57 for the end of period of 2015A, 2016A, 2017A, 2018A, H1-2018 & H1-2019, respectively.

Historical Performance

Comparison of Key Metrics

23.0 22.723.4 23.6

10.811.4

0

10

20

2015 2016 2017 2018 H1-2018 H1-2019

NISbn

$6.7$5.9

$3.0 $3.2

IEC Revenues

IEC continues to provide most of Israel’s energy requirements

as the sole vertically integrated electric utility in Israel

Investor Relations

$6.0

9

$6.312/31/2008 12/31/2018

%

Change

Population (mn) (2) 7.4 9.0 21.6%

Number of

Customers (mn)2.4 2.8 16.7%

Electricity Sales

(GWh)50,161 52,157 4%

National Peak

Demand (MW)10,200 12,921 26.7%

IEC Installed

Capacity (MW)11,675 13,335 14.2%

Page 10: Investor Presentation Investor... · This Presentation does not constitute or form part of and should not be construed as an offer to sell or issue, or the solicitation of an offer

Israel Generation Capacity and Demand

Israel Generation Capacity and Demand

Source: IEC’s Financial Statements (2015A-2018A) and for H1-2019.1) Installed Generation Capacity of Independent Power Producers (“IPPs”).2) The peak demand for electricity in the period ended June 30, 2019 was in January 2019 and reached 13,060 megawatts (MW).

13,617 13,617 13,617 13,335

2,980 3,060 3,199 3,334

754 911 946 1,303

17,351 17,588 17,762 17,972

12,905 12,624 12,746 12,921

5,000

8,000

11,000

14,000

17,000

2015 2016 2017 2018

(MW)

IEC's Installed Generating Capacity Gas Fired IPPs Renewable Energy IPPs National Peak Demand

Investor Relations 10

(1) (1)

(2)

Page 11: Investor Presentation Investor... · This Presentation does not constitute or form part of and should not be construed as an offer to sell or issue, or the solicitation of an offer

Demand for Electricity

National Electricity Peak Demand & Total Electricity Produced in the Entire Sector

Trends

Source: IEC’s Annual Financial Statements (1990-2018). IEC’s Statistical data.

Investor Relations

The demand for electricity in

Israel is growing at a fast and

steady pace

Demand is driven by both

population growth and the

increase in electricity

consumption per household

IEC’s demand forecast,

which is used for long term

planning of the generation

segment, anticipates an

average annual increase of

2.8% in peak demand in the

years 2019 to 2050

11

Seasonality in Electricity Demand - Average Consumption of Households

0

200

400

600

800

1,000

Q1-2013

Q2-2013

Q3-2013

Q4-2013

Q1-2014

Q2-2014

Q3-2014

Q4-2014

Q1-2015

Q2-2015

Q3-2015

Q4-2015

Q1-2016

Q2-2016

Q3-2016

Q4-2016

Q1-2017

Q2-2017

Q3-2017

Q4-2017

Q1-2018

Q2-2018

Q3-2018

Q4-2018

(KWh)

Base Heating Cooling

54 54 53

58 6064

62 6165

67 68 70

40

45

50

55

60

65

70

75

2,000

4,000

6,000

8,000

10,000

12,000

14,000

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

(TWh)(MW)

Total Electricity Produced in the Sector National Electricity Peak Demand

Multiplied by 3.4 in 28 years

Page 12: Investor Presentation Investor... · This Presentation does not constitute or form part of and should not be construed as an offer to sell or issue, or the solicitation of an offer

The IEC Electricity Chain

Source: IEC Financial Statements for 2018A.

Notes

1) 52 substations are privately owned.

Investor Relations 12

Generation DistributionTransmission

2.8Million

Customers

35,924 kmLow Voltage

Lines

28,340 kmMedium

Voltage Lines

202Substations(1)

5,586 kmUltra-High & High

Voltage lines

11Switching Stations

61 Generation Units in 17

Power Stations

Page 13: Investor Presentation Investor... · This Presentation does not constitute or form part of and should not be construed as an offer to sell or issue, or the solicitation of an offer

The IEC Generation Segment

IEC Generation Facilities(1)

Fuel Mix by Electricity Generated

Source: IEC’s Financial Statements for 2018A and for H1-2019.1) As of December 31, 2018.2) Units 1-4 will be transferred to preservation by June 1, 2022.

Electricity Generation Sites(1)

January 1 - December 31, 2018

Coal45.4%

Diesel oil &

Fuel oil1.1%

Natural gas & LNG

53.6%

January 1 - June 30, 2019

Investor Relations

No. of

units

Installed

Capacity (MW)

Steam (dual purpose) (coal and fuel oil) 10 4,840

Steam (dual-purpose) (natural gas and fuel / diesel oil) 6 1,340

Gas turbine (internal combustion) (industrial gas) 15 1,570

Gas turbine (internal combustion) (jet engine) 16 504

Combined cycle (internal combustion and steam) 14 5,081

Total 61 13,335

13

17Power stations

sites

13,335Megawatts of

generation

Orot Rabin(2)

7 units / 2,605 MW

Rutenberg

6 units / 2,290 MW

Eshkol

7 units / 1,693 MW

Haifa

4 units / 828 MW

Gezer

6 units / 1,336 MW

Hagit

4 units / 1,394 MW

- Mainly powered by coal

- Mainly powered by gas

Gas turbine (internal

combustion) /

Combined-cycle

(internal combustion

and steam)

Steam (dual purpose)

Coal43.0%

Diesel oil &

Fuel oil0.5%

Natural gas & LNG

56.5%

Page 14: Investor Presentation Investor... · This Presentation does not constitute or form part of and should not be construed as an offer to sell or issue, or the solicitation of an offer

The IEC Transmission and Distribution Segments(1)

Total Electricity Consumption by Customer Type

Transformation

System

11Switching stations

Power Lines

150Substations

Transmission

52Private substations

760 km400 kV lines

4,786 km161 kV line (includes

underground lines)

41km115 kV lines

64,264 kmMedium and low

voltage lines

50,418Distribution

Transformers

2.8mnCustomers

Distribution

Source: IEC’s Financial Statements for 2018A.

Notes

1) As of December 31, 2018.

Residential36%

Industrial19%

Public, commercial, East-Jerusalem &

Palestinaian Authority

39%

Water pumping

4%

Agriculture2%

(kWh)

Investor Relations

Diversified Customer Base

14

Page 15: Investor Presentation Investor... · This Presentation does not constitute or form part of and should not be construed as an offer to sell or issue, or the solicitation of an offer

IEC’s Human Capital

Streamlining of IEC’s Workforce

Source: IEC’s Financial Statements for 2014A - 2018A and for H1-2019.

12,754

12,371

11,908 11,902

11,476 11,383

11,000

11,500

12,000

12,500

13,000

2014 2015 2016 2017 2018 H1-2019

IEC’s employees’

Investor Relations 15

As part of the reform in the electricity sector, an efficiency program is resuming

for the years 2019-2025

Page 16: Investor Presentation Investor... · This Presentation does not constitute or form part of and should not be construed as an offer to sell or issue, or the solicitation of an offer

The Sector Reform

16

Source : IEC ‘s Financial Statements for 2018A and for H1-2019.

Notes:1. In accordance with the IEC’s undertakings adopted by the IEC's BOD on May 10, 2018, to the extent that the Government resolutions and/or the legislative amendments and/or the administrative decisions and/or the arrangements of the

Electricity Authority and/or the aforesaid licenses given by the State of Israel, that will correspond to the (insofar as these are needed according to the State of Israel position), or that the collective agreement IEC and the employeesrepresentatives will not be in force, then all IEC’s undertakings will not be in force and the State of Israel will not be able to file claims and/or complain against IEC with respect to those undertakings. For the purpose of implementing the fullstructural change outline, it will be required the approval of the regulatory agencies, decisions and regulations of the Electricity Authority and granting licenses which as of date of approval of the Financial statements have not yet beenreceived and there is no certainty regarding the date of determining the agreements or the granting of such licenses and their final terms. As of the date of the publication of the Financial statements, IEC is unable to reliable estimate theexact implications of the additional regulations and approvals that have not yet been formulated or received on its financial position and results..

2. Except of the above, IEC or its generation subsidiary shall not establish, replace, operate, plan, maintain or engage in the development of power stations in Israel either by itself or as a contractor for a third party, nor shall it engage in theproduction of electricity, during the years of the reform and afterwards. IEC has undertaken to the State of Israel not to act to obtain new generation licenses or to construct new electricity generation stations and replace existing stations,and not to act to obtain permits for the operation of power stations for other parties in Israel

Investor Relations

Sale of generation sites

and increased

competition in the

generation segment

Separation from the

system manager and

additional units to a new

Government company

Opening the supply

segment market to

competition from other

entities

Essential service

provider in the

transmission and

distribution segments

Organizational change,

efficiency plan and

administrative flexibility

Construction &

operation of two

combined cycle gas

turbines at the ‘Orot

Rabin’ site (2)

Assets arrangement

in IEC

Compliance with

financial targets

Strengthening the

financial stability of IEC

Value added services,

installation of smart

meters, construction

and operation of

storage facilities

Main points of the reform (1)

Page 17: Investor Presentation Investor... · This Presentation does not constitute or form part of and should not be construed as an offer to sell or issue, or the solicitation of an offer

The Sector Reform Timeline

17

Source: IEC ‘s Financial Statements for 2018A and for H1-2019.Note:In accordance with the IEC’s undertakings adopted by the IEC's BOD on May 10, 2018, to the extent that the Government resolutions and/or the legislative amendments and/or the administrative decisions and/or the arrangements of theElectricity Authority and/or the aforesaid licenses given by the State of Israel, that will correspond to the (insofar as these are needed according to the State of Israel position), or that the collective agreement IEC and the employeesrepresentatives will not be in force, then all IEC’s undertakings will not be in force and the State of Israel will not be able to file claims and/or complain against IEC with respect to those undertakings. For the purpose of implementing the fullstructural change outline, it will be required the approval of the regulatory agencies, decisions and regulations of the Electricity Authority and granting licenses which as of date of approval of the Financial statements have not yet been receivedand there is no certainty regarding the date of determining the agreements or the granting of such licenses and their final terms. As of the date of the publication of the Financial statements, IEC is unable to reliable estimate the exact implicationsof the additional regulations and approvals that have not yet been formulated or received on its financial position and results.

Investor Relations

Gov’

Decision on

Reform

Completion of

legislation to change

the electricity sector

Sale of the land of ‘Project D’

Deposit in ‘Reading’ site for 2 new

Combined cycle

Separation of the system manager

Sale of ‘Ramat Hovav’ site

Sale of ‘Reading’ site

Completion of the construction of a combined cycle H unit at 'Orot Rabin’ site

Sale of the part which includes a type E combined cycle area at ‘Hagit’ site

Sale of ‘Eskol’ site

Re-examination of the supply section

Sale of ‘Alon Tavor’ site

Page 18: Investor Presentation Investor... · This Presentation does not constitute or form part of and should not be construed as an offer to sell or issue, or the solicitation of an offer

Israeli Electricity Sector

18

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The Israeli Electricity Sector

Investor Relations

Nearly 100% of the Switching

Stations and the Ultra-High & High

Voltage lines are owned & operated

by IEC

As of 12/31/2018,

74% of total generating

capacity

Expected to reach

63.3% by the end of

2019

Generation, Transmission and Distribution

IEC’s Main Regulators IEC’s Fuel Suppliers

The Electricity Authority (EA)

Government Companies Authority (GCA)

Antitrust Authority

Israel Securities Authority

Ministry of Energy

Ministry of Finance

Ministry of Interior

Ministry of Environmental Protection (MoEP)

The Concentration Committee

TASE

Natural Gas - Currently solely from the Tamar Reservoir and more

reservoirs in Israeli waters have been discovered

Liquid Natural Gas - Imported from international suppliers

Coal - Imported from international suppliers

IPPs

Source : IEC’s Financial Statements for 2018A.

IEC reached 2.8 million customers

(as of December 31, 2018)

TransmissionGeneration Distribution

19

As of 12/31/2018,

26% of total generating

capacity

Expected to reach

36.7% by the end of

2019

150 of 202 Substations are owned &

operated by IEC

(as of December 31, 2018)

Page 20: Investor Presentation Investor... · This Presentation does not constitute or form part of and should not be construed as an offer to sell or issue, or the solicitation of an offer

The Electricity Tariff

In accordance with the Electricity Sector Law, the electricity tariff is set by the Electricity Authority (EA) and reformulated from time to time. The outline of the

formula is as follows:

Actual costs are examined every 2 weeks by the EA

(at the time of CPI and fuel prices changes)

Discrepancies between forecasted costs and actual

cost are reconciled on the earlier of:

A difference of 3.5%, provided that 3 months

have passed since the last update

A difference of 5.5%

The Annual Update

Once a year, discrepancies

between the previous year’s

forecasted costs of tariff

components and the previous

year’s actual costs are reconciled

New formula increases the average amount paid per

consumer by 2% primarily because of:

An increase in natural gas and coal prices

A massive entry of renewable energies

For the first time, the tariff includes two charge components:

energy and capacity according to the size of the consumer's

connection to the electricity network

Investor Relations

Forecasted recognized costs

per segment (e.g. fuel, foreign

currency exposure,

depreciation and not

recognizing cross-subsidies)

+ Fair rate of return on equity

per segment -Cost reduction/efficiency co-

efficient (including costs the

EA chooses not to recognize)

(temporarily suspended)

Electricity Tariff

Ongoing Update Annual Update Tariff Reformulation as of January 1, 2019

Tariff Structure

Source: IEC’s Financial Statements for 2018A, Electricity Authority's decision No. 7 (1317) - Annual Update 2019 electricity tariff

20

Page 21: Investor Presentation Investor... · This Presentation does not constitute or form part of and should not be construed as an offer to sell or issue, or the solicitation of an offer

The Electricity Tariff - Cont’d

Source:

1) World Bank Commodity Price Data (Pink Sheet), August 2019; Calculated as average price of Australia and South Africa coal. Russia is not included in World Bank information, even though it is a significant source of

coal for IEC. The general and Residential Tariffs do not include VAT.

2) The Electricity Authority - Report on State of Electricity Economy Year of 2018.

Tariff vs. Coal Price Development(1)

Investor Relations

0.40

0.45

0.50

0.55

0.60

40

60

80

100

120

140

($/t)

Coal Average General Tariff Residential Tariff

NIS

21

Structure of the Residential Tariff as Divided into Segments(2)

Production and fuel

67%

Transmission 5%

Distribution17%

Electricity Grid Administrator + returns to IEC consumers 12%

Page 22: Investor Presentation Investor... · This Presentation does not constitute or form part of and should not be construed as an offer to sell or issue, or the solicitation of an offer

Financial Overview

22

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1.7 1.8 1.3 0.6

1.8

0.5 0.7 0.9

0.4

0.5

1.3 1.3 1.5

0.6

0.8

3.5 3.9 3.7

1.6

3.2

0

1

2

3

4

5

6

2016 2017 2018 H1-2018 H1-2019

NISbn

Generation Transmission System Manager Distribution Supply

$0.9

$0.4

$0.9

Financial Highlights

Revenues EBITDA(1)

Historical Investments by segments (CAPEX) Net Financial Debt/EBITDA(2)

7.7 8.1 8.0

3.1 3.5

0

3

6

9

12

2016 2017 2018 H1-2018 H1-2019

NISbn $2.0

$0.8 $1.0

22.7 23.4 23.6

10.8 11.4

0

10

20

30

2016 2017 2018 H1-2018 H1-2019

NISbn $6.7 $6.3

$3.0$3.2

Source: IEC’s Financial Statements for 2016A-2018A and for H1-20191) IEC defines “EBITDA” as profit (loss) before income taxes, financial expenses, depreciation and amortization.2) IEC defines “net financial debt” as credit from banks and other credit providers, total long-term debt (including debentures, long-term liabilities to banks, including hedge transactions, lease liabilities, debentures to the State of

Israel and liabilities to the State of Israel), less cash and cash equivalents, short-term investments and other receivables (including receivables for forward contracts and swap transactions, MTM and long-term deposits andregulatory deferral account assets with respect to linkage differentials).

3) In annualized terms, calculation based on LTM EBITDA.Denotes USD figures at USD/NIS exchange rate of 3.85, 3.47, 3.75, 3.65 & 3.57 for the end of period of 2016A, 2017A, 2018A, H1-2018 & H1-2019, respectively.

5.1x 5.2x 4.8x5.7x

4.8x

0.2x0.1x

5.3x 5.2x 4.8x5.7x

4.8x

0

2

4

6

8

2016 2017 2018 H1-2018 H1-2019State guaranteed Net Financial Debt / EBITDA without State guarantees

Investor Relations

$2.3 $2.1

$1.1 $1.0

23

$5.9

Page 24: Investor Presentation Investor... · This Presentation does not constitute or form part of and should not be construed as an offer to sell or issue, or the solicitation of an offer

Historical Cash Flow

Source: IEC’s Financial Statements for 2016A-2018A and for H1-2019

1) Investment activities excluding repayment (or deposits) of bank deposits. Total cash from investment activities figures as reported for 2016A, 2017A, 2018A, H1-2018 & H1-2019 are NIS (2.8) bn, NIS (2.2) bn, NIS (3.1)

bn NIS (2.0) bn and NIS (1.5) bn, respectively.

2) IEC defines “liquidity” as cash and cash equivalents, short term investments and available credit facilities.

Denotes USD figures at USD/NIS exchange rate of 3.85, 3.47, 3.75, 3.65 & 3.57 for the end of period of 2016A, 2017A, 2018A, H1-2018 & H1-2019, respectively.

6.55.8 5.8

3.1 2.8

(2.2) (2.7) (3.1)

(1.3) (1.5)(2.7)

(3.7) (3.3) (3.3)(2.7)

5.76.3

5.6

(12)

(8)

(4)

0

4

8

12

2016 2017 2018 H1-2018 H1-2019

NIS bn

Operating activities Investment activities, net Financing activities Total Liquidity

$1.7

($1.1)

($0.4)

$1.7

($0.7)

$1.5

$0.8

($0.8) ($0.9)($0.8)

($0.4)

($0.9)

$0.8

Generating sufficient cash flow from operations enables IEC to decrease debt

Investor Relations

(1)

($0.6) ($0.8)

24

(2)

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51.8

50.0

46.9

44.6

43.2

42.1

38.339.0

32

37

42

47

52

2012 2013 2014 2015 2016 2017 2018 H1-2019

NIS, bn

$11.3

$12.1

$11.6

$12.0

$14.4

$10.2

(2)

$11.0

Net Financial Debt (1) Over Time

Source: IEC’s Financial Statements for 2012A-2018A and for H1-2019

1) IEC defines “net financial debt” as credit from banks and other credit providers, total long-term debt (including debentures, long-term liabilities to banks, including hedge transactions, lease liabilities, debentures to the

State of Israel and liabilities to the State of Israel), less cash and cash equivalents, short-term investments and other receivables (including receivables for forward contracts and swap transactions, MTM and long-term

deposits and regulatory deferral account assets with respect to linkage differentials).

2) As from 01/01/2019, “net financial debt” also includes lease liabilities.

Denotes USD figures at USD/NIS exchange rate of 3.73, 3.47, 3.89, 3.84, 3.85, 3.47, 3.75 & 3.57 for the end of period of 2012A, 2013A, 2014A, 2015A, 2016A, 2017A, 2018A & H1-2019, respectively.

Investor Relations

Prepared According to

Government Companies

Regulations

IFRS

25

$13.9

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Fixed93.6%

Floating6.4%

Consolidated Debt Breakdown as of June 30, 2019

Note: The “fifth year and thereafter” blue bar is off the chart.

Source:1) IEC immediate report on the Corporate Liabilities Status.2) IEC Financial data and Bloomberg.3) IEC Financial data, IEC immediate report on the Corporate Liabilities.

Annual Debt Maturities (Principal in NIS billions)(1)

1.240.24 0.24 0.21 0.52

2.73

2.07 1.93

4.36

23.21

3.96

2.30 2.17

4.57

0

2

4

6

First year Second year Third year Forth year Fifth year and thereafter

(NIS bn)

Loans from local and foreign banks Local bonds, private bonds and non-bank loans

Debt by Currency(3) Type of Instrument(3) Source of Debt(3)

NIS50.6%

Euro2.2%

USD40.5%

Other6.8%

State guaranteed

0.9%

Non-guaranteed

by state 99.1%

23.73

Interest Rate Exposure(3)

Investor Relations

Local public bonds28.1%

Private bonds and non-bank

loans 65.3%

Local bank loans 2.7%

Foreign bank loans

3.9%

26

Coupon Outstanding

Amount ($mn) Maturity

9.375%500$Jan-20

6.875%650$Jun-23

5.000%1,250$Nov-24

7.875%125$Dec-26

7.750%300$Dec-27

4.250%$1,000Aug-28

8.940%40$Mar-30

8.100%125$Dec-96

Profile of International IEC $ Bonds(2)

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Income Statement(NIS millions)

Source: IEC’s Financial Statements for H1-2019

Investor Relations 27

(NIS millions)

12/31/2018 06/30/2018 06/30/2019

Revenues 23,584 10,791 11,408

Cost of operating the electricity system

Fuels 8,540 3,962 4,309

Purchases of electricity 3,591 1,749 1,874

Operation of the generation system 4,375 2,187 2,168

Operation of the transmission and distribution system and others 3,018 1,590 1,260

Total costs 19,524 9,488 9,611

Profit from operating the electricity system 4,060 1,303 1,797

Other expenses (revenues), net 23 (2) 40

Sales and marketing expenses 935 476 428

Administrative and general expenses 734 329 372

Expenses (income) from liabilities to pensioners (100) (48) 5

Reform agreement's results 4,249 - 483

Profit (loss) from current operations (1,781) 548 469

Assets arrangement's results, net (2,627) - -

Financial expenses, net 1,792 1,382 1,079

Loss before income taxes (946) (834) (610)

Taxes on income (597) (186) (134)

Loss after income tax (349) (648) (476)

Company's share of the loss of asociated companies (5) (4) (5)

Loss before regulatory deferral accounts (354) (652) (481)

Movement in regulatory deferral accounts balances, net of tax 4,424 472 665

Profit (loss) for the period 4,070 (180) 184

Profit (loss) with respect to cash flow hedging, net of tax 123 8 (6)

Remeasurement of a defined benefit plan, net of tax (143) (164) (376)

Movement in balances of regulatory deferral accounts balances , net of tax - - 46

Other Comprehensive loss for the period, net of tax (20) (156) (336)

Comprehensive income (loss) for the period 4,050 (336) (152)

For the period:

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Balance Sheet(NIS millions)

Source: IEC’s Financial Statements for H1-2019

Investor Relations 28

(NIS millions)

Assets 12/31/2018 06/30/2018 06/30/2019 Liabilities and Equity 12/31/2018 06/30/2018 06/30/2019

Current assets Current liabilities

Cash and cash equivalents 2,806 1,303 1,464 Credit from banks and other credit providers 2,626 4,023 5,053

Short term investments 477 1,093 381 Trade payables 2,256 2,157 2,208

Trade receivables for sales of electricity 4,364 4,550 4,570 Other current liabilities 1,432 1,380 1,218

Other current assets 526 690 405 Customer advances, net of work in progress 437 510 448

Inventory - fuel 1,241 1,208 986 Provisions 681 678 657

Inventory - stores 142 132 145 Liabillities of disposal groups classified as held for sale 307 - 331

Assets of disposal groups classified as held for sale 947 - 911 Total current liabilities 7,739 8,748 9,915

Total current assets 10,503 8,976 8,862

Non-current liabilities

Debentures 33,673 31,721 30,533

Non-current assets Liabilities to banks 4,668 5,026 4,123

Inventory - fuel 1,463 980 1,273 Liabilities with respect to other benefits after employment 5,097 2,873 5,779

Long-term receivables 1,228 1,069 1,152 Deferred taxes, net 5,769 5,891 5,632

Investment in associates 34 35 29 Debentures to the State of Israel - 2,534 -

Assets with respect to benefits after employment 5,968 6,309 5,813 Liability to the State of Israel 1,788 1,595 1,795

Fixed assets, net 57,667 58,977 58,461 Lease liabilities - - 684

Intangible assets, net 1,200 1,205 1,188 Other liabilities 635 779 603

Total non-current assets 67,560 68,575 67,916 Total non current liabilities 51,630 50,419 49,149

Debit balance of regulatory deferral accounts 7,873 4,221 9,059 Equity 24,843 20,457 24,691

Credit balances of regulatory deferral accounts and

deferred taxes with respect to regulatory deferral

accounts 1,724 2,148 2,082

Total assets and debit balance of regulatory 85,936 81,772 85,837 Total liabilities, equity and credit balance of 85,936 81,772 85,837

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Thank youFor questions or additional information, please contact us:

29

Israel Electric Corp. Investor Relations: [email protected]

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Appendices

30

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The Reform in the Generation Segment (Selected generation sites)

Investor Relations 31

Steam - dual purpose: coal and fuel oil

Steam - dual purpose: natural gas and fuel / diesel oil

Gas turbine (internal combustion)

Combined cycle (internal combustion and steam)

A power station planned to be sold during the reform

Hagit: will be sold units with a

capacity of 670 megawatts

Source: IEC ‘s Financial Statements for 2018A and for H1-2019Note:In accordance with the IEC’s undertakings adopted by the IEC's BOD on May 10, 2018, to the extent that the Government resolutions and/or the legislative amendments and/or the administrative decisions and/or the arrangements of theElectricity Authority and/or the aforesaid licenses given by the State of Israel, that will correspond to the (insofar as these are needed according to the State of Israel position), or that the collective agreement IEC and the employeesrepresentatives will not be in force, then all IEC’s undertakings will not be in force and the State of Israel will not be able to file claims and/or complain against IEC with respect to those undertakings. For the purpose of implementing the fullstructural change outline, it will be required the approval of the regulatory agencies, decisions and regulations of the Electricity Authority and granting licenses which as of date of approval of the Financial statements have not yet been receivedand there is no certainty regarding the date of determining the agreements or the granting of such licenses and their final terms. As of the date of the publication of the Financial statements, IEC is unable to reliable estimate the exact implicationsof the additional regulations and approvals that have not yet been formulated or received on its financial position and results.

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Environment, sustainability and corporate governance (ESG) (1)

Investor Relations

1) Source: IEC's Corporate Sustainability Report for 2018, Maala's rating for IEC for 2019.

2) Maala is the non-profit CSR standards-setting organization in Israel who serves the needs of some 110 members, comprised of Israel’s large and mid-size companies, committed to

excellence in corporate citizenship. The criteria in the rankings are determined by an independent public committee composed of content experts, academics, heads of social

environmental organizations and representatives of the business sector.

32

IEC earned the highest ranking in the Maala(2) 2019 Index: Platinum+ (for the fifth consecutive year)

Ethical Aspects

of Business

Conduct

Responsible

Supply Chain

Implementation of Corporate

Governance Code

Effectiveness of the work of

the Board of Directors policy

Prevention of conflicts of

interests, corruption and

embezzlement

A published code of ethics

adapted to IEC’s fields of

operations

Reference to ethical

aspects with stakeholders

Internal communications

on ethics issues

Organizational culture that

respects employee rights

Promotion of health and

ensuring worker safety

Retention and development

of human resources

Work-life balance and

fostering an open culture

Engagements mainly through public tenders or

other competitive procedures. Setting fair rules

and providing equal opportunity to suppliers

Improving dialogue and deepening cooperation

with Israeli industrial enterprises

Securing subcontracted workers' payment terms

and conditions

Diversity of suppliers

Diversified and

humanitarian employment

Diversified employees in

managerial positions

Women in managerial roles

Accessibility for people with

disabilities

Social activity policy

Promotion of regular and

one-off volunteering by

workers and pensioners

in the community

Environmental violations

screening

Environmental policy &

management system

Measurement and setting

objectives: air, energy, waste,

water and sewage

Employee health,

Wellbeing and

working relations

EnvironmentEmployee

Volunteering

Diversity &

Inclusion

Corporate

Governance

Page 33: Investor Presentation Investor... · This Presentation does not constitute or form part of and should not be construed as an offer to sell or issue, or the solicitation of an offer

Sources of Natural Gas in Israeli Waters

Introduction of LNG by

a regasification ship

33

Tamar is only

active site

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Tariff Comparison to European Countries

The electricity rate in Israel is lower than most European peers

Source:Eurostat, Electricity prices for domestic consumers – bi-annual data, as of 18/06/2019. Israel rate is based on the last tariff update that does not include VAT (01/01/2019) and converted EUR/NIS exchange rate of 4.06 as of 06/28/2019.1) Average national price in Euro per kWh without taxes for medium size household consumers (annual consumption between 2,500 and 5,000 kWh).

Average Price per KWh(1)

Investor Relations

20.1 20.019.5

17.5

14.2 14.0 13.8 13.813.0 12.9 12.7

12.1 11.7 11.6 11.4 11.3 11.3 11.210.5 10.4 10.3 10.3

9.68.9 8.8 8.5 8.4

7.76.9

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(€ cents equivalent)

34