Turpaz Industries : Annual report for the year ended December 31, 2023

Turpaz Industries Ltd.

Annual report for the year ended

December 31, 2023

This is an English translation of a Hebrew Periodic report that was published on March 19, 2024 (reference no.: 2024-01-023989) (hereafter: the "Hebrew Version"). This English version is only for convenience purposes. This is not an official translation and has no binding force. Whilst reasonable care and skill have been exercised in the preparation hereof, no translation can ever perfectly reflect the Hebrew Version. In the event of any discrepancy between the Hebrew Version and this translation, the Hebrew Version shall prevail.

Table of Contents

Chapter	Page
A. Description of the Company's Business	A-1
B. Board of Directors' Report on the State of the Corporation's Affairs...	B-1
C. Financial Statements as of December 31, 2023	C-1
D. Additional details	D-1
E. Managers' statements	E-1

Chapter A - Description of the Company's Business

Table of Contents

1.1.	Introduction	A-1
1.2.	Terms	A-1
1.3.	The Company's Activity and Description of the Development of its	A-2
Business
1.4.	Structural changes, mergers and material acquisitions	A-10
1.5.	Investments in the Company's capital and transactions involving its	A-15
shares
1.6.	Dividend distributions	A-15
1.7.	Financial information regarding the Company's operating segments	A-16
1.8.	General environment and external factors impacting all of the Company's	A-17
operating segments
1.9.	Fragrances segment	A-23
1.10.	Taste segment	A-30
1.11.	Specialty fine ingredients segment	A-40
1.12.	Marketing and Distribution	A-47
1.13.	Ingredients and suppliers	A-48
1.14.	Property, plant and equipment, land and manufacturing capacity	A-50
1.15.	Research and development	A-56
1.16.	Intangible assets	A-57
1.17.	Human capital	A-58
1.18.	Working capital	A-62
1.19.	Investments.	A-62
1.20.	Financing	A-62
1.21.	Taxation	A-64
1.22.	Restrictions of and supervision of segment activities	A-64
1.23.	Material agreements	A-73
1.24.	Insurance	A-73
1.25.	Legal proceedings	A-73
1.26.	Objectives and business strategy	A-74
1.27.	Projected developments in the forthcoming year	A-75
1.28.	Financial data regarding geographical segments	A-76
1.29.	Risk factors - discussion	A-78

A - 1

Chapter A - Description of the Company's Business

1. Introduction
   The Company is pleased to submit the Company's periodic report for the period ended December 31, 2023 (hereinafter - the "Reporting Period") in accordance with the provisions of the Securities Law, 1968 (hereinafter - the "Securities Law"), and the Securities Regulations (Periodic and Immediate Reports), 1970.
   The term Group will include the Company and any of the companies under its control.
   This chapter of the Periodic Report, which describes the Company's businesses, should be read in conjunction with the other chapters of this Periodic Report, including the notes to the attached financial statements.
2. Terms

The "Stock Exchange" -	The Tel Aviv Stock Exchange Ltd.
The "Company" -	Turpaz Industries Ltd.
"The Group" or "Turpaz	Turpaz Industries Ltd. and its consolidated companies and/or a
Group"-	consolidated company
"Dollar" -	US Dollar
The "Companies Law" -	The Companies Law, 1999
The "Research and	The Law for the Encouragement of Industrial Research,
Development Law" -	Development and Technological Innovation, 1984, as amended
	from time to time
The "Securities Law" -	The Securities Law, 1968
"Israel Innovation	The National Technological Innovation Authority (formerly - the
Authority" -	Chief Scientist Office).
"Periodic and	Securities Regulations (Periodic and Immediate Reports), 1970.
Immediate Reports
Regulations"
"Chemada" -	Chemada Industries Ltd
"Pollena Aroma" -	Pollena Aroma SO z.o.o
"SDA" -	SDA Spice Industries Ltd.
"WFF"	Western Flavors Fragrances Production Joint Stock Company
"Turpaz USA" -	Turpaz Fragrances and Flavors Aroma Inc.

A-2

"FIT"	Food Ingredients Technology
"LORI"	LORI RKF
"Balirom"	Balirom Ltd.
"Pentaor"	Pentaor Ltd.
"Klabin"	Klabin Fragrances, Inc.
"Aromatique"	Aromatique Food SRL
"Food Base"	Food Base Kft.
"Sunspray"	Sunspray Solutions Proprietary Limited

Part A - Description of the General Development of the Company's Business

1.3. The Company's Activity and Description of the Development of its Business

1.3.1. General

The Company was incorporated and registered in Israel on February 10, 2011, as a private company limited by shares in accordance with the Companies Law under the name BKF Perfume Compounding Ltd. On January 21 2021, the Company changed its name to Turpaz Industries Ltd.

On May 23 2021, the Company's shares were listed for the first time on the Tel Aviv Stock Exchange, and the Company became a public company, as this term is defined in the Companies Law.

The Company is a global company that operates, independently and through its subsidiaries in the development, production, marketing and sale of fragrances, used in the production of cosmetics, toiletries, personal care, air care & odor neutralizers products; natural and synthetic sweet and savory taste extracts in liquid and powder form, seasonings, unique functional solutions for the field of baking, and gluten free flours, which are used mainly in the production of food and beverages, specialty fine ingredients for the pharma industry, the agro and fine chemicals industry, the food supplements industry, and citrus products and aromatic chemicals for the flavor and fragrance industries.

The Turpaz Group has an extensive and diversified range of products, which are developed and produced in the Group's plants across the world. As of the report's publication date, the Group develops, produces, markets and sells products to more than 2,650 customers in more than 60 countries across the world, and operates approx. 16 manufacturing facilities, including

A-3

R&D centers, laboratories and sales, marketing and regulation offices in Israel, the USA, Poland, Belgium, Vietnam, Latvia, Romania, Hungary, India and South Africa which employ 730 employees.

In the first quarter of 2024, Turpaz recruited a number of leading experts with extensive knowledge and tens of years' worth of experience in leading international companies in the taste and fragrance industry. The experts that were recruited included a global master perfumer, a global senior flavorist and a global procurement. The recruitment of those experts allows Turpaz to continue strengthening its global capabilities both in terms of development and in terms of technology and addressing its customers' needs, while strengthening its global position and continuing its geographic expansion in accordance with the Group's growth strategy.

Furthermore, this recruitment is expected to allow Turpaz to strengthen and increase the synergies between the Group companies and its activities in the different geographic regions, and to position it as a leading company in the field of taste, fragrance and specialty fine ingredients.

In view of its extensive product range, the extensive experience the Group gained over the years in its different areas of activity, its in-depth knowledge of the market, competitors, suppliers and most important - its customers, its flexible and focused management of its businesses, and its product development capabilities, the Company can offer a diverse range of products tailored to meet the customer's needs.

Furthermore, the Group's understanding of, and managerial experience in, the value chain and supply chain processes in its areas of activities, and its in-depth knowledge of most companies operating in the industry, open up to it many opportunities to expand into new geographic regions and to purchase companies and/or activities for the taste, fragrance, and the specialty fine ingredients segments, thereby allowing it to promote the implementation of its business strategy and maintain its long-standing competitive advantage, as elaborated in Section 1.27 below.

Turpaz Group's strategy is based on combined growth that includes targets of double-digit growth and improvement of the Group's geographic deployment through M&As of activities that are synergetic to Turpaz Group's activity and organic growth, while leveraging the synergies between Group companies in the areas of sales, procurement, development and marketing while complying with regulatory requirements, which contribute to the improvement in profitability. The Company assesses on an ongoing basis options to acquire

A-4

additional companies, noting the market conditions and the expected contribution from the acquisition, as estimated by the Company.

Turpaz Group operates in accordance with an orderly plan it developed to achieve the swift integration of the acquired company into the Group and the enhancement of the global management; this includes, among other things, retaining the existing managements of the acquired companies and integrating those managements into Turpaz's management, enhancing the sales function (cross-selling) by expanding the product mix, entering into new markets and recruiting new customers, expanding the R&D, procurement, and finance functions of the acquired company, in order to achieve swift utilization of synergies. In the opinion of the Company, as of the date of this report, it has not yet utilized the entire potential of the acquisitions it made in the last two years, and that it is taking action on a current basis to fully utilize the potential of those acquisitions.

Company's assessments as to the Group's growth rate, the periods during which the potential embodied in the acquisitions and the new recruitments will be fulfilled, and as to the integration of the acquired companies into the Group constitutes forward-looking information, as defined in the Securities Law, which is based on Group management's assessments, and may not materialize or materialize in a manner different than expected, as a result of incorrect assessments, changes to the work plan, changes in the market, or the materialization of all or some of the risk factors listed in Section 1.29.

1.3.2. Areas of activity

As of the report date, the Company has three areas of activity that are reported as business segments in its financial statements, as follows:1

The fragrance segment- in this segment, Turpaz Group is engaged in the development, production, marketing and sale of natural and synthesized fragrance extracts for customers in the cosmetics, toiletries, detergents, wet wipes, scented candles, hair care, air care & odor neutralizers industries for hotels and households. Furthermore, Turpaz Group operates to manufacture specialty ingredients of high added value, whose purpose is to conceal bad odors, and give and enhance desired scents in consumer or industrial products. The fragrance extracts developed by the perfumers are tailored to customers' requirements while creating long-term relationship between Turpaz Group and its customers across the world. When they select a supplier, customers focus on the suppliers' innovation, uniqueness, high quality, compliance

1 For information regarding the transition to reporting three segments, see Note 25A to the financial statements.

A-5

with international and domestic regulatory requirements, the suppliers' reliability and the excellence of their services and their knowledge of the needs of the customers for whom the specialty extracts were developed.

The taste segment- as part of the taste segment, Turpaz Group is engaged in the development, production, sale and marketing of natural and synthesized, sweet and savory flavor extracts, seasonings and gluten free flours, which are used mainly in the production of food, including meat and egg substitutes, plant-based solutions, snacks, ready-made meals, dairy products, ice creams, pharmaceuticals, food and organic colorings for the animal food, beverages and food supplements industries, all tailored to meet customers' needs and regulatory requirements. Furthermore, the Group develops extracts and mixtures that allow the production of "clean label" products, reducing quantities of fat, salt and sugar in snacks, food products and beverages, while retaining the desired taste and texture of those products.

Specialty fine ingredients segment- in this segment, Turpaz Group is engaged in the development, production, marketing and sale of specialty fine ingredients used as intermediates and raw materials in the pharma industry, fine specialties ingredients used in various manufacturing processes to be used in a range of industries, mainly flavors and fragrances, agrochemicals, polymers and catalysts, and citrus products and aromatic chemicals for the flavor and fragrance industry. In this segment, Turpaz Group focuses on the production of high-quality products of high added value, and develops and manufactures tailor made products that meet the needs of its customers and comply with prevailing regulations through its development, manufacturing and engineering departments.

A - 6

1.3.3. Chronological description of the development of the Company's businesses

The acquired

The nature of the

Geographic

Holding rate

Acquisition date

Segment

The consideration

region of

as of the

Additional information

company/activity

transaction

activity

report's date

December 2017

Pollena Aroma

Purchase of the entire share

Fragrance and taste

EUR 7.13 million

Poland

100%

capital of Pollena Aroma

February 2018

Intuiscent (through

Acquisition of activity

Fragrance

Approx. USD 200

USA

100%

Turpaz USA)

thousand

June 2019

Chemada

Acquisition of activity from

Specialty

fine

Approx. USD 4.1 million

Israel

100%

a trustee, as part of

ingredients

receivership process.

August 2019

Flavor Associates

Acquisition of activity

Fragrance and taste

Approx. USD 1.5 million

USA

100%

(through

Turpaz

For more information,

USA)

see Section 1.4.1.3 to the

2021 Periodic Report.

January 2020

Florasynth

Acquisition of activity

Taste

NIS 2.5 million

Israel

100%

(through

the

Company)

July 2020

WFF

Purchase of 60% of the share

Fragrance

See Section 1.4.1.5 to the

Vietnam

70%

Turpaz has an option to purchase 20% of

capital

of

WFF,

a

2021 Periodic Report.

WFF's shares; the option may be

shareholders'

loan and

an

exercised in whole or in part at any time

option

to

purchase

the

through July 22 2024, in consideration

remaining shares

for an amount to be calculated on

exercise date, based on WFF's average

monthly EBITDA. In addition, 10% of

WFF's shares are held by a local

investor, who serves as the Company's

CEO. For more information about

changes in the holding rate, see Note 1A

to the financial statements.

November 2020

SDA

Acquisition

of control

in

Taste

NIS 12.2 million.

Israel

100%

SDA.

A-7

The acquired

The nature of the

Geographic

Holding rate

Acquisition date

Segment

The consideration

region of

as of the

Additional information

company/activity

transaction

activity

report's date

August 2021

Acquisition of the remaining

Approx. USD 7.5

rights (49%) in SDA.

(approx. NIS 24.5

million) million and a

performance-based

payment of approx.

USD 0.9 million (approx.

NIS 3 million).

October 2021

FIT

Acquisition of control (60%)

Taste

Approx. EUR 12.8

Belgium

60%

In the fourth quarter of 2023, the parties

in FIT.

million (approx.

agreed the postponement of the deadline

USD 14.5 million), of

for exercising the option to purchase the

which EUR 1.99 million

remaining shares of FIT (40% of the

(approx. USD 2.25

issued and paid-up share capital); for

million) in cash, and the

more information, see Note 5G to the

remaining balance by

financial statements. Furthermore, the

way of allocating

parties signed a shareholders' agreement,

Company shares

including agreements regarding a

constituting approx.

preemptive right, first right of refusal and

1.74% of the issued and

a tag along right, as well as generally

paid-up share capital

accepted minority protection rights.

(approx. 1.73% on a fully

diluted basis).

October 2021

Pilpel - Food

Purchase of business activity

Taste

NIS 12 million (approx.

Israel

100%

Industries

and assets from Pilpel and

USD 3.75 million)

Development Ltd.

Galilee Herbs.

and FC Galilee

Herbs Ltd.

January 2022

LORI

Purchase of the entire issued

Fragrance

Approx. EUR 3.14

Latvia

100%

and paid up share capital of

million (USD 3.6

Lori.

million) plus net cash

balances.

March 2022

Balirom

Purchase of 60% of the

Taste

NIS 14.5 million

Israel

70%

For more information about the call

issued and paid up share

(approx. USD 4.6

options and the put option in relation to the

capital of Balirom.

million)

remaining Balirom shares, see Section

1.4.1.2 below.

April 2022

Pentaor

Purchase of the entire issued

Taste

NIS 10 million (approx.

Israel

100%

and paid up share capital of

USD 3.1 million)

Pentaor.