osem investments limited statement 30.9.14.pdf · ready-made meals based on soy and vegetable and...

Osem Investments Limited

Financial Statements

September 30, 2014

INVESTMENTS LTD

Contents

Page

Updating the Description of the Corporation’s Business Activities A-OO

The Board of Directors' Report on the Company Business

for the Nine Month Period ending 30 September 2014 A-I

Condensed Interim Consolidated Financial Statements as at 30 September 2014 (Unaudited)

Auditors' review report 1

Condensed Interim Consolidated Statement of Financial Position 2

Condensed Interim Consolidated Statement of Profit and Loss 4

Condensed Interim Consolidated Statement of Comprehensive Income and Expenses 5

Condensed Interim Consolidated Statement on Changes in Shareholders Equity 6

Condensed Interim Consolidated Statement of Cash Flows 8

Notes to the Condensed Interim Consolidated Financial Statements 9

Condensed Interim Separate Financial Statements as at 30 September 2014 (Unaudited)

Auditors' review report 13

Condensed Interim Information on Seperate Financial Position 14

Condensed Interim Information on Seperate Profit and Loss 16

Condensed Interim Information on Seperate Comprehensive Income and Expenses 17

Condensed Interim Information on Seperate Cash Flows 18

Additional Information 19

Report on the effectiveness of the internal control over the interim consolidated financial reporting

A

20 November 2014

Updating the Description of the Corporation’s Business Activities of Osem Investments Ltd. (hereinafter: "the

Company”), as at 31.12.2013 (hereinafter: "the Periodic Report") and the Company's Quarterly Report as at

30.09.2014

Below are details of significant changes and/or innovations which took place in the Company's business during the nine

months ending 30 September 2014 up until the report publication and which are required to to be described in the

periodic report in accordance to regulation 39A of the Securities and Exchange Commission (Periodic and Immediate

Reports), 1970. This update is referring to section numbers mentioned in the Description of the Corporation’s Business

Activities for the Company's annual 2013 periodic report.

1. Areas of activities - update of section 2

Change in Structure – In the aim of accenting and strengthening the managerial focus and the synergy of the

international activities of the Group, on 21 November 2013 the board of directors decided on a change of structure in

the prepared foods division by creating a separate division which will focus on the international activities of the

Group comprising Tivall Europe, Tribe USA, Osem UK, Osem USA, export activities of the Group and future

international opportunities.

As a part of this change, Tivall Israel activity is placed under the responsibility of the Culinary Division, and Sabra

Salads activity remained an independent unit which will report directly to the CEO (despite not falling under the

definition of reportable sector, thus it has been grouped into the culinary division due to similar economic aspects)

the change took place in the beginning of 2014.

This change is in addition to a change already effected in the organizational structure, according to which the

Snacks, the Bakery and Beverage, and the Breakfast Cereals divisions were combined and united to one business

unit, reporting directly to the CEO. At the same time, a new division had been established, handling new businesses

and innovation. The decision on the change in structure was made among other reasons, in order to improve the

managerial span of control over new activities which, in their early stages, require management attention.

The reporting system is being managed in the form of a matrix in which there are overlapping systems of

components. The overlapping systems entail a report according to business units under the responsibility of

managers and reporting by product categories. This way for example, the culinary category products (such as soups)

can be included in several business units (sales to the retail market within the framework of the culinary division, the

exports in the international division and sales to the professional market under the professional market division). The

reporting activity segments of the company is done in a way allowing estimation of the financial effects of the

business activity and the economic surroundings in which it operates in accordance with management vision.

B

In light of the above, the Group's reporting segments have been changed in 2014. The following are the

reportable new segments in accordance to activity areas as specified below:

A. Culinary area - In this area the Group develops, manufactures and/or sells, markets and distributes a large

variety of branded food products sold on the retail market in Israel (not including exports included in the

international division nor in the professional market which is reported under a separate segment). The main ones

being, among others, pasta, soups, casseroles, baking aids, sauces, soup almonds, canned products, prepared

meals and meat substitutes and salads.

B. Bakery, Beverages, Snacks and Breakfast Cereals area- In this area the Group develops, manufactures and/or

sells, markets and distributes a large variety of branded food products sold on the retail market in Israel (not

including exports included in the international division nor in the professional market which is reported under a

separate segment). The products in this area include the salty baked products (crackers and Lachmit), the sweet

baked products (cakes and cookies), concentrates, chocolate milk powder and soluble coffee and also snack

products (wheat snacks, peanut snacks, potato snacks and corn snacks, etc.), breakfast cereals and health bars.

C. International division area - In this area the Group develops, manufactures and/or sells, markets and distributes

a large variety of branded ambient, frozen and chilled food products sold overseas by either direct exports from

Israel and via subsidiary companies operating overseas and include the companies Tribe in the USA (prepared

meals and meat substitutes under the Veggie Patch brand and salads under the Tribe brand), Tivall Europe

(including Tivall Holland, Tivall Czech and Tivall Sweeden) , Osem USA and Osem UK.

D. Infant Nutrition area – In this area the Group’s activities are carried out via Materna partnership, which

develops, produces and/or sells and markets a wide variety of infant nutrition products which include mother’s

milk substitutes, cereals, purees, biscuits and pastas for infants

E. Professional market and gift packages - In this area the Group develops, manufactures and/or sells,

markets and distributes a large variety of products sold in the professional market (hotels, restaurants, catering

companies and other institutional concerns) and gift packages sold to employee commitees and companies via

Assimim Gifit Package Company who also sell chocolate snacks to the retail market.

F. Other Activities area – In this area are included various activities which are not included in the activities

mentioned above. The main ones being, among others, Bonjour frozen bakery products, iced tea (Nestea) ice

cream, other purchased products and pet foods. The said activities are not material to the activity of the Group

and do not meet the quantitative threshold to be presented in the financial statements as reportable segments. The

said activities are not material to the activity of the Group and do not meet the quantitative threshold to be

presented in the financial statements as reportable segments.

C

2. Distribution of dividend - update of section 4

On 8 April 2014, the Company distributed a dividend for the sum of NIS 150 million.

3. Financial information on operating segments of the Company - Update to section 5

Following the changes concerning the reporting segments and in the areas of activity, as detailed in the update to the

chapter in which the areas of activities are discussed (section 2), below are the company's financial data, divided

into the new areas of activities (in KNIS):

D

Year 2013

Culinary

Area

Bakery,

beverages,

snacks

and

breakfast

cereals

Professional

market and

gift

packages

Area

International

division

Area

Infant

Nutrition

Area

Other

Adjustments

for the

consolidated

Consolidated

Revenue from the operating

segment 956,212 1,118,786 412,460 629,847 358,644 759,757 (45,659) 4,190,047

Attributable fixed costs 345,991 370,647 84,853 223,649 136,810 412,548 - 1,376,775

Attributable variable costs 486,913 505,733 302,149 353,982 159,683 814,749 (36,673) 2,284,714

Results from the activity area 123,308 242,406 25,458 52,216 62,151 32,005 (8,986) 528,558

Part attributed to the owner of

the parent company 123,308 242,406 24,788 52,216 62,151 32,005 (5,759) 849,555

The part attributed to the non

controlling interests - - 670 - 670

Assets which are attributed to

the activity area 236,027 186,324 120,653 512,578 614,449 276,746 1,695,511 3,642,288

Liabilities which are attributed

to the activity area - 11,569 9,129 84,180 413,843 36,427 834,267 1,389,415

E

Year 2012

Culinary

Area

Bakery,

beverages,

snacks

and

breakfast

cereals

Professional

market and

gift

packages

Area

International

division

Area

Infant

Nutrition

Area

Other

Adjustments

for the

consolidated

Consolidated


segment 926,858 1,093,388 392,118 668,546 355,058 697,383 (41,758) 4,091,593







controlling interests - - 681 - - - - 681

Assets which are attributed to

the activity area 228,765 195,655 114,330 543,224 577,194 268,529 1,496,473 3,424,170

Liabilities which are attributed

to the activity area - 2,575 6,509 79,574 424,937 41,353 825,778 1,380,726

F

Year 2011

Culinary

Area

Bakery,

beverages,

snacks

and

breakfast

cereals

Professional

market and

gift

packages

Area

International

division

Area

Infant

Nutrition

Area

Other

Adjustments

for the

consolidated

Consolidated


segment 908,545 1,038,247 385,074 639,952 369,249 658,120 (38,310) 3,960,877







controlling interests - - (22) - - - - (22)

G

4. Regulatory developments - update of section 6.4

In March 2014 the Law for the Promotion of Competition in the Food Industry (Food Law) was

approved which deals with, among others, the regulation of suppliers and wholesalers and the

geographical competition among wholesalers, this being based on the recommendations of the

Food Committee, the law will become effective on 15.1.2015. At this early stage, it is not possible

to estimate the effects of changes that will occur due to the law. At this stage one time accruals

have been made in the amount of NIS 9,800 thousand resulting from the expected changes in the

commerce organization as the result of preparations in anticipation of the law.

5. Culinary area - update of section 7

7.1 General Information on the Area of Activity

A. Structure of Category and Recent Changes

The culinary area focuses on the development, manufacturing and/or sale, marketing and

distribution of food products sold on the retail market in Israel. These food products are used

as basic elements in preparing a meal at home and which are integral parts of home-made

cooking and preparing the main meal. This area includes mainly the pasta products, the soups,

the casseroles, baking accessories, sauces, soup almonds and pickles. Also included in the

vegetable based foods and frozen meat analogues such as schnitzel, hamburgers, sausages and

ready-made meals based on soy and vegetable and chilled salads (hummus, tehina, eggplant

etc.). The category is characterized by high competitiveness accompanied by high advertising

costs. The Groups brands are of the leading ones in this area. Moreover, the level of

innovation and development of the new products is high.

B. Changes in the scope of activity and in profitability

During the last few years, competition in this category from both the manufacturers and the

private labels has increased. Despite the above, the Group continued to grow in this area,

among others, due to innovation and development of new products.

C. Market developments in this area or changes in customer profile

This area of activity is based on the basic ingredients for preparing a meal and/or convenience

products comprising the meal and is supposed to respond to the consumer need to prepare a

home meal through product renovation and innovation, coupled with a tendency towards and a

need for products with improved nutritional values. The Group intends to respond to this

developing trend by constant new product development and innovation, and by additional

marketing investment in the brands.

D. Key Success Factors in this Area of activity and changes to them

H

Key success factors affecting the Group success in this area of activity are based specialized

knowhow developed by the Group in part of the products and by strengthening the Group

brands and maintaining their position as market leaders by brand building activities and by

maintaining high product quality. Another critical success factor is the product development

and innovation level. Another critical success factor is expressed by maintaining

competitiveness by being constantly efficient.

E. Main entry barriers in this area of activity and changes to them

Main market entry barriers include the constant need for innovation and new product

development, the need to build and maintain strong brands, the need for the necessary

technology and knowledge for production, and the need to invest in equipment and machinery.

The need for distribution and logistics can also be a barrier in some cases, and kosher

restrictions sometimes pose limitations to penetration, especially when imports are involved.

F. Substitute products in this area of activity and changes to them

The food industry on the whole is a mature and competitive industry and these features apply

also to this area of activity. As in other food sectors, also in this area of activity there are

substitute products in this category, manufactured by competitors. There are also imported

goods and private labels of the retail chains.

The Group acts to address the alternative products on the market by branding its products,

maintaining high quality, constant innovation and efficiency, investment in marketing and

advertising, by building and maintaining its brands, this in addition to the strategic alliance

Osem has with the world leading food company – Nestle, which is at the forefront of

innovation and technological advancement of the food business.

G. Competitive structure of the area of activity and changes to them.

The market in this area of activity is competitive. There is competition from other

manufacturers, both from the private labels of the grocery chains, and from imported goods.

I

7.2 Products

A. The main products of the Group in this category are marketed, primarily, under the

Corporate Brand "Osem". This corporate brand includes, among other things, the pasta

products, the soups, the casseroles, the sauces/dressing soup almonds and the baking

accessories.

The pickles are mainly sold under the “Beit Hashita” brands.

B. The frozen products include vegetarian foods and meat substitutes (schnitzels, hamburgers,

sausages, and ready-made meals based on soy) and products containing vegetables being

marketed under the brand "Tivall". The chilled products include salads (hummus, tahina,

eggplants etc.) are marketed under the brand "Sabra salads".

C. A large part of the Group’s products in this category are manufactured in the Group

factories in Israel although there are some imports as well. The Group sells markets and

distributes its products to the retail market in Israel.

7.3 Breakdown of Income and Product Profitability

Below please see figures on the Group's income in this activity area. In this framework there

is no group of products whose income rate represents 10% or more from the total income of

the Company.

Similar products group Income in KNIS % of the Group total income

2013 2012 2011 2013 2012 2011

Culinary Food 956,212 926,858 908,545 22.8% 22.7% 22.9%

7.4 New Products

In 2013, the Group launched into the market products whose development had been

completed; these mainly included special yeast flour for baking of Pizza and Fuccaza, a

seasoning mixture series for meat balls and rice, a root vegetable seasoning soup, additional

flavors in the instant soups "end of snacking" and XL soup series (instant soup rich with

vegetables and additions), baked pasta with roasted noodles and Ptitim Plus series with the

nutritional added value. In the chilled salads area, new salads with additional flavors under the

"King of Hummus" series in the Chef Rafi Cohen series and in the area of meat substitutes,

vegetable based muffins.

J

7.5 Competition

A. In the Culinary Food area, the Group operates in a competitive market and faces

competition from manufacturers, private labels of the grocery retail chains, and importers.

The main competitors of the group are "Telma - Unilever", "Sugat", "Yavne Preserves",

"Pri Nir", "Zoglobeck", "Tapugan", "Strauss Group", "Shamir Salads" and "Miki

Delicacies". The private labels, importers and a large number of other medium and small

sized manufactures.

B. The table below shows the Group’s monetary market shares in Israel for the year 2013,

referring to key culinary products in the table is based on weighted data derived from

StorNext's data collected from the bar-coded retail market. The figures are based on a

population of about 2200 stores in the organized market (Shufersal, Mega retailing, Coop

Israel) and in the private market (private chains, minimarkets, grocery stores, and

convenience stores) which transmit real time sales data from their cash boxes to Store

Next, and which constitute 80% of the total bar-coded FMCG market in Israel. On the basis

of this data and via a statistically progressive model, a statistical extrapolation is performed

for the entire 100% sales in the organized and the private market in Israel. The data does

not represent the entire market situation as it does not include the sales of kiosk, pharms

and open markets, the Food Service market (hotels, restaurants, catering services, etc),

specialized shops and outlets in the Arab sector:

Product Group Weighted Market Share

Pasta 56%

Soups and Casseroles 40%

Sauces and seasonings 34%

Pickles 36%

Ready-made meal / vegetable-based

and meat analogues 55%

Salads 38%

K

C. There are other factors which affect the Group's competitive position, in the Group's

estimate. These are linked to the strengthening of the Group's ability to cope with the

competition in Snacks and Bakery and with the increasing dominance of the private label.

The Group rises to the challenge by focusing all its marketing, advertising and sales

promotion efforts, by building and strengthening its brands, by continuous improvement

and rationalization processes, by keeping a large and professional distribution network for

its products, by strategic cooperation with Nestle, by launching new products as well as by

developing advanced technologies through Group's own development initiatives. In

addition, the Group puts emphasis on innovation, on creating a nutritional advantage, and

on strengthening the “Osem” brand as all as strengthening the other brands of the Group.

With the knowledge and/or know-how provided by Nestle, the Group invests resources and

efforts in adopting technologies resulting from Nestlé's R&D efforts. The Group also

invests in its own R&D initiatives so as to differentiate its products from competitor's

products both in innovation and in high technological level. All these resources and efforts

are utilized to differentiate the Group's products from those of its competitors - in

innovation and technology and in their high quality. The Group also strives to provide good

reliable, loyal, timely and high quality service and at the same time maintain the efficiency

of its supply chain. The group has over the years, built itself an image of technological

advance, quality and service and is situated as a leader in this activity.

7.6 Seasonality

There is no definitive seasonal trend in the culinary foods area. Together with this, in this area

there is a seasonal effect mainly due to the soups which are sold more during the winter (the

1ST and the 4TH quarters) and the timing of Holidays and special festivals also affect this

activity. Below see the breakdown of income, by quarters, (in thousands NIS):

Year 2013 Year 2012

Income in

thousands

NIS

% of the total

income The Culinary

Area

Income in

thousands

NIS

% of the total

income The Culinary

Area

1ST Quarter 225,701 23.6% 231,718 25.0%

2ND Quarter 238,045 24.9% 215,903 23.3%

3RD Quarter 241,389 25.2% 238,760 25.8%

4TH Quarter 251,077 26.3% 240,477 25.9%

Total 956,212 100.0% 926,858 100.0%

L

7.7 Production Capacity

The Group's maximum annual production capacity potential during the year 2013, utilizing 3

shifts, was about 178,000 tons. Average utilization rate for the actual production in the year

2013 was about 42%, with the production lines operating in one to three shifts per day. It

should be noted that production capability data and utilization relate to products produces for

the professional market and for export (international division). Most of the production lines in

the Group factories are automated or semi automated, but there are also some manual lines.

7.8 Fixed Assets and Facilities

Below see a description of the main real estate and other material fixed assets of the Group,

which are used in culinary food area.

A. Sderot Factory - is used mainly for the manufacture of seasoning products, soups, sauces,

toasted pasta, casseroles, soup alomonds and bakery accessories, but also manufactures

products for other activity areas such as snacks and breakfast cereals, bakery and chocolate

milk products under the Nesquick brand. And products for the professional market and

export products for the international division. The factory is located in Sderot industrial

zone on a plot of land of about 53 dunams (including the R&D Center) and its built area

comprises about 29,000 m2. The Group leases the land from the Israel Lands

Administration (ILA) under a capitalized perpetual lease.

B. Yokneam Factory- is used for the manufacture of noodles and bread crumbs but also

manufactures products for other activity areas, such as bakery products and savoury snacks.

And products for the professional market and export products for the international division.

The factory is located in the Yokneam industrial zone on a plot of land of about 30 dunams

(about 0.75 acre) and its built area comprises about 19,000 m2. The Group leases the land

from the Israel Lands Administration (ILA) under a capitalized perpetual lease.

C. Beit Hashita Factory - is used for the manufacture of pickles, lemon concentrate and

vinegar but also manufactures products for other activity areas, such as concentrates. And

products for the professional market and export products for the international division. The

factory is located a plot of land of about 59 dunams (about 0.75 acre) and its built area

comprises about 21,000 m2. The factory is located in Kibbutz Beit Hashita on a plot of

land of about 59 dunams (about 14.5 acres) and its built area comprises about 21,000 m2.

The Group leases the land from Kibbutz Beit Hashita under a long-term lease agreement

which will end, for the majority of the leased plots, on 31.5.2026 (subject to various

adaptations for the lease period which the parties may insert).

M

D. Tivall factory in Kibbutz Lohamey Hagetaot- the factory is used for the production of

schnitzels, hamburgers, sausages, and ready-made meals based on meat analogues and

products based on vegetables, yet manufactures products for other activity areas for the

professional market, and exports for the international division. The factory is located in

Kibbutz Lohamey Hagetaot. Based on long-term lease agreement which will end in

February 2024, the Group leases the land of about 15 dunams (about 0.75 acre) and its built

area comprises about 11,700 m2 from Kibbutz Lohamey Hagetaot. The production lines

are highly innovative; most of them are automated.

E. Sabra Salads factory in Kiryat-Gat - a factory used for the production of salads, yet

manufactures products for other activity areas for the professional market, and exports for

the international division. The factory is located a plot of land of about 36 dunams (about

0.75 acre) and its built area comprises about 9,600 m2.

In its books, the Group depreciates the main machinery and equipment of its various factories

relating to this area of activity for a period of 5-15 years.

7.9 Research & Development

The Group uses Nestle's know-how and technology. In addition, Osem through its own

Technology teams develops a variety of products in the culinary area.

The Group is active in R&D, mainly using its own resources but is also aided by the Law for

Encouragement of Research and Development in Industry 1984, under which the State of

Israel has approved, via its Chief Scientist, several R&D initiatives in the industry. At the

same time, the Group has undertaken in some of the plans, to pay royalties to the State of

Israel. As at the date of 31 December 2013, the liability to the Chief Scientist in regards to

royalty payments reached amounts that are not material.

N

7.10 Human Resources

A. For the Group organizational chart and for further details on the Group's Human Resources,

see paragraph 19 in this section below.

B. Below see a breakdown of the Group headcount for the area of Culinary Food as at

31.12.13, which includes direct Production and Administration/Management. This is

because the culinary food products are manufactured in several sites (Yokneam, Sderot and

Beit Hashita) in which Snacks and Breakfast Cereals, Bakery and Beverage are also

manufactured. In addition, there are general production workers in the culinary area who

also produce for the professional area and export products for the international division but

since their main activity is in the culinary area, they are included as workers in this area. In

addition, there are also general production workers (such as: Quality assurance staff,

technologists, maintenance workers, factory management etc.) which cannot be directly

attributed to the activities of specific field and therefore weren’t counted in the table, but

are included in the table in section 19 below. The majority of the commerce and sales

employees of the Group are recorded under the Osem Group Commerce Company which

provides sales, distribution, logistics and commerce services to all the Group's operating

segments in Israel.

Number of Employees

as at 31.12.13 Number of Employees as

at 31.12.12 Production 686 723

Administration/Management 35 40

Sales and Marketing 29 29

7.11 Suppliers and Raw Materials

A. The main raw materials used by the Group for this area of activity are flour, oil, vegetables

(cucumbers, olives, tomato concentrate), sugar, albumin, soy, hummus, tehina and starch.

B. The main packaging materials used for this segment are flexible packaging, plastic,

cardboard and tin cans. The packing materials are purchased from different manufacturers,

mostly in Israel and some of them outside Israel.

C. Some of the products in this area of activity are imported to Israel as finished goods for

example pasta.

D. Availability of raw materials purchased overseas depends among other factors on the

frequency and regularity of maritime and air freight and on the regular and uninterrupted

activity of the Israeli ports.

O

E. Some of the raw materials are commodities whose price is affected by price fluctuations on

the commodities markets on stock exchanges around the world and by fluctuations in

foreign currency exchange rates. These raw materials are produced from organic sources

(such as sugar and flour) and their prices are therefore affected by climatic changes,

duration of ripening period, etc.

F. Osem uses the services of the Nestle Strategic Purchasing Centre which specializes in

sourcing suppliers of raw materials and packaging that conform to the Nestle quality

specifications, while achieving optimal prices based on Nestlé's economies of scale. But in

effect, the Group executes the purchasing by paying directly to the raw material supplier.

G. The Group usually purchases its raw & packaging materials, through the Group's Central

Purchasing Unit, from a large number of suppliers and chooses its suppliers according to

the quality of the merchandise they offer, its availability and reliability, according to the

suppliers’ financial stability and by the prices they offer. In its purchasing and in its

selection of overseas suppliers, the Group achieves optimization in quality and price and

this among other reasons because it utilizes Nestle sourcing and information, which have

been obtained by Bench-marking.

H. As a rule, the Group's policy is to contract with more than one supplier for each of its main

raw materials, so that an alternative supplier could be approached if one supplier will

discontinue supplying the materials for any reason. As at the Group's financial statements

publication date, the Group has designated at least 2 suppliers for each of its main raw

materials mentioned above. In secondary raw materials (which belong mainly to the

flavoring additives group), the Group works with one supplier only, and this is for reasons

of kosher certification or because the recipe or composition is exclusive. In the opinion of

the Company, these raw materials have no material effect on the business activity of the

Group, they can be replaced in a short period of time by an identical or similar material

from another supplier, if necessary, without any a significant adverse impact on the

Company and in any case the Company has no dependency on any of these suppliers.

I. The majority of the Group's agreements with its suppliers are framework purchasing

agreements for periods ranging between 3-12 months. These agreements specify delivery

times, prices, quality standards, quantities and credit terms. Some of the raw materials are

commodities.

P

6. Bakery, beverages, snacks and breakfast cereals area (update to section 8)



This area of activity area of activity includes bakery and beverages, snacks and

breakfast cereal activities. The area focuses on the development, manufacture

and/or selling, marketing and distribution in the retail market in Israel of food

products which are used as a convenient and immediate solution for eating or

drinking between meals and in breaks for pampering and enjoyment. This activity

area includes the snack products (wheat, peanut, potato and corn-based snacks,

etc.), mainly fried snacks, extruded snacks, baked and roasted. In addition, this

area of activity includes the breakfast cereals and health snacks. In addition this

activity area includes the savoury bakery products (e.g. crackers and Lachimit), the

sweet bakery (cakes, cookies and biscuits), concentrates and instant coffee. These

products are characterized by long shelf life ranging between several months to

about two years. They are stored and delivered at room temperature. The category

is characterized by high competitiveness accompanied by high advertising costs.

The Groups brands are of the leading ones in this area. Moreover, the innovation

and development of the new products are high.


During the last few years, competition in this category from the manufacturers,

imported products and private labels has increased. Despite the above, the growth

in sales of the Group increased and as a result of increased marketing efforts and

new product introduction.


This area is supposed to provide a response to the consumer's need for excitement,

fun, and pleasure and this is to be achieved through product renovation and

innovation. At the same time, there is a tendency towards and a need for health and

wellness products. The Group acts to give a response to this developing trend by

constant new product development and innovation, and by additional marketing

investment in the brands.

Q


Key success factors affecting the Group success in this area of activity are based

on strengthening the Group brands and maintaining their position as market leaders

by brand building activities and by maintaining high product quality and by the

distribution and availability of the products, especially in the Impulse market.

Another Key Success Factor is the product development and innovation level. The

Group utilizes the know-how and expertise of the Nestle R&D Centre in Sderot.

Another critical success factor is expressed by maintaining the competition skill

using constant efficiency.

E. Main entry barriers in this area of activity and recent changes

For details regarding the entry barriers and recent changes in this area see

paragraph 7.1(E) above, with the necessary changes.


For details regarding the entry barriers and recent changes in this area see

paragraph 7.1(E) above, with the necessary changes.

R

G. Competitive structure in this area and changes effected

For details regarding the competitive structure in the area of activity and recent

changes in this area see paragraph 7.1(E) above, with the necessary changes.

8.2 Products

A. The main products of the Group in this category are marketed, primarily, under the

Corporate Brand "Osem" and also under the Corporate Brand "Nestlé". The

products included under the Osem brand are among others "Bamba", "Bissli",

"Apropo", "Dubonim", "Baygele Osem" (pretzels) and "Chipsy" in the savoury

snack category. And the brands “Lachmit”, "Crispy", "Osem Cracker", "Habait

Cakes", "Argaliot", "Toastaim" and "Petit Beurre".

The products under the Nestle brand include mainly the Nestle coffee brands of

"Nescafe Red Mug", "Nescafe Gold" and "Nescafe Taster's Choice", "Nescafe

Capucino, and the "Nesquik" chocolate milk powder. Nestlé breakfast cereal under

brands "Crunch", "Fitness", "Cheerios" and others, and also the health snacks

(bars) under the "Fitness" brand.

The concentrates are sold mainly under the "Assis" and “Vitaminchik” brands.

A large part of the Group’s products in this category are manufactured in the Group

factories in Israel and some - mainly coffee and breakfast cereals a - are imported

from Nestle (although some of the breakfast cereals are manufactured also in

Israel). Some products in this field are being manufactured by secondary

manufacturers.


The table below shows the breakdown of the Group’s income which derive from similar

product categories falling under this activity and which account for 10% or more of the

total of the Group revenues, as per the following

"Snacks" – include mainly wheat snacks, peanut snacks, potato snacks and corn snacks.

Except for snacks, in the rest of the products in the group, there is no group of products

whose income rate represents 10% or more from the total income of the Company.

Similar products

group

Income in thousands NIS % of the Group total

income

2013 2012 2011 2013 2012 2011

Snacks 472,544 461,085 453,250 11.3% 11.3% 11.4%

Other 646,242 632,303 584,997 15.4% 15.4% 14.8%

S

8.4 New Products

In 2013, the Group launched to the market products whose development was completed

and new Nestle products. The new products mainly include a variety of snacks in new

flavours, shapes and sizes under the "Bamba", "Bissli", "Apropo", "Dubonim", and

Baygele Osem (pretzels) brands; new flavoured cereal (under the brands "Crunch",

"Fitness", "Cheerios"); also expanding the verity of the health snacks ("fitness" bar). In

the bakery world new products were launched under the "Crispy" and "Lachmit" brands,

new cakes (brownies, sponge and yeast cakes), new cookies, and expansion of the

"Prihonim" rice cakes product range. In addition, the "Nescafe Cappuccino" series was

expanded and drinking syrup with a new flavor was launched under the "Vitaminchik"

brand.

8.5 Competition

A. In this food area, the Group operates in a competitive market and faces competition

from manufacturers, private labels of the grocery retail chains, and importers. The

Group's main competitors are "Strauss-Elite", "Telma-Unilever", "Kellogg’s",

"Diplomat-Kraft", "Prigat", "Yachin", the private labels, the importers, and a large

number of other medium to small-scale

B. The table below shows the Group’s market shares (based on monetary value) for

the year 2013, referring to bakery, coffee, concentrates, snacks (fried, extruded,

baked and roasted snacks), and Breakfast Cereals showing weighted figures which

are based on Store Next data collected in the bar-coded retail market and are

calculated as detailed in paragraph 7.5(B) in this section, above.

Product Group Weighted Market Share

Snacks 38%

Breakfast Cereals 25%

Cakes 40%

Crackers 42%

Drink concentrates 56%

Soluble coffee 42%

T

C. The other factors which affect the Group's competitive position, in the Group's

estimate, as detailed in paragraph 7.5(C) in this section, above.

8.6 Seasonality

There is no definitive seasonal trend in this area. Together with this, the level of income

in this area of activity is affected, among others, by the timing of the Holidays. Below

see the breakdown of income, by quarters, (in thousands NIS):

Year 2013 Year 2012

Income in

thousands

NIS

% of the total income bakery, beverages,

snacks and breakfast

cereals area

Income in

thousands

NIS

% of the total income bakery, beverages,


cereals area

1ST Quarter 287,734 25.7% 299,490 27.4%

2ND Quarter 275,770 24.6% 242,603 22.2%

3RD Quarter 281,771 25.2% 273,583 25.0%

4TH Quarter 273,511 24.4% 277,712 25.4%

Total 1,118,786 100.0% 1,093,388 100.0%

Production Capacity

The Group's maximum annual production capacity potential during the year 2013,

utilizing 3 shifts, was about 80,000 tons. Average utilization rate for the actual

production in the year 2013 was about 50%, with the production lines operating in one

to three shifts per day. It should be noted that production capability data and utilization

relate to products produces for the professional market and for export (international

division). Most of the production lines in the Group factories are automated or semi

automated, but there are some manual lines.

U


Below are descriptions of the main real estate and other material fixed assets of the

Group, which are used in the bakery, beverages, snacks and breakfast cereals area.

A. Sderot Factory – is used for the manufacture of snacks and breakfast cereals but

also manufactures products for other activity areas, (such as seasoning products,

soups, sauces, toasted pasta, casseroles, soup almonds, baking aids, as well as milk

chocolate powder beverage under the "Nesquik" brand, and also products for the

professional market and export for the international division). For details regarding

the factory see paragraph 7.8(A) in this section, above.

B. Yokneam factory - is used for the manufacture of snacks products, but also

manufactures products for other activity areas (such as bakery products, noodles

and bread crumbs, and also products for the professional market and export for the

international division.). For details regarding the factory see paragraph 7.8(B) in

this section, above.

C. Holon Factory – is used for the manufacture of snacks and products in other areas

of activity (professional market and export products for the international division)

The factory is located in the Holon industrial zone on a plot of land of about 3

dunams (about 0.75 acre) and its built area comprises about 1,650 m2. The factory

if fully owned by the Group. In addition, the Group leases an additional plot of

about 1500 m2 (built area of 650 m2) under an unprotected lease, for short term,

with an option to extend the lease term.

D. Beit Hashita factory - is used for the manufacture of drinking syrups but also

manufactures products for other activity areas (such as pickles, lemon juice

concentrate, and vinegar, and also products for the professional market and export

for the international division). The factory is located a plot of land of about 59

dunams (about 0.75 acre) and its built area comprises about 21,000 m2. The

factory is located in Kibbutz Beit Hashita on a plot of land of about 59 dunams

(about 14.5 acres) and its built area comprises about 21,000 m2. The Group leases

the land from Kibbutz Beit Hashita under a long-term lease agreement which will

end, for the majority of the leased plots, on 31.5.2026 (subject to various

adaptations for the lease period which the parties may insert).

In its books, the Group depreciates the main machinery and equipment of its various

factories relating to this area of activity for a period of 5-15 years.

V


In 2002, Nestle established its global Snack R&D Centre in Sderot Israel, mainly acting

with snacks and bakery products in a building which is leased from the Group, and

which is adjacent to the Sderot factory. The Group uses the know-how and technology

that were developed and will be developed in the future. In addition, Osem through its

own Technology teams develops a variety of products in this area.

The Group is active in R&D, mainly using its own resources but is also aided by the

Law for Encouragement of Research and Development in Industry 1984, under which

the State of Israel has approved, via its Chief Scientist, several R&D initiatives in the

industry.


A. For the Group organizational chart and for further details on the Group's Human

Resources, see paragraph 19 in this section below.

B. Below see a breakdown of the Group headcount in the area of activity as at

31.12.13. It should be mentioned that the production workers in the group's

factories are portable between the production lines according to demands, and thus

their number in the table below changes according to the company's needs. This is

due to the fact that the pastry, beverages, snacks and cereal are manufactured in a

few separate sites, in three of them (Beit Hashita, Yokneam and Sderot) products

for the culinary fields are being manufactured as well. Additionally, the production

workers of this field also make products for the professional market and products

for the international division. Since most of their work is under this food area, they

are included as workers of this field. In addition, there are also general production

workers (such as: Quality assurance staff, technologists, maintenance workers,

factory management etc.) which cannot be directly attributed to the activities of

specific field and therefore weren’t counted in the table, but are included in the

table in section 19 below. The majority of the commerce and sales employees of

the Group are recorded under the Osem Group Commerce Company which

provides sales, distribution, logistics and commerce services to all the Group's

operating segments in Israel.

Number of Employees

as at 31.12.13 Number of Employees

as at 31.12.12

Production 553 579



W


A. The main raw materials used by the Group for this area of activity are flour, corn,

oil, and peanut butter potatoes and starches, sugar, eggs, chocolate components and

fillings.

B. The main packaging materials used for this segment are flexible packaging, plastic

and cardboard. The packing materials are purchased from different manufacturers,

mostly in Israel and some of them outside Israel.

C. Some of the products in this area of activity are imported to Israel as finished

goods. The main import is from Nestle and it primarily includes the import of

soluble coffee and breakfast cereals.

For further details on the raw materials and suppliers the Group uses for the

manufacturing of its products, see also details as described in paragraphs 7.11(E)-

7.11(I) in this section, above.

X

7. Professional and gift packages area of activity - update to section 9



This area of activity focuses on the development, manufacture and / or sales,

marketing and distribution of the group's products from other segments as well as

other manufacturers' products being sold to the professional market in Israel. The

professional market includes hotels, restaurants, catering companies and other

facilities and institutions (nursing homes, hospitals, etc.). This area of activity also

includes the subsidiary Assamim Gift Parcels which sells gift baskets to recognized

employee committees, corporations and institutional concerns. Assamim Gift

Parcels also imports, markets and distributes the Nestle chocolate products to the

retail market.


An increase in the standard of living and GDP per capita positively affects leisure

and increases the volume of activity of hotels and restaurants, which impacts

positively on the growth activity of the professional market.


Much of this activity is done with specialized professionals such as chefs in

restaurants, hotels and institutions, and therefore it is necessary to competently

work with these factors. Osem holds a team of specialized chefs in working with

chefs among customers. In addition to that the Academy of Osem Nestle

Professional was established; offering a variety of workshops for the professional

market (hotels, restaurants, and other institutions) led by renowned professional

chefs and experts with extensive experience.

Y


Key success factors affecting the Group success in this area of activity are based on

strengthening the Group brands and maintaining their position as market leaders

while maintaining high product quality. Moreover, Unique professional skills

enabling building menus and working with professional (such as chefs) among

customers. Critical success factor is the products prevalence and availability, and

the ability to provide an immediate response to pressing needs, immediate

distribution and completion of deficiencies in restaurants, hotels and institutions.

Another Key Success Factor is the product development and innovation level, and

professional dexterity associated with quality of service. The Group is assisted in

this matter knowledge and advice of specialized factors of the "Nestle

Professionals" world. Another critical success factor is expressed by maintaining

the competition skill using constant efficiency. Another critical success factor is

expressed by maintaining the competition skill using constant efficiency.


Main market entry barriers include the unique professional skills needed when

working with professionals in the professional market, distribution and logistics

systems may constitute in part of the cases and also maintaining constant

availability. The requirement of a wide range of products also constitutes an

entrance barrier, also the requirement for investment in equipment at customer's

locations.

Z


The food industry on the whole is a mature and competitive industry and these

features apply also to this area of activity. As in other food sectors, also in this area

of activity there are substitute products in this category, manufactured by

competitors, also products by other big manufacturers with a hold in the

professional market ("Tnuva", "Unilever", and "Strauss" and others). Besides, in

restaurants, hotels, catering companies and institutions in which the cooking and

baking process is taking place, exists the possibility of using basic raw materials as

a substitute.

Under the Gift Parcels field, there are substitute products by competitors and gift

certificates which are given to the employees by the employee committees and

companies as a holiday present and constitute as a substitute to Gift Parcels.

The Group also works towards giving a response to the existing substitute products

by branding its products, maintaining their high quality, and constant innovation

and efficiency.

For chocolate snacks imported from Nestle, the group responds to substitute

products existing in the market via branding of products and maintaining high

quality levels.

G. Competitive structure in the area of activity and changes effected.

In the professional market there is competition in this area with other big

manufacturers with a hold in the professional market, and with wholesalers

providing basic raw materials for preparing meals. Under the gift packages field,

there is also competition with companies which supply gift certificates and

purchase vouchers as a holiday present to their employees.

AA

9.2 Products

A. The products of the Group in this category including products in other areas of

activity are marketed, primarily, under the Corporate Brand "Osem", "Tivall" and

"Sabra" and other special brands of the professional market and under the

Corporate Brand "Nestlé". In this area ("Nestle Professional") the products under

the brand "Assamim Gift Parcels" include mainly products by Osem and Nestle

(salty snacks, pastries, Nestle chocolates, Nestle nescafé etc.) and products by other

manufacturers (such as wine). The chocolate snacks being imported from Nestle

are sold in the retail market mainly under the brands "Kit-Kat", "crunch",

"smarties" and "Bacci". Osem distributes to the customers of the professional

market products by other manufacturers like "Tapugan", "Milotal", "Of-Tov",

"Dorot" and "Landwer".

B. Part of the Group’s products in this category are manufactured in the Group

factories in Israel and some (mainly chocolate snacks) are imported from Nestle.

Some products in this field are being manufactured by other Israeli manufacturers.

In this field the Group sells, markets and distributes its products in Israel.

BB


Below please see figures on the Group's income in this activity area. In this framework there

is no group of products whose income rate represents 10% or more from the total income of

the Company.

Similar products

group

Income in thousands NIS % of the Group total income

2013 2012 2011 2013 2012 2011

Professional market

and gift packages

area

412,460 392,118 385,074 9.8% 9.6% 9.7%

9.4 New Products


completed; these mainly included special products for the professional market like "Nescafe

Milano", Artizinal bread by Bonjour, products from the culinary world and new chocolate

snacks imported from Nestle.

9.5 Competition

A. In the professional market there is competition between the large local food

manufacturers specializing in the professional market ("Tnuva", "Unilever" and

"Strauss") and also with wholesalers providing basic raw materials for preparing meals.

Under the Gift Parcels field, there is also competition with competing manufactures

(Strauss) and with companies which supply gift certificates and purchase vouchers as a

holiday present for their employees.

B. In this area Osem's sales are mainly to the professional market, which includes

restaurants, hotels, catering companies and other facilities and institutions (eg. nursing

homes, hospitals, etc.), and selling Gift Parcels to employee comittees and institutional

bodies. Naturally, there is no monitoring by bodies like StoreNext or Nielsen when it

comes to market share in this segment.

C. Factors that affect or may affect the Group's estimate of the Group's competitive position

are the level of professionalism and quality of service provided to customers in the

professional market and the high level of availability as well as the ability to meet to the

needs of the professional market by using unique solutions.

CC

9.6 Seasonality

In this area of activity the Group has a wide and balanced product range and this partially

offsets the effect of seasonality. The sales of gift parcels focus mainly on the holiday season,

thus influenced by the timing of the Passover Holiday and the timing of the Jewish High

Holidays. Below see the breakdown of income, by quarters, (in thousands NIS):

Year 2013 Year 2012

Income in

thousands NIS % of the total

income Professional

market and gift

packages Area

Income in

thousands NIS % of the total

income Professional market

and gift packages

Area

1ST QTR 100,776 24.4% 98,276 25.1%

2ND QTR 97,649 23.7% 86,259 22.0%

3RD QTR 100,216 24.3% 100,074 25.5%

4TH QTR 113,819 27.6% 107,509 27.4%

Total 412,460 100.0% 392,118 100.0%


Products for the professional market are produced in factories of other activity areas (culinary,

bakery, snacks ,breakfast cereals and others) therefore the maximum potential production

capacity as well as the average utilization of production lines is included in other areas of

activity.


Below see a description of the main real estate and other material fixed assets of the Group,

which are used in professional and gift packages area of activity.

A. In this area of activity there is no manufacturing factory of its own, and in fact, the

products that are sold to the professional market are being manufactured on the same sites

of the other areas of activity (the culinary food area and the bakery, beverages, snacks and

cereals and other areas.)

B. The parcel preparation activity and the warehouses are located in a site the Company

leased in Or-Akiva industrial zone on a plot of about 4,650 m2.

In its books, the Group depreciates the main equipment relating to this area of activity for a period of

5-15 years.

DD


The Group uses, among others, Nestle's know-how and technology. In addition, Osem through

its own Technology teams develops a variety of products in the professional area.


A. For the Group organizational chart and for further details on the Group's Human

Resources, see paragraph 19 in this section below.

B. Below see a breakdown of the Group headcount for the professional and gift packages area of

activity as at 31.12.13. Most of the employees are in the area of sales and trade to the

professional market and employees in the area of gift parcel and sales employees in the gift

parcel area. In this area of activity there are no manufacturing employees, and in fact the

production workers of other areas of activity (the culinary and the bakery, beverages, snacks

and breakfast cereals food areas) also manufacture products for the professional market, but

mainly since the essence of their work is in the other fields, they are listed in the other areas of

activity.

Number of Employees

as at 31.12.13 Number of Employees

as at 31.12.12



Packaging employees 10 23


A. The main raw materials used by the Group for this area of activity are flour, sugar, eggs,

starches, vegetables, tehnia, hummous, corn, albumin and chocolate components and

fillings.

B. The main packaging materials used for this segment are flexible packaging, plastic and

cardboard. In the gift packages area sometimes there are gift packages designed to order.

The packing materials are purchased from different manufacturers, mostly in Israel and

some of them outside Israel.

C. Some of the products in this area of activity are imported to Israel as finished goods. The

main import is from Nestle and it primarily includes the import of coffee and chocolate

snacks. In addition this area of activity includes purchases of finished goods from

suppliers in Israel.

For further details on the raw materials and suppliers the Group uses for the manufacturing of

its products, see also details as described in paragraphs 7.11(E)-7.11(I) in this section, above.

EE

8. International division - (update of section 10)


A. Structure of activity area and recent changes

The International Division was established to highlight and strengthen the managerial

focus and synergy of the group's international operations. These operations entail Tivall

Europe, Tribe USA, Osem USA, Osem UK, the group's exports and future international

opportunities. The group's main activity is focused in Europe and the United States.

Europe – The group's main activity in Europe is based on the frozen and chilled food

area, containing mainly products of the subsidiary "Tivall", based on meat substitutes and

vegetable based food products. Over 70% of the group's total sales of vegetable based

product are intended for export, mostly to Europe. The European distribution is done in

part through the subsidiary Tivall Europe. Tivall products have a relative advantage over

competitors acting in the production and marketing of meat substitutes overseas, both in

the aspect of taste, texture and quality of products. These strengths have gained Tivall its

leading position in part of the European markets and this advantage shows also in its

market shares:

Exports of products at room temperature to Europe are done, among others, to the Jewish

kosher food market segment and food chains in Europe. European distribution is done

through independent distributors and by the subsidiary of the Group, Osem UK, which

serves as the group's distribution company in England. Osem UK. signed an agreement

with "Nestlé U.K." under which "Osem U.K." will distribute different Nestlé products in

the ethnic market in England, primarily under brands such as "Milo", "Caro", "Nido",

"Maggi", "Rowntrees Cocoa" and "Polish Winiary". In 2009 Osem UK acquired the

Yarden activity which focused mainly on distribution and marketing of Kosher products

to the Jewish market in England (including frozen and chilled products).

USA - in 2008 the Group decided to expand its activity in the USA and acquired the

activity of Tribe Company which operates in the US in the area of chilled Mediterranean

salads. Shortly after, the Group also acquired the activity of Food Tech Company which

operates in the US in the area of chilled meat substitutes under the brand "Veggie Patch

(and was merged with Tribe in 2010). Exports to the USA – products distributed at room

temperature are mainly exported to the Jewish Kosher market and retail market but also

to the US food chains. . The distribution of these products in the US is carried out through

the subsidiary company, Osem USA, mainly via external distributors.

FF


The world consumer market is generally shifting to consumption of convenience, health

and wellness products. This area of activity provides a solution for both of these trends

mainly in the meat substitutes and salads categories.

In recent years, the Group has expanded its activities in this area through the acquisition

of companies with similar products characteristics abroad (especially U.S.), and by

establishing a factory in Europe.

In addition to the general market activity, the Group's products hold an advantage in the

Jewish kosher market in the world.

Since this is an international activity abroad, the scope of operations and profitability of

the area are affected by changes in exchange rates.


As described, the world consumer market is gradually changing and a tendency to move

towards consumption of convenience, health and wellness, indulgence products, and fresh

products has been noted. These tendencies also reflect the standard of living and product

per capita. In addition to the above, there has been a global tendency towards shifting to

ethnic Mediterranean food. This tendency, in the Group's opinion, combined with the fact that

the consumer regards chilled products as more fresh led the Group to a decision on expansion

abroad in the areas the Group has a relative advantage and this is to be accomplished by acquiring

the Tribe Company which is in the business of Mediterranean salads in the US and acquisition of

Food Tech company which is in the business of chilled meat analogue products under the "Veggie

Patch" brand (and which was merged into Tribe).


Key success factors in this area of activity include both the strength of the brands the

Group offers and the quality of its products. They also include the unique know-how

developed in the Group, regarding the products in the area of activity which includes also

and technology received from Nestle. Additional success factors are the ability to

familiarize and integrate in the global markets abroad while understanding the needs and

the consumption culture of the consumers abroad, this in addition of maintaining the need

to create a competitive edge using constant efficiency.

To the company's assessment, branding of the group's products, the quality of the

product's flavors and innovation are other critical keys to success in this area of activity,

which may create a relative advantage and preference over the competitors abroad. Added

is the creating of a relative advantage in the Jewish kosher food market when it comes to

the Kosher products.

GG


The main entry barriers in this area of frozen and chilled products include the need to

invest heavily in production infrastructure and in frozen and chilled storage rooms and

distribution whose cost is high, and also the need for the technology and know-how

required to attain the high quality standard of the products. To these entry barriers should

be added the need to invest in brand building. Another barrier is the need to develop a

technical ability and a handling ability with the freshness issue in the supply chain while

keeping a strict surveillance of the cooling chain. Products in room temperature are being

sold mainly to the Jewish Kosher food market, where Kosher certification is an entry

barrier.


Since this is an international activity, there are countless alternative products from

competing manufacturers worldwide. The Group provides a response to the existing

products in the USA and Europe by branding its products and their quality and by

maintaining constant innovation.

G. There are also imported goods and private labels of the retail chain.

In this activity area of the group the competition is mainly with the large food

manufacturers in relation to overseas sales to the general market. Regarding products

intended for the kosher market there is competition with Israeli manufacturers that export

abroad

HH

10.2 Products

The Group's major products in this area of activity include export of the Group's products,

which are distributed at room temperature (the culinary and the bakery, beverages, snacks and

cereals areas) and frozen meat substitutes schnitzels, hamburgers, sausages, and ready-made

meals based on soy and products containing vegetables being marketed under the brand

"Garden Gourmet" (Europe) and "Halsans Kok (Sweden) and under the brand "Veggie Patch"

(USA); the chilled segment include the salad products by Sabra Salads (hoummous, tehina,

eggplant, etc.), which are exported to Europe, and also the salad products of the subsidiary

"Tribe", active in the United States.

Additionally, the products include Nestle products distributed by the subsidiary "Osem U.K."

to the English Ethnic market, including the brands: "Milo", "Caro", "Nido", "Maggi",

"Rowntrees Cocoa" and "Polish Winiary".


Below please see figures on the Group's income in this activity area. In this framework there is

no group of products whose income rate represents 10% or more from the total income of the

Company.

Similar

products

group

Income in KNIS % of the Group total income

2013 2012 2011 2013 2012 2011

International

division Area

629,847 668,546 639,952 15.0% 16.3% 16.2%

10.4 New Products


completed; those were among other sausages and Shawarma in the Dutch market under the

vegetarian food market, new "Tribe" salads in the USA, and new gluten free export products

to the USA.

10.5 Competition

A. Since this is an international activity worldwide, extensive and unlimited competition

exists. The subsidiary company Tribe, which is active in the US in the chilled

Mediterranean salads, has competition with "Sabra" (owned by "Strauss Group" and

"Pepsico") and with "Cedars" and "Kraft". In the frozen and chilled meat analogue

category, the key players are “Kellogg’s”, “Kraft”, and “Quorn" in Europe.

Regarding products intended for the kosher market there is competition with Israeli

manufacturers exporting abroad.

II

B. The table below shows the Group’s market shares (based on monetary value), in Israel and abroad,

for the year 2013, referring to key products in this area of activity. The Salads market shares in the

US are based on Nielsen data:

Product Group Weighted Market Share in %

Vegetable based products - Italy 79%

Vegetable based products - Holland 36%

Vegetable based products - Sweeden 47%

Salads in the US 8%

C. Among the factors which in the Group's estimate affect its competitive position are the world

economic situation, the exchange rate differences and the increasing competition. The Group

competes in the market via marketing by building and maintaining its brands, by innovation, new

product development and launching, and by the strategic alliance the Group has with the world

leading food company – Nestle

Within the framework of this strategic alliance, the Group invests efforts and resources in adopting

technologies, among others, those developed by Nestle and that is in order to differentiate its

products from the competition - by their high technological level and by their high quality

standards. The Group also strives to provide good, reliable, loyal, timely and high quality service.

Within this framework throughout the years, the group has built an image of technological

advancement, quality and service.

10.6 Seasonality

Based on the following it is not possible to point out definite seasonality in international activities.

However, the volumes of income in this segment are affected by, among other things, the timing of

Jewish Holidays (exports to the kosher market) and special periods abroad. Below see the breakdown of

income, by quarters, (in thousands NIS):

Year 2013 Year 2012

Income in

thousands NIS

% of the total

income The area

Income in

thousands NIS

% of the total

income The area

1ST

Quarter 171,276 27.2% 177,857 26.6%

2ND

Quarter 150,931 24.0% 166,881 25.0%

3RD

Quarter 156,672 24.9% 170,996 25.6%

4TH

Quarter 150,968 24.0% 152,812 22.9%

Total 629,847 100.0% 668,546 100.0%

JJ


The Group's maximum annual production capacity potential during the year 2013, utilizing 3

shifts, was about 28,500 tons. Utilization rate for actual production in the year 2013, with the

production lines active in one to three shifts per day, was about 50%. Most of the production

lines in the Group factories are automated or semi-automated, but there are some manual lines.

A portion of products of the international division are produced in factories of other activity

areas (culinary, bakery, snacks ,breakfast cereals) therefore the maximum potential production

capacity as well as the average utilization of production lines is included in other areas of

activity for these products.


Below see a description of the main real estate and other material fixed assets of the Group

used in the frozen food area of activity.

A. The group's factories in Israel - the group's factories in Israel include the Sderot factory,

Yokneam factory, Holon factory, Beit Hashita factory, factory in Kibbutz Lohamey

Hagetaot and the Sabra factory in Kiryat Gat. An expanded description for each of these

factories is listed under each of the other areas of activity, they also produce export

products for the international division.

B. Tivall factory in the Czech Republic- in this factory which was completed in April 2007

produces products based on meat substitutes and vegetable based products. The factory is

located on a plot of 42 dunams, which is owned by Tivall and its built-up area occupies a

space of about 9,100 m2.

C. The salad factory of Tribe in Taunton, Massachusetts (USA) -a factory used for

manufacturing salads, which was established in 2005 in Taunton next to Boston, US. The

factory was acquired in September 2008 by the Group as part of the acquisition of Tribe

Company which operates in the salads area in the US. The factory is located a plot of land

of about 38,000 m2 and its built area comprises about 5,800 m2.

In its books, the Group depreciates the main machinery and equipment of its various factories

relating to this area of activity for a period of 5-15 years.


In order to develop its markets and sales overseas, the Group is continually engaged in

research and development of new technologies and new products, in order to gain a relative

advantage over its international competitors in product quality, in the texture and flavor of the

products, mainly the schnitzel, hamburgers and sausages product category and meat analogue

ready-made meals, vegetable based products in the salad area and in the ambient product area.

KK


A. For the Group organizational chart and for further information on the Group’s entire

Human Resources, see Item 19 in this section, below.

B. Below see a breakdown of the Group headcount for this area of activity as at 31.12.13.

Production workers in factories of other areas of activity and which also produce for

export are included in the workforce of the other areas. The production, sales and

marketing employees are workers of the group overseas. The management employees

include the overseas employees and the international division staff in Israel.

Number of Employees

as at 31.12.13

Number of Employees

as at 31.12.12

Production 203 212




A. The main raw materials used by the Group in this area of activity are albumin, oil, flour,

tehina, hummus and vegetables and soy, sugar and starches, corn and peanut butter. The

albumin is purchased from different European and American sources.

B. The main packaging materials used for this area of activity are flexible packages,

cardboard and plastic packages purchased from different manufacturers, from the local

market where the factory is located.

C. The availability of the raw materials which are purchased outside the local market where

the factory is located depends among other things on the regularity of the air and

maritime freight and in the regular operation of the local ports.

D. In addition this area of activity includes purchases of finished goods from suppliers in

Israel and overseas, including Nestle.

For further details on the raw materials and suppliers the Group uses for the manufacturing of

its products, see also details as described in paragraphs 7.11(E)-7.11(I) in this section, above.

LL

9. Other activities - update of section 12

The Group has other activities which are not included in the areas of activity described

above, and do not meet the measurable threshold for disclosure in the financial statements as

reportable segments and therefore are included in the financial statements of the company

under the "other" segment. These activities include:

12.1 Ice Cream

The principal products of the Group in this framework include ice cream marketed under the

"Nestle Ice Cream" brand, which include, among other things, ice cream and ice cream lollies

under the "NoK OuT", "Extreme", "Crunch" brands, and others; they also include take home

bulk packages under "La Cremeria", "Joya" premium packages, ice cream lollies multipacks of

different kinds, and fat-reduced ice cream sandwiches under the "Skinny Cow" brand.

There is a tough competition between the large local food manufacturers and also medium to

small scale manufacturers including ice cream shops. The Group's main competitor is

Unilever's "Strauss Ice Cream".

The Group market share (in monetary values) in 2013, in Ice Cream was 37% and was

determined based on a weighted annual average derived from Store Next's data collected from

the bar-coded retail market.

Kiryat Malachi factory – used for the manufacture of ice cream and is located in Beer Tuvia

Industrial Zone. The factory (including warehouses in its service) is located on a plot of land

of about 38 dunams (about 0.75 acre) and its built area comprises about 12,000 m2. The

Group leases the property through a long-term lease agreement which will end in February

2024.

The Group is continually engaged in research and development of new technologies and new

products, in order to gain a relative advantage over its local and international competitors in its

product quality, in the texture and flavor of the products, mainly in the ice cream area.

The research and development, technology and product innovation in the ice cream product

category were carried out by extensively using Nestlé's know-how and technology.

MM

12.2 Bonjour

The main products of the category are Bonjour's frozen bakery products which are baked on

the spot at the point of sale and provide the customer with fresh bakery products straight from

the oven. In this area there is high competition while the main competitors of the Group are

"Pillsbury" and "Gidron". The monetary market share of Bonjour in 2013 is estimated at 22%.

The Bonjour factory is situated in Kiryat Gat and was established in 2006 and is owned by the

Group. The factory is located a plot of land of about 22 dunams (about 0.75 acre) and its built

area comprises about 8,800 m2.

12.3 Purchased Products

The Group has distribution agreements according to which the Group distributes products of

other manufacturers, providing these products do not competes with those of the Group. For

this activity, the Group uses the existing infrastructures of the warehouses and the distribution

center and uses the distribution and commerce network of the Group. The main distribution

agreements are with "Tapougan", "Of-Tov", "Milotal", "Dorot" and "Landwer".

12.4 Pet foods

The Group is active in importing, marketing and distributing in Israel pet food products which

are manufactured by Nestle. The products are imported primarily under the "Purina", "Pro-

Plan", "Friskies", "Dogli", and "Fancy Feast" brands. The sales and distribution are done via

the distribution and commerce networks of Osem Group, except for the sales and distribution

to specialized pet food stores where the sales and distribution are done via third party

distributor.

12.5 Iced Tea (under Nestea brand)

The Group is active in the import, marketing and distribution of iced tea under the Nestea

brand. The Nestea brand is a registered brand owned by Nestle (Osem's parent company).

The Nestea iced tea products are manufactured by San Pellegrino company in Italy (which is

also a subsidiary company of Nestle). These products are the only one of their kind in Israel to

contain natural spring water (from the San Pellegrino springs).

The average market share in 2013 (which was the first year of full activity) amounted to about

19%.

NN

10. Human resources- section update

Workforce - the number of employees in the group stands as of 31.12.2013 on 4,700

employees. Sales and distribution workers (drivers, agents, stockers, representatives,

warehouse employees etc.) and management and headquarters staff (operation, marketing,

finance etc.) provide common services to all areas of activity. During 2013 material changes in

the workforce did not occur. In the Group’s estimate, the Group is not significantly dependent

on any specific employee.

Number of Employees as at 31.12.13

Production

workers

Sales and

marketing

employees Distribution &

Logistics

Administrative

&

Management

Total

number of

Group

Employees

E.

Culinary 686 29 35 750

bakery, beverages,


cereals 553 13 7 573

Professional market

and gift packages

Area

10 87 8 105

International

division 203 92 24 319

Infant Nutrition 77 40 10 127

Other 457 130 17 604

General factory

workers 294 6 300

Shared services –

Distribution and

Commerce

1,548 1,548

Shared Services –

Administration &

Headquarters

77 295 372

Total number of

Group Employees. 2,280 2,022 396 4,698

OO

Number of Employees as at 31.12.12

Production

workers

Sales and

marketing

employees Distribution

& Logistics

Administrative

&

Management

Total

number of

Group

Employees.

Culinary 723 29 40 792

bakery, beverages,


cereals 579 12 10 601

Professional market

and gift packages

Area

23 84 13 120

International

division 212 71 35 318

Infant Nutrition 79 39 6 124

Other 474 139 16 629

General factory

workers 301 7 308

Shared services –

Distribution and

Commerce

1,531 1,531

Shared Services –

Administration &

Headquarters

61 313 374

Total number of

Group Employees. 2,391 1,973 433 4,797

A

20 November 2014

The Board of Directors' Report on the Company Business for the Nine Month Period ending 30 September 2014

The Board of Directors of Osem Investments Ltd. (hereinafter: (hereinafter – “the Company”) is honored to present to the

shareholders the Board of Directors Report for the Nine month period ending 30 September 2014, in accordance with

Securities Regulations (periodic and immediate reports) -1970. The figures appearing in the Report of the Board of

Directors are based on the Consolidated and Audited Financial Statements as at 30 September 2014. The financial figures

and the results of activities of the Company are influenced by the financial figures and the results of activities of its

subsidiary companies The Company and its subsidiaries shall be referred to collectively as "the Group" or the "Osem

Group".

In certain cases, details will be presented, describing events which occurred after the date of the financial statements and

shortly before the publication of the report, as well as additional figures at Company level only.

This report has been prepared taking into consideration that the reader of the report has at his disposal the Board of

Directors' Report on the Company as at 31 December 2013.

A. The explanations of the Board on the Company state of affairs

Key figures from the Description of the Corporation's Business

Business environment - Osem Investments Ltd. is the parent company incorporating the Osem Group of companies.

The Group focuses on the manufacturing and marketing of Food products and ranks among the largest food

manufacturers and marketers in Israel.

The Group produces more than 2,000 different food items currently manufactured in eleven production plants in Israel and

overseas and marketed through regional distribution centers. The Group also exports its products to various countries,

primarily to Europe and the USA.

Strategic alliance with Nestle. Nestle is the largest shareholder of Osem and holds about 63.7% of the Company. The

Company has exclusive agreements of cooperation with the Nestle Group in Switzerland, to market and distribute Nestle's

products in Israel by Osem’s marketing and sales systems. There is also an agreement on possible manufacturing of some

of Nestle's products locally. In addition the Company has exclusive agreements with the Nestle Group for the use of

intellectual property, knowhow and Nestle trademarks in which Nestle owns the rights. In addition, Osem receives

technical assistance in R&D and has extensive right of use of Nestle know-how for the use of the Osem Group. This

know-how includes among others technical, scientific, marketing, logistic and sales, production, IT and financial

knowledge and expertise. The Group receives IT and computer services from Nestle as part of Nestle's GLOBE Template

Solution.

Change in Structure – In the aim of accenting and strengthening the managerial focus and the synergy of the international

activities of the Group, on 21 November 2013 the board of directors decided on a change of structure in the prepared

foods division by creating a separate division which will focus on the international activities of the Group comprising

Tivall Europe, Tribe, Osem UK, Osem USA, export activities of the Group and future international opportunities. As part

of the proposed change, Tivall Israel activities were transferred under the responsibility of the culinary division and the

activities of Zabar Salads remained as a separate activity which will report directly to the CEO. The change became

effective in the beginning of 2014.

B

AAA Credit Rating for Osem. In March 2014, Midroug Company extended the AAA rating Osem had received and

gave a stable rating outlook. Osem is the first and only industrial company in Israel, which is not a government

enterprise, to ever receive an AAA rating. This rating attests to the strong financial liquidity level of the Group.

Legislation in the food industry - In March 2014 the Law for the Promotion of Competition in the Food Industry was

approved which deals with, among others, the regulation of suppliers and wholesalers and the geographical competition

among wholesalers, this being based on the recommendations of the Food Committee. The law will take effect on

15/1/2015, at this early stage, it is not possible to estimate the full effects of changes that will occur due to the law. At

this stage one time accruals have been made in the amount of NIS 9,800 thousand resulting from the expected changes

in the commerce organization as the result of preparations in anticipation of the law.

C

Financial situation

The liquid financial assets (cash and cash equivalents, and other investments) of the Group as at the Balance Sheet date

amounted to the sum of NIS 512,222 thousand compared to the sum of NIS 335,126 thousand at the end of the previous

year, an increase of NIS 177,096 thousand.

The increase is mainly the result of cash flow from operating activities less distribution of dividend and utilization of a

portion of the increase in excess cash for investments in production lines and expansion of factories.

The assets (fixed assets and intangible assets) amounted to the sum of NIS 2,086,776 thousand, compared to the sum of

NIS 2,121,554 thousand at the end of the previous year. The gross investments during the period of reporting totaled the

sum of NIS 61,440 thousand.

The Groups investments were mainly for the expansion of factories, acquisition of production lines and automation.

Total equity increased, and amounted to the sum of NIS 2,402,944 thousand compared to the sum of NIS 2,252,873

thousand at the end of the previous year. The increase in the shareholders equity derives mainly from the accumulation of

current profits totaling NIS 299,703 thousand, partially offset by the sum of NIS 150,000 thousand which was paid as

dividend. The shareholders equity constitutes 63.0% of the total of the balance sheet.

The total of the balance sheet increased, and amounted to the sum of NIS 3,816,981 thousand compared to the sum of NIS

3,642,288 thousand at the end of the previous year,

The structure of the balance sheet as at 30 September 2014 indicates continued expansion in the business activity which is

manifested by an increase in the gross investments in the fixed assets, growth in the profits,accumulation of cash from

current activities and expansion which allowed for the reduction in short term bank credit and the repayment of all long term

loans from the banks and attests to continued financial strength.

D

Results of Activities

Total sales turnover for the first nine months of the year 2014 amounted to the sum of NIS 3,224,393 thousand compared

to NIS 3,154,975 thousand in the corresponding period last year, a growth of 2.2%.

Sales turnover for the three months of the third quarter 2014 amounted to the sum of NIS 1,128,876 thousand compared to

NIS 1,082,982 thousand in the corresponding period last year, a growth of 4.2%.

Sales of the third quarter were positively affected by the timing of the High Holidays which this year occurred mainly in the

fourth quarter compared to last year when they occurred in the third quarter, thus allowing more selling days in the period

leading to the Holidays

Sales to the local market for the first nine months of the year amounted to the sum of NIS 2,724,208 thousand compared to

the sum of NIS 2,676,096 thousand in the corresponding period last year, a growth of 1.8%.

This growth was achieved in spite of the fact that sales in the Israeli food sector for this period declined by 0.7% per Store-

Next publications.

The Groups overseas sales for the first nine months of the year amounted to the sum of NIS 500,185 thousand compared to

the sum of NIS 478,879 thousand in the corresponding period last year, a growth of 4.4%.

This growth in sales was achieved despite the erosion in the currency exchange rates. After offsetting this effect, overseas

sales were higher by a rate of 6.3%.

The gross profit of the Group in the first nine months of the year 2014 amounted to the sum of NIS 1,353,903 thousand

compared to NIS 1,325,621 thousand in the corresponding year, a growth of 2.1%.

The gross profit of the Group in the three months of the third quarter of the year 2014 amounted to the sum of NIS 474,456

thousand compared to NIS 462,964 thousand in the corresponding year, a growth of 2.5%.

The gross profit rate as a percent of sales declined from the level of 42.7% to the level of 42.0%

The Operating Profit of the Group before other income and expenses for the first nine months of the year amounted to

NIS 409,268 thousand compared to NIS 399,346 thousand in the corresponding period last year, a growth of 2.5%.

The improvement in operating profit before other income and expenses, was achieved through rationalization in

administrative expenses and reduction in center costs and the administration this in spite of the erosion in gross profit

mainly in the third quarter and in spite of the increase in selling expenses as a result of a steep increase in sales promotion

campaigns and marketing expenses.

The Operating Profit of the Group before other income and expenses for the three months of the third quarter of the year

2014 amounted to NIS 144,427 thousand compared to NIS 142,203 thousand in the corresponding period last year, a

growth of 1.6%.

The operating profit rate (before other income and expenses) in the third quarter, as a percentage of the turnover, declined

from a level of 13.1% to a level of 12.8%

The gross profit of the Group in the first nine months of the year amounted to the sum of NIS 399,314 thousand compared

to NIS 396,379 thousand in the corresponding year, a growth of 0.7%.

The operating profit rate as a percent of sales declined from the level of 12.6% to the level of 12.4%

The operating profit of the Group in the three months of the third quarter of the year 2014 amounted to the sum of NIS

137,029 thousand compared to NIS 142,036 thousand in the corresponding year, a decline of 3.5%. The decline in

operating profit, among others, is the result of one time accruals in the amount of NIS 7,300 thousand in the third quarter,

E

resulting from the expected changes in the commerce organization as the result of preparations in anticipation of the food

law.

The operating profit rate as a percent of sales declined as well from the level of 13.1% to the level of 12.1%

The Profit of the Osem Group for the first nine months of the year amounted to NIS 299,703 thousand compared to NIS

286,016 thousand in the corresponding period last year, a growth of 4.8%.

The net profit of the Group in the three months of the third quarter amounted to the sum of NIS 102,010 thousand

compared to NIS 101,329 thousand in the corresponding year, a growth of 0.7%.

The increase in net profit, during the first nine months of the year, was achieved thanks to the improvement in operating

profit and as the result of a significant decline in financing expenses. These improvements in the profit are mainly the

results of the Company’s policy in the past years which is expressed in expansion of the activity with constant and

continuing penetration of Nestle products, penetration to new activities in Israel and abroad, and the launching of new

products, this in addition to the merging and increase of efficiency processes. All of these factors establish Osem’s

position as a leading food producer in Israel.

Selling, marketing and distribution expenses for the first nine months of year increased and represented 22.8% of

sales, compared to 22.3% in the corresponding period last year.

The increase in selling expenses result from, among others, a steep increase in sales promotion campaigns and marketing

expenses.

General and administrative expenses for first nine months of the year, declined and represented 6.5% of the turnover,

compared to 7.0% in the corresponding period last year.

The decline in general and administrative expenses results from, among others, efficiency programs for the reduction in

headquarters and administrative costs (MOGE project) and the cessation of the amortization period of intangible assets.

Net financing expense of the Group for the nine months of the year amounted to the sum of NIS 2,292 thousand

compared to NIS 15,604 thousand in corresponding period last year.

The decline in financing expenses results from, among others, the repayment in full of long term bank loans and from the

reduction in short term bank credit which constitutes only 0.8% of the balance sheet and from the increase in cash

balances, and from repayment of liabilities from authorities with interest and linkage. The balance of finance expenses

results mainly from non-cash-flow imputed interest, related to the PUT option to the non-controlling interests.

Liquidity and financing sources

The current ratio as at the balance sheet date is 1.67

The quick ratio as at the balance sheet date is 1.32

The high liquidity ratio and liquidity reserve funds of the Group have constituted and will constitute the main financing

sources for further expansion of the Group business activities in different product categories, expansion of production

lines, and this is accompanied by foreign financing if necessary.

The cash flow for first nine months of the year from current operations amounted to the sum of NIS 430,663 thousand

compared to the sum of NIS 390,824 thousand in the previous year. Increase of 10.2% in cash flow from operating

activities.

F

Analysis of the Groups business results according to operating areas of activity

As the result of the internal reorganization, the compositions of respective reportable areas were changed. For details

relating to the new operating segments and their results of their activities including information corresponding to previous

periods, see Note 5 of the financial statements as at 30.9.14.

The following are the financial results of the new reportable operating segments:

Culinary area - for the first nine months of the year sales amounted to NIS 727,039 thousand compared to NIS 705,135

thousand in the corresponding period last year an increase of 3.1%. The profit declined from a level of NIS 88,395

thousand to a level of NIS 77,818 thousand, among others as a result of the increase in sales promotion campaigns and

marketing expenses.

In the third quarter of the year sales increased from the level of NIS 241,389 thousand to the level of NIS 252,229

thousand, an increase of 4.5%. The profit declined from a level of NIS 28,695 thousand to a level of NIS 24,924 thousand

Bakery, beverages, snacks and breakfast cereals area - for the first nine months of the year sales amounted to NIS

871,114 thousand compared to NIS 845,275 thousand in the corresponding period last year an increase of 3.1%. The

profit increased from a level of NIS 180,420 thousand to a level of NIS 198,231 thousand.

In the third quarter sales increased from NIS 281,771 thousand to NIS 306,706 thousand, an increase of 8.8% resulting

from, among others, the positive effect of the timing of the High Holidays. The profit increased from a level of NIS

63,080 thousand to to the level of NIS 70,083 thousand, this as a result of increase in sales due to the timing of the High

Holidays and reduction in administrative expenses.

International area - for the first nine months of the year sales amounted to NIS 496,627 thousand compared to NIS

478,879 thousand in the corresponding period last year an increase of 3.7%. The profit increased from a level of NIS

40,153 thousand to a level of NIS 41,900 thousand. This growth in sales was achieved despite the erosion in the currency

exchange rates. After offsetting this effect, sales were higher by a rate of 6.9%. The increase in profit was achieved as a

result of increase in sales and efficiency measures and advancement on the learning curve.


thousand, an increase of 3.8%. The profit declined from a level of NIS 11,633 thousand to a level of NIS 8,017 thousand

the decline in profit in the third quarter results from the investment in marketing and advertising for the expansion in the

market.

Infant nutrition area - for the first nine months of the year sales amounted to NIS 260,995 thousand compared to NIS

256,081 thousand in the corresponding period last year an increase of 1.9%. The profit declined from a level of NIS

42,961 thousand to a level of NIS 39,351 thousand

In the third quarter of the year sales increased from the level of NIS 92,114 thousand to the level of NIS 93,944 thousand,

an increase of 2.0%. The profit declined from a level of NIS 16,540 thousand to a level of NIS 13,070 thousand

The decline in profit, results from, among others, increase in cost of sales, deepening of sales campaigns, increase of

competition in the market.

Professional market and Assamim Gift Packages area - for the first nine months of the year sales amounted to NIS

309,154 thousand compared to NIS 298,641 thousand in the corresponding period last year an increase of 3.5%. The

profit also increased from a level of NIS 14,236 thousand to a level of NIS 20,061 thousand


thousand, an increase of 2.5%. The profit increased from a level of NIS 4,806 thousand to a level of NIS 5,896 thousand.

G

The increase in sales results from, among others, the development of dedicated solutions and building of a range of

solutions for out of home consumption. The increase in profit results from, among others, increase in sales and decline in

managerial expenses.

Other Activities area - for the first nine months of the year sales amounted to NIS 593,165 thousand compared to NIS

604,418 thousand in the corresponding period last year a decline of 1.9%. The profit amounted to the sum of NIS 36,750

thousand compared to the sum of NIS 39,456 thousand last year, Decline in sales and profit results from, among others,

the result of the slowdown in the economy which especially affected the soft drinks sector (Nestea), and on the ice cream

sector (in spite of increase in Group's market share), mainly in out of house consumption.

In the third quarter of the year sales decreased from NIS 222,717 thousand to NIS 222,553 thousand, a decline of 0.1%

resulting from the slowdown in the economy and the effect of the "Tzuk Eitan" campaign, mainly on the impulse market.

The profit increased from a level of NIS 19,726 thousand to a level of NIS 23,841 thousand. Improvement in profit for

the third quarter, results from, among others, the decline in administrative expenses and marketing expenses during the

"Tzuk Eitan" campaign.

H

B. Exposure to and management of market risks

During the statement period there were no significant changes in the exposure of the Company and the method of

their market risks management in relation to the Company's reports on this subject for the year ending 31 December

2013.

C. Provisions on disclosure related to the Corporation's financial reporting

Critical estimates

No significant changes were made during the first nine months of the year 2014 in relation to critical accounting

estimations which the Company uses for the financial reports.

Financial date related to the parent company

In accordance with regulation 38d of the Securities Regulations (periodic and immediate reports) an appendix is

attached to the Board of Directors report, separate financial statements of the Company (“Solo Report”), with the

examining auditor’s opinion attached.

Dividends

On 8 April 2014, the Company distributed a dividend for the sum of NIS 150 million.

D. Corporate Governance Aspects

Disclosure regarding the procedure of approval of the financial statements

A. The organs in charge of the super control include the members of the board, the CEO, and the Deputy CEO of

Finance. The identity of the organs is specified in the Periodic Report in Regulation 26 and 26(A) in Chapter D

of the Periodic Report.

B. The Balance Sheet Committee for the examination of the financial statements

General: The balance Sheet Committee which will examine the financial statements of the Company made

recommendations to the board of directors with regard to the approval of the financial statements, after the

Committee has discussed the financial statements prior to making recommendations. A representative of the

Company external auditor attends the meetings of the Committee for the examination of the financial

statements and the Internal Auditor of the Company attends these meetings as well. The Balance Sheet

Committee for the examination of the financial statements also act as members of the Audit Committee

Members of the Balance Sheet Committee: The Committee comprises four members (who also hold the office

of directors in the Company) - Dr. Liora Meridor (Public Director), Gaby Hake Adv., Yaki Yerushalmi (Public

Director) and Yossi Alsheich (independent director). Dr. Liora Meridor presides as the Committee Chair. The

appointment of the Committee members was made based on their skills, including their professional

experience, their qualifications and additional institutions or boards in which they hold office, as the case may

be, based on their classification by the Company Board of Directors (prior to their appointment as directors of

the Company), and based on their accounting and financial skills and also based on their declaration (which

was submitted prior to their appointment) and based on their ability to read and understand financial statements

(see Section 26 in Chapter D of the Periodic Report).

I

The discussions of the Balance Sheet Committee: On 17 November 2014 the Committee discussed material

reporting issues in the financial statements and formulated its recommendations to the Board on the procedure for

approving the financial statements. The Committee recommended to the Board that the financial statements be

approved. In addition to the Committee members a representative of the External auditor, the Deputy CEO of

Finance and the Chief Accountant of the Company, and the Company Internal Auditor attended the Committee

meeting. In the framework of its meetings, for the purpose of forming its recommendation, the Committee

examined the material issues related to financial reporting and examined among other issues the material estimates

and valuations that were made in relation to the financial statements, the internal controls related to the financial

reporting, the integrity and diligence of the financial reporting from all its relevant aspects, the accounting policies

which were adopted and the accounting treatment applied on material affairs of the Company. In addition, the

certified accountants of the External Auditor have given their view on the issues that were presented. For the

purpose of making recommendations to the board of directors, during the committee meeting the deputy CEO of

finance presented a review to the committee members for the purpose of examining the financial statements relating

to the situation of the company, its financial results and regarding the remaining subjects which were discussed by

the committee as mentioned above, and questions raised by the committee members were answered. At the end of

the meeting the Committee recommended to the Board of the Company to approve the financial statements.

The Board of Directors wish to thank the management and the employees for the efforts they have invested and the

achievements they have attained and express their hope for further cooperation on both sides.

Dan Propper Itzik Saig

Chairman of the Board of Directors CEO

Somekh Chaikin Telephone 972 3 684 8000

KPMG Millennium Tower Fax 972 3 684 8444

17 Ha'arba'a Street, PO Box 609 Internet www.kpmg.co.il

Tel Aviv 61006 Israel

Somekh Chaikin, a partnership registered under the Israeli Partnership

Ordinance, is the Israeli member firm of KPMG International, a Swiss cooperative.

Review Report to the Shareholders of Osem Investments Limited

Introduction

We have reviewed the accompanying financial information of Osem Investments Limited and its

subsidiaries (hereinafter – “the Group”) comprising of the condensed consolidated interim

statement of financial position as of September 30, 2014 and the related condensed consolidated

interim statements of income, comprehensive income, changes in equity and cash flows for the

nine and three-month periods then ended. The Board of Directors and Management are

responsible for the preparation and presentation of this interim financial information in accordance

with IAS 34 “Interim Financial Reporting”, and are also responsible for the preparation of

financial information for this interim periods in accordance with Section 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 certain consolidated subsidiaries

whose assets constitute 4141% of the total consolidated assets as of September 30, 2014, and whose

revenues constitute 4141% and 16.8% of the total consolidated revenues for the nine and three

month periods then ended, respectively. The condensed interim financial information of those

companies was reviewed by other auditors whose review reports thereon were furnished to us, and

our conclusion, insofar as it relates to amounts emanating from the financial information of such

companies, is based solely on the said review reports of the other auditors.

Scope of Review

We conducted our review in accordance with Standard on Review Engagements 1, "Review of

Interim Financial Information Performed by the Independent Auditor of the Entity" of the Institute

of Certified Public Accountants in Israel. 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 financial information was not prepared, in all

material respects, in accordance with IAS 34.

In addition to that mentioned in the previous paragraph, 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 Section D of the Securities Regulations (Periodic and Immediate

Reports), 1970.

Somekh Chaikin

Certified Public Accountants (Isr.)

November 20, 2014

1

Condensed Interim Consolidated Statement of Financial Position

As at September 30 As at September 30 As at December 31

2014 2013 2013

(Unaudited) (Unaudited) (Audited)

NIS thousands NIS thousands NIS thousands

Assets

Cash and cash equivalents 511,035 220,502 328,059

Accounts receivable - customers 765,294 772,572 688,481

Debtors and debit balances 15,841 26,000 27,662

Income tax 6,508 9,896 5,464

Inventory 348,536 369,344 390,107

Other investments 1,187 3,418 7,067

Total current assets 1,648,401 1,401,732 1,446,840

Employee benefits 195 - 293

Fixed assets 1,108,442 1,140,114 1,144,497

Intangible assets 978,334 992,872 977,057

Prepaid expenses 38,248 35,123 38,806

Deferred tax assets 43,361 34,809 34,795

Total non-current assets 2,168,580 2,202,918 2,195,448

Total assets 3,816,981 3,604,650 3,642,288

Dan Propper - Chairman of the Board

Itzik Saig - CEO

Pinhas Kimelman - Deputy CEO, Finance

Date of approval of financial statements: 20 November 2014

2

INVESTMENTS LTD


2014 2013 2013



Liabilities

Loans and short term credit from banks 31,750 121,737 29,212

Accounts payable - suppliers 714,489 678,436 710,463

Other creditors 230,823 195,993 223,976

Income tax 8,286 9,342 9,473

Total current liabilities 985,348 1,005,508 973,124

Liabilities for PUT options of non-controlling interests in subsidiaries 333,369 351,139 342,514

Employee benefits 6,105 4,976 4,450

Deferred taxes 89,215 73,258 69,327

Total non-current liabilities 428,689 429,373 416,291

Total liabilities 1,414,037 1,434,881 1,389,415

Equity

Share capital 176,772 176,772 176,772

Premium on shares 444,212 444,212 444,212

Capital reserves (67,985) (57,706) (68,353)

Retained earnings 1,848,477 1,605,373 1,699,113

Total equity attributable to equity holders of the company 2,401,476 2,168,651 2,251,744

Non-Controlling interests 1,468 1,118 1,129

Total equity 2,402,944 2,169,769 2,252,873

Total liabilities and equity 3,816,981 3,604,650 3,642,288

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

3

INVESTMENTS LTD

Condensed Interim Consolidated Statement of Profit and Loss

For the nine months ending For the three months ending For the year ending

As at September 30 As at September 30 As at September 30 As at September 30 December 31

2014 2013 2014 2013 2013

(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited)

NIS thousands NIS thousands NIS thousands NIS thousands NIS thousands

Sales 3,224,393 3,154,975 1,128,876 1,082,982 4,190,047

Cost of sales 1,870,490 1,829,354 654,420 620,018 2,426,336

Gross profit 1,353,903 1,325,621 474,456 462,964 1,763,711

Selling and marketing expenses 735,002 703,954 258,193 244,373 928,833

General and administrative expenses 209,633 222,321 71,836 76,388 306,320

Operating profit before other expenses 409,268 399,346 144,427 142,203 528,558

Other expenses, net 9,954 2,967 7,398 167 2,885

Operating profit 399,314 396,379 137,029 142,036 525,673

Finance expenses (11,226) (24,707) (1,540) (9,423) (24,653)

Finance income 8,934 9,103 337 3,476 1,892

Financing costs, net (2,292) (15,604) (1,203) (5,947) (22,761)

Profit before taxes on income 397,022 380,775 135,826 136,089 502,912

Taxes on income 97,319 94,759 33,816 34,760 126,484

Profit for the period 299,703 286,016 102,010 101,329 376,428

Attributed to:

Equity holders of the company 299,364 285,584 101,884 101,024 375,985

Non-Controlling interests 339 432 126 305 443


Earnings per NIS 1 par value ordinary shares

Primary and fully diluted (in NIS) 2.71 2.58 0.92 0.91 3.40


4

INVESTMENTS LTD

Condensed Interim Statement of Comprehensive Income and Expenses

For the three months ending For the year ending

September 30 September 30 September 30 September 30 December 31

2014 2013 2014 2013 2013




Other comprehensive income (loss)

Amounts to be transferred to profit or loss

after specific requirements are met

368 (9,691) 3,695 3,939 (20,338)

Amounts that will not be transferred to profit or loss

Actuarial gains from defined benefit plan - - - - 4,543

Income tax on components of other comprehensive income - - - - (1,204)

Other comprehensive income (loss) for period,

net of tax 368 (9,691) 3,695 3,939 (16,999)

Total comprehensive income for

the period 300,071 276,325 105,705 105,268 359,429

Attributed to:

Equity holders of the company 299,732 275,893 105,579 104,963 358,986

Non-Controlling interests 339 432 126 305 443


the period 300,071 276,325 105,705 105,268 359,429


Foreign currency translation differences for foreign operations

For the nine months ending

5

INVESTMENTS LTD.

Notes to the Financial Statements as at 30 September 2014 (unaudited)

6

Condensed Consolidated Reports on Changes in Shareholders' Equity

Capital reserve

from acquisition

Non

Total

of rights not

conferring

control

Total Equity

Controlling

Interest

Company's

equity holders

Retained

earnings

Other Reserves in consolidated

subsidiary

Translation

reserve fund

Premium on

Shares Share Capital

NIS thousands NIS thousands NIS thousands NIS thousands NIS thousands NIS thousands NIS thousands NIS thousands NIS thousands

For the nine month period ending

30 September 2014 (unaudited)

2,252,873 1,129 2,251,744 1,699,113 5,694 (41,675) (32,372) 444,212 176,772 Balance as at 1 January 2014 (audited)

563 - 563 - - - 563 - - Foreign currency exchange difference

299,703 339 299,364 299,364 - - - - - Net earnings for the period

300,071 339 299,732 299,364 - - 563 - - Total recognized comprehensive income for the period

(150,000) - (150,000) (150,000) - - - Dividend paid

2,402,944

1,468

2,401,476

1,848,477

5,694

(41,675)

(32,004)

444,212

176,772

Balance as at 30 September 2014

For the nine month period ending


2,043,444 686 2,042,752 1,469,789 5,694 (41,675) (12,034) 444,212 176,772 Balance as at 1 January 2013 (audited)

(9,691) - (9,691) - - - (9,691) - - Foreign currency exchange difference


276,325 432 275,893 285,584 - - (9,691) - - Total recognized comprehensive income for the period

(150,000) - (150,000) (150,000) - - Dividend paid

2,169,769

1,118

2,168,651

1,605,373

5,694

(41,675)

(21,725)

444,212

176,772


The accompanying notes are an integral part of these

consolidated financial statements.

INVESTMENTS LTD.

Notes to the Financial Statements as at 30 September 2014 (unaudited)

7

Condensed Consolidated Reports on Changes in Shareholders' Equity (Cont.)

Capital reserve

from acquisition

Non

Total

of rights not

conferring

control

Total Equity

Controlling

Interest

Company's

equity holders

Retained

earnings

Other Reserves in consolidated

subsidiary

Translation

reserve fund

Premium on

Shares Share Capital

NIS thousands NIS thousands NIS thousands NIS thousands NIS thousands NIS thousands NIS thousands NIS thousands NIS thousands

For the three month period ending


2,297,239 1,342 2,295,897 1,746,593 5,694 (41,675) (35,699) 444,212 176,772 Balance as at 1 July 2014

3,695 - 3,695 - - - 3,695 - - Foreign currency exchange difference


105,705 126 105,579 101,884 - - 3,695 - - Total recognized comprehensive income for the period

2,402,944

1,468

2,401,476

1,848,477

5,694

(41,675)

(32,004)

444,212

176,772


For the three month period ending


2,064,501 813 2,063,688 1,504,349 5,694 (41,675) (25,664) 444,212 176,772 Balance as at 1 July 2013

3,939 - 3,939 - - - 3,939 - - Foreign currency exchange difference


105,268 305 104,963 323,246 - - 3,939 - - Total recognized comprehensive income for the period

2,169,769

1,118

2,168,651

1,605,373

5,694

(41,675)

(21,725)

444,212

176,772


For the year ending 31 December 2013 (audited)

2,043,444 686 2,042,758 1,469,789 5,694 (41,675) (12,034) 444,212 176,772 Balance as at 1 January 2013

(20,338) - (20,338) - - - (20,338) - - Foreign currency exchange difference

3,339 - 3,339 3,339 - - - - - Actuarial losses (net after tax)

376,428 443 375,985 375,985 - - - - - Net earnings for the year 2013

359,429 443 358,986 379,324 - - (20,338) - - Total recognized comprehensive income for the period

(150,000) - (150,000) (150,000) - - - - - Dividend paid

2,252,873

1,129

2,251,744

1,699,113

5,694

(41,675)

(32,372)

444,212

176,772

Balance as at 31 December 2013 (audited)

The accompanying notes are an integral part of these consolidated

financial statements.

INVESTMENTS LTD

Condensed Interim Consolidated Statement of Cash Flows

For the three months ending For the year ending


2014 2013 2014 2013 2013



CASH FLOWS FROM OPERATING ACTIVITIES

Profit for period 299,703 286,016 102,010 101,329 376,428

Adjustments:

Depreciation 90,009 84,917 30,202 28,222 114,204

Amortization of intangible assets and prepaid expenses 28,829 40,339 9,858 13,973 52,534

Loss from sale of fixed assets, net 3,671 175 3,359 (55) 155

Finance costs, net 2,292 15,604 1,203 5,947 22,761

Tax expenses on income 97,319 94,759 33,816 34,760 126,484

Changes in derivatives 380 (272) (78) (14) (4,642)

Changes in inventory 43,094 34,561 33,426 27,592 11,856

Changes in accounts receivable and other debtors (63,059) (92,646) 27,353 17,666 (18,201)

Changes in accounts payable and other creditors 7,498 23,990 12,749 (17,734) 76,330

Changes in employee benefits 1,753 439 (77) (10) 4,163

Income taxes paid, net (80,826) (97,058) (30,996) (32,267) (126,734)

Net cash flows arising from operating activities 430,663 390,824 222,825 179,409 635,338

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of fixed assets (65,697) (121,065) (20,079) (32,645) (145,009)

Proceeds from sale of fixed assets 966 1,521 121 343 2,002

Other investments, net 5,865 10,614 42 8,327 6,996

Investment in intangible assets and prepaid expenses (21,909) (11,983) (4,864) (1,346) (20,624)

Interest received 9,116 859 331 216 1,227

Net cash flows used in investing activities (71,659) (120,054) (24,449) (25,105) (155,408)

CASH FLOWS FROM FINANCING ACTIVITIES

Interest paid (3,101) (3,014) (1,863) (701) (3,637)

Repayment of long term liabilities - (13,303) - - (13,303)

Credit from banking institutions and others, net 653 80,509 653 23,427 (11,798)

Repayment of other liabilities (24,297) (22,108) (2,324) (9,594) (30,904)

Dividend paid (150,000) (150,000) - (150,000) (150,000)

(176,745) (107,916) (3,534) (136,868) (209,642)

Change in cash and cash equivalents 182,259 162,854 194,842 17,436 270,288

Cash and cash equivalents at beginning of period 328,059 60,265 315,143 202,454 60,265

Effect of fluctuations in exchange rate

on cash balances 717 (2,617) 1,050 612 (2,494)

Cash and cash equivalents at end of period 511,035 220,502 511,035 220,502 328,059


Net cash used in financing activities


8

INVESTMENTS LTD.

Notes to the Financial Statements as at 30 September 2014

9

Note 1 – The Reporting Entity Osem Investments Ltd. (hereinafter: the "Company") is a company residing in Israel. The consolidated

financial statements of the Group as at 30 September 2014 include the statements of the Company and its

investee companies (hereinafter: "the Group").

The controlling party in the Company is Nestlé S.A. Switzerland. The Group is engaged in the manufacturing

and marketing of food products.

The securities of the Company are listed for trading on the Tel Aviv Stock Exchange.

Note 2 – The basis for the preparation of the Financial Statements

The condensed consolidated interim statements have been prepared in accordance with IAS 34 – Interim

Financial Reporting – and do not include all the information required in the full annual reports. The summary

should be read together with the financial statements for the year which ended on 31 December 2013

(hereinafter –“ yearly financial statements”). Also, these reports were prepared in accordance with part 4 of

the Securities and Exchange Commission standards (periodic and immediate reports) 5740-1970.

The use of estimates and judgement and for the preparation of the interim financial statements, were

consistent with those used for the preparation of the year end financial statements.

Note 3 – Main Principles of Accounting Policy

The accounting policy of the Group as it relates to these condensed consolidated interim financial statements,

is the policy applied in the yearly financial statements.

Note 4 – Seasonality

The Group’s sales are affected by the timing of Jewish Holidays with an emphasis on New Year and

Passover. The annual seasons also have an affect on certain groups of products. The seasons of Winter and

Autumn are characterized by greater consumption of soups, casseroles and soup almonds as compared to the

Summer and Spring seasons which are characterized by higher consumption of ice cream and concentrates as

compared to the seasons of Winter and Autumn.

Note 5 – Segment Activity

As part of the strategy to focus the managerial attention in the international activities and new businesses the

Group structure underwent a few changes:

1. The international division was established focusing on international activities of the Group.

2. The new business and innovation division was established. (Does not comply with the definitions of a

reportable segment)

3. Combination into one division of the snacks, bakery, beverages and breakfast cereals divisions.

4. The activity of Tivall Israel was transferred under the responsibility of the culinary division.

5. The activity of Sabra Salads remained an independent division reporting directly to the CEO. (Although

does not fall under the definitions of a reportable segment therefore was also included under the culinary

division due to similar economic characteristics).

Due to this change, commencing January 2014, the company the adjusted the reporting on business segments to

the new managerial structure and the comparative figures were restated based on the new structure.

The business segments after the abovementioned change are as follows:

INVESTMENTS LTD.


01

Note 5 – Segment Activity (Cont.)

A. Culinary area - In this area the Group develops, manufactures and/or sells, markets and

distributes a large variety of branded food products sold on the retail market in Israel (not

including exports included in the international division nor in the professional market which is

reported under a separate segment). The main ones being, among others, pasta, soups,

casseroles, baking aids, sauces, soup almonds, canned products, prepared foods and meat

substitutes and salads.

B. Bakery and beverages, snacks and breakfast cereals area - In this area the Group develops,

manufactures and/or sells, markets and distributes a large variety of branded food products sold

on the retail market in Israel (not including exports included in the international division nor in

the professional market which is reported under a separate segment). The products in this area

include the salty baked products (eg. crackers and Lachmit), the sweet baked products (cakes

and cookies), concentrates, chocolate milk powder and soluble coffee and also snack products

(wheat snacks, peanut snacks, potato snacks and corn snacks, etc.), breakfast cereals and health

bars.

C. International division area- In this area the Group develops, manufactures and/or sells,

markets and distributes a large variety of branded ambient, frozen and chilled food products

sold overseas by either direct exports from Israel and via subsidiary companies operating

overseas and include the companies Tribe in the USA (prepared meals and meat substitutes

under the VP brand and salads under the Tribe brand), Tivall Europe (including Tivall Holland,

Tivall Czech and Tivall Sweeden) , Osem USA and Osem UK.

D. Infant Nutrition area – In this area the Group’s activities are carried out via Materna

partnership, which develops, produces and/or sells and markets a wide variety of infant

nutrition products which include mother’s milk substitutes, cereals, purees, biscuits and pasta

for infants.

E. Professional market and gift packages area - In this area the Group develops, manufactures

and/or sells, markets and distributes a large variety of products sold in the professional market

(hotels, restaurants, catering companies and other institutional concerns) and gift packages sold

to employee commitees and companies via Asamim Gift Package Company who also sell

chocolate snacks to the retail market.

F. Other Activities. – In this area are included various activities which are not included in the

activities mentioned above. The main ones being, among others, Bonjour frozen bakery

products, iced tea (Nestea) ice cream, other purchased products and petfoods. The said

activities are not material to the activity of the Group and do not meet the quantitative

threshold to be presented in the financial statements as reportable segments.

The company calculates the intercompany transactions according to acceptable market price to outside

customers with similar products. The results of these activities are eliminated, in the framework of

reconciliations for the purpose of preparing consolidated financial statements. The segment results are

measured based on the profit reported and regulary reviewed by the head operational decision maker.

months ending nineFor the

10December 20 Bakery Professional

30 September 2014 (unaudited) Beverages Infant And Gift Adjustment to

Culinary Snacks Cereals International Nutrition Packages Others Consolidated Consolidated

NIS NIS NIS NIS NIS NIS NIS NIS

Thousands Thousands Thousands Thousands Thousands Thousands Thousands Thousands

Segment sales 727,039 871,114 496,627 260,995 309,154 593,165 (33,701) 3,224,393

Segment results 77,818 198,231 41,900 39,351 20,061 36,750 (4,843) 409,268

Expenses not allocated (9,954)

Financing costs, net (2,292)

Profit before taxes on income

397,022

INVESTMENTS LTD.


00

Note 5 – Segment Activity (Cont.)

months ending nineFor the


September 2013 (unaudited)03 Beverages Infant And Gift Adjustment to

Culinary Snacks Cereals International Nutrition Packages Others Consolidated Consolidated



Segment sales 705,135 845,275 478,879 256,081 298,641 604,418 (33,454) 3,154,975

Segment results 88,395 180,420 40,153 42,961 14,236 39,456 (6,275) 399,346




380,775

three months ending For the


2014 (unaudited) September 30 Beverages Infant And Gift Adjustment to Culinary Snacks Cereals International Nutrition Packages Others Consolidated Consolidated



Segment sales 252,229 306,706 162,690 93,944 102,727 222,553 (11,973) 1,128,876

Segment results 24,924 70,083 8,017 13,070 5,896 23,841 (1,404) 144,427




135,826

three months ending For the


2013 (unaudited) September30

Beverages Infant And Gift Adjustment to Culinary Snacks Cereals International Nutrition Packages Others Consolidated Consolidated



Segment sales 241,389 281,771 156,672 92,114 100,216 222,717 (11,897) 1,082,982

Segment results 28,695 63,080 11,633 16,540 4,806 19,726 (2,277) 142,203

Income not allocated (167)



136,089

year ending For the Bakery Professional

(audited) 331 December 201 Beverages Infant And Gift Adjustment to Culinary Snacks Cereals International Nutrition Packages Others Consolidated Consolidated



Segment sales 956,212 1,118,786 629,847 358,644 412,460 759,757 (45,659) 4,190,047

Segment results 123,308 242,406 52,216 62,151 25,458 32,005 (8,986) 528,558




502,912

INVESTMENTS LTD.


01

Note 6 – Financial Instruments.

The Company has forward hedge transactions and options on exchange rates on supplier foreign

currency balances as at 30 September 2014 total face value of the transactions amounts to the sum of

NIS 138,122 thousand, the fair value of the asset is NIS 5,676 thousand.

The futures contracts are disclosed according to fair value as assets at Level 2: observable data, either

directly or indirecty, which are not included in Level 1 (quoted prices, not adjusted, on an active

market for similar instruments).

Note 7 – Events During the Financial Statement Period.

In March 2014 the Law for the Promotion of Competition in the Food Industry was approved which

deals with, among others, the regulation of suppliers and retailers and the geographical competition

among retailers, this being based on the recommendations of the Food Committee , the law will become

effective on 15.1.2015. At this stage one time accruals have been made in the amount of NIS 9,800

thousand (NIS 7,300 thousand in the third quarter) resulting from the expected changes in the

commerce organization as the result of preparations in anticipation of the law.

Further to that mentioned in the annual financial statements in Note 20 C. 3 regarding taxes on income

with respect to Amendment 174 to the Income Tax Ordinance (New Version) – 1961 (hereinafter – “the

Ordinance”), regarding the non-application of Israeli Accounting Standard No. 29 Adoption of

International Financial Reporting Standards (IFRS) when determining the taxable income (hereinafter – “the

Temporary Order”), on July 31, 2014 Amendment 202 to the Ordinance was issued, by which the Temporary

Order was extended to the 2012 and 2013 tax years, effective retroactively as from January 1, 2012. The

implementation of the amendment has no effect on the financial statements.


Separate Financial Statements

September 30, 2014

Somekh Chaikin Telephone 972 3 684 8000

KPMG Millennium Tower Fax 972 3 684 8444

17 Ha'arba'a Street, PO Box 609 Internet www.kpmg.co.il

Tel Aviv 61006 Israel

Somekh Chaikin, a partnership registered under the Israeli Partnership

Ordinance, is the Israeli member firm of KPMG International, a Swiss cooperative.

To:

The shareholders of Osem Investments Limited

Subject: Special auditors’ report on separate interim financial information according to

Regulation 38D of the Securities Regulations (Periodic and Immediate Reports) – 1970

Introduction

We have reviewed the separate interim financial information presented in accordance with

Regulation 38D of the Securities Regulations (Periodic and Immediate Reports) – 1970 Osem

Investments Limited (hereinafter – the Company) as of September 30, 2014 and for the nine and

three month periods then ended. The separate interim financial information is the responsibility of

the Company’s Board of Directors and of its Management. Our responsibility is to express a

conclusion on the separate interim financial information based on our review.

We did not review the separate interim financial information of investee companies the

investments in which amounted to NIS 444,632 thousand as of September 30, 2014, and the profit

from these investee companies amounted to NIS 4,508 thousand and NIS 1,060 thousand for the

nine and three month periods then ended, respectively. The financial statements of those

companies were reviewed by other auditors whose review reports thereon were furnished to us,

and our conclusion, insofar as it relates to amounts emanating from the financial statements of

such companies, is based solely on the said review reports of the other auditors.

Scope of Review

We conducted our review in accordance with Standard on Review Engagements 1, "Review of

Interim Financial Information Performed by the Independent Auditor of the Entity" of the Institute

of Certified Public Accountants in Israel. A review of separate 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 separate interim financial information was not

prepared, in all material respects, in accordance with Regulation 38D of the Securities Regulations

(Periodic and Immediate Reports) – 1970.

Somekh Chaikin

Certified Public Accountants (Isr.)

November 20, 2014

13

INVESTMENTS LTD

Condensed Interim Information on Separate Financial Position


2014 2013 2013



Assets

Cash and cash equivalents 348,635 122,955 218,379

Debtors and debit balances 3,682 7,646 10,692

Income tax - 5,547 978

Inventory 94,298 99,880 106,810

Other investments 1,187 3,418 1,328

Total current assets 447,802 239,446 338,187

Balances related to subsidiary companies 1,752,659 1,638,563 1,623,899

Loans to subsidiary companies 62,544 71,830 61,898

Fixed assets 663,705 679,124 684,218

Intangible assets 529,916 550,605 538,709

Prepaid expenses 12,870 14,799 12,763

Total non-current assets 3,021,694 2,954,921 2,921,487

Total assets 3,469,496 3,194,367 3,259,674

Dan Propper - Chairman of the Board

Itzik Saig - CEO

Pinhas Kimelman - Deputy CEO, Finance

Date of approval of financial statements: 20 November 2014

14

INVESTMENTS LTD


2014 2013 2013



Liabilities

Loans and short term credit - 91,962 -

Accounts payable - suppliers 307,699 322,155 316,000

Other creditors 345,092 209,839 301,363

Income tax 8,537 - -

Total current liabilities 661,328 623,956 617,363

Liabilities for PUT options of non-controlling interests in subsidiaries 333,369 351,139 342,514

Employee benefits 6,048 4,538 4,331

Deferred taxes 67,275 46,083 43,722

Total non-current liabilities 406,692 401,760 390,567

Total liabilities 1,068,020 1,025,716 1,007,930

Equity

Share capital 176,772 176,772 176,772

Premium on shares 444,212 444,212 444,212

Capital reserves (67,985) (57,706) (68,353)

Retained earnings 1,848,477 1,605,373 1,699,113

Total equity 2,401,476 2,168,651 2,251,744

Total liabilities and equity 3,469,496 3,194,367 3,259,674


15

INVESTMENTS LTD

Condensed Interim Separate Information on Profit and Loss

For the three months ending

For the year

ending


2014 2013 2014 2013 2013



Sales 1,029,498 1,002,824 347,095 321,071 1,351,197

Cost of sales 535,932 518,810 182,857 162,663 712,087

Gross profit 493,566 484,014 164,238 158,408 639,110

Selling and marketing expenses 231,734 221,023 79,407 72,604 277,693

General and administrative expenses 62,534 70,540 21,996 24,209 99,478

Operating profit before other income 199,298 192,451 62,835 61,595 261,939

Other income, net (7,516) (8,388) (2,696) (3,166) (12,080)

Operating profit 206,814 200,839 65,531 64,761 274,019

Finance expenses (10,440) (12,691) (3,136) (4,322) (16,367)

Finance income 9,969 13,079 1,125 6,435 15,404

Financing costs, net (471) 388 (2,011) 2,113 (963)

Profit from subsidiaries 147,552 137,393 55,848 53,892 176,993

Profit before taxes on income 353,895 338,620 119,368 120,766 450,049

Taxes on income 54,531 53,036 17,484 19,742 74,064




16

INVESTMENTS LTD

Condensed Interim Information on Seperate Comprehensive Income and Expenses


For the year

ending


2014 2013 2014 2013 2013




Other comprehensive income (loss)

Amounts to be transferred to profit or loss

after specific requirements are met

368 (9,691) 3,695 3,939 (19,805)

Amounts that will not be transferred to profit or loss

Actuarial gains from defined benefit plan - - - - 3,818

Income tax on components of other comprehensive income - - - - (1,012)

Other comprehensive income (loss) for period,

net of tax 368 (9,691) 3,695 3,939 (16,999)


the period 299,732 275,893 105,579 104,963 358,986



Comprehensive income from subsidiary companies

17

INVESTMENTS LTD

Condensed Interim Information on Seperate Cash Flows


For the year

ending


2014 2013 2014 2013 2013



CASH FLOWS FROM OPERATING ACTIVITIES

Net profit for period 299,364 285,584 101,884 101,024 375,985

Adjustments:

Company's share in profits of subsidiaries (147,552) (137,393) (55,848) (53,892) (176,993)

Depreciation 47,815 43,088 15,972 14,403 57,663

Amortization of intangible assets and prepaid expenses 10,929 19,913 1,453 5,970 27,747Loss (profit) from sale of fixed assets, net 582 (130) (13) (135) (126)Finance costs, net 471 (388) 2,011 (2,113) 963Tax expenses on income 54,531 53,036 17,484 19,742 74,064Changes in derivatives 380 (272) (78) (14) (4,642)Changes in inventory 12,512 20,345 (338) 1,414 13,415

8,927 (21,641) 6,752 40,181 4,940Changes in accounts payable and other creditors 61,712 52,509 106,015 43,348 109,896Changes in employee benefits 1,717 433 (15) (2) 4,044Income taxes paid , net (58,065) (77,608) (27,519) (28,972) (101,746)

Net cash flows arising from operating activities 293,323 237,476 167,760 140,954 385,210

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of fixed assets (31,852) (68,793) (9,653) (18,501) (80,573)Proceeds from sale of fixed assets 107 433 14 249 745Net cash from subsidiary investment activities - - - - 19,013Investment in intangible assets and prepaid expenses (2,243) (45) (331) (9) (206)Interest received 8,935 1,032 382 441 1,581Other investments, net 126 10,614 42 8,327 12,735Dividend received from subsidiaries 36,309 31,733 - 14,300 69,520

11,382 (25,026) (9,546) 4,807 22,815

CASH FLOWS FROM FINANCING ACTIVITIES

Interest paid (133) (1,920) 34 (458) (2,149)Repayment of other liabilities (24,297) (22,108) (2,324) (9,594) (30,904)Credit from banking institutions and others, net - 80,180 - 23,143 (11,834)Dividend paid (150,000) (150,000) - (150,000) (150,000)

(174,430) (93,848) (2,290) (136,909) (194,887)

Change in cash and cash equivalents 130,275 118,602 155,924 8,852 213,138

Cash and cash equivalents at beginning of period 218,379 5,067 192,711 114,244 5,067

Effect of fluctuations in exchange rate

on cash balances (19) (714) - (141) 174

Cash and cash equivalents at end of period 348,635 122,955 348,635 122,955 218,379


Changes in debtors and debit balances (including intercompany

balances)

Net cash flows arising from (used in) investing activities

Net cash used in financing activities


18

INVESTMENTS LTD.

Additional Information

19

1. General

The interim separate financial information is disclosed in accordance with regulation 38d of the securities regulations

(Periodic and Immediate Reports), -1970 relating to separate financial information for the company. It should be read

along with the Separate financial Information for the year ending 31 December 2013 and together with Condensed

Consolidated Interim Financial Statements as at 30 September 2014 (Heinafter – “the consolidated financial

statements”).

Included in this separate financial information is:

1. The Company – Osem Investments Ltd.

2. Consolidated Companies – companies, including partnerships, whose financial statements are fully

consolidated , directly or indirectly with the company’s financial statements.

3. Held companies – Consolidated subsidaries which the investment in them is included, directly or indirectly, in

the financial stetements on the basis of the balance sheet value.


Report for the third quarter of the year 2014 on the effectiveness of

the internal control over the financial reporting and over the

disclosure according to

Regulation 38C

Please find enclosed herewith the report for the third quarter of the year 2014

regarding the effectiveness of the internal control over the financial reporting

and over the disclosure according to Regulation 38C(a).

The management, with the supervision of the Board of Directors of Osem

Investments Ltd. (hereinafter - the corporation), is responsible for the

establishment and running of adequate internal control mechanism over the

financial reporting and over the disclosure in the corporation.

For this purpose, the management members are:

1. Itzik Saig - CEO

2. Pinhas Kimelman - Deputy CEO of Finance

3. Meir Imber - Deputy CEO of Operations

4. Ofer Green - Deputy CEO and CEO of Noga Ice Cream

5. Nizan Goldberg –CEO of Osem Group Commerce

6. Rani Sagiv – VP of Supply Chain

7. Ayelet Lifshitz – VP of Marketing & Business Development

8. Hagit Adler – CEO of ONP

9. Ori Ben Shai – CEO of Snacks, Bakery, Beverages & Cereal Division

10. Zahava Martonovits – CEO of Culinary Division

11.Billy Yanko – CEO of Bonjour

12. Barak Strozberg – VP of Human Resources

13. Nili Zur – CEO of International Divison

14. Tzippi Hammer – CEO of New Business Division

Internal control over the financial reporting and over the disclosure includes

controls and procedures existing in the corporation, which were planned by the

CEO and the most senior office holder in the financial section or under their

supervision, or by someone who actually performs the above mentioned roles,

with the supervision of the board of directors of the corporation, which are

designed to provide a reasonable degree of assurance as to the credibility of

the financial reporting and on the preparation of the financial statements in

accordance with the Law, and to ensure that the information that the

Corporation is required to disclose in the reports published is in accordance

with the law, that it was collected, processed, summarized and reported in a

timely manner and in the format prescribed by the law.

The internal control includes, inter alia, controls and procedures that have

been planned to ensure that the information the corporation is required to

disclose is accumulated and sent to management of the Corporation, including

the CEO and the senior official on the Financial Section or to someone who

actually performs the above mentioned roles, so as to enable the making of

decisions in a timely manner, with regard to the disclosure requirements

Due to its structural limitations, the internal control over the financial

reporting and the disclosure is not designated to provide absolute assurance

that any misleading presentation or omission of information in the statements

will be prevented or will be discovered.

In the Quarterly Report on the effectiveness of the internal control over the

financial reporting and over the disclosure, which was enclosed with the

interim report for the period ended on 30 June 2014 (hereinafter - the last

quarterly report on the internal control), the internal control was found to be

effective.

Until the date of the report, the Board of Directors and the Corporation

management were not made aware of any event or matter where there is cause

to change the evaluation of the effectiveness of the internal control, as set out

in the last quarterly report relating to internal control.

As of date of the report, based on the statement in the last quarterly report on

the internal control, and based on information that has been brought to the

attention of management and the board of directors as mentioned above, the

internal control is effective.

Management statements

(a) Statement of the CEO according to Regulation 38C(d)(1):

Management Statement

Statement of the CEO

I, Itzik Saig, declare that:

1. I have evaluated the quarterly report of Osem Investments Ltd. (hereinafter:

the corporation) for the third quarter of the year 2014 (hereinafter: the reports).

2. To my knowledge, the reports do not include any incorrect presentation of a

material fact and they do not lack any presentation of a material fact that is

required, so that the presentations included in them, in light of the

circumstances in which these presentations have been included, are not

misleading with regard to the period of the reports

3. To my knowledge, the financial statements and the other financial information

included in the reports properly reflect, from every material aspect, the

financial situation, results of activities and cash flow of the Corporation as of

the dates and for the periods to which the reports refer

4. I have revealed to the auditing accountant of the Corporation, the Board of

Directors and the Audit Committee of the BOD of the Corporation, based on

my most current evaluation of the internal control over financial reporting and

disclosure:

A. All the significant lacks in control and material weaknesses in the

determinations or activation of the internal control mechanism, relating

to the financial reporting and disclosure that might reasonably be

expected to negatively influence the capability of the Corporation to

collect, process, summarize or report the financial information in a

manner that might leave room for doubt as to the credibility of the

financial reporting and the preparation of the financial statements in

accordance with the provisions of the law; and that –

B. Any fraud, whether material or not material, involving the general

manager or anyone directly subordinate to him or involving other

employees who have a significant position in the internal control over

the financial reporting and disclosure.

5. I, alone or together with others in the Corporation:

A. Have determined controls and procedures, or verified the

determination and the existence of controls and procedures under my

supervision, that are designed to ensure, that material information that

refers to the Corporation, including its consolidated companies, as

defined in the Securities Regulations (Preparation of Annual Financial

Reports) - 2010, is brought to my notice by others in the Corporation

and in the consolidated companies, especially during the period of the

preparation of the reports; and that –

B. Have determined controls and procedures, or verified the

determination and existence of controls and procedures under my

supervision, that are designed to ensure in a reasonable manner, the

credibility of the financial reporting and preparation of the financial

reports in accordance with the provisions of the law, and in accordance

with the accepted accounting regulations

C. Have not been informed of any event or matter that has occurred

during the period, between the date of the last quarterly report as of 30

June 2014 and the date of this report, that might be such as to change

the conclusion of the Board of Directors and management with regard

to the effectiveness of the internal control over the financial reporting

and disclosure of the corporation.

The above does not derogate from my responsibility or the responsibility of anyone

else according to the law.

20 November 2014 Signature - Itzik Saig

CEO

(b) Declaration of the most senior office holder in Finance, as

per Regulation 38C(d)(2)

Management Statement

Declaration of the most senior office holder in Finance

I, Pinhas Kimelman, declare that:

1. I have evaluated the interim financial statements and other financial

information included in the interim reports of Osem Investments Ltd.

(hereinafter: the corporation) for the third quarter of the year 2014

(hereinafter: the reports or the interim period reports).

2. To my knowledge, the interim financial statements and the other financial

information included in the reports of the interim periods, do not include any

incorrect presentation of a material fact and they do not lack any presentation

of a material fact that is required, so that the presentations included in them, in

light of the circumstances in which these presentations have been included, are

not misleading with regard to the period of the reports.

3. To my knowledge, the interim financial statements and the other financial

information included in the reports for the interim period, properly reflect,

from every material aspect, the financial situation, results of activities and

cash flow of the Corporation as of the dates and for the periods to which the

reports refer.

4. I have revealed to the auditing accountant of the corporation, the Board of

Directors and the Audit Committee of the BOD of the Corporation, based on

my most current evaluation of the internal control over financial reporting and

disclosure:

A. All the significant lacks in control and material weaknesses in the

determinations or activation of the internal control mechanism, relating

to the financial reporting and disclosure, as it relates to the interim

financial statements and the other financial information included in the

interim reports, that might reasonably be expected to negatively

influence the capability of the Corporation to collect, process,

summarize or report the financial information in a manner that might

leave room for doubt as to the credibility of the financial reporting and

the preparation of the financial statements in accordance with the

provisions of the law; and that –

B. Any fraud, whether material or not material, involving the general

manager or anyone directly subordinate to him or involving other

employees who have a significant position in the internal control over

the financial reporting and disclosure.

5. I, alone or together with others in the Corporation:

A. Have determined controls and procedures, or verified the

determination and the existence of controls and procedures under my

supervision, that are designed to ensure, that material information that

refers to the Corporation, including its consolidated companies as

defined in the Securities Regulations (Preparation of Annual Financial

Reports) 2010, is brought to my notice by others in the Corporation

and the consolidated companies, especially during the period of the

preparation of the reports; and that –

B. Have determined controls and procedures, or verified the

determination and existence of controls and procedures under my

supervision, that are designed to ensure in a reasonable manner, the

credibility of the financial reporting and preparation of the financial

reports in accordance with the provisions of the law, and in accordance

with the accepted accounting regulations

C. Have not been informed of any event or matter that has occurred

during the period, between the date of the last quarterly report as of 30

June 2014 and the date of this report, that relates to the interim

financial statements and any other financial information included in the

interim period reports, that might be such as to change, in my opinion,

the conclusion of the Board of Directors and management with regard

to the effectiveness of the internal control over the financial reporting

and disclosure of the corporation.

The above does not derogate from my responsibility or the responsibility of anyone

else according to the law.

20 November 2014 Signature - Pinhas Kimelman

Deputy CEO of Finance

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