osem investments limited statement 31.3.14.pdfready-made meals based on soy and vegetable and...

Osem Investments Limited

Financial Statements

March 31, 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 Three Month Period ending 31 March 2014 A-H

Condensed Interim Consolidated Financial Statements as at 31 March 2014 (Unaudited)

Auditors' review report 1

Condensed Interim Consolidated Statement of Financial Position 3

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 7

Notes to the Financial Statements 8

Condensed Interim Separate Financial Statements as at 31 March 2014 (Unaudited)

Special auditors’ report on separate interim financial information 11

Condensed Interim Information on Seperate Financial Position 12

Condensed Interim Information on Seperate Profit and Loss 14

Condensed Interim Information on Seperate Comprehensive Income and Expenses 15

Condensed Interim Information on Seperate Cash Flows 16

Additional information 17

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

A

26 May 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

31.03.2014

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

months ending 31 March 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 84,853 223,649 136,810 207,055 - 1,376,775

Attributable variable costs 486,913 505,733 302,149 353,982 159,683 520,697 (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 - 536,874

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 79,574 422,937 41,353 827,778 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. At this early stage, it is not possible to estimate the effects of changes that will occur due to

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.

H

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

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

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%

9.7 Production Capacity

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

10.7 Production Capacity

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 8,800 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

26 May 2014

The Board of Directors' Report on the Company Business for the Three Month Period ending 31 March 2014

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

shareholders the Board of Directors Report for the three month period ending 31 March 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 31 March 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 will be transferred under responsibility of the

culinary division and the activities of Sabra Salads will remain 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 retailers and the geographical competition

among retailers, this being based on the recommendations of the Food Committee. At this early stage, it is not possible to

estimate the effects of changes that will occur due to 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 345,265 thousand compared to the sum of NIS 335,126 thousand at the end of the

previous year, an increase of NIS 10,139 thousand.

The increase is due to cash flows from operating activities which was achieved in spite of the fact that the Group utilized

part of the increase from its excess cash for investments in production lines and expansion of factories.

The assets (fixed assets and intangible assets) amounted to the sum of NIS 2,100,533 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 14,238 thousand.

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

Total equity declined, and amounted to the sum of NIS 2,203,796 thousand compared to the sum of NIS 2,252,873

thousand at the end of the previous year. The decline in shareholders equity mainly results from a dividend declared in the

amount of NIS 150,000 thousand which was partially offset by accumulation of current profits in the first quarter in the

amount of NIS 99,535 thousand. The shareholders equity constitutes 58.5% of the total of the balance sheet.

The total of the balance sheet increased, and amounted to the sum of NIS 3,769,289 thousand compared to the sum of

NIS 3,642,288 thousand at the end of the previous year, an increase of 3.5%.

The structure of the balance sheet as at 31 March 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 three months of the year 2014 increased and amounted to the sum of NIS 1,068,191

thousand compared to NIS 1,010,630 thousand in the corresponding period last year, a growth of 5.7%.

The increase in sales results from, among others, the timing of the Passover Holiday which positively affected sales in the

first quarter.

Sales to the local market for the first three months of the year amounted to the sum of NIS 894,294 thousand compared

to NIS 839,354 thousand in the corresponding period last year, an increase of 6.5% which resulted, as mentioned, from

to the timing of the Passover Holiday.

The Group's overseas sales for the first three months of the year amounted to the sum of NIS 173,897 thousand

compared to the sum of NIS 171,276 thousand in the corresponding period last year, a growth of 1.5%.

This growth in overseas sales was achieved despite the erosion in the currency exchange rates. After offsetting the

erosion in the currency exchange rates, overseas sales were higher by 5.1%.

Gross Profit of the Group for the first three months of the year amounted to the sum of NIS 449,691thousand compared

to NIS 414,434 thousand in the corresponding period last year, a growth of 8.5% which resulted from increase in sales

due to the timing of the Passover Holiday, efficiency programs based on, among others Nestle methodology, automation

of production lines and erosion of currency exchange rates which positively affected imports.

The Operating Profit before other income and expenses for the first three months of the year amounted to NIS

139,665 thousand compared to NIS 132,222 thousand in the corresponding period last year, a growth of 5.6%.

The growth in operating profit before other income and expenses was achieved, among others, thanks to the timing of the

Passover Holiday, efficiency programs and automation of production lines.

The Profit of the Osem Group for the first three months of the year amounted to NIS 99,535 thousand compared to NIS

94,591 thousand in the corresponding period last year, a growth of 5.2%.

The increase in net profit for the period was achieved thanks to the improvement and increase in operating profit and

thanks to the 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 the

Group's 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 three months of the year increased from the level of NIS

212,775 thousand to the level of NIS 234,791 thousand and represented 22.0% of the turnover compared to 21.1% of the

turnover in the corresponding period last year. The increase in selling expenses results from, among others, increase in

marketing expenses and promotions for sales campaigns due to the timing of the Passover Holiday.

General and administrative expenses for first three months of the year represented 7.0% of the turnover, compared to

6.9% in the corresponding period last year.

E

Net financing expense of the Group for first three months of the year amounted to the sum of NIS 3,369 thousand

compared to NIS 6,298 thousand in corresponding period last year. The decline in financing expenses results from the

repayment in full of long term bank loans and from the reduction in short term bank credit which today constitutes only

0.8% of the balance sheet.

The balance of finance expenses results mainly from non-cash-flow imputed interest, related to the PUT options to the

non-controlling interests.

F

Liquidity and financing sources

The current ratio as at the balance sheet date is 1.39

The quick ratio as at the balance sheet date is 1.05

The high liquidity ratio and liquidity reserve funds of the Group have constituted 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 from current operations for the first three months of the year amounted to the sum of NIS 47,603 thousand

compared to the sum of NIS 35,084 thousand in the corresponding period last year, an increase of 35.7% which mainly

resulted from improvement in net profit and improvement in working capital management.

Analysis of the Groups business results according to areas of activity

As the result of the internal reorganization, the compositions of the reportable operating segments were changed. For

details relating to the new operating segments and the results of their activities including information corresponding to

previous periods, see note 5 of the financial statements as at 31.3.14.

The following are the financial results of the new reportable operating segments:

Culinary area - for the first three months of the year sales amounted to NIS 246,063 thousand compared to NIS 225,701

thousand in the corresponding period last year an increase of 9.0%. The profit declined from a level of NIS 29,360

thousand to a level of NIS 24,896 thousand The increase in sales results from, among others, the timing of the Passover

Holiday the profit on the other hand was affected by increase in marketing and sales promotion expenses.

Bakery, beverages, snacks and breakfast cereals area - for the first three months of the year sales amounted to NIS

306,860 thousand compared to NIS 287,734 thousand in the corresponding period last year an increase of 6.6%. The

profit increased from a level of NIS 68,461 thousand to a level of NIS 72,220 thousand. The increase in sales and profit

results, among others, from the timing of the Passover Holiday.

International area - for the first three months of the year sales amounted to NIS 173,897 thousand compared to NIS

171,276 thousand in the corresponding period last year an increase of 1.5%. The profit increased from a level of NIS

20,291 thousand to a level of NIS 21,674 thousand.

This growth in sales was achieved despite the erosion in the currency exchange rates. After offsetting this effect, overseas

sales were higher by 5.1%. Increase in profit was achieved as a result of efficiency programs.

Infant nutrition area - for the first three months of the year sales amounted to NIS 91,054 thousand compared to NIS

83,173 thousand in the corresponding period last year an increase of 9.5%. The profit increased from a level of NIS

14,628 thousand to a level of NIS 17,813 thousand.

The improvements in sales and profits were achieved , among others, as a result of product innovation and as a result of

the use of Nestle knowhow and technology and improvements in the factory and increased Passover sales.

Professional market and gift packages area – for the first three months of the year sales increased from NIS 100,776

thousand to NIS 106,780 thousand, a growth of 6.0%. The profit also increased from a level of NIS 4,924 thousand to a

level of NIS 10,496 thousand. The increase in sales and profit results, among others, from the timing of the Passover

Holiday and rationalization in logistic costs.

Other activities area - for the first three months of the year sales amounted to NIS 154,731 thousand compared to NIS

152,035 thousand in the corresponding period last year an increase of 1.8%. The loss amounted to the sum of NIS 5,380

thousand compared to the sum of NIS 3,916 thousand last year, This activity produces losses in the first quarter due to the

seasonal effect of the winter which effects the ice cream and Nestea activities, which comprise part of the other activities.

This is a seasonal loss since the trend reverses in the summer months.

G

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 quarter 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 13 March 2014, the Company decided on a dividend in the sum of NIS 150 million. The dividend was

distributed on 8 April 2014.

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 Company board of directors has decided to establish a Balance Sheet Committee which will

examine the financial statements of the Company and which will make recommendations 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).

H

The discussions of the Balance Sheet Committee: On 18 May 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. All

the directors of the Committee who are members and who are specified above attended its meetings. In addition to

the Committee members a representative of the External auditor, the Company CEO, 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. To make its

recommendations, the Company CEO and the Deputy CEO of Finance gave an overview to the Committee members

on the situation of the Company, its financial results and on the other issues the Committee discussed, as specified

above, and answered the questions of the Committee Members 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.

1

To:

The shareholders of Osem Investments Limited

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 March 31, 2014 and the related condensed consolidated interim statements of

income, comprehensive income, changes in equity and cash flows for the three-month period 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 period 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 12.2 % of the total consolidated assets as of March 31, 2014, and whose revenues

constitute 13.1 % of the total consolidated revenues for the three month period then ended. 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.)

May 26, 2014

Condensed Interim Consolidated Statement of Financial Position

As at March 31 As at March 31 As at December 31

2014 2013 2013

(Unaudited) (Unaudited) (Audited)

NIS thousands NIS thousands NIS thousands

Assets

Cash and cash equivalents 343,993 109,705 328,059

Accounts receivable - customers 824,106 755,688 688,481

Debtors and debit balances 31,910 44,603 27,662

Income tax 3,818 10,831 5,464

Inventory 382,715 382,291 390,107

Other investments 1,272 11,643 7,067

Total current assets 1,587,814 1,314,761 1,446,840

Employee benefits 293 - 293

Fixed assets 1,128,419 1,119,254 1,144,497

Intangible assets 972,114 1,013,280 977,057

Prepaid expenses 44,410 39,858 38,806

Deferred tax assets 36,239 29,797 34,795

Total non-current assets 2,181,475 2,202,189 2,195,448

Total assets 3,769,289 3,516,950 3,642,288

Dan Propper - Chairman of the Board

Itzik Saig - CEO

Pinhas Kimelman - Deputy CEO, Finance

Date of approval of financial statements: 26 May 2014

INVESTMENTS LTD


2014 2013 2013



Liabilities

Loans and short term credit from banks 29,357 117,915 29,212

Accounts payable - suppliers 699,662 641,718 710,463

Other creditors 253,513 190,192 223,976

Income tax 13,680 8,000 9,473

Dividend declared 150,000 - -

Total current liabilities 1,146,212 957,825 973,124

Liabilities for PUT options of non-controlling interests in subsidiaries 345,847 360,267 342,514

Employee benefits 4,416 4,320 4,450

Deferred taxes 69,018 69,535 69,327

Total non-current liabilities 419,281 434,122 416,291

Total liabilities 1,565,493 1,391,947 1,389,415

Equity

Share capital 176,772 176,772 176,772

Premium on shares 444,212 444,212 444,212

Capital reserves (66,965) (61,047) (68,353)

Retained earnings 1,648,416 1,564,240 1,699,113

Total equity attributable to equity holders of the company 2,202,435 2,124,177 2,251,744

Non-Controlling interests 1,361 826 1,129

Total equity 2,203,796 2,125,003 2,252,873

Total liabilities and equity 3,769,289 3,516,950 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 three

months ending

For the three

months ending For the year ending

As at March 31 As at March 31 December 31

2014 2013 2013



Sales 1,068,191 1,010,630 4,190,047

Cost of sales 618,500 596,196 2,426,336

Gross profit 449,691 414,434 1,763,711

Selling and marketing expenses 234,791 212,775 928,833

General and administrative expenses 75,235 69,437 306,320

Operating profit before other expenses 139,665 132,222 528,558

Other expenses (income), net 2,186 (70) 2,885

Operating profit 137,479 132,292 525,673

Finance expenses (3,462) (6,744) (24,653)

Finance income 93 446 1,892

Financing costs, net (3,369) (6,298) (22,761)

Profit before taxes on income 134,110 125,994 502,912

Taxes on income 34,575 31,403 126,484

Profit for the period 99,535 94,591 376,428

Attributed to:

Equity holders of the company 99,303 94,451 375,985

Non-Controlling interests 232 140 443


Earnings per NIS 1 par value ordinary shares

Primary and fully diluted (in NIS) 0.90 0.85 3.40


4

INVESTMENTS LTD

Condensed Interim Statement of Comprehensive Income and Expenses

For the three

months ending

For the three


March 31 March 31 December 31

2014 2013 2013




Other comprehensive income (loss)

Amounts to be transferred to profit or loss

after specific requirements are met

Foreign currency translation differences for foreign operations 1,388 (13,032) (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 1,388 (13,032) (16,999)

Total comprehensive income (loss) for

the period, net of tax 100,923 81,559 359,429

Attributed to:

Equity holders of the company 100,691 81,419 358,986

Non-Controlling interests 232 140 443

Total comprehensive income for

the period 100,923 81,559 359,429


5

INVESTMENTS LTD.

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 three month period ending

31 March 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)

1,388 - 1,388 - - - 1,388 - - Foreign currency exchange difference

99,535 232 99,303 99,303 - - - - - Net earnings for the period

100,923 232 100,691 99,303 - - 1,388 - - Total recognized comprehensive income for the period

(150,000) - (150,000) (150,000) - - - - - Dividend declared

2,203,796

1,361

2,202,435

1,648,416

5,694

(41,675)

(489,03)

444,212

176,772

Balance as at 31 March 2014

For the three month period ending


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 (audited)

(13,032) - (13,032) - - - (13,032) - - Foreign currency exchange difference

94,591 140 94,451 94,451 - - - - - Net earnings for the period

81,559 140 81,419 94,451 - - (13,032) - - Total recognized comprehensive income for the period

2,125,003

826

2,124,177

1,564,240

5,694

(41,675)

(25,066)

444,212

176,772

Balance as at 31 March 2013

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 (audited)

(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

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 three



2014 2013 2013



CASH FLOWS FROM OPERATING ACTIVITIES

Profit for period 99,535 94,591 376,428

Adjustments:

Depreciation 29,823 28,489 114,204

Amortization of intangible assets and prepaid expenses 10,895 13,202 52,534Loss from sale of fixed assets, net (183) 69 155Finance costs, net 3,369 6,298 22,761Tax expenses on income 34,575 31,403 126,484Changes in derivatives 154 (259) (4,642)

Changes in inventory 7,885 21,686 11,856Changes in accounts receivable and other debtors (139,923) (92,484) (18,201)Changes in accounts payable and other creditors 29,868 (31,023) 76,330Changes in employee benefits (34) (217) 4,163Income taxes paid (28,361) (36,671) (126,734)

Net cash flows arising from operating activities 47,603 35,084 635,338

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of fixed assets (25,896) (33,368) (145,009)Proceeds from sale of fixed assets 472 86 2,002Other investments, net 5,781 2,245 6,996Investment in intangible assets and prepaid expenses (10,974) (6,591) (20,624)Interest received 1,574 228 1,227

Net cash flows used in investing activities (29,043) (37,400) (155,408)

CASH FLOWS FROM FINANCING ACTIVITIES

Interest paid (573) (993) (3,637)Repayment of long term liabilities - (9,257) (13,303)Credit from banking institutions and others, net 10 66,241 (11,798)Repayment of other liabilities (2,255) (2,013) (30,904)Dividend paid - - (150,000)

Net cash arising from (used in) financing activities (2,818) 53,978 (209,642)

Change in cash and cash equivalents 15,742 51,662 270,288

Cash and cash equivalents at beginning of period 328,059 60,265 60,265

Effect of fluctuations in exchange rate

on cash balances 192 (2,222) (2,494)

Cash and cash equivalents at end of period 343,993 109,705 328,059


7

INVESTMENTS LTD.

Notes to the Financial Statements as at 31 March 2014

8

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 31 March 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.


9

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.

three months ending For the

10December 20 Bakery Professional

31 March 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 246,063 306,860 173,897 91,054 106,780 154,731 (11,194) 1,068,191

Segment results 24,896 72,220 21,674 17,813 10,496 (5,380) (2,054) 139,665

Expenses not allocated (2,186)

Financing costs, net (3,369)

Profit before taxes on income

134,110

INVESTMENTS LTD.


01

Note 5 – Segment Activity (Cont.)

three months ending For the

10December 20 Bakery Professional


Beverages Infant And Gift Adjustment to Culinary Snacks Cereals International Nutrition Packages Others Consolidated Consolidated



Segment sales 225,701 287,734 171,276 83,173 100,776 152,035 (10,065) 1,010,630

Segment results 29,360 68,461 20,291 14,628 4,924 (3,916) (1,526) 132,222

Income not allocated 70



125,994

year ending For the Bakery Professional

31 December 2012 (audited) 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

Expenses not allocated (2,885)



502,912

Note 6 – Financial Instruments.

The Company has forward hedge transactions and options on exchange rates on supplier foreign

currency balances as at 31 March 2014 total face value of the transactions amounts to the sum of NIS

212717 thousand, the fair value of the asset is NIS 141 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 – Event 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. At this early stage, it

is not possible to estimate the effects of changes that will occur due to the law.


Separate Financial Statements

March 31, 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.

11

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 March 31, 2014 and for the three month

period 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 434,194 thousand as of March 31, 2014, and the profit from these investee

companies amounted to NIS 1,486 thousand for the three month period then ended. 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.)

May 26, 2014

INVESTMENTS LTD

Condensed Interim Information on Separate Financial Position


2014 2013 2013



Assets

Cash and cash equivalents 211,064 25,475 218,379

Debtors and debit balances 10,587 26,176 10,692

Income tax - 6,032 978

Inventory 102,300 116,440 106,810

Other investments 1,272 11,643 1,328

Total current assets 325,223 185,766 338,187

Balances related to subsidiary companies 1,668,250 1,548,132 1,623,899

Loans to subsidiary companies 62,045 70,807 61,898

Fixed assets 671,811 657,416 684,218

Intangible assets 532,900 562,222 538,709

Prepaid expenses 13,653 16,081 12,763

Total non-current assets 2,948,659 2,854,658 2,921,487

Total assets 3,273,882 3,040,424 3,259,674

Dan Propper - Chairman of the Board

Itzik Saig - CEO

Pinhas Kimelman - Deputy CEO, Finance

Date of approval of financial statements: 26 May 2014

12

INVESTMENTS LTD


2014 2013 2013



Liabilities

Loans and short term credit - 83,225 -

Accounts payable - suppliers 303,616 271,375 316,000

Other creditors 218,514 155,612 301,363

Income tax 5,046 - -

Dividend declared 150,000 - -

Total current liabilities 677,176 510,212 617,363

Liabilities for PUT options of non-controlling interests in subsidiaries 345,847 360,267 342,514

Employee benefits 4,299 3,888 4,331

Deferred taxes 44,125 41,880 43,722

Total non-current liabilities 394,271 406,035 390,567

Total liabilities 1,071,447 916,247 1,007,930

Equity

Share capital 176,772 176,772 176,772

Premium on shares 444,212 444,212 444,212

Capital reserves (66,965) (61,047) (68,353)

Retained earnings 1,648,416 1,564,240 1,699,113

Total equity 2,202,435 2,124,177 2,251,744

Total liabilities and equity 3,273,882 3,040,424 3,259,674


13

INVESTMENTS LTD

Condensed Interim Separate Information on Profit and Loss

For the three

months ending

For the three


As at March 31 As at March 31 December 31

2014 2013 2013



Sales 367,837 346,359 1,351,197

Cost of sales 186,281 182,438 712,087

Gross profit 181,556 163,921 639,110

Selling and marketing expenses 76,487 65,528 277,693

General and administrative expenses 24,145 22,019 99,478

Operating profit before other expenses 80,924 76,374 261,939

Other income, net (2,970) (2,656) (12,080)

Operating profit 83,894 79,030 274,019

Finance expenses (4,841) (4,269) (16,367)

Finance income 394 2,612 15,404

Financing costs, net (4,447) (1,657) (963)

Profit from subsidiaries 42,005 37,525 176,993

Profit before taxes on income 121,452 114,898 450,049

Taxes on income 22,149 20,447 74,064



14

INVESTMENTS LTD

Condensed Interim Information on Seperate Comprehensive Income and Expenses

For the three

months ending

For the three



2014 2013 2013




Other comprehensive income (loss)

Amounts to be transferred to profit or loss

after specific requirements are met

Comprehensive income from subsidiary companies 1,388 (13,032) (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 1,388 (13,032) (16,999)

Total comprehensive income for

the period 100,691 81,419 358,986


15

INVESTMENTS LTD

Condensed Interim Information on Seperate Cash Flows

For the three

months ending

For the three



2014 2013 2013



CASH FLOWS FROM OPERATING ACTIVITIES

Net profit for period 99,303 94,451 375,985

Adjustments:

Company's share in profits of subsidiaries (42,005) (37,525) (176,993)

Depreciation 15,937 14,441 57,663

Amortization of intangible assets and prepaid expenses 6,362 6,969 27,747

Loss (profit) from sale of fixed assets, net 72 33 (126)

Finance costs, net 4,447 1,657 963

Tax expenses on income 22,149 20,447 74,064

Changes in derivatives 154 (259) (4,642)

Changes in inventory 4,510 3,785 13,415

Changes in debtors and debit balances (including intercompany balances) 105 (57,378) 4,940

Changes in accounts payable and other creditors (80,430) (54,856) 109,896

Changes in employee benefits (32) (217) 4,044

Taxes paid (22,928) (19,255) (101,746)

Net cash flows arising from (used in) operating activities 7,644 (27,707) 385,210

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of fixed assets (11,677) (17,734) (80,573)

Proceeds from sale of fixed assets - 27 745

Net cash from subsidiary investment activities - - 19,013

Investment in intangible assets and prepaid expenses (1,443) - (206)

Interest received 420 76 1,581

Other investments, net 42 2,245 12,735

Dividend received from subsidiaries - - 69,520

Net cash flows arising from (used in) investing activities (12,658) (15,386) 22,815

CASH FLOWS FROM FINANCING ACTIVITIES

Interest paid (35) (739) (2,149)

Repayment of other liabilities (2,255) (2,013) (30,904)

Credit from banking institutions and others, net - 66,210 (11,834)

Dividend paid - - (150,000)

Net cash arising from (used in) financing activities (2,290) 63,458 (194,887)

Change in cash and cash equivalents (7,304) 20,365 213,138

Cash and cash equivalents at beginning of period 218,379 5,067 5,067

Effect of fluctuations in exchange rate

on cash balances (11) 43 174

Cash and cash equivalents at end of period 211,064 25,475 218,379


16

INVESTMENTS LTD.

Additional Information

17

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 31 March 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 first 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 first 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. Zeev Kalimi - CEO of Noga Ice Cream

5. Ofer Green – Deputy CEO and CEO of Osem Group Commerce

6. Rani Sagiv – VP of Supply Chain

7. Ayelet Lifshitz – VP of Marketing & Business Development

8. Yariv Ardon – CEO of ONP

9. Ori Ben Shai – CEO of Snacks, Bakery, Beverages & Cereal Division

10. Zahava Martonovits – CEO of Culinary Division

11. Hagit Adler – 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 Annual Report on the effectiveness of the internal control over the

financial reporting and over the disclosure, which was enclosed with the

periodic report for the period ended on 31 December 2013 (hereinafter - the

last annual report on the internal control), the Board of Directors and the

Corporation management, evaluated the internal control in the Corporation.

Based on this evaluation, the Board of Directors and the Corporation

management reached the conclusion that the internal control over the financial

reporting and over the disclosure in the Corporation as at 31 December 2013

has been 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 annual report relating to internal control.

As of date of the report, based on the evaluation of the effectiveness of the

internal control in the last annual report in respect of 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 first 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 (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 periodic report as of 31

December 2013 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.

26 May 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 first 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 (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 periodic report of 31

December 2013 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.

26 May 2014 Signature - Pinhas Kimelman

Deputy CEO of Finance

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