Osem Investments Limited

Transcription

Osem Investments
Limited
Periodic Report
For the Year 2014
Periodic Report for the Year 2014
Table of Content s
Section A
Description of the Corporation’s
Business Activities
Section B
The Board of Directors' Report on
the Company Business
Section C
Financial Statements
as at 31 December 2014
Section D
Additional Details on the
Corporation
Section E
December 31, 2014
Annual report on the effectiveness
of the internal control over the
financial reporting and over the
disclosure according to
Regulation 9B(a) for the year 2014.
Osem Investments
Limited
Section A:
Description of the
Corporation’s Business
Activities
Description of the Corporation’s Business Activities Table of Contents
Section 1: Description of the General Evolution of the Corporation’s
Business Activities
1
1.
Description of the Group’s Activities and Evolution of its Business
1
2.
Areas of Activities
4
3.
Investments in the Corporate Capital and Transactions in its Shares
6
4.
Distribution of Dividends
6
Section 2: Additional Data
8
5.
Financial Information Regarding the Operating Segments of the
Corporation
8
6.
General Background and External Factors Affecting the
Corporation's Activity
12
Section 3: The Corporation's Activities according to Operating
Segments
17
7.
The Culinary Food Area
17
8.
The Bakery, Beverages, Snacks and Breakfast Cereals Area
9.
The Professional Market and Gift Packages Area
27
35
42
51
60
10. The International Division Area
11. Infant Nutrition Area
12. Others - other activities
Section 4: Information Regarding the Group's General Activity
62
13. Customers
62
14. Distribution and Marketing
64
15. Order Backlog
66
16. Fixed Assets and Facilities
66
17. Research & Development
67
18. Intangible Assets
68
19. Human Resources
70
20. Working Capital
76
21. Investments
77
22. Financing
77
23. Taxation
78
24. Environmental Issues
80
25. Restrictions and Supervision of the Corporate's Activity
90
26. Significant Agreements
93
27. Strategic Alliance and General Assistance Agreements
94
28. Legal Proceedings
95
29. Business Strategy and Objectives
95
30. Future Developments Forecasted for the Coming Year
96
31. Financial Data on Geographical Segments
97
32. Discussion on Risk Factors
98
This chapter in the Periodic Report, which describes the Corporation's activities, also
contains forward looking information/statements, as defined in the Securities Law 1968.
Forward-looking information means information regarding the future which has a degree of
uncertainty about the future, which is based on information existing in the Company at the
time of the Report publication, and includes estimates or information on the intentions as at
the Report publication date. This information reflects the Company’s current viewpoint
regarding future events, is based on the Company’s estimates, and is therefore subject to
uncertainty and risk. The actual results may differ materially from the results estimated or
implied from this information, due to a large number of factors including changes in the
Company’s business plans, and due to changes in macro-economic factors and in the specific
industry sector. Sections containing forward looking information can be identified by words
and phrases such as: “The Company estimates…”, “The Company claims that…”, “The
Company intends…”, “The company anticipates…expects”, etc., or expressions phrased in
the future tense, but such information could also appear in different wording.
Business of the Entity
Section 1: Description of the General Evolution of the
Corporation’s Business Activities
1.
The Group Activities and Evolution of its Business
1.1
Foundation and general background. The Osem Group was founded
in 1942 and Osem Investments Ltd. is the parent company incorporating
the Osem Group of companies (“Osem”, the “Company”, the “Group”,
and “Osem Group”, as the case may be).
The Group produces and markets more than 2,000 different food items
currently manufactured in eleven production plants and marketed
through one central distribution center and secondary loading sites.
The Group also exports different food products to other countries,
primarily to European countries and to the States. The products of the
subsidiary companies, Tivall (meat analogues) and Sabra (salads), are
manufactured both in Israel and abroad (by the Group's factories in the
Czech Republic and in the US).
The Company’s shares were first offered and issued on the Tel Aviv
Stock Exchange in 1992.
1.2
The Company’s position in the food industry. Osem is rated among
the leading food companies in the Israeli market and develops its
business with the intention of offering the consumer in the local and
foreign markets a large variety of branded products, at high quality, in
every food area it operates, thereby establishing its position as a market
leader in the food market.
In recent years, the Group expanded its activity abroad by establishing a
Tivall products factory in the Czech Republic, by acquiring the activity
of the distribution of "Yarden" company in England, and by acquiring
the activity of Tribe Mediterranean and Food-Tech companies in the US,
engaged in salads and meat analogues.
In an image survey which was conducted in December 2014 by the
Israeli Market Research Company TNS, as well as in other surveys
conducted in previous years, Osem was chosen as the best, the leading,
the most popular and the most widely recognized food company in
Israel. Moreover, in 2014, Osem was chosen as the most employee
friendly employer in a competition on the most employee friendly
1
employers conducted by the Israeli newspaper Calcalist together with the
Maagalim Foundation. The winner of the competition was determined on
the basis of 20 parameters which examined, inter alia, length of
employment, work-life balance, integration of women, employment of
elderly persons , wage differences, average wage and wage differences
between men and women.
1.3
Brands & technology. The Group owns a variety of brands and utilizes
diverse and wide production technologies, invented and developed by
the Group itself. In addition, the Group uses the brands, know-how and
technology Nestlé - the world’s leading Food Company, the largest
shareholder at Osem whose holdings as at the report date reach about
63.7% of the ownership rights in the Company (“Nestlé” or “Nestlé
Group”).
1.4
Strategic alliance with Nestlé. The Company has exclusive agreements
for cooperation with the Nestlé group to market and distribute Nestlé's
products in Israel by the marketing and sales systems of Osem and the
possibility of manufacturing Nestlé products locally. In addition, the
Company has exclusive agreements with the Nestlé Group for the use of
intellectual property, know-how, and trademarks to which Nestlé has
rights. Osem also receives technical assistance in R&D and has
extensive right of use of Nestlé 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. For additional details please see Regulation 22 in Chapter
D ("Additional Details on the Corporation ").
1.5
Change in the Management Structure of the Parent Company Nestlé
- On September 26, 2014, the Nestlé Board of Directors resolved to
classify the management of the Mediterranean countries as part of the
European division. Under this resolution, as at 1.1.2015, Osem is part of
the extended Europe (Zone EMENA), instead of belonging to Asia,
Africa and Oceania (Zone AOA), as in the past. In addition and as part
of the change, the directors serving on the Board of the Company on
behalf of the Parent Company from Zone AOA were replaced by
representatives of Zone EMENA.
1.6
Credit Rating AAA for Osem. In March 2015, Midroog Ltd. extended
the AAA rating Osem had received and gave it a stable rating outlook.
Osem is the first and only industrial company in Israel, which is not a
2
government enterprise, to ever receive an AAA rating.
1.7
Structure of Business: Osem's Holdings of Companies in the Group
according to the areas of activity/segments of operations
(1)
In addition to being the holding company of the Group, Osem Investments Ltd. is also a
manufacturing company in the business of culinary food area, bakery, beverages, snacks and breakfast
cereals as well as in the frozen bakery area (after Bonjour Company (1986) Ltd. was merged into
Osem Investments Ltd.).
(2)
The chart does not include holding in non-active companies or holding of companies whose activity is
not material, or companies whose activity consists only of holding, ownership or lease of property, and
the percentages of the holdings in the above chart are the percentages of direct and indirect holdings.
(3)
Tribe Company operates in the US, both in salads and in vegetarian-based food.
(4)
Tivall Industries includes the Tivall activity and also the Sabra Salads activity, after the companies
have been merged.
(5)
Despite the fact that the holding in Materna is 51%, from accounting point of view, due to the option
component, a holding of 100% has been presented, in accordance with the accepted accounting rules.
3
2.
Areas of Activities
The Group focuses on the manufacturing and marketing of food products and
ranks among the largest food manufacturers and marketers in Israel.
In light of the changes in the management structure and following a renewed
examination of the segment reporting as specified in Note 25 to the financial
statements attached to this periodic report, as of January 2014, the Company
adjusted its reporting of the business segments to the new management
structure.
Below is a description of the areas of operations reported as business segments
of the Company:
2.1 Culinary Food 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 (excluding exports which are
included in the area of the international division and excluding the
professional food market reported as a separate activity area). The
principal food products in this area include among others pasta, soups,
casseroles, baking aids, sauces, soup almonds and canned food (pickles),
ready meals and meat analogues and salads.
2.2 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 products sold on the retail market in Israel
(excluding exports which are included in the area of the international
division and excluding the professional food market reported as a
separate activity area). The food products in this area include savory
bakery products (such as crackers and "Lachmit"), sweet bakery
products (cakes and cookies), syrups, drinking chocolate and instant
coffee as well as snacks (wheat-based, peanut-based, potato-based and
corn-based snacks etc.), breakfast cereals and health bars.
2.3 International Division Area – in this area the Group develops,
manufactures and/or sells, markets and distributes a large variety of
products at room temperature, frozen and chilled products sold abroad
both by direct export from Israel and by subsidiaries operating abroad
and including the Tribe Company in the US (ready meals and meat
analogues under the Veggie Patch brand and salads under the Tribe
brand), Tivall Europe (including Tivall Holland, Tival Czech and Tivall
Sweden), Osem USA and Osem UK.
4
2.4 Infant Nutrition Area – in this area the Group's activity is carried out
via the Materna Partnership which develops, manufactures and/or sells
and markets a large variety of infant nutrition products, which primarily
include infant formula products, baby cereals, purees, biscuits and pasta
for toddlers.
2.5 The 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 to the professional market (hotels, cafes,
restaurants, catering companies and other professional entities) and gift
packages sold to workers' committees and companies via Assamim Gift
Parcels which also sells chocolate snacks in the retail market.
2.6
Other Activities - this area includes other activities that do not fall
under the areas described above. The principal activities include among
others frozen bakery products of Bonjour, iced tea (Nestea), ice cream,
other purchased products and pet food. These are activities, which are
not material to the Group's activities and do not qualify according to the
quantitative criterion for presentation in the financial statements as
reportable operating segments.
5
3.
Investments in the Corporate Capital and Transactions in its Shares
During the last two years no investments were made in the Company capital,
nor were any transactions in its shares performed by interested parties outside
the Stock Exchange, except for a Nestlé transaction that took place on 26
November 2013 in which Nestlé acquired the holdings of 4 private companies
in which Mr. Dan Propper (Chairman of the Company board) has shares.
Overall, 5,439,017 shares were sold in this transaction and for consideration of
NIS 503,094,912 (NIS 92.497 per share). In line with this transaction, after the
acquisition, the Nestlé holdings in the Company rose from 58.8% to 63.7%.
4.
Distribution of Dividends
4.1 On 2 July 2013 the Company distributed a dividend in the sum of NIS
150 million.
4.2 On 8 April 2014 the Company distributed a dividend in the sum of NIS
150 million.
4.3 On 3 March 2015 the Company distributed a dividend in the sum of NIS
150 million.
4.4 The balance of the profits for distribution, as at 31.12.14, is retained
earnings as detailed in the Changes in Shareholders' Equity Statements
which appear in the financial statements included in this periodic report.
4.5 The Company has a negative pledge agreement with the banks according
to which if the Company receives a bank loan, the banks will not record
any pledges in the Company Registrar in favor of the banks as long as
the Company meets certain commitments and financial ratios, including
in connection with the distribution of dividend.
For additional details see Note 20 B to the financial statements which are
included in this periodic report.
During the relevant reporting period, the Group complied with these
commitments and financial ratios.
4.6 In recent years the Company has not set a policy for dividend
distribution. However, according to the Company's Articles of
Association, and according to the Company's prospectus of 1992, the
Company aims to distribute an annual dividend in cash, which will not
be less than 15% of the net annual profit, based on the Company’s
6
audited annual financial statements and given the investment plans of
the Company and its needs. However, in practice, the Group distributed
in recent years dividends at higher rates, as per the following table:
Total dividend
paid (KNIS)
% of the Net
Profit
Dividend in
2012
150,000
Dividend in
2013
150,000
Dividend in
2014
150,000
42%
40%
38%
7
Section 2: Additional Data
5.
Financial Information Regarding the Operating Segments of the
Corporation
A.
B.
C.
Following changes in the management structure and a reexamination of
the segment reporting as specified in Note 25 to the financial statements
attached to this periodic report, the Company resolved, commencing with
the financial statements for 2014, to report a change in areas of activities
reported as operating segments of the Company. Comparative figures
have been restated to reflect this change.
The annual financial statements are in accordance with the international
financial reporting standards (IFRS). Financial information pertaining to
the Corporation’s activity areas appears in Note 25 to the financial
statements included in this report. The adjustments to the figures in the
consolidated financial statements result from selling finished goods and
semi-finished goods between the operating segments. The explanations
for the changes and developments appear in the Results of Activities
Report submitted to the Board of Directors which is included in this
periodic report.
Below are the Company's financial figures split into different operating
segments (in NIS Thousands):
8
Culinary
The Year 2014
Bakery,
Beverages,
Snacks and
Breakfast
Cereals
Professional
Market and
Gift
Packages
International
Division
Infant
Nutrition
Others
Adjustments
for the
consolidated
Consolidated
Revenue from the operating
segment
972,696
1,135,363
416,777
672,032
358,480
747,438
)46,166(
4,256,620
Attributable fixed costs
355,610
371,749
82,184
245,401
143,253
207,591
-
1,405,788
Attributable variable costs
502,113
505,044
306,954
372,864
152,832
507,889
)39,205(
2,308,491
Results of operating segment
114,973
258,570
27,639
53,767
62,395
31,958
)6,961(
542,341
Part attributed to the owner of the
parent company
114,973
258,570
27,274
53,767
62,395
31,958
)6,961(
541,976
365
Part attributed to the noncontrolling interests
Assets which are attributed to the
activity area
Liabilities which are attributed to
the activity area
282,576
365
197,405
135,537
825,026
601,374
330,095
1,613,513
3,985,526
12,215
6,322
104,987
444,055
25,264
890,985
1,483,828
9
Culinary
The Year 2013
Bakery,
Beverages,
Snacks s and
Breakfast
Cereals
Professional
Market and
Gift
Packages
International
Division
Infant
Nutrition
Others
Adjustments
for the
consolidated
Consolidated
Revenue from the operating
segment
956,212
1,118,786
412,460
629847
358,644
759,757
345,991
370,647
84,853
223,649
136,810
214,825
486,913
505,733
302,149
353,982
159,683
512,927
(36,673)
2,284,714
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
(8,986)
527,888
Liabilities which are attributed to
the activity area
296,213
4,190,047
1,376,775
670
Part attributed to the noncontrolling interests
Assets which are attributed to the
activity area
(45,659)
670
186,324
123,933
746,138
614,449
276,746
1,398,485
3,642,288
11,569
9,129
84,180
413,843
36,427
834,267
1,389,415
10
Culinary
The Year 2012
Bakery,
Beverages,
Snacks s and
Breakfast
Cereals
Professional
Market and
Gift
Packages
International
Division
Infant
Nutrition
Others
Adjustments
for the
consolidated
(41,758)
Consolidated
926,858
1,093,388
392,118
668,546
355,058
697,383
4,091,593
318,081
356,875
82,920
245,934
133,124
193,915
476,725
524,476
289,792
375,498
162,707
453,267
(33,263)
2,249,202
132,052
212,037
19,406
47,114
59,228
50,201
(8,495)
511,543
Part attributed to the owner of the parent
company
132,052
212,037
18,725
47,114
59,228
50,201
(8,495)
510,862
Revenue from the operating segment
Part attributed to the non-controlling
interests
681
11
1,330,849
681
D.
E.
6.
Direct costs are identified in a specific manner to the activity area and
shared costs were allocated based on ABC costing while using the
appropriate generator for the same type of expenses, based on the costing
methodologies of Nestlé.
For further details regarding the areas of activities of the Company and
explanations on development that took place, see Note 25 to the financial
statements and the Board of Directors Report on the state of the Company
business for the year ended on 31.12. 2014, which are included in this
periodic report.
General Background and External Factors Affecting the Corporation's
Activity
As of the date of the report, there are several macro-economic factors which
affected the Group’s activity. The Group dealt with these factors and found
suitable solutions so that in effect, during the relevant reported years, the Group
even managed to increase its sales turnover and also increased its gross and
operating profits.
6.1 The Security Situation
The Group's factories and distribution centers are spread across Israel. Some
of its factories are located in the north or in the south and during time of
war these factories were within the enemy missiles shooting range.
6. 2 Raw material prices
The fluctuations in the raw material prices around the world affect also the
Israeli economy. Increase in price of raw materials results mainly from
severe climatic changes which affects the crops, from increase in the price
of crude oil, and from the rapid growth and increase in demand in China
and in India which affect world consumption, from the rise in the standard
of living, specifically in emerging markets and also from the involvement
of speculative factors in the commodities markets.
The year 2014 was characterized by fluctuations and by a mixed tendency
in the prices of raw materials which are used by the Group, along with the
continued tendency of increase in the prices of additional production inputs
(water and municipal taxes).
12
The Group deals with these challenges by monthly internal discussions in
the Procurement Committee, by closing deals at pre-fixed prices for part of
the commodities, receiving assistance from the strategic procurement
services of Nestlé in order to obtain the best price possible, and by hedging
transactions performed by Nestlé on prices of some of the raw materials,
which are contained in the products imported from Nestlé.
6.3 Fluctuations in the Foreign Exchange Rates
As part of its activity, the Group operates abroad as well and exports about
16% of its sales but at the same time the Group also imports some of its raw
materials as well as finished goods from Nestlé and from other suppliers.
As a result, part of its customers’ balances in foreign currency are naturally
protected against part of its suppliers’ balances in foreign currency.
Where there is still a degree of exposure, the Group usually neutralizes part
of the foreign currency exposure and risks through hedging.
6.4
Regulatory Developments
Protection of the environment – on 26 July 2012, the Environmental
Handling of Electrical and Electronic Equipment and Batteries Law, 2012
was published. This law, among other things, imposes on those who are in
possession of electrical and electronic equipment and batteries which are
not used in the domestic area, the duty to contract with an approved
enterprise for the purpose of removal of this equipment & batteries waste.
To comply with the provisions of the law, Osem contracted with an
approved operating enterprise recognized by the Ministry of Environmental
Affairs for the supply to Osem of the service required by the said law.
Marking nutritional values – on 31 January 2014, the amendment to the
Public Health (Food), Nutritional Marking Regulations, 1993 came into
effect. The amendment prescribes provisions on marking the fatty acids and
cholesterol contents on food products with a fatty acids rate exceeding 2%
of the weight of the product. The Osem Group carried out the required
modification in the packages of the relevant products.
On 17.12.2014 the Entry into Effect of "Marking of Pre-Packed Food
Provisions" Law, 2014 was published. The law states the date for the new
marking requirement for pre-packed food.
In addition, given the rising awareness to the effect of different food
ingredients on the consumer health, bills of law are being formulated and
are in different stages, pertaining to the duty to specify nutritional
13
ingredients and values on product packages. As the date of this report, most
of these bills have not yet been approved and their impact on Osem, if and
as any of these will be approved, cannot be estimated. If the said bills (in
whole or in part) will become effective, the Osem Group will perform the
necessary modification in the packaging of its relevant products. This is
forward looking information.
The Food Law – In March 2014 the Promotion of Competition in the Food
Sector in Israel, 2014 ("the Food Law") was published. The aim of the Food
Law is to promote competition in the food sector and in the field of
consumer products in order to reduce the consumer price.
In general, the provisions of Article A of Chapter B of the Food Law
entered into effect on 15.1.2015. The Osem Group is deemed to be a "large
supplier" and the provisions of the law concerning a large supplier apply to
the Osem Group. These provisions specify a number of prohibitions in
relation to activities between suppliers and retailers, including the
following:

A prohibition against a large supplier arranging goods in a shop of a
large retailer included in the list of large retailers published by the
Antitrust Authority (the Antitrust Authority published on this matter
an "Exemption for Acts and Arrangements relating to Arranging
Goods in a Shop of a Large Retailer");

A prohibition against a large supplier dictating or recommending to a
retailer (as this term is defined in the Food Law) or intervening by any
other method in one of the following: (a) the consumer price charged
by the retailer for an item supplied by the supplier (the Antitrust
Authority published on this matter an "Exemption for Acts and
Arrangements relating to the Consumer Price"); (b) allotment of
selling space at any rate for an item supplied by the supplier; (c)
purchase of an item supplied by the supplier at a rate based on the
total retail purchases of the item and alternative items; (d) purchase or
sale of items supplied by another supplier to a retailer, including
quantities and purchase targets, sales space allotted to them in a shop
and any other commercial term.

A prohibition against a supplier making payments to a large supplier
included in the list of large retailers published by the Antitrust
Authority, in cash or cash equivalent, except by means of reducing the
price per unit of item.
14
At this preliminary stage, we cannot estimate the full impact of the changes
which will apply to the Group as a result of the Food Law. In 2014, a nonrecurring provision was made in the sum of NIS 9,800 thousands due to the
changes in the trade system as a result of preparations made for the entry
into effect of the Food Law.
Relief in the Import of Food Products – The Bill for Amendment of the
Public Health (Food) Ordinance [New Version] (Amendment No. 5), 2014:
in the course of 2014, the Government published the Bill for Amendment of
the Public Health (Food) Ordinance [New Version] (Amendment No. 5),
2014. This bill is intended to increase and strengthen the supervision of
food produced in Israel, imported to Israel and marketed in Israel in order to
ensure food safety, quality and fair trade practices in view of the many and
extreme changes undergone by the food industry in Israel and abroad in
recent years. The bill seeks to change the basis for supervision of food by
replacing the present legislation based on a state of emergency – the
Supervision of Products and Services Law, 1957 and the many orders
issued thereunder which at present constitute the main basis for supervision
of manufacturers, importers and marketers of food - with legislation based
on the Public Health Ordinance [New Version], 1983, pursuant to the
demands of the Supreme Court, the Knesset and the Government. The main
provisions of the bill relate to regulation of the manufacture of food;
regulation of food imports; regulation of duties of entities which market
food; regulation of powers of supervision; determining provisions on food
quality; increase in
penalties; imposition of financial sanctions on
manufacturers, importers and dealers under the Business Permit Law and
grant of additional powers to the courts. As stated above, this is only a bill
at this stage.
The Concentration Law - On 11 December 2013, the Promotion of
Competition and Reduction of Concentration Law, 2013 ("the
Concentration Law") was officially published. In general, the
Concentration Law is intended to assist in increasing the competitiveness in
the Israel market, to ensure a competitive and effective market and to
protect the investors. This law includes several indirect amendments
including an amendment to the Companies Law 1999, according to which
an audit committee of a public company will be required to determine, for a
transaction with a controlling shareholder in the company, or transaction
with another party in which the controlling shareholder has a personal
interest, the duty to conduct a competitive procedure under its guidance,
15
and according to criteria to be defined (or any other procedure prescribed
by the audit committee). In addition, the audit committee will be required to
determine the manner of approval of transactions with controlling
shareholders which are not exceptional and which are not immaterial and
also to determine the type of transactions, as mentioned above, which will
require the approval of the audit committee (at present approval is not
required for such transactions). This amendment to the Companies Law
came into effect on 10 January 2014.
6.5 Economic Crises
Global economic crises, coupled with geopolitical developments in several
countries around the world may lead to instability and fluctuations in the
markets. They also increase uncertainty and the impact on the Israel
economy. In addition, in recent years we have witnessed cases in Israel and
abroad where great pressure is exercised by consumers against food
manufacturers and retailers (e.g. consumer protests). The strengths of Osem
are its wide range of product categories, high solvency and high level of
financial soundness. Notwithstanding the above, the Group prepares for
crises by making efficiency plans to reduce expenses and by building
marketing plans tailored to characteristics of consumers in changing
business surroundings.
This information is considered forward-looking information, which reflects
the Group's point of view on future events based on estimates and
valuations, and as such, it is subject to risks and uncertainty.
16
Section 3: The Corporation's Activities according to Operating
Segments
Below is a description of the Group's activities for each of its different operating
segments, except for those aspects relating to their entire activities which are described
in Section 4 of this Chapter.
7.
The Culinary Food Area
7.1 General Information on the Area of Activity
A. Structure of Category and Recent Changes
The Culinary Food Area focuses on the development, production and/or
sales, marketing and distribution of food products in the retail market in
Israel. These products are used as a basic component for the preparation
of meals and constitute an integral part of home cooking and preparation
of the main meal or convenience products which constitute part of the
main meal. This area of activity includes primarily pasta products, soups,
casseroles, baking aids, sauces, soup almonds and pickles. In addition the
area includes vegetable-based foods and frozen meat analogues such as
schnitzel, hamburgers, soya and vegetable-based sausages and chilled
salads (hummus, tehina, eggplants etc.) The area is characterized by
strong competition and high advertising costs. Brands of the Group are
the leading brands in this area. In addition, the area is characterized by a
high innovation level and development of new products.
B. Changes in the scope of activity and profitability
During the last few years the competition with other manufacturers and
with imports in this segment has increased, as well as competition from
the private label. Despite the above, sales of the Group continued to grow
in this area due to increased marketing efforts and the introduction of
new products. Changes in 2014 in the sales and operating profit of this
activity area are detailed in Results of Activities in the Board of
Directors Report which is included in this periodic report.
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 included in a meal and are intended to
meet the consumer's 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
17
respond to this developing trend by constant new product development
and innovation, and by additional marketing investment in the brands.
D. Key Success Factors in this Area of activity and changes to them
Key success factors affecting the Group success in this area of activity
are based on the unique know-how developed by the Group for part of
the products and on strengthening the Group brands and maintaining
their position as market leaders by brand building activities and by
maintaining high product quality. Another key success factor is the
product development and innovation level. Another critical success
factor is expressed by maintaining competitiveness by constant
efficiency and the ability to distribute to end-customers while
maintaining a high rate of availability.
E. Main entry barriers in this area of activity and recent changes
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, machinery and setting up infrastructures.
The need for distribution and logistics systems may constitute in part of
the cases and also the need for kosher certification sometimes poses a
barrier to the entry, especially when imports are concerned.
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 chain.
The Group also works towards giving a response to the existing
substitute products by branding its products, maintaining their high
quality, constant innovation and investment in marketing and brand
development. And this - in addition to the strategic alliance Osem has
with Nestlé, the largest food company in the world, which is positioned,
in the Company's evaluation, at the forefront as leading in innovation and
technology in the food area.
18
G. Analysis of competition: structure, activity and recent changes
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. For details, see section 7.5 below.
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 group of pasta products, soups, casseroles,
sauces/dressing, soup almonds and baking aids.
The pickles are mainly sold under the “Beit Hashita” brand-name.
Frozen products include vegetable-based food and meat analogues
(schnitzel, hamburgers, soya-based sausages and meals) as well as
products containing vegetables marketed under the "Tivall" brand-name,
chilled products including salads (hummus, tehina, eggplants etc.)
marketed under the Sabra Salads brand-name.
B. The vast majority of the Group's products in this area are manufactured
in the Group's factories in Israel although there are some products that
are imported. The Group sells markets and distributes its products in the
local retail market.
7.3 Breakdown of Income and Product Profitability
Below are 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 of the total income of the Company.
Similar
Income in KNIS
% of the Group total income
products
group
2014
2013
2012
2014
2013
2012
Culinary
Food
972,696
956,212
926,858
22.9%
22.8%
22.7%
7.4 New Products
In 2014, the Group launched on the market products whose development
had been completed; these included mainly yeast flour for baking bread
and pastries containing 50% whole wheat flour, "fiery-spicy" ketchup, low-
19
calorie salad dressings (15 calories per tablespoon) in new flavors and a
basic sauce for preparing different style sauces.
In the field of chilled salads, new salads with different flavors in the line of
"the Hummus King" and in the series of Chef Rafi Cohen – a new line of
pulse salads and a new series of street food salads launched in December
2014.
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 Group's main competitors in this area of
activity are, "Telma-Unilever", "Sougat", "Yavne Canned Food", "Pri
Nir", "Soglowek", "Tapugan", "the Strauss Group", Shamir Salads",
"Mickey Delicatessen" the private labels, import agencies, and a large
number of other medium to small-scale manufacturers.
B. The table below shows the Group’s market shares (based on monetary
value) in Israel for the year 2014, referring to key products in the
Culinary Food area, showing weighted figures which are based on Store
Next data collected in 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. 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
54%
Soups and Casseroles
40%
Sauces / Dressings and Seasoning
34%
20
Pickles
37%
Vegetable-based Foods
56%
Salads
37%
C. The factors that affect the Group's competitive position, in the Group's
estimate, are closely related to the strengthening of the Group's ability to
cope with the competition in Snacks and Bakery and to 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 comprehensive distribution
network for its products, by strategic cooperation with Nestlé, 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.
Using independent development means and utilizing the knowledge base
of Nestlé, 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. All these resources and efforts are utilized to
differentiate the Group's products from those of its competitors - in
innovation and in 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. In the
Company's evaluation, over the years the Group's has built an image of
cutting edge in technology, quality and service and is now positioned in
the forefront and as a leader in the Israeli food market.
21
7.6 Seasonality
As of the date of this report, there is no significant seasonal trend in
culinary products. Yet, there is a seasonal effect in this area mainly due to
the soups which are sold more during the winter (the 1ST and the 4TH
quarters) and the timing of the holidays and special dates also affects this
activity. Below is the breakdown of the income, split by quarters, (in
thousands NIS):
The Year 2014
Income in
KNIS
The Year 2013
% of the total
income
The Culinary Area
Income in
KNIS
1ST Quarter
246,063
25.3%
225,701
% of the total
income
The Culinary
Area
23.6%
2ND Quarter
228,747
23.5%
238,045
24.9%
3RD Quarter
252,229
25.9%
241,389
25.2%
4TH Quarter
245,657
25.3%
251,077
26.3%
Total
972,696
100.0%
956,212
100.0%
7.7 Production Capacity
The Group's maximum annual production capacity potential in this area of
activity, during the year 2014, utilizing 3 shifts, was about 178,000 tons.
Average utilization rate for the actual production in the year 2014 was
about 42%, with the production lines operating in one to three shifts per
day. The management structure of the Group is the matrix structure of
overlapping systems of components (in this case the production facilities).
Thus, the production and utilization capacity figures in this area, in addition
to the products of the activity area, also relate to the products produced for
the professional market and for exports (the international division). Most of
the production lines in the Group factories are automated or semiautomated, but there are some manual lines.
7.8 Fixed Assets and Facilities
Below is a description of the main real estate and other material fixed assets
of the Group, which are used in culinary food area.
22
A. Sderot Factory - is used mainly for the manufacture of seasoning
products, soups, sauces, baked pasta, casseroles, soup almonds and
baking aids. The factory however also manufactures products for other
activity areas such as snacks, breakfast cereals, chocolate milk powder
beverages under the "Nesquik" 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 about 13 acres (including an 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 but also
manufactures products for other activity areas, such as bakery products
and savory snacks and products for the professional market and export
products for the international division. The factory is located in
Yokneam industrial zone on a plot of land of about 31 dunams (about 8
acres) 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
flavor syrup and vinegar, but also manufactures products for other
activity areas, such as syrups and products for the professional market
and export products for the international division. 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).
D. Tivall factory in Lohamei Hagetaot Kibbutz – is used for the
manufacture of schnitzels, hamburgers and sausages on the basis of
meat analogues and vegetables and also manufactures products for other
areas such as products for the professional market and export products
for the international division. The factory is located in the Lohamei
Getaot Kibbutz. Pursuant to a long-term lease agreement ending in
February 2024, the Group leases a plot of land of about 15 dunam with a
built area of approx. 11,700m2 from the Lohamei Hagetaot Kibbutz. The
main production lines in the factory are innovative and most of them are
automated.
23
E. Tsabar Salads factory in Kiryat Gat – is used for making salads and also
manufactures products for the professional market and export products
for the international division. The factory is located in the industrial area
of Kiryat Gat on a plot of land of approx. 36 dunam with a built area of
approx. 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 the Nestlé know-how and technology. In addition, Osem
develops a variety of products in the culinary area, through its own
technology teams.
The Group is engaged in research and development as stated above, mainly
using its own resources but also with the assistance of the Encouragement
of Research and Development in Industry Law, 1984 under which the State
of Israel, through the Chief Scientist, approved a number of programs for
industrial research and development. The Group undertook in part of the
programs to pay royalties to the State of Israel. As at 31 December, 2014,
the sum of the undertaking to the Chief Scientist for royalties was not
material for the Group.
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 31.12.14. It should be noted that the production workers in the
Group factories are mobile and are transferred between the production
lines, on demand, and therefore the number of the production workers
listed in the table below may change according to need. This is because
the culinary food products are manufactured in several sites (Yokneam,
Sderot and Beit Hashita) in which bakery, beverages, snacks, and
breakfast cereals are also manufactured. In addition, the same production
workers engaged in the culinary food area also produce products (on the
same production lines) for the professional market and for export by the
international division. However, since most of their work is connected to
the culinary food area, they were included as workers in this area. In
addition, there are general production workers (such as QA, technologyrelated, maintenance, and factory administrative staff, etc.) who cannot
24
be associated to a specific activity area and therefore were not included
in the table but appear in the table under paragraph 19 below. Most 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
31.12.14
Number of
Employees as at
31.12.13
Production
670
686
Administration/Management
23
35
Sales and Marketing
26
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, eggplants, tomato concentrate
etc.), sugar, albumin, soya, hummus, tehina, flavorings and starch.
B. The main packaging materials used for this segment are flexible
packages, 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, such as 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.
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 Nestlé Strategic Purchasing Centre which
specializes in sourcing suppliers of raw materials and packaging which
conform to the Nestlé quality specifications, achieving at the same time
25
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 Nestlé sourcing
and information, which have been obtained by Benchmarking.
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 sometime works with
one supplier only, and this is for reasons of kosher certification or
because the recipe or composition is exclusive. In the Company's
estimate, 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 vast 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. Actual purchasing is done, in most
cases, through specific purchase orders (call-off orders).
26
8.
The Bakery, Beverages, Snacks and Breakfast Cereals Area
This area includes the activities of bakery, beverages, snacks and
breakfast cereals. This area focuses on the development, manufacture
and/or selling, marketing and distribution to 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, as pleasure and
indulgence products. This activity area includes the snack products
(wheat, peanut, potato and corn-based snacks, etc.), mainly fried snacks,
extruded snacks, baked and roasted, breakfast cereals and cereal health
bars: savory snacks (such as crackers and "Lachmit"); sweet bakery
products (cakes, cookies and biscuits); syrups 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
level of the new products is high.
In 2015 the group plans to expand its coffee activity by entering the
coffee capsules segment under the Dolce Gusto brand which has been
developed by Nestle in Europe. It should be noted that the information
in this section is forward-looking information which shows a degree of
uncertainty as it is based on the Group's forecasts and work plans. The
information may not materialize if the Group finds that the abovementioned move is not economically feasible, or due to changes in
market conditions, and/or as a result of regulatory changes and/or a result
of other risks factors which are applicable to the Group's activity.
B. Changes in the scope of activity and in profitability
During the last few years, competition in this category from both the
local manufacturers and importers and from the private labels has
increased. Despite the above, and as a result of increased marketing
efforts and new product introduction, the Group continued to grow in
this area.
The changes in sales and operating profit of this activity area in 2014 are
as detailed in the Board of Directors Report which is included in this
periodic report.
27
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 works towards
giving a response to these market developments by constant new product
development and innovation, and by additional marketing investment in
the brands.
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. In this area, the
Group uses among other things the know-how and expertise of the R&D
Centre which Nestlé established in Sderot, mainly for the snacks area.
Another critical success factor is maintaining the competitive edge
through constant streamlining efforts.
For details regarding the entry barriers and recent changes in this area see
paragraph 7.1(E) above, with the necessary changes (mutatis mutandis).
For details regarding substitute products and recent changes in the
products see paragraph 7.1(F) above, subject to the necessary changes
(mutatis mutandis).
For details regarding competition and recent changes in competition see
paragraph 7.1(G) above, subject to the necessary changes (mutatis
mutandis).
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
28
"Chipsy" and the brands "Lachmit", "Crispy", "Osem Cracker", "Ugot
Habayit", "Argaliyot and "Toastaim".
B. The products included under the Nestlé corporate brand are the coffee
brands "Red-Mug Nescafe", "Gold Nescafe", "Taster's Choice Nescafe"
and "Cappuccino Nescafe", drinking chocolate powder under the brand
"Nesquik", breakfast cereal under the brands "Crunch", "Fitness",
"Cheerios" and others, and also the cereal health snacks (bars) under the
"Fitness" brand and bars for children under the brands "Crunch" and
"Nesquik".
Syrups are sold mainly under the "Asis" and "Vitaminchik" brands.
Most of the Group’s products in this category are manufactured in the
Group factories in Israel and some – mainly coffee and breakfast cereals
- are imported from Nestlé (although some of the breakfast cereals are
manufactured also in Israel). In addition, there are products in this area
which are manufactured by subcontractors.
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, peanut, potato and corn snacks.
No group of products in this area, except for snacks, generates revenues
amounting to 10% or more of the total revenues of the Company.
Similar
products
group
Income in KNIS
% of the Group total
income
2014
2013
2012
2014
2013
2012
Snacks
476,710
472,544
461,085
11.2%
11.3% 11.3%
Others
658,653
646,242
632,303
15.5%
15.4% 15.4%
8.4 New Products
In 2014, the Group launched to the market products whose development
had been completed and also new Nestlé products. The new products
include mainly snacks in various new flavors, shapes and sizes (under the
"Bamba", "Bissli", "Dubonim", "Chipsy" and Pretzel brands); an expansion
29
of the range of the health bar series for adults ("Fitness" bars) and health
snacks for children (under the "Crunch" and "Nesquik" brands). In the field
of bakeries, a range of products was launched under the "Crispy" brand as
well as new cakes (brownies, sponge and yeast cakes), new cookies under
the "Fitness" brand and an expansion of the "Prichonim" brand (rice cakes).
Furthermore, the "Nescafe Cappuccino" series was expanded and syrups
with new flavors were launched under the brand "Vitaminchik".
8.5 Competition
A. In this area, the Group faces competition from manufacturers, private
labels of the grocery retail chains, and importers. The Group's main
competitors in this activity area are "Strauss-Elite", "Telma-Unilever",
"Kellogg’s", "Diplomat-Kraft", "Prigat", "Yachin", the private labels,
importers and a large number of other medium to small-scale
manufacturers.
value) for the year 2014, referring to bakeries, coffee, syrups, 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
Snacks
38%
Breakfast Cereals
25%
Cakes
42%
Crackers
38%
Cookies and Biscuits
19%
Syrups
55%
Instant Coffee
44%
30
C. There are 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
As of the date of this report, there is no significant seasonal trend in this
area. However, the income volumes in this area of activity are affected
among other reasons by the timing of the holidays. See below breakdown of
the income split by quarters (in KNIS).
The Year 2014
Income in
KNIS
% of the total
income
the bakery,
beverages, snacks
and breakfast
cereals area
Income in
KNIS
% of the total
income
the bakery,
beverages, snacks
and breakfast
cereals area
1ST Quarter
306,860
27.0%
287,734
25.7%
2ND Quarter
257,548
22.7%
275,770
24.6%
3RD Quarter
306,706
27.0%
281,771
25.2%
4TH Quarter
264,249
23.3%
273,511
24.4%
1,135,363
100.0%
1,118,786
100.0%
Total
8.7
The Year 2013
Production Capacity
The Group's maximum annual production capacity potential in this area of
activity, during the year 2014, utilizing 3 shifts, was about 84,700 tons.
Average utilization rate for the actual production in the year 2014 was
about 49%, with the production lines operating in one to three shifts per
day. The management structure of the Group is the matrix structure of
Thus, the production and utilization capacity figures in this area, in addition
to products in this activity area, also relate to the products produced for the
professional market and for exports (the international division). Most of the
production lines in the Group factories are automated or semi-automated,
but there are some manual lines.
31
Below is a description 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, breakfast
cereals and chocolate powder under the brand "Nesquik" but also
manufactures products for other activity areas, (such as seasoning
products, soups, sauces, toasted pasta, casseroles, soup almonds and
baking aids in the culinary area and products for the professional market
and for export by 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 bakery and snack
products, but also manufactures products for other activity areas (such
as, noodles in the culinary area and products for the professional market
and for export by 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 for
other areas (the professional market and export products for the
international division). The factory is located in 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 is fully owned by the Group. In
addition, the Group leases an additional plot of about 1500 m2 (with a
built area of about 650m2) 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 in the culinary area and products
for the professional market and for export by the international division).
For details of the factory see paragraph 7.8(C) above.
years.
In 2002, Nestlé established in Sderot Israel its global R&D Centre which
operates mainly in connection 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
32
developed and will be developed in the future. In addition, Osem develops a
variety of products in this area, through its own technology teams.
The Group is engaged in research and development as stated above mainly
using its own resources but also with the assistance of the Encouragement
of Research and Development in Industry Law, 1984 under which the State
of Israel, through the Chief Scientist, approved industrial research and
development programs.
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 as at
31.12.14. It should be noted that the production workers in the Group
factories are mobile and are transferred between the production lines, on
demand, and therefore the number of the production workers listed in the
table below can change according to need (this is because the bakery,
beverages, snacks and breakfast cereals area are produced on a number of
separate sites (Beit Hashita, Holon, Yokneam and Sderot) and on most of
the sites, culinary food products are also manufactured). In addition, the
same production workers engaged in the culinary food area also produce
products for the professional market and for exports by the international
division. However, since most of their work is connected to the culinary
food area, they were included as workers in this area. In addition, there
are general production workers (such as QA, technology-related,
maintenance, and factory administrative staff, etc.) who cannot be
directly associated to a specific activity area and therefore were not
included in the table but appear in the table under paragraph 19 below.
Most 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.
33
Number of
Employees as at
31.12.14
Number of
Employees as at
31.12.13
573
553
4
7
Sales and marketing
16
13
Production
flour, corn, oil, peanut butter, potato, starch, sugar, eggs, chocolate
components and fillings.
packages, plastic and cardboard. The packing materials are purchased
from different manufacturers, mostly in Israel and some of them outside
Israel.
finished goods. The main import is from Nestlé and it primarily includes
the import of instant coffee and breakfast cereals.
For further details on the raw materials and on the suppliers the Company
uses for the manufacturing of its products, see also paragraphs 7.11(D)7.11(I) in this section above.
34
9.
The Professional Market and Gift Packages Area
This area of activity focuses on the development, manufacture and/or
selling, marketing and distribution of the Group's products in other areas
of activities and goods of other manufacturers sold to the professional
market in Israel. The professional market includes hotels, restaurants,
catering companies and other professional entities (old-age homes,
hospitals etc.). In addition, this area includes the subsidiary Assamim
Gift Parcels which sells gift packages to workers' committees, companies
and institutional entities. Furthermore, Assamim Gift Parcels sells
chocolate snacks imported by Nestlé to the retail market.
An improvement in the standard of living and in the GDP per capita has a
favorable impact on leisure activities and increases the scope of visits to
hotels and restaurants which in turn has a favorable impact on consumer
habits in Israel. These developments create a potential for growth of the
activities of the professional market. In 2014, this area of activity was
influenced by the Operation Protective Edge military campaign which
affected out-of-home consumption (restaurants, hotels etc.). The scope of
sales and operating profit of this area of activity in the year 2014 are as
specified in the Board of Directors' Report included in this periodic
report.
Customers in the professional market are specialist customers: chefs in
restaurants/cafes, in hotels, food and beverage managers and purchase
managers in professional entities. The professional discourse of the
Osem Group with these customers is conducted by professionals B2B: a
team of chefs, a team of baking coachers and beverage coachers who
have the skills to provide professional information, work methods and
professional advice to customers on a regular basis. Developments in the
markets of this area of activity and changes in the characteristics of the
customers provide a response, among others, to the increase in the trend
for out-of-home consumption.
35
Key success factors of the Group in this area of activity are based on
strengthening the Group's brands and retaining their leading position in
this area, ensuring the high quality of products and unique professional
abilities enabling menu building and work with professional factors
(such as chefs) of the customers. A key success factor is the popularity of
the products, availability and the ability to provide an immediate
response to urgent needs such as immediate delivery and supply of
missing items to restaurants, hotels and institutions. Another success
factor in this area is the level of development and rate of innovation of
products together with professional abilities and quality of the service
provided by professionals and the marketing and sales team. In this
matter, the Group is assisted by world specialists in Nestlé incorporated
in the world Nestlé Professional Division who provide know-how and
advice. A further key success factor is remaining competitive by means
of constant efficiency plans.
The main entry barriers are the unique professional skills required for
dealing with professionals employed by customers in the professional
market, logistics ability for distribution to these end customers while
ensuring a high degree of availability. The need for a large and highquality basket of products which meets the needs for all parts of the meal
is also an entry barrier as well as the need for investments in customer
equipment.
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 areas,
also in this area of activity there are substitute products which are
manufactured by competitors, including products of other large
manufacturers who have a division specializing in the professional
market ("Tnuva", "Unilever", "Strauss" and others). In addition, the
cooking and baking processes in restaurants, hotels, catering companies
and institutions are performed in situ and the brand is not "exposed" to
the diner and/or final customer. It is relatively easy to use alternative raw
ingredients. This explains the importance of marketing high-quality,
unique and readily available products of high-value to the chef and
decision-maker.
36
In the area of gift parcels, there are substitute products of competitors
("Strauss", "Leiman-Schlussel", "Carmit", "Sides" etc.). Also there are
gift certificates and vouchers given to employees by workers' committees
and by companies as a gift for a festival and they also constitute a
substitute for gift packages.
The Group provides a response to substitute products in the market by
developing functional and unique products based on advanced
technology, branding its products, maintaining a high quality service
level, innovation and constant efficiency plans.
With respect to chocolate snacks imported from Nestlé, the Group
provides a response to existing substitute products on the market by
branding its products and maintaining their high quality.
In the professional market there is competition with large manufacturers
who have a division specializing in the needs of the professional market
and with wholesalers who supply basic raw materials for preparation of
meals and with imports which are expanding. In the area of gift
packages, the Group competes with many companies: gift package
companies (such as "Strauss"); companies issuing gift certificates and
vouchers used as gifts for holidays for employees. Furthermore,
additional manufacturers and importers have entered the area of gift
packages (wineries, importers of crockery etc.) also constitute
competition.
9.2 Products
A. The products of the Group in this area of activity include products of
different areas of activity of the Group marketed, inter alia, under the
corporate brand of "Osem", the brands "Tivall", "Bonjour" and "Tsabar",
special brands for the professional market and under the umbrella brand
of Nestlé. The gift packages are sold under the brand of "Assamim Gift
Parcels" and the packages contain mainly products of the Osem Group
and Nestlé (savory snacks, sweet bakery pastries, Nestlé chocolate
snacks, instant coffee of Nestlé etc.) and products of other manufacturers
(such as wine). The chocolate snacks imported from Nestlé and sold in
the retail market are mainly sold under the brands of "Kit-Kat",
"Crunch", "Smarties" and "Baci". In addition, the Group also distributes
to customers in the professional market products of other manufacturers
such as "Tapugan", "Milotal", "Of-Tov", "Dorot" and "Landwer".
37
B. Part of the products in this area of activity are produced in the Group's
factories in Israel and another part (mainly coffee and chocolate snacks)
are imported from Nestlé or from approved factories of the high standard
required by Nestlé. In addition, there are products in this area which are
manufactured by subcontractors in Israel. In this area, the Group sells,
markets and distributes its products in Israel.
Below please see figures on the Group's income in this activity area. In this
Similar
products
group
Income in KNIS
2014
Professional
market and
gift packages
416,777
2013
% of the Group total income
2012
412,460
392,118
2014
2013
2012
9.8%
9.8%
9.6%
9.4 New Products
In 2014 the Group launched on the market products whose development
had been completed including, mainly, Bonjour products in the premium
markets, Tivall products, premium pasta products intended for the
professional market and new chocolate snacks imported from Nestlé
("Aero", "LionPopChoc", "KitKatPopChoc", "Fiorella" and 'Bubbles").
9.5 Competition
A. In the professional market there is competition with large manufacturers
which have a division specializing in the professional market ("Tnuva",
"Unilever" and "Strauss"), wholesalers who supply basic raw materials
for preparation of meals and with an increase in imports which are
expanding, mainly in the field of products based on simple technologies
with an especially low entry barrier (pasta, couscous). In the area of gift
packages, the Group competes with competing manufacturers and
importers ("Strauss", "Leiman-Schlussel", "Carmit", "Shekadia" and
38
"Sides") and with companies issuing gift certificates and vouchers used
as gifts for holidays for employees.
B. The Group's sales in this area of activity are mainly to the professional
market which includes restaurants, cafes, hotels, catering companies,
professional entities (such as old-age homes, hospitals etc.) and sales of
gift packages to workers' committees, companies and institutions.
Naturally, there is no follow-up of entities such as StoreNext or Nielsen
on market shares in this area of activity. .
The factors which influence or may influence, in the Group's estimation,
the competitive standing of the Group are the level of professionalism
and quality of service provided to the professional market, a high level of
availability and the ability to find unique solutions for the needs of the
professional market, such as a relevant basket of products, equipment,
marketing support etc.
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. Sales of gift packages take
place mainly in the period of holidays and are influenced by the timing of
Passover and the holidays of the month of Tishrei. Below is a breakdown of
income on a quarterly basis in thousands NIS:
The Year 2014
Income in
thousands NIS
The Year 2013
% of the total income
% of the total income
Income from the
professional market
and gift packages
Income from the
professional market
and gift packages
Income in
thousands NIS
1ST Quarter
106,780
25.6%
100,776
24.4%
2ND Quarter
99,647
23.9%
97,649
23.7%
3RD Quarter
102,727
24.6%
100,216
24.3%
4TH Quarter
107,623
25.8%
113,819
27.6%
Total
416,777
100.0%
412,460
100.0%
9.7
Production Capacity
Products for the professional market are manufactured in factories of other
areas of activity (the culinary food area, bakery, beverages, snacks and
39
breakfast cereals and others). Therefore the potential maximum production
capacity and average utilization of production lines are included in the other
areas of activities.
9.8
Fixed Assets and Facilities
Below see a description of the main real estate and other material fixed
assets of the Group, used in the area of activity of the professional market
and gift packages.
A. This area of activity does not have its own factories and the products sold
to the professional market are manufactured on the sites of other areas of
activities (culinary food area, bakery, beverages, snacks and breakfast
cereals and others)
B. By the end of 2014, packaging, preparing packages and storage of
Assamim Gift Parcels were performed on the site leased by the Company
in the industrial area of Or-Akiva with total premises of approx. 4,650m2.
In January 2015, the Company transferred its activities to a new site
leased by it in the industrial area of Caesarea with total premises of 2,445
m2.
years.
The Group uses among other things the Nestlé know-how and technology
already developed. In addition, Osem develops a variety of products
intended for the needs of the professional market, through its own
technology teams.
Human Resources, see paragraph 19 in this section, below.
B. Below see a breakdown of the Group headcount for the professional
market and gift packages area as at 31.12.14. Most of the workers are
engaged in the field of sales and trade to the professional market,
workers engaged in packaging gift packages and sales representatives in
the area of gift packages. In this area there are no production workers and
the production workers in other areas (the culinary food area, bakery,
beverages, snacks and breakfast cereals and others) also manufacture
40
products for the professional market but since most of their work is in
other areas, they are registered in the headcount of those areas of activity.
Number of
Employees as at
31.12.14
Number of
Employees as at
31.12.13
Management
9
8
Sales and marketing
87
87
Packaging workers
10
10
flour, oil, sugar, starch, vegetables, tomato concentrate, butter, chocolate
ingredients and fillings
packages, plastic and cardboard. In the area of gift packages there are
sometimes packages with a design at the request of the customer. The
packaging materials are purchased from different manufacturers, mainly
in Israel and some from abroad.
finished goods. The main import is from Nestlé and it primarily includes
the import of instant coffee and chocolate snacks. In addition, this area of
activity includes purchase of finished products from suppliers in Israel.
For additional details on the raw materials and suppliers the Company
uses for the manufacturing of its products, see also description in
paragraphs 7.11(D)-7.11(I) in this section above.
41
10. The International Division Area
A. Structure of activity area and recent changes
The international division was established with the aim of emphasizing
and strengthening the management focus and synergies of the
international activity of the Group. This activity includes, as of the date
of this report, Tivall Europe, Tribe USA, Osem USA, Osem UK, the
export activity of the Group and future international opportunities. The
area of the international division focuses on development, production
and/or sales, marketing and distribution of products to markets abroad,
mainly in Europe and the USA, as specified below:
Europe – exports and sales to Europe are directed, inter alia, to the
Jewish kosher market and to food chains in Europe.
The main activity of the Group in Europe is in the field of frozen and
chilled food, mainly products of the Tivall subsidiary based on meat
analogues and vegetable-based food products. More than 75% of the
sales turnover of vegetable-based food products of the Group is exported,
mainly to Europe and distribution in Europe is conducted, inter alia, by
the Tivall Europe subsidiary (mainly by independent distributors). The
Tivall products have a relative advantage over products of competitors
engaged in the manufacture and marketing of meat analogues abroad,
both from the technological aspect and from the aspect of the taste,
consistency and quality of the products. These advantages gave Tivall a
leading position in some of the markets in Europe expressed also in its
market share.
Distribution in Europe is conducted by independent distributors and by a
subsidiary of the Group, Osem UK which serves as the Group's
distributor in England. In addition to products of the Group, Osem UK
also distributes in England products of other Israeli manufacturers, of
which the main ones are "Tiv Tirat Tzvi", "Of Hagalil" and "Tnuva
Galil". Furthermore, Osem UK distributes various products of Nestlé to
the large retail chains and the ethnic market in England. In 2014 products
were mainly distributed under the brands "Caro", "Milo", "Nido" ,
"Maggi" ,"Rowntree's Cocoa" and "Polish Winiary".
In 2009, Osem UK purchased the activity of the Yarden Company in
England. Its main activity focused on distributing and marketing kosher
42
products to the Jewish market in England (including frozen and chilled
products).
USA – in 2008 the Group decided to expand its activities in the USA
and purchased the activities of the Tribe Company which operates in the
USA in the field of chilled Mediterranean salads. Shortly afterwards, the
Group also purchased the activities of the FoodTech Company which
operated in the USA in the field of chilled meat analogues under the
"Veggie Patch" brand (in 2010, it was merged into Tribe). Exports to the
USA of food products distributed at room temperature are directed
mainly to the Jewish kosher market and the professional market but also
to food chains in the USA. Distribution of these products in the USA is
conducted by the subsidiary, Osem USA, mainly by external distributors.
In addition to products of the Group, Osem USA distributes in the USA,
mainly to the kosher market, products of other Israeli manufacturers
(mainly under the "Osem" brand) of which the main products include
"Em Hahita", "Manamim", "Couscous Mazon" and "Kibbutz Einat".
Moreover, Osem USA distributes products of non-Israeli manufacturers
including coffee and drinking chocolate powder of Nestlé which are
kosher for Passover. Recently, the Group expanded its activities in the
USA to gluten-free products under the "Gratify" brand.
Global food consumer markets are characterized by a continuing trend of
a move to convenience products and health and wellness products. This
area of activity provides a response to both these trends mainly in the
categories of meat analogues and salads.
In the years 2007-2009, the Group has extended its activities in this area
by acquisition of companies with products that have similar
characteristics abroad (mainly in the USA) and by setting up a factory in
Europe (in the Czech Republic).
In addition to activities on the general market, the Group's products have
a relative advantage in the Jewish kosher market in the world.
Since this activity takes place abroad, the scope of the activity and
profitability are influenced by changes in currency rates. In 2014, sales
and the operating profit of this area grew, as specified in the results of
the activity in the Board of Directors' Report included in this periodic
report.
43
As described in the previous paragraph, the consumer food market
worldwide is moving towards consumption of convenience, health and
wellness, and fresh products. These tendencies reflect among other
things 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 combined with the fact that,
according to the Group's estimate, the consumer perceives 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 by the acquisition of Food Tech
which is in the business of chilled meat analogue products under the
"Veggie Patch" brand (and which was merged into Tribe). In the
framework of the world health and wellness trend, a trend is developing
mainly in the USA of an increase in consumption of gluten-free products.
The Group provides a response to this trend by developing and selling
gluten-free products mainly under the "Gratify" brand.
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, in relation to the
products of this activity area. This is in addition to the know-how,
technology and brands the Group receives from Nestlé. Other key
success factors are the ability to become acquainted with and fit into
global markets abroad based on an understanding of the needs and
culture of customers overseas and in addition to the need to create a
competitive advantage by constant efficiency plans.
In the Group's estimation, the branding of the Group's products, the
quality of its product and their flavors and the innovation are all
additional key success factors of this area of activity which may create a
relative advantage and preference over competitors abroad. This is in
addition to the creation of a relative advantage in the Jewish kosher
market in the case of kosher products.
E. Main entry barriers in this area of activity and changes to them
The main entry barriers for frozen and chilled products include the need
to invest heavily in production infrastructure and in freeze storage rooms
whose cost is high, and also the need for the technology and know-how
44
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. In the case of products sold to the
Jewish kosher market, the kashrut constitutes an entry barrier.
Since international activities take place all over the world, there are
innumerable substitutes of competing manufacturers worldwide. The
Group provides a response to existing substitutes in the USA and in
Europe by branding its products and maintaining their quality and by
continuing to make innovations.
In this activity area of the Group, competition is mainly with the large
local food manufacturers worldwide in connection with sales overseas to
the general market. In the case of products intended for the kosher
market, the Group competes with Israeli manufacturers who export their
products. For further details see paragraph 10.5 below.
10.2 Products
The main products in this area of activity include export of products of the
Group distributed at room temperature (products in the culinary food area
and the area of bakery, beverages, snacks and breakfast cereals), frozen and
chilled meat analogues including schnitzels, hamburgers, sausages etc.
based on soya and vegetable-based products which are marketed among
other things under the brand of "Garden Gourmet" (Europe) and "Halsans
Kok" (Sweden) and under the "Veggie Patch" brand (USA); In the area of
chilled food, the products include salads of Sabra Salads (hummus, tehina,
eggplant, etc.), which are exported to Europe and the salads of the
subsidiary Tribe operating in the USA. In addition, the products include
products of Nestle distributed by the subsidiary Osem UK to the ethnic
market in England including the brands "Caro", "Milo", "Nido" ,"Maggi" ,
"Rowntree's Cocoa" and "Polish Winiary".
Below please see figures on the Group's income in this activity area. In this
or more from the total income of the Company:
45
Similar products
group
Income in KNIS
2014
International
Division
2013
2012
672,032 629,847 668,546
income
2014
2013
2012
15.8%
15.0%
16.3%
10.4 New Products
In the year 2014, the Group launched to the market new products whose
development had been completed and which included, among other,
products without albumin for the American and European markets, couscous
burgers for the European market and new hummus salads of Tribe in the
USA. In addition, the Group expanded its activities and products in the area
of gluten-free products under the "Gratify" brand.
10.5 Competition
A. Since international activities take place all over the world, there is broad
and widespread competition. The subsidiary Tribe which operates in the
USA in the field of chilled Mediterranean salads competes in the USA
with the "Sabra" Company (owned by the Strauss Group and Pepsico)
and with the "Cedars" Company and "Kraft". In the area of meat
analogues, the main players are "Kellog's" and "Kraft" in the USA and
"Quorn" in Europe. In operations in the kosher market the Group
competes with Israeli manufacturers which export their products.
value), for the year 2014, referring to key products in this area:
Product Group
in %
Vegetable-based food - Holland
38%
Vegetable-based food- Sweden
41%
Vegetable-based food - Italy
70%
Salads in the US
7%
46
C. Among the factors which in the Group's estimate affect its competitive
position are the worldwide recession, changes in currency rates and the
increasing competition. The Group defends its position in the market by
marketing, building and maintaining its brands, by innovation, new
product development and launch, and by the strategic alliance the Group
has with the world leading food company – Nestlé
Within the framework of this strategic alliance, the Group invests efforts
and resources in adopting technologies, which among other things, were
developed by Nestlé and this 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.
10.6 Seasonality
In line with the data detailed below no significant seasonal effect can be
detected in the international activities. However, the income volumes in this
area are affected, among other things, by the timing of Jewish holidays
(export to the kosher market) and national bank holidays abroad. Below see
a breakdown of the income, split by quarters (in KNIS):
The Year 2014
Income in
thousands NIS
The Year 2013
% of the total
income of the area
Income in
thousands NIS
% of the total
income of the area
1ST Quarter
173,897
25.9%
171,276
27.2%
2ND Quarter
160,040
23.8%
150,931
24.0%
3RD Quarter
162,690
24.2%
156,672
24.9%
4TH Quarter
175,405
26.1%
150,968
24.0%
Total
672,032
100.0%
629,847
100.0%
The Group's maximum production capacity potential in this area of activity,
during the year 2014, utilizing 3 shifts, was about 28,000 tons. Average
utilization rate for actual average production in the year 2014, with the
production lines active in one to three shifts per day, was about 58%. Most
of the production lines in the Group factories are automated or semiautomated, but there are some manual lines.
47
The management structure of the Group is the matrix structure of
Some of the products for the international division are manufactured in
factories of other areas of activities (the culinary food and bakeries,
beverages, snacks and breakfast cereals areas). Therefore, the maximum
potential production capacity, as well as the average utilization of
production lines, are included in other areas of activities for these products.
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, the Yokneam factory, the Holon factory, the Beit
Hashita factory, the factory in Lohamei Hagetaot Kibbutz and the Tsabar
factory in Kiryat Gat also produce products for the international division
for exports. For details on the factories see paragraphs 7.8 and 8.8 of this
report.
B.The factory in the Czech Republic – A factory which is used for
manufacturing products based on meat analogues and products based on
vegetables whose construction was completed in April 2007 The factory
is located on a plot of 42 dunams, which is owned by Tivall and its builtup area occupies a space of about 9,100 m2.
C.The salad factory of Tribe in Taunton, Massachusettes (USA) -a
factory used for manufacturing salads, which was established in 2005 in
Taunton near 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 owned by the Company and its built area comprises about
5,800 m2.
In its books, the Group depreciates the main machinery and equipment of its
various factories relating to this area of activity for a period of 5-15 years.
In order to develop markets and sales abroad, 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 products based on meat analogues and on vegetables, salads and
room-temperature products.
48
A.For the Group organizational chart and for further information on the
Group’s entire Human Resources, see paragraph 19 in this section,
below.
B. Below see a breakdown of the Group headcount for the area of Prepared
Food area as at 31.12.14. Production workers in factories of other areas
of activities who manufacture products also intended for export are
included in the headcount of the other areas. Production workers, sales
and marketing employees are employed by the Group abroad.
Management employees include employees abroad and members of the
headquarters of the international division in Israel.
Number of
Employees as at
31.12.14
Number of
Employees as at
31.12.13
Production workers
237
203
Administrative & Management
32
24
Sales and marketing
87
92
A. The main raw materials used by the Group in this area of activity are
albumin, oil, flour, tehina, hummus, vegetables, soya, flavorings and
starch. 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, metal packaging and plastic packaging 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 finished products from suppliers
from Israel and abroad including Nestlé.
49
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.
50
11. Infant Nutrition Area
In September 2008 an agreement was signed and on 31 December 2009 a
transaction was completed for the purchase by 51% of the fixed assets,
goodwill and working capital of the infant nutrition activities of
Maabarot centered under the "Materna" brand in consideration for the
sum of NIS 163.6 million. In the framework of the transaction, Osem and
Maabarot set up a partnership in which Osem holds 51% of the rights
and Osem and Maabarot made available to the partnership the said fixed
assets, goodwill and working capital. At the same time, Nestlé purchased
from Maabarot 51% of the know-how and brands of Materna in
consideration for the sum of NIS 105 million and the partnership was
granted a license to the know-how and brands of Materna and Nestlé in
consideration for payment of royalties. In addition, call and put options
were granted as part of the transaction enabling Osem to reach a holding
of 100% of the partnership in the future, as specified in paragraph 26.1
below.
The Group's activity the infant nutrition area is carried out through
Materna Industries Limited Partnership (hereinafter: "Materna" or
"Materna Partnership"), in which the Group holds, as at the date of this
report, 51% of the rights in the company (and Materna Laboratories
holds the remaining 49% of the remaining rights).
The Group's activity which is carried out as mentioned above through the
Materna Partnership focuses on the development, manufacturing,
marketing and sales of infant nutrition food products (infant formulas,
baby cereals, purees, biscuits and pastas for toddlers), under the
"Materna" brand. Until 2012, the purees were sold under the "Gerber"
brand and during that year a brand unification/merger was completed and
the marketing of the purees under the "Materna" brand began.
In addition to the products that are sold under "Materna", in this
framework, the Materna Partnership also manufactures and sells products
which serve as raw materials for the food industry. These raw materials
include mainly soup whiteners, creamers and coffee whiteners.
This activity area involves, inter alia, the supply of infant formula by
suppliers for feeding new born babies in hospitals.
51
During 2013, The Antitrust General Director
(hereinafter: "the
Director") approached Materna and the other breast-milk substitute
providers in the market, and notified them that he considers declaring
them together as a Concentration Group in the marketing and selling of
infant food formulas and to instruct them what measures they should
take. During the hearing of the positions of the Breast-Milk Substitute
providers (hereinafter: "BMS"), the Director started a dialogue with their
representatives in order to examine a possibility for ing an agreed outline
which will apply on contracts made by the BMS providers with the
hospitals. This dialogue brought about an agreement between the
Director, Materna and the other BMS providers and became a consensual
order (hereinafter: "the Consensual Order") which was approved on 20
February 2014 by the Antitrust Tribunal. This consensual order
establishes a number of conditions for payment to the hospital for the
right to provide BMS to the hospital, which in essence are as follows –
the Hospital will allow any provider to provide BMS under equal
conditions and will offer the newborn's parent a choice between the
products provided by the BMS vendors, which will so desire, without
any priority given; the payment will be determined by the hospital as a
function of the degree of usage and according to a price for each
newborn, a price which will be limited to a maximum amount and based
on the number of newborns that consumed the BMS which was
provided by this provider and this – in a relative manner out of the total
of all the newborns in the hospital who consumed BMS out of the total
BMS providers during the relevant period. In addition, the Order
stipulates the conditions for supplying BMS to the hospital without
payment for the right to provide BMS to hospitals, primarily providing a
choice between at least two BMS providers and in the absence of a
choice as aforesaid, the provider must charge the hospital a minimum
consideration for the supply of BMS. On 20 February 2014 as stated
above, the Antitrust Tribunal approved this consensual order and the
Group acts in compliance with the provisions thereof. At this stage, the
Group cannot estimate how the provisions of the Order will affect the
competitiveness in the market and on the results of the Company's
activity.
In 2014, this activity area still continued to be affected by the increase
in competition as a result of an additional player which entered at the end
52
of 2011, (TEVA Group which imports breast-milk substitutes of Nutricia
of the Danone Group sold under the brand "Nutrilon") and as a result of
the launch of breast milk substitute series with strict kashrut supervision
by "Similac" during 2011. Despite the above, Materna kept its position in
the market and the scope of its sales. In addition, this area is affected
among other things by both birth rate and breast feeding rate. The scope
of sales and the operating profit of this area in 2014 are as detailed in the
Results of Activities section of the Board of Directors Report which is
included in this periodic report.
This activity area is based on the need to establish credibility and quality
over a period of time and win the consumer's trust. The Group copes
with this issue by maintaining a high product quality and by using the
know-how and the brands of Nestlé which is, among other things, the
world leading company in Infant Nutrition.
are based on strengthening the "Materna" brand and maintaining its
position as the leading brand in Israel, in the Infant Nutrition area. This is
achieved, among other things, by brand building activities and by
maintaining high product quality. Another Key Success Factor is the
product development and innovation level. The Company utilizes the
know-how of Nestlé, which is the world leading company in Infant
Nutrition. Another critical success factor is expressed by maintaining the
Company's competitive edge and by constant streamlining efforts.
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 to establish
credibility and product quality over time and to win the consumer's trust
also creates a barrier, and in addition to this, the required kosher
certification is sometimes a barrier especially when imported goods are
concerned. The fact that infant formula is a sensitive product which is
deemed a para-medical product also constitutes an entry barrier.
53
Every mother can choose to breast feed her baby and the Group regards
breast feeding as the preferred option. In addition, 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, there are also
substitute products in this area of activity, manufactured by competitors
and imported.
In this area, the Group provides a response to these substitute products
by maintaining a high level of quality and innovation which are among
other things the result of Nestlé being the largest infant nutrition
company in the world, a company which is positioned at the forefront as
leading in innovation and technology in this area. The Group also
responds to substitute products by product branding.
In this area of activity, the market is competitive and competition comes
from imported goods. The Group mainly competes with "Similac" of the
Abbott Group. In November 2011, TEVA Company started to import
and sell breast-milk substitutes manufactured by Nutricia (of the
"Danone" Group). These products are sold under the brand "Nutrilon". In
addition, at the end of 2013, the Medici Medical Company discontinued
the marketing of "Optimil". For details on Materna's competitive position
see paragraph 11.5 in this section, below.
11.2 Products
The principal products of the Group in this area of activity are marketed
mainly under the corporate brand "Materna". They include infant
nutrition/baby food products - infant formulas, instant cereals, biscuits and
pastas for toddlers. Until 2012, the baby purees were marketed under the
"Gerber" brand and during that year, the Group started marketing the purees
under the "Materna" brand.
A large part of the Group’s products in this category are manufactured in
the Group factory in Israel and some (mainly the purees and biscuits) are
imported from Nestlé. The Group sells, markets and distributes its products
mainly in Israel.
In addition, under this segment, the Materna Partnership manufactures and
sells products used as raw materials in the food industry. These raw
materials include mainly, soup whiteners/creamers, whip creams, and
coffee whiteners.
54
Below see figures on the Group's income in this activity area. In this
Similar products
group
Income in KNIS
2014
Infant Nutrition
Area
2013
2012
358,480 358,644 355,058
income
2014
2013
2012
8.4%
8.6%
8.7%
11.4 New Products
After the launch in 2013 of Materna Extra Care Comfort, a breast-milk
substitute which contains a unique probiotic ingredient to relieve
indigestion starting from birth, the product was launched in 2014 in a bigger
package. In addition, Materna cereals were enriched with a probiotic
ingredient, proved by research to strengthen the baby's natural protection.
Furthermore, Materna fruit purees with added whole cereals were launched.
11.5 Competition
A. Materna Partnership's key competitor in the breast milk substitute market
in Israel is "Promedico Ltd." ("Similac" distributor).
B. Materna's relative advantage over its competitors stems among other
reasons from the trust the public places in the "Materna" brand and also
from the fact that the Materna Partnership is the only local manufacturer
of milk substitutes, compared to its competitors which import the
products. Local manufacturing gives Materna a relative advantage due to
the strict kosher certification (the BADATZ certification of the ultraorthodox community in Jerusalem) compared to the competitors which
import these products. Materna Partnership copes with the competition
by maintaining a very high quality standard in its products, by operating
a marketing network which includes, among other things, representatives
who liaise between the company and the professional parties; the
Partnership also operates a customer call center which responds to the
customer needs; the Partnership also works with the different media
channels. In addition to the above, the Partnership runs the "Materna
Institute" for the advancement of infant nutrition research in Israel.
C. To the best of the knowledge of the Company, the "Medici Medical"
Company which started marketing breast-milk substitutes under the
55
"Optimil" brand in 2007 discontinued its activity in this area at the end of
2013.
D. In November 2011, an additional competitor joined the arena : TEVA
started to import and sell breast-milk substitutes manufactured by
Nutricia (of the "Danone" Group). These products are sold under the
brand "Nutrilon".
E. The table below shows the Group’s quantitative market shares in Israel,
for the year 2014, referring to key products in Infant Nutrition. The table
is based on weighted data derived from Store Next's data in the barcoded retail market (which are calculated as detailed in paragraph 7.5(B)
in this section, above), and also an estimate regarding the activity in
Super pharm/dispensing chemist chains which play an important role in
this area.
Product Group
Breast-milk substitutes
55%
Baby cereals
70%
Purees
44%
11.6 Seasonality
Given the figures listed below, a seasonal trend cannot be detected in the
Infant Nutrition area. Below see a breakdown of the income, split by
quarters (in KNIS):
The Year 2014
The Year 2013
% of the total
income
Income in
thousands NIS
The Infant
Nutrition Area
% of the total
income
Income in
thousands NIS
The Infant
Nutrition Area
1ST Quarter
91,054
25.4%
83,173
23.2%
2ND Quarter
75,997
21.2%
80,794
22.5%
3RD Quarter
93,944
26.2%
92,114
25.7%
4TH Quarter
97,485
27.2%
102,563
28.6%
358,480
100.0%
358,644
100.0%
Total
56
The maximum production capacity in this area of activity, during 2014,
when the production lines are operated by three work shifts, was about
8,270 tons and actual production capacity in 2014 was about 66% when the
lines are operated by one to three work shifts per day.
The material factor in determining the production capacity of products which
are manufactured by the spray dry method is the evaporation capacity of the
spray dry facility in relation to the concentration of the dried solution.
assets of the Group, which are used in the Infant Nutrition area.
Materna Factory – located in Kibbutz Maabarot and the partnership leases
the real estate of the factory from Kibbutz Maabarot in a leasing contract
for a period of 15 years, which will end on 31.12.2024. The factory is
located in Emek Hefer (The Hefer Valley) and the dedicated buildings
which serve Materna factory for the manufacture of infant nutrition occupy
a space of about 9,900 m2. In addition, Materna Partnership pays usage fees
for its relative portion in the shared buildings (offices, laboratories, etc).
years.
The Materna Partnership invests efforts in the improvement of its products
based on the annual plans of its R&D and Marketing Departments and also
keeps constant contact with the medical community in Israel on matters
related to infant nutrition. It also liaises with pediatricians and well-baby
clinics in order to obtain feedback on the quality of its baby food products
and on possible ways for improvement and development. The Partnership
also has access to the studies and developments made by Nestlé (which is
the largest infant nutrition world company) in this area.
Human Resources, see paragraph 19 in this section, below.
B. Below please see a breakdown of the Group headcount for the area of Infant
Nutrition as at 31.12.14, which includes Production, Sales, Marketing,
57
Management but most of numbers specified below do not include the sales
and commerce people who are recorded under The Commerce company of
the Group, which provides distribution, sales, logistics and trade services
for the majority of the Group segments.
Number of
Employees as at
31.12.14
Number of
Employees as at
31.12.13
Production
75
77
10
10
Sales and marketing
37
40
A. The main raw materials used for the manufacture of infant nutrition are
skim milk powder, Lactose, a composition of vegetable oils which
includes the required amino-acids corresponding to the mother's milk,
whey protein concentrate, vitamins and minerals. Most of the above
mentioned raw materials are imported among other countries, from
Holland, Denmark, USA, and Germany and the imported quantities from
the different countries specified above vary from time to time. Some of
these raw materials are shelf products and some are manufactured
especially for the Materna Partnership based on its ad-hoc orders.
B. According to an agreement which was signed in April 1995 with Martek
Biosciences Corp (hereinafter: "Martek") Maabarot Products received a
non-exclusive and non-transferrable license to sell Materna products in
Israel which include the ingredient bought from Martek and called LC
Pufa.
In 2011, DSM acquired Martek. In November 2012, Materna joined the
agreement which was signed between Nestlé and DSM Nutritional
Products (hereinafter: "DNP"; of DSM Group) according to which Nestlé
and the Nestlé affiliate companies will buy LC Pufa from DNP at the
terms specified in the agreement.
C. Except for the above mentioned agreement with DNP, Materna has no
framework agreements for long-term contracting with raw materials
suppliers. In the Company's estimate, there is no dependency between
58
Materna and suppliers so that if a supplier is removed from the supplier
list it will not cause Materna any material additional cost resulting from
the need to move to an alternative a supplier. This is because in most
cases Materna has a policy of purchasing its raw materials from several
sources in order to prevent dependency on a single supplier.
D. The Materna Partnership has an infant formula product line under strict
BADATZ kosher supervision designated for the ultra-orthodox sector.
Three ingredients of the infant formulas, as stated above, are
manufactured by two specific suppliers. If these ingredients are not
supplied, the strict BADATZ certification will become a standard kosher
certification.
E. Infant formulas which are manufactured by Materna are packaged in a
specially designed package. Replacing the supplier of this packaging
may take a period of several months.
59
12. Other activities
The Group has other activities which are not included in those described above
and do not qualify according to the quantitative criterion to be presented in the
financial statements as reportable operating segments. Therefore they have been
included in the Company financial statements as at 31.12.2014 under the segment
of "Others". These activities include:
12.1 Ice cream
The principal products of the Group in this framework include ice cream
marketed under the "Nestlé 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" "Smarties", "KitKat" and Crunch" brands, "Joya"
premium packages, ice cream lollies multipacks of different kinds, and fatreduced 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 2014, in Ice Cream was
38% and was determined based on a weighted annual average derived from
Store Next's data collected from the bar-coded retail market.
The factory used for the manufacture of ice cream and is located in Beer
Tuvia Industrial Zone. The factory 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 (although there is a possibility of early termination of
the lease of the property).
Due to expansion and growth of the ice cream activities of the Group in
recent years, the Group is examining the establishment and transfer to a
new and larger factory.
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 the quality, the texture and the flavor
of its ice cream products.
The research and development, technology and product innovation in the
ice cream product category are carried out by extensively using Nestlé's
know-how and technology.
60
12.2 Bonjour
The main products of the Group in this area include frozen bakery products
of Bonjour baked at the point of sale which provide customers with freshly
baked bakery products straight from the oven. There is heavy competition
in this area and the main competitors of the Group are "Pillsbury" and
"Gidron". The market share of Bonjour in 2014 in monetary terms is
estimated at approx. 23%.
The Bonjour factory located at Kiryat Gat was established in 2006 and is
owned by the Group. The factory is situated on a plot of land of approx. 22
dunam with a built area of approx. 8,800m2.
12.3 Purchased Products
The Group has distribution agreements according to which the Group
distributes products of other manufacturers in Israel, provided that these
products do not compete 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 Tapugan, Of-Tov,
Milotal, Dorot, Landwer and Barbari.
12.4 Pet Food Division
The Group is active in importing, marketing and distributing in Israel pet
food products which are manufactured by Nestlé. 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
Nestlé (Osem's parent company).
The Nestea iced tea products are manufactured by San Pellegrino company
in Italy (which is also a subsidiary company of Nestlé). 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 monetary terms in
2014 amounted to 19%.
61
Section 4: Information Regarding the Group's General Activity
13. Customers
A. General - the Company has a wide range of customers in Israel
comprising thousands of customers and more than 10,000 point of sales
which in 2014 were divided into the Modern Market customers (the big
grocery retail chains), the Private chain Market customers, the
Traditional market customers (such as grocery stores and mini markets)
as well as the Food Service customers (such as catering companies,
restaurants, hotels, professional entities, and medium to large
organizations).
The Group maintains long-terms trade relations with its customers
resulting in loyalty of these customers to the Group’s products due to the
product branding, their quality and the service level.
B. Customer characteristics - The Group has a broad range of customers,
which in 2014 included the Modern/Organized Market comprising the
large grocery retail chains ("Shufersal", "Mega Retailing") and also the
"Superpharm" chain; the Large Private Chains which include the large
private retail chains ("Rami Levy", "Yeynot Bitan", "Kimat Hinam",
"Hazi Hinam", "Osher Ad", "Tiv-Ta'am", and other private large chains).
The Traditional Market customers comprising the local supermarkets
and minimarkets, grocery stores and kiosks; and the Food Service
customers comprising hotels, restaurants, and other professional entities.
In the years 2010 and 2012, respectively, the Company reached
agreements with Shufersal Chain and Mega Retailing whereby the
merchandising activity /service for the Group's products was transferred
to the Chain and became its responsibility. The transfer of the
merchandising activity to the chain had no significant financial bearing
on the Group. The one-time costs of the transfer which included the
number of merchandizers that quit their job in the Company (some of
whom were hired by the chains) were not material. For further details of
restrictions imposed by the Food Law on the continuation of arranging
products on shelves by the Company – see paragraph 6.4 of this section.
In addition, the Group has a variety of overseas customers comprising
large retail chains such as "Tesco", "Sainsbury's", "Waitrose", "Asda",
"WM Morrison", "Albert Heijn", "Ika", "Edeka", "Stop & Shop", "C&S",
62
"Delhaize", "Walmart", "Costco", Kroger, Safeway and others. To some
of these customers, the Group’s sales are under a private label.
The table below shows the distribution of the Group's sales to customers
according to the trade channel in 2014:
Organized Market customers
23%
Private Chains Market customers
22%
Traditional Market customers
31%
Food Service customers
8%
Overseas customers
16%
In the Organized Market segment, the Group has one retail customer
which accounts for more than 10% of the total consolidated sales in 2014
which are reported in the Consolidated Profit & Loss Statement, as
specified in Note 22(A)3 to the financial statements included in this
Periodic Report. The Group has trade agreements with the large retail
chains, including Shufersal and Mega Retailing which are usually set for
the calendar year and which refer, inter alia, to commercial agreements,
commercial discounts, varying discounts etc. Within the framework of
the contracts existing between the Group and the retail chains, as
mentioned above a different credit terms have been set. Although each
one of these customers is a major customer whose loss may lead to a
reduction of sales and profit, the Company has no dependency on these
customers.
C. On 15 January 2015 the Food Law which regulates the relationships
between manufacturers and retailers came into effect. In 2014 changes
were made in the trade system by the Company to adjust to the Food
Law. For further details on the Food Law see paragraph in this section
6.4 above.
D. In order to adjust to the changing market conditions and in the
framework of the implementation of advanced and specialized sales
strategies, as of January 2015, a new organizational structure was
introduced to the Osem Trade Group based on improvement of service to
customers of the Company (focus, understanding and professional
specialization in the customer). As part of the change, there was an
internal move from three to four markets in the retail market: the
63
organized market, private chains market, supermarkets and the private
market.
14. Distribution and Marketing
A.
As a rule, the Group markets and distributes its products independently in
Israel, although for some of its customers in the Frozen, the Chilled and the
Impulse food area and for some of its pet food customers, distribution is
carried out via third party distributors. The Group has full control over its
distribution and marketing networks in Israel and it can deliver its products
to every supermarket, grocery store or kiosk across the country, with
peripheral areas included.
In the West Bank area and in Gaza Strip, the group uses local distributors.
The different distribution and commerce networks of Ambient, Frozen
(except for the ice cream products, as described below) and Chilled food
have been combined and unified to one sales system – Osem Group
Commerce, in a way that enables the Company to operate advanced and
specialized sales strategies. These in turn result in improved service to the
Company customers, improvement in sales and logistics operation and
further increased flexibility to market needs and its ability to provide a
variety of professional solutions. The ice cream products are distributed
separately via an independent and separate network.
For the purpose of distribution activity, the Group established a national
distribution and logistics center and a transportation facility for distribution
by a fleet of trucks of all the Group products (Ambient/food at room
temperature, Chilled and Frozen), which contributes to the Group’s
operational efficiency, as detailed in paragraph 16(B) in this section.
B.
Overseas, ambient food products are marketed and distributed by the
Group's two fully controlled subsidiary companies – Osem UK which is
responsible for the marketing and distribution in England and Osem USA.
The distribution of Tivall's products in Europe is carried out, among other
things, by independent distributors of Tivall Europe which is based in
Holland. In 2009, Osem UK acquired the "Yarden" activity in England,
which focused mainly on the distribution and marketing of kosher products
to the Jewish market in England (including frozen and chilled products).
Additionally, the Tribe Company, a manufacturer of Mediterranean salads
and meat analogues, which operates in the US, has a management sales
system that distributes its products via distributors.
64
C.
The Group supports it leading brands using marketing and marcom
channels according to the strategic targets the Group management sets for
each of the activity areas and brands. The Company, in cooperation with
advertising agencies, operates through various marketing and sales
promotion channels. The chief ones being:
Media advertising – the Company advertises its products in media
addressed to the general public, including TV advertising in the commercial
channels, radio, internet, billboard advertising, cinema, newspapers and
professional magazines. The volume of advertising done by the company is
directed to television. The Group uses Nestlé's marketing know-how in the
various categories in which Nestlé is active, including the possibility of
using Nestlé's own productions and advertising clips.
Sales promotion – the Company runs sales promotion activities in the
field, such as product tasting in points of sale, distribution of samples,
events, sales campaigns, and other means. The Group has a dedicated
department (CCSD) handling the meeting point between the Group and the
buyer who comes to the point of purchase and the retailers. The CCSD
department is responsible for executing the campaigns and sales promotion
initiatives in line with the Group's marketing plans. The department is
responsible for communicating the activities to the retailers by publishing a
monthly magazine which shows the product launch, marketing activities,
sales promotion and visibility devices to be used at the point of purchase.
Consumer Call Center – the Group runs a customer and consumer call
center in a telephone operated center located in Kiryat Malachi. The center
enables direct contact with customers and consumers, providing answers
and solving specific problems of the end-consumer.
Market research – the Group performs market research and surveys in
order to examine market trends and consumer characteristics in the
categories it operates in. These provide the Group with marketing insights
and help in formulating marketing plans whose purpose is to increase sales,
build and strengthen the Group's brands. The market studies and surveys
include among other, Store Next, Nielsen, off the shelf surveys, specific
studies and surveys. In addition, the Group uses Nestlé's know how and
global market research which examine trends and characteristics in different
product categories, aiming to get insights on future trends for the Israeli
market.
Marketing to the professional sector – Osem Group publishes magazines
and articles to professional target audience which deal with health and
nutrition. The Group also publishes articles and offers sessions for the
65
general public on nutrition, conducted by the Group's nutrition team. In
Infant Nutrition, the Group also targets professionals such as hospital
doctors and nurses.
Workshops for the Nestlé Professional customers - the Osem Nestlé
Professional academy offer a variety of workshops to the customer of this
market (hotels, restaurants and professional entities), which are given by
professional chefs and highly experienced experts with worldwide
reputation.
The advertising and sales promotion expenses of the Group are detailed in
Note 22(C) to the financial statements which are included in this report.
15. Order Backlog
As is the practice in this sector of operation, with the exception of a number of
export customers, sales from stock are done via single specific orders.
Accordingly, the Group has not accumulated a significant order backlog.
16. Fixed Assets and Facilities
Distribution Centers, Logistics and Loading, and Head Office
A.
The Company Head Office and Headquarters
The Group management and headquarters are located at offices (which
were purchased under perpetual lease), in the Modiin industrial zone, next
to Shoham and which are adjacent to the logistical center of the Group. The
office building area is about 13,000m2.
B.
National Distribution and Logistics Centre
A national distribution and logistics center for all the Group products (Food
at room temperature, Chilled and Frozen), which was acquired under
perpetual lease is located on a plot of more than 100 dunams (about 24.7
acres) in the industrial zone of Modiin area, next to Shoham, at an
investment of about USD 100 million (which included also the construction
of the offices). The establishment of the DC whose constructed area covers
about 40,000m2, has contributed to the Group’s operational efficiency by
combining the various DCs, which in the past were located in different
sites, and merging them to one central center, and by its strategic location in
the midst of the country, next to Israel Cross Country Highway (Toll Road
66
6) and near populated areas. The DC is based on a new state of the art
technology and on computer-based systems, combining automatic storage
and RF radio control systems. Its warehouses operate at a capacity of about
90% most days of the year. But a possible expansion was taken into account
during the planning stage.
In addition to the national logistics center, there are main loading sites still
in use which include the warehouse in Ramat-Hashofet (catering for
products at room temperature in the northern area), the Miluot Industrial
zone (catering for frozen and chilled products in the Northern area), Beer
Sheva (for the Southern area), and Eilat. These sites are leased, except for
the Beer Sheva site, which is under a capitalized perpetual lease and on it
the Company building is located.
The Group's factories
For details on the Group factories which are used by the Group in Israel and
abroad for the manufacturing of its products, see paragraphs 7.8(A)-(E), 8.8
(A)-(D), 9.8(A)-(B), 10.8(A)-(C), 11.8, 12.1 and 12.2 in this section above.
17. Research & Development
The Group regards intensive new product development and launch as highly
important, and this in order to maintain its market shares and increase them even
more, as well as keep the relative advantage inherent in its product quality. New
product development is carried out in laboratories that are regularly run by the
Technology Department which employs technologists, engineers and chemists.
The Group does not usually record its R&D costs separately, and they are not
considered material costs. In addition, the Group does not develop specific
products tailored to the needs of specific customers, at the customers’ funding.
As the Group is party to agreements with the parent company Nestlé – the
largest food company in the world - relating to the use of Nestlé know how and
intellectual property , the Group benefits from the fruits of Nestlé's investment in
the research and development of these products. For further details, see
Regulation 22 of the section on "Additional Details on the Corporation" included
in this periodic report. To the best knowledge of the Group, Nestlé invests over
USD 1.5 billion annually in new product development which is carried out in
more than 30 worldwide R&D centers.
In 2002, Nestlé established in Israel, in Sderot, and adjacently to the Group
factory, its world Snack Research & Development Centre. The Group utilizes the
67
know-how and technology that were developed in this Centre and also uses the
actual products that have been developed or will be developed. In addition, the
Osem Group received development grants from the Chief Scientist at amounts
which are not material.
18. Intangible Assets
A.
Know-how. The Group's intellectual property includes the full know-how
of the business, commercial and professional knowledge that has been used
and is being used by the Group for its activities - including the production
and marketing know-how, in which are included product formulas, specific
use of raw materials, their sourcing origin, names and addresses of the
suppliers, quantities and quality level, production processes, equipment
operation and product production, the marketing, knowledge pertaining to
the distribution, selling and storage of the Group products, list of its
customers, market research, marketing, manufacturing and engineering
design.
B.
Brands and Trademarks. The main brands and trademarks of the Group
include the Corporate Brand, Osem, which serves as the umbrella brand for
products distributed at room temperature, and this, in addition to the
specific brands, such as "Bamba" and "Bissli", "Habait" and "Lachmit" in
the bakery, beverages, snacks and breakfast cereals area, and "Perfecto" and
"Manna Hamma" in the culinary area. The “Tivall” brand is used as an
umbrella brand for health products and meat analogue products. The
"Bonjour" brand is used by the Group for frozen bakery products. The
"Sabra" brand is used by the Group for its salads product range. “Beit
Hashita” brand is used by the Group in its culinary area, in reference to the
pickles and the “Assis” and "Vitaminchik" brands are used by the Group in
its bakery, beverages, snacks and breakfast cereals area in reference to the
syrups. In the international division, the "Sabra" brand is used for salads in
Europe and the "Gourmet Garden" and "Halsans Kok" brands are used for
meat analogues in Europe. The "Gratify" brand is mainly used for glutenfree products in the US. Most of the above-mentioned brands are market
leaders and the Group has additional different brands as well. The Group
brands are highly important and have great influence as they epitomize the
quality of the products. The Group regards its brands as part of the Group's
key assets. For decades, the Group has invested many resources in building
its brands. The costs that were invested as well as the brands life-cycle
68
cannot be quantified. As a rule, the brands and the trademarks used by the
Group are registered with the Trademark Registrar in the relevant countries.
C.
Licenses and franchises - the Group's activity includes also the Nestlé
products whose know-how and brands are not the property of the Group.
The Group has exclusive right to use the intellectual property of Nestlé and
or distribute the Nestlé products in Israel. In this context, the Group uses the
Nestlé Corporate Brand as well as specific brands in different categories (ie,
"Taster's Choice" and "Red Mug Nescafe" under the Coffee products,
"Nestea" under beverages, “Baci” and “KitKat” under the confectionery
products,, "Cheerios", "Fitness "“Trix” and "Crunch" under Breakfast
Cereals and "Purina" in Pet Food). In addition, the Group manufactures
Nestlé's ice cream products in Israel using the Nestlé know-how,
technology and brands.
In 2008, the Group acquired the activity of the Tribe and Food Tech
companies which operate in the US, in the salads and meat analogue areas.
The Group has rights for use in the "Tribe" and "Veggie Patch" brands
which were given to the Group by Nestlé, and in additional know-how of
Nestlé. In the infant nutrition area, by virtue of agreements Materna
Partnership has with Nestlé, the Group has rights of use of the knowledge
and the use of the Gerber brand as well as access to the knowledge and the
use of Materna brand (51% of the knowledge and of the Materna brand was
acquired by Nestlé and 49% of them is held by Maabarot products ltd.) and
that is as an addition the knowledge and other brands that Nestlé has in the
infant nutrition category. In addition to the above, the Group has extensive
rights to use the Nestlé know-how, , in which are included technical,
scientific, marketing & sales, logistics, manufacturing, information
technology and financial know-how. For additional details, see Regulation
22 to Chapter D "Additional Details on the Corporation" which is included
in this periodic report.
D.
Goodwill -the Group enjoys a solid and strong goodwill which had been
accumulated over the years since the Company's inception in 1942. The
goodwill of the Group is highly important and it is influential as a symbol
of the quality of the company and its products. The Group views this longstanding goodwill as one of its main assets. In addition, the Group has
goodwill which was acquired as part of the cost of acquiring the Group's
subsidiary companies through the years. This goodwill includes mainly the
goodwill of its subsidiaries Tivall, including Sabra Salads which was
merged with Tivall, Bonjour (which was merged into Osem Investments)
69
and Tribe (including Food Tech which was merged into Tribe), Materna,
and others.
E.
19.
Financial Information – the costs invested in the intangible assets and the
amounts that were recognized as assets in the financial statements
according to acceptable accounting regulations, are detailed in note 13 to
the financial statements which are included in this periodical report.
Human Resources
A. Organizational Structure: below is the Group’s organizational chart:

The diagram refers to the organizational structure of the Group in 2014. As of 2015, a change
occurred in the organizational structure, as described in section 19C of this section
70
B.
The organizational structure. The organizational structure of the Group is
based on the matrix structure of overlapping systems of components. The
overlapping systems include, inter alia, business units which constitute
"profit centers" directed by managers, headquarter units which provide
support across the organization, production facilities which provide
products for a number of areas of activities and a central trade and
distribution system serving the main activities of the Group in Israel.
The Group is run by the Group CEO, and by the senior management of the
Group, comprising the Deputy CEOs, the Vice Presidents, the business unit
managers, the shared services managers, and the Company General Counsel
subject to the CEO.
C.
Changes in the organizational structure.
In order to emphasize and strengthen the management focus and synergies
of the international activities of the Group, the Board of Directors resolved
on 21 November 2013 a change in the structure of the ready-food division
and to set up a separate division – the international division – which focuses
on the international activities of the Group and includes Tivall Europe,
Tribe USA, Osem UK, Osem USA, the export activities of the Group and
future international opportunities.
As part of the change, the activities of Tivall Israel were transferred to the
culinary division and the Tsabar salads activity remained an independent
unit reporting directly to the CEO (although it does not meet the definition
of a reportable sector and therefore was joined to the culinary division due
to similar economic characteristics). The change came into effect at the
beginning of 2014.
This change is in addition to the structural change made earlier for
consolidation of the snacks division, the bakery and beverages division and
the breakfast cereals division into one business division under one manager
who reports directly to the CEO. At the same time, a new business division
was set up to handle new businesses and innovation in order to create
management focus in the new activities which require management
attention in the first stages. In addition, in the beginning of 2013 the
Group's factories were made subject to the direct management of the
Deputy CEO-Operations (previously they were subject to the managers of
the business units/divisions). The managers of the business units continue to
be involved in relevant operational issues and decisions which have
business repercussions.
71
Moreover, in order to adjust to changing market conditions and in the
framework of the implementation of advanced and specialized sales
strategy, as of January 2015 a new organizational structure was introduced
to the Osem Trade Group based on improvement of service to customers of
the Company (focus, understanding and professional specialization in the
customer).
As part of the change, there was a move in the internal management from
three to four markets in the retail market: the organized market, private
chains market, supermarkets and the private market. In addition and for the
purpose of improving the short, medium and long term planning processes
and increasing the efficiency of different processes in the organization, a
decision was made to set up a new unit led by a Deputy CEO. This unit will
consolidate all the planning functions in the different divisions and will
assume responsibility for cross-organizational processes in all matters
connected to business strategy and development, economics, control and
budget, demand planning, long term factories planning, marketing of the
Group including handling of innovation, evaluations of the new consumer
and for the digital age and responsibility for the computer unit which assists
in the building of support for these processes. The change will come into
effect in April 2015.
D.
Group Headcount. The total number of the people employed by the Group
as at 31.12.2014 is about 4,800 people. The sales and distribution staff
(drivers, agents, merchandisers, representatives, warehouse employees, etc)
as well as the management and administrative staff (operations, marketing,
finance, etc.) which provide shared services for the different activity areas.
During 2014, there were no significant changes in the headcount. In the
Group’s estimate, the Group is not significantly dependent on any specific
employee.
72
Number of Employees as at 31.12.14
Areas of Activities
Production
workers
Sales,
Marketing,
Distribution &
Logistics
Administrative &
Management
Total number of
Group
Employees
Culinary
670
26
23
719
Bakery, Beverages, Snacks and
Breakfast Cereals
573
16
4
593
10
87
9
106
237
87
32
356
75
37
10
122
Others
501
120
19
640
General factory workers
296
6
302
1,561
1,561
Professional Market and Gift Packages
International Division
Infant Nutrition
Shared services – Distribution and
Commerce
Shared Services – Administration &
Headquarters
Total number of Group Employees
2,362
73
294
367
2,013
391
4,766
Administrative &
Management
Total number of
Group
Employees
Number of Employees as at 31.12.13
Areas of Activities
Production
workers
Sales,
Marketing
Distribution &
Logistics
Culinary
686
29
35
750
Bakery, Beverages, Snacks and
Breakfast Cereals
553
13
7
573
10
87
8
105
203
92
24
319
77
40
10
127
Others
457
130
17
604
General factory workers
294
6
300
1,548
1,548
Professional Market and Gift Packages
Infant Nutrition
Shared services – Distribution and
Commerce
Shared Services – Administration &
Headquarters
Total number of Group Employees
2,280
73
77
295
372
2,022
396
4,698
E.
Training. The Group invests resources in professional training in line with
the requirements of the law, and as part of the Group's aim to improve and
constantly promote the professional competence of the employees. The
training program is built to accommodate all the needs of the different
professional employee groups in the Group. The program combines inhouse dedicated courses which are planned and organized by the Training
Department / HR division, with conferences and sessions outside the
organization. As part of the partnership with Nestlé, the Group sends from
time to time and according to need, employees and managers to
professional conferences in Nestlé, to expand and further deepen the
knowledge and tools in different areas. In addition, the Group sends
employees and managers to management development courses in RiveReine, the Nestlé international training center in Switzerland.
F.
Compensation programs for employees. The Group rewards its
employees by factory wage increments and by annual bonus payments
granted on the basis of Group and individual performance, and this - in
accordance with the annual bonus plan which is approved every year in the
Company Board of Directors. In addition, part of the bonuses to the senior
employees is linked to the rise of the share value (Phantom Options). The
Group also rewards its outstanding employees by the Outstanding
Employee Prize and by the Founders' Prize. These prizes are given to
excelling employees in every site; in the form of monetary compensation,
In addition, the Group has several recognition processes according to which
the employees receive incentive awards for initiatives they propose and
implement and which promote the Company's ability to meet key targets,
such as resource streamlining.
In line with Amendment No. 20 to the Companies Law 1999, regarding the
office and employment terms of office holders in public companies and in
private companies which are debenture companies, on 3rd September 2013
the General Assembly approved the Group's compensation policy, as it was
recommended by the Compensation Committee and as it was approved by
the Company board of directors. For additional details regarding
compensation see Regulation 21 in Chapter D (“Additional Details on the
Corporation”).
G.
Employment agreements. The majority of the Group employees are under
collective wage agreements, which are similar to the standard agreements
common in this industry. All the employees are eligible for pension
74
contributions – most of them through pension funds and the rest are
included in senior employee insurance plans, or a combination of both.
The pay structure for part of the Group employees includes a component of
incentive pay (factory wage incentive). The incentive pay is based on
additional output beyond the set standard. This can be measure by a variety
of methods – output produced, efficiency achieved, performance and
quality of performance, and other methods.
The incentive pay structure for the drivers in the distribution network
includes a variable component which is based on the driver’s output
measured by the shipment weight, the daily number of customers, the travel
distance and other factors.
The incentive pay structure for office holders in the sales network includes
also a variable component which is based on their performance. It includes
an incentive which is calculated on the basis of the sales volume compared
to the target, and from a periodic bonus pay which is based on sales targets,
goods returns and other factors.
H.
Human Resource Development. In addition to the training specified
above, the human resource development activity includes two main
subjects: Performance Management and Career and Personal Development.
An annual performance review has been implemented in the entire Group,
is conducted in a consistent and comprehensive manner among the majority
of the Group employees. As part of the process, attention is given to the
employee performance level and his/her contribution to the achievement of
Group's business targets and to the skills, competencies and behaviors the
employee demonstrated as means.
As part of the Career and Personal Development process, the Group takes
steps to identify the employee competencies develop his/her future
potential. In this way, the Group managers identify high potential future
managers. These important tools help the Group to run its human resources
in the best possible way, which will ensure succession planning and
retention of its best employees.
I.
Employee Welfare. As part of the concept according to which the Group is
regarded as a "family" – big, strong and supportive during times of need the Group takes steps towards strengthening the bond with the employees
and enhancing the feeling of partnership, affinity and identification with the
Group as a unified and cohesive entity. The employees go on collective
weekends and participate in parties to mark holidays and special events, all
this is done to help with teambuilding and give the employees the feeling
75
that they all work for one common goal. Within this capacity, the Group
assists employees in crisis - economic, or psychological and social.
J.
Office holders and senior management. The Group's senior managers are
employed under personal contracts according to which they are insured in
senior employee plans and/ or other pension insurance plans. In addition to
the above, the top management of the Group are also rewarded, subject to
the decisions which are taken from time to time by the Board of Directors,
by Phantom Options (as described above) which are subject to vesting dates
according to the option plans that were adopted by the Board. In
determining work conditions for each of the senior officers, the senior
manager's background, professional experience, education and
qualifications were taken into consideration, and for determining the reward
he/she is entitled to –the results of the Company operations and its
profitability were taken into consideration as well. Data regarding the
remuneration, duties, qualifications, and work experience of the top earners
among the senior officers in the Group are included under Regulation 26(a)
and Regulation 21 in Chapter D (“Additional Details on the Corporation”)
of this Periodic Report.
20. Working Capital
A.
The Group's operational turnover does not exceed twelve months. As a
result of this, the current assets and liabilities include items which are
designated and expected to be realized during the period of the regular
operational turnover of the Group.
B.
Below is a concise description of the Group's working capital components:
76
Working Capital Components
31.12.14
KNIS
Cash and cash equivalents
471,197
Trade receivables
693,674
Other receivables
27,578
10,694
Income tax
Inventory
398,972
Other investments
164,548
1,766,663
Total current assets
Loans and short term credit from
banks
Trade payables
756,676
Other creditors
224,462
7,845
Income tax
10,895
Total current liabilities
999,878
Excess current assets over liabilities
766,785
21. Investments
During the period of this report, the Group had no material investments in
investee companies, in partnerships and in joint ventures which are not subsidiary
companies. Investments in partnerships and subsidiary companies as well as other
investments made were detailed in Section 1: Description of the Corporation’s
Business Activities and Evolution of Business.
22. Financing
A.
The high liquidity ratios and the excess cash reserves of the Group
constitute the main source of funding for the day-to-day conduct of the
Group and for further expansion of the Group business. The Group repaid
all the long-term loans given by the banks. As at the balance sheet date,
there are no long-term loans from the banks and the short-term loans from
the banks constitute only 0.2% of the total balance sheet.
77
On the whole, in the Company's estimate, The Group liquidity level and its
financial strength level are above the average common in the food sector.
B.
The average interest rate on loans that were valid during the period of this
Statement, which have not been designated for specific use by the
Company, while separating between short-term and long-term loans and
distinguishing between bank credit sources and non-bank credit sources, is
detailed in Note 15 to the financial statements included in this periodic
report. The effective interest rate is close to the average interest rate.
C.
Credit framework and financial limitations. The credit framework as at
the date of 31.12.14 amounted to NIS 199 million. This credit has not been
fully used. The bank credit that was used is specified in Note 15 to the
financial statements included in this Periodic Report. The unused available
credit balance amounts to NIS 192 million.
The Company can get additional credit if it so requires.
For the said credit, no liens were registered in favour of the banks and
according to the agreements with them if the Company requires additional
bank credit, no liens will be registered in their favour as long as the Group
meets certain commitments and certain financial ratios, as specified in Note
20B to the financial statements included in this Periodic Report.
D. AAA Credit Rating for Osem. In March 2015, the Midroog 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 which has an AAA rating. The Group has no
material loans.
23. Taxation
A. Income Tax regulations applicable to the Group companies
The Law for the Encouragement of Industry (Taxes), 1969 - See Note
19B to the financial statements which are included in this periodic report.
The Law for the Encouragement of Capital Investments - 1959. Under
the law, some of the Group companies are entitled to several tax benefits as
they were granted an "Approved Enterprise" status, as defined in this Law.
For more details, see Note 19A to the financial statements included in this
periodic report. As for the main benefits under this Law – see item E below.
78
B.
Applicable tax rates on income of the Group companies.
See Note 19C (1) and Note 19 C (2) to the financial statements included in
this periodic report.
C.
Non application of IFRS in determining taxable income
See Note 19C (3) to the financial statements included in this periodic
report.
D.
Tax assessments
See Note 19F to the financial statements included in this periodic report.
E.
Benefits under the Law for the Encouragement of Capital Investments
In Sderot Factory, which is located in Development Zone A, there are
several letters of approvals for expanding an Approved Enterprise. Some of
these letters fall under the investment grant track and some under the
alternative of tax exemption.
Kiryat Gat factories (Sabra Salads and Bonjour), which are located in Zone
A, have received Letters of Approval in the grants track only.
The Yokneam factory located in Development Zone A has received a Letter
of Approval in the grants track and a status of an approved Enterprise with
tax exemption benefits.
The Lohamei Hagetaot factory and the Beit Hashita factory located in
Development Zone B have received a Letter of Approval in the grants track
only.
Some of the factories have not yet used any tax benefits. The Group
received final performance approvals from the Investments Center for all
the factories and all the approval certificates (with one exception),. For
more details, see Note 19A to the financial statements included in this
periodic report.
F.
Main tax rate versus effective tax rate
The main tax rate applicable to the Group income is 26.5% compared to
the effective tax rate during 2014, which amounted to 24.9% The difference
between the main tax rate of the Group and the effective tax rate derives
mainly from the overseas subsidiaries whose tax rate abroad is different
from the tax rate in Israel and from theoretical financing expenses for Put
Option for the minority which are not recognized for tax purposes. For
additional details see Note 19 (G) to the financial statements which are
included in this Periodic Report.
G.
Unused losses for tax purposes
79
The Group has about NIS 175 million unused losses for tax purposes.
Around NIS 64 million of them were recognized as deferred tax and that
was due to the uncertainty level that these losses will be used in the future.
H.
24
Taxation on overseas subsidiary companies
The Group has subsidiary companies operating overseas. The tax on these
companies is in accordance with the statutory tax rate in effect in each
respective country. The Group has a factory operating in the Czech
Republic which enjoys the status of an approved enterprise in accordance
with the encouragement laws in the Czech Republic including tax benefits.
With the main countries in which the Group's subsidiary companies operate
(USA, UK, Holland, Czech Republic and Sweden) and with the country
where the Parent company is located (Switzerland) there are double
taxation treaties.
Environmental Issues
24.1 General
24.1.1 The Group’s activity is influenced by various environmental factors
which are related mainly to the production activity of its different
factories, and these factors include, among other things, air
pollution and emissions, wastewater and hazardous substances.
24.1.2 The production activity of the Group is concentrated as of the date
of this report in nine production sites in Israel and two sites abroad.
The Group factories operate in line with the different permits issued
by the Ministry of Environmental Protection and the Group
factories abroad are subject to local environmental legislation and
operate in line with the rules and regulations of each country.
As at the publication date of the report, the Group's factories in
Israel, the Group's factory in the Czech Republic, and the Logistical
Center in Shoham have all been certified with the international ISO
14001.
In addition, the scope of environmental responsibility includes the
Logistical Center including supervision of reduction of kilometrage
and an analysis of fuel consumption per marketed ton and fuel
consumption by the Company's vehicles.
80
24.1.3 In 2014 (as in the previous years), the Group was also ranked as
one of the "Platinum Group", the ranking of the leading companies
in "Maala" rating of Business for Social Responsibility.
24.1.4 Although the Group does not manufacture products which contain
substances poisonous or hazardous to the environment, the
company uses hazardous substances for the operation of
manufacturing services (including activities such as cooling,
wastewater treatment, cleaning, etc.), in line with the permits which
were granted by Law, from the Ministry of Environmental
Protection.
The annual costs the Group invests in order to comply with the
applicable environmental decrees are not material to an extent
which affects its profitability and/or its competitive position.
24.2 The Group policy on the environment and environmental hazards
management
The Group has a combined policy on safety, product quality and the
environment which is based among other things on the policy of its parent
company, Nestlé, with adaptation to the Israeli market.
The policy environmental principles are as follows
1. Compliance with the laws and regulations of environmental
protection, as per the Israeli Law (and the regulatory measures
that emanate from this law).
2. Incorporating the principles of environmental management and
protection in the Group's activity in all its sites.
3. Striving for continuous improvement in the internal KPIs that
were set in reference to protection of the environment..
4. Providing adequate information and training to stakeholders
(management, employees, and authorities).
The Group has an environmental system for the monitoring, handling and
follow up on environmental aspects related to its ongoing operation. The
Group's environmental protection system is managed by the Environmental
Group Manager and the factory environmental manager in each site.
The above policy is available on the Company internet website; it is
communicated through training sessions to all the employees and to the
Company sub-contractors, and is presented in posters hung in all the
Company sites.
24.3 Compliance with the requirements of the Law and other requirements
81
The Company factories are subject to the requirements of all the Israeli law
and to the regulations pertaining to activities which may affect the
environment, and to comply also with voluntary standardization adopted by
the Group itself. Compliance includes:
24.3.1 Licenses – a business license, a manufacturer's license from the
Ministry of Health, a stipulation letter for a business license from
the Ministry of Environmental Protection, hazard material permit,
fire equipment and handling specification document and other.
24.3.2 Laws and regulations – the local legislation refers also to the
handling and storage of hazardous substances, regulations on
energy sources issued by the Ministry of Infrastructures, Law for
the prevention of hazards, industrial wastewater, clean
environment, sludge elimination/removal, etc.
24.3.3 Nestlé requirements on environmental protection - the
requirements of the parent company, Nestlé, set for its subsidiary
companies, among other things, on aspects related to the
environment.
24.3.4 Voluntary standardization – in 2007 the Group began a gradual
process of certifying all its factories (by the international BV
company) for the international standards of environment and safety,
ISO 14001, OSHAS 18001.
As a result, at the date of the Periodic Report, the majority of the
Company factories have been certified for both ISO 14001 and ISO
18001.
24.3.5 Setting internal objectives for environmental protection –
beyond the requirements of legal compliance, each factory has its
environmental objectives which include both resource utilization
and cutting down emissions and waste. The environmental
objectives refer to resource consumption in relation to production
quantities. These include saving in water, in energy, and in raw and
packaging materials, and also objectives related to emissions from
the system – reduction of waste to be concealed in landfills,
increase in recycling, reduction in wastewater quantity, reduction of
the greenhouse gas emission, oxides and elements with potential to
harm the Ozone layer.
The degree of the factory compliance with these objectives is
measured on a monthly basis in the Group's factories.
82
The degree of compliance, as mentioned above, is measured in
relation to each of the Group's factories, among other, by selfassessment questionnaires (which include specific description to the
factory compliance with legal regulation, the Nestlé standards and
internal objectives), which are checked and approved by the Group
environmental manager. In addition, the majority of the Group
factories undergo external audits by an external institute of quality
and control, as part of the international ISO 14001 certification
audits. During 2014 a compliance audit to the law of environmental
protection was carried out by an independent legal firm.
In the Company's estimate, during 2014 and as at the date of the
Report, all the Group sites complied with the relevant legal
regulations relating to environmental aspects, except for a few
immaterial exceptions in wastewater. The Group is in the process of
solving these issues, in coordination with the Ministry of
Environmental Protection. In addition, as a result of a thorough
inspection of the overall wastewater treatment facilities, in 2013 a
research and planning initiative was carried out in order to upgrade
the facilities in several factories and in 2014 the Group began to
update its wastewater facilities.. During 2014 some of the Group's
sites fully met the internal objectives that were set (which are
stricter than the legal requirements) and some of the sites partially
met these objectives). The Group achieved better saving results in
energy, reduction of greenhouse gas emissions, recycling and waste
landfill compared to the targets it set for 2014. Nevertheless the
water consumption target for 2014 was not met due to an
improvement in the hygiene standard in the factories.
24.4 Main environmental risks
In every site of the Group a risk assessment survey is conducted
periodically, analyzing the effects on the environment. Based on the
findings of the survey the Group sets it environmental work plan.
Below are detailed the main environmental aspects and risks which affect
the Group activity and the respective actions the Group took in 2014 and as
at the date of the periodic report.
24.4.1 Wastewater: The Group factories use water and detergents which
create wastewater. This wastewater includes organic material
(COD=Chemical Organic Demand) and oils and may increase,
83
among other things, the concentration of polluting agents and cause
sanitary inconvenience.
There are wastewater facilities in all the factories, for the purpose
of treating the wastewater or outsourcing the treatment to 3rd party
in order to have them compliant with the legal requirements before
they are channeled to the public system.
It should be noted that in the Group's factory which used caustic
soda in the process of wastewater treatment switched to Potash,
which unlike caustic soda does not include sodium and chlorides
and this was done in spite of its higher price. This shift also
contributed to a significant reduction of sodium concentration in the
wastewater thereby adapting them for irrigation. In addition, in part
of the Group's sites, Reverse Osmosis (RO) facilities are installed
and these have replaced the use of water softeners and decreased
the amount of salinization.
Each of the Group's factories undergoes periodical analysis of the
wastewater parameters at the point of connection to the public
system of drainage, to ensure that the factory complies with the
legal requirements.
During 2014 a large number of "complex wastewater analyses"
were carried out in the Group factories. Additional analyses were
performed according to the requirements of the authorities. The
results of the analyses have shown that composition of wastewater
did not include toxic substances or heavy metals in any case. The
few deviations that were traced compared to the letter of terms and
conditions issued by the Ministry of Environmental Protection
during 2014 and they are monitored and addressed by the Company
and as a result in 2014 the Company began to upgrade in part of the
wastewater facilities in the factories.
Below is a short description of the actions taken by the Company to
reduce the impact of wastewater, in each of the factories.
The Tivall factory in Kibbutz Lohamei Hagetaot: the factory uses
a joint wastewater facility which is managed by 3rd party and is
based on an anaerobic method. The facility greatly reduces the
organic load and the solids in the wastewater are decomposed and
transformed to biogas that is used as fuel in the factory as substitute
to the LPG. The wastewater are channeled after treatment to
irrigation. Sometimes an exceeding sodium rate is found which, to
84
the best knowledge of the Group, do not result from activity
coming from the Tivall factory.
Beit Hashita: the factory has an extensive system in place, to
separate wastewater streams, for the separate treatment of industrial
streams and saline streams. In addition, there is a system for
separating fats, monitoring and neutralizing Ph. In 2014
improvements were made to the wastewater system in the factory
however 3 a small number of deviations were recorded at the level
of organic material (COD) and also at the sodium concentration in
the industrial stream. As at the date of the Report publication, the
Group has been working together with the Ministry of
Environmental Protection to reduce these deviations by improving
the quality of the wastewater at their source. In addition, in 2014
there was a significant reduction in the saline streams and an
increase in evaporation in the treatment ponds resulting in a
significant saving in the amount of brine for future disposal
Yokneam: the factory has a physical-chemical facility in place for
the treatment of wastewater. Deviations in the sodium
concentration levels located in 2013 were treated by setting up a
new facility for separation of brines in 2014. As at the date of the
report publication, the Group in cooperation with the water and
wastewater corporation is acting to reduce the deviation in the the
level of organic material (COD) located by improving the quality of
the wastewater at its source and by plan to set up a new wastewater
facility.
Materna: the industrial wastewater of the factory is channeled to
an external anaerobic treatment which produces biogas. The biogas
is used for producing electricity. During 2014 no deviations have
been recording in this aspect.
Holon: the factory has a wastewater treatment facility in place. In
2012 an approval was received from the Treatment Corporation to
allowing the irregular channeling/routing according to the
regulations of the Water and Wastewater Company.
Ice Cream factory in Beer Tuvia industrial area: the factory
uses a joint wastewater facility which is managed by 3rd party. A
deviation has been recorded in the level of sodium concentration,
which in the Group's estimate does not come from the factory
activity. At the same time, and as at the date of the report, the
Group works together with the Ministry for the Protection of the
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Environment and with the third party running the facility to reduce
the sodium emissions by replacing the cleaning agents used for
improving the wastewater quality. During 2012, it was agreed with
the Ministry to find a solution for upgrading the facility and this
solution will be implemented by the third party which is running
the facility. As at the date pf the annual report, the upgrading
process is being carried out.
Sabra Salads in Kiryat Gat: the factory has a system that
separates streams and a modern facility of the DAF type, for the
treatment of streams. During 2013, measures were taken to improve
the wastewater facility and chemicals were replaced in order to
reduce the emissions. In 2014, no deviations were found in the level
of COD.
Bonjour in Kiryat Gat: the factory has a facility in place. During
2014, minor deviations were recorded in the COD values. As at the
date of the report publication, the Group has been working to
reduce these deviations by improving the wastewater at source.
Sderot: The factory uses a physical-chemical facility for the
treatment of wastewater. The facility meets the required emission
values. However, the Group is working on an ongoing basis
together with the Ministry of Environmental Protection for
improvement and reduction of emissions of organic material (COD)
by replacing the chemicals in the facility, by separating the
salinated stream, by improving the quality of the wastewater at
source, and also by introducing modifications in the facility. In
addition, there is a plan to upgrade the wastewater facility in the
course of the coming two years.
Tivall Czech: the factory has a facility in place. No deviations in
environmental parameters were recorded.
Tribe in Taunton, Massachusetts: the factory uses wastewater
handling facility. During 2014, several deviations in COD were
recorded. As at the date of the report, the Group works together
with the relevant authorities to reduce these emissions by
improving the quality of the wastewater at source, and also by
improvements and modifications in the facility performed during
2014, by an engineering company. A trial run of the facility and its
operation are planned for 2015.
24.4.2 Air Pollution:
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The Group consumes direct energy as part of the production
activity (by way of burning fuels in steam boilers and ovens), and
consumes indirect energy as part of its current activity (use of
electricity, use of fuels for the distribution vehicles of the Group
products). The Group also uses cooling liquids of old Freon gases
in part of its sites. This consumption may cause air pollution and
damage the ozone layer.
The Group is in the process of replacing the Freon type cooling
gases to environmental friendly gases. In addition, as part of the
actions taken by the Group in this area, part of the automatic fire
extinguishing systems were replaced to systems operating with
environmental friendly cooling gases.
During the last few years, and as part of its production activity, the
Group has converted all the ovens in its factories to the use of direct
combustion gas, a move which ensures reduction in air pollution.
The steam boilers in most of the Group's factories operate on gas
which guarantees low emission of air pollutants. The other steam
boilers operate on low sulfur heavy fuel (Mazut) which ensures
compliance with the requirements of the Treaty on Air Pollution
between the Ministry of Environmental Protection and the
Manufacturers' Association, Except for one factory which still uses
"light" heavy fuel with combustion improving additives to reduce
the emissions. With the reduction of sulfur percentage in the heavy
fuel which is supplied by the Oil Refineries, this factory also
complies with the law for preventing emissions.
To comply with the requirements of the Ministry of Environmental
Protection, tests to measure gas emissions are conducted in the
steam boilers and in the production facilities. All the tests that were
performed in 2014 yielded compliant results, except in one factory
in which the Group took measures in coordination with the
Ministry to resolve the issue.
In the framework of the target for reducing emissions, conversion
of steam boilers in the Sabra factory to natural gas commenced in
2014. This will contribute to a significant improvement in
emissions. Based on the degree of success of the conversion, other
factories of the Group will convert to natural gas. In addition,
conversion to natural gas of all the boilers in the Sderot factory is
planned in the coming years.
This is forward-looking information. It may not materialize if the
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Group finds that these moves are not cost effective. In 2013 the
Group joined the voluntary reporting network of damaging
greenhouse gas emissions of the Ministry of Environmental
Protection.
24.4.3 Hazardous materials
Leakage of hazardous materials as a result of inadequate storage
may lead to contamination of soil, groundwater and indirectly also
to casualty. The Group's factories use and keep hazardous materials
in small quantities which are required for cleaning and wastewater
treatment. In addition, in part of the Group's sites (which deal with
production and/or storage of frozen and/or chilled products) there
are cooling facilities which are operated on ammonia. During 2011,
the sites which use ammonia have been adapted to the safety
requirements of the Home Guard Command and during 2012 the
Group started adapting the ammonia facilities to the earthquake
safety requirements. The first stage of adaptation plans (separation
distance survey) was submitted to the inspection of the Ministry of
Environmental Protection. The Company will take the necessary
measures to implement the required adaptations once it receives the
necessary approval.
All the factories have permits to use hazard materials as required by
the law. In every site a poison supervisor, who passed the required
and approved training by the Ministry of Environmental
Production, has been appointed. Small quantities of hazardous
waste are being removed to authorized landfills.
24.4.4 Resource consumption:
Waste of natural resources (overuse of energy and water) may lead
to emissions of greenhouse gases. It may also cause damage to the
water reserves and lead to water salination.
Below are details on the measures the Group is taking to reduce the
use of these resources.
Water consumption – one of the Group key internal objectives is
saving in water consumption in its factories. In 2014 there was a
decrease in water consumption per ton of production of about 1%,
compared to 2013 figures, (a saving of 10,000 M3), mainly as a
result of cost saving initiatives. The saving was lower than planned
due to an increase in the demands of quality control and increased
washing of the factories.
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Energy consumption - one of the Group key internal objectives is
saving in energy in its factories. The main source of energy the
Group uses is electricity which is supplied by the Israel Electric
Corporation. The Energy consumption per ton of production during
2014 decreased compared to 2013 figures, in about 3% (about
20,000GJ). This was achieved mainly due to cost saving initiatives.
Material consumption - the data collection system monitors the
consumption of raw and packing materials on a monthly basis
compared to the production volume. Abnormal consumption is
monitored and investigated and corrective action is taken
accordingly.
24.4.5 Waste treatment:
All plants have arrangements for the separation of the various types
of waste, with the purpose of increasing the amount of materials
channeled to recycling or reuse (including channeling to animal
food), and reduce channeling to landfill.
In 2014 the Group achieved a recycling rate of 74% of overall
waste which is cleared from the factories and reduced waste landfill
by 13%. The costs of land filling saved amounted to about NIS 4.2
million. About NIS 2.7 million were received from contractors that
recycle waste.
The electronic equipment is transferred to the Israel Electronics
Recycling Company and to "Ecology for the Sheltered
Community Ltd." company and that is done as part of our trend of
CREATING SHARED VALUE for the community.
Also, to meet the requirements of the "Packaging Law", the Group
has contracted with a recycling corporation which is duly
recognized for the requirements of the Law (the Israel
Manufacturers' Recycling Corporation), to carry out its directives.
In addition, given the Group import and marketing activities for
beverages (Nestea iced tea), the activity became subject to the law
of drink packaging deposit 1999. To meet the regulations of the law
Osem entered into a contract with a corporation which provides
packaging collection services, recycling and reporting to the
Ministry for the Protection of the Environment.
In the Company's estimate, the environmental deviations and
incidents that were mentioned in this paragraph do not expose the
Company in any material way (such as material costs incurred by
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the Company for correcting these irregularities, damage to the
Company's competitive position, etc.) When deviations are found,
the Company acts as part of the usual course of business to correct
these deviations and comply with the law.
The actions that were described in the above paragraph and which
are planned for the coming years constitute forward looking
information which carries a degree of uncertainty as it is based on
the Group forecasts and work plans as at the date of the Periodic
Report. This information may not materialize as a result of delays,
changes, and prioritization of work plans and/or as a result of
regulatory changes and /or requirement of the Ministry of
Environmental Protection.
25. Restrictions and Supervision of the Company's Activity
Business licenses, permits and standards for the Company operation
The various facilities of the Group in Israel operate under business licenses
granted as per the Law for Licensing of Business 1968 and its relevant
regulations. The Group received Manufacturer Licenses for its various factories,
in line with the Order for Supervision of Commodities and Services (Food
Commerce, Manufacturing and Storage), 1960, poisonous substance permits in
line with the Hazard Materials Law, 1993, building permits in line with the
Planning and Building Law 1965, and lifesaving and fire permits in line with the
business licensing law 1968 and its relevant regulations.
In overseas locations where the Group operates, suitable permits and licenses
must be obtained, in line with the legal requirement of every country.
Most of the Group factories have been certified with ISO-14001, OHSAS-18001
and ISO-22000. In addition, the Group factories are subject to strict standards, set
by Nestlé, for safety and occupational health, environment and product safety.
The Group operates in line with the above mentioned licenses and permits and in
cases of deviation from the standard, work to correct these deviations in
collaboration with the authorities; in case of expiry, the Group takes the necessary
steps in coordination with the relevant authorities to renew or to apply for
extension for the licenses that have expired.
Legislation in the food industry and consumer legislation
Like other food companies, the Group products are subject to different laws and
regulations under the Public Health (Food) Ordinance (new version), 1983, and
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subject to the relevant standards and orders resulting from this Ordinance, giving
authority to take measures and prevent any possible hazards to public health from
imports, preparation, storage and distribution of food, and including the Health
Ministry's regulations regarding municipal veterinary control on the marketing of
meat products. The Consumer Protection Law, 1981, setting a number of
obligations and prohibitions aimed, among other things, to prevent any
misleading of the consumer. The Law for the Control on Commodities and
Services 1957 under which regulations and orders have been issued regarding
food quality, merchandising, production and storage; the Law for Standards 1953,
under which standards have been set to control production processes, operations,
marketing, packaging, etc.; the Law of Defective Products Liability 1980,
defining manufacturer's liability applicable to those who suffer any damage as a
result of a defective product. The Group is covered under third party and product
liability insurance.
The Group's activity/operation abroad is subject to the law and legal requirements
valid in every country which are intended to regulate similar issues as those
which are regulated in Israel.
On 19 January 2011, the Knesset approved the "Packaging Bill" according to
which the responsibility to collect and recycle product packaging waste will shift
to the manufacturers and importers in Israel. To meet the requirements of the
Law, Osem has contracted with a recycling corporation which is duly recognized
for the requirements of the Law to carry out its directives
In light of the Group's import and marketing activities in the beverage area
(Nestea Iced Tea), this activity has become subject to the law of drink packaging
deposit 1999. To meet the regulations of the law Osem entered into a contract
with a corporation which provides packaging collection services, recycling and
reporting to the Ministry for the Protection of the Environment.
On 15 January 2015 the Food Law which regulates the relationship between
retailers and manufacturers came into force. For additional details see paragraph
6.4 above.
Antitrust law and price regulation
As in the case of all companies operating in Israel, the Group is subject to the
Antitrust Law whose purpose is to prevent among other things any instructions
which may restrict and harm business competition.
In the course of 2014 the Antitrust Law was amended several times and the
Antitrust Authority published a number of position statements and position
statements including those specified below. See also the reference to the Food
Law in paragraph 6.4 above.
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The Group is a declared monopoly in the dry pasta segment.
Amendment 15 to the Antitrust Law: On 19 March 2014 the Knesset enacted the
Antitrust Law (Amendment no. 15) concerning the addition of section 44A which
states that the Director may conduct checks of the level of competition in
different sectors and may deliver his conclusions, examinations and
recommendations to the minister responsible for the sector examined and the
Minister of Finance and shall publish the conclusions of the examinations on the
Authority's website.
Amendment 16 to the Antitrust Law: On 17 November 2014 the Knesset enacted
the Antitrust Law (Amendment no. 16). The main provision of the amendment is
the rescission of section 3(6) of the Law exempting arrangements of reciprocal
exclusivity between a supplier and distributor, on certain conditions, from the
prohibition against entering restrictive arrangements. After the amendment enters
into force (in the course of 2015), exclusivity arrangements will be subject to
approval of the Antitrust Authority or one of the block exemptions which now
apply to unilateral exclusivity arrangements and in fact the legality of the
arrangements will be determined on the basis of their accumulative effect on
competition. In addition, the amendment extends the authority of the Antitrust
Tribunal to issue structural orders in order to promote competition in markets and
allows the Tribunal to instruct a monopoly to sell an asset owned by it, all or in
part, if this "may prevent damage or the risk of significant damage to business or
the public".
On 20 February 2014, the Consensual Order signed by the Antitrust Director and
Materna and other suppliers of infant formula (hereinafter "infant formula")
entered into force under section 50B of the Antitrust Law, 1988 after it had been
approved by the Antitrust Tribunal. The field of infant formula is characterized,
inter alia, by participation in tenders for supply to newborn babies in hospitals.
The Consensual Order prescribes a number of conditions for the supply of infant
formula to hospitals and for payment for the right to supply infant formula to
hospitals. For further details see paragraph 11.1 above.
In April 2014, the Director General of the Antitrust Authority published position
statement 1/14 on prohibition of charging excess price by a monopoly.
This position statements states that the provisions of Paragraph 29A(b)(1) of the
Law which prohibits the setting of unfair buying or selling price level refers also
to overpricing of a product, and not only unfair underpricing (predatory) as was
common to interpret this legal provision.
In the opinion of the Director General, an overpricing is a price that exceeds the
price that would have been charged under competitive conditions, based on the
test criteria the Director General has adopted in its position statement.
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A consensual order with the Director General of the Antitrust Authority on
commercial arrangements between suppliers and retail chains on rules of conduct
between the parties: On 4.1.2015 the Antitrust Tribunal approved the rescission of
the consensual order. The rescission entered into force on 15.1.2015.
Kosher certification
The Group products which are manufactured or marketed in Israel and which are
exported overseas are under the supervision of the relevant local Rabbinate and
under the approval of the Israel Chief Rabbinate.
To meet the needs of the people in Israel and in the Diaspora, most of the Group's
products have ultra-orthodox strict approvals, above the general kosher
conditions, from leading kosher organizations in both Israel and abroad.
Certified supplier to the Ministry of Defense
The Group and part of its Israeli subsidiary companies are recognized as a
certified supplier to the Ministry of Defense.
26.
Significant Agreements
26.1 Option to acquire full ownership of Materna -within the framework of
the transaction to acquire 51% of Materna's activity, Osem acquired from
Materna Laboratories 51% of the fixed assets, the working capital, the
goodwill and the activity whereas Nestlé, the controlling interest in Osem,
acquired 51% of the brands and know-how. Osem and Nestlé received a
CALL option enabling them to reach full acquisition of 100% and to
acquire from Materna Laboratories the remaining 49% from the end of the
tenth year after the date of the closing of the transaction (31/12/2009) on the
basis of multiple 21, or at the end of the twelfth year (on the basis of
multiple 18), or at the end of the fifteenth year (on the basis of multiple 16).
Materna Laboratories received a PUT option to sell to both Osem and
Nestlé, the remaining 49% from the end of the fourth year after the deal had
been closed and until the end of the eighth year to the deal and also from
the end of the fourteenth year to the deal and this will be realized on the
basis of multiple 16. The exercise price of the option will be based on the
multiple determined in the agreement, multiplied by the net profit
anticipated at the exercise date, for each year of exercise and on the profit
of the year preceding the exercise and with certain adjustments, as
stipulated in the agreement, according to which Osem shall pay 61% for
49% of the fixed assets, the working capital, the goodwill and the activity of
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the partnership, and Nestlé shall pay 39% for 49% of the know-how and
brands.
In addition, as Materna Laboratories is a partner, it is entitled to current
cash flows which Materna expects to receive as payment until the day of the
exercise. For additional details, see Note 18 to the financial statements
which are included in this Periodic Report.
26.2 Distribution agreements. The Group has agreements according to which
the Group distributes products of other manufacturers, The main
distribution agreements are with "Tapugan", "Of-Tov", "Milotal", "Dorot,
Landwer" and "Barbari". The main contract conditions in the distribution
agreements give among other things details on the manner of distribution
of different products, i.e. – that the Company purchases the products and
sells them in a gross margin ranging from 9% to 28% (These products
include products of different volume and temperature of distribution –
frozen, chilled and room temperature), the remaining contract period (which
varies from agreement to agreement) of different periods – some of which
are not time bound -, so that some of the agreements include stipulations
allowing possible extension of period, and also stipulations on the
possibility of annulment by prior notice, (in most cases, of 5-12 months).
26.3 Negative pledge agreement with the banks. The Group has an agreement
with the banks providing that if the Group companies receive bank credit no
liens will be registered in favor of such creditors for as long as the Group
fulfills certain commitments and meets certain financial ratios as described
in Note 20B to the financial statements included in this Periodic Report.
26.4 Agreements with Nestlé, the controlling interest. The Group has several
agreements with Nestlé, some of which relate to the know-how and
intellectual property made available to the Group and some relate to the
selling of Nestlé products in Israel.
A summary of the agreements required to be reported between the
Company and Nestlé appear in Regulation 22 in the Chapter “Additional
Details on the Corporation” included in this Periodic Report.
27. Strategic Alliance and General Assistance Agreements
The Group entered into strategic alliance and cooperation agreements with its
parent company, Nestlé, which is a multinational company active in many
countries, operating hundreds of factories around the world, and which is
considered the largest food concern in the world. The strategic alliance with
94
Nestlé is described in detail in Regulation 22 to the chapter “Additional Details
on the Corporation” included in this Periodic Report.
28. Legal Proceedings
The majority of the legal proceedings involving the Corporation are routine
proceedings arising in the ordinary course of the Group's business.
On 10 December 2013 a statement of claim and a request for approval of the
claim as a class action in the sum of approx. NIS 256 million were filed against a
subsidiary of the Corporation, Osem Food Industries Ltd. According to the
plaintiff's contention, the defendant violated certain legal provisions relating to
labelling various products marketed by the Osem Group, thus allegedly
misleading consumers. According to the Group's estimate and based on the
opinion of its legal advisors, the chances of the claim in relation to the total
claimed sum are negligible.
The Group faces a number of additional class action claims or requests for
approval of class action claims. In the evaluation of the Company, and based on
the opinions of its legal advisors, the chances of the claims and requests are
negligible, or the sums to be borne by the companies will be negligible. See Note
20.A(9) to the financial statements.
29. Business Strategy and Objectives
The Group's targets are based on a strategy of growth. Its purpose is to offer the
consumer a product range of the highest quality while continuing to strengthen
the Group's position as a market leader in the Israeli food industry. In the
Company's evaluation, these objectives will be met by strengthening the Group's
brands, by expanding its market share and increasing its sales through new
product launch, and by entry into new areas in the food industry with the purpose
of increasing the Group's EBIT and ROIC and improving its EP. All the above along with streamlining processes the Company has initiated which are based on
the Company's methodologies of Lean & High Performing Organization, within
the NCE project framework (Nestlé Continuous Excellence). The Group also
allocates its operational and marketing resources to different products as part of
an optimization process which is based on the Portfolio Management strategy.
The Group growth strategy as of the date of this report is based on four value
drivers:
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1. RIG in sales, based on innovation and new product launch, brand building and
strengthening of existing brands, as well as utilizing the sector and market
growth for leverage.
2. Continuing a strategic alliance with Nestlé, enabling the Group to consider
entry into additional areas of activity in the food industry, mainly in areas in
which Nestlé is active and able to provide the Group with added value of
know-how, technology and brands, (this - in addition to those area the Group
has already entered into via Nestlé, such as Coffee, Ice Cream, Breakfast
Cereals, Chocolate, Pet Food, Nestea soft beverages, and Infant Nutrition).
3. A policy of Mergers & Acquisitions of food companies in Israel and abroad,
which the Group will find strategically suitable and which will contribute a
synergetic value to the Group activity.
4. Expansion and growth in Europe and in the USA in international areas where
the Group has a relative advantage, and this is while cooperating with Nestlé.
The information in this section is forward-looking information and is based on
forecasts included in the Group work plans. This information may not materialize
if the Group decides that the above-mentioned moves are not economically
feasible due to exogenous and/or endogenous changes. In addition, the Company
may change or amend or expand its activities strategy, as dictated by needs of the
Company from time to time.
30. Future Developments Forecasted for the Coming Year
In the Company's estimate, the next year will be affected by uncertainty on the
world markets (mainly in Europe) and the economic slowdown in in Israel which
is expected to also have an impact on the food sector. On the background of this
above mentioned slowdown, the Group intends during the coming year to utilize
the power of its liquidity, and its financial strength as it is the only industrial
company (which is not government owned) which received an AAA rating. In
addition, the Group intends to realize the internal synergies and streamlining
processes and also those which have resulted from the Group's association with
Nestlé, the largest food company in the world. In the Company's estimate, these
synergies will be manifested among other things by using Nestlé’s knowledge
and technology, and from other streamlining process. In addition to the above,
the Group intends during the coming year to expand its activity abroad (USA
and Europe) among other things, through leveraging its foreign acquisitions
made in the last years and through change in the structure according to which a
division which specializes in overseas operations was established in the course of
96
2014, which enables managerial focus on this activity. In addition, the Group
intends to expand in Israel, among other things also by product innovation. In the
coming year, the group is planning an investment, which will be spread over a
number of years, in the construction of new plants mainly in the ice cream and
snacks areas of activity.
In addition, it is expected that 2015 will be characterized, inter alia, by the first
time implementation of the Food Law which regulates the relationship between
retailers and manufacturers. For further details see paragraph 6.4 above.
The information in this section is forward-looking information which shows a
degree of uncertainty as it is based on the Group's forecasts and work plans. The
information may not materialize if the Group finds that the above-mentioned
moves are not economically feasible, or due to changes in market conditions
(including changes in macro-economic trends in Israel and around the world,
changes in market competition, and changes in the markets themselves), and/or
as a result of regulatory changes and/or a result of other risks factors which are
applicable to the Group's activity.
31. Financial Data on Geographical Regions
31.1 The Group has two geographical sectors as specified below:
A. Activities in the domestic market in Israel.
B. Overseas activities (mainly in Europe and the US).
31.2 Activities and sales to the domestic market are included under the areas of
activities of culinary food; bakery, beverages, snacks and breakfast cereals;
the professional market and gift packages; infant nutrition and others. Most
activities and sales to overseas markets are included under the area of
activities of the international division and in this division, there is a shift
from exporting to international activity, which also includes manufacturing
abroad in categories in which the Group has competitive advantage.
31.3 For further details of geographical regions of the domestic market see
paragraphs 7, 8, 9, 11 and 12 of this section. For details of geographical
regions of the overseas market see paragraph 10 above. In addition,
explanations on developments which occurred in Israel and overseas and on
the areas of activities in Israel and overseas also appear in the sections on
results of activities and analysis of business results of the Group by area of
activities in the Board of Directors Report which is included in this periodic
report.
97
31.4 For details of the geographical regions in which the Group operates see
Note 25.B.2 to the financial statements included in this periodic report.
31.5 The activity of the Group in the area of the international division is exposed
to volatility in currency rates as specified in paragraph 6.3 of this section
above.
32. Discussion on Risk Factors
The Group operates in areas which are solid at core. The Group has a large range
of suppliers comprising more than 2,000 different suppliers. The Group also has
a very wide variety of products of more than 2,000 different food items, which
are currently manufactured in eleven different facilities. The company has a wide
range of customers comprising thousands of customers and more than 10,000
points of sale. Part of the Group’s sales is made to large customers such as the
grocery retail chains. At the same time, the Group faces a number of risk factors
originating from its general environment, from the food sector as well as threats
inherent in its own specific activity, as detailed below:
Macro-Economic Risks
A.
The effect of slow down and economic uncertainty - The Group, as the
market on the whole, is affected by the economic situation. The situation
affects consumption per capita which is reflected in changes in food
consumption per capita. Since at a time of slowdown the ability to achieve
growth through sales volumes is limited, the Group faces this challenge by
performing streamlining processes, by introducing new product from time
to time, by innovation, and by increasing its marketing efforts, sales
promotion and brand building, and by new mergers and acquisitions. As a
result, and despite previous periods of recession, the Company managed to
increase both its sales and its profitability. Furthermore, the Group has high
liquidity and financial strength, of the highest in the market, and it is the
only industrial company in the non-public sector that received an AAA
rating with a stable rating outlook.
B.
The security situation. The Group's plants are widely spread over the
country, although some of them are located in the North or in the South and
during war time these plants were within the Katyusha or in other missile
shooting range.
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C.
Fluctuations in the foreign currency exchange rates - As detailed in Note
23 A.1.C(1) to the financial statements which are included in this periodic
report.
Risks Specific to the Sector
A.
Exposure to changes in the prices of raw materials. As detailed in Note
23A.1.C(3) to the financial statements which are included in this periodic
report .
B.
Customer credit. As detailed in Note 23A(1)a to the financial statements
which are included in this periodic report .
C.
Regulatory Developments. See paragraph 6.4 above.
D.
Private labels. The gradual expansion of the private labels in the retail
marketing chains may constitute a threat to the Group MSH in its product
categories. The Group copes with this risk by concentrating marketing,
advertising and sales promotion efforts, by brand building and brand
strengthening, by streamlining and by continuous improvement and
innovation of its products and on the basis of the know-how and technology
sources of the parent company Nestlé – the largest food company in the
world
E.
Entry of new competitors. Entry of new foreign competitors or leading
local manufacturers to the Group’s product categories, may pose a threat to
the Group’s market shares and sales volume in these categories. In the face
of such a threat the Group’s policy is also based on brand building and
brand strengthening, maintaining its competitive advantage by continuous
improvement of its products quality, and innovation and on the basis of the
know-how and technology sources of the parent company Nestlé – the
largest food company in the world.
F.
The business environment of the food industry. A rise in the cost of
living may affect the business environment in which the Group operates, as
far as price adjustment to cost of raw materials and other inputs are
concerned. This can affect three aspects: the consumer aspect, the retail
aspect and the regulatory aspect.
Risk Factors specific to the Corporation
A.
Loss of key customer. The Group has key customers in the organized retail
market. Losing a key customer may reduce the Group's income and
99
adversely affect its profitability. However, as of the date of this report, the
Group is not dependent on a single customer.
B.
Concentrating the production and distribution in a small number of
locations. A substantial part of the Group activity is concentrated in a
limited number of sites (large factories and main distribution center).
Damage caused by natural disasters or any other damage that may be
inflicted on these sites may adversely affect the Group activity. The Group
policy is to insure its assets and sites including loss of profit insurance.
C.
Damage to the brand and to the product quality. The Group’s business
is exposed to possible harm to the brand and to the product quality in case
of any flaw in the quality of the raw materials used for manufacturing its
products or any flaw in the quality of the products produced. Such defects
may harm the Group's goodwill, its brands and its sales volume. In most of
the Group's sites investment has been made in a quality management
system, which is compliant with the international standard of ISO 9001 and
in a food safety system which is compliant with the international standard
of FSSC 22000.
D.
Dependency on the parent company. The Group is dependent on its
parent company Nestlé. The Group imports products from Nestlé and uses
Nestlé's know-how, computer services and technology in Israel. The Group
purchased finished goods from Nestlé through its subsidiary companies
Osem Food Industries Ltd., Materna Partnership, Assamim Gift Parcels,
Osem UK Ltd. and Osem USA Inc. Regarding some of the products, the
Group manufactures its own products using the Nestlé brands and does so
through the the Company and through its subsidiary companies Tribe, Noga
Ice Cream Partnership and Materna Partnership. In 2014, the Company
income from the sales of these products amounted to the sum of NIS 1,316
million. Still, the affiliation of Osem with Nestlé is a long-term strategic
move and Nestlé is a controlling interest at Osem, holding 63.7% of the
Group shares.
E.
Letters of Approvals for "Approved Enterprise". Some of the Group
factories received tax benefits (in tax reduction or in grants) according to
the Law for the Encouragement of Capital Investments. Non-compliance
with the conditions stipulated in these letters may result in cancellation of
the above-mentioned benefits. The Group met the provisions/stipulations
listed in most of the approval letters that were granted to its factories and
only against one letter the degree of compliance is examined. The matter is
100
fully known to the Investments Center and is in discussions. In the
Company's estimate, the effect of the results of these discussions is
immaterial to the Company and the Company is not materially exposed in
any way due to that matter.
F.
Dependency on IT/computer systems. The Company activity is supported
by computerized systems. If these systems crush the ability of the Company
to manufacture and sell will be considerably affected. The Group deals with
this issue by establishing back-up systems and by establishing a Business
Continuity Plan (BCP).
G.
Merging and assimilating activities of acquired companies. The
expansion of the Group during the last years was based among other things
also on the acquisition of companies in Israel and abroad. If merger in these
cases fails, or if forecasts related to growth, profitability and synergies do
not materialize, the expected added value will not be attained and assets
which were included in these mergers and acquisitions may be impaired
(including impairment of intangible asset).
H.
Environmental issues. The Group's activity is affected by a variety of
environmental aspects related mainly to the Group's manufacture and
storage activity in the Group's sites. This activity may lead to exposing the
Group to environment-related lawsuits. The Group is acting to reduce
exposure by conducting risk-factor surveys, voluntary adoption of
standards, monitoring and follow-up, training, performing compliance tests
and compliance with the law (by an out-house counsel) etc. For further
details see paragraph 24 of this section above.
The table below shows the various risk factors according to their nature and
potential of effect on the Group's business, as estimated by the Group's
management:
101
Type of
risk
Macro
Risks
Risk factor
Large
effect
Medium
effect
Recession & slowdown
in the Israeli economy
X
The Security Situation
X
Exposure to changes in
foreign exchange rates
X
Exposure to changes in
raw material prices
X
Customer credit
Sector
Risks
Risks
specific to
the Group
Small
effect
X
Regulatory
developments in the
food sector
X
Private labels
X
Entrance of new
competitors
X
The food industry
business environment
X
Loss of major customer
X
Manufacture &
distribution
concentrated in a
limited number of sites
X
Injury to brand and
product quality
X
Dependency on parent
company
X
Letters of approval for
Approved Enterprise
X
Dependency on
IT/computer systems
X
Merging and
assimilating activities
of acquired companies
X
Environmental issues
102
X
The degree of the impact potential of these risks include forward-looking
information, which is based on information available in the Group as at the
publication date of this report and includes estimates and evaluations by the
Group. The effect of these factors may differ significantly from the results which
are implied from this information.
Dan Propper
Chairman of the Board of Directors
Itzik Saig
Chief Executive Officer
103
Osem Investments
Limited
Section B:
The Board of Directors' Report
on the Company Business
26 March 2015
The Board of Directors' Report on the Company business as at 31 December 2014
The Board of Directors of Osem Investments Ltd. (hereinafter: "the Company") is pleased to submit to the
share holders the Board of Directors' Report for the year ended on 31 December 2014, in accordance with the
Securities Regulations (Immediate and Periodic 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 December 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.
A. The explanations of the Board on the Company state of affairs
Key figures from the Description of the Corporation's Business
History and general background. The Osem Group was founded in 1942 and Osem Investments Ltd. is the
parent company incorporating the Osem Group of companies. The Group produces more than 2,000 different
food items currently manufactured in ten production plants located in Israel and overseas and marketed
through one central distribution center and several regional distribution centers. The Group also exports its
products to other countries, primarily to European countries and the USA. The Company’s shares were
originally offered and issued on the Tel Aviv Stock Exchange in 1992. Osem is rated among the leading food
companies in the Israeli market and develops its business with the intention of offering the consumer in the
local and foreign markets a large variety of branded products, at high quality, in every food area it operates,
thereby establishing its position as a market leader in the food market. In an image survey which was
conducted in December 2014 by the Market Research Company TNS, as well as other surveys conducted
during the past 7 years, Osem was chosen as the leading food company, the best, the favorite and most
widely recognized in Israel. The Group owns a variety of brands and diverse and wide production
technologies, invented and developed by the Group itself. In addition, the Group uses the brands, know-how
and technology of its parent company Nestle - the world’s leading Food Company.
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 Nestl‫'י‬s products in Israel by Osem’s marketing and sales systems. There is also an
agreement on possible manufacturing of some of Nestl‫'י‬s 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.
A
In addition, Osem receives technical assistance in R&D and has extensive right of use of Nestl‫ י‬know-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. The Audit Committee
examined the amount of consideration paid to Nestle for its IT and computer services within GLOBE in
2014, based on the agreement that was signed, and found the amount to be reasonable.
Legislation in the food industry In March 2014 the Law for the Promotion of Competition in the Food
Industry was approved which deals with, among others, the regulation of suppliers and wholesalers and
the geographical competition among wholesalers, this being based on the recommendations of the Food
Committee. The law took effect on 15 January 2015 and was associated with, among others, the changes
in the method of relationship with the large retailers. At this early stage, it is not possible to estimate the
full effects of changes that will occur due to the legislative memorandum. In the year 2014 one time
accruals were recorded in the amount of NIS 9,800 thousand under other expenses resulting from the
implementation of the law.
AAA Credit Rating for Osem. In March 2015, 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.
Change in Structure – In the aim of accenting and strengthening the managerial focus and the synergy
of the international activities of the Group, on 21 November 2013 the board of directors decided on a
change of structure in the prepared foods division by creating a separate division which will focus on the
international activities of the Group comprising Tivall Europe, Tribe, Osem UK, Osem USA, export
activities of the Group and future international opportunities. As part of the proposed change, Tivall
Israel activities were transferred under the responsibility of the culinary division and the activities of
Zabar Salads remained as a separate activity which will report directly to the CEO. The change became
effective in the beginning of 2014.
In addition for the need to improve planning procedures for the short, medium and long term and for the
efficiency of different processes within the organization, the decision was made to set up a new unit
under the leadership of the deputy to the CEO. This unit will unite all the planning functions existing
within the various departments and will take control of cross organizational processes, in all the topics
related to strategy and business development, economics, control and budget, long term factory planning,
Group marketing including the handling of innovation, readiness for the new consumer in the digital age
and responsibility over the computer department which will support the building of these processes. The
change will become effective in April 2015.
B
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 635,745 thousand compared to the sum of NIS 335,126 thousand at the end of the
previous year, an increase of NIS 300,619 thousand.
The increase is mainly the result of cash flow from current operating activities which were partially utilized for the
investment in production lines and expansion of factories, repayment of loans and distribution of dividends.
The assets (fixed assets and intangible assets) amounted to the sum of NIS 2,137,898 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 92,447 thousand.
The Groups investments were mainly for the expansion of factories, acquisition of production lines and automation.
Total equity increased, and amounted to the sum of NIS 2,501,698 thousand compared to the sum of NIS 2,252,873
thousand at the end of the previous year. The increase in the shareholders equity derives mainly from the accumulation
of current profits totaling NIS 396,556 thousand, partially offset by the sum of NIS 150,000 thousand which was paid as
dividend. The shareholders equity constitutes 62.8% of the total of the balance sheet.
The total of the balance sheet increased, and amounted to the sum of NIS 3,985,526 thousand compared to the sum of
NIS 3,642,288 thousand at the end of the previous year, an increase of 9.4%.
The structure of the balance sheet as at 31 December 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.
C
Results of Activities
Total sales of the Osem Group for the year 2014 increased and amounted to the sum of NIS 4,256,620 thousand
compared to NIS 4,190,047 thousand in the corresponding period last year, a growth of 1.6%.
Sales to the local market in 2014 amounted to the sum of NIS 3,580,377 thousand compared to the sum of NIS
3,560,200 thousand in the corresponding period last year, a growth of 0.6%.
This growth was achieved in spite of the fact that sales in the Israeli food sector for this period declined by 1.5% per
Store-Next publications.
Sales of the Group overseas for the year 2014 increased and amounted to the sum of NIS 676,243 thousand compared
to NIS 629,847 thousand, a growth of 7.4%. After offsetting the change in currency exchange rates, the increase is
7.5%.
Sales turnover for the fourth quarter of the year 2014amounted to the sum of NIS 1,033,227 thousand compared to NIS
1,035,072 thousand in the corresponding period last year. Decrease of 0.3%
Decline in sales affected by the timing of the High Holidays which negatively affected sales in the fourth quarter (and
correspondingly positively affected third quarter sales which increased by 4.2%) In contrast, sales of the Israeli food
sector decreased in the fourth quarter by 3.8% as per store next publications.
Sales of the Group overseas in the fourth quarter increased by 16.6%
Evolution of Net Sales
(In million NIS)
D
Gross Profit of the Group for the year 2014 amounted to the sum of NIS 1,781,301 thousand
compared to NIS 1,763,711 thousand in the corresponding period last year, an increase of 1.0%.
The gross profit rate as a percent of sales declined from the level of 42.1% to the level of 41.8%
The Operating Profit of the Group before other expenses, in the year 2014 amounted to NIS 542,341 thousand
compared to NIS 528,558 thousand in the previous year, a growth of 2.6%.
The Operating Profit of the Group before other income and expenses for the three months of the fourth quarter of the
year 2014 increased and amounted to NIS 133,073 thousand compared to NIS 129,212 thousand in the corresponding
period last year, a growth of 3.0%.
The increase in operating profit before other income and expenses, was achieved mainly through rationalization
activities in administrative expenses and decline in center costs and the administration this in spite of the erosion in
gross profit and in spite of the increase in selling expenses as a result of increase in sales promotions consumer
campaigns and marketing expenses.
Evolution of Operating Profit (before other income/expenses)
(In million NIS)
E
The net profit of the Osem Group for the year 2014 amounted to the sum of NIS 396,556 thousand compared to
NIS 376,428 thousand in the previous year, a growth of 5.3%.
The net profit of the Group in the three months of the fourth quarter of the year 2014 amounted to the sum of NIS
96,853 thousand compared to NIS 90,412 thousand in the corresponding year, a growth of 7.1%.
The increase in net profit resulted from the improvement in operating profit and a significant decline in financing
expenses.
These improvements in the profit are mainly the results of the Company’s policy in the past years which is expressed in
expansion of the activity with constant and continuing penetration of Nestle products, penetration to new activities in
Israel and abroad, and the launching of new products, this in addition to the merging, automation 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 year 2014 increased and represented 22.8% of sales, compared
to 22.2% in the corresponding period last year.
The increase in selling expenses result from, among others, an increase in selling expenses as a result of increase in
sales promotions consumer campaigns and marketing expenses.
General and administrative expenses for the year 2014 declined and represented 6.3% of the turnover, compared to
7.3% in the corresponding period last year.
The decline in general and administrative expenses results from, among others, efficiency programs for the reduction
in headquarters and administrative costs (MOGE project), decline in salary expenses and the cessation of the
amortization period of intangible assets.
Net finance expense of the Group in the year 2014 amounted to the sum of NIS 3,749 thousand compared to NIS
22,761 thousand in the previous year. The decline in financing expenses results from, among others, decline in market
interest rate, from the reduction in short term bank credit which constitutes only 0.2% of the balance sheet and from the
increase in cash balances, and from repayment of liabilities from authorities with interest and linkage. The balance of
finance expenses results mainly from non-cash-flow imputed interest, related to the PUT option to the non-controlling
interests.
Other expenses net in the year 2014 totaled the sum of NIS 10,772 thousand compared to the sum of NIS 2,885
thousand in the corresponding period last year.
The increase in other expenses is the result of, among others, one time accruals in the amount of NIS 9,800
thousand resulting from the expected changes in the commerce organization as the result of preparations in
anticipation of the law.
F
Analysis of the Groups business results according to operating segments
As the result of the internal reorganization, the compositions of respective reportable segments were changed. For
details relating to the new operating segments and their results of their activities including information corresponding to
previous periods, see Note 25 of the financial statements as at 31.12.14.
The following are the financial results of the new reportable operating segments:
Culinary segment - for the year 2014 sales amounted to NIS 972,696 thousand compared to NIS 956,212 thousand in
the corresponding period last year an increase of 1.7%. The profit declined from a level of NIS 123,308 thousand to a
level of NIS 114,973 thousand, among others as a result as a result of increase in sales promotions consumer
campaigns and marketing expenses.
Bakery, beverages, snacks and breakfast cereals segment - for the year 2014 sales amounted to NIS 1,135,363
thousand compared to NIS 1,118,786 thousand in the corresponding period last year an increase of 1.5%. The profit
increased from a level of NIS 242,406 thousand to a level of NIS 258,570 thousand, among others as a result of the
increase in sales and decrease in management, headquarters and administrative expenses.
International segment - for the year 2014 sales amounted to NIS 672,032 thousand compared to NIS 629,847
thousand in the corresponding period last year an increase of 6.7%. The profit increased from a level of NIS 52,216
thousand to a level of NIS 53,767 thousand. The increase in profit was achieved as a result of increase in sales and
efficiency measures and advancement on the learning curve, this in spite of increase in marketing investment for the
expansion and building of the brand overseas.
Infant nutrition segment - for the year 2014 sales amounted to NIS 358,480 thousand compared to NIS 358,644
thousand in the corresponding period last year a decline of 0.1%. The profit increased from a level of NIS 62,151
thousand to a level of NIS 62,395 thousand. The decline in sales, results from deepening of sales campaigns and
increase of competition in the market.
Professional market and Assamim Gift Packages segment - for the year 2014 sales amounted to NIS 416,777
thousand compared to NIS 412,460 thousand in the corresponding period last year an increase of 1.0%. The profit also
increased from a level of NIS 25,458 thousand to a level of NIS 27,639 thousand
The increase in sales results from, among others, the development of dedicated solutions and building of a range of
solutions for out of home consumption. The increase in profit results from, among others, increase in sales and decline
in managerial expenses.
Other activities segment - for the year 2014 sales amounted to NIS 747,438 thousand compared to NIS 759,757
thousand in the corresponding period last year an decline of 1.6%. The profit amounted to the sum of NIS 31,958
thousand compared to the sum of NIS 32,005 thousand last year, Decline in sales and profit results from, among others,
the result of the "Zuk Eitan" operation on sales in the summer months and the slowdown in the economy which mainly
affected the soft drinks sector (Nestea), and on the ice cream sector (in spite of increase in Group's market share),
mainily in out of house consumption.
G
Condensed Quarterly Income Statements
For the three months ending on
31 March
30 June
30 September
31 December
2014
(unaudited)
NIS
Thousands
2014
(unaudited)
NIS
Thousands
2014
(unaudited)
NIS
Thousands
2014
(unaudited)
NIS
Thousands
Year
ending
on
31
December
2014
(audited)
NIS
Thousands
1,068,191
1,027,326
1,128,876
1,032,227
4,256,620
4,190,047
Cost of Sales
618,500
597,570
654,420
604,829
2,472,819
2,426,336
Gross profit
449,691
429,756
474,456
427,398
1,783,801
1,763,711
Selling, marketing and
distribution expenses
234,791
242,018
258,193
235,633
970,635
928,833
General and administrative
expenses
75,235
62,562
71,836
58,692
268,325
306,320
Operating profit before
other income (expenses)
139,665
125,176
144,427
133,073
542, 341
528,558
(2,186)
(370)
(7,398)
(818)
(10,772)
(2,885)
137,479
124,806
137,029
130,798
531,569
525,673
Financing expenses, net
(3,369)
2,280
(1,203)
(1,457)
(3,749)
(22,761)
Profit before taxes on
income
134,110
127,086
135,826
130,798
527,820
502,912
Taxes on income
34,575
28,928
33,816
33,945
131,264
126,484
Profit for the period
99,535
98,158
102,010
96,853
396,556
376,428
Sales
Other income (expenses)
Operating profit
Year
ending
on
31
December
2013
(audited)
NIS
Thousands
Liquidity, financing sources and cash flow
The cash flow in 2014 from current operations amounted to the sum of NIS 618,879 thousand compared to
the sum of NIS 635,338 thousand in the previous year a decline of 2.6% resulting mainly from chnges in
working capital.
Cash flow from current operations allowed the company to repay and reduce its bank loans and to invest in
automation of production lines, an investment which improved the output per employee.
The current ratio as at the balance sheet date is 1.77
The quick ratio as at the balance sheet date is 1.37
The liquidity ratio and liquidity reserve funds of the Group have constituted and will constitute the main
financing sources for further expansion of the Group business activities in different product categories,
building of new factories, expansion of production lines, and entrance in new areas of activity and this is
accompanied by foreign financing if necessary.
H
B. Exposure to and management of market risks
The management of risks in accordance with the policy that was set is the responsibility of Pinhas
Kimelman, the Deputy CEO of Finance, a senior office holder in the Company. For details pertaining
to his education/qualification, skills, business experience and other roles in the organization, appear in
Regulation 26(A) in this Periodic Report.
Description of the market risks and the Company policy regarding market risks and management
appear in section 28 "Discussion on risk factors" which is included in the Chapter describing the
Corporation's business in this Periodic Report and also in Note 23 to the Financial Statements.
Control measures to ensure the implementation of the policy are effected by periodic follow up reports
and by periodic audits performed by the Internal Auditor.
Linkage basis report as at 31 December 2014
For details regarding reporting on linkage basis see Note 23 in the financial statements.
Sensitivity analysis for financial instruments as at 31.12.14 (NIS thousand)
In all the sensitivity analyses (commodity costs, exchange rate, consumer price index and interest
rates), the extreme change
(+-10%) which the Company had to examine in the framework of sensitivity analyses, does not
expose the company to a material risk.
I
C. Corporate Governance Aspects
Disclosure on the Corporation's Internal Auditor
The Internal Auditor is CPA Ilana Cachalon who has been in this office since 2008, after her
nomination had been approved by the Audit Committee and the Board of Directors. For details on the
Internal Auditor, see Section 26(a) in Chapter D of the Periodic Report - Additional information on the
Corporation.
The Internal Auditor reports to both the Chairman of the Board and to the Company CEO.
The Company internal audit annual work plan is based on risk mapping survey and was written in
collaboration with the Company management. The plan includes the operation of the Company and its
subsidiaries in Israel and abroad and has been approved by the Audit Committee of the Board.
The plan allows the internal auditor leeway and flexibility.
The Internal Auditor and her team work at a Full Time Equivalent of 5 vacancies/positions. About
12% was dedicated to the foreign subsidiary companies.
The Audit is conducted in accordance with the Internal Audit Law 1992- 5752 and the accepted
professional standards that were approved and published by the Internal Auditors' Board/Council in
Israel, as well as according to the Nestle Audit best practices. In the view of the Board, the Internal
Auditor meets the requirements of the standards and this is based on her notification as well as on the
content of the audit reports and their findings, on her skills, experience and professionalism.
The Internal Auditor has free, constant and direct access to all the data including access to the
information systems of the corporation and to the financial data in all the Group subsidiaries in Israel
and abroad.
The procedure for approving material transactions during the period of the report, if there were, has
been examined by the Internal Auditor.
The reports of the Internal Auditors have been submitted in writing to the Chairman of the Board, to
the CEO, to the Audit Committee and to the audited organs.
In the year 2014 regular discussions were conducted in the audit committee relating to the audit reports
and other discussions in the audit committee (5/1/2014, 9/1/2014, 16/1/2014, 12/2/2014, 9/3/2014,
13/3/2014, 11/5/2014, 26/5/2014, 28/8/2014, 17/11/2014, 20/11/2014).
J
In the view of the Board, the scope of the internal audit work, its continued activity and its work plan
is reasonable under the circumstances and they meet the targets set for the Group internal audit. The
Audit Committee, together with the Group management and the Internal Auditor, reviews every year
the appropriate scope required for the work of the Group internal audit.
The compensation of the Internal Auditor is based on both salary and bonus payment as per the
common practice among management team and according to the Company policy. In addition, the
remuneration package of the internal auditor does not change in relation to the results of the Company,
and therefore in the opinion of the Board the structure of the consideration received does not influence
her professional judgment.
The amount of annual compensation paid to the Internal Audit team totals NIS 2,109 thousand.
Remuneration for interested parties and senior office holders
A. The Company board of directors appointed the compensation policy committee in the framework
of its function, among others, will recommend to the Company board of directors on the
compensation policy for office holders in the company ("compensation policy"), and to decide on
the approval of employment terms and tenure of office holders.
Compensation Policy of the company was approved by the general assembly of the company on 3
September 2013 after the approval by the compensation committee and the board of directors.
B. In accordance with the provisions of Regulation 10(b)(4) to the Securities Regulations (Periodic
and Immediate Reports), 1970 (report standards) the Company board of directors is required to
explain the link between the remuneration to senior office holders that were given according to
Regulation 21 to the Reports Regulations (“Office Holders”), and the contribution of each one of
these office holders to the Company during the reporting period; the Board is also required to state
whether the consideration paid to the office holder is fair and reasonable.
K
As part of the process of approving the financial statements dated 31.12.2014, the Board of
Directors has thoroughly reviewed all the remunerating conditions of each of the office holders
who are specified in Regulation 21 in Chapter D of the Periodic Report, for the year 2014. The
review was performed for each of the office holders, separately, based on the information which
was presented to the Board.
After thorough examination conducted at the board of directors meeting of the company regarding
each office holder appointed under regulation 21 of the reporting regulations, based on the
information presented. The board of directors of the company (after a discussion on the subject
took place in the compensation committee) that the compensation of each office holder mentioned
matches the compensation policy.
Disclosure regarding the fees of the External Auditor
Below please see the details of the fees paid to the auditing accountants for external audit, services related to
auditing and tax services in the Company and in the material investee companies
Name of Company:
Certified Public
Accountant
2014
NIS
Thousands
2013
Hours
NIS
Thousands
Hours
1,409
6,830
1,410
6,868
KPMG
586
1,177
639
1,277
Certain subsidiary
Rojansky, Halifi, Meiri
561
1,898
517
1,759
companies
and Co.
Osem Investments Ltd.
and some of the
KPMG Somekh-Chaikin
subsidiary companies
Foreign subsidiary
companies of
Tivall (1993) Ltd.
In addition KILS 45 was paid to KPMG Somekh-Chaikin for special jobs. (Last year NIS 90 thousand).
The Group paid fees to different accountants for additional subsidiary companies which are not material.
The principles for determining auditor fees are based on the fees that were customary in
previous years, linked to the CPI and relative to the level of audit activity expected in the
financial reporting year if and whether there are material changes in the scope of the hours. The
fees are approved by the board of directors and reported to the general meeting.
L
The work of the Board of Directors
A. Insignificant transaction procedure
On 31August, 2011, after having accepted the recommendation of the Audit Committee, the
Board of the Company decided to adopt a procedure for approving insignificant transactions
with interested party and with controlling shareholder in the Company. As stipulated in
Regulation 41(a)(6), to the Securities Regulations (preparing the annual financial statements)
– 2010 which provided a definition for transactions which will be regarded as insignificant ,
and for such transactions, as per the legal requirements, immediate reporting will not be
required. For additional details see standard 22 section F (the additional details)
B. Plan for compliance procedures related to Securities
In addition to the directives and procedures existing in the Group and the training made The Group
strives to upgrade and improve all the compliance procedures related to the Securities Law, according
the criteria of recognizing a compliance program in the Securities, which were published by the ISA
on August 15, 2011. The Group also uses the assistance of external consultants to fully implement the
process. As at the date of the financial statement the Company has not yet completed the plan for
compliance procedures related to securities
C. Board of Directors meetings
The Company Board had 5 meetings during 2014. It should be noted that the Board Committees had
additional meetings.
M
Donations and Community activities
The Osem Group's actions are based on its belief that the value it is creating as a business organization
is a shared value. Not just value for its shareholders alone; it also strives to create value for its
consumers, employees and the other interested parties. This belief is more than an additional component
of the Osem Group’s ongoing business operation. It is rather an integral part of the group’s strategy.
With this view of broad social responsibility Osem consistently scores the platinum ranking in the
Maalah (Business for Social Responsibility) index, and ranks among the top ten leading companies. At
the foundation of the above belief lies Osem's commitment to comply with all the relevant duties
incumbent on us by virtue of the law, as well as our contracts, operating principles, and codes. We are
also committed to protecting the future, a commitment manifest in our steadfast adherence to the
principles of environmental sustainability. Above all, Osem creates shared value with the
community is part of its strategy, and is manifested by implementing this strategy on a day-today basis. This broad sense of responsibility is closely intertwined with Osem’s heritage, values,
directors and employees – past and present.
A. Donations
During 2014 the Osem Group continued to contribute to the community in money and money
equivalents, in the amount of NIS 11 million.
B. Employees
The Osem Group is meticulous about its employees’ rights, and is committed to creating a work
environment well-suited to their needs. Driven by a deep-seated sense that the group’s devoted and
professional workers are its greatest asset, Osem maintains an ongoing, productive and inspiring
dialog with the employee unions. All of Osem’s regular production workers are employed directly
by the Group (no contractor employees), and in conducting business with suppliers in specialized
fields (security, catering, etc.) we take measures to ensure the rights of our contractors’ employees.
The ongoing safety of our workers and suppliers is our ever-present concern and Osem goes to great
lengths to protect its workers and prevent accidents, injuries and sickness. Osem takes a proactive
approach when it comes to safety. Also, in the year 2014 the Company won the title" The Best
Social Employer" in the Best Social Employer contest sponsored by "Calcalist", in
collaboration with Maagalim Fund. The winner was determined by the parameters which
checked, among others, maintaining of employees, balance between work and leisure, integration of
women, employment of the elderly, average salary and wage gaps between men and women.
N
C. Code of Business Conduct
The Osem Group has a comprehensive and overt code of business conduct, which, thanks to our allinclusive training program, is a living document, implemented regularly by our workers.
D. Environmental Issues
The Osem Group’s commitment to the principles of environmental sustainability is manifest not
only in its compliance with scrupulous standards of environmental protection, but also – and more
importantly – in the Group’s proactive endeavors to reduce the adverse effects of its various
activities on the environment. The Group’s various plants all take part in our multi-year objectives
program, which aims to reduce harmful environmental influences, including air pollutant emission,
energy consumption, and water consumption. In recent years, the Osem Group scored high on the
various
sustainability
objectives.
E. Activity and Investment in the Community
As mentioned above, Osem's view of its role in creating shared value dictates careful consideration
for the benefit of all the different stakeholders. Below see several examples of this view:
1. Osem Group’s production sites being situated in provincial areas allows to create work places and
opportunities for social mobility specifically in those places where this is most lacking. Osem is
the largest employer in Sderot and the vast majority of our factories are located in the geographic
and economic peripheries.
2. Osem implements the principles of social inclusion by employing excluded populations
(minorities, individuals with special needs, gender equality) and by providing special needs’
populations with suitable work. In addition, the group strives to avail its products to as wide a
target group as possible by continuously expanding its range of products suitable for sufferers of
celiac disease
3. In creating the products Osem offers to the market, the Company places special emphasis on
providing solutions to the real needs of the population, including compliance with high nutritional
standards. In planning its product packages and the printed information they display, the Group is
careful to maintain maximum transparency with respect to the product, its ingredients and its
nutritional value and provides relevant information among other things by implementing Nestle’s
Compass Program – making the information more accessible to consumers.
4. Osem works within the limits of self-imposed restrictions to ensure responsible advertising with
regard to all our marketing activity. These self-imposed restrictions meet the Nestle Company’s
standards which are more stringent than the local legal requirements. Osem occasionally
collaborates in marketing enterprises with non-profit organizations working to promote
communal aims.
O
The Osem Group promotes communal/social/economic development through a program under the theme
of Food for Life. Our motivation for concentrating the bulk of our charitable activities on food is twofold:
we are a large and well-established food company in the Israeli community, and through food donation
we can maximally leverage our charity investment.
Osem's main recipient in this field is Latet ("To give" in Hebrew) – the Israeli Humanitarian Aid
Organization, founded in 1996 with the mission of assisting underprivileged populations on a
universal and egalitarian basis. Latet, Israel’s largest and most significant food bank is an umbrella
organization that operates in conjunction with many local nonprofit organizations. This collaboration
involves several enterprises which have been operating for various lengths of time.
To our great pride, the Osem Group has been the Latet Organization’s largest food donor for many years.
In addition, Osem raises during the year, and especially during the High Holidays and Passover, food
donations which during the past years were measured in many millions of NIS per year. Osem also
regularly volunteers its delivery services to Latet – delivering the food donations to the organization’s
warehouses
Osem's professionals, who specialize in areas relevant to the activities of Latet or the local organizations
operating in conjunction with Latet, help upgrade these companies’ operations by providing assistance in
areas such as nutrition, food quality assurance, safety, logistics etc. Apart from our prominent
collaboration with Latet, we also operate a variety of social enterprises in the context of which Osem
donates and volunteers – both as a group, and on the level of local activities specific to individual Osem
sites.
The Osem Group has initiated, accompanied and supported on an ongoing basis the family Meal project.
The project is in cooperation between Osem, Yediot Achronot and YNET for the encouragement
of family meals during the middle of the week, with the understanding that family meals
contribute to family dynamics, family communication and has a material value in children's
education and their nutritional habits. The project is being accompanied by a staff of professional
consultants from the field of family relations and nutrition and in the framework of the project studies are
conducted, the value of the evening family dinner are communicated and practical tools are provided to
the consumer community for the implementation of family dinners.
For the past few years the Osem Group is participating in "The day of good deeds" initiative of the Ruach
Tova ("The Good Spirit") Organization. In the context of this initiative, groups of volunteers depart from
all of the various Osem sites – on one predetermined day – to do some charitable act in the adjacent
periphery. Osem was one of the first commercial companies to volunteer – as a company – for this social
project.
P
Throughout the year, organized blood drives are held on Osem’s various sites, enabling the employees to
donate blood for a particular patient (sometimes a fellow employee) or for the public blood bank. The
subsidiary company Materna has adopted the Arazim dormitory on Moshav Bnei Yitzchak, holding
birthday parties for the children on a monthly basis. Materna’s employees and directors also volunteer at
various other events held at Arazim throughout the year. The subsidiary company Bonjour supports the
baking concentration at the Rogozin School in Kiryat Gat, which borders on the Bonjour factory. The ice
cream employees gave out during the "Tzuk Eitan" operation ice cream to residents in the South and in
the Gaza surroundings during the conflict. The Sderot factory maintains special collaboration with
"Yachdav" organization which employs handicapped people. The Givol factory (Bamba) acts on an
ongoing basis in children's wards at hospitals and also employs deaf youth, food donations to "Eliay",
"Lisovah" and much much more...
D. Provisions on disclosure related to the Corporation's financial reporting
Dividends
On 8 April 2014 the company distributed a dividend in the amount of NIS 150 million and on 3 March
2015 the company declared an additional dividend in the amount of NIS 150 million. For details please
see Note 26 C to the Financial Statements of the Company as at 31 December 2014.
Financial date related to the parent company
In accordance with Regulation 9.G to the Securities Regulations (Immediate and Periodic Reports) 1970,
a separate financial statements of the Company (“Solo Report”) is attached herewith as an annex, with the
opinion of the auditing accountant of the External Auditor.
Critical estimates
Note 2 (E) to the Financial Statements includes a description critical estimates used for the preparation of
the financial statements, as during their formulation assumptions had to be made as to the circumstances
and events. These estimates involve a high degree of uncertainty. When making the estimates the
Company relies on the basis of past experience, various facts, external circumstances, and reasonable
assumptions according to the pertinent circumstances of each estimate. Actual results may differ from
these estimates.
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
Chairman of the Board of
Directors
Itzik Saig
CEO
Date: 26 March 2015
Q
Osem Investments
Limited
Section C:
December 31, 2014
Investments Limited
Consolidated Statements as at 31 December
Financial Statements for the year ended December 31, 2014
Page
Consolidated Financial Statements as at 31 December 2014
Auditors’ Report
2-3
Consolidated Statements on Financial Position
4-5
Consolidated Income Statements
6
Consolidated Statements on Comprehensive Income
7
Consolidated Statements on changes in shareholders equity
8
Statements on Consolidated Cash Flows
9
Notes to the Financial Statements
10 - 57
Annex – list of Group companies
58
Somekh Chaikin
KPMG Millennium Tower
17 Ha'arba'a Street, PO Box 609
Tel Aviv 6100601 Israel
Telephone
Fax
Internet
972 3 684 8000
972 3 684 8444
www.kpmg.co.il
Auditors' Report to the Shareholders of Osem Investments Ltd.
Regarding the Audit of Internal Control Components over Financial
Reporting in accordance with paragraph 9b(c) of the Israeli Securities
Regulations (Periodic and Immediate Reports), 1970
We have audited internal control components over financial reporting of Osem Investments Ltd.
and its subsidiaries (hereinafter “the Company”) as of December 31, 2014. These control
components were determined as explained in the following paragraph. The Company's Board of
Directors and Management are responsible for maintaining effective internal control over
financial reporting and for their assessment of the effectiveness of the Company’s internal
control components over financial reporting accompanying the periodic report as of the above
date. Our responsibility is to express an opinion on the Company’s internal control components
over financial reporting based on our audit.
Audited Internal control components over financial reporting were determined in accordance
with Auditing Standard 104 of the Institute of Certified Public Accountants in Israel “Audit of
Internal Control Components over Financial Reporting”, and its amendments (hereinafter
“Auditing Standard 104”). These components are: (1) Entity level controls, including controls
over the preparation and closure of the financial reporting process and general information
technology controls; (2) Controls over sales (local market); (3) Controls over inventory; (4)
Controls over purchasing and trade payables payment (all these hereinafter are named together
“audited control components”).
We conducted our audit in accordance with Auditing Standard 104. This standard requires us to
plan and perform the audit to identify the audited control components and to obtain reasonable
assurance about whether these control components were effective in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, identifying
the audited control components, assessing the risk that a material weakness exists in the audited
control components, and testing and evaluating the design and operating effectiveness of those
control components based on the assessed risk. Our audit, regarding those control components,
also included performing such other procedures as we considered necessary in the
circumstances. Our audit referred only to the audited control components, as opposed to internal
control over all significant processes related to financial reporting, therefore our opinion refers to
the audited control components only. Our audit also did not refer to mutual effects between
audited control components and non audited control components, therefore our opinion does not
take into account these possible effects. We believe that our audit, provide a reasonable basis for
our opinion in the context described above.
Because of its inherent limitations, internal control over financial reporting as a whole, and
internal control components in particular, may not prevent or detect misstatements. Also,
projections of any current evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Somekh Chaikin, an Israeli partnership and a member firm
of the KPMG network of independent member firms
affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity.
In our opinion, the Company maintained, in all material respects, effective audited control
components as of December 31, 2014.
We have also audited, in accordance with generally accepted auditing standards in Israel, the
Company’s consolidated financial statements as of December 31, 2014 and 2013 and for each of
the three years in the period ended December 31, 2014 and our report dated March 26, 2015
expressed an unqualified opinion on those financial statementsbased on our audit and on the
reports of the other auditors.
Somekh Chaikin
Certified Public Accountants (Isr.)
March 26, 2015
Somekh Chaikin
Telephone
Fax
Internet
972 3 684 8000
972 3 684 8444
www.kpmg.co.il
Auditors' Report to the Shareholders of Osem Investments Ltd.
We have audited the accompanying consolidated statements of financial position of Osem
Investments Ltd. (hereinafter “the Company”) as of December 31, 2014 and 2013 and the
consolidated income statements, statements of comprehensive income, statements of changes in
equity and statements of cash flows, for each of the three years in the period ended December
31, 2014. These financial statements are the responsibility of the Company's Board of Directors
and of its Management. Our responsibility is to express an opinion on these financial statements
based on our audit.
We did not audit the financial statements of certain consolidated subsidiaries whose assets
constitute 12.5 % and 12.4 % of the total consolidated assets as of December 31, 2014 and 2013,
respectively, and whose revenues constitute 13.7 %, 13.7 % and 14 % of the total consolidated
revenues for the years ended December 31, 2014, 2013 and 2012, respectively. The financial
statements of those companies were audited by other auditors whose reports thereon were
furnished to us, and our opinion, insofar as it relates to amounts emanating from the financial
statements of such companies, is based solely on the reports of the other auditors.
We conducted our audit in accordance with generally accepted auditing standards in Israel,
including standards prescribed by the Auditors Regulations (Manner of Auditor's Performance) 1973. Such standards require that we plan and perform the audit to obtain reasonable assurance
that the financial statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by the
Board of Directors and by Management, as well as evaluating the overall financial statement
presentation. We believe that our audit and the reports of the other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audit and on the reports of the other auditors, the consolidated
financial statements referred to above present fairly, in all material respects, the consolidated
financial position of the Company and its consolidated subsidiaries as of December 31, 2014 and
2013 and their results of operations, changes in equity and cash flows, for each of the three years
in the period ended December 31, 2014, in accordance with International Financial Reporting
Standards (IFRS) and in accordance with the Securities Regulations (Annual Financial
Statements) - 2010.
We have also audited, in accordance with Auditing Standard 104 of the Institute of Certified
Public Accountants in Israel “Audit of Internal Control Components over Financial Reporting,
and its amendments, the components of the Company’s internal control over financial reporting
as of December 31, 2014, and our report dated March 26, 2015 expressed an unqualified opinion
on the effectiveness of such components.
Somekh Chaikin
March 26, 2015
Investments Limited
Consolidated Statements as at 31 December
Note
2014
NIS thousands
2013
NIS thousands
Assets
5
471,197
328,059
Trade receivables
6
693,674
688,481
Other receivables
7
27,578
27,662
Income tax
19
10,694
5,464
Inventory
8
398,972
390,107
Other investments
9
164,548
7,067
1,766,663
1,446,840
Employee benefits
11
379
293
Fixed Assets
12
1,110,855
1,144,497
Intangible Assets
13
1,027,043
977,057
Prepaid Expenses
14
33,539
38,806
Deferred tax es
19
47,047
34,795
Total non-current assets
2,218,863
2,195,448
Total assets
3,985,526
3,642,288
Dan Propper - Chairman of the Board
Itzik Saig - CEO
Pinhas Kimelman - Deputy CEO Finance
The date of approval of the Financial Statements: 26 March 2015
4
Investments Limited
Note
2014
NIS thousands
2013
NIS thousands
Liabilities
Loans and short-term credit from banks
15
7,845
29,212
Trade payables
16
756,676
710,463
Other creditors
17
224,462
223,976
Income tax
19
10,895
9,473
999,878
973,124
Liability for acquisition of non- controlling interest in subsidiary
18
372,902
342,514
Employee benefits
11
17,819
4,450
Deferred taxes
19
93,229
69,327
483,950
416,291
1,485,391
1,389,415
Share Capital
176,772
176,772
Share premium
444,212
444,212
Reserves
(63,793)
(68,353)
Retained earnings
1,943,149
1,699,113
Total equity attributable to owners of the company
2,500,340
2,251,744
1,358
1,129
Total equity
2,501,698
2,252,873
Total liabilities and equity
3,985,526
3,642,288
Total non-current liabilities
Total liabilities
Equity
Non Controlling Interest
The accompanying notes are an integral part of the financial statements.
5
Investments Limited
Consolidated Statements of Profit and Loss for the year ending on 31 December
Note
2014
2013
2012
NIS thousands
NIS thousands
NIS thousands
4,256,620
2,475,319
1,781,301
4,190,047
2,426,336
1,763,711
4,091,593
2,411,998
1,679,595
970,635
268,325
928,833
306,320
885,610
282,962
542,341
528,558
511,023
Sales
Cost of Sales
Gross profit
22
22
A.
B.
Selling, marketing and distribution
expenses
General and administrative expenses
Operating profit before other
expenses
22
C.
22
D.
Other expenses, net
Operating profit
22
E.
10,772
531,569
2,885
525,673
7,030
503,993
Financing expenses
Financing income
Financing costs, net
22
22
F.
F.
)24,880)
(24,653)
1,892
(22,761)
(33,726)
4,088
(29,638)
527,820
131,264
502,912
126,484
474,355
117,013
396,556
376,428
357,342
Attributed to:
Company's Owners
396,324
232
375,985
443
356,886
456
396,556
376,428
357,342
3.58
3.40
3.23
Profit before taxes on income
Taxes on income
19
21,131
)3,749)
Net earnings per NIS 1 par value of
the ordinary share capital
Basic and fully diluted net earnings (in
NIS)
6
Investments Limited
Statements of consolidated comprehensive income for the year ending on 31 December
2014
2013
2012
NIS thousands
NIS thousands
NIS thousands
396,556
376,428
357,342
4,560
(20,338)
2,653
(3,117)
4,543
5,993
826
(1,204)
(1,498)
2,269
(16,999)
7,148
398,825
359,429
364,490
398,596
358,986
364,034
229
443
456
398,825
359,429
364,490
Other comprehensive profit (loss)
Amounts transfered to profit or loss
Upon the occurrence of specific terms
Foreign currency translation differences
from foreign operations
Amounts that will not be transfered to
profit or loss
Actuarial gains (losses)
from defined benefit plans
Income tax from other components
Of comprehensive income
Total comprehensive income (loss) for the
period
Total comprehensive income for the
period
Attributed to:
Company's Owners
Total comprehensive income for the
period
7
Investments Limited
Consolidated Statements on changes in shareholders equity
Share Capital
Premium on
shares
NIS thousands
NIS thousands
Translation
reserve fund
NIS
thousands
176,772
444,212
Actuarial gains (net after tax)
Capital reserve for approved enterprise
Net profit for the year 2012
Total comprehensive income for the period
-
-
Dividend paid
-
-
176,772
444,212
-
Dividend paid
NIS thousands
Retained
earnings
Total
Company's
Owners
NIS
thousands
NIS
thousands
NIS
thousands
Total
equity
NIS
thousands
-
-
4,000
-
-
-
-
(12,034)
(41,675)
5,694
1,469,789
-
(20,338)
(20,338)
-
-
3,339
375,985
379,324
(20,338)
3,339
375,985
358,986
443
443
(20,338)
3,339
376,428
359,429
-
-
-
-
-
(150,000)
(150,000)
-
(150,000)
176,772
444,212
(32,372)
(41,675)
5,694
-
-
-
-
-
(2,288)
396,324
394,036
4,560
(2,288)
396,324
398,596
Dividend paid
-
-
-
-
-
150,000
150,000
-
150,000
176,772
444,212
(27,812)
(41,675)
5,694
2,500,340
2,502,177
1,358
2,501,698
Balance as at 31 December 2012
-
-
2,653
2,653
4,560
4,560
1,262,408
Rights not
Conferring
control
NIS
thousands
1,694
-
(14,687)
Other
Reserves
(41,675)
Balance as at 1 January 2012
8
Capital reserve
related to
Acquisition of
rights not
Conferring control
In a Consolidated
Company
1,828,724
230
1,828,954
4,495
(4,000)
356,886
357,381
2,653
4,495
356,886
364,034
456
456
2,653
4,495
357,342
364,490
(150,000)
(150,000)
1,699,113
2,042,758
2,251,744
686
1,129
(3)
232
229
(150,000)
2,043,444
2,252,873
4,560
(2,291)
396,556
398,825
Investments Limited
Statements on consolidated cash flows for the year ending on 31 December
2014
2013
2012
NIS thousands
NIS thousands
NIS thousands
396,556
376,428
357,342
121,337
114,204
114,809
36,918
3,023
3,749
131,927
(9,749)
52,534
155
22,761
126,484
(4,642)
51,385
503
29,638
117,013
1,675
Change in inventory
Change in trade and other receivables
Change in trade payables and other creditors
Change in employee benefits
Income tax paid
(4,463)
7,527
32,073
10,166
(109,522)
11,856
(18,201)
76,330
4,163
(126,734)
(18,633)
(37,258)
44,959
(2,979)
(115,165)
Net cash from operating activities
618,879
635,338
543,289
Cash flows from investing activities
Proceeds from sale of fixed assets
Other investments, net
Acquisition of fixed assets
Investment in intangible assets and prepaid expenses
Interest received
1,309
(157,505)
(86,117)
(25,799)
9,336
2,002
6,996
(145,009)
(20,624)
1,227
1,077
5,476
(82,156)
(18,108)
2,456
Net cash used in investing activities
(258,776)
(155,408)
(91,255)
Cash flows from financing activities
Interest paid
Repayment of longterm loans
Credit from banks and others, net
Repayment of other liabilities
Dividend paid
(10,552)
(24,885)
(32,887)
(150,000)
(3,637)
(13,303)
(11,798)
(30,904)
(150,000)
(29,251)
(24,838)
(52,544)
(239,600)
(150,000)
Net cash used in financing activities
(218,324)
(209,642)
(496,233)
141,636
270,288
(44,199)
328,059
60,265
104,479
Cash flows from operating activities
Adjustments for:
Depreciation
Amortization of intangible assets
And Prepaid Expenses
Loss on sale of fixed assets, net
Income tax expense
Change in derivatives
Change in cash and cash equivalents
Cash and cash equivalents as at the beginning of the
period
Effect of exchange rate fluctuations
on cash balances and cash equivalents
Cash and cash equivalents as at the end of the
period
1,502
471,197
9
(2,494)
328,059
(15)
60,265
Investments Limited
Note 1 – The Reporting Entity
A. Osem Investments Limited (hereinafter – the “Company”) is an Israeli resident company incorporated in Israel.
The consolidated financial statements of the Group as at 31 December 2014 include the statements of the
Company and its subsidiary companies (hereinafter: The "Group")
The controlling interest in the Group is Nestle S.A., Switzerland. The Group is involved in industrial and
commercial activities in the food industry.
The shares of the Company are registered for trade on the Tel Aviv Stock Exchange.
B. Definitions
In these financial statements 1. Subsidiaries – Companies, including partnerships, the financial statements of which are fully
consolidated, directly or indirectly, with the financial statements of the Company.
2. Related party – Within its meaning in IAS 24 (2009), “Related Party Disclosures”.
3. Interested party – Within their meaning in Paragraph (1) of the definition of an “interested party” in
Section 1 of the Securities Law - 1968
Note 2 – Basis of Preparation
A. Declaration on compliance with IFRS
The annual financial statements are based on the international financial reporting standards (IFRS).
These financial statements have been prepared in accordance with the Securities Regulations (Annual
Financial Statements) – 2010.
B.
Functional and presentation currency
These consolidated financial statements are presented in NIS, which is the Company’s functional
currency, and have been rounded to the nearest thousand.
The NIS is the currency that represents the principal economic environment in which the Company
operates.
C.
Basis of Measurement
The statements were prepared according to historical cost basis except for the following assets and liabilities:
Inventory (cost or net realizable value) of financial instruments at fair value via profit and loss and obligations
for payments based on shares which will be dismissed in cash, deferred tax assets and liabilities, provisions and
assets and obligations for employee benefits. Additional information related to the measurement of these assets
and liabilities see Note 3 following.
The value of non-monetary assets and equity items that were measured on the historical cost basis was adjusted
to changes in the CPI until December 31, 2003, since until that date the Israeli economy was considered hyper
inflationary.
D.
Operational turnover
The operational turnover of the Group does not exceed a year. As a result included in current assets and current
liabilities are items which are due to and anticipated to be realized during the normal turnover period of the
Group
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Investments Limited
Note 2 – Basis of Preparation (cont'd)
E.
Use of estimates and judgments
The preparation of financial statements in conformity with IFRS requires management to make estimates and
assumptions which affect the application of the policy and the amounts of assets and liabilities, income and
expenses. Actual results may differ from these estimates.
The preparation of accounting estimates used in the preparation of the Company’s financial
statements requires management to make assumptions regarding circumstances and events that
involve considerable uncertainty. The Company Management prepares the estimates on the basis of
past experience, various facts, external circumstances, and reasonable assumptions according to the
pertinent circumstances of each estimate.
The estimates and assumptions made in their respect are reviewed on an ongoing basis. Revisions to
accounting estimates are recognized in the period in which the estimates are revised and in any future
periods affected.
Critical estimates
Critical estimates -resented hereunder is information about critical estimates, made while implementing Group
accounting policies and which have a most significant effect on the financial statements:
Contingent liabilities - When assessing the possible outcomes of legal claims that were filed against the
Company and its subsidiary companies, the companies relied on the opinions of their legal counsel. The
opinions of their legal counsel are based on the best of their professional judgment, and take into consideration
the current stage of the proceedings and the legal experience accumulated with respect to the various matters. As
the results of the claims will ultimately be determined by the courts, they may be different from such estimates.
Valuation of intangible assets and goodwill – the Group is required in business combinations to measure the
assets acquired and the liabilities assumed based on an estimate of their fair values. These value estimates
require Management to make use of significant estimates and assumptions. The material intangible assets
recognized include mainly goodwill, know-how and trademarks. Critical estimates used in evaluating the useful
lives of such intangible assets include, among others, an estimate of the usage period of the know-how and
trademarks and the expected developments in the market.
Recoverable amount of a cash generating unit. When determining the recoverable amount of a cash generating
unit containing goodwill for the purpose of testing it for impairment, management uses assumptions regarding
the pre-tax discount rate and a budgeted EBITDA growth rate.
Allowance for doubtful debts – the Company follows the guidelines set forth in IAS 39 in determining
whether there has been a decline in value of the trade receivables. This determination requires exercise of
significant judgment. In exercising this judgment, the Group takes into account, among other factors, the level
of securities that are available to the Group, the age of the receivables, history of the bad debts, debt repayment
behavior, financial strength and short-term analysis of the customer’s business along with the trends in the
industry.
Obligation for PUT Options of the Non Controlling Interest in a Consolidated Subsidiary - The present
value of the obligation for PUT options to the non controlling interest in a consolidated subsidiary is based on
profit and cash flow forecasts. Any changes to these forecasts affect the book value of the obligation for
acquisition of the non controlling interest in a consolidated subsidiary. These forecasts are based on
assumptions found to be reasonable in the management's opinion, but they include uncertainty and as a result
the actual results could differ.
Deferred Tax Assets - The Group recognizes deferred tax assets and liabilities for the difference between the
book value of the assets and liabilities and their tax value. The Group examines on a regular basis the
recoverability of deferred tax assets based on the historical taxable income, anticipated taxable income and
anticipated date of reversal of temporary differences. If the Group is unable to create enough taxable income in
certain tax territories, or during the period of anticipated reversal of temporary differences, the Group is likely
to delete part of the deferred tax assets.
Share Based Payment - The Group has several employee compensation plans among them also phantom
options for compensation of senior employees. The fair value of the phantom options is based on certain
assumptions, including, the standard deviation of the share price. These assumptions are based on forecasts of
sales and earnings per share. Material gaps between the market performance of the share, the employee
realization behavior, the Group's sales and the earnings per share data anticipated verses the actual results.
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Investments Limited
Note 2 – Basis of Preparation (cont'd)
F.
Capital management – objectives, procedures and processes
Management’s policy is to maintain a strong capital base in order to preserve the ability of the Company to
continue operating so that it may provide a return on capital to its shareholders, benefits to other holders of
interests in the Company such as credit providers and employees of the Company, and sustain future
development of the business. The Board of Directors also monitors the level of dividends to ordinary
shareholders.
Note 3 - Significant Accounting Policies
The accounting policies set out below have been applied consistently to all periods presented in these
consolidated financial statements, and have been applied consistently by Group entities.
A.
1.
Basis of Consolidation
Business Combinations
The Group applies the acquisition method on all business combinations.
Date of acquisition is the date the purchaser attains control over the acquired entity, control is the ability to set
the financial and operational policy of the company in order to attain benefits from its actions. Substantive rights
held by the Group and others are taking into account when assessing control. The Company applies discretion in
determining the acquisition date and if control was achieved.
Treatment of business combinations after 1 January 2010 (The date of initial implementation of IFRS 3 (2008)
and IAS27 (2008)
For acquisitions on or after January 1, 2010, the Group recognizes goodwill at acquisition according to the fair
value of the consideration transferred including any amounts recognized in respect of rights that do not confer
control in the acquiree, less the net amount of the identifiable assets acquired and the liabilities assumed.
The consideration transferred includes the fair value of the assets transferred to the previous owners of the
acquiree, the liabilities incurred by the acquirer to the previous owners of the acquiree and equity instruments
that were issued by the Group. In addition, the consideration transferred includes the fair value of any
contingent consideration. After the acquisition date, the Group recognizes changes in fair value of the
contingent consideration classified as a financial liability in profit or loss. Changes in liabilities for contingent
consideration in business combinations that occurred before January 1, 2010 will continue to be recognized in
goodwill and will not be recognized in profit or loss.
Costs associated with the acquisition that were incurred by the acquirer in the business combination such as:
finder’s fees, advisory, legal, valuation and other professional or consulting fees, other than those associated
with an issue of debt or equity instruments connected to the business combination, are expensed in the period
the services are received.
2.
Subsidiary companies
Subsidiary companies are entities controlled by the Group. The financial statements of subsidiaries
are included in the consolidated financial statements from the date that control commences until the
date that control ceases. The accounting policies of subsidiaries have been changed when necessary to
align them with the policies adopted by the Company.
3.
Put option granted to rights holders which do not confer control before 1 January 2010
The Group granted as part of the proceeds from business combinations “PUT” options to non controlling
shareholders in a subsidiary that permit them to sell to the company their shares in the subsidiary. The
commitment to acquire the minority interest is presented in the consolidated balance sheet as a
financial liability. This financial liability is measured based on the present value of the exercise price
of the “put” options. The difference between the financial liability and the book value of the minority
interest was allocated as additional goodwill.
Re measurement of the liabilities, except for the charging of interest expense according to the interest
signifying the credit risk of the Company is recognized as goodwill. The Group’s share in profits of
acquired share includes the portion of non controlling to whom the PUT option was issued.
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Investments Limited
Note 3 - Significant Accounting Policies (cont'd)
A.
Basis of Consolidation (cont'd)
4.
Transactions with Non-Controlling Interests, while Maintaining Control
Commencing 1 January 2010 transactions with non controlling interests, while maintaining control, are treated
as equity transactions. Any difference between the consideration paid or received to change rights not
conferring control are charged to the equity holder's share in the Company in a separate capital reserve.
5.
Non controlling interests are the unallocable equity in subsidiary companies, directly or indirectly to the parent
company. Non-controlling interests that are instruments that give rise to a present ownership interest and entitle
the holder to a share of net assets in the event of liquidation (for example: ordinary shares), are measured at the
date of the business combination at either fair value, or at their proportionate interest in the assets and liabilities
of the acquiree, on a transaction-by-transaction basis.
For acquisitions between January 1, 2007 and January 1, 2010, non-controlling interests were measured on the
date of the business combination at their proportionate interest in the identifiable assets and liabilities of the
acquiree.
As from January 1, 2010, profit or loss and any part of other comprehensive income are allocated to the owners
of the Company and the non-controlling interests, total other comprehensive income is allocated to the owners
of the Company and to the non controlling interests even when the result is a negative balance of the noncontrolling interests.
B.
Foreign Currency
1.
Foreign currency transactions
Transactions in foreign currency are translated to the currency used for the activity of the Group according to
the valid exchange rate on the dates of transactions. Monetary assets and liabilities denominated in foreign
currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The
foreign currency gain or loss on monetary items is the difference between amortized cost in the functional
currency at the beginning of the period, adjusted for effective interest and payments during the period, and the
amortized cost in foreign currency translated at the exchange rate at the end of the period. Foreign currency
differences arising on translation are recognized in profit or loss.
Non-monetary items which are stated in foreign currency and are measured according to historical cost are
translated according to the exchange rate which was valid on the date of the transaction.
2.
Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising
on acquisition, are translated to NIS at exchange rates at the reporting date. The income and expenses
of foreign operations are translated to NIS at exchange rates at the dates of the transactions.
Foreign currency differences are recognized directly in other comprehensive income since January 1,
2007, the date of transition to IFRS, such differences have been recognized in comprehensive income
as part of the foreign currency translation reserve.
C. Financial Instruments
1.
13
Non-derivative Financial instruments
Non-derivative financial instruments comprise, trade and other receivables, cash and cash equivalents, loans
and borrowings, and trade and other payables.
Non-derivative financial instruments are recognized initially at fair value, except instruments not at fair value
through profit or loss, in addition any directly attributable transaction costs. Subsequent to initial recognition
non-derivative financial instruments are measured as described below.
A financial asset is recognized when the Group assumes upon itself the contractual conditions of the instrument.
Financial instruments are derecognized when the contractual rights of the Group to the cash flows deriving from
the financial assets expire, or when the Company transfers to others the financial assets without retaining
control over the asset or actually transfers all the risks and rewards deriving from the asset. Regular way
purchase or sale of financial assets are recognized on the trade date, meaning on the date the Company
undertook to purchase or sell the asset. Financial liabilities are derecognized when the obligation of the Group,
as specified in the agreement, expires or when it is settled or cancelled.
Investments Limited
C.
Financial Instruments (cont'd)
Cash comprises cash balances available for immediate use and call deposits. Cash equivalents
comprise short-term highly liquid investments that are readily convertible into known amounts of
cash and are exposed to insignificant risks of change in value.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that
are not traded on an active market. After initial recognition, the loans and receivables are measured at
amortized cost using the effective interest method while taking into consideration transaction costs
and deducting any impairment losses.
Financial liabilities
Non-derivative financial liabilities are measured at amortized cost using the effective interest method.
Financial assets and liabilities are offset and the net amount presented in the statement of financial position
when, and only when, the Group currently has a legal right to offset the amounts and intends either to settle on a
net basis or to realize the asset and settle the liability simultaneously.
2.
Derivative financial instruments
The Group holds derivative financial instruments to hedge its foreign currency (which constitute an
economic hedge). Derivatives are recognized initially at fair value; attributable transaction costs are
recognized in profit or loss when incurred. Subsequent to initial recognition, derivatives are measured
at fair value, and changes therein are accounted for as described below:
Economic hedges
Hedge accounting is not applied to derivative instruments that economically hedge monetary assets
and liabilities denominated in foreign currencies. Changes in the fair value of such derivatives are
recognized in profit or loss as part of the foreign currency gains or losses.
3.
CPI-linked assets and liabilities that are not measured at fair value
The value of CPI-linked financial assets and liabilities, which are not measured at fair value, is remeasured every period in accordance with the actual increase in the CPI.
4.
Details regarding the management of financial instrument risks and the Group’s exposures to credit risk,
liquidity risk and market risks are provided in Notes 23.
D. Fixed Assets
1.
Recognition and measurement
Fixed asset items are measured at cost less accumulated depreciation and accumulated impairment
losses.
The cost of certain fixed asset items at January 1, 2007, the Group’s date of transition to IFRSs, was determined
by reference to its fair value at that date (deemed cost).
Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of selfconstructed assets includes the cost of materials and direct labor, any other costs directly attributable
to bringing the assets to a working condition for their intended use. Purchased software that is integral
to the functionality of the related equipment is capitalized as part of that equipment.
When major parts of a fixed asset item (including costs of major periodic inspections) have different
useful lives, they are accounted for as separate items (major components) of fixed assets.
Gains and losses on disposal of a fixed asset item are determined by comparing the proceeds net from
disposal with the carrying amount of the asset, and are recognized net within “other income or
expenses” in profit or loss.
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Investments Limited
D.
Fixed Assets (cont'd)
2.
Subsequent expenditure
The cost of replacing part of a fixed asset item is recognized in the carrying amount of the item if it is
probable that the future economic benefits embodied within the part will flow to the Group and its
cost can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of
day-to-day servicing are recognized in profit or loss as incurred.
3.
Leased assets
Capital land leases from the Israel Lands Administration where the Group assumes substantially all
the risks and rewards of ownership are classified as finance leases.
The balance of the leases are classified as operating leases, where the leased assets are not recognized
in the statement of financial position of the Group.
In leases of land and buildings, the land and building component are examined separately for the
purpose of classifying the leases, while a major consideration in the classification of the land
component is the fact that land generally has an indefinite life.
4.
Depreciation
Depreciation is a systematic allocation of the depreciable amount of an asset over its useful life. The depreciable
amount is the cost of the asset, or other amount substituted for cost, less its residual value.
Depreciation is recognized in profit or loss on a straight-line basis, from the date the assets are
available for use, over the estimated useful lives of each part of the fixed asset item, since this most
closely reflects the expected pattern of consumption of the future economic benefits embodied in the
asset. Leased assets under finance lease agreements including lands are depreciated over the shorter of
the lease term and their useful lives. Owned lands are not depreciated.
The estimated useful lives for the current and comparative periods are as follows:
Buildings,
20-35 years
Machinery,
10-20 years
Computers, furniture, and equipment, 3-5 years
Motor vehicles,
4-7 years
Leasehold improvements,
Over the lease period
Leased land
Over the lease period
Excess cost of investment allocated to specific assets is depreciated according to the remaining
balance to be depreciated at the date the excess cost was allocated.
Depreciation methods, useful lives and residual values are reviewed at least at each reporting date.
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Investments Limited
Notes to the Financial Statements as at 31 December 2014
Note 3 – Significant Accounting Policies (cont'd)
E.
Intangible Assets
1.
Goodwill and intangible assets with indefinite lives
Goodwill and intangible assets having an indefinite life, that arise upon the acquisition of subsidiaries
is included in intangible assets. For information on measurement of goodwill at initial recognition, see
Paragraph A (1) above In subsequent periods goodwill is measured at cost less accumulated
impairment losses.
In consecutive periods goodwill is measured at cost less accumulated impairment losses.
2.
Other Intangible Assets
Other intangible assets that are acquired by the Group, which have finite useful lives, are measured at
cost less accumulated amortization and accumulated impairment losses.
3.
Subsequent expenditure
Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the
specific asset to which it relates. All other expenditure, including expenditure on internally generated
goodwill and brands, is recognized in profit or loss as incurred.
4.
Amortization
Amortization is a systematic allocation of the amortizable amount of an intangible asset over its useful
life. The amortizable amount is the cost of the asset, less its residual value.
Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of
the intangible asset item, from the date available for use since this method most closely reflects the
expected pattern of consumption of the future economic benefits embodied in the asset.
Goodwill and intangible assets having an indefinite useful life are not systematically amortized but are
tested for impairment.
The estimated useful lives for the current and comparative periods are as follows:
Use rights of computer software,
3-5 years
Equipment for advertising and sales promotion,
3-5 years
Distribution, know-how, brand and non-competition rights,
3-10 years
The estimates regarding the amortization method and useful life are reassessed at each reporting date.
Intangible assets having an undefined useful life include a trademark that has an undefined useful life
since there is no discernible limitation on the period in which the trademark is expected to produce net
positive cash flows for the Company
The Group examines the useful life of an intangible asset that is not periodically amortized in order to
determine whether events and circumstances continue to support the decision that the intangible asset
has an indefinite useful life.
All of the intangible assets are amortized to general and administrative expenses except for equipment
for advertising and sales promotion, distribution and brand which are amortized to sales, marketing and
distribution expenses.
F. Inventory
Inventories are measured at the lower of cost and net realizable value. The cost of inventories includes
expenditure incurred in acquiring the inventories and the costs incurred in bringing them to their existing
location and condition. In the case of manufactured inventories and work in progress, cost includes an
appropriate share of production overheads based on normal operating capacity. The cost of purchased finished
products is based on first-in first-out (FIFO), the average weighted average cost method is used to calculate cost
of other inventories. Net realizable value is the estimated selling price in the ordinary course of business, less the
estimated costs of completion and selling expenses.
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Investments Limited
G. Impairment
1. Financial assets
A financial asset is tested for impairment when objective evidence indicates that one or more events
have had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference
between its carrying amount, and the present value of the estimated future cash flows discounted at the original
effective interest rate.
Individually significant financial assets are tested for impairment on an individual basis. The
remaining financial assets are assessed collectively in groups that share similar credit risk
characteristics.
All impairment losses are recognized in profit or loss.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the
impairment loss was recognized.
2. Non financial assets
The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax
assets are reviewed at each reporting date to determine whether there is any indication of impairment.
If any such indication exists, then the asset’s recoverable amount is estimated. Once a year and on the
same date for each asset, the Group determines the recoverable amount of goodwill and intangible
assets that have indefinite useful lives or are unavailable for use, or more frequently if their a signs
indicating impairment.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its net
selling price (fair value less costs to sell). In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset. For the purpose of impairment testing,
assets are grouped together into the smallest group of assets that generates cash inflows from
continuing use that are largely independent of the cash inflows of other assets or groups of assets (the
“cash-generating unit”). For the purpose of assessing the impairment of goodwill, the cash generating
unit to which the goodwill was allocated is combined in such a way the level at which the impairment
of goodwill is measured reflects the lowest at which the goodwill can be monitored for internal
purposes but in any case is not greater than the segment activity. The goodwill acquired in a business
combination, for the purpose of impairment testing, is allocated to cash-generating units that are
expected to benefit from the synergies of the combination.
An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds
its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment
losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount
of any goodwill allocated to the units and then to reduce the carrying amounts of the other assets in the
cash-generating of unit on a pro rata basis.
H. Employee benefits
1. Post-employment benefits
The Group has a number of post-employment benefit plans. The plans are usually financed by deposits
with insurance companies or with funds managed by a trustee, and they are classified as defined
contribution plans and as defined benefit plans.
A. Defined contribution plans.
Defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into
a separate entity and has no legal or constructive obligation to pay further amounts. Obligations for contributions
to defined contribution pension plans are recognized as an expense in profit or loss when they are due.
B. Defined benefit plans
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Group’s net
obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the
amount of future benefit that employees have earned in return for their service in the current and prior periods.
That benefit is discounted to determine its present value, and the fair value of any plan assets is deducted.
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Investments Limited
H. Employee benefits (cont'd)
B. Defined benefit plans (cont'd)
Commencing in year 2014, in line with the stance of the staff at the Securities Authority, the discount
rate is the yield at the reporting date on high quality linked corporate debentures, until and including
2014 was calculated based on Government debentures, denominated in Shekels, that have maturity
dates approximating the terms of the Group’s obligations. The calculation is performed by a qualified
actuary using the projected unit credit method.
When the calculation results in an asset for the Group, an asset is recognized up to the net present
value of economic benefits available in the form of a refund from the plan or a reduction in future
contributions to the plan. An economic benefit in the form of refunds or reductions in future
contributions is considered available when it can be realized over the life of the plan or after settlement
of the obligation.
When in the framework of a minimum contribution requirement, there is an obligation to pay
additional amounts for services that were provided in the past, the Company recognizes an additional
obligation (increases the net liability or decreases the net asset), if such amounts are not available as an
economic benefit in the form of a refund from the plan or the reduction of future contributions.
Re measurements of the net defined benefit liability (asset) comprise actuarial gains and losses, the
return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest).
Re measurements are recognized immediately directly in retained earnings through other
comprehensive income.
Interest costs on a defined benefit obligation, interest income on plan assets and interest from the
effect of the asset ceiling without gain are recognized in profit and loss
When there is an improvement in the benefits which the Group provides the employees, the portion of
the increased benefit relating to past service by employees are recognized immediately in profit or loss
when the plan correction occurs.
The Group has manager insurance policies which were issued before the year 2004 and according to
the terms of the policy the real gains that accumulated on the severance pay component will be paid to
the employee upon his retirement. For the said policies, the plan assets include the balance of the
severance pay component and the balance of the real gains that accumulated (if accumulated) on
deposits for severance pay until the reporting date are disclosed at fair value.
These plan assets are used for a defined benefit plan which includes two liability components: A
defined benefit plan component for severance pay, calculated actuarially as mentioned above, and an
additional component which is a liability to pay the remaining real gain accumulated (if accumulated)
at the employees retirement. This component is measured at the balance of real gain actually
accumulated at the reporting date.
The Company offsets an asset relating to one benefit plan from the liability relating to another benefit
plan only when there is an available legally enforceable right to use the surplus of one plan to settle
the obligation in respect of the other plan, and there is intent to settle the obligation on a net basis.
Also, the company has other post employment plans relating presents to retired employees and
deferred benefits to employees already retired.
2.
Other long-term benefits
The Group’s net obligation in respect of long-term employee benefits other than pension plans is the
amount of future benefit that employees have earned in return for their service in the current and prior
periods; that benefit is discounted to determine its present value, and the fair value of any related
assets is deducted. The discount rate is the yield at the reporting date on high quality linked corporate
debentures denominated in Shekels, that have maturity dates approximating the terms of the Group’s
obligations. The calculation is performed using the projected unit credit method. Any actuarial gains
or losses are recognized in profit or loss in the period in which they arise.
3.
Termination benefits
Short-term benefits Termination benefits for voluntary redundancies are recognized as an expense if
the Group has made an offer of voluntary redundancy, it is probable that the offer will be accepted,
and the number of acceptances can be estimated reliably.
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Investments Limited
H. Employee benefits (cont'd)
B. Defined benefit plans (cont'd)
4.
Short-term benefits
Short-term employee benefit obligations are measured on an un-discounted basis and are expensed as
the related service is provided.
A provision for short term employee benefits in respect of a cash bonus or profit sharing plan is
recognized when the Group has a present legal or constructive obligation to pay this amount as a
result of past service provided by the employee and the obligation can be estimated reliably. The
employee benefits are classified, for measurement purposes, as short-term benefits or as other longterm benefits based on forecasts of the Group as to when the benefits will be fully settled.
5.
Share-based payment transactions
The fair value of the amount payable to employees in respect of share appreciation rights, which are
settled in cash, is recognized as an expense with a corresponding increase in liabilities, over the
period that the employees become unconditionally entitled to payment. The liability is re-measured at
each reporting date and at settlement date. Any changes in the fair value of the liability are recognized
as a salary expense in profit or loss.
I.
Provisions
A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation
that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle
the obligation.
Legal claims
A provision for claims is recognized if the Group has a present legal or a constructive obligation due to an event
in the past and it is more likely than not that the Group will need economic recourses to settle the obligation and
the amount of obligation can be estimated reliably.
J.
Revenue
1.
Goods sold
Revenue from the sale of goods is measured at the fair value of the consideration received or
receivable, net of returns, trade discounts and volume rebates. When the credit period is short and
constitutes the accepted credit in the industry, the future consideration is not discounted. Revenue is
recognized when the significant risks and rewards of ownership have been transferred to the buyer,
recovery of the consideration is probable, the associated costs and possible return of goods can be
estimated reliably, there is no continuing management involvement with the goods, and the amount of
revenue can be measured reliably.
Transfers of risks and rewards vary depending on the individual terms of the contract of sale. For
sales of products in Israel, transfer usually occurs when the product is received at the customer’s
warehouse, but for some international shipments transfer occurs upon loading the goods onto the
relevant carrier.
2.
Commissions
When the Group acts in the capacity of an agent rather than as the principal in a transaction, the
revenue recognized is the net amount of commission.
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Investments Limited
J.
Revenue (cont.)
3.
Government grants
Government grants are recognized initially when there is reasonable assurance that they will be
received and the Group will comply with the conditions associated with the grant.
Grants that compensate the Group for expenses incurred are recognized in profit or loss on a
systematic basis in the same periods in which the expenses are recognized. Government grants that
compensate the Group for the cost of an asset are presented as a deferred income or as a deduction
from the asset and are recognized in profit or loss on a systematic basis over the useful life of the
asset.
Grants from the Chief Scientist in respect of research and development projects are accounted for as forgivable
loans according to the provisions of IAS 20. Accordingly, grants received from the Chief Scientist are
recognized as a liability according to their fair value on the date of their receipt, unless on that date it
is reasonably certain that the amount received will not be refunded. The amount of the liability is
reexamined each period, and any changes in the present value of the cash flows discounted at the
original interest of the grant are recognized in profit or loss.
K. Financing income and expenses
Financing income comprises interest income on funds invested, gains on the disposal of financial assets,
changes in the fair value of financial assets at fair value through profit or loss Interest income is recognized
as it accrues in profit or loss, using the effective interest method.
Financing expenses comprise interest expense on borrowings, changes in time value of provisions, changes in
the fair value of financial assets at fair value through profit or loss and impairment losses recognized on
financial assets. All borrowing costs, which are not discounted, are recognized in profit or loss using the
effective interest method.
Foreign currency gains and losses are reported on a net basis.
L. Income tax expense
A. Income tax expense comprises current and deferred tax. Income tax expense is recognized in
profit or loss except to the extent that the tax relates to transaction or event which are recognized
directly to equity. In these cases, tax expenses on income are attributed to other comprehensive
income.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted
or substantively enacted at the reporting date, and any adjustment to tax payable in respect of
previous years.
Deferred tax is recognized using the balance sheet method, providing for temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes. Deferred tax is not recognized for the following temporary
differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a
transaction that is not a business combination and that affects neither accounting nor taxable
profit or loss, and differences relating to investments in subsidiaries, to the extent that it is
probable that they will not reverse in the foreseeable future. Deferred tax is measured at the tax
rates that are expected to be applied to temporary differences when they reverse, based on the
laws that have been enacted or substantively enacted by the reporting date.
B. A deferred tax asset is recognized to the extent that it is probable that future taxable profits will
be available against which the temporary difference can be utilized. Deferred tax assets are
reviewed at each reporting date and are reduced to the extent that it is no longer probable that the
related tax benefit will be realized.
The Group may be required to pay additional tax if a dividend is distributed between Group
companies. This additional tax was not included in the financial statements, since the policy of
the Group companies is to not distribute a dividend which creates an additional tax liability for
the Group in the foreseeable future.
C. Taxes on inter-company transactions
Deferred tax in respect of inter-company transactions in the consolidated financial statements is
recorded according to the tax rate applicable to the buying company.
20
Investments Limited
L.
Income tax expense (cont'd)
D. Offset of current tax assets and liabilities
The Group offsets current tax assets and liabilities if there is a legally enforceable right to offset
current tax liabilities and assets, and there is intent to settle current tax liabilities and assets on a
net basis or the tax assets and liabilities will be realized simultaneously.
E. Offset of deferred tax assets and liabilities
The Group offsets deferred tax assets and liabilities if there is a legally enforceable right to offset
current tax liabilities and assets, and they relate to income taxes levied by the same tax authority
on the same taxable entity, or on different tax entities, but they intend to settle current tax
liabilities and assets on a net basis or their tax assets and liabilities will be realized
simultaneously.
M. Earnings per Share (EPS)
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS
is calculated by dividing the profit or loss attributable to ordinary shareholders of the Group by the
weighted average number of ordinary shares outstanding during the period.
N. Transactions with controlling shareholder
Assets and liabilities included in a transaction with a controlling shareholder are measured at fair
value on the date of the transaction.
As the transaction is on the equity level, the Company includes the difference between the fair value
and the consideration from the transaction in its equity.
O. New standards and interpretations not yet adopted
1.
21
International Financial Reporting Standard IFRS 9 (2014) - Financial Instruments. A final version of
the standard, which includes revised guidance on the classification and measurement of financial
instruments, and a new model for measuring impairment of financial assets. This guidance has been
added to the chapter dealing with general hedge accounting requirements issued in 2013
Classification and measurement in accordance with IFRS 9 (2014), there are three principal categories
for measuring financial assets: amortized cost, fair value through profit and loss and fair value through
other comprehensive income. the basis of classification for debt instruments being the entity’s business
model for managing financial assets and the contractual cash flow characteristics of the financial asset.
Investments in equity instruments will be measured at fair value through profit and loss (unless the
entity elected at initial recognition to present fair value changes in other comprehensive income).
The standard requires that changes in fair value of financial liabilities designated at fair value through
profit or loss that are attributable to changes in its credit risk, should usually be recognized in other
comprehensive income.
Impairment of financial assets - The standard presents a new ‘expected credit loss’ model for
calculating impairment for most financial assets, the new model presents a dual measurement approach
for impairment: if the credit risk of a financial asset has not increased significantly since its initial
recognition, an impairment provision will be recorded in the amount of the expected credit losses that
result from default events that are possible within the twelve months after the reporting date. if the
credit risk of a financial asset has not increased significantly since its initial recognition, an impairment
provision will be recorded in the amount of the expected credit losses that result from default events that
are possible within the twelve months after the reporting date.
The Standard applies to annual periods commencing on January 01, 2018 or thereafter, with early
adoption being permitted It will be applied retrospectively with some exemptions
The Group has not yet examined the implications of adopting the standard on its financial statements.
Investments Limited
O.
2.
New standards and interpretations not yet adopted (cont'd)
International Financial Reporting Standard IFRS 15 (2014) - Revenue from Contracts with Customers. The
standard replaces the current guidance regarding recognition of revenues and presents a new model for
recognizing revenue from contracts with customers. The standard provides two approaches for recognizing
revenue: at a point in time or over time. The model includes five steps for analyzing transactions so as to
determine when to recognize revenue and at what amount. Furthermore, the standard provides new and
more extensive disclosure requirements than those that exist under current guidance.
The Standard applies to annual periods commencing on January 01, 2017 or thereafter, with early
adoption being permitted The standard includes various alternative transitional provisions, so that
companies can choose between one of the following alternatives at initial application: full
retrospective application, full retrospective application with practical expedients, or application as
from the mandatory effective date, with an adjustment to the balance of retained earnings at that date
in respect of transactions that are not yet complete.
The Group has not yet examined the implications of adopting the standard on its financial statements.
3.
Improvements to IFRSs 2010-2012 and 2011-2013 projects, As part of the Improvements to IFRSs projects, the
IASB published amendments to 8 IFRS. The following are the amendments relevant to the Group which
affect the financial statements:
Amendment to IFRS 8, Operating Segments, on disclosure concerning the entity’s aggregation of operating
segments and its assets. The amendment adds requirements regarding disclosure of management’s
judgments in applying the aggregation criteria to operating segments The amendment also clarifies
that an entity shall only provide reconciliations of the total of the reportable segments' assets to the
entity's assets if this information is reported regularly to the chief operating decision maker.
The Standard applies to annual periods commencing on July 01, 2014 or thereafter, with early
adoption being permitted
In the opinion of the Group, application of the amendment will expand the disclosure requirements applicable to
the Company as the result of aggregation of segments in the financial statements.
Note 4 - Determination of Fair Values
A number of the Group’s accounting policies and disclosures require the determination of fair value, for both
financial and non-financial assets and liabilities. Fair values have been determined for measurement and / or
disclosure purposes based on the following methods. When applicable, further information about the assumptions
made in determining fair values is disclosed in the notes specific to that asset or liability.
In determining the fair value of an asset or liability the Group uses observable market data as much as possible.
There are three levels of fair value measurements in the fair value hierarchy that are based on the data used in the
measurement, as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly
Level 3: inputs that are not based on observable market data (unobservable inputs).
A. Fixed Assets
The fair value of fixed assets recognized as a result of a business combination is based on market values. The
market value of fixed assets is the estimated amount for which a fixed asset could be exchanged on the date of
valuation between a willing buyer and a willing seller in an arm’s length transaction .
B.
Intangible Assets
The fair value of patents and trademarks acquired in a business combination is based on the discounted
estimated royalty payments that have been avoided as a result of the patent or trademark being owned.
The fair value of other intangible assets is based on the discounted cash flows expected to be derived from the
use and eventual sale of the assets.
22
Investments Limited
Note 4 - Determination of Fair Values (cont'd)
C.
Inventory
The fair value of inventories is determined based on the estimated selling price in the ordinary course of
business less the estimated costs of completion and sale, and a reasonable profit margin based on the effort
required to complete and sell the inventories.
D.
Derivatives
The fair value of foreign currency forward exchange contracts is based on their listed market price, if available.
If a listed market price is not available, then fair value is estimated by discounting the difference between the
contractual forward price and the current forward price for the residual maturity of the contract using an
appropriate interest rate.
E.
Non-derivative financial liabilities
Fair value, which is determined for disclosure purposes, is calculated based on the present value of future
principal and interest cash flows, discounted at the market rate of interest at the reporting date.
F.
Fair value of share based payments
The fair value of phantom options is based on certain assumptions, including, the standard deviation of the
share price. price and estimations related to the forecast of earnings per share, see also Note 20 A. 11.
23
Investments Limited
Note 5 - Cash and Cash Equivalents
Composition:
Interest rate
December 31
Bank and cash box balances
Call deposit account
December 31
2014
2014
2013
%
NIS Thousands
95,877
375,320
NIS Thousands
60,445
267,614
0.16-0.51
471,197
328,059
Note 6 – Trade Receivables
Composition:
As at December 31
2014
2013
NIS Thousands
NIS Thousands
On open account
Checks receivable
Less - provision for doubtful debts
581,298
141,202
722,500
28,826
588,952
124,250
713,202
24,721
693,674
688,481
Note 7 - Other Receivables and Debit Balances
Composition:
As at December 31
Employees receivables
Advances to suppliers
Prepaid Expenses
Other receivables
24
2014
2013
NIS Thousands
NIS Thousands
2,268
132
14,615
10,563
2,527
1,379
15,057
8,699
27,578
27,662
Investments Limited
Note 8 - Inventory
Composition:
As at December 31
Raw materials
Packaging and auxiliary materials
Work in process
Finished and purchased goods
Inventory in transit
2014
2013
NIS Thousands
NIS Thousands
61,165
49,697
22,344
236,284
369,490
29,482
62,574
40,988
17,611
237,050
358,223
31,884
398,972
390,107
Note 9 - Other Investments
Composition:
Interest rate
December 31
2014
%
December 31
Short term loan
Linked to the CPI
Deposit in NIS
Deposit in NIS linked to CPI
Deposit in Pounds sterling
Depost in in US Dollars
+ 4%
0.50 - 0.37
0.35
0.75
0.51 - 0.42
2014
2013
NIS Thousands
NIS Thousands
1,136
130,142
3,173
10,603
19,494
1,328
5,739
-
164,548
7,067
Note 10 - Dividend
Details on dividend the Company received from subsidiary companies:
Year ended December 31
2014
2013
2012
NIS Thousands
NIS Thousands
NIS Thousands
69,520
65,425
36,309
25
Investments Limited
Note 11 - Employee Benefits
The Israeli Severance Pay Law requires the Company to pay severance pay to an employee who is dismissed or retires.
The liability of the Company for employee benefits is calculated on the basis of the employment agreement in effect and
is based on the salary of the employee that, in the opinion of management, creates the right to receive severance pay.
Regarding employees to whom section 14 of the Severance Pay Law, 1963 applies, the company treats as a defined
benefit plan The current deposits of the company to pension funds and insurance company policies, exempt the company
from all additional obligations to employees, for which the mentioned deposits were made.
The portion of the severance payments that is not covered by deposits as aforementioned, as are other post employment
programs, is accounted for by the Company as a defined benefit plan, and the liability for employee benefits is recorded
accordingly.
A. Net plan liability:
As at December 31
Present value of liabilities
Fair value of plan assets
Total employee benefits
2014
2013
NIS Thousands
NIS Thousands
(51,505)
34,065
(17,440)
(*) (41,628)
(*) 37,471
(4,157)
B. Presented under the following items:
Non-current assets – employee benefits
Non-current liabilities – employee benefits
Defined benefit obligations at December 31
2014
2013
NIS Thousands
NIS Thousands
379
(17,819)
(17,440)
293
(4,450)
(4,157)
C. Movement in the present value of the defined benefit obligations
Defined benefit obligations at January 1
Benefits paid by the plan
Expense recognized in profit or loss
Current service costs
Interest costs
Recognized in other comprehensive profit
Actuarial losses (profits)
Defined benefit obligations at December 31
(*) reclassified
26
2014
2013
NIS Thousands
NIS Thousands
41,628
46,103
(5,436)
(5,737)
11,270
857
5,876
1,092
3,186
51,505
(5,706)
41,628
Investments Limited
Note 11 - Employee Benefits (cont'd)
D.
Movement in plan assets
As at December 31
As at December 31
2014
2013
NIS Thousands
NIS Thousands
37,471
1,241
(5,425)
709
69
34,065
41,566
1,295
(4,935)
708
(1,163)
37,471
Fair value of plan assets as at January 1
Contributions paid into the plan
Benefits paid by the plan
Interest income recognized in profit and loss
Actuarial profits (losses) recognized in other comprehensive income
Fair value of plan assets as at December 31
E.
Actuarial assumptions
The principal actuarial assumptions at the reporting date (expressed as weighted averages):
Discount rate as at December 31
Future salary increases
2014
2013
2012
%
%
%
1.72 - 3.27
1.00 - 2.50
1.72 - 4.90
1.00 - 2.50
2.11 - 4.82
1.00 - 2.50
Assumptions regarding future mortality are based on published statistics and mortality tables.
F.
Benefit programs after completion of transaction - defined contribution plan
Amount recognized as employee expense
For which section 14 of the Severance Pay Law applies
27
2014
2013
2012
NIS Thousands
NIS Thousands
NIS Thousands
34,284
33,737
32,713
Investments Limited
Note 12 – Fixed Assets
A. Composition:
Land and
buildings
NIS
Thousands
Cost or deemed cost
As at 31 December 2013
Additions for the year 2013
Effect of movements in exchange
rates
Disposals
Machinery
NIS
Thousands
Motor
vehicles
NIS
Thousands
Computers,
Furniture &
office
equipment
NIS
Thousands
Leasehold
improvements
NIS
Thousands
Total
NIS
Thousands
803,015
6,927
(11,187)
798,755
998,838
101,682
(13,798)
(4,428)
1,082,294
3,523
651
(35)
(674)
3,465
389,769
35,819
(488)
(7,990)
417,110
49,648
4,297
(5)
(48)
53,892
2,244,793
149,376
(25,513)
(13,140)
2,355,516
rates
Disposals
7,503
4,627
(83)
710,802
39,302
5,567
(41,730)
1,085,433
443
23
(594)
3,337
32,844
515
(20,727)
429,742
5,497
12
(221)
59,180
85,589
10,744
(63,355)
2,388,494
199,388
22,001
(1,936)
219,453
622,792
54,830
(6,682)
(3,486)
667,454
2,546
391
(27)
(559)
2,351
266,122
33,682
(356)
( 6,902)
292,546
25,955
3,300
(4)
(36)
29,215
1,116,803
114,204
(9,005)
(10,983)
1,211,019
22,669
941
(72)
242,991
58,904
3,044
(40,944)
688,458
331
28
(603)
2,107
35,811
295
(17,183)
311,469
3,622
(2)
(221)
32,614
121,337
4,306
(59,023)
1,277,639
Carrying amounts
579,302
414,840
1,114
124,564
24,677
1,144,497
Carrying amounts
567,811
396,975
1,230
118,273
26,566
1,110,855
Depreciation
As at 1 January 2013
Charged for the year 2013
rates
Disposals
rates
Disposals
B. The depreciated cost of the assets in the balance sheet is stated net of investment grants in respect
of investments made in an "approved enterprise" in the amount of NIS 28,077 thousand (December
31, 2013 – NIS 31,432 thousand).
C. Regarding liens and cancellation of liens - See Note 20 (B)
D. Acquisition of fixed assets on credit
On 31 December 2014, the balance of fixed assets acquired on credit amounted to NIS 31,135
thousand, as at 31 December 2013 - NIS 31,640 thousand
E.
28
The Group has rights in land under capitilized finance leases ending between the years 2022 2103 in the amount of NIS 118,057 thousand (31.12.13 - NIS 120,506 thousand).
Investments Limited
Note 13 - Intangible Assets
Goodwill and
Intangible
assets
Assets
Cost
Changes from linkage of obligations
related
to
Acquisition
of non controlling interest
(*)
Effect
of movements in exchange rates
Disposals
Changes from linkage of obligations
related
to
Acquisition
of non controlling interest
(*)
Effect of movements in exchange rates
Disposals
Having an
Indefinite
useful life
Use right of
of computer
software
NIS Thousands
NIS Thousands
1,002,642
(6,259)
(8,324)
988,059
41,517
13,178
1,042,754
Advertising
Sales and
promotion
Equipment
Customer
relations
Rights, know
How and
Non
competition
Total
NIS Thousands
NIS Thousands
NIS Thousands
3,009
644
77,862
-
1,203,374
1,429
3,653
(1,984)
75,878
(6,259)
(10,415)
(2)
1,188,127
587
-
119,861
785
(107)
(2)
120,537
-
6,271
508
(8)
(2,484)
127,308
1,756
Amortization
Disposals
36,827
36,827
84,733
23,346
(85)
(2)
107,992
2,056
736
Disposals
36,827
9,518
(1)
(8)
117,501
Carrying amounts
951,232
12,545
Carrying amounts
1,005,927
9,807
(426)
75,452
6,858
41,517
13,260
(2,492)
1,247,270
2,792
54,104
10,394
(1,039)
63,459
177,720
34,476
(1,124)
(2)
211,070
575
(2,484)
883
2,474
(917)
65,016
12,567
(918)
(2,492)
220,227
861
12,419
977,057
873
10,436
1,027,043
-
See note 3 A.3.
A. Examination of impairment of cash-generating included in goodwill
The following are the goodwill and intangible asset values in the books that have indefinite useful
lives.
As at December 31
2014
2013
NIS Thousands
NIS Thousands
Tivall (1993) Ltd. - Europe
USA (Tribe)
Materna
Others
29
233,560
120,476
492,562
159,329
233,560
107,527
451,045
159,100
1,005,927
951,232
Investments Limited
Note 13 - Intangible Assets (cont'd)
A. Examination of impairment of cash-generating included in goodwill (cont.)
1. The recoverable amounts of the cash-generating units, except for Materna, are based on a calculation of the usage value.
These calculations are used for cash flow calculations based on the budget for the year 2015 and future forecasts for
subsequent years. The cash flows for the remaining periods are calculated using the relevant growth rate, which takes
into account the anticipated growth rate for the category, sector, country and population. The estimated growth rates
range between 1.0% and 2.5%. The forecasted cash flows were discounted rates of 7.5%- 8.75%. after tax. The discount
rates reflect the risks of the cash-generating units. In addition sensitivity analysis was performed with discount rates of
5% and 10% for the calculation of recoverable value.
In light of the change in structure for reporting purposes which the company carried out as stated in Note 25 relating to
operating segments, goodwill was re-allocated to the units which were affected by the change in structure. The reallocation was performed using the method of proportional value based on calculation of recoverable value of each unit.
2.
Recoverable amount of the cash generating unit, Materna was done by fair value. Based on valuation of the
external appraiser and according to the multiple method based on a sample of comparable companies relating to
their share performance and growth data. In accordance to the aforementioned in order to examine the recoverable
value a multiple of 10.04 was taken as a representative multiple on the EBITDA of Materna. In addition a
sensitivity analysis was conducted to the level of the EBITA multiple of Materna. The Valuation calculation for
examination of impairment is attached to these reports in accordance with standard 8B.
Based on the examination of value measurement and since the recoverable amounts are higher that the
monetary value, no impairment of goodwill was required.
B.
Goodwill created due to grant of “put” options to minority shareholders
As at 31 December 2014, the goodwill attributed to PUT options of the non controlling interest in
consolidated subsidiaries totaled NIS 380,221 thousand (31 December 2013 –NIS 337,804 thousand)
Note 14 - Prepaid Expenses and operational leases
A.
Prepaid Expenses
As at December 31
End date
Other
B.
2015-2021
2014
2013
NIS Thousands
NIS Thousands
33,539
38,806
Operating leases
The Company and its subsidiaries have signed lease agreements in respect of buildings and warehouses and for
vehicles and forklifts.
Non-cancellable minimum operating lease rentals are payable as follows:
As at December 31
Less than one year
Between one and five years
More than five years
2014
2013
NIS Thousands
NIS Thousands
61,569
116,966
87,433
265,968
62,062
103,579
90,852
256,493
Lease fees that were recognized as an expense
30
2014
2013
2012
NIS Thousands
NIS Thousands
NIS Thousands
67,992
68,963
63,913
Investments Limited
Note 15 - Loans and Short-Term Bank Credit
Composition:
Annual
variable interest
rates
31 December 2014
%
Linked to US$
Linked to Euro
As at December 31
2014
2013
NIS Thousands
NIS Thousands
Libor + 1.50%
Libor + 1.50%
7,784
61
29,212
-
7,845
29,212
Note 16 - Trade Payables
Composition:
As at December 31
2014
2013
NIS Thousands
NIS Thousands
On open account
Checks and notes payable
751,080
5,596
706,657
3,806
756,676
710,463
Note 17 – Other Payables
Composition:
As at December 31
Employees and salary related government agencies
Other government agencies
Provision for vacation pay and vacation expense allowance
Sundry creditors and accrued expenses
31
2014
2013
NIS Thousands
NIS Thousands
111,026
20,593
61,685
31,158
122,213
23,256
59,337
19,170
224,462
223,976
Investments Limited
Note 18 – Liability for acquisition of non controlling interest in consolidated
subsidiary
As at December 31
2014
2013
NIS Thousands
NIS Thousands
For PUT options of non controlling interest in consolidated subsidiary
374,127
342,514
The Group granted PUT options to the non controlling shareholders in a partnership in which it holds
51%. Should the non controlling shareholders exercise their options, the Group will be required to
purchase from them their holdings in the partnership.
The options are presented at their obligation value including a component such as a declared dividend
and a component in the amount of NIS 347,400 thousand (year 2013 NIS 319,743 thousand), as prepared
by an outside appraiser, as follows:
The realization value of the option is determined according to a multiple of 16 as set in the agreement,
multiplied by the net profit anticipated at the realization date, with certain adjustments, with addition of
the future obligation to allocate dividends and other contractual flows paid to the non controlling
interest until the date of realization, for them being a partner, for the period until the realization. The
options are realizable by the non controlling interest in the fourth year until the eighth year and in the
fourteenth year as well. The amounts are discounted from the optimal realizable period by the non
controlling interest (year 2023)
As mentioned above the Group presents its liability to purchase the non control ling interests as a
financial liability measured according to the present value of the option’s exercise price. The difference
between the liability and the share of the Company in the net asset value is allocated to goodwill.
Every year the Company updates the anticipated net profit of the partnership according to which the
obligation is calculated. In the year 2014 the updating resulted in an increase in obligation against an
increase in goodwill in the amount of NIS 42,417 thousand Finance expenses reco rded in profit and loss,
for the time value of the money, related to this obligation in the year 2014 amounted to NIS 13,842
thousand (year 2013 NIS 15,092 thousand, year 2012 NIS 14,077 thousand ).
32
Investments Limited
Note 19 ‫‏‬- Income Tax
A. Benefits under the law for the encouragement of capital investments.
Approved enterprise
Several of the enterprises owned by Group companies were granted "Approved Enterprise" status in accordance
with the Law for the Encouragement of Capital Investments, 1959. Income deriving from an "Approved
Enterprise" is entitled to a reduced tax rate during a period of -7 to 10 years beginning with the year in which the
company first generated taxable income from the "Approved Enterprise". The bene fit period is limited to 14 years
from the year in which the letter of approval was issued or 12 years from the year in which the enterprise began
operations. In lieu of an investment grant, the company may opt for a tax exemption for a period of 10 years. The
tax benefits are conditional upon the fulfillment of the terms of the Letter of Approval.
Those enterprises which used the tax benefits, and were required to meet stipulated export quotas as a condition
for entitlement to the tax benefits, have met at least the minimum requirements.
The tax provision reflects tax benefits according to the extent of compliance of the enterprises with the various
conditions of the approval.
Some of the enterprises have not yet started using any of the tax benefits.
Beneficiary Enterprise
An industrial enterprise of the Company was granted “Beneficiary Enterprise” status in accordance with the Law for the
Encouragement of Capital Investments – 1959 (hereinafter – the Encouragement Law). The Company has elected 2009
as the year of election.
The income generated by the “Beneficiary Enterprise” is exempt from tax over a period of 10 years from the year it first
had taxable income . The tax benefit period of the beneficiary enterprise that commenced operations in the year 2010
will end in the year. The benefits are contingent upon compliance with the terms of the Encouragement Law (export rate,
etc.).
Amendment to the Law for the Encouragement of Capital Investments – 1959
On December 29, 2010 the Knesset approved the Economic Policy Law for 2011-2012, which includes an
amendment to the Law for the Encouragement of Capital Investments – 1959 (hereinafter – “the Amendment to the
Law”). The Amendment to the Law was published in the Official Gazette on January 6, 2011. Th e Amendment to
the Law is effective from January 1, 2011 and its provisions apply to preferred income derived or accrued in 2011
and thereafter The Company can choose not to be included in the scope of the Amendment to the Law and to stay in
the scope of the law before its amendment until the end of the benefits period. The 2012 tax year is the last year the
Company can choose as the year of election, providing that the minimum qualifying investment began in 2010.
The Amendment provides that only companies in Development Area A will be entitled to the grants track and that
they will be entitled to receive benefits under this track and under the tax benefits track at the same time. In
addition, the existing tax benefit tracks were eliminated (the tax exempt t rack, the “Ireland track” and the
“Strategic” track) and two new tax tracks were introduced in their place, a preferred enterprise and a special
preferred enterprise, which mainly provide a uniform and reduced tax rate for all the company’s income entitled
to benefits, such as: for a preferred enterprise – in the 2011-2012 tax years – a tax rate of 10% for Development
Area A and of 15% for the rest of the country, in the 2013 -2014 tax years – a tax rate of 7% for Development
Area A and of 12.5% for the rest of the country, and as from the 2015 tax year – 6% for Development Area A and
12% for the rest of the country. On 5 August 2013, the Knesset passed the Law for Changes in National Priorities
(Legislative Amendments for Achieving Budget Objectives in the Y ears 2013 and 2014) – 2013, which canceled
the layout for the reduction in taxes so that commencing in the tax year 2014 the tax rate on preferred income will
be 9% in in Development Area A and 16% in the rest of the country. Furthermore, an enterprise tha t meets the
definition of a "special preferred enterprise" is entitled to benefits for a period of 10 consecutive years and a
reduced tax rate of 5% if it is located in Development Area A or of 8% if it is located in a different area.
The Amendment to the Law also provides that no tax will apply to a dividend distributed out of preferred income
to a shareholder that is a company, for both the distributing company and the shareholder. A tax rate of 15% shall
continue to apply to a dividend distributed out of preferred income to an individual shareholder or foreign
resident, subject to double taxation prevention treaties, which means that there is no change from the existing law.
Furthermore, the Amendment to the Law provides relief (hereinafter – – “the relief”) with respect to tax paid on a
dividend received by an Israeli resident company from profits of an approved/alternative/beneficiary enterprise
that accrued in the benefits period according to the version of the law before its amendment, if the company
distributing the dividend notifies the tax authorities by June 30, 2015 that it is applying the provisions of the
Amendment to the Law and the dividend is distributed after the date of the notice (a distribution from profits of
the exempt enterprise will be subject to tax by the distributing company).
B. Benefits under the Law for the Encouragement of Industry
The Company is an "Industrial Company" as defined by the Law for the Encouragement of Industry (Taxes),
1969 and accordingly it is entitled to use accelerated depreciation rates as well as to additional benefits.
33
Investments Limited
Note 19 - Income Tax (cont'd)
C.
Amendments to the income tax ordinance
1. Tax rates in Israel are: 2014 26.5%, 2013 25%, 2012 25%.
2. On 5 August 2013, the Knesset passed the Law for Changes in National Priorities (Legislative
Amendments for Achieving Budget Objectives in the Years 2013 and 2014) – 2013, which
determined, among others, the increase in companies tax rate , commencing in the year 2014
and onwards will increase by 1.5% until it will stand at 26.5%.
3. On 4 February 2010 amendment to the Income Tax Ordinance was published in the legal
register (number 174) temporary directive for tax years 2007, 2008 and 2009. Which stated that
Israeli Accounting standard 29 regarding adoption of IFRS accounting standards, will not apply in calculating
taxable income for the said years even if it was implemented for preparation of financial statements. On 12
January 2012 was published the law for amendment of Income Tax Ordinance (number 188) in
the framework of which was amended a temporary directive, such that stan dard 29 will not
apply when calculating taxable income for tax years 2010 and 2011. On July 31, 2014
Amendment 202 to the Ordinance was issued, by which the Temporary Order was extended to
the 2012 and 2013 tax years, effective retroactively as from January 1, 2012.
D.
Deferred taxes in respect of temporary differences as follows:
Vacation
and
convalescence
NIS Thousands
Employee
Benefits
NIS
Thousands
2,308
Allowance
for
Doubtful
debts
NIS
Thousands
3,742
Losses
Inventory
Fixed Assets
And Other
NIS
NIS
Thousands
Thousands
(92,569)
35,903
Total
NIS
Thousands
(39,406)
11,210
Changes recorded on the income
statements
Changes
recognized in other
comprehensive
Balance
as at 31income
December 2013
4,387
(8)
15,589
14
(1,204)
1,118
1,549
(9)
5,282
(9,891)
1,070
(101,390)
11,537
(2,571)
44,869
7,596
(2,722)
(34,532)
Changes recorded on the income
statements
Changes
recognized in other
comprehensive
Balance
as at 31income
December 2014
594
15
16,198
2,689
826
4,633
2,277
60
7,619
(25,847)
(415)
(127,652)
2,965
5,186
53,020
(17,322)
5,672
(46,182)
E. Income tax in the income statements
Current taxes
Change in deferred taxes
Regular basis
Change in tax rates
34
2014
2013
2012
NIS Thousands
NIS Thousands
NIS Thousands
113,942
134,080
123,318
17,322
131,264
(11,691)
4,095
126,484
(6,305)
117,013
Investments Limited
Note 19 - Income Tax (cont'd)
F. The Company has received final tax assessments for all years through the 2011 tax year. The
subsidiary companies have received final assessments for various years through the 2009 tax year,
certain subsidiaries which have not yet received final assessments since their inception.
G. Reconciliation between the theoretical tax, which would have resulted had the pre-tax earnings been
subject to tax at the statutory rate in effect in Israel, and the income taxes appearing in the income
statement:
Statutory tax rate
Theoretical tax based on the statutory tax rate applying
to
the Company
Increase
(decrease) in tax liability resulting from:
Non-deductible expenses
Effect of change in tax rates
Income which is subject to different tax rates
Timing differences and losses for tax purposes for
which
tax not
charged years
Deferred
in previous
Other
Income tax included in the income statements
2014
2013
2012
26.5%
25%
24%
NIS Thousands
NIS Thousands
NIS Thousands
139,872
125,729
5,338
(14,086)
5,718
4,095
(9,503)
580
(440)
131,264
1,319
(874)
126,484
118,589
6,335
(8,784)
76
797
117,013
H. The Group has carry-forward tax losses in the amount of NIS 174,519 thousand, for which the
Company recognized a deferred tax asset since in the opinion of management taxable profits are
anticipated in the future against which these losses can be utilized.
35
Investments Limited
Note 20 - Contingent Liabilities, Commitments and Liens
A. Contingent liabilities and commitments
1.
The Company's Articles of Association provide for the indemnification and insurance of
executives according to law. In accordance therewith, the Company insures the liability of the
directors and officers, subject to the provisions of the law.
2.
Group companies received investment grants from the State of Israel according to the Law for
the Encouragement of Capital Investments. In the event they fail to meet the conditions attached
to the grants, they will be required to refund the amount of the grants received, in whole or in
part, plus interest and linkage increments from the date of their receipt.
3.
The Group companies have an agreement with companies, which are interested parties, granting
the Company the right to distribute their products in Israel and a license for the exclusive use of
their know-how and brand names in Israel. In accordance to agreements, the Company and its
subsidiaries have undertaken to pay the said interested parties royalties at the rate of 2.5% - 5%
of the sales of their products.
4.
The Company has an agreement with an interested party for the receipt of general assistance that
includes, inter alia, assistance in the areas of production, marketing and distribution, computers,
logistics, materials handling and employee training. In the agreement, the Company undertook to
pay the interested party, in respect of receipt of the said assistance, the amount of 1,000 thousand
Swiss francs per each calendar year.
5.
The Company has an agreement with an interested party company regarding implementation of the
Globe project in Israel, the purpose of which is the receipt of computer services and the creation of
global standardization between all the computer systems (hardware and software) as well as the
implementation of best practices. In this framework, the interested party company undertook that
annual computer expenses would not exceed 1.5% of consolidated gross sales net of returns and trade
discounts on a multi-annual basis.
In the year 2014 an additional expense in the amount of NIS 6,933 thousand was added, for the
supplementing of the IT expenses to 1.5% as per agreement between the parties. The cumulative
balance which could be taken into account in a multi year calculation in the future, if and to the extent
that IT expenses decline below 1.5% amounted to the sum of NIS 75,752 thousand.
6.
Various guarantees are given by Group companies to third parties, aggregating NIS 8,227 thousand,
this relates to guarantees against liabilities of Group companies.
7.
As at 31 December 2014, the Group companies have commitments to purchase fixed assets, in the
amount of NIS 10,284 thousand.
8.
In an agreement that was signed between subsidiaries and their other shareholders, it was agreed that
the aforementioned subsidiaries would purchase from the shareholders manpower services and various
services required for its current operations.
During the financial statement period the company purchased such services in the amount of NIS
23,353 thousand (year 2013 - NIS 23,388 thousand).
9.
Outstanding against the Group companies are class action suits or requests for class action suits in the
evaluation of the company based on opinions of its legal advisors, their chances are slight or small
financial resources will be borne. As at 31 December 2014 an accrual of NIS 250 thousand has been
included. (2013 - NIS 250 thousand)
Filed against the company were lawsuits in the area of work relationships in the amount of
approximately NIS 1 million. in the evaluation of the company based on opinions of its legal advisors,
it is more likely than not that the company will not be required to bear additional economic recourses
in excess of provisions included in financial statements in the amount of NIS 100 thousand (year 2013
NIS 488 thousand).
36
Investments Limited
Note 20 - Contingent Liabilities, Commitments and Liens (cont'd)
A. Contingent liabilities and commitments (cont.)
10. Corresponding to the PUT option which the Group granted the non controlling shareholders in the
partnership where it holds 51% (see also Note 18), the Group received a CALL option to purchase the
shares of the non controlling interest.
The exercise price of the CALL option was based on the multiple determined in the agreement,
multiplied by the net profit anticipated at the exercise date, with certain adjustments. The option is
exercisable by the Group at the end of the tenth year of the agreement (with a multiple of 21) at the
end of year twelve (with a multiple of 18) and at the end of year fifteen (with a multiple of 16)
11. On 25 May 2011 the board of directors of the company approved the continuation a bonus plan for the
encouragement and preservation of managers in the Osem Group (who are not controlling parties or
their relatives, nor directors in the Company) for a period of 3 additional years (2011-2013). According
to the program the Company will grant “phantom options” to an number of senior managers in the
Company so that the bonus that the Company would give (if at all) would be based on the difference
between the average company share price for the two months before the granting date of the options
average company share price for the two months before the option exercise date. The the vesting period
for each “option” stands at three years form the month of May in each of the three years of the
program. The value of the options is calculated based on the binomial method. In the framework of the
Group compensation policy it was determined that a ceiling according to which the options distributed
from year 2013 and on will not exceed 2 times the value of the benefit at the date of distribution, linked
to the CPI.
On 26 May 2014 the board of directors of the company approved, after receiving the approval from the
compensation committee, the continuation a bonus plan for the encouragement and preservation of
managers in the Osem Group (who are not controlling parties or their relatives, nor directors in the
Company) for a period of 3 additional years (2014-2016). The plan was approved based on the
previous plan, while matching certain sections to the compensation policy of the Company. In this
framework a change was also made in the policy for maturity of options in the case of concluding of
the transaction on the part of the Company.
The Company included in its statements of profit and loss an expense (income) related to the change in
value of benefit to those managers which was calculated by an outside assessor at a value of NIS
(2,801) thousand, NIS 21,243 thousand, NIS 10,952 thousand for the years 2014, 2013 and 2012
respectively.
12. In March 2014 the Law for the Promotion of Competition in the Food Industry was approved which
deals with, among others, the regulation of suppliers and wholesalers and the geographical
competition among wholesalers, this being based on the recommendations of the Food Committee.
The law took effect on 15 January 2015 and was associated with, among others, the changes in the
method of relationship with the large retailers. At this early stage, it is not possible to estimate the full
effects of changes that will occur due to the legislative memorandum. In the year 2014 one time
accruals were recorded in the amount of NIS 9,800 thousand under other expenses resulting from the
expected changes in the commerce organization as the result of preparations in anticipation of the law.
37
Investments Limited
Note 20 - Contingent Liabilities, Commitments and Liens (cont'd)
A. Contingent liabilities and commitments (cont)
B. Liens and cancellation of liens
1.
The Company has a negative pledge agreement with the banks according to which if the Company
receives a bank loan, the banks will not record any pledges in the Company Registrar in the Bank's
favor and this, as long as the Company meets certain commitments and standards determined for
financial ratios. according to the financial standards:
(A) The portion of the company equity of the total balance sheet will not be less than 35% -.
(B) The annual profit from continuing operations before tax, will not be less than 1% of total sales.
and it is agreed that should the average profit be less than 1% during 2 years and the portion of
the equity of the total balance sheet will exceed 45%, the determined financial ratios will still be
considered met.
In addition, the Company has additional obligations as detailed in the following:
(A) obligation not to pay dividend as long as previous years pre- tax profits levels in the distribution
year are less than 2% of sales (in 2 year average); under these circumstances the Company in
could distribute a dividend from current year profits provided that it would not exceed 50% of
current year profits.
(B) Obligation not to record liens on the Company's assets except certain liens (for example: In favor
of the State of Israel or for the financing to purchase a new asset)
(C) Obligation of the Company to insure the asset.
(D) Obligation to meet certain restrictions regarding the sale of fixed assets
(E) Each one of the companies signing the negative pledge , if requested by the banks, securing
all amounts due to the banks from any of the other companies.
In case the Company does not meet the obligations and the financial standards the Company will
create pledges to the satisfaction of the banks on those assets which today are not pledged due to the
negative pledge agreement.
In extreme cases of receivership, dissolution, cessation of activities, material sequestration, and
confiscation, the banks will be able (but not required) to immediately settle the credit.
As at the balance sheet date, the Company meets the obligations and maintained the required
financial ratios
2.
A consolidated subsidiary has a negative pledge with banks whereby if it receives bank credit no
liens will be recorded in favor of the banks as long as it meets its obligations and financial
criteria according to which it was set up, among others, the tangible equity will not fall below
25% of the total balance sheet of the subsidiary and total obligations to financial institutions w ill
not exceed 30% of its balance sheet.
As at the balance sheet date the subsidiary meets all the obligations and financial criteria that
were set.
3.
Subsidiaries have registered a floating charge, in favor of the State of Israel, on all of their asse ts,
to secure the fulfillment of the terms connected with investment grants received in respect of
investments in "approved enterprises".
4.
To guarantee the obligation of a subsidiary in the Czech Republic to a bank corporation, the
subsidiary in the Czech Republic has put under lien its assets in favor of the bank corporation and
also gave guarantee in favor of this bank corporation.
38
Investments Limited
Note 21 - Related and Interested Parties
A. Transactions with related and interested parties in Nestle group
2014
2013
2012
NIS Thousands
NIS Thousands
NIS Thousands
Cost of Sales
263,404
251,376
273,923
38,524
24,403
21,925
724
725
774
Other income
The transactions were at ordinary commercial terms.
B.
Balances with related and interested parties in Nestle group
2014
2013
NIS Thousands
NIS Thousands
Trade payables
Other receivables
64,501
73,612
2,825
2,875
Highest other receivable balance in the year 2014 were NIS 3,931 thousand (2013 – KNIS 2,875 thousand)
C.
Commitments with related and interested parties
See notes 20 A.3. through 20 A.5.
D. Key management personnel compensation (including directors)
Directors and executive officers in the Group are entitled to, in addition to salaries, non-cash benefits such as cars,
cellular phones etc.
The Group contributes to a post-employment defined benefit plan on their behalf.
Key management personnel compensation (including directors) comprises:
2014
Number of
people
2013
Number of
people
Amount
Amount
NIS
Thousands
Short-term employee
benefits
Post-employment benefits
2
2
2
2012
Number of
people
Amount
NIS
Thousands
7,330
264
7,594
2
2
2
NIS
Thousands
13,472
133
13,605
4
4
4
13,616
251
13,867
Compensation to key management personnel (including directors) that are not employed by the Company:
2013
2014
Number of
people
Total benefits for nonemployed directors
Amount
NIS
Thousands
8
1,782
Number of
people
2012
Amount
NIS
Thousands
8
1,827
Number of
people
Amount
NIS Thousands
7
1,677
The compensation policy for senior managers includes, among others, annual bonus based on meeting annual targets and phantom
options as detailed in note 20 A. 11.
39
Investments Limited
Note 22 - Details to the Income Statements
A. Sales revenues
1.
Domestic and export:
2014
2013
2012
NIS Thousands
NIS Thousands
NIS Thousands
Domestic sales
Export sales
3,580,377
676,243
3,560,200
629,847
3,423,047
668,546
Sales
4,256,620
4,190,047
4,091,593
2.
Products from self-manufacture and other products:
2014
2013
2012
NIS Thousands
NIS Thousands
NIS Thousands
Products from self-manufacture
Other products
3,041,935
1,214,685
2,996,638
1,193,409
2,953,838
1,137,755
Sales
4,256,620
4,190,047
4,091,593
3. The Group has one customer for which the scope of sales to it is greater than 10% of the total sales.
Total sales to Customer are as Follows:
Customer
2014
2013
2012
NIS Thousands
NIS Thousands
NIS Thousands
644,384
646,617
628,480
B. Cost of Sales
Cost of sales products from self-manufacture:
Materials used
Payroll and related expenses
Other manufacturing costs
Depreciation and amortization
Decrease (increase0 in inventory of finished goods and
work in
process
Total
cost
of sales products from self manufacture
Cost of sales of other products
40
2014
2013
2012
NIS Thousands
NIS Thousands
NIS Thousands
919,069
348,190
305,162
80,333
1,652,754
913,258
327,302
305,769
74,711
1,621,040
952,529
319,981
308,763
73,197
1,654,470
9,825
1,662,579
9,106
1,630,146
(12,622)
1,641,848
812,740
796,190
770,150
2,475,319
2,426,336
2,411,998
Investments Limited
Note 22 - Details to the Income Statements (cont'd)
C. Selling, marketing and distribution expenses
2014
2013
2012
NIS Thousands
NIS Thousands
NIS Thousands
320,707
32,507
239,674
94,317
104,589
137,039
928,833
309,249
32,405
224,103
92,722
103,644
123,487
885,610
Advertising and sales promotion
Commissions
Motor vehicle and delivery expenses
Other
324,055
33,184
272,494
103,427
101,220
136,255
970,635
D. General and administrative expenses
2014
2013
2012
NIS Thousands
NIS Thousands
NIS Thousands
177,374
40,270
6,715
7,901
74,060
306,320
156,210
43,923
7,105
2,464
73,260
282,962
Building maintenance
Bad and doubtful debts
Other
143,685
18,531
7,671
10,171
88,266
268,325
E. Other income (expenses), net
2014
2013
2012
NIS Thousands
NIS Thousands
NIS Thousands
(155)
(3,262)
532
(2,885)
(503)
(4,759)
(1,768)
(7,030)
Gain (loss) from realization of fixed assets
Reorganization expenses
Other
(3,023)
(8,282)
533
(10,772)
F. Financing income and expenses
2012
year2013
ended
NIS Thousands
NIS Thousands
NIS Thousands
2014
Expenses on obligations and short-term credit
Expenses on bank liabilities
Change in fair value of financial assets through profit or
loss
Exchange
differences, net
Expenses in respect of liabilities for non controlling
interest
PUT option
Total
financing
expenses
1,970
1,844
7,224
13,842
24,880
6,583
2,179
799
15,092
24,653
1,220
2,940
3,958
25,608
33,726
Interest income from bank deposits
Exchange differences, net
Interest from income tax
Change in fair value of financial assets through profit or
loss financing expenses
Total
(1,544)
(11,798)
(7,789)
(1,512)
(2,817)
Net financing expenses
41
-
(21,131)
3,749
-
-
(380)
(1,892)
(1,271)
(4,088)
22,761
29,638
Investments Limited
Note 23 - Financial Instruments
A. General
Management has overall responsibility for the establishment and oversight of the Group’s risk
management framework. Management is responsible for the development of policies and
oversight of the Group’s risk management framework.
The Group’s risk management policies are established to identify and analyze the r isks faced by
the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits
Risk management policies and systems are reviewed regularly to reflect changes in market
conditions and the Group’s activities.
1.
Financial risk factors
The operations of the Company expose it to various financial risks such as market risks
(including currency risks, fair value risks in respect of interest, and price risks), credit risk,
liquidity risks and cash flow risks in respect of interest. The comprehensive risk management
plan of the Company focuses on actions that minimize the possible negative effects on the
financial performance of the Company. The Company uses also derivative financial instruments
in order to hedge certain exposures to risks.
In this note is presented qualitative and quantitative information relating to exposure of the
Group to each of the above risks, the Group's aims, policies and methods regarding measurement
and management of risks.
A) Credit Risks
Credit risk is the risk of financial loss to the Group if a customer or counterpart to a financial
instrument fails to meet its contractual obligations, and arises principally from the Group’s trade
and other receivables, loans granted to third parties. The Group’s sales to its customers are
mainly at accepted market terms for customer credit. Part of the credit is guaranteed by credit
insurance, various collaterals and credit card insurance via credit card companies. The rest of the
credit to the private sector that is not guaranteed by collateral relates to a large number of
customers which reduces the risk. Part of the credit to customers on the organized retail market is
not guaranteed and is concentrated with a small number of customers to which the Group’s sal es
are considerable, although, on the other hand, these are customers with a good credit history.
Management examines the credit assessments of customers on a regular basis, and the financial
statements include provisions for doubtful debts that in the opinion of management appropriately
reflect the loss inherent in those debts the collection of which is doubtful.
B) Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations
associated with its financial liabilities that are settled by delivering cash or another financial
asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will
always have sufficient liquidity to meet its liabilities when due, under both normal and stressed
conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
The Group uses activity-based costing to cost its products and services, which assists it in
monitoring cash flow requirements and optimizing its cash return on investments Group ensures
that it has sufficient cash on demand to meet expected operational expenses for the forecasted
period, including the servicing of financial obligations; this excludes the potential impact of
extreme circumstances that cannot reasonably be predicted, such as natural disasters.
The Company was rated by the Midrog Company as having a credit rating of AAA with a stable
rating outlook.
This rating attests to the strong financial liquidity level of the Group.
42
Investments Limited
Note 23 - Financial Instruments (cont'd)
A. 1. Financial risk factors (cont'd)
C) Market Risks
Market risk is the risk that changes in market prices, such as foreign exchange rates, the CPI,
interest rates and equity prices will affect the Group’s income or the va lue of its holdings of
financial instruments. The objective of market risk management is to manage and control market
risk exposures within acceptable parameters, while optimizing the return.
1) Currency Risks
The Group sales overseas comprise about 16% of its sales but also imports some of its raw
material as well as finished goods from Nestle as a result, part of its customers’ balance in
foreign currency are naturally protected against part of its suppliers’ balances in foreign
currency. In the cases where there is still an exposure, the Group generally acts to offset the part
of the exposures and foreign currency risks by setting up deposits in the relevant currencies
against the liabilities to overseas suppliers taken in the same currency or via forwards.
Nonetheless, the foreign subsidiaries use bank credit in foreign currency. As at 31 December
2014 the excess of financial assets in foreign currency over financial liabilities in foreign
currency amounted to NIS 196 million. And financial obligations in excess of the financial assets
in the amount of NIS 223 million in subsidiary companies in which the operating currency is in
foreign currency . In parallel the Group executed partial hedges via forward transactions in the
amount of about NIS 122 million.
2) CPI risks
As at 31 December 2013 the excess of financial liabilities linked to the CPI over financial assets
linked to the CPI amounted to approximately NIS 1 million only
3) Price Risks
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.
The Company uses the central strategic procurement services of Nestle to obtain optimal prices
for the Company.
Interest rate risks
Loans bearing variable interest rates expose the Group to interest risk in respect of cash flows
whereas loans bearing fixed interest rates expose the Group to interest risk in respect of fair
value. This exposure is limited since the all long-term loans have been re payed while short term
loans constitute only 0.2% of the total balance sheet.
2.
As at balance sheet date the amounts of the futures transactions are as follows:
Amount of
Transactions
NIS thousands
NIS forward transactions/foreign currency options on
exchange rates, net
The aforementioned transactions are for periods of up to
12 months.
43
122,404
Fair Value
NIS thousands
5,329
Investments Limited
C.
2. Market risks (cont'd)
The future contracts are presented according to their fair value as level 2 assets: anticipated
figures, directly or indirectly, which are not included in level 1 (quoted prices, unadjusted, in an
active market for similar instruments).
3. Financial assets and liabilities
The book value of the cash and cash equivalents, short-term investments, trade receivables, other
receivables, credit from banks and others, trade payables and other payables is the same or
proximate to their fair value. Note 23 - Financial Instruments (cont'd)
B. Credit risks
1.
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit and investment exposure. The
maximum exposure to credit and investment risk at the reporting date was:
As at December 31
Trade receivables
Other receivables
Other investments
2014
2013
NIS Thousands
NIS Thousands
471,197
693,674
12,963
164,548
328,059
688,481
11,086
7,067
1,342,382
1,034,675
1,651
1,651
The aforementioned balances are presented under the items of cash and cash equivalents, trade
receivables, other receivables, other investments and loans.
Forecasted realization dates of customers, debtors and debit balances and other investments are
within one year.
2. Aging of debts and impairment losses
The aging of customer debts as follows:
As at December 31
Not past due
Past due 1-60 days
Past due 61-120 days
Past due more than 120 days
Provisions for impairment
44
2014
2013
NIS Thousands
NIS Thousands
645,921
70,795
2,783
3,001
(28,826)
615,838
79,833
8,539
8,992
(24,721)
693,674
688,481
Investments Limited
B. Credit risks (cont'd)
2. Aging of debts and impairment losses (cont'd)
The movement in the provision for impairment in respect of trade receivables during the year
as follows:
2014
2013
NIS Thousands
NIS Thousands
Balance as at January 1
Impairment loss recognized, net
Movements against suppliers
Doubtful debts that became bad debts
24,721
10,171
(1,547)
(4,519)
19,841
7,901
(558)
(2,463)
Balance as at December 31
28,826
24,721
Debts and impairment losses
The Company uses impairment provisions in order to recognize impairment losses, except for when
the Group is convinced that the debt will not be collected, in which case the noncollectable amount is
offset directly from the financial asset. A considerable part of the customer balances are insured by
the Company for credit insurance. As at December 31, 2013 and December 31, 2012, the Group also
has a general impairment provision for customer balances. Management of the Company regularly
monitors the debts of customers, and the financial statements include provisions for doubtful debts
that appropriately reflect, in the opinion of management, the loss inherent in debts the collection of
which is doubtful.
45
Investments Limited
C. Liquidity risk
The following are the contractual maturities of financial liabilities in the forthcoming years,
including principal payments and estimated future undiscounted interest payments.
As at December 31 2014
Carrying
amount
NIS
Thousands
Contractual
cash flow
NIS
Thousands
Less than
one year
NIS
Thousands
1-2 years
NIS
Thousands
2-5 years
NIS
Thousands
Short-term loans and credit
Trade payables
Payables
7,845
756,676
162,777
7,865
756,676
162,777
7,867
756,676
162,777
-
-
Total
927,298
927,318
927,318
-
-
Carrying
amount
NIS
Thousands
Contractual
cash flow
NIS
Thousands
Less than
one year
NIS
Thousands
1-2 years
NIS
Thousands
2-5 years
NIS
Thousands
Trade payables
Payables
29,212
710,463
164,639
29,310
710,463
164,639
29,310
710,463
164,639
-
-
Total
904,314
904,412
904,412
-
-
46
Investments Limited
D. Linkage and foreign currency risks
1.
Exposure of the Group to linkage and foreign currency risks
Functional
Foreign
Currency
Unlinked
Functional currency - NIS
Linked to the
Unlinked
CPI
NIS
Thousands
Assets
Trade receivables
Other receivables
Income tax
Inventory
Other investments
Employee benefits
Fixed Assets
Intangible Assets
Deferred expenses
Deferred tax assets
Liabilities
Trade payables
Other creditors
Income tax
Other liabilities
Employee benefits
Deferred taxes
Excess (deficit) in assets
Liabilities
over
47
NIS
Thousands
1,136
-
-
1,136
395,643
598,739
8,177
133,315
-
NIS
Thousands
-
(555,305)
(140,274)
- - - 440,295
Linked to
Foreign
Currency
NIS
Thousands
34,040
47,911
3,417
(216,140)
-
41,514
47,024
1,369
246,237
-
(7,845)
(61,572)
(22,429)
-
(139,799)
(74)
-
(222,618)
196,271
Nonmonetary
items
NIS
Thousands
14,615
10,694
398,972
379
1,110,855
1,027,943
33,539
47,047
(61,685)
(11,233)
(374,127)
(17,819)
(93,229)
2,085,951
Total
NIS
Thousands
471,197
693,674
30,078
10,694
398,972
164,548
379
1,110,855
1,027,943
33,539
47,047
(7,845)
(756,676)
(224,462)
(11,233)
(374,127)
(17,819)
(93,229)
2,503,535
Investments Limited
D. Linkage and foreign currency risks (cont'd)
1. Exposure of the Group to linkage and foreign currency risks (cont.)
Linkage basis report as at 31 December 2013
Functional
currency
Foreign
Currency
Assets
Trade receivables
Other receivables
Income tax
Inventory
Other investments
Employee benefits
Fixed Assets
Intangible Assets
Deferred expenses
Deferred tax assets
Liabilities
Trade payables
Other creditors
Income tax
Bank liabilities
Other liabilities
Employee benefits
Deferred taxes
Excess (deficit) in assets
Liabilities
over
48
Linked to the
CPI
Unlinked
Unlinked
Linked to
Foreign
Currency
Non-monetary
items
Total
NIS
Thousands
NIS
Thousands
NIS
Thousands
NIS
Thousands
NIS
Thousands
NIS
Thousands
1,328
-
-
1,328
283,396
612,441
7,589
-
-
(519,791)
(150,085)
-
-
233,550
-
27,073
27,568
2,390
(148,983)
-
17,590
48,472
1,089
154,722
-
(29,212)
(43,950)
(14,480)
-
(146,722)
(74)
- -
(179,594)
75,077
16,594
5,464
390,107
293
1,144,497
977,057
38,806
34,795
(59,337)
(9,473)
(342,514)
(4,450)
(69,327)
2,122,512
328,059
688,481
27,662
5,464
390,107
7,067
293
1,144,497
977,057
38,806
34,795
(29,212)
(710,463)
(223,976)
(9,473)
(342,514)
(4,450)
(69,327)
2,252,873
Investments Limited
2.
Sensitivity analysis
A strengthening of the NIS against the following currencies as at December 31 and an increase in the CPI would
have increased (decreased) equity and profit by the amounts shown below. This analysis assumes that all other
variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2012.
Equity
Profit or loss
NIS Thousands
NIS Thousands
Increase of 1% in the CPI
Increase in the exchange rate of:
1% in the US Dollar
1% in the Pound Sterling
1% in the Euro
1% in the Australian Dollar
8
8
533
70
533
70
(96)
(96)
10
10
Equity
Profit or loss
NIS Thousands
NIS Thousands
Increase of 1% in the CPI
Increase in the exchange rate of:
1% in the US Dollar
1% in the Pound Sterling
1% in the Euro
1% in the Australian Dollar
10
10
78
51
78
51
(6)
(79)
(6)
(79)
A similar rate of weakening of the NIS against the above currencies and a similar rate of decrease in the CPI as at
December 31 would have had an equal but opposite effect, in the same amounts, on the basis that all other variables
remain constant.
3.
The following are details of the Group’s derivative financial instruments:
Detail of the Derivative
Forward – hedging
To supplier
supplier's
debt
Forward – hedging
To supplier
supplier's
debt
Forward – hedging
To supplier
supplier's
debt
2008
Currency
2009
For purchase
2008
2007
Currency
Par Value
For sale
NIS
Thousands
Term
Start
Term
Expiration/
Transaction
Realization
49
NIS
Thousands
Dollar
NIS
14,342
12/2014
2-5/2015
(71)
Dollar
Australian
USA
NIS
11,667
7-12/2014
1-2/2015
663
Euro
NIS
8,741
7-12/2014
1-6/2015
18
34,750
Option on exchange
rate
Fair Value
US$
NIS
(157,154)
(122,404)
610
5-12/2014
1-4/2015
(5,939)
(5,329)
Investments Limited
3.
The following are details of the Group’s derivative financial instruments: (Cont.)
Currency
Currency
Par Value
For purchase
For sale
NIS
Thousands
Forward – hedging
To supplier
supplier's
debt
Forward – hedging
To supplier
supplier's
debt
Dollar
Australian
Euro
Term
Start
Term
Expiration/
Transaction
Realization
NIS
16,134
12/2013
1/2014
NIS
2,416
3/2013
1-2/2014
50
Dollar
NIS
(90,246)
71,696
NIS
Thousands
44
(28)
16
18,550
Option on exchange
rate
Fair Value
10/2013
3-9/2014
1,258
1,274
Investments Limited
E. Interest rate risk
1. Interest rate profile
At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was:
As at December 31
2014
2013
Carrying
Carrying
amount
amount
NIS Thousands
NIS Thousands
Variable rate instruments
Financial assets
336,342
336,342
Financial assets
695
695
203,397
(7,845)
195,552
272,545
(29,212)
272,545
2. Fair value sensitivity analysis for fixed rate instruments
The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss, and
the Group does not designate derivatives (interest rate swaps) as hedging instruments under a fair value hedge
accounting model. Therefore a change in interest rates at the reporting date would not affect profit or loss related to
changes in assets and liabilities at fixed interest rate.
3. Cash flow sensitivity analysis for variable rate instruments
A change of 1% in interest rates at the reporting date would have increased or decreased equity and profit or loss by
the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain
constant. The analysis is performed on the same basis for 2013.
Profit or Loss
Interest increase
NIS Thousands
Cash flow sensitivity (net)
2
2
Profit or Loss
Interest increase
NIS Thousands
Cash flow sensitivity (net)
51
Equity
Interest decrease Interest increase
NIS Thousands
NIS Thousands
(2)
(2)
2
2
Equity
Interest decrease Interest increase
NIS Thousands
NIS Thousands
Interest decrease
NIS Thousands
(2)
(2)
Interest decrease
NIS Thousands
13
(13)
13
(13)
13
(13)
13
(13)
Investments Limited
Note 24 - Earnings Per Share
2014
2013
Earnings used in computing the basic and the
fully diluted earnings per share (NIS thousands)
396,324
376,428
Number of shares used in computing the
basic and the fully diluted earnings per share (NIS thousands )
110,644
110,644
Note 25 - Information on Operating Segments on a Consolidated Basis
A. 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 above mentioned change are as follows:
1. Culinary - 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.
2. Bakery, Beverages, Snacks and Breakfast Cereals - 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 (e.g. 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.
3. International division - 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 Chezh and Tivall
Sweeden) , Osem USA and Osem UK.
52
Investments Limited
Note 25 (A) - Information on Operating Segments on a Consolidated Basis (Contd.)
4. Infant Nutrition – 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.
5. Professional market and gift packages In
sells, markets and distributes a large variety
restaurants, catering companies and other
employee committees and companies via
chocolate snacks to the retail market.
this area the Group develops, manufactures and/or
of products sold in the professional market (hotels,
institutional concerns) and gift packages sold to
Assimim Gift Package Company who also sell
6. 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 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.
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 regularly reviewed by the head
operational decision maker.
53
Investments Limited
For the year ended 31 December 2014
Culinary
NIS
Thousands
Bakery
Beverages
Snacks Cereals
NIS
Thousands
International
NIS
Thousands
Third party sales
Sales to other segments
Total segment sales
972,664
32
972,696
1,133,830
1,533
1,135,363
672,032
672,032
Attributable costs –
From third parties
857,723
876,793
From other segments
Total attributable costs
857,723
Segment results
Expenses not allocated, net
Taxes on income
114,973
Infant
Nutrition
NIS
Thousand
s
Professional
And Gift
Packages
NIS
Thousands
Others
NIS
Thousand
s
702,837
44,601
747,438
Adjustment
Consolidated
to
NIS
Thousands
(46,166)
(46,166)
Consolidated
NIS
Thousands
358,480
358,480
416,777
416,777
618,265
293,585
387,573
715,480
876,793
618,265
293,585
1,565
389,138
715,480
(39,205)
(39,205)
(37,640)
3,711,779
258,570
53,767
62,395
27,639
31,958
(6,961)
542,341
(10,772)
(3,749)
(131,264)
-
4,256,620
4,256,620
3,751,919
396,556
36,457
33,475
24,750
7,683
3,264
29,535
(1,260)
133,904
Culinary
NIS
Thousands
Bakery
Beverages
Snacks Cereals
NIS
Thousands
Internation
NIS al
Thousands
Infant
Nutrition
NIS
Thousands
Profession
AndalGift
Packages
NIS
Thousands
Others
NIS
Thousands
Adjustment
Consolidated
to
NIS
Thousands
Consolidated
NIS
Thousands
Third party sales
Total segment sales
956,166
46
956,212
1,117,187
1,599
1,118,786
629,847
629,847
358,644
358,644
412,460
412,460
715,743
44,014
759,757
(45,659)
(45,659)
4,190,047
4,190,047
From third parties
832,904
876,380
577,631
296,493
385,357
727,752
-
From other segments
832,904
876,380
577,631
296,493
1,645
387,002
727,752
(36,673)
(36,673)
(35,028)
3,661,489
Segment results
Taxes on income
123,308
242,406
52,216
62,151
25,458
32,005
(8,986)
528,558
(2,885)
(22,761)
(126,484)
3,696,517
54
376,428
47,525
36,106
25,634
6,522
3,035
30,971
(1,113)
148,680
Investments Limited
Culinary
NIS
Thousands
Bakery
Beverages
Snacks Cereals
NIS
Thousands
International
NIS
Thousands
Profession
AndalGift
Packages
NIS
Thousands
Others
NIS
Thousands
355,058
355,058
392,118
392,118
657,738
39,645
697,383
Infant
Nutrition
NIS
Thousand
s
Adjustment
Consolidated
to
NIS
Thousands
Third party sales
Total segment sales
926,840
18
926,858
1,091,293
2,095
1,093,388
668,546
668,546
(41,758)
(41,758)
From third parties
794,806
881,351
621,432
295,830
370,599
647,182
From other segments
794,806
881,351
621,432
295,830
2,113
372,712
647,182
(33,263)
(33,263)
Segment results
Taxes on income
132,052
212,037
47,114
59,228
19,406
50,201
(8,495)
-
Consolidated
NIS
Thousands
4,091,593
4,091,593
3,611,200
55
3,580,050
511,543
(7,550)
(29,638)
(117,013)
357,342
46,924
36,923
28,405
6,440
3,160
30,046
(1,023)
150,875
Investments Limited
Note 25 - Information on Operating Segments on a Consolidated Basis (cont'd)
B. Disclosures at the entity level
1.
Product information
2014
2013
NIS Thousands
Culinary Food at room temperature
Culinary Food chilled and frozen
Snacks
bakery, beverages and breakfast cereals
Infant Nutrition
Others (*)
Total
789,671
757,048
520,788
711,100
358,480
1,119,533
4,256,620
2012
NIS Thousands
NIS Thousands
755,578
750,423
514,788
698,401
358,644
1,112,213
4,190,047
738,887
747,471
511,317
680,725
355,058
1,058,135
4,091,593
(*) Within this framework, there is no product group whose income constitutes 10% or more of
the total of the Company revenue.
2.
Information on geographical regions
The Company is situated in Israel and the Company is active and produces i ts income in
Israel, Europe and the USA.
In the presentation of information according to geographic regions, income from the region
is based on the location of the customer. The assets relate to the physical location of the
assets.
2014
2013
2012
NIS Thousands
NIS Thousands
NIS Thousands
3,560,200
277,918
340,670
11,259
4,190,047
3,423,047
300,252
356,596
11,698
4,091,593
Income from Third Parties
Israel
USA
Europe
Rest of the world
Consolidated
3,580,377
286,039
378,207
11,997
4,256,620
As at December 31
2014
2013
NIS Thousands
NIS Thousands
1,868,627
206,159
96,651
2,171,437
1,872,496
181,664
106,200
2,160,360
Non-current assets
Israel
USA
Europe
Consolidated
56
Investments Limited
Note 26 - Capital and Reserves
A. Nominal historical data
and 2013
Authorized
Issued and paid
NIS
NIS per ordinary share
NIS
150,000,000
110,644,444
The shares of the Company are registered for trade on the Tel Aviv Stock Exchange.
B.
Translation reserve from foreign operations
The translation reserve comprises all foreign currency differences arising from the translation of the financial
statements of foreign operations, as well as from the translation of liabilities that hedge the Company’s net
investment in a foreign operation
Composition of translation reserve from foreign operations:
2014
As at December 31
2013
Tivall (1993) Ltd.
OSEM UK Ltd.
Osem USA Inc.
(20,158)
(8,374)
720
(17,971)
(10,584)
(3,817)
Total
(27,812)
(32,372)
C. Dividends
The following dividends were declared and paid by the Company:
2014
NIS Thousands
1.356 NIS per ordinary share
150,000
On 3 March 2015 the Company distributed an additional dividend for the sum of NIS 150 million.
57
2013
NIS Thousands
150,000
Investments Limited
Country of
Company
Shareholding
conferring
direct and
indirect share to
profits and
voting rights
%
Israel
Israel
Israel
UK
USA
Israel
Israel
Israel
Israel
Israel
Israel
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
74.0
100.0
100.0
Israel
Israel
Israel
Holland
USA
Israel
100.0
51.0
51.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Asmi Bakers Ltd.
Recycling Organization of Israel Ltd.
Israel
Holland
Sweden
Czech
Republic
Israel
Israel
Inactive companies:
Ostiv Ltd
Loop Frumin Ltd.
Itur Osem Ltd.
Osem International Foods Ltd
Israel
Israel
Israel
Israel
100.0
100.0
100.0
100.0
Subsidiary companies Osem Food Industries Ltd.
Assamim (1954) Ltd.
Givol Ltd.
OSEM UK Ltd.
Osem USA Inc.
Migdanot Habait Ltd.
Noga Ice Cream Ltd
Noga Ice Cream Limited Partnership
Assamim Gift Packages Ltd
Tivall (1993) Ltd.
Beit Hashita - Assis, Food Industries Limited
Partnership
Beit Hashita - Assis, Food Industries Limited
Materna Food Industries Limited Partnership *
Materna Holdings Ltd *
Tivall Europe B.V.
TRIBE MEDITERRANEAN FOODS INC.
Tivall Food Industries Ltd.(formerly Zabar Food Ind.
(1985)Ltd)
Osem Commerce Group (Limited Partnership)
Tivall Holland B.V.
Tivall Sweden A.B.
TIVALL CZ S.R.O. (5)
(*) Since there is a PUT option from the non-controlling interest therefore the accounting
presentation relates to a 100% holding.
58
100.0
8.3
Osem Investments
Limited
Separate Financial Statements
December 31, 2014
Investments Ltd.
Contents
Separate information is presented according to regulation 9c to the securities regulations (Periodic and
Immediate Reports) -1970. Financial data from the Consolidated Financial Statements relating to the Company
itself as at 31 December 2014
Page
Auditors’ Report
Data on Financial Position
1
2-3
Data on Income
4
Data on Comprehensive Income
5
Data on Cash Flows
6
Additional Information
7
Somekh Chaikin
Telephone
Fax
Internet
972 3 684 8000
972 3 684 8444
www.kpmg.co.il
To:
The shareholders of Osem Investments Ltd.
Dear Sirs,
Subject: Special auditors’ report on separate financial data according to Regulation 9C of
the Securities Regulations (Periodic and Immediate Reports) – 1970
We have audited the separate financial data presented in accordance with Regulation 9C of the
Securities Regulations (Periodic and Immediate Reports) – 1970 of Osem Investments Ltd.
(hereinafter – the Company) as at December 31, 2014 and 2013 and for each of the three years,
the last of which ended December 31, 2014. The separate financial data are the responsibility of
the Company’s Board of Directors and of its Management. Our responsibility is to express an
opinion on the separate financial data based on our audit.
We did not audit the financial statements of equity accounted investees the investment in which
amounted to NIS 451,605 thousand and NIS 431,830 thousand as of December 31, 2014 and
2013, respectively, and the Group’s share in their profits amounted to NIS 4,963 thousand, NIS
11,590 thousand and NIS 14,417 thousand for each of the three years, the last of which ended
December 31, 2014. The financial statements of those companies were audited by other auditors
whose reports thereon were furnished to us, and our opinion, insofar as it relates to amounts
emanating from the financial statements of such companies, is based solely on the reports of the
other auditors.
We conducted our audit in accordance with generally accepted auditing standards in Israel. Such
standards require that we plan and perform the audit to obtain reasonable assurance that the
financial data are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the separate financial data. An audit also
includes assessing the accounting principles that were used in preparing the separate financial
data and the significant estimates made by the Board of Directors and by Management, as well
as evaluating the separate financial data presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the separate financial data has been prepared, in all material respects, in
accordance with Regulation 9C of the Securities Regulations (Periodic and Immediate Reports) 1970.
Somekh Chaikin
March 26, 2015
Investments Ltd.
Separate information is presented according to regulation 9c to the securities regulations
(Periodic and Immediate Reports) -1970 as at 31 December 2014
Presented hereunder are financial data from the Group’s consolidated financial statements of December 31,
2014 (hereinafter – the consolidated financial statements), which are issued in the framework of the periodic
reports, and which are attributed to the Company itself (hereinafter – separate financial data), and are
presented in accordance with Regulation 9C (hereinafter – the Regulation) and the tenth addendum to the
Securities Regulations (Periodic and Immediate Reports) – 1970 (hereinafter – the tenth addendum)
regarding separate financial data of an entity.
In this separate financial data- Investee companies are subsidiaries as they are defined in Note 1B in the
consolidated financial statements.
The tenth addendum states, among others, that the separate financial data should be detailed as follows:
1. Information on amounts of assets and liabilities included in the consolidated financial statements that are
attributable to the Company itself (other than in respect of investee companies), according to categories
of assets and liabilities, as well as information regarding the net amount, on the basis of the consolidated
financial statements, that is attributable to the Company’s owners, of total assets less total liabilities, in
respect of investee companies, including goodwill.
2. Information on amounts of revenues and expenses included in the consolidated financial statements,
allocated between income and other comprehensive income, attributable to the Company itself (other
than in respect of investee companies), while specifying the categories of revenues and expenses, as well
as information regarding the net amount, on the basis of the consolidated financial statements, that is
attributable to the Company’s owners, of total revenues less total expenses in respect of the operating
results of investee companies, including goodwill impairment.
3. Information on cash flows included in the consolidated financial statements that are attributable to the
Company itself (other than in respect of investee companies), based on the consolidated statement of cash
flows, classified according to flow from operating activities, investing activities and financing activities
with details of their composition. For this separate financial information, cash and cash equivalent
balances belonging to the company itself includes cash and equivalents passing between the Company
and its investee companies.
4. Any additional material information, which could have an effect on economic decisions of the investor, as
much as this information was not included in the consolidated financial statements, in a manner that it
specifically relates to the company itself. At the least, this information will include: disclosure related to
cash and equivalents, disclosure related to financial assets and liabilities, disclosure related to tax income
and expenses, disclosure related to deferred taxes, in compliance with the directives of the regulation. In
addition, a disclosure should be included regarding material relationships, commitments and transactions
with the Company’s investee companies. Whether or not they were recognized and measured in the
consolidated financial statements and received expression in the framework of the detailed information in
sections (1) through (3) above.
The accounting policies described in the consolidated financial statements in Note 3 will be applied for
presenting separate financial information, including the manner in which the financial information was
classified in the framework of the consolidated financial statements, with changes required for the
abovementioned.
Investments Limited
Separate Financial Data as at 31 December 2014
Data on Financial Position
As at 31 December
2013
Additional
2014
NIS
Information NIS Thousands
Thousands
Assets
1
329,037
218,379
Other receivables
2
10,948
10,692
Income tax
3
-
978
134,165
106,810
153,945
1,328
628,095
338,187
1,784,338
1,623,899
52,533
61,898
Fixed assets
658,960
684,218
Intangible Assets
571,731
538,709
Prepaid expenses
12,823
12,763
Total non-current assets
3,080,385
2,921,487
Total assets
3,708,480
3,259,674
Inventory
Other investments
2
Balances related to investee companies
Loans to investee companies
2
Dan Propper – Chairman of the Board
Itzik Saig – CEO
Pinhas Kimelman – Deputy CEO Finance
The date of approval of separate financial data: 26 March 2015
2
Investments Limited
As at 31 December
Liabilities
2014
2013
NIS Thousands
NIS Thousands
Additional
Information
Trade payables
2
354,234
316,000
Other payables
2
384,329
301,363
9,568
-
748,131
617,363
Liabilities for acquisition of the non controlling interest in
investee companies
372,902
342,514
17,673
4,331
69,434
43,722
460,009
390,567
1,208,140
1,007,930
Share capital
176,772
176,772
Share premium
444,212
444,212
Reserves
)63,793(
)68,353(
Income tax
Employee benefits
Deferred taxes
Total non-current liabilities
Total liabilities
3
Equity
Retained earnings
1,943,149
1,699,113
Total equity
2,500,340
2,251,744
Total liabilities and equity
3,708,480
3,259,674
3
Investments Ltd.
Data on Income
For the year ending 31 December
2014
2013
2012
NIS Thousands
NIS Thousands
NIS Thousands
1,377,171
714,126
663,045
1,351,197
712,087
639,110
1,331,697
721,879
609,818
Selling, marketing and distribution
expenses
Operating profit before other income
Other income, net
Operating profit
286,744
81,272
295,029
10,982
306,011
277,693
99,478
261,939
12,080
274,019
261,098
87,299
261,421
8,658
270,079
Financing expenses
Financing income
Financing expenses, net
)14,781(
12,063
)2,718(
)16,367(
15,404
)963(
)23,347(
6,364
)16,983(
Profit from investee companies
Profit before taxes on income
Taxes on income
174,145
477,438
81,114
176,993
450,049
74,064
167,769
420,865
63,979
396,324
375,985
356,886
Additional
Information
Sales
Cost of Sales
Gross profit
3
4
Investments Ltd.
Data on Comprehensive Income
For the year ending 31 December
Actuarial gains (losses)
from defined benefit plan
2014
2013
2012
NIS
Thousands
NIS
Thousands
NIS
Thousands
)3,099(
3,818
6,454
821
)1,012(
)1,614(
Other comprehensive income (expenses) for the period
)2,278(
2,806
4,840
Other comprehensive income (expenses),
from investee companies
4,550
)19,805(
2,308
396,324
375,985
356,886
398,596
358,986
364,034
Income tax related to other elements
of comprehensive income
5
Investments Ltd.
Data on Cash Flows for the year ended 31 December 2014
Cash flows from operating activities
Adjustments for:
Company’s share in investee profits
Depreciation
Amortization of intangible assets
And prepaid expenses
Loss (gain) on sale of fixed assets, net
Income tax expense
Changes in derivatives
Change in inventory
Change in trade and other receivables
Change in trade and other payables
Change in employee benefits
Income tax paid
Net cash from operating activities
Cash flows from investing activities
Proceeds from sale of fixed assets
Return of investment in investee
Net cash from investment activities in investee
Acquisition of fixed assets
Investment in intangible assets and prepaid
expenses
2014
NIS
Thousands
2013
NIS
Thousands
2012
NIS
Thousands
396,324
375,985
356,886
)174,145(
63,692
)176,993(
57,663
(167,769)
58,008
11,767
603
27,747
)126(
27,753
130
2,718
81,114
963
74,064
16,983
63,979
)1,549(
)4,642(
1,675
)27,355(
217
151,896
10,243
)83,203(
432,322
13,415
4,940
109,896
4,044
)101,746(
385,210
(8,596)
25,508
69,417
)174(
)81,036(
362,764
183
10,142
)38,723(
745
8,861
10,152
)80,573(
46
11,258
(53,767)
)3,332(
)206(
)5,313)
Interest received
Investment in other investments
Dividend received from investee companies
Net cash from (used in) investing activities
9,431
)152,641(
36,309
)138,631(
1,581
12,735
69,520
22,815
2,639
13,288
65,425
33,576
Cash flows from financing activities
Interest paid
Repayment of other liabilities
Credit from banks and others, net
Dividend paid
)284(
)32,887(
)150,000(
)2,149(
)30,904(
)11,834(
)150,000(
)26,244(
)239,600(
15,197
(150,000)
(183,171)
110,520
(194,887)
213,138
(400,647)
)4,307(
Cash flows used in financing activities
Change in cash and cash equivalents
Cash and cash equivalents as at the beginning
of the period
Effect of exchange rate fluctuations
on cash balances and cash equivalents
Cash and cash equivalents as at the end of
the period
218,379
5,067
9,331
138
174
43
329,037
218,379
5,067
6
Investments Ltd.
Additional data to the financial statements as at 31 December 2014
1 - Cash and Cash Equivalents
2014
31 December
2013
NIS Thousands
NIS Thousands
New Israel Shekel
U.S. Dollar
Euro
Pound Sterling
Other currencies
318,792
6,711
1,114
1,665
755
215,668
1,575
624
443
69
Total Cash and Cash Equivalents
329,037
218,379
1,651
1,651
2. Financial Instruments
A. Linkage and foreign currency risks
31 December 2014
Linked to
Interest
%
Linked to
the CPI
NIS
Thousands
Assets
Debtors and debit balances (*)
Other investments (*)
Loans to held companies
Liabilities
Short term liabilities
Trade payables
Other creditors
0.35-4
1-2
Unlinked
Foreign
Currency
Total
NIS
Thousands
NIS
Thousands
NIS
Thousands
1,136
2,342
5,134
133,315
50,191
19,494
-
5,134
153,945
52,533
-
(255,616)
(330,299)
(98,618)
-
(354,234)
(330,299)
3,478
)397,275(
)79,124(
)472,921(
(*)Debtors and debit balances and other investments are classified as current assets, their realization within the
operating cycle of the company.
7
Investments Ltd.
2. Financial Instruments (Cont.)
Linkage and foreign currency risks
31 December 2013
Interest Functional currency - NIS
%
Assets
Debtors and debit balances (*)
Other investments (*)
Loans to held companies
Liabilities
Short term liabilities
Trade payables
Other creditors
4
2-5
Linked to
the CPI
Unlinked
Linked to
Foreign
Currency
Total
NIS
Thousands
NIS
Thousands
NIS
Thousands
NIS
Thousands
1,328
12,497
5,508
49,401
-
5,508
1,328
61,898
-
(221,280)
(250,020)
(94,720)
-
(316,000)
(250,020)
13,825
)416,391(
)94,720(
)497,286(
(*)Debtors and debit balances and other investments are classified as current assets, their realization within the
operating cycle of the company.
8
Investments Ltd.
B. Liquidity risk
The following are the contractual maturities of financial liabilities in the forthcoming years, including
principal payments and estimated future undiscounted interest payments.
Carrying
Amount
Contractual
Cash flow
Less than
one
year
1 year
1-2 years
3-5 years
NIS
Thousands
NIS Thousands
NIS
Thousands
NIS
Thousands
NIS
Thousands
Trade payables
Creditors
354,234
330,299
354,234
330,299
354,234
330,299
-
-
Total
684,533
684,533
684,533
-
-
Carrying
Amount
Contractual
Cash flow
Less than
year
1one
year
1-2 years
3-5 years
NIS
Thousands
NIS Thousands
NIS
Thousands
NIS
Thousands
NIS
Thousands
Trade payables
Creditors
316,000
250,020
316,000
250,020
Total
566,020
566,020
316,000
250,020
566,020
-
-
-
-
9
Investments Ltd.
C. CPI and Foreign Currency Risks
The following are details of the Company’s derivative financial instruments:
Functional
For
purchase
Functional
For sale
Term
Par Value
Start
NIS
Transaction
Thousands
Term
Expiration/
Realization
2008
2010
Fair Value
NIS 2008
2007
Thousands
Forward – hedging
supplier's debt
Australian
Dollar
NIS
14,342
12/2014
2-5/2015
)71)
Forward – hedging
supplier's debt
US
Dollar
NIS
11,667
7-12/2014
1-2/2015
663
Forward – hedging
supplier's debt
Euro
NIS
8,741
7-12/2014
1-6/2015
18
34,750
Forward – hedging
supplier's debt
Forward – hedging
supplier's debt
Functional
For
purchase
Functional
For sale
Australian
Dollar
NIS
US
Dollar
NIS
610
Term
Par Value
Start
NIS
Transaction
Thousands
Term
Expiration/
Realization
2008
2010
Fair Value
NIS 2008
2007
Thousands
16,134
12/2014
1/2014
44
2,416
3/2014
1-2/2014
(28)
18,550
16
3. Income Tax
A. Deferred taxes in respect of temporary differences
Vacation
and
Convalesce
nce
NIS
Thousands
Employee
Benefits
Fixed Assets
Other
Total
NIS
Thousands
NIS
Thousands
NIS
Thousands
NIS
Thousands
9,966
1,025
(53,566)
1,842
(40,733)
Changes recorded on the income statements
Changes recorded to shareholders' equity
3,640
13,606
1,133
(1,012)
1,146
(9,825)
(63,391)
3,075
4,917
(1,977)
(1,012)
(43,722)
Changes recorded on the income statements
Changes recorded to shareholders' equity
712
14,318
2,716
821
4,683
(25,953)
(89,344)
(4,008)
909
(26,533)
821
(69,434)
10
Investments Ltd.
3. Income Tax (cont’d)
B. Income tax in the income statements
Year ended 31 December
Current taxes
Change in deferred taxes
Regular basis
Change in tax rates
2014
2013
2012
NIS Thousands
NIS Thousands
NIS Thousands
54,581
72,087
56,850
26,533
81,114
(646)
2,623
74,064
7,129
63,979
4. Material relationships, commitments and transactions with investee companies.
A. Financial guarantees
Unlimited reciprocal guarantees exist to banks, between the Company and some of its
investee companies in which the company holds 100% ownership in the share equity and
voting rights.
B. Loans
1. The Company occasionally gives short term loans to investee companies. As at the
reporting date the loan and capital notes balances to investee companies were NIS 5,100
Thousands. (2013 - NIS 6,100 Thousands).
2. The Company gave long term loans to investee companies. As at the balance sheet date
the loan capital notes balances to investee companies were NIS 52,533 Thousands
(2013 - NIS 61,898 Thousands).
Net finance income from investee companies for the years 2014, 2013 and 2012 totaled
NIS 1,368, 5,412, and 5,691Thousands respectively.
C. Service Agreements
1. The Company supplies the Group companies with headquarters services and central
purchasing services. The company recorded income related to these services in the years
2014, 2013 and 2012 in the amounts of 103,634, 111,231 and 104,274 NIS thousands
respectively.
2. The Company, as all the other Group companies, participates in the expenses of one of
the held Group companies which carry out the commerce and distribution services. The
company recorded expenses related to these services in the years 2014, 2013 and 2012 in
the amounts of 215,687, 202,590 and 211,890 NIS thousands respectively.
11
Investments Ltd.
4 . Material relationships, commitments and transactions with investee companies. (cont)
C. Service Agreements (cont’d)
3. The Company receives usage fees for the use of assets it owns. The company recorded
incomes related to these services in the years 2014, 2013 and 2012 in the amounts of
16,490, 16,498 and 16,369 NIS thousands respectively.
4. Net debit/credit balances arising from the settling of accounts against the held
companies as at 31 December 2014 are NIS 223,649 thousand for credit to the held
companies (as at 31 December 2013 NIS 122,882 thousand).
D. Dividend
During the year 2014 the Company received dividends from subsidiary companies in the
amount of NIS 36,309 thousand, (2013 – NIS 69,520 thousand).
For additional information regarding held companies see Note 10 in the consolidated
financial statements, relating to consolidated companies.
12
Osem Investments
Limited
Section D:
Additional Details on the
Company
Section D
Osem Investments Ltd. and Subsidiaries
Additional Details on the Company
Table of Contents
1
Regulation No.
Page
8B(I)
2-3
9-9(D)
4
10-10(C)
4
11
5
12
5
13
5
14
5
20
5
21
6 - 12
21(A)
13
22
13-19
24-24(A)
20-21
24(B)
22
25(A)
22
26
23-29
26 (A)
30-35
26 (B
35
27
35
28
35
29 (a) – 29(c)
35-36
29A
36
Osem Investments Ltd. and Subsidiaries
Periodic Report for 2014
Section D - Additional Details on the Company
Company name: Osem Investments Ltd.
Company No. at the Registrar: 52-002606-3
Address: 2 Rimon St., Haman Industrial Zone, POB 934, Shoham 60850
Telephone: 03-7205050 Fax: 03-7205095
Balance sheet date: 31 December 2014
Reporting date: 26 March 2015
Reporting period: 1 January 2014 – 31 December 2014
----------------------------------------------------------------------------------------------------------
Regulation 8B(I): Very Material Valuation performed by the Company
Very Material Valuation
1.
2.
Identifying the subject of the valuation:
Materna Goodwill
The date of the valuation:
31/12/2014
Value of the valuation subject shortly before the NIS 492,562 thousand
valuation date:
Value of the valuation as determined by the
NIS 492,562 thousand
valuation:
Setting identification and definition:
Name of Assessor:
Einat Shperling (Ernest Young CPA Firm)
Qualification:
BA degree in economics and management from
the Technion Institute, Haifa
MBA from Tel Aviv University.
A Certified Public Accountant.
Experience in performing valuations for accounting Over 16 years of experience
clients in reporting companies and at a similar
scope to the said reporting valuation or valuations
that have exceeded the scope of this valuation.
Dependency on the customer requesting the
None
valuation:
Indemnification agreements with the Assessor:
The overall financial liability of the Assessor
which is related to this valuation is limited to the
amount of NIS 40 thousand, except in case of
malice from his/her side.
Valuation model used by the Assessor:
Multiple method
Capitalization rate:
N/A
Growth rate:
N/A
Scrap percentage of the total of the Terminal Value: N/A
Standard deviation:
N/A
Prices used as a basis for comparison:
N/A
Number of comparison bases
N/A
4.
5.
6.
7(a)
7(b)
7(c)
7(d)
7(e)
7(f)
2
Material Valuation
1.
2.
3.
5.
6.
7(a)
7(b)
7(c)
7(d)
7(e)
7(f)
Value of the valuation subject shortly before the
valuation date:
valuation:
Valuation model used by the assessor:
Growth rate:
Scrap percentage of the total of the Terminal Value:
Standard deviation:
1.
4.
Goodwill of Tivall (1993) Ltd. - Europe
31.12.2014
Company self-valuation
DCF
8.75% really after tax
2.5% really
77%
N/A
N/A
N/A
Liability for PUT option to the non-controlling
interest in Materna
31/12/2014
Value of the valuation subject shortly before the NIS 305,883 thousand
valuation date:
valuation:
Name of Assessor:
Einat Shperling ((Ernest Young CPA Firm)
Qualification:
BA degree in economics and management from
the Technion Institute, Haifa
MBA from Tel Aviv University.
A Certified Public Accountant.
Experience in performing valuations for accounting Over 16 years of experience
clients in reporting companies and at a similar
scope to the said reporting valuation or valuations
that have exceeded the scope of this valuation.
Dependency on the customer requesting the
None
valuation:
Indemnification agreements with the Assessor:
The overall financial liability of the Assessor
which is related to this valuation is limited to the
amount of NIS 40 thousand, except in cases of
malice from his/her side.
Valuation model used by the Assessor:
DCF
8.75% in real terms
Growth rate:
1% real growth
Scrap percentage of the total of the Terminal Value: N/A
Standard deviation:
N/A
N/A
N/A
2.
3.
4.
5.
6.
7(a)
7(b)
7(c)
7(d)
7(e)
7(f)
3
Regulation 9:
The audited financial statements along with the auditor's opinion are included in the Periodic
Report to which this Chapter belongs (hereinafter: the "financial statements")
Regulation 9C:
A Separate financial Statement of the Company
The audited financial statements along with the auditor's opinion are included in the Periodic
Report to which this Chapter belongs (hereinafter: the "financial statements")
Regulation 9D:
Liability Report per repayment dates
Please see the Immediate Report published by the Company (T-126) at the same time of the
publication of this Periodic Report.
Regulation 10:
Board of Directors' Report on the Company's State of Affairs
The Board of Directors' Report is included in the Periodic Report to which this Chapter belongs.
Regulation 10A:
Condensed Quarterly Income Statements
Included in the Board of Directors' Report, as specified in Regulation 10.
Regulation 10C:
Use of Proceeds from Securities Having Regard to the Proceeds
Targets According to the Prospectus
In the reporting period no securities were offered in a prospectus.
4
Regulation 11: List of Material Investments in Subsidiaries and Main Related Companies as of the Balance Sheet Date
Company Name
Share ISIN No.
Osem Food Industries Ltd.
---
Tivall (1993) Ltd.
---
Class of Share
Ordinary
Founding
Ordinary
Number of
Shares
Total Par
Value
1,758,595
9
1,043
175.93
0.009
1,043
Cost in
Thousands of
NIS
4,521
190,605
Book Value in
Thousands of
NIS
(*)
Direct or
Indirect Holding
Rate (**)
100%
591,889
771,667
100%
(*) As this concerns direct or indirect control of 100%, the full book value was presented, and not only the direct shareholding interest in the company.
(**) Holding rate in share capital and voting rights.
Regulation 12:
Changes in material investments in subsidiaries during the reporting period
"—"
Regulation 13:
Revenues of Subsidiaries and Related Companies (Excluding Partnerships and Inactive Companies) and Company
Revenues There from at Balance Sheet Date
Company Name
Tivall (1993) Ltd.
Profit before Tax
(thousands of NIS)
Profit after Tax
(thousands of NIS)
91,999
44,892
68,275
43,525
Dividend
(thousands of NIS)
-------
Management Fees
(thousands of NIS)
-------
Interest
(thousands of NIS)
-------
Regulation 14: List of groups of remaining loans given as at the balance sheet date, if the provision of loans was one of the Company's major
activities
The provision of loans is not one of the Company's major activities.
Regulation 20: Trading on the Stock Exchange – Securities listed for trade – Dates and reasons for suspending trade
To the best of the Company knowledge, there were no trading suspensions in the Company securities.
5
Regulation 21: Payments to interested parties and senior officers
Remuneration to officers and interested parties as recorded in the financial reports for the year 2014:
Name
Position
Scope
of
Office
Holding
Rate in
Company
Capital
Basic
Salary (II)
Social
Benefits
Dan Propper(m)
Chairman of the
Board(1A)
Part
time
0.08%
1,626,593
978,195
Itzik Saig(m)
CEO(2A)
Full
----
1,611,997
Zeev Kalimi(m)
CEO of Noga Ice
Cream(3A)
Full
----
Meir Imber(m)
Deputy CEO of
Operation(4A)
Full
(5A)
CEO of the
Pinhas
Kimelman(m)
Nili Zur (f)
Deputy CEO of Finance
Bonus(IV)
(III)
Phantom
Options (V)
Director
fees (VI)
Total
3,873,755
1,157,513(1b)
-----
111,454(1c)
1,454,204
703,962(2B)
-49,798(2C)
----
767,600
1,107,932(3b)
179,529(3c)
299,618
----
2,354,677
----
1,038,098
801,765
479,412(4B)
-54,596
----
2,264,679
Full
----
1,038,121
731,393
514,164(5B)
-54,569
----
2,229,109
Full
----
913,000
794,906(6B)
376,820(6C)
47,887
----
2,132,613
----
1.86%
410,256(7B)
22,360
----
----
132,903(7C)
3,720,365
(6A)
Avraham
Finkelstein(m)
6
Director/ Consultant to
the Osem Group on
kosher matters (7A)
565,519
General Notes:
(I) Remuneration Policy - On 3.9.2013 the General Meeting of the Company approved the Company's
Remuneration Policy (hereinafter: the "Remuneration Policy"), after the approval of the Company's
Board of Directors and Remuneration Committee. For details regarding the approval processes of the
Remuneration Policy see immediate report of the Company dated 29.7.2013 (ref. no. 2013-01-103278).
(II) The basic salary is based on the monthly salary of the office holder.
(III)
The social benefits generally include a 13th month salary, car maintenance, phone expenses, meals,
newspapers, holiday gifts, medical examinations, a clothing allowance, social rights and contributions
to social insurance and related expenses, as generally accepted.
(IV)
Bonuses – In addition to the salary component of Osem Group managers (which is based on a basic
salary, benefits, and other components), the Group's managers are granted annual bonuses based on the
principles of the Remuneration Policy. According to the Remuneration Policy, payment of a bonus is
based on a threshold condition of achievement of 75% of the annual operational profit target of the
Company for the relevant year (as calculated on the basis of the consolidated annual reports) as well as
achievement of the Company's targets and the achievements of the different managers of the Group of
the respective targets of the business units/HQ departments which they manage. For further details
regarding entitlement to bonus, manner of calculation and the different types of targets for the purposes
of calculation of the bonus, please see part C of the Remuneration Policy.
The Company's targets for the purpose of bonus payments to senior managers for 2014 achievements
are based on the 2014 working plan of the Company and are composed of five targets: (a) Real Organic
Growth – 10% weight; (b) Organic Growth – weight 30%; (c) Operational Profit 1 – weight 40%; (d)
Free Cash Flow – weight 10%; (e) Market Share – weight 10%; (hereinafter: "Osem Group Targets").
According to the consolidated financial results of the Group for2014 the weighted achievement level
reached is 74%.
In addition, the Remuneration Policy allows the Company to award Osem Group managers with an
extraordinary bonus (in addition to the other remuneration components to which they are entitled to),
due to an unusual event or process with long-term consequences which can significantly promote the
Company's interests, in a manner that this bonus in any case would not exceed 3 months salaries
(gross) to a manager, and will be derived from the assessment of the manager's contribution to the
qualifying event, the contribution of the qualifying event to the Company in the long term and the
degree of its strategic importance to the Company.
The sum in this column (the "Bonus" column) is comprised of the bonuses as were recognized in the
financial reports of the Company.
The bonuses, as mentioned above, for each of the Company's Office Holders, were approved by the
Remuneration Committee and by the Board of Directors in line with their achievements level as
mentioned above and according to the Remuneration Policy.
(V) Bonuses plan for encouraging and retaining employees ("Phantom Options Plan") – On 29 May 2008, the
Company’s Board of Directors approved a bonus plan for encouraging and retaining managers in Osem
Group (who are not controlling shareholders or relatives thereof, and who are not the directors in the
Company), which was amended by the Board on 27.8.2009, to a period of 3 years (2008-2010) (the
"2008 Plan"). In addition, on 25 May 2011, the Board of Directors approved an additional bonus plan
7
to retain and encourage managers (who are not controlling shareholders or relatives thereof, and who
are not the directors in the Company) for a period of 3 years (2011-2013) (the "2011 Plan"). On May
26th 2014, the Board of Directors approved an additional bonus plan to retain and encourage managers
(who are not controlling shareholders or relatives thereof, and who are not the directors in the
Company) for a period of 3 years (2014-2016) (the "2014 Plan"). Under the conditions of each of the
above mentioned plans, the Company granted "phantom options" to a number of senior Managers so
that the bonus given by the Company (if and to the extent that any is given) will be based on the gap
between the average price of the Company share during 2 months before the option grant date and the
average price of the Company share during 2 months before the option exercise date. The vesting
period of each "phantom option" stands at three years from May of each year of the 2008 Plan, and at
three years from June of each year of the 2011 Plan and the 2014 plan. The option value in each of the
above mentioned plans was calculated based on the binomial model formula and by an external
actuary. In the scope of the Remuneration Policy is was set that regarding phantom options granted as
of 2013 onwards, the value of the options shall not exceed twice the value at the date of grant, linked to
consumer price index according to the base index on the date of grant.
The Phantom Option Plan is in line with the terms of the Remuneration Policy.
The amount in this column reflects the expense/income registered in the Company's books for phantom
options. Due to re-evaluation of the phantom options and due to the decline in the Company's stock
value during 2014, the expense in respect of the phantom options which was credited in 2014, is
negative.
(VI)
Payment of Directors' Fees - In accordance with the resolution of the Company's Audit Committee and
Board of Directors and in accordance with the resolution of the General Meeting from 2 September
1997, according to which the Company's Board members are entitled to directors' fees to be paid at the
maximum rate under the Companies Regulations – (Rules Regarding Compensation and Expenses to
External Directors- 1998), the Company pays Board members, directors' fees for serving as directors
of the Company, in an amount equal to the maximum rate as per the Companies Regulations (Rules
Regarding Compensation and Expenses to External Directors – 1998); on 29 May 2008, the Company's
Board of Directors approved, after receiving the Audit Committee's approval, the adjustment of the
compensation of the External Directors at the Company as of July 2008, in accordance with an
amendment from 6 March 2008 to the Israeli Companies Regulations (Rules Regarding Compensation
and Expenses to External Directors) 2000, and the directors' fees of each of the directors (who are not
external directors) were adjusted accordingly. According to the Audit Committee, those members of
the Board who are employed by the Company (except for service providers) will not be entitled to fees
for the meetings.
The total amount of directors' (including external directors) fees that are not detailed herein, for 2014 is
NIS 1,215,993.
(VII)
Directors’ and Office Holders’ Insurance – please see Regulation 22, below.
Notes to the Table
Dan Propper
(1A) On 1 May 2006, the Company's General Meeting approved the employment terms of Mr. Dan Propper as the
Company's Chairman of the Board for a period of 5 years, as of 1 April 2006. On 19 October 2010, the
Company’s General Meeting approved his employment terms as the Company’s Chairman of the Board for
an additional period of 3 years, effective 1 April 2010, (and until the date of 31 March 2014), and with
possibility of extending the period of employment for additional two years, until the date of 31 March 2016,
8
subject to the approval of the Board. On 21 November, 2013 the Board of Directors (following the approval
of the Remuneration Committee) approved the extension of the term of office of Mr. Dan Propper as
chairman of the Company's Board of Directors until 31 March, 2016, without any modification of the terms
of his employment. According to the employment agreement of Mr. Dan Propper, his monthly salary is
linked to the rate that is at least the average rate of increase in the salary of the forty top paid employees in
the Company, but excluding those who are interested parties (the "Comparison Group"). Likewise, his
employment agreement prescribes a mechanism for his bonus, whereby every year in which the Company
gives a bonus to six or more senior managers out of the Comparison Group, Mr. Propper will be entitled to a
bonus calculated based on the average bonus amount set for said employees from the Comparison Group for
whom the bonus was determined, divided by the average salary of said employees in the last 12 months, such
that the quotient obtained is multiplied by the average salary of Mr. Propper in the last 12 months. It is
clarified that bonuses that result of exercise of Phantom Options are included in the calculation of the bonus
of Mr. Dan Propper. In addition, Mr. Dan Propper is entitled to annual directors' fees; to a car; to related
social benefits; and also to be covered by a directors’ and officers’ liability insurance, as will be determined
in the Company from time to time. As per the terms of the agreement, if Mr. Propper concludes his office
before the end of the employment period (or the end of the extension period) for reasons beyond his control,
the Company will pay him (in addition to the payment of severance pay), the remaining of all the salary cost
which is due to him for the rest of his employment period (or the extension period). For details on the terms
of the agreement, see also the Company's Immediate Report dated 21 September 2010 (ref. no. 2010-01628209).
(1B) The bonus is granted in respect of 2014 as detailed above.
(1C) Director's fees – see comment (VI) above.
Itzik Saig
(2A) Mr. Saig has been holding the office of Company CEO since 2 April 2012. The conditions of Mr. Saig's
employment agreement as Company CEO, as approved by the Audit Committee and the Board of Directors
of the Company, stipulate that his term of office will last up to the legal retirement age of Mr. Saig and this
agreement can be terminated at any time without cause at an advance notice of 90 days by the Company or at
an advance notice of 120 days by the CEO. If any of the parties terminates the agreement before its stated
term at an advance notice, the CEO will be entitled to a monthly salary and to other employment terms for a
period of 6 months from the date that his employment is concluded. Under the agreement, the CEO is
entitled to 13 salaries each year, to grants (bonuses) in accordance with the annual bonuses plan which will
be determined by Company's Board from time to time and to Phantom Options as per the Phantom Option
Plan, as will be approved from time to time by the Board. Under the agreement, the CEO is also entitled to
related expenses, such as car maintenance (including tax grossing-up), telephone, meals, newspapers, gifts
for the Holidays, medical examinations, clothing allowance and social benefits and social security, and other
related benefits as generally accepted. Regarding the employment terms of Mr. Saig as the Company's CEO,
see also the immediate report dated 25 March 2012 (Reference number 2012-01-077394).
(2B) the targets that served for the determination of the annual bonus to Mr. Saig are the targets of Osem Group
(see General Note IV above), in a manner that the total annual bonus amounted to NIS 703,962.
The bonus payment was approved by the Remuneration Committee and the Board of Directors and is subject
to the approval of the General Meeting of the Company's Shareholders, which the Company intends to
convene according to the relevant laws.
9
(2C) Based on the resolutions of the Company's General Meeting and after the approval of the Remuneration
Committee and the Board of Directors and based on the Company's Phantom Option Plan, Mr. Saig was
granted for the year 2014 Phantom Options in an amount that equaled 12 monthly salaries of the CEO on the
date of the grant, i.e. – a total of NIS 1,627,654. For additional details regarding the approval of the grant of
the Phantom Options to the CEO – see the Company's immediate report dated 24.6.2014 (ref. no. 2014-01097704).
Zeev Kalimi
(3A) Mr. Kalimi served as the manager of Noga Ice-cream and has been employed by the Company since 2009 to
15.9.2014. The employment terms of Mr. Zeev Kalimi were in accordance with his employment agreement
from 12 January 2009 and included his monthly salary, social benefits, participation in car maintenance,
telephone expenses, and participation in expenses incurred during work. According to his employment terms,
Mr. Kalimi was entitled to a target bonus at the rate of six monthly salaries. In addition, it was stated that Mr.
Kalimi will be entitled to "phantom options" as generally accepted for senior managers. The terms of the
agreement do not specify the period of the employment agreement. In reference to the termination of the
agreement, a period of 6 months as advanced notice was set if there would be an organizational
change/restructuring in the Company, and under other circumstances a 3 months advanced notice was set.
(3B) in addition to the Social Benefits detailed in paragraph (iii), the sum detailed in this column includes payments to Mr.
Kalimi in connection with his retirement from the Company, including settle of account, adaptation grant in amount of
NIS 386,080 (equal to 4 monthly salaries) and also differences amounts due to redemption of leave days in
amount of NIS 33,550,
(3C) the calculation of the annual bonus to Mr. Kalimi, is based on the relative of period in which he served as the
CEO of Noga Ice Cream during 2014. In calculating the bonus a weight of 30% was allocated to Osem
Group's targets and a weight of 70% was allocated to the targets of Noga Ice Cream. The weighted
achievement level of Mr. Kalimi's overall targets was 47%, reflecting an achievement level for the Osem
Group Targets (as the relative achievement rate at the date of the termination of his employment) and
achievement level for the Noga Ice Cream targets (as the relative achievement rate at the date of the
termination of his employment).
Meir Imber:
(4A) Mr. Imber is the Company's Deputy CEO Operations. He has been employed in the Company since 2003.
The employment terms of Mr. Meir Imber are in accordance with his employment agreement from 16 June,
2003 and they include his monthly salary, social benefits, participation in car maintenance and telephone
expenses, and participation in expenses incurred during work. Mr. Imber is entitled to an annual bonus based
on the Company's policy and to Phantom options as generally accepted for the senior management level at
the Company. The terms of the agreement do not specify the period of the employment agreement.
(4B) In calculating the annual bonus amounting to NIS 427,302 to Mr. Imber, a weight of 50% was allocated to
Osem Group's targets and a weight of 50% was allocated to the targets of the Operations Division at the
Company's Headquarters. The weighted achievement level of Mr. Imber's overall targets was 86%, reflecting
a 74% achievement level for the Osem Group Targets (see General Note IV above) and a 97% achievement
level for the Operations Division.
In addition, an extraordinary bonus was approved to Mr. Imber, in an insignificant amount of NIS 52,110
(which reflects 0.6 salaries), for his involvement and contribution to the implementation of an internal
project which aimed to improve the organizational efficiency of the Company, extracting it's resources and
building a better organizational infrastructure for the coming years while reducing expenses, and in a manner
10
that this project was evaluated by the Remuneration Committee and the Board of Directors as a "qualifying
event", inter alia due to its strategic importance to the Company.
Pinhas Kimelman
(5A) Pinhas Kimelman has been employed in the Company since 1988. Pinhas Kimelman is the Company's CFO
and the manager of the Company's Finance Division. The employment terms of Mr. Kimelman are in
accordance with his employment agreement from March 1988 and they include monthly salary, social
benefits, participation in car maintenance and telephone expenses, and participation in expenses incurred
during work. Mr. Kimelman is entitled to an annual bonus based on the Company's policy and to Phantom
options as generally accepted for the senior management level at the Company. The terms of the agreement
do not specify the period of the employment agreement.
(5B) In calculating the anuual bonus to Mr. Kimelman amounting to NIS 462,054, a weight of 50% was allocated
to Osem Group's targets and a weight of 50% was allocated to the targets of the Finance Division at the
Company's Headquarters. Kimelman's overall targets was 93%, reflecting a 74% achievement level for the
Osem Group Targets (see General Note IV above) and a 111% achievement level for the Finance Division.
In addition, an extraordinary bonus was approved to Mr. Kimelman, in an insignificant amount of NIS
52,100 (which reflects 0.6 salaries), for his involvement and contribution to the implementation of an
internal project which aimed to improve the organizational efficiency of the Company, extracting it's
resources and building a better organizational infrastructure for the coming years while reducing expenses,
and in a way which this project was evaluated by the Remuneration Committee and the Board of Directors as
a "qualifying event", inter alia due to its strategic importance to the Company.
Nili Zur
(6A) Nili Zur has been employed by the Company since 2005 (in 2011-2013 Mrs. Zur was employed as a manager
in Nestle India). Nili Zur serves as the Company's CEO of the International Division since 1.2.2014, when she
came back to Osem Group from her position in Nestle India. The employment terms of Mrs. Zur are in
accordance with her employment agreement from 2005 and supplement letter from 5.1.2014, and include
monthly salary, social benefits, participation in car maintenance and telephone expenses, and participation in
expenses incurred during work. Mrs. Zur is entitled to an annual bonus based on the Company's policy and to
Phantom options as generally accepted for the senior management level at the Company. The terms of the
agreement with Ms. Zur do not specify the duration of her employment.
(6B) In addition to the social benefits (see general notes III above), the amount in this column reflects returning
grant, amounting to NIS 83,000 together with a gross up as was agreed with Mrs. Zur before she began
working at Nestle India.
(6C) In calculating the anuual bonus to Mrs. Zur amounting to NIS 347,770, a weight of 30% was allocated to
Osem Group's targets and a weight of 70% was allocated to the targets of the international Division. The
weighted achievement level of Mrs. Zur overall targets was 84%, reflecting a 74% achievement level for the
Osem Group Targets (see General Note IV above) and a 88% achievement level for the International
Division.
In addition, an extraordinary bonus was approved to Mrs. Zur, in an insignificant amount of NIS 29,050
(which reflects 0.35 salaries), for her contribution to implementation of infrastructure development and
engine growth in the international Division under her management, which the Company estimates is
expected to significantly assist to the growth of the Company in the long term.
11
Avraham Finkelstein:
(7A) Mr Finkelstein was employed by the Company since 1988, and until April 2010. As of April 2010, with the
termination of his office as VP of Administration, Avraham Finkelstein began to provide services for kosher
matters and consultation on labor relations issues, at a scope of work of two days per week (and beyond that
if deemed necessary, and at no additional cost). The term of agreement with Mr. Finkelstein was set for 3
years, effective as of May 2010, and each party (the Company and Mr. Finkelstein) is entitled to terminate
the agreement by an advance notice of 90 days. The consideration paid to Mr. Finkelstein for the above
mentioned services, as mentioned above, is in addition to the compensation Mr. Finkelstein is entitled to
receive as a director in the Company. On 1.5.2013 the Company's General Assembly approved (following
the approval of the Remuneration Committee and the Board of Directors), the extension of the contact period
with Mr. Finkelstein by 3 additional years, until the date of 30 April 2016 (hereinafter: the "Extension
Period") so that during the Extension period, Mr. Finkelstein will continue to provide the Company and its
subsidiaries services, at a certain reduction in the remuneration he was entitled to until the beginning of the
extension Period, with respect to kosher issues and during the first 6 months of the Extension Period he will
also provide consultation for labor relations if and as much as required, without additional consideration. For
additional details regarding the terms of the agreement see the Company's immediate report dated 30.4.2013
(ref. no. 2013-01-011017).
(7B) payment for services as per above;
(7C) Director's fees – see comment (VI) above
12
Regulation 21A:
the controlling shareholder in the Company
The controlling shareholder in the Company is Nestle S.A., a multi-national company whose shares
are traded on the Swiss stock exchange (hereinafter: "Nestle").
It should be noted that up to November 2011, Nestle had an agreement with Mr. Dan Propper and Mr.
Gad Propper, who held, each of them, together with their respective family members about 4.99% of
the share capital and voting rights in the Company through different companies.
On 15 November 2011, Nestle notified the Company that all the arrangements it had with Messrs. Dan
Propper and Gad Propper, according to which they were requested to vote by using their shares in the
Company shareholders meetings together with Nestle and/or in order to support any resolution in
favour of Nestle and/or take any action in order to promote the interests of Nestle, were annulled. As
per Nestle's notification, as mentioned above, the notification which was described above does not
detract from Nestle's commitment then to Messrs. Dan Propper and Gad Propper to vote for their
nomination as directors in the Company under the conditions that were set. Nor does it detract from its
commitment not to receive certain resolutions that may harm minority interest in the Company, as
reported by the Company in the past. See also Immediate Report dated 15 November 2011 (Reference
number 01-327141-2011) whose details are included in this paragraph by way of reference. On 1
February 2012, Mr. Gad Propper sold his entire holdings in the Company share capital and on 27
November 2013 Mr. Dan Propper sold the majority of his holdings in the Company share capital.. To
the best knowledge of the Company, as at the date of this Report,. Mr. Dan Propper holds 93,122 of
the Company shares
Regulation 22:
Transactions with controlling shareholders
Transactions with a controlling shareholder or in which the controlling shareholder has a
personal interest
Following are details, to the best of the Company's knowledge, regarding every transaction with the
controlling shareholder (Nestle S.A. and/or its related companies, hereafter in the elaboration of this
regulation "Nestle") or regarding which the Company's controlling shareholder has a personal interest
in its approval, which the Company and/or companies controlled by it ("the Group") entered into
during the reporting year or sometime after the reporting year up to the submission date of this report,
or which is still in force at the report date:
Transactions under Section 270 (4) of the Companies Law
Materna transaction: On 12 September 2008, the Company entered into an agreement with Materna
Laboratories Ltd. ("Materna Laboratories"), by which the Company will purchase 51% of the fixed
assets, goodwill and working capital of the infant nutrition business of Materna Laboratories
concentrated under the brand "Materna" so that Company and Materna Laboratories have set up a
partnership, in which Osem will hold a 51% stake (and the remaining is held by Materna Laboratories)
and to the effect that Osem and Materna Laboratories have placed at the partnership's disposal the
fixed assets, goodwill and working capital. At the same time Nestle acquired from Materna
Laboratories 51% of the know-how and brands of Materna, so that these together with the know-how
and brands of Nestle are placed at the disposal of the partnership in return for usage fees ("Materna
transaction"). For further details regarding the transaction outline and terms see the Company's
immediate reports from 23 October, 2007 and 14 September, 2009.
13
On 27 January 2009, the Company's General Meeting approved the Materna transaction, after
receiving the approval of the Audit Committee and Board of Directors. For further details, see the
Company's immediate reports from 30November 2008, from 11 December 2008, and from 27 January,
2009.
For additional details on the transaction outline and terms, see the Company's immediate reports from
22 December, 2009.
On 26 July 2011, the Audit Committee of the Company decided to set a limit to the period of this
agreement, for a period of the latest between the two: either fifteen years from the month of December
2009, or the date of exercising the option which was granted to Nestle to acquire the remaining
intellectual property of Materna from Materna Laboratories. The Audit Committee approved that
further contracting under this agreement for the period mentioned above, which exceeds 3 years, is
reasonable under the circumstances. For details see Immediate Report dated 27 July 2011.
Agreement regarding the intellectual property of "Tribe" and "Foodtech" from 1 February
2009: On 27 January 2009, the Company's General Meeting approved, after receiving the approval of
the Audit Committee and Board of Directors, the entry into an agreement for the sale of the
intellectual property of Tribe and Food Tech (know-how and trademarks) acquired by the subsidiary
Tivall (through companies controlled by it) to Nestle and/or its related companies, at a price of US$
15.6 million for the intellectual property of Tribe, and at a price of US$ 9.4 million for the intellectual
property of Food Tech.
In accordance with the agreement terms, following the sale of the intellectual property to Nestle,
Nestle places said intellectual property at the disposal of Tivall for purposes of its operations in North
America (together with Nestle's know-how in the meat analogue and cold salads sector), in return for
royalties of 2.5% from the net sales of Tivall's subsidiary in North America. The first agreement
period was set at 10 years and the agreement is automatically renewable for additional periods of 5
years each. The agreement includes additional provisions regarding use of the intellectual property of
Tivall, Tzabar Salads and Nestle, in other countries, all as detailed in an immediate report on a
transaction between a company and its controlling shareholder from 11 December 2008.
On 26 July 2011, the Audit Committee of the Company decided to set a limit to the period of
contracting in this agreement, for a period of 15 years from the month of February 2009. The Audit
Committee approved that further contracting in this agreement for the period mentioned above, which
exceeds 3 years, is reasonable under the circumstances. For details see Immediate Report dated 27
July 2011.
Entry into an agreement with the Nestle Globe Project: On 31 December 2007 the Company's
General Meeting approved, following approval from the Audit Committee and Board of Directors, the
entry into an agreement with Nestle, whereby the Company will join the Nestle Globe Project, which
provides computerization services (hardware and software) with advanced features and in real time to
Nestle Group companies, including the assimilation and incorporation of a range of services and
systems in the field of computerization, incorporated into the Company by request, including systems
for planning, prioritization and allocation of products to customers and optimization of production
planning and its customization to demand, upgrading of the Company's level of computerization,
advancement of management aspects at the Company, creation of global standardization of all the
computer systems (hardware and software) with the Nestle Group companies, creation of global
standardization of information system infrastructure in the group, , implementation of optimal work
14
processes (best practices), streamlining of the Company's systems and operations, following the
implementation of best practices, as well as other aspects. The consideration being paid by the
Company is in respect of its proportional share in total development and services costs, as stated,
provided by the Globe Project, it being agreed between the Company and Nestle that, in the event the
rate of computerization costs in a particular year exceeds 1.5% of the Company's NPS (Net Proceeds
of Sale – i.e. its gross revenues from the consolidated sales, less VAT, returns and commercial
rebates), the difference will be added to the computerization costs of the following years, plus interest,
provided that in each of the following years the annual payment in respect of the Company's
computerization costs will not exceed 1.5% of NPS, which constitutes the average rate of costs for the
Company's computerization costs in the four years preceding the transaction approval date. The
agreement has been made for an unlimited period of time, provided that each of the parties will be
allowed to terminate it by 6 months' advance notice.
On 26 July 2011, the Audit Committee of the Company decided to limit the period of contracting in
this agreement, for a period of 20 years starting from the month of December 2007. The Audit
Committee approved that further contracting in this agreement for a period, as mentioned above,
which exceeds 3 years is reasonable under the circumstances. For details see Immediate Report dated
27 July 2011.
Agreement from 26 November 2002 regarding a lease and the provision of services to the snack
R&D center: On December 17, 2002 the Company's General Meeting approved, following the
approval of the Audit Committee and Board of Directors, an agreement whereby, inter alia, for
purposes of setting up Nestle's snack R&D center in a special building constructed by the Company, at
Nestle's request and for its use within the compound of the Company's plant in Sderot, Nestle entered
into an agreement with the Company for the lease of the land and the development center and also an
agreement for the provision of services to the development center. The agreement provides, inter alia,
that Nestle has rented under unprotected tenancy, in accordance with tenant protection laws, the
building serving as a research center, as well as the courtyard area for it, as defined in the agreement,
for a period of 15 years with an extension option; lease fees are to be paid in US dollars; the lessee
may not terminate the lease and the lease fee payments before repayment of the Company's entire
investment in the building. The parties also entered into a services agreement by which, inter alia: the
Company is to provide to Nestle various services and products for current operations at the site,
insofar as it will be able to provide these services for services and products that were purchased by the
Company for Nestle, from third party suppliers - Nestle will pay their full cost according to the
supplier invoices; for services and products provided directly to Nestle by the Company, the full cost
will be paid; for services shared by Nestle and the plant, Nestle will pay its proportional share
according to the built-up area at Nestle's disposal relative to the overall built-up area of the plant.
On 26 July 2011, the Audit Committee of the Company decided to limit the period of contracting in
this agreement, for a lease period of 15 years starting from the month of November 2002, with an
option to Nestle to extend the lease for an additional period of 9 years. The Audit Committee approved
that further contracting in this agreement for a period, as mentioned above, which exceeds 3 years is
General Licensing Agreement from 1 January 2001 between the Company and Nestle: On May
22, 2001 the Company's General Meeting approved, after receiving approval from the Audit
Committee and the Board of Directors, an agreement by which, inter alia, Nestle grants the Company
the right to use trademarks (as defined by the parties), know-how and patents of Nestle within the
15
territory of the State of Israel, in connection with various products, including beverages and coffee
products, pet food and sweets, and other products as will be defined between the parties. In
consideration for the usage right the Company pays Nestle royalties of 4% of net sales of the relevant
products. In consideration of the products the Company pays Nestle the production price without any
economical profit to Nestle. The agreement stipulates further terms for the use of trademarks, knowhow and patents. The agreement is for a period of 10 years and thereafter automatically renewable for
additional periods of 5 years. For details see Immediate Report dated 29 March 2011.
On 26 July 2011, the Audit Committee decided to set a limit to the period of contracting in this
agreement, for a period of 15 years from the month of January 2001. The Audit Committee approved
General Licensing Agreement from 1 January 2001 between the Company and CPW, a related
company of Nestle: CPW is a company jointly owned by Nestle and General Mills, which engages in
the development and production of breakfast cereals. On May 22, 2001 the Company's General
Meeting approved, after receiving approval from the Audit Committee and Board of Directors, an
agreement by which, inter alia, CPW grants the Company the right to use trademarks (as defined by
the parties), know-how and patents of CPW within the territory of the State of Israel, in connection
with breakfast cereals. In consideration for the usage right, the Company pays CPW royalties of 5% of
net sales of the relevant products. In consideration of the products the Company pays Nestle the
production price without any economical profit to Nestle. The agreement stipulates further terms for
the use of trademarks, know-how and patents. The agreement was signed for a period ending
December 31, 2006, following which it is automatically renewed for additional periods of 5 years.
On 26 July 2011, the Audit Committee decided to set a limit to the period of contracting in this
agreement, for a period of 15 years from the month of January 2001. The Audit Committee approved
Agreement between Noga Ice Cream Limited Partnership (a subsidiary fully owned by the
Company, hereinafter: "Noga") and Nestle, dated 25 February 1997, as it was ratified on 1
November 2011: according to the agreement, among other things, Nestle grants Noga the right to use
trademarks (as defined between the parties) and use the Nestle the know-how and patents, in the
territory of the State of Israel in connection with the ice cream products. For the right of usage, Noga
pays Nestle royalties at 3% of the net sales of the relevant products. The agreement set additional
conditions for using the trademarks and know-how. The original agreement was signed for an initial
period of 10 years, and is to be renewed automatically afterwards, for additional periods of 5 years. .
For details see Immediate Report dated 29 March 2011.
On 1 November 2011, following the approval of the Audit Committee and the Board of Directors, the
Company General Meeting approved the extension of the Noga agreement. According to the
conditions of the agreement, which were ratified as mentioned above, the extended agreement is for a
period of 5 years, starting on 26 February 2012. In this respect, the Audit Committee stated that the
period of contracting in this agreement, as mentioned above, is reasonable under the circumstances.
See also the Company's Immediate Report dated 10 October 2011.
Technical Assistance Agreement between the Company and Nestle from 29 May, 1998 : on 2 July
1998, following the approval of the Audit Committee and the Board of Directors, the Company
16
General Meeting approved the contracting in the above mentioned agreement according to which,
among other things, it was stated that Nestle (through Nestec Ltd., which is the R&D arm of Nestle
and a fully owned company) will provide the Company specific technical assistance and also general
technical assistance, as follows: specific technical assistance for specific products for the purpose of
selling them in the territory of the State of Israel – which includes technical, scientific and professional
assistance for manufacturing the above mentioned products, in consideration for2.5% of the total sales
of these products; general technical assistance – which includes technical assistance, including
assistance in manufacturing, engineering assistance, quality assurance, distribution and marketing,
finance, accounting, data processing, purchasing organization, insurance and other operational and
administrative aspects. In consideration for the general technical assistance, the Company pays Nestle
an annual sum of CHF 1 million.
In addition, according to the terms of contract, for know-how Nestle may request from the Company if
and when it so requests, Nestle shall pay 2.5% of the sales turnover from the products for which Nestle
shall use the know-how of the Company. For using the Company brands Nestle shall pay additional
1.5% of the sales turnover from products which includes use of brands.
The original agreement was set for an initial period of 7 years and is to be renewed automatically
afterwards for additional periods of 7 years each.
On 1 November 2011, following the approval of the Audit Committee and the Board of Directors , the
Company General Meeting approved the extension of the commitment between the Company and
Nestle under this agreement, so that according to the condition of the above-mentioned commitment,
the additional period of agreement will be for a period of 7 years, starting from 29 May 2012, unless
any of the parties to the agreement notified of its intention to terminate the commitment by a prior
notice of 12 months, as the case may be. The Audit Committee stated that the period of commitment in
this above mentioned agreement, is reasonable under the circumstances. See also the Company's
Immediate Report dated 10 October 2011.
Transactions not according to Section 270 (4) of the Companies Law
Agreement between Tivall Europe and Nestle Germany: On January 27, 2009 an agreement was
signed between Nestle Germany (a related company of Nestle) and Tivall Europe (a company wholly
owned by Tivall), which does not amount to an extraordinary transaction, within the meaning of this
term in the Companies Law, whereby Nestle Germany provides to Tivall Europe, a subsidiary
company of the Company, selling services for products named Tivall Europe across Germany and
Austria (according to destinations defined by the parties). The agreement was made for an unlimited
period and can be terminated under an advance notice of six months. Tivall Europe undertook to pay
a one-time payment to Nestle Germany for the training of workers as well as a commission of 5% to
7% of sales (the commission rate of 7% will drop down to 5% as sales grow).
Insurance:
A. A. On October 19, 2010, the Company’s General Meeting approved, following the approval of
the Audit Committee and Board of Directors, the Company's entering into a directors and
officers liability insurance policy, with a validity term, starting from April 1, 2011 for a period
of 12 months. Within this agreement, the Company CEO was authorized to renew (by
extending the term or by taking out another insurance policy), from time to time and at his
discretion, the insurance policy at a similar and/or same conditions, which will be acceptable
17
and appropriate for the Company and the officers at the time of the policy renewal and at
favorable conditions for the Company, so that the Company can contract with the insurer for
further periods of insurance until the date of March 31 2016, and as long as the cost of the
annual insurance premium to be paid by the Company will not increase by more than 25% of
the annual payment paid during the previous insurance period, as of the date of the approval as
specified above, and the liability limits will not exceed by more than 25% compared to the
current liability limits, and subject to the approval of the Board and its Audit Committee that
there are no material differences in the terms of the new contract compared to the previous
year.
B. On 24 March 2010, the Company's board of directors approved, after receiving approval from
the Audit Committee, the Company's participation in an officers’ liability insurance policy
which Nestle has purchased or will purchase, from time to time, for its directors and officers
of companies from the Nestle Group and within these companies, the Company and its
controlled subsidiaries, at an insurance cover as an additional insurance layer which is added
to the directors and officers liability insurance the Company has purchased at its own expense
(see above). In the reported year, and at the date of this Report, the additional insurance layer
amounted up to a maximum of USD 150 million. The participation, as mentioned above, is
without any payment of premium of any kind, by the Company and without any obligation of
self-participation.
C. On 24 March 2010, following the approval that was received from the Audit Committee, the
Company's board of directors approved the contracting of the company, from time to time,
with Migdal Insurance Company ("Migdal") as a transaction that does not constitute an
extraordinary transaction as the term is defined in the Companies Law, for the purchasing of
policies for the main insurances for the Company and its subsidiaries, so that Migdal, as chief
insurer, will contract among other things, with a re-insurer to provide a re-insurance to Migdal
at a volume that will not exceed about 40% of the above mentioned insurance portfolio and so
that this re-insurer may contract directly with a Nestle related company, to provide an
insurance cover in the portfolio (for the proportion of the cover regarding which the re-insurer
will enter into contract).
Agreement between Osem UK and Nestle: According the conditions of the agreement, Osem UK (a
fully owned subsidiary of the Company) purchases from Nestle food products, which are imported by
Osem UK to England, for the purpose of distributing them in the ethnic market in England. As at the
report date, such product purchasing is done against payment which as a rule reflects Nestle's transfer
prices with an addition of 12%. The purchasing of the products is done in volumes that are not
material for the Osem Group. The preliminary period of the agreement was set until 1 June 2013, and
after that the agreement was automatically renewed for 3 years and will continue to be renewed for
additional periods of 3 years unless it is terminated by a prior notice of 6 months. On 31 March 2011,
the Company board of directors approved the contracting and also ratified the agreement starting from
2007, as a transaction which does not constitute "an extraordinary transaction", as the term is defined
in the Companies Law. On 21 November 2013, the Audit Committee decided to approve and ratify the
worthiness of the deal and its continuation until the date of 31 May 2016 and to approve the
distribution of "Maggi" products by Osem UK for a distribution fee of 12% from every sale.
Definition of Insignificant Transaction:
On 31August, 2011, having accepted the recommendation of the Audit Committee, the Board of the
Company decided to adopt a procedure for approving insignificant transactions with interested party
18
and with controlling shareholder in the Company. As stipulated in Regulation 41(a) (6), to the
Securities Regulations (preparing the annual financial statements) – 2010 which provided a concise
definition for transactions which will be regarded as insignificant, as per the following:
A.
a transaction of an interested party which is not an exceptional transaction (as defined in the
A. Companies Law - 1999), and is not defined by the Company as an event which
requires immediate reporting, as per Regulation 36 to the Securities Law (Periodic and
Immediate Reports), 1970 and the transaction meets the following two conditions:
a. The transaction value is less than 0.5% (half a percent) of the relevant criterion as
defined in the Procedure (one criterion or more than one, if relevant and as much
as relevant to the transaction), the criterion is the annual sales turnover and/or the
total of the assets in the balance sheet and/or the total of the liabilities in the
balance sheet and/or the annual profit and each and all according to the relevant
circumstances of the specific transaction, and in addition
b. The value of the transaction does not exceed a total of NIS 8,000 thousand, when
this sum is adjusted to the rate of increase in the CPI compared to the CPI which
was published on 15 July, 2011, and all according to the lower of the two.
For each transaction, whose classification as an insignificant transaction will be examined
one of the criteria set above, and this - based on the last consolidated annual financial
statements of the Company:
A. When purchasing products (including finished products, bulk and/or raw materials)
which are used by the Group – by the volume of the purchasing against the total annual
sales volume, as reflected in the financial statements.
B. When selling the Group's products – the sales volume against the total annual sales
volume, as reflected in the financial statements.
C. When purchasing or selling services – the transaction volume against the total annual
sales volume, as reflected in the financial statements.
D. When purchasing fixed asset ("non-current asset") – the transaction volume against the
total sum of all the assets listed in the report on the financial affair which included in the
financial statements.
E. When selling a fixed asset ("non-current asset") – the profit/loss incurred from the
transaction against the annual profit/loss, as reflected in the financial statements.
F. When accepting a financial commitment – the transaction volume against the total sum
of all the liabilities listed in the report on the financial affair which included in the
financial statements.
19
Regulation 24: Holdings of Interested Parties
Below please find detailed information, to the best knowledge of the Company, on the securities held by interested parties and senior office holders in the
Company, or in a subsidiary company of the Company whose activity is material to the Company, close to the report date.
Holding Rate in Share
Capital, Voting Rights and
Authority to Appoint
Directors
ID Card No./Company
No. at Registrar
Security Name
Security No.
Par Value Held at
December 31, 2013
CH-550-0067-293-5
Osem Investments
304014
70,460,032
63.68%
Company controlled by Dan
Propper** (2)
Osem Investments
304014
93,122
0.08%
Dorit and Yitzhak Yarkoni and family
companies controlled by them (3) **
Osem Investments
304014
5,479,155
4.95%
Elisheva Finkelstein and companies
controlled by Elisheva and Avraham
Finkelstein ** (4)
Osem Investments
304014
2,061,081
1.86%
Osem Investments
304014
12
0.00%
Interested Party
NESTLE S.A. (1)
**
20
51-045071-1
Messrs. Dan Propper, Yitzhak Yarkoni and Avraham Finkelstein serve as directors at the Company. A breakdown of holdings appears below.
Regulation 24 (cont.): Shares and convertible securities held by interested parties in the Company, in a
subsidiary or in a related company (cont.)
(1)
NESTLE S.A.
Part of the shares are held through
a nominee company
Danpro Investments Ltd.
Through the nominee company
(3)
Yotamar Holdings Ltd.
Yar-Dorel Ltd.
Yar-Dana Ltd.
(4)
A.A. P.K.D. Investments Ltd.
A.A. Finkelstein Assets Ltd.
Elisheva Finkelstein
70,460,032 shares
93,122 shares
329,166 shares
2,574,995 Shares
2,574,994 shares
338,686 shares
1,716,671 shares
5,274 shares
Following are the holding rates in the above companies which hold shares in the Company as they are
known to the Company:
Danpro Investments Ltd.
Propper Dan
Yar-Dorel Ltd.
Yar-Dana Ltd.
Yarkoni Dorit
Yarkoni Dorit
Yarkoni Dorit
A.A. P.K.D. Investments Ltd.
A.A. Finkelstein Assets Ltd.
Finkelstein Elisheva
Finkelstein Elisheva
99.99999%
99%
99.9%
99.9%
99%
99.98%
Propper Susan
Yarkoni Yitzhak
Ben Harush Yarkoni Dorel
Yarkoni Dana
Finkelstein Abraham
Finkelstein Abraham
0.00001%
1%
0.1%
0.1%
1%
0.02%
Regulation 24A: Authorized capital, issued capital and convertible securities
The Company's authorized capital is 150,000,000 ordinary shares with equal rights of NIS 1 par value each.
The Company's issued capital is 110,644,444 shares
The Company has no convertible securities
21
Company Shareholders’ Registrar
Regulation 24B:
No.
Name of shareholder
ID / Company No.
Quantity /
Number of
shares
1.
Nestle S.A.
CH-550-0067-293-5
59,488,875(*)
2.
51-04507-1
12
3.
Raphael Wilmersdorf
001428663
677,372
4.
Eitan and Raphael Investments (1999) Ltd.
51-285310-2
1,144,448
5.
Tamar and Raphael Assets Ltd.
51-285310-2
1,144,446
6.
Elisha and Raphael Holdings Ltd.
51-285313-6
1,144,448
7.
Pnina Zimmerman
051259000
677,372
8.
Louk Orna Ltd.
51-261924-8
2,574,995
9.
Louk Ron Ltd.
51-261884-4
2,574,994
10.
Yar-Dana Ltd.
51-261882-8
2,574,994
11.
Yar-Dorel Ltd.
51-2161880-2
2,574,995
12.
51-270299-4
13.
N. Kolan Investments Ltd.
51-270298-6
329,166
329,166
14.
The Nominee Company of Bank Leumi Leisrael Ltd.
51-00986-4
(*)35,406,146
15.
Yehuda Bar Lev
64837123
18
16.
David Noiman
8332884
89
17.
Kalanit Getenyu
057082810
5
18.
Moshe Kramer
059761759
1
19.
Livnat Raz
55088645
1
20.
21.
AM”M, G. Investments and Finance Ltd.
Ram Zaktzar
51-160044-7
025382979
1
1
22.
Aharon Elias
072829518
56
23.
Mozla Investments Company Ltd.
51-158053-2
2,084
24.
Nikolai Amsaionik
310419841
27
25.
Tal Savyon
038506499
417
26.
Nira Savyon
1356148-5
201
27.
Nathan Pantzar
08037392
114
Total Shares:
110,644,444
(*) 10,971,157 shares out of total of the shares held by the Nominee Company of Bank Leumi Leisrael Ltd.
are held for Nestle S.A.
Regulation 25A:
Company's registered address, addresses, email and telephone numbers
The Company's registered address is Kiryat Osem, 2 Rimon St, Haman Industrial Zone, POB 934,
Shoham 6085001
Tel: 03-7295050 Fax: 03-7205095
Email address: [email protected]
22
Regulation 26: Company Directors
(1)
DAN PROPPER
ID No.:
Year of birth:
Address:
Nationality:
Membership on board committees:
External director:
Independent Director:
Possess financial and accounting
expertise:
Is he an employee of the Company, a
subsidiary, a related company or an
interested party:
Yes, chairman of Osem Group
Company director since:
23 September 1981
Education:
Graduate of the Haifa Technion, Chemical Engineer and
Food Technologist
Chairman of the Company board
Board Memberships: Director in family-owned companies,
subsidiary companies of the Osem Group, Check Point Ltd.,
Teva Pharmaceutical Industries Ltd. (until February 2011).
Occupation in the last five years and
other companies in which he serves as
director:
Is he a relative of another interested
party in the Company:
(2)
007131766
1941
89 Hazore'a St., Kfar Shmaryahu
Israeli
No
No
No
Yes
GAD PROPPER
ID No.:
Year of birth:
Address:
Nationality:
External director:
expertise:
interested party:
Yes, brother of Gad Propper
007131774
1944
7 Hashalom St., Ramat Hasharon
Israeli
No
No
No
Yes
No.
1981
director:
MBA from Tel Aviv University, BA in Economics from
Jerusalem University.
CEO of Osem International Foods Ltd., CEO Nestle Purina
Board Membership: Director in family-owned companies,
Vitania Ltd.
Chairman of L'Oreal Israel Ltd., chairman of CycleTech
Ltd., Gaon Holdings
Yes, brother of Dan Propper.
Education:
23
(3)
AVRAHAM FINKELSTEIN
ID No.:
Year of birth:
Address:
Nationality:
External director:
expertise:
interested party:
Education:
director:
(4)
ITZHAK YARKONI
ID No.:
Year of birth:
Address:
Nationality:
External director:
expertise:
interested party:
Education:
director:
24
06235857
1943
4 koz'delo St. Petah Tiqva
Israeli
No
No
No
No
No
1987
MA in education and administration, JTS University
Business Administration, Long Island University
Vice president of human resources until March 2009 and vice
president of administration in the Company until April 2010.
provides services to the Company and to the Osem Group for
kosher matters and consultation on labor relations.
Board Memberships: director in subsidiary companies of Osem
Group, and family-owned companies, Bank Masad Ltd., Helibo
Diagnostic Institutes Ltd.Public director in Ayalon Insurance
Company,
the board of governors of Talpiot College. External director of
Magen Zahav Pension Fund.
External director of Pisga – a pension management fund.
No
007845795
1944
2 Ben Zion Israeli St., Givatayim
Israeli
No
No
No
No
No
1987
High school
Graphic design and visual communications.
Board Memberships: Director – family-owned companies
.
No
(5)
Eli Zohar
ID No.:
Year of birth:
Address:
Nationality:
External director:
Possesses financial and accounting
Skills:
interested party:
Education, occupation in the last five
years and other companies in which he
serves as director:
(6)
07073406
1940
30 Magal St., Savyon
Israeli
No
No
No
No. Possesses professional qualifications
No
August 20, 1996
LL.B, Hebrew University of Jerusalem
Advocate and Chairman of the Zeligman-Goldfarb law firm,
Chairman of Gesher Theatre, Director in Scientific
Investments Company.
No
Gabi Hake
ID No.:
Year of birth:
Address:
Nationality:
External director:
Independents Director:
Skills:
Is he an employee of the Company,
a subsidiary, a related company or
an interested party:
Education, occupation in the last
five years and other companies in
which he serves as director:
25
52058385
1954
32 Smadar St., Shikun Vatikim, Ramat Gan
Israeli
Audit Committee, Committee for the examination of the
Company financial statements, Remuneration Committee
No
No
No. Possesses professional qualifications
No
August 20, 1996
LL.B, Law Kent University, England (graduated with honour)
Director in the following companies:., The Davidof Group Ltd.,
and in family-owned companies.
No
(7)
DR. LEORA MERIDOR
ID No.:
Year of birth:
Address:
Nationality:
External director:
Specialized External director
Skills:
Is she an employee of the Company,
a subsidiary, a related company or
an interested party:
Education:
other companies in which he serves
as director:
Is she a relative of another
interested party in the Company:
(8)
YAKI YERUSHALMI
ID No.:
Year of birth:
Address:
Nationality:
External director:
Specialized External director:
Possesses Financial and accounting
Skills:
interested party:
26
5173000
1947
17 Ben Maimon St., Jerusalem
Israeli
Audit Committee ,Balance Sheet Committee, Remuneration
Committee
Yes
No
No
Yes
No
November 5, 2007
(the General Assembly decided (On 3/09/2013) to appoint Dr. Leora
Meridor, for a third and additional term of 3 years as an external
director in the Company, from the expiration of her second statutory
term , i.e. on 11/5/2013)
Bachelor's degree in Mathematics and Physics – Hebrew University
of Jerusalem, Master's degree in Mathematics – Hebrew University of
Jerusalem, Doctorate in Economics – Hebrew University of
Jerusalem, post-doctorate in Economics – MIT.
Business and financial consulting – Meridor Management and
Consulting (from 2002);
Board Memberships: Gilat Satellite Systems Ltd., Alrov (Israel) Ltd.
No
8494965
1942
Kfar Hogla, Emek Hefer
Israeli
Audit Committee
Balance Sheet Committee
Yes
No
No
Yes
No
July 9, 2008
On 3 July 2014 the General Meeting decided to appoint Mr. Yaki
Yerushalmi for an additional term of 3 years, as an external director
in the Company, starting from the end of his present statutory officer,
on 8 July 2014
Education:
as director:
(9)
Practical Engineer
Chairman and CEO of American Israeli Paper Mills Ltd. Group.
Board Memberships: Veolia Israel, Rupin College, Ormat
Tecnologic, Mada Tech Haifa, OPC Rotem
No
Yossi Alsheich
ID No.:
Year of birth:
Address:
Nationality
External Director
Specialized External director:
Possesses Financial and accounting
Skills:
interested party:
Education:
director:
007743933
1936
19, Yaakov Meridor Street, Tel Aviv, Tel Baruch North
Israeli
Audit Committee, Balance Sheet Committee
No.
No
Yes
Yes
No
10 October 2012
B.A. in economics; A certified arbitrator
Economic and financial consultant and director in Lachis
Industries Ltd.; Director in Whitewarter Ltd., Ubank Ltd., Shikun
Ve'Binui Ltd., Atidim, Sde Boker Academic Center, Chairman of
Investment Committee at Amitim Pension Fund
(10)
No
Roger Stettler
Passport No.:
Year of birth:
Address:
Nationality:
External director:
Possesses Financial and Accounting
Skills:
interested party:
Education:
as director:
27
X3412372
1957
Chemin de Bellevue 7, 1026 Echandens
Swiss
No
No
No
Yes
Yes, manager at Nestle Switzerland, the controlling shareholder.
April 26, 2010
CH Diploma, Commercial and Administration, Professional School,
Ecole Superior de commerce, Lausanne, Core Leadership Programme
in London.
2008-2010 Senior Vice President Head of Group Control
2010 Vice President Regional Management Zone Asia-OceaniaAfrica
Member of several boards within the Nestle Group of Companies
No
(11)
Antonio Helio Waszyk
Passport No.:
Year of birth:
Address:
Nationality:
External director:
Skills:
interested party:
Education:
as director:
(12)
Swiss
No
No
No
Yes
July 3, 2014
SC Biochemistry in University Sao Paulo Brazil
2009 – 2013 – Market Head Nestle India
2004 – 2009 – Head of Nestle's the Food Stratefic Business Unit.
Member of several boards within the Nestle Group.
No
Luis Cantarell Rocamora
Passport No.:
Year of birth:
Address:
Nationality:
External director:
Skills:
interested party:
Education:
as director:
(13)
BRA YA650857
1951
XDBO91011
1952
AV. Samson-Reymondin 20, 1009 Pully, Switzerland
Spnaish
No
No
No
Yes
December 16, 2014
Economic Sciences, Barcelona University
Executive Vice President Nestle S.A. Zone Director for EMENA
Executive Vice President Nestle S.A. Head of Nestle Nutrition
President & CEO, Nestle Halth Science S.A.
Executive Vice President, Nestle S.A., in charge of Zone Americas.
No
Trevor Douglas Brown
Passport No.:
Year of birth:
Address:
Nationality:
External director:
28
510920331
1960
Crau-au-Fer 9, 1092 Belmont-sur-Lausanne, Switzerland
British
No
No
No
Skills:
interested party:
Education:
as director:
(14)
No, Possess Professional qualifications
December 16, 2014
Brunel University London; The College of Law, Chester England
General Counsel Europe Nestle;
General Counsel EMENA (Europe, Middle East/ nk north Africa)
Nestle.
No
Peter Noszek
Passport No.:
Year of birth:
Address:
Nationality:
External director:
Skills:
interested party:
Education:
as director:
29
BC1110781
1965
Route de Blonay 25B, 1800 Vevey Switzerland
Hungarian
No
No
NO
Yes
December 16, 2014
BA Economics – University of Economics, Budapest
Head of Finance and Control Zone EMENA, Nestle S.A.; Head of
Finance and Control Purina Europe; Head of Finance and Control
Nestle Philippines.
No
Regulation 26A: Company's senior officers
(1)
Itzik Saig
ID No.:
Year of birth:
Position in the Company:
53228839
1956
Company CEO starting on 2 April 2012)
Position he holds in a subsidiary or
in an interested party:
Is he a relative of another senior
officer or of an interested party:
Is he an interested party:
Education:
Experience and occupation in the
last five years:
Commencement of tenure as
Company CEO:
(2)
Avi Ben Assayag
ID No.:
Year of birth:
Position he holds in a
subsidiary or in an interested
party:
Is he a relative of another
senior officer or of an
interested:
Education:
Experience and occupation in
the last five years:
Commencement of tenure:
(3)
No
No (other than his role as CEO)
MBA, Tel Aviv University
Deputy CEO and CEO of Osem Israel Division
Nestle New Zealand Country Manager
2 April 2012
059277483
1965
Deputy CEO and Responsible for the areas of strategy and
business development, finance, and budget control, demand
planning, long-term enterprises design, excellent unit,
information systems and corporate marketing.
No
No
No
B.A. in Economics and Accountant – Tel-Aviv University; MBA
Harvard Business School (Senior executives program AMP
CEO of Delek Israel Fuel Corporation; CEO of I.D.B Tourism
2.3.2015
Pinhas Kimmelman
ID No.:
Year of birth:
officer or of an interested:
Education:
last five years:
30
Director in the Company subsidiary companies.
056812571
1961
Deputy CEO of Finance and Chief Risk Officer
Director at Osem Group subsidiary companies
No
No
Accountant, B.A. in accounting and economics – Hebrew
University. M.A in business administration – Bar Ilan
University
Deputy CEO of Finance and controller at Osem, Chairman
of the CFO Forum of the Manufacturers' Association of
Israel, member of the Israel Standards Accounting Board,
Lecturer at the College of Management Accounting,
management member of the Mutual Fund of Employers of
(4)
Meir Imber
ID No.:
Year of birth:
Education:
last five years:
(5)
52637220
1954
Deputy CEO of Operations
Director at Osem Group subsidiary companies
No
No
BSc. Industrial and management engineer, Technion
Institute, Haifa
MBA, Brunel University, England
Deputy CEO of Operations at the Company.
January 1, 2004
Ofer Green
ID No.:
Year of birth:
057081887
1961
Deputy CEO of Osem Group.
CEO Noga Ice Cream Limited Partnership as of 15/09/2014,
Until 15.9.2014 served as CEO of Osem Group Commerce
Limited Partnership
Education:
Director on the board of Materna Holdings Ltd.
last five years:
Tenure as a CEO of Osem Group
Commerce:
Commencement of tenure as a
CEO of Noga Ice Cream LP:
31
the Manufacturers Association of Israel; Member of the
Food Industries Association in the Food Manufactures
Association, Member of the Executive of the Israeli
Association of Publicly Traded Companies
1998
No
No
Bachelor's degree in general studies –Auborne University,
Alabama, USA.
MBA, Ben-Gurion/Boston University.
CEO of Israel Air, Shufersal Business Unit Manager at
Osem Group Commerce Limited Partnership
March 15, 2011 – July 1, 2014
September 15, 2014
(6)
Nitzan Goldberg
ID No.:
Year of birth:
Education:
last five years:
024454449
1969
CEO of Osem Group Commerce,
No
Yes, married to Billy Yanko, CEO Of Bonjour
No
MBA, Rupin College
Deputy CEO of Osem Group Commerce and Manager at the
Private Market in Osem Group Commerce; Deputy CEO
Sales at Noga Ice Cream LP.
July 1, 2014
(7) Rani Sagiv
ID No.:
Year of birth:
Education:
last five years:
052343928
1954
Vice President of Supply Chain
None
No
No
MBA – Hebrew University
Vice President of Supply Chain at the Company.
2 January 2005
(8) Barak Strozberg
ID No.:
Year of birth:
Position he holds in a subsidiary or in an
interested party:
Is he a relative of another senior officer or
of an interested:
Education:
Experience and occupation in the last five
years:
32
029504487
1972
VP of Human Resources
None
No
No
BA in political science and BA in Accounting – Hebrew
University;
MBA public policy – Hebrew University
Senior Deputy of the Wage Director at the Ministry of
Finance
1 January 2013
(9) Ori Ben Shai
ID No.:
Year of birth:
Position he holds in a subsidiary or in an
interested party:
Is he a relative of another senior officer or
of an interested:
Education:
029480951
1972
CEO – Snacks, Bakery, Beverages and Breakfast Cereals
Experience and occupation in the last five
years:
End of tenure
Deputy CEO and Head of Proctor & Gamble Israel Business
Divison; CEO of the Health Divison in Proctor & Gampl
15 October 2012
30 November 2012
(10)
None
No
No
BA in Administration and Computer Sciences – Tel Aviv
University
Ilana Cachlon
ID No.:
Year of birth:
Education:
last five years:
54009667
1956
Internal auditor
Internal auditor of the Company and companies controlled
by the Company.
No
No
Accountant, Bachelor's degree in economics and accounting
– Bar Ilan University
Internal auditor at the Company.
1 March 2008
(11) Hagit Adler
ID No.:
Year of birth:
Education:
last five years:
Tenure as CEO of Bonjour:
Commencement of tenure as Head
of Osem Nestle Professional
Division:
33
02309937
1968
Since October 1, 2014 Head of Osem Nestle Professional
Division (Out of the Home Market)Director at the Company
subsidiary
None
No
No
BA – life sciences, Tel Aviv University
MHA Health Systems Management, Tel Aviv University
CEO OF Bonjour, CEO of Bakery and Beverage Division,
Director at the Company Subsidiary
1 January 2013 – October 1, 2014
October 1, 2014
(12) Tzippi Hammer
ID No.:
Year of birth:
Education:
last five years:
Commencement and end of tenure:
(13)
last five years:
Commencement and end of
tenure:
No
MBA, Hebrew University of Jerusalem
Marketing Manager of Bakery in the Company; Kitchen and
Home business Area Manager at Hogla-Kimberely
March 1, 2014
54656673
1956
CEO – Culinary Division
None
No
No
MBA, Tel Aviv University
Marketing Manager-Snacks; Breakfast Cereals Acvitiy
Manager
1 January 2013
22864615
1967
CEO of the company's International Division
No
No
No
MBA, Economics and Business Administration, Tel Aviv
University
Breakfast Cereals and Snacks Division CEO in the
Company; Sabra Salads General Manager; Beverage
Division BEM, Nestle India
February, 1 2014
Billy Yanko
ID No.:
Year of birth:
Is she a relative of another senior
Is she an interested party:
Education:
34
No
Nili Zur
ID No.:
Year of birth:
Position he holds in a subsidiary
or in an interested party:
Education:
(15)
No
Zahava Martonovits
ID No.:
Year of birth:
Position he holds in a subsidiary
or in an interested party:
Education:
last five years:
Commencement of tenure at
Osem:
(14)
24415903
1969
Business Executive Manager of the Company's "New
Businesses" unit
024868101
1968
CEO Bonjour
No
Yes, married to Nitzan Goldberg CEO of Osem Group
Commerce LP.
No
MBA, Bar-Ilan University;
BA Economics, Tel-Aviv University
last five years:
Regulation 26B:
2010 – 2014 – CEO Sabra Salads.
2008 – 2010 – Marketing manager of the Culinary
Division
1 October, 2014
Company's independent authorized signatories
As at the Report date, the Company has no independent authorized signatories.
Regulation 27:
Company's accountant
Accountant's name: Somekh Chaikin CPA Firm
Address: 17 Ha'arbaah St, Tel Aviv
Regulation 28:
Amendment to memorandum or articles
On 16.12.2014 the Company amended its Articles of Association (excluding the insurance and indemnity
clauses) after the approval of the General Meeting.
For the amended version of the Articles of Association see Appendix C of the report convening the meeting
published by the Company on 23.11.2014 (ref - 2014-01-200595).
Regulation 29(a):
Directors’ recommendations and resolutions
On 13 March 2014, the Company's Board of Directors decided to distribute to the Company shareholders
dividend in the amount of NIS 150 million. The dividend was distributed on 8 April 2014. For additional
details see the Company's Immediate Report dated 16 March 2014 (Reference number 2014-01-015453),
whose details are included in this paragraph by way of reference.
Regulation 29(b):
General Meeting Resolutions which were received not according to the
Board's recommendations
"___"
Regulation 29(c):
Extraordinary General Meeting Resolutions
1. The General Meeting Resolutions dated 3 July 2014
A. Re-Appointment of Mr. Yaki Yerushalmi as an external director in the Company's board of
directors for an additional term (third term)
it was decided to re-appoint Mr. Yaki Yerushalmi as an external director on the Company's board,
starting from the end of his second statutory term of office, i.e. 8 July 2014 as detailed in the
General Meeting convening report published on 24 June 2014 (Reference number 2014-01-097704).
B. Annual bonus payment to the Company's CEO, Mr. Itzik Saig in accordance with the
objectives set for him with respect to 2013
it was decided to approve the payment of annual bonus of NIS 963,811 to the CEO in accordance
with the objectives set for him with respect of 2013 and in accordance with the Company's
remuneration policy, as detailed in the General Meeting convening report the Company published on
24 June 2014 (Reference number 2014-01-097704).
C. Allocating "Phantom" Options to the Company's CEO, Mr. Itzik Saig, for the year 2014
it was decided to approve the allocation of Phantom Options to Mr. Itzik Saig, at a value equal to 12
monthly salaries at the time of the allocation (i.e. value of NIS 1,627,656), based on the Company's
35
Option Plan from the year 2014 as approved by the Company's remuneration committee and Board
of directors, and as detailed in the General Meeting convening report published on 24 June 2014
(Reference number 2014-01-097704).
2. The General Meeting Resolutions dated 16 December 2014
D. Appointment of Directors (who are not External Directors) to the Company's Board
it was decided to appoint Messrs.: Luis Cantarell, Peter Noszek and Trevor Brown as directors on
the company's BOD until the next annual General Meeting of the Company that shall appoint
directors to the Company's BOD, as detailed in the General Meeting convening report published on
23 November 2014 (Reference number 2014-01-2000595).
E. Amendment of the Company's Articles of Association
for further details see Regulation 28 in this Chapter.
Regulation 29A:
Company's Resolutions
For details on the Company's resolutions regarding insurance for officers see Regulation 22 of this Chapter.
Names of Signatories
Position
(1) Dan Propper
Chairman of the Board
(2) Itzik Saig
Chief Executive Officer
36
Date:
26 March 2015
Corporate Governance Questionnaire
In the framework of this questionnaire, attention is drawn to the following:
(1) The questionnaire is drawn up in a format in which the reply "correct" for each one of the questions constitutes a positive indication of the
existence of proper corporate governance, and vice versa. The reply "correct" should be entered in the relevant space by means of a √ and the
reply "incorrect" should be entered in the relevant space by means of a X. For the avoidance of doubt, it is hereby clarified that the
questionnaire does not cover all aspects of corporate governance relevant for the corporation, but concentrates on a number of aspects only;
for the purpose of receiving additional information (according to the subject), the regular financial statements of the corporation should be
reviewed.
(2) "Reporting year" means from the date 1.1.2014 until 31.12.2014 preceding the date of publication of the periodic report, unless expressly stated
otherwise.
(3) The normative framework is set out next to each question. If the question refers to a mandatory provision, this is expressly stated.
(4) In the event that a corporation wishes to add information which may be of importance to a reasonable investor in connection with its replies in the
questionnaire, it may do so in the framework of final remarks on the questionnaire with reference to the relevant question.
1
Independence of the Board of Directors
Correct
1.
Incorrect
Throughout the reporting year there were two or more
external directors on the board of directors of the
corporation.
In this question, the reply "correct" may be given if the
period when two external directors were not on the board
does not exceed 90 days, as stated in section 363A (b)(10) of
the Companies Law. However, whatever the reply
(correct/incorrect), the period (number of days) when two or
more external directors were not on the board of the
corporation during the reporting year (including the period
of office approved retroactively, with a distinction between
the different external directors) should be noted:
√
Mandatory Provision
Section 239 of the Companies Law
Director A: Leora Meridor
Director B: Yaki Yerushalmi
The number of external directors serving on the board of
the corporation as of the date of publication of this
questionnaire: 2
2.
2
Normative Framework
A. The number of independent directors2 serving on the board
of the corporation as of the date of publication of this
questionnaire: 1
Other than "external directors" as this term is defined in the Companies Law.
2
_________
___________
B.
As of the date of publication of this questionnaire:
-
-
C.
In a corporation with a controlling shareholder or a
person holding a controlling block (in this section "a
controlling shareholder") – a third of members of the
board of directors, at least, are independent.
X
In a corporation without a controlling shareholder – a
majority of the members of the board of directors are
independent.
Companies Law – Section 1
Of the First Addendum
(Recommended Corporate
Governance Provisions) and
regulation 10(b)(9A) and 48(c)(9A)
of the reports regulations
The corporation prescribed in its articles of association that a
proportion3/ minimum number of directors serving on its board
would be independent.
If your reply is "correct", please note:
X
The proportion/number of independent directors prescribed in the
articles of association: _________.
The corporation actually complied with the provision of the articles
of association in the reporting year (on the number of independent
directors serving on the board):
Yes.
3.
3
No.
(Please cross the appropriate box).
In the reporting year, an examination was conducted with the
external directors (and the independent directors) and it was
found that they complied in the reporting year with the provisions
In this questionnaire "proportion" - a certain number out of all the directors. Thus, for example, in a corporation in which the proportion of independent directors is
one third, the fraction 1/3 shall be stated in the reply.
3
of section 240(b) and (f) of the Companies Law on the lack of a
linkage of the external (and independent) directors serving on the
board of the corporation and they fulfil the conditions required of
an external (or independent) director.
4.
If your reply is "correct" – please note the person who conducted
the said examination: Legal Advisor.
All the directors who served on the board of the corporation
during the reporting year are not subject4 to the general manager,
directly or indirectly (except for a director who is a representative
of the employees, if the corporation has employee
representatives).
√
√
If your reply is "incorrect" (i.e. the director is subject to the general
manager as stated above), please state the number of directors
who did not meet the said restriction: 0
5.
All directors who gave notice of the existence of a personal
interest which they have in the approval of a transaction on the
agenda of the meeting did not participate in the meeting and did
not participate in the voting as stated (except for a meeting/voting
in the circumstances stated in section 278(b) of the Companies
Law:
If your reply is "incorrect":
A.
Sections 240(b), 241, 245A and 246
of the Companies Law.
Companies Law – Section 3 Of the
First Addendum (Recommended
Corporate Governance Provisions)
√
Mandatory provision
Was it in
order to present a subject by him in accordance with the
provisions at the end of section 278 (a): Yes No
B Please note the number of meetings in which directors
4
The act of serving as a director of a held corporation owned by the corporation filling out the questionnaire shall not be deemed to be "subject" for the
purpose of this question. However, a director who serves in a corporation as an officer (other than as a director) and/or employee of a held corporation
owned by the corporation filling out the questionnaire shall be deemed to be "subject" for the purpose of this question.
4
6.
participated in the discussion and/or the voting as stated above,
except in the circumstances stated in subsection A: ______.
The controlling shareholder (including his relative and/or a person
on his behalf) who is not a director or other senior officer in the
corporation was not present at meetings of the board of directors
which took place in the reporting year.
If your reply is "incorrect" (i.e. the controlling shareholder and/or
his relative and/or someone on his behalf who is not a member of
the board of directors and/or a senior officer in the corporation
was present in the said board meetings) – please state the
following details regarding the presence of the additional person in
the said board meeting:
√
Identity: _______________.
Position in the corporation (if any): ______________.
Details of the linkage with the controlling shareholder (if the
person who was present is not the controlling shareholder
himself): _______________.
Was it in order for him to present a certain subject?
Yes
No
(Please cross the appropriate box).
The degree of his presence5 in the board meetings which took
place in the reporting year: ___________________.
In order for him to present a certain subject: ____; Other presence
_________.
Irrelevant (there is no controlling shareholder in the
5
With a distinction between a controlling shareholder and his relative and/or someone on his behalf.
5
corporation).
Competence and Qualifications of the Directors
Correct
7.
In the articles of association of the corporation, there is no
provision limiting the possibility of an immediate termination of
the office of all directors of the corporation who are not external
directors (for this purpose – a statement of an ordinary majority
does not constitute a limitation).
√
Incorrect
Normative Framework
Sections 85 and 222 of the
Companies Law, section 46B of the
Securities Law
If your reply is "incorrect" (i.e. such limitation exists), please state:
A.
B.
C.
D.
8.
The length of time prescribed in the articles of association for the
office of a director: _____________.
The required majority prescribed in the articles of association for
the termination of the office of the directors: ____________.
The quorum prescribed in the articles of association for a general
meeting for termination of the office of the directors:
________________.
The majority required for amendment of these provisions in the
articles of association: __________________.
All the directors who served on the board of the corporation
during the reporting year declared prior to the date of the
summons of a general shareholders meeting with appointments of
directors on its agenda (including reappointments) that they have
the required qualifications (and specified them) and the ability to
devote sufficient time to the performance of their duties and that
the restrictions stated in sections 226 and 227 of the Companies
Law do not apply to them and in the case of an independent
director, the provisions specified in clauses (1) and (2) of the
definition of "independent director" in section 1 of the Companies
Law are fulfilled by them.
6
√
Mandatory provision
Sections 224A and 224B of the
Companies Law
If your reply is "incorrect" – please note the names of the directors
to whom the above does not apply: _________.
The corporation has a training program for new directors, in the
field of the corporation's business and in the field of the law
applying to the corporation and the directors, as well as a
continuation program for training acting directors adapted, inter
alia, to the position filled by the director in the corporation.
9.
If your reply is "correct" – please note if the program was operated
in the reporting year:
X
Yes.
The Companies Law – section 4(a)
of
the
First
Addendum
(Recommended
Corporate
Governance Provisions)
No.
(Please cross the appropriate box)
10.
The chairman of the board of directors (or another person
appointed by the board of directors) is responsible for the
implementation of the corporate governance provisions applying
to the corporation and acted to update the directors on subjects
connected to corporate governance during the course of the
reporting year.
√
If the board of directors appointed another person to be
responsible (instead of the chairman of the board of directors),
please state his name and position: Alberto Pessach, General
Counsel and Corporate Secretary.
11.
A.
The corporation has a specification that a minimum number of
directors on the board of directors are required to have accounting
and financial expertise.
If your reply is "correct" – please note the minimum number
specified: 2
7
√
The Companies Law – section 4(a)
of
the
First
Addendum
(Recommended
Corporate
Mandatory provision
Section 92(a)(12) of the Companies
Law
B.
In each reporting year, in addition to the external director with
accounting and financial expertise, additional directors with
accounting and financial expertise served on the board, the
number of which was determined by the board of directors.
The reply "correct" may be given to this question if the length of
time when additional directors with accounting and financial
expertise did not serve on the board does not exceed 60 days.
However in all replies (correct/incorrect), please state the length of
time (in days) when directors meeting the said requirement did not
serve on the board: ____________.
C.
Mandatory provision
√
Section 219 (d) of the Companies
Law
The number of directors serving on the board of the corporation
during the reporting year:
with accounting and financial expertise: 9
_________
with professional qualifications: 3
____________
Sections 92(a)(12), 219(d), 240(A1)
to the Companies Law; sections
10(b)(9)(a)
to
the
reports
regulations.
In the event that changes occurred in the number of directors
stated above in the reporting year, the lowest number shall be
stated (except for periods of 60 days from the occurrence of the
change) of directors of any kind serving on the board in the
reporting year.
12
A.
On the date of the appointment of an external director in the
reporting year, the corporation complied with the provision of
section 39(d) of the Companies Law on the board of directors
being composed of both sexes.
* Irrelevant (no external director was appointed in the
reporting year).
8
Mandatory provision
√
Section 239(d) of the Companies
Law
B.
Throughout the reporting year there were members of both sexes
on the board.
If your reply is "incorrect" – please note the length of time (in days)
of non-compliance with the above: _______
The Companies Law – section 2 of
the
First
Addendum
(Recommended
Corporate
√
The reply "correct" may be given to this question if the length of
time when directors of both sexes did not serve on the board does
not exceed 60 days. However in all replies (correct/incorrect),
please state the length of time (in number of days) when directors
of both sexes did not serve on the board of the corporation:
_________.
C.
Number of directors of each sex serving on the board of the
corporation as of the date of publication of this questionnaire:
________
Men: 13 Women: 1
________
Board Meetings (and Summons of General Meetings)
Correct
13.
A.
B.
Number of board meetings held in each quarter in the reporting year:
First quarter (in the year 2014): 1
Second quarter
: 1
Third quarter
: 1
Fourth quarter
: 1
Next to each of the names of the directors who served on the board of the corporation
during the reporting year, please note the level of his attendance at the board meetings
(in this subsection – including meetings of committees of the board of directors in which
he is a member as specified below) which took place during the reporting year (relating
to his term on the board):
9
Incorrect
___
____
____
_____
Normative Framework
Sections 97, 98 and 224A of
the Companies Law
(Additional lines should be added according to the number of directors)
Name of the Director Attendan Attendance
Attendance at
Attendance at
ce at
at Meetings
Meetings of the Meetings of
Board
of the Audit
Committee for
Additional
Meetings Committee
Examining the
Committee of the
(for a
Financial
Board in which he
director who Statements
is a member (the
is a member (for a director
name the
of this
who is a
committee should
committee)
member of this be stated)
committee)
Dan Propper
100%
----------------Gad Propper
80%
---------------Yitshak Yarkoni
100%
---------------Abraham Finkelstein 100%
---------------Richard Sykes
100%
---------------Jean-Daniel Luthi
80%
---------------Pierre Streit
80%
---------------Roger Stettler
100%
---------------Nandu Nandkishore
80%
---------------Eli Zohar
60%
---------------Gabi Hake
100%
80%
100%
100%
(Remuneration
Committee
Yaki Yerushalmi
100%
100%
100%
100%
(Remuneration
Committee)
Leora Meridor
100%
100%
100%
100%
(Remuneration
Committee)
Yossi Alshech
100%
100%
100%
10
Luis Cantarell
Trevor Brown
Peter Noszek
14.
15.
Luis Cantrell was appointed as Director on 16.12.2014
and since than no Board meetings were held util the
end of the "Reporting Year".
.
Trevor Brown was appointed as Director on
16.12.2014 and since than no Board meetings were
held util the end of the "Reporting Year".
Peter Noszek was appointed as Director on
16.12.2014. and since than no Board meetings were
held util the end of the "Reporting Year".
In the reporting year, the board held at least one discussion on the conduct of the
corporation's business by the general manager and the officers subject to him, in their
absence, after they were given an opportunity to express their opinion.
In the reporting year a general shareholders meeting was summoned (no later than at
the end of 15 months after the last general meeting).
11
√
√
The Companies Law – section
5 of the First Addendum
(Recommended
Corporate
Mandatory Provision
Section 60 of the Companies
Law
Separation between the Functions of the General Manager and the Chairman of the Board of Directors
Correct
16.
Incorrect
Normative Framework
Throughout the reporting year, the corporation had an acting chairman of the board of
directors.
The reply "correct" may be given to this question if the length of time when the
corporation did not have a chairman of the board did not exceed 60 days. However in all
replies (correct/incorrect), please state the length of time (in number ofdays) when the
corporation did not have a chairman of the board: _________.
17.
√
Mandatory Provision
Section
94(a)
Companies Law
of
the
Throughout the reporting year, the corporation had an acting CEO.
18.
The reply "correct" may be given to this question if the length of time when the
corporation did not have a CEO did not exceed 90 days. However in all replies
(correct/incorrect), please state the length of time (in days) when the corporation did not
have a CEO: _________.
√
In a corporation where the chairman of the board also acts as the CEO of the corporation
and/or exercises his powers, the double office was approved in accordance with the
provisions of section 121(c) of the Companies Law.
__
Mandatory Provision
Law
___
Mandatory Provision
If your reply is "correct", please refer to the immediate report on the general meeting
which approved the double office and/or exercise of powers as stated: ___________.
Companies Law
X irrelevant (to the extent that no such double office exists in the corporation)
19.
√
The CEO is not a relative of the chairman of the board of directors
A.
If your reply is "incorrect" (i.e. the CEO is a relative of the chairman of the board):
State the family relationship between the parties: _________
12
__
___
Companies Law
B.
The office was approved in accordance with section 121(c) of the Companies Law:
Yes.
___
___
No.
20.
The controlling shareholder or his relative does not act as the CEO or as a senior officer in
the corporation, other than as a director.
Irrelevant (there is no controlling shareholder in the corporation).
√
Law
Audit Committee
Correct
21.
All the external directors were members of the audit committee during the reporting
year.
22.
√
One of the following was not a member of the audit committee in the reporting year:
___
A.
The controlling shareholder or his relative.
√
B.
Chairman of the board of directors.
√
13
Normative Framework
Mandatory Provision
Law
Mandatory Provision
√
The chairman of the audit committee is an external director
23.
Incorrect
__
Law
Mandatory Provision
Law
C.
A director employed by the corporation or by the controlling shareholder of the
corporation or by a corporation controlled by him.
√
D.
A director who provides services on a regular basis to the corporation or the controlling
shareholder of the corporation or a corporation controlled by him.
√
E.
A director whose main income is derived from the controlling shareholder.
√
24.
25.
A person who may not be a member of the audit committee, including the controlling
shareholder or his relative, was not present in the reporting year at meetings of the audit
committee, except in accordance with the provisions of section 115(e) of the Companies
Law
A quorum for a meeting and passing resolutions at all meetings of the audit committee
which took place in the reporting year was a majority of the members of the committee
and a majority of those present were independent directors and at least one of them was
an external director.
√
Mandatory Provision
Section 115(e) of the
Companies Law
√
Mandatory Provision
Section 116A of the
Companies Law
If your reply is "incorrect", please note the number of meetings at which the said
requirement was not fulfilled: ___________
26.
27.
The audit committee held at least one meeting in the reporting year attended by the
internal auditor and the auditor, and without the presence of officers of the corporation
who are not members of the committee on failures in the business management of the
corporation.
√
In all meetings of the audit committee at which a person who is not permitted to be a
member of the committee was present, his presence was approved by the chairman of
the committee and/or at the request of the committee (in the case of the legal advisor
and the secretary of the corporation who is not a controlling shareholder or his relative).
√
14
Mandatory Provision
Section 117(1) of the
Companies Law - section 6 of
the First Addendum
(Recommended Corporate
Mandatory Provision
Section 115(e) of the
Companies Law
Functions of the Committee for Examining the Financial Statements prior to the approval of the Financial Statements
28.
A.
Please state the length of time (number of days) prescribed by the board of directors as a
reasonable amount of time for transfer of recommendations of the committee prior to the
board meeting in which the periodic or quarterly financial statements are approved: 3
Correct
_______
_
Incorrect
________
Normative Framework
Mandatory Provision
B.
C.
Number of days which have actually elapsed from the date of transferring the
recommendations to the board of directors until the date of approval of the financial
statements:
First quarterly report: (2014): 8
Second quarterly report:
4
________
Third quarterly report:
3
__
Annual report: 3
30.
A.
________
Number of days between the date of transferring a draft of the Financial Statements to the
Board of Directors and the date of Board of Directors approval of the Financial Statements:
First quarterly report (2014): 5
Second quarterly report:
3
Third quarterly report:
3
Annual report3
The auditor of the corporation was invited to all meetings of the committee and the board
of directors and the internal auditor received notices of said meetings in which the
financial statements of the corporation relating to the periods included in the reporting
year were discussed.
29.
Regulation 2(3) of the
approval of financial
statements regulations
√
The committee complied with all the conditions set forth below throughout the reporting _______
year until the publication of the annual report:
The number of its members was not less than three (at the time of the discussion and
approval of the statements, as stated above).
√
15
Mandatory Provision
Section 168 of the
Companies Law, regulation
2(2) of the approval of
financial statements
regulations
________
B.
All the conditions prescribed in section 115(b) and (c) of the Companies Law (on the office
of members of the audit committee) were met.
C.
The chairman of the committee is an external director.
D.
All the members are directors and a majority of the members are independent directors.
E.
All the members have the ability to read and understand financial statements and at least
one of the independent directors has accounting and financial expertise.
The members of the committee provided a declaration prior to their appointment.
F.
G.
The quorum for discussing and passing resolutions in the committee was a majority of its
members provided that a majority of those present were independent directors including
at least one external director.
If your reply is "incorrect" for one of the subsections of this question, please state in respect of
which report (periodic/quarterly) the said condition was not fulfilled ___________.
√
Mandatory Provision
Regulation 3 of the approval
of financial statements
regulations
√
√
√
√
√
_______
___
________
Correct
Incorrect
Auditor
31.
32.
The audit committee (and/or the committee for examining the financial statements) was
satisfied, shortly before the approval of the periodic report, that the scope of work of the
auditor and his fees in the reporting year were appropriate for the proper performance of
the auditing and review work for the Financial Statements in the reporting year.
Prior to the appointment of the auditor, the audit committee (and/or the committee for
examining the financial statements) gave its recommendations to the relevant organ of the
corporation in connection with the scope of the work and terms of employment of the
auditor.
Irrelevant (in the reporting year, no auditor was appointed)
If your reply is "correct" – please note if the relevant organ in the corporation acted in
16
√
√
Normative Framework
Companies Law
Companies Law
accordance with the recommendations of the audit committee (and/or the committee for
examining the financial statements).
√ Yes.
No (in the event that the reply is "no", please give details in the concluding remarks how
the relevant organ (state the identity of the organ) was satisfied with the scope of work
and fees of the auditor).
33.
The audit committee (and/or the committee for examining the financial statements)
checked during the reporting year that there was no restriction on the work of the auditor.
34.
The audit committee (and/or the committee for examining the financial statements)
discussed the findings of the audit and their consequences with the auditor during the
reporting year
35.
The audit committee (and/or the committee for examining the financial statements) was
satisfied, prior to the appointment of the auditor, of the suitability of his qualifications for
the performance of his functions in the corporation in light of the nature of the activity of
the corporation and the complexity thereof.
The Securities Law and its
regulations (on "the financial
statements duly audited")
Regulation 2 of the approval
of financial statements
regulations, the Companies
Law – section 6 of the First
Addendum (Recommended
Corporate Governance
Provisions)
√
√
√
Irrelevant (in the reporting year, no auditor was appointed)
36.
Please state the number of years that the partner handling the audit in the auditing
accountant firm has been in this position (as the auditor of the corporation): 7 years.
17
______
_______
37.
√
The auditor participated in all the meetings of the committee for examining the financial
statements to which he was invited in the reporting year.
Section 168(b) of the
Companies Law, regulation 2
of the approval of financial
statements regulations
Related Party Transactions
Correct
38.
39.
The corporation adopted a procedure, approved by the audit committee, on related
party transactions in order to ensure that such transactions are approved in
accordance with the law.
X (*)
(*)Note: The corporation is in advanced stages of formalizing a related party tractions
procedure.
The controlling shareholder or his relative (including a company controlled by him) is
not employed by the corporation or provides management services to the
corporation.
If your reply is "incorrect" (i.e. the controlling shareholder or his relative is employed
by the corporation or provides management services), please note:
-
-
The number of relatives
(including the controlling shareholder) employed by the corporation
(including companies controlled by him and/or by management companies):
____________.
Were the employment
agreements and/or agreements for management services approved by the
organs prescribed by law?
Yes.
No.
18
Incorrect
Normative Framework
Sections 117, 253, 255, 270278 of the Companies Law
Companies Law
√
40.
Irrelevant (there is no controlling shareholder in the corporation) ______.
To the best of the corporation's knowledge, the controlling shareholder does not have
any additional businesses in the field of the activities of the corporation (in one or
more fields).
If your reply is "incorrect", please note if an arrangement was made to allocate the
activities between the corporation and its controlling shareholder:
√(*)
Section 254 of the
Companies Law, section 36
of the Securities Law (an
information detail for a
reasonable investor)
Yes.
No.
(*) Note: The Controlling shareholder, an international food and beverages concern,
does not conduct any additional activities in Israel other than in fields the corporation
is non-active in (for example: Nespresso, imported mineral water, healthcare
nutrition).
Chairman of the Board of Directors: ________________________________
Chairman of the Audit Committee: ____________________________
Chairman of the Committee for Examining the Financial Statements: ______________________________________
Date of the Signature: _______________
N:\LEGAL\Corporate\2014\‫\אכיפה מנהלית\ממשל תאגידי‬Corporate Governance Questionnaire 2014.docx
19
Section E
Annual report on the effectiveness of the internal control over
the financial reporting and over the disclosure according to
Regulation 9B(a) for the year 2014.
Please find enclosed herewith the annual report on the effectiveness of the
internal control over the financial reporting and over the disclosure according
to Regulation 9B(a) for the year 2014.
The management, with the supervision of the Board of Directors of Osem
Investments Ltd. (hereinafter - the Corporation), is responsible for the
establishment and running of adequate internal control mechanism over the
financial reporting and over the disclosure in the corporation.
For this purpose, the management members are:
1. Itzik Saig - CEO
2. Pinhas Kimelman - Deputy CEO of Finance
3. Meir Imber - Deputy CEO of Operations
4. Ofer Green - Deputy CEO and CEO of Noga Ice Cream
5. Nizan Goldberg –CEO of Osem Group Commerce
6. Rani Sagiv – VP of Supply Chain
7. Hagit Adler – CEO of ONP
8. Ori Ben Shai – CEO of Snacks, Bakery, Beverages & Cereal Division
9. Zahava Martonovits – CEO of Culinary Division
10. Billy Yanko – CEO of Bonjour
11. Barak Strozberg – VP of Human Resources
12. Nili Zur – Deputy CEO and CEO of International Division
13. 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 timely manner, with regard to the disclosure requirements
Due to its structural limitations, the internal control of 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.
The management, under the supervision of the Board of Directors, has
examined and evaluated the internal control over the financial reporting and
over the disclosure in the Corporation and its effectiveness. The evaluation of
the internal control over the financial reporting and over the disclosure
performed by the Management under the supervision of the Board of Directors
included:
Mapping & identification of accounts, business processes and companies
which the Corporation considers to be very material to the financial reporting
and disclosure; Testing key controls and evaluating the effectiveness of the
controls; The Components of the internal control included entity level
controls, financial statement preparation and period end close process controls,
information technology general controls (ITGC) and controls on the very
material processes for the financial reporting and disclosure: Sales to local
market, material handling (inventory) and procurement to pay.
Based on the evaluation of the effectiveness performed by the Management
under the supervision of the Board of Directors as mentioned above, the Board
of Directors and the Corporation Management have reached the conclusion
that the internal control over the financial reporting and over the disclosure in
the Corporation as at 31 December 2014 has been effective.
Management statements
(a) Statement of the CEO according to Regulation 9.b(d)(1):
Management Statement
Statement of the CEO
I, Itzik Saig, declare that:
1.
I have evaluated the periodic report of Osem Investments Ltd. (hereinafter: the
corporation) for 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:
5.
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 of the
financial reporting and disclosure
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, has been 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.
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 evaluated the effectiveness of internal control over the financial
reporting and disclosure, and have presented in this report the
conclusions of the Board of Directors and management with regard to
the effectiveness of the internal control, as mentioned, as of the date of
the reports.
The above does not derogate from my responsibility or the responsibility of anyone
else according to the law.
26 March 2015
Signature – Itzik Saig
(b) Declaration of the most senior office holder in Finance, as
per Regulation 9B(d)(2)
Management Statement
Declaration of the most senior office holder in Finance
I, Pinhas Kimelman, declare that:
1.
I have evaluated the Financial Statements and other financial information
which is included in the Reports of Osem Investments Ltd.
(hereinafter: the corporation) for the year 2014 (hereinafter: the reports)
2.
To my knowledge, the financial statements and other financial information
included in 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:
5.
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 financial
statements and the other financial information included in the 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 of the
financial reporting and disclosure.
I, alone or together with others in the Corporation:
A.
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
as it relates to the financial statements and the other financial
information included in the reports, has been 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.
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 evaluated the effectiveness of internal control over the financial
reporting and disclosure, as it relates to the financial statements and the
other financial information included in the reports as of the date of said
reports. My conclusions regarding my aforementioned evaluation
have been presented to the board of directors and management and are
incorporated into this report.
The above does not derogate from my responsibility or the responsibility of anyone
else according to the law.
26 March 2015
Signature - Pinhas Kimelman
Deputy CEO of Finance

Osem Investments Limited

Transcription

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