Osem Investments Limited Financial Statement... · Investments Limited ... Audit with A Intern...

Osem Investments Limited

Financial Statements

December 31, 2013

Investments Limited Consolidated Statements on Financial Position as at 31 December

Financial Statements for the year ended December 31, 2013

Page

2 - 3

Auditors’ Report

4 - 5 Consolidated Statements on Financial Position

6 Consolidated Income Statements

7 Consolidated Statements on Comprehensive Income

8 Consolidated Statements on changes in shareholders equity

9 Statements on Consolidated Cash Flows

10 - 56 Notes to the Financial Statements

57 Annex – list of Group companies

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Investments Limited Consolidated Statements on Financial Position as at 31 December

2012 2013

NIS thousands NIS thousands Note

Assets

60,265 328,059 5 Cash and cash equivalents

676,445 688,481 6

Trade receivables

37,896 27,662 7

Other receivables

7,416 5,464 20

Income tax

406,724 390,107 8

Inventory

13,670 7,067 9

Other investments

1,202,416 1,446,840

Total current assets

- 293 11

Employee benefits

1,127,990 1,144,497 12

Fixed Assets

1,025,654 977,057 13

Intangible Assets

37,669 38,806 14

Prepaid Expenses

30,441 34,795 20

Deferred tax assets

2,221,754 2,195,448

Total non-current assets

3,424,170 3,642,288 Total assets

Dan Propper - Chairman of the Board

Itzik Saig - CEO

Pinhas Kimelman - Deputy CEO Finance

The date of approval of the Financial Statements: 13 March 2014

Investments Limited

5

2012 2013

NIS thousands NIS thousands Note

Liabilities

58,938 29,212 15

Loans and short-term credit from banks

685,948 710,463 16

Trade payables

189,169 223,976 17

Other creditors

11,813 9,473 20

Income tax

945,868 973,124

Total current liabilities

3,370 - 18

Liabilities to banking institutions

357,104 342,514 19

Liabilities for acquisition of non controlling interest in subsidiaries

4,537 4,450 11

Employee benefits

69,847 69,327 20

Deferred taxes

434,858 416,291

Total non-current liabilities

1,380,726 1,389,415

Total liabilities

Equity

176,772 176,772

Share Capital

444,212 444,212

Share premium

(48,015) (68,353)

Reserves

1,469,789 1,699,113

Retained earnings

2,042,758 2,251,744 Total equity attributable to owners of the company

686 1,129

Non Controlling Interest

2,043,444 2,252,873

Total equity

3,424,170 3,642,288 Total liabilities and equity

The accompanying notes are an integral part of the financial statements.

Consolidated Statements of Profit and Loss for the year ending on 31 December

Investments Limited

6

2011 2012 2013 NIS thousands NIS thousands NIS thousands Note

3,960,877 4,091,593 4,190,047 A. 23 Sales 2,309,482 2,411,998 2,426,336 B. 23 Cost of Sales 1,651,395 1,679,595 1,763,711 Gross profit

878,759 885,610 928,833 C. 23 Selling, marketing and distribution

expenses 270,528 282,962 306,320 D. 23 General and administrative expenses 502,108 511,023 528,558 Operating profit before other expenses

2,830 7,030 2,885 E. 23 Other expenses, net

499,278 503,993 525,673 Operating profit

(41,538) (33,726) (24,653) F. 23 Financing expenses 9,904 4,088 1,892 F. 23 Financing income

(31,634) (29,638) (22,761) Financing costs, net

467,644 474,355 502,912 Profit before taxes on income 126,664 117,013 126,484 20 Taxes on income

340,980

357,342

376,428

Profit for the period

Attributed to:

341,052 356,886 375,985 Company's Owners

(72) 456 443 Non Controlling Interest

340,980

357,342

376,428


Net earnings per NIS 1 par value of the

ordinary share capital

3.08 3.23 3.40 Basic and fully diluted net earnings (in NIS)


Statements of consolidated comprehensive income for the year ending on 31 December

Investments Limited

7

2011 2012 2013

NIS thousands NIS thousands NIS thousands

340,980 357,342 376,428 Profit for the period

Other comprehensive profit (loss)

Amounts transfered to profit or loss

Upon the occurrence of specific terms

Foreign currency translation differences

4,831 2,653 (20,338) from foreign operations

Amounts that will not be transfered to profit or loss

Actuarial gains (losses)

(13,581) 5,993 4,543 from defined benefit plans

Income tax from other components

3,396 (1,498) (1,204) Of comprehensive income

(5,354) 7,148 (16,999) Total comprehensive income (loss) for the period

335,626 364,490 359,429 Total comprehensive income for the period

Attributed to:

335,698 364,034 358,986 Company's Owners

(72) 456 443 Non Controlling Interest



Consolidated Statements on changes in shareholders equity

Investments Limited

8

Capital reserve

related to

Acquisition of

rights not

Total Rights not Total Conferring

control

equity Conferring

control Company's

Owners

Retained

earnings

Other

Reserves

In a Consolidated

Company

Translation

Reserve Fund

Premium on

shares

Share Capital

NIS thousands NIS thousands NIS thousands NIS thousands NIS thousands NIS thousands NIS thousands NIS thousands NIS thousands

1,793,328 302 1,793,026 1,231,541 1,694 (41,675) (19,518) 444,212 176,772 Balance at at January 1 2011

4,831 - 4,831 - - - 4,831 - - Foreign currency translation differences

(10,185) - (10,185) (10,185) - - - - - Actuarial losses (net after tax)

340,980 (72) 341,052 341,052 - - - - - Net profit for the year 2011

335,626 (72) 335,698 330,867 - - 4,831 - - Total recognized income for the period

(300,000) - (300,000) (300,000) - - - - - Dividend paid

1,828,954

230

1,828,724

1,262,408

1,694

(41,675)

(14,687)

444,212

176,772

Balance at December 31 2011

2,653 - 2,653 - - - 2,653 - - Foreign currency translation differences

4,495 - 4,495 4,495 - - - - - Actuarial gains (net after tax)

- - - (4,000) 4,000 - - - - Capital reserve for approved enterprise

357,342 456 356,886 356,886 - - - - - Net profit for the year 2012

364,490 456 364,034 357,381 - - 2,653 - - Total comprehensive income for the period

(150,000) - (150,000) (150,000) - - - - - Dividend paid

2,043,444

686

2,042,758

1,469,789

5,694

(41,675)

(12,034)

444,212

176,772

Balance as at 31 December 2012

(20,338) - (20,338) - - - (20,338) - - Foreign currency translation differences

3,339 - 3,339 3,339 - - - - - Actuarial gains (net after tax)

376,428 443 375,985 375,985 - - - - - Net profit for the year 2013

359,429 443 358,986 379,324 - - (20,338) - - Total comprehensive income for the period

(150,000) - (150,000) (150,000) - - - - - Dividend paid

2,252,873

1,129

2,251,744

1,699,113

5,694

(41,675)

(32,372)

444,212

176,772

Balance as at 31 December 2013


Statements on consolidated cash flows for the year ending on 31 December

Investments Limited

9

2011 2012 2013

NIS thousands NIS thousands NIS thousands

Cash flows from operating activities


Adjustments for:

112,500 114,809 114,204 Depreciation

Amortization of intangible assets

41,168 51,385 52,534 And Prepaid Expenses

(1,199) 503 155 Loss (gain) on sale of fixed assets, net

31,634 29,638 22,761 Financing costs, net

126,664 117,013 126,484 Income tax expense

3,388 1,675 (4,642) Change in derivatives

(20,561) (18,633) 11,856 Change in inventory

30,637 (37,258) (18,201) Change in trade and other receivables

3,061 44,959 76,330 Change in trade payables and other creditors

126 (2,979) 4,163 Change in employee benefits

(87,997) (115,165) (126,734) Income tax paid

580,401 543,289 635,338 Net cash from operating activities

Cash flows from investing activities

1,969 1,077 2,002 Proceeds from sale of fixed assets

(279) 5,476 6,996 Other investments, net

(78,607) (82,156) (145,009) Acquisition of fixed assets

(10,052) (18,108) (20,624) Investment in intangible assets and prepaid expenses

3,064 2,456 1,227 Interest received

(83,905) (91,255) (155,408) Net cash used in investing activities

Cash flows from financing activities

(12,570) (29,251) (3,637) Interest paid

(58,837) (24,838) (13,303) Repayment of longterm loans

(38,331) (52,544) (11,798) Credit from banks and others, net

(112,787) (239,600) (30,904) Repayment of other liabilities

(300,000) (150,000) (150,000) Dividend paid

(522,525) (496,233) (209,642) Net cash used in financing activities

(26,029) (44,199) 270,288 Change in cash and cash equivalents

128,771 104,479 60,265

Cash and cash equivalents as at the beginning of the

period

Effect of exchange rate fluctuations

1,737 (15) (2,494) on cash balances and cash equivalents

104,479 60,265 328,059

Cash and cash equivalents as at the end of the

period


Notes to the Financial Statements as at 31 December 2013

Investments Limited

10

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 2013 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). The consolidated financial statements have been prepared in accordance with International Financial Reporting

Standards (IFRSs). The Group has adopted the IFRS in 2008. The transition to IFRS was first set as January 1

2007 (hereinafter: "transition date") 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 reports were prepared on the historical cost basis except 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

E. Classification of expenses recognized in the statement of income

The classification of expenses recognized in the statement of income is based on the function of the expense.

Additional information regarding the nature of the expense is included, inasmuch as relevant, in the notes to the

financial statements.


Investments Limited

11

Note 2 – Basis of Preparation (cont'd)

F. 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 presented 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 managements 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.


Investments Limited

12

Note 2 – Basis of Preparation (cont'd)

G. 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.

H. Changes in the accounting policies

1. Amendment to IAS 19, Employee Benefits (the following is the amendment) Commencing 1 January 2013 the Group implements the amendment. The amendment to IAS 19

introduces a number of changes to the accounting treatment of employee benefits, in general the interest that is recognized in profit or loss will be calculated on the balance of the net defined benefit liability (asset), according to the discount rate that is used to measure the liability. In addition, employee benefits will be classified as short or long term depending on when the entity expects the benefits to be wholly settled.

the application of the standard does not have a material effect on the financial statements.

2. Amendment to IAS 36, Impairment of Assets: Recoverable Amount Disclosures for Non-Financial Assets

(the following is the amendment)

The amendment contains new disclosure requirements for situations in which an impairment loss is

recognized and the recoverable amount is determined at fair value less costs of disposal. In addition, the

amendment eliminates the requirement to disclose the recoverable amount of significant cash-generating

units even if impairment was not recognized in their respect.

The mandatory effective date of the amendment is for annual periods beginning on January 1, 2014. The

company has chosen early implentation of the amendment, commencing with financial statements for year

ending 31 december 2013.


Investments Limited

13

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, except as

explained in Note F.2 Basis of Preparation, under the section addressing changes in accounting policies.

A. Basis of Consolidation

1. 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 profit’s of

acquired share includes the portion of non controlling to whom the PUT option was issued.

4. Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group

transactions, are eliminated in preparing the consolidated financial statements.

5. 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.


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Note 3 - Significant Accounting Policies (cont'd)

A. Basis of Consolidation (cont'd)

6. Non Controlling Interest

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 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 non-controlling

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. 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 plus, for instruments not at fair value through profit or loss, 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. Cash and cash equivalents 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.


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C. 1.Financial Instruments (cont'd)

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 re-

measured 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 24.

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 self-constructed 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.

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.


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D. Fixed Assets (contd)

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 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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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 risidual 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.

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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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. In subsequent periods

the Group estimates, once a year and on the same date for each asset, 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. The discount rate is the yield at the reporting date on Government

debentures denominated in the same currency, that have maturity dates approximating the terms of the


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H. Employee benefits (cont'd)

B. Defined benefit plans (cont'd) 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 a 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.

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 Government debentures

denominated in the same currency, 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.

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 long-

term benefits depending on when the Company expects the benefits to be wholly settled.


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H. Employee benefits (cont'd)

B. Defined benefit plans (cont'd)

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

1. 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.

2. 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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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 and gain on changes in exchange rate. 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 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.


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L. Income tax expense (cont'd)

D. Offset of deferred tax assets and liabilities

Deferred tax assets and liabilities are offset 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

International Financial Standard (2010) IFRS 9, Financial Instruments. The standard replaces the requirements

included in IAS 39 regarding the classification and measurement of financial assets and financial liabilities. In

accordance with the standard, there are two principal categories for measuring financial assets: amortized cost

and fair value. 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. In addition, investments in

equity instruments are measured at fair value with changes in fair value being recognized in profit or loss.

Nonetheless, at the time of the initial recognition of an equity instrument not held for trade, the Standard permits

choosing to present changes in the fair value of the equity instrument as part of the “other comprehensive

income” where the amounts included in the other comprehensive income will never be classified to the

statement of income. The Standard generally preserves the instructions regarding classification and measurement of financial

liabilities that are provided in IAS 39. Nevertheless, unlike IAS 9, (2010) IFRS 39 requires as a rule that the

amount of change in fair value of financial liabilities designated at fair value through profit or loss, other than

loan grant commitments and financial guarantee contracts, attributable to changes in the credit risk of the

liability be presented in other comprehensive income, with the remaining amount being included in profit or

loss.

The mandatory implementation date of the standard has not yet been set. Early application is possible, subject to

provision of disclosure and concurrent adoption of the amendments to other IFRSs as detailed in the appendix to

the Standard. The Standard is to be applied retroactively, except for certain relief provisions in accordance with

the transitional rules set forth in the Standard. The Group has not yet examined the implications of adopting the standard on its financial statements.


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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.

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.

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.


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Note 5 - Cash and Cash Equivalents

Composition: Interest rate

December 31 December 31

2012 2013 2013

NIS Thousands NIS Thousands %

51,629 60,445 Bank and cash box balances 8,636 267,614 0.23-1.65 Call deposit account

60,265 328,059

Note 6 – Trade Receivables

Composition:

December 31

2012 2013

NIS Thousands NIS Thousands

565,483 588,952 On open account 130,803 124,250 Checks receivable 696,286 713,202

19,841 24,721 Less - provision for doubtful debts

676,445 688,481

Note 7 - Other Receivables and Debit Balances

Composition:

December 31

2012 2013 NIS Thousands NIS Thousands

2,773 2,527 Employees receivables

13,430 1,379 Advances to suppliers 11,848 15,057 Prepaid Expenses 9,845 8,699 Other receivables

37,896 27,662


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Note 8 - Inventory

Composition:

December 31 2012 2013


68,494 62,574 Raw materials

39,375 40,988 Packaging and auxiliary materials

19,522 17,611 Work in process

245,667 237,050 Finished and purchased goods

373,058 358,223

33,666 31,884 Inventory in transit

406,724 390,107

Note 9 - Other Investments

Composition: Interest rate

December 31 December 31 2012 2013 2013


1,483 1,328 Linked to the CPI + 4% Short term loan - 5,739 1% Deposit in Pounds sterling

12,187 - Deposits on account of sick days

13,670 7,067

Note 10 - Subsidiary Companies

A. Details on material investments in subsidiary companies held by the Company

Company Scope of investment as at December

31 Name of Company: Interest 2013 2012

in Equity NIS Thousands NIS Thousands Osem Food Industries Ltd. 100% (*) 523,564 461,337

Noga Ice Cream Limited Partnership 100% 137,704 120,681

Tivall (1993) Ltd. 100% 730,081 704,006

(*) Since the direct or indirect control is 100%, the full value of the balance sheet was presented and

not only the direct portion held by the company. B. Details on dividends the Company received from subsidiary companies:

Year ended December 31 2011 2012 2013

NIS Thousands NIS Thousands NIS Thousands

61,259 65,425 69,520


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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 is accounted for by the

Company as a defined benefit plan, and the liability for employee benefits is recorded accordingly.

A. Net plan liability:

December 31 2012 2013


(35,225) (30,750) Present value of liabilities 30,688 26,593 Fair value of plan assets (4,537) (4,157) Total employee benefits

B. Presented under the following items:

2012 2013


- 293 Non-current assets – employee benefits (4,537) (4,450) Non-current liabilities – employee benefits (4,537) (4,157) Defined benefit obligations at December 31

C. Movement in the present value of the defined benefit obligations

2012 2013


49,663 35,225 Defined benefit obligations at January 1 (5,527) (5,737) Benefits paid by the plan

Expense recognized in profit or loss 3,426 5,876 Current service costs 1,464 1,092 Interest costs

Recognized in other comprehensive profit (13,801) (5,706) Actuarial gains 35,225 30,750 Defined benefit obligations at December 31


Investments Limited

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Note 11 - Employee Benefits (cont'd)

D. Movement in plan assets

December 31

2012 2013


36,154 30,688 Fair value of plan assets as at January 1 1,609 1,295 Contributions paid into the plan

(339) (4,935) Benefits paid by the plan 1,072 708 Interest income recognized in profit and loss (7,808) (1,163) Actuarial losses recognized in other comprehensive income

30,688 26,593 Fair value of plan assets as at December 31

E. Actuarial assumptions and sensitivity analysis

The principal actuarial assumptions at the reporting date (expressed as weighted averages):

Year ended December 31

2011 2012 2013 % % %

3.38 - 4.96 2.11 - 4.82 1.72 - 4.90 Discount rate as at December 31 1.00 - 2.50 1.00 - 2.50 1.00 - 2.50 Future salary increases

Assumptions regarding future mortality are based on published statistics and mortality tables.

F. Benefit programs after completion of transaction - defined contribution plan


2011 2012 2013


Amount recognized as employee expense 28,627 32,713 33,737 For which section 14 of the Severance Pay Law applies


Investments Limited

28

Note 12 – Fixed Assets

A. Composition:

Leasehold

Computers,

furniture &

office Motor

Land and

Total improvements equipment vehicles Machinery buildings

NIS

Thousands

NIS

Thousands

NIS

Thousands

NIS

Thousands

NIS

Thousands

NIS

Thousand

s

Cost or deemed cost

2,160,841 47,327 363,621 4,814 945,036 800,043 As at 1 January 2012

96,122 2,322 31,841 165 59,506 2,288 Additions for the year 2012

1,106 (1) 60 35 328 684 Effect of movements in exchange rates

(13,276) - (5,753) (1,491) (6,032) - Disposals

2,244,793 49,648 389,769 3,523 998,838 803,015 Balance as at 31 December 2012

149,376 4,297 35,819 651 101,682 6,927 Additions for the year 2013

(25,513) (5) (488) (35) (13,798) (11,187) Effect of movements in exchange rates

(13,140) (48) (7,990) (674) (4,428) - Disposals

2,355,516 53,892 417,110 3,465 1,082,294 798,755 Balance as at 31 December 2013

Depreciation

1,013,520 22,768 235,638 3,592 574,240 177,282 As at 1 January 2012

114,809 3,188 35,356 332 53,848 22,085 Charged for the year 2012

170 (1) 61 15 74 21 Effect of movements in exchange rates

(11,696) - (4,933) (1,393) (5,370) - Disposals


114,204 3,300 33,682 391 54,830 22,001 Charged for the year 2013

(9,005) (4) (356) (27) (6,682) (1,936) Effect of movements in exchange rates

(10,983) (36) 6,902 (559) (3,486) - Disposals


Carrying amounts

1,127,990 23,693 123,647 977 376,046 603,627 As at 31 December 2012

Carrying amounts

1,144,497 24,677 124,564 1,114 414,840 579,302 As at 31 December 2013

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 31,432 thousand

(December 31, 2012 – NIS 34,984 thousand).

C. Regarding liens and cancellation of liens - See Note 21 (C)

D. Acquisition of fixed assets on credit

On 31 December 2013, the balance of fixed assets acquired on credit amounted to NIS 31,640

thousand, as at 31 December 2012 - NIS 27,273 thousand


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29

Note 13 - Intangible Assets

Customer

Relations,

brands Advertising

promotion

Goodwill and

Brand,

Sales and

Intangible Assets

Knowhow and Promotion Use right of Having an

Total Non competition

Equipment

of computer

software

Indefinite useful

life

NIS Thousands NIS Thousands NIS Thousands NIS Thousands NIS Thousands

Cost

1,160,103 77,164 2,494 118,681 961,764 Balance as at 1 January 2012

1,662 - 515 1,147 - Additions for the year 2012

Changes from linkage of obligations

related to 43,496 - - - 43,496 Acquisition of non controlling interest

(*) (1,887) 698 - 33 (2,618) Effect of movements in exchange rates

1,203,374 77,862 3,009 119,861 1,002,642 Balance as at 31 December 2012

1,429 - 644 785 - Additions for the year 2013

Changes from linkage of obligations

related to (6,259) - - - (6,259) Acquisition of non controlling interest

(*) (10,415) (1,984) - (107) (8,324) Effect of movements in exchange rates (2) - - (2) - Disposals

1,188,127 75,878 3,653 120,537 988,059 Balance as at 31 December 2013 Amortization

141,184

9

5

,

4

8

3

41,796

9

5

,

4

8

3

1,189

9

5

,

4

8

3

61,372

9

5

,

4

8

3

36,827 Balance as at 1 January 2012

36,066 11,871 867 23,328 - Charged for the year 2012

470 437 - 33 - Effect of movements in exchange rates

177,720 54,104 2,056 84,733 36,827 Balance as at 31 December 2012

34,476 10,394 736 23,346 - Charged for the year 2013 (1,124) (1,039) - (85) - Effect of movements in exchange rates

(2) - - (2) - Disposals

211,070 63,459 2,792 107,992 36,827 Balance as at 31 December 2013 Carrying amounts

1,025,654 23,758 953 35,128 965,815 As at 31 December 2012

Carrying amounts

977,057 12,419 861 12,545 951,232 As at 31 December 2013

See note 3 A.3.

A. Examination of impairment of cash-generating included in goodwill

The following units have significant goodwill and intangible asset values in the books that have

indefinite useful lives.

December 31 2012 2013


297,026 297,026 Tivall (1993) Ltd.

74,482 74,482 Bonjour

115,645 107,527 USA (Tribe)

457,304 451,045 Materna

944,457 930,080


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30

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 2014 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 approximately 8.25%.

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.

2. Recoverable amount of the cash generating unit, Materna was done by fair value. 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 2013, the goodwill attributed to PUT options of the non controlling interest in

consolidated subsidiaries totaled NIS 337,804 thousand (31 December 2012 –NIS 344,063 thousand)

Note 14 - Prepaid Expenses and operational leases

A. Prepaid Expenses

December 31

2012 2013 End date


37,669 38,806 2014-2021 Other

B. 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:

December 31

2012 2013


56,814 62,062 Less than one year 132,891 103,579 Between one and five years

81,757 90,852 More than five years 271,462 256,493


2011 2012 2013


62,793 63,913 68,963 Lease fees that were recognized as an expense


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Note 15 - Loans and Short-Term Bank Credit

Composition:

Annual

December 31

Variable interest

rates

2012 2013 31 December 2013


17,015 - Unlinked

31,378 29,212 Libor + 1.50% Linked to foreign currency (*)

Current maturities of loans

10,545 - from banks (*)

58,938 29,212

(*) Including:

2,110 - Linked to Pound Sterling

8,435 - Linked to Euro

31,378 29,212 Linked to US$

Note 16 - Trade Payables

Composition:

December 31 2012 2013


681,750 706,657 On open account

4,198 3,806 Checks and notes payable

685,948 710,463

Note 17 – Other Payables

Composition:

December 31

2012 2013


97,844 122,213 Employees and salary related government agencies

21,095 23,256 Other government agencies

60,682 59,337 Provision for vacation pay and vacation expense allowance

9,548 19,170 Sundry creditors and accrued expenses

189,169 223,976


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Note 18 -Liabilities to Banking Institutions

December 31 2012 2013


5,480 - Linked to Pound Sterling

8,435 - Linked to Euro

13,915 -

10,545 - Less - current maturities

3,370 -

Note 19 – Liability for acquisition of non controlling interest in consolidated

subsidiaries

December 31


357,104 342,514 For PUT options of non controlling interest in consolidated subsidiaries

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 secure component such as loan and declared dividend a nd a

component in the amount of NIS 319,743 thousand (year 2012 NIS 339,098 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 t he

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 controlling 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. At the balance sheet date the updating resulted in a decline in obligation against a decline in goodwill in the

amount of NIS 6,259 thousand Finance expenses recorded in profit and loss, for the time value of the money, related to

this obligation in the year 2013 amounted to NIS 15,092 thousand (year 2012 NIS 14,077 thousand).


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Note 20 ‏- Income Tax

A. 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 benefit 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.). Company is currently in compliance with these terms. 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. The 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 track, 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 Years 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 that 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 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.


Investments Limited

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Note 20 ‏- Income Tax (cont'd)

C. Amendments to the income tax ordinance

1. Tax rates in Israel are: 2013 25%, 2012 25%, 2011 24%.

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%. The balance of deferred taxes as at 31 December 2013 were calculated in accordance to the

new tax rates as were determined in the Law for Changes in National Priorities, at the

expected tax rate in effect at the date of the reversal, the effect on the financial statements as

at 31 December 2013 is expressed in the increase of liability for deferred taxes in the amount

of NIS 4,095 thousand against profit and loss, in the same amount.

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 financia l 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 standard 29 will

not apply when calculating taxable income for tax years 2010 and 2011. The temporary directive relating to the calculation of taxable income for the years 2007-2011

does not effect the financial statements.

D. Deferred taxes in respect of temporary differences as follows:

Allowance

for

for Employee Vacation

Total Other Fixed Assets

Doubtful

debts Benefits

and

convalescence

NIS

Thousands

NIS

Thousands

NIS

Thousands

NIS

Thousands

NIS

Thousands

NIS

Thousands

(43,196) 22,105 (85,490) 4,128 4,913 11,148 Balance as at 1 January 2012

6,305 14,803 (7,069) (381) (1,112) 64 Changes recorded on the income

statements (2,515) (1,005) (10) (5) (1,493) (2) Changes recognized in other

comprehensive income (39,406) 35,903 (92,569) 3,742 2,308 11,210 Balance as at 31 December 2012

7,596 11,537 (9,891) 1,540 14 4,387 Changes recorded on the income

statements (2,722) (2,571) 1,070 (9) (1,204) (8) Changes recognized in other

comprehensive income (34,532) 44,869 (101,390) 5,273 1,118 15,589 Balance as at 31 December 2013

E. Income tax in the income statements


2011 2012 2013 NIS Thousands NIS Thousands NIS Thousands

117,420 123,318 134,080 Current taxes

Change in deferred taxes

(9,719) (6,305) (11,691) Regular basis

18,963 - 4,095 Change in tax rates

126,664 117,013 126,484


Investments Limited

35

Note 20 ‏- 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:


2011 2012 2013 24% 25% 25% Statutory tax rate


112,234 118,589 125,729 Theoretical tax based on the statutory tax rate applying

to the Company Increase (decrease) in tax liability resulting from:

6,189 6,335 5,718 Non-deductible expenses

18,963 - 4,095 Effect of change in tax rates

(10,164) (8,784) (9,503) Income which is subject to different tax rates

Timing differences and losses for tax purposes for

which tax not charged (1,069) 76 1,319 Deferred in previous years

511 797 (874) Other

126,664 117,013 126,484 Income tax included in the income statements

H. The Group has carry-forward tax losses in the amount of NIS 134,228 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.

I. Change in Structure

The Group decided on a change in structure to the Group companies in the framework of which the baking

factory of Bonjour (1986) Ltd ( hereinafter - "Bonjour") was merged into the production setup of Osem

Investments ( hereinafter - "Osem") Since Bonjour was held via Alei Dagan Ltd ( hereinafter - "Alei Dagan") and

Magen Bakery and Coffee Shop Ltd ( hereinafter - "Magen Bakery"), two preliminary actions were effected

before the merger of Bonjour into Osem as a consolidation of parent and subsidiary companies as follows:

1. At the first stage, Magen Bakery transferred all its share holdings in Bonjour to Bonjour, exempt from

income tax as per section 104C in the income tax ordinance (new version) 1961-5721 ( hereinafter - "the

ordinance") in accordance with the Companies Law, 1999-5759 ( hereinafter - "the companies law).

2. In the second stage, Alei Dagan transferred all its holdings in Bonjour shares to Osem, exempt from income

tax as per section 104C in the ordinance and in accordance with the companies law.

3. In the third stage immediately and subsequent to the transfers mentioned in sections 1 and 2 above, Bonjour

was merged into Osem in accordance with section 103B to the ordinance in such a way that Bonjour

transfered all its assets and liabilities without consideration , thereby liquidating Bonjour without

dismantling.

4. The change in structure was contingent upon receipt of advance approval from the tax authorities and

conducting the mentioned structural change free from tax and with the approval of the Investment Center.

On 26 January 2012 and 26 July 2012 the approvals were received from the tax authorities for the tax

exempt change in structure, approval from the Investment Center was received in December 2012.


Investments Limited

36

Note 21 - Contingent Liabilities, Commitments and Liens

A. Contingent liabilities and commitments

1. Indemnification and insurance of directors and officers –

(A) 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.

(B) The Company has undertaken to indemnify a past director of a foreign subsidiary, for an unlimited period of

time, against all claims, liabilities, payments or costs, which may arise from him being a director of the

subsidiary, or because of any reason connected with his being a member of management of the subsidiary,

subject to the provisions of the laws of the U.K. and to the judicial authority of the U.K. or of Israel, as he

may choose.

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. The amount which exceeded 1.5% in the year 2013, which could be taken into account in the future multi-year

calculation (if the IT cost declined below 1.5% per year) amounted to NIS 7,322 thousand and cumulatively NIS

80,033 thousand.

6. Various guarantees are given by Group companies to third parties, aggregating NIS 8,454 thousand, this relates

to guarantees against liabilities of Group companies.

7. As at 31 December 2013, the Group companies have commitments to purchase fixed assets, in the amount of

NIS 8,040 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 23,388

thousand (year 2012 - NIS 24,844 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 2013 an accrual of NIS 250 thousand has been included. (2012 - no

provision was included.) Filed against the company were lawsuits in the area of work relationships in the amount of approximately NIS

18 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 488 thousand (year 2012 NIS 161thousand).


Investments Limited

37

Note 21 - 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 19), 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 28 May 2008 the board of directors of the company approved 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). The program was approved for 3 years (2008-2010). According to the

program the Company granted “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. 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 upon 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. The Company included in its statements of profit and loss an expense related to the change in value of

benefit to those managers which was calculated by an outside assessor at a value of NIS 21,243

thousand, NIS 10,952 thousand, NIS 1,721 thousand for the years 2013, 2012 and 2011 respectively.

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.


Investments Limited

38

Note 21 - Contingent Liabilities, Commitments and Liens (cont'd)

B. Contingent liabilities and commitments (cont)

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 asets

(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 will 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 assets,

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.


Investments Limited

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Note 22 - Related and Interested Parties

A. Transactions with related and interested parties in Nestle group



247,001 273,923 251,376 Cost of Sales

15,395 21,925 24,403 General and administrative expenses

721 774 725 Other income

The transactions were at ordinary commercial terms.

B. Balances with related and interested parties in Nestle group

Year ended December 31 2012 2013


102,258 73,612 Trade payables

914 2,875 Other receivables

Highest other receivable balance in the year 2013 were NIS 2,875 thousand (2012 – NIS 1,458 thousand)

C. Commitments with related and interested parties

See notes 21 A.3. through 21 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:


Amount

Number of

people Amount

Number of

people Amount

Number of

people

NIS

Thousands

NIS

Thousands NIS

Thousands 11,322 4 13,616 4 13,472 2 Short-term employee benefits

138 4 251 4 133 2 Post-employment benefits

11,460 4 13,867 4 13,605 2 Compensation to key management personnel (including directors) that are not employed by the Company:


Amount Number of

people Amount Number of

people

Amount Number of

people

NIS

Thousands

People

NIS

Thousands

People

NIS

Thousands

People

1,352

4 1,677

7

1,827

8

Total benefits for non-employed director Employed

The compensation policy for senior managers includes, among others, annual bonus based on meeting annual targets and phantom

options as detailed in note 21 A. 11.


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Note 23 - Details to the Income Statements

A. Sales revenues

1. Domestic and export: Year ended December 31


3,320,925 3,423,047 3,560,200 Domestic sales

639,952 668,546 629,847 Export sales

3,960,877 4,091,593 4,190,047 Sales

2. Products from self-manufacture and other products: Year ended December 31


2,869,097 2,953,838 2,996,638 Products from self-manufacture

1,091,780 1,137,755 1,193,409 Other products

3,960,877 4,091,593 4,190,047 Sales

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 is as Follows: Year ended December 31


566,026 628,480 646,617 Customer

B. Cost of Sales


2011 2012 2013


Cost of sales products from self-manufacture:

910,259 952,529 913,258 Materials used

311,086 319,981 327,302 Payroll and related expenses

297,151 308,763 305,769 Other manufacturing costs

70,816 73,197 74,711 Depreciation and amortization

1,589,312 1,654,470 1,621,040

19,143 (12,622) 9,106

Decrease (increase in inventory of finished goods and work in process

1,608,455 1,641,848 1,630,146 Total cost of sales products from self manufacture

701,027 770,150 796,190 Cost of sales of other products

2,309,482 2,411,998 2,426,336


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Note 23 - Details to the Income Statements (cont'd)

C. Selling, marketing and distribution expenses Year ended December 31




249,313 224,103 239,674 Advertising and sales promotion

82,958 92,722 94,317 Commissions

96,588 103,644 104,589 Motor vehicle and delivery expenses

116,255 123,487 137,039 Other

878,759 885,610 928,833

D. General and administrative expenses Year ended December 31




6,129 7,105 6,715 Building maintenance

(273) 2,464 7,901 Bad and doubtful debts

79,292 73,260 74,060 Other

270,528 282,962 306,320

E. Other income (expenses), net Year ended December 31


1,017 (503) (155) Gain (loss) from realization of fixed assets

- (4,759) (3,262) Reorganization expenses

(3,847) (1,768) 532 Other

(2,830) (7,030) (2,885)

F. Financing income and expenses


year ended


5,478 1,220 6,583 Expenses on obligations and short-term credit 1,073 2,940 2,179 Expenses on bank liabilities 460 - - Change in fair value of financial assets through profit or

loss - 3,958 799 Exchange differences, net 34,527 25,608 15,092 Expenses in respect of liabilities for non controlling

interest PUT option 41,538 33,726 24,653 Total financing expenses

(3,102) (2,817) (1,512) Interest income from bank deposits (6,802) - - Exchange differences, net - (1,271) (380) Change in fair value of financial assets through profit or

loss (9,904) (4,088) (1,892) Total financing expenses 31,634 29,638 22,761 Net financing expenses


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Note 24 - Financial Instruments

A. General

Management has overall responsibility for the establishment and overs ight 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 risks 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 it s 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 sales

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.


Investments Limited

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Note 24 - 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 value 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 15% of its sales but also imports some of its raw

material as well as finished goods from Nestle as a result, most of its customers’ balance in

foreign currency are naturally protected against most 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

2013 the excess of financial assets in foreign currency over financial liabilities in foreign

currency amounted to approximatly NIS 74 million. And financial obligations in excess of the

financial assets in the amount of NIS 178 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 72 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 approximatly NIS 1 million.

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.

4) 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 0.8% of the total balance sheet.

2. As at balance sheet date the amounts of the futures transactions are as follows:

Amount of

Transactions

Fair Value

NIS thousands NIS thousands

NIS forward transactions/foreign currency options on

exchange rates, net 71,696 1,274

The aforementioned transactions are for periods of up to

12 months.


Investments Limited

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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.

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:

December 31 2012 2013


60,265 328,059 Cash and cash equivalents 676,445 688,481 Trade receivables

12,618 11,086 Other receivables 13,670 7,067 Other investments

762,998

1,651

1,034,675

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:

December 31


623,999 615,838 Not past due

60,377 79,833 Past due 1-60 days 5,712 8,539 Past due 61-120 days 6,198 8,992 Past due more than 120 days

(19,841) (24,721) Provisions for impairment

676,445

688,481


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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:

December 31

2012 2013


22,366 19,841 Balance as at January 1 2,464 7,901 Impairment loss (gain) recognized, net

(491) (558) Movements against suppliers (4,498) (2,463) Doubtful debts that became bad debts

19,841

24,721

Balance as at December 31

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 uncollectible 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 Tuesday, December 31, 2013 and Monday, 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.


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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 31 December 2013

2-5 years 1-2 years

Less than

one year

years

Contractual

cash flow

Carrying

amount

NIS

Thousands

NIS

Thousands

NIS

Thousands

NIS

Thousands

NIS

Thousands

Financial liabilities - - 29,310 29,310 29,212 Short-term loans and credit

- - 710,463 710,463 710,463 Trade payables - - 164,639 164,639 164,639 Payables

- - 904,412 904,412 904,314 Total


2-5 years 1-2 years

Less than

one year

Contractual

cash flow

Carrying

amount

NIS

Thousands

NIS

Thousands

NIS

Thousands

NIS

Thousands

NIS

Thousands

Financial liabilities - - 48,803 48,803 48,393 Short-term loans and credit

- - 685,948 685,948 685,948 Trade payables - - 128,487 128,487 128,487 Payables

Bank liabilities - 3,571 10,614 14,185 13,915 Including current maturities

- 3,571 873,852 877,423 876,743 Total


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D. Linkage and foreign currency risks

1. Exposure of the Group to linkage and foreign currency risks


Functional Linked to Foreign

Currency

Functional currency - NIS

Total Non-

monetary

Items

Foreign

Currency

Unlinked Unlinked Linked to the

CPI

NIS

Thousands

NIS

Thousands

NIS

Thousands

NIS

Thousands

NIS

Thousands

NIS

Thousands

Assets 328,059 - 17,590 27,073 283,396 - Cash and cash equivalents 688,481 - 48,472 27,568 612,441 - Trade receivables

27,662 16,594 1,089 2,390 7,589 - Other receivables 5,464 5,464 - -

-

- - Income tax 390,107 390,107 - -

-

- - Inventory 7,067 - 154,722 (148,983) - 1,328 Other investments

293 293 - -

-

- - Employee benefits 1,144,497 1,144,497 - -

-

- - Fixed Assets 977,057 977,057 - -

-

- - Intangible Assets 38,806 38,806 - -

-

- - Deferred expenses 34,795 34,795 - -

-

- - Deferred tax assets Liabilities

(29,212) - - (29,212) - - Short-term loans and credit (710,463) - (146,722) (43,950) (519,791) - Trade payables (223,976) (59,337) (74) (14,480) (150,085) - Other creditors

(9,473) (9,473) - -

-

- - Income tax - -

-

- -

-

- - Bank liabilities

(342,514) (342,514) - -

-

- - Other liabilities (4,450) (4,450) - -

-

- - Employee benefits (69,327) (69,327) - -

-

- - Deferred tax assets Excess (deficit) in assets

over 2,252,873 2,122,512 75,077 (179,594) 233,550 1,328 Liabilities


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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 2012

Functional Items Linked to Foreign

Currency

Functional currency - NIS

Total Non-

monetary

Foreign

Currency

Unlinked Unlinked Linked to the

CPI

NIS

Thousands

NIS

Thousands

NIS

Thousands

NIS

Thousands

NIS

Thousands

NIS

Thousands

Assets 60,265 - 10,960 32,895 16,410 - Cash and cash equivalents

676,445 - 48,612 24,874 602,959 - Trade receivables 37,896 25,278 1,067 7,838 3,713 - Other receivables 7,416 7,416 - -

-

- - Income tax 406,724 406,724 - -

-

- - Inventory 13,670 - 228,353 (228,353) 12,187 1,483 Other investments

1,127,990 1,127,990 - -

-

- - Fixed Assets 1,025,654 1,025,654 - -

-

- - Intangible Assets 37,669 37,669 - -

-

- - Deferred expenses 30,441 30,441 - -

-

- - Deferred tax assets Liabilities

(58,938) - (8,435) (33,488) (17,015) - Short-term loans and credit (685,948) - (173,005) (34,695) (478,248) - Trade payables (189,169) (60,682) (884) (12,325) (115,278) - Other creditors

(11,813) (11,813) Income tax (3,370) - (3,370) - - Bank liabilities

(357,104) (357,104) - -

-

- - Other liabilities (4,537) (4,537) - -

-

- - Employee benefits (69,847) (69,847) - -

-

- - Deferred tax assets Excess (Deficit) assets

over liabilities 2,043,444 2,157,189 106,668 (246,624) 24,728 1,483 Liabilities


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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. As at 31 December 2013

Equity Profit or loss


Increase of 1% in the CPI 10 10 Increase in the exchange rate of: 1% in the US Dollar 78 78 1% in the Pound Sterling 51 51 1% in the Euro (6) (6) 1% in the Australian Dollar (79) (79)


Equity Profit or loss


Increase of 1% in the CPI 11 11 Increase in the exchange rate of: 1% in the US Dollar 1,394 1,394 1% in the Pound Sterling 26 26 1% in the Euro (15) (15) 1% in the Australian Dollar (30) (30)

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:


2008

2009

2008

2007

Term Term

Currency Currency Par

Value

Start Expiration/ Fair Value

Detail of the Derivative For

purchase For sale NIS

Thousand

s

Transaction Realization NIS

Thousands

Forward – hedging

supplier's debt

Australian

To supplier Dollar

Australia

n

NIS 16,134 12/2013 1/2014 44

Forward – hedging

supplier's debt

To supplier Euro NIS 2,416 3/2013 1-2/2014 (28)

18,550

16

Option on exchange rate

US Dollar

NIS

(90,246)

10/2013

3-9/2014

1,258

71,696

1,274


Term Term

Currency Curre

ncy

Par Value Start Expiration/ Fair Value

Detail of the Derivative For purchase

For

sale

NIS

Thousands

Transaction Realization NIS Thousands

Forward – hedging

supplier's debt

Australian

To supplier Dollar NIS 35,221 12/2012 1/2013 (102)

Forward – hedging

supplier's debt

To supplier US Dollar NIS 36,583 7-12/2012 1-8/2013 (449)

71,804

(551)


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4. Data Relating to CPI Index and Exchange Rates:

31 December

% Change

2013 2012 2013 2012 2011

Consumer Price Index in points 107.6 105.7 1.82 1.63 2.17

Exchange rate of US Dollar NIS = 1 Australian Dollar 3.471 3.733 (7.02) (2.30) 7.66

Exchange rate of Pound Sterling NIS = 1 Pound Sterling 5.742 6.037 (4.89) 2.46 7.26

Exchange rate of Swiss Franc NIS = 1 Swiss Franc 3.897 4.077 (4.42) 0.36 7.23

Exchange rate of Euro NIS = 1 Euro 4.782 4.921 (2.82) (0.35) 4.22

Exchange rate of Australian

Dollar

NIS = 1 Australian Dollar 3.103 3.870 (19.82) (0.18) 7.37


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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: December 31

2013 2012 Carrying

amount Carrying

amount NIS

Thousands NIS

Thousands

Variable rate instruments

Financial assets 695 13,818

Financial liabilities - -

695 13,818

Variable rate instruments

Financial assets 272,545 8,521

Financial liabilities (29,212) (62,308)

(243,333) (53,787)

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 2012. As at 31 December 2013

Profit or Loss Equity

Interest increase Interest decrease Interest increase Interest decrease

NIS Thousands NIS Thousands NIS Thousands NIS Thousands

Variable rate instruments 13 (13) 13 (13)

Cash flow sensitivity (net) 13 (13) 13 (13)

As at 31 December 2012 Profit or Loss Equity

Interest increase Interest decrease Interest increase Interest decrease

NIS Thousands NIS Thousands NIS Thousands NIS Thousands

Variable rate instruments (9) 9 (9) 9

Cash flow sensitivity (net) (9) 9 (9) 9


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52

Note 25 - Earnings Per Share

Year ended December 31 2012 2013

Earnings used in computing the basic and the 356,886 376,428 fully diluted earnings per share (NIS thousands)

Number of shares used in computing the 110,644 110,644 basic and the fully diluted earnings per share (NIS thousands )

thousands)th)thousands)

Note 26 - Information on Operating Segments on a Consolidated Basis

A. The Company has reportable segments based on the areas of activity mentioned below:

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

variety of branded products. The main ones being, among others, pasta, soups, casseroles, baking

aids, sauces, soup almonds and canned products.

2. Snacks and Breakfast Cereals - In this area the Group develops, manufactures and/or sells, markets

and distributes a large variety of branded products. The products in this area include snack products

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

3. Bakery and Beverages - In this area the Group develops, manufactures and/or sells, markets and

distributes a large variety of branded food products. The products in this area include the salty baked

products (crackers and Lachmit), the sweet baked products (cakes and cookies), concentrates,

chocolate milk powder and soluble coffee.

4. Prepared Foods - In this area the Group develops, manufactures and/or sells, markets and distributes a

large variety of frozen and chilled branded food products, the main ones being frozen bakery products

baked at the point of sale, schnitzels and prepared meals based on meat substitutes and vegetable-based

food products, prepared packaged salads (hummus salad, eggplant, tehina etc.)

5. 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

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, iced tea (Nestea) ice cream, petfoods, other

purchased products and activities of the subsidiary companies Asamim Gift Packages, and Osem UK and

Osem USA. The said activities are not material to the activity of the Group and do not meet the

quantitative threshold to be presented in the financial statements as reportable segments.

The company calculates the intercompany transactions according to acceptable market price to outside customers

with similar products. The results of these activities are eliminated, in the framework of reconciliations for the

purpose of preparing consolidated financial statements. The segment results are measured based on the profit reported and regulary reviewed by the head

operational decision maker.


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Note 26 - Information on Operating Segments on a Consolidated Basis (cont'd)

For the year ended 31 December 2013 Snacks

Adjustment Infants Prepared Bakery And

Cereals

Consolidated to

consolidated

Other Nutrition Food Beverages Breakfast

Cereals

Culinary

NIS

Thousands NIS

Thousands NIS

Thousands

NIS

Thousands NIS

Thousands NIS

Thousands NIS

Thousands NIS

Thousands

4,190,047 - 995,592 358,644 920,486 541,065 651,098 723,162 Third party sales - (64,522) - - 11,080 4,840 16,186 32,416 Sales to other segments

4,190,047 (64,522) 995,592 358,644 931,566 545,905 667,284 755,578 Total segment sales Attributable costs –

3,661,489 - 896,174 296,493 853,967 456,766 503,429 654,660 From third parties

Attributable costs – - (64,522) 64,484 - 38 - - - From other segments

3,661,489 (64,522) 960,658 296,493 854,005 456,766 503,429 654,660 Total attributable costs

528,558 - 34,934 62,151 77,561 89,139 163,855 100,918 Segment results (2,885) Expenses not allocated, net

(22,761) Financing costs, net (126,484) Taxes on income

376,428 Profit for the period

148,681 26,860 6,522 48,710 16,855 23,249 26,485 Depreciation and amortization

For the year ended 31 December 2012

snacks Adjustment Infants Food Bakery And

Cereals

Consolidated To

consolidated

Other Nutrition prepared Beverages Breakfast

Cereals

Culinary

NIS

Thousands

NIS

Thousands

NIS

Thousands

NIS

Thousand

s

NIS

Thousand

s

NIS

Thousand

s

NIS

Thousand

s

NIS

Thousands











Investments Limited

54


For the year ended 31 December 2011 Snacks

Adjustment Infants Prepared Bakery And

Cereals

Consolidated to

consolidated

Other Nutrition Food Beverages Breakfast

Cereals

Culinary

NIS

Thousands NIS

Thousands NIS

Thousands

NIS

Thousands NIS

Thousands NIS

Thousands NIS

Thousands NIS

Thousands











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55


B. Disclosures at the entity level

1. Product information



719,713 738,887 755,578 Culinary Food

512,610 511,317 514,788 Snacks

143,401 151,389 152,496 Breakfast Cereals

489,401 529,336 545,905 Bakery and Beverages

890,115 915,229 931,566 Prepared Food

369,249 355,058 358,644 Infant Nutrition

836,388 890,377 931,070 Others (*)

3,960,877 4,091,593 4,190,047 Total

(*) 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 its 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.


NIS Thousands NIS Thousands NIS Thousands Income from Third Parties

3,320,925 3,423,047 3,560,200 Israel

279,887 300,252 277,918 USA 351,599 356,596 340,670 Europe

8,466 11,698 11,260 Rest of the world

3,960,877 4,091,593 4,190,048 Consolidated

December 31 2012 2013


Non-current assets

1,860,473 1,872,496 Israel

203,011 181,664 USA 127,829 106,200 Europe

2,191,313 2,160,360 Consolidated


Investments Limited

56

Note 27 - Capital and Reserves

A. Nominal historical data


and 2012

Authorized Issued and paid NIS NIS NIS per ordinary share 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: December 31

2012 2013

(1,988) (17,971) Tivall (1993) Ltd. 01193 (9,209) (10,584) Osem UK Ltd.

(837) (3,817) Osem USA Inc.

(12,034) (32,372) Total

C. Dividends

The following dividends were declared and paid by the Company: Year ended December 31


150,000 150,000 1.356 NIS per ordinary share

On 13 March 2014 the Company declared an additional dividend in the sum of NIS 150 million.


Investments Limited

57

Country of

Company

Shareholding

conferring

direct and

indirect share

to profits and

voting rights %

Subsidiary companies -

Osem Food Industries Ltd. Israel 100.0

Assamim (1954) Ltd. Israel 100.0

Givol Ltd. Israel 100.0

OSEM UK Ltd. UK 100.0

Osem USA Inc. USA 100.0

Migdanot Habait Ltd. Israel 100.0

Noga Ice Cream Ltd Israel 100.0

Noga Ice Cream Limited Partnership Israel 100.0

Assamim Gift Packages Ltd Israel 74.0

Tivall (1993) Ltd. Israel 100.0

Beit Hashita - Assis, Food Industries Limited

Partnership

Israel 100.0

Beit Hashita - Assis, Food Industries Limited Israel 100.0

Materna Food Industries Limited Partnership * Israel 51.0

Materna Holdings Ltd * Israel 51.0

Tivall Europe B.V. Holland 100.0

TRIBE MEDITERRANEAN FOODS INC. USA 100.0

Tivall Food Industries Ltd.(formerly Zabar Food Ind.

(1985)(Ltd)

Israel 100.0

Osem Commerce Group (Limited Partnership) Israel 100.0

Tivall Holland B.V. Holland 100.0

Tivall Sweden A.B. Sweden 100.0

TIVALL CZ S.R.O. (5) Czech

Republic

100.0

Asmi Bakers Ltd. Israel 100.0

Recycling Organization of Israel Ltd. Israel 8.3

Inactive companies:

Ostiv Ltd Israel 100.0

Loop Frumin Ltd. Israel 100.0

Itur Osem Ltd. Israel 100.0

Osem International Foods Ltd Israel 100.0

Alei Dagan Ltd. Israel 100.0

Nestle Purina Petcare Israel (Limited Partnership) Israel 100.0

Baker Man (Bakery) Ltd. Israel 100.0

Magen Bakery and Coffee Shop Ltd. Israel 100.0

(*) Since there is an PUT option from the non controlling interest therefore the accounting

presentation relates to a 100% holding.

Osem Investments Limited

Separate Financial Statements

December 31, 2013

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 2013

Page

Data on Financial Position 2-3

Data on Income 4

Data on Comprehensive Income 5

Data on Cash Flows 6

Additional Information 7

Investments Ltd.

Separate information is presented according to regulation 9c to the securities regulations

(Periodic and Immediate Reports) -1970 as at 31 December 2013

Presented hereunder are financial data from the Group’s consolidated financial statements of December 31,

2013 (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.

Separate Financial Data as at 31 December 2013

2

Investments Limited

Data on Financial Position

As at 31 December

0212 2013 Additional

NIS

Thousands NIS Thousands Information

Assets

5,067 218,379 1 Cash and cash equivalents

15,600 10,692 2

Other receivables

5,846 978 3

Income tax

120,225 106,810

Inventory

13,670 1,328 2

Other investments

160,408 338,187

Total current assets

1,522,274 1,623,899

Balances related to investee companies

70,476 61,898 2

Loans to investee companies

662,783 684,218

Fixed assets

568,037 538,709

Intangible Assets

17,235 12,763

Prepaid expenses

2,840,805 2,921,487

Total non-current assets

3,001,213 3,259,674 Total assets

Dan Propper – Chairman of the Board

Itzik Saig – CEO

Pinhas Kimelman – Deputy CEO Finance

The date of approval of separate financial data: 13 March 2014


3

Investments Limited

As at 31 December

2012 2013

NIS Thousands NIS Thousands Additional

Information Liabilities

17,015 - 2

Loans and short-term credit

319,152 316,000 2

Trade payables

220,346 301,363 2

Other payables

556,513 617,363

Total current liabilities

357,104 342,514

Liabilities for acquisition of the non controlling interest in

investee companies

4,105 4,331

Employee benefits

40,733 43,722 3

Deferred taxes

401,942 390,567

Total non-current liabilities

958,455 1,007,930

Total liabilities

Equity

176,772 176,772

Share capital

444,212 444,212

Share premium

(48,015) (68,353)

Reserves

1,469,789 1,699,113

Retained earnings

2,042,758 2,251,744

Total equity

3,001,213 3,259,674 Total liabilities and equity


4

Investments Ltd.

Data on Income

For the year ending 31 December

2011 0212 0213 Additional

NIS Thousands NIS Thousands NIS Thousands Information

1,093,859 1,331,697 1,351,197 Sales

581,723 721,879 712,087 Cost of Sales

512,136 609,818 639,110 Gross profit

187,337

261,098

277,693

Selling, marketing and distribution

expenses

69,268 87,299 99,478 General and administrative expenses

255,531 261,421 261,939 Operating profit before other income

13,295 856,8 12,080 Other income, net

268,826 270,079 274,019 Operating profit

(34,682) (23,347) (16,367) Financing expenses

11,311 6,364 15,404 Financing income

(23,371) (16,983) (963) Financing expenses, net

165,893 167,769 176,993 Profit from investee companies

411,348 420,865 450,049 Profit before taxes on income

70,296 63,979 74,064 3 Taxes on income

341,052

356,886

375,985



5

Investments Ltd.

Data on Comprehensive Income

For the year ending 31 December

2011 2012 2013

NIS

Thousands NIS

Thousands NIS

Thousands

Actuarial gains (losses)

(12,550) 6,454 3,818 from defined benefit plan

Income tax related to other elements

3,138 (1,614) (1,012) of comprehensive income

(9,412) 4,840 2,806 Other comprehensive income (expenses) for the period

Other comprehensive income (expenses),

4,058 2,308 (19,805) from investee companies




6

Investments Ltd.

0222 2012 2013

Data on Cash Flows for the year ended 31 December 2013

NIS

Thousands NIS

Thousands NIS

Thousands

Cash flows from operating activities


(16,,892) (167,769) )176,993(

Adjustments for:

Company’s share in investee profits

585930 ,85118 57,663 Depreciation

Amortization of intangible assets

345059 27,753 27,747 And prepaid expenses

(1,309) 130 )126( Gain on sale of fixed assets, net

325240 16,983 963 Financing costs, net

415396 63,979 74,064 Income tax expense

3,388 1,675 )4,642( Changes in derivatives

631 (8,596) 13,415 Change in inventory

76,426 25,508 4,940 Change in trade and other receivables

25,900 69,417 109,896 Change in trade and other payables

(78) )174( 4,044 Change in employee benefits

(50,178) )81,036( )101,746( Income tax paid

399,665 362,764 385,210 Net cash from operating activities

Cash flows from investing activities

1,396 46 745 Proceeds from sale of fixed assets

- - 8,861 Repayment of loans granted

5,008 11,258 10,152 Net cash from investment activities in investee

(31,679) (53,767) )80,573( Acquisition of fixed assets

(4,459) ,5202) ) )206(

Investment in intangible assets and prepaid

expenses

35018 35629 1,581 Interest received

(348) 025388 12,735 Other investments

6053,9 6,553, 69,520 Dividend received from investee companies

33,355 33,576 22,815 Net cash from (used in) investing activities

Cash flows from financing activities

)7,104( )26,244( )2,149 ( Interest paid

)112,787( )239,600( )30,904( Repayment of other liabilities

)37,500( - - Repayment of long term loans

05808 0,5094 )11,834( Credit from banks and others, net

(300,000) (150,000) )150,000( Dividend paid

(455,573) (400,647) (194,887) Cash flows used in financing activities

(22,553) )4,307( 213,138 Change in cash and cash equivalents

305679 95331 5,067

Cash and cash equivalents as at the beginning

of the period

Effect of exchange rate fluctuations

31, 43 174 on cash balances and cash equivalents

95220 5,067 218,379

Cash and cash equivalents as at the end of

the period


7

Investments Ltd.

Additional data to the financial statements as at 31 December 2013

1 - Cash and Cash Equivalents

31 December

2012 2013


3,356 215,668 New Israel Shekel

538 1,575 U.S. Dollar

693 624 Euro

374 443 Pound Sterling

106 69 Other currencies

5,067

218,379

1,651

Total Cash and Cash Equivalents

2. Financial Instruments

A. Linkage and foreign currency risks

331 December 201

Linked to Functional currency - NIS

Interest

Total Foreign

Currency

Unlinked Linked to

the CPI %

NIS

Thousands

NIS

Thousands

NIS

Thousands

NIS

Thousands

Assets

5,508 - 5,508 - Debtors and debit balances (*)

1,328 - - 1,328 5 Other investments (*)

61,898 - 49,401 12,497 3-, Loans to held companies

Liabilities

- - - - Short term liabilities

(316,000) (94,720) (221,280) - Trade payables

(250,020) - (250,020) - Other creditors

(497,286) (955431) (416,391) 13,825

(*)Debtors and debit balances and other investments are classified as current assets, their realization within the

operating cycle of the company.


8

Investments Ltd.


2. Financial Instruments (Cont.)

Linkage and foreign currency risks

212031 December

Linked to Functional currency - NIS Interest

Total Foreign

Currency

Unlinked Linked to

the CPI %

NIS

Thousands

NIS

Thousands

NIS

Thousands

NIS

Thousands

Assets

2,500 - 2,500 - Debtors and debit balances (*)

13,670 - 12,187 1,483 1-5 Other investments (*)

70,476 - 48,251 22,225 3-, Loans to held companies

Liabilities

(17,015) - (17,015) - 3.0 Short term liabilities includes

(319,152) (119,616) (199,536) - Trade payables

(168,295) - (168,295) - Other creditors

(5045806) (0095606) (2305918) 23,708

(*)Debtors and debit balances and other investments are classified as current assets, their realization within the

operating cycle of the company.


9

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.


Less than

one year Contractual Carrying

3-5 years 1-2 years 1 year Cash flow Amount

NIS

Thousands

NIS

Thousands

NIS

Thousands NIS Thousands

NIS

Thousands

Financial liabilities

- - - - - Loans and short term liabilities

- - 316,000 316,000 316,000 Trade payables

- - 250,020 250,020 250,020 Creditors

- - 566,020 566,020 566,020 Total


Less than

one year Contractual Carrying

3-5 years 1-2 years 1 year Cash flow Amount

NIS

Thousands

NIS

Thousands

NIS

Thousands NIS Thousands

NIS

Thousands

Financial liabilities

- - 17,015 17,015 17,015 Loans and short term liabilities

- - 319,152 319,152 319,152 Trade payables

- - 168,295 168,295 168,295 Creditors

- - 504,462 504,462 504,462 Total


01

Investments Ltd.


C. CPI and Foreign Currency Risks

The following are details of the Company’s derivative financial instruments:


2008

3101

2008

2007

Term Term

Functional Functional Par Value Start Expiration/ Fair Value


purchase

For sale NIS

Thousands


Thousands

Forward – hedging

supplier's debt

Australian

Dollar NIS 065025 12/2013 1/2014 55

Forward – hedging

supplier's debt

US

Dollar NIS 35506 3/2013 1-2/2014 (28)

085,,1 16


2008

3101

2008

2007

Term Term

Functional Functional Par Value Start Expiration/ Fair Value


purchase

For sale NIS

Thousands


Thousands

Forward – hedging

supplier's debt

Australian

Dollar NIS 35,221 12/2012 1/2013 (102)

Forward – hedging

supplier's debt

US

Dollar NIS 36,583 7-12/2012 1-8/2013 (449)

71,804 (551)

3. Income Tax

A. Deferred taxes in respect of temporary differences

Vacation Employee and

Total Other Fixed Assets Benefits Convalesce

nce

NIS

Thousands

NIS

Thousands

NIS

Thousands

NIS

Thousands

NIS

Thousands

(31,990) 1,073 (45,798) 2,683 10,052 Balance as at 1 January 2012

(7,129) 769 (7,768) (44) (86) Changes recorded on the income statements

(1,614) - - (1,614) - Changes recorded to shareholders' equity

(40,733) 1,842 (53,566) 1,025 9,966 Balance as at 31 December 2012

(1,977) 3,075 (9,825) 1,133 3,640 Changes recorded on the income statements

(1,012) - - (1,012) - Changes recorded to shareholders' equity

(43,722) 4,917 (63,391) 1,146 13,606 Balance as at 31 December 2013


00

Investments Ltd.


3. Income Tax (cont’d)

B. Income tax in the income statements

Year ended 31 December

0222 2012 2013

NIS Thousands NIS

Thousands

NIS Thousands

52,312 56,850 72,087 Current taxes

Change in deferred taxes 5,478 7,129 (646) Regular basis

12,506 - 2,623 Change in tax rates

70,296 63,979 74,064

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 6,100

Thousands. (2012 - NIS 24,632 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 61,898 Thousands

(2012 - NIS 70,476 Thousands).

Net finance income from investee companies for the years 2013, 2012 and 2011 totaled

NIS 5,412, 5,691, and 11,308 Thousands 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

2013, 2012 and 2011 in the amounts of 111,231, 104,274 and 95,980 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 2013, 2012 and 2011 in

the amounts of 202,590, 211,890 and 162,341 NIS thousands respectively.


02

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 2013, 2012 and 2011 in the amounts of

16,498, 16,369 and 16,985 NIS thousands respectively.

4. Net debit/credit balances arising from the settling of accounts against the held

companies as at 31 December 2013 are NIS 122,882 thousand for credit to the held

companies (as at 31 December 2012 NIS 72,270 thousand).

D. Change in Structure

The Group decided on a change in structure to the Group companies in the framework of

which the baking factory of Bonjour (1986) Ltd ( hereinafter - "Bonjour") was merged

into the production setup of Osem Investments ( hereinafter - "Osem") Since Bonjour

was held via Alei Dagan Ltd ( hereinafter - "Alei Dagan") and Magen Bakery and Coffee

Shop Ltd ( hereinafter - "Magen Bakery"), two preliminary actions were effected before

the merger of Bonjour into Osem as a consolidation of parent and subsidiary companies

as follows:

1. At the first stage, Magen Bakery transferred all its share holdings in Bonjour to Bonjour,

exempt from income tax as per section 104C in the income tax ordinance (new version)

1961-5721 ( hereinafter - "the ordinance") in accordance with the Companies Law,

1999-5759 ( hereinafter - "the companies law).

2. In the second stage, Alei Dagan transferred all its holdings in Bonjour shares to Osem,

exempt from income tax as per section 104C in the ordinance and in accordance with the

company’s law.

3. In the third stage immediately and subsequent to the transfers mentioned in sections 1

and 2 above, Bonjour was merged into Osem in accordance with section 103B to the

ordinance in such a way that Bonjour transferred all its assets and liabilities without

consideration , thereby liquidating Bonjour without dismantling.

4. The change in structure was contingent upon receipt of advance approval from the tax

authorities and conducting the mentioned structural change free from tax and with the

approval of the Investment Center. On 26 January 2012 and 26 July 2012 the approvals

were received from the tax authorities for the tax exempt change in structure, approval

from the Investment Center was received in December 2012.

5. The results of 2012 include the results of the baking factory of Bonjour (1986) Ltd which

was merged into the production setup of the company.

E. Dividend

During the year 2013 the Company received dividends from subsidiary companies in the

amount of NIS 69,520 thousand, (2012 – NIS 65,425 thousand).

For additional information regarding held companies see Note 10 in the consolidated

financial statements, relating to consolidated companies.

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