Osem Investments Limited. Financial Statements

Transcription

1 Osem Investments Limited Financial Statements June 30, 2012

2 INVESTMENTS LTD Contents Page The Board of Directors' Report on the Company Business for the Six Month Period ending 30 June 2012 AJ Condensed Financial Statements as at June 30, 2012 (Unaudited) Condensed Consolidated Interim Statement of Financial Position 3 Condensed Consolidated Interim Statement of Profit and Loss 4 Condensed Consolidated Interim Statement of Comprehensive Income and Expenses 5 Condensed Consolidated Interim Statement on Changes in Shareholders Equity 6 Condensed Consolidated Interim Statement of Cash Flows 8 Notes to the Financial Statements 9 Condensed Separate Financial Statements as at June 30, 2012 (Unaudited) Condensed Interim Information on Seperate Financial Position 12 Condensed Interim Information on Seperate Profit and Loss 14 Condensed Interim Information on Seperate Comprehensive Income and Expenses 15 Condensed Interim Information on Seperate Cash Flows 16 Additional Information 17 Report on the effectiveness of the internal control over the interim consolidated financial reporting

3 29 August 2012 The Board of Directors' Report on the Company Business for the Six Month Period ending 30 June 2012 The Board of Directors of Osem Investments Ltd. (hereinafter the Company ) is honored to present to the shareholders the Board of Directors Report for the three month period ending 30 June 2012, in accordance with Securities Regulations (periodic and immediate reports) The data appearing in the Board of Directors report is based on the reviewed consolidated financial statements as at 30 June The financial data and results of operations of the Company are affected by financial data and results of operations of subsidiary companies held by the Company. The Company and its subsidiaries will be referred together as the Group or the Osem Group In certain cases details are mentioned relating to events occurring after the financial statements date and close to the publication date of the report or additional details and data at the Company level only. This report has been prepared taking into consideration that the reader of the report has at his disposal the Board of Directors' Report on the Company as at 31 December A. The explanations of the Board on the Company state of affairs Key figures from the Description of the Corporation's Business Business environment Osem Investments Ltd. is the parent company incorporating the Osem Group of companies. The Group focuses on food production, marketing and distribution and is considered to be one of the largest food producers and distributors in Israel. The Group produces more than 2,000 different food items currently manufactured in eleven production plants based in Israel and abroad and are marketed through regional distribution centers. The Group also exports its products to other countries, primarily to Europe and the USA. Strategic alliance with Nestle. Nestle is the largest shareholder of Osem and holds about 58.8% of the Company. The Company has exclusive agreements of cooperation with the Nestle Group in Switzerland, to exclusively market and distribute Nestlé's products in Israel by Osem s marketing and sales systems. There is also an agreement on possible manufacturing of some of Nestlé's products locally. In addition, Osem receives technical assistance in R&D and has extensive right of use of Nestlé knowhow for the use of the Group. This knowhow includes, among others, technical, scientific, marketing, logistic, sales, production, IT and financial knowledge and expertise. The Group receives IT and computer services from Nestle as part of Nestlé s GLOBE Template Solution. Operating Segments/Areas of Activity. The Group focuses on the manufacturing and marketing of food products and ranks among the largest food manufacturers and marketers in Israel. The Group reports on a number of activities reported as operating segments in the consolidated financial statements of the Company. A

4 1. Culinary segment 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 (pickles). 2. Snacks and Breakfast Cereals segment 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, peanut snacks, potato snacks and corn snacks, etc.) and breakfast cereals and cereal based snack bars. 3. Bakery and Beverages segment 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 the salty baked products (crackers and Lachmit), the sweet baked products (cakes and cookies), concentrates, chocolate milk powder and soluble coffee. 4. Prepared Foods segment In this area the Group develops, manufactures and/or sells, markets and distributes a large variety of frozen and chilled branded products, the main ones being frozen bakery products baked at the point of sale, schnitzels, hot dogs and prepared meals based on meat substitutes and vegetablebased food products, prepared packaged salads (hummus salad, eggplant, tehina etc.) Infant Nutrition segment In this area the Group s activities are carried out via Materna partnership, which develops, produces and/or sells and markets a wide variety of infant nutrition products which include mother s milk substitutes, cereals, purees, biscuits and pastas for infants 5. Other Activities. In this area are included various activities which are not included in the activities mentioned above. The main ones being, among others, ice cream, pet foods, other purchased products and activities of the subsidiary companies Asamim Gift Packages, 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. Appointment of new CEO On 13 March 2012, the Osem Company CEO, Mr. Gezy Kaplan OBM, notified the board of directors that he will conclude his term of office, effective 2 April This is due to his medical condition. The board of directors received his notification with sorrow and thanked him for many years of achievements and success. In light of the CEO's announcement, the Osem board of directors decided to appoint Mr. Itzik Saig, in his place, who started his responsibility as the Company CEO on 2 April Itzik Saig has held successfully several management roles at Tivall and Osem starting from During these years and along the way of his progress though appointments he was also Nestle New Zealand Country Manager for almost 3 years. The board of directors wished Itzik Saig success in this new role. B

5 The public social protest movement in Israel. During the third quarter of 2011 a social protest movement in Israel emerged. The protest sprang mainly due to the continual increase in the prices of housing, and due to the general increase in the cost of living in Israel. Since the onset of the movement, discussions have been conducted at Osem on how to respond to the public sentiment and lead a move that will help decrease the prices of basic staple products in the Israeli consumer shopping basket. In the first stage, Osem had already cancelled its planned price increase for July 2011 which was intended to match the increase in input costs. In the second stage, the Osem Group reduced prices at a rate of up to 10% for the staple product basket to be found at most households in Israel and which is relevant to the widest number of the consumers. These steps constitute part of the Osem Group social responsibility plan, which also includes change in the structure of wages in a company that employs about 4,900 people. According to the plan, in 2012 the wage level of the senior office holders in the Company will be frozen and the excess funds created as a result of this freeze will be transferred to the Group employees who earn less than the average wage in the market. Following the social protest movement, the government of the State of Israel decided to set up several regulatory committees, the Trachtenberg Committee, a committee to examine ways to implement socioeconomic change, headed by Professor Manuel Trachtenberg and the Kedmi Committee to examine the competitive situation and the level of food prices, headed by the Office of Industry, Trade and Employment Director, Mr. Sharon Kedmi. As at the date of the report, most of the Trachtneberg Committee recommendations were approved by the government. These recommendations included, among others, the cancellation of the framework of reduction in company tax rates which was previously enacted and the increasing of the company tax rate from 24% to 25% besides this, the rest of the committee recommendations do not have a material effect on the Group. The Food Committee (Kedmi Committee) published its recommendations following which customs were reduced on some raw materials and finished goods, regarding the rest of the recommendations, these were not yet discussed and/or approved by the government. At this early stage, it is not possible to estimate the changes that will occur due to the Committee recommendations. AAA Credit Rating for Osem. On February 2012, Midroug Company extended the AAA rating Osem had received and gave a stable rating outlook. Osem is the first and only industrial company in Israel, which is not a government enterprise, to ever receive an AAA rating. This rating attests to the high liquidity level and strong financial standing of the Group. Phantom Options In continuation of the 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), which exists since 2008, the board of directors of the Company approved about a year ago, on 25 May 2011, an additional plan for the period of 3 years (three portions to be allocated between the years ). 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) will 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 vesting period for each option stands at three years from 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 24 May 2012 the board of directors approved C

6 the plan for distribution of the second portion of the program to 17 senior managers in the total value of NIS 7.4 million spread out over the period of 3 years. Financial situation The liquid financial assets (cash and cash equivalents, and other investments) of the Group as at the Balance Sheet date amounted to the sum of NIS 139,773 thousand compared to the sum of NIS 122,342 thousand at the end of the previous year, an increase of NIS 17,431 thousand. The increase is due to cash flows from operating activities while the Group utilized part of the increase in its excess cash for investments to expand factories, purchase equipment and for the repayment of longterm loans. The assets (fixed assets and intangible assets) amounted to the sum of NIS 2,147,443 thousand, compared to the sum of NIS 2,166,240 thousand at the end of the previous year. The gross investments during the period of reporting totaled the sum of NIS 49,281 thousand. The Groups investments were mainly in the purchasing of production line equipment and in expanding of factories. Longterm loans from banking institutions as at the balance sheet date, were reduced and totaled the sum of NIS 5,762 thousand compared to the sum of NIS 13,239 thousand at the end of the previous year. The longterm loans from banks constitute only 0.2% of the total of the balance sheet. Total equity as at the balance sheet date amounted to the sum of NIS 2,015,500 thousand compared to the sum of NIS 1,828,954 thousand at the end of the previous year. The increase in the shareholders equity derives from the accumulation of current profits totaling NIS 180,320 thousand. The shareholders equity constitutes 56.4% of the total of the balance sheet. The total of the balance sheet amounted to the sum of NIS 3,567,015 thousand compared to the sum of NIS 3,431,096 thousand at the end of the previous year. The structure of the balance sheet as at 30 June 2012 indicates continued expansion in the business activity which is manifested by a growth in cash balances, an increase in the gross investments in the fixed assets, in growth in the working capital resulting from the growth in sales, and expansion which enabled a reduction in the longterm loans; it also indicates continued financial strength, always important, but especially important in times of financial crisis. D

7 Results of Activities Total sales turnover for the first six months of the year 2012 amounted to the sum of NIS 2,008,445 thousand compared to NIS 1,975,598 thousand in the corresponding period last year, a growth of 1.7%. The sales turnover for the three months of the second quarter of the year 2012 amounted to the sum of NIS 983,524 thousand compared to NIS 976,738 thousand in the corresponding period last year, a growth of 0.7%. Sales to the local market for the first six months of the year amounted to the sum of NIS 1,663,707 thousand compared to NIS 1,654,529 thousand in the corresponding period last year, a growth of 0.6%. Sales to the local market for the three months of the second quarter amounted to the sum of NIS 816,643 thousand compared to NIS 824,171 thousand in the corresponding period last year a decline of 0.9% and this in comparison to food sector sales in Israel which declined by 1.7% in the second quarter, based on StoreNext publications. Sales of the Group overseas for the first six months of the year amounted to the sum of NIS 344,738 thousand compared to NIS 321,069 thousand in the corresponding period last year, a growth of 7.4%. Sales of the Group overseas for the three months of the second quarter amounted to the sum of NIS 166,881 thousand compared to NIS 152,567 thousand in the corresponding period last year, a growth of 9.4%, the increase in overseas sales is mainly due to an increase in Tribe Company sales in the USA and from the positive effect of the currency rate changes. Gross Profit of the Group for the first six months of the year 2012 amounted to the sum of NIS 824,537 thousand compared to NIS 829,059 thousand in the corresponding period last year, a decline of 0.6%. Gross Profit of the Group for the three months of the second quarter of the year 2012 increased, and amounted to the sum of NIS 408,996 thousand compared to NIS 408,177 thousand in the corresponding period last year, a growth of 0.2%. The increase in the gross profit resulted from efficiency programs in the Group s factories and in spite of the increase in prices of raw materials around the world and an increase in the price of other inputs (energy, water and municipal taxes). And in spite of the fact that Osem decided to absorb the sharp rises in the price of raw materials and avoid raising the prices of its products. The Operating Profit before other income and expenses, for the first six months of the year amounted to NIS 249,932 thousand compared to NIS 244,260 thousand in the corresponding period last year, a growth of 2.3%. The Operating Profit before other income and expenses of the Group for the three months of the second quarter of the year 2012 amounted to the sum of NIS 119,517 thousand compared to NIS 114,719 thousand in the corresponding period last year, a growth of 4.2%. The growth in the operating profit before other income and expenses was achieved despite increase in the prices of raw materials around the world and an increase in the price of other inputs (energy, water and municipal taxes) and despite that during the financial statement period the Group absorbed a large portion of these increases. All this, due to efficiency programs set by the Group which focused on savings in the area of production, selling expenses and administrative expenses. E

8 Profit for the period of the Osem Group for the first six months of the year amounted to the sum of NIS 180,320 thousand compared to NIS 171,643 thousand in the corresponding year, a growth of 5.1%. Profit for the period of the Group for the three months of the second quarter of the year 2012 increased even more and amounted to the sum of NIS 86,668 thousand compared to NIS 78,623 thousand in the corresponding year, a growth of 10.2%. The growth in net profit for the period was achieved thanks to the growth in operating profit and the decline in finance expenses. These improvements in profit are mainly the results of the Group s policy in the past years which is expressed in expansion of the activity with constant and continuing penetration of Nestlé products, penetration to new activities in Israel and abroad, and the launching of new products, this in addition to merging and efficiency processes. All of these factors establish Osem s position as a leading food producer in Israel. Selling, marketing and distribution expenses for the first six months of the year decreased and represented 21.6% of the turnover, compared to 22.3% in the corresponding period last year. The improvement in selling expenses both in nominal terms and also as a percentage of the turnover stems from efficiency procedures in the distribution and commerce networks and as a result of reduction in advertising expenses with the transfer of part of the resources to increase discounts, sales promotion and campaigns to customers which is included in the difference between gross sales and net sales. General and administrative expenses for the first six months of the year decreased and represented 7.0% of the turnover, compared to 7.3% in the corresponding period last year. The improvement in administrative expenses both in nominal terms and also as a percentage of the turnover stems from rationalization of headquarters expenses and the positive effect of the increase in sales verses administrative expenses which in part are fixed. Other (income) expenses, net for the first six months of the year amounted to the sum of NIS 3,680 thousand compared to other income of NIS 981 thousand in the corresponding period last year. The other expenses this year included, among others, an accrual for onetime expenses in the second quarter for the reorganization of the shelf stockers setup in the Blue Square chain from independent shelf stocking to shelf stocking done by the chain, and this compared to one time income resulting from capital gains from the sale of an old production line which was included in the corresponding period last year. Finance costs net of the Group for the first six months of the year amounted to the sum of NIS 9,676 thousand compared to NIS 20,662 thousand in the corresponding period last year. The improvement in finance expenses stems from, among others, repayment of loans and decreases in liabilities. The balance of finance expenses results from noncashflow imputed interest, related to the PUT options to the noncontrolling interests. F

9 Liquidity and financing sources The current ratio as at the balance sheet date is 1.19 The quick ratio as at the balance sheet date is 0.84 The high liquidity ratio and liquidity reserve of the Group have constituted the main financing sources for further expansion of the Group business activities in different product categories and the expansion of other production lines, this is accompanied by outside financing if necessary. The cash flow from current operations for the first six months of the year 2012 amounted to the sum of NIS 137,952 thousand compared to the sum of NIS 161,860 thousand in the corresponding period last year. The cash flow from current operations for the first six months of the year was influenced by the timing differences of payments made during the first quarter of this year, among other reasons, due to the fact that the 31 st of December 2011 fell on a Saturday. Analysis of the Groups business results according to operating segments Culinary segment during the second quarter sales increased from the level of NIS 160,166 thousand to the level of NIS 165,329 thousand, a growth of 3.2%. The profit rose from the level of NIS 15,132 thousand to the level of NIS 17,729 thousand. During the first six months of the year sales amounted to NIS 354,372 thousand compared to NIS 351,517 thousand in the corresponding period last year an increase of 0.8%.The profit declined from a level of NIS 46,984 thousand to a level of NIS 44,813 thousand. The decline in sales and profit results from, among others, increases in raw material prices. In addition, in response to public sentiment, Osem reduced prices by the rate of 10% on a basket of basic food products which are mostly in the culinary segment. Snacks and Breakfast Cereals segment during the second quarter sales increased from the level of NIS 151,539 thousand to the level of NIS 153,401 thousand, a growth of 1.2%. The profit rose from the level of NIS 33,906 thousand to the level of NIS 43,522 thousand. During the first six months of the year the sales increased from a level of NIS 322,362 thousand to a level of NIS 332,794 thousand, a growth of 3.2%. The profit increased from a level of NIS 81,354 thousand to a level of NIS 90,749 thousand. These improvements in sales and profit are the result of, among others, efficiency and reduction in selling and administrative expenses. Bakery and Beverages segment during the second quarter sales increased from the level of NIS 109,349 thousand to the level of NIS 114,239 thousand, a growth of 4.5%. The profit declined from the level of NIS 13,223 thousand to the level of NIS 12,740 thousand. G

10 Bakery and Beverages segment (cont.) During the first six months of the year the sales increased from a level of NIS 247,970 thousand to a level of NIS 263,521 thousand, a growth of 6.3%. The profit declined from a level of NIS 37,304 thousand to a level of NIS 34,504 thousand. The decline is the result of, among others, the increase in raw material costs. Prepared Foods segment during the second quarter sales increased from the level of NIS 225,495 thousand to the level of NIS 225,990 thousand, a growth of 0.2%. The profit increased from the level of NIS 9,753 thousand to the level of NIS 11,925 thousand. During the first six months of the year the sales increased from a level of NIS 439,191 thousand to a level of NIS 445,820 thousand, a growth of 1.5%. These improvements are the result of, among others, from an increase of 9.2% in Tribe sales in the USA which were partially offset by the decline in Tivall sales in Israel resulting from the decision to lower prices of products to consumers. The profit increased as well from a level of NIS 19,887 thousand to a level of NIS 26,815 thousand. The improvement in profit is the result of, among others, the positive advance on the learning curve as a result of the merging of the Foodtech factory and rationalization of management expenses. Infant Nutrition segment during the second quarter sales declined from the level of NIS 91,637 thousand to a level of NIS 80,472 thousand, a decline of 12.2%. The profit declined from the level of NIS 17,827 thousand the level of NIS 11,191 thousand. During the first six months of the year the sales declined from a level of NIS 178,728 thousand to a level of NIS 171,734 thousand, a decline of 3.9%. The profit declined from a level of NIS 33,182 thousand to a level of NIS 27,428 thousand. The sales and profit were affected by increase in raw material costs and the decision to lower prices of products to consumers. Other Activities segment during the second quarter sales increased from the level of NIS 248,800 thousand to the level of NIS 259,446 thousand, a growth of 4.3%. The profit declined from the level of NIS 26,066 thousand to the level of NIS 20,320 thousand. During the first six months of the year the sales amounted to the sum of NIS 466,903 thousand compared to NIS 456,000 thousand last year, an increase of 2.4%. The profit on the other hand decreased from a level of NIS 26,737 thousand to a level of NIS 23,443 thousand. H

11 B. Exposure and Management of Market Risks During the statement period there were no significant changes in the exposure of the Company and the method of their market risks management in relation to the Company's reports on this subject for the year ending 31 December C. Disclosure Directives Related to Financial Reporting of the Corporation Critical accounting estimates No significant changes were made during the first quarter of the year 2012 in relation to critical accounting estimations which the Company uses for the financial reports. Financial data relating to the parent company In accordance with regulation 38d of the Securities Regulations (periodic and immediate reports), an appendix is attached to the Board of Directors report, separate financial statements of the Company ( Solo Report ), with the examining auditor s opinion attached. D. View on Corporate Governance Disclosure regarding the procedure of approval of the financial statements A. The organs in charge of superior control include the members of the board, the Balance Sheet Committee, the CEO, and the Deputy CEO of Finance. The identity of the organs is specified in the Periodic Report in Regulation 26 and 26(A) in Chapter D of the Periodic Report. B. The Balance Sheet Committee for the examination of the financial statements General: The Company Board of Directors has decided to establish a Balance Sheet Committee which will examine the financial statements of the Company and which will make recommendations with regard to the approval of the financial statements, after the Committee has discussed the financial statements prior to making recommendations. A representative of the Company external auditor attends the meetings of the Committee for the examination of the financial statements and the Internal Auditor of the Company attends these meetings as well. Members of the Balance Sheet Committee: The Committee comprises three members (who also hold the office of directors in the Company) Dr. Liora Meridor (Public Director), Yaki Yerushalmi (Public Director) and Gaby Hake Adv. Dr. Liora Meridor presides as the Committee Chair. The appointment of the Committee members was made based on their skills, including their professional experience, their qualifications and additional institutions or boards in which they held and hold office, as the case may be, based on the classification of the public directors by the Company Board of Directors (prior to their appointment as I

12 directors of the Company), as having accounting and financial skills and also based on the declaration given by the committee members (prior to their appointment) on their ability to read and understand financial statements (see Section 26 in Chapter D of the Periodic Report). The discussions of the Balance Sheet Committee: on 26 August 2012 the Committee discussed material reporting issues in the financial statements and formulated its recommendations to the Board on the procedure for approving the financial statements. The Committee recommended to the Board that the financial statements be approved. In addition to the Committee members a representative of the External auditor, the Company CEO, the Deputy CEO of Finance and the Chief Accountant of the Company, and the Company Internal Auditor attended the Committee meeting. In its meeting, and for the purpose of formulating its recommendations, the Committee examined the material issues related to financial reporting and examined among other issues the material estimates and valuations that were made in relation to the financial statements, the internal controls related to the financial reporting, the integrity and diligence of the financial reporting from all its relevant aspects, the accounting policies which were adopted and the accounting treatment applied on material affairs of the Company. In addition, the certified public accountants have given their views on the issues that were presented. In order to form its opinion to the Board, the Company CEO and the Deputy CEO of Finance gave an overview to the Committee members on the situation of the Company, its financial results and on the other issues the Committee discussed, as specified above, and answered the questions of the Committee Members. At the end of the meeting, the Committee recommended to the Board of the Company to approve the financial statements. The Board of Directors wishes to thank the management and the employees for the efforts they have invested and the achievements they have attained and express their hope for the continuation of productive cooperation. Dan Propper Chairman of the Board of Directors Itzik Saig CEO J

13 Condensed Consolidated Interim Statement of Financial Position June 30 June 30 December (Unaudited) (Unaudited) (Audited) NIS thousands NIS thousands NIS thousands Assets Cash and cash equivalents 121,772 94, ,479 Accounts receivable customers 778, , ,529 Debtors and debit balances 31,555 19,562 31,496 Income tax 1,863 14,070 10,735 Inventory 396, , ,191 Other investments 18,001 18,283 17,863 Total current assets 1,348,252 1,319,093 1,208,293 Employee benefits 2,055 Fixed assets 1,141,544 1,164,534 1,147,321 Intangible assets 1,005,899 1,074,937 1,018,919 Prepaid expenses 44,242 38,562 36,542 Deferred tax assets 27,078 7,727 20,021 Total noncurrent assets 2,218,763 2,287,815 2,222,803 Total assets 3,567,015 3,606,908 3,431,096 Dan Propper Chairman of the Board Itzik Saig CEO Pinhas Kimelman Deputy CEO, Finance Date of approval of financial statements: 29 August 2012

14 INVESTMENTS LTD June 30 June 30 December (Unaudited) (Unaudited) (Audited) NIS thousands NIS thousands NIS thousands Liabilities Loans and short term credit from banks 102, , ,550 Accounts payable suppliers 612, , ,636 Other creditors 418, , ,128 Income tax 6,835 6,248 14,153 Total current liabilities 1,140,570 1,111,838 1,172,467 Obligations to banking institutions 5,762 26,214 13,239 Liabilities for PUT options of noncontrolling interests in subsidiaries 328, , ,710 Employee benefits 12,978 2,462 13,509 Deferred taxes 66,508 43,520 63,217 Total noncurrent liabilities 413, , ,675 Total liabilities 1,554,515 1,789,015 1,602,142 Equity Share capital 176, , ,772 Premium on shares 444, , ,212 Capital reserves (51,442) (56,577) (54,668) Retained earnings 1,442,649 1,253,232 1,262,408 Total equity attributable to equity holders of the company 2,012,191 1,817,639 1,828,724 NonControlling interests Total equity 2,012,500 1,817,893 1,828,954 Total liabilities and equity 3,567,015 3,606,908 3,431,096 The accompanying notes are an integral part of the financial statements. 3

15 INVESTMENTS LTD Condensed Consolidated Interim Statement of Profit and Loss For the Six months ending For the three months ending For the year ending June 30 June 30 June 30 June 30 December (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited) NIS thousands NIS thousands NIS thousands NIS thousands NIS thousands Sales 2,008,445 1,975, , ,738 3,960,877 Cost of sales 1,184,088 1,146, , ,561 2,309,482 Gross profit 824, , , ,177 1,651,395 Selling and marketing expenses 433, , , , ,759 General and administrative expenses 140, ,554 72,171 71, ,528 Operating profit before other expenses 249, , , , ,108 Other expenses (income), net 3,680 (981) 3,758 (1,064) 2,830 Operating profit 246, , , , ,278 Finance expenses (17,070) (23,667) (7,175) (13,088) (41,538) Finance income 7,394 3,005 5, ,904 Financing costs, net (9,676) (20,662) (2,065) (12,786) (31,634) Profit before taxes on income 236, , , , ,644 Taxes on income 56,256 52,936 27,026 24, ,664 Profit for the period 180, ,643 86,668 78, ,980 Attributed to: Equity holders of the company 180, ,691 86,746 78, ,052 NonControlling interests 79 (48) (78) (21) (72) Profit for the period 180, ,643 86,668 78, ,980 Earnings per NIS 1 par value ordinary shares Primary and fully diluted (in NIS) The accompanying notes are an integral part of the financial statements. 4

16 INVESTMENTS LTD Condensed Consolidated Interim Statement of Comprehensive Income For the Six months ending For the three months ending For the year ending June 30 June 30 June 30 June 30 December (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited) NIS thousands NIS thousands NIS thousands NIS thousands NIS thousands Foreign currency translation differences in respect of foreign operations 3,226 2,922 (1,072) (1,587) 4,831 Actuarial gains from defined benefit plan (13,581) Income tax regarding components of comprehensive profit 3,396 Other comprehensive profit (loss) for the period, net of tax 3,226 2,922 (1,072) (1,587) (5,354) Profit for the period 180, ,643 86,668 78, ,980 Total recognized comprehensive profit for the period 183, ,565 85,596 77, ,626 Attributed to: Equity holders of the company 183, ,613 85,674 77, ,698 NonControlling interests 79 (48) (78) (21) (72) Total recognized comprehensive profit for the period 183, ,565 85,596 77, ,626 The accompanying notes are an integral part of the financial statements. 5

17 Notes to the Financial Statements as at 30 June 2012 (unaudited) INVESTMENTS LTD. Condensed Consolidated Reports on Changes in Shareholders' Equity For the six month period ending 30 June 2012 (unaudited) Balance as at 1 January 2012 (audited) Foreign currency exchange difference Net earnings for the period Total comprehensive income for the period Share Capital NIS thousands 176,772 Premium on Shares NIS thousands 444,212 Translation reserve fund NIS thousands )14,687( 3,226 3,226 Capital reserve from selling Asset to controlling Shareholder NIS thousands 1,694 Capital reserve from acquisition of rights not conferring control in consolidated subsidiary NIS thousands )41,675( Retained earnings NIS thousands 1,262, , ,241 Total Company's equity holders NIS thousands 1,828,724 3, , ,467 Non Controlling Interest NIS thousands Total Equity NIS thousands 1,828,954 3, , ,546 Balance as at 30 June , ,212 )11,461( 1,694 )41,675( 1,442,649 2,012, ,012,500 For the six month period ending 30 June 2011 (unaudited) Balance as at 1 January 2011 (audited) Foreign currency exchange difference Net earnings for the period Total comprehensive income for the period Dividend paid 176, ,212 )19,518( 2,922 2,922 1,694 )41,675( 1,231, , ,691 )150,000( 1,793,026 2, , ,613 )150,000( 302 )48( )48( 1,793,328 2, , ,565 )150,000( Balance as at 30 June , ,212 )16,596( 1,694 )41,675( 1,253,232 1,817, ,817,893 The accompanying notes are an integral part of these consolidated financial statements. 6

18 Notes to the Financial Statements as at 30 June 2012 (unaudited) INVESTMENTS LTD. Condensed Consolidated Reports on Changes in Shareholders' Equity (Cont.) For the three month period ending 30 June 2012 (unaudited) Balance as at 1 April 2012 Foreign currency exchange difference Net earnings for the period Total comprehensive income for the period Share Capital NIS thousands 176,772 Premium on Shares NIS thousands 444,212 Translation reserve fund NIS thousands )10,389( )1,072( )1,072( Capital reserve from selling Asset to controlling Shareholder NIS thousands 1,694 Capital reserve from acquisition of rights not conferring control in consolidated subsidiary NIS thousands )41,675( Retained earnings NIS thousands 1,355,903 86,746 86,746 Total Company's equity holders NIS thousands 1,926,517 )1,072( 86,746 86,746 Non Controlling Interest NIS thousands 387 )78( )78( Total Equity NIS thousands 1,926,904 )1,072( 86,668 85,596 Balance as at 30 June , ,212 )11,461( 1,694 )41,675( 1,442,649 2,012, ,012,500 For the three month period ending 30 June 2011 (unaudited) Balance as at 1 April 2011 Foreign currency exchange difference Net earnings for the period Total comprehensive income for the period 176, ,212 )15,009( )1,587( )1,587( 1,694 )41,675( 1,174,588 78,644 78,644 1,740,582 )1,587( 78,644 77, )21( )21( 1,740,857 )1,587( 78,623 77,036 Balance as at 30 June , ,212 )16,596( 1,694 )41,675( 1,253,232 1,817, ,817,893 For the year ending 31 December 2011 (audited) Balance as at 1 January 2011 Foreign currency exchange difference Actuarial losses (net after tax) Net earnings for the year 2011 Total comprehensive income for the period Dividend paid 176, ,212 )19,518( 4,831 4,831 1,694 )41,675( 1,231,541 )10,185( 341, ,867 )300,000( 1,793,026 4,831 )10,185( 341, ,698 )300,000( 302 (72) (72) 1,793,328 4,831 )10,185( 340, ,626 )300,000( Balance as at 31 December 2011 (audited) 176, ,212 )14,687( 1,694 )41,675( 1,262,408 1,828, ,828,954 The accompanying notes are an integral part of these consolidated financial statements. 7

19 INVESTMENTS LTD Condensed Consolidated Interim Statement of Cash Flows For the Six months ending For the three months ending For the year ending June 30 June 30 June 30 June 30 December (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited) NIS thousands NIS thousands NIS thousands NIS thousands NIS thousands CASH FLOWS FROM OPERATING ACTIVITIES Net profit 180, ,643 86,668 78, ,980 Adjustments: Depreciation 56,591 56,530 28,308 30, ,500 Amortization of intangible assets and prepaid expenses 21,408 25,221 13,339 14,359 41,168 Loss (gain) from sale of fixed assets, net 221 (1,156) 186 (1,207) (1,199) Finance costs, net 9,676 20,662 2,065 12,786 31,634 Tax expenses on income 56,256 52,936 27,026 24, ,664 Changes in derivatives 1,761 (86) ,388 Changes in inventory (5,980) (16,417) (21,872) 9,363 (20,561) Changes in accounts receivable, debtors and debit balances (114,190) (109,599) 4,874 11,329 30,637 Changes in accounts payable and other creditors (13,161) 3,432 (15,564) (52,613) 3,061 Changes in employee benefits (531) (407) 126 Income taxes paid (54,419) (41,911) (33,600) (24,726) (87,997) Net cash flows arising from operating activities 137, ,860 92, , ,401 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of fixed assets (47,881) (46,981) (22,132) (23,686) (78,607) Proceeds from sale of fixed assets 338 1, ,406 1,969 Other investments, net 284 (286) 242 (286) (279) Investment in intangible assets and prepaid expenses (15,538) (10,986) (5,470) (332) (10,052) Interest received 1,475 2, ,443 3,064 Net cash flows used in investing activities (61,322) (54,065) (26,661) (21,455) (83,905) CASH FLOWS FROM FINANCING ACTIVITIES Interest paid (2,614) (4,986) (823) (3,044) (7,984) Repayment of long term liabilities (13,111) (48,115) (7,379) (24,037) (58,837) Credit from banking institutions and others, net (22,894) 85,717 (31,255) (49,069) (38,331) Repayment of other liabilities (21,477) (25,407) (19,081) (23,071) (117,373) Dividend paid (150,000) (300,000) Net cash used in financing activities (60,096) (142,791) (58,538) (99,221) (522,525) Change in cash and cash equivalents 16,534 (34,996) 7,067 (17,803) (26,029) Cash and cash equivalents at beginning of period 104, , , , ,771 Effect of fluctuations in exchange rate on cash balances (215) 1,737 Cash and cash equivalents at end of period 121,772 94, ,772 94, ,479 The accompanying notes are an integral part of the financial statements. 8

20 Notes to the Financial Statements as at 30 June 2012 (unaudited) INVESTMENTS LTD. Note 1 The Reporting Entity Osem Investments Ltd. (hereinafter: the "Company") is a company residing in Israel. The consolidated financial statements of the Group as at 30 June 2012 include the statements of the Company and its investee companies (hereinafter: "the Group"). The controlling party in the Company is Nestlé S.A. Switzerland. The Group is engaged in the manufacturing and marketing of food products. The securities of the Company are listed for trading on the Tel Aviv Stock Exchange. Note 2 The basis for the preparation of the Financial Statements The condensed consolidated interim statements have been prepared in accordance with IAS 34 Interim Financial Reporting and do not include all the information required in the full annual reports. The summary should be read together with the financial statements for the year which ended on 31 December 2011 (hereinafter yearly financial statements ). Also, these reports were prepared in accordance with part 4 of the Securities and Exchange Commission standards (periodic and immediate reports) The use of estimates and judgement and for the preparation of the interim financial statements, were consistent with those used for the preparation of the year end financial statements. Note 3 Main Principles of Accounting Policy The accounting policy of the Group as it relates to these condensed consolidated interim financial statements, is the policy applied in the yearly financial statements. Note 4 Seasonality. The Group s sales are affected by the timing of Jewish Holidays with an emphasis on New Year and Passover. The annual seasons also have an affect on certain groups of products. The seasons of Winter and Autumn are characterized by greater consumption of soups, casseroles and soup almonds as compared to the Summer and Spring seasons which are characterized by higher consumption of ice cream and concentrates as compared to the seasons of Winter and Autumn. Note 5 Segment Activity The Group has the following reportable segments in accordance with its areas of activity: 1. Culinary In this area the Group develops, manufactures and/or sells, markets and distributes a large variety of branded food products. The main ones being, among others, pasta, soups, casseroles, baking aids, sauces, soup almonds and canned products (pickles). 2. Snacks and Breakfast Cereals 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 snack products (wheat snacks, peanut snacks, potato snacks and corn snacks, etc.), breakfast cereals and cereal based snack 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, hot dogs and prepared meals based on meat substitutes and vegetablebased food products, prepared packaged salads (hummus salad, eggplant, tehina etc.) 9

21 Notes to the Financial Statements as at 30 June 2012 (unaudited) INVESTMENTS LTD. Note 5 Segment Activity (Cont.) 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, ice cream, pet foods, other purchased products and activities of the subsidiary companies Asamim Gift Packages, 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. For the six months ending Snacks and 30 June 2012 (unaudited) Breakfast Bakery and Prepared Infant Adjustment to Culinary Cereals Beverages Food Nutrition Others Consolidated Consolidated NIS NIS NIS NIS NIS NIS NIS NIS Thousands Thousands Thousands Thousands Thousands Thousands Thousands Thousands Segment sales 354, , , , , ,903 (26,699) 2,008,445 Segment results 44,813 90,749 34,504 26,815 27,428 23, ,752 Other expenses, net (1,500) Financing costs, net (9,676) Profit before taxes on income 236,576 For the six months ending Snacks and 30 June 2011 (unaudited) Breakfast Bakery and Prepared Infant Adjustment to Culinary Cereals Beverages Food Nutrition Others Consolidated Consolidated NIS NIS NIS NIS NIS NIS NIS NIS Thousands Thousands Thousands Thousands Thousands Thousands Thousands Thousands Segment sales 351, , , , , ,000 (20,170) 1,975,598 Segment results 46,984 81,354 37,304 19,887 33,182 26, ,448 Other expenses, net (207) Financing costs, net (20,662) Profit before taxes on income 224,579 10

22 Notes to the Financial Statements as at 30 June 2012 (unaudited) INVESTMENTS LTD. Note 5 Segment Activity (Cont.) For the three months ending Snacks and 30 June 2012 (unaudited) Breakfast Bakery and Prepared Infant Adjustment to Culinary Cereals Beverages Food Nutrition Others Consolidated Consolidated NIS NIS NIS NIS NIS NIS NIS NIS Thousands Thousands Thousands Thousands Thousands Thousands Thousands Thousands Segment sales 165, , , ,990 80, ,446 (15,353) 983,524 Segment results 17,729 43,522 12,740 11,925 11,191 20, ,337 Non allocated expenses, net (1,578) Financing expenses, net (2,065) Profit before taxes on income 113,694 For the three months ending Snacks and 30 June 2011 (unaudited) Breakfast Bakery and Prepared Infant Adjustment to Culinary Cereals Beverages Food Nutrition Others Consolidated Consolidated NIS NIS NIS NIS NIS NIS NIS NIS Thousands Thousands Thousands Thousands Thousands Thousands Thousands Thousands Segment sales 160, , , ,495 91, ,800 (10,248) 976,738 Segment results 15,132 33,906 13,223 9,753 17,827 26, ,907 Non allocated expenses, net (124) Financing expenses, net (12,786) Profit before taxes on income 102,997 For the year ending Snacks and 31 December 2011 (audited) Breakfast Bakery and Prepared Infant Adjustment to Culinary Cereals Beverages Food Nutrition Others Consolidated Consolidated NIS NIS NIS NIS NIS NIS NIS NIS Thousands Thousands Thousands Thousands Thousands Thousands Thousands Thousands Segment sales 719, , , , , ,843 (51,455) 3,960,877 Segment results 95, ,204 67,064 51,879 65,610 47, ,296 Other expenses, net (4,018) Financing costs, net (31,634) Profit before taxes on income 467,644 Note 6 Post Balance Sheet Event In continuation of the 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), which exists since 2008, the board of directors of the Company approved about a year ago, on 25 May 2011, an additional plan for the period of 3 years (three portions to be allocated between the years ). 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) will 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 vesting period for each option stands at three years from 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 24 May 2012 the board of directors approved the plan for distribution of the second portion of the program to 17 senior managers in the total value of NIS 7.4 million spread out over the period of 3 years. 11

23 Osem Investments Limited Separate Financial Statements June 30, 2012

24 INVESTMENTS LTD Condensed Interim Information on Separate Financial Position June 30 June 30 December (Unaudited) (Unaudited) (Audited) NIS thousands NIS thousands NIS thousands Assets Cash and cash equivalents 27,080 9,070 9,331 Debtors and debit balances 144, ,937 26,678 Income tax 2,374 3,713 Inventory 75,281 97, ,700 Other investments 18,001 18,283 17,863 Total current assets 267, , ,572 Balances related to subsidiary companies 1,603,998 1,466,268 1,536,081 Loans to subsidiary companies 80,671 89,460 80,734 Employee benefits 1,076 Fixed assets 623, , ,041 Intangible assets 461, , ,006 Prepaid expenses 17,879 17,661 15,657 Total noncurrent assets 2,787,268 2,754,538 2,740,519 Total assets 3,054,321 3,029,262 2,902,091 Dan Propper Chairman of the Board Itzik Saig CEO Pinhas Kimelman Deputy CEO, Finance Date of approval of financial statements: 29 August