Strauss-Group Ltd. Financial Statements 2011 ,31 As At
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STRAUSS-GROUP LTD. FINANCIAL STATEMENTS AS AT MARCH 31, 2011 WorldReginfo - b4e5ae69-61fe-4bb1-bb60-f4f58f0ac23f Board of directors Ofra Strauss, Chairperson Michael Strauss Dr. Michael Anghel Ronit Haimovitch Ran Madyan David Mosevics Dr. Arie Ovadia Meir Shanie Professor Dafna Schwartz Dalya Lev Akiva Moses President & CEO Gadi Lesin EVP, CLO & Company Michael Avner Secretary Auditor Somekh Chaikin KPMG Registered office Hasivim St. 49 P.O.B 194 Petach Tikva 49517, Israel WWW.STRAUSS-GROUP.CO WorldReginfo - b4e5ae69-61fe-4bb1-bb60-f4f58f0ac23f STRAUSS-GROUP LTD. TABLE OF CONTENS DESCRIPTION OF THE CORPORATION'S BUSINESS BOARD OF DIRECTORS' REPORT TO THE SHAREHOLDERS AS AT DECEMBER 31, 2010. FINANCIAL STATEMENTS AS AT DECEMBER 31, 2010. WorldReginfo - b4e5ae69-61fe-4bb1-bb60-f4f58f0ac23f TABLE OF CONTENS – Description of the Corporation's Business Part I – Description of the General Development of the Corporation's Business 1 Description of the General Development of the Corporation's Business 1 2 Segments of Activity 9 3 Investments in the Share Capital of the Corporation and Transactions in its Shares 11 4 Dividend Distribution 11 Part II – Other Information 5 Financial Information Relating to the Corporation's Areas of Business 12 6 General Environment and Impact of External Factors on the Corporation's Activity 17 Part III – Description of the Corporation's Business According to Segments of Activity 7 General – the Food and Beverage Industry 20 8 Synergies between the Group's Segments of Activity 22 9 The Israel Activity Framework 24 10 The Health & Wellness Segment 27 11 The Fun & Indulgence Segment 52 12 The Coffee Activity Framework 70 13 The Israel Coffee Segment 75 14 The International Coffee Segment 87 15 The International Dips and Spreads Segment 104 16 Other Activitie 112 Part IV – Matters Relating to the Operations of the Group as a Whole 17 Customers 117 WorldReginfo - b4e5ae69-61fe-4bb1-bb60-f4f58f0ac23f 18 Sales and Distribution 121 19 Advertising and Marketing Communications 126 20 Fixed Assets, Real Estate and Facilities 128 21 Research and Development 130 22 Human Capital 131 23 Financing 145 24 Taxation 150 25 Environmental Quality 160 26 Limitations on and Supervision of the Group's Activity 167 27 Material Agreements 173 28 Legal Proceedings 177 29 Objectives and Business Strategy 178 30 Forecasts for Development in the Next Year 184 31 Information on Geographical Regions 184 32 Discussion of Risk Factors 185 WorldReginfo - b4e5ae69-61fe-4bb1-bb60-f4f58f0ac23f DESCRIPTION OF THE CORPORATION'S BUSINESS Part I – Description of the General Development of the Corporation's Business 1. The Activity of the Corporation and Description of the Development of Its Business 1.1 The Strauss Group Ltd. (formerly Strauss-Elite Ltd., hereinafter: the "Company") and the companies it controls (for the reader's convenience, the Company and the companies it controls shall hereinafter be called the "Group") are a group of industrial and commercial companies that operate in Israel and abroad, principally in the development, manufacture, marketing and sale of a variety of branded food and beverage products. 1.2 The Group's activity is centered in Israel, where it estimates that it is the second-largest company in the Israeli food and beverage industry, and in 2010 held an 11.2% share of the total domestic food and beverage market (in financial terms1), not including the market share of the products of Strauss Water Ltd. (formerly Tana Industries Company Ltd. – Tami4), which was acquired in October 2009, see sections 1.17 and 16.1 in this chapter in the Periodic Report regarding the description of the corporation's business (hereinafter: "This Chapter"). The Group is also active in Central and Eastern European countries and in Brazil, principally in the roast and ground coffee products market, and in most of these countries it is among the leading firms in this market. The Company is also active in the USA in the development, manufacture and sale of refrigerated Mediterranean salad products and in the operation of three Chocolate Bars in New York, Philadelphia and Las Vegas. In China, the Group is currently in the penetration phase through Strauss Water. 1.3 The Company was incorporated in Israel in 1933 as a private company limited by shares. In 1973 it became a public company whose shares are listed for trading on the Tel Aviv Stock Exchange Ltd. (hereinafter: the "Stock Exchange"). 1.4 The controlling shareholders of the Company are Mr. Michael Strauss through his holdings in Strauss Holdings Ltd. (hereinafter: "Strauss Holdings")2 and Ms. Ofra Strauss, who is deemed to hold the shares of the Company together with him. 1 According to StoreNext figures. StoreNext engages in the measurement of the regular everyday consumer goods market in the barcoded retail market (hereinafter: "StoreNext"). 2 Strauss Holdings Ltd. is a private company registered in Israel. To the best of the Company's knowledge, the ordinary shares of Strauss Holdings are held by Michael Strauss Assets Ltd. [a corporation held by Mr. Michael Strauss (approximately 56.7%), Ofra Strauss (approximately 18.1%) and his family members ("Michael's Assets")]; by Raya Strauss Ben-Dror Assets Ltd. [a corporation held by the sons of Raya Strauss Ben Dror, Gil Midyan (approximately 50%) and Ran Midyan (approximately 50%) ("Raya's Assets")]; as well as a self holding by Strauss Holdings Ltd. (approximately 29%). The effective holding of Michael's Assets and Raya's Assets in Strauss WorldReginfo - b4e5ae69-61fe-4bb1-bb60-f4f58f0ac23f 2 1.5 The Group manages and develops its business with the aim of providing the entire public with a broad variety of top-quality branded products for different consumption opportunities. The Group is dominant in most of the markets in which it operates. The Group has diverse production technologies and operates through large-scale marketing, sales and distribution systems, allowing for high availability of its products to consumers. The products of the Group are generally sold through a variety of sales channels including large retail chain outlets, supermarkets, groceries, kiosks, hotels, workplaces, convenience stores, vending machines, etc. 1.6 The Group has collaborations with three multinational corporations – the French concern Danone (Compagnie Gervais Danone S.A.) (hereinafter: "Danone") and the American corporation PepsiCo, Inc. (hereinafter: "PepsiCo"). On October 16, 2010 an agreement was signed with the Haier Group of China through its subsidiary Haier Whole Set Distribution Co. Ltd. ("Haier Consumer Goods"), for the establishment of a joint venture in China. The joint venture will engage in marketing, sales and service based on the products of Strauss Water in China. For information on the agreements with these corporations, see sections 10.14.1 (Danone), 11.14 (PepsiCo) and 16.1 (Haier) in This Chapter. 1.7 The Group's activities commenced in 1934 with the production of chocolate tablets and assorted sweet snack bars at its manufacturing site in Ramat Gan. In the mid-1950s the Group began to manufacture instant coffee in Israel, and the instant coffee manufacturing site in Safed was inaugurated. In subsequent years the Group expanded its business in snacks and coffee by establishing plants and through the acquisition of firms active in these areas. 1.8 In 1990 the Group's collaboration with PepsiCo began in the salty snacks category, following which the Group established the snack production site in Sderot. 1.9 In the early 1990s the Group initiated its international coffee activity in Europe, principally in the roast and ground (R&G) coffee market. The business started out in the private label segment, but over the years the Group shifted its focus to branded products. The Group expanded its international activity in Central and Eastern Europe through the acquisition of Holdings, excluding the self holding of shares, is 73.4% by Michael's Assets and 26.6% by Raya's Assets. The voting shares in Strauss Holdings are held by Mr. Michael Strauss (99%) and Raya Strauss Ben Dror (1%). To the best of the Company's knowledge, the voting shares in Strauss Holdings confer upon the holders thereof the right to be invited, to participate and to vote in General Meetings; the holders of most of the voting shares have the right to appoint most (half plus one) of the directors on the Board of Directors of Strauss Holdings. To the best of the Company's knowledge, the ordinary shares of Strauss Holdings confer upon the holders thereof all property rights (dividends and receipt of the residual value of the Company on winding-up); the right to be invited and to participate, without voting rights, in General Meetings, and to vote in General Meetings only on resolutions relating to the modification of any provision in Strauss Holdings' bylaws; and the right to appoint one director in respect of each holding of 15% of the Ordinary Shares of Strauss Holdings. WorldReginfo - b4e5ae69-61fe-4bb1-bb60-f4f58f0ac23f 3 companies active in the business as well as through the establishment of new operations. In late 2000 the Group also initiated activities in South America with the acquisition of a coffee company in Brazil, an activity that was significantly expanded in 2005, as described in detail below. 1.10 In 2004 the companies Strauss Health Ltd. (formerly Strauss Dairies Ltd.) and Strauss Fresh Foods Ltd. (formerly Strauss Salads Ltd.) were merged with the Company (hereinafter: the "Merger Transaction with Strauss"), and the Group's activities now became focused mainly on dairy products, prepared packaged salads, cut vegetables, flavored milk drinks and natural juices. For more information on the Merger Transaction, see section 27.1 in This Chapter. The diary business was initiated in the 1930s when Hilda and Dr. Richard Strauss set up a cowshed and family dairy in Nahariya.