Osem Investments Limited

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Periodic Report

For the Year 2014 WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

Periodic Report for the Year 2014

Table of Contents

Section A Description of the Corporation’s Business Activities

Section B The Board of Directors' Report on the Company Business

Section C Financial Statements as at 31 December 2014

Section D Additional Details on the Corporation

December 31, 2014 Section E Annual report on the effectiveness

of the internal control over the financial reporting and over the disclosure according to Regulation 9B(a) for the year 2014.

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Osem Investments Limited

Section A:

Description of the Corporation’s Business Activities

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Description of the Corporation’s Business Activities - Table of Contents

Section 1: Description of the General Evolution of the Corporation’s 1 Business Activities 1. Description of the Group’s Activities and Evolution of its Business 1 2. Areas of Activities 4 3. Investments in the Corporate Capital and Transactions in its Shares 6 4. Distribution of Dividends 6 Section 2: Additional Data 8 5. Financial Information Regarding the Operating Segments of the 8 Corporation 6. General Background and External Factors Affecting the 12 Corporation's Activity Section 3: The Corporation's Activities according to Operating 17 Segments 7. The Culinary Food Area 17 8. The Bakery, Beverages, Snacks and Breakfast Cereals Area 27 9. The Professional Market and Gift Packages Area 35 10. The International Division Area 42 51 11. Infant Nutrition Area 60 12. Others - other activities Section 4: Information Regarding the Group's General Activity 62 13. Customers 62 14. Distribution and Marketing 64 15. Order Backlog 66 16. Fixed Assets and Facilities 66 17. Research & Development 67

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18. Intangible Assets 68

19. Human Resources 70

20. Working Capital 76

21. Investments 77

22. Financing 77

23. Taxation 78

24. Environmental Issues 80

25. Restrictions and Supervision of the Corporate's Activity 90

26. Significant Agreements 93

27. Strategic Alliance and General Assistance Agreements 94

28. Legal Proceedings 95

29. Business Strategy and Objectives 95

30. Future Developments Forecasted for the Coming Year 96

31. Financial Data on Geographical Segments 97

32. Discussion on Risk Factors 98

This chapter in the Periodic Report, which describes the Corporation's activities, also contains forward looking information/statements, as defined in the Securities Law 1968. Forward-looking information means information regarding the future which has a degree of uncertainty about the future, which is based on information existing in the Company at the time of the Report publication, and includes estimates or information on the intentions as at the Report publication date. This information reflects the Company’s current viewpoint regarding future events, is based on the Company’s estimates, and is therefore subject to uncertainty and risk. The actual results may differ materially from the results estimated or implied from this information, due to a large number of factors including changes in the Company’s business plans, and due to changes in macro-economic factors and in the specific industry sector. Sections containing forward looking information can be identified by words and phrases such as: “The Company estimates…”, “The Company claims that…”, “The Company intends…”, “The company anticipates…expects”, etc., or expressions phrased in the future tense, but such information could also appear in different wording.

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Business of the Entity

Section 1: Description of the General Evolution of the Corporation’s Business Activities

1. The Group Activities and Evolution of its Business

1.1 Foundation and general background. The Osem Group was founded in 1942 and Osem Investments Ltd. is the parent company incorporating the Osem Group of companies (“Osem”, the “Company”, the “Group”, and “Osem Group”, as the case may be). The Group produces and markets more than 2,000 different food items currently manufactured in eleven production plants and marketed through one central distribution center and secondary loading sites. The Group also exports different food products to other countries, primarily to European countries and to the States. The products of the subsidiary companies, Tivall (meat analogues) and Sabra (salads), are manufactured both in Israel and abroad (by the Group's factories in the Czech Republic and in the US). The Company’s shares were first offered and issued on the Tel Aviv Stock Exchange in 1992. 1.2 The Company’s position in the food industry. Osem is rated among the leading food companies in the Israeli market and develops its business with the intention of offering the consumer in the local and foreign markets a large variety of branded products, at high quality, in every food area it operates, thereby establishing its position as a market leader in the food market. In recent years, the Group expanded its activity abroad by establishing a Tivall products factory in the Czech Republic, by acquiring the activity of the distribution of "Yarden" company in England, and by acquiring the activity of Tribe Mediterranean and Food-Tech companies in the US, engaged in salads and meat analogues. In an image survey which was conducted in December 2014 by the Israeli Market Research Company TNS, as well as in other surveys conducted in previous years, Osem was chosen as the best, the leading, the most popular and the most widely recognized food company in Israel. Moreover, in 2014, Osem was chosen as the most employee friendly employer in a competition on the most employee friendly 1

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employers conducted by the Israeli newspaper Calcalist together with the Maagalim Foundation. The winner of the competition was determined on the basis of 20 parameters which examined, inter alia, length of employment, work-life balance, integration of women, employment of elderly persons , wage differences, average wage and wage differences between men and women. 1.3 Brands & technology. The Group owns a variety of brands and utilizes diverse and wide production technologies, invented and developed by the Group itself. In addition, the Group uses the brands, know-how and technology Nestlé - the world’s leading Food Company, the largest shareholder at Osem whose holdings as at the report date reach about 63.7% of the ownership rights in the Company (“Nestlé” or “Nestlé Group”). 1.4 Strategic alliance with Nestlé. The Company has exclusive agreements for cooperation with the Nestlé group to market and distribute Nestlé's products in Israel by the marketing and sales systems of Osem and the possibility of manufacturing Nestlé products locally. In addition, the Company has exclusive agreements with the Nestlé Group for the use of intellectual property, know-how, and trademarks to which Nestlé has rights. Osem also receives technical assistance in R&D and has extensive right of use of Nestlé know-how for the use of the Osem Group. This know-how includes among others technical, scientific, marketing, logistic and sales, production, IT and financial knowledge and expertise. For additional details please see Regulation 22 in Chapter D ("Additional Details on the Corporation "). 1.5 Change in the Management Structure of the Parent Company Nestlé - On September 26, 2014, the Nestlé Board of Directors resolved to classify the management of the Mediterranean countries as part of the European division. Under this resolution, as at 1.1.2015, Osem is part of the extended Europe (Zone EMENA), instead of belonging to Asia, Africa and Oceania (Zone AOA), as in the past. In addition and as part of the change, the directors serving on the Board of the Company on behalf of the Parent Company from Zone AOA were replaced by representatives of Zone EMENA. 1.6 Credit Rating AAA for Osem. In March 2015, Midroog Ltd. extended the AAA rating Osem had received and gave it a stable rating outlook. Osem is the first and only industrial company in Israel, which is not a

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government enterprise, to ever receive an AAA rating.

1.7 Structure of Business: Osem's Holdings of Companies in the Group according to the areas of activity/segments of operations

(1) In addition to being the holding company of the Group, Osem Investments Ltd. is also a manufacturing company in the business of culinary food area, bakery, beverages, snacks and breakfast cereals as well as in the frozen bakery area (after Bonjour Company (1986) Ltd. was merged into Osem Investments Ltd.).

(2) The chart does not include holding in non-active companies or holding of companies whose activity is not material, or companies whose activity consists only of holding, ownership or lease of property, and the percentages of the holdings in the above chart are the percentages of direct and indirect holdings.

(3) Tribe Company operates in the US, both in salads and in vegetarian-based food.

(4) Tivall Industries includes the Tivall activity and also the Sabra Salads activity, after the companies have been merged.

(5) Despite the fact that the holding in Materna is 51%, from accounting point of view, due to the option component, a holding of 100% has been presented, in accordance with the accepted accounting rules.

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2. Areas of Activities

The Group focuses on the manufacturing and marketing of food products and ranks among the largest food manufacturers and marketers in Israel. In light of the changes in the management structure and following a renewed examination of the segment reporting as specified in Note 25 to the financial statements attached to this periodic report, as of January 2014, the Company adjusted its reporting of the business segments to the new management structure. Below is a description of the areas of operations reported as business segments of the Company: 2.1 Culinary Food Area- in this area the Group develops, manufactures and/or sells, markets and distributes a large variety of branded food products sold on the retail market in Israel (excluding exports which are included in the area of the international division and excluding the professional food market reported as a separate activity area). The principal food products in this area include among others pasta, soups, casseroles, baking aids, sauces, soup almonds and canned food (pickles), ready meals and meat analogues and salads. 2.2 Bakery, Beverages, Snacks and Breakfast Cereals Area – in this area the Group develops, manufactures and/or sells, markets and distributes a large variety of branded products sold on the retail market in Israel (excluding exports which are included in the area of the international division and excluding the professional food market reported as a separate activity area). The food products in this area include savory bakery products (such as crackers and "Lachmit"), sweet bakery products (cakes and cookies), syrups, drinking chocolate and instant coffee as well as snacks (wheat-based, peanut-based, potato-based and corn-based snacks etc.), breakfast cereals and health bars. 2.3 International Division Area – in this area the Group develops, manufactures and/or sells, markets and distributes a large variety of products at room temperature, frozen and chilled products sold abroad both by direct export from Israel and by subsidiaries operating abroad and including the Tribe Company in the US (ready meals and meat analogues under the Veggie Patch brand and salads under the Tribe brand), Tivall Europe (including Tivall Holland, Tival Czech and Tivall Sweden), Osem USA and Osem UK.

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2.4 Infant Nutrition Area – in this area the Group's activity is carried out via the Materna Partnership which develops, manufactures and/or sells and markets a large variety of infant nutrition products, which primarily include infant formula products, baby cereals, purees, biscuits and pasta for toddlers. 2.5 The Professional Market and Gift Packages Area - in this area the Group develops, manufactures and/or sells, markets and distributes a large variety of products sold to the professional market (hotels, cafes, restaurants, catering companies and other professional entities) and gift packages sold to workers' committees and companies via Assamim Gift Parcels which also sells chocolate snacks in the retail market. 2.6 Other Activities - this area includes other activities that do not fall under the areas described above. The principal activities include among others frozen bakery products of Bonjour, iced tea (Nestea), ice cream, other purchased products and pet food. These are activities, which are not material to the Group's activities and do not qualify according to the quantitative criterion for presentation in the financial statements as reportable operating segments.

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3. Investments in the Corporate Capital and Transactions in its Shares

During the last two years no investments were made in the Company capital, nor were any transactions in its shares performed by interested parties outside the Stock Exchange, except for a Nestlé transaction that took place on 26 November 2013 in which Nestlé acquired the holdings of 4 private companies in which Mr. Dan Propper (Chairman of the Company board) has shares. Overall, 5,439,017 shares were sold in this transaction and for consideration of NIS 503,094,912 (NIS 92.497 per share). In line with this transaction, after the acquisition, the Nestlé holdings in the Company rose from 58.8% to 63.7%.

4. Distribution of Dividends

4.1 On 2 July 2013 the Company distributed a dividend in the sum of NIS 150 million. 4.2 On 8 April 2014 the Company distributed a dividend in the sum of NIS 150 million. 4.3 On 3 March 2015 the Company distributed a dividend in the sum of NIS 150 million. 4.4 The balance of the profits for distribution, as at 31.12.14, is retained earnings as detailed in the Changes in Shareholders' Equity Statements which appear in the financial statements included in this periodic report. 4.5 The Company has a negative pledge agreement with the banks according to which if the Company receives a bank loan, the banks will not record any pledges in the Company Registrar in favor of the banks as long as the Company meets certain commitments and financial ratios, including in connection with the distribution of dividend. For additional details see Note 20 B to the financial statements which are included in this periodic report. During the relevant reporting period, the Group complied with these commitments and financial ratios. 4.6 In recent years the Company has not set a policy for dividend distribution. However, according to the Company's Articles of Association, and according to the Company's prospectus of 1992, the Company aims to distribute an annual dividend in cash, which will not be less than 15% of the net annual profit, based on the Company’s

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audited annual financial statements and given the investment plans of the Company and its needs. However, in practice, the Group distributed in recent years dividends at higher rates, as per the following table:

Dividend in Dividend in Dividend in 2012 2013 2014 Total dividend 150,000 150,000 150,000 paid (KNIS) % of the Net 42% 40% 38% Profit

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Section 2: Additional Data

5. Financial Information Regarding the Operating Segments of the Corporation

A. Following changes in the management structure and a reexamination of the segment reporting as specified in Note 25 to the financial statements attached to this periodic report, the Company resolved, commencing with the financial statements for 2014, to report a change in areas of activities reported as operating segments of the Company. Comparative figures have been restated to reflect this change. B. The annual financial statements are in accordance with the international financial reporting standards (IFRS). Financial information pertaining to the Corporation’s activity areas appears in Note 25 to the financial statements included in this report. The adjustments to the figures in the consolidated financial statements result from selling finished goods and semi-finished goods between the operating segments. The explanations for the changes and developments appear in the Results of Activities Report submitted to the Board of Directors which is included in this periodic report. C. Below are the Company's financial figures split into different operating segments (in NIS Thousands):

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Culinary Bakery, Professional International Infant Others Beverages, Market and Division Nutrition Adjustments The Year 2014 Snacks and Gift for the Consolidated Breakfast Packages consolidated Cereals Revenue from the operating 972,696 1,135,363 416,777 672,032 358,480 747,438 )46,166( 4,256,620 segment Attributable fixed costs 355,610 371,749 82,184 245,401 143,253 207,591 - 1,405,788 Attributable variable costs 502,113 505,044 306,954 372,864 152,832 507,889 )39,205( 2,308,491 Results of operating segment 114,973 258,570 27,639 53,767 62,395 31,958 )6,961( 542,341 Part attributed to the owner of the 114,973 258,570 27,274 53,767 62,395 31,958 )6,961( 541,976 parent company Part attributed to the non- 365 365 controlling interests Assets which are attributed to the 282,576 197,405 135,537 825,026 601,374 330,095 1,613,513 3,985,526 activity area Liabilities which are attributed to 12,215 6,322 104,987 444,055 25,264 890,985 1,483,828 the activity area

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Culinary Bakery, Professional International Infant Others Beverages, Market and Division Nutrition Adjustments The Year 2013 Snacks s and Gift for the Consolidated Breakfast Packages consolidated Cereals Revenue from the operating 956,212 1,118,786 412,460 629847 358,644 759,757 (45,659) 4,190,047 segment Attributable fixed costs 345,991 370,647 84,853 223,649 136,810 214,825 1,376,775 Attributable variable costs 486,913 505,733 302,149 353,982 159,683 512,927 (36,673) 2,284,714 Results of operating segment 123,308 242,406 25,458 52,216 62,151 32,005 (8,986) 528,558 Part attributed to the owner of the 123,308 242,406 24,788 52,216 62,151 32,005 (8,986) 527,888 parent company Part attributed to the non- 670 670 controlling interests Assets which are attributed to the 296,213 186,324 123,933 746,138 614,449 276,746 1,398,485 3,642,288 activity area Liabilities which are attributed to 11,569 9,129 84,180 413,843 36,427 834,267 1,389,415 the activity area

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Culinary Bakery, Professional International Infant Others Beverages, Market and Division Nutrition Adjustments The Year 2012 Snacks s and Gift for the Consolidated Breakfast Packages consolidated Cereals 926,858 1,093,388 392,118 668,546 355,058 697,383 (41,758) 4,091,593

Revenue from the operating segment Attributable fixed costs 318,081 356,875 82,920 245,934 133,124 193,915 1,330,849 Attributable variable costs 476,725 524,476 289,792 375,498 162,707 453,267 (33,263) 2,249,202 Results of operating segment 132,052 212,037 19,406 47,114 59,228 50,201 (8,495) 511,543 Part attributed to the owner of the parent 132,052 212,037 18,725 47,114 59,228 50,201 (8,495) 510,862 company Part attributed to the non-controlling 681 681 interests

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D. Direct costs are identified in a specific manner to the activity area and shared costs were allocated based on ABC costing while using the appropriate generator for the same type of expenses, based on the costing methodologies of Nestlé. E. For further details regarding the areas of activities of the Company and explanations on development that took place, see Note 25 to the financial statements and the Board of Directors Report on the state of the Company business for the year ended on 31.12. 2014, which are included in this periodic report.

6. General Background and External Factors Affecting the Corporation's Activity

As of the date of the report, there are several macro-economic factors which affected the Group’s activity. The Group dealt with these factors and found suitable solutions so that in effect, during the relevant reported years, the Group even managed to increase its sales turnover and also increased its gross and operating profits. 6.1 The Security Situation The Group's factories and distribution centers are spread across Israel. Some of its factories are located in the north or in the south and during time of war these factories were within the enemy missiles shooting range. 6. 2 Raw material prices The fluctuations in the raw material prices around the world affect also the Israeli economy. Increase in price of raw materials results mainly from severe climatic changes which affects the crops, from increase in the price of crude oil, and from the rapid growth and increase in demand in China and in India which affect world consumption, from the rise in the standard of living, specifically in emerging markets and also from the involvement of speculative factors in the commodities markets. The year 2014 was characterized by fluctuations and by a mixed tendency in the prices of raw materials which are used by the Group, along with the continued tendency of increase in the prices of additional production inputs (water and municipal taxes).

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The Group deals with these challenges by monthly internal discussions in the Procurement Committee, by closing deals at pre-fixed prices for part of the commodities, receiving assistance from the strategic procurement services of Nestlé in order to obtain the best price possible, and by hedging transactions performed by Nestlé on prices of some of the raw materials, which are contained in the products imported from Nestlé. 6.3 Fluctuations in the Foreign Exchange Rates As part of its activity, the Group operates abroad as well and exports about 16% of its sales but at the same time the Group also imports some of its raw materials as well as finished goods from Nestlé and from other suppliers. As a result, part of its customers’ balances in foreign currency are naturally protected against part of its suppliers’ balances in foreign currency. Where there is still a degree of exposure, the Group usually neutralizes part of the foreign currency exposure and risks through hedging. 6.4 Regulatory Developments Protection of the environment – on 26 July 2012, the Environmental Handling of Electrical and Electronic Equipment and Batteries Law, 2012 was published. This law, among other things, imposes on those who are in possession of electrical and electronic equipment and batteries which are not used in the domestic area, the duty to contract with an approved enterprise for the purpose of removal of this equipment & batteries waste. To comply with the provisions of the law, Osem contracted with an approved operating enterprise recognized by the Ministry of Environmental Affairs for the supply to Osem of the service required by the said law. Marking nutritional values – on 31 January 2014, the amendment to the Public Health (Food), Nutritional Marking Regulations, 1993 came into effect. The amendment prescribes provisions on marking the fatty acids and cholesterol contents on food products with a fatty acids rate exceeding 2% of the weight of the product. The Osem Group carried out the required modification in the packages of the relevant products. On 17.12.2014 the Entry into Effect of "Marking of Pre-Packed Food Provisions" Law, 2014 was published. The law states the date for the new marking requirement for pre-packed food. In addition, given the rising awareness to the effect of different food ingredients on the consumer health, bills of law are being formulated and are in different stages, pertaining to the duty to specify nutritional

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ingredients and values on product packages. As the date of this report, most of these bills have not yet been approved and their impact on Osem, if and as any of these will be approved, cannot be estimated. If the said bills (in whole or in part) will become effective, the Osem Group will perform the necessary modification in the packaging of its relevant products. This is forward looking information. The Food Law – In March 2014 the Promotion of Competition in the Food Sector in Israel, 2014 ("the Food Law") was published. The aim of the Food Law is to promote competition in the food sector and in the field of consumer products in order to reduce the consumer price. In general, the provisions of Article A of Chapter B of the Food Law entered into effect on 15.1.2015. The Osem Group is deemed to be a "large supplier" and the provisions of the law concerning a large supplier apply to the Osem Group. These provisions specify a number of prohibitions in relation to activities between suppliers and retailers, including the following:

 A prohibition against a large supplier arranging goods in a shop of a large retailer included in the list of large retailers published by the Antitrust Authority (the Antitrust Authority published on this matter an "Exemption for Acts and Arrangements relating to Arranging Goods in a Shop of a Large Retailer");

 A prohibition against a large supplier dictating or recommending to a retailer (as this term is defined in the Food Law) or intervening by any other method in one of the following: (a) the consumer price charged by the retailer for an item supplied by the supplier (the Antitrust Authority published on this matter an "Exemption for Acts and Arrangements relating to the Consumer Price"); (b) allotment of selling space at any rate for an item supplied by the supplier; (c) purchase of an item supplied by the supplier at a rate based on the total retail purchases of the item and alternative items; (d) purchase or sale of items supplied by another supplier to a retailer, including quantities and purchase targets, sales space allotted to them in a shop and any other commercial term.

 A prohibition against a supplier making payments to a large supplier included in the list of large retailers published by the Antitrust Authority, in cash or cash equivalent, except by means of reducing the price per unit of item. 14

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At this preliminary stage, we cannot estimate the full impact of the changes which will apply to the Group as a result of the Food Law. In 2014, a non- recurring provision was made in the sum of NIS 9,800 thousands due to the changes in the trade system as a result of preparations made for the entry into effect of the Food Law. Relief in the Import of Food Products – The Bill for Amendment of the Public Health (Food) Ordinance [New Version] (Amendment No. 5), 2014: in the course of 2014, the Government published the Bill for Amendment of the Public Health (Food) Ordinance [New Version] (Amendment No. 5), 2014. This bill is intended to increase and strengthen the supervision of food produced in Israel, imported to Israel and marketed in Israel in order to ensure food safety, quality and fair trade practices in view of the many and extreme changes undergone by the food industry in Israel and abroad in recent years. The bill seeks to change the basis for supervision of food by replacing the present legislation based on a state of emergency – the Supervision of Products and Services Law, 1957 and the many orders issued thereunder which at present constitute the main basis for supervision of manufacturers, importers and marketers of food - with legislation based on the Public Health Ordinance [New Version], 1983, pursuant to the demands of the Supreme Court, the Knesset and the Government. The main provisions of the bill relate to regulation of the manufacture of food; regulation of food imports; regulation of duties of entities which market food; regulation of powers of supervision; determining provisions on food quality; increase in penalties; imposition of financial sanctions on manufacturers, importers and dealers under the Business Permit Law and grant of additional powers to the courts. As stated above, this is only a bill at this stage.

The Concentration Law - On 11 December 2013, the Promotion of Competition and Reduction of Concentration Law, 2013 ("the Concentration Law") was officially published. In general, the Concentration Law is intended to assist in increasing the competitiveness in the Israel market, to ensure a competitive and effective market and to protect the investors. This law includes several indirect amendments including an amendment to the Companies Law 1999, according to which an audit committee of a public company will be required to determine, for a transaction with a controlling shareholder in the company, or transaction with another party in which the controlling shareholder has a personal interest, the duty to conduct a competitive procedure under its guidance, 15

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and according to criteria to be defined (or any other procedure prescribed by the audit committee). In addition, the audit committee will be required to determine the manner of approval of transactions with controlling shareholders which are not exceptional and which are not immaterial and also to determine the type of transactions, as mentioned above, which will require the approval of the audit committee (at present approval is not required for such transactions). This amendment to the Companies Law came into effect on 10 January 2014.

6.5 Economic Crises Global economic crises, coupled with geopolitical developments in several countries around the world may lead to instability and fluctuations in the markets. They also increase uncertainty and the impact on the Israel economy. In addition, in recent years we have witnessed cases in Israel and abroad where great pressure is exercised by consumers against food manufacturers and retailers (e.g. consumer protests). The strengths of Osem are its wide range of product categories, high solvency and high level of financial soundness. Notwithstanding the above, the Group prepares for crises by making efficiency plans to reduce expenses and by building marketing plans tailored to characteristics of consumers in changing business surroundings. This information is considered forward-looking information, which reflects the Group's point of view on future events based on estimates and valuations, and as such, it is subject to risks and uncertainty.

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Section 3: The Corporation's Activities according to Operating Segments Below is a description of the Group's activities for each of its different operating segments, except for those aspects relating to their entire activities which are described in Section 4 of this Chapter.

7. The Culinary Food Area

7.1 General Information on the Area of Activity A. Structure of Category and Recent Changes The Culinary Food Area focuses on the development, production and/or sales, marketing and distribution of food products in the retail market in Israel. These products are used as a basic component for the preparation of meals and constitute an integral part of home cooking and preparation of the main meal or convenience products which constitute part of the main meal. This area of activity includes primarily pasta products, soups, casseroles, baking aids, sauces, soup almonds and pickles. In addition the area includes vegetable-based foods and frozen meat analogues such as schnitzel, hamburgers, soya and vegetable-based sausages and chilled salads (hummus, tehina, eggplants etc.) The area is characterized by strong competition and high advertising costs. Brands of the Group are the leading brands in this area. In addition, the area is characterized by a high innovation level and development of new products. B. Changes in the scope of activity and profitability During the last few years the competition with other manufacturers and with imports in this segment has increased, as well as competition from the private label. Despite the above, sales of the Group continued to grow in this area due to increased marketing efforts and the introduction of new products. Changes in 2014 in the sales and operating profit of this activity area are detailed in Results of Activities in the Board of Directors Report which is included in this periodic report. C. Market developments in this area or changes in customer profile This area of activity is based on the basic ingredients for preparing a meal and/or convenience products included in a meal and are intended to meet the consumer's need to prepare a home meal through product renovation and innovation, coupled with a tendency towards and a need for products with improved nutritional values. The Group intends to 17

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respond to this developing trend by constant new product development and innovation, and by additional marketing investment in the brands. D. Key Success Factors in this Area of activity and changes to them Key success factors affecting the Group success in this area of activity are based on the unique know-how developed by the Group for part of the products and on strengthening the Group brands and maintaining their position as market leaders by brand building activities and by maintaining high product quality. Another key success factor is the product development and innovation level. Another critical success factor is expressed by maintaining competitiveness by constant efficiency and the ability to distribute to end-customers while maintaining a high rate of availability. E. Main entry barriers in this area of activity and recent changes Main market entry barriers include the constant need for innovation and new product development, the need to build and maintain strong brands, the need for the necessary technology and knowledge for production, and the need to invest in equipment, machinery and setting up infrastructures. The need for distribution and logistics systems may constitute in part of the cases and also the need for kosher certification sometimes poses a barrier to the entry, especially when imports are concerned. F. Substitute products in this area of activity and changes to them The food industry on the whole is a mature and competitive industry and these features apply also to this area of activity. As in other food sectors, also in this area of activity there are substitute products in this category, manufactured by competitors. There are also imported goods and private labels of the retail chain. The Group also works towards giving a response to the existing substitute products by branding its products, maintaining their high quality, constant innovation and investment in marketing and brand development. And this - in addition to the strategic alliance Osem has with Nestlé, the largest food company in the world, which is positioned, in the Company's evaluation, at the forefront as leading in innovation and technology in the food area.

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G. Analysis of competition: structure, activity and recent changes The market in this area of activity is competitive. There is competition from other manufacturers, both from the private labels of the grocery chains, and from imported goods. For details, see section 7.5 below. 7.2 Products A. The main products of the Group in this category are marketed, primarily, under the corporate brand "Osem". This corporate brand includes, among other things, the group of pasta products, soups, casseroles, sauces/dressing, soup almonds and baking aids. The pickles are mainly sold under the “Beit Hashita” brand-name. Frozen products include vegetable-based food and meat analogues (schnitzel, hamburgers, soya-based sausages and meals) as well as products containing vegetables marketed under the "Tivall" brand-name, chilled products including salads (hummus, tehina, eggplants etc.) marketed under the Sabra Salads brand-name. B. The vast majority of the Group's products in this area are manufactured in the Group's factories in Israel although there are some products that are imported. The Group sells markets and distributes its products in the local retail market. 7.3 Breakdown of Income and Product Profitability Below are figures on the Group's income in this activity area. In this framework there is no group of products whose income rate represents 10% or more of the total income of the Company. Similar Income in KNIS % of the Group total income products group 2014 2013 2012 2014 2013 2012 Culinary 972,696 956,212 926,858 22.9% 22.8% 22.7% Food

7.4 New Products In 2014, the Group launched on the market products whose development had been completed; these included mainly yeast flour for baking bread and pastries containing 50% whole wheat flour, "fiery-spicy" ketchup, low-

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calorie salad dressings (15 calories per tablespoon) in new flavors and a basic sauce for preparing different style sauces. In the field of chilled salads, new salads with different flavors in the line of "the Hummus King" and in the series of Chef Rafi Cohen – a new line of pulse salads and a new series of street food salads launched in December 2014. 7.5 Competition A. In the Culinary Food area, the Group operates in a competitive market and faces competition from manufacturers, private labels of the grocery retail chains, and importers. The Group's main competitors in this area of activity are, "Telma-Unilever", "Sougat", "Yavne Canned Food", "Pri Nir", "Soglowek", "Tapugan", "the Strauss Group", Shamir Salads", "Mickey Delicatessen" the private labels, import agencies, and a large number of other medium to small-scale manufacturers. B. The table below shows the Group’s market shares (based on monetary value) in Israel for the year 2014, referring to key products in the Culinary Food area, showing weighted figures which are based on Store Next data collected in the bar-coded retail market. The figures are based on a population of about 2200 stores in the organized market (Shufersal, Mega retailing, Coop Israel) and in the private market (private chains, minimarkets, grocery stores, and convenience stores) which transmit real time sales data from their cash boxes to Store Next, and which constitute 80% of the total bar-coded FMCG market in Israel. On the basis of this data and via a statistically progressive model, a statistical extrapolation is performed for the entire 100% sales in the organized and the private market. The data does not represent the entire market situation as it does not include the sales of kiosk, pharms and open markets, the Food Service market (hotels, restaurants, catering services, etc.), specialized shops and outlets in the Arab sector.

Product Group Weighted Market Share

Pasta 54%

Soups and Casseroles 40%

Sauces / Dressings and Seasoning 34%

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Pickles 37%

Vegetable-based Foods 56%

Salads 37%

C. The factors that affect the Group's competitive position, in the Group's estimate, are closely related to the strengthening of the Group's ability to cope with the competition in Snacks and Bakery and to the increasing dominance of the private label. The Group rises to the challenge by focusing all its marketing, advertising and sales promotion efforts, by building and strengthening its brands, by continuous improvement and rationalization processes, by keeping a comprehensive distribution network for its products, by strategic cooperation with Nestlé, by launching new products as well as by developing advanced technologies through Group's own development initiatives. In addition, the Group puts emphasis on innovation, on creating a nutritional advantage, and on strengthening the “Osem” brand as all as strengthening the other brands of the Group. Using independent development means and utilizing the knowledge base of Nestlé, the Group invests resources and efforts in adopting technologies resulting from Nestlé's R&D efforts. The Group also invests in its own R&D initiatives. All these resources and efforts are utilized to differentiate the Group's products from those of its competitors - in innovation and in technology, and in their high quality. The Group also strives to provide good reliable, loyal, timely and high quality service and at the same time maintain the efficiency of its supply chain. In the Company's evaluation, over the years the Group's has built an image of cutting edge in technology, quality and service and is now positioned in the forefront and as a leader in the Israeli food market.

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7.6 Seasonality As of the date of this report, there is no significant seasonal trend in culinary products. Yet, there is a seasonal effect in this area mainly due to the soups which are sold more during the winter (the 1ST and the 4TH quarters) and the timing of the holidays and special dates also affects this activity. Below is the breakdown of the income, split by quarters, (in thousands NIS): The Year 2014 The Year 2013

Income in % of the total Income in % of the total KNIS income KNIS income The Culinary Area The Culinary Area 1ST Quarter 246,063 25.3% 225,701 23.6% 2ND Quarter 228,747 23.5% 238,045 24.9% 3RD Quarter 252,229 25.9% 241,389 25.2% 4TH Quarter 245,657 25.3% 251,077 26.3% Total 972,696 100.0% 956,212 100.0%

7.7 Production Capacity The Group's maximum annual production capacity potential in this area of activity, during the year 2014, utilizing 3 shifts, was about 178,000 tons. Average utilization rate for the actual production in the year 2014 was about 42%, with the production lines operating in one to three shifts per day. The management structure of the Group is the matrix structure of overlapping systems of components (in this case the production facilities). Thus, the production and utilization capacity figures in this area, in addition to the products of the activity area, also relate to the products produced for the professional market and for exports (the international division). Most of the production lines in the Group factories are automated or semi- automated, but there are some manual lines. 7.8 Fixed Assets and Facilities Below is a description of the main real estate and other material fixed assets of the Group, which are used in culinary food area.

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A. Sderot Factory - is used mainly for the manufacture of seasoning products, soups, sauces, baked pasta, casseroles, soup almonds and baking aids. The factory however also manufactures products for other activity areas such as snacks, breakfast cereals, chocolate milk powder beverages under the "Nesquik" brand and products for the professional market and export products for the international division. The factory is located in Sderot industrial zone on a plot of land of about 53 dunams - about 13 acres (including an R&D center) and its built area comprises about 29,000 m2. The Group leases the land from the Israel Lands Administration (ILA) under a capitalized perpetual lease. B. Yokneam Factory- is used for the manufacture of noodles but also manufactures products for other activity areas, such as bakery products and savory snacks and products for the professional market and export products for the international division. The factory is located in Yokneam industrial zone on a plot of land of about 31 dunams (about 8 acres) and its built area comprises about 19,000 m2. The Group leases the land from the Israel Lands Administration (ILA) under a capitalized perpetual lease. C. Beit Hashita factory - is used for the manufacture of pickles, lemon flavor syrup and vinegar, but also manufactures products for other activity areas, such as syrups and products for the professional market and export products for the international division. The factory is located in Kibbutz Beit Hashita on a plot of land of about 59 dunams (about 14.5 acres) and its built area comprises about 21,000 m2. The Group leases the land from Kibbutz Beit Hashita under a long-term lease agreement which will end, for the majority of the leased plots, on 31.5.2026 (subject to various adaptations for the lease period which the parties may insert). D. Tivall factory in Lohamei Hagetaot Kibbutz – is used for the manufacture of schnitzels, hamburgers and sausages on the basis of meat analogues and vegetables and also manufactures products for other areas such as products for the professional market and export products for the international division. The factory is located in the Lohamei Getaot Kibbutz. Pursuant to a long-term lease agreement ending in February 2024, the Group leases a plot of land of about 15 dunam with a built area of approx. 11,700m2 from the Lohamei Hagetaot Kibbutz. The main production lines in the factory are innovative and most of them are automated.

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E. Tsabar Salads factory in Kiryat Gat – is used for making salads and also manufactures products for the professional market and export products for the international division. The factory is located in the industrial area of Kiryat Gat on a plot of land of approx. 36 dunam with a built area of approx. 9,600 m2. In its books, the Group depreciates the main machinery and equipment of its various factories relating to this area of activity for a period of 5-15 years. 7.9 Research & Development The Group uses the Nestlé know-how and technology. In addition, Osem develops a variety of products in the culinary area, through its own technology teams. The Group is engaged in research and development as stated above, mainly using its own resources but also with the assistance of the Encouragement of Research and Development in Industry Law, 1984 under which the State of Israel, through the Chief Scientist, approved a number of programs for industrial research and development. The Group undertook in part of the programs to pay royalties to the State of Israel. As at 31 December, 2014, the sum of the undertaking to the Chief Scientist for royalties was not material for the Group. 7.10 Human Resources A. For the Group organizational chart and for further details on the Group's Human Resources, see paragraph 19 in this section below. B. Below see a breakdown of the Group headcount for the area of Culinary Food as at 31.12.14. It should be noted that the production workers in the Group factories are mobile and are transferred between the production lines, on demand, and therefore the number of the production workers listed in the table below may change according to need. This is because the culinary food products are manufactured in several sites (Yokneam, Sderot and Beit Hashita) in which bakery, beverages, snacks, and breakfast cereals are also manufactured. In addition, the same production workers engaged in the culinary food area also produce products (on the same production lines) for the professional market and for export by the international division. However, since most of their work is connected to the culinary food area, they were included as workers in this area. In addition, there are general production workers (such as QA, technology- related, maintenance, and factory administrative staff, etc.) who cannot 24

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be associated to a specific activity area and therefore were not included in the table but appear in the table under paragraph 19 below. Most of the commerce and sales employees of the Group are recorded under the Osem Group Commerce Company which provides sales, distribution, logistics and commerce services to all the Group's operating segments in Israel.

Number of Number of Employees as at Employees as at 31.12.14 31.12.13

Production 670 686

Administration/Management 23 35

Sales and Marketing 26 29

7.11 Suppliers and Raw Materials A. The main raw materials used by the Group for this area of activity are flour, oil, vegetables (cucumbers, olives, eggplants, tomato concentrate etc.), sugar, albumin, soya, hummus, tehina, flavorings and starch. B. The main packaging materials used for this segment are flexible packages, plastic, cardboard and tin cans. The packing materials are purchased from different manufacturers, mostly in Israel and some of them outside Israel. C. Some of the products in this area of activity are imported to Israel as finished goods, such as pasta. D. Availability of raw materials purchased overseas depends among other factors on the frequency and regularity of maritime and air freight and on the regular and uninterrupted activity of the Israeli ports. E. Some of the raw materials are commodities whose price is affected by price fluctuations on the commodities markets on stock exchanges around the world and by fluctuations in foreign currency exchange rates. These raw materials are produced from organic sources (such as sugar and flour) and their prices are therefore affected by climatic changes, duration of ripening period, etc. F. Osem uses the services of the Nestlé Strategic Purchasing Centre which specializes in sourcing suppliers of raw materials and packaging which conform to the Nestlé quality specifications, achieving at the same time 25

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optimal prices, based on Nestlé's economies of scale. But in effect, the Group executes the purchasing by paying directly to the raw material supplier. G. The Group usually purchases its raw & packaging materials, through the Group's Central Purchasing Unit, from a large number of suppliers and chooses its suppliers according to the quality of the merchandise they offer, its availability and reliability, according to the suppliers’ financial stability and by the prices they offer. In its purchasing and in its selection of overseas suppliers, the Group achieves optimization in quality and price and this among other reasons because it utilizes Nestlé sourcing and information, which have been obtained by Benchmarking. H. As a rule, the Group's policy is to contract with more than one supplier for each of its main raw materials, so that an alternative supplier could be approached if one supplier will discontinue supplying the materials for any reason. As at the Group's financial statements publication date, the Group has designated at least 2 suppliers for each of its main raw materials mentioned above. In secondary raw materials (which belong mainly to the flavoring additives group), the Group sometime works with one supplier only, and this is for reasons of kosher certification or because the recipe or composition is exclusive. In the Company's estimate, these raw materials have no material effect on the business activity of the Group, they can be replaced in a short period of time by an identical or similar material from another supplier, if necessary, without any a significant adverse impact on the Company and in any case the Company has no dependency on any of these suppliers. I. The vast majority of the Group's agreements with its suppliers are framework purchasing agreements for periods ranging between 3-12 months. These agreements specify delivery times, prices, quality standards, quantities and credit terms. Actual purchasing is done, in most cases, through specific purchase orders (call-off orders).

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8. The Bakery, Beverages, Snacks and Breakfast Cereals Area

8.1 General Information on the Area of Activity A. Structure of Category and Recent Changes This area includes the activities of bakery, beverages, snacks and breakfast cereals. This area focuses on the development, manufacture and/or selling, marketing and distribution to the retail market in Israel of food products which are used as a convenient and immediate solution for eating or drinking between meals and in breaks, as pleasure and indulgence products. This activity area includes the snack products (wheat, peanut, potato and corn-based snacks, etc.), mainly fried snacks, extruded snacks, baked and roasted, breakfast cereals and cereal health bars: savory snacks (such as crackers and "Lachmit"); sweet bakery products (cakes, cookies and biscuits); syrups and instant coffee . These products are characterized by long shelf life ranging between several months to about two years. They are stored and delivered at room temperature. The category is characterized by high competitiveness accompanied by high advertising costs. The Groups brands are of the leading ones in this area. Moreover, the innovation and development level of the new products is high. In 2015 the group plans to expand its coffee activity by entering the coffee capsules segment under the Dolce Gusto brand which has been developed by Nestle in Europe. It should be noted that the information in this section is forward-looking information which shows a degree of uncertainty as it is based on the Group's forecasts and work plans. The information may not materialize if the Group finds that the above- mentioned move is not economically feasible, or due to changes in market conditions, and/or as a result of regulatory changes and/or a result of other risks factors which are applicable to the Group's activity. B. Changes in the scope of activity and in profitability During the last few years, competition in this category from both the local manufacturers and importers and from the private labels has increased. Despite the above, and as a result of increased marketing efforts and new product introduction, the Group continued to grow in this area. The changes in sales and operating profit of this activity area in 2014 are as detailed in the Board of Directors Report which is included in this periodic report. 27

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C. Market developments in this area or changes in customer profile This area is supposed to provide a response to the consumer's need for excitement, fun, and pleasure and this is to be achieved through product renovation and innovation. At the same time, there is a tendency towards and a need for health and wellness products. The Group works towards giving a response to these market developments by constant new product development and innovation, and by additional marketing investment in the brands. D. Key Success Factors in this Area of activity and changes to them Key success factors affecting the Group success in this area of activity are based on strengthening the Group brands and maintaining their position as market leaders by brand building activities and by maintaining high product quality and by the distribution and availability of the products, especially in the impulse market. Another Key Success Factor is the product development and innovation level. In this area, the Group uses among other things the know-how and expertise of the R&D Centre which Nestlé established in Sderot, mainly for the snacks area. Another critical success factor is maintaining the competitive edge through constant streamlining efforts. E. Main entry barriers in this area of activity and recent changes For details regarding the entry barriers and recent changes in this area see paragraph 7.1(E) above, with the necessary changes (mutatis mutandis). F. Substitute products in this area of activity and changes to them For details regarding substitute products and recent changes in the products see paragraph 7.1(F) above, subject to the necessary changes (mutatis mutandis). G. Analysis of competition: structure, activity and recent changes For details regarding competition and recent changes in competition see paragraph 7.1(G) above, subject to the necessary changes (mutatis mutandis). 8.2 Products A. The main products of the Group in this category are marketed, primarily, under the corporate brand "Osem" and also under the corporate brand "Nestlé". The products included under the Osem brand are among others "Bamba", "Bissli", "Apropo", "Dubonim", Baygele Osem (pretzels) and 28

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"Chipsy" and the brands "Lachmit", "Crispy", "Osem Cracker", "Ugot Habayit", "Argaliyot and "Toastaim". B. The products included under the Nestlé corporate brand are the coffee brands "Red-Mug Nescafe", "Gold Nescafe", "Taster's Choice Nescafe" and "Cappuccino Nescafe", drinking chocolate powder under the brand "Nesquik", breakfast cereal under the brands "Crunch", "Fitness", "Cheerios" and others, and also the cereal health snacks (bars) under the "Fitness" brand and bars for children under the brands "Crunch" and "Nesquik". Syrups are sold mainly under the "Asis" and "Vitaminchik" brands. Most of the Group’s products in this category are manufactured in the Group factories in Israel and some – mainly coffee and breakfast cereals - are imported from Nestlé (although some of the breakfast cereals are manufactured also in Israel). In addition, there are products in this area which are manufactured by subcontractors. 8.3 Breakdown of Income and Product Profitability The table below shows the breakdown of the Group’s income which derive from similar product categories falling under this activity and which account for 10% or more of the total of the Group revenues, as per the following "Snacks" - include mainly wheat, peanut, potato and corn snacks. No group of products in this area, except for snacks, generates revenues amounting to 10% or more of the total revenues of the Company.

Similar Income in KNIS % of the Group total products income group 2014 2013 2012 2014 2013 2012 Snacks 476,710 472,544 461,085 11.2% 11.3% 11.3% Others 658,653 646,242 632,303 15.5% 15.4% 15.4%

8.4 New Products In 2014, the Group launched to the market products whose development had been completed and also new Nestlé products. The new products include mainly snacks in various new flavors, shapes and sizes (under the "Bamba", "Bissli", "Dubonim", "Chipsy" and Pretzel brands); an expansion

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of the range of the health bar series for adults ("Fitness" bars) and health snacks for children (under the "Crunch" and "Nesquik" brands). In the field of bakeries, a range of products was launched under the "Crispy" brand as well as new cakes (brownies, sponge and yeast cakes), new cookies under the "Fitness" brand and an expansion of the "Prichonim" brand (rice cakes). Furthermore, the "Nescafe Cappuccino" series was expanded and syrups with new flavors were launched under the brand "Vitaminchik". 8.5 Competition A. In this area, the Group faces competition from manufacturers, private labels of the grocery retail chains, and importers. The Group's main competitors in this activity area are "Strauss-Elite", "Telma-Unilever", "Kellogg’s", "Diplomat-Kraft", "Prigat", "Yachin", the private labels, importers and a large number of other medium to small-scale manufacturers. B. The table below shows the Group’s market shares (based on monetary value) for the year 2014, referring to bakeries, coffee, syrups, snacks (fried, extruded, baked and roasted snacks), and breakfast cereals showing weighted figures which are based on Store Next data collected in the bar-coded retail market and are calculated as detailed in paragraph 7.5(B) in this section above.

Product Group Weighted Market Share

Snacks 38%

Breakfast Cereals 25%

Cakes 42%

Crackers 38%

Cookies and Biscuits 19%

Syrups 55%

Instant Coffee 44%

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C. There are other factors which affect the Group's competitive position, in the Group's estimate, as detailed in paragraph 7.5(C) in this section, above. 8.6 Seasonality As of the date of this report, there is no significant seasonal trend in this area. However, the income volumes in this area of activity are affected among other reasons by the timing of the holidays. See below breakdown of the income split by quarters (in KNIS).

The Year 2014 The Year 2013

Income in % of the total Income in % of the total KNIS income KNIS income the bakery, the bakery, beverages, snacks beverages, snacks and breakfast and breakfast cereals area cereals area 1ST Quarter 306,860 27.0% 287,734 25.7% 2ND Quarter 257,548 22.7% 275,770 24.6% 3RD Quarter 306,706 27.0% 281,771 25.2% 4TH Quarter 264,249 23.3% 273,511 24.4% Total 1,135,363 100.0% 1,118,786 100.0%

8.7 Production Capacity The Group's maximum annual production capacity potential in this area of activity, during the year 2014, utilizing 3 shifts, was about 84,700 tons. Average utilization rate for the actual production in the year 2014 was about 49%, with the production lines operating in one to three shifts per day. The management structure of the Group is the matrix structure of overlapping systems of components (in this case the production facilities). Thus, the production and utilization capacity figures in this area, in addition to products in this activity area, also relate to the products produced for the professional market and for exports (the international division). Most of the production lines in the Group factories are automated or semi-automated, but there are some manual lines.

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8.8 Fixed Assets and Facilities Below is a description of the main real estate and other material fixed assets of the Group, which are used in the bakery, beverages, snacks and breakfast cereals area. A. Sderot Factory – is used for the manufacture of snacks, breakfast cereals and chocolate powder under the brand "Nesquik" but also manufactures products for other activity areas, (such as seasoning products, soups, sauces, toasted pasta, casseroles, soup almonds and baking aids in the culinary area and products for the professional market and for export by the international division). For details regarding the factory see paragraph 7.8(A) in this section, above. B. Yokneam factory - is used for the manufacture of bakery and snack products, but also manufactures products for other activity areas (such as, noodles in the culinary area and products for the professional market and for export by the international division). For details regarding the factory see paragraph 7.8(B), in this section above. C. Holon Factory – is used for the manufacture of snacks and products for other areas (the professional market and export products for the international division). The factory is located in Holon industrial zone on a plot of land of about 3 dunams (about 0.75 acre) and its built area comprises about 1,650 m2. The factory is fully owned by the Group. In addition, the Group leases an additional plot of about 1500 m2 (with a built area of about 650m2) under an unprotected lease, for short term, with an option to extend the lease term. D. Beit Hashita factory - is used for the manufacture of drinking syrups but also manufactures products for other activity areas (such as pickles, lemon juice concentrate, and vinegar in the culinary area and products for the professional market and for export by the international division). For details of the factory see paragraph 7.8(C) above. In its books, the Group depreciates the main machinery and equipment of its various factories relating to this area of activity for a period of 5-15 years. 8.9 Research & Development In 2002, Nestlé established in Sderot Israel its global R&D Centre which operates mainly in connection with snacks and bakery products in a building which is leased from the Group, and which is adjacent to the Sderot factory. The Group uses the know-how and technology that were

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developed and will be developed in the future. In addition, Osem develops a variety of products in this area, through its own technology teams. The Group is engaged in research and development as stated above mainly using its own resources but also with the assistance of the Encouragement of Research and Development in Industry Law, 1984 under which the State of Israel, through the Chief Scientist, approved industrial research and development programs. 8.10 Human Resources A. For the Group organizational chart and for further details on the Group's human resources, see paragraph 19 in this section below. B. Below see a breakdown of the Group headcount for the area as at 31.12.14. It should be noted that the production workers in the Group factories are mobile and are transferred between the production lines, on demand, and therefore the number of the production workers listed in the table below can change according to need (this is because the bakery, beverages, snacks and breakfast cereals area are produced on a number of separate sites (Beit Hashita, Holon, Yokneam and Sderot) and on most of the sites, culinary food products are also manufactured). In addition, the same production workers engaged in the culinary food area also produce products for the professional market and for exports by the international division. However, since most of their work is connected to the culinary food area, they were included as workers in this area. In addition, there are general production workers (such as QA, technology-related, maintenance, and factory administrative staff, etc.) who cannot be directly associated to a specific activity area and therefore were not included in the table but appear in the table under paragraph 19 below. Most of the commerce and sales employees of the Group are recorded under the Osem Group Commerce Company which provides sales, distribution, logistics and commerce services to all the Group's operating segments in Israel.

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Number of Number of Employees as at Employees as at 31.12.14 31.12.13

Production 573 553

Administration/Management 4 7

Sales and marketing 16 13

8.11 Suppliers and Raw Materials A. The main raw materials used by the Group for this area of activity are flour, corn, oil, peanut butter, potato, starch, sugar, eggs, chocolate components and fillings. B. The main packaging materials used for this segment are flexible packages, plastic and cardboard. The packing materials are purchased from different manufacturers, mostly in Israel and some of them outside Israel. C. Some of the products in this area of activity are imported to Israel as finished goods. The main import is from Nestlé and it primarily includes the import of instant coffee and breakfast cereals. For further details on the raw materials and on the suppliers the Company uses for the manufacturing of its products, see also paragraphs 7.11(D)- 7.11(I) in this section above.

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9. The Professional Market and Gift Packages Area

9.1 General Information on the Area of Activity A. Structure of Category and Recent Changes This area of activity focuses on the development, manufacture and/or selling, marketing and distribution of the Group's products in other areas of activities and goods of other manufacturers sold to the professional market in Israel. The professional market includes hotels, restaurants, catering companies and other professional entities (old-age homes, hospitals etc.). In addition, this area includes the subsidiary Assamim Gift Parcels which sells gift packages to workers' committees, companies and institutional entities. Furthermore, Assamim Gift Parcels sells chocolate snacks imported by Nestlé to the retail market. B. Changes in the scope of activity and in profitability An improvement in the standard of living and in the GDP per capita has a favorable impact on leisure activities and increases the scope of visits to hotels and restaurants which in turn has a favorable impact on consumer habits in Israel. These developments create a potential for growth of the activities of the professional market. In 2014, this area of activity was influenced by the Operation Protective Edge military campaign which affected out-of-home consumption (restaurants, hotels etc.). The scope of sales and operating profit of this area of activity in the year 2014 are as specified in the Board of Directors' Report included in this periodic report. C. Market developments in this area or changes in customer profile Customers in the professional market are specialist customers: chefs in restaurants/cafes, in hotels, food and beverage managers and purchase managers in professional entities. The professional discourse of the Osem Group with these customers is conducted by professionals B2B: a team of chefs, a team of baking coachers and beverage coachers who have the skills to provide professional information, work methods and professional advice to customers on a regular basis. Developments in the markets of this area of activity and changes in the characteristics of the customers provide a response, among others, to the increase in the trend for out-of-home consumption. D. Key Success Factors in this Area of activity and changes to them

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Key success factors of the Group in this area of activity are based on strengthening the Group's brands and retaining their leading position in this area, ensuring the high quality of products and unique professional abilities enabling menu building and work with professional factors (such as chefs) of the customers. A key success factor is the popularity of the products, availability and the ability to provide an immediate response to urgent needs such as immediate delivery and supply of missing items to restaurants, hotels and institutions. Another success factor in this area is the level of development and rate of innovation of products together with professional abilities and quality of the service provided by professionals and the marketing and sales team. In this matter, the Group is assisted by world specialists in Nestlé incorporated in the world Nestlé Professional Division who provide know-how and advice. A further key success factor is remaining competitive by means of constant efficiency plans. E. Main entry barriers in this area of activity and recent changes The main entry barriers are the unique professional skills required for dealing with professionals employed by customers in the professional market, logistics ability for distribution to these end customers while ensuring a high degree of availability. The need for a large and high- quality basket of products which meets the needs for all parts of the meal is also an entry barrier as well as the need for investments in customer equipment. F. Substitute products in this area of activity and changes to them The food industry on the whole is a mature and competitive industry and these features apply also to this area of activity. As in other food areas, also in this area of activity there are substitute products which are manufactured by competitors, including products of other large manufacturers who have a division specializing in the professional market ("Tnuva", "Unilever", "Strauss" and others). In addition, the cooking and baking processes in restaurants, hotels, catering companies and institutions are performed in situ and the brand is not "exposed" to the diner and/or final customer. It is relatively easy to use alternative raw ingredients. This explains the importance of marketing high-quality, unique and readily available products of high-value to the chef and decision-maker.

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In the area of gift parcels, there are substitute products of competitors ("Strauss", "Leiman-Schlussel", "Carmit", "Sides" etc.). Also there are gift certificates and vouchers given to employees by workers' committees and by companies as a gift for a festival and they also constitute a substitute for gift packages. The Group provides a response to substitute products in the market by developing functional and unique products based on advanced technology, branding its products, maintaining a high quality service level, innovation and constant efficiency plans. With respect to chocolate snacks imported from Nestlé, the Group provides a response to existing substitute products on the market by branding its products and maintaining their high quality. G. Analysis of competition: structure, activity and recent changes In the professional market there is competition with large manufacturers who have a division specializing in the needs of the professional market and with wholesalers who supply basic raw materials for preparation of meals and with imports which are expanding. In the area of gift packages, the Group competes with many companies: gift package companies (such as "Strauss"); companies issuing gift certificates and vouchers used as gifts for holidays for employees. Furthermore, additional manufacturers and importers have entered the area of gift packages (wineries, importers of crockery etc.) also constitute competition. 9.2 Products A. The products of the Group in this area of activity include products of different areas of activity of the Group marketed, inter alia, under the corporate brand of "Osem", the brands "Tivall", "Bonjour" and "Tsabar", special brands for the professional market and under the umbrella brand of Nestlé. The gift packages are sold under the brand of "Assamim Gift Parcels" and the packages contain mainly products of the Osem Group and Nestlé (savory snacks, sweet bakery pastries, Nestlé chocolate snacks, instant coffee of Nestlé etc.) and products of other manufacturers (such as wine). The chocolate snacks imported from Nestlé and sold in the retail market are mainly sold under the brands of "Kit-Kat", "Crunch", "Smarties" and "Baci". In addition, the Group also distributes to customers in the professional market products of other manufacturers such as "Tapugan", "Milotal", "Of-Tov", "Dorot" and "Landwer".

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B. Part of the products in this area of activity are produced in the Group's factories in Israel and another part (mainly coffee and chocolate snacks) are imported from Nestlé or from approved factories of the high standard required by Nestlé. In addition, there are products in this area which are manufactured by subcontractors in Israel. In this area, the Group sells, markets and distributes its products in Israel. 9.3 Breakdown of Income and Product Profitability Below please see figures on the Group's income in this activity area. In this framework there is no group of products whose income rate represents 10% or more of the total income of the Company.

Similar Income in KNIS % of the Group total income products group 2014 2013 2012 2014 2013 2012 Professional 416,777 412,460 392,118 9.8% 9.8% 9.6% market and

gift packages

9.4 New Products In 2014 the Group launched on the market products whose development had been completed including, mainly, Bonjour products in the premium markets, Tivall products, premium pasta products intended for the professional market and new chocolate snacks imported from Nestlé ("Aero", "LionPopChoc", "KitKatPopChoc", "Fiorella" and 'Bubbles"). 9.5 Competition A. In the professional market there is competition with large manufacturers which have a division specializing in the professional market ("Tnuva", "Unilever" and "Strauss"), wholesalers who supply basic raw materials for preparation of meals and with an increase in imports which are expanding, mainly in the field of products based on simple technologies with an especially low entry barrier (pasta, couscous). In the area of gift packages, the Group competes with competing manufacturers and importers ("Strauss", "Leiman-Schlussel", "Carmit", "Shekadia" and

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"Sides") and with companies issuing gift certificates and vouchers used as gifts for holidays for employees. B. The Group's sales in this area of activity are mainly to the professional market which includes restaurants, cafes, hotels, catering companies, professional entities (such as old-age homes, hospitals etc.) and sales of gift packages to workers' committees, companies and institutions. Naturally, there is no follow-up of entities such as StoreNext or Nielsen on market shares in this area of activity. . The factors which influence or may influence, in the Group's estimation, the competitive standing of the Group are the level of professionalism and quality of service provided to the professional market, a high level of availability and the ability to find unique solutions for the needs of the professional market, such as a relevant basket of products, equipment, marketing support etc. 9.6 Seasonality In this area of activity the Group has a wide and balanced product range and this partially offsets the effect of seasonality. Sales of gift packages take place mainly in the period of holidays and are influenced by the timing of Passover and the holidays of the month of Tishrei. Below is a breakdown of income on a quarterly basis in thousands NIS: The Year 2014 The Year 2013

% of the total income % of the total income Income from the Income from the professional market professional market and gift packages and gift packages Income in Income in thousands NIS thousands NIS 1ST Quarter 106,780 25.6% 100,776 24.4% 2ND Quarter 99,647 23.9% 97,649 23.7% 3RD Quarter 102,727 24.6% 100,216 24.3% 4TH Quarter 107,623 25.8% 113,819 27.6% Total 416,777 100.0% 412,460 100.0%

9.7 Production Capacity Products for the professional market are manufactured in factories of other areas of activity (the culinary food area, bakery, beverages, snacks and

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breakfast cereals and others). Therefore the potential maximum production capacity and average utilization of production lines are included in the other areas of activities. 9.8 Fixed Assets and Facilities Below see a description of the main real estate and other material fixed assets of the Group, used in the area of activity of the professional market and gift packages. A. This area of activity does not have its own factories and the products sold to the professional market are manufactured on the sites of other areas of activities (culinary food area, bakery, beverages, snacks and breakfast cereals and others) B. By the end of 2014, packaging, preparing packages and storage of Assamim Gift Parcels were performed on the site leased by the Company in the industrial area of Or-Akiva with total premises of approx. 4,650m2. In January 2015, the Company transferred its activities to a new site leased by it in the industrial area of Caesarea with total premises of 2,445 m2. In its books, the Group depreciates the main machinery and equipment of its various factories relating to this area of activity for a period of 5-15 years. 9.9 Research & Development The Group uses among other things the Nestlé know-how and technology already developed. In addition, Osem develops a variety of products intended for the needs of the professional market, through its own technology teams. 9.10 Human Resources A. For the Group organizational chart and for further details on the Group's Human Resources, see paragraph 19 in this section, below. B. Below see a breakdown of the Group headcount for the professional market and gift packages area as at 31.12.14. Most of the workers are engaged in the field of sales and trade to the professional market, workers engaged in packaging gift packages and sales representatives in the area of gift packages. In this area there are no production workers and the production workers in other areas (the culinary food area, bakery, beverages, snacks and breakfast cereals and others) also manufacture

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products for the professional market but since most of their work is in other areas, they are registered in the headcount of those areas of activity.

Number of Number of Employees as at Employees as at 31.12.14 31.12.13

Management 9 8

Sales and marketing 87 87

Packaging workers 10 10

9.11 Suppliers and Raw Materials A. The main raw materials used by the Group for this area of activity are flour, oil, sugar, starch, vegetables, tomato concentrate, butter, chocolate ingredients and fillings B. The main packaging materials used for this segment are flexible packages, plastic and cardboard. In the area of gift packages there are sometimes packages with a design at the request of the customer. The packaging materials are purchased from different manufacturers, mainly in Israel and some from abroad. C. Some of the products in this area of activity are imported to Israel as finished goods. The main import is from Nestlé and it primarily includes the import of instant coffee and chocolate snacks. In addition, this area of activity includes purchase of finished products from suppliers in Israel. For additional details on the raw materials and suppliers the Company uses for the manufacturing of its products, see also description in paragraphs 7.11(D)-7.11(I) in this section above.

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10. The International Division Area

10.1 General Information on the Area of Activity A. Structure of activity area and recent changes The international division was established with the aim of emphasizing and strengthening the management focus and synergies of the international activity of the Group. This activity includes, as of the date of this report, Tivall Europe, Tribe USA, Osem USA, Osem UK, the export activity of the Group and future international opportunities. The area of the international division focuses on development, production and/or sales, marketing and distribution of products to markets abroad, mainly in Europe and the USA, as specified below: Europe – exports and sales to Europe are directed, inter alia, to the Jewish kosher market and to food chains in Europe. The main activity of the Group in Europe is in the field of frozen and chilled food, mainly products of the Tivall subsidiary based on meat analogues and vegetable-based food products. More than 75% of the sales turnover of vegetable-based food products of the Group is exported, mainly to Europe and distribution in Europe is conducted, inter alia, by the Tivall Europe subsidiary (mainly by independent distributors). The Tivall products have a relative advantage over products of competitors engaged in the manufacture and marketing of meat analogues abroad, both from the technological aspect and from the aspect of the taste, consistency and quality of the products. These advantages gave Tivall a leading position in some of the markets in Europe expressed also in its market share. Distribution in Europe is conducted by independent distributors and by a subsidiary of the Group, Osem UK which serves as the Group's distributor in England. In addition to products of the Group, Osem UK also distributes in England products of other Israeli manufacturers, of which the main ones are "Tiv Tirat Tzvi", "Of Hagalil" and "Tnuva Galil". Furthermore, Osem UK distributes various products of Nestlé to the large retail chains and the ethnic market in England. In 2014 products were mainly distributed under the brands "Caro", "Milo", "Nido" , "Maggi" ,"Rowntree's Cocoa" and "Polish Winiary". In 2009, Osem UK purchased the activity of the Yarden Company in England. Its main activity focused on distributing and marketing kosher

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products to the Jewish market in England (including frozen and chilled products). USA – in 2008 the Group decided to expand its activities in the USA and purchased the activities of the Tribe Company which operates in the USA in the field of chilled Mediterranean salads. Shortly afterwards, the Group also purchased the activities of the FoodTech Company which operated in the USA in the field of chilled meat analogues under the "Veggie Patch" brand (in 2010, it was merged into Tribe). Exports to the USA of food products distributed at room temperature are directed mainly to the Jewish kosher market and the professional market but also to food chains in the USA. Distribution of these products in the USA is conducted by the subsidiary, Osem USA, mainly by external distributors. In addition to products of the Group, Osem USA distributes in the USA, mainly to the kosher market, products of other Israeli manufacturers (mainly under the "Osem" brand) of which the main products include "Em Hahita", "Manamim", "Couscous Mazon" and "Kibbutz Einat". Moreover, Osem USA distributes products of non-Israeli manufacturers including coffee and drinking chocolate powder of Nestlé which are kosher for Passover. Recently, the Group expanded its activities in the USA to gluten-free products under the "Gratify" brand. B. Changes in the scope of activity and in profitability Global food consumer markets are characterized by a continuing trend of a move to convenience products and health and wellness products. This area of activity provides a response to both these trends mainly in the categories of meat analogues and salads. In the years 2007-2009, the Group has extended its activities in this area by acquisition of companies with products that have similar characteristics abroad (mainly in the USA) and by setting up a factory in Europe (in the Czech Republic). In addition to activities on the general market, the Group's products have a relative advantage in the Jewish kosher market in the world. Since this activity takes place abroad, the scope of the activity and profitability are influenced by changes in currency rates. In 2014, sales and the operating profit of this area grew, as specified in the results of the activity in the Board of Directors' Report included in this periodic report. C. Market developments in this area or changes in customer profile

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As described in the previous paragraph, the consumer food market worldwide is moving towards consumption of convenience, health and wellness, and fresh products. These tendencies reflect among other things the standard of living and product per capita. In addition to the above, there has been a global tendency towards shifting to ethnic Mediterranean food. This tendency combined with the fact that, according to the Group's estimate, the consumer perceives chilled products as more fresh, led the Group to a decision on expansion abroad in the areas the Group has a relative advantage and this is to be accomplished by acquiring the Tribe Company which is in the business of Mediterranean salads in the US and by the acquisition of Food Tech which is in the business of chilled meat analogue products under the "Veggie Patch" brand (and which was merged into Tribe). In the framework of the world health and wellness trend, a trend is developing mainly in the USA of an increase in consumption of gluten-free products. The Group provides a response to this trend by developing and selling gluten-free products mainly under the "Gratify" brand. D. Key Success Factors in this Area of activity and changes to them Key success factors in this area of activity include both the strength of the brands the Group offers and the quality of its products. They also include the unique know-how developed in the Group, in relation to the products of this activity area. This is in addition to the know-how, technology and brands the Group receives from Nestlé. Other key success factors are the ability to become acquainted with and fit into global markets abroad based on an understanding of the needs and culture of customers overseas and in addition to the need to create a competitive advantage by constant efficiency plans. In the Group's estimation, the branding of the Group's products, the quality of its product and their flavors and the innovation are all additional key success factors of this area of activity which may create a relative advantage and preference over competitors abroad. This is in addition to the creation of a relative advantage in the Jewish kosher market in the case of kosher products. E. Main entry barriers in this area of activity and changes to them The main entry barriers for frozen and chilled products include the need to invest heavily in production infrastructure and in freeze storage rooms whose cost is high, and also the need for the technology and know-how

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required to attain the high quality standard of the products. To these entry barriers should be added the need to invest in brand building. Another barrier is the need to develop a technical ability and a handling ability with the freshness issue in the supply chain while keeping a strict surveillance of the cooling chain. In the case of products sold to the Jewish kosher market, the kashrut constitutes an entry barrier. F. Substitute products in this area of activity and changes to them Since international activities take place all over the world, there are innumerable substitutes of competing manufacturers worldwide. The Group provides a response to existing substitutes in the USA and in Europe by branding its products and maintaining their quality and by continuing to make innovations. G. Analysis of competition: structure, activity and recent changes In this activity area of the Group, competition is mainly with the large local food manufacturers worldwide in connection with sales overseas to the general market. In the case of products intended for the kosher market, the Group competes with Israeli manufacturers who export their products. For further details see paragraph 10.5 below. 10.2 Products The main products in this area of activity include export of products of the Group distributed at room temperature (products in the culinary food area and the area of bakery, beverages, snacks and breakfast cereals), frozen and chilled meat analogues including schnitzels, hamburgers, sausages etc. based on soya and vegetable-based products which are marketed among other things under the brand of "Garden Gourmet" (Europe) and "Halsans Kok" (Sweden) and under the "Veggie Patch" brand (USA); In the area of chilled food, the products include salads of Sabra Salads (hummus, tehina, eggplant, etc.), which are exported to Europe and the salads of the subsidiary Tribe operating in the USA. In addition, the products include products of Nestle distributed by the subsidiary Osem UK to the ethnic market in England including the brands "Caro", "Milo", "Nido" ,"Maggi" , "Rowntree's Cocoa" and "Polish Winiary". 10.3 Breakdown of Income and Product Profitability Below please see figures on the Group's income in this activity area. In this framework there is no group of products whose income rate represents 10% or more from the total income of the Company: 45

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Similar products Income in KNIS % of the Group total group income 2014 2013 2012 2014 2013 2012 International 672,032 629,847 668,546 15.8% 15.0% 16.3% Division

10.4 New Products In the year 2014, the Group launched to the market new products whose development had been completed and which included, among other, products without albumin for the American and European markets, couscous burgers for the European market and new hummus salads of Tribe in the USA. In addition, the Group expanded its activities and products in the area of gluten-free products under the "Gratify" brand. 10.5 Competition A. Since international activities take place all over the world, there is broad and widespread competition. The subsidiary Tribe which operates in the USA in the field of chilled Mediterranean salads competes in the USA with the "Sabra" Company (owned by the Strauss Group and Pepsico) and with the "Cedars" Company and "Kraft". In the area of meat analogues, the main players are "Kellog's" and "Kraft" in the USA and "Quorn" in Europe. In operations in the kosher market the Group competes with Israeli manufacturers which export their products. B. The table below shows the Group’s market shares (based on monetary value), for the year 2014, referring to key products in this area:

Product Group Weighted Market Share in %

Vegetable-based food - Holland 38%

Vegetable-based food- Sweden 41%

Vegetable-based food - Italy 70%

Salads in the US 7%

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C. Among the factors which in the Group's estimate affect its competitive position are the worldwide recession, changes in currency rates and the increasing competition. The Group defends its position in the market by marketing, building and maintaining its brands, by innovation, new product development and launch, and by the strategic alliance the Group has with the world leading food company – Nestlé Within the framework of this strategic alliance, the Group invests efforts and resources in adopting technologies, which among other things, were developed by Nestlé and this is in order to differentiate its products from the competition - by their high technological level and by their high quality standards. The Group also strives to provide good, reliable, loyal, timely and high quality service. 10.6 Seasonality In line with the data detailed below no significant seasonal effect can be detected in the international activities. However, the income volumes in this area are affected, among other things, by the timing of Jewish holidays (export to the kosher market) and national bank holidays abroad. Below see a breakdown of the income, split by quarters (in KNIS):

The Year 2014 The Year 2013

% of the total % of the total income of the area income of the area Income in Income in thousands NIS thousands NIS 1ST Quarter 173,897 25.9% 171,276 27.2% 2ND Quarter 160,040 23.8% 150,931 24.0% 3RD Quarter 162,690 24.2% 156,672 24.9% 4TH Quarter 175,405 26.1% 150,968 24.0% Total 672,032 100.0% 629,847 100.0%

10.7 Production Capacity The Group's maximum production capacity potential in this area of activity, during the year 2014, utilizing 3 shifts, was about 28,000 tons. Average utilization rate for actual average production in the year 2014, with the production lines active in one to three shifts per day, was about 58%. Most of the production lines in the Group factories are automated or semi- automated, but there are some manual lines. 47

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The management structure of the Group is the matrix structure of overlapping systems of components (in this case the production facilities). Some of the products for the international division are manufactured in factories of other areas of activities (the culinary food and bakeries, beverages, snacks and breakfast cereals areas). Therefore, the maximum potential production capacity, as well as the average utilization of production lines, are included in other areas of activities for these products. 10.8 Fixed Assets and Facilities Below see a description of the main real estate and other material fixed assets of the Group used in the frozen food area of activity. A. The Group's factories in Israel – the Group's factories in Israel include the Sderot factory, the Yokneam factory, the Holon factory, the Beit Hashita factory, the factory in Lohamei Hagetaot Kibbutz and the Tsabar factory in Kiryat Gat also produce products for the international division for exports. For details on the factories see paragraphs 7.8 and 8.8 of this report. B.The factory in the Czech Republic – A factory which is used for manufacturing products based on meat analogues and products based on vegetables whose construction was completed in April 2007 The factory is located on a plot of 42 dunams, which is owned by Tivall and its built- up area occupies a space of about 9,100 m2. C.The salad factory of Tribe in Taunton, Massachusettes (USA) -a factory used for manufacturing salads, which was established in 2005 in Taunton near Boston, US. The factory was acquired in September 2008 by the Group as part of the acquisition of Tribe Company which operates in the salads area in the US. The factory is located a plot of land of about 38,000 m2 owned by the Company and its built area comprises about 5,800 m2. In its books, the Group depreciates the main machinery and equipment of its various factories relating to this area of activity for a period of 5-15 years. 10.9 Research & Development In order to develop markets and sales abroad, the Group is continually engaged in research and development of new technologies and new products, in order to gain a relative advantage over its international competitors in product quality, in the texture and flavor of the products, mainly products based on meat analogues and on vegetables, salads and room-temperature products.

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10.10 Human Resources A. For the Group organizational chart and for further information on the Group’s entire Human Resources, see paragraph 19 in this section, below. B. Below see a breakdown of the Group headcount for the area of Prepared Food area as at 31.12.14. Production workers in factories of other areas of activities who manufacture products also intended for export are included in the headcount of the other areas. Production workers, sales and marketing employees are employed by the Group abroad. Management employees include employees abroad and members of the headquarters of the international division in Israel.

Number of Number of Employees as at Employees as at 31.12.14 31.12.13

Production workers 237 203

Administrative & Management 32 24

Sales and marketing 87 92

10.11 Suppliers and Raw Materials A. The main raw materials used by the Group in this area of activity are albumin, oil, flour, tehina, hummus, vegetables, soya, flavorings and starch. The albumin is purchased from different European and American sources. B. The main packaging materials used for this area of activity are flexible packages, cardboard, metal packaging and plastic packaging purchased from different manufacturers, from the local market where the factory is located. C. The availability of the raw materials which are purchased outside the local market where the factory is located depends among other things on the regularity of the air and maritime freight and in the regular operation of the local ports. D. In addition, this area of activity includes finished products from suppliers from Israel and abroad including Nestlé.

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For further details on the raw materials and suppliers the Group uses for the manufacturing of its products, see also details as described in paragraphs 7.11(E)-7.11(I) in this section-, above.

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11. Infant Nutrition Area

11.1 General Information on the Area of Activity A. Structure of Category and Recent Changes In September 2008 an agreement was signed and on 31 December 2009 a transaction was completed for the purchase by 51% of the fixed assets, goodwill and working capital of the infant nutrition activities of Maabarot centered under the "Materna" brand in consideration for the sum of NIS 163.6 million. In the framework of the transaction, Osem and Maabarot set up a partnership in which Osem holds 51% of the rights and Osem and Maabarot made available to the partnership the said fixed assets, goodwill and working capital. At the same time, Nestlé purchased from Maabarot 51% of the know-how and brands of Materna in consideration for the sum of NIS 105 million and the partnership was granted a license to the know-how and brands of Materna and Nestlé in consideration for payment of royalties. In addition, call and put options were granted as part of the transaction enabling Osem to reach a holding of 100% of the partnership in the future, as specified in paragraph 26.1 below. The Group's activity the infant nutrition area is carried out through Materna Industries Limited Partnership (hereinafter: "Materna" or "Materna Partnership"), in which the Group holds, as at the date of this report, 51% of the rights in the company (and Materna Laboratories holds the remaining 49% of the remaining rights). The Group's activity which is carried out as mentioned above through the Materna Partnership focuses on the development, manufacturing, marketing and sales of infant nutrition food products (infant formulas, baby cereals, purees, biscuits and pastas for toddlers), under the "Materna" brand. Until 2012, the purees were sold under the "Gerber" brand and during that year a brand unification/merger was completed and the marketing of the purees under the "Materna" brand began. In addition to the products that are sold under "Materna", in this framework, the Materna Partnership also manufactures and sells products which serve as raw materials for the food industry. These raw materials include mainly soup whiteners, creamers and coffee whiteners. This activity area involves, inter alia, the supply of infant formula by suppliers for feeding new born babies in hospitals.

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During 2013, The Antitrust General Director (hereinafter: "the Director") approached Materna and the other breast-milk substitute providers in the market, and notified them that he considers declaring them together as a Concentration Group in the marketing and selling of infant food formulas and to instruct them what measures they should take. During the hearing of the positions of the Breast-Milk Substitute providers (hereinafter: "BMS"), the Director started a dialogue with their representatives in order to examine a possibility for ing an agreed outline which will apply on contracts made by the BMS providers with the hospitals. This dialogue brought about an agreement between the Director, Materna and the other BMS providers and became a consensual order (hereinafter: "the Consensual Order") which was approved on 20 February 2014 by the Antitrust Tribunal. This consensual order establishes a number of conditions for payment to the hospital for the right to provide BMS to the hospital, which in essence are as follows – the Hospital will allow any provider to provide BMS under equal conditions and will offer the newborn's parent a choice between the products provided by the BMS vendors, which will so desire, without any priority given; the payment will be determined by the hospital as a function of the degree of usage and according to a price for each newborn, a price which will be limited to a maximum amount and based on the number of newborns that consumed the BMS which was provided by this provider and this – in a relative manner out of the total of all the newborns in the hospital who consumed BMS out of the total BMS providers during the relevant period. In addition, the Order stipulates the conditions for supplying BMS to the hospital without payment for the right to provide BMS to hospitals, primarily providing a choice between at least two BMS providers and in the absence of a choice as aforesaid, the provider must charge the hospital a minimum consideration for the supply of BMS. On 20 February 2014 as stated above, the Antitrust Tribunal approved this consensual order and the Group acts in compliance with the provisions thereof. At this stage, the Group cannot estimate how the provisions of the Order will affect the competitiveness in the market and on the results of the Company's activity. B. Changes in the scope of activity and in profitability In 2014, this activity area still continued to be affected by the increase in competition as a result of an additional player which entered at the end

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of 2011, (TEVA Group which imports breast-milk substitutes of Nutricia of the Danone Group sold under the brand "Nutrilon") and as a result of the launch of breast milk substitute series with strict kashrut supervision by "Similac" during 2011. Despite the above, Materna kept its position in the market and the scope of its sales. In addition, this area is affected among other things by both birth rate and breast feeding rate. The scope of sales and the operating profit of this area in 2014 are as detailed in the Results of Activities section of the Board of Directors Report which is included in this periodic report. C. Market developments in this area or changes in customer profile This activity area is based on the need to establish credibility and quality over a period of time and win the consumer's trust. The Group copes with this issue by maintaining a high product quality and by using the know-how and the brands of Nestlé which is, among other things, the world leading company in Infant Nutrition. D. Key Success Factors in this Area of activity and changes to them Key success factors affecting the Group success in this area of activity are based on strengthening the "Materna" brand and maintaining its position as the leading brand in Israel, in the Infant Nutrition area. This is achieved, among other things, by brand building activities and by maintaining high product quality. Another Key Success Factor is the product development and innovation level. The Company utilizes the know-how of Nestlé, which is the world leading company in Infant Nutrition. Another critical success factor is expressed by maintaining the Company's competitive edge and by constant streamlining efforts. E. Main entry barriers in this area of activity and recent changes Main market entry barriers include the constant need for innovation and new product development, the need to build and maintain strong brands, the need for the necessary technology and knowledge for production, and the need to invest in equipment and machinery. The need to establish credibility and product quality over time and to win the consumer's trust also creates a barrier, and in addition to this, the required kosher certification is sometimes a barrier especially when imported goods are concerned. The fact that infant formula is a sensitive product which is deemed a para-medical product also constitutes an entry barrier. F. Substitute products in this area of activity and changes to them

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Every mother can choose to breast feed her baby and the Group regards breast feeding as the preferred option. In addition, the food industry on the whole is a mature and competitive industry and these features apply also to this area of activity. As in other food sectors, there are also substitute products in this area of activity, manufactured by competitors and imported. In this area, the Group provides a response to these substitute products by maintaining a high level of quality and innovation which are among other things the result of Nestlé being the largest infant nutrition company in the world, a company which is positioned at the forefront as leading in innovation and technology in this area. The Group also responds to substitute products by product branding. G. Analysis of competition: structure, activity and recent changes In this area of activity, the market is competitive and competition comes from imported goods. The Group mainly competes with "Similac" of the Abbott Group. In November 2011, TEVA Company started to import and sell breast-milk substitutes manufactured by Nutricia (of the "Danone" Group). These products are sold under the brand "Nutrilon". In addition, at the end of 2013, the Medici Medical Company discontinued the marketing of "Optimil". For details on Materna's competitive position see paragraph 11.5 in this section, below. 11.2 Products The principal products of the Group in this area of activity are marketed mainly under the corporate brand "Materna". They include infant nutrition/baby food products - infant formulas, instant cereals, biscuits and pastas for toddlers. Until 2012, the baby purees were marketed under the "Gerber" brand and during that year, the Group started marketing the purees under the "Materna" brand. A large part of the Group’s products in this category are manufactured in the Group factory in Israel and some (mainly the purees and biscuits) are imported from Nestlé. The Group sells, markets and distributes its products mainly in Israel. In addition, under this segment, the Materna Partnership manufactures and sells products used as raw materials in the food industry. These raw materials include mainly, soup whiteners/creamers, whip creams, and coffee whiteners. 11.3 Breakdown of Income and Product Profitability

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Below see figures on the Group's income in this activity area. In this framework there is no group of products whose income rate represents 10% or more of the total income of the Company.

Similar products Income in KNIS % of the Group total group income 2014 2013 2012 2014 2013 2012 Infant Nutrition 358,480 358,644 355,058 8.4% 8.6% 8.7% Area

11.4 New Products After the launch in 2013 of Materna Extra Care Comfort, a breast-milk substitute which contains a unique probiotic ingredient to relieve indigestion starting from birth, the product was launched in 2014 in a bigger package. In addition, Materna cereals were enriched with a probiotic ingredient, proved by research to strengthen the baby's natural protection. Furthermore, Materna fruit purees with added whole cereals were launched. 11.5 Competition A. Materna Partnership's key competitor in the breast milk substitute market in Israel is "Promedico Ltd." ("Similac" distributor). B. Materna's relative advantage over its competitors stems among other reasons from the trust the public places in the "Materna" brand and also from the fact that the Materna Partnership is the only local manufacturer of milk substitutes, compared to its competitors which import the products. Local manufacturing gives Materna a relative advantage due to the strict kosher certification (the BADATZ certification of the ultra- orthodox community in Jerusalem) compared to the competitors which import these products. Materna Partnership copes with the competition by maintaining a very high quality standard in its products, by operating a marketing network which includes, among other things, representatives who liaise between the company and the professional parties; the Partnership also operates a customer call center which responds to the customer needs; the Partnership also works with the different media channels. In addition to the above, the Partnership runs the "Materna Institute" for the advancement of infant nutrition research in Israel. C. To the best of the knowledge of the Company, the "Medici Medical" Company which started marketing breast-milk substitutes under the 55

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"Optimil" brand in 2007 discontinued its activity in this area at the end of 2013. D. In November 2011, an additional competitor joined the arena : TEVA started to import and sell breast-milk substitutes manufactured by Nutricia (of the "Danone" Group). These products are sold under the brand "Nutrilon". E. The table below shows the Group’s quantitative market shares in Israel, for the year 2014, referring to key products in Infant Nutrition. The table is based on weighted data derived from Store Next's data in the bar- coded retail market (which are calculated as detailed in paragraph 7.5(B) in this section, above), and also an estimate regarding the activity in Super pharm/dispensing chemist chains which play an important role in this area. Product Group Weighted Market Share

Breast-milk substitutes 55%

Baby cereals 70%

Purees 44%

11.6 Seasonality Given the figures listed below, a seasonal trend cannot be detected in the Infant Nutrition area. Below see a breakdown of the income, split by quarters (in KNIS): The Year 2014 The Year 2013

% of the total % of the total income income Income in The Infant Income in The Infant thousands NIS Nutrition Area thousands NIS Nutrition Area 1ST Quarter 91,054 25.4% 83,173 23.2% 2ND Quarter 75,997 21.2% 80,794 22.5% 3RD Quarter 93,944 26.2% 92,114 25.7% 4TH Quarter 97,485 27.2% 102,563 28.6% Total 358,480 100.0% 358,644 100.0%

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11.7 Production Capacity The maximum production capacity in this area of activity, during 2014, when the production lines are operated by three work shifts, was about 8,270 tons and actual production capacity in 2014 was about 66% when the lines are operated by one to three work shifts per day. The material factor in determining the production capacity of products which are manufactured by the spray dry method is the evaporation capacity of the spray dry facility in relation to the concentration of the dried solution. 11.8 Fixed Assets and Facilities Below see a description of the main real estate and other material fixed assets of the Group, which are used in the Infant Nutrition area. Materna Factory – located in Kibbutz Maabarot and the partnership leases the real estate of the factory from Kibbutz Maabarot in a leasing contract for a period of 15 years, which will end on 31.12.2024. The factory is located in Emek Hefer (The Hefer Valley) and the dedicated buildings which serve Materna factory for the manufacture of infant nutrition occupy a space of about 9,900 m2. In addition, Materna Partnership pays usage fees for its relative portion in the shared buildings (offices, laboratories, etc). In its books, the Group depreciates the main machinery and equipment of its various factories relating to this area of activity for a period of 5-15 years. 11.9 Research & Development The Materna Partnership invests efforts in the improvement of its products based on the annual plans of its R&D and Marketing Departments and also keeps constant contact with the medical community in Israel on matters related to infant nutrition. It also liaises with pediatricians and well-baby clinics in order to obtain feedback on the quality of its baby food products and on possible ways for improvement and development. The Partnership also has access to the studies and developments made by Nestlé (which is the largest infant nutrition world company) in this area. 11.10 Human Resources A. For the Group organizational chart and for further details on the Group's Human Resources, see paragraph 19 in this section, below. B. Below please see a breakdown of the Group headcount for the area of Infant Nutrition as at 31.12.14, which includes Production, Sales, Marketing, 57

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Management but most of numbers specified below do not include the sales and commerce people who are recorded under The Commerce company of the Group, which provides distribution, sales, logistics and trade services for the majority of the Group segments.

Number of Number of Employees as at Employees as at 31.12.14 31.12.13

Production 75 77

Administration/Management 10 10

Sales and marketing 37 40

11.11 Suppliers and Raw Materials A. The main raw materials used for the manufacture of infant nutrition are skim milk powder, Lactose, a composition of vegetable oils which includes the required amino-acids corresponding to the mother's milk, whey protein concentrate, vitamins and minerals. Most of the above mentioned raw materials are imported among other countries, from Holland, Denmark, USA, and Germany and the imported quantities from the different countries specified above vary from time to time. Some of these raw materials are shelf products and some are manufactured especially for the Materna Partnership based on its ad-hoc orders. B. According to an agreement which was signed in April 1995 with Martek Biosciences Corp (hereinafter: "Martek") Maabarot Products received a non-exclusive and non-transferrable license to sell Materna products in Israel which include the ingredient bought from Martek and called LC Pufa. In 2011, DSM acquired Martek. In November 2012, Materna joined the agreement which was signed between Nestlé and DSM Nutritional Products (hereinafter: "DNP"; of DSM Group) according to which Nestlé and the Nestlé affiliate companies will buy LC Pufa from DNP at the terms specified in the agreement. C. Except for the above mentioned agreement with DNP, Materna has no framework agreements for long-term contracting with raw materials suppliers. In the Company's estimate, there is no dependency between 58

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Materna and suppliers so that if a supplier is removed from the supplier list it will not cause Materna any material additional cost resulting from the need to move to an alternative a supplier. This is because in most cases Materna has a policy of purchasing its raw materials from several sources in order to prevent dependency on a single supplier. D. The Materna Partnership has an infant formula product line under strict BADATZ kosher supervision designated for the ultra-orthodox sector. Three ingredients of the infant formulas, as stated above, are manufactured by two specific suppliers. If these ingredients are not supplied, the strict BADATZ certification will become a standard kosher certification. E. Infant formulas which are manufactured by Materna are packaged in a specially designed package. Replacing the supplier of this packaging may take a period of several months.

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12. Other activities

The Group has other activities which are not included in those described above and do not qualify according to the quantitative criterion to be presented in the financial statements as reportable operating segments. Therefore they have been included in the Company financial statements as at 31.12.2014 under the segment of "Others". These activities include: 12.1 Ice cream The principal products of the Group in this framework include ice cream marketed under the "Nestlé Ice Cream" brand, which include, among other things, ice cream and ice cream lollies under the "NoK OuT", "Extreme", "Crunch" brands, and others; they also include take home bulk packages under "La Cremeria" "Smarties", "KitKat" and Crunch" brands, "Joya" premium packages, ice cream lollies multipacks of different kinds, and fat- reduced ice cream sandwiches under the "Skinny Cow" brand. There is a tough competition between the large local food manufacturers and also medium to small scale manufacturers including ice cream shops. The Group's main competitor is Unilever's "Strauss Ice Cream". The Group market share (in monetary values) in 2014, in Ice Cream was 38% and was determined based on a weighted annual average derived from Store Next's data collected from the bar-coded retail market. The factory used for the manufacture of ice cream and is located in Beer Tuvia Industrial Zone. The factory is located on a plot of land of about 38 dunams (about 0.75 acre) and its built area comprises about 12,000 m2. The Group leases the property through a long-term lease agreement which will end in February 2024 (although there is a possibility of early termination of the lease of the property). Due to expansion and growth of the ice cream activities of the Group in recent years, the Group is examining the establishment and transfer to a new and larger factory. The Group is continually engaged in research and development of new technologies and new products, in order to gain a relative advantage over its local and international competitors in the quality, the texture and the flavor of its ice cream products. The research and development, technology and product innovation in the ice cream product category are carried out by extensively using Nestlé's know-how and technology.

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12.2 Bonjour The main products of the Group in this area include frozen bakery products of Bonjour baked at the point of sale which provide customers with freshly baked bakery products straight from the oven. There is heavy competition in this area and the main competitors of the Group are "Pillsbury" and "Gidron". The market share of Bonjour in 2014 in monetary terms is estimated at approx. 23%. The Bonjour factory located at Kiryat Gat was established in 2006 and is owned by the Group. The factory is situated on a plot of land of approx. 22 dunam with a built area of approx. 8,800m2. 12.3 Purchased Products The Group has distribution agreements according to which the Group distributes products of other manufacturers in Israel, provided that these products do not compete with those of the Group. For this activity, the Group uses the existing infrastructures of the warehouses and the distribution center and uses the distribution and commerce network of the Group. The main distribution agreements are with Tapugan, Of-Tov, Milotal, Dorot, Landwer and Barbari. 12.4 Pet Food Division The Group is active in importing, marketing and distributing in Israel pet food products which are manufactured by Nestlé. The products are imported primarily under the "Purina", "Pro-Plan", "Friskies", "Dogli", and "Fancy Feast" brands. The sales and distribution are done via the distribution and commerce networks of Osem Group, except for the sales and distribution to specialized pet food stores where the sales and distribution are done via third party distributor. 12.5 Iced Tea (under Nestea brand) The Group is active in the import, marketing and distribution of iced tea under the Nestea brand. The Nestea brand is a registered brand owned by Nestlé (Osem's parent company). The Nestea iced tea products are manufactured by San Pellegrino company in Italy (which is also a subsidiary company of Nestlé). These products are the only one of their kind in Israel to contain natural spring water (from the San Pellegrino springs). The average market share in monetary terms in 2014 amounted to 19%.

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Section 4: Information Regarding the Group's General Activity

13. Customers

A. General - the Company has a wide range of customers in Israel comprising thousands of customers and more than 10,000 point of sales which in 2014 were divided into the Modern Market customers (the big grocery retail chains), the Private chain Market customers, the Traditional market customers (such as grocery stores and mini markets) as well as the Food Service customers (such as catering companies, restaurants, hotels, professional entities, and medium to large organizations). The Group maintains long-terms trade relations with its customers resulting in loyalty of these customers to the Group’s products due to the product branding, their quality and the service level. B. Customer characteristics - The Group has a broad range of customers, which in 2014 included the Modern/Organized Market comprising the large grocery retail chains ("Shufersal", "Mega Retailing") and also the "Superpharm" chain; the Large Private Chains which include the large private retail chains ("Rami Levy", "Yeynot Bitan", "Kimat Hinam", "Hazi Hinam", "Osher Ad", "Tiv-Ta'am", and other private large chains). The Traditional Market customers comprising the local supermarkets and minimarkets, grocery stores and kiosks; and the Food Service customers comprising hotels, restaurants, and other professional entities. In the years 2010 and 2012, respectively, the Company reached agreements with Shufersal Chain and Mega Retailing whereby the merchandising activity /service for the Group's products was transferred to the Chain and became its responsibility. The transfer of the merchandising activity to the chain had no significant financial bearing on the Group. The one-time costs of the transfer which included the number of merchandizers that quit their job in the Company (some of whom were hired by the chains) were not material. For further details of restrictions imposed by the Food Law on the continuation of arranging products on shelves by the Company – see paragraph 6.4 of this section. In addition, the Group has a variety of overseas customers comprising large retail chains such as "Tesco", "Sainsbury's", "Waitrose", "Asda", "WM Morrison", "Albert Heijn", "Ika", "Edeka", "Stop & Shop", "C&S",

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"Delhaize", "Walmart", "Costco", Kroger, Safeway and others. To some of these customers, the Group’s sales are under a private label. The table below shows the distribution of the Group's sales to customers according to the trade channel in 2014:

Organized Market customers 23% Private Chains Market customers 22% Traditional Market customers 31% Food Service customers 8% Overseas customers 16%

In the Organized Market segment, the Group has one retail customer which accounts for more than 10% of the total consolidated sales in 2014 which are reported in the Consolidated Profit & Loss Statement, as specified in Note 22(A)3 to the financial statements included in this Periodic Report. The Group has trade agreements with the large retail chains, including Shufersal and Mega Retailing which are usually set for the calendar year and which refer, inter alia, to commercial agreements, commercial discounts, varying discounts etc. Within the framework of the contracts existing between the Group and the retail chains, as mentioned above a different credit terms have been set. Although each one of these customers is a major customer whose loss may lead to a reduction of sales and profit, the Company has no dependency on these customers. C. On 15 January 2015 the Food Law which regulates the relationships between manufacturers and retailers came into effect. In 2014 changes were made in the trade system by the Company to adjust to the Food Law. For further details on the Food Law see paragraph in this section 6.4 above. D. In order to adjust to the changing market conditions and in the framework of the implementation of advanced and specialized sales strategies, as of January 2015, a new organizational structure was introduced to the Osem Trade Group based on improvement of service to customers of the Company (focus, understanding and professional specialization in the customer). As part of the change, there was an internal move from three to four markets in the retail market: the 63

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organized market, private chains market, supermarkets and the private market.

14. Distribution and Marketing

A. As a rule, the Group markets and distributes its products independently in Israel, although for some of its customers in the Frozen, the Chilled and the Impulse food area and for some of its pet food customers, distribution is carried out via third party distributors. The Group has full control over its distribution and marketing networks in Israel and it can deliver its products to every supermarket, grocery store or kiosk across the country, with peripheral areas included. In the West Bank area and in Gaza Strip, the group uses local distributors. The different distribution and commerce networks of Ambient, Frozen (except for the ice cream products, as described below) and Chilled food have been combined and unified to one sales system – Osem Group Commerce, in a way that enables the Company to operate advanced and specialized sales strategies. These in turn result in improved service to the Company customers, improvement in sales and logistics operation and further increased flexibility to market needs and its ability to provide a variety of professional solutions. The ice cream products are distributed separately via an independent and separate network. For the purpose of distribution activity, the Group established a national distribution and logistics center and a transportation facility for distribution by a fleet of trucks of all the Group products (Ambient/food at room temperature, Chilled and Frozen), which contributes to the Group’s operational efficiency, as detailed in paragraph 16(B) in this section. B. Overseas, ambient food products are marketed and distributed by the Group's two fully controlled subsidiary companies – Osem UK which is responsible for the marketing and distribution in England and Osem USA. The distribution of Tivall's products in Europe is carried out, among other things, by independent distributors of Tivall Europe which is based in Holland. In 2009, Osem UK acquired the "Yarden" activity in England, which focused mainly on the distribution and marketing of kosher products to the Jewish market in England (including frozen and chilled products). Additionally, the Tribe Company, a manufacturer of Mediterranean salads and meat analogues, which operates in the US, has a management sales system that distributes its products via distributors. 64

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C. The Group supports it leading brands using marketing and marcom channels according to the strategic targets the Group management sets for each of the activity areas and brands. The Company, in cooperation with advertising agencies, operates through various marketing and sales promotion channels. The chief ones being: Media advertising – the Company advertises its products in media addressed to the general public, including TV advertising in the commercial channels, radio, internet, billboard advertising, cinema, newspapers and professional magazines. The volume of advertising done by the company is directed to television. The Group uses Nestlé's marketing know-how in the various categories in which Nestlé is active, including the possibility of using Nestlé's own productions and advertising clips. Sales promotion – the Company runs sales promotion activities in the field, such as product tasting in points of sale, distribution of samples, events, sales campaigns, and other means. The Group has a dedicated department (CCSD) handling the meeting point between the Group and the buyer who comes to the point of purchase and the retailers. The CCSD department is responsible for executing the campaigns and sales promotion initiatives in line with the Group's marketing plans. The department is responsible for communicating the activities to the retailers by publishing a monthly magazine which shows the product launch, marketing activities, sales promotion and visibility devices to be used at the point of purchase. Consumer Call Center – the Group runs a customer and consumer call center in a telephone operated center located in Kiryat Malachi. The center enables direct contact with customers and consumers, providing answers and solving specific problems of the end-consumer. Market research – the Group performs market research and surveys in order to examine market trends and consumer characteristics in the categories it operates in. These provide the Group with marketing insights and help in formulating marketing plans whose purpose is to increase sales, build and strengthen the Group's brands. The market studies and surveys include among other, Store Next, Nielsen, off the shelf surveys, specific studies and surveys. In addition, the Group uses Nestlé's know how and global market research which examine trends and characteristics in different product categories, aiming to get insights on future trends for the Israeli market. Marketing to the professional sector – Osem Group publishes magazines and articles to professional target audience which deal with health and nutrition. The Group also publishes articles and offers sessions for the 65

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general public on nutrition, conducted by the Group's nutrition team. In Infant Nutrition, the Group also targets professionals such as hospital doctors and nurses. Workshops for the Nestlé Professional customers - the Osem Nestlé Professional academy offer a variety of workshops to the customer of this market (hotels, restaurants and professional entities), which are given by professional chefs and highly experienced experts with worldwide reputation. The advertising and sales promotion expenses of the Group are detailed in Note 22(C) to the financial statements which are included in this report.

15. Order Backlog

As is the practice in this sector of operation, with the exception of a number of export customers, sales from stock are done via single specific orders. Accordingly, the Group has not accumulated a significant order backlog.

16. Fixed Assets and Facilities

Distribution Centers, Logistics and Loading, and Head Office A. The Company Head Office and Headquarters The Group management and headquarters are located at offices (which were purchased under perpetual lease), in the Modiin industrial zone, next to Shoham and which are adjacent to the logistical center of the Group. The office building area is about 13,000m2. B. National Distribution and Logistics Centre A national distribution and logistics center for all the Group products (Food at room temperature, Chilled and Frozen), which was acquired under perpetual lease is located on a plot of more than 100 dunams (about 24.7 acres) in the industrial zone of Modiin area, next to Shoham, at an investment of about USD 100 million (which included also the construction of the offices). The establishment of the DC whose constructed area covers about 40,000m2, has contributed to the Group’s operational efficiency by combining the various DCs, which in the past were located in different sites, and merging them to one central center, and by its strategic location in the midst of the country, next to Israel Cross Country Highway (Toll Road 66

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6) and near populated areas. The DC is based on a new state of the art technology and on computer-based systems, combining automatic storage and RF radio control systems. Its warehouses operate at a capacity of about 90% most days of the year. But a possible expansion was taken into account during the planning stage. In addition to the national logistics center, there are main loading sites still in use which include the warehouse in Ramat-Hashofet (catering for products at room temperature in the northern area), the Miluot Industrial zone (catering for frozen and chilled products in the Northern area), Beer Sheva (for the Southern area), and Eilat. These sites are leased, except for the Beer Sheva site, which is under a capitalized perpetual lease and on it the Company building is located. The Group's factories For details on the Group factories which are used by the Group in Israel and abroad for the manufacturing of its products, see paragraphs 7.8(A)-(E), 8.8 (A)-(D), 9.8(A)-(B), 10.8(A)-(C), 11.8, 12.1 and 12.2 in this section above.

17. Research & Development

The Group regards intensive new product development and launch as highly important, and this in order to maintain its market shares and increase them even more, as well as keep the relative advantage inherent in its product quality. New product development is carried out in laboratories that are regularly run by the Technology Department which employs technologists, engineers and chemists. The Group does not usually record its R&D costs separately, and they are not considered material costs. In addition, the Group does not develop specific products tailored to the needs of specific customers, at the customers’ funding. As the Group is party to agreements with the parent company Nestlé – the largest food company in the world - relating to the use of Nestlé know how and intellectual property , the Group benefits from the fruits of Nestlé's investment in the research and development of these products. For further details, see Regulation 22 of the section on "Additional Details on the Corporation" included in this periodic report. To the best knowledge of the Group, Nestlé invests over USD 1.5 billion annually in new product development which is carried out in more than 30 worldwide R&D centers. In 2002, Nestlé established in Israel, in Sderot, and adjacently to the Group factory, its world Snack Research & Development Centre. The Group utilizes the

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know-how and technology that were developed in this Centre and also uses the actual products that have been developed or will be developed. In addition, the Osem Group received development grants from the Chief Scientist at amounts which are not material.

18. Intangible Assets

A. Know-how. The Group's intellectual property includes the full know-how of the business, commercial and professional knowledge that has been used and is being used by the Group for its activities - including the production and marketing know-how, in which are included product formulas, specific use of raw materials, their sourcing origin, names and addresses of the suppliers, quantities and quality level, production processes, equipment operation and product production, the marketing, knowledge pertaining to the distribution, selling and storage of the Group products, list of its customers, market research, marketing, manufacturing and engineering design. B. Brands and Trademarks. The main brands and trademarks of the Group include the Corporate Brand, Osem, which serves as the umbrella brand for products distributed at room temperature, and this, in addition to the specific brands, such as "Bamba" and "Bissli", "Habait" and "Lachmit" in the bakery, beverages, snacks and breakfast cereals area, and "Perfecto" and "Manna Hamma" in the culinary area. The “Tivall” brand is used as an umbrella brand for health products and meat analogue products. The "Bonjour" brand is used by the Group for frozen bakery products. The "Sabra" brand is used by the Group for its salads product range. “Beit Hashita” brand is used by the Group in its culinary area, in reference to the pickles and the “Assis” and "Vitaminchik" brands are used by the Group in its bakery, beverages, snacks and breakfast cereals area in reference to the syrups. In the international division, the "Sabra" brand is used for salads in Europe and the "Gourmet Garden" and "Halsans Kok" brands are used for meat analogues in Europe. The "Gratify" brand is mainly used for gluten- free products in the US. Most of the above-mentioned brands are market leaders and the Group has additional different brands as well. The Group brands are highly important and have great influence as they epitomize the quality of the products. The Group regards its brands as part of the Group's key assets. For decades, the Group has invested many resources in building its brands. The costs that were invested as well as the brands life-cycle

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cannot be quantified. As a rule, the brands and the trademarks used by the Group are registered with the Trademark Registrar in the relevant countries. C. Licenses and franchises - the Group's activity includes also the Nestlé products whose know-how and brands are not the property of the Group. The Group has exclusive right to use the intellectual property of Nestlé and or distribute the Nestlé products in Israel. In this context, the Group uses the Nestlé Corporate Brand as well as specific brands in different categories (ie, "Taster's Choice" and "Red Mug Nescafe" under the Coffee products, "Nestea" under beverages, “Baci” and “KitKat” under the confectionery products,, "Cheerios", "Fitness "“Trix” and "Crunch" under Breakfast Cereals and "Purina" in Pet Food). In addition, the Group manufactures Nestlé's ice cream products in Israel using the Nestlé know-how, technology and brands. In 2008, the Group acquired the activity of the Tribe and Food Tech companies which operate in the US, in the salads and meat analogue areas. The Group has rights for use in the "Tribe" and "Veggie Patch" brands which were given to the Group by Nestlé, and in additional know-how of Nestlé. In the infant nutrition area, by virtue of agreements Materna Partnership has with Nestlé, the Group has rights of use of the knowledge and the use of the Gerber brand as well as access to the knowledge and the use of Materna brand (51% of the knowledge and of the Materna brand was acquired by Nestlé and 49% of them is held by Maabarot products ltd.) and that is as an addition the knowledge and other brands that Nestlé has in the infant nutrition category. In addition to the above, the Group has extensive rights to use the Nestlé know-how, , in which are included technical, scientific, marketing & sales, logistics, manufacturing, information technology and financial know-how. For additional details, see Regulation 22 to Chapter D "Additional Details on the Corporation" which is included in this periodic report. D. Goodwill -the Group enjoys a solid and strong goodwill which had been accumulated over the years since the Company's inception in 1942. The goodwill of the Group is highly important and it is influential as a symbol of the quality of the company and its products. The Group views this long- standing goodwill as one of its main assets. In addition, the Group has goodwill which was acquired as part of the cost of acquiring the Group's subsidiary companies through the years. This goodwill includes mainly the goodwill of its subsidiaries Tivall, including Sabra Salads which was merged with Tivall, Bonjour (which was merged into Osem Investments)

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and Tribe (including Food Tech which was merged into Tribe), Materna, and others. E. Financial Information – the costs invested in the intangible assets and the amounts that were recognized as assets in the financial statements according to acceptable accounting regulations, are detailed in note 13 to the financial statements which are included in this periodical report.

19. Human Resources

A. Organizational Structure: below is the Group’s organizational chart:

 The diagram refers to the organizational structure of the Group in 2014. As of 2015, a change occurred in the organizational structure, as described in section 19C of this section 70

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B. The organizational structure. The organizational structure of the Group is based on the matrix structure of overlapping systems of components. The overlapping systems include, inter alia, business units which constitute "profit centers" directed by managers, headquarter units which provide support across the organization, production facilities which provide products for a number of areas of activities and a central trade and distribution system serving the main activities of the Group in Israel. The Group is run by the Group CEO, and by the senior management of the Group, comprising the Deputy CEOs, the Vice Presidents, the business unit managers, the shared services managers, and the Company General Counsel subject to the CEO. C. Changes in the organizational structure. In order to emphasize and strengthen the management focus and synergies of the international activities of the Group, the Board of Directors resolved on 21 November 2013 a change in the structure of the ready-food division and to set up a separate division – the international division – which focuses on the international activities of the Group and includes Tivall Europe, Tribe USA, Osem UK, Osem USA, the export activities of the Group and future international opportunities. As part of the change, the activities of Tivall Israel were transferred to the culinary division and the Tsabar salads activity remained an independent unit reporting directly to the CEO (although it does not meet the definition of a reportable sector and therefore was joined to the culinary division due to similar economic characteristics). The change came into effect at the beginning of 2014. This change is in addition to the structural change made earlier for consolidation of the snacks division, the bakery and beverages division and the breakfast cereals division into one business division under one manager who reports directly to the CEO. At the same time, a new business division was set up to handle new businesses and innovation in order to create management focus in the new activities which require management attention in the first stages. In addition, in the beginning of 2013 the Group's factories were made subject to the direct management of the Deputy CEO-Operations (previously they were subject to the managers of the business units/divisions). The managers of the business units continue to be involved in relevant operational issues and decisions which have business repercussions.

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Moreover, in order to adjust to changing market conditions and in the framework of the implementation of advanced and specialized sales strategy, as of January 2015 a new organizational structure was introduced to the Osem Trade Group based on improvement of service to customers of the Company (focus, understanding and professional specialization in the customer). As part of the change, there was a move in the internal management from three to four markets in the retail market: the organized market, private chains market, supermarkets and the private market. In addition and for the purpose of improving the short, medium and long term planning processes and increasing the efficiency of different processes in the organization, a decision was made to set up a new unit led by a Deputy CEO. This unit will consolidate all the planning functions in the different divisions and will assume responsibility for cross-organizational processes in all matters connected to business strategy and development, economics, control and budget, demand planning, long term factories planning, marketing of the Group including handling of innovation, evaluations of the new consumer and for the digital age and responsibility for the computer unit which assists in the building of support for these processes. The change will come into effect in April 2015. D. Group Headcount. The total number of the people employed by the Group as at 31.12.2014 is about 4,800 people. The sales and distribution staff (drivers, agents, merchandisers, representatives, warehouse employees, etc) as well as the management and administrative staff (operations, marketing, finance, etc.) which provide shared services for the different activity areas. During 2014, there were no significant changes in the headcount. In the Group’s estimate, the Group is not significantly dependent on any specific employee.

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Number of Employees as at 31.12.14 Areas of Activities Production Sales, Administrative & Total number of workers Marketing, Management Group Distribution & Employees Logistics Culinary 670 26 23 719 Bakery, Beverages, Snacks and 573 16 4 593 Breakfast Cereals Professional Market and Gift Packages 10 87 9 106 International Division 237 87 32 356 Infant Nutrition 75 37 10 122 Others 501 120 19 640 General factory workers 296 6 302 Shared services – Distribution and 1,561 1,561 Commerce Shared Services – Administration & 73 294 367 Headquarters Total number of Group Employees 2,362 2,013 391 4,766

Number of Employees as at 31.12.13 Areas of Activities Production Sales, Administrative & Total number of workers Marketing Management Group Distribution & Employees Logistics Culinary 686 29 35 750 Bakery, Beverages, Snacks and 553 13 7 573 Breakfast Cereals Professional Market and Gift Packages 10 87 8 105 International Division 203 92 24 319 Infant Nutrition 77 40 10 127 Others 457 130 17 604 General factory workers 294 6 300 Shared services – Distribution and 1,548 1,548 Commerce Shared Services – Administration & 77 295 372 Headquarters Total number of Group Employees 2,280 2,022 396 4,698

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E. Training. The Group invests resources in professional training in line with the requirements of the law, and as part of the Group's aim to improve and constantly promote the professional competence of the employees. The training program is built to accommodate all the needs of the different professional employee groups in the Group. The program combines in- house dedicated courses which are planned and organized by the Training Department / HR division, with conferences and sessions outside the organization. As part of the partnership with Nestlé, the Group sends from time to time and according to need, employees and managers to professional conferences in Nestlé, to expand and further deepen the knowledge and tools in different areas. In addition, the Group sends employees and managers to management development courses in Rive- Reine, the Nestlé international training center in Switzerland. F. Compensation programs for employees. The Group rewards its employees by factory wage increments and by annual bonus payments granted on the basis of Group and individual performance, and this - in accordance with the annual bonus plan which is approved every year in the Company Board of Directors. In addition, part of the bonuses to the senior employees is linked to the rise of the share value (Phantom Options). The Group also rewards its outstanding employees by the Outstanding Employee Prize and by the Founders' Prize. These prizes are given to excelling employees in every site; in the form of monetary compensation, In addition, the Group has several recognition processes according to which the employees receive incentive awards for initiatives they propose and implement and which promote the Company's ability to meet key targets, such as resource streamlining. In line with Amendment No. 20 to the Companies Law 1999, regarding the office and employment terms of office holders in public companies and in private companies which are debenture companies, on 3rd September 2013 the General Assembly approved the Group's compensation policy, as it was recommended by the Compensation Committee and as it was approved by the Company board of directors. For additional details regarding compensation see Regulation 21 in Chapter D (“Additional Details on the Corporation”). G. Employment agreements. The majority of the Group employees are under collective wage agreements, which are similar to the standard agreements common in this industry. All the employees are eligible for pension

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contributions – most of them through pension funds and the rest are included in senior employee insurance plans, or a combination of both. The pay structure for part of the Group employees includes a component of incentive pay (factory wage incentive). The incentive pay is based on additional output beyond the set standard. This can be measure by a variety of methods – output produced, efficiency achieved, performance and quality of performance, and other methods. The incentive pay structure for the drivers in the distribution network includes a variable component which is based on the driver’s output measured by the shipment weight, the daily number of customers, the travel distance and other factors. The incentive pay structure for office holders in the sales network includes also a variable component which is based on their performance. It includes an incentive which is calculated on the basis of the sales volume compared to the target, and from a periodic bonus pay which is based on sales targets, goods returns and other factors. H. Human Resource Development. In addition to the training specified above, the human resource development activity includes two main subjects: Performance Management and Career and Personal Development. An annual performance review has been implemented in the entire Group, is conducted in a consistent and comprehensive manner among the majority of the Group employees. As part of the process, attention is given to the employee performance level and his/her contribution to the achievement of Group's business targets and to the skills, competencies and behaviors the employee demonstrated as means. As part of the Career and Personal Development process, the Group takes steps to identify the employee competencies develop his/her future potential. In this way, the Group managers identify high potential future managers. These important tools help the Group to run its human resources in the best possible way, which will ensure succession planning and retention of its best employees. I. Employee Welfare. As part of the concept according to which the Group is regarded as a "family" – big, strong and supportive during times of need - the Group takes steps towards strengthening the bond with the employees and enhancing the feeling of partnership, affinity and identification with the Group as a unified and cohesive entity. The employees go on collective weekends and participate in parties to mark holidays and special events, all this is done to help with teambuilding and give the employees the feeling

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that they all work for one common goal. Within this capacity, the Group assists employees in crisis - economic, or psychological and social. J. Office holders and senior management. The Group's senior managers are employed under personal contracts according to which they are insured in senior employee plans and/ or other pension insurance plans. In addition to the above, the top management of the Group are also rewarded, subject to the decisions which are taken from time to time by the Board of Directors, by Phantom Options (as described above) which are subject to vesting dates according to the option plans that were adopted by the Board. In determining work conditions for each of the senior officers, the senior manager's background, professional experience, education and qualifications were taken into consideration, and for determining the reward he/she is entitled to –the results of the Company operations and its profitability were taken into consideration as well. Data regarding the remuneration, duties, qualifications, and work experience of the top earners among the senior officers in the Group are included under Regulation 26(a) and Regulation 21 in Chapter D (“Additional Details on the Corporation”) of this Periodic Report.

20. Working Capital

A. The Group's operational turnover does not exceed twelve months. As a result of this, the current assets and liabilities include items which are designated and expected to be realized during the period of the regular operational turnover of the Group. B. Below is a concise description of the Group's working capital components:

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Working Capital Components 31.12.14 KNIS Cash and cash equivalents 471,197 Trade receivables 693,674

Other receivables 27,578

Income tax 10,694 Inventory 398,972

Other investments 164,548

Total current assets 1,766,663 Loans and short term credit from 7,845 banks Trade payables 756,676

Other creditors 224,462

Income tax 10,895

Total current liabilities 999,878

Excess current assets over liabilities 766,785

21. Investments

During the period of this report, the Group had no material investments in investee companies, in partnerships and in joint ventures which are not subsidiary companies. Investments in partnerships and subsidiary companies as well as other investments made were detailed in Section 1: Description of the Corporation’s Business Activities and Evolution of Business.

22. Financing

A. The high liquidity ratios and the excess cash reserves of the Group constitute the main source of funding for the day-to-day conduct of the Group and for further expansion of the Group business. The Group repaid all the long-term loans given by the banks. As at the balance sheet date, there are no long-term loans from the banks and the short-term loans from the banks constitute only 0.2% of the total balance sheet.

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On the whole, in the Company's estimate, The Group liquidity level and its financial strength level are above the average common in the food sector. B. The average interest rate on loans that were valid during the period of this Statement, which have not been designated for specific use by the Company, while separating between short-term and long-term loans and distinguishing between bank credit sources and non-bank credit sources, is detailed in Note 15 to the financial statements included in this periodic report. The effective interest rate is close to the average interest rate. C. Credit framework and financial limitations. The credit framework as at the date of 31.12.14 amounted to NIS 199 million. This credit has not been fully used. The bank credit that was used is specified in Note 15 to the financial statements included in this Periodic Report. The unused available credit balance amounts to NIS 192 million. The Company can get additional credit if it so requires. For the said credit, no liens were registered in favour of the banks and according to the agreements with them if the Company requires additional bank credit, no liens will be registered in their favour as long as the Group meets certain commitments and certain financial ratios, as specified in Note 20B to the financial statements included in this Periodic Report. D. AAA Credit Rating for Osem. In March 2015, the Midroog Company extended the AAA rating Osem had received and gave a stable rating outlook. Osem is the first and only industrial company in Israel, which is not a government enterprise which has an AAA rating. The Group has no material loans.

23. Taxation

A. Income Tax regulations applicable to the Group companies The Law for the Encouragement of Industry (Taxes), 1969 - See Note 19B to the financial statements which are included in this periodic report. The Law for the Encouragement of Capital Investments - 1959. Under the law, some of the Group companies are entitled to several tax benefits as they were granted an "Approved Enterprise" status, as defined in this Law. For more details, see Note 19A to the financial statements included in this periodic report. As for the main benefits under this Law – see item E below.

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B. Applicable tax rates on income of the Group companies. See Note 19C (1) and Note 19 C (2) to the financial statements included in this periodic report. C. Non application of IFRS in determining taxable income See Note 19C (3) to the financial statements included in this periodic report. D. Tax assessments See Note 19F to the financial statements included in this periodic report. E. Benefits under the Law for the Encouragement of Capital Investments In Sderot Factory, which is located in Development Zone A, there are several letters of approvals for expanding an Approved Enterprise. Some of these letters fall under the investment grant track and some under the alternative of tax exemption. Kiryat Gat factories (Sabra Salads and Bonjour), which are located in Zone A, have received Letters of Approval in the grants track only. The Yokneam factory located in Development Zone A has received a Letter of Approval in the grants track and a status of an approved Enterprise with tax exemption benefits. The Lohamei Hagetaot factory and the Beit Hashita factory located in Development Zone B have received a Letter of Approval in the grants track only. Some of the factories have not yet used any tax benefits. The Group received final performance approvals from the Investments Center for all the factories and all the approval certificates (with one exception),. For more details, see Note 19A to the financial statements included in this periodic report. F. Main tax rate versus effective tax rate The main tax rate applicable to the Group income is 26.5% compared to the effective tax rate during 2014, which amounted to 24.9% The difference between the main tax rate of the Group and the effective tax rate derives mainly from the overseas subsidiaries whose tax rate abroad is different from the tax rate in Israel and from theoretical financing expenses for Put Option for the minority which are not recognized for tax purposes. For additional details see Note 19 (G) to the financial statements which are included in this Periodic Report. G. Unused losses for tax purposes

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The Group has about NIS 175 million unused losses for tax purposes. Around NIS 64 million of them were recognized as deferred tax and that was due to the uncertainty level that these losses will be used in the future. H. Taxation on overseas subsidiary companies The Group has subsidiary companies operating overseas. The tax on these companies is in accordance with the statutory tax rate in effect in each respective country. The Group has a factory operating in the Czech Republic which enjoys the status of an approved enterprise in accordance with the encouragement laws in the Czech Republic including tax benefits. With the main countries in which the Group's subsidiary companies operate (USA, UK, Holland, Czech Republic and Sweden) and with the country where the Parent company is located (Switzerland) there are double taxation treaties.

24 Environmental Issues

24.1 General 24.1.1 The Group’s activity is influenced by various environmental factors which are related mainly to the production activity of its different factories, and these factors include, among other things, air pollution and emissions, wastewater and hazardous substances. 24.1.2 The production activity of the Group is concentrated as of the date of this report in nine production sites in Israel and two sites abroad. The Group factories operate in line with the different permits issued by the Ministry of Environmental Protection and the Group factories abroad are subject to local environmental legislation and operate in line with the rules and regulations of each country. As at the publication date of the report, the Group's factories in Israel, the Group's factory in the Czech Republic, and the Logistical Center in Shoham have all been certified with the international ISO 14001. In addition, the scope of environmental responsibility includes the Logistical Center including supervision of reduction of kilometrage and an analysis of fuel consumption per marketed ton and fuel consumption by the Company's vehicles.

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24.1.3 In 2014 (as in the previous years), the Group was also ranked as one of the "Platinum Group", the ranking of the leading companies in "Maala" rating of Business for Social Responsibility. 24.1.4 Although the Group does not manufacture products which contain substances poisonous or hazardous to the environment, the company uses hazardous substances for the operation of manufacturing services (including activities such as cooling, wastewater treatment, cleaning, etc.), in line with the permits which were granted by Law, from the Ministry of Environmental Protection. The annual costs the Group invests in order to comply with the applicable environmental decrees are not material to an extent which affects its profitability and/or its competitive position. 24.2 The Group policy on the environment and environmental hazards management The Group has a combined policy on safety, product quality and the environment which is based among other things on the policy of its parent company, Nestlé, with adaptation to the Israeli market. The policy environmental principles are as follows 1. Compliance with the laws and regulations of environmental protection, as per the Israeli Law (and the regulatory measures that emanate from this law). 2. Incorporating the principles of environmental management and protection in the Group's activity in all its sites. 3. Striving for continuous improvement in the internal KPIs that were set in reference to protection of the environment.. 4. Providing adequate information and training to stakeholders (management, employees, and authorities). The Group has an environmental system for the monitoring, handling and follow up on environmental aspects related to its ongoing operation. The Group's environmental protection system is managed by the Environmental Group Manager and the factory environmental manager in each site. The above policy is available on the Company internet website; it is communicated through training sessions to all the employees and to the Company sub-contractors, and is presented in posters hung in all the Company sites. 24.3 Compliance with the requirements of the Law and other requirements 81

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The Company factories are subject to the requirements of all the Israeli law and to the regulations pertaining to activities which may affect the environment, and to comply also with voluntary standardization adopted by the Group itself. Compliance includes: 24.3.1 Licenses – a business license, a manufacturer's license from the Ministry of Health, a stipulation letter for a business license from the Ministry of Environmental Protection, hazard material permit, fire equipment and handling specification document and other. 24.3.2 Laws and regulations – the local legislation refers also to the handling and storage of hazardous substances, regulations on energy sources issued by the Ministry of Infrastructures, Law for the prevention of hazards, industrial wastewater, clean environment, sludge elimination/removal, etc. 24.3.3 Nestlé requirements on environmental protection - the requirements of the parent company, Nestlé, set for its subsidiary companies, among other things, on aspects related to the environment. 24.3.4 Voluntary standardization – in 2007 the Group began a gradual process of certifying all its factories (by the international BV company) for the international standards of environment and safety, ISO 14001, OSHAS 18001. As a result, at the date of the Periodic Report, the majority of the Company factories have been certified for both ISO 14001 and ISO 18001. 24.3.5 Setting internal objectives for environmental protection – beyond the requirements of legal compliance, each factory has its environmental objectives which include both resource utilization and cutting down emissions and waste. The environmental objectives refer to resource consumption in relation to production quantities. These include saving in water, in energy, and in raw and packaging materials, and also objectives related to emissions from the system – reduction of waste to be concealed in landfills, increase in recycling, reduction in wastewater quantity, reduction of the greenhouse gas emission, oxides and elements with potential to harm the Ozone layer. The degree of the factory compliance with these objectives is measured on a monthly basis in the Group's factories.

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The degree of compliance, as mentioned above, is measured in relation to each of the Group's factories, among other, by self- assessment questionnaires (which include specific description to the factory compliance with legal regulation, the Nestlé standards and internal objectives), which are checked and approved by the Group environmental manager. In addition, the majority of the Group factories undergo external audits by an external institute of quality and control, as part of the international ISO 14001 certification audits. During 2014 a compliance audit to the law of environmental protection was carried out by an independent legal firm. In the Company's estimate, during 2014 and as at the date of the Report, all the Group sites complied with the relevant legal regulations relating to environmental aspects, except for a few immaterial exceptions in wastewater. The Group is in the process of solving these issues, in coordination with the Ministry of Environmental Protection. In addition, as a result of a thorough inspection of the overall wastewater treatment facilities, in 2013 a research and planning initiative was carried out in order to upgrade the facilities in several factories and in 2014 the Group began to update its wastewater facilities.. During 2014 some of the Group's sites fully met the internal objectives that were set (which are stricter than the legal requirements) and some of the sites partially met these objectives). The Group achieved better saving results in energy, reduction of greenhouse gas emissions, recycling and waste landfill compared to the targets it set for 2014. Nevertheless the water consumption target for 2014 was not met due to an improvement in the hygiene standard in the factories. 24.4 Main environmental risks In every site of the Group a risk assessment survey is conducted periodically, analyzing the effects on the environment. Based on the findings of the survey the Group sets it environmental work plan. Below are detailed the main environmental aspects and risks which affect the Group activity and the respective actions the Group took in 2014 and as at the date of the periodic report. 24.4.1 Wastewater: The Group factories use water and detergents which create wastewater. This wastewater includes organic material (COD=Chemical Organic Demand) and oils and may increase,

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among other things, the concentration of polluting agents and cause sanitary inconvenience. There are wastewater facilities in all the factories, for the purpose of treating the wastewater or outsourcing the treatment to 3rd party in order to have them compliant with the legal requirements before they are channeled to the public system. It should be noted that in the Group's factory which used caustic soda in the process of wastewater treatment switched to Potash, which unlike caustic soda does not include sodium and chlorides and this was done in spite of its higher price. This shift also contributed to a significant reduction of sodium concentration in the wastewater thereby adapting them for irrigation. In addition, in part of the Group's sites, Reverse Osmosis (RO) facilities are installed and these have replaced the use of water softeners and decreased the amount of salinization. Each of the Group's factories undergoes periodical analysis of the wastewater parameters at the point of connection to the public system of drainage, to ensure that the factory complies with the legal requirements. During 2014 a large number of "complex wastewater analyses" were carried out in the Group factories. Additional analyses were performed according to the requirements of the authorities. The results of the analyses have shown that composition of wastewater did not include toxic substances or heavy metals in any case. The few deviations that were traced compared to the letter of terms and conditions issued by the Ministry of Environmental Protection during 2014 and they are monitored and addressed by the Company and as a result in 2014 the Company began to upgrade in part of the wastewater facilities in the factories. Below is a short description of the actions taken by the Company to reduce the impact of wastewater, in each of the factories. The Tivall factory in Kibbutz Lohamei Hagetaot: the factory uses a joint wastewater facility which is managed by 3rd party and is based on an anaerobic method. The facility greatly reduces the organic load and the solids in the wastewater are decomposed and transformed to biogas that is used as fuel in the factory as substitute to the LPG. The wastewater are channeled after treatment to irrigation. Sometimes an exceeding sodium rate is found which, to

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the best knowledge of the Group, do not result from activity coming from the Tivall factory. Beit Hashita: the factory has an extensive system in place, to separate wastewater streams, for the separate treatment of industrial streams and saline streams. In addition, there is a system for separating fats, monitoring and neutralizing Ph. In 2014 improvements were made to the wastewater system in the factory however 3 a small number of deviations were recorded at the level of organic material (COD) and also at the sodium concentration in the industrial stream. As at the date of the Report publication, the Group has been working together with the Ministry of Environmental Protection to reduce these deviations by improving the quality of the wastewater at their source. In addition, in 2014 there was a significant reduction in the saline streams and an increase in evaporation in the treatment ponds resulting in a significant saving in the amount of brine for future disposal Yokneam: the factory has a physical-chemical facility in place for the treatment of wastewater. Deviations in the sodium concentration levels located in 2013 were treated by setting up a new facility for separation of brines in 2014. As at the date of the report publication, the Group in cooperation with the water and wastewater corporation is acting to reduce the deviation in the the level of organic material (COD) located by improving the quality of the wastewater at its source and by plan to set up a new wastewater facility. Materna: the industrial wastewater of the factory is channeled to an external anaerobic treatment which produces biogas. The biogas is used for producing electricity. During 2014 no deviations have been recording in this aspect. Holon: the factory has a wastewater treatment facility in place. In 2012 an approval was received from the Treatment Corporation to allowing the irregular channeling/routing according to the regulations of the Water and Wastewater Company. Ice Cream factory in Beer Tuvia industrial area: the factory uses a joint wastewater facility which is managed by 3rd party. A deviation has been recorded in the level of sodium concentration, which in the Group's estimate does not come from the factory activity. At the same time, and as at the date of the report, the Group works together with the Ministry for the Protection of the 85

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Environment and with the third party running the facility to reduce the sodium emissions by replacing the cleaning agents used for improving the wastewater quality. During 2012, it was agreed with the Ministry to find a solution for upgrading the facility and this solution will be implemented by the third party which is running the facility. As at the date pf the annual report, the upgrading process is being carried out. Sabra Salads in Kiryat Gat: the factory has a system that separates streams and a modern facility of the DAF type, for the treatment of streams. During 2013, measures were taken to improve the wastewater facility and chemicals were replaced in order to reduce the emissions. In 2014, no deviations were found in the level of COD. Bonjour in Kiryat Gat: the factory has a facility in place. During 2014, minor deviations were recorded in the COD values. As at the date of the report publication, the Group has been working to reduce these deviations by improving the wastewater at source. Sderot: The factory uses a physical-chemical facility for the treatment of wastewater. The facility meets the required emission values. However, the Group is working on an ongoing basis together with the Ministry of Environmental Protection for improvement and reduction of emissions of organic material (COD) by replacing the chemicals in the facility, by separating the salinated stream, by improving the quality of the wastewater at source, and also by introducing modifications in the facility. In addition, there is a plan to upgrade the wastewater facility in the course of the coming two years. Tivall Czech: the factory has a facility in place. No deviations in environmental parameters were recorded. Tribe in Taunton, Massachusetts: the factory uses wastewater handling facility. During 2014, several deviations in COD were recorded. As at the date of the report, the Group works together with the relevant authorities to reduce these emissions by improving the quality of the wastewater at source, and also by improvements and modifications in the facility performed during 2014, by an engineering company. A trial run of the facility and its operation are planned for 2015. 24.4.2 Air Pollution:

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The Group consumes direct energy as part of the production activity (by way of burning fuels in steam boilers and ovens), and consumes indirect energy as part of its current activity (use of electricity, use of fuels for the distribution vehicles of the Group products). The Group also uses cooling liquids of old Freon gases in part of its sites. This consumption may cause air pollution and damage the ozone layer. The Group is in the process of replacing the Freon type cooling gases to environmental friendly gases. In addition, as part of the actions taken by the Group in this area, part of the automatic fire extinguishing systems were replaced to systems operating with environmental friendly cooling gases. During the last few years, and as part of its production activity, the Group has converted all the ovens in its factories to the use of direct combustion gas, a move which ensures reduction in air pollution. The steam boilers in most of the Group's factories operate on gas which guarantees low emission of air pollutants. The other steam boilers operate on low sulfur heavy fuel (Mazut) which ensures compliance with the requirements of the Treaty on Air Pollution between the Ministry of Environmental Protection and the Manufacturers' Association, Except for one factory which still uses "light" heavy fuel with combustion improving additives to reduce the emissions. With the reduction of sulfur percentage in the heavy fuel which is supplied by the Oil Refineries, this factory also complies with the law for preventing emissions. To comply with the requirements of the Ministry of Environmental Protection, tests to measure gas emissions are conducted in the steam boilers and in the production facilities. All the tests that were performed in 2014 yielded compliant results, except in one factory in which the Group took measures in coordination with the Ministry to resolve the issue. In the framework of the target for reducing emissions, conversion of steam boilers in the Sabra factory to natural gas commenced in 2014. This will contribute to a significant improvement in emissions. Based on the degree of success of the conversion, other factories of the Group will convert to natural gas. In addition, conversion to natural gas of all the boilers in the Sderot factory is planned in the coming years. This is forward-looking information. It may not materialize if the 87

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Group finds that these moves are not cost effective. In 2013 the Group joined the voluntary reporting network of damaging greenhouse gas emissions of the Ministry of Environmental Protection. 24.4.3 Hazardous materials Leakage of hazardous materials as a result of inadequate storage may lead to contamination of soil, groundwater and indirectly also to casualty. The Group's factories use and keep hazardous materials in small quantities which are required for cleaning and wastewater treatment. In addition, in part of the Group's sites (which deal with production and/or storage of frozen and/or chilled products) there are cooling facilities which are operated on ammonia. During 2011, the sites which use ammonia have been adapted to the safety requirements of the Home Guard Command and during 2012 the Group started adapting the ammonia facilities to the earthquake safety requirements. The first stage of adaptation plans (separation distance survey) was submitted to the inspection of the Ministry of Environmental Protection. The Company will take the necessary measures to implement the required adaptations once it receives the necessary approval. All the factories have permits to use hazard materials as required by the law. In every site a poison supervisor, who passed the required and approved training by the Ministry of Environmental Production, has been appointed. Small quantities of hazardous waste are being removed to authorized landfills. 24.4.4 Resource consumption: Waste of natural resources (overuse of energy and water) may lead to emissions of greenhouse gases. It may also cause damage to the water reserves and lead to water salination. Below are details on the measures the Group is taking to reduce the use of these resources. Water consumption – one of the Group key internal objectives is saving in water consumption in its factories. In 2014 there was a decrease in water consumption per ton of production of about 1%, compared to 2013 figures, (a saving of 10,000 M3), mainly as a result of cost saving initiatives. The saving was lower than planned due to an increase in the demands of quality control and increased washing of the factories.

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Energy consumption - one of the Group key internal objectives is saving in energy in its factories. The main source of energy the Group uses is electricity which is supplied by the Israel Electric Corporation. The Energy consumption per ton of production during 2014 decreased compared to 2013 figures, in about 3% (about 20,000GJ). This was achieved mainly due to cost saving initiatives. Material consumption - the data collection system monitors the consumption of raw and packing materials on a monthly basis compared to the production volume. Abnormal consumption is monitored and investigated and corrective action is taken accordingly. 24.4.5 Waste treatment: All plants have arrangements for the separation of the various types of waste, with the purpose of increasing the amount of materials channeled to recycling or reuse (including channeling to animal food), and reduce channeling to landfill. In 2014 the Group achieved a recycling rate of 74% of overall waste which is cleared from the factories and reduced waste landfill by 13%. The costs of land filling saved amounted to about NIS 4.2 million. About NIS 2.7 million were received from contractors that recycle waste. The electronic equipment is transferred to the Israel Electronics Recycling Company and to "Ecology for the Sheltered Community Ltd." company and that is done as part of our trend of CREATING SHARED VALUE for the community. Also, to meet the requirements of the "Packaging Law", the Group has contracted with a recycling corporation which is duly recognized for the requirements of the Law (the Israel Manufacturers' Recycling Corporation), to carry out its directives. In addition, given the Group import and marketing activities for beverages (Nestea iced tea), the activity became subject to the law of drink packaging deposit 1999. To meet the regulations of the law Osem entered into a contract with a corporation which provides packaging collection services, recycling and reporting to the Ministry for the Protection of the Environment. In the Company's estimate, the environmental deviations and incidents that were mentioned in this paragraph do not expose the Company in any material way (such as material costs incurred by

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the Company for correcting these irregularities, damage to the Company's competitive position, etc.) When deviations are found, the Company acts as part of the usual course of business to correct these deviations and comply with the law. The actions that were described in the above paragraph and which are planned for the coming years constitute forward looking information which carries a degree of uncertainty as it is based on the Group forecasts and work plans as at the date of the Periodic Report. This information may not materialize as a result of delays, changes, and prioritization of work plans and/or as a result of regulatory changes and /or requirement of the Ministry of Environmental Protection.

25. Restrictions and Supervision of the Company's Activity

Business licenses, permits and standards for the Company operation The various facilities of the Group in Israel operate under business licenses granted as per the Law for Licensing of Business 1968 and its relevant regulations. The Group received Manufacturer Licenses for its various factories, in line with the Order for Supervision of Commodities and Services (Food Commerce, Manufacturing and Storage), 1960, poisonous substance permits in line with the Hazard Materials Law, 1993, building permits in line with the Planning and Building Law 1965, and lifesaving and fire permits in line with the business licensing law 1968 and its relevant regulations. In overseas locations where the Group operates, suitable permits and licenses must be obtained, in line with the legal requirement of every country. Most of the Group factories have been certified with ISO-14001, OHSAS-18001 and ISO-22000. In addition, the Group factories are subject to strict standards, set by Nestlé, for safety and occupational health, environment and product safety. The Group operates in line with the above mentioned licenses and permits and in cases of deviation from the standard, work to correct these deviations in collaboration with the authorities; in case of expiry, the Group takes the necessary steps in coordination with the relevant authorities to renew or to apply for extension for the licenses that have expired. Legislation in the food industry and consumer legislation Like other food companies, the Group products are subject to different laws and regulations under the Public Health (Food) Ordinance (new version), 1983, and

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subject to the relevant standards and orders resulting from this Ordinance, giving authority to take measures and prevent any possible hazards to public health from imports, preparation, storage and distribution of food, and including the Health Ministry's regulations regarding municipal veterinary control on the marketing of meat products. The Consumer Protection Law, 1981, setting a number of obligations and prohibitions aimed, among other things, to prevent any misleading of the consumer. The Law for the Control on Commodities and Services 1957 under which regulations and orders have been issued regarding food quality, merchandising, production and storage; the Law for Standards 1953, under which standards have been set to control production processes, operations, marketing, packaging, etc.; the Law of Defective Products Liability 1980, defining manufacturer's liability applicable to those who suffer any damage as a result of a defective product. The Group is covered under third party and product liability insurance. The Group's activity/operation abroad is subject to the law and legal requirements valid in every country which are intended to regulate similar issues as those which are regulated in Israel. On 19 January 2011, the Knesset approved the "Packaging Bill" according to which the responsibility to collect and recycle product packaging waste will shift to the manufacturers and importers in Israel. To meet the requirements of the Law, Osem has contracted with a recycling corporation which is duly recognized for the requirements of the Law to carry out its directives In light of the Group's import and marketing activities in the beverage area (Nestea Iced Tea), this activity has become subject to the law of drink packaging deposit 1999. To meet the regulations of the law Osem entered into a contract with a corporation which provides packaging collection services, recycling and reporting to the Ministry for the Protection of the Environment. On 15 January 2015 the Food Law which regulates the relationship between retailers and manufacturers came into force. For additional details see paragraph 6.4 above. Antitrust law and price regulation As in the case of all companies operating in Israel, the Group is subject to the Antitrust Law whose purpose is to prevent among other things any instructions which may restrict and harm business competition. In the course of 2014 the Antitrust Law was amended several times and the Antitrust Authority published a number of position statements and position statements including those specified below. See also the reference to the Food Law in paragraph 6.4 above.

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The Group is a declared monopoly in the dry pasta segment. Amendment 15 to the Antitrust Law: On 19 March 2014 the Knesset enacted the Antitrust Law (Amendment no. 15) concerning the addition of section 44A which states that the Director may conduct checks of the level of competition in different sectors and may deliver his conclusions, examinations and recommendations to the minister responsible for the sector examined and the Minister of Finance and shall publish the conclusions of the examinations on the Authority's website. Amendment 16 to the Antitrust Law: On 17 November 2014 the Knesset enacted the Antitrust Law (Amendment no. 16). The main provision of the amendment is the rescission of section 3(6) of the Law exempting arrangements of reciprocal exclusivity between a supplier and distributor, on certain conditions, from the prohibition against entering restrictive arrangements. After the amendment enters into force (in the course of 2015), exclusivity arrangements will be subject to approval of the Antitrust Authority or one of the block exemptions which now apply to unilateral exclusivity arrangements and in fact the legality of the arrangements will be determined on the basis of their accumulative effect on competition. In addition, the amendment extends the authority of the Antitrust Tribunal to issue structural orders in order to promote competition in markets and allows the Tribunal to instruct a monopoly to sell an asset owned by it, all or in part, if this "may prevent damage or the risk of significant damage to business or the public". On 20 February 2014, the Consensual Order signed by the Antitrust Director and Materna and other suppliers of infant formula (hereinafter "infant formula") entered into force under section 50B of the Antitrust Law, 1988 after it had been approved by the Antitrust Tribunal. The field of infant formula is characterized, inter alia, by participation in tenders for supply to newborn babies in hospitals. The Consensual Order prescribes a number of conditions for the supply of infant formula to hospitals and for payment for the right to supply infant formula to hospitals. For further details see paragraph 11.1 above. In April 2014, the Director General of the Antitrust Authority published position statement 1/14 on prohibition of charging excess price by a monopoly. This position statements states that the provisions of Paragraph 29A(b)(1) of the Law which prohibits the setting of unfair buying or selling price level refers also to overpricing of a product, and not only unfair underpricing (predatory) as was common to interpret this legal provision. In the opinion of the Director General, an overpricing is a price that exceeds the price that would have been charged under competitive conditions, based on the test criteria the Director General has adopted in its position statement. 92

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A consensual order with the Director General of the Antitrust Authority on commercial arrangements between suppliers and retail chains on rules of conduct between the parties: On 4.1.2015 the Antitrust Tribunal approved the rescission of the consensual order. The rescission entered into force on 15.1.2015. Kosher certification The Group products which are manufactured or marketed in Israel and which are exported overseas are under the supervision of the relevant local Rabbinate and under the approval of the Israel Chief Rabbinate. To meet the needs of the people in Israel and in the Diaspora, most of the Group's products have ultra-orthodox strict approvals, above the general kosher conditions, from leading kosher organizations in both Israel and abroad. Certified supplier to the Ministry of Defense The Group and part of its Israeli subsidiary companies are recognized as a certified supplier to the Ministry of Defense.

26. Significant Agreements

26.1 Option to acquire full ownership of Materna -within the framework of the transaction to acquire 51% of Materna's activity, Osem acquired from Materna Laboratories 51% of the fixed assets, the working capital, the goodwill and the activity whereas Nestlé, the controlling interest in Osem, acquired 51% of the brands and know-how. Osem and Nestlé received a CALL option enabling them to reach full acquisition of 100% and to acquire from Materna Laboratories the remaining 49% from the end of the tenth year after the date of the closing of the transaction (31/12/2009) on the basis of multiple 21, or at the end of the twelfth year (on the basis of multiple 18), or at the end of the fifteenth year (on the basis of multiple 16). Materna Laboratories received a PUT option to sell to both Osem and Nestlé, the remaining 49% from the end of the fourth year after the deal had been closed and until the end of the eighth year to the deal and also from the end of the fourteenth year to the deal and this will be realized on the basis of multiple 16. The exercise price of the option will be based on the multiple determined in the agreement, multiplied by the net profit anticipated at the exercise date, for each year of exercise and on the profit of the year preceding the exercise and with certain adjustments, as stipulated in the agreement, according to which Osem shall pay 61% for 49% of the fixed assets, the working capital, the goodwill and the activity of 93

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the partnership, and Nestlé shall pay 39% for 49% of the know-how and brands. In addition, as Materna Laboratories is a partner, it is entitled to current cash flows which Materna expects to receive as payment until the day of the exercise. For additional details, see Note 18 to the financial statements which are included in this Periodic Report. 26.2 Distribution agreements. The Group has agreements according to which the Group distributes products of other manufacturers, The main distribution agreements are with "Tapugan", "Of-Tov", "Milotal", "Dorot, Landwer" and "Barbari". The main contract conditions in the distribution agreements give among other things details on the manner of distribution of different products, i.e. – that the Company purchases the products and sells them in a gross margin ranging from 9% to 28% (These products include products of different volume and temperature of distribution – frozen, chilled and room temperature), the remaining contract period (which varies from agreement to agreement) of different periods – some of which are not time bound -, so that some of the agreements include stipulations allowing possible extension of period, and also stipulations on the possibility of annulment by prior notice, (in most cases, of 5-12 months). 26.3 Negative pledge agreement with the banks. The Group has an agreement with the banks providing that if the Group companies receive bank credit no liens will be registered in favor of such creditors for as long as the Group fulfills certain commitments and meets certain financial ratios as described in Note 20B to the financial statements included in this Periodic Report. 26.4 Agreements with Nestlé, the controlling interest. The Group has several agreements with Nestlé, some of which relate to the know-how and intellectual property made available to the Group and some relate to the selling of Nestlé products in Israel. A summary of the agreements required to be reported between the Company and Nestlé appear in Regulation 22 in the Chapter “Additional Details on the Corporation” included in this Periodic Report.

27. Strategic Alliance and General Assistance Agreements

The Group entered into strategic alliance and cooperation agreements with its parent company, Nestlé, which is a multinational company active in many countries, operating hundreds of factories around the world, and which is considered the largest food concern in the world. The strategic alliance with

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Nestlé is described in detail in Regulation 22 to the chapter “Additional Details on the Corporation” included in this Periodic Report.

28. Legal Proceedings

The majority of the legal proceedings involving the Corporation are routine proceedings arising in the ordinary course of the Group's business. On 10 December 2013 a statement of claim and a request for approval of the claim as a class action in the sum of approx. NIS 256 million were filed against a subsidiary of the Corporation, Osem Food Industries Ltd. According to the plaintiff's contention, the defendant violated certain legal provisions relating to labelling various products marketed by the Osem Group, thus allegedly misleading consumers. According to the Group's estimate and based on the opinion of its legal advisors, the chances of the claim in relation to the total claimed sum are negligible. The Group faces a number of additional class action claims or requests for approval of class action claims. In the evaluation of the Company, and based on the opinions of its legal advisors, the chances of the claims and requests are negligible, or the sums to be borne by the companies will be negligible. See Note 20.A(9) to the financial statements.

29. Business Strategy and Objectives

The Group's targets are based on a strategy of growth. Its purpose is to offer the consumer a product range of the highest quality while continuing to strengthen the Group's position as a market leader in the Israeli food industry. In the Company's evaluation, these objectives will be met by strengthening the Group's brands, by expanding its market share and increasing its sales through new product launch, and by entry into new areas in the food industry with the purpose of increasing the Group's EBIT and ROIC and improving its EP. All the above - along with streamlining processes the Company has initiated which are based on the Company's methodologies of Lean & High Performing Organization, within the NCE project framework (Nestlé Continuous Excellence). The Group also allocates its operational and marketing resources to different products as part of an optimization process which is based on the Portfolio Management strategy. The Group growth strategy as of the date of this report is based on four value drivers: 95

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1. RIG in sales, based on innovation and new product launch, brand building and strengthening of existing brands, as well as utilizing the sector and market growth for leverage. 2. Continuing a strategic alliance with Nestlé, enabling the Group to consider entry into additional areas of activity in the food industry, mainly in areas in which Nestlé is active and able to provide the Group with added value of know-how, technology and brands, (this - in addition to those area the Group has already entered into via Nestlé, such as Coffee, Ice Cream, Breakfast Cereals, Chocolate, Pet Food, Nestea soft beverages, and Infant Nutrition). 3. A policy of Mergers & Acquisitions of food companies in Israel and abroad, which the Group will find strategically suitable and which will contribute a synergetic value to the Group activity. 4. Expansion and growth in Europe and in the USA in international areas where the Group has a relative advantage, and this is while cooperating with Nestlé. The information in this section is forward-looking information and is based on forecasts included in the Group work plans. This information may not materialize if the Group decides that the above-mentioned moves are not economically feasible due to exogenous and/or endogenous changes. In addition, the Company may change or amend or expand its activities strategy, as dictated by needs of the Company from time to time.

30. Future Developments Forecasted for the Coming Year

In the Company's estimate, the next year will be affected by uncertainty on the world markets (mainly in Europe) and the economic slowdown in in Israel which is expected to also have an impact on the food sector. On the background of this above mentioned slowdown, the Group intends during the coming year to utilize the power of its liquidity, and its financial strength as it is the only industrial company (which is not government owned) which received an AAA rating. In addition, the Group intends to realize the internal synergies and streamlining processes and also those which have resulted from the Group's association with Nestlé, the largest food company in the world. In the Company's estimate, these synergies will be manifested among other things by using Nestlé’s knowledge and technology, and from other streamlining process. In addition to the above, the Group intends during the coming year to expand its activity abroad (USA and Europe) among other things, through leveraging its foreign acquisitions made in the last years and through change in the structure according to which a division which specializes in overseas operations was established in the course of

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2014, which enables managerial focus on this activity. In addition, the Group intends to expand in Israel, among other things also by product innovation. In the coming year, the group is planning an investment, which will be spread over a number of years, in the construction of new plants mainly in the ice cream and snacks areas of activity. In addition, it is expected that 2015 will be characterized, inter alia, by the first time implementation of the Food Law which regulates the relationship between retailers and manufacturers. For further details see paragraph 6.4 above. The information in this section is forward-looking information which shows a degree of uncertainty as it is based on the Group's forecasts and work plans. The information may not materialize if the Group finds that the above-mentioned moves are not economically feasible, or due to changes in market conditions (including changes in macro-economic trends in Israel and around the world, changes in market competition, and changes in the markets themselves), and/or as a result of regulatory changes and/or a result of other risks factors which are applicable to the Group's activity.

31. Financial Data on Geographical Regions

31.1 The Group has two geographical sectors as specified below: A. Activities in the domestic market in Israel. B. Overseas activities (mainly in Europe and the US). 31.2 Activities and sales to the domestic market are included under the areas of activities of culinary food; bakery, beverages, snacks and breakfast cereals; the professional market and gift packages; infant nutrition and others. Most activities and sales to overseas markets are included under the area of activities of the international division and in this division, there is a shift from exporting to international activity, which also includes manufacturing abroad in categories in which the Group has competitive advantage.

31.3 For further details of geographical regions of the domestic market see paragraphs 7, 8, 9, 11 and 12 of this section. For details of geographical regions of the overseas market see paragraph 10 above. In addition, explanations on developments which occurred in Israel and overseas and on the areas of activities in Israel and overseas also appear in the sections on results of activities and analysis of business results of the Group by area of activities in the Board of Directors Report which is included in this periodic report. 97

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31.4 For details of the geographical regions in which the Group operates see Note 25.B.2 to the financial statements included in this periodic report. 31.5 The activity of the Group in the area of the international division is exposed to volatility in currency rates as specified in paragraph 6.3 of this section above.

32. Discussion on Risk Factors

The Group operates in areas which are solid at core. The Group has a large range of suppliers comprising more than 2,000 different suppliers. The Group also has a very wide variety of products of more than 2,000 different food items, which are currently manufactured in eleven different facilities. The company has a wide range of customers comprising thousands of customers and more than 10,000 points of sale. Part of the Group’s sales is made to large customers such as the grocery retail chains. At the same time, the Group faces a number of risk factors originating from its general environment, from the food sector as well as threats inherent in its own specific activity, as detailed below: Macro-Economic Risks A. The effect of slow down and economic uncertainty - The Group, as the market on the whole, is affected by the economic situation. The situation affects consumption per capita which is reflected in changes in food consumption per capita. Since at a time of slowdown the ability to achieve growth through sales volumes is limited, the Group faces this challenge by performing streamlining processes, by introducing new product from time to time, by innovation, and by increasing its marketing efforts, sales promotion and brand building, and by new mergers and acquisitions. As a result, and despite previous periods of recession, the Company managed to increase both its sales and its profitability. Furthermore, the Group has high liquidity and financial strength, of the highest in the market, and it is the only industrial company in the non-public sector that received an AAA rating with a stable rating outlook. B. The security situation. The Group's plants are widely spread over the country, although some of them are located in the North or in the South and during war time these plants were within the Katyusha or in other missile shooting range.

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C. Fluctuations in the foreign currency exchange rates - As detailed in Note 23 A.1.C(1) to the financial statements which are included in this periodic report.

Risks Specific to the Sector A. Exposure to changes in the prices of raw materials. As detailed in Note 23A.1.C(3) to the financial statements which are included in this periodic report . B. Customer credit. As detailed in Note 23A(1)a to the financial statements which are included in this periodic report . C. Regulatory Developments. See paragraph 6.4 above. D. Private labels. The gradual expansion of the private labels in the retail marketing chains may constitute a threat to the Group MSH in its product categories. The Group copes with this risk by concentrating marketing, advertising and sales promotion efforts, by brand building and brand strengthening, by streamlining and by continuous improvement and innovation of its products and on the basis of the know-how and technology sources of the parent company Nestlé – the largest food company in the world E. Entry of new competitors. Entry of new foreign competitors or leading local manufacturers to the Group’s product categories, may pose a threat to the Group’s market shares and sales volume in these categories. In the face of such a threat the Group’s policy is also based on brand building and brand strengthening, maintaining its competitive advantage by continuous improvement of its products quality, and innovation and on the basis of the know-how and technology sources of the parent company Nestlé – the largest food company in the world. F. The business environment of the food industry. A rise in the cost of living may affect the business environment in which the Group operates, as far as price adjustment to cost of raw materials and other inputs are concerned. This can affect three aspects: the consumer aspect, the retail aspect and the regulatory aspect. Risk Factors specific to the Corporation A. Loss of key customer. The Group has key customers in the organized retail market. Losing a key customer may reduce the Group's income and

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adversely affect its profitability. However, as of the date of this report, the Group is not dependent on a single customer. B. Concentrating the production and distribution in a small number of locations. A substantial part of the Group activity is concentrated in a limited number of sites (large factories and main distribution center). Damage caused by natural disasters or any other damage that may be inflicted on these sites may adversely affect the Group activity. The Group policy is to insure its assets and sites including loss of profit insurance. C. Damage to the brand and to the product quality. The Group’s business is exposed to possible harm to the brand and to the product quality in case of any flaw in the quality of the raw materials used for manufacturing its products or any flaw in the quality of the products produced. Such defects may harm the Group's goodwill, its brands and its sales volume. In most of the Group's sites investment has been made in a quality management system, which is compliant with the international standard of ISO 9001 and in a food safety system which is compliant with the international standard of FSSC 22000. D. Dependency on the parent company. The Group is dependent on its parent company Nestlé. The Group imports products from Nestlé and uses Nestlé's know-how, computer services and technology in Israel. The Group purchased finished goods from Nestlé through its subsidiary companies Osem Food Industries Ltd., Materna Partnership, Assamim Gift Parcels, Osem UK Ltd. and Osem USA Inc. Regarding some of the products, the Group manufactures its own products using the Nestlé brands and does so through the the Company and through its subsidiary companies Tribe, Noga Ice Cream Partnership and Materna Partnership. In 2014, the Company income from the sales of these products amounted to the sum of NIS 1,316 million. Still, the affiliation of Osem with Nestlé is a long-term strategic move and Nestlé is a controlling interest at Osem, holding 63.7% of the Group shares. E. Letters of Approvals for "Approved Enterprise". Some of the Group factories received tax benefits (in tax reduction or in grants) according to the Law for the Encouragement of Capital Investments. Non-compliance with the conditions stipulated in these letters may result in cancellation of the above-mentioned benefits. The Group met the provisions/stipulations listed in most of the approval letters that were granted to its factories and only against one letter the degree of compliance is examined. The matter is

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fully known to the Investments Center and is in discussions. In the Company's estimate, the effect of the results of these discussions is immaterial to the Company and the Company is not materially exposed in any way due to that matter. F. Dependency on IT/computer systems. The Company activity is supported by computerized systems. If these systems crush the ability of the Company to manufacture and sell will be considerably affected. The Group deals with this issue by establishing back-up systems and by establishing a Business Continuity Plan (BCP). G. Merging and assimilating activities of acquired companies. The expansion of the Group during the last years was based among other things also on the acquisition of companies in Israel and abroad. If merger in these cases fails, or if forecasts related to growth, profitability and synergies do not materialize, the expected added value will not be attained and assets which were included in these mergers and acquisitions may be impaired (including impairment of intangible asset). H. Environmental issues. The Group's activity is affected by a variety of environmental aspects related mainly to the Group's manufacture and storage activity in the Group's sites. This activity may lead to exposing the Group to environment-related lawsuits. The Group is acting to reduce exposure by conducting risk-factor surveys, voluntary adoption of standards, monitoring and follow-up, training, performing compliance tests and compliance with the law (by an out-house counsel) etc. For further details see paragraph 24 of this section above.

The table below shows the various risk factors according to their nature and potential of effect on the Group's business, as estimated by the Group's management:

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Type of Risk factor Large Medium Small risk effect effect effect Recession & slowdown X in the Israeli economy Macro Risks The Security Situation X Exposure to changes in X foreign exchange rates Exposure to changes in X raw material prices Customer credit X Regulatory X Sector developments in the Risks food sector Private labels X Entrance of new X competitors The food industry X business environment Loss of major customer X Manufacture & X distribution concentrated in a limited number of sites Injury to brand and X product quality Risks Dependency on parent X specific to company the Group Letters of approval for X Approved Enterprise Dependency on X IT/computer systems Merging and X assimilating activities of acquired companies Environmental issues X

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The degree of the impact potential of these risks include forward-looking information, which is based on information available in the Group as at the publication date of this report and includes estimates and evaluations by the Group. The effect of these factors may differ significantly from the results which are implied from this information.

Dan Propper Itzik Saig Chairman of the Board of Directors Chief Executive Officer

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Osem Investments Limited

Section B:

The Board of Directors' Report on the Company Business WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

26 March 2015

The Board of Directors' Report on the Company business as at 31 December 2014

The Board of Directors of Osem Investments Ltd. (hereinafter: "the Company") is pleased to submit to the share holders the Board of Directors' Report for the year ended on 31 December 2014, in accordance with the Securities Regulations (Immediate and Periodic Reports), 1970. The figures appearing in the Report of the Board of Directors are based on the Consolidated and Audited Financial Statements as at 31 December 2014. The financial figures and the results of activities of the Company are influenced by the financial figures and the results of activities of its subsidiary companies The Company and its subsidiaries shall be referred to collectively as "the Group" or the "Osem Group". In certain cases, details will be presented, describing events which occurred after the date of the financial statements and shortly before the publication of the report, as well as additional figures at Company level only. A. The explanations of the Board on the Company state of affairs Key figures from the Description of the Corporation's Business History and general background. The Osem Group was founded in 1942 and Osem Investments Ltd. is the parent company incorporating the Osem Group of companies. The Group produces more than 2,000 different food items currently manufactured in ten production plants located in Israel and overseas and marketed through one central distribution center and several regional distribution centers. The Group also exports its products to other countries, primarily to European countries and the USA. The Company’s shares were originally offered and issued on the Tel Aviv Stock Exchange in 1992. Osem is rated among the leading food companies in the Israeli market and develops its business with the intention of offering the consumer in the local and foreign markets a large variety of branded products, at high quality, in every food area it operates, thereby establishing its position as a market leader in the food market. In an image survey which was conducted in December 2014 by the Market Research Company TNS, as well as other surveys conducted during the past 7 years, Osem was chosen as the leading food company, the best, the favorite and most widely recognized in Israel. The Group owns a variety of brands and diverse and wide production technologies, invented and developed by the Group itself. In addition, the Group uses the brands, know-how and technology of its parent company Nestle - the world’s leading Food Company. Strategic alliance with Nestle. Nestle is the largest shareholder of Osem and holds about 63.7% of the Company. The Company has exclusive agreements of cooperation with the Nestle Group in Switzerland, to s products in Israel by Osem’s marketing and sales systems. There is also an'יmarket and distribute Nestl s products locally. In addition the Company has'יagreement on possible manufacturing of some of Nestl exclusive agreements with the Nestle Group for the use of intellectual property, knowhow and Nestle trademarks in which Nestle owns the rights.

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know-how יIn addition, Osem receives technical assistance in R&D and has extensive right of use of Nestl for the use of the Osem Group. This know-how includes among others technical, scientific, marketing, logistic and sales, production, IT and financial knowledge and expertise. The Group receives IT and computer services from Nestle as part of Nestle's GLOBE Template Solution. The Audit Committee examined the amount of consideration paid to Nestle for its IT and computer services within GLOBE in 2014, based on the agreement that was signed, and found the amount to be reasonable.

Legislation in the food industry In March 2014 the Law for the Promotion of Competition in the Food Industry was approved which deals with, among others, the regulation of suppliers and wholesalers and the geographical competition among wholesalers, this being based on the recommendations of the Food Committee. The law took effect on 15 January 2015 and was associated with, among others, the changes in the method of relationship with the large retailers. At this early stage, it is not possible to estimate the full effects of changes that will occur due to the legislative memorandum. In the year 2014 one time accruals were recorded in the amount of NIS 9,800 thousand under other expenses resulting from the implementation of the law.

AAA Credit Rating for Osem. In March 2015, Midroug Company extended the AAA rating Osem had received and gave a stable rating outlook. Osem is the first and only industrial company in Israel, which is not a government enterprise, to ever receive an AAA rating. This rating attests to the strong financial liquidity level of the Group.

Change in Structure – In the aim of accenting and strengthening the managerial focus and the synergy of the international activities of the Group, on 21 November 2013 the board of directors decided on a change of structure in the prepared foods division by creating a separate division which will focus on the international activities of the Group comprising Tivall Europe, Tribe, Osem UK, Osem USA, export activities of the Group and future international opportunities. As part of the proposed change, Tivall Israel activities were transferred under the responsibility of the culinary division and the activities of Zabar Salads remained as a separate activity which will report directly to the CEO. The change became effective in the beginning of 2014.

In addition for the need to improve planning procedures for the short, medium and long term and for the efficiency of different processes within the organization, the decision was made to set up a new unit under the leadership of the deputy to the CEO. This unit will unite all the planning functions existing within the various departments and will take control of cross organizational processes, in all the topics related to strategy and business development, economics, control and budget, long term factory planning, Group marketing including the handling of innovation, readiness for the new consumer in the digital age and responsibility over the computer department which will support the building of these processes. The change will become effective in April 2015.

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Financial situation

The liquid financial assets (cash and cash equivalents, and other investments) of the Group as at the Balance Sheet date amounted to the sum of NIS 635,745 thousand compared to the sum of NIS 335,126 thousand at the end of the previous year, an increase of NIS 300,619 thousand. The increase is mainly the result of cash flow from current operating activities which were partially utilized for the investment in production lines and expansion of factories, repayment of loans and distribution of dividends.

The assets (fixed assets and intangible assets) amounted to the sum of NIS 2,137,898 thousand, compared to the sum of NIS 2,121,554 thousand at the end of the previous year. The gross investments during the period of reporting totaled the sum of NIS 92,447 thousand. The Groups investments were mainly for the expansion of factories, acquisition of production lines and automation.

Total equity increased, and amounted to the sum of NIS 2,501,698 thousand compared to the sum of NIS 2,252,873 thousand at the end of the previous year. The increase in the shareholders equity derives mainly from the accumulation of current profits totaling NIS 396,556 thousand, partially offset by the sum of NIS 150,000 thousand which was paid as dividend. The shareholders equity constitutes 62.8% of the total of the balance sheet.

The total of the balance sheet increased, and amounted to the sum of NIS 3,985,526 thousand compared to the sum of NIS 3,642,288 thousand at the end of the previous year, an increase of 9.4%.

The structure of the balance sheet as at 31 December 2014 indicates continued expansion in the business activity which is manifested by an increase in the gross investments in the fixed assets, growth in the profits,accumulation of cash from current activities and expansion which allowed for the reduction in short term bank credit and the repayment of all long term loans from the banks and attests to continued financial strength.

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Results of Activities

Total sales of the Osem Group for the year 2014 increased and amounted to the sum of NIS 4,256,620 thousand compared to NIS 4,190,047 thousand in the corresponding period last year, a growth of 1.6%.

Sales to the local market in 2014 amounted to the sum of NIS 3,580,377 thousand compared to the sum of NIS 3,560,200 thousand in the corresponding period last year, a growth of 0.6%.

This growth was achieved in spite of the fact that sales in the Israeli food sector for this period declined by 1.5% per Store-Next publications.

Sales of the Group overseas for the year 2014 increased and amounted to the sum of NIS 676,243 thousand compared to NIS 629,847 thousand, a growth of 7.4%. After offsetting the change in currency exchange rates, the increase is 7.5%.

Sales turnover for the fourth quarter of the year 2014amounted to the sum of NIS 1,033,227 thousand compared to NIS 1,035,072 thousand in the corresponding period last year. Decrease of 0.3%

Decline in sales affected by the timing of the High Holidays which negatively affected sales in the fourth quarter (and correspondingly positively affected third quarter sales which increased by 4.2%) In contrast, sales of the Israeli food sector decreased in the fourth quarter by 3.8% as per store next publications. Sales of the Group overseas in the fourth quarter increased by 16.6%

Evolution of Net Sales (In million NIS)

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Gross Profit of the Group for the year 2014 amounted to the sum of NIS 1,781,301 thousand compared to NIS 1,763,711 thousand in the corresponding period last year, an increase of 1.0%. The gross profit rate as a percent of sales declined from the level of 42.1% to the level of 41.8%

The Operating Profit of the Group before other expenses, in the year 2014 amounted to NIS 542,341 thousand compared to NIS 528,558 thousand in the previous year, a growth of 2.6%.

The Operating Profit of the Group before other income and expenses for the three months of the fourth quarter of the year 2014 increased and amounted to NIS 133,073 thousand compared to NIS 129,212 thousand in the corresponding period last year, a growth of 3.0%.

The increase in operating profit before other income and expenses, was achieved mainly through rationalization activities in administrative expenses and decline in center costs and the administration this in spite of the erosion in gross profit and in spite of the increase in selling expenses as a result of increase in sales promotions consumer campaigns and marketing expenses.

Evolution of Operating Profit (before other income/expenses) (In million NIS)

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The net profit of the Osem Group for the year 2014 amounted to the sum of NIS 396,556 thousand compared to NIS 376,428 thousand in the previous year, a growth of 5.3%. The net profit of the Group in the three months of the fourth quarter of the year 2014 amounted to the sum of NIS 96,853 thousand compared to NIS 90,412 thousand in the corresponding year, a growth of 7.1%. The increase in net profit resulted from the improvement in operating profit and a significant decline in financing expenses.

These improvements in the profit are mainly the results of the Company’s policy in the past years which is expressed in expansion of the activity with constant and continuing penetration of Nestle products, penetration to new activities in Israel and abroad, and the launching of new products, this in addition to the merging, automation and increase of efficiency processes. All of these factors establish Osem’s position as a leading food producer in Israel.

Selling, marketing and distribution expenses for the year 2014 increased and represented 22.8% of sales, compared to 22.2% in the corresponding period last year. The increase in selling expenses result from, among others, an increase in selling expenses as a result of increase in sales promotions consumer campaigns and marketing expenses.

General and administrative expenses for the year 2014 declined and represented 6.3% of the turnover, compared to 7.3% in the corresponding period last year. The decline in general and administrative expenses results from, among others, efficiency programs for the reduction in headquarters and administrative costs (MOGE project), decline in salary expenses and the cessation of the amortization period of intangible assets.

Net finance expense of the Group in the year 2014 amounted to the sum of NIS 3,749 thousand compared to NIS 22,761 thousand in the previous year. The decline in financing expenses results from, among others, decline in market interest rate, from the reduction in short term bank credit which constitutes only 0.2% of the balance sheet and from the increase in cash balances, and from repayment of liabilities from authorities with interest and linkage. The balance of finance expenses results mainly from non-cash-flow imputed interest, related to the PUT option to the non-controlling interests.

Other expenses net in the year 2014 totaled the sum of NIS 10,772 thousand compared to the sum of NIS 2,885 thousand in the corresponding period last year. The increase in other expenses is the result of, among others, one time accruals in the amount of NIS 9,800 thousand resulting from the expected changes in the commerce organization as the result of preparations in anticipation of the law.

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Analysis of the Groups business results according to operating segments

As the result of the internal reorganization, the compositions of respective reportable segments were changed. For details relating to the new operating segments and their results of their activities including information corresponding to previous periods, see Note 25 of the financial statements as at 31.12.14. The following are the financial results of the new reportable operating segments:

Culinary segment - for the year 2014 sales amounted to NIS 972,696 thousand compared to NIS 956,212 thousand in the corresponding period last year an increase of 1.7%. The profit declined from a level of NIS 123,308 thousand to a level of NIS 114,973 thousand, among others as a result as a result of increase in sales promotions consumer campaigns and marketing expenses.

Bakery, beverages, snacks and breakfast cereals segment - for the year 2014 sales amounted to NIS 1,135,363 thousand compared to NIS 1,118,786 thousand in the corresponding period last year an increase of 1.5%. The profit increased from a level of NIS 242,406 thousand to a level of NIS 258,570 thousand, among others as a result of the increase in sales and decrease in management, headquarters and administrative expenses.

International segment - for the year 2014 sales amounted to NIS 672,032 thousand compared to NIS 629,847 thousand in the corresponding period last year an increase of 6.7%. The profit increased from a level of NIS 52,216 thousand to a level of NIS 53,767 thousand. The increase in profit was achieved as a result of increase in sales and efficiency measures and advancement on the learning curve, this in spite of increase in marketing investment for the expansion and building of the brand overseas.

Infant nutrition segment - for the year 2014 sales amounted to NIS 358,480 thousand compared to NIS 358,644 thousand in the corresponding period last year a decline of 0.1%. The profit increased from a level of NIS 62,151 thousand to a level of NIS 62,395 thousand. The decline in sales, results from deepening of sales campaigns and increase of competition in the market.

Professional market and Assamim Gift Packages segment - for the year 2014 sales amounted to NIS 416,777 thousand compared to NIS 412,460 thousand in the corresponding period last year an increase of 1.0%. The profit also increased from a level of NIS 25,458 thousand to a level of NIS 27,639 thousand The increase in sales results from, among others, the development of dedicated solutions and building of a range of solutions for out of home consumption. The increase in profit results from, among others, increase in sales and decline in managerial expenses.

Other activities segment - for the year 2014 sales amounted to NIS 747,438 thousand compared to NIS 759,757 thousand in the corresponding period last year an decline of 1.6%. The profit amounted to the sum of NIS 31,958 thousand compared to the sum of NIS 32,005 thousand last year, Decline in sales and profit results from, among others, the result of the "Zuk Eitan" operation on sales in the summer months and the slowdown in the economy which mainly affected the soft drinks sector (Nestea), and on the ice cream sector (in spite of increase in Group's market share), mainily in out of house consumption.

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Condensed Quarterly Income Statements For the three months ending on Year Year ending ending on on 31 March 30 June 30 September 31 December 31 31 December December 2014 2014 2014 2014 2014 2013 (unaudited) (unaudited) (unaudited) (unaudited) (audited) (audited) NIS NIS NIS NIS NIS NIS

Thousands Thousands Thousands Thousands Thousands Thousands

Sales 1,068,191 1,027,326 1,128,876 1,032,227 4,256,620 4,190,047

Cost of Sales 618,500 597,570 654,420 604,829 2,472,819 2,426,336

Gross profit 449,691 429,756 474,456 427,398 1,783,801 1,763,711

Selling, marketing and distribution expenses 234,791 242,018 258,193 235,633 970,635 928,833

General and administrative expenses 75,235 62,562 71,836 58,692 268,325 306,320

Operating profit before other income (expenses) 139,665 125,176 144,427 133,073 542, 341 528,558

Other income (expenses) (2,186) (370) (7,398) (818) (10,772) (2,885)

Operating profit 137,479 124,806 137,029 130,798 531,569 525,673

Financing expenses, net (3,369) 2,280 (1,203) (1,457) (3,749) (22,761)

Profit before taxes on income 134,110 127,086 135,826 130,798 527,820 502,912

Taxes on income 34,575 28,928 33,816 33,945 131,264 126,484

Profit for the period 99,535 98,158 102,010 96,853 396,556 376,428

Liquidity, financing sources and cash flow

The cash flow in 2014 from current operations amounted to the sum of NIS 618,879 thousand compared to the sum of NIS 635,338 thousand in the previous year a decline of 2.6% resulting mainly from chnges in working capital. Cash flow from current operations allowed the company to repay and reduce its bank loans and to invest in automation of production lines, an investment which improved the output per employee.

The current ratio as at the balance sheet date is 1.77 The quick ratio as at the balance sheet date is 1.37 The liquidity ratio and liquidity reserve funds of the Group have constituted and will constitute the main financing sources for further expansion of the Group business activities in different product categories, building of new factories, expansion of production lines, and entrance in new areas of activity and this is accompanied by foreign financing if necessary.

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B. Exposure to and management of market risks

The management of risks in accordance with the policy that was set is the responsibility of Pinhas Kimelman, the Deputy CEO of Finance, a senior office holder in the Company. For details pertaining to his education/qualification, skills, business experience and other roles in the organization, appear in Regulation 26(A) in this Periodic Report.

Description of the market risks and the Company policy regarding market risks and management appear in section 28 "Discussion on risk factors" which is included in the Chapter describing the Corporation's business in this Periodic Report and also in Note 23 to the Financial Statements.

Control measures to ensure the implementation of the policy are effected by periodic follow up reports and by periodic audits performed by the Internal Auditor.

Linkage basis report as at 31 December 2014

For details regarding reporting on linkage basis see Note 23 in the financial statements.

Sensitivity analysis for financial instruments as at 31.12.14 (NIS thousand)

In all the sensitivity analyses (commodity costs, exchange rate, consumer price index and interest rates), the extreme change (+-10%) which the Company had to examine in the framework of sensitivity analyses, does not expose the company to a material risk.

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C. Corporate Governance Aspects

Disclosure on the Corporation's Internal Auditor

The Internal Auditor is CPA Ilana Cachalon who has been in this office since 2008, after her nomination had been approved by the Audit Committee and the Board of Directors. For details on the Internal Auditor, see Section 26(a) in Chapter D of the Periodic Report - Additional information on the Corporation. The Internal Auditor reports to both the Chairman of the Board and to the Company CEO. The Company internal audit annual work plan is based on risk mapping survey and was written in collaboration with the Company management. The plan includes the operation of the Company and its subsidiaries in Israel and abroad and has been approved by the Audit Committee of the Board. The plan allows the internal auditor leeway and flexibility. The Internal Auditor and her team work at a Full Time Equivalent of 5 vacancies/positions. About 12% was dedicated to the foreign subsidiary companies. The Audit is conducted in accordance with the Internal Audit Law 1992- 5752 and the accepted professional standards that were approved and published by the Internal Auditors' Board/Council in Israel, as well as according to the Nestle Audit best practices. In the view of the Board, the Internal Auditor meets the requirements of the standards and this is based on her notification as well as on the content of the audit reports and their findings, on her skills, experience and professionalism. The Internal Auditor has free, constant and direct access to all the data including access to the information systems of the corporation and to the financial data in all the Group subsidiaries in Israel and abroad. The procedure for approving material transactions during the period of the report, if there were, has been examined by the Internal Auditor. The reports of the Internal Auditors have been submitted in writing to the Chairman of the Board, to the CEO, to the Audit Committee and to the audited organs. In the year 2014 regular discussions were conducted in the audit committee relating to the audit reports and other discussions in the audit committee (5/1/2014, 9/1/2014, 16/1/2014, 12/2/2014, 9/3/2014, 13/3/2014, 11/5/2014, 26/5/2014, 28/8/2014, 17/11/2014, 20/11/2014).

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In the view of the Board, the scope of the internal audit work, its continued activity and its work plan is reasonable under the circumstances and they meet the targets set for the Group internal audit. The Audit Committee, together with the Group management and the Internal Auditor, reviews every year the appropriate scope required for the work of the Group internal audit. The compensation of the Internal Auditor is based on both salary and bonus payment as per the common practice among management team and according to the Company policy. In addition, the remuneration package of the internal auditor does not change in relation to the results of the Company, and therefore in the opinion of the Board the structure of the consideration received does not influence her professional judgment. The amount of annual compensation paid to the Internal Audit team totals NIS 2,109 thousand.

Remuneration for interested parties and senior office holders

A. The Company board of directors appointed the compensation policy committee in the framework of its function, among others, will recommend to the Company board of directors on the compensation policy for office holders in the company ("compensation policy"), and to decide on the approval of employment terms and tenure of office holders. Compensation Policy of the company was approved by the general assembly of the company on 3 September 2013 after the approval by the compensation committee and the board of directors. B. In accordance with the provisions of Regulation 10(b)(4) to the Securities Regulations (Periodic and Immediate Reports), 1970 (report standards) the Company board of directors is required to explain the link between the remuneration to senior office holders that were given according to Regulation 21 to the Reports Regulations (“Office Holders”), and the contribution of each one of these office holders to the Company during the reporting period; the Board is also required to state whether the consideration paid to the office holder is fair and reasonable.

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As part of the process of approving the financial statements dated 31.12.2014, the Board of Directors has thoroughly reviewed all the remunerating conditions of each of the office holders who are specified in Regulation 21 in Chapter D of the Periodic Report, for the year 2014. The review was performed for each of the office holders, separately, based on the information which was presented to the Board. After thorough examination conducted at the board of directors meeting of the company regarding each office holder appointed under regulation 21 of the reporting regulations, based on the information presented. The board of directors of the company (after a discussion on the subject took place in the compensation committee) that the compensation of each office holder mentioned matches the compensation policy.

Disclosure regarding the fees of the External Auditor

Below please see the details of the fees paid to the auditing accountants for external audit, services related to auditing and tax services in the Company and in the material investee companies

Name of Company: Certified Public 2014 2013 Accountant NIS Hours NIS Hours Thousands Thousands

Osem Investments Ltd. and some of the KPMG Somekh-Chaikin 1,409 6,830 1,410 6,868 subsidiary companies Foreign subsidiary companies of Tivall (1993) Ltd. KPMG 586 1,177 639 1,277

Certain subsidiary Rojansky, Halifi, Meiri 561 1,898 517 1,759 companies and Co.

In addition KILS 45 was paid to KPMG Somekh-Chaikin for special jobs. (Last year NIS 90 thousand).

The Group paid fees to different accountants for additional subsidiary companies which are not material.

The principles for determining auditor fees are based on the fees that were customary in previous years, linked to the CPI and relative to the level of audit activity expected in the financial reporting year if and whether there are material changes in the scope of the hours. The fees are approved by the board of directors and reported to the general meeting.

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The work of the Board of Directors

A. Insignificant transaction procedure On 31August, 2011, after having accepted the recommendation of the Audit Committee, the Board of the Company decided to adopt a procedure for approving insignificant transactions with interested party and with controlling shareholder in the Company. As stipulated in Regulation 41(a)(6), to the Securities Regulations (preparing the annual financial statements) – 2010 which provided a definition for transactions which will be regarded as insignificant , and for such transactions, as per the legal requirements, immediate reporting will not be required. For additional details see standard 22 section F (the additional details) B. Plan for compliance procedures related to Securities In addition to the directives and procedures existing in the Group and the training made The Group strives to upgrade and improve all the compliance procedures related to the Securities Law, according the criteria of recognizing a compliance program in the Securities, which were published by the ISA on August 15, 2011. The Group also uses the assistance of external consultants to fully implement the process. As at the date of the financial statement the Company has not yet completed the plan for compliance procedures related to securities

C. Board of Directors meetings The Company Board had 5 meetings during 2014. It should be noted that the Board Committees had additional meetings.

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Donations and Community activities

The Osem Group's actions are based on its belief that the value it is creating as a business organization is a shared value. Not just value for its shareholders alone; it also strives to create value for its consumers, employees and the other interested parties. This belief is more than an additional component of the Osem Group’s ongoing business operation. It is rather an integral part of the group’s strategy. With this view of broad social responsibility Osem consistently scores the platinum ranking in the Maalah (Business for Social Responsibility) index, and ranks among the top ten leading companies. At the foundation of the above belief lies Osem's commitment to comply with all the relevant duties incumbent on us by virtue of the law, as well as our contracts, operating principles, and codes. We are also committed to protecting the future, a commitment manifest in our steadfast adherence to the principles of environmental sustainability. Above all, Osem creates shared value with the community is part of its strategy, and is manifested by implementing this strategy on a day-today basis. This broad sense of responsibility is closely intertwined with Osem’s heritage, values, directors and employees – past and present.

A. Donations During 2014 the Osem Group continued to contribute to the community in money and money equivalents, in the amount of NIS 11 million.

B. Employees The Osem Group is meticulous about its employees’ rights, and is committed to creating a work environment well-suited to their needs. Driven by a deep-seated sense that the group’s devoted and professional workers are its greatest asset, Osem maintains an ongoing, productive and inspiring dialog with the employee unions. All of Osem’s regular production workers are employed directly by the Group (no contractor employees), and in conducting business with suppliers in specialized fields (security, catering, etc.) we take measures to ensure the rights of our contractors’ employees. The ongoing safety of our workers and suppliers is our ever-present concern and Osem goes to great lengths to protect its workers and prevent accidents, injuries and sickness. Osem takes a proactive approach when it comes to safety. Also, in the year 2014 the Company won the title" The Best Social Employer" in the Best Social Employer contest sponsored by "Calcalist", in collaboration with Maagalim Fund. The winner was determined by the parameters which checked, among others, maintaining of employees, balance between work and leisure, integration of women, employment of the elderly, average salary and wage gaps between men and women.

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C. Code of Business Conduct The Osem Group has a comprehensive and overt code of business conduct, which, thanks to our all- inclusive training program, is a living document, implemented regularly by our workers.

D. Environmental Issues The Osem Group’s commitment to the principles of environmental sustainability is manifest not only in its compliance with scrupulous standards of environmental protection, but also – and more importantly – in the Group’s proactive endeavors to reduce the adverse effects of its various activities on the environment. The Group’s various plants all take part in our multi-year objectives program, which aims to reduce harmful environmental influences, including air pollutant emission, energy consumption, and water consumption. In recent years, the Osem Group scored high on the various sustainability objectives.

E. Activity and Investment in the Community As mentioned above, Osem's view of its role in creating shared value dictates careful consideration for the benefit of all the different stakeholders. Below see several examples of this view: 1. Osem Group’s production sites being situated in provincial areas allows to create work places and opportunities for social mobility specifically in those places where this is most lacking. Osem is the largest employer in Sderot and the vast majority of our factories are located in the geographic and economic peripheries. 2. Osem implements the principles of social inclusion by employing excluded populations (minorities, individuals with special needs, gender equality) and by providing special needs’ populations with suitable work. In addition, the group strives to avail its products to as wide a target group as possible by continuously expanding its range of products suitable for sufferers of celiac disease 3. In creating the products Osem offers to the market, the Company places special emphasis on providing solutions to the real needs of the population, including compliance with high nutritional standards. In planning its product packages and the printed information they display, the Group is careful to maintain maximum transparency with respect to the product, its ingredients and its nutritional value and provides relevant information among other things by implementing Nestle’s Compass Program – making the information more accessible to consumers. 4. Osem works within the limits of self-imposed restrictions to ensure responsible advertising with regard to all our marketing activity. These self-imposed restrictions meet the Nestle Company’s standards which are more stringent than the local legal requirements. Osem occasionally collaborates in marketing enterprises with non-profit organizations working to promote communal aims.

O WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

The Osem Group promotes communal/social/economic development through a program under the theme of Food for Life. Our motivation for concentrating the bulk of our charitable activities on food is twofold: we are a large and well-established food company in the Israeli community, and through food donation we can maximally leverage our charity investment.

Osem's main recipient in this field is Latet ("To give" in Hebrew) – the Israeli Humanitarian Aid Organization, founded in 1996 with the mission of assisting underprivileged populations on a universal and egalitarian basis. Latet, Israel’s largest and most significant food bank is an umbrella organization that operates in conjunction with many local nonprofit organizations. This collaboration involves several enterprises which have been operating for various lengths of time.

To our great pride, the Osem Group has been the Latet Organization’s largest food donor for many years. In addition, Osem raises during the year, and especially during the High Holidays and Passover, food donations which during the past years were measured in many millions of NIS per year. Osem also regularly volunteers its delivery services to Latet – delivering the food donations to the organization’s warehouses

Osem's professionals, who specialize in areas relevant to the activities of Latet or the local organizations operating in conjunction with Latet, help upgrade these companies’ operations by providing assistance in areas such as nutrition, food quality assurance, safety, logistics etc. Apart from our prominent collaboration with Latet, we also operate a variety of social enterprises in the context of which Osem donates and volunteers – both as a group, and on the level of local activities specific to individual Osem sites.

The Osem Group has initiated, accompanied and supported on an ongoing basis the family Meal project. The project is in cooperation between Osem, Yediot Achronot and YNET for the encouragement of family meals during the middle of the week, with the understanding that family meals contribute to family dynamics, family communication and has a material value in children's education and their nutritional habits. The project is being accompanied by a staff of professional consultants from the field of family relations and nutrition and in the framework of the project studies are conducted, the value of the evening family dinner are communicated and practical tools are provided to the consumer community for the implementation of family dinners.

For the past few years the Osem Group is participating in "The day of good deeds" initiative of the Ruach Tova ("The Good Spirit") Organization. In the context of this initiative, groups of volunteers depart from all of the various Osem sites – on one predetermined day – to do some charitable act in the adjacent periphery. Osem was one of the first commercial companies to volunteer – as a company – for this social project.

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Throughout the year, organized blood drives are held on Osem’s various sites, enabling the employees to donate blood for a particular patient (sometimes a fellow employee) or for the public blood bank. The subsidiary company Materna has adopted the Arazim dormitory on Moshav Bnei Yitzchak, holding birthday parties for the children on a monthly basis. Materna’s employees and directors also volunteer at various other events held at Arazim throughout the year. The subsidiary company Bonjour supports the baking concentration at the Rogozin School in Kiryat Gat, which borders on the Bonjour factory. The ice cream employees gave out during the "Tzuk Eitan" operation ice cream to residents in the South and in the Gaza surroundings during the conflict. The Sderot factory maintains special collaboration with "Yachdav" organization which employs handicapped people. The Givol factory (Bamba) acts on an ongoing basis in children's wards at hospitals and also employs deaf youth, food donations to "Eliay", "Lisovah" and much much more...

D. Provisions on disclosure related to the Corporation's financial reporting

Dividends

On 8 April 2014 the company distributed a dividend in the amount of NIS 150 million and on 3 March 2015 the company declared an additional dividend in the amount of NIS 150 million. For details please see Note 26 C to the Financial Statements of the Company as at 31 December 2014.

Financial date related to the parent company

In accordance with Regulation 9.G to the Securities Regulations (Immediate and Periodic Reports) 1970, a separate financial statements of the Company (“Solo Report”) is attached herewith as an annex, with the opinion of the auditing accountant of the External Auditor.

Critical estimates

Note 2 (E) to the Financial Statements includes a description critical estimates used for the preparation of the financial statements, as during their formulation assumptions had to be made as to the circumstances and events. These estimates involve a high degree of uncertainty. When making the estimates the Company relies on the basis of past experience, various facts, external circumstances, and reasonable assumptions according to the pertinent circumstances of each estimate. Actual results may differ from these estimates.

The Board of Directors wish to thank the management and the employees for the efforts they have invested and the achievements they have attained and express their hope for further cooperation on both sides.

Dan Propper Itzik Saig Chairman of the Board of CEO Directors

Date: 26 March 2015 Q WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

Osem Investments Limited

Section C:

Financial Statements

December 31, 2014 WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

Investments Limited

Consolidated Statements as at 31 December

Financial Statements for the year ended December 31, 2014

Page

Consolidated Financial Statements as at 31 December 2014

Auditors’ Report 2 - 3

Consolidated Statements on Financial Position 4 - 5

Consolidated Income Statements 6

Consolidated Statements on Comprehensive Income 7

Consolidated Statements on changes in shareholders equity 8

Statements on Consolidated Cash Flows 9

Notes to the Financial Statements 10 - 57

Annex – list of Group companies 58

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

Somekh Chaikin Telephone 972 3 684 8000 KPMG Millennium Tower Fax 972 3 684 8444 17 Ha'arba'a Street, PO Box 609 Internet www.kpmg.co.il Tel Aviv 6100601 Israel

Auditors' Report to the Shareholders of Osem Investments Ltd. Regarding the Audit of Internal Control Components over Financial Reporting in accordance with paragraph 9b(c) of the Israeli Securities Regulations (Periodic and Immediate Reports), 1970

We have audited internal control components over financial reporting of Osem Investments Ltd. and its subsidiaries (hereinafter “the Company”) as of December 31, 2014. These control components were determined as explained in the following paragraph. The Company's Board of Directors and Management are responsible for maintaining effective internal control over financial reporting and for their assessment of the effectiveness of the Company’s internal control components over financial reporting accompanying the periodic report as of the above date. Our responsibility is to express an opinion on the Company’s internal control components over financial reporting based on our audit.

Audited Internal control components over financial reporting were determined in accordance with Auditing Standard 104 of the Institute of Certified Public Accountants in Israel “Audit of Internal Control Components over Financial Reporting”, and its amendments (hereinafter “Auditing Standard 104”). These components are: (1) Entity level controls, including controls over the preparation and closure of the financial reporting process and general information technology controls; (2) Controls over sales (local market); (3) Controls over inventory; (4) Controls over purchasing and trade payables payment (all these hereinafter are named together “audited control components”).

We conducted our audit in accordance with Auditing Standard 104. This standard requires us to plan and perform the audit to identify the audited control components and to obtain reasonable assurance about whether these control components were effective in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, identifying the audited control components, assessing the risk that a material weakness exists in the audited control components, and testing and evaluating the design and operating effectiveness of those control components based on the assessed risk. Our audit, regarding those control components, also included performing such other procedures as we considered necessary in the circumstances. Our audit referred only to the audited control components, as opposed to internal control over all significant processes related to financial reporting, therefore our opinion refers to the audited control components only. Our audit also did not refer to mutual effects between audited control components and non audited control components, therefore our opinion does not take into account these possible effects. We believe that our audit, provide a reasonable basis for our opinion in the context described above.

Because of its inherent limitations, internal control over financial reporting as a whole, and internal control components in particular, may not prevent or detect misstatements. Also, projections of any current evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Somekh Chaikin, an Israeli partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

In our opinion, the Company maintained, in all material respects, effective audited control components as of December 31, 2014.

We have also audited, in accordance with generally accepted auditing standards in Israel, the Company’s consolidated financial statements as of December 31, 2014 and 2013 and for each of the three years in the period ended December 31, 2014 and our report dated March 26, 2015 expressed an unqualified opinion on those financial statementsbased on our audit and on the reports of the other auditors.

Somekh Chaikin Certified Public Accountants (Isr.)

March 26, 2015

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

Somekh Chaikin Telephone 972 3 684 8000 KPMG Millennium Tower Fax 972 3 684 8444 17 Ha'arba'a Street, PO Box 609 Internet www.kpmg.co.il Tel Aviv 6100601 Israel

Auditors' Report to the Shareholders of Osem Investments Ltd.

We have audited the accompanying consolidated statements of financial position of Osem Investments Ltd. (hereinafter “the Company”) as of December 31, 2014 and 2013 and the consolidated income statements, statements of comprehensive income, statements of changes in equity and statements of cash flows, for each of the three years in the period ended December 31, 2014. These financial statements are the responsibility of the Company's Board of Directors and of its Management. Our responsibility is to express an opinion on these financial statements based on our audit.

We did not audit the financial statements of certain consolidated subsidiaries whose assets constitute 12.5 % and 12.4 % of the total consolidated assets as of December 31, 2014 and 2013, respectively, and whose revenues constitute 13.7 %, 13.7 % and 14 % of the total consolidated revenues for the years ended December 31, 2014, 2013 and 2012, respectively. The financial statements of those companies were audited by other auditors whose reports thereon were furnished to us, and our opinion, insofar as it relates to amounts emanating from the financial statements of such companies, is based solely on the reports of the other auditors.

We conducted our audit in accordance with generally accepted auditing standards in Israel, including standards prescribed by the Auditors Regulations (Manner of Auditor's Performance) - 1973. Such standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Board of Directors and by Management, as well as evaluating the overall financial statement presentation. We believe that our audit and the reports of the other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audit and on the reports of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company and its consolidated subsidiaries as of December 31, 2014 and 2013 and their results of operations, changes in equity and cash flows, for each of the three years in the period ended December 31, 2014, in accordance with International Financial Reporting Standards (IFRS) and in accordance with the Securities Regulations (Annual Financial Statements) - 2010.

We have also audited, in accordance with Auditing Standard 104 of the Institute of Certified Public Accountants in Israel “Audit of Internal Control Components over Financial Reporting, and its amendments, the components of the Company’s internal control over financial reporting as of December 31, 2014, and our report dated March 26, 2015 expressed an unqualified opinion on the effectiveness of such components.

Somekh Chaikin Certified Public Accountants (Isr.)

March 26, 2015

Investments Limited

Consolidated Statements as at 31 December

2014 2013 Note NIS thousands NIS thousands Assets

Cash and cash equivalents 5 471,197 328,059

Trade receivables 6 693,674 688,481

Other receivables 7 27,578 27,662

Income tax 19 10,694 5,464

Inventory 8 398,972 390,107

Other investments 9 164,548 7,067

Total current assets 1,766,663 1,446,840

Employee benefits 11 379 293

Fixed Assets 12 1,110,855 1,144,497

Intangible Assets 13 1,027,043 977,057

Prepaid Expenses 14 33,539 38,806

Deferred tax es 19 47,047 34,795

Total non-current assets 2,218,863 2,195,448

Total assets 3,985,526 3,642,288

Dan Propper - Chairman of the Board

Itzik Saig - CEO

Pinhas Kimelman - Deputy CEO Finance

The date of approval of the Financial Statements: 26 March 2015

4 WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

Investments Limited

2014 2013 Note NIS thousands NIS thousands

Liabilities

Loans and short-term credit from banks 15 7,845 29,212

Trade payables 16 756,676 710,463

Other creditors 17 224,462 223,976

Income tax 19 10,895 9,473

Total current liabilities 999,878 973,124

Liability for acquisition of non- controlling interest in subsidiary 18 372,902 342,514

Employee benefits 11 17,819 4,450

Deferred taxes 19 93,229 69,327

Total non-current liabilities 483,950 416,291

Total liabilities 1,485,391 1,389,415

Equity

Share Capital 176,772 176,772

Share premium 444,212 444,212

Reserves (63,793) (68,353)

Retained earnings 1,943,149 1,699,113

Total equity attributable to owners of the company 2,500,340 2,251,744

Non Controlling Interest 1,358 1,129

Total equity 2,501,698 2,252,873

Total liabilities and equity 3,985,526 3,642,288

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

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

2014 2013 2012 Note NIS thousands NIS thousands NIS thousands

Sales 22 A. 4,256,620 4,190,047 4,091,593 Cost of Sales 22 B. 2,475,319 2,426,336 2,411,998 Gross profit 1,781,301 1,763,711 1,679,595

Selling, marketing and distribution 22 C. expenses 970,635 928,833 885,610 General and administrative expenses 22 D. 268,325 306,320 282,962 Operating profit before other expenses 542,341 528,558 511,023

Other expenses, net 22 E. 10,772 2,885 7,030 Operating profit 531,569 525,673 503,993

Financing expenses 22 F. )24,880) (24,653) (33,726) Financing income 22 F. 21,131 1,892 4,088 Financing costs, net )3,749) (22,761) (29,638)

Profit before taxes on income 527,820 502,912 474,355 Taxes on income 19 131,264 126,484 117,013

Profit for the period 396,556 376,428 357,342

Attributed to: Company's Owners 396,324 375,985 356,886 Non Controlling Interest 232 443 456

Profit for the period 396,556 376,428 357,342

Net earnings per NIS 1 par value of the ordinary share capital

Basic and fully diluted net earnings (in NIS) 3.58 3.40 3.23

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

6 WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 Investments Limited

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

2014 2013 2012 NIS thousands NIS thousands NIS thousands

Profit for the period 396,556 376,428 357,342

Other comprehensive profit (loss) Amounts transfered to profit or loss Upon the occurrence of specific terms

Foreign currency translation differences from foreign operations 4,560 (20,338) 2,653

Amounts that will not be transfered to profit or loss

Actuarial gains (losses) from defined benefit plans (3,117) 4,543 5,993

Income tax from other components Of comprehensive income 826 (1,204) (1,498)

Total comprehensive income (loss) for the period 2,269 (16,999) 7,148

Total comprehensive income for the period 398,825 359,429 364,490

Attributed to:

Company's Owners 398,596 358,986 364,034

Non Controlling Interest 229 443 456

Total comprehensive income for the period 398,825 359,429 364,490

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

7 WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

Investments Limited Consolidated Statements on changes in shareholders equity

Capital reserve related to Acquisition of rights not Total Premium on Conferring control Other Retained Company's Rights not Total Share Capital shares Translation In a Consolidated Reserves earnings Owners Conferring equity reserve fund Company control NIS thousands NIS thousands NIS NIS thousands NIS NIS NIS NIS NIS thousands thousands thousands thousands thousands thousands Balance as at 1 January 2012 176,772 444,212 (14,687) (41,675) 1,694 1,262,408 1,828,724 230 1,828,954

Foreign currency translation differences - - 2,653 - - - 2,653 - 2,653 Actuarial gains (net after tax) - - - - - 4,495 4,495 - 4,495 Capital reserve for approved enterprise - - - - 4,000 (4,000) - - - Net profit for the year 2012 - - - - - 356,886 356,886 456 357,342 Total comprehensive income for the period - - 2,653 - - 357,381 364,034 456 364,490

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

Balance as at 31 December 2012 176,772 444,212 (12,034) (41,675) 5,694 1,469,789 2,042,758 686 2,043,444

Foreign currency translation differences - - (20,338) - - - (20,338) - (20,338) Actuarial gains (net after tax) - - - - - 3,339 3,339 - 3,339 Net profit for the year 2013 - - - - - 375,985 375,985 443 376,428 Total comprehensive income for the period - - (20,338) - - 379,324 358,986 443 359,429

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

Balance as at 31 December 2013 176,772 444,212 (32,372) (41,675) 5,694 1,699,113 2,251,744 1,129 2,252,873

Foreign currency translation differences - - 4,560 - - - 4,560 - 4,560 Actuarial gains (net after tax) - - - - - (2,288) (2,288) (3) (2,291) Net profit for the year 2014 - - - - - 396,324 396,324 232 396,556 Total comprehensive income for the period - - 4,560 - - 394,036 398,596 229 398,825

Dividend paid - - - - - 150,000 150,000 - 150,000

Balance as at 31 December 2014 176,772 444,212 (27,812) (41,675) 5,694 2,500,340 2,502,177 1,358 2,501,698

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

8 WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

Investments Limited

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

2014 2013 2012 NIS thousands NIS thousands NIS thousands Cash flows from operating activities Profit for the period 396,556 376,428 357,342 Adjustments for: Depreciation 121,337 114,204 114,809 Amortization of intangible assets And Prepaid Expenses 36,918 52,534 51,385 Loss on sale of fixed assets, net 3,023 155 503 Financing costs, net 3,749 22,761 29,638 Income tax expense 131,927 126,484 117,013 Change in derivatives (9,749) (4,642) 1,675

Change in inventory (4,463) 11,856 (18,633) Change in trade and other receivables 7,527 (18,201) (37,258) Change in trade payables and other creditors 32,073 76,330 44,959 Change in employee benefits 10,166 4,163 (2,979) Income tax paid (109,522) (126,734) (115,165)

Net cash from operating activities 618,879 635,338 543,289

Cash flows from investing activities Proceeds from sale of fixed assets 1,309 2,002 1,077 Other investments, net (157,505) 6,996 5,476 Acquisition of fixed assets (86,117) (145,009) (82,156) Investment in intangible assets and prepaid expenses (25,799) (20,624) (18,108) Interest received 9,336 1,227 2,456

Net cash used in investing activities (258,776) (155,408) (91,255)

Cash flows from financing activities Interest paid (10,552) (3,637) (29,251) Repayment of longterm loans - (13,303) (24,838) Credit from banks and others, net (24,885) (11,798) (52,544) Repayment of other liabilities (32,887) (30,904) (239,600) Dividend paid (150,000) (150,000) (150,000)

Net cash used in financing activities (218,324) (209,642) (496,233)

Change in cash and cash equivalents 141,636 270,288 (44,199) Cash and cash equivalents as at the beginning of the period 328,059 60,265 104,479 Effect of exchange rate fluctuations on cash balances and cash equivalents 1,502 (2,494) (15) Cash and cash equivalents as at the end of the period 471,197 328,059 60,265

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

9 WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

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

Note 1 – The Reporting Entity A. Osem Investments Limited (hereinafter – the “Company”) is an Israeli resident company incorporated in Israel. The consolidated financial statements of the Group as at 31 December 2014 include the statements of the Company and its subsidiary companies (hereinafter: The "Group") The controlling interest in the Group is Nestle S.A., Switzerland. The Group is involved in industrial and commercial activities in the food industry. The shares of the Company are registered for trade on the Tel Aviv Stock Exchange. B. Definitions In these financial statements - 1. Subsidiaries – Companies, including partnerships, the financial statements of which are fully consolidated, directly or indirectly, with the financial statements of the Company. 2. Related party – Within its meaning in IAS 24 (2009), “Related Party Disclosures”. 3. Interested party – Within their meaning in Paragraph (1) of the definition of an “interested party” in Section 1 of the Securities Law - 1968

Note 2 – Basis of Preparation A. Declaration on compliance with IFRS The annual financial statements are based on the international financial reporting standards (IFRS). These financial statements have been prepared in accordance with the Securities Regulations (Annual Financial Statements) – 2010. B. Functional and presentation currency These consolidated financial statements are presented in NIS, which is the Company’s functional currency, and have been rounded to the nearest thousand. The NIS is the currency that represents the principal economic environment in which the Company operates. C. Basis of Measurement The statements were prepared according to historical cost basis except for the following assets and liabilities: Inventory (cost or net realizable value) of financial instruments at fair value via profit and loss and obligations for payments based on shares which will be dismissed in cash, deferred tax assets and liabilities, provisions and assets and obligations for employee benefits. Additional information related to the measurement of these assets and liabilities see Note 3 following. The value of non-monetary assets and equity items that were measured on the historical cost basis was adjusted to changes in the CPI until December 31, 2003, since until that date the Israeli economy was considered hyper inflationary. D. Operational turnover The operational turnover of the Group does not exceed a year. As a result included in current assets and current liabilities are items which are due to and anticipated to be realized during the normal turnover period of the Group

10 WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

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

Note 2 – Basis of Preparation (cont'd)

E. Use of estimates and judgments The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions which affect the application of the policy and the amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. The preparation of accounting estimates used in the preparation of the Company’s financial statements requires management to make assumptions regarding circumstances and events that involve considerable uncertainty. The Company Management prepares the estimates on the basis of past experience, various facts, external circumstances, and reasonable assumptions according to the pertinent circumstances of each estimate. The estimates and assumptions made in their respect are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Critical estimates Critical estimates -resented hereunder is information about critical estimates, made while implementing Group accounting policies and which have a most significant effect on the financial statements: Contingent liabilities - When assessing the possible outcomes of legal claims that were filed against the Company and its subsidiary companies, the companies relied on the opinions of their legal counsel. The opinions of their legal counsel are based on the best of their professional judgment, and take into consideration the current stage of the proceedings and the legal experience accumulated with respect to the various matters. As the results of the claims will ultimately be determined by the courts, they may be different from such estimates. Valuation of intangible assets and goodwill – the Group is required in business combinations to measure the assets acquired and the liabilities assumed based on an estimate of their fair values. These value estimates require Management to make use of significant estimates and assumptions. The material intangible assets recognized include mainly goodwill, know-how and trademarks. Critical estimates used in evaluating the useful lives of such intangible assets include, among others, an estimate of the usage period of the know-how and trademarks and the expected developments in the market. Recoverable amount of a cash generating unit. When determining the recoverable amount of a cash generating unit containing goodwill for the purpose of testing it for impairment, management uses assumptions regarding the pre-tax discount rate and a budgeted EBITDA growth rate. Allowance for doubtful debts – the Company follows the guidelines set forth in IAS 39 in determining whether there has been a decline in value of the trade receivables. This determination requires exercise of significant judgment. In exercising this judgment, the Group takes into account, among other factors, the level of securities that are available to the Group, the age of the receivables, history of the bad debts, debt repayment behavior, financial strength and short-term analysis of the customer’s business along with the trends in the industry. Obligation for PUT Options of the Non Controlling Interest in a Consolidated Subsidiary - The present value of the obligation for PUT options to the non controlling interest in a consolidated subsidiary is based on profit and cash flow forecasts. Any changes to these forecasts affect the book value of the obligation for acquisition of the non controlling interest in a consolidated subsidiary. These forecasts are based on assumptions found to be reasonable in the management's opinion, but they include uncertainty and as a result the actual results could differ. Deferred Tax Assets - The Group recognizes deferred tax assets and liabilities for the difference between the book value of the assets and liabilities and their tax value. The Group examines on a regular basis the recoverability of deferred tax assets based on the historical taxable income, anticipated taxable income and anticipated date of reversal of temporary differences. If the Group is unable to create enough taxable income in certain tax territories, or during the period of anticipated reversal of temporary differences, the Group is likely to delete part of the deferred tax assets. Share Based Payment - The Group has several employee compensation plans among them also phantom options for compensation of senior employees. The fair value of the phantom options is based on certain assumptions, including, the standard deviation of the share price. These assumptions are based on forecasts of sales and earnings per share. Material gaps between the market performance of the share, the employee realization behavior, the Group's sales and the earnings per share data anticipated verses the actual results.

11 WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

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

Note 2 – Basis of Preparation (cont'd)

F. Capital management – objectives, procedures and processes Management’s policy is to maintain a strong capital base in order to preserve the ability of the Company to continue operating so that it may provide a return on capital to its shareholders, benefits to other holders of interests in the Company such as credit providers and employees of the Company, and sustain future development of the business. The Board of Directors also monitors the level of dividends to ordinary shareholders.

Note 3 - Significant Accounting Policies

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by Group entities. A. 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 profits of acquired share includes the portion of non controlling to whom the PUT option was issued.

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

Note 3 - Significant Accounting Policies (cont'd) A. Basis of Consolidation (cont'd) 4. Transactions with Non-Controlling Interests, while Maintaining Control Commencing 1 January 2010 transactions with non controlling interests, while maintaining control, are treated as equity transactions. Any difference between the consideration paid or received to change rights not conferring control are charged to the equity holder's share in the Company in a separate capital reserve.

5. Non Controlling 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 other comprehensive income is allocated to the owners of the Company and to the non controlling interests even when the result is a negative balance of the 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, except instruments not at fair value through profit or loss, in addition any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial instruments are measured as described below. A financial asset is recognized when the Group assumes upon itself the contractual conditions of the instrument. Financial instruments are derecognized when the contractual rights of the Group to the cash flows deriving from the financial assets expire, or when the Company transfers to others the financial assets without retaining control over the asset or actually transfers all the risks and rewards deriving from the asset. Regular way purchase or sale of financial assets are recognized on the trade date, meaning on the date the Company undertook to purchase or sell the asset. Financial liabilities are derecognized when the obligation of the Group, as specified in the agreement, expires or when it is settled or cancelled.

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

Note 3 - Significant Accounting Policies (cont'd) C. Financial Instruments (cont'd) 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. 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 23.

D. Fixed Assets 1. Recognition and measurement Fixed asset items are measured at cost less accumulated depreciation and accumulated impairment losses. The cost of certain fixed asset items at January 1, 2007, the Group’s date of transition to IFRSs, was determined by reference to its fair value at that date (deemed cost). Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of 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.

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

Note 3 - Significant Accounting Policies (cont'd) D. Fixed Assets (cont'd) 2. Subsequent expenditure The cost of replacing part of a fixed asset item is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of day-to-day servicing are recognized in profit or loss as incurred.

3. Leased assets Capital land leases from the Israel Lands Administration where the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. The balance of the leases are classified as operating leases, where the leased assets are not recognized in the statement of financial position of the Group. In leases of land and buildings, the land and building component are examined separately for the purpose of classifying the leases, while a major consideration in the classification of the land component is the fact that land generally has an indefinite life.

4. Depreciation Depreciation is a systematic allocation of the depreciable amount of an asset over its useful life. The depreciable amount is the cost of the asset, or other amount substituted for cost, less its residual value. Depreciation is recognized in profit or loss on a straight-line basis, from the date the assets are available for use, over the estimated useful lives of each part of the fixed asset item, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Leased assets under finance lease agreements including lands are depreciated over the shorter of the lease term and their useful lives. Owned lands are not depreciated. The estimated useful lives for the current and comparative periods are as follows: Buildings, 20-35 years Machinery, 10-20 years Computers, furniture, and equipment, 3-5 years Motor vehicles, 4-7 years Leasehold improvements, Over the lease period Leased land Over the lease period Excess cost of investment allocated to specific assets is depreciated according to the remaining balance to be depreciated at the date the excess cost was allocated. Depreciation methods, useful lives and residual values are reviewed at least at each reporting date.

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Investments Limited

Notes to the Financial Statements as at 31 December 2014

Note 3 – Significant Accounting Policies (cont'd) E. Intangible Assets 1. Goodwill and intangible assets with indefinite lives Goodwill and intangible assets having an indefinite life, that arise upon the acquisition of subsidiaries is included in intangible assets. For information on measurement of goodwill at initial recognition, see Paragraph A (1) above In subsequent periods goodwill is measured at cost less accumulated impairment losses. In consecutive periods goodwill is measured at cost less accumulated impairment losses.

2. Other Intangible Assets Other intangible assets that are acquired by the Group, which have finite useful lives, are measured at cost less accumulated amortization and accumulated impairment losses.

3. Subsequent expenditure Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognized in profit or loss as incurred.

4. Amortization Amortization is a systematic allocation of the amortizable amount of an intangible asset over its useful life. The amortizable amount is the cost of the asset, less its residual value. Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of the intangible asset item, from the date available for use since this method most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Goodwill and intangible assets having an indefinite useful life are not systematically amortized but are tested for impairment. The estimated useful lives for the current and comparative periods are as follows: Use rights of computer software, 3-5 years Equipment for advertising and sales promotion, 3-5 years Distribution, know-how, brand and non-competition rights, 3-10 years The estimates regarding the amortization method and useful life are reassessed at each reporting date. Intangible assets having an undefined useful life include a trademark that has an undefined useful life since there is no discernible limitation on the period in which the trademark is expected to produce net positive cash flows for the Company The Group examines the useful life of an intangible asset that is not periodically amortized in order to determine whether events and circumstances continue to support the decision that the intangible asset has an indefinite useful life. All of the intangible assets are amortized to general and administrative expenses except for equipment for advertising and sales promotion, distribution and brand which are amortized to sales, marketing and distribution expenses.

F. Inventory Inventories are measured at the lower of cost and net realizable value. The cost of inventories includes expenditure incurred in acquiring the inventories and the costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity. The cost of purchased finished products is based on first-in first-out (FIFO), the average weighted average cost method is used to calculate cost of other inventories. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

16 WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

Investments Limited

Notes to the Financial Statements as at 31 December 2014

Note 3 – Significant Accounting Policies (cont'd) G. Impairment

1. Financial assets A financial asset is tested for impairment when objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognized in profit or loss. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognized. 2. Non financial assets The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Once a year and on the same date for each asset, the Group determines the recoverable amount of goodwill and intangible assets that have indefinite useful lives or are unavailable for use, or more frequently if their a signs indicating impairment. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its net selling price (fair value less costs to sell). In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”). For the purpose of assessing the impairment of goodwill, the cash generating unit to which the goodwill was allocated is combined in such a way the level at which the impairment of goodwill is measured reflects the lowest at which the goodwill can be monitored for internal purposes but in any case is not greater than the segment activity. The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash-generating units that are expected to benefit from the synergies of the combination. An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amounts of the other assets in the cash-generating of unit on a pro rata basis.

H. Employee benefits 1. Post-employment benefits The Group has a number of post-employment benefit plans. The plans are usually financed by deposits with insurance companies or with funds managed by a trustee, and they are classified as defined contribution plans and as defined benefit plans. A. Defined contribution plans. Defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and has no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognized as an expense in profit or loss when they are due. B. Defined benefit plans A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Group’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value, and the fair value of any plan assets is deducted.

17 WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

Investments Limited

Notes to the Financial Statements as at 31 December 2014

Note 3 – Significant Accounting Policies (cont'd) H. Employee benefits (cont'd) B. Defined benefit plans (cont'd)

Commencing in year 2014, in line with the stance of the staff at the Securities Authority, the discount rate is the yield at the reporting date on high quality linked corporate debentures, until and including 2014 was calculated based on Government debentures, denominated in Shekels, that have maturity dates approximating the terms of the Group’s obligations. The calculation is performed by a qualified actuary using the projected unit credit method. When the calculation results in an asset for the Group, an asset is recognized up to the net present value of economic benefits available in the form of a refund from the plan or a reduction in future contributions to the plan. An economic benefit in the form of refunds or reductions in future contributions is considered available when it can be realized over the life of the plan or after settlement of the obligation. When in the framework of a minimum contribution requirement, there is an obligation to pay additional amounts for services that were provided in the past, the Company recognizes an additional obligation (increases the net liability or decreases the net asset), if such amounts are not available as an economic benefit in the form of a refund from the plan or the reduction of future contributions. Re measurements of the net defined benefit liability (asset) comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest). Re measurements are recognized immediately directly in retained earnings through other comprehensive income. Interest costs on a defined benefit obligation, interest income on plan assets and interest from the effect of the asset ceiling without gain are recognized in profit and loss When there is an improvement in the benefits which the Group provides the employees, the portion of the increased benefit relating to past service by employees are recognized immediately in profit or loss when the plan correction occurs. The Group has manager insurance policies which were issued before the year 2004 and according to the terms of the policy the real gains that accumulated on the severance pay component will be paid to the employee upon his retirement. For the said policies, the plan assets include the balance of the severance pay component and the balance of the real gains that accumulated (if accumulated) on deposits for severance pay until the reporting date are disclosed at fair value. These plan assets are used for a defined benefit plan which includes two liability components: A defined benefit plan component for severance pay, calculated actuarially as mentioned above, and an additional component which is a liability to pay the remaining real gain accumulated (if accumulated) at the employees retirement. This component is measured at the balance of real gain actually accumulated at the reporting date.

The Company offsets an asset relating to one benefit plan from the liability relating to another benefit plan only when there is an available legally enforceable right to use the surplus of one plan to settle the obligation in respect of the other plan, and there is intent to settle the obligation on a net basis. Also, the company has other post employment plans relating presents to retired employees and deferred benefits to employees already retired. 2. Other long-term benefits The Group’s net obligation in respect of long-term employee benefits other than pension plans is the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of any related assets is deducted. The discount rate is the yield at the reporting date on high quality linked corporate debentures denominated in Shekels, that have maturity dates approximating the terms of the Group’s obligations. The calculation is performed using the projected unit credit method. Any actuarial gains or losses are recognized in profit or loss in the period in which they arise. 3. Termination benefits Short-term benefits Termination benefits for voluntary redundancies are recognized as an expense if the Group has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably.

18 WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

Investments Limited

Notes to the Financial Statements as at 31 December 2014

Note 3 – Significant Accounting Policies (cont'd) H. Employee benefits (cont'd) B. Defined benefit plans (cont'd)

4. Short-term benefits Short-term employee benefit obligations are measured on an un-discounted basis and are expensed as the related service is provided. A provision for short term employee benefits in respect of a cash bonus or profit sharing plan is recognized when the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. The employee benefits are classified, for measurement purposes, as short-term benefits or as other long- term benefits based on forecasts of the Group as to when the benefits will be fully settled. 5. Share-based payment transactions The fair value of the amount payable to employees in respect of share appreciation rights, which are settled in cash, is recognized as an expense with a corresponding increase in liabilities, over the period that the employees become unconditionally entitled to payment. The liability is re-measured at each reporting date and at settlement date. Any changes in the fair value of the liability are recognized as a salary expense in profit or loss. I. Provisions A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Legal claims A provision for claims is recognized if the Group has a present legal or a constructive obligation due to an event in the past and it is more likely than not that the Group will need economic recourses to settle the obligation and the amount of obligation can be estimated reliably.

J. Revenue

1. Goods sold Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. When the credit period is short and constitutes the accepted credit in the industry, the future consideration is not discounted. Revenue is recognized when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. Transfers of risks and rewards vary depending on the individual terms of the contract of sale. For sales of products in Israel, transfer usually occurs when the product is received at the customer’s warehouse, but for some international shipments transfer occurs upon loading the goods onto the relevant carrier.

2. Commissions When the Group acts in the capacity of an agent rather than as the principal in a transaction, the revenue recognized is the net amount of commission.

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Investments Limited

Notes to the Financial Statements as at 31 December 2014

Note 3 – Significant Accounting Policies (cont'd) J. Revenue (cont.)

3. Government grants Government grants are recognized initially when there is reasonable assurance that they will be received and the Group will comply with the conditions associated with the grant. Grants that compensate the Group for expenses incurred are recognized in profit or loss on a systematic basis in the same periods in which the expenses are recognized. Government grants that compensate the Group for the cost of an asset are presented as a deferred income or as a deduction from the asset and are recognized in profit or loss on a systematic basis over the useful life of the asset. Grants from the Chief Scientist in respect of research and development projects are accounted for as forgivable loans according to the provisions of IAS 20. Accordingly, grants received from the Chief Scientist are recognized as a liability according to their fair value on the date of their receipt, unless on that date it is reasonably certain that the amount received will not be refunded. The amount of the liability is reexamined each period, and any changes in the present value of the cash flows discounted at the original interest of the grant are recognized in profit or loss.

K. Financing income and expenses Financing income comprises interest income on funds invested, gains on the disposal of financial assets, changes in the fair value of financial assets at fair value through profit or loss Interest income is recognized as it accrues in profit or loss, using the effective interest method. Financing expenses comprise interest expense on borrowings, changes in time value of provisions, changes in the fair value of financial assets at fair value through profit or loss and impairment losses recognized on financial assets. All borrowing costs, which are not discounted, are recognized in profit or loss using the effective interest method. Foreign currency gains and losses are reported on a net basis.

L. Income tax expense A. Income tax expense comprises current and deferred tax. Income tax expense is recognized in profit or loss except to the extent that the tax relates to transaction or event which are recognized directly to equity. In these cases, tax expenses on income are attributed to other comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognized using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries, to the extent that it is probable that they will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. B. A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. The Group may be required to pay additional tax if a dividend is distributed between Group companies. This additional tax was not included in the financial statements, since the policy of the Group companies is to not distribute a dividend which creates an additional tax liability for the Group in the foreseeable future. C. Taxes on inter-company transactions Deferred tax in respect of inter-company transactions in the consolidated financial statements is recorded according to the tax rate applicable to the buying company. 20 WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

Investments Limited

Notes to the Financial Statements as at 31 December 2014

Note 3 – Significant Accounting Policies (cont'd)

L. Income tax expense (cont'd)

D. Offset of current tax assets and liabilities The Group offsets current tax assets and liabilities if there is a legally enforceable right to offset current tax liabilities and assets, and there is intent to settle current tax liabilities and assets on a net basis or the tax assets and liabilities will be realized simultaneously. E. Offset of deferred tax assets and liabilities The Group offsets deferred tax assets and liabilities if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

M. Earnings per Share (EPS)

The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Group by the weighted average number of ordinary shares outstanding during the period.

N. Transactions with controlling shareholder

Assets and liabilities included in a transaction with a controlling shareholder are measured at fair value on the date of the transaction. As the transaction is on the equity level, the Company includes the difference between the fair value and the consideration from the transaction in its equity.

O. New standards and interpretations not yet adopted 1. International Financial Reporting Standard IFRS 9 (2014) - Financial Instruments. A final version of the standard, which includes revised guidance on the classification and measurement of financial instruments, and a new model for measuring impairment of financial assets. This guidance has been added to the chapter dealing with general hedge accounting requirements issued in 2013 Classification and measurement in accordance with IFRS 9 (2014), there are three principal categories for measuring financial assets: amortized cost, fair value through profit and loss and fair value through other comprehensive income. the basis of classification for debt instruments being the entity’s business model for managing financial assets and the contractual cash flow characteristics of the financial asset. Investments in equity instruments will be measured at fair value through profit and loss (unless the entity elected at initial recognition to present fair value changes in other comprehensive income). The standard requires that changes in fair value of financial liabilities designated at fair value through profit or loss that are attributable to changes in its credit risk, should usually be recognized in other comprehensive income. Impairment of financial assets - The standard presents a new ‘expected credit loss’ model for calculating impairment for most financial assets, the new model presents a dual measurement approach for impairment: if the credit risk of a financial asset has not increased significantly since its initial recognition, an impairment provision will be recorded in the amount of the expected credit losses that result from default events that are possible within the twelve months after the reporting date. if the credit risk of a financial asset has not increased significantly since its initial recognition, an impairment provision will be recorded in the amount of the expected credit losses that result from default events that are possible within the twelve months after the reporting date. The Standard applies to annual periods commencing on January 01, 2018 or thereafter, with early adoption being permitted It will be applied retrospectively with some exemptions The Group has not yet examined the implications of adopting the standard on its financial statements.

21 WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

Investments Limited

Notes to the Financial Statements as at 31 December 2014

Note 3 – Significant Accounting Policies (cont'd)

O. New standards and interpretations not yet adopted (cont'd)

2. International Financial Reporting Standard IFRS 15 (2014) - Revenue from Contracts with Customers. The standard replaces the current guidance regarding recognition of revenues and presents a new model for recognizing revenue from contracts with customers. The standard provides two approaches for recognizing revenue: at a point in time or over time. The model includes five steps for analyzing transactions so as to determine when to recognize revenue and at what amount. Furthermore, the standard provides new and more extensive disclosure requirements than those that exist under current guidance. The Standard applies to annual periods commencing on January 01, 2017 or thereafter, with early adoption being permitted The standard includes various alternative transitional provisions, so that companies can choose between one of the following alternatives at initial application: full retrospective application, full retrospective application with practical expedients, or application as from the mandatory effective date, with an adjustment to the balance of retained earnings at that date in respect of transactions that are not yet complete. The Group has not yet examined the implications of adopting the standard on its financial statements.

3. Improvements to IFRSs 2010-2012 and 2011-2013 projects, As part of the Improvements to IFRSs projects, the IASB published amendments to 8 IFRS. The following are the amendments relevant to the Group which affect the financial statements: Amendment to IFRS 8, Operating Segments, on disclosure concerning the entity’s aggregation of operating segments and its assets. The amendment adds requirements regarding disclosure of management’s judgments in applying the aggregation criteria to operating segments The amendment also clarifies that an entity shall only provide reconciliations of the total of the reportable segments' assets to the entity's assets if this information is reported regularly to the chief operating decision maker. The Standard applies to annual periods commencing on July 01, 2014 or thereafter, with early adoption being permitted In the opinion of the Group, application of the amendment will expand the disclosure requirements applicable to the Company as the result of aggregation of segments in the financial statements.

Note 4 - Determination of Fair Values A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and / or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

In determining the fair value of an asset or liability the Group uses observable market data as much as possible. There are three levels of fair value measurements in the fair value hierarchy that are based on the data used in the measurement, as follows: Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly Level 3: inputs that are not based on observable market data (unobservable inputs).

A. Fixed Assets The fair value of fixed assets recognized as a result of a business combination is based on market values. The market value of fixed assets is the estimated amount for which a fixed asset could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction .

B. Intangible Assets The fair value of patents and trademarks acquired in a business combination is based on the discounted estimated royalty payments that have been avoided as a result of the patent or trademark being owned. The fair value of other intangible assets is based on the discounted cash flows expected to be derived from the use and eventual sale of the assets.

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Investments Limited

Notes to the Financial Statements as at 31 December 2014

Note 4 - Determination of Fair Values (cont'd)

C. Inventory The fair value of inventories is determined based on the estimated selling price in the ordinary course of business less the estimated costs of completion and sale, and a reasonable profit margin based on the effort required to complete and sell the inventories.

D. Derivatives The fair value of foreign currency forward exchange contracts is based on their listed market price, if available. If a listed market price is not available, then fair value is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract using an appropriate interest rate.

E. Non-derivative financial liabilities Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date.

F. Fair value of share based payments The fair value of phantom options is based on certain assumptions, including, the standard deviation of the share price. price and estimations related to the forecast of earnings per share, see also Note 20 A. 11.

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Investments Limited Notes to the Financial Statements as at 31 December 2014

Note 5 - Cash and Cash Equivalents

Composition: Interest rate December 31 December 31 2014 2014 2013 % NIS Thousands NIS Thousands

Bank and cash box balances 95,877 60,445 Call deposit account 0.16-0.51 375,320 267,614

471,197 328,059

Note 6 – Trade Receivables

Composition:

As at December 31 2014 2013 NIS Thousands NIS Thousands

On open account 581,298 588,952 Checks receivable 141,202 124,250 722,500 713,202 Less - provision for doubtful debts 28,826 24,721

693,674 688,481

Note 7 - Other Receivables and Debit Balances

Composition:

As at December 31 2014 2013 NIS Thousands NIS Thousands

Employees receivables 2,268 2,527 Advances to suppliers 132 1,379 Prepaid Expenses 14,615 15,057 Other receivables 10,563 8,699

27,578 27,662

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Investments Limited Notes to the Financial Statements as at 31 December 2014

Note 8 - Inventory

Composition:

As at December 31 2014 2013 NIS Thousands NIS Thousands

Raw materials 61,165 62,574 Packaging and auxiliary materials 49,697 40,988 Work in process 22,344 17,611 Finished and purchased goods 236,284 237,050 369,490 358,223 Inventory in transit 29,482 31,884

398,972 390,107

Note 9 - Other Investments

Composition: Interest rate December 31 December 31 2014 2014 2013 % NIS Thousands NIS Thousands

Short term loan Linked to the CPI + 4% 1,136 1,328 Deposit in NIS 0.50 - 0.37 130,142 - Deposit in NIS linked to CPI 0.35 3,173 - Deposit in Pounds sterling 0.75 10,603 5,739 Depost in in US Dollars 0.51 - 0.42 19,494 -

164,548 7,067

Note 10 - Dividend

Details on dividend the Company received from subsidiary companies:

Year ended December 31 2014 2013 2012 NIS Thousands NIS Thousands NIS Thousands

36,309 69,520 65,425

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Investments Limited Notes to the Financial Statements as at 31 December 2014

Note 11 - Employee Benefits

The Israeli Severance Pay Law requires the Company to pay severance pay to an employee who is dismissed or retires. The liability of the Company for employee benefits is calculated on the basis of the employment agreement in effect and is based on the salary of the employee that, in the opinion of management, creates the right to receive severance pay. Regarding employees to whom section 14 of the Severance Pay Law, 1963 applies, the company treats as a defined benefit plan The current deposits of the company to pension funds and insurance company policies, exempt the company from all additional obligations to employees, for which the mentioned deposits were made. The portion of the severance payments that is not covered by deposits as aforementioned, as are other post employment programs, is accounted for by the Company as a defined benefit plan, and the liability for employee benefits is recorded accordingly.

A. Net plan liability:

As at December 31 2014 2013 NIS Thousands NIS Thousands

Present value of liabilities (51,505) (*) (41,628) Fair value of plan assets 34,065 (*) 37,471 Total employee benefits (17,440) (4,157)

B. Presented under the following items:

2014 2013 NIS Thousands NIS Thousands

Non-current assets – employee benefits 379 293 Non-current liabilities – employee benefits (17,819) (4,450) Defined benefit obligations at December 31 (17,440) (4,157)

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

2014 2013 NIS Thousands NIS Thousands

Defined benefit obligations at January 1 41,628 46,103 Benefits paid by the plan (5,436) (5,737) Expense recognized in profit or loss Current service costs 11,270 5,876 Interest costs 857 1,092 Recognized in other comprehensive profit Actuarial losses (profits) 3,186 (5,706) Defined benefit obligations at December 31 51,505 41,628

(*) reclassified

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Investments Limited Notes to the Financial Statements as at 31 December 2014

Note 11 - Employee Benefits (cont'd)

D. Movement in plan assets

As at December 31 As at December 31 2014 2013 NIS Thousands NIS Thousands

Fair value of plan assets as at January 1 37,471 41,566 Contributions paid into the plan 1,241 1,295 Benefits paid by the plan (5,425) (4,935) Interest income recognized in profit and loss 709 708 Actuarial profits (losses) recognized in other comprehensive income 69 (1,163) Fair value of plan assets as at December 31 34,065 37,471

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

Year ended December 31 2014 2013 2012 % % %

Discount rate as at December 31 1.72 - 3.27 1.72 - 4.90 2.11 - 4.82 Future salary increases 1.00 - 2.50 1.00 - 2.50 1.00 - 2.50

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

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

Year ended December 31 2014 2013 2012 NIS Thousands NIS Thousands NIS Thousands

Amount recognized as employee expense For which section 14 of the Severance Pay Law applies 34,284 33,737 32,713

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Investments Limited Notes to the Financial Statements as at 31 December 2014

Note 12 – Fixed Assets

A. Composition:

Computers, Furniture & Land and Motor office Leasehold equipment buildings Machinery vehicles equipment improvements Total NIS NIS NIS NIS NIS NIS Thousands Thousands Thousands Thousands Thousands Thousands

Cost or deemed cost As at 31 December 2013 803,015 998,838 3,523 389,769 49,648 2,244,793 Additions for the year 2013 6,927 101,682 651 35,819 4,297 149,376 Effect of movements in exchange (11,187) (13,798) (35) (488) (5) (25,513) Disposalsrates - (4,428) (674) (7,990) (48) (13,140) Balance as at 31 December 2013 798,755 1,082,294 3,465 417,110 53,892 2,355,516

Additions for the year 2014 7,503 39,302 443 32,844 5,497 85,589 Effect of movements in exchange 4,627 5,567 23 515 12 10,744 Disposalsrates (83) (41,730) (594) (20,727) (221) (63,355) Balance as at 31 December 2014 710,802 1,085,433 3,337 429,742 59,180 2,388,494

Depreciation As at 1 January 2013 199,388 622,792 2,546 266,122 25,955 1,116,803 Charged for the year 2013 22,001 54,830 391 33,682 3,300 114,204 Effect of movements in exchange (1,936) (6,682) (27) (356) (4) (9,005) Disposalsrates - (3,486) (559) ( 6,902) (36) (10,983) Balance as at 31 December 2013 219,453 667,454 2,351 292,546 29,215 1,211,019

Charged for the year 2014 22,669 58,904 331 35,811 3,622 121,337 Effect of movements in exchange 941 3,044 28 295 (2) 4,306 Disposalsrates (72) (40,944) (603) (17,183) (221) (59,023) Balance as at 31 December 2014 242,991 688,458 2,107 311,469 32,614 1,277,639

Carrying amounts As at 31 December 2013 579,302 414,840 1,114 124,564 24,677 1,144,497 Carrying amounts As at 31 December 2014 567,811 396,975 1,230 118,273 26,566 1,110,855

B. The depreciated cost of the assets in the balance sheet is stated net of investment grants in respect of investments made in an "approved enterprise" in the amount of NIS 28,077 thousand (December 31, 2013 – NIS 31,432 thousand).

C. Regarding liens and cancellation of liens - See Note 20 (B)

D. Acquisition of fixed assets on credit On 31 December 2014, the balance of fixed assets acquired on credit amounted to NIS 31,135 thousand, as at 31 December 2013 - NIS 31,640 thousand

E. The Group has rights in land under capitilized finance leases ending between the years 2022- 2103 in the amount of NIS 118,057 thousand (31.12.13 - NIS 120,506 thousand).

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Investments Limited Notes to the Financial Statements as at 31 December 2014

Note 13 - Intangible Assets

Goodwill and assetsIntangible Customer Assets Advertising relations Sales and Rights, know Having an Use right of promotion How and Indefinite of computer Equipment Non useful life software competition Total

NIS Thousands NIS Thousands NIS Thousands NIS Thousands NIS Thousands

Cost Balance as at 31 January 2013 1,002,642 119,861 3,009 77,862 1,203,374 Additions for the year 2013 - 785 644 - 1,429 Changes from linkage of obligations related Acquisition to of non controlling interest (6,259) - - - (6,259) Effect(*) of movements in exchange rates (8,324) (107) - (1,984) (10,415) Disposals - (2) - - (2) Balance as at 31 December 2013 988,059 120,537 3,653 75,878 1,188,127

Additions for the year 2014 - 6,271 587 - 6,858 Changes from linkage of obligations related Acquisition to of non controlling interest 41,517 - - - 41,517 Effect(*) of movements in exchange rates 13,178 508 - (426) 13,260 Disposals - (8) (2,484) - (2,492) Balance as at 31 December 2014 1,042,754 127,308 1,756 75,452 1,247,270

Amortization Balance as at 31 January 2013 36,827 84,733 2,056 54,104 177,720 Charged for the year 2013 - 23,346 736 10,394 34,476 Effect of movements in exchange rates - (85) - (1,039) (1,124) Disposals - (2) - - (2) Balance as at 31 December 2013 36,827 107,992 2,792 63,459 211,070

Charged for the year 2014 - 9,518 575 2,474 12,567 Effect of movements in exchange rates - (1) - (917) (918) Disposals - (8) (2,484) - (2,492) Balance as at 31 December 2014 36,827 117,501 883 65,016 220,227

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

Carrying amounts As at 31 December 2014 1,005,927 9,807 873 10,436 1,027,043

See note 3 A.3. A. Examination of impairment of cash-generating included in goodwill The following are the goodwill and intangible asset values in the books that have indefinite useful lives. As at December 31 2014 2013 NIS Thousands NIS Thousands

Tivall (1993) Ltd. - Europe 233,560 233,560 USA (Tribe) 120,476 107,527 Materna 492,562 451,045 Others 159,329 159,100 1,005,927 951,232

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Investments Limited Notes to the Financial Statements as at 31 December 2014

Note 13 - Intangible Assets (cont'd)

A. Examination of impairment of cash-generating included in goodwill (cont.) 1. The recoverable amounts of the cash-generating units, except for Materna, are based on a calculation of the usage value. These calculations are used for cash flow calculations based on the budget for the year 2015 and future forecasts for subsequent years. The cash flows for the remaining periods are calculated using the relevant growth rate, which takes into account the anticipated growth rate for the category, sector, country and population. The estimated growth rates range between 1.0% and 2.5%. The forecasted cash flows were discounted rates of 7.5%- 8.75%. after tax. The discount rates reflect the risks of the cash-generating units. In addition sensitivity analysis was performed with discount rates of 5% and 10% for the calculation of recoverable value. In light of the change in structure for reporting purposes which the company carried out as stated in Note 25 relating to operating segments, goodwill was re-allocated to the units which were affected by the change in structure. The re- allocation was performed using the method of proportional value based on calculation of recoverable value of each unit.

2. Recoverable amount of the cash generating unit, Materna was done by fair value. Based on valuation of the external appraiser and according to the multiple method based on a sample of comparable companies relating to their share performance and growth data. In accordance to the aforementioned in order to examine the recoverable value a multiple of 10.04 was taken as a representative multiple on the EBITDA of Materna. In addition a sensitivity analysis was conducted to the level of the EBITA multiple of Materna. The Valuation calculation for examination of impairment is attached to these reports in accordance with standard 8B. Based on the examination of value measurement and since the recoverable amounts are higher that the monetary value, no impairment of goodwill was required. B. Goodwill created due to grant of “put” options to minority shareholders As at 31 December 2014, the goodwill attributed to PUT options of the non controlling interest in consolidated subsidiaries totaled NIS 380,221 thousand (31 December 2013 –NIS 337,804 thousand)

Note 14 - Prepaid Expenses and operational leases

A. Prepaid Expenses As at December 31 End date 2014 2013 NIS Thousands NIS Thousands

Other 2015-2021 33,539 38,806

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: As at December 31 2014 2013 NIS Thousands NIS Thousands

Less than one year 61,569 62,062 Between one and five years 116,966 103,579 More than five years 87,433 90,852 265,968 256,493

Year ended December 31 2014 2013 2012 NIS Thousands NIS Thousands NIS Thousands

Lease fees that were recognized as an expense 67,992 68,963 63,913

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Investments Limited Notes to the Financial Statements as at 31 December 2014

Note 15 - Loans and Short-Term Bank Credit

Composition: Annual variable interest As at December 31 rates 31 December 2014 2014 2013 % NIS Thousands NIS Thousands

Linked to US$ Libor + 1.50% 7,784 29,212 Linked to Euro Libor + 1.50% 61 -

7,845 29,212

Note 16 - Trade Payables

Composition:

As at December 31 2014 2013 NIS Thousands NIS Thousands

On open account 751,080 706,657 Checks and notes payable 5,596 3,806

756,676 710,463

Note 17 – Other Payables

Composition:

As at December 31 2014 2013 NIS Thousands NIS Thousands

Employees and salary related government agencies 111,026 122,213 Other government agencies 20,593 23,256 Provision for vacation pay and vacation expense allowance 61,685 59,337 Sundry creditors and accrued expenses 31,158 19,170

224,462 223,976

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Investments Limited Notes to the Financial Statements as at 31 December 2014

Note 18 – Liability for acquisition of non controlling interest in consolidated subsidiary

As at December 31 2014 2013 NIS Thousands NIS Thousands

For PUT options of non controlling interest in consolidated subsidiary 374,127 342,514

The Group granted PUT options to the non controlling shareholders in a partnership in which it holds 51%. Should the non controlling shareholders exercise their options, the Group will be required to purchase from them their holdings in the partnership. The options are presented at their obligation value including a component such as a declared dividend and a component in the amount of NIS 347,400 thousand (year 2013 NIS 319,743 thousand), as prepared by an outside appraiser, as follows: The realization value of the option is determined according to a multiple of 16 as set in the agreement, multiplied by the net profit anticipated at the realization date, with certain adjustments, with addition of the future obligation to allocate dividends and other contractual flows paid to the non controlling interest until the date of realization, for them being a partner, for the period until the realization. The options are realizable by the non controlling interest in the fourth year until the eighth year and in the fourteenth year as well. The amounts are discounted from the optimal realizable period by the non controlling interest (year 2023) As mentioned above the Group presents its liability to purchase the non 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. In the year 2014 the updating resulted in an increase in obligation against an increase in goodwill in the amount of NIS 42,417 thousand Finance expenses recorded in profit and loss, for the time value of the money, related to this obligation in the year 2014 amounted to NIS 13,842 thousand (year 2013 NIS 15,092 thousand, year 2012 NIS 14,077 thousand ).

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Investments Limited Notes to the Financial Statements as at 31 December 2014

Note 19 ‏- Income Tax A. Benefits under the law for the encouragement of capital investments. Approved enterprise Several of the enterprises owned by Group companies were granted "Approved Enterprise" status in accordance with the Law for the Encouragement of Capital Investments, 1959. Income deriving from an "Approved Enterprise" is entitled to a reduced tax rate during a period of -7 to 10 years beginning with the year in which the company first generated taxable income from the "Approved Enterprise". The 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.). 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 tha t meets the definition of a "special preferred enterprise" is entitled to benefits for a period of 10 consecutive years and a reduced tax rate of 5% if it is located in Development Area A or of 8% if it is located in a different area. The Amendment to the Law also provides that no tax will apply to a dividend distributed out of preferred income to a shareholder that is a company, for both the distributing company and the shareholder. A tax rate of 15% shall continue to apply to a dividend distributed out of preferred income to an individual shareholder or foreign resident, subject to double taxation prevention treaties, which means that there is no change from the existing law. Furthermore, the Amendment to the Law provides relief (hereinafter – – “the relief”) with respect to tax paid on a dividend received by an Israeli resident company from profits of an approved/alternative/beneficiary enterprise that accrued in the benefits period according to the version of the law before its amendment, if the company distributing the dividend notifies the tax authorities by June 30, 2015 that it is applying the provisions of the Amendment to the Law and the dividend is distributed after the date of the notice (a distribution from profits of the exempt enterprise will be subject to tax by the distributing company). B. Benefits under the Law for the Encouragement of Industry The Company is an "Industrial Company" as defined by the Law for the Encouragement of Industry (Taxes), 1969 and accordingly it is entitled to use accelerated depreciation rates as well as to additional benefits.

33 WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

Investments Limited Notes to the Financial Statements as at 31 December 2014

Note 19 - Income Tax (cont'd)

C. Amendments to the income tax ordinance

1. Tax rates in Israel are: 2014 26.5%, 2013 25%, 2012 25%. 2. On 5 August 2013, the Knesset passed the Law for Changes in National Priorities (Legislative Amendments for Achieving Budget Objectives in the Years 2013 and 2014) – 2013, which determined, among others, the increase in companies tax rate , commencing in the year 2014 and onwards will increase by 1.5% until it will stand at 26.5%. 3. On 4 February 2010 amendment to the Income Tax Ordinance was published in the legal register (number 174) temporary directive for tax years 2007, 2008 and 2009. Which stated that Israeli Accounting standard 29 regarding adoption of IFRS accounting standards, will not apply in calculating taxable income for the said years even if it was implemented for preparation of financial statements. On 12 January 2012 was published the law for amendment of Income Tax Ordinance (number 188) in the framework of which was amended a temporary directive, such that standard 29 will not apply when calculating taxable income for tax years 2010 and 2011. On July 31, 2014 Amendment 202 to the Ordinance was issued, by which the Temporary Order was extended to the 2012 and 2013 tax years, effective retroactively as from January 1, 2012.

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

Allowance Vacation for Losses and Employee Doubtful Inventory convalescence Benefits debts Fixed Assets And Other Total NIS Thousands NIS NIS NIS NIS NIS Thousands Thousands Thousands Thousands Thousands Balance as at 31 January 2013 11,210 2,308 3,742 (92,569) 35,903 (39,406)

Changes recorded on the income 4,387 14 1,549 (9,891) 11,537 7,596 Changesstatements recognized in other (8) (1,204) (9) 1,070 (2,571) (2,722) Balancecomprehensive as at 31 income December 2013 15,589 1,118 5,282 (101,390) 44,869 (34,532)

Changes recorded on the income 594 2,689 2,277 (25,847) 2,965 (17,322) Changesstatements recognized in other 15 826 60 (415) 5,186 5,672 Balancecomprehensive as at 31 income December 2014 16,198 4,633 7,619 (127,652) 53,020 (46,182)

E. Income tax in the income statements

Year ended December 31 2014 2013 2012 NIS Thousands NIS Thousands NIS Thousands

Current taxes 113,942 134,080 123,318 Change in deferred taxes Regular basis 17,322 (11,691) (6,305) Change in tax rates - 4,095 - 131,264 126,484 117,013

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Investments Limited Notes to the Financial Statements as at 31 December 2014

Note 19 - Income Tax (cont'd)

F. The Company has received final tax assessments for all years through the 2011 tax year. The subsidiary companies have received final assessments for various years through the 2009 tax year, certain subsidiaries which have not yet received final assessments since their inception. G. Reconciliation between the theoretical tax, which would have resulted had the pre-tax earnings been subject to tax at the statutory rate in effect in Israel, and the income taxes appearing in the income statement:

Year ended December 31 2014 2013 2012 Statutory tax rate 26.5% 25% 24%

NIS Thousands NIS Thousands NIS Thousands

Theoretical tax based on the statutory tax rate applying 139,872 125,729 118,589 Increaseto the Company (decrease) in tax liability resulting from: Non-deductible expenses 5,338 5,718 6,335 Effect of change in tax rates - 4,095 - Income which is subject to different tax rates (14,086) (9,503) (8,784) Timing differences and losses for tax purposes for which Deferred tax not in previouscharged years 580 1,319 76 Other (440) (874) 797 Income tax included in the income statements 131,264 126,484 117,013

H. The Group has carry-forward tax losses in the amount of NIS 174,519 thousand, for which the Company recognized a deferred tax asset since in the opinion of management taxable profits are anticipated in the future against which these losses can be utilized.

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Investments Limited Notes to the Financial Statements as at 31 December 2014

Note 20 - Contingent Liabilities, Commitments and Liens

A. Contingent liabilities and commitments 1. The Company's Articles of Association provide for the indemnification and insurance of executives according to law. In accordance therewith, the Company insures the liability of the directors and officers, subject to the provisions of the law. 2. Group companies received investment grants from the State of Israel according to the Law for the Encouragement of Capital Investments. In the event they fail to meet the conditions attached to the grants, they will be required to refund the amount of the grants received, in whole or in part, plus interest and linkage increments from the date of their receipt. 3. The Group companies have an agreement with companies, which are interested parties, granting the Company the right to distribute their products in Israel and a license for the exclusive use of their know-how and brand names in Israel. In accordance to agreements, the Company and its subsidiaries have undertaken to pay the said interested parties royalties at the rate of 2.5% - 5% of the sales of their products. 4. The Company has an agreement with an interested party for the receipt of general assistance that includes, inter alia, assistance in the areas of production, marketing and distribution, computers, logistics, materials handling and employee training. In the agreement, the Company undertook to pay the interested party, in respect of receipt of the said assistance, the amount of 1,000 thousand Swiss francs per each calendar year. 5. The Company has an agreement with an interested party company regarding implementation of the Globe project in Israel, the purpose of which is the receipt of computer services and the creation of global standardization between all the computer systems (hardware and software) as well as the implementation of best practices. In this framework, the interested party company undertook that annual computer expenses would not exceed 1.5% of consolidated gross sales net of returns and trade discounts on a multi-annual basis. In the year 2014 an additional expense in the amount of NIS 6,933 thousand was added, for the supplementing of the IT expenses to 1.5% as per agreement between the parties. The cumulative balance which could be taken into account in a multi year calculation in the future, if and to the extent that IT expenses decline below 1.5% amounted to the sum of NIS 75,752 thousand. 6. Various guarantees are given by Group companies to third parties, aggregating NIS 8,227 thousand, this relates to guarantees against liabilities of Group companies. 7. As at 31 December 2014, the Group companies have commitments to purchase fixed assets, in the amount of NIS 10,284 thousand. 8. In an agreement that was signed between subsidiaries and their other shareholders, it was agreed that the aforementioned subsidiaries would purchase from the shareholders manpower services and various services required for its current operations. During the financial statement period the company purchased such services in the amount of NIS 23,353 thousand (year 2013 - NIS 23,388 thousand). 9. Outstanding against the Group companies are class action suits or requests for class action suits in the evaluation of the company based on opinions of its legal advisors, their chances are slight or small financial resources will be borne. As at 31 December 2014 an accrual of NIS 250 thousand has been included. (2013 - NIS 250 thousand) Filed against the company were lawsuits in the area of work relationships in the amount of approximately NIS 1 million. in the evaluation of the company based on opinions of its legal advisors, it is more likely than not that the company will not be required to bear additional economic recourses in excess of provisions included in financial statements in the amount of NIS 100 thousand (year 2013 NIS 488 thousand).

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Investments Limited Notes to the Financial Statements as at 31 December 2014

Note 20 - Contingent Liabilities, Commitments and Liens (cont'd) A. Contingent liabilities and commitments (cont.)

10. Corresponding to the PUT option which the Group granted the non controlling shareholders in the partnership where it holds 51% (see also Note 18), the Group received a CALL option to purchase the shares of the non controlling interest. The exercise price of the CALL option was based on the multiple determined in the agreement, multiplied by the net profit anticipated at the exercise date, with certain adjustments. The option is exercisable by the Group at the end of the tenth year of the agreement (with a multiple of 21) at the end of year twelve (with a multiple of 18) and at the end of year fifteen (with a multiple of 16) 11. On 25 May 2011 the board of directors of the company approved the continuation a bonus plan for the encouragement and preservation of managers in the Osem Group (who are not controlling parties or their relatives, nor directors in the Company) for a period of 3 additional years (2011-2013). According to the program the Company will grant “phantom options” to an number of senior managers in the Company so that the bonus that the Company would give (if at all) would be based on the difference between the average company share price for the two months before the granting date of the options average company share price for the two months before the option exercise date. The the vesting period for each “option” stands at three years form the month of May in each of the three years of the program. The value of the options is calculated based on the binomial method. In the framework of the Group compensation policy it was determined that a ceiling according to which the options distributed from year 2013 and on will not exceed 2 times the value of the benefit at the date of distribution, linked to the CPI. On 26 May 2014 the board of directors of the company approved, after receiving the approval from the compensation committee, the continuation a bonus plan for the encouragement and preservation of managers in the Osem Group (who are not controlling parties or their relatives, nor directors in the Company) for a period of 3 additional years (2014-2016). The plan was approved based on the previous plan, while matching certain sections to the compensation policy of the Company. In this framework a change was also made in the policy for maturity of options in the case of concluding of the transaction on the part of the Company. The Company included in its statements of profit and loss an expense (income) related to the change in value of benefit to those managers which was calculated by an outside assessor at a value of NIS (2,801) thousand, NIS 21,243 thousand, NIS 10,952 thousand for the years 2014, 2013 and 2012 respectively. 12. In March 2014 the Law for the Promotion of Competition in the Food Industry was approved which deals with, among others, the regulation of suppliers and wholesalers and the geographical competition among wholesalers, this being based on the recommendations of the Food Committee. The law took effect on 15 January 2015 and was associated with, among others, the changes in the method of relationship with the large retailers. At this early stage, it is not possible to estimate the full effects of changes that will occur due to the legislative memorandum. In the year 2014 one time accruals were recorded in the amount of NIS 9,800 thousand under other expenses resulting from the expected changes in the commerce organization as the result of preparations in anticipation of the law.

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Investments Limited Notes to the Financial Statements as at 31 December 2014

Note 20 - Contingent Liabilities, Commitments and Liens (cont'd) A. Contingent liabilities and commitments (cont) B. Liens and cancellation of liens 1. The Company has a negative pledge agreement with the banks according to which if the Company receives a bank loan, the banks will not record any pledges in the Company Registrar in the Bank's favor and this, as long as the Company meets certain commitments and standards determined for financial ratios. according to the financial standards: (A) The portion of the company equity of the total balance sheet will not be less than 35% -. (B) The annual profit from continuing operations before tax, will not be less than 1% of total sales. and it is agreed that should the average profit be less than 1% during 2 years and the portion of the equity of the total balance sheet will exceed 45%, the determined financial ratios will still be considered met. In addition, the Company has additional obligations as detailed in the following: (A) obligation not to pay dividend as long as previous years pre- tax profits levels in the distribution year are less than 2% of sales (in 2 year average); under these circumstances the Company in could distribute a dividend from current year profits provided that it would not exceed 50% of current year profits. (B) Obligation not to record liens on the Company's assets except certain liens (for example: In favor of the State of Israel or for the financing to purchase a new asset) (C) Obligation of the Company to insure the asset. (D) Obligation to meet certain restrictions regarding the sale of fixed assets (E) Each one of the companies signing the negative pledge , if requested by the banks, securing all amounts due to the banks from any of the other companies. In case the Company does not meet the obligations and the financial standards the Company will create pledges to the satisfaction of the banks on those assets which today are not pledged due to the negative pledge agreement. In extreme cases of receivership, dissolution, cessation of activities, material sequestration, and confiscation, the banks will be able (but not required) to immediately settle the credit. As at the balance sheet date, the Company meets the obligations and maintained the required financial ratios 2. A consolidated subsidiary has a negative pledge with banks whereby if it receives bank credit no liens will be recorded in favor of the banks as long as it meets its obligations and financial criteria according to which it was set up, among others, the tangible equity will not fall below 25% of the total balance sheet of the subsidiary and total obligations to financial institutions w ill not exceed 30% of its balance sheet. As at the balance sheet date the subsidiary meets all the obligations and financial criteria that were set. 3. Subsidiaries have registered a floating charge, in favor of the State of Israel, on all of their 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.

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Investments Limited Notes to the Financial Statements as at 31 December 2014

Note 21 - Related and Interested Parties A. Transactions with related and interested parties in Nestle group

Year ended December 31 2014 2013 2012 NIS Thousands NIS Thousands NIS Thousands

Cost of Sales 263,404 251,376 273,923

General and administrative expenses 38,524 24,403 21,925

Other income 724 725 774

The transactions were at ordinary commercial terms.

B. Balances with related and interested parties in Nestle group

Year ended December 31 2014 2013 NIS Thousands NIS Thousands

Trade payables 64,501 73,612

Other receivables 2,825 2,875 Highest other receivable balance in the year 2014 were NIS 3,931 thousand (2013 – KNIS 2,875 thousand)

C. Commitments with related and interested parties See notes 20 A.3. through 20 A.5. D. Key management personnel compensation (including directors) Directors and executive officers in the Group are entitled to, in addition to salaries, non-cash benefits such as cars, cellular phones etc. The Group contributes to a post-employment defined benefit plan on their behalf. Key management personnel compensation (including directors) comprises: Year ended December 31 2014 2013 2012 Number of Number of Number of people Amount people Amount people Amount NIS NIS NIS Thousands Thousands Thousands

Short-term employee benefits 2 7,330 2 13,472 4 13,616 Post-employment benefits 2 264 2 133 4 251 2 7,594 2 13,605 4 13,867

Compensation to key management personnel (including directors) that are not employed by the Company: Year ended December 31 2014 2013 2012 Number of Number of Number of people Amount people Amount people Amount NIS NIS Thousands Thousands NIS Thousands Total benefits for non- employed directors 8 1,782 8 1,827 7 1,677

The compensation policy for senior managers includes, among others, annual bonus based on meeting annual targets and phantom options as detailed in note 20 A. 11.

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Investments Limited Notes to the Financial Statements as at 31 December 2014

Note 22 - Details to the Income Statements

A. Sales revenues 1. Domestic and export: Year ended December 31 2014 2013 2012 NIS Thousands NIS Thousands NIS Thousands

Domestic sales 3,580,377 3,560,200 3,423,047 Export sales 676,243 629,847 668,546

Sales 4,256,620 4,190,047 4,091,593

2. Products from self-manufacture and other products: Year ended December 31 2014 2013 2012 NIS Thousands NIS Thousands NIS Thousands

Products from self-manufacture 3,041,935 2,996,638 2,953,838 Other products 1,214,685 1,193,409 1,137,755

Sales 4,256,620 4,190,047 4,091,593

3. The Group has one customer for which the scope of sales to it is greater than 10% of the total sales. Total sales to Customer are as Follows:

Year ended December 31 2014 2013 2012 NIS Thousands NIS Thousands NIS Thousands

Customer 644,384 646,617 628,480

B. Cost of Sales

Year ended December 31 2014 2013 2012 NIS Thousands NIS Thousands NIS Thousands Cost of sales products from self-manufacture: Materials used 919,069 913,258 952,529 Payroll and related expenses 348,190 327,302 319,981 Other manufacturing costs 305,162 305,769 308,763 Depreciation and amortization 80,333 74,711 73,197 1,652,754 1,621,040 1,654,470

Decrease (increase0 in inventory of finished goods and 9,825 9,106 (12,622) Totalwork incost process of sales products from self manufacture 1,662,579 1,630,146 1,641,848

Cost of sales of other products 812,740 796,190 770,150

2,475,319 2,426,336 2,411,998

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Investments Limited Notes to the Financial Statements as at 31 December 2014

Note 22 - Details to the Income Statements (cont'd)

C. Selling, marketing and distribution expenses Year ended December 31 2014 2013 2012 NIS Thousands NIS Thousands NIS Thousands

Payroll and related expenses 324,055 320,707 309,249 Depreciation and amortization 33,184 32,507 32,405 Advertising and sales promotion 272,494 239,674 224,103 Commissions 103,427 94,317 92,722 Motor vehicle and delivery expenses 101,220 104,589 103,644 Other 136,255 137,039 123,487 970,635 928,833 885,610

D. General and administrative expenses Year ended December 31 2014 2013 2012 NIS Thousands NIS Thousands NIS Thousands

Payroll and related expenses 143,685 177,374 156,210 Depreciation and amortization 18,531 40,270 43,923 Building maintenance 7,671 6,715 7,105 Bad and doubtful debts 10,171 7,901 2,464 Other 88,266 74,060 73,260 268,325 306,320 282,962

E. Other income (expenses), net Year ended December 31 2014 2013 2012 NIS Thousands NIS Thousands NIS Thousands

Gain (loss) from realization of fixed assets (3,023) (155) (503) Reorganization expenses (8,282) (3,262) (4,759) Other 533 532 (1,768) (10,772) (2,885) (7,030)

F. Financing income and expenses

Year ended December 31 2014 year2013 ended 2012 NIS Thousands NIS Thousands NIS Thousands

Expenses on obligations and short-term credit 1,970 6,583 1,220 Expenses on bank liabilities 1,844 2,179 2,940 Change in fair value of financial assets through profit or 7,224 - - Exchangeloss differences, net - 799 3,958 Expenses in respect of liabilities for non controlling 13,842 15,092 25,608 Totalinterest financing PUT option expenses 24,880 24,653 33,726

Interest income from bank deposits (1,544) (1,512) (2,817) Exchange differences, net (11,798) - - Interest from income tax (7,789) - - Change in fair value of financial assets through profit or - (380) (1,271) Totalloss financing expenses (21,131) (1,892) (4,088)

Net financing expenses 3,749 22,761 29,638

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Investments Limited Notes to the Financial Statements as at 31 December 2014

Note 23 - Financial Instruments

A. General Management has overall responsibility for the establishment and oversight of the Group’s risk management framework. Management is responsible for the development of policies and oversight of the Group’s risk management framework. The Group’s risk management policies are established to identify and analyze the 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 its customers are mainly at accepted market terms for customer credit. Part of the credit is guaranteed by credit insurance, various collaterals and credit card insurance via credit card companies. The rest of the credit to the private sector that is not guaranteed by collateral relates to a large number of customers which reduces the risk. Part of the credit to customers on the organized retail market is not guaranteed and is concentrated with a small number of customers to which the Group’s sal es are considerable, although, on the other hand, these are customers with a good credit history. Management examines the credit assessments of customers on a regular basis, and the financial statements include provisions for doubtful debts that in the opinion of management appropriately reflect the loss inherent in those debts the collection of which is doubtful. B) Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group uses activity-based costing to cost its products and services, which assists it in monitoring cash flow requirements and optimizing its cash return on investments Group ensures that it has sufficient cash on demand to meet expected operational expenses for the forecasted period, including the servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. The Company was rated by the Midrog Company as having a credit rating of AAA with a stable rating outlook. This rating attests to the strong financial liquidity level of the Group.

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Investments Limited Notes to the Financial Statements as at 31 December 2014

Note 23 - Financial Instruments (cont'd)

A. 1. Financial risk factors (cont'd) C) Market Risks Market risk is the risk that changes in market prices, such as foreign exchange rates, the CPI, interest rates and equity prices will affect the Group’s income or the 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 16% of its sales but also imports some of its raw material as well as finished goods from Nestle as a result, part of its customers’ balance in foreign currency are naturally protected against part of its suppliers’ balances in foreign currency. In the cases where there is still an exposure, the Group generally acts to offset the part of the exposures and foreign currency risks by setting up deposits in the relevant currencies against the liabilities to overseas suppliers taken in the same currency or via forwards. Nonetheless, the foreign subsidiaries use bank credit in foreign currency. As at 31 December 2014 the excess of financial assets in foreign currency over financial liabilities in foreign currency amounted to NIS 196 million. And financial obligations in excess of the financial assets in the amount of NIS 223 million in subsidiary companies in which the operating currency is in foreign currency . In parallel the Group executed partial hedges via forward transactions in the amount of about NIS 122 million. 2) CPI risks As at 31 December 2013 the excess of financial liabilities linked to the CPI over financial assets linked to the CPI amounted to approximately NIS 1 million only 3) Price Risks Some of the raw materials are commodities whose price is affected by price fluctuations on the commodities markets on stock exchanges around the world and by fluctuations in foreign currency exchange rates. These raw materials are produced from organic sources (such as sugar and flour) and their prices are therefore affected by climatic changes, duration of ripening period, etc. The Company uses the central strategic procurement services of Nestle to obtain optimal prices for the Company. Interest rate risks Loans bearing variable interest rates expose the Group to interest risk in respect of cash flows whereas loans bearing fixed interest rates expose the Group to interest risk in respect of fair value. This exposure is limited since the all long-term loans have been re payed while short term loans constitute only 0.2% of the total balance sheet.

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

Amount of Fair Value Transactions

NIS thousands NIS thousands

NIS forward transactions/foreign currency options on exchange rates, net 122,404 5,329 The aforementioned transactions are for periods of up to 12 months.

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Investments Limited Notes to the Financial Statements as at 31 December 2014

Note 23 - Financial Instruments (cont'd)

C. 2. Market risks (cont'd) The future contracts are presented according to their fair value as level 2 assets: anticipated figures, directly or indirectly, which are not included in level 1 (quoted prices, unadjusted, in an active market for similar instruments).

3. Financial assets and liabilities The book value of the cash and cash equivalents, short-term investments, trade receivables, other receivables, credit from banks and others, trade payables and other payables is the same or proximate to their fair value. Note 23 - Financial Instruments (cont'd)

B. Credit risks 1. Exposure to credit risk The carrying amount of financial assets represents the maximum credit and investment exposure. The maximum exposure to credit and investment risk at the reporting date was: As at December 31 2014 2013 NIS Thousands NIS Thousands

Cash and cash equivalents 471,197 328,059 Trade receivables 693,674 688,481 Other receivables 12,963 11,086 Other investments 164,548 7,067

1,342,382 1,034,675

1,651 1,651 The aforementioned balances are presented under the items of cash and cash equivalents, trade receivables, other receivables, other investments and loans. Forecasted realization dates of customers, debtors and debit balances and other investments are within one year. 2. Aging of debts and impairment losses The aging of customer debts as follows: As at December 31 2014 2013 NIS Thousands NIS Thousands

Not past due 645,921 615,838 Past due 1-60 days 70,795 79,833 Past due 61-120 days 2,783 8,539 Past due more than 120 days 3,001 8,992 Provisions for impairment (28,826) (24,721)

693,674 688,481

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Investments Limited Notes to the Financial Statements as at 31 December 2014

Note 23 - Financial Instruments (cont'd)

B. Credit risks (cont'd) 2. Aging of debts and impairment losses (cont'd) The movement in the provision for impairment in respect of trade receivables during the year as follows: 2014 2013 NIS Thousands NIS Thousands

Balance as at January 1 24,721 19,841 Impairment loss recognized, net 10,171 7,901 Movements against suppliers (1,547) (558) Doubtful debts that became bad debts (4,519) (2,463)

Balance as at December 31 28,826 24,721

Debts and impairment losses The Company uses impairment provisions in order to recognize impairment losses, except for when the Group is convinced that the debt will not be collected, in which case the noncollectable amount is offset directly from the financial asset. A considerable part of the customer balances are insured by the Company for credit insurance. As at December 31, 2013 and December 31, 2012, the Group also has a general impairment provision for customer balances. Management of the Company regularly monitors the debts of customers, and the financial statements include provisions for doubtful debts that appropriately reflect, in the opinion of management, the loss inherent in debts the collection of which is doubtful.

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Investments Limited Notes to the Financial Statements as at 31 December 2014

Note 23 - Financial Instruments (cont'd)

C. Liquidity risk The following are the contractual maturities of financial liabilities in the forthcoming years, including principal payments and estimated future undiscounted interest payments. As at December 31 2014

Carrying Contractual Less than amount cash flow one year 1-2 years 2-5 years NIS NIS NIS NIS NIS Thousands Thousands Thousands Thousands Thousands

Financial liabilities Short-term loans and credit 7,845 7,865 7,867 - - Trade payables 756,676 756,676 756,676 - - Payables 162,777 162,777 162,777 - -

Total 927,298 927,318 927,318 - -

As at December 31 2013

Carrying Contractual Less than amount cash flow one year 1-2 years 2-5 years NIS NIS NIS NIS NIS Thousands Thousands Thousands Thousands Thousands

Financial liabilities Short-term loans and credit 29,212 29,310 29,310 - - Trade payables 710,463 710,463 710,463 - - Payables 164,639 164,639 164,639 - -

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

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Investments Limited Notes to the Financial Statements as at 31 December 2014

Note 23 - Financial Instruments (cont'd)

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

As at 31 December 2014

Functional Foreign Functional currency - NIS Currency Linked to Linked to the Unlinked Unlinked Foreign Non- Total CPI Currency monetary items NIS NIS NIS NIS NIS NIS Thousands Thousands Thousands Thousands Thousands Thousands Assets Cash and cash equivalents - 395,643 34,040 41,514 - 471,197 Trade receivables - 598,739 47,911 47,024 - 693,674 Other receivables - 8,177 3,417 1,369 14,615 30,078 Income tax - - - - 10,694 10,694 Inventory - - - - - 398,972 398,972 Other investments 1,136 133,315 - (216,140) 246,237 - 164,548 Employee benefits - - - - 379 379 Fixed Assets - - - - - 1,110,855 1,110,855 Intangible Assets - - - - - 1,027,943 1,027,943 Deferred expenses - - - - - 33,539 33,539 Deferred tax assets - - - - - 47,047 47,047 - Liabilities Short-term loans and credit - - (7,845) - - (7,845) Trade payables - (555,305) (61,572) (139,799) - (756,676) Other creditors - (140,274) (22,429) (74) (61,685) (224,462) Income tax - - - - (11,233) (11,233) Other liabilities - - - - - (374,127) (374,127) Employee benefits - - - - - (17,819) (17,819) Deferred taxes - - - - - (93,229) (93,229) - Excess (deficit) in assets over Liabilities 1,136 440,295 (222,618) 196,271 2,085,951 2,503,535

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Investments Limited Notes to the Financial Statements as at 31 December 2014

Note 23 - Financial Instruments (cont'd)

D. Linkage and foreign currency risks (cont'd)

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

Linkage basis report as at 31 December 2013

Functional currency Functional currency - NIS Foreign Currency Linked to Linked to the Unlinked Unlinked Foreign Non-monetary Total CPI Currency items NIS NIS NIS NIS NIS NIS

Thousands Thousands Thousands Thousands Thousands Thousands Assets Cash and cash equivalents - 283,396 27,073 17,590 - 328,059 Trade receivables - 612,441 27,568 48,472 - 688,481 Other receivables - 7,589 2,390 1,089 16,594 27,662 Income tax - - - - 5,464 5,464 Inventory - - - - - 390,107 390,107 Other investments 1,328 - - (148,983) 154,722 - 7,067 Employee benefits - - - - 293 293 Fixed Assets - - - - - 1,144,497 1,144,497 Intangible Assets - - - - - 977,057 977,057 Deferred expenses - - - - - 38,806 38,806 Deferred tax assets - - - - - 34,795 34,795 - Liabilities Short-term loans and credit - - (29,212) - - (29,212) Trade payables - (519,791) (43,950) (146,722) - (710,463) Other creditors - (150,085) (14,480) (74) (59,337) (223,976) Income tax - - - - (9,473) (9,473) Bank liabilities ------Other liabilities ------(342,514) (342,514) Employee benefits - - - - - (4,450) (4,450) Deferred taxes - - - - - (69,327) (69,327) - Excess (deficit) in assets over Liabilities 1,328 233,550 (179,594) 75,077 2,122,512 2,252,873

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Investments Limited Notes to the Financial Statements as at 31 December 2014

Note 23 - Financial Instruments (cont'd)

D. Linkage and foreign currency risks (cont'd) 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 2014 Equity Profit or loss NIS Thousands NIS Thousands

Increase of 1% in the CPI 8 8 Increase in the exchange rate of: 1% in the US Dollar 533 533 1% in the Pound Sterling 70 70 1% in the Euro (96) (96) 1% in the Australian Dollar 10 10

As at 31 December 2013 Equity Profit or loss NIS Thousands NIS Thousands

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)

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:

As at December 31 2014 2 008 Term Term Currency Currency Par Value Start Expiration/ Fair Value 2009 Detail of the Derivative 2008For purchase For sale NIS Transaction Realization NIS Thousands Thousands 2007

Forward – hedging Dollar supplier To supplier's debt NIS 14,342 12/2014 2-5/2015 (71) Forward – hedging AustralianDollar supplier's To supplier debt USA NIS 11,667 7-12/2014 1-2/2015 663 Forward – hedging supplier's To supplier debt Euro NIS 8,741 7-12/2014 1-6/2015 18

34,750 610

Option on exchange US$ NIS (157,154) 5-12/2014 1-4/2015 (5,939) rate (122,404) (5,329)

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Investments Limited Notes to the Financial Statements as at 31 December 2014

Note 23 - Financial Instruments (cont'd)

D. Linkage and foreign currency risks (cont'd)

3. The following are details of the Group’s derivative financial instruments: (Cont.)

As at December 31 2013

Term Term Currency Currency Par Value Start Expiration/ Fair Value Detail of the Derivative For purchase For sale NIS Transaction Realization NIS Thousands Thousands

Forward – hedging Dollar supplier's To supplier debt NIS 16,134 12/2013 1/2014 44 Forward – hedging Australian supplier's To supplier debt Euro NIS 2,416 3/2013 1-2/2014 (28)

18,550 16

Option on exchange Dollar NIS (90,246) 10/2013 3-9/2014 1,258 rate 71,696 1,274

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Investments Limited Notes to the Financial Statements as at 31 December 2014

Note 23 - Financial Instruments (cont'd)

E. Interest rate risk

1. Interest rate profile

At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was:

As at December 31 2014 2013 Carrying Carrying amount amount NIS Thousands NIS Thousands

Variable rate instruments Financial assets 336,342 695 Financial liabilities - - 336,342 695 Variable rate instruments Financial assets 203,397 272,545 Financial liabilities (7,845) (29,212) 195,552 272,545

2. Fair value sensitivity analysis for fixed rate instruments The Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss, and the Group does not designate derivatives (interest rate swaps) as hedging instruments under a fair value hedge accounting model. Therefore a change in interest rates at the reporting date would not affect profit or loss related to changes in assets and liabilities at fixed interest rate.

3. Cash flow sensitivity analysis for variable rate instruments A change of 1% in interest rates at the reporting date would have increased or decreased equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same basis for 2013.

As at 31 December 2014 Profit or Loss Equity Interest increase Interest decrease Interest increase Interest decrease NIS Thousands NIS Thousands NIS Thousands NIS Thousands

Variable rate instruments 2 (2) 2 (2) Cash flow sensitivity (net) 2 (2) 2 (2)

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)

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Investments Limited Notes to the Financial Statements as at 31 December 2014

Note 24 - Earnings Per Share Year ended December 31 2014 2013

Earnings used in computing the basic and the fully diluted earnings per share (NIS thousands) 396,324 376,428

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

Note 25 - Information on Operating Segments on a Consolidated Basis

A. As part of the strategy to focus the managerial attention in the international activities and new businesses the Group structure underwent a few changes: 1. The international division was established focusing on international activities of the Group. 2. The new business and innovation division was established. (Does not comply with the definitions of a reportable segment) 3. Combination into one division of the snacks, bakery, beverages and breakfast cereals divisions. 4. The activity of Tivall Israel was transferred under the responsibility of the culinary division. 5. The activity of Sabra Salads remained an independent division reporting directly to the CEO. (Although does not fall under the definitions of a reportable segment therefore was also included under the culinary division due to similar economic characteristics). Due to this change, commencing January 2014, the company the adjusted the reporting on business segments to the new managerial structure and the comparative figures were restated based on the new structure. The business segments after the above mentioned change are as follows: 1. Culinary - In this area the Group develops, manufactures and/or sells, markets and distributes a large variety of branded food products sold on the retail market in Israel (not including exports included in the international division nor in the professional market which is reported under a separate segment). The main ones being, among others, pasta, soups, casseroles, baking aids, sauces, soup almonds, canned products, prepared foods and meat substitutes and salads. 2. Bakery, Beverages, Snacks and Breakfast Cereals - In this area the Group develops, manufactures and/or sells, markets and distributes a large variety of branded food products sold on the retail market in Israel (not including exports included in the international division nor in the professional market which is reported under a separate segment). The products in this area include the salty baked products (e.g. crackers and Lachmit), the sweet baked products (cakes and cookies), concentrates, chocolate milk powder and soluble coffee and also snack products (wheat snacks, peanut snacks, potato snacks and corn snacks, etc.), breakfast cereals and health bars. 3. International division - In this area the Group develops, manufactures and/or sells, markets and distributes a large variety of branded ambient, frozen and chilled food products sold overseas by either direct exports from Israel and via subsidiary companies operating overseas and include the companies Tribe in the USA (prepared meals and meat substitutes under the VP brand and salads under the Tribe brand), Tivall Europe (including Tivall Holland, Tivall Chezh and Tivall Sweeden) , Osem USA and Osem UK.

52 WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

Investments Limited Notes to the Financial Statements as at 31 December 2014

Note 25 (A) - Information on Operating Segments on a Consolidated Basis (Contd.)

4. Infant Nutrition – In this area the Group’s activities are carried out via Materna partnership, which develops, produces and/or sells and markets a wide variety of infant nutrition products which include mother’s milk substitutes, cereals, purees, biscuits and pastas for infants. 5. Professional market and gift packages In this area the Group develops, manufactures and/or sells, markets and distributes a large variety of products sold in the professional market (hotels, restaurants, catering companies and other institutional concerns) and gift packages sold to employee committees and companies via Assimim Gift Package Company who also sell chocolate snacks to the retail market. 6. Other Activities. – In this area are included various activities which are not included in the activities mentioned above. The main ones being, among others, Bonjour frozen bakery products, iced tea (Nestea) ice cream, other purchased products and pet foods. The said activities are not material to the activity of the Group and do not meet the quantitative threshold to be presented in the financial statements as reportable segments. The said activities are not material to the activity of the Group and do not meet the quantitative threshold to be presented in the financial statements as reportable segments. The company calculates the intercompany transactions according to acceptable market price to outside customers with similar products. The results of these activities are eliminated, in the framework of reconciliations for the purpose of preparing consolidated financial statements. The segment results are measured based on the profit reported and regularly reviewed by the head operational decision maker.

53 WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

Investments Limited

Notes to the Financial Statements as at 31 December 2014

Note 25 (A) - Information on Operating Segments on a Consolidated Basis (Contd.)

For the year ended 31 December 2014 Bakery Professional Beverages Infant And Gift Adjustment Culinary Snacks Cereals International Nutrition Packages Others Consolidatedto Consolidated NIS NIS NIS NIS NIS NIS NIS NIS Thousands Thousands Thousands Thousand Thousands Thousand Thousands Thousands s s Third party sales 972,664 1,133,830 672,032 358,480 416,777 702,837 - 4,256,620 Sales to other segments 32 1,533 - - - 44,601 (46,166) - Total segment sales 972,696 1,135,363 672,032 358,480 416,777 747,438 (46,166) 4,256,620

Attributable costs – From third parties 857,723 876,793 618,265 293,585 387,573 715,480 - 3,751,919 Attributable costs – From other segments - - - - 1,565 - (39,205) (37,640) Total attributable costs 857,723 876,793 618,265 293,585 389,138 715,480 (39,205) 3,711,779

Segment results 114,973 258,570 53,767 62,395 27,639 31,958 (6,961) 542,341 Expenses not allocated, net (10,772) Financing costs, net (3,749) Taxes on income (131,264)

Profit for the period 396,556

Depreciation and amortization 36,457 33,475 24,750 7,683 3,264 29,535 (1,260) 133,904

For the year ended 31 December 2013 Bakery Profession Beverages Infant Andal Gift Adjustment Culinary Snacks Cereals Internation Nutrition Packages Others Consolidatedto Consolidated NIS NIS NIS al NIS NIS NIS NIS NIS Thousands Thousands Thousands Thousands Thousands Thousands Thousands Thousands

Third party sales 956,166 1,117,187 629,847 358,644 412,460 715,743 - 4,190,047 Sales to other segments 46 1,599 - - - 44,014 (45,659) - Total segment sales 956,212 1,118,786 629,847 358,644 412,460 759,757 (45,659) 4,190,047

Attributable costs – From third parties 832,904 876,380 577,631 296,493 385,357 727,752 - 3,696,517 Attributable costs – From other segments - - - - 1,645 - (36,673) (35,028) Total attributable costs 832,904 876,380 577,631 296,493 387,002 727,752 (36,673) 3,661,489

Segment results 123,308 242,406 52,216 62,151 25,458 32,005 (8,986) 528,558 Expenses not allocated, net (2,885) Financing costs, net (22,761) Taxes on income (126,484)

Profit for the period 376,428

Depreciation and amortization 47,525 36,106 25,634 6,522 3,035 30,971 (1,113) 148,680

54 WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

Investments Limited

Notes to the Financial Statements as at 31 December 2014

Note 25 (A) - Information on Operating Segments on a Consolidated Basis (Contd.)

For the year ended 31 December 2012 Bakery Profession Beverages Infant Andal Gift Adjustment Culinary Snacks Cereals International Nutrition Packages Others Consolidatedto Consolidated NIS NIS NIS NIS NIS NIS NIS NIS Thousands Thousands Thousands Thousand Thousands Thousands Thousands Thousands s Third party sales 926,840 1,091,293 668,546 355,058 392,118 657,738 - 4,091,593 Sales to other segments 18 2,095 - - - 39,645 (41,758) - Total segment sales 926,858 1,093,388 668,546 355,058 392,118 697,383 (41,758) 4,091,593

Attributable costs – From third parties 794,806 881,351 621,432 295,830 370,599 647,182 - 3,611,200 Attributable costs – From other segments - - - - 2,113 - (33,263) - Total attributable costs 794,806 881,351 621,432 295,830 372,712 647,182 (33,263) 3,580,050

Segment results 132,052 212,037 47,114 59,228 19,406 50,201 (8,495) 511,543 Expenses not allocated, net (7,550) Financing costs, net (29,638) Taxes on income (117,013)

Profit for the period 357,342

Depreciation and amortization 46,924 36,923 28,405 6,440 3,160 30,046 (1,023) 150,875

55 WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

Investments Limited

Notes to the Financial Statements as at 31 December 2014

Note 25 - Information on Operating Segments on a Consolidated Basis (cont'd)

B. Disclosures at the entity level

1. Product information

Year ended December 31 2014 2013 2012 NIS Thousands NIS Thousands NIS Thousands

Culinary Food at room temperature 789,671 755,578 738,887 Culinary Food chilled and frozen 757,048 750,423 747,471 Snacks 520,788 514,788 511,317 bakery, beverages and breakfast cereals 711,100 698,401 680,725 Infant Nutrition 358,480 358,644 355,058 Others (*) 1,119,533 1,112,213 1,058,135 Total 4,256,620 4,190,047 4,091,593

(*) Within this framework, there is no product group whose income constitutes 10% or more of the total of the Company revenue.

2. Information on geographical regions

The Company is situated in Israel and the Company is active and produces 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.

Year ended December 31 2014 2013 2012 NIS Thousands NIS Thousands NIS Thousands

Income from Third Parties

Israel 3,580,377 3,560,200 3,423,047 USA 286,039 277,918 300,252 Europe 378,207 340,670 356,596 Rest of the world 11,997 11,259 11,698 Consolidated 4,256,620 4,190,047 4,091,593

As at December 31 2014 2013 NIS Thousands NIS Thousands

Non-current assets

Israel 1,868,627 1,872,496 USA 206,159 181,664 Europe 96,651 106,200 Consolidated 2,171,437 2,160,360

56 WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

Investments Limited

Notes to the Financial Statements as at 31 December 2014

Note 26 - Capital and Reserves

A. Nominal historical data

As at 31 December 2014 and 2013

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: As at December 31 2014 2013

Tivall (1993) Ltd. (20,158) (17,971) OSEM UK Ltd. (8,374) (10,584) Osem USA Inc. 720 (3,817)

Total (27,812) (32,372)

C. Dividends The following dividends were declared and paid by the Company: Year ended December 31 2014 2013 NIS Thousands NIS Thousands

1.356 NIS per ordinary share 150,000 150,000

On 3 March 2015 the Company distributed an additional dividend for the sum of NIS 150 million.

57 WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

Investments Limited

Notes to the Financial Statements as at 31 December 2014

Country of Shareholding Company 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 Israel 100.0 Partnership 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. Israel 100.0 (1985)Ltd) 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 100.0 Republic 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

(*) Since there is a PUT option from the non-controlling interest therefore the accounting presentation relates to a 100% holding.

58 WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

Osem Investments Limited

Separate Financial Statements

December 31, 2014 WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

Investments Ltd.

Contents

Separate information is presented according to regulation 9c to the securities regulations (Periodic and Immediate Reports) -1970. Financial data from the Consolidated Financial Statements relating to the Company itself as at 31 December 2014

Page

Auditors’ Report 1

Data on Financial Position 2-3

Data on Income 4

Data on Comprehensive Income 5

Data on Cash Flows 6

Additional Information 7

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

Somekh Chaikin Telephone 972 3 684 8000 KPMG Millennium Tower Fax 972 3 684 8444 17 Ha'arba'a Street, PO Box 609 Internet www.kpmg.co.il Tel Aviv 6100601 Israel

To: The shareholders of Osem Investments Ltd.

Dear Sirs,

Subject: Special auditors’ report on separate financial data according to Regulation 9C of the Securities Regulations (Periodic and Immediate Reports) – 1970

We have audited the separate financial data presented in accordance with Regulation 9C of the Securities Regulations (Periodic and Immediate Reports) – 1970 of Osem Investments Ltd. (hereinafter – the Company) as at December 31, 2014 and 2013 and for each of the three years, the last of which ended December 31, 2014. The separate financial data are the responsibility of the Company’s Board of Directors and of its Management. Our responsibility is to express an opinion on the separate financial data based on our audit.

We did not audit the financial statements of equity accounted investees the investment in which amounted to NIS 451,605 thousand and NIS 431,830 thousand as of December 31, 2014 and 2013, respectively, and the Group’s share in their profits amounted to NIS 4,963 thousand, NIS 11,590 thousand and NIS 14,417 thousand for each of the three years, the last of which ended December 31, 2014. The financial statements of those companies were audited by other auditors whose reports thereon were furnished to us, and our opinion, insofar as it relates to amounts emanating from the financial statements of such companies, is based solely on the reports of the other auditors.

We conducted our audit in accordance with generally accepted auditing standards in Israel. Such standards require that we plan and perform the audit to obtain reasonable assurance that the financial data are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the separate financial data. An audit also includes assessing the accounting principles that were used in preparing the separate financial data and the significant estimates made by the Board of Directors and by Management, as well as evaluating the separate financial data presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the separate financial data has been prepared, in all material respects, in accordance with Regulation 9C of the Securities Regulations (Periodic and Immediate Reports) - 1970.

Somekh Chaikin Certified Public Accountants (Isr.)

March 26, 2015

Investments Ltd.

Separate information is presented according to regulation 9c to the securities regulations (Periodic and Immediate Reports) -1970 as at 31 December 2014

Presented hereunder are financial data from the Group’s consolidated financial statements of December 31, 2014 (hereinafter – the consolidated financial statements), which are issued in the framework of the periodic reports, and which are attributed to the Company itself (hereinafter – separate financial data), and are presented in accordance with Regulation 9C (hereinafter – the Regulation) and the tenth addendum to the Securities Regulations (Periodic and Immediate Reports) – 1970 (hereinafter – the tenth addendum) regarding separate financial data of an entity.

In this separate financial data- Investee companies are subsidiaries as they are defined in Note 1B in the consolidated financial statements.

The tenth addendum states, among others, that the separate financial data should be detailed as follows:

1. Information on amounts of assets and liabilities included in the consolidated financial statements that are attributable to the Company itself (other than in respect of investee companies), according to categories of assets and liabilities, as well as information regarding the net amount, on the basis of the consolidated financial statements, that is attributable to the Company’s owners, of total assets less total liabilities, in respect of investee companies, including goodwill.

2. Information on amounts of revenues and expenses included in the consolidated financial statements, allocated between income and other comprehensive income, attributable to the Company itself (other than in respect of investee companies), while specifying the categories of revenues and expenses, as well as information regarding the net amount, on the basis of the consolidated financial statements, that is attributable to the Company’s owners, of total revenues less total expenses in respect of the operating results of investee companies, including goodwill impairment.

3. Information on cash flows included in the consolidated financial statements that are attributable to the Company itself (other than in respect of investee companies), based on the consolidated statement of cash flows, classified according to flow from operating activities, investing activities and financing activities with details of their composition. For this separate financial information, cash and cash equivalent balances belonging to the company itself includes cash and equivalents passing between the Company and its investee companies.

4. Any additional material information, which could have an effect on economic decisions of the investor, as much as this information was not included in the consolidated financial statements, in a manner that it specifically relates to the company itself. At the least, this information will include: disclosure related to cash and equivalents, disclosure related to financial assets and liabilities, disclosure related to tax income and expenses, disclosure related to deferred taxes, in compliance with the directives of the regulation. In addition, a disclosure should be included regarding material relationships, commitments and transactions with the Company’s investee companies. Whether or not they were recognized and measured in the consolidated financial statements and received expression in the framework of the detailed information in sections (1) through (3) above.

The accounting policies described in the consolidated financial statements in Note 3 will be applied for presenting separate financial information, including the manner in which the financial information was classified in the framework of the consolidated financial statements, with changes required for the abovementioned.

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 Investments Limited

Separate Financial Data as at 31 December 2014

Data on Financial Position

As at 31 December Additional 2014 2013 Information NIS Thousands NIS Assets Thousands

Cash and cash equivalents 1 329,037 218,379

Other receivables 2 10,948 10,692

Income tax 3 - 978

Inventory 134,165 106,810

Other investments 2 153,945 1,328

Total current assets 628,095 338,187

Balances related to investee companies 1,784,338 1,623,899

Loans to investee companies 2 52,533 61,898

Fixed assets 658,960 684,218

Intangible Assets 571,731 538,709

Prepaid expenses 12,823 12,763

Total non-current assets 3,080,385 2,921,487

Total assets 3,708,480 3,259,674

Dan Propper – Chairman of the Board

Itzik Saig – CEO

Pinhas Kimelman – Deputy CEO Finance

The date of approval of separate financial data: 26 March 2015

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 Investments Limited

Separate Financial Data as at 31 December 2014

As at 31 December 2014 2013 NIS Thousands NIS Thousands Additional Liabilities Information

Trade payables 2 354,234 316,000

Other payables 2 384,329 301,363 Income tax 9,568 -

Total current liabilities 748,131 617,363

Liabilities for acquisition of the non controlling interest in investee companies 372,902 342,514

Employee benefits 17,673 4,331

Deferred taxes 3 69,434 43,722

Total non-current liabilities 460,009 390,567

Total liabilities 1,208,140 1,007,930

Equity

Share capital 176,772 176,772

Share premium 444,212 444,212

Reserves )63,793( )68,353(

Retained earnings 1,943,149 1,699,113

Total equity 2,500,340 2,251,744

Total liabilities and equity 3,708,480 3,259,674

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

Investments Ltd.

Separate Financial Data as at 31 December 2014

Data on Income For the year ending 31 December Additional 2014 2013 2012 Information NIS Thousands NIS Thousands NIS Thousands

Sales 1,377,171 1,351,197 1,331,697 Cost of Sales 714,126 712,087 721,879 Gross profit 663,045 639,110 609,818

Selling, marketing and distribution expenses 286,744 277,693 261,098 General and administrative expenses 81,272 99,478 87,299 Operating profit before other income 295,029 261,939 261,421 Other income, net 10,982 12,080 8,658 Operating profit 306,011 274,019 270,079

Financing expenses )14,781( )16,367( )23,347( Financing income 12,063 15,404 6,364 Financing expenses, net )2,718( )963( )16,983(

Profit from investee companies 174,145 176,993 167,769 Profit before taxes on income 477,438 450,049 420,865 Taxes on income 3 81,114 74,064 63,979

Profit for the period 396,324 375,985 356,886

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 Investments Ltd.

Separate Financial Data as at 31 December 2014 Data on Comprehensive Income

For the year ending 31 December 2014 2013 2012 NIS NIS NIS Thousands Thousands Thousands

Actuarial gains (losses) from defined benefit plan )3,099( 3,818 6,454

Income tax related to other elements of comprehensive income 821 )1,012( )1,614(

Other comprehensive income (expenses) for the period )2,278( 2,806 4,840

Other comprehensive income (expenses), from investee companies 4,550 )19,805( 2,308

Profit for the period 396,324 375,985 356,886

Total comprehensive income for the period 398,596 358,986 364,034

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 Investments Ltd.

Separate Financial Data as at 31 December 2014

Data on Cash Flows for the year ended 31 December 2014 2014 2013 2012 NIS NIS NIS Thousands Thousands Thousands Cash flows from operating activities Profit for the period 396,324 375,985 356,886 Adjustments for: Company’s share in investee profits )174,145( )176,993( (167,769) Depreciation 63,692 57,663 58,008 Amortization of intangible assets And prepaid expenses 11,767 27,747 27,753 Loss (gain) on sale of fixed assets, net 603 )126( 130 Financing costs, net 2,718 963 16,983 Income tax expense 81,114 74,064 63,979 Changes in derivatives )1,549( )4,642( 1,675

Change in inventory )27,355( 13,415 (8,596) Change in trade and other receivables 217 4,940 25,508 Change in trade and other payables 151,896 109,896 69,417 Change in employee benefits 10,243 4,044 )174( Income tax paid )83,203( )101,746( )81,036( Net cash from operating activities 432,322 385,210 362,764

Cash flows from investing activities Proceeds from sale of fixed assets 183 745 46 Return of investment in investee - 8,861 - Net cash from investment activities in investee 10,142 10,152 11,258 Acquisition of fixed assets )38,723( )80,573( (53,767) Investment in intangible assets and prepaid expenses )3,332( )206( )5,313) Interest received 9,431 1,581 2,639 Investment in other investments )152,641( 12,735 13,288 Dividend received from investee companies 36,309 69,520 65,425 Net cash from (used in) investing activities )138,631( 22,815 33,576

Cash flows from financing activities Interest paid )284( )2,149( )26,244( Repayment of other liabilities )32,887( )30,904( )239,600( Credit from banks and others, net - )11,834( 15,197 Dividend paid )150,000( )150,000( (150,000)

Cash flows used in financing activities (183,171) (194,887) (400,647) Change in cash and cash equivalents 110,520 213,138 )4,307( Cash and cash equivalents as at the beginning of the period 218,379 5,067 9,331 Effect of exchange rate fluctuations on cash balances and cash equivalents 138 174 43 Cash and cash equivalents as at the end of the period 329,037 218,379 5,067

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 Investments Ltd.

Separate Financial Data as at 31 December 2014

Additional data to the financial statements as at 31 December 2014

1 - Cash and Cash Equivalents

31 December 2014 2013 NIS Thousands NIS Thousands

New Israel Shekel 318,792 215,668 U.S. Dollar 6,711 1,575 Euro 1,114 624 Pound Sterling 1,665 443 Other currencies 755 69

Total Cash and Cash Equivalents 329,037 218,379

1,651 1,651

2. Financial Instruments

A. Linkage and foreign currency risks 31 December 2014

Functional currency - NIS Linked to Interest Linked to Unlinked Foreign Total % the CPI Currency NIS NIS NIS NIS Thousands Thousands Thousands Thousands Assets Debtors and debit balances (*) - 5,134 - 5,134 Other investments (*) 0.35-4 1,136 133,315 - 153,945 Loans to held companies 1-2 2,342 50,191 19,494 52,533 - Liabilities Short term liabilities - - - Trade payables - (255,616) (98,618) (354,234) Other creditors - (330,299) - (330,299)

3,478 )397,275( )79,124( )472,921(

(*)Debtors and debit balances and other investments are classified as current assets, their realization within the operating cycle of the company.

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 Investments Ltd.

Separate Financial Data as at 31 December 2014

Additional data to the financial statements as at 31 December 2014

2. Financial Instruments (Cont.)

Linkage and foreign currency risks 31 December 2013

Interest Functional currency - NIS Linked to

Linked to Unlinked Foreign Total % the CPI Currency NIS NIS NIS NIS Thousands Thousands Thousands Thousands Assets Debtors and debit balances (*) - 5,508 - 5,508 Other investments (*) 4 1,328 - - 1,328 Loans to held companies 2-5 12,497 49,401 - 61,898

Liabilities Short term liabilities - - - - Trade payables - (221,280) (94,720) (316,000) Other creditors - (250,020) - (250,020)

13,825 )416,391( )94,720( )497,286(

(*)Debtors and debit balances and other investments are classified as current assets, their realization within the operating cycle of the company.

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 Investments Ltd.

Separate Financial Data as at 31 December 2014

Additional data to the financial statements as at 31 December 2014

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.

As at 31 December 2014 Carrying Contractual Less than Amount Cash flow 1one year year 1-2 years 3-5 years NIS NIS NIS NIS Thousands NIS Thousands Thousands Thousands Thousands

Financial liabilities Trade payables 354,234 354,234 354,234 - - Creditors 330,299 330,299 330,299 - -

Total 684,533 684,533 684,533 - -

As at 31 December 2013 Carrying Contractual Less than Amount Cash flow 1one year year 1-2 years 3-5 years

NIS NIS NIS NIS Thousands NIS Thousands Thousands Thousands Thousands

Financial liabilities Trade payables 316,000 316,000 316,000 - - Creditors 250,020 250,020 250,020 - -

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

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 Investments Ltd.

Separate Financial Data as at 31 December 2014

Additional data to the financial statements as at 31 December 2014

C. CPI and Foreign Currency Risks The following are details of the Company’s derivative financial instruments:

As at 31 December 2014 Term Term 2008 Functional Functional Par Value Start Expiration/ Fair Value 2010 Detail of the Derivative For For sale NIS Transaction Realization NIS 2008 purchase Thousands Thousands 2007

Forward – hedging Australian supplier's debt Dollar NIS 14,342 12/2014 2-5/2015 )71)

Forward – hedging US supplier's debt Dollar NIS 11,667 7-12/2014 1-2/2015 663 Forward – hedging supplier's debt Euro NIS 8,741 7-12/2014 1-6/2015 18

34,750 610

As at 31 December 2013 Term Term 2008 Functional Functional Par Value Start Expiration/ Fair Value 2010 Detail of the Derivative For For sale NIS Transaction Realization NIS 2008 purchase Thousands Thousands 2007

Forward – hedging Australian supplier's debt Dollar NIS 16,134 12/2014 1/2014 44

Forward – hedging US supplier's debt Dollar NIS 2,416 3/2014 1-2/2014 (28) 18,550 16

3. Income Tax

A. Deferred taxes in respect of temporary differences

Vacation and Employee Convalesce Benefits Fixed Assets Other Total nce NIS NIS NIS NIS NIS Thousands Thousands Thousands Thousands Thousands

Balance as at 1 January 2013 9,966 1,025 (53,566) 1,842 (40,733)

Changes recorded on the income statements 3,640 1,133 (9,825) 3,075 (1,977) Changes recorded to shareholders' equity - (1,012) - - (1,012) Balance as at 31 December 2013 13,606 1,146 (63,391) 4,917 (43,722)

Changes recorded on the income statements 712 2,716 (25,953) (4,008) (26,533) Changes recorded to shareholders' equity - 821 - - 821 Balance as at 31 December 2014 14,318 4,683 (89,344) 909 (69,434)

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 Investments Ltd.

Separate Financial Data as at 31 December 2014

Additional data to the financial statements as at 31 December 2014 3. Income Tax (cont’d)

B. Income tax in the income statements

Year ended 31 December 2014 2013 2012 NIS Thousands NIS Thousands NIS Thousands

Current taxes 54,581 72,087 56,850 Change in deferred taxes Regular basis 26,533 (646) 7,129 Change in tax rates - 2,623 - 81,114 74,064 63,979

4. Material relationships, commitments and transactions with investee companies. A. Financial guarantees Unlimited reciprocal guarantees exist to banks, between the Company and some of its investee companies in which the company holds 100% ownership in the share equity and voting rights.

B. Loans 1. The Company occasionally gives short term loans to investee companies. As at the reporting date the loan and capital notes balances to investee companies were NIS 5,100 Thousands. (2013 - NIS 6,100 Thousands). 2. The Company gave long term loans to investee companies. As at the balance sheet date the loan capital notes balances to investee companies were NIS 52,533 Thousands (2013 - NIS 61,898 Thousands). Net finance income from investee companies for the years 2014, 2013 and 2012 totaled NIS 1,368, 5,412, and 5,691Thousands respectively.

C. Service Agreements 1. The Company supplies the Group companies with headquarters services and central purchasing services. The company recorded income related to these services in the years 2014, 2013 and 2012 in the amounts of 103,634, 111,231 and 104,274 NIS thousands respectively. 2. The Company, as all the other Group companies, participates in the expenses of one of the held Group companies which carry out the commerce and distribution services. The company recorded expenses related to these services in the years 2014, 2013 and 2012 in the amounts of 215,687, 202,590 and 211,890 NIS thousands respectively. 11

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 Investments Ltd.

Separate Financial Data as at 31 December 2014

Additional data to the financial statements as at 31 December 2014 4 . Material relationships, commitments and transactions with investee companies. (cont) C. Service Agreements (cont’d) 3. The Company receives usage fees for the use of assets it owns. The company recorded incomes related to these services in the years 2014, 2013 and 2012 in the amounts of 16,490, 16,498 and 16,369 NIS thousands respectively. 4. Net debit/credit balances arising from the settling of accounts against the held companies as at 31 December 2014 are NIS 223,649 thousand for credit to the held companies (as at 31 December 2013 NIS 122,882 thousand).

D. Dividend During the year 2014 the Company received dividends from subsidiary companies in the amount of NIS 36,309 thousand, (2013 – NIS 69,520 thousand). For additional information regarding held companies see Note 10 in the consolidated financial statements, relating to consolidated companies.

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

Osem Investments Limited

Section D:

Additional Details on the Company WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 Section D

Osem Investments Ltd. and Subsidiaries

Additional Details on the Company

Table of Contents

Regulation No. Page 8B(I) 2-3 9-9(D) 4 10-10(C) 4 11 5 12 5 13 5 14 5 20 5 21 6 - 12 21(A) 13 22 13-19 24-24(A) 20-21 24(B) 22 25(A) 22 26 23-29 26 (A) 30-35 26 (B 35 27 35 28 35 29 (a) – 29(c) 35-36 29A 36

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

Osem Investments Ltd. and Subsidiaries Periodic Report for 2014 Section D - Additional Details on the Company

Company name: Osem Investments Ltd. Company No. at the Registrar: 52-002606-3 Address: 2 Rimon St., Haman Industrial Zone, POB 934, Shoham 60850 Telephone: 03-7205050 Fax: 03-7205095 Balance sheet date: 31 December 2014 Reporting date: 26 March 2015 Reporting period: 1 January 2014 – 31 December 2014 ------

Regulation 8B(I): Very Material Valuation performed by the Company Very Material Valuation 1. Identifying the subject of the valuation: Materna Goodwill 2. The date of the valuation: 31/12/2014 Value of the valuation subject shortly before the NIS 492,562 thousand valuation date: 4. Value of the valuation as determined by the NIS 492,562 thousand valuation: 5. Setting identification and definition: Name of Assessor: Einat Shperling (Ernest Young CPA Firm) Qualification: BA degree in economics and management from the Technion Institute, Haifa MBA from Tel Aviv University. A Certified Public Accountant. Experience in performing valuations for accounting Over 16 years of experience clients in reporting companies and at a similar scope to the said reporting valuation or valuations that have exceeded the scope of this valuation. Dependency on the customer requesting the None valuation: Indemnification agreements with the Assessor: The overall financial liability of the Assessor which is related to this valuation is limited to the amount of NIS 40 thousand, except in case of malice from his/her side. 6. Valuation model used by the Assessor: Multiple method 7(a) Capitalization rate: N/A 7(b) Growth rate: N/A 7(c) Scrap percentage of the total of the Terminal Value: N/A 7(d) Standard deviation: N/A 7(e) Prices used as a basis for comparison: N/A 7(f) Number of comparison bases N/A

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

Material Valuation 1. Identifying the subject of the valuation: Goodwill of Tivall (1993) Ltd. - Europe 2. The date of the valuation: 31.12.2014 3. Value of the valuation subject shortly before the NIS 233,560 thousand valuation date: 4. Value of the valuation as determined by the NIS 233,560 thousand valuation: 5. Setting identification and definition: Company self-valuation 6. Valuation model used by the assessor: DCF 7(a) Capitalization rate: 8.75% really after tax 7(b) Growth rate: 2.5% really 7(c) Scrap percentage of the total of the Terminal Value: 77% 7(d) Standard deviation: N/A 7(e) Prices used as a basis for comparison: N/A 7(f) Number of comparison bases N/A

1. Identifying the subject of the valuation: Liability for PUT option to the non-controlling interest in Materna 2. The date of the valuation: 31/12/2014 3. Value of the valuation subject shortly before the NIS 305,883 thousand valuation date: 4. Value of the valuation as determined by the NIS 347,400 thousand valuation: 5. Setting identification and definition: Name of Assessor: Einat Shperling ((Ernest Young CPA Firm) Qualification: BA degree in economics and management from the Technion Institute, Haifa MBA from Tel Aviv University. A Certified Public Accountant. Experience in performing valuations for accounting Over 16 years of experience clients in reporting companies and at a similar scope to the said reporting valuation or valuations that have exceeded the scope of this valuation. Dependency on the customer requesting the None valuation: Indemnification agreements with the Assessor: The overall financial liability of the Assessor which is related to this valuation is limited to the amount of NIS 40 thousand, except in cases of malice from his/her side. 6. Valuation model used by the Assessor: DCF 7(a) Capitalization rate: 8.75% in real terms 7(b) Growth rate: 1% real growth 7(c) Scrap percentage of the total of the Terminal Value: N/A 7(d) Standard deviation: N/A 7(e) Prices used as a basis for comparison: N/A 7(f) Number of comparison bases N/A

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

Regulation 9: Financial Statements The audited financial statements along with the auditor's opinion are included in the Periodic Report to which this Chapter belongs (hereinafter: the "financial statements")

Regulation 9C: A Separate financial Statement of the Company The audited financial statements along with the auditor's opinion are included in the Periodic Report to which this Chapter belongs (hereinafter: the "financial statements")

Regulation 9D: Liability Report per repayment dates Please see the Immediate Report published by the Company (T-126) at the same time of the publication of this Periodic Report.

Regulation 10: Board of Directors' Report on the Company's State of Affairs The Board of Directors' Report is included in the Periodic Report to which this Chapter belongs.

Regulation 10A: Condensed Quarterly Income Statements Included in the Board of Directors' Report, as specified in Regulation 10.

Regulation 10C: Use of Proceeds from Securities Having Regard to the Proceeds Targets According to the Prospectus In the reporting period no securities were offered in a prospectus.

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 Regulation 11: List of Material Investments in Subsidiaries and Main Related Companies as of the Balance Sheet Date

Company Name Share ISIN No. Class of Share Number of Total Par Cost in Book Value in Direct or Shares Value Thousands of Thousands of Indirect Holding NIS NIS Rate (**) Osem Food Industries Ltd. --- Ordinary 1,758,595 175.93 100% Founding 9 0.009 4,521 (*) 591,889 Tivall (1993) Ltd. --- Ordinary 1,043 1,043 190,605 771,667 100%

(*) As this concerns direct or indirect control of 100%, the full book value was presented, and not only the direct shareholding interest in the company. (**) Holding rate in share capital and voting rights.

Regulation 12: Changes in material investments in subsidiaries during the reporting period "—"

Regulation 13: Revenues of Subsidiaries and Related Companies (Excluding Partnerships and Inactive Companies) and Company Revenues There from at Balance Sheet Date

Profit before Tax Profit after Tax Dividend Management Fees Interest Company Name (thousands of NIS) (thousands of NIS) (thousands of NIS) (thousands of NIS) (thousands of NIS) Osem Food Industries Ltd. 91,999 68,275 ------Tivall (1993) Ltd. 44,892 43,525 ------

Regulation 14: List of groups of remaining loans given as at the balance sheet date, if the provision of loans was one of the Company's major activities The provision of loans is not one of the Company's major activities.

Regulation 20: Trading on the Stock Exchange – Securities listed for trade – Dates and reasons for suspending trade To the best of the Company knowledge, there were no trading suspensions in the Company securities.

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

Regulation 21: Payments to interested parties and senior officers

Remuneration to officers and interested parties as recorded in the financial reports for the year 2014:

Holding Scope Social Rate in Basic Phantom Director Total Name Position of Benefits Bonus(IV) Company Salary (II) Options (V) fees (VI) Office (III) Capital

Chairman of the Part (1b) (1c) 3,873,755 Dan Propper(m) 0.08% 1,626,593 978,195 1,157,513 ----- 111,454 Board(1A) time

3,720,365 Itzik Saig(m) CEO(2A) Full ---- 1,611,997 1,454,204 703,962(2B) -49,798(2C) ----

CEO of Noga Ice Zeev Kalimi(m) Full ---- 767,600 1,107,932(3b) 179,529(3c) 299,618 ---- Cream(3A) 2,354,677

Deputy CEO of Meir Imber(m) Full ---- 1,038,098 801,765 479,412(4B) -54,596 ---- Operation(4A) 2,264,679

Pinhas Deputy CEO of Finance Full ---- 1,038,121 731,393 514,164(5B) -54,569 ---- Kimelman(m) (5A) 2,229,109 CEO of the Nili Zur (f) International Division Full ---- 913,000 794,906(6B) 376,820(6C) 47,887 ---- 2,132,613 (6A)

Director/ Consultant to Avraham the Osem Group on ---- 1.86% 410,256(7B) 22,360 ------132,903(7C) 565,519 Finkelstein(m) kosher matters (7A)

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 General Notes: (I) Remuneration Policy - On 3.9.2013 the General Meeting of the Company approved the Company's Remuneration Policy (hereinafter: the "Remuneration Policy"), after the approval of the Company's Board of Directors and Remuneration Committee. For details regarding the approval processes of the Remuneration Policy see immediate report of the Company dated 29.7.2013 (ref. no. 2013-01-103278).

(II) The basic salary is based on the monthly salary of the office holder.

(III) The social benefits generally include a 13th month salary, car maintenance, phone expenses, meals, newspapers, holiday gifts, medical examinations, a clothing allowance, social rights and contributions to social insurance and related expenses, as generally accepted.

(IV) Bonuses – In addition to the salary component of Osem Group managers (which is based on a basic salary, benefits, and other components), the Group's managers are granted annual bonuses based on the principles of the Remuneration Policy. According to the Remuneration Policy, payment of a bonus is based on a threshold condition of achievement of 75% of the annual operational profit target of the Company for the relevant year (as calculated on the basis of the consolidated annual reports) as well as achievement of the Company's targets and the achievements of the different managers of the Group of the respective targets of the business units/HQ departments which they manage. For further details regarding entitlement to bonus, manner of calculation and the different types of targets for the purposes of calculation of the bonus, please see part C of the Remuneration Policy.

The Company's targets for the purpose of bonus payments to senior managers for 2014 achievements are based on the 2014 working plan of the Company and are composed of five targets: (a) Real Organic Growth – 10% weight; (b) Organic Growth – weight 30%; (c) Operational Profit 1 – weight 40%; (d) Free Cash Flow – weight 10%; (e) Market Share – weight 10%; (hereinafter: "Osem Group Targets"). According to the consolidated financial results of the Group for2014 the weighted achievement level reached is 74%.

In addition, the Remuneration Policy allows the Company to award Osem Group managers with an extraordinary bonus (in addition to the other remuneration components to which they are entitled to), due to an unusual event or process with long-term consequences which can significantly promote the Company's interests, in a manner that this bonus in any case would not exceed 3 months salaries (gross) to a manager, and will be derived from the assessment of the manager's contribution to the qualifying event, the contribution of the qualifying event to the Company in the long term and the degree of its strategic importance to the Company.

The sum in this column (the "Bonus" column) is comprised of the bonuses as were recognized in the financial reports of the Company. The bonuses, as mentioned above, for each of the Company's Office Holders, were approved by the Remuneration Committee and by the Board of Directors in line with their achievements level as mentioned above and according to the Remuneration Policy.

(V) Bonuses plan for encouraging and retaining employees ("Phantom Options Plan") – On 29 May 2008, the Company’s Board of Directors approved a bonus plan for encouraging and retaining managers in Osem Group (who are not controlling shareholders or relatives thereof, and who are not the directors in the Company), which was amended by the Board on 27.8.2009, to a period of 3 years (2008-2010) (the "2008 Plan"). In addition, on 25 May 2011, the Board of Directors approved an additional bonus plan

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 to retain and encourage managers (who are not controlling shareholders or relatives thereof, and who are not the directors in the Company) for a period of 3 years (2011-2013) (the "2011 Plan"). On May 26th 2014, the Board of Directors approved an additional bonus plan to retain and encourage managers (who are not controlling shareholders or relatives thereof, and who are not the directors in the Company) for a period of 3 years (2014-2016) (the "2014 Plan"). Under the conditions of each of the above mentioned plans, the Company granted "phantom options" to a number of senior Managers so that the bonus given by the Company (if and to the extent that any is given) will be based on the gap between the average price of the Company share during 2 months before the option grant date and the average price of the Company share during 2 months before the option exercise date. The vesting period of each "phantom option" stands at three years from May of each year of the 2008 Plan, and at three years from June of each year of the 2011 Plan and the 2014 plan. The option value in each of the above mentioned plans was calculated based on the binomial model formula and by an external actuary. In the scope of the Remuneration Policy is was set that regarding phantom options granted as of 2013 onwards, the value of the options shall not exceed twice the value at the date of grant, linked to consumer price index according to the base index on the date of grant. The Phantom Option Plan is in line with the terms of the Remuneration Policy. The amount in this column reflects the expense/income registered in the Company's books for phantom options. Due to re-evaluation of the phantom options and due to the decline in the Company's stock value during 2014, the expense in respect of the phantom options which was credited in 2014, is negative.

(VI) Payment of Directors' Fees - In accordance with the resolution of the Company's Audit Committee and Board of Directors and in accordance with the resolution of the General Meeting from 2 September 1997, according to which the Company's Board members are entitled to directors' fees to be paid at the maximum rate under the Companies Regulations – (Rules Regarding Compensation and Expenses to External Directors- 1998), the Company pays Board members, directors' fees for serving as directors of the Company, in an amount equal to the maximum rate as per the Companies Regulations (Rules Regarding Compensation and Expenses to External Directors – 1998); on 29 May 2008, the Company's Board of Directors approved, after receiving the Audit Committee's approval, the adjustment of the compensation of the External Directors at the Company as of July 2008, in accordance with an amendment from 6 March 2008 to the Israeli Companies Regulations (Rules Regarding Compensation and Expenses to External Directors) 2000, and the directors' fees of each of the directors (who are not external directors) were adjusted accordingly. According to the Audit Committee, those members of the Board who are employed by the Company (except for service providers) will not be entitled to fees for the meetings. The total amount of directors' (including external directors) fees that are not detailed herein, for 2014 is NIS 1,215,993.

(VII) Directors’ and Office Holders’ Insurance – please see Regulation 22, below.

Notes to the Table

Dan Propper

(1A) On 1 May 2006, the Company's General Meeting approved the employment terms of Mr. Dan Propper as the Company's Chairman of the Board for a period of 5 years, as of 1 April 2006. On 19 October 2010, the Company’s General Meeting approved his employment terms as the Company’s Chairman of the Board for an additional period of 3 years, effective 1 April 2010, (and until the date of 31 March 2014), and with possibility of extending the period of employment for additional two years, until the date of 31 March 2016,

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 subject to the approval of the Board. On 21 November, 2013 the Board of Directors (following the approval of the Remuneration Committee) approved the extension of the term of office of Mr. Dan Propper as chairman of the Company's Board of Directors until 31 March, 2016, without any modification of the terms of his employment. According to the employment agreement of Mr. Dan Propper, his monthly salary is linked to the rate that is at least the average rate of increase in the salary of the forty top paid employees in the Company, but excluding those who are interested parties (the "Comparison Group"). Likewise, his employment agreement prescribes a mechanism for his bonus, whereby every year in which the Company gives a bonus to six or more senior managers out of the Comparison Group, Mr. Propper will be entitled to a bonus calculated based on the average bonus amount set for said employees from the Comparison Group for whom the bonus was determined, divided by the average salary of said employees in the last 12 months, such that the quotient obtained is multiplied by the average salary of Mr. Propper in the last 12 months. It is clarified that bonuses that result of exercise of Phantom Options are included in the calculation of the bonus of Mr. Dan Propper. In addition, Mr. Dan Propper is entitled to annual directors' fees; to a car; to related social benefits; and also to be covered by a directors’ and officers’ liability insurance, as will be determined in the Company from time to time. As per the terms of the agreement, if Mr. Propper concludes his office before the end of the employment period (or the end of the extension period) for reasons beyond his control, the Company will pay him (in addition to the payment of severance pay), the remaining of all the salary cost which is due to him for the rest of his employment period (or the extension period). For details on the terms of the agreement, see also the Company's Immediate Report dated 21 September 2010 (ref. no. 2010-01- 628209).

(1B) The bonus is granted in respect of 2014 as detailed above.

(1C) Director's fees – see comment (VI) above.

Itzik Saig (2A) Mr. Saig has been holding the office of Company CEO since 2 April 2012. The conditions of Mr. Saig's employment agreement as Company CEO, as approved by the Audit Committee and the Board of Directors of the Company, stipulate that his term of office will last up to the legal retirement age of Mr. Saig and this agreement can be terminated at any time without cause at an advance notice of 90 days by the Company or at an advance notice of 120 days by the CEO. If any of the parties terminates the agreement before its stated term at an advance notice, the CEO will be entitled to a monthly salary and to other employment terms for a period of 6 months from the date that his employment is concluded. Under the agreement, the CEO is entitled to 13 salaries each year, to grants (bonuses) in accordance with the annual bonuses plan which will be determined by Company's Board from time to time and to Phantom Options as per the Phantom Option Plan, as will be approved from time to time by the Board. Under the agreement, the CEO is also entitled to related expenses, such as car maintenance (including tax grossing-up), telephone, meals, newspapers, gifts for the Holidays, medical examinations, clothing allowance and social benefits and social security, and other related benefits as generally accepted. Regarding the employment terms of Mr. Saig as the Company's CEO, see also the immediate report dated 25 March 2012 (Reference number 2012-01-077394).

(2B) the targets that served for the determination of the annual bonus to Mr. Saig are the targets of Osem Group (see General Note IV above), in a manner that the total annual bonus amounted to NIS 703,962.

The bonus payment was approved by the Remuneration Committee and the Board of Directors and is subject to the approval of the General Meeting of the Company's Shareholders, which the Company intends to convene according to the relevant laws.

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 (2C) Based on the resolutions of the Company's General Meeting and after the approval of the Remuneration Committee and the Board of Directors and based on the Company's Phantom Option Plan, Mr. Saig was granted for the year 2014 Phantom Options in an amount that equaled 12 monthly salaries of the CEO on the date of the grant, i.e. – a total of NIS 1,627,654. For additional details regarding the approval of the grant of the Phantom Options to the CEO – see the Company's immediate report dated 24.6.2014 (ref. no. 2014-01- 097704).

Zeev Kalimi (3A) Mr. Kalimi served as the manager of Noga Ice-cream and has been employed by the Company since 2009 to 15.9.2014. The employment terms of Mr. Zeev Kalimi were in accordance with his employment agreement from 12 January 2009 and included his monthly salary, social benefits, participation in car maintenance, telephone expenses, and participation in expenses incurred during work. According to his employment terms, Mr. Kalimi was entitled to a target bonus at the rate of six monthly salaries. In addition, it was stated that Mr. Kalimi will be entitled to "phantom options" as generally accepted for senior managers. The terms of the agreement do not specify the period of the employment agreement. In reference to the termination of the agreement, a period of 6 months as advanced notice was set if there would be an organizational change/restructuring in the Company, and under other circumstances a 3 months advanced notice was set.

(3B) in addition to the Social Benefits detailed in paragraph (iii), the sum detailed in this column includes payments to Mr. Kalimi in connection with his retirement from the Company, including settle of account, adaptation grant in amount of NIS 386,080 (equal to 4 monthly salaries) and also differences amounts due to redemption of leave days in amount of NIS 33,550,

(3C) the calculation of the annual bonus to Mr. Kalimi, is based on the relative of period in which he served as the CEO of Noga Ice Cream during 2014. In calculating the bonus a weight of 30% was allocated to Osem Group's targets and a weight of 70% was allocated to the targets of Noga Ice Cream. The weighted achievement level of Mr. Kalimi's overall targets was 47%, reflecting an achievement level for the Osem Group Targets (as the relative achievement rate at the date of the termination of his employment) and achievement level for the Noga Ice Cream targets (as the relative achievement rate at the date of the termination of his employment).

Meir Imber: (4A) Mr. Imber is the Company's Deputy CEO Operations. He has been employed in the Company since 2003. The employment terms of Mr. Meir Imber are in accordance with his employment agreement from 16 June, 2003 and they include his monthly salary, social benefits, participation in car maintenance and telephone expenses, and participation in expenses incurred during work. Mr. Imber is entitled to an annual bonus based on the Company's policy and to Phantom options as generally accepted for the senior management level at the Company. The terms of the agreement do not specify the period of the employment agreement.

(4B) In calculating the annual bonus amounting to NIS 427,302 to Mr. Imber, a weight of 50% was allocated to Osem Group's targets and a weight of 50% was allocated to the targets of the Operations Division at the Company's Headquarters. The weighted achievement level of Mr. Imber's overall targets was 86%, reflecting a 74% achievement level for the Osem Group Targets (see General Note IV above) and a 97% achievement level for the Operations Division.

In addition, an extraordinary bonus was approved to Mr. Imber, in an insignificant amount of NIS 52,110 (which reflects 0.6 salaries), for his involvement and contribution to the implementation of an internal project which aimed to improve the organizational efficiency of the Company, extracting it's resources and building a better organizational infrastructure for the coming years while reducing expenses, and in a manner

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 that this project was evaluated by the Remuneration Committee and the Board of Directors as a "qualifying event", inter alia due to its strategic importance to the Company.

Pinhas Kimelman (5A) Pinhas Kimelman has been employed in the Company since 1988. Pinhas Kimelman is the Company's CFO and the manager of the Company's Finance Division. The employment terms of Mr. Kimelman are in accordance with his employment agreement from March 1988 and they include monthly salary, social benefits, participation in car maintenance and telephone expenses, and participation in expenses incurred during work. Mr. Kimelman is entitled to an annual bonus based on the Company's policy and to Phantom options as generally accepted for the senior management level at the Company. The terms of the agreement do not specify the period of the employment agreement.

(5B) In calculating the anuual bonus to Mr. Kimelman amounting to NIS 462,054, a weight of 50% was allocated to Osem Group's targets and a weight of 50% was allocated to the targets of the Finance Division at the Company's Headquarters. Kimelman's overall targets was 93%, reflecting a 74% achievement level for the Osem Group Targets (see General Note IV above) and a 111% achievement level for the Finance Division.

In addition, an extraordinary bonus was approved to Mr. Kimelman, in an insignificant amount of NIS 52,100 (which reflects 0.6 salaries), for his involvement and contribution to the implementation of an internal project which aimed to improve the organizational efficiency of the Company, extracting it's resources and building a better organizational infrastructure for the coming years while reducing expenses, and in a way which this project was evaluated by the Remuneration Committee and the Board of Directors as a "qualifying event", inter alia due to its strategic importance to the Company.

Nili Zur

(6A) Nili Zur has been employed by the Company since 2005 (in 2011-2013 Mrs. Zur was employed as a manager in Nestle India). Nili Zur serves as the Company's CEO of the International Division since 1.2.2014, when she came back to Osem Group from her position in Nestle India. The employment terms of Mrs. Zur are in accordance with her employment agreement from 2005 and supplement letter from 5.1.2014, and include monthly salary, social benefits, participation in car maintenance and telephone expenses, and participation in expenses incurred during work. Mrs. Zur is entitled to an annual bonus based on the Company's policy and to Phantom options as generally accepted for the senior management level at the Company. The terms of the agreement with Ms. Zur do not specify the duration of her employment.

(6B) In addition to the social benefits (see general notes III above), the amount in this column reflects returning grant, amounting to NIS 83,000 together with a gross up as was agreed with Mrs. Zur before she began working at Nestle India.

(6C) In calculating the anuual bonus to Mrs. Zur amounting to NIS 347,770, a weight of 30% was allocated to Osem Group's targets and a weight of 70% was allocated to the targets of the international Division. The weighted achievement level of Mrs. Zur overall targets was 84%, reflecting a 74% achievement level for the Osem Group Targets (see General Note IV above) and a 88% achievement level for the International Division.

In addition, an extraordinary bonus was approved to Mrs. Zur, in an insignificant amount of NIS 29,050 (which reflects 0.35 salaries), for her contribution to implementation of infrastructure development and engine growth in the international Division under her management, which the Company estimates is expected to significantly assist to the growth of the Company in the long term.

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 Avraham Finkelstein: (7A) Mr Finkelstein was employed by the Company since 1988, and until April 2010. As of April 2010, with the termination of his office as VP of Administration, Avraham Finkelstein began to provide services for kosher matters and consultation on labor relations issues, at a scope of work of two days per week (and beyond that if deemed necessary, and at no additional cost). The term of agreement with Mr. Finkelstein was set for 3 years, effective as of May 2010, and each party (the Company and Mr. Finkelstein) is entitled to terminate the agreement by an advance notice of 90 days. The consideration paid to Mr. Finkelstein for the above mentioned services, as mentioned above, is in addition to the compensation Mr. Finkelstein is entitled to receive as a director in the Company. On 1.5.2013 the Company's General Assembly approved (following the approval of the Remuneration Committee and the Board of Directors), the extension of the contact period with Mr. Finkelstein by 3 additional years, until the date of 30 April 2016 (hereinafter: the "Extension Period") so that during the Extension period, Mr. Finkelstein will continue to provide the Company and its subsidiaries services, at a certain reduction in the remuneration he was entitled to until the beginning of the extension Period, with respect to kosher issues and during the first 6 months of the Extension Period he will also provide consultation for labor relations if and as much as required, without additional consideration. For additional details regarding the terms of the agreement see the Company's immediate report dated 30.4.2013 (ref. no. 2013-01-011017).

(7B) payment for services as per above;

(7C) Director's fees – see comment (VI) above

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 Regulation 21A: the controlling shareholder in the Company

The controlling shareholder in the Company is Nestle S.A., a multi-national company whose shares are traded on the Swiss stock exchange (hereinafter: "Nestle").

It should be noted that up to November 2011, Nestle had an agreement with Mr. Dan Propper and Mr. Gad Propper, who held, each of them, together with their respective family members about 4.99% of the share capital and voting rights in the Company through different companies.

On 15 November 2011, Nestle notified the Company that all the arrangements it had with Messrs. Dan Propper and Gad Propper, according to which they were requested to vote by using their shares in the Company shareholders meetings together with Nestle and/or in order to support any resolution in favour of Nestle and/or take any action in order to promote the interests of Nestle, were annulled. As per Nestle's notification, as mentioned above, the notification which was described above does not detract from Nestle's commitment then to Messrs. Dan Propper and Gad Propper to vote for their nomination as directors in the Company under the conditions that were set. Nor does it detract from its commitment not to receive certain resolutions that may harm minority interest in the Company, as reported by the Company in the past. See also Immediate Report dated 15 November 2011 (Reference number 01-327141-2011) whose details are included in this paragraph by way of reference. On 1 February 2012, Mr. Gad Propper sold his entire holdings in the Company share capital and on 27 November 2013 Mr. Dan Propper sold the majority of his holdings in the Company share capital.. To the best knowledge of the Company, as at the date of this Report,. Mr. Dan Propper holds 93,122 of the Company shares

Regulation 22: Transactions with controlling shareholders Transactions with a controlling shareholder or in which the controlling shareholder has a personal interest

Following are details, to the best of the Company's knowledge, regarding every transaction with the controlling shareholder (Nestle S.A. and/or its related companies, hereafter in the elaboration of this regulation "Nestle") or regarding which the Company's controlling shareholder has a personal interest in its approval, which the Company and/or companies controlled by it ("the Group") entered into during the reporting year or sometime after the reporting year up to the submission date of this report, or which is still in force at the report date:

Transactions under Section 270 (4) of the Companies Law

Materna transaction: On 12 September 2008, the Company entered into an agreement with Materna Laboratories Ltd. ("Materna Laboratories"), by which the Company will purchase 51% of the fixed assets, goodwill and working capital of the infant nutrition business of Materna Laboratories concentrated under the brand "Materna" so that Company and Materna Laboratories have set up a partnership, in which Osem will hold a 51% stake (and the remaining is held by Materna Laboratories) and to the effect that Osem and Materna Laboratories have placed at the partnership's disposal the fixed assets, goodwill and working capital. At the same time Nestle acquired from Materna Laboratories 51% of the know-how and brands of Materna, so that these together with the know-how and brands of Nestle are placed at the disposal of the partnership in return for usage fees ("Materna transaction"). For further details regarding the transaction outline and terms see the Company's immediate reports from 23 October, 2007 and 14 September, 2009.

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 On 27 January 2009, the Company's General Meeting approved the Materna transaction, after receiving the approval of the Audit Committee and Board of Directors. For further details, see the Company's immediate reports from 30November 2008, from 11 December 2008, and from 27 January, 2009. For additional details on the transaction outline and terms, see the Company's immediate reports from 22 December, 2009.

On 26 July 2011, the Audit Committee of the Company decided to set a limit to the period of this agreement, for a period of the latest between the two: either fifteen years from the month of December 2009, or the date of exercising the option which was granted to Nestle to acquire the remaining intellectual property of Materna from Materna Laboratories. The Audit Committee approved that further contracting under this agreement for the period mentioned above, which exceeds 3 years, is reasonable under the circumstances. For details see Immediate Report dated 27 July 2011.

Agreement regarding the intellectual property of "Tribe" and "Foodtech" from 1 February 2009: On 27 January 2009, the Company's General Meeting approved, after receiving the approval of the Audit Committee and Board of Directors, the entry into an agreement for the sale of the intellectual property of Tribe and Food Tech (know-how and trademarks) acquired by the subsidiary Tivall (through companies controlled by it) to Nestle and/or its related companies, at a price of US$ 15.6 million for the intellectual property of Tribe, and at a price of US$ 9.4 million for the intellectual property of Food Tech.

In accordance with the agreement terms, following the sale of the intellectual property to Nestle, Nestle places said intellectual property at the disposal of Tivall for purposes of its operations in North America (together with Nestle's know-how in the meat analogue and cold salads sector), in return for royalties of 2.5% from the net sales of Tivall's subsidiary in North America. The first agreement period was set at 10 years and the agreement is automatically renewable for additional periods of 5 years each. The agreement includes additional provisions regarding use of the intellectual property of Tivall, Tzabar Salads and Nestle, in other countries, all as detailed in an immediate report on a transaction between a company and its controlling shareholder from 11 December 2008.

On 26 July 2011, the Audit Committee of the Company decided to set a limit to the period of contracting in this agreement, for a period of 15 years from the month of February 2009. The Audit Committee approved that further contracting in this agreement for the period mentioned above, which exceeds 3 years, is reasonable under the circumstances. For details see Immediate Report dated 27 July 2011.

Entry into an agreement with the Nestle Globe Project: On 31 December 2007 the Company's General Meeting approved, following approval from the Audit Committee and Board of Directors, the entry into an agreement with Nestle, whereby the Company will join the Nestle Globe Project, which provides computerization services (hardware and software) with advanced features and in real time to Nestle Group companies, including the assimilation and incorporation of a range of services and systems in the field of computerization, incorporated into the Company by request, including systems for planning, prioritization and allocation of products to customers and optimization of production planning and its customization to demand, upgrading of the Company's level of computerization, advancement of management aspects at the Company, creation of global standardization of all the computer systems (hardware and software) with the Nestle Group companies, creation of global standardization of information system infrastructure in the group, , implementation of optimal work

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 processes (best practices), streamlining of the Company's systems and operations, following the implementation of best practices, as well as other aspects. The consideration being paid by the Company is in respect of its proportional share in total development and services costs, as stated, provided by the Globe Project, it being agreed between the Company and Nestle that, in the event the rate of computerization costs in a particular year exceeds 1.5% of the Company's NPS (Net Proceeds of Sale – i.e. its gross revenues from the consolidated sales, less VAT, returns and commercial rebates), the difference will be added to the computerization costs of the following years, plus interest, provided that in each of the following years the annual payment in respect of the Company's computerization costs will not exceed 1.5% of NPS, which constitutes the average rate of costs for the Company's computerization costs in the four years preceding the transaction approval date. The agreement has been made for an unlimited period of time, provided that each of the parties will be allowed to terminate it by 6 months' advance notice.

On 26 July 2011, the Audit Committee of the Company decided to limit the period of contracting in this agreement, for a period of 20 years starting from the month of December 2007. The Audit Committee approved that further contracting in this agreement for a period, as mentioned above, which exceeds 3 years is reasonable under the circumstances. For details see Immediate Report dated 27 July 2011.

Agreement from 26 November 2002 regarding a lease and the provision of services to the snack R&D center: On December 17, 2002 the Company's General Meeting approved, following the approval of the Audit Committee and Board of Directors, an agreement whereby, inter alia, for purposes of setting up Nestle's snack R&D center in a special building constructed by the Company, at Nestle's request and for its use within the compound of the Company's plant in Sderot, Nestle entered into an agreement with the Company for the lease of the land and the development center and also an agreement for the provision of services to the development center. The agreement provides, inter alia, that Nestle has rented under unprotected tenancy, in accordance with tenant protection laws, the building serving as a research center, as well as the courtyard area for it, as defined in the agreement, for a period of 15 years with an extension option; lease fees are to be paid in US dollars; the lessee may not terminate the lease and the lease fee payments before repayment of the Company's entire investment in the building. The parties also entered into a services agreement by which, inter alia: the Company is to provide to Nestle various services and products for current operations at the site, insofar as it will be able to provide these services for services and products that were purchased by the Company for Nestle, from third party suppliers - Nestle will pay their full cost according to the supplier invoices; for services and products provided directly to Nestle by the Company, the full cost will be paid; for services shared by Nestle and the plant, Nestle will pay its proportional share according to the built-up area at Nestle's disposal relative to the overall built-up area of the plant.

On 26 July 2011, the Audit Committee of the Company decided to limit the period of contracting in this agreement, for a lease period of 15 years starting from the month of November 2002, with an option to Nestle to extend the lease for an additional period of 9 years. The Audit Committee approved that further contracting in this agreement for a period, as mentioned above, which exceeds 3 years is reasonable under the circumstances. For details see Immediate Report dated 27 July 2011.

General Licensing Agreement from 1 January 2001 between the Company and Nestle: On May 22, 2001 the Company's General Meeting approved, after receiving approval from the Audit Committee and the Board of Directors, an agreement by which, inter alia, Nestle grants the Company the right to use trademarks (as defined by the parties), know-how and patents of Nestle within the 15

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 territory of the State of Israel, in connection with various products, including beverages and coffee products, pet food and sweets, and other products as will be defined between the parties. In consideration for the usage right the Company pays Nestle royalties of 4% of net sales of the relevant products. In consideration of the products the Company pays Nestle the production price without any economical profit to Nestle. The agreement stipulates further terms for the use of trademarks, know- how and patents. The agreement is for a period of 10 years and thereafter automatically renewable for additional periods of 5 years. For details see Immediate Report dated 29 March 2011.

On 26 July 2011, the Audit Committee decided to set a limit to the period of contracting in this agreement, for a period of 15 years from the month of January 2001. The Audit Committee approved that further contracting in this agreement for a period, as mentioned above, which exceeds 3 years is reasonable under the circumstances. For details see Immediate Report dated 27 July 2011.

General Licensing Agreement from 1 January 2001 between the Company and CPW, a related company of Nestle: CPW is a company jointly owned by Nestle and General Mills, which engages in the development and production of breakfast cereals. On May 22, 2001 the Company's General Meeting approved, after receiving approval from the Audit Committee and Board of Directors, an agreement by which, inter alia, CPW grants the Company the right to use trademarks (as defined by the parties), know-how and patents of CPW within the territory of the State of Israel, in connection with breakfast cereals. In consideration for the usage right, the Company pays CPW royalties of 5% of net sales of the relevant products. In consideration of the products the Company pays Nestle the production price without any economical profit to Nestle. The agreement stipulates further terms for the use of trademarks, know-how and patents. The agreement was signed for a period ending December 31, 2006, following which it is automatically renewed for additional periods of 5 years.

Agreement between Noga Ice Cream Limited Partnership (a subsidiary fully owned by the Company, hereinafter: "Noga") and Nestle, dated 25 February 1997, as it was ratified on 1 November 2011: according to the agreement, among other things, Nestle grants Noga the right to use trademarks (as defined between the parties) and use the Nestle the know-how and patents, in the territory of the State of Israel in connection with the ice cream products. For the right of usage, Noga pays Nestle royalties at 3% of the net sales of the relevant products. The agreement set additional conditions for using the trademarks and know-how. The original agreement was signed for an initial period of 10 years, and is to be renewed automatically afterwards, for additional periods of 5 years. . For details see Immediate Report dated 29 March 2011.

On 1 November 2011, following the approval of the Audit Committee and the Board of Directors, the Company General Meeting approved the extension of the Noga agreement. According to the conditions of the agreement, which were ratified as mentioned above, the extended agreement is for a period of 5 years, starting on 26 February 2012. In this respect, the Audit Committee stated that the period of contracting in this agreement, as mentioned above, is reasonable under the circumstances. See also the Company's Immediate Report dated 10 October 2011.

Technical Assistance Agreement between the Company and Nestle from 29 May, 1998 : on 2 July 1998, following the approval of the Audit Committee and the Board of Directors, the Company 16

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 General Meeting approved the contracting in the above mentioned agreement according to which, among other things, it was stated that Nestle (through Nestec Ltd., which is the R&D arm of Nestle and a fully owned company) will provide the Company specific technical assistance and also general technical assistance, as follows: specific technical assistance for specific products for the purpose of selling them in the territory of the State of Israel – which includes technical, scientific and professional assistance for manufacturing the above mentioned products, in consideration for2.5% of the total sales of these products; general technical assistance – which includes technical assistance, including assistance in manufacturing, engineering assistance, quality assurance, distribution and marketing, finance, accounting, data processing, purchasing organization, insurance and other operational and administrative aspects. In consideration for the general technical assistance, the Company pays Nestle an annual sum of CHF 1 million.

In addition, according to the terms of contract, for know-how Nestle may request from the Company if and when it so requests, Nestle shall pay 2.5% of the sales turnover from the products for which Nestle shall use the know-how of the Company. For using the Company brands Nestle shall pay additional 1.5% of the sales turnover from products which includes use of brands.

The original agreement was set for an initial period of 7 years and is to be renewed automatically afterwards for additional periods of 7 years each.

On 1 November 2011, following the approval of the Audit Committee and the Board of Directors , the Company General Meeting approved the extension of the commitment between the Company and Nestle under this agreement, so that according to the condition of the above-mentioned commitment, the additional period of agreement will be for a period of 7 years, starting from 29 May 2012, unless any of the parties to the agreement notified of its intention to terminate the commitment by a prior notice of 12 months, as the case may be. The Audit Committee stated that the period of commitment in this above mentioned agreement, is reasonable under the circumstances. See also the Company's Immediate Report dated 10 October 2011.

Transactions not according to Section 270 (4) of the Companies Law

Agreement between Tivall Europe and Nestle Germany: On January 27, 2009 an agreement was signed between Nestle Germany (a related company of Nestle) and Tivall Europe (a company wholly owned by Tivall), which does not amount to an extraordinary transaction, within the meaning of this term in the Companies Law, whereby Nestle Germany provides to Tivall Europe, a subsidiary company of the Company, selling services for products named Tivall Europe across Germany and Austria (according to destinations defined by the parties). The agreement was made for an unlimited period and can be terminated under an advance notice of six months. Tivall Europe undertook to pay a one-time payment to Nestle Germany for the training of workers as well as a commission of 5% to 7% of sales (the commission rate of 7% will drop down to 5% as sales grow).

Insurance:

A. A. On October 19, 2010, the Company’s General Meeting approved, following the approval of the Audit Committee and Board of Directors, the Company's entering into a directors and officers liability insurance policy, with a validity term, starting from April 1, 2011 for a period of 12 months. Within this agreement, the Company CEO was authorized to renew (by extending the term or by taking out another insurance policy), from time to time and at his discretion, the insurance policy at a similar and/or same conditions, which will be acceptable 17

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 and appropriate for the Company and the officers at the time of the policy renewal and at favorable conditions for the Company, so that the Company can contract with the insurer for further periods of insurance until the date of March 31 2016, and as long as the cost of the annual insurance premium to be paid by the Company will not increase by more than 25% of the annual payment paid during the previous insurance period, as of the date of the approval as specified above, and the liability limits will not exceed by more than 25% compared to the current liability limits, and subject to the approval of the Board and its Audit Committee that there are no material differences in the terms of the new contract compared to the previous year. B. On 24 March 2010, the Company's board of directors approved, after receiving approval from the Audit Committee, the Company's participation in an officers’ liability insurance policy which Nestle has purchased or will purchase, from time to time, for its directors and officers of companies from the Nestle Group and within these companies, the Company and its controlled subsidiaries, at an insurance cover as an additional insurance layer which is added to the directors and officers liability insurance the Company has purchased at its own expense (see above). In the reported year, and at the date of this Report, the additional insurance layer amounted up to a maximum of USD 150 million. The participation, as mentioned above, is without any payment of premium of any kind, by the Company and without any obligation of self-participation. C. On 24 March 2010, following the approval that was received from the Audit Committee, the Company's board of directors approved the contracting of the company, from time to time, with Migdal Insurance Company ("Migdal") as a transaction that does not constitute an extraordinary transaction as the term is defined in the Companies Law, for the purchasing of policies for the main insurances for the Company and its subsidiaries, so that Migdal, as chief insurer, will contract among other things, with a re-insurer to provide a re-insurance to Migdal at a volume that will not exceed about 40% of the above mentioned insurance portfolio and so that this re-insurer may contract directly with a Nestle related company, to provide an insurance cover in the portfolio (for the proportion of the cover regarding which the re-insurer will enter into contract).

Agreement between Osem UK and Nestle: According the conditions of the agreement, Osem UK (a fully owned subsidiary of the Company) purchases from Nestle food products, which are imported by Osem UK to England, for the purpose of distributing them in the ethnic market in England. As at the report date, such product purchasing is done against payment which as a rule reflects Nestle's transfer prices with an addition of 12%. The purchasing of the products is done in volumes that are not material for the Osem Group. The preliminary period of the agreement was set until 1 June 2013, and after that the agreement was automatically renewed for 3 years and will continue to be renewed for additional periods of 3 years unless it is terminated by a prior notice of 6 months. On 31 March 2011, the Company board of directors approved the contracting and also ratified the agreement starting from 2007, as a transaction which does not constitute "an extraordinary transaction", as the term is defined in the Companies Law. On 21 November 2013, the Audit Committee decided to approve and ratify the worthiness of the deal and its continuation until the date of 31 May 2016 and to approve the distribution of "Maggi" products by Osem UK for a distribution fee of 12% from every sale.

Definition of Insignificant Transaction:

On 31August, 2011, having accepted the recommendation of the Audit Committee, the Board of the Company decided to adopt a procedure for approving insignificant transactions with interested party 18

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 and with controlling shareholder in the Company. As stipulated in Regulation 41(a) (6), to the Securities Regulations (preparing the annual financial statements) – 2010 which provided a concise definition for transactions which will be regarded as insignificant, as per the following:

A. a transaction of an interested party which is not an exceptional transaction (as defined in the A. Companies Law - 1999), and is not defined by the Company as an event which requires immediate reporting, as per Regulation 36 to the Securities Law (Periodic and Immediate Reports), 1970 and the transaction meets the following two conditions: a. The transaction value is less than 0.5% (half a percent) of the relevant criterion as defined in the Procedure (one criterion or more than one, if relevant and as much as relevant to the transaction), the criterion is the annual sales turnover and/or the total of the assets in the balance sheet and/or the total of the liabilities in the balance sheet and/or the annual profit and each and all according to the relevant circumstances of the specific transaction, and in addition b. The value of the transaction does not exceed a total of NIS 8,000 thousand, when this sum is adjusted to the rate of increase in the CPI compared to the CPI which was published on 15 July, 2011, and all according to the lower of the two.

For each transaction, whose classification as an insignificant transaction will be examined one of the criteria set above, and this - based on the last consolidated annual financial statements of the Company:

A. When purchasing products (including finished products, bulk and/or raw materials) which are used by the Group – by the volume of the purchasing against the total annual sales volume, as reflected in the financial statements. B. When selling the Group's products – the sales volume against the total annual sales volume, as reflected in the financial statements. C. When purchasing or selling services – the transaction volume against the total annual sales volume, as reflected in the financial statements. D. When purchasing fixed asset ("non-current asset") – the transaction volume against the total sum of all the assets listed in the report on the financial affair which included in the financial statements. E. When selling a fixed asset ("non-current asset") – the profit/loss incurred from the transaction against the annual profit/loss, as reflected in the financial statements. F. When accepting a financial commitment – the transaction volume against the total sum of all the liabilities listed in the report on the financial affair which included in the financial statements.

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 Regulation 24: Holdings of Interested Parties

Below please find detailed information, to the best knowledge of the Company, on the securities held by interested parties and senior office holders in the Company, or in a subsidiary company of the Company whose activity is material to the Company, close to the report date.

Holding Rate in Share Capital, Voting Rights and ID Card No./Company Par Value Held at Authority to Appoint Interested Party No. at Registrar Security Name Security No. December 31, 2013 Directors

NESTLE S.A. (1) CH-550-0067-293-5 Osem Investments 304014 70,460,032 63.68% Company controlled by Dan Osem Investments 304014 93,122 0.08% Propper** (2) Dorit and Yitzhak Yarkoni and family Osem Investments 304014 5,479,155 4.95% companies controlled by them (3) ** Elisheva Finkelstein and companies Osem Investments 304014 2,061,081 1.86% controlled by Elisheva and Avraham Finkelstein ** (4) Osem Food Industries Ltd. 51-045071-1 Osem Investments 304014 12 0.00%

** Messrs. Dan Propper, Yitzhak Yarkoni and Avraham Finkelstein serve as directors at the Company. A breakdown of holdings appears below.

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 Regulation 24 (cont.): Shares and convertible securities held by interested parties in the Company, in a subsidiary or in a related company (cont.)

(1) NESTLE S.A. Part of the shares are held through 70,460,032 shares a nominee company

Danpro Investments Ltd. Through the nominee company 93,122 shares

(3) Yotamar Holdings Ltd. 329,166 shares Yar-Dorel Ltd. 2,574,995 Shares Yar-Dana Ltd. 2,574,994 shares

(4) A.A. P.K.D. Investments Ltd. Through the nominee company 338,686 shares A.A. Finkelstein Assets Ltd. Through the nominee company 1,716,671 shares Elisheva Finkelstein Through the nominee company 5,274 shares

Following are the holding rates in the above companies which hold shares in the Company as they are known to the Company:

Danpro Investments Ltd. Propper Dan 99.99999% Propper Susan 0.00001%

Yotamar Holdings Ltd. Yarkoni Dorit 99% Yarkoni Yitzhak 1% Yar-Dorel Ltd. Yarkoni Dorit 99.9% Ben Harush Yarkoni Dorel 0.1% Yar-Dana Ltd. Yarkoni Dorit 99.9% Yarkoni Dana 0.1%

A.A. P.K.D. Investments Ltd. Finkelstein Elisheva 99% Finkelstein Abraham 1% A.A. Finkelstein Assets Ltd. Finkelstein Elisheva 99.98% Finkelstein Abraham 0.02%

Regulation 24A: Authorized capital, issued capital and convertible securities The Company's authorized capital is 150,000,000 ordinary shares with equal rights of NIS 1 par value each. The Company's issued capital is 110,644,444 shares The Company has no convertible securities

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

Regulation 24B: Company Shareholders’ Registrar

No. Name of shareholder ID / Company No. Quantity / Number of shares 1. Nestle S.A. CH-550-0067-293-5 59,488,875(*) 2. Osem Food Industries Ltd. 51-04507-1 12 3. Raphael Wilmersdorf 001428663 677,372 4. Eitan and Raphael Investments (1999) Ltd. 51-285310-2 1,144,448 5. Tamar and Raphael Assets Ltd. 51-285310-2 1,144,446 6. Elisha and Raphael Holdings Ltd. 51-285313-6 1,144,448 7. Pnina Zimmerman 051259000 677,372 8. Louk Orna Ltd. 51-261924-8 2,574,995 9. Louk Ron Ltd. 51-261884-4 2,574,994 10. Yar-Dana Ltd. 51-261882-8 2,574,994 11. Yar-Dorel Ltd. 51-2161880-2 2,574,995 12. Yotamar Holdings Ltd. 51-270299-4 329,166 13. N. Kolan Investments Ltd. 51-270298-6 329,166 14. The Nominee Company of Bank Leumi Leisrael Ltd. 51-00986-4 (*)35,406,146 15. Yehuda Bar Lev 64837123 18 16. David Noiman 8332884 89 17. Kalanit Getenyu 057082810 5 18. Moshe Kramer 059761759 1 19. Livnat Raz 55088645 1 20. AM”M, G. Investments and Finance Ltd. 51-160044-7 1 21. Ram Zaktzar 025382979 1 22. Aharon Elias 072829518 56 23. Mozla Investments Company Ltd. 51-158053-2 2,084 24. Nikolai Amsaionik 310419841 27 25. Tal Savyon 038506499 417 26. Nira Savyon 1356148-5 201 27. Nathan Pantzar 08037392 114 Total Shares: 110,644,444

(*) 10,971,157 shares out of total of the shares held by the Nominee Company of Bank Leumi Leisrael Ltd. are held for Nestle S.A.

Regulation 25A: Company's registered address, addresses, email and telephone numbers The Company's registered address is Kiryat Osem, 2 Rimon St, Haman Industrial Zone, POB 934, Shoham 6085001 Tel: 03-7295050 Fax: 03-7205095 Email address: [email protected]

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 Regulation 26: Company Directors

(1) DAN PROPPER ID No.: 007131766 Year of birth: 1941 Address: 89 Hazore'a St., Kfar Shmaryahu Nationality: Israeli Membership on board committees: No External director: No Independent Director: No Possess financial and accounting Yes expertise:

Is he an employee of the Company, a Yes, chairman of Osem Group subsidiary, a related company or an interested party:

Company director since: 23 September 1981

Education: Graduate of the Haifa Technion, Chemical Engineer and Food Technologist Occupation in the last five years and Chairman of the Company board other companies in which he serves as Board Memberships: Director in family-owned companies, director: subsidiary companies of the Osem Group, Check Point Ltd., Teva Pharmaceutical Industries Ltd. (until February 2011).

Is he a relative of another interested Yes, brother of Gad Propper party in the Company:

(2) GAD PROPPER ID No.: 007131774 Year of birth: 1944 Address: 7 Hashalom St., Ramat Hasharon Nationality: Israeli Membership on board committees: No External director: No Independent Director: No Possess financial and accounting Yes expertise: Is he an employee of the Company, a subsidiary, a related company or an No. interested party: Company director since: 1981

Education: MBA from Tel Aviv University, BA in Economics from Jerusalem University. Occupation in the last five years and CEO of Osem International Foods Ltd., CEO Nestle Purina other companies in which he serves as Board Membership: Director in family-owned companies, director: Vitania Ltd. Chairman of L'Oreal Israel Ltd., chairman of CycleTech Ltd., Gaon Holdings

Is he a relative of another interested Yes, brother of Dan Propper. party in the Company:

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

(3) AVRAHAM FINKELSTEIN ID No.: 06235857 Year of birth: 1943 Address: 4 koz'delo St. Petah Tiqva Nationality: Israeli Membership on board committees: No External director: No Independent Director: No Possess financial and accounting No expertise: Is he an employee of the Company, a subsidiary, a related company or an No interested party: Company director since: 1987 Education: MA in education and administration, JTS University Business Administration, Long Island University Occupation in the last five years and Vice president of human resources until March 2009 and vice other companies in which he serves as president of administration in the Company until April 2010. director: provides services to the Company and to the Osem Group for kosher matters and consultation on labor relations. Board Memberships: director in subsidiary companies of Osem Group, and family-owned companies, Bank Masad Ltd., Helibo Diagnostic Institutes Ltd.Public director in Ayalon Insurance Company, the board of governors of Talpiot College. External director of Magen Zahav Pension Fund. External director of Pisga – a pension management fund. Is he a relative of another interested No party in the Company:

(4) ITZHAK YARKONI ID No.: 007845795 Year of birth: 1944 Address: 2 Ben Zion Israeli St., Givatayim Nationality: Israeli Membership on board committees: No External director: No Independent Director: No Possess financial and accounting No expertise: Is he an employee of the Company, a No subsidiary, a related company or an interested party: Company director since: 1987 Education: High school Occupation in the last five years and Graphic design and visual communications. other companies in which he serves as Board Memberships: Director – family-owned companies director: . Is he a relative of another interested No party in the Company:

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 (5) Eli Zohar ID No.: 07073406 Year of birth: 1940 Address: 30 Magal St., Savyon Nationality: Israeli Membership on board committees: No External director: No Independent Director: No Possesses financial and accounting No. Possesses professional qualifications Skills: Is he an employee of the Company, a No subsidiary, a related company or an

interested party: Company director since: August 20, 1996 Education, occupation in the last five LL.B, Hebrew University of Jerusalem years and other companies in which he Advocate and Chairman of the Zeligman-Goldfarb law firm, serves as director: Chairman of Gesher Theatre, Director in Scientific Investments Company. Is he a relative of another interested No party in the Company:

(6) Gabi Hake ID No.: 52058385 Year of birth: 1954 Address: 32 Smadar St., Shikun Vatikim, Ramat Gan Nationality: Israeli Membership on board committees: Audit Committee, Committee for the examination of the Company financial statements, Remuneration Committee External director: No Independents Director: No Possesses financial and accounting Skills: No. Possesses professional qualifications

Is he an employee of the Company, No a subsidiary, a related company or an interested party: Company director since: August 20, 1996 Education, occupation in the last LL.B, Law Kent University, England (graduated with honour) five years and other companies in Director in the following companies:., The Davidof Group Ltd., which he serves as director: and in family-owned companies. Is he a relative of another interested No party in the Company:

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547

(7) DR. LEORA MERIDOR ID No.: 5173000 Year of birth: 1947 Address: 17 Ben Maimon St., Jerusalem Nationality: Israeli Membership on board committees: Audit Committee ,Balance Sheet Committee, Remuneration Committee External director: Yes Specialized External director No Independent Director: No Possesses financial and accounting Yes Skills: Is she an employee of the Company, No a subsidiary, a related company or

an interested party: Company director since: November 5, 2007 (the General Assembly decided (On 3/09/2013) to appoint Dr. Leora Meridor, for a third and additional term of 3 years as an external director in the Company, from the expiration of her second statutory term , i.e. on 11/5/2013) Education: Bachelor's degree in Mathematics and Physics – Hebrew University of Jerusalem, Master's degree in Mathematics – Hebrew University of Jerusalem, Doctorate in Economics – Hebrew University of Jerusalem, post-doctorate in Economics – MIT. Occupation in the last five years and Business and financial consulting – Meridor Management and other companies in which he serves Consulting (from 2002); as director: Board Memberships: Gilat Satellite Systems Ltd., Alrov (Israel) Ltd. Is she a relative of another No interested party in the Company:

(8) YAKI YERUSHALMI ID No.: 8494965 Year of birth: 1942 Address: Kfar Hogla, Emek Hefer Nationality: Israeli Membership on board committees: Audit Committee Balance Sheet Committee External director: Yes Specialized External director: No Independent Director: No Possesses Financial and accounting Yes Skills: Is he an employee of the Company, a No subsidiary, a related company or an interested party: Company director since: July 9, 2008 On 3 July 2014 the General Meeting decided to appoint Mr. Yaki Yerushalmi for an additional term of 3 years, as an external director in the Company, starting from the end of his present statutory officer, on 8 July 2014 26

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 Education: Practical Engineer Occupation in the last five years and Chairman and CEO of American Israeli Paper Mills Ltd. Group. other companies in which he serves Board Memberships: Veolia Israel, Rupin College, Ormat as director: Tecnologic, Mada Tech Haifa, OPC Rotem Is he a relative of another interested No party in the Company:

(9) Yossi Alsheich ID No.: 007743933 Year of birth: 1936 Address: 19, Yaakov Meridor Street, Tel Aviv, Tel Baruch North Nationality Israeli Membership on board committees: Audit Committee, Balance Sheet Committee External Director No. Specialized External director: No Independent Director: Yes Possesses Financial and accounting Yes Skills: Is he an employee of the Company, a subsidiary, a related company or an No interested party: Company director since: 10 October 2012 Education: B.A. in economics; A certified arbitrator Occupation in the last five years and Economic and financial consultant and director in Lachis other companies in which he serves as Industries Ltd.; Director in Whitewarter Ltd., Ubank Ltd., Shikun director: Ve'Binui Ltd., Atidim, Sde Boker Academic Center, Chairman of Investment Committee at Amitim Pension Fund Is he a relative of another interested No party in the Company:

(10) Roger Stettler Passport No.: X3412372 Year of birth: 1957 Address: Chemin de Bellevue 7, 1026 Echandens Nationality: Swiss Membership on board committees: No External director: No Independent Director: No Possesses Financial and Accounting Yes Skills: Is he an employee of the Company, a Yes, manager at Nestle Switzerland, the controlling shareholder. subsidiary, a related company or an interested party: Company director since: April 26, 2010 Education: CH Diploma, Commercial and Administration, Professional School, Ecole Superior de commerce, Lausanne, Core Leadership Programme in London. Occupation in the last five years and 2008-2010 Senior Vice President Head of Group Control other companies in which he serves 2010 Vice President Regional Management Zone Asia-Oceania- as director: Africa Member of several boards within the Nestle Group of Companies Is he a relative of another interested No party in the Company:

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 (11) Antonio Helio Waszyk Passport No.: BRA YA650857 Year of birth: 1951 Address: Nationality: Swiss Membership on board committees: No External director: No Independent Director: No Possesses Financial and Accounting Yes Skills: Is he an employee of the Company, a Yes, manager at Nestle Switzerland, the controlling shareholder. subsidiary, a related company or an interested party: Company director since: July 3, 2014 Education: SC Biochemistry in University Sao Paulo Brazil Occupation in the last five years and 2009 – 2013 – Market Head Nestle India other companies in which he serves 2004 – 2009 – Head of Nestle's the Food Stratefic Business Unit. as director: Member of several boards within the Nestle Group. Is he a relative of another interested No party in the Company:

(12) Luis Cantarell Rocamora Passport No.: XDBO91011 Year of birth: 1952 Address: AV. Samson-Reymondin 20, 1009 Pully, Switzerland Nationality: Spnaish Membership on board committees: No External director: No Independent Director: No Possesses Financial and Accounting Yes Skills: Is he an employee of the Company, a Yes, manager at Nestle Switzerland, the controlling shareholder. subsidiary, a related company or an interested party: Company director since: December 16, 2014 Education: Economic Sciences, Barcelona University Occupation in the last five years and Executive Vice President Nestle S.A. Zone Director for EMENA other companies in which he serves Executive Vice President Nestle S.A. Head of Nestle Nutrition as director: President & CEO, Nestle Halth Science S.A. Executive Vice President, Nestle S.A., in charge of Zone Americas. Member of several boards within the Nestle Group. Is he a relative of another interested No party in the Company:

(13) Trevor Douglas Brown Passport No.: 510920331 Year of birth: 1960 Address: Crau-au-Fer 9, 1092 Belmont-sur-Lausanne, Switzerland Nationality: British Membership on board committees: No External director: No Independent Director: No

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 Possesses Financial and Accounting No, Possess Professional qualifications Skills: Is he an employee of the Company, a Yes, manager at Nestle Switzerland, the controlling shareholder. subsidiary, a related company or an interested party: Company director since: December 16, 2014 Education: Brunel University London; The College of Law, Chester England Occupation in the last five years and General Counsel Europe Nestle; other companies in which he serves General Counsel EMENA (Europe, Middle East/ nk north Africa) as director: Nestle. Member of several boards within the Nestle Group. Is he a relative of another interested No party in the Company:

(14) Peter Noszek Passport No.: BC1110781 Year of birth: 1965 Address: Route de Blonay 25B, 1800 Vevey Switzerland Nationality: Hungarian Membership on board committees: No External director: No Independent Director: NO Possesses Financial and Accounting Yes Skills: Is he an employee of the Company, a Yes, manager at Nestle Switzerland, the controlling shareholder. subsidiary, a related company or an interested party: Company director since: December 16, 2014 Education: BA Economics – University of Economics, Budapest Occupation in the last five years and Head of Finance and Control Zone EMENA, Nestle S.A.; Head of other companies in which he serves Finance and Control Purina Europe; Head of Finance and Control as director: Nestle Philippines. Member of several boards within the Nestle Group. Is he a relative of another interested No party in the Company:

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Regulation 26A: Company's senior officers

(1) Itzik Saig ID No.: 53228839 Year of birth: 1956 Position in the Company: Company CEO starting on 2 April 2012)

Position he holds in a subsidiary or Director in the Company subsidiary companies. in an interested party: Is he a relative of another senior No officer or of an interested party: Is he an interested party: No (other than his role as CEO) Education: MBA, Tel Aviv University Experience and occupation in the Deputy CEO and CEO of Osem Israel Division last five years: Nestle New Zealand Country Manager

Commencement of tenure as 2 April 2012 Company CEO:

(2) Avi Ben Assayag ID No.: 059277483 Year of birth: 1965 Position in the Company: Deputy CEO and Responsible for the areas of strategy and business development, finance, and budget control, demand planning, long-term enterprises design, excellent unit, information systems and corporate marketing. Position he holds in a No subsidiary or in an interested

party: Is he a relative of another No senior officer or of an

interested: Is he an interested party: No Education: B.A. in Economics and Accountant – Tel-Aviv University; MBA Harvard Business School (Senior executives program AMP Experience and occupation in CEO of Delek Israel Fuel Corporation; CEO of I.D.B Tourism the last five years: Commencement of tenure: 2.3.2015

(3) Pinhas Kimmelman ID No.: 056812571 Year of birth: 1961 Position in the Company: Deputy CEO of Finance and Chief Risk Officer Position he holds in a subsidiary or Director at Osem Group subsidiary companies in an interested party: Is he a relative of another senior No officer or of an interested: Is he an interested party: No Education: Accountant, B.A. in accounting and economics – Hebrew University. M.A in business administration – Bar Ilan University Experience and occupation in the Deputy CEO of Finance and controller at Osem, Chairman last five years: of the CFO Forum of the Manufacturers' Association of Israel, member of the Israel Standards Accounting Board, Lecturer at the College of Management Accounting, management member of the Mutual Fund of Employers of 30

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 the Manufacturers Association of Israel; Member of the Food Industries Association in the Food Manufactures Association, Member of the Executive of the Israeli Association of Publicly Traded Companies Commencement of tenure: 1998

(4) Meir Imber ID No.: 52637220 Year of birth: 1954 Position in the Company: Deputy CEO of Operations Position he holds in a subsidiary or Director at Osem Group subsidiary companies in an interested party: Is he a relative of another senior No officer or of an interested: Is he an interested party: No Education: BSc. Industrial and management engineer, Technion Institute, Haifa MBA, Brunel University, England Experience and occupation in the Deputy CEO of Operations at the Company. last five years: Commencement of tenure: January 1, 2004

(5) Ofer Green ID No.: 057081887 Year of birth: 1961 Position in the Company: Deputy CEO of Osem Group. CEO Noga Ice Cream Limited Partnership as of 15/09/2014, Until 15.9.2014 served as CEO of Osem Group Commerce Limited Partnership

Position he holds in a subsidiary or Director on the board of Materna Holdings Ltd. in an interested party: Is he a relative of another senior No officer or of an interested: Is he an interested party: No Education: Bachelor's degree in general studies –Auborne University, Alabama, USA. MBA, Ben-Gurion/Boston University. Experience and occupation in the CEO of Israel Air, Shufersal Business Unit Manager at last five years: Osem Group Commerce Limited Partnership Tenure as a CEO of Osem Group March 15, 2011 – July 1, 2014 Commerce: Commencement of tenure as a September 15, 2014 CEO of Noga Ice Cream LP:

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 (6) Nitzan Goldberg ID No.: 024454449 Year of birth: 1969 Position in the Company: CEO of Osem Group Commerce, Position he holds in a subsidiary or No in an interested party: Is he a relative of another senior Yes, married to Billy Yanko, CEO Of Bonjour officer or of an interested: Is he an interested party: No Education: MBA, Rupin College Experience and occupation in the Deputy CEO of Osem Group Commerce and Manager at the last five years: Private Market in Osem Group Commerce; Deputy CEO Sales at Noga Ice Cream LP. Commencement of tenure: July 1, 2014

(7) Rani Sagiv ID No.: 052343928 Year of birth: 1954 Position in the Company: Vice President of Supply Chain Position he holds in a subsidiary or None in an interested party: Is he a relative of another senior No officer or of an interested: Is he an interested party: No Education: MBA – Hebrew University Experience and occupation in the Vice President of Supply Chain at the Company. last five years: Commencement of tenure: 2 January 2005

(8) Barak Strozberg ID No.: 029504487 Year of birth: 1972 Position in the Company: VP of Human Resources Position he holds in a subsidiary or in an None interested party: Is he a relative of another senior officer or No of an interested: Is he an interested party: No Education: BA in political science and BA in Accounting – Hebrew University; MBA public policy – Hebrew University Experience and occupation in the last five Senior Deputy of the Wage Director at the Ministry of years: Finance Commencement of tenure: 1 January 2013

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 (9) Ori Ben Shai ID No.: 029480951 Year of birth: 1972 Position in the Company: CEO – Snacks, Bakery, Beverages and Breakfast Cereals Position he holds in a subsidiary or in an None interested party: Is he a relative of another senior officer or No of an interested: Is he an interested party: No Education: BA in Administration and Computer Sciences – Tel Aviv University

Experience and occupation in the last five Deputy CEO and Head of Proctor & Gamble Israel Business years: Divison; CEO of the Health Divison in Proctor & Gampl Commencement of tenure: 15 October 2012 End of tenure 30 November 2012

(10) Ilana Cachlon ID No.: 54009667 Year of birth: 1956 Position in the Company: Internal auditor Position he holds in a subsidiary or Internal auditor of the Company and companies controlled in an interested party: by the Company. Is he a relative of another senior No officer or of an interested: Is he an interested party: No Education: Accountant, Bachelor's degree in economics and accounting – Bar Ilan University Experience and occupation in the Internal auditor at the Company. last five years: Commencement of tenure: 1 March 2008

(11) Hagit Adler ID No.: 02309937 Year of birth: 1968 Position in the Company: Since October 1, 2014 Head of Osem Nestle Professional Division (Out of the Home Market)Director at the Company subsidiary Position he holds in a subsidiary or None in an interested party: Is he a relative of another senior No officer or of an interested: Is he an interested party: No Education: BA – life sciences, Tel Aviv University MHA Health Systems Management, Tel Aviv University Experience and occupation in the CEO OF Bonjour, CEO of Bakery and Beverage Division, last five years: Director at the Company Subsidiary Tenure as CEO of Bonjour: 1 January 2013 – October 1, 2014 Commencement of tenure as Head of Osem Nestle Professional Division: October 1, 2014

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 (12) Tzippi Hammer ID No.: 24415903 Year of birth: 1969 Position in the Company: Business Executive Manager of the Company's "New Businesses" unit Position he holds in a subsidiary or No in an interested party: Is he a relative of another senior No officer or of an interested: Is he an interested party: No Education: MBA, Hebrew University of Jerusalem Experience and occupation in the Marketing Manager of Bakery in the Company; Kitchen and last five years: Home business Area Manager at Hogla-Kimberely Commencement and end of tenure: March 1, 2014

(13) Zahava Martonovits ID No.: 54656673 Year of birth: 1956 Position in the Company: CEO – Culinary Division Position he holds in a subsidiary None or in an interested party: Is he a relative of another senior No officer or of an interested: Is he an interested party: No Education: MBA, Tel Aviv University Experience and occupation in the Marketing Manager-Snacks; Breakfast Cereals Acvitiy last five years: Manager Commencement of tenure at 1 January 2013 Osem:

(14) Nili Zur ID No.: 22864615 Year of birth: 1967 Position in the Company: CEO of the company's International Division Position he holds in a subsidiary No or in an interested party: Is he a relative of another senior No officer or of an interested: Is he an interested party: No Education: MBA, Economics and Business Administration, Tel Aviv University Experience and occupation in the Breakfast Cereals and Snacks Division CEO in the last five years: Company; Sabra Salads General Manager; Beverage Division BEM, Nestle India Commencement and end of February, 1 2014 tenure:

(15) Billy Yanko ID No.: 024868101 Year of birth: 1968 Position in the Company: CEO Bonjour Position he holds in a subsidiary or No in an interested party: Is she a relative of another senior Yes, married to Nitzan Goldberg CEO of Osem Group officer or of an interested: Commerce LP. Is she an interested party: No Education: MBA, Bar-Ilan University; BA Economics, Tel-Aviv University

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Experience and occupation in the 2010 – 2014 – CEO Sabra Salads. last five years: 2008 – 2010 – Marketing manager of the Culinary Division Commencement of tenure: 1 October, 2014

Regulation 26B: Company's independent authorized signatories As at the Report date, the Company has no independent authorized signatories.

Regulation 27: Company's accountant Accountant's name: Somekh Chaikin CPA Firm Address: 17 Ha'arbaah St, Tel Aviv

Regulation 28: Amendment to memorandum or articles On 16.12.2014 the Company amended its Articles of Association (excluding the insurance and indemnity clauses) after the approval of the General Meeting. For the amended version of the Articles of Association see Appendix C of the report convening the meeting published by the Company on 23.11.2014 (ref - 2014-01-200595).

Regulation 29(a): Directors’ recommendations and resolutions On 13 March 2014, the Company's Board of Directors decided to distribute to the Company shareholders dividend in the amount of NIS 150 million. The dividend was distributed on 8 April 2014. For additional details see the Company's Immediate Report dated 16 March 2014 (Reference number 2014-01-015453), whose details are included in this paragraph by way of reference.

Regulation 29(b): General Meeting Resolutions which were received not according to the Board's recommendations "___"

Regulation 29(c): Extraordinary General Meeting Resolutions

1. The General Meeting Resolutions dated 3 July 2014 A. Re-Appointment of Mr. Yaki Yerushalmi as an external director in the Company's board of directors for an additional term (third term) it was decided to re-appoint Mr. Yaki Yerushalmi as an external director on the Company's board, starting from the end of his second statutory term of office, i.e. 8 July 2014 as detailed in the General Meeting convening report published on 24 June 2014 (Reference number 2014-01-097704). B. Annual bonus payment to the Company's CEO, Mr. Itzik Saig in accordance with the objectives set for him with respect to 2013 it was decided to approve the payment of annual bonus of NIS 963,811 to the CEO in accordance with the objectives set for him with respect of 2013 and in accordance with the Company's remuneration policy, as detailed in the General Meeting convening report the Company published on 24 June 2014 (Reference number 2014-01-097704). C. Allocating "Phantom" Options to the Company's CEO, Mr. Itzik Saig, for the year 2014 it was decided to approve the allocation of Phantom Options to Mr. Itzik Saig, at a value equal to 12 monthly salaries at the time of the allocation (i.e. value of NIS 1,627,656), based on the Company's 35

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 Option Plan from the year 2014 as approved by the Company's remuneration committee and Board of directors, and as detailed in the General Meeting convening report published on 24 June 2014 (Reference number 2014-01-097704). 2. The General Meeting Resolutions dated 16 December 2014 D. Appointment of Directors (who are not External Directors) to the Company's Board it was decided to appoint Messrs.: Luis Cantarell, Peter Noszek and Trevor Brown as directors on the company's BOD until the next annual General Meeting of the Company that shall appoint directors to the Company's BOD, as detailed in the General Meeting convening report published on 23 November 2014 (Reference number 2014-01-2000595). E. Amendment of the Company's Articles of Association for further details see Regulation 28 in this Chapter.

Regulation 29A: Company's Resolutions For details on the Company's resolutions regarding insurance for officers see Regulation 22 of this Chapter.

Names of Signatories Position Date: 26 March 2015

(1) Dan Propper Chairman of the Board

(2) Itzik Saig Chief Executive Officer

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Corporate Governance Questionnaire

In the framework of this questionnaire, attention is drawn to the following:

(1) The questionnaire is drawn up in a format in which the reply "correct" for each one of the questions constitutes a positive indication of the existence of proper corporate governance, and vice versa. The reply "correct" should be entered in the relevant space by means of a √ and the reply "incorrect" should be entered in the relevant space by means of a X. For the avoidance of doubt, it is hereby clarified that the questionnaire does not cover all aspects of corporate governance relevant for the corporation, but concentrates on a number of aspects only; for the purpose of receiving additional information (according to the subject), the regular financial statements of the corporation should be reviewed.

(2) "Reporting year" means from the date 1.1.2014 until 31.12.2014 preceding the date of publication of the periodic report, unless expressly stated otherwise.

(3) The normative framework is set out next to each question. If the question refers to a mandatory provision, this is expressly stated.

(4) In the event that a corporation wishes to add information which may be of importance to a reasonable investor in connection with its replies in the questionnaire, it may do so in the framework of final remarks on the questionnaire with reference to the relevant question.

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Independence of the Board of Directors

Correct Incorrect Normative Framework 1. Throughout the reporting year there were two or more external directors on the board of directors of the corporation.

In this question, the reply "correct" may be given if the √ Mandatory Provision period when two external directors were not on the board

does not exceed 90 days, as stated in section 363A (b)(10) of Section 239 of the Companies Law the Companies Law. However, whatever the reply (correct/incorrect), the period (number of days) when two or more external directors were not on the board of the corporation during the reporting year (including the period of office approved retroactively, with a distinction between the different external directors) should be noted:

Director A: Leora Meridor

Director B: Yaki Yerushalmi

The number of external directors serving on the board of the corporation as of the date of publication of this questionnaire: 2

2. A. The number of independent directors2 serving on the board of the corporation as of the date of publication of this ______questionnaire: 1

2 Other than "external directors" as this term is defined in the Companies Law.

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B. As of the date of publication of this questionnaire:

- In a corporation with a controlling shareholder or a person holding a controlling block (in this section "a X controlling shareholder") – a third of members of the board of directors, at least, are independent.

- In a corporation without a controlling shareholder – a majority of the members of the board of directors are independent. Companies Law – Section 1 Of the First Addendum C. The corporation prescribed in its articles of association that a (Recommended Corporate proportion3/ minimum number of directors serving on its board Governance Provisions) and would be independent. regulation 10(b)(9A) and 48(c)(9A) of the reports regulations If your reply is "correct", please note: X

The proportion/number of independent directors prescribed in the articles of association: ______.

The corporation actually complied with the provision of the articles of association in the reporting year (on the number of independent directors serving on the board): Yes.

No. (Please cross the appropriate box). 3. In the reporting year, an examination was conducted with the external directors (and the independent directors) and it was found that they complied in the reporting year with the provisions

3 In this questionnaire "proportion" - a certain number out of all the directors. Thus, for example, in a corporation in which the proportion of independent directors is one third, the fraction 1/3 shall be stated in the reply.

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of section 240(b) and (f) of the Companies Law on the lack of a linkage of the external (and independent) directors serving on the √ Sections 240(b), 241, 245A and 246 board of the corporation and they fulfil the conditions required of of the Companies Law.

an external (or independent) director.

If your reply is "correct" – please note the person who conducted the said examination: Legal Advisor. 4. All the directors who served on the board of the corporation during the reporting year are not subject4 to the general manager, directly or indirectly (except for a director who is a representative of the employees, if the corporation has employee √ representatives). Companies Law – Section 3 Of the

First Addendum (Recommended If your reply is "incorrect" (i.e. the director is subject to the general Corporate Governance Provisions) manager as stated above), please state the number of directors who did not meet the said restriction: 0

5. All directors who gave notice of the existence of a personal interest which they have in the approval of a transaction on the agenda of the meeting did not participate in the meeting and did √ not participate in the voting as stated (except for a meeting/voting in the circumstances stated in section 278(b) of the Companies Law: Mandatory provision

If your reply is "incorrect": Section 278 of the Companies Law

A. Was it in order to present a subject by him in accordance with the provisions at the end of section 278 (a): Yes No

B Please note the number of meetings in which directors

4 The act of serving as a director of a held corporation owned by the corporation filling out the questionnaire shall not be deemed to be "subject" for the purpose of this question. However, a director who serves in a corporation as an officer (other than as a director) and/or employee of a held corporation owned by the corporation filling out the questionnaire shall be deemed to be "subject" for the purpose of this question.

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participated in the discussion and/or the voting as stated above, except in the circumstances stated in subsection A: ______. 6. The controlling shareholder (including his relative and/or a person on his behalf) who is not a director or other senior officer in the corporation was not present at meetings of the board of directors which took place in the reporting year.

If your reply is "incorrect" (i.e. the controlling shareholder and/or his relative and/or someone on his behalf who is not a member of √ Section 106 of the Companies Law the board of directors and/or a senior officer in the corporation

was present in the said board meetings) – please state the following details regarding the presence of the additional person in the said board meeting:

Identity: ______.

Position in the corporation (if any): ______.

Details of the linkage with the controlling shareholder (if the person who was present is not the controlling shareholder himself): ______.

Was it in order for him to present a certain subject? Yes No

(Please cross the appropriate box).

The degree of his presence5 in the board meetings which took place in the reporting year: ______.

In order for him to present a certain subject: ____; Other presence ______.

Irrelevant (there is no controlling shareholder in the

5 With a distinction between a controlling shareholder and his relative and/or someone on his behalf.

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corporation).

Competence and Qualifications of the Directors

Correct Incorrect Normative Framework 7. In the articles of association of the corporation, there is no provision limiting the possibility of an immediate termination of the office of all directors of the corporation who are not external directors (for this purpose – a statement of an ordinary majority √ Sections 85 and 222 of the does not constitute a limitation). Companies Law, section 46B of the

Securities Law If your reply is "incorrect" (i.e. such limitation exists), please state:

A. The length of time prescribed in the articles of association for the office of a director: ______. B. The required majority prescribed in the articles of association for the termination of the office of the directors: ______. C. The quorum prescribed in the articles of association for a general meeting for termination of the office of the directors: ______. D. The majority required for amendment of these provisions in the articles of association: ______. 8. All the directors who served on the board of the corporation during the reporting year declared prior to the date of the summons of a general shareholders meeting with appointments of directors on its agenda (including reappointments) that they have √ the required qualifications (and specified them) and the ability to Mandatory provision

devote sufficient time to the performance of their duties and that the restrictions stated in sections 226 and 227 of the Companies Sections 224A and 224B of the Law do not apply to them and in the case of an independent Companies Law director, the provisions specified in clauses (1) and (2) of the definition of "independent director" in section 1 of the Companies Law are fulfilled by them.

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If your reply is "incorrect" – please note the names of the directors to whom the above does not apply: ______. 9. The corporation has a training program for new directors, in the field of the corporation's business and in the field of the law applying to the corporation and the directors, as well as a continuation program for training acting directors adapted, inter alia, to the position filled by the director in the corporation.

If your reply is "correct" – please note if the program was operated

in the reporting year: X The Companies Law – section 4(a) of the First Addendum Yes. (Recommended Corporate Governance Provisions) No.

(Please cross the appropriate box)

10. The chairman of the board of directors (or another person appointed by the board of directors) is responsible for the implementation of the corporate governance provisions applying to the corporation and acted to update the directors on subjects connected to corporate governance during the course of the The Companies Law – section 4(a) reporting year. √ of the First Addendum (Recommended Corporate If the board of directors appointed another person to be Governance Provisions) responsible (instead of the chairman of the board of directors), please state his name and position: Alberto Pessach, General Counsel and Corporate Secretary.

11. A. The corporation has a specification that a minimum number of directors on the board of directors are required to have accounting √ and financial expertise. Mandatory provision

If your reply is "correct" – please note the minimum number Section 92(a)(12) of the Companies specified: 2 Law

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B. In each reporting year, in addition to the external director with accounting and financial expertise, additional directors with accounting and financial expertise served on the board, the number of which was determined by the board of directors.

The reply "correct" may be given to this question if the length of Mandatory provision time when additional directors with accounting and financial expertise did not serve on the board does not exceed 60 days. √ Section 219 (d) of the Companies However in all replies (correct/incorrect), please state the length of Law time (in days) when directors meeting the said requirement did not serve on the board: ______.

C. The number of directors serving on the board of the corporation during the reporting year:

with accounting and financial expertise: 9 ______Sections 92(a)(12), 219(d), 240(A1) to the Companies Law; sections with professional qualifications: 3 10(b)(9)(a) to the reports regulations. In the event that changes occurred in the number of directors stated above in the reporting year, the lowest number shall be stated (except for periods of 60 days from the occurrence of the change) of directors of any kind serving on the board in the reporting year.

12 A. On the date of the appointment of an external director in the reporting year, the corporation complied with the provision of Mandatory provision section 39(d) of the Companies Law on the board of directors √ being composed of both sexes. Section 239(d) of the Companies

* Irrelevant (no external director was appointed in the Law reporting year).

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B. Throughout the reporting year there were members of both sexes on the board. The Companies Law – section 2 of If your reply is "incorrect" – please note the length of time (in days) the First Addendum of non-compliance with the above: ______√ (Recommended Corporate Governance Provisions)

The reply "correct" may be given to this question if the length of time when directors of both sexes did not serve on the board does not exceed 60 days. However in all replies (correct/incorrect), please state the length of time (in number of days) when directors of both sexes did not serve on the board of the corporation: ______.

C. Number of directors of each sex serving on the board of the corporation as of the date of publication of this questionnaire: ______Men: 13 Women: 1

Board Meetings (and Summons of General Meetings)

Correct Incorrect Normative Framework 13. A. Number of board meetings held in each quarter in the reporting year: First quarter (in the year 2014): 1 Second quarter : 1 Third quarter : 1 ______Sections 97, 98 and 224A of Fourth quarter : 1 the Companies Law B. Next to each of the names of the directors who served on the board of the corporation during the reporting year, please note the level of his attendance at the board meetings (in this subsection – including meetings of committees of the board of directors in which he is a member as specified below) which took place during the reporting year (relating to his term on the board): ______

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(Additional lines should be added according to the number of directors) Name of the Director Attendan Attendance Attendance at Attendance at ce at at Meetings Meetings of the Meetings of Board of the Audit Committee for Additional Meetings Committee Examining the Committee of the (for a Financial Board in which he director who Statements is a member (the is a member (for a director name the of this who is a committee should committee) member of this be stated) committee) Dan Propper 100% ------Gad Propper 80% ------Yitshak Yarkoni 100% ------Abraham Finkelstein 100% ------Richard Sykes 100% ------Jean-Daniel Luthi 80% ------Pierre Streit 80% ------Roger Stettler 100% ------Nandu Nandkishore 80% ------Eli Zohar 60% ------Gabi Hake 100% 80% 100% 100% (Remuneration Committee Yaki Yerushalmi 100% 100% 100% 100% (Remuneration Committee) Leora Meridor 100% 100% 100% 100% (Remuneration Committee) Yossi Alshech 100% 100% 100%

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Luis Cantarell Luis Cantrell was appointed as Director on 16.12.2014 and since than no Board meetings were held util the end of the "Reporting Year". . Trevor Brown Trevor Brown was appointed as Director on 16.12.2014 and since than no Board meetings were held util the end of the "Reporting Year".

Peter Noszek Peter Noszek was appointed as Director on 16.12.2014. and since than no Board meetings were held util the end of the "Reporting Year".

14. In the reporting year, the board held at least one discussion on the conduct of the The Companies Law – section corporation's business by the general manager and the officers subject to him, in their 5 of the First Addendum absence, after they were given an opportunity to express their opinion. √ (Recommended Corporate Governance Provisions) 15. In the reporting year a general shareholders meeting was summoned (no later than at the end of 15 months after the last general meeting). √ Mandatory Provision Section 60 of the Companies

Law

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Separation between the Functions of the General Manager and the Chairman of the Board of Directors

Correct Incorrect Normative Framework 16. Throughout the reporting year, the corporation had an acting chairman of the board of directors.

The reply "correct" may be given to this question if the length of time when the √ Mandatory Provision corporation did not have a chairman of the board did not exceed 60 days. However in all

replies (correct/incorrect), please state the length of time (in number ofdays) when the Section 94(a) of the corporation did not have a chairman of the board: ______. Companies Law

17. Throughout the reporting year, the corporation had an acting CEO.

The reply "correct" may be given to this question if the length of time when the corporation did not have a CEO did not exceed 90 days. However in all replies √ Mandatory Provision (correct/incorrect), please state the length of time (in days) when the corporation did not

have a CEO: ______. Section 119 of the Companies Law

18. In a corporation where the chairman of the board also acts as the CEO of the corporation and/or exercises his powers, the double office was approved in accordance with the __ ___ provisions of section 121(c) of the Companies Law. Mandatory Provision

If your reply is "correct", please refer to the immediate report on the general meeting Sections 95 and 121 of the which approved the double office and/or exercise of powers as stated: ______. Companies Law

X irrelevant (to the extent that no such double office exists in the corporation) 19. The CEO is not a relative of the chairman of the board of directors √

If your reply is "incorrect" (i.e. the CEO is a relative of the chairman of the board): Sections 95 and 121 of the A. State the family relationship between the parties: ______Companies Law

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B. The office was approved in accordance with section 121(c) of the Companies Law:

Yes. ______

No.

(Please cross the appropriate box)

20. The controlling shareholder or his relative does not act as the CEO or as a senior officer in the corporation, other than as a director. √ Section 106 of the Companies Irrelevant (there is no controlling shareholder in the corporation). Law

Audit Committee

Correct Incorrect Normative Framework 21. All the external directors were members of the audit committee during the reporting √ Mandatory Provision year.

Section 115 of the Companies Law 22. The chairman of the audit committee is an external director √ Mandatory Provision

Section 115 of the Companies Law 23. One of the following was not a member of the audit committee in the reporting year: ___ __ Mandatory Provision

Section 115 of the Companies A. The controlling shareholder or his relative. √ Law Irrelevant (there is no controlling shareholder in the corporation).

B. Chairman of the board of directors. √

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C. A director employed by the corporation or by the controlling shareholder of the √ corporation or by a corporation controlled by him.

D. A director who provides services on a regular basis to the corporation or the controlling √ shareholder of the corporation or a corporation controlled by him.

E. A director whose main income is derived from the controlling shareholder. √

Irrelevant (there is no controlling shareholder in the corporation).

24. A person who may not be a member of the audit committee, including the controlling √ Mandatory Provision shareholder or his relative, was not present in the reporting year at meetings of the audit committee, except in accordance with the provisions of section 115(e) of the Companies Section 115(e) of the Law Companies Law 25. A quorum for a meeting and passing resolutions at all meetings of the audit committee √ which took place in the reporting year was a majority of the members of the committee Mandatory Provision and a majority of those present were independent directors and at least one of them was an external director. Section 116A of the Companies Law If your reply is "incorrect", please note the number of meetings at which the said requirement was not fulfilled: ______

26. The audit committee held at least one meeting in the reporting year attended by the Mandatory Provision internal auditor and the auditor, and without the presence of officers of the corporation who are not members of the committee on failures in the business management of the √ Section 117(1) of the corporation. Companies Law - section 6 of the First Addendum (Recommended Corporate Governance Provisions) 27. In all meetings of the audit committee at which a person who is not permitted to be a Mandatory Provision member of the committee was present, his presence was approved by the chairman of the committee and/or at the request of the committee (in the case of the legal advisor √ Section 115(e) of the and the secretary of the corporation who is not a controlling shareholder or his relative). Companies Law

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Functions of the Committee for Examining the Financial Statements prior to the approval of the Financial Statements

Correct Incorrect Normative Framework 28. A. Please state the length of time (number of days) prescribed by the board of directors as a ______reasonable amount of time for transfer of recommendations of the committee prior to the _ board meeting in which the periodic or quarterly financial statements are approved: 3 Mandatory Provision B. Number of days which have actually elapsed from the date of transferring the recommendations to the board of directors until the date of approval of the financial Regulation 2(3) of the statements: approval of financial First quarterly report: (2014): 8 statements regulations Second quarterly report: 4 ______Third quarterly report: 3 ______Annual report: 3 __

C. Number of days between the date of transferring a draft of the Financial Statements to the Board of Directors and the date of Board of Directors approval of the Financial Statements:

First quarterly report (2014): 5 Second quarterly report: 3 Third quarterly report: 3 Annual report3 29. The auditor of the corporation was invited to all meetings of the committee and the board Mandatory Provision of directors and the internal auditor received notices of said meetings in which the √ financial statements of the corporation relating to the periods included in the reporting Section 168 of the

year were discussed. Companies Law, regulation 2(2) of the approval of financial statements regulations 30. The committee complied with all the conditions set forth below throughout the reporting ______year until the publication of the annual report: A. The number of its members was not less than three (at the time of the discussion and √ approval of the statements, as stated above).

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B. All the conditions prescribed in section 115(b) and (c) of the Companies Law (on the office √ Mandatory Provision of members of the audit committee) were met.

Regulation 3 of the approval C. The chairman of the committee is an external director. √ of financial statements D. All the members are directors and a majority of the members are independent directors. regulations √ E. All the members have the ability to read and understand financial statements and at least √ one of the independent directors has accounting and financial expertise. F. The members of the committee provided a declaration prior to their appointment. √

G. The quorum for discussing and passing resolutions in the committee was a majority of its √ members provided that a majority of those present were independent directors including at least one external director. If your reply is "incorrect" for one of the subsections of this question, please state in respect of ______which report (periodic/quarterly) the said condition was not fulfilled ______. ___

Auditor

Correct Incorrect Normative Framework 31. The audit committee (and/or the committee for examining the financial statements) was √ satisfied, shortly before the approval of the periodic report, that the scope of work of the Section 117(5) of the auditor and his fees in the reporting year were appropriate for the proper performance of Companies Law the auditing and review work for the Financial Statements in the reporting year.

32. Prior to the appointment of the auditor, the audit committee (and/or the committee for examining the financial statements) gave its recommendations to the relevant organ of the corporation in connection with the scope of the work and terms of employment of the Section 117(5) of the auditor. √ Companies Law

Irrelevant (in the reporting year, no auditor was appointed)

If your reply is "correct" – please note if the relevant organ in the corporation acted in

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accordance with the recommendations of the audit committee (and/or the committee for examining the financial statements).

√ Yes.

No (in the event that the reply is "no", please give details in the concluding remarks how the relevant organ (state the identity of the organ) was satisfied with the scope of work and fees of the auditor).

(Please cross the appropriate box)

33. The audit committee (and/or the committee for examining the financial statements) The Securities Law and its checked during the reporting year that there was no restriction on the work of the auditor. regulations (on "the financial √ statements duly audited") 34. The audit committee (and/or the committee for examining the financial statements) Regulation 2 of the approval discussed the findings of the audit and their consequences with the auditor during the of financial statements √ reporting year regulations, the Companies Law – section 6 of the First Addendum (Recommended Corporate Governance Provisions) 35. The audit committee (and/or the committee for examining the financial statements) was The Securities Law and its satisfied, prior to the appointment of the auditor, of the suitability of his qualifications for regulations (on "the financial the performance of his functions in the corporation in light of the nature of the activity of statements duly audited") the corporation and the complexity thereof. √

Irrelevant (in the reporting year, no auditor was appointed)

36. Please state the number of years that the partner handling the audit in the auditing The Securities Law and its accountant firm has been in this position (as the auditor of the corporation): 7 years. ______regulations (on "the financial statements duly audited")

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37. The auditor participated in all the meetings of the committee for examining the financial Section 168(b) of the √ statements to which he was invited in the reporting year. Companies Law, regulation 2 of the approval of financial statements regulations

Related Party Transactions

Correct Incorrect Normative Framework 38. The corporation adopted a procedure, approved by the audit committee, on related X (*) Sections 117, 253, 255, 270- party transactions in order to ensure that such transactions are approved in 278 of the Companies Law accordance with the law.

(*)Note: The corporation is in advanced stages of formalizing a related party tractions procedure. 39. The controlling shareholder or his relative (including a company controlled by him) is Section 270(4) of the not employed by the corporation or provides management services to the Companies Law corporation.

If your reply is "incorrect" (i.e. the controlling shareholder or his relative is employed √ by the corporation or provides management services), please note:

- The number of relatives (including the controlling shareholder) employed by the corporation (including companies controlled by him and/or by management companies): ______. - Were the employment agreements and/or agreements for management services approved by the organs prescribed by law?

Yes.

No.

(Please cross the appropriate box)

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Irrelevant (there is no controlling shareholder in the corporation) ______. 40. To the best of the corporation's knowledge, the controlling shareholder does not have Section 254 of the any additional businesses in the field of the activities of the corporation (in one or Companies Law, section 36 more fields). of the Securities Law (an √(*) information detail for a If your reply is "incorrect", please note if an arrangement was made to allocate the reasonable investor) activities between the corporation and its controlling shareholder:

Yes.

No.

(Please cross the appropriate box)

Irrelevant (there is no controlling shareholder in the corporation).

(*) Note: The Controlling shareholder, an international food and beverages concern, does not conduct any additional activities in Israel other than in fields the corporation is non-active in (for example: Nespresso, imported mineral water, healthcare nutrition).

Chairman of the Board of Directors: ______Chairman of the Audit Committee: ______

Chairman of the Committee for Examining the Financial Statements: ______

Date of the Signature: ______

Corporate Governance Questionnaire 2014.docx\אכיפה מנהלית\ממשל תאגידי\N:\LEGAL\Corporate\2014

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Section E

Annual report on the effectiveness of the internal control over the financial reporting and over the disclosure according to Regulation 9B(a) for the year 2014.

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Please find enclosed herewith the annual report on the effectiveness of the internal control over the financial reporting and over the disclosure according to Regulation 9B(a) for the year 2014.

The management, with the supervision of the Board of Directors of Osem Investments Ltd. (hereinafter - the Corporation), is responsible for the establishment and running of adequate internal control mechanism over the financial reporting and over the disclosure in the corporation. For this purpose, the management members are:

1. Itzik Saig - CEO 2. Pinhas Kimelman - Deputy CEO of Finance 3. Meir Imber - Deputy CEO of Operations 4. Ofer Green - Deputy CEO and CEO of Noga Ice Cream 5. Nizan Goldberg –CEO of Osem Group Commerce 6. Rani Sagiv – VP of Supply Chain 7. Hagit Adler – CEO of ONP 8. Ori Ben Shai – CEO of Snacks, Bakery, Beverages & Cereal Division 9. Zahava Martonovits – CEO of Culinary Division 10. Billy Yanko – CEO of Bonjour 11. Barak Strozberg – VP of Human Resources 12. Nili Zur – Deputy CEO and CEO of International Division 13. Tzippi Hammer – CEO of New Business Division

Internal control over the financial reporting and over the disclosure includes controls and procedures existing in the corporation, which were planned by the CEO and the most senior office holder in the financial section or under their supervision, or by someone who actually performs the above mentioned roles, with the supervision of the Board of Directors of the Corporation, which are designed to provide a reasonable degree of assurance as to the credibility of the financial reporting and on the preparation of the financial statements in accordance with the Law, and to ensure that the information that the Corporation is required to disclose in the reports published is in accordance with the law, that it was collected, processed, summarized and reported in a timely manner and in the format prescribed by the law.

The internal control includes, inter alia, controls and procedures that have been planned to ensure that the information the corporation is required to disclose is accumulated and sent to management of the Corporation, including the CEO and the senior official on the financial Section or to someone who actually performs the above mentioned roles, so as to enable the making of decisions in timely manner, with regard to the disclosure requirements

Due to its structural limitations, the internal control of the financial reporting and the disclosure is not designated to provide absolute assurance that any misleading presentation or omission of information in the statements will be prevented or will be discovered.

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 The management, under the supervision of the Board of Directors, has examined and evaluated the internal control over the financial reporting and over the disclosure in the Corporation and its effectiveness. The evaluation of the internal control over the financial reporting and over the disclosure performed by the Management under the supervision of the Board of Directors included: Mapping & identification of accounts, business processes and companies which the Corporation considers to be very material to the financial reporting and disclosure; Testing key controls and evaluating the effectiveness of the controls; The Components of the internal control included entity level controls, financial statement preparation and period end close process controls, information technology general controls (ITGC) and controls on the very material processes for the financial reporting and disclosure: Sales to local market, material handling (inventory) and procurement to pay.

Based on the evaluation of the effectiveness performed by the Management under the supervision of the Board of Directors as mentioned above, the Board of Directors and the Corporation Management have reached the conclusion that the internal control over the financial reporting and over the disclosure in the Corporation as at 31 December 2014 has been effective. WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 Management statements (a) Statement of the CEO according to Regulation 9.b(d)(1):

Management Statement Statement of the CEO

I, Itzik Saig, declare that:

1. I have evaluated the periodic report of Osem Investments Ltd. (hereinafter: the corporation) for the year 2014 (hereinafter: the reports).

2. To my knowledge, the reports do not include any incorrect presentation of a material fact and they do not lack any presentation of a material fact that is required, so that the presentations included in them, in light of the circumstances in which these presentations have been included, are not misleading with regard to the period of the reports

3. To my knowledge, the financial statements and the other financial information included in the reports properly reflect, from every material aspect, the financial situation, results of activities and cash flow of the Corporation as of the dates and for the periods to which the reports refer

4. I have revealed to the auditing accountant of the Corporation, the Board of Directors and the Audit Committee of the BOD of the Corporation, based on my most current evaluation of the internal control over financial reporting and disclosure:

A. All the significant lacks in control and material weaknesses in the determinations or activation of the internal control mechanism, relating to the financial reporting and disclosure that might reasonably be expected to negatively influence the capability of the Corporation to collect, process, summarize or report the financial information in a manner that might leave room for doubt as to the credibility of the financial reporting and the preparation of the financial statements in accordance with the provisions of the law; and that –

B. Any fraud, whether material or not material, involving the general manager or anyone directly subordinate to him or involving other employees who have a significant position in the internal control of the financial reporting and disclosure

5. I, alone or together with others in the Corporation:

A. Have determined controls and procedures, or verified the determination and the existence of controls and procedures under my supervision, that are designed to ensure, that material information that refers to the Corporation, including its consolidated companies, as defined in the Securities Regulations (Annual Financial Reports) - WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 2010, has been brought to my notice by others in the Corporation and in the consolidated companies, especially during the period of the preparation of the reports; and that –

B. Have determined controls and procedures, or verified the determination and existence of controls and procedures under my supervision, that are designed to ensure in a reasonable manner, the credibility of the financial reporting and preparation of the financial reports in accordance with the provisions of the law, and in accordance with the accepted accounting regulations

C. Have evaluated the effectiveness of internal control over the financial reporting and disclosure, and have presented in this report the conclusions of the Board of Directors and management with regard to the effectiveness of the internal control, as mentioned, as of the date of the reports.

The above does not derogate from my responsibility or the responsibility of anyone else according to the law.

26 March 2015 Signature – Itzik Saig

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 (b) Declaration of the most senior office holder in Finance, as per Regulation 9B(d)(2)

Management Statement Declaration of the most senior office holder in Finance

I, Pinhas Kimelman, declare that:

1. I have evaluated the Financial Statements and other financial information which is included in the Reports of Osem Investments Ltd. (hereinafter: the corporation) for the year 2014 (hereinafter: the reports)

2. To my knowledge, the financial statements and other financial information included in the reports do not include any incorrect presentation of a material fact and they do not lack any presentation of a material fact that is required, so that the presentations included in them, in light of the circumstances in which these presentations have been included, are not misleading with regard to the period of the reports.

4. I have revealed to the auditing accountant of the corporation, the Board of Directors and the Audit Committee of the BOD of the Corporation, based on my most current evaluation of the internal control over financial reporting and disclosure:

A. All the significant lacks in control and material weaknesses in the determinations or activation of the internal control mechanism, relating to the financial reporting and disclosure, as it relates to the financial statements and the other financial information included in the reports, that might reasonably be expected to negatively influence the capability of the Corporation to collect, process, summarize or report the financial information in a manner that might leave room for doubt as to the credibility of the financial reporting and the preparation of the financial statements in accordance with the provisions of the law; and that –

5. I, alone or together with others in the Corporation:

WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 A. Have determined controls and procedures, or verified the determination and the existence of controls and procedures under my supervision, that are designed to ensure, that material information that refers to the Corporation, including its consolidated companies as defined in the Securities Regulations (Annual Financial Reports) 2010 as it relates to the financial statements and the other financial information included in the reports, has been brought to my notice by others in the Corporation and the consolidated companies, especially during the period of the preparation of the reports; and that –

C. Have evaluated the effectiveness of internal control over the financial reporting and disclosure, as it relates to the financial statements and the other financial information included in the reports as of the date of said reports. My conclusions regarding my aforementioned evaluation have been presented to the board of directors and management and are incorporated into this report.

The above does not derogate from my responsibility or the responsibility of anyone else according to the law.

26 March 2015 Signature - Pinhas Kimelman Deputy CEO of Finance

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