Osem Investments Limited
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Osem Investments Limited 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. WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 Osem Investments Limited Section A: Description of the Corporation’s Business Activities WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 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 WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 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. WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 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 WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 employers conducted by the Israeli newspaper Calcalist together with the Maagalim Foundation. The winner of the competition was determined on the basis of 20 parameters which examined, inter alia, length of employment, work-life balance, integration of women, employment of elderly persons , wage differences, average wage and wage differences between men and women. 1.3 Brands & technology. The Group owns a variety of brands and utilizes diverse and wide production technologies, invented and developed by the Group itself. In addition, the Group uses the brands, know-how and technology Nestlé - the world’s leading Food Company, the largest shareholder at Osem whose holdings as at the report date reach about 63.7% of the ownership rights in the Company (“Nestlé” or “Nestlé Group”). 1.4 Strategic alliance with Nestlé. The Company has exclusive agreements for cooperation with the Nestlé group to market and distribute Nestlé's products in Israel by the marketing and sales systems of Osem and the possibility of manufacturing Nestlé products locally. In addition, the Company has exclusive agreements with the Nestlé Group for the use of intellectual property, know-how, and trademarks to which Nestlé has rights. Osem also receives technical assistance in R&D and has extensive right of use of Nestlé know-how for the use of the Osem Group. This know-how includes among others technical, scientific, marketing, logistic and sales, production, IT and financial knowledge and expertise. For additional details please see Regulation 22 in Chapter D ("Additional Details on the Corporation "). 1.5 Change in the Management Structure of the Parent Company Nestlé - On September 26, 2014, the Nestlé Board of Directors resolved to classify the management of the Mediterranean countries as part of the European division. Under this resolution, as at 1.1.2015, Osem is part of the extended Europe (Zone EMENA), instead of belonging to Asia, Africa and Oceania (Zone AOA), as in the past. In addition and as part of the change, the directors serving on the Board of the Company on behalf of the Parent Company from Zone AOA were replaced by representatives of Zone EMENA. 1.6 Credit Rating AAA for Osem. In March 2015, Midroog Ltd. extended the AAA rating Osem had received and gave it a stable rating outlook. Osem is the first and only industrial company in Israel, which is not a 2 WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 government enterprise, to ever receive an AAA rating. 1.7 Structure of Business: Osem's Holdings of Companies in the Group according to the areas of activity/segments of operations (1) In addition to being the holding company of the Group, Osem Investments Ltd. is also a manufacturing company in the business of culinary food area, bakery, beverages, snacks and breakfast cereals as well as in the frozen bakery area (after Bonjour Company (1986) Ltd. was merged into Osem Investments Ltd.). (2) The chart does not include holding in non-active companies or holding of companies whose activity is not material, or companies whose activity consists only of holding, ownership or lease of property, and the percentages of the holdings in the above chart are the percentages of direct and indirect holdings. (3) Tribe Company operates in the US, both in salads and in vegetarian-based food. (4) Tivall Industries includes the Tivall activity and also the Sabra Salads activity, after the companies have been merged. (5) Despite the fact that the holding in Materna is 51%, from accounting point of view, due to the option component, a holding of 100% has been presented, in accordance with the accepted accounting rules. 3 WorldReginfo - 4f4e20f3-4477-411a-8a3b-3e72dd0d0547 2. Areas of Activities The