STRAUSS-GROUP LTD.

TABLE OF CONTENTS

• BOARD OF DIRECTORS' TO THE SHAREHOLDERS AS AT DECEMBER 31, 2008. • FINANCIAL STATEMENTS AS AT DECEMBER 31, 2008.

WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f STRAUSS-GROUP LTD. BOARD OF DIRECTORS' REPORT TO THE SHAREHOLDERS

AS AT DECEMBER 31, 2008

WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience Translation from Hebrew

STRAUSS GROUP LTD. BOARD OF DIRECTORS’ REPORT TO THE SHAREHOLDERS FOR THE YEAR ENDED DECEMBER 31, 2008

PRINCIPLE INFORMATION FROM THE DESCRIPTION OF THE COMPANY’S BUSINESS

Strauss Group Ltd. and the companies it controls (hereinafter: the “Company” or the “Group”) are a group of industrial and commercial companies that operate in Israel and abroad, in Central and Eastern Europe, Brazil and the United States of America, in the manufacture, sale and marketing of a variety of branded food and beverage products. The controlling shareholder of the Company is Strauss Holdings Ltd. (hereinafter: “Strauss Holdings”).

The Group manages and develops its business with the aim of providing the general public with a broad variety of top-quality branded products for different consumption opportunities. The Group is dominant in most of the markets in which it operates. The products of the Group are generally sold through a variety of sales channels including large retail chains, private stores and supermarkets, kiosks, workplaces, hotels, vending machines, etc.

The Group's Corporate Center is in Israel. The Company estimates that Strauss Israel is the second-largest company in the Israeli food industry and in 2008 held a 12.0% share of the domestic food and beverage market (on a quarterly average, in financial terms1). The Group is also active in some ten major countries in Central and Eastern Europe, and in Brazil (in most of these countries the Group is among the leading companies dealing in roasted and ground coffee), as well as in the USA.

The Group has two areas of activity that are reported as business sectors in the Annual Consolidated Financial Statements of the Company (hereinafter: the "Annual Financial Statements"):

The Business in Israel – Strauss Israel: This sector includes a major part of the Group's activities in Israel. In this sector the Group develops, manufactures, sells, markets and distributes in Israel a large variety of branded food and beverage products, which include "Health & Wellness" and "Fun & Indulgence" products.

Health & Wellness products include: yogurts, dairy desserts, soft cheeses, fresh milk products, milk beverages, refrigerated Mediterranean salads (hummus, tehina, eggplant, etc.), cut vegetables, fresh pasta products, cereal and granola bars, honey products, olive oil and jams, as well as natural fruit juices manufactured by Ganir, and long-life milk manufactured by Ramat Hagolan Dairies2, both of which are sold and distributed by the Group.

Fun & Indulgence products include: sweet snack bars, chocolate tablets, sweet spreads, confectionery, chewing gum, cakes and cookies, biscuits, wafers and salty snack food.

1 According to StoreNext figures. StoreNext engages in the measurement of the regular everyday consumer goods market in the barcoded retail market. 2 The controlling party of the Company (indirectly) holds part of the shares of Ramat Hagolan Dairies Ltd.

WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience Translation from Hebrew

Strauss Israel is active through two main business divisions that were established according to the product groups described above and are based on consumption trends currently developing worldwide, and in Israel in particular, with the aim of developing leading products and solutions that provide a suitable response to the emerging consumer trends.

Until December 2007 the Israeli business sector included the sale of raw materials and interim products to the food industry in Israel. This activity was sold at the end of 2007.

The Coffee Business – Strauss Coffee: In this sector the Group develops, manufactures, sells, markets and distributes a variety of branded coffee products in Israel, in Eastern and Central European countries and in Brazil; chocolate and other drink powders (mainly in Israel); in several countries outside of Israel, it sells and distributes espresso coffee products (“Lavazza”) that are not manufactured by the Group; it sells and distributes instant coffee products in Israel (“Jacobs”); in the framework of the business in Brazil, it buys, processes and sells green coffee to exporters in Brazil and to customers outside of Brazil (mainly in Europe and the USA), and also manufactures and sells corn products in Brazil. The Company's products are sold through various channels including retail channels for home consumption and other channels directed to away-from-home consumption (cafés, restaurants, institutions, workplaces, etc.).

In addition to the areas of activity described above, the Group has other activities that are not included in these categories; these are included in the Annual Financial Statements as the “Other Business" sector. The main activities among these operations are:

Sabra Refrigerated Dips in the USA: The Group develops, manufactures, sells, markets and distributes hummus and chilled Mediterranean salads throughout North America.

Max Brenner: The Group manufactures and sells chocolate products under the Max Brenner brand and operates a chain of "Chocolate Bars" in Israel and abroad. These are wholly-owned by the Company or operated under franchise and through partners, and deliver a novel consumption experience in the chocolate and chocolate beverage category.

In addition to these two major businesses, the Company also sells kosher products to the Orthodox Jewish market in the USA. On December 31, 2008 the Company signed a binding agreement for the sale of its holdings (51%) in Blue & White Foods LLC (hereinafter: "Blue and White"). For more information, see Note 5.9 to the Annual Financial Statements

Additionally, in 2007 the Company entered a partnership in a new venture in the water business (H2Q). Since August 2008 the Company holds 51% of the shares of H2Q; for more information, see Note 5.8 to the Annual Financial Statements.

The Company has 11,633 employees, about one-half of them in Israel.

The Group's business is conducted in four major geographical regions. Activity in Israel includes the traditional business (sales of a wide variety of fresh and dry food products), Max Brenner in Israel, and the H2Q business. Activity in Europe includes the coffee business in Central and Eastern Europe. The business in Brazil, which is managed by a 50% proportionately consolidated company (a joint venture), is active primarily in roasted and ground coffee in the domestic market, the manufacture of corn products and the export of green coffee (the business in Europe, the coffee business in Israel, and the business in Brazil are all subordinate to the CEO of the Group's coffee business). Activity in the USA, which includes Sabra [the company is 50% proportionately consolidated (joint venture) as of the second quarter of this year], the entire Max Brenner business and the export of products to the kosher market in North America, is managed by the

 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience Translation from Hebrew

CEO of Strauss North America. The various businesses are run by their own separate managements, while the Corporate Center in Israel is responsible for exploiting synergies between them.

The Financial Statements were prepared in accordance with the International Financial Reporting Standards (IFRS). The Company applied IFRS for the first time in 2005, with the date of changing to IFRS being January 1, 2003.

SEASONAL EFFECTS ON THE RESULTS OF THE COMPANY'S BUSINESS OPERATIONS

Strauss Group sales are characterized by seasonality. Income from sales of coffee products abroad is generally (relatively) higher in the fourth quarter and (relatively) lower in the first quarter. Seasonality is affected mainly by the timing of the Christian holidays and the end of the (Gregorian) year in the fourth quarter, a period that is characterized by increased purchases of coffee products. By contrast, in the first quarter purchase volumes are relatively low, mainly because people are still consuming the coffee products purchased in the previous quarter.

Seasonality in the snack business is affected by two main factors: the first is the timing of the Jewish holidays with emphasis on Rosh Hashanah (the Jewish New Year) and Passover, when the Company’s sales increase considerably. The second factor is the seasons of the year, with winter and fall being characterized by greater consumption of confectionery (mainly chocolate and snack bars) than the hot seasons. Conversely, sales of cold beverages (milk, juices) are higher in the summer, which falls in the second and third quarters of the year. As a rule, snack sales are higher in the first and third quarters of the year.

For more information, see section 10.5 in the chapter, Description of the Company's Business.

Changes in the Economic Environment

We are currently in the midst of a global financial crisis, directly expressed in the collapse of the world's financial markets, the collapse of global financial institutions, the creation of a global credit crunch and the development of a recession in an increasing number of countries. These developments are currently impacting, and may in the future directly or indirectly impact, the Group's business.

Strauss Management believes that the Group has entered this period of crisis in a state of financial and business robustness thanks to the processes it executed in recent years and in the course of 2008.

Among other things, on the eve of the global financial crisis the Group, through its coffee company, completed a shareholders' equity raising of $293 million, which, together with the cash raised in 2007, places the Group in a position of financial robustness and high financial liquidity, which will enable it to exploit suitable opportunities to realize the continuing processes of its international growth and expansion.

As at the date of preparation of these financial statements we are witnessing a drop in raw material and energy prices, on the one hand, and on the other, changes in the exchange rates of the Shekel and the currencies in the various countries where the Group operates (part of these changes are offsetting each other).

The drop in the prices of raw materials and energy will lead to a drop in the costs of manufacturing the products, while the changes in the various currencies will lead to a rise in the cost of products that are imported in the various businesses and to a decrease in the Shekel value arising from the translation into Shekels of the Company's business results in some markets.

The Group is taking all steps necessary to be prepared for the different scenarios and to deal with them in the best manner possible.

 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience Translation from Hebrew

For more information on the economic environment and the impact of external factors on the Company's business, see section 6 in the chapter, Description of the Company's Business.

QUALITATIVE REPORT ON EXPOSURE TO MARKET RISKS AND THE MEANS FOR THEIR MANAGEMENT

Description of the market risks to which the Company is exposed

The Company operates in areas that are by nature basic and stable; however, there are several factors and trends that are liable to influence both the scope and profitability of the Company’s business:

Economic slowdown and/or uncertainty in the global and Israeli markets – An economic slowdown in the global and Israeli markets may lead to a decrease in private consumption and therefore, in the Company's sales. Furthermore, during times of economic uncertainty consumers tend to increasingly consume private label products and other cheaper brands instead of the Company’s products. This tendency could adversely affect the scope of the Company business, which focuses on branded products.

Exposure to changes in exchange rates – The Company is exposed to risks arising from changes in exchange rates since most purchases of raw materials (including commodities) are made in foreign currencies or are affected by them. Furthermore, the Company has a long-term liabilities portfolio in various currencies. Changes in the various currency rates in relation to the Shekel are liable to erode the Company’s profits and its cash flow. A devaluation of the Shekel in relation to the foreign currencies used by the Group may lead to erosion of the Company’s profitability in Israel.

Revaluation of the Shekel in relation to the foreign currencies used by the Company is liable to lead to a reduction in the Shekel value of the Company's sales and profits in its foreign businesses abroad.

The measurement currency in the Consolidated Financial Statements of the Company is the reported NIS. The reporting currency of Strauss Coffee B.V. is the Euro, the reporting currency of the business in America is the US dollar, while the reporting currencies of Strauss Coffee B.V.’s subsidiaries are local currencies – the Euro, the US dollar, the Polish Zloty, Brazilian Real, etc. Any change in the real exchange rates of the Shekel against the Euro and against the US dollar, and of the Euro against the local currencies and the US dollar, influences the Company’s reported results and shareholders’ equity.

In addition to the above, lack of economic stability and the risk of insolvency of certain countries in Eastern Europe where the company operates may exacerbate the exposure to changes in exchange rates of currencies in those countries.

Exposure to fluctuations in prices of raw materials on the international commodities markets – Raw materials form a substantial component in the production inputs of the Company’s products. A large part of these raw materials are highly traded commodities and are consequently subject to (occasionally volatile) market price fluctuations. Additionally, the subsidiary in Brazil conducts a green coffee export business, which includes engagements with various customers abroad for the sale of green coffee of different species. Volatile price fluctuations on the commodities markets may have a fundamental impact on the prices of the commodities and erode the profitability of the Company's products.

Customer credit (including distributors) – The Group’s sales to its customers, in Israel and abroad, are usually made on credit, as is the customary practice in the market. Part of the credit to retail customers in the Israeli private market (that are not part of the organized retail market) is guaranteed by credit insurance (including a deductible) and by various securities, whereas the balance of the credit to the private market that is not

 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience Translation from Hebrew covered by guarantees is at risk. Nevertheless, the broad dispersal of the Group’s customers in the private market mitigates this risk. Credit to customers in the organized retail market is not secured and focuses on a small number of customers that constitute a large part of the Group’s sales, and therefore the non-payment of this credit by any of the organized market customers may have a material impact on the Group’s cash flow and its business results. Most of the credit to customers abroad is not secured.

Price of raw milk and control of product prices – The price of unprocessed milk, the major raw material in the manufacture of dairy products and milk drinks, and business in the dairy market, are determined according to various arrangements. Some of the Company's products are subject to control of their sales price, and therefore any increase in the price of raw milk without adjusting the prices of controlled products may impair the Group’s profitability.

The Group is committed to absorb the full quota of milk produced by the associated dairy farms. In a period of economic slowdown, the company may accrue milk inventory (which can be referred for drying), that will bring an increase in inventory balances and can effect the operating cash flow.

Exposure to changes in interest rates and prices of marketable securities – The Company has a long-term liabilities portfolio at fixed and varying interest rates and in various currencies (see Note 20 to the Financial Statements). Changes in the interest rates and in the various currency rates in relation to the Shekel are liable to lead to the erosion of the Company’s profits and cash flows. From time to time the Company reviews the investment of cash surpluses in securities that are traded on the Tel Aviv Stock Exchange (see Note 7 to the Financial Statements).

THE COMPANY’S POLICY FOR MANAGING MARKET RISKS, THOSE RESPONSIBLE FOR THEIR MANAGEMENT, SUPERVISION AND REALIZATION OF POLICY

Green coffee procurement (commodities)

The Company’s green coffee procurement center in Switzerland provides for all companies in the Group except for the company in Brazil. In order to manage exposure to market risks, the Company uses transactions in derivatives and in securities traded on the financial markets in New York and London. The use of these instruments is the responsibility of the manager of the procurement office in Switzerland in the framework of guidelines defined from time to time by the corporate green coffee procurement committee, which is managed by the Coffee company CFO and convenes according to established procedures.

The procurement of green coffee in Brazil is carried out by the local management according to internal procedures determined by the Board of Directors of the Brazilian subsidiary, and is the responsibility of the procurement and financial managers there.

Financial liabilities, financial investments, currency exposures, interest rates

As mentioned, the Company manages a long-term liabilities portfolio in several currencies and at varying interest rates. In order to protect the Company from exposure to fluctuations in foreign currency exchange rates, the Company occasionally makes hedging transactions using forward contracts, future contracts and option contracts on the various currency exchange rates.

In order to hedge against changes in interest rates, inflation, etc., the Company manages a credit portfolio that is dynamic in terms of interest rates and time periods and is managed according to the Company's cash flow requirements and prevailing market conditions.

 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience Translation from Hebrew

The Company’s policy is to match, to the greatest extent possible, assets and liabilities in the same currency, using financial derivatives when they are available and advantageous.

In its international activity the Company does not hedge the measurement basis of its operating results or its balance sheet against changes arising from the various currency exchange rates in relation to the Shekel.

The Company has a committee that manages the risks relating to credit, interest rates, currency exposures, financial investments etc., in which all the relevant professional people in the Company participate.

The credit, hedging and investment activities are conducted by the Group's financial manager (treasurer) under the responsibility of Strauss Coffee's CFO in all aspects relating to the coffee business, and of the Group CFO in regard to the business of the Group as a whole.

Customer credit

With respect to its activity in Israel, the Company has credit committees that convene periodically to determine the amount of credit recommended for its various customers and the required level of their collateral, including the necessity of purchasing external credit insurance. The Company also follows up on the implementation of these recommendations. These credit committees are managed by the Company’s financial manager (treasurer). With respect to its international business, credit control is carried out by the financial managers and CEOs in the various countries and is their responsibility, under the master control of Strauss Coffee's CFO.

For information on the Company's positions in derivatives as at December 31, 2008, see Note 30 to the Financial Statements.

For information on the sensitivity analysis of the fair value of financial instruments in relation to the various market factors, see below and also Note 30 to the Financial Statements. All sensitivity analyses were performed in relation to the fair value of the financial instruments as at December 31, 2008.

The sensitivity analysis was performed with respect to financial instruments whose sensitivity to changes in the various market factors is material.

Sensitivity to changes in exchange prices of green coffee inventory in the Company's warehouses

The fair value of green coffee inventory includes only the exchange trading price component and not the species and quality components (differential).

December 31, 2008 Profit (loss) from Changes Fair Value Profit (loss) from Changes (1) 10% 5% -5% -10% (2) NIS '000 Arabica inventory, New York 2,921 1,327 664 13,275 (664) (1,327) (1,725) Robusta inventory, London 1,016 678 339 6,775 (339) (678) (915) Arabica inventory, Brazil 1,512 687 344 6,873 (344) (687) (894)

 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience Translation from Hebrew

December 31, 2007 Profit (loss) from Changes Fair Value Profit (loss) from Changes (1) 10% 5% -5% -10% (2) NIS '000 Arabica inventory, New York 12,038 5,472 2,736 54,717 (2,736) (5,472) (7,113) Robusta inventory, London 5,889 3,926 1,963 39,258 (1,963) (3,926) (5,300) Arabica inventory, Brazil 6,006 2,730 1,365 27,299 (1,365) (2,730) (3,549)

(1) In the past ten years the maximum daily increase in prices for Arabica was 22% and for Robusta, 15% (based on closing prices). (2) In the past ten years the maximum daily decrease in prices for Arabica was 13% and for Robusta, 13.5% (based on closing prices).

Sensitivity to changes in exchange prices of cocoa in relation to procurement engagements with suppliers

Profit (loss) from changes Fair value Profit (loss) from changes 10% 5% -5% -10% NIS '000 As at December 31, 2008 1,129 564 361 (564) (1,129) As at December 31, 2007 1,686 843 1,503 (843) (1,686)

Sensitivity to changes in exchange prices of cocoa inventory in the Company's warehouses

Profit (loss) from changes Fair value Profit (loss) from changes 10% 5% -5% -10% NIS '000 As at December 31, 2008 1,087 544 10,870 (544) (1,087) As at December 31, 2007 942 471 9,417 (471) (942)

Sensitivity to changes in exchange prices of sugar in relation to procurement engagements with suppliers

Profit (loss) from changes Fair value Profit (loss) from changes 10% 5% -5% -10% NIS '000 As at December 31, 2008 1,209 605 (34) (605) (1,209) As at December 31, 2007 727 363 (1,961) (363) (727)

Sensitivity to changes in exchange prices of sugar inventory in the Company's warehouses

Profit (loss) from changes Fair value Profit (loss) from changes 10% 5% -5% -10% NIS '000 As at December 31, 2008 49 24 486 (24) (49) As at December 31, 2007 58 29 581 (29) (58)

 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience Translation from Hebrew

Sensitivity of the liability value in the books of Debentures Series A and Debentures Series B to changes in the Consumer Price Index

The debentures are linked to the Consumer Price Index (CPI) known on the balance-sheet date. In 2008 the Known Index rose by 4.5%. For information on the sensitivity analysis, see Note 30 to the Annual Financial Statements.

For further information on sensitivity analyses to market risks, see Note 30 to the Financial Statements.

Reporting according to linkage bases

For information on reporting according to linkage bases, see Note 30 to the Financial Statements.

Information on debentures in circulation

Series A Series B

Date issued March 17, 2005 February 25, 2007 Listed for trading March 17, 2005 February 25, 2007 Type of interest Fixed Fixed Yearly interest rate 0.7% 4.1% (until the listing for trading, the interest rate was 4.7%) Par value on issue date NIS 500,000,000 NIS 770,000,000 Nominal par value as at December 31, 2008 NIS 249,624,952 NIS 743,651,854 Index-linked par value as at December 31, 2008 NIS 275,952,897 NIS 799,989,116 Book value of debentures NIS 261,746,014 NIS 795,168,541 Book value of interest payable - NIS 13,748,854 Market value as at December 31, 2008 NIS 263,479,137 NIS 799,425,743 Linkage conditions Principal and interest are linked to the Principal and interest are linked to the Consumer Price Index in respect of Consumer Price Index in respect of January 2005 January 2007 Payment dates of principal 6 equal yearly payments on December 5 equal yearly payments on February 1 of 31 of each year from 2006 to 2011 each of the years from 2014 to 2018 Interest payment dates Yearly interest on December 31 from Half-yearly interest on February 1 and 2005 to 2011 August 1, from 2007 to 2018 Securities or charges None None Name of rating company Midroog, Maalot Maalot Rating at issue date and reporting date Aa1, AA+ AA+

Additional information

Debentures (Series A) • The Debenture Trustee is the Trust Company of Bank Leumi le-Israel Ltd. • The Trustee's offices are located at 8 Rothschild Boulevard, Tel Aviv. • The supervisor on behalf of the Bank Leumi Trust Company is Adv. Idit Toyser (tel. 03-5170777). • As at the reporting date, the Company is in compliance with the terms and conditions of the trust deed.

Debentures (Series B) • The Debenture Trustee is Hermetic Trust (1975) Ltd. • The Trustee's offices are located at 113 Hayarkon Street, Tel Aviv. • The supervisor on behalf Hermetic Trust (1975) Ltd. is Adv. Dan Avnun / Adv. Merav Ofer-Oren (tel. 03-5274867) • As at the reporting date, the Company is in compliance with the terms and conditions of the trust deed.

 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience Translation from Hebrew

Information on the internal auditor of the Company

Internal auditor of the Company: Shlomo Ben Shimol, CPA, CIA (Certified Internal Auditor) (hereinafter: the “Auditor”), has served as the Company's internal auditor since 1999.

The Auditor does not hold securities of the Company. Furthermore, the Auditor or the entity on behalf of which the Auditor acts has no business relations with the Company that may create a conflict of interest. The Auditor provides internal auditing services as an outsourcer on behalf of Deloitte Brightman Almagor. The Auditor is a partner in the aforementioned firm.

Manner of appointment The Board of Directors and its Audit Committee approved the Auditor's appointment, noting his professional qualifications, auditing experience, and his knowledge of the Company's business. In the accounting year the Audit Committee approved a procedure for the Group's work vis-à-vis the Auditor, designed to regulate working relations between the internal audit and the units being audited, describe the internal audit's reporting procedures and determine the manner of handling the findings of the audit.

The person in the organization responsible for the internal auditor The CEO.

The work plan The internal audit's yearly and multi-year (generally, four years) work plans are based on the findings of risk surveys performed in the Group.

Additionally, the framework of the work plan includes the activity of Group Corporate Center and subsidiaries operating in Israel and abroad (except for holdings in affiliated companies and other companies in which the Group holds less than 50% of the ownership and controlling rights).

The internal audit in the Group acts on a regular basis to revise the yearly and multi-year work plans. The internal audit's work plan is risk-focused and adapted to changes in the Group's business activity.

The goal of the process of revising the risk-focused work plan is to examine, on a regular and dynamic basis, the structural changes in Strauss Group and to monitor the level of control and risk in the various units under audit, and in this manner, to examine, on a regular basis, the alignment of the internal audit's work plan to the Group's needs.

Considerations in determining the subjects in the audit plan: • Analysis and mapping of the Group's organizational structure, attribution of the residual risk relating to each activity and determining the frequency of the internal audit according to the risk; • Regulatory requirements arising from the Securities Law and the Regulations enacted thereunder; • Current audit findings; • Resolutions of the Audit Committee and requests by the CEO.

The subjects under examination are tested in subprocesses from operational and financial reporting aspects and from aspects of compliance with the provisions of the law and Company procedure.

 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience Translation from Hebrew

The multi-year and yearly work plans are prepared by the Auditor and forwarded to the CEO, and are also submitted for approval by the Audit Committee. After receiving the recommendations of the Audit Committee, the work plan is submitted to the Board of Directors of the Company for approval.

Audits abroad or audits of held companies The audit plan encompasses the corporations that constitute material holdings of the Company.

Scope of engagement Following is an itemization of the hours spent on the internal audit of the Group:

In the Company itself and held corporations in Israel 4,234 In held corporations abroad 2,555 Total 6,789 (compared to 6,556 hours in 2007)

Performing the audit The internal audit work is performed according to the accepted professional standards in Israel for internal audits, and professional guidelines and briefings that were approved and published by the Israeli Institute of Internal Auditors. According to these guidelines, the Auditor performs quality control in order to review the audit work processes applied by the auditors in the Internal Audit unit, and also executes a quality assurance plan by the Internal Audit unit.

In the Board of Directors' view, based on the Auditor's opinion, the internal audit work has been performed in accordance with accepted professional standards for internal audits.

Access to information The internal auditor has free, continuous and direct access to the information systems of the Company, including financial and other data, in Israel and abroad.

The internal auditing work of the overseas business units is performed by the Auditor and his team of employees abroad.

Auditor's report The Auditor's reports are submitted in writing on a regular basis throughout the year. In 2008 twenty-two reports were submitted. The reports are submitted to the Chairman of the Board, the Chairman of the Audit Committee, the Group CEO, the CEO of the Israeli or international business according to the circumstances, Management of the Group Corporate Center, and to the units being audited.

In 2008 eight meetings of the Audit Committee were held. The meetings take place on a regular basis throughout the year. Furthermore, the Auditor holds regular and periodic meetings with the Chairman of the Board, the Chairman of the Audit Committee, the Group CEO, and with senior Group Management.

The Board's evaluation of the internal Auditor's activity In the opinion of the Board of Directors, the scope of the internal auditing work, its continuous performance and the Auditor's work plan, are reasonable in the circumstances and sufficient in order to accomplish the internal auditing goals in the Group. The Audit Committee, in conjunction with Group Management and the Auditor, examines the proper scope of the Group’s internal audit on an annual basis.

Compensation The total financial compensation paid for the work of the Auditor and his staff is based on an agreed tariff per work hour. The Auditor is not included among the officers in the Group receiving high compensation, which


WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience Translation from Hebrew would require disclosure of the amount of the Auditor's compensation. In the opinion of the Board of Directors, the compensation paid to the Auditor is reasonable under the circumstances.

ANALYSIS OF FINANCIAL RESULTS

Following are the condensed financial accounting statements of income for the years and quarters ended December 31, 2008 and 2007 (in NIS millions): For the Years For the Three Months % % 2008 2007 change 2008 2007 change

Sales 6,245.9 5,960.9 4.8 1,564.2 1,572.5 -0.5 Cost of sales not including impact of hedging transactions 3,959.8 3,721.0 6.4 997.1 990.3 0.7 Revaluation of the balance of hedging transactions on commodities as at the end of the period 9.6 5.0 (1.2) 5.0 Cost of sales 3,969.4 3,726.0 6.5 995.9 995.3 0.1 Gross income 2,276.5 2,234.9 1.9 568.3 577.2 -1.5

Selling and marketing expenses 1,426.8 1,376.8 3.6 373.7 382.2 -2.2 General and administrative expenses 369.4 359.1 2.9 95.0 95.8 -0.8 Operating income before other income (expenses) 480.3 499.0 -3.7 99.6 99.2 0.4

Other income (expenses), net 208.3 (18.1) 18.1 (9.3) Operating income after other income (expenses) 688.6 480.9 43.2 117.7 89.9 30.9 Financing expenses, net (72.0) (77.5) -7.1 (12.3) (13.8) -10.9 Income before taxes on income 616.6 403.4 52.9 105.4 76.1 38.5 Taxes on income (109.3) (110.6) -1.2 (19.2) (21.8) -11.9 Effective tax rate 17.7% 27.4% 18.2% 28.6% Income for the period 507.3 292.8 73.3 86.2 54.3 58.7 Income attributed to shareholders of the Company 461.5 247.8 86.2 73.0 41.9 74.2 Income attributed to minority interest 45.8 45.0 1.8 13.2 12.4 6.5

Following are the adjustments to the Company's management accounting statements (NIS millions):

For the Years For the Three Months % % 2008 2007 change 2008 2007 change

Operating income – financial accounting 688.6 480.9 43.2 117.7 89.9 30.9 Share-based payment 26.2 11.6 6.2 6.8 Revaluation of the balance of hedging transactions on commodities as at the end of the period 9.6 5.0 (1.2) 5.0 Adjustments to pro-forma in respect of one-time amortizations of assets 5.8 - (3.8) - Other income (expenses) (208.3) 18.1 (18.1) 9.3 Expenses (income) in respect of Clubmarket - (3.4) - - Operating income – management accounting 521.9 512.2 1.9 100.8 111.0 -9.2 Financing expenses, net (72.0) (77.5) (12.3) (13.8) Taxes on income (109.3) (110.6) (19.2) (21.8) Taxes in respect of adjustments to the above management operating income (6.1) (5.6) 2.0 (4.1) Income for the period – management 334.5 318.5 5.0 71.3 71.3 - Income attributed to shareholders of the Company 284.9 273.8 4.1 56.1 58.9 -4.8 Income attributed to minority interest 49.6 44.7 11.0 15.2 12.4 22.6

WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience Translation from Hebrew

Following are the condensed results of business operations (based on the Company's management accounting statements) for the years and quarters ended December 31, 2008 and 2007 (in NIS millions):

For the Years For the Three Months % % 2008 2007 change 2008 2007 change

Sales 6,245.9 5,960.9 4.8 1,564.2 1,572.5 -0.5 Cost of sales 3,957.5 3,721.0 6.4 997.0 990.3 0.7 Gross income 2,288.4 2,239.9 2.2 567.2 582.2 -2.6

Selling and marketing expenses 1,423.3 1,380.1 3.1 377.5 382.2 -1.2 General and administrative expenses 343.2 347.6 -1.3 88.9 89.0 -0.1 Operating income – management accounting 521.9 512.2 1.9 100.8 111.0 -9.2 Financing expenses, net (72.0) (77.5) -7.1 (12.3) (13.8) -10.9 Income before taxes on income 449.9 434.7 3.5 88.5 97.2 -9.0 Taxes on income (115.4) (116.2) -0.7 (17.2) (25.9) -33.6 Income for the period – management 334.5 318.5 5.0 71.3 71.3 - Income attributed to shareholders of the Company 284.9 273.8 4.1 56.1 58.9 -4.8 Income attributed to minority interest 49.6 44.7 11.0 15.2 12.4 22.6

Following are the condensed results of business operations (based on the Company's management accounting statements) of the business sectors for the years and quarters ended December 31, 2008 and 2007 (in NIS millions):

For the Years For the Three Months 2008 2007 % 2008 2007 % Israel* Net sales** 2,671.2 2,673.1 -0.1 645.2 664.5 -2.9 Gross income 1,080.0 1,101.1 -1.9 269.3 272.4 -1.1 Operating income 273.9 259.7 5.5 60.2 59.3 1.5 Coffee Net sales 3,243.2 2,897.4 11.9 833.5 802.4 3.9 Gross income 1,044.3 944.5 10.6 252.0 255.9 -1.5 Operating income 255.2 231.3 10.3 38.9 41.5 -6.3 Other*** Net sales 331.5 390.4 -15.1 85.5 105.6 -19.0 Gross income 164.1 194.3 -15.5 45.9 53.9 -14.8 Operating income (loss) (7.2) 21.2 -134.0 1.7 10.2 -83.3 Total Total net sales (1) 6,245.9 5,960.9 4.8 1,564.2 1,572.5 -0.5 Total gross income 2,288.4 2,239.9 2.2 567.2 582.2 -2.6 Total operating income 521.9 512.2 1.9 100.8 111.0 -9.2

* Not including Israel Coffee sales and without neutralizing the impact of the sale of the industrial activity in Israel in 2007. ** In 2007, including the industrial market activity that was terminated and sold, in an amount of NIS 65.7 million in 2007 and NIS 14.8 million in the fourth quarter of 2007. *** Sabra sales partially consolidate since the second quarter of 2008.

For information on the adjustments to the Company's management accounting statements, see Note 29.2 to the Financial Statements.

For information on the consolidated results of business operations of the geographical sectors, see Note 29.4 to the Financial Statements.


WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience Translation from Hebrew

Following is the analysis of the business results of the Group and its major business units:

General

In 2008 the Company continued the process of international growth and expansion and continued to build supporting infrastructures and processes. In March 2008 the Company announced the closing of the partnership agreement with the global PepsiCo corporation ("PepsiCo") for the development, manufacture and sale of refrigerated spreads and dips in the US and Canada through Sabra in the US. The two groups have a 50-50 partnership in Sabra. The partnership with PepsiCo in Sabra in the US and Canada is a highly important strategic step in the development of the Group's business outside of Israel in general and in the US in particular and in the Group's value generation processes, and will help Sabra leverage its business.

In the framework of realizing the global expansion strategy in coffee and in view of the financing needs arising from this strategy, a partner (the private equity investment fund Texas Pacific Group (TPG)) was introduced to the coffee company, with a holding of 25.1% in equity, in consideration for $293 million paid to Strauss. The investment was made according to an enterprise value of $1,009 million (before the money) and an equity value of $869 million (before the money). TPG Capital was also granted a two-year option to acquire a further 9.9% of Strauss Coffee's shares at the present enterprise value plus 6% per year from the closing date until the date the option is exercised, subject to adjustments in respect of future dividend payments. For more information, see Note 5.7 to the Annual Financial Statements.

In 2008 the process of implementing the change in the organizational structure of the Group Corporate Center and in the business of Strauss Israel ("Horizon") continued, as did the process of assimilating the Group's new corporate identity. In this framework, Group Management decided on one corporate brand – Strauss – which is broad enough to provide a response to changing consumer needs, enable expansion in international markets and core competencies, to be stretched to new areas, and symbolize the Group's transparency and social responsibility. The choice of one name for the Company and a new corporate identity is the beginning of the formulation of a new brand portfolio for the Group, based on an understanding of local needs, world trends and the Company's strengths.

In 2008 several factors in the Group's macroeconomic environment influenced the Group's activity (a sharp rise in raw material and energy prices, currency exchange rates, emerging inflation, simultaneous with the development of a recession in the US and Europe in the wake of the financial crisis, etc.). The year 2008 was marked by a sharp increase in the prices of raw materials used in a considerable part of the Group's products in Israel and abroad. The Group contended with the increase in raw material prices by implementing streamlining processes, using substitutes, and raising the prices of its products from time to time.

Sales In 2008 (hereinafter the “reported period”) Strauss Group's sales totaled NIS 6,245.9 million compared to NIS 5,960.9 million last year, an increase of 4.8%, despite the challenges in the economic environment. Organic growth after neutralizing the impact of changes in currency exchange rates and the acquisition and sale of businesses in 2008 amounted to 7.6%.

In 2008 the Group successfully overcame the increase in raw material and energy prices by applying streamlining moves in all areas of the Group's activity and raising the prices of its products in all markets. Although the combination of these actions led to the erosion of the Group's gross profit rate, it also led to an improvement in the consolidated management accounting operating profit.

The Group's sales in the fourth quarter totaled NIS 1,564.2 million compared to NIS 1,572.5 million last year, a decrease of 0.5%. Organic growth after neutralizing the impact of changes in currency exchange rates in the fourth quarter amounted to 5.4%.


WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience Translation from Hebrew

Gross Profit The financial accounting gross profit in 2008 increased by 1.9%, however the gross profit rate was eroded from 37.5% last year to 36.4% in the reported period. After neutralizing the impact of hedging transactions, the gross profit increased by 2.2%.

The gross profit was positively impacted by the growth in sales, the streamlining moves and the rise in sales prices, and was adversely affected by the continuing rise in raw material and energy prices, the impact of currency exchange rates, the transfer to proportionate consolidation (50%) of Sabra's activity and the growth in the scale of the coffee business, which ultimately led to a drop in the Group's gross profit rate in the reported period.

The financial accounting gross profit in the fourth quarter decreased by 1.5%, and its rate was eroded from 36.7% last year to 36.3% in 2008. After neutralizing the impact of hedging transactions, the gross profit decreased by 2.6%. The decrease in gross profit is due mainly to the decrease in sales, the impact of currency exchange rate and the proportionate consolidation of the Sabra business.

Operating Profit (before other income (expenses) The financial accounting operating profit (before other expenses) totaled NIS 480.3 million in 2008 (a rate of 7.7%), compared to NIS 499.0 million (a rate of 8.4%) last year – a decrease of 3.7%.

The management accounting (pro-forma) operating profit totaled NIS 521.9 million in 2008 (8.4% of sales), compared to NIS 512.2 million (8.6% of sales) last year, an increase of 1.9%.

The improvement in the pro-forma operating profit is the result of the growth in sales, streamlining of the Company's cost structure, and a decrease in the rate of selling and G&A expenses. The improvement in the operating profit is evident in most of the units in the Company and was achieved despite the erosion in the gross profit rate as described above. The erosion in the operating profit rate was due mainly to the erosion in the gross profit rate.

The financial accounting operating profit in the fourth quarter totaled NIS 99.6 million compared to NIS 99.2 million in the corresponding period last year, an increase of 0.4%. The pro-forma operating profit in the fourth quarter totaled NIS 100.8 million compared to NIS 111.0 million in the corresponding period last year, a decrease of 9.2%. The decrease in the management accounting operating profit is the result of the decrease in the gross profit.

Other Income, Net In 2008 other income, net, amounted to NIS 208.3 million compared to expenses totaling NIS 18.1 million in 2007. The other income in the reported period mainly includes a capital gain in an amount of NIS 230.4 million in respect of the issue of 25.1% of Strauss Coffee to TPG Capital, a capital gain in respect of the change from full consolidation to proportionate consolidation in Sabra and the sale of the Blue & White business at the end of the year in a total amount of NIS 46.4 million, expenses in respect of an acquisition which was not realized in an amount of NIS 11.7 million, and expenses in respect of the impairment of value of goodwill and a patent in an amount of NIS 53.1 million (NIS 40 million are attributed to the amortization of goodwill relating to the subsidiary in Serbia, and NIS 13.1 million to the amortization of goodwill and a patent with respect to a subsidiary in the US, attributed to the activity that was sold (see Note 35 to the Financial Statements)).


WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience Translation from Hebrew

Other income, net, in the fourth quarter amounted to NIS 18.1 million compared to expenses of NIS 9.3 million in the corresponding period last year. The other income in the fourth quarter includes mainly a capital gain from the sale of the Blue & White business amounting to NIS 21.5 million, less a loss of NIS 5.4 million from saleable securities.

Income from Ordinary Operations after Other Income (Expenses) In 2008 the Company’s consolidated operating income totaled NIS 688.6 million (11.0% of sales) compared to NIS 480.9 million (8.1% of sales) last year, an increase of 43.2%. The consolidated operating income in the fourth quarter totaled NIS 117.7 million compared to NIS 89.9 million in the corresponding quarter last year.

Financing, Net In the reported period financing expenses totaled NIS 72.0 million, compared to NIS 77.5 million in the corresponding period last year. In the fourth quarter financing expenses totaled NIS 12.3 million, compared to NIS 13.8 million in the corresponding quarter last year. Financing expenses in the reported period compared to the corresponding period were impacted by the rise in the Consumer Price Index (based on the known Index), according to which the Debentures are revalued, by 4.5% in the reported period (compared to 2.8% in the corresponding period last year), and expenses in respect of exchange rate differentials and foreign currency balances. These financing expenses were offset by financing income of NIS 42 million, which reflects the increase in the value of the consideration in Euros for the issue to TPG Capital from August 25, 2008 until the date of closing of the transaction and the actual receipt of the consideration.

The moderate decrease in financing expenses in the fourth quarter compared to the corresponding quarter last year was the result of the decrease in the inflation rate on the basis of the known Index in the quarter (0.5%) in relation to the corresponding quarter last year (0%), the decrease in credit volumes as a result of the cash received in the TPG transaction and interest in respect of a tax refund from previous years. This decrease in financing expenses in the quarter was offset by an increase in expenses in respect of exchange rate differentials on foreign currency positions and balances and Index positions.

The net credit volume as at December 31, 2008 totaled NIS 588.6 million compared to NIS 860.1 million on December 31, 2007.

Income before Taxes on Income In 2008 the Group’s consolidated income before taxes on income amounted to NIS 616.6 million (9.9% of sales) compared to NIS 403.4 million (6.8% of sales) last year, an increase of 52.9%. The Group's consolidated income before taxes on income in the fourth quarter totaled NIS 105.4 million (6.7% of sales) compared to NIS 76.1 million (4.8% of sales) in the corresponding quarter last year, an increase of 38.5%.

Taxes on Income In 2008 taxes on income amounted to NIS 109.3 million, reflecting an effective tax rate of 17.7%, whereas last year taxes on income amounted to NIS 110.6 million and the effective tax rate was 27.4%. In the fourth quarter taxes on income totaled NIS 19.2 million, reflecting an effective tax rate of 18.2%, compared to NIS 21.8 million and an effective tax rate of 28.6% last year. The decrease in the effective tax rate in the reported period and the fourth quarter is due mainly to the capital gains entered following the issue to TPG Capital and the change to proportionate consolidation in Sabra, which are tax-exempt.

Income for the Period In 2008 income for the period amounted to NIS 507.3 million compared to NIS 292.8 million last year. In the fourth quarter income for the period totaled NIS 86.2 million compared to NIS 54.3 in the corresponding quarter last year.


WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience Translation from Hebrew

Income for the Period for the Shareholders of the Company The financial accounting net profit to the shareholders of the Company in the reported period amounted to NIS 461.5 million, compared to NIS 247.8 million in the corresponding period last year, an increase of 86.2%. The increase is due mainly to capital gains in respect of the allotment of 25.1% of the shares of Strauss Coffee, the transition from full to proportionate consolidation of the Sabra business, and the sale of the distribution business to the kosher market in the US (Blue & White).

The financial accounting net profit to the shareholders of the Company in the fourth quarter amounted to NIS 73.0 million compared to NIS 41.9 million in the corresponding period last year, an increase of 74.2%.

Income for the Period for Minority Shareholders In 2008 the minority share in the income of subsidiaries totaled NIS 45.8 million compared to NIS 45.0 million last year. The minority share in the income of subsidiaries in the fourth quarter totaled NIS 13.2 million compared to NIS 12.4 million in the corresponding period last year, an increase of 6.5%. Commencing in the fourth quarter, the minority share in the income of subsidiaries also includes TPG Capital's share in the income of Strauss Coffee (at a rate of 25.1%).

LIQUIDITY, SOURCES OF FINANCING AND FINANCIAL POSITION

In 2008 cash flows provided by ordinary operations totaled NIS 228.8 million, and after neutralizing NIS 63.0 million invested in working capital in Russia following the acquisition of the CK brands in that country, the cash flow from ordinary operations amounted to NIS 291.8 million compared to cash flows from ordinary operations of NIS 508.3 million in the corresponding period last year.

In the fourth quarter cash flows deriving from ordinary operations totaled NIS 179.5 million, and after neutralizing NIS 8 million invested in working capital in Russia following the acquisition of the CK brands in that country, the cash flow from ordinary operations amounted to NIS 187.5 million compared to a cash flow of NIS 193.4 in the corresponding quarter last year.

The decrease in the cash flow from ordinary operations in 2008 was impacted by the growth in the scale of activities in part of the countries where the Company is active abroad and the increase in working capital requirements, and also by a significant increase in days for accounts receivable in Israel in 2007, which led to an irregular one-time positive cash flow in 2007. Additionally, there was a significant growth in inventory balances in Israel in 2008 following the need to hedge against rising raw material prices, including a growth in milk powder inventory, in the amount of 47 million shekel, which is expected to drop in the course of 2009.

Cash flows used in investment activity in the reported period totaled NIS 664.6 million compared to NIS 276.0 million in cash used in the corresponding period last year. In the reported period total cash investments in fixed and other assets amounted to NIS 300.1 million, compared to NIS 344.7 million in the corresponding period last year. Last year the Company received NIS 101.1 million in proceeds in respect of the sale of real estate in 2006. In the reported period the Company made a number of material investments in the acquisition of coffee businesses and brands in Eastern Europe, which totaled NIS 403.8 million.

Cash flows provided by financing activity in the reported period totaled NIS 612.3 million compared to NIS 130.8 million in the corresponding period last year. During the period Strauss Coffee issued 25.1% of its shares to TPG Capital in consideration for NIS 966.2 million, net. During the reported period a dividend was declared and paid in an amount of NIS 200.0 million, and NIS 22.3 million were received from the exercise of share options. Additionally, in the reported period the Company made a self acquisition of Debentures in an amount of NIS 28.3 million.


WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience Translation from Hebrew

The Company’s cash and cash equivalents as at December 31, 2008 totaled NIS 680.2 million, compared to NIS 489.7 million on December 31, 2007. In accordance with Company policy, these assets are invested mainly in Euro deposits, held by the subsidiary following the TPG transaction. The Company has short-term investments in securities and in deposits (mainly linked to the Shekel and Brazilian Real), amounting to NIS 33.1 million on December 31, 2008.

The Company’s liquidity ratio as at December 31, 2008 is 1.75, compared to 1.33 on December 31, 2007. As at December 31, 2008 liabilities in respect of long-term loans and credit (including current maturities) amounted to NIS 1,118.3 million, compared to NIS 1,197.6 million on December 31, 2007. As at December 31, 2008 short-term credit (excluding current maturities) amounted to NIS 183.7 million compared to NIS 211.8 million on December 31, 2007.

As at December 31, 2008 supplier credit totaled NIS 757.5 million, compared to NIS 722.9 million on December 31, 2007.

As at December 31, 2008 the ratio of long-term liabilities to banks and others (including current maturities) to total equity attributed to the shareholders of the Company was 60.8%, compared to 67.8% at the end of 2007.

As at December 31, 2008 the Company’s consolidated balance sheet totaled NIS 5,435.2 million, compared to NIS 4,988.4 million at the end of 2007.

As at December 31, 2008 the ratio of equity attributed to the shareholders of the Company to total consolidated assets was 33.9%, compared to 35.4% at the end of 2007.

The Company’s activities outside of Israel are conducted in various foreign currencies and through autonomous holding companies. Any weakening in relation to the Shekel of the currencies in the countries in which the Company operates reduces the shareholders’ equity of the Company, and vice versa.

Following is the analysis of the business results of the major business units:

The Israeli Sector – Strauss Israel

In this sector the Group develops, manufactures, sells, markets and distributes a broad variety of branded food and beverage products in Israel. In line with the Group's focus on the development of products and solutions preferred by the consumer, the Group's products in Israel center on providing a response to two leading consumption trends, "Health & Wellness" and "Fun & Indulgence".

In 2008 Strauss Israel focused on the implementation of the streamlining plan and new organizational structure (Horizon), providing a response to consumer trends in a new divisional deployment. The new organizational structure supports streamlining and has prepared the Company for coping with the challenges in the external environment.

During the year Strauss Israel assimilated a new brand portfolio, with emphasis on the corporate brand, Strauss, and since September the corporate logo and the new Elite logo have been featured on the Company's different products.

The packaging of all of the Company's products will be adapted to the new identity and connected to the corporate brand in a gradual process, in a manner that preserves the uniqueness of each brand but connects them all to one company.


WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience Translation from Hebrew

Additionally, in 2008 the project for merging the information systems in the Sales Division (SAP SD) was completed, and the activity in Israel has begun to benefit from working with a system for the management of sales, distribution and logistics that is among the most advanced of its kind in the world.

Following are the condensed results of business operations based on the management accounting statements of Strauss Israel by unit, for the years and quarters ended December 31, 2008 and 2007 (in NIS millions):

Yearly Q4 2008 2007 % 2008 2007 % Health & Wellness Net sales 1,804.8 1,763.1 2.4 442.2 446.7 -1.0 Operating income 199.0 195.6 1.7 46.4 48.1 -3.5 Fun & Indulgence Net sales 866.4 844.3 2.6 203.0 203.0 - Operating income 74.9 62.5 19.8 13.8 11.1 24.3 Other Net sales - 65.7 - - 14.8 - Operating income - 1.6 - - 0.1 - Total Israel Net sales 2,671.2 2,673.1 -0.1 645.2 664.5 -2.9 Operating income 273.9 259.7 5.5 60.2 59.3 1.5

Sales in 2008 for all of Strauss Israel's activity, including the coffee business in Israel and after neutralizing the industrial activity, increased by 3.3%.

Sales by the Israeli sector (excluding coffee) totaled NIS 2,671.2 million, a decrease of 0.1%, and after neutralizing the industrial activity (which was sold in January 2008), Israel sales increased by 2.4%.

In the fourth quarter the sales of all of Strauss Israel's activity, including the coffee business and after neutralizing the industrial activity, decreased by 1.5%. The sales turnover of the Israeli sector (excluding coffee) decreased by 2.9% in the quarter, and after neutralizing the industrial activity, sales decreased by 0.7%.

According to StoreNext, in 2008 the food market in Israel grew by 14.4% in financial terms. The company's market share dropped by 1% in 2008 compared to a year earlier. In the fourth quarter the Israeli food industry suffered a significant slowdown in terms of growth rate.

Gross profit in the Israeli sector totaled NIS 1,080.0 million in 2008 (40.4%) of sales, compared to NIS 1,101.1 million (41.2% of sales) last year, a decrease of 1.9%.

The gross profit in Israel was adversely impacted by the continuing accelerated increase in raw material and energy prices and the sale of the industrial activity. Conversely, the gross profit in Israel was positively influenced by the increase in sales prices.

In the fourth quarter the gross profit decreased by 1.1% due to the reduction in sales and the rise in raw material prices.

Management accounting operating profit in Israel increased by 5.5% in 2008 following an improvement in the cost structure. The operating profit rate in Israel improved in 2008 and amounted to 10.3% compared to 9.7% last year.


WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience Translation from Hebrew

Despite the decrease in the gross profit in the fourth quarter the operating profit in the Israeli sector rose by 1.5% as a result of the improvement in the cost structure of this activity. The operating income rate in the fourth quarter amounted to 9.3% compared to 8.9% in the corresponding period last year.

The Coffee Business

In the global coffee business the Group develops, manufactures, markets and sells branded coffee products in Israel and in various emerging markets – Central and Eastern Europe and Brazil.

Following is the scope of sales by the coffee business in the major geographical regions, and growth rates for the years and quarters ended December 31, 2008 and 2007 (in NIS millions):

Years Q4 % change % change in local in local Geographical region 2008 2007 % currency* 2008 2007 % currency* Brazil (1), (2) 1,024.7 945.5 8.4 15.1 266.9 266.2 0.3 25.7 Israel 582.5 540.8 7.7 7.7 128.4 135.5 -5.2 -5.3 Former Yugoslavia countries 299.4 306.3 -2.3 5.7 78.6 88.3 -11.0 5.8 Former USSR countries 458.3 213.5 114.7 143.2 147.2 59.0 149.5 166.0 Balkan states 378.0 425.7 -11.2 4.3 90.2 114.5 -21.2 -2.3 Poland 500.3 465.6 7.5 6.8 122.2 138.9 -12.0 0.1 Total 3,243.2 2,897.4 11.9 18.6 833.5 802.4 3.9 20.5

* The growth rate in the local currency neutralizes the impact of changes in exchange rates in the different countries in relation to the Shekel on the growth in the countries' sales.

(1) Brazil sales in 2008 include sales amounting to NIS 244.2 million of green coffee and NIS 61.9 million of corn. In 2007 sales of green coffee amounting to NIS 241.1 million and corn amounting to NIS 53.3 million were included. (2) Brazil sales in Q4 of 2008 include sales amounting to NIS 82.0 million of green coffee and NIS 13.3 million of corn. In Q4 of 2007 sales of green coffee amounting to NIS 62.7 million and corn amounting to NIS 14.7 million were included.

Sales in the reported period for Strauss's coffee business grew by 11.9% and totaled NIS 3,243.2 million. After neutralizing the impact of currency exchange rates, growth amounted to 18.6%. Organic growth (after neutralizing the acquisition of businesses and the impact of exchange rate differentials) amounted to 9.9%.

Growth in the coffee business in Israeli Shekels was adversely impacted by the sharp changes in the exchange rates of the different operating currencies. Although the growth in business is evident in all clusters, growth was especially strong in the Company's activity in the former USSR countries (following the acquisition of the coffee brands of Cosant Enterprises Ltd. in the CIS countries), Israel, Poland and Brazil.

The AFH (Away-From-Home) business grew by 6.1% in 2008 and accounted for 12.7% of the coffee business, compared to 13.5% last year.

The growth in sales was positively influenced by the growth in volumes, organic growth in most countries, mergers and acquisitions and by raising sales prices. Growth was negatively influenced by the sharp changes in the exchange rates of the various currencies.

In the fourth quarter the coffee sector grew by 3.9% and sales totaled NIS 833.5 million. After neutralizing the impact of currency exchange rates, growth amounted to 20.4% and organic growth (after neutralizing the acquisition of businesses and the impact of exchange rate differentials) amounted to 7.6%.

In the course of 2008 the Company persevered in its expansion efforts and efforts to become a leading company in its field. These actions included the introduction of the private equity investment fund TPG as a


WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience Translation from Hebrew partner in the coffee company, the acquisition of Cosant Enterprises Ltd.'s instant and R&G (roast and ground) coffee brands in Russia, and the acquisition of DonCafé Albania and the rights to the brand in 11 other countries.

Gross profit in the coffee sector totaled NIS 1,044.3 million in 2008 (32.2%) compared to NIS 944.5 million (32.6%) last year, an increase of 10.6%. The gross profit in the coffee sector was influenced by the accelerated growth and the increase in prices, which compensated for the increase in raw material and energy prices.

The gross profit in the fourth quarter totaled NIS 252.0 million (30.2%) compared to NIS 255.9 million (31.9%) last year, a decrease of 1.5%. The decrease in the gross profit was due mainly to the impact of currency exchange rates on the cost of raw materials in local currency (the purchase currency of raw materials is the US Dollar, which grew stronger versus the different currencies in the quarter), and also to the impact of the erosion of the various currencies versus the Shekel, which led to a decrease in the gross profit, mainly in Poland, Romania and Ukraine, which is reported in Shekels.

Operating profit for the coffee business totaled NIS 255.2 million (7.9% of sales) in 2008 compared to NIS 231.3 million (8.0% of sales) last year, an increase of 10.3%. The operating profit was influenced by the accelerated growth and by the growth in the gross profit.

In the fourth quarter, the operating profit totaled NIS 38.9 million (4.7% of sales) compared to NIS 41.5 million (5.2% of sales) in the corresponding quarter last year, a decrease of 6.3%. The decrease in the operating profit was influenced mainly by the decrease in the gross profit, and an increase in marketing expenses for the re-branding of DonCafé in Romania and increased selling expenses in Brazil due to the continuous geographical expansion.

Distribution of coffee sales by geographical region in the years 2008 and 2007:

Balkans 2007 Balkans 2008 Poland 14.7% 11.7% CIS 15.4% 7.4% Poland 16.1% CIS Former 14.1% Yugoslavia 10.6%

Former Yugoslavia 9.2% Brazil Is rael 31.6% 18.7% Brazil Is r ael 32.6% 18.0%

Business in Brazil – the Company in Brazil continues to grow, increasing its market shares and expanding in additional geographical regions in the country. Average market share of the Brazilian operation in 2008 according to A.C. Nielsen was 13.9% compared to 12.3% last year.

Coffee sales in Brazil (after neutralizing the green coffee export business and the corn business) grew by 10.4% (16.8% in local currency) in 2008. Growth is evident in most regions, especially in Sao Paulo, where the Company continues to increase its market share.


WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience Translation from Hebrew

Former Yugoslavia countries – the Company's sales decreased by 2.3% in 2008 and were adversely affected by the material erosion in local currency rates versus the Shekel. After neutralizing the impact of exchange rate differentials sales grew by 5.7%. Growth was concentrated in Serbia in both the retail and AFH businesses. In 2008 the Company had an impairment of assets in Serbia that amounted to approximately 40 million Shekels.

Romania – In September the Elite Coffee brands in Romania were rebranded under the DonCafé brand as part of Company policy to expand the activity of the DonCafé brand to other countries where the Company is presently active. In this framework, the local Elite Café sub-brands were merged in the DonCafé brand. During the year coffee mixes were successfully launched, exploiting the Company's know-how and expertise in coffee and placing emphasis on innovation.

Sales in 2008 decreased by 11.2% and were adversely impacted by the material erosion in the exchange rate of the local currency versus the Euro and Shekel. After neutralizing the currency impact, sales grew by 4.3%. Following the erosion of the local currency and the increase in raw material prices the Company raised its sales prices in Romania. The AFH business continued to grow in the reported period.

Former USSR countries saw continued growth in retail activities as well as in AFH. The growth in this region is the result of merging the marketing and sales operations of the instant coffee and roasted and ground brands of Cosant Enterprises Ltd., acquired in April 2008, into the existing infrastructure in the CIS countries. In 2008 the Company initiated AFH activities in Russia with the Totti Café by Roberto Totti brand for the HoReCa sector (coffee services for hotels, restaurants and cafés).

The Company's sales in the region grew by 114.7% in the reported period and, after neutralizing the currency impact, sales grew by 143.2%.

In Poland growth in 2008 continued to be strong for all of the Company's brands in this country, with continued growth in the premium segment (with the MK brand), as well as in the other segments and in the AFH business. Sales in the region grew by 7.5% in the reported period (after neutralizing the currency impact, sales grew by 6.8%), and for the fist time crossed the half-billion Shekel mark.

The business in Poland continues to increase its market share in the three main brands (MK Café, Pedro's, Fort). In the AFH segment the MK Café brand was launched in the HoReCa market (coffee services for hotels, restaurants and cafés).

In 2008 the Company continued to deepen its relationship with Polish consumers around the MK Café Premium brand through unusual marketing activity, which won the bronze cup in the EFFIE 2008 competition in Poland. The prize serves as proof of the high marketing position of the MK brand – one of Strauss Coffee's major brands in that country.

In Israel the Company continues to maintain its competitive position as operational streamlining continues. In 2008 coffee sales in Israel grew by 7.7%. The growth in sales in Israel was prominent in all coffee categories (Turkish, instant) and in all channels (retail, AFH).

Other Business

The Group has other businesses, which are included in the Financial Statements in the "Other Business" sector. The major businesses among them are:

Sabra refrigerated dips business in the US: The Group develops, manufactures, sells, markets and distributes hummus and chilled Mediterranean salads throughout North America.


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Kosher products sales in the US: In this framework a subsidiary of the Group imports kosher products from Israel from companies within the Group as well as from various other parties in Israel, and sells them in the US. This activity was sold on December 31, 2008.

Max Brenner: The Group manufactures and sells chocolate products under the Max Brenner brand and operates a chain of "Chocolate Bars" in Israel and abroad. These are wholly-owned by the Company or operated under franchise and through partners, and deliver a novel consumption experience in the chocolate and chocolate beverage category.

In 2007, the Company entered a partnership in a new venture in the water business ("H2Q").

The Sabra Refrigerated Flavored Dips Business in the US (hereinafter: "Sabra")

Commencing in the second quarter of 2008 the Company has proportionately consolidated the Sabra business (50%) according to the rate of its holding following the closing of the transaction with PepsiCo.

In 2008 Sabra's pro-forma sales (assuming the full consolidation of Sabra's business) totaled NIS 300 million compared to NIS 254 million last year, an increase of 18.1%, and after neutralizing the impact of the erosion of the Dollar in relation to the Shekel, pro-forma growth in 2008 totaled 35.0%3.

In the fourth quarter Sabra's pro-forma sales totaled NIS 89 million compared to NIS 67 million last year, an increase of 32.8%, and after neutralizing the impact of the erosion of the Dollar in relation to the Shekel, pro- forma growth in the quarter totaled 39.3%.

Operating profit (assuming Sabra’s activity was fully consolidated) in 2008 amounted to approximately NIS 35 million compared to NIS 33 million. In the fourth quarter operating profit amounted to approximately NIS 8 million last year similar.

Sabra is persevering in its efforts to expand and deepen activities in leading retail chains, together with continued innovation. Sabra has continued to grow its market share and to maintain its leading position in the refrigerated flavored spreads category. Sabra's average market share in 2008 was 31.8%, compared to an average market share of 25.8% in 2007 (according to IRI figures published on December 28, 2008). In the fourth quarter Sabra maintained its growth trend, and its average market share reached 34.2%.

Against the backdrop of Sabra's rapid growth in recent years and the need to increase production capacity in order to meet demand, in 2008 an investment of up to $68 million was approved for the construction of a modern, state-of-the-art salad factory. The plant, which is expected to open in the state of Virginia in 2010, will be one of the most sophisticated of its kind and based on cutting-edge production technology.

Activity in the Kosher Market in North America

In 2008 kosher market sales totaled NIS 63 million compared to NIS 41 million in 2007. In the fourth quarter sales to the kosher market totaled NIS 19 million compared to NIS 11 million in the corresponding period last year. On December 31, 2008 the Company signed a binding agreement for the sale of its holdings (51%) in Blue & White Foods LLC. For more information, see Note 5.9 to the Annual Financial Statements.

3 In the Group's management accounting (pro-forma) reports Sabra is proportionately consolidated beginning in the second quarter. For the sake of comparison, Sabra's results are presented here pro-forma, as if Sabra were fully consolidated in the reported period as well.


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The Max Brenner Business

As at the end of 2008, 24 Max Brenner Chocolate Bars were in operation around the world: 6 in Israel, 2 in the US, 2 in the Philippines, 1 in Singapore and 13 in Australia. Seven branches are owned by the Company, and all other branches are operated under franchise.

In 2008 Max Brenner's sales totaled NIS 94.8 million compared to NIS 95.7 million last year, a decrease of 0.9%. After neutralizing the impact of the erosion of the Dollar in relation to the Shekel, growth in 2008 totaled 4.1%.

In the fourth quarter Max Brenner's sales totaled NIS 24.8 million compared to NIS 27.2 million last year, a decrease of 8.8%. After neutralizing the impact of the erosion of the Dollar in relation to the Shekel, the decrease in the fourth quarter amounted to 7.4%.

The Company continues to invest in the development of core infrastructure for the Max Brenner business in Israel and abroad, and in 2008 focused on identifying new locations in the US with the aim of opening additional Max Brenner stores there in the future.

The H2Q Water Business

During the course of 2007 the Company became involved in a research and development project for an innovative venture in the field of water (for consumption). In August 2008, the Company decided to convert a convertible loan of $2.75 million into shares of H2Q Water Industries Ltd. (hereinafter H2Q), and subsequently invested a further $3.5 million in share capital. After the conversion of the convertible loan and the additional investment, the Company now has a 51% holding in H2Q.

CORPORATE GOVERNANCE

The Board of Directors and its Standing Committees

The Group's strategy and its business activity are subject to the supervision of the Board of Directors of the Company. Since June 2008 the Board of Directors has comprised 11 members who possess different backgrounds and areas of expertise, including four independent directors, of whom two are outside directors. There are no Board members who are officers of the Company. Ofra Strauss, Chairperson of the Board, is not an officer-member of Company Management. The Board has three standing committees: the Audit Committee; the Balance Sheet and Finance Committee; and the Human Resources, Compensation and Corporate Responsibility Committee.

Compensation of Senior Managers

Annual compensation of senior managers is based on a mechanism that ties compensation to the Group's financial performance, based on defined objectives and indices, as well as to personal qualitative objectives and indices. The Company CEO determines the personal qualitative targets for each of the members of Group Management, the Chairperson of the Board determines the targets for the CEO, and the Compensation Committee approves the prescribed objectives. Further information on the compensation of senior managers can be found in the notes to the Periodic Report pursuant to Regulation 21.


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Risk Management

Risk management in all areas of the Group's activity is addressed in a number of different frameworks. The Internal Auditor performs yearly risk analyses for the entire Group. Additionally, committees are in place in all relevant business units, which analyze and assess the risks and propose appropriate cautionary measures. These matters are handled by the managements of the business units. The committees of the Board of Directors receive regular reports relating to their areas of responsibility for the purpose of ongoing supervision and assessment of issues relating to risk management.

CORPORATE RESPONSIBILITY, COMMUNITY ACTIVITY AND DONATIONS

In 2008 the Group focused on corporate responsibility at three major levels:

A. Continued development of the infrastructure for institutionalized and professional management of the subject of corporate responsibility in the Group. B. Implementation of corporate responsibility in Strauss vis-à-vis the Group's various stakeholder groups. C. Social environmental reporting.

A. Infrastructural activity

1. Assimilation of an Ethics Program and Code of Ethics In 2006-2007 the Group formulated its Code of Ethics and initiated its launch in Israel and worldwide. In 2008 the process of assimilating the Code of Ethics among all employees of the Company was completed through training and integrating the Code in the regular everyday business routine and in various mechanisms in place in the Group, such as new employee assimilation kits. The Code of Ethics serves as a public statement that Strauss Group is involved, caring and moral, and attentive to the changing social, environmental and ethical needs and attitudes of all stakeholders of the Group, and is willing to undertake limitations and rules of conduct in order to comply with moral criteria that are above those required by law.

2. Compliance and enforcement In 2008 the Group formulated a compliance and enforcement program covering the following areas: ethics, prevention of sexual harassment, the work environment and employees' rights, quality of the environment, safety and hygiene in the workplace, information security and anti-trust. The program requires half-yearly reporting by all managers of the Group's plants and sites to the Group Internal Enforcement Supervisor. The goal of the program is to ensure compliance with the provisions of the law and Company procedure in these areas.

B. Implementation of corporate responsibility in the Group – activities vis-à-vis Group stakeholders

1. Corporate responsibility in the supply chain – activities in the framework of the Common Code for the Coffee Community (4C) The Group is committed to inspecting its suppliers' social environmental performance in the various stages of its value chain and to influencing this performance as much as possible. Accordingly, as a manufacturer and marketer of coffee products, Strauss chose to join the global effort for "Fair Trade Coffee", expressed in efforts to improve the commercial and employment conditions among coffee producers throughout the world. Further to the Group having joined 4C in 2007, in 2008 it increased its purchases from this organization and defined targets for coming years to increase purchases from the organization by 50% each year.


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2. Environmental quality In 2008 Environmental Quality Managers were appointed in Strauss Israel and Strauss Coffee. Their responsibilities include assimilating environmental policy in the Company, mapping and identifying the negative and positive influences of the Group's plants on the environment, mapping and evaluating the environmental requirements of the law applying to units in the Company, and providing tools for integrated work by the Group's units in the field of environmental management. For more information on the subject of environmental quality, see Section 21 in the chapter, Description of the Company's Business.

3. Workplace safety Strauss Group has made it a goal to improve safety performance and address issues relating to health and safety in the workplace, with a trend of continuing improvement in all aspects relating to the reduction of work-place accidents and injuries, raising employee awareness of health and safety procedures and their implementation, drawing conclusions and accomplishing continuous learning for the purpose of improvement.

4. Promotion of good nutrition and a healthy lifestyle The Group acts continuously to expand the variety of products and activities that support a healthy lifestyle. As part of its commitment to improve the consumer's quality of life and based on its perceived responsibility, Strauss acts to provide a response to consumer needs by using the healthiest and best quality alternatives as product ingredients. In 2008 a new, comprehensive health policy was formulated in the framework of the strategic planning of product lines as part of the Company's worldview, which places the consumer at center stage and aspires to provide him with product alternatives that allow him to choose to maintain a healthier lifestyle. To implement and assimilate the new healthy policy, Strauss invested in the development of unique tools and methodologies that will help the Group to develop products that comply with the new policy.

5. Social involvement and investment in the community As part of the Company's commitment to contribute its share towards improving the quality of life in the communities in which it operates and to retaining the trust of their members, a long and flourishing tradition of caring and social involvement was built. Strauss believes in its social responsibility and obligation to act for the development of the communities in which it works and to creating the infrastructure for a healthier, better society. Strauss develops significant, long-term social initiatives and collaborations and includes as many employees as possible in voluntary activities.

On the basis of this concept, a policy for social action was formulated along two main lines: centralized activity by the Group Corporate Center and decentralized activity by the various Company units. This includes the initiation of projects and also financial aid awarded to various nonprofits.

As food is the Group's core business, Strauss donates products nearing the end of their shelf life on a regular basis throughout the year to two large food charities that provide food to dozens of nonprofits and to the needy throughout Israel. Additionally, Strauss donates food products, candy and bakery items on a regular basis to many organizations that support soldiers, youth, children and adults, and to organizations that encourage immigration and women's empowerment.

Strauss views education as a most important way to create and improve opportunities for young people, particularly those of a deprived background. Accordingly, community activities in 2008 included cash donations and scholarships to various educational institutions, with emphasis being placed on the support of women from low socio-economic backgrounds, with the aim of enabling them to acquire an education and develop skills that will help them find sources of income and an


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occupation, allowing them to make a decent living and provide them with opportunities for advancement, independence and personal empowerment. Additionally, Strauss contributes to the advancement of diversity and inclusion in various educational and academic institutes, among other things, in order to increase the options open to new immigrants and minority members to acquire education and enrichment in different areas.

Strauss advocates personal empowerment and self-help, and the ability of every person to take responsibility and act for his own future. Strauss aspires to create platforms to support the means that will help people of weaker backgrounds build their self-confidence and acquire skills that will help them find steady employment, acquire independence and a long-term livelihood. To further this goal Strauss chose to develop a strong partnership with Be'atzmi, a nonprofit organization that is active in changing the occupational map in Israel by advancing and integrating populations with diminished opportunities in the job market.

In 2008 Strauss invested NIS 8.6 million in social involvement, of which NIS 3.4 million was spent on financial support and NIS 5.2 million was donated in the form of food products (at cost price to the Group).

C. Social environmental reporting In 2008 the Group published its first external socio-environmental report, which included detailed information on the Group's social environmental activities. Strauss ascribes great importance to the measurement, reporting and control of its social-environmental performance. The Group's social environmental report for 2008 is to be published at the same time as the Financial Statements for 2008.

ACQUISITION OF COMPANY SHARES

For information on treasury shares and the resolution of October 2002 regarding a framework for the acquisition of Company shares by the Company, see Note 28.3 to the Financial Statements.

DIRECTORS WITH ACCOUNTING AND FINANCIAL SKILLS

In the opinion of the Board of Directors, the directors Dr. Michael Angel, Dr. Dafna Schwartz, Dalia Lev, Akiva Moses, Dr. Arieh Ovadia, Ronit Chaimowitz and Meir Shani possess the required skills.

In the Company’s opinion, a minimum of three directors with the necessary skills are required.

The names of the directors and the particulars for which they are considered directors possessing accounting and financial skills are set forth in the Periodic Report in the section pursuant to Regulation 26.

INDEPENDENT DIRECTORS

The Company has not adopted the provision regarding the percentage of independent directors in its Articles of Association.

Four independent directors (of whom two are outside directors) serve on the Board of Directors of the Company and form over one-third of the members of the Board. For more information on the independent directors, see the notes to the Periodic Report pursuant to Regulation 26.


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AUDITORS' FEES

Following is information on the fees paid to the auditors of the material companies in the Group:

For the year ended December 31, 2008 Audit services, audit-related services and tax services Other services Total NIS NIS NIS Company Auditor '000 Hours '000 Hours '000 Hours Strauss Group and held companies (1) KPMG (Tel Aviv) 2,757 11,721 127 480 2,884 12,201 Strauss Health Ltd. KPMG (Haifa) 505 2,098 8 32 513 2,130 Strauss Marketing Ltd. KPMG (Haifa) 86 356 - - 86 356 Yotvata Dairies of the Strauss Group Ltd. (50%) KPMG (Haifa) 99 472 - - 99 472 Strauss Fresh Foods Ltd. KPMG (Haifa) 244 1,014 3 11 247 1,024 Max Brenner NY JH Cohn 606 545 17 11 623 556 SE USA Inc. JH Cohn 1,220 1,583 81 55 1,301 1,638 Strauss Romania SRL KPMG Romania 874 966 132 107 1,006 1,073 DonCafe International Doo KPMG Bosnia 290 2,110 - - 290 2,110 Strauss Ukraine LLC KPMG Ukraine 196 800 - - 196 800 Strauss Café Poland Sp.z.o.o KPMG Poland 262 677 80 206 342 884 Santa Clara Industria e Comercio Ltda (50%) KPMG Brazil 240 834 - - 240 834 Strauss Coffee BV Mazars & KPMG 2,887 2,667 - - 2,887 2,667 KPMG Switzerland Strauss Commodities AG 202 229 30 35 232 264 Strauss Russia LLC KPMG Russia 346 652 - - 346 652

For the year ended December 31, 2007 Audit services, audit-related services and tax services Other services Total NIS NIS NIS Company Auditor '000 Hours '000 Hours '000 Hours Strauss Group and held companies (1) KPMG (Tel Aviv) 2,170 10,135 587 1,928 2,757 12,063 Strauss Health Ltd. KPMG (Haifa) 391 1,624 53 197 444 1,821 Strauss Marketing Ltd. KPMG (Haifa) 148 616 - - 148 616 Yotvata Dairies of the Strauss Group Ltd. (50%) KPMG (Haifa) 92 472 - - 92 472 Strauss Fresh Foods Ltd. KPMG (Haifa) 157 652 17 71 174 723 Max Brenner NY JH Cohn 588 524 8 17 596 541 SE USA Inc. JH Cohn 1,151 1,021 22 16 1,173 1,037 Strauss Romania SRL KPMG Romania 464 1,350 - - 464 1,350 DonCafe International Doo KPMG Bosnia 91 660 - - 91 660 DonCafe Group Doo KPMG Doo 159 592 - - 159 592 Strauss Ukraine LLC KPMG Ukraine 181 32 - - 181 32 Strauss Café Poland Sp.z.o.o KPMG Poland 407 1,052 - - 407 1,052 Santa Clara Industria e Comercio Ltda (50%) KPMG Brazil 390 1,359 - - 390 1,359 Strauss Coffee BV Mazars 394 483 - - 394 483 KPMG Switzerland Strauss Commodities AG 186 212 - - 186 212 * The figures referring to proportionately consolidated companies are presented according to the Group's share of those companies. (1) The Company receives auditing services together with the following held companies: Yad Mordechai Strauss Apiary Ltd., Strauss Frito-Lay Ltd., Elite Confectionery of Strauss Group Ltd.


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The mechanism for determining the Company auditors' fees is defined according to the nature of the services rendered. Fees for auditing and review services are determined as a global amount. Fees for services accompanying the audit (special approvals, discussions, etc.) are determined according to the number of hours invested. In 2008 the Company received other services from its auditors, which comprised mainly economic consulting.

The mechanism for determining the Company auditors' fees was approved by Company Management. In regard to the held companies, the mechanism for determining the auditors' fees was approved by the local managements of these companies.

Critical Accounting Estimates

For information on critical accounting policy and Management considerations, see Note 40 to the Financial Statements.

MASTER CONTROL OF THE PROCESS OF PREPARING AND APPROVING THE FINANCIAL STATEMENTS

The Company organ responsible for master control is the Finance Committee established by the Board of Directors of the Company. In 2008 there was a change in the members of the committee following the expiry of the statutory term of office of outside directors Yochi Dvir and Israel (Izzy) Tapoohi and the appointment of Dr. Dafna Schwartz and Dr. Michael Angel as outside directors. The members of the Finance Committee are Dalia Lev (Chairperson since September 2008), Ofra Strauss, Dr. Arieh Ovadia, Ronit Haimowitz, Meir Shani and Dr. Michael Angel.

The Board of Directors and its Finance Committee have a series of control processes in place for the Financial Statements before they are approved. These controls include, among others:

o At the beginning of February 2009, during the process of preparing the Financial Statements, a discussion was held on accounting issues, estimates and the accounting policy applied, as well as on the control procedures applied in the preparation of the Financial Statements and the fairness of the disclosure made therein. This discussion was attended by the members of the Finance Committee, the Company VP Finance, Shahar Florenz, the Company Controller, Ariel Sheetrit, representatives of the Company's accounting department and the Company auditors.

o The VP Finance holds regular meetings with the Chairperson of the Finance Committee on matters relating to financial and accounting issues that are relevant to the Company. Before the Financial Statements were approved a number of meetings were held between the VP Finance and the Chairperson of the Finance Committee, CPA Dalia Lev, to discuss material issues that arose during the preparation of the Financial Statements for 2008.

o The Company auditor also holds conversations with the Chairperson of the Finance Committee on subjects that arise during the audit of the Financial Statements. Before the Financial Statements were approved a conversation was held between the Chairperson of the Finance Committee and the Company auditor to discuss material issues that arose during the process of auditing the Financial Statements for 2008.

o Before the Financial Statements are approved the draft Financial Statements are forwarded to the Committee members and the rest of the members of the Board for their inspection.


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o The Financial Statements are presented for discussion by the Board's Finance Committee. In this discussion the VP Finance presents an extensive review of business activities and the Company's business results for the period. The VP Finance also reviews the critical estimates applied and material issues that arose in the process of preparing the Financial Statements. The Company auditor is also present at this meeting. The Financial Statements are presented for further discussion and approval by the Board of Directors.

EVENTS DURING THE REPORTED PERIOD

1. Accounting changes For information on new standards and interpretations not yet adopted, see Note 3.24 to the Financial Statements.

2. Exercise of a put option by the minority in Strauss Fresh Vegetables For information on the closing of the transaction for the exercise of a put option by the minority shareholders in Strauss Health Fresh Vegetables Ltd. and completion of the acquisition of complete control of the company, see Note 5.2 to the Financial Statements.

3. Agreement with PepsiCo For information on the closing of the joint venture transaction with PepsiCo, see Note 5.3 to the Financial Statements.

4. Exercise of options For information on the exercise of share options, see Note 28.2 to the Financial Statements.

5. Grant of options to senior executives For information on the grant of options to five senior managers in March 2008 and to another senior manager in November 2008, see Note 25.3 to the Financial Statements.

6. Agreement with TPG Capital For information on the closing of the engagement in the investment transaction in the Company's subsidiary Strauss Coffee B.V., see Note 5.7 to the Financial Statements.

7. Agreement with the minority shareholders in Elite Coffee For information on the closing of the acquisition of complete ownership of Elite Coffee, see Note 5.4 to the Financial Statements.

8. Agreement with Cosant Enterprises For information on the agreement with Cosant Enterprises for the acquisition of its business in Russia, including instant coffee and R&G brands as well as fixed assets, see Note 5.5 to the Financial Statements.

9. Agreement with DonCafé For information on the agreement with DonCafé for the acquisition of its coffee business in Albania, Kosovo and Macedonia, including the brand, fixed assets, inventory and working capital, see Note 5.6 to the Financial Statements.

10. Agreement for the sale of the holdings in Blue & White Foods LLC For information on the sale of the Company's holdings in Blue & White Foods LLC through a subsidiary in the USA, see Note 5.9 to the Financial Statements.


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11. Legal proceedings - For information on a suit filed on April 8, 2008 and the motion for its recognition as a class action, see Note 26.1.1.8 to the Financial Statements. - For information on a suit filed on June 5, 2008, the motion for its recognition as a class action and the court's instruction of December 4, 2008 for the cancellation of the suit, see Note 26.1.1.9 to the Financial Statements. - For information on the approval of a settlement by the court on June 10, 2008 in a suit against a subsidiary in Serbia, see Note 26.1.2.9 to the Financial Statements. - For information on the cancellation of opposition proceedings to the registration of the trademark "Must" and its registration on July 31, 2008, see Note 26.1.2.5 to the Financial Statements. - For information on the approval of a settlement by the court on August 4, 2008 in a suit and in the motion for its recognition as a class action against the Company, see Note 26.1.1.2 to the Financial Statements. - For information on a demand for the payment of customs duty received by the Company in the course of August 2008, see Note 26.1.2.11 to the Financial Statements. - For information on a suit filed on September 25, 2008 and the motion for its recognition as a class action, see Notes 26.1.1.10 and 42.2 to the Financial Statements. - For information on the court's approval on November 9, 2008 to cancel, at the plaintiff's request, a suit and the motion for its recognition as a class action, see Note 26.1.1.1 to the Financial Statements. - For information on a suit filed on November 19, 2008 and the motion for its recognition as a class action, see Note 26.1.1.11 to the Financial Statements. - The review report refers the reader to Notes 26.1.1.4 and 26.1.1.5 to the Financial Statements regarding a suit for NIS 12.3 billion and NIS 1.33 billion, filed against the Company with the aim of procuring their recognition as a class action.

12. Special meeting of the shareholders of the Company For information on the resolutions adopted in a special meeting of the shareholders of the Company, see information pursuant to Regulations 29 and 29A in the chapter, Additional Information on the Corporation.

13. Changes in the executive team in the Group The Company has given notice of changes in the executive team in the Group whereunder the CEO of Strauss Coffee will terminate office at the end of 2008, the appointment of the VP Finance, commencing November 1, 2008, and the appointment of the Group Controller, commencing April 6, 2008.

14. Investment in H2Q Water Industries For information on the conversion of a loan into shares and an additional investment by the Company, see Note 5.8 to the Financial Statements.

15. Payment of a dividend For information on the payment of a divided declared on September 14, 2008 and paid on October 12, 2008, see Note 28.4 to the Financial Statements.

16. Self acquisition of Debentures issued by the Company For information on the self acquisition of Debentures (Series A and Series B), see Note 20.4 to the Financial Statements.


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POST BALANCE-SHEET DATE EVENTS

On February 11, 2009 the Company announced the appointment of the CEO of Strauss Coffee, whose term of office begins on February 9, 2009.

On February 25, 2009 the Board of Directors of the Company approved acceptance of the notice of the Chairperson of the Board and the CEO of their wish to reduce their salaries by 15%, and acceptance of the notice of the senior officers of the Company of their wish to reduce their salaries by 10%, effective commencing January 1, 2009 through to December 31, 2009. See information pursuant to Regulation 21 in the chapter, Additional Information on the Corporation.

For a review of other post balance-sheet date events, see Note 42 to the Financial Statements.

The Board of Directors and Management express their gratitude and appreciation to the employees and managers of Strauss Group.

Ofra Strauss Erez Vigodman Chairperson of the Board CEO

March 25, 2009


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Strauss Group Ltd.

Financial Statements As at December 31, 2008

WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Financial Statements as at December 31, 2008

Contents

Page

Auditors’ Report 2

Balance Sheets 4

Statements of Income 6

Statements of Changes in Equity 7

Statements of Cash Flows 10

Notes to the Financial Statements 12

WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew

Auditors' Report to the Shareholders of Strauss Group Ltd.

We have audited the accompanying consolidated balance sheets of Strauss Group Ltd. (hereinafter – the Company) as at December 31, 2008 and 2007 and the consolidated statements of income, statements of changes in equity, and consolidated statements of cash flows, for each of the three years, the last of which ended December 31, 2008. 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 audits.

We did not audit the financial statements of certain subsidiaries and companies consolidated by the proportionate consolidation method whose assets constitute 18.2% and 14.7% of the total consolidated assets as at December 31, 2008 and 2007, respectively and whose revenues constitute 6.9% 10.7% and 8% of the total consolidated revenues for the years ended December 31, 2008, 2007 and 2006, respectively.

Furthermore, we did not audit the financial statements of an associate accounted for by the equity method the Company’s share in the earnings of which amounted to NIS 4,377 thousand for the year ended December 31, 2006. The financial statements of those companies were audited by other auditors whose reports thereon were furnished to us. Our opinion, insofar as it relates to amounts emanating from the financial statements of such companies, is based solely on the said reports of the other auditors.

We conducted our audits 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 audits and the reports of the other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and on the reports of the abovementioned other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position as at December 31, 2008 and 2007 and the consolidated results of operations, and the consolidated cash flows for each of the three years, the last of which ended December 31, 2008, in conformity with International Financial Reporting Standards and in accordance with the Securities Regulations (Preparation of Annual Financial Statements) - 1993.

We call attention to that stated in Note 26.1.1.4 and Note 26.1.1.5 regarding claims brought against the Company to have them recognized as class actions.

Somekh Chaikin Certified Public Accountants (Isr.) March 25, 2009

WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Consolidated Balance Sheets

December 31 December 31 2008 2007 Note NIS thousands

Current assets Cash and cash equivalents 6 680,237 489,737 Marketable securities and deposits 7 33,074 59,527 Trade receivables 8 948,600 899,490 Income tax receivables 94,934 *39,462 Receivables and debit balances 9 210,376 *210,824 Inventory 10 813,966 621,134 Assets classified as held for sale - 2,820

Total current assets 2,781,187 2,322,994

Investments and non-current assets Other investments and long-term debit balances 13 105,626 *133,123 Assets designated for the payment of employee benefits, net 24 7,347 6,664 Fixed assets 14 1,229,977 1,218,491 Intangible assets 15 1,226,275 *1,223,127 Deferred expenses 54,647 *54,601 Investment property 16 20,869 18,420 Deferred tax assets 37 9,230 *11,020

Total investments and non-current assets 2,653,971 2,665,446

5,435,158 4,988,440

Ofra Strauss Erez Vigodman Shahar Florence Chairwoman of the Board of Directors Chief Executive Officer Chief Financial Officer

Date of approval of the financial statements: March 25, 2009

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

4 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Consolidated Balance Sheets (cont'd)

December 31 December 31 2008 2007 Note NIS thousands

Current liabilities Short-term loans and credit 20,21 313,899 319,417 Trade payables 17 757,504 *722,867 Income tax payables 52,596 *47,219 Other payables and credit balances 18 433,755 *618,434 Provisions 19 26,715 *32,255

Total current liabilities 1,584,469 1,740,192

Non-current liabilities Long-term loans and credit 20,22 988,026 1,089,990 Long-term payables and credit balances 23 39,634 *43,055 Employee benefits, net 24 22,668 22,146 Deferred tax liabilities 37 102,017 *125,264

Total non-current liabilities 1,152,345 1,280,455

Equity and reserves 28 Share capital 242,121 241,660 Share premium 622,279 600,468 Translation reserve (174,494) 59,908 Treasury shares (19,845) (19,845) Reserve in respect of available for sale financial assets - 1,152 Retained earnings 1,170,508 882,966

Total equity attributable to the Company’s shareholders 1,840,569 1,766,309 Minority interest 857,775 201,484 Total equity 2,698,344 1,967,793 5,435,158 4,988,440

* Reclassified (see Note 3.23).

5 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Consolidated Statements of Income

For the year ended December 31 2008 2007 2006 Note NIS thousands

Sales 31 6,245,875 5,960,947 5,155,787 Cost of sales: Valuation of balance of commodities hedging transactions as at end of year 9,621 5,022 302 Other costs 32 3,959,746 3,720,974 3,210,821 Total cost of sales 3,969,367 3,725,996 3,211,123

Gross profit 2,276,508 2,234,951 1,944,664

Selling and marketing expenses: Doubtful debts income – Clubmarket - (3,390) - Other selling and marketing expenses 1,426,775 1,380,158 1,212,969 Total selling and marketing expenses 33 1,426,775 1,376,768 1,212,969 General and administrative expenses 34 369,421 359,191 315,556

1,796,196 1,735,959 1,528,525 Operating profit before other income (expenses) 480,312 498,992 416,139

Other income 294,593 *3,821 181,832 Other expenses 86,268 21,909 28,006

Other income (expenses), net 35 208,325 (18,088) 153,826

Operating profit 688,637 480,904 569,965

Financing income 75,443 *46,617 36,206 Financing expenses (147,484) (124,153) (80,428) Financing expenses, net 36 (72,041) (77,536) (44,222)

Company’s share in income of associate 11 - - 4,377

Income before taxes on income 616,596 403,368 530,120

Taxes on income 37 (109,263) (110,557) (143,757)

Income for the period 507,333 292,811 386,363

Attributable to: The Company’s shareholders 461,493 247,822 346,922 Minority interest 45,840 44,989 39,441

Income for the period 507,333 292,811 386,363

Earnings per share 38 Basic earnings per share (in NIS) 4.38 2.36 3.34 Diluted earnings per share (in NIS) 4.37 2.36 3.32 * Reclassified (see Note 3.23.6). The accompanying notes are an integral part of the financial statements.

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Statements of Changes in Equity

Minority Total Attributable to the Company’s shareholders interest equity Reserve in respect of available for sale Share Share Translation Treasury financial Retained capital premium reserve shares assets earnings Total NIS thousands

Balance as at January 1, 2008 241,660 600,468 59,908 (19,845) 1,152 882,966 1,766,309 201,484 1,967,793

Changes in 2008: Income for the period - - - - - 461,493 461,493 45,840 507,333 Changes in fair value of available for sale financial assets - - - - (2,346) - (2,346) (3,519) (5,865) Net changes in fair value of available for sale financial Assets transferred to the statement of income - - - - 1,194 - 1,194 1,791 2,985 Foreign currency translation differences - - (276,459) - - - (276,459) (24,186) (300,645) Realization of translation reserve (Notes 5.3, 5.7, 5.9) - - 42,057 - - - 42,057 - 42,057 Total recognized income for the period 225,939 19,926 245,865

Exercise of employee share options 44 - - - - - 44 - 44 Exercise of share options (Series 1) (Note 28.2) 417 21,811 - - - - 22,228 - 22,228 Share-based payment - - - - - 26,000 26,000 - 26,000 Share based payment in subsidiary ------351 351 Dividend paid - - - - - (199,951) (199,951) - (199,951) Dividend paid to the minority in subsidiary ------(31,979) (31,979) Investment in subsidiary (Note 5.8) ------6,520 6,520 Benefit in respect of capital notes to minority in subsidiary ------(434) (434) Issuance of share option to minority (Note 5.7) ------36,448 36,448 Issuance of shares to minority in subsidiary (Note 5.7) ------625,459 625,459

Balance as at December 31, 2008 242,121 622,279 (174,494) (19,845) - 1,170,508 1,840,569 857,775 2,698,344

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

7 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Statements of Changes in Equity (cont’d)

Minority Total Attributable to the Company’s shareholders interest equity Reserve in respect of available for sale Share Share Translation Treasury financial Retained capital premium reserve shares assets earnings Total NIS thousands

Balance as at January 1, 2007 241,515 600,468 7,009 (19,845 ) - 623,526 1,452,673 202,512 1,655,185

Changes in 2007:

Income for the period - - - - - 247,822 247,822 44,989 292,811

Changes in fair value of available for sale financial assets, net - - - - 1,152 - 1,152 1,756 2,908

Foreign currency translation differences - - 52,899 - - - 52,899 - 52,899

Total recognized income for the period 301,873 46,745 348,618

Share-based payment - - - - - 11,618 11,618 - 11,618

Exercise of employee share options 145 - - - - - 145 - 145

Benefit in respect of capital notes to minority in subsidiary ------(728) (728)

Dividend paid to the minority in subsidiary ------(47,045) (47,045)

Balance as at December 31, 2007 241,660 600,468 59,908 (19,845) 1,152 882,966 1,766,309 201,484 1,967,793

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

8 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Statements of Changes in Equity (cont'd)

Minority Total Attributable to the Company’s shareholders interest equity Loan to purchase Share Share Translation Treasury Company Retained capital premium reserve shares shares earnings Total NIS thousands

Balance as at January 1, 2006 241,343 552,588 (25,861 ) (19,845) (13,126) 461,220 1,196,319 173,514 1,369,833

Changes in 2006:

Income for the period - - - - - 346,922 346,922 39,441 386,363

Foreign currency translation differences - - 32,870 - - - 32,870 - 32,870

Total recognized income for the period 379,792 39,441 419,233

Share-based payment - - - - - 15,436 15,436 - 15,436

Exercise of employee share options, net of tax effect 172 2,265 - - - - 2,437 - 2,437

Option warrants - 45,380 - - - - 45,380 - 45,380

Repayment of loans by employees - - - - 13,467 - 13,467 - 13,467

Interest accrued on loans to interested party and other employees net of tax effect - 235 - - (341) - (106) - (106)

Dividend paid to the Company's shareholders - - - - - (200,052) (200,052) - (200,052)

Dividend paid to the minority in subsidiary ------(10,443) (10,443)

Balance as at December 31, 2006 241,515 600,468 7,009 (19,845) - 623,526 1,452,673 202,512 1,655,185

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

9 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Consolidated Statements of Cash Flows

For the year ended December 31 2008 2007 2006 Note NIS thousands

Cash flows from operating activities Income for the period 507,333 292,811 386,363 Adjustments: Depreciation 159,811 159,986 146,201 Amortization of intangible assets and deferred expenses 36,316 31,840 21,315 Impairment provision fixed and intangible assets 56,706 2,650 - Other expenses (income), net 6,093 4,332 (177,262 ) Share in income of associates - - (4,377 ) Expenses in respect of share-based payment 26,226 12,218 15,436 Gain from disposal and partial disposal of subsidiaries 5.3,5.7,5.9 (276,844) - - Financing expenses, net 72,041 *77,536 44,222 Income tax expense 109,263 110,557 143,757

Change in inventory (250,984) (85,047) (21,863) Change in trade and other receivables (169,211) *(34,171) (5,793) Change in long-term trade receivables 4,286 (12,218) (11,797) Change in trade and other payables 157,216 *65,289 91,528 Change in provisions and employee benefits 452 1,357 7,939

Interest paid (74,407) (61,186) (57,485) Interest received 19,621 31,898 22,655 Income tax paid, net (155,123) *(89,546) 205,884

Net cash flows from operating activities 228,795 508,306 394,955

Cash flows from investing activities Sale (purchase) of marketable securities, net 23,036 (17,026) 32,491 Proceeds from sale of fixed and intangible assets 12,887 104,865 146,290 Sale of subsidiary and transition to jointly controlled Company 5.3 (1,571) - - Disposal of subsidiary 5.9 (2,485) - - Receipt (refund) on account of sale of real estate - - (4,190 ) Acquisition of subsidiaries and operations, net of cash acquired 5.5,5.6 (403,802) (14,927) (26,712) Purchase of minority interests 5.4 (3,326) - - Investment in associate - - (1,455) Repayment of loan to associate - - 4,539 Acquisition of fixed assets (268,443) (290,704) (173,340) Investment in long-term deposits - (15,025) - Investment grants received 348 8,304 1,473 Investment in intangible assets and deferred expenses (31,632) (53,990) (64,770) Repayment of deposits and long-term loans granted 33,631 19,160 22,250 Long-term loans granted (23,276) (16,633) (11,186) Payments to creditors in respect of acquisition of operation on credit - - (2,151 ) Repayment of capital note - - (18,868) Net cash flows used in continuing investing activities (664,633) (275,976) (95,629) Net cash flows from discontinued investing Activities - - 2,207 Net cash flows used in investing activities (664,633) (275,976) (93,422)

* Reclassified (see Note 3.23)

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

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Consolidated Statements of Cash Flows (cont'd)

For the year ended December 31 2008 2007 2006 Note NIS thousands

Cash flows from financing activities Short-term bank credit, net 26,822 (361,925) 110,248 Receipt of long-term loans 46,653 19,071 15,415 Repayment of long-term loans and debentures (137,202) (245,468) (162,012) Early repayment of debentures 20.4 (28,313) - - Issuance of shares in subsidiary 5.7 966,235 - - Issuance of debentures, net - 768,500 - Proceeds from exercise of share options 22,272 145 172 Issuance costs - - (12,077 ) Repayment of capital note (24,012) - - Repayment of liability to purchase minority interests 5.2 (28,796) - - Repayment of loans by employees - - 13,467 Dividends paid (199,951) - (272,363 ) Dividend paid to minority in subsidiary (31,450) (47,045) (10,443) Payments to creditors in respect of acquisition of operation on credit - (2,508) - Net cash flows from (used in) financing activities 612,258 130,770 (317,593)

Net increase (decrease) in cash and cash equivalents 176,420 363,100 (16,060) Cash and cash equivalents as at January 1 489,737 129,096 148,772 Effect of exchange rate fluctuations on cash balances 14,080 (2,459) (3,616)

Cash and cash equivalents as at December 31 680,237 489,737 129,096

For investing and financing activities not involving cash flows see: - Note 14.6 with respect to purchase of fixed assets on credit

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

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Notes to the Consolidated Financial Statements

Note 1 - General

The reporting entity, Strauss Group Ltd (hereinafter: “the Company” or “Strauss Group”) is an Israeli resident company. The address of the Company's registered office is 49 Hasivim St. Petach Tikva.

The Company and its subsidiaries are a group of industrial and commercial companies, which operates in Israel and abroad, in developing, manufacturing, marketing and selling a broad variety of branded food products and beverages.

The controlling shareholder of the Company is Strauss Holdings Ltd. (hereinafter: "the Parent Company" or “Strauss Holdings”).

The consolidated financial statements of the Company as at and for the year ended December 31, 2008 comprise the Company and its subsidiaries and the Group’s interest in associates and jointly controlled companies.

Definitions

1.1 The financial statements – The consolidated financial statements for December 31, 2008.

1.2 The Group – The Company and its subsidiaries.

1.3 Investee companies – Subsidiaries, jointly controlled companies and associates.

1.4 Other companies – Companies that are not investee companies.

1.5 Interested parties – Within their meaning in paragraph (1) of the definition of an “Interested Party” in a corporation in Section 1 of the Securities Law - 1968.

1.6 Related parties – As defined in International Accounting Standard (IAS) No. 24.

1.7 Controlling parties – As defined in International Accounting Standard (IAS) No. 27.

1.8 CPI – The Consumer Price Index as published by the Central Bureau of Statistics of Israel.

Note 2 - Basis of Preparation

2.1 Statement of compliance with International Financial Reporting Standards

The consolidated financial statements were prepared in accordance with International Financial Reporting Standards (IFRS). The Company adopted IFRS for the first time in 2005 with the transition date to IFRS being January 1, 2003 (hereinafter: “the transition date”). Furthermore, the financial statements have been prepared in accordance with the Securities Regulations (Preparation of Annual Financial Statements) - 1993.

2.2 Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis except for the following items:

• Derivative financial instruments measured at fair value. • Financial instruments measured at fair value through profit or loss. • Available-for-sale financial instruments are measured at fair value. • Liabilities for cash-settled share-based payment arrangements are measured at fair value. • Non-current assets held for sale are measured at the lower of carrying amount and fair value less costs to sell.

The methods by which fair value is measured are described in Note 4. 12 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 2 - Basis of Preparation (cont’d)

2.3 Functional and presentation currency (cont'd)

The consolidated financial statements are presented in NIS, which is the functional currency of the Company, and have been rounded to the nearest thousand.

2.4 Use of estimates and judgments

The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the amounts of assets, liabilities, income and expenses. The estimates and their relevant assumptions are based on past experience and on other factors management considers reasonable under the circumstances. Actual results may differ from the estimates that were made.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future period affected. The judgments made by management when implementing IFRS and determining the estimates are discussed in Note 40.

Note 3 - Significant Accounting Policies

The accounting policies set out below have been applied consistently to all periods presented in the consolidated financial statements, and have been applied consistently by all Group companies.

Certain comparative figures have been reclassified so that they may correspond with the presentation in the current period, see Note 3.23.

With respect to the initial implementation in the current period of accounting standards or their amendments, see Note 3.12.2.

3.1 Basis of consolidation

3.1.1 Subsidiaries

Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are exercisable immediately are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

3.1.2 Business combinations under common control

The acquisition of rights in entities controlled by the parent company is accounted for as a transaction with the controlling shareholder. Accordingly, the assets and liabilities acquired are recognized at the carrying amounts recognized previously in the parent company’s consolidated financial statements. The difference between the amount paid and the assets and liabilities acquired is recorded as a premium.

3.1.3 Associates

Associates are entities in which the Group has significant influence, but not control, over the financial and operating policies. Associates are accounted for using the equity method and are recognized initially at cost (equity accounted investees). The consolidated financial statements include the Group’s share in the income and expenses of equity accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases.

3.1.4 Jointly controlled companies

Jointly controlled companies are entities over whose activities the Group has joint control, established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions. Jointly controlled companies are accounted for using the proportionate consolidation method. Accordingly, the consolidated financial statements include the proportionate part of the asset, liability, income and 13 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

revenue items of jointly controlled companies according to the rates of holding therein.

14 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 3 - Significant Accounting Policies (cont’d)

3.1 Basis of consolidation (cont’d)

3.1.5 Transactions eliminated on consolidation

Intra-group balances, and any unrealized income and expenses arising from intra-group transactions, are eliminated in the framework of preparing the consolidated financial statements. Unrealized gains arising from transactions with associates are eliminated against the investment according to the Group’s interest in these investments. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.

3.2 Foreign currency

3.2.1 Foreign currency transactions

Transactions in foreign currency are translated into the functional currency of the Company according to the exchange rate in effect on the date of the transaction. Exchange rate differences arising upon the settlement of monetary items or upon reporting monetary items at exchange rates different from that by which they were initially recorded during the period, or reported in previous financial statements, are charged to specific income or expense items according to the nature of the monetary item (exchange rate differences in respect of trade receivables are recognized in revenues, exchange rate differences in respect of trade payables are recognized in the cost of sales, exchange rate differences in respect of foreign currency loans are recognized in financing costs, etc.).

3.2.2 Foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated into NIS according to exchange rates in effect as at balance sheet date. The income and expenses of foreign operations are translated into NIS according to the exchange rate in effect on the date of the transaction. For this purpose, assets and liabilities of foreign operations include loans between the Group companies the settlement of which is neither planned nor likely in the foreseeable future.

Exchange rate differences in respect of the translation that were created as from January 1, 2003 (the transition date) were recognized directly under a translation reserve as a separate item of equity. When the foreign operation is disposed of, in part or in full, the relevant amount in the translation reserve is transferred to the statement of income and classified as part of the capital gain from disposal of the operation.

3.3 Financial instruments

3.3.1 Non-derivative financial instruments

Non-derivative financial instruments include investments in shares and debentures, deposits, trade and other receivables, cash and cash equivalents, loans and credit received, and trade and other payables.

Non-derivative financial instruments are recognized initially at fair value plus any directly attributable transaction costs. The transaction costs of instruments measured at fair value through profit or loss are recognized as income or expense as described below. Subsequent to initial recognition non-derivative financial instruments are measured as described below.

A financial instrument 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 Group 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 Group 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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Notes to the Consolidated Financial Statements

Note 3 - Significant Accounting Policies (cont’d)

3.3 Financial instruments (cont’d)

3.3.1 Non-derivative financial instruments (cont’d)

Cash and cash equivalents Cash and cash equivalents comprise cash balances and deposits that can be withdrawn immediately. Furthermore, cash equivalents comprise short-term highly liquid investments having an original maturity of up to three months.

Available-for-sale financial assets The Group’s investments in certain shares are classified as available-for-sale financial assets. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses, are recognized directly in equity. When an investment is derecognized, the cumulative gain or loss in equity is recognized as income or expense.

Amounts recognized in profit or loss in respect of available-for-sale securities (including a loss from securities and income from dividends) are recognized as other income or expenses since the Company’s investments in these securities are strategic investments.

Investments at fair value through profit or loss An instrument is classified at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Financial instruments are designated at fair value through profit or loss if the Group manages such investments and makes purchase and sale decisions based on their fair value. Upon initial recognition, attributable transaction costs are recognized in profit or loss when incurred. Financial instruments at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss.

Loans and receivables Loans and receivables are non-derivative financial assets, including trade and other receivables, with fixed or determinable payments. The loans and receivables are measured at amortized cost using the effective interest method less any impairment losses (see Note 3.10.2).

Non-current receivables are stated at their present value. The interest rate used in order to calculate the present value is composed of the time value of the receivable according to the currency of the debt, plus the specific risk component of each customer. Income in respect of interest is recorded over the period of the debt as financing income.

3.3.2 Derivative financial instruments

Derivatives

The Group holds derivative financial instruments to economically hedge against risks relating to prices of commodities and against foreign currency risks arising from its operating, financing and investing activities. The derivative financial instruments are comprised mainly of forward transactions and options on currencies and of forward transactions and options on commodities. Derivatives not considered accounting hedges are accounted for as financial assets and are presented at fair value through profit and loss as follows:

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 recognized immediately in profit or loss (gains and losses on commodity forward transactions are presented under cost of sales whereas other gains and losses are presented under financing costs).

The Group held call options for the purchase of rights in other investments. Subsequent to initial recognition these options are measured at fair value, with the changes therein being recognized in profit or loss.

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Notes to the Consolidated Financial Statements

Note 3 - Significant Accounting Policies (cont’d)

3.3 Financial instruments (cont’d)

3.3.2 Derivative financial instruments (cont’d)

Embedded derivatives

Embedded derivatives are separated from the host contract and accounted for separately if: (a) the economic characteristics and risks of the host contract and the embedded derivatives are not closely related, (b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and (c) the combined instrument is not measured at fair value through profit or loss.

Embedded derivatives that can be separated are recognized initially at fair value. Changes in the fair value of these derivatives are immediately recognized in profit or loss.

3.3.3 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.

3.3.4 Share capital

Ordinary shares Incremental costs directly attributable to the issuance of ordinary shares and share options are recognized as a deduction from equity.

Treasury shares When share capital recognized as equity is repurchased by the Group, the amount of the consideration paid, which includes directly attributable costs, is recognized as a deduction from equity. Repurchased shares are classified as treasury shares and are presented as a deduction from total equity.

3.3.5 Issuance of parcel of securities

(1) The consideration received from the issuance of the parcel was attributed to the various components of the parcel as described in Note 20.2.

(2) Issuance costs of a parcel of securities are attributed to each of the issued securities according to the proportion of the issuance proceeds, other than identified expenses that are specifically attributed.

3.3.6 Loans to purchase Company shares

Interest-bearing loans to purchase Company shares, in which the Company has right of recourse only to shares related to the loans and interest payments, are stated as a deduction from equity and not as a financial asset (see Note 3.12.4 regarding such loans that were granted to employees).

3.3.7 Receipts in respect of option warrants, net

Option warrants issued to investors with an exercise price linked to the CPI are classified as financial liabilities since the exercise price is not fixed. Issuance expenses attributable to the option warrants are immediately recognized as income or expense. Option warrants having a nominal exercise price are classified as equity since the exercise price is fixed. See Note 28.2.

3.3.8 Put options granted to minority shareholders

The Group granted to the minority shareholders put options, which enable them to sell their investments in the Group. The liability to purchase the rights of the minority is presented in the consolidated balance sheet as a financial liability. This financial liability is measured according to the present value of the option’s exercise price except when the option can be exercised immediately. The difference between the financial liability and the carrying amount of the minority interest is presented as additional goodwill.

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Notes to the Consolidated Financial Statements

Note 3 - Significant Accounting Policies (cont’d)

3.3 Financial instruments (cont’d)

3.3.8 Put options granted to minority shareholders (cont’d)

Adjustment of the financial liability in respect of the time value is included in financing expenses, whereas adjustment of the financial liability in respect of changes in forecasts regarding the exercise price of the option are included in goodwill, similar to the method of accounting for a contingent consideration. Dividends distributed to the minority are included as a financing expense in this case.

In the case of granting mutual options at similar terms – a put option to the minority and a call option to the Group – that are not settled by equity instruments, the options are accounted for in the same manner as a forward contract for the purchase of additional investments in the group.

3.4 Fixed assets

Recognition and measurement Fixed asset items are measured at cost less investment grants, accumulated depreciation (see below) and impairment losses (see Note 3.10.1). The cost of self-constructed assets includes the costs of materials and direct labor.

Government grants Government grants related to fixed asset items are presented as a deduction from such items.

Spare parts and tools Spare parts and tools are presented as fixed assets as they are mostly not intended for current consumption during the forthcoming year. The cost of spare parts and tools is determined according to the moving average method.

Subsequent costs Improvements and enhancements are added to the cost of the assets if it is probable that the future economic benefits embodied in the improvement will flow to the Group and its cost can be measured reliably. The costs of day-to-day servicing are recognized in profit or loss as incurred.

Leasehold improvements The costs of leasehold improvements, including the construction costs of the Company’s central distribution warehouse on leased property, which will be returned to the lessor’s ownership at the end of the rental period, are presented as fixed assets and amortized over the rental period on a straight-line basis.

Depreciation Depreciation is recognized as an expense on a straight-line basis over the estimated useful lives of each part of a fixed asset item, other than land that is not depreciated, and other than that specified hereunder.

The principal depreciation rates for the years 2006-2008 are as follows: %

Buildings 2.5-5 (2006-2007: 4-5) Machinery, equipment 6.67-10 Motor vehicles 15-20 Airplane 10 (Only the body of the airplane. The engine is depreciated according to the actual number of flight hours compared to the expected number of hours) Furniture and other equipment 6.67-33 Leasehold improvements 20 (Over the shorter of the lease period or the estimated useful life of the asset)

Depreciation methods, useful lives and residual values are reviewed on every balance sheet date.

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Notes to the Consolidated Financial Statements

Note 3 - Significant Accounting Policies (cont’d)

3.5 Intangible assets

3.5.1 Goodwill

Goodwill arises on the acquisition of subsidiaries, associates and joint ventures.

Acquisitions prior to January 1, 2003 As part of its transition to IFRS, the Group elected to restate only those business combinations that occurred on or after January 1, 2003. In respect of acquisitions prior to January 1, 2003, goodwill represents the amount recognized by the Group under Israeli generally accepted accounting principles. In respect of these acquisitions, the accounting classification and treatment were not adjusted to IFRS for purposes of preparing the Group’s opening balance.

Acquisitions on or after January 1, 2003 For acquisitions on or after January 1, 2003, goodwill represents the excess of the cost of the acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree. When the excess is negative (negative goodwill) it is recognized immediately in the statement of income.

Acquisition of minority interests The difference between the amount paid and the minority interests acquired is recognized as goodwill.

See Note 3.3.8 regarding goodwill that was recorded as a result of granting a put option to the minority shareholders.

Subsequent measurement Goodwill is measured at cost less accumulated impairment losses. Goodwill in respect of investments in associates is included in the carrying amount of the investment.

3.5.2 Software for self-use

The development costs of software for self-use are capitalized only if the development costs can be reliably measured, the product is technically feasible, future economic benefits from the product are probable and the Group intends to and has sufficient resources to complete development and to use the asset.

Capitalized costs include the costs of direct labor and other direct expenses that were accumulated until the date the software is completed.

3.5.3 Other intangible assets

Other intangible assets include brands, professional know-how, customer contacts and non-competition agreements that were acquired. See Note 4 regarding measurement of these assets on acquisition.

3.5.4 Subsequent expenses

Subsequent expenses are costs that were incurred after the recognition of the intangible asset for the purpose of adding to the asset, replacing a part of it or for its maintenance. Subsequent expenses are capitalized only when they increase the future economic benefits embodied in the specific asset to which they relate. All other expenses, including expenses on internally generated goodwill and brands, are recognized in the statement of income when incurred.

19 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 3 - Significant Accounting Policies (cont’d)

3.5 Intangible assets (cont’d)

3.5.5 Amortization

Intangible assets having a finite useful life are measured at cost net of accumulated amortization and impairment losses. Amortization is recognized as an expense on a straight-line basis over the estimated useful lives of the intangible assets from the date they are available for use.

The annual rates of amortization for the years 2006-2008 are as follows: %

Brands 10-12.5 Other 10-20 Computer software 10-33 (mainly 25)

Goodwill and assets having an indefinite useful life are not amortized. Intangible assets that are not amortized include certain brands and trademarks.

3.5.6 See Note 3.10.1 hereunder regarding impairment.

3.6 Deferred expenses

This item includes prepaid expenses in respect of long-term leases of land from the Israel Lands Administration. These prepaid expenses are amortized over the lease period (49-98 years) on a straight-line basis. Furthermore, this item includes deferred expenses in respect of installment sales of coffee machines (see Note 3.14.1.3). The amortization rates of deferred expenses are 7%-20%.

3.7 Investment property

Investment property is property that in the past was used in current operations and is now held either to earn rental income or for capital appreciation or for both. Investment property is measured at cost less accumulated depreciation and impairment losses.

The principal depreciation rates are as follows:

%

Buildings 2.5 (Most of the buildings included in the investment property assets have been fully depreciated) Land -

3.8 Leased assets

Leases in which the Group assumed substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.

Other leases are classified as operating leases and the leased assets are not recognized on the Group’s balance sheet.

Prepayments to the Israel Lands Administration in respect of leased lands are presented as deferred expenses (see Note 3.6).

3.9 Inventory

Inventory is measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary

20 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

to make the sale.

21 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 3 - Significant Accounting Policies (cont’d)

3.9 Inventory (cont’d)

Cost is determined as follows:

Raw materials and packaging materials – At cost on the basis of the moving average method. Work in process – At calculated cost. Finished goods – At calculated cost. Merchandise – By the "first-in, first-out" method.

3.10 Impairment

3.10.1 Non-financial assets

The carrying amounts of the Group’s non-financial assets (other than inventory and deferred tax assets – see accounting policy 3.9 and 3.18) are examined on each balance sheet date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefinite useful lives, the Group estimates the recoverable amount at least once a year. An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that largely are independent from other assets and groups.

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. Each unit or group of units to which the goodwill is allocated represents the lowest level within the Group at which the goodwill is monitored for internal management purposes and does not exceed the level of an operating segment.

Impairment losses are recognized in the statement of income in accordance with the nature of the item that has been impaired. 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 amount of the other assets in the unit on a pro rata basis.

(1) Calculation of the recoverable amount

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, which reflects current market assessments of the time value of money and the risks specific to the asset.

(2) Reversal of impairment

Impairment losses in respect of goodwill in subsidiaries and jointly controlled companies are not reversed. As regards other assets, impairment losses recognized in previous periods are reexamined every reporting period in order to determine whether there are any indications that the losses have decreased or no longer exist. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount, but only if the asset’s carrying amount after the reversal of the impairment loss does not exceed the carrying amount net of depreciation or amortization, that would have been determined if no impairment loss had been recognized. Reversals of impairment losses are included in the statement of income.

3.10.2 Trade and other receivables

Trade and other receivables measured at amortized cost are 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.

The provisions for doubtful debts adequately reflect in the opinion of Management the loss included in those debts the collection of which is doubtful. Management's determination of the adequacy of the provision is based, inter alia, on an evaluation of the risk, by considering the available information on the financial position of the debtors, the volume of their business and an evaluation of the security received from them. Doubtful debts, which according to Company management opinion are unlikely to be collected, are written-off the Company’s books.

22 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 3 - Significant Accounting Policies (cont’d)

3.10 Impairment (cont’d)

3.10.2 Trade and other receivables (cont’d)

An impairment loss in respect of the trade and other receivables’ balance 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 trade receivable balances are tested for impairment on an individual basis. The remaining trade receivables are assessed collectively in groups that share similar credit risk characteristics.

All impairment losses are recognized in the statement of income.

An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognized. For financial assets measured at amortized cost the reversal is recognized in the statement of income.

3.10.3 Available for sale financial assets

When testing for impairment available-for-sale financial assets that are equity instruments, the Company also examines the difference between the fair value of the asset and its original cost while taking into consideration the standard deviation of the instrument’s price, the length of time the fair value of the asset is lower than its original cost and changes in the technological, economic or legal environment or in the market environment in which the issuer of the instrument operates. An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its fair value.

An impairment loss of available-for-sale financial instruments is recognized as an other expense in accordance with the Company’s accounting policy (see Note 3.3.1).

3.11 Non-current assets held for sale

Non-current assets that are expected to be recovered within one year primarily through sale rather than through continuing use are classified as assets held for sale under current assets. Immediately before classification as held for sale, the assets are remeasured in accordance with the Group’s accounting policies. Thereafter the assets are measured at the lower of their carrying amount and fair value less cost to sell. Assets held for sale are not systematically depreciated.

Impairment losses on initial classification as held for sale and subsequent gains or losses on remeasurement are recognized in profit or loss. Gains are recognized up to the amount of any cumulative impairment loss.

3.12 Employee benefits

3.12.1 Defined contribution plans

Obligations for contributions to defined contribution pension plans are recognized as an expense in profit or loss when they are due.

3.12.2 Defined benefit plans

The Group’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value, and the fair value of any plan assets is deducted. The discount rate is the yield at the reporting date on Government debentures denominated in the same currency, that have maturity dates approximating the terms of the Group’s obligations. The net obligations of the Group also include unrecognized actuarial gains and losses (see hereunder). The calculation is performed by a qualified actuary using the projected unit credit method.

Note 3 - Significant Accounting Policies (cont’d) 23 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

3.12 Employee benefits (cont’d)

3.12.2 Defined benefit plans (cont’d)

As at January 1, 2003, the transition date, the Group has recognized all the actuarial gains and losses. Actuarial gains and losses created after January 1, 2003 in amounts exceeding the higher of 10% of the value of the plan’s assets and 10% of the defined benefit obligation are included in the statement of income over the average remaining period of employment of the employees. The rest of the actuarial gains and losses are deferred.

When the calculation results in a benefit to the Group, the recognized asset is limited to the net total of any unrecognized actuarial losses and past service costs and the present value of any future economic benefits from the plan or reductions in future contributions to the plan.

In the reported period the Company initially implemented IFRIC 14, The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. The interpretation provides rules for the calculation of the limit. The implementation of the interpretation did not have an effect on the financial statements of the Company.

3.12.3 Paid vacation and employee vacation allowance

In accordance with the law in Israel, every employee is entitled to a paid vacation and to an employee vacation allowance that are calculated on an annual basis. The eligibility is based on the period of employment.

The Group recognizes the liability and the expense for the payment of vacation and employee vacation allowance according to the eligibility of each employee.

3.12.4 Share-based payment transactions

The Company recognizes as a salary expense, with a corresponding increase in retained earnings, the benefit created upon granting share options to employees and non-recourse loans to purchase its shares, in accordance with the grant date fair value of the options on the basis of the Black & Scholes model.

According to this policy, the expense is recognized over the vesting period of the share options based on the Company’s estimates regarding the number of options that are expected to vest. The Company has implemented IFRIC 11, by which it records salary expenses also in respect of share options granted to the employees by the parent company.

A share-based payment that can be settled in cash at the choice of the holder, is initially measured on the grant date and on every reporting date until its settlement, according to the fair value of the benefit, parallel to recording a liability. The fair value of the benefit is calculated according to the Company’s forecasts regarding the redemption value of the liability. Changes in this fair value are included in the statement of income.

3.12.5 Termination benefits

Termination expenses are recognized as an expense when the Group is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment before the normal retirement date.

3.13 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. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.

24 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 3 - Significant Accounting Policies (cont’d)

3.13 Provisions (cont’d)

When it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, disclosure is provided of a contingent liability, except when the outflow of economic benefits is remote. When the existence of an obligation will be confirmed only by the occurrence or non- occurrence of one or more future events, disclosure is provided of a contingent liability, except when the outflow of economic benefits is remote.

A provision for restructuring is recognized when the Group has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly. Future operating costs are not included in the provision for restructuring

3.14 Revenue

3.14.1 Products sold

3.14.1.1 Goods sold Revenue from the sales of goods is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. 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.

3.14.1.2 Sales on long-term credit are recorded according to the present value of the consideration. See Note 3.3.1 with respect to the interest rate used to calculate the present value of loans and receivables.

3.14.1.3 Installment sales of coffee machines Revenue from installment sales of coffee machines, in which the Company supplies additional goods and services over the period of the contract, is deferred and recognized over the period of the contract, concurrently with recognizing the cost of the machines. Financing income from these transactions is recognized over the period of the contract under financing income.

3.14.2 Customer discounts

Customer discounts are deducted from revenue on a cumulative basis when the terms and conditions entitling the customer to a discount are created, on the basis of a total annual volume of orders or sales campaigns that are held by the Group.

3.14.3 Participation in expenses

Revenues from the participation in expenses of related and other companies are recorded on an accrual basis according to specific agreements with the companies, and are included in the relevant expense items.

3.15 Government grants

Government grants that compensate the Group for expenses incurred are recognized in the statement of income 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 deduction from the relevant assets, as mentioned in Note 3.4 above.

A forgivable loan received from the Government is accounted for as a Government grant only when it is reasonably certain that the Group will fulfill the conditions required for the forgiving of the loan.

Loans received from the Government at below-market rates are measured initially at the present value of the future principal and interest payments. Any difference between the present value and the amount of the loan that was received is accounted for as a government grant.

25 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 3 - Significant Accounting Policies (cont’d)

3.16 Lease payments

3.16.1 Operating lease payments

Minimum lease payments made under operating leases are recognized in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognized as an integral part of the total lease expense on a straight-line basis, over the term of the lease.

3.16.2 Financing lease payments

Minimum lease payments made under finance leases are apportioned between the financing expense and the reduction of the outstanding liability. The financing expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed.

3.17 Financing income and expenses

Financing income comprises interest income on funds invested, dividend income from other companies, net gains on changes in the fair value of financial assets at fair value through profit or loss, net foreign currency gains, and gains on derivative instruments that are recognized in the statement of income. Interest income is recognized as it accrues, using the effective interest method. Dividend income is recognized on the date the Group’s right to receive payment is established, which in the case of quoted securities is the ex-dividend date.

The net gain from changes in the fair value of financial assets at fair value through profit or loss includes also income from the interest and dividends deriving from such assets.

Financing expenses comprise interest expenses on loans received, changes in the time value of a liability in respect of a put option to the minority, dividends paid to the minority holding a put option, net losses from changes in the fair value of financial assets at fair value through profit or loss, net foreign currency losses, financing expenses paid under a finance lease and losses on derivative instruments that are recognized in the statement of income. All borrowing costs are recognized in the statement of income using the effective interest method.

3.18 Income tax expense

Income tax expense comprises current and deferred tax. Income tax expense is recognized in the statement of income unless it relates to a transaction or event recognized directly in equity, in which case it is recognized in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at balance sheet 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, and differences relating to investments in subsidiaries and jointly controlled companies 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 the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by balance sheet date.

The Group offsets deferred tax assets and deferred tax liabilities if it has a legally enforceable right to offset current tax assets against current tax liabilities 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 simultaneously.

A deferred tax asset is recognized to the extent that it is probable that future taxable profits will be available against which temporary difference can be utilized. Deferred tax assets are reviewed at each balance sheet date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Additional income taxes that arise from the distribution of dividends are recognized at the same time as the liability to pay the related dividend is recognized. 26 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

27 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 3 - Significant Accounting Policies (cont’d)

3.19 Supplier discounts

Discounts received from suppliers, in respect of which the Company is not obligated to meet certain targets, are included in the financial statements upon making the proportionate part of the purchases entitling the Company to the said discounts.

Discounts from suppliers that the Company is entitled to receive only after meeting certain targets such as a minimum annual amount of purchases (quantitative or monetary), an increase in the volume of purchases compared to prior periods, etc., are included in the financial statements proportionately on the basis of the volume of the Company’s purchases from the suppliers in the reported period that advance the Company towards meeting the targets, but only if it is anticipated that the targets will be obtained and the amounts of the discounts can be reliably estimated. The estimate of compliance with the targets is based, inter alia, on past experience and the Company’s relationship with the suppliers and on the anticipated volume of purchases from the suppliers during the rest of the period.

3.20 Advertising expenses

Advertising expenses are expensed as incurred.

3.21 Earnings per share

The Group presents basic and diluted earnings per share data for its ordinary shares. Basic earnings per share is calculated by dividing the earnings or loss attributable to ordinary shareholders of the Group by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share is determined by adjusting the earnings or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise option warrants and share options granted to employees.

3.22 Segment reporting

The Company reports operating segments in accordance with IFRS 8, Operating Segments. The Company has chosen the early adoption of this standard. A segment is a component of the Group that meets the following:

(1) It engages in business activity that generates (or may generate) income and expenses, (2) The operating results of each segment are reviewed regularly by the chief operating decision maker, and (3) Separate financial information is available in its respect.

28 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 3 - Significant Accounting Policies (cont’d)

3.23 Reclassification

Comparative figures relating to the years 2007 and 2006 were reclassified in these financial statements as follows:

3.23.1 Reclassification of tax balances. As a result of the reclassification, as at December 31, 2007 there was a decrease in current taxes receivable by the amount of NIS 31,573 thousand, a decrease in current taxes payable by the amount of NIS 12,526 thousand; an increase in other payables and credit balances by the amount of NIS 18,661 thousand; an increase in other receivables and debit balances by the amount of NIS 39,490 thousand; a decrease in deferred tax liabilities by the amount of NIS 41,215 thousand and a decrease in deferred tax assets by the amount of NIS 42,997 thousand.

3.23.2 In the reported period the Company adjusted the purchase price allocation of the Serbian subsidiary Strauss Adriatic Doo (formerly: Doncafe Group Doo) as a result of which it restated the comparative data as at December 31, 2007 in order to retroactively reflect the fair value adjustments of the assets that were acquired and the liabilities that were assumed. As a result of amending the purchase price allocation, the intangible assets increased by the amount of NIS 4,046 thousand as at December 31, 2007 with a corresponding increase in long-term other payables and credit balances. The intangible assets reflect a brand with an indefinite useful life and goodwill. 3.23.3 Reclassification of deferred expenses. As a result of the reclassification as at December 31, 2007, the deferred expenses increased by the amount of NIS 4,091 thousand with a corresponding decrease in other receivables and debit balances.

3.23.4 Reclassification of trade payables. As a result of the reclassification as at December 31, 2007, the trade payables decreased by the amount of NIS 5,616 thousand with a corresponding increase in other payables and credit balances.

3.23.5 Reclassification of provisions. As a result of the reclassification as at December 31, 2007 the provisions decreased by the amount of NIS 2,727 thousand with a corresponding increase in other payables and credit balances.

3.23.6 Reclassification of dividend income from an available-for-sale financial asset. As a result of the reclassification as at December 31, 2007 other income increased by the amount of NIS 943 thousand with a corresponding decrease in financing income. See also Note 3.17.

3.23.7 Reclassification of loans granted. As a result of the reclassification as at December 31, 2007 other receivables decreased by the amount of NIS 2,539 thousand with a corresponding increase in other investments and long-term debit balances.

The reclassification did not have an effect on profit or loss and on equity.

29 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 3 - Significant Accounting Policies (cont’d)

3.24 New standards and interpretations not yet adopted

A number of new standards, amendments to standards and interpretation are not yet effective for the year ended December 31, 2008, and have therefore not been applied in preparing these consolidated financial statements:

• IFRIC 13, Customer Loyalty Programs –

In accordance with the Interpretation, when products and services are sold together with sale incentives (such as award credits or free products) the arrangement is considered a multiple-element arrangement and the proceeds received in its respect are to be allocated to the various components according to their fair value. The Interpretation shall apply to annual periods beginning on or after July 1, 2008 and earlier application is permitted. Implementation of the interpretation is not anticipated to have a material effect on the Group’s financial position and results of operations.

• IFRIC 16, Hedges of a Net Investment in a Foreign Operation –

The Interpretation refers to an investment in a foreign operation and provides guidance regarding the hedging of such an investment. Inter alia, the Interpretation refers to the nature of the hedged risk and the amount of the hedged item for which a hedging relationship may be designated, where the hedging instrument is held in a group of companies and the accounting treatment of the capital reserve upon disposal of a foreign operation.

The Interpretation shall apply to annual periods beginning on or after October 1, 2008. Earlier application is permitted while providing disclosure. The hedge transactions of the Company do not meet hedge accounting criteria. The Company will examine the possible application of hedge accounting in the future.

• IFRIC 17, Distributions of Non-cash Assets to Owners –

The Interpretation provides that the obligation of a company for the distribution of non-cash assets to owners is to be accounted for as a liability for the payment of a dividend and be measured at the fair value of the assets to be distributed with any changes in fair value until the date of distribution being recognized in equity. At the time of the distribution, any difference between the carrying amount of the assets and the amount of the liability is recognized in profit or loss, as a separate line item. The Interpretation is to be applied prospectively for annual periods beginning on or after July 1, 2009. Earlier application is permitted. The effects of the Interpretation depend on the future distribution of assets to the owners, if any.

• IFRIC 18, Transfers of Assets from Customers –

The Interpretation addresses the accounting treatment of transfers of fixed assets from customers (or cash to construct a fixed asset), which will be used by the Company to provide goods or services to the customer. In accordance with the Interpretation, fixed assets received from the customers will be recognized at fair value on the date of their transfer against a reduction in the revenue from the same customer. The date of recognizing revenue depends on the date the services are delivered to the customer. The Interpretation shall apply to assets transferred as from July 1, 2009; and may not be implemented retrospectively. The Company is examining the effects of the Interpretation on its financial statements.

• Revised IAS 1, Presentation of Financial Statement –

The revised standard requires presenting all the changes in equity that derive from transactions that are not transactions with the owners in one of the following two formats:

(a) A single statement of comprehensive income (a combined statement of income and other comprehensive income) or, (b) Two statements – a statement of income and a statement of comprehensive income.

The revised standard shall apply to annual periods beginning after January 1, 2009. Implementation of the standard may have an effect on the manner of presentation of the Company’s consolidated financial statements.

30 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 3 - Significant Accounting Policies (cont’d)

3.24 New standards and interpretations not yet adopted (cont’d)

• Revised IAS 23, Borrowing Costs –

Revised IAS 23 requires capitalizing borrowing costs that are directly attributable to the purchase, construction or manufacturing of qualifying assets, to the cost of such assets. The standard does not permit recognizing these borrowing costs as an immediate expense. The revised standard shall apply to annual periods beginning after January 1, 2009 and permits early adoption. In accordance with the transitional provisions, the Group shall implement the revised standard with respect to qualifying assets for which capitalization of the borrowing costs will begin on or after the date the standard comes into effect. The effects of the revised standard depend on future projects for the construction of fixed assets that require a considerable period of time to prepare for their intended use. As at balance sheet date, a jointly controlled company, Sabra Dipping Company LLC, began acting towards the construction of a new plant for the manufacture of Sabra products in Virginia, USA, at a total maximum cost of $ 68 million. The new plant is planned to start operating during 2010. The cost of construction will be financed by long-term shareholders’ loans whose terms have not yet been determined, and therefore at this stage the Company is unable to assess the effect of the revised standard on its financial statements, if at all.

• Amendment to IAS 39, Financial Instruments: Recognition and Measurement –

The Amendment makes clear that an entity may designate as a hedged item changes in cash flows or fair value of a one-sided risk, meaning the risk of exposure to changes above or below a specified price or other defined variable. The Amendment also clarifies that inflationary components can be designated as a separate risk, on the condition that they form a contractually specified portion of the cash flows of an inflation-linked debenture, so that they are separately identifiable and reliably measurable, and if the other cash flows of the instruments are not affected by the inflationary component. The Amendment is effective retrospectively for annual periods beginning on or after July 1, 2009, with earlier application permitted, together with appropriate disclosure. The Company’s hedge transactions do not meet the terms for applying hedge accounting. The Company shall examine the possibility of implementing hedge accounting in the future.

• Revised IFRS 2, Share-Based Payment –

The amendment clarifies the terms “vesting conditions” and “cancellations”, as follows: a. Vesting conditions are service conditions that require the other party to complete a defined period of services, and also performance conditions that require meeting certain performance objectives. Other features are not vesting conditions and shall be taken into consideration when assessing the fair value of the grant. b. All cancellations, whether by the Company or by other parties, are to be treated as an acceleration of the vesting period. Therefore, an expense not yet recognized in respect of a share-based payment shall be recognized immediately. For example, if the Company cancels a share-based payment granted to an employee, even though the employee meets the vesting conditions, it should immediately recognize the expense not yet recognized with respect to the same grant. The revised standard shall apply to annual periods beginning after January 1, 2009. Implementation of the interpretation is not anticipated to have an effect on the Company’s financial position and results of operations

• Revised IFRS 3, Business Combinations, and Revised IAS 27, Consolidated and Separate Financial Statements –

The principal revisions are as follows: a. Definition of a business – The definition has been broadened, which is likely to result in more acquisitions being treated as business combinations. b. Transaction costs – Costs related to an acquisition, such as: legal consultation and due diligence, shall be recognized as an expense and not be included in the cost of a business combination. c. Contingent consideration – To be recognized on the date of acquisition according to its fair value; changes in estimates relating to a contingent consideration that is a financial liability shall be recognized in profit or loss.

31 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 3 - Significant Accounting Policies (cont’d)

3.24 New standards and interpretations not yet adopted (cont’d)

d. Goodwill and non-controlling interest (formerly – minority interest) – The amendment permits an entity to recognize 100% of the goodwill of the acquired entity and not just the acquiring entity’s portion of the goodwill. This will result in a parallel increase in the non-controlling interest. e. Step acquisition – On the date control is obtained following a step acquisition, the portion of the acquiring entity in the assets and liabilities of the acquired entity, including goodwill, is to be remeasured and recorded against income or loss. f. Partial disposal of an investment in a subsidiary while control is retained – A partial disposal is to be accounted for as an equity transaction with owners, and gain or loss is not recognized. g. Partial disposal of an investment in a subsidiary that results in loss of control – The operating effect of a partial disposal shall include also remeasurement of the remaining rights in the investee company. h. Acquiring additional rights in a subsidiary – The acquisition of additional rights in a subsidiary shall be accounted for as an equity transaction with the owners and no additional goodwill is recognized. i. Attribution of income to the holders of non-controlling interests – The comprehensive income is allocated to the holders of the non-controlling interests, even if this results in the participation of these holders in the deficit of a subsidiary. j. Deferred taxes – Goodwill is not adjusted in respect of utilization of carried-forward tax losses that existed on the date of the business combination.

The revised standards shall apply to annual reporting periods beginning after July 1, 2009; early implementation is permitted only with respect to annual reporting periods beginning after June 30, 2007. The Company will implement the revised standards as from the required dates.

The implementation of the revised standards depends on future events, and therefore at this stage the Company is unable to assess their effect on the financial statements, if at all.

• In the framework of the Improvements to IFRSs project, in May 2008 the IASB published and approved 35 amendments to various IFRS on a wide range of accounting issues. The amendments are divided into two parts: (1) Amendments that result in accounting changes for presentation, recognition or measurement purposes and (2) Terminology or editorial amendments that are expected to have either no or only minimal effects on accounting. Most of the amendments shall apply to periods beginning on or after January 1, 2009.

The project includes an amendment to IAS 38 regarding intangible assets. The amendment provides that expenses in respect of advertising and sales promotion activities are to be recognized as an expense. The standard clarifies that the expense should be recognized on the date the company has access to the products or services used for advertising and sales promotion. The effect of the standard on the financial statements for the years ended December 31, 2008 and 2007 is immaterial and therefore no correction will be made.

The aforementioned project includes changes in accounting standards that may be relevant to the Company in the future as follows:

- Revised IFRS 5 Non-current Assets Held for Sale and Discontinued Operations –

In accordance with the amendment, when the parent company decides on the disposal of part of its holdings in a subsidiary so that after the disposal the parent company is left with a non- controlling interest, all the assets and liabilities attributed to the subsidiary are to be classified as held for sale and the relevant instructions of IFRS 5 shall apply, including presentation as a discontinued operation.

- Revised IAS 28 Investments in Associates –

In accordance with the amendment, an investment in an affiliate shall be tested for impairment with respect to the overall investment. Accordingly, an impairment loss recognized on the investment shall not be specifically allocated to the goodwill included in the investment but to the overall investment, and therefore it will be possible to reverse the full amount of an impairment loss that was recognized in the past when the conditions for reversal of IAS 36 are met. 32 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 3 - Significant Accounting Policies (cont’d)

3.24 New standards and interpretations not yet adopted (cont’d)

The implementation of these amendments depends on future events, and therefore at this stage the Company is unable to assess their effect on the financial statements, if at all.

• Amendment to IFRS 7, Financial Instruments: Disclosures –

The amendment enhances the disclosures required with respect to fair value measurements of financial instruments, particularly with respect to financial instruments whose fair value is measured by means of valuation techniques. Furthermore, the amendment enhances the disclosures required with respect to liquidity risk. The amendment to the Standard is to be applied on a prospective basis for annual periods beginning on or after January 1, 2009. Earlier application is permitted with disclosure. The Company is examining the effect of the amendment on its financial statements.

Note 4 - Determination of Fair Value

A number of the Group’s recognition and measurement 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. Where applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.

4.1 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 an asset could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction. The market value of plant, equipment, fixtures and fittings is based on the quoted market prices for similar items.

4.2 Investment property

The fair value of investment property, which is determined for disclosure purposes, is based on market value. The market value of investment property is based on the discounted rent payments that could be received on the date of the valuation in consideration for rental of the asset, or the estimated sale price of the asset in its present condition between a willing buyer and a willing seller in an arm’s length transaction.

4.3 Intangible assets

The fair value of brands and trademarks acquired in a business combination is based on the discounted estimated royalty payments that have been avoided as a result of the brand or trademark being owned. The fair value of know-how is based on the cost approach method. 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.

4.4 Inventory

The fair value of inventory acquired in a business combination is determined based on its estimated selling price in the ordinary course of business less the estimated costs of completion and sale. The fair value of commodities held by the Group for trading purposes is measured at market prices less selling costs.

4.5 Investments in shares and debentures

The fair value of financial assets measured at fair value through profit or loss and the fair value of financial assets classified as available-for-sale is determined by reference to their quoted market sale price as at balance sheet date.

4.6 Trade and other receivables

The fair value of trade and other receivables is determined on the basis of the present value of future cash flows

33 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

discounted at the market rate of interest for the date of the transaction, when the effect of the discount is material.

34 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 4 - Determination of Fair Value (cont’d)

4.7 Derivatives

The fair value of forward exchange and CPI contracts is based on their quoted market prices. The fair value of commodity forward transactions is the stated market price on the balance sheet date, which is the present value of the stated price of the forward transaction.

The fair value of call options to purchase shares of another company is measured according to the Black & Scholes model.

4.8 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 as at balance sheet date. For finance leases the market rate of interest is determined by reference to similar lease agreements.

4.9 Share-based payment transactions

The fair value of employee share options is measured using the Black & Scholes model. The assumptions of the model include the share price on the date of measurement, the exercise price of the instrument, expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historical experience and general option holder behavior), expected dividends, and the risk-free interest rate (based on government debentures). Service and non- market performance conditions attached to the transactions are not taken into account in determining fair value. The fair value of liabilities deriving from share-based payment transactions is determined according to the discounted redemption value of the liability (based on forecasts of the Company).

35 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 5 - Acquisitions of Subsidiaries and Minority Interests

5.1 Information on principal subsidiaries:

Percentage of equity and control December 31 December 31 December 31 Country of 2008 2007 2006 operation

Strauss Group Elite Confectionery Ltd. 100 100 100 Israel Strauss Health Ltd. 80 80 80 Israel Strauss Away From Home Ltd. (1) - 100 100 Israel Strauss Fresh Foods Ltd. 100 100 100 Israel Strauss Salads Trade Ltd. (2) 100 100 100 Israel Strauss Import & Trade Ltd. 100 100 100 Israel Strauss Import & Trade Coffee (1) - 100 100 Israel Yad Mordechai – Strauss Apiary Ltd. 51 51 51 Israel Strauss Health Fresh Vegetables Ltd. (formerly Strauss Fresh Vegetables Ltd.) (3) 100 51 51 Israel Uri Horazo Yotvata Dairies Ltd. (4) 50 50 50 Israel Chocolate Bar (M.B.) Herzliya Ltd. (5) 100 100 100 Israel Elite Coffee To Go Ltd. (1) (6) - 72 26 Israel H2Q Water Industries Ltd. (7) 51 - - Israel Aviv Netivot Dairies Ltd. (8) 100 100 - Israel Elite Do Brazil Participacoes Ltda (9) 100 100 100 Brazil SE USA Inc. 100 100 100 USA Max Brenner Int’l Inc. (10) 100 100 100 USA Strauss Coffee B.V. (11) 74.9 100 100 Holland Strauss Café Poland Sp.z.o.o. (9) 100 100 100 Poland Strauss Commodities AG (9) 100 100 100 Switzerland Strauss Romania SRL (9) 100 100 100 Rumania Strauss Ukraine LLC (9) 100 100 100 Ukrain Elite CIS B.V. (9) 100 100 100 Holland Elite Bulgaria Eood (9) 100 100 100 Bulgaria Strauss Adriatic Group (formerly Doncafe Group Doo) (9) 100 100 100 Serbia Doncafe International Doo (9) 100 100 100 Bosnia Strauss LLC (9) (12) 100 - - Russia Doncafe Albania Shpk (9) (13) 100 - - Albania Blue & White Foods, LLC (14) - 51 51 USA Max Brenner NY, LLC (10) 100 100 51 USA Max Brenner USA Inc. (5) 100 100 100 USA Max Brenner Samba Holdings, LLC (15) 90 90 - USA Max Brenner Second Avenue, LLC (16) 90 90 - USA Max Brenner Union Square, LLC (16) 90 90 - USA

(1) Following the transaction described in Note 5.7, the company was merged into Strauss Coffee B.V. (2) Held by Strauss Fresh Foods Ltd. (3) Held by Strauss Salads Trade Ltd. (see Note 5.2) (4) Held by Strauss Health Ltd. Strauss Health Ltd. has a controlling share. (5) Held by Strauss Group Elite Confectionery Ltd. (6) See Note 5.4. (7) See Note 5.8. (8) Held by Strauss Health Ltd. (9) Held by Strauss Coffee B.V. (10) Held by Max Brenner UAS, Inc. (11) See Note 5.7. (12) See Note 5.5. (13) See Note 5.6. (14) Held by S.E. USA Inc. (see Notes 5.3 and 5.9) (15) Held 90% by Strauss Group Elite Confectionery Ltd. and 10% by Samba chocolate LLC. (16) Held by Max Brenner Samba Holdings, LLC.

36 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 5 - Acquisitions of Subsidiaries and Minority Interests (cont’d)

5.2 On July 31, 2007 the minority shareholders of Strauss Fresh Vegetables Ltd. (hereinafter: “Strauss Vegetables”), who held 49% of the shares of Strauss Vegetables, announced the exercise of a put option to sell all their holdings in Strauss Vegetables to Strauss Salads Trade Ltd. (“Strauss Salads”). Due to the existence of the put option, the Group recognized a liability to purchase the minority’s rights already upon the granting of the option (see Note 3.3.7). The transaction was completed on January 5, 2008. Strauss Salads, a company wholly owned by the Company, held 51% of the shares of Strauss Vegetables and after exercise of the option it holds 100% of the shares of Strauss Vegetables.

In consideration for the shares of Strauss Vegetables (49%) Strauss Salads paid to the minority shareholders the total amount of NIS 28,796 thousand.

5.3 In December 2007 Frito-Lay Dip Company Inc. (hereinafter: "the buyer"), a subsidiary of the American food concern Pepsico, entered into an agreement for the acquisition of 1% of the “participation rights” of SE USA Inc. (hereinafter: "Strauss USA") and 49% of the “participation rights” of Blue & White Foods Products Corp. (hereinafter: "B&W Products", and together with Strauss USA: "the sellers") in Sabra Dipping Company, LLC ("Sabra"). The transaction was completed on March 28, 2008, after which the Company (through Strauss USA) and Pepsico (through the buyer) each hold 50% of the “participation rights” in Sabra. In consideration for the sale of 1%, Strauss received the amount of $ 900 thousand. Therefore, as from March 28, 2008 Sabra is a jointly controlled company of the Company and Pepsico.

Following the completion of the transaction, the put option Strauss USA had granted to B&W Products for the sale of its rights in the sold operation expired (see Note 3.3.8). Nevertheless, a put option still exists with respect to the rest of B&W LLC’s operations. See Note 5.9 with respect to the sale of B&W LLC.

Soon before completion of the transaction, Blue & White Foods, LLC (hereinafter: "B&W LLC"), which is owned by the sellers at the rate of 51% by Strauss USA and 49% by B&W Products, sold to Sabra all the rights and assets it uses in the development, manufacture, distribution, marketing and/or sale of most of its products, in consideration for receiving all the “participation rights” in Sabra and these participation rights were distributed as a dividend at the rate of 49% to B&W Products and 51% to Strauss USA.

37 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 5 - Acquisitions of Subsidiaries and Minority Interests (cont’d)

5.3 (cont'd) The following amounts were recognized as a result of the transaction: Strauss USA Carrying Carrying amount amount after before the the transaction Sale transaction NIS thousands

Trade and other receivables 44,222 (16,482) 27,740 Inventory 24,406 (8,410) 15,996 Fixed assets 42,572 (20,479) 22,093 Intangible assets 38,198 (12,565) 25,633 Trade and other payables (19,684) 9,145 (10,539) Long-term loans (3,525) 1,734 (1,791) Put option in respect of minority interests (166,057) 166,057 - Net identifiable assets and liabilities (39,868) 119,000 79,132 Goodwill 176,019 (88,010) 88,010 Translation reserve 11,010 (4,550) 6,460

Cash sold - Consideration received in cash (1) (1,571) Cash received, net (1,571)

Capital gain recognized (2) 24,869

(1) Proceeds in the amount of $ 900 thousand (NIS 3,198 thousand) net of transaction costs in the amount of $ 1,342 thousand (NIS 4,769 thousand).

A loss in the amount of NIS 2,258 thousand from impairment of inventory was recognized following the transaction; the loss was recognized under the cost of sales. In addition, a loss in the amount of NIS 613 thousand from impairment of a patent was recognized.

The sellers, the Company and Mr. Yehuda Pearl (hereinafter: Pearl) (the controlling shareholder of B&W Products) and B&W LLC (jointly and severally) on the one hand, and the buyer on the other hand, undertook to indemnify each other in respect of damages incurred by them as a result of a breach of the representations and commitments specified in the acquisition agreement. In addition, the sellers, the Company, Pearl and B&W LLC undertook to indemnify the buyer in respect of damages incurred by it as a result of the operation of Sabra prior to the completion of the transaction. The indemnity was limited to the periods indicated in the agreement, according to the type of the claim, and was limited so that in certain cases described in the agreement it would apply over a minimum amount provided and in no case shall exceed the amount of the consideration in the agreement. It was also provided that as from the date of completing the transaction, the sellers, jointly and severally, shall indemnify the buyer and Sabra in respect of any tax liability of Sabra that was created before the completion date.

Furthermore, an agreement was signed between Strauss USA and the Company (“the Strauss Group”), B&W Products and Pearl (“the Pearl Group”) and B&W LLC, by which the parties will be responsible for their indemnity obligations in the acquisition agreement and in the agreement for the transfer of the operation according to their relative holdings in B&W LLC (meaning 51% the Strauss Group and 49% the Pearl Group), and will indemnify each other, if necessary, if one of the parties pays more than its aforementioned holding rate. The indemnity was limited to the periods indicated in the agreement, according to the type of the claim, and was limited so that in certain cases described in the agreement it would apply over a minimum amount provided and in no case shall exceed the amount of the consideration in the agreement. It was also provided that as from the date of completing the transaction, the Strauss Group shall indemnify the the Pearl Group and Sabra in respect of any tax liability of Sabra that was created before the completion date.

38 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 5 - Acquisitions of Subsidiaries and Minority Interests (cont’d) 5.3 (cont'd)

Nonetheless, if the indemnity obligation arises as a result of one of the parties breaching its representations and commitments regarding its holdings in B&W LLC or in Sabra or as a result of the non- fulfillment of its liabilities according to the various agreements, the same group shall be responsible for 100% of the said amount. Furthermore, it was provided that the Pearl Group would be solely responsible for any indemnity liability that arises in connection with a certain third party claim mentioned in the agreement. On the date of signing the mutual indemnity agreement Strauss USA returned to B&W Products the amount of $ 0.5 million that was held by it in order to cover possible allegations regarding the said claim.

5.4 On April 1, 2008 the Company signed an agreement to purchase 28% of the shares of Elite Coffee To Go Ltd. (hereinafter: "Elite Coffee") from the minority shareholders of Elite Coffee, and thus became the owner of 100% of the shares of Elite Coffee. The Company paid the amount of NIS 4.9 million to the minority shareholders in respect of their shares in Elite Coffee. The amount of NIS 3,326 thousand was paid in cash to the minority shareholders and the balance was mainly used to repay loans that were taken by the minority shareholders.

Following the acquisition, the Company recorded goodwill in the amount of NIS 4.9 million; total goodwill in respect of the Company’s investment in Elite Coffee amounts to NIS 12.3 million.

5.5 In the framework of continuing its strategic expansion in evolving markets, on April 10, 2008 Strauss Coffee BV (hereinafter: "SCBV"), a Dutch company wholly owned by the Group, signed an agreement with Cosant Enterprises Ltd. regarding the purchase of its business operation. The operation that was acquired includes instant coffee and roasted and ground coffee brands, the main ones being “Chornaya Karta” and “Kaffa” that are mostly sold in the countries of the Commonwealth of Independent States, as well as regarding the purchase of fixed assets and inventory. The acquired operation will be fully merged into the existing operation of SCBV in the Commonwealth of Independent States.

A total amount of $ 93 million was paid for the acquired brands and fixed assets. In addition, SCBV invested $ 10 million in the financing of working capital for the purpose of purchasing inventory and granting credit to its new customers in the region. Transaction costs in the amount of NIS 6,443 thousand were added to the cost of the acquisition. After the acquisition date, SCBV invested an additional amount of $10.6 million in the financing of working capital.

The purchase price was allocated to the acquired identifiable assets and the assumed identifiable liabilities, as required by IFRS 3 regarding business combinations, as follows: Recognized values on acquisition Useful NIS thousands Lives

Inventory 28,307 Chornaya Karta Brand (CK) 160,129 Indefinite Kaffa Brand 7,558 10 years Fixed assets 7,406 3-15 years Identifiable assets 203,400 Goodwill 168,378 Indefinite Translation reserve (1) (11,920) Consideration paid in cash 359,858

(1) Represents the erosion of payables with respect to the purchase price that was paid proximate to the date of closing the transaction.

39 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 5 - Acquisitions of Subsidiaries and Minority Interests (cont’d) 5.6 On May 13, 2008 SCBV signed an agreement with Don Café from Italy for the acquisition of its coffee operation in Albany, Kosovo and Macedonia, including the “Don Café” brand that is registered in the countries of the European Common Market and in Central and Eastern Europe, fixed assets, inventory and working capital, for a consideration of € 8.3 million. The purchase price was financed by the Company’s own sources. SCBV intends to merge the marketing and selling operations of the acquired brands into its existing infrastructure in the former Yugoslavian countries, and to exploit the synergies with existing operations in the coffee market in Eastern and Central Europe.

SCBV is the owner of the “Don Café” brand in a number of former Yugoslavian countries, including Serbia and Montenegro, and it sells coffee products under this brand. Upon the present acquisition of ownership and rights in the “Don Café” brand, SCBV will be able to expand the use of the brand to additional countries, subject to examinations and processes that need to be performed in the various countries.

The purchase price was allocated to the acquired identifiable assets and the assumed identifiable liabilities, as required by IFRS 3 regarding business combinations, as follows: Recognized values on acquisition Useful NIS thousands Lives

Trade and other receivables 2,573 Inventory 2,268 Brands 5,940 10-11 years Customer relationship 871 3 years Fixed assets 2,332 5-15 years Identifiable assets 13,984 Goodwill (1) 29,960 Indefinite Consideration paid in cash 43,944

(1) The goodwill acquired in the transaction relates to the expected synergy that will be obtained from combining the acquired brands with the Group’s coffee activity in Romania. The earnings for the period from the operations described in Notes 5.5 and 5.6, as from the date of acquisition until December 31, 2008 amounted to NIS 10,285 thousand.

No disclosure was provided regarding the amount of revenues and income that would have been reported in the consolidated statement of income if the business combinations had been executed already on January 1, 2008, because this disclosure is unreliable.

5.7 In order to realize the Group’s global expansion strategy in the coffee market and as a result of the financing requirements that arise from this strategy, the Company signed a series of agreements following which the private investment fund TPG invested (by means of Robusta Coöperatief U.A., an entity registered in the Netherlands, hereinafter – "the investor") in Strauss Coffee B.V., a subsidiary of the Company that is domiciled in the Netherlands (hereinafter – "Strauss Coffee"). In the framework of the transaction, the coffee operation of the Group in Israel was transferred to Strauss Coffee, which presently manages the entire coffee operation of the Group.

Completion of the transaction was subject to the fulfillment of certain conditions, which were fully fulfilled on August 25, 2008. Completion of the transaction, following which the issuance consideration was transferred, took place on September 10, 2008 (hereinafter – the closing date).

In the period between the fulfillment of the suspending conditions and the closing date, Strauss Coffee recognized financing income in the amount of NIS 42 million that reflects the increase in the value of the consideration in terms of euro between August 25, 2008 and closing date. On the closing date the Company recognized a capital gain in the amount of NIS 230.4 million in respect of the issuance of 25.1% of its holdings in Strauss Coffee, net of transaction expenses and the allocation of fair value in the amount of NIS 36 million to the option that was granted to the investor.

40 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Presented hereunder is a summary of the transaction’s principal provisions:

Note 5 - Acquisitions of Subsidiaries and Minority Interests (cont’d) 5.7 (cont'd)

The investment agreement:

In accordance with the investment agreement between the Company (together with Strauss Confectionary), Strauss Coffee and the investor, upon the closing of the transaction the investor was allotted shares and capital notes in consideration for its investment of $281 million in Strauss Coffee (of which $7.8 million is attributed to redeemable capital notes), with the addition of 6% per year from January 1, 2008 until the closing date (about US$293 million). Upon the closing of the transaction, the investor holds 25.1% of the shares of Strauss Coffee and the Company holds (directly or indirectly through Strauss Confectionary) 74.9% of the shares of Strauss Coffee.

On October 3, 2008 Strauss Coffee redeemed the aforementioned capital notes.

The investor was granted an option to purchase additional shares of Strauss Coffee at an exercise price of € 106 million with the addition of 6% per year from January 1, 2008 until the exercise date, subject to adjustments as specified in the agreement, so that if exercised the investor shall hold 35% of the share capital of Strauss Coffee. The option shall be exercisable with respect to all the share options (and not part of them) for a period of two years from the closing date.

The investment agreement includes a list of Company representations to the investor. The Company’s liability for breach of such representations is limited, so that the investor shall be allowed to contend that the representations have been breached only in the case of damages higher than 5% of the initial consideration (about US$14 million) up to a maximum of 30% from the initial consideration (about $84 million), other than certain representations that are not limited in liability as aforementioned; the liability is limited to the periods specified in the agreement and in any event to the amount of the investment.

The shareholders’ agreement:

On the closing date, a shareholders’ agreement was signed by the shareholders of Strauss Coffee. In accordance with the agreement, the board of directors of Strauss Coffee shall comprise up to seven directors, of which four will be appointed by the Company (one will serve as the chairperson), two will be appointed by the investor, and one will be an expert director appointed by the parties who will serve on the board in the first year (and subsequently for as long as the director’s appointment is not terminated by one of the parties).

A list was prepared of the resolutions and actions that require approval by 90% of the shareholders of Strauss Coffee, as well as a list of the cases that require the approval of the board of directors, on the condition that at least one director appointed by the investor has voted in favor. The cases include resolutions regarding: amendment of the incorporation documents on matters relating to the rights of the minority shareholders; any change in the share capital of Strauss Coffee that causes dilution of the minority shareholders and/or the issuance of other securities; the approval of material purchases or sales of operations or assets; decisions regarding a material change in the nature of Strauss Coffee’s operation; and the approval of transactions or actions not in the ordinary course of Strauss Coffee’s operations. In the opinion of the Company, these conditions provide the minority the ability to influence transactions or events not in the ordinary course of business, and are therefore protection rights that do not preclude continuation of the Company’s control over Strauss Coffee. A mechanism was provided for resolving disagreements in the absence of such approvals.

Furthermore, the agreement includes mechanisms for the sale of shares by either of the parties, including first offer rights, tag along rights and the right to compel the investor to sell if the investor receives a minimum return on its investments in the Company. In addition, the agreement includes an understanding to adopt an annual distribution policy of no less than 30% of the profits of Strauss Coffee, subject to the cash flow requirements of Strauss Coffee.

41 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 5 - Acquisitions of Subsidiaries and Minority Interests (cont’d) 5.7 (cont'd)

Service agreements:

In accordance with service agreements between the Company and Strauss Coffee that came into effect on the date of closing the transaction, the Company shall continue to provide certain main office services to Strauss Coffee and to provide to it distribution, selling and marketing services with respect to the coffee operation in Israel, on the basis of the economic computations that existed between the Company and Strauss Coffee before the closing of the transaction.

Restructuring and approval of the Tax Authority:

The structure of the transaction included splitting the coffee operation of the Group in Israel and merging it with Strauss Coffee so that it manages all the coffee operation of the Group, by means of restructuring the group.

In accordance with the pre-ruling on the agreement that was received from the Tax Authority on August 24, 2008 with respect to the aforementioned restructuring, the Company, the investor and Strauss Coffee are subject to various restrictions until the end of the specified period (two years from the end of the tax year in which the restructuring was executed – December 31, 2010), of which the principal ones are noted hereunder. In accordance with the pre-ruling, the date of the restructuring is June 30, 2008.

A. Restrictions applicable to the owners of rights in Strauss Coffee (the Company and the investor) after the restructuring:

- Requirement to hold until the end of the specified period all the rights they had in Strauss Coffee immediately after the aforementioned restructuring.

- Notwithstanding the aforementioned, the following actions will not constitute breach of the restrictions, for as long as the shareholders’ holdings do not fall below 51%: the sale of up to 10% of the shares of each one of the shareholders; the allotment of new shares at a rate not exceeding 20% after the allotment to anyone who was not a shareholder before the said restructuring; a public issuance of the Company.

- It is noted that exercise of the additional option by the investor shall not be considered a change in the rights of the shareholders.

- The excess of the assets that were transferred to Strauss Coffee in respect of the coffee operation in Israel will be considered the original price of the shares of Strauss Coffee being allocated in respect of the coffee operation in Israel to the owners of its rights. When calculating the capital gain on shares of Strauss Coffee that are sold by the Company, the shares will be considered being sold pro-rata as regards the date of acquisition and the original price.

B. Restrictions and conditions applicable to the Company:

- The losses of the merging companies as well as expenses or deductions accumulated by the transferring companies shall be spread over a period of five years from the date of the merger and be limited to half of the amount of current taxable income.

- The entire amount of required tax shall be paid on the sale of shares of Strauss Coffee, all or part, that were allocated to the Company in respect of the coffee operation in Israel, and no tax credit and/or exemption shall be granted. As regards this matter, the allocated shares include also shares that are allocated because of them.

- The taxable income of the Company shall not include dividends received from the earnings of a permanent establishment in Israel. In this respect – dividends paid from the taxable income of a 42 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

permanent establishment in Israel in respect of which company tax was paid in Israel. Furthermore, the Company shall not be granted a credit in respect of the foreign tax paid on the said dividend in the Netherlands. Note 5 - Acquisitions of Subsidiaries and Minority Interests (cont’d) 5.7 (cont'd)

C. Restrictions applicable to Strauss Coffee:

- The original cost and acquisition date will continue to apply to the assets transferred to Strauss Coffee, and no additional amount will be attributed to them beyond the original price for the subsidiaries and the Company.

- The coffee operation in Israel being transferred to Strauss Coffee in the split shall be considered a permanent establishment in Israel. The permanent establishment shall be subject to the provisions of the Income Tax Ordinance and its related regulations as if it was an Israeli resident body of persons.

- The full amount of required tax shall be paid in respect of the sale of an asset by the permanent establishment or the sale of the entire permanent establishment by Strauss Coffee, and the asset will be considered as having been sold by an Israeli resident company and the sale will be subject to capital gains tax in Israel in accordance with the provisions of Chapter E of the Income Tax Ordinance. 5.8 On January 8, 2007 the Company signed an agreement with H2Q Water Industries Ltd. (hereinafter – "H2Q"), a company engaged in a venture involving water. The transaction was recognized in the financial statements in April 2007, after all the suspending conditions were fulfilled. In the first stage the Company lent to H2Q (by means of a loan convertible into shares) an amount of $ 2.75 million and received a “golden share” that confers upon it the right to appoint the majority of H2Q’s board of directors. In August 2008 the convertible loan in the amount of $ 2.75 million was converted into shares and an additional amount of $ 3.5 million was invested. As a result of the investment the Company recognized goodwill in the amount of NIS 6,520 thousand. The Company currently holds 51% of the shares of H2Q. The Company has an option to increase its holding rate to 59% by making an additional investment of $ 3.75 million.

5.9 On December 31, 2008 the Company signed a binding agreement for the sale of its holdings (51%) in B&W LLC. On that date the Company transferred the control over B&W by means of the subsidiary (hereinafter – "Strauss USA"). On the date of completing the transaction, the Company received the amount of $ 25.5 thousand in respect of the sale. Following the sale, the put option that Strauss USA had granted to the minority shareholders expired. The value of the option on the expiry date was insignificant. Subsequent to the sale, B&W LLC shall continue to distribute the products of the Strauss Group in the USA, subject to the distribution agreement that was signed by the parties. The following amounts were derecognized following the transaction:

B&W LLC Sale NIS thousands

Trade and other receivables 18,209 Inventory 15,445 Fixed assets 4,931 Intangible assets 259 Trade and other payables (60,265) Long-term loans (5,571) Net identifiable assets and liabilities (26,992)

Translation reserve 2,968

Cash sold (2,488) Consideration received in cash (1) 3 Cash sold, net (2,485) 43 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Capital gain recognized 21,539

(1) Consideration in the amount of $ 25.5 thousand less transaction costs in the amount of $ 24.6 thousand. Note 6 - Cash and Cash Equivalents

December 31 2008 2007 NIS thousands

Cash and balances in banks 52,916 95,839 Deposits 627,321 393,898 Cash and cash equivalents 680,237 489,737

Note 7 - Marketable Securities and Deposits

December 31 2008 2007 NIS thousands

Deposits (1) – Deposit in Reals net (interest 11.75%) 487 14,707 Deposit in dollars 7,190 9,434 Deposit in Israeli shekels (2) 7,386 17,359 Deposit in other currency - 11 15,063 41,511 Marketable securities (3) – Government debentures 4,733 4,176 Corporate debentures 13,187 13,708 Shares 91 132 18,011 18,016 33,074 59,527

(1) Deposits are classified as loans and receivables, and are measured at amortized cost. (2) Bear interest at the prime rate and are deposited with purchasing organizations of Negev farms (2007 - NIS 16,293 thousand). (3) These marketable securities are held for trading and are accounted for as financial assets measured at fair value through profit and loss.

Note 8 - Trade Receivables

8.1 Composition December 31 2008 2007 NIS thousands

Open debts 833,467 782,170 Checks receivable 160,987 162,676 Interested and related parties 2,342 4,145

Less provision for doubtful debts (48,196) (49,501)

948,600 899,490

44 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 8 - Trade Receivables

8.2 Analysis of customer aging:

December 31, 2008 December 31, 2007 Provision Provision for for doubtful doubtful Gross debts Gross debts NIS thousands

Not past due 765,707 700 *676,567 - Past due 1-30 days 104,281 60 141,153 - Past due 31-60 days 36,683 585 47,773 548 Past due 61-90 days 12,744 206 15,895 260 Past due 91-120 days 17,026 3,849 17,976 *6,599 Past due more than 120 days 60,355 42,796 *49,618 *42,094

996,796 48,196 948,991 49,501

8.3 Changes in the provision for doubtful debts during the period:

For the year ended December 31 2008 2007* NIS thousands

Balance as at January 1 49,501 81,105 Impairment loss recognized during the period, net 5,083 3,791 Disposal of subsidiary (3,526) - Doubtful debts that became bad debts (331) (35,456) Effect of foreign currency changes (2,531) 61

Balance as at December 31 48,196 49,501

8.4 The maximum credit exposure in respect of customers as at the date of the report according to type of customer:

December 31 2008 2007 NIS thousands

Organized market 448,564 *363,367 Private market 283,194 *353,511 Away from home 141,157 124,434 Other 75,685 58,178

Total 948,600 899,490

* Reclassified

The Group has two principal types of customers: retail market customers and “away from home” (AFH) customers. The retail customers (such as retail chains, private stores, supermarkets, kiosks) provide to the consumers food and beverages mainly for consumption at home. The AFH customers (such as workplaces, hospitals, coffee shops, hotels, kibbutzim, coffee machines and automatic vending machines) provide the consumer opportunities for the consumption of food and beverages when away from home. The retail market includes an “organized market”, which comprises the principal retail chains, and a “private market”, which comprises all the other customers of the

45 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

retail segment.

46 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 9 - Receivables and Debit Balances

December 31 2008 2007* NIS thousands

Advances to trade payables 43,210 35,002 Government institutions 55,442 57,503 Employees 5,714 7,846 Investment grants receivable 4,305 6,508 Interested parties 4,442 - Sundry debtors 23,173 25,462 Accrued income 5,335 4,349 Derivatives (1) 23,406 23,708 Prepaid expenses 45,349 50,446

210,376 210,824

(1) These derivatives are accounted for as financial assets measured at fair value through profit or loss.

* Several amounts in this note have been reclassified in order to correspond with the presentation in the current period. See also Note 3.23.

Note 10 - Inventory

December 31 2008 2007 NIS thousands

Raw materials 356,070 215,250 Packaging materials 76,632 53,330 Unfinished goods 26,570 23,030 Finished goods (including purchased products) 354,694 329,524

813,966 621,134

Carrying amount of inventory under floating lien 87,409 116,977

47 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 11 - Investment in Associate

11.1 Associate

Percentage of total equity and control as at December 31 Country of 2008 2007 2006 operation

Ganir (1992) Ltd. - - 20 Israel

Until January 16, 2007 Ganir was an associate of Uri Horazo Yovata Dairies Ltd. (hereinafter: Yotvata Dairies). 8% of the shareholders’ equity is concatenated to the Company.

11.2 Additional details

On January 16, 2007 a merger between Ganir Ltd. (hereinafter – "Ganir") and Gan Shmuel Foods Ltd.

(hereinafter – "Gan Shmuel") was completed. In the framework of the merger, all the shareholders of Ganir transferred all their shares in Ganir (100% of the issued and paid-in share capital of Ganir) so that Ganir became a wholly owned and fully controlled subsidiary of Gan Shmuel. In consideration, Gan Shmuel allotted shares in Gan Shmuel to the shareholders of Ganir, which immediately after their allotment constituted a third (1/3) of the issued and paid-in share capital of Gan Shmuel (not including dormant shares of Gan Shmuel). After the allotment, Yotvata Dairies holds 6.32% of the share capital of Gan Shmuel (not including dormant shares – 6.67%) and 6.67% of its voting rights, and it presents its investment as an available-for-sale financial asset (see Note 13).

The Company, by means of Strauss Health, is the exclusive distributor of Ganir products according to an agreement. The Company will be the exclusive distributor of Ganir products for a period of 10 years as from April 26, 2006, on the condition that its holding in Gan Shmuel (by means of Yotvata Dairies) does not fall below 5%. The marketing right was recognized as an intangible asset on the date of the acquisition.

11.3 Condensed financial data of the associate

Condensed financial data of Ganir, in the period in which it was an associate accounted for on the equity basis, without adjustment for the Group’s percentage of ownership:

December 31, 2006 Year ended December 31, 2006 Assets Liabilities Equity Revenues Net earnings NIS thousands

Ganir (1992) Ltd. 178,193 122,238 55,955 351,452 12,134

Note 12 - Proportionate Consolidation of Jointly Controlled Companies

12.1 Principal jointly controlled companies

Percentage of total equity and control as at December 31 Country 2008 2007 2006 of operation

Strauss Frito-Lay Ltd. 50% 50% 50% Israel Santa Clara Industira e Comercia Ltda (1) 50% 50% 50% Brazil Santa Clara Imoveis Ltda (2) 50% 50% 50% Brazil Sabra Dipping Company (3) 50% 51% 51% USA

(1) Held by Strauss Coffee B.V. (2) Held by Elite Do Brazil. (3) Held by S.E. USA Inc.

48 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 12 - Proportionate Consolidation of Jointly Controlled Companies (cont'd)

12.2 The Group’s share in financial statement items of jointly controlled companies

December 31 2008 2007 NIS thousands

Current assets 362,029 379,561 Long-term assets 208,749 164,330 Current liabilities (268,336) (239,434) Long-term liabilities (25,493) (40,409)

The Group’s share in equity as at the end of the year 276,949 264,048

For the year ended December 31 2008 2007 2006 NIS thousands

Revenues 1,316,958 1,108,685 733,021 Costs and expenses 1,294,896 1,093,073 726,987

Income for the period 22,062 15,612 6,034

Note 13 - Other Investments and Long-Term Debit Balances

13.1 Classification according to classification of investment

December 31 2008 2007* NIS thousands

Non-current receivables (1) 15,412 16,353

Non-current trade receivables (see 13.5 hereunder) 57,903 62,596 Less current maturities (25,659) (23,554) 32,244 39,042

Long-term deposit (1) 3,888 16,115

Non-current loans (1) – To others (see 13.2, 13.3 and 13.4 hereunder) 54,537 42,968 Less current maturities (11,465) (4,628) 43,072 38,340

Investment in shares of other company (2) 11,010 23,273

105,626 133,123

(1) Deposits and long term receivables are accounted for as loans and receivables measured at amortized cost. (2) This investment is accounted for as an available for sale financial asset. See Note 30.8.1 for details on sensitivity analysis to changes in fair value of the investment. * Several amounts in this note have been reclassified in order to correspond with the presentation in the current period. See also Note 3.23.7.

49 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 13 - Other Investments and Long-Term Debit Balances (cont'd)

13.2 Classification of borrowers’ balances

December 31, 2008 Number of Balance sheet deposits and value carrying amount loans NIS thousands

In NIS thousands Up to 1,000 1,200 18,172 From 1,000 to 10,000 12 16,963 Higher than10,000 1 19,402

Total 1,213 54,537

13.3 Details of long-term loans and their terms

December 31 2008 NIS thousands

Capital note issued to Kibbutz Yotvata 19,402 Unlinked and non-interest bearing Loans to employees 9,758 Linked to CPI and bearing interest of 4% Loans to dairy farmers 3,132 Not linked to CPI and bearing interest of 6.5%-7.25% Loans to dairy farmers 19,004 Linked to CPI and bearing interest of 3.7%-6.25% Loan Kibbutz Yad-Mordechai 1,904 Linked to CPI and bearing interest of 7.57% Other 1,337 Unlinked 54,537

13.4 Repayment schedule of long-term loans

December 31 2008 NIS thousands

First year 11,465 Second year 28,341 Third year 5,031 Forth year 3,913 Fifth year and thereafter 5,787 54,537

50 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 13 - Other Investments and Long-Term Debit Balances (cont’d)

13.5 Long-term trade receivables

The long-term trade receivables balance reflects the long-term balance of customers in respect of the lease of coffee machines in installments. The balance is discounted according to an interest rate of 8%. The repayment schedule of long-term receivables is as follows:

December 31 2008 2007 Minimum Minimum lease Interest Principal lease Interest Principal payments component component payments component component NIS thousands

First year (current maturity) 26,222 563 25,659 24,380 826 23,554 One to five years 27,922 645 27,277 36,517 780 35,737 Fifth year 5,080 113 4,967 3,350 45 3,305 59,224 1,321 57,903 64,247 1,651 62,596

51 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 14 - Fixed Assets

14.1 Changes in fixed assets

Machinery Furniture Land and and Motor and other Leasehold buildings equipment vehicles Airplane equipment improvements Total NIS thousands Cost Balance as at January 1, 2008 574,454 1,681,659 78,813 10,962 249,980 225,820 2,821,688 Acquisition through business combination - 9,138 586 - 14 - 9,738 Additions 47,549 164,566 7,215 - 26,942 29,520 275,792 Disposal of subsidiary - (21,782) (505) - (252) (11,783) (34,322) Disposals (201) (27,780) (14,151) - (1,367) (4,219) (47,718) Cancellation of investment grants, net - 1,855 - - - - 1,855 Effect of changes in exchange rates (26,281) (68,438) (9,931) (4,620) (6,939) (2,635) (118,844) Balance as at December 31, 2008 595,521 1,739,218 62,027 6,342 268,378 236,703 2,908,189 Accumulated depreciation Balance as at January 1, 2008 196,518 1,077,532 45,163 - 189,368 119,077 1,627,658 Depreciation for the year 17,809 100,282 8,947 79 15,324 17,239 159,680 Disposal of subsidiary - (6,462) (238) - (64) (2,146) (8,910) Disposals (5) (21,954) (11,215) - (746) (2,320) (36,240) Effect of changes in exchange rates (3,347) (28,817) (5,067) (11) (3,402) (932) (41,576) Balance as at December 31, 2008 210,975 1,120,581 37,590 68 200,480 130,918 1,700,612 Provision for impairment Balance as at January 1, 2008 2,063 10,128 - - - - 12,191 Recognized loss - 893 - - 140 2,576 3,609 Reversal of impairment loss (177) (378) - - - - (555) Effect of changes in exchange rates (181) (181) - - - - (362) 1,705 10,462 - - 140 2,576 14,883 Spare parts 37,283 Balance as at December 31, 2008 382,841 608,175 24,437 6,274 67,758 103,209 1,229,977

52 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 14 - Fixed Assets (cont'd)

14.1 Changes in fixed assets (cont'd)

Machinery Furniture Land and and Motor and other Leasehold buildings equipment vehicles Airplane equipment improvements Total NIS thousands

Cost Balance as at January 1, 2007 442,484 1,554,906 98,551 - 232,137 205,773 2,533,851 Acquisition through business combination 1,738 11,297 - - 264 - 13,299 Classification from investment property 1,131 - - - - - 1,131 Additions 124,749 110,273 4,329 10,962 21,324 22,721 294,358 Disposals (45) (16,372) (27,211) - (4,465) (1,349) (49,442) Transfer to assets held for sale (2,820) - - - - - (2,820) Cancellation of investment grants, net - 6,419 - - - - 6,419 Effect of changes in exchange rates 7,217 15,136 3,144 - 720 (1,325) 24,892 Balance as at December 31, 2007 574,454 1,681,659 78,813 10,962 249,980 225,820 2,821,688 Accumulated depreciation Balance as at January 1, 2007 178,336 972,971 57,996 - 177,936 102,481 1,489,720 Acquisition through business combination 451 2,026 - - 160 - 2,637 Depreciation for the year 16,621 103,057 9,281 - 14,279 17,341 160,579 Disposals - (11,988) (23,839) - (3,580) (1,304) (40,711) Cancellation of investment grant - (1,093) - - - - (1,093) Effect of changes in exchange rates 1,110 12,559 1,725 - 573 559 16,526 Balance as at December 31, 2007 196,518 1,077,532 45,163 - 189,368 119,077 1,627,658 Provision for impairment Balance as at January 1, 2007 2,205 7,835 - - - - 10,040 Recognized loss - 2,650 - - - - 2,650 Reversal of impairment loss (189) (404) - - - - (593) Effect of changes in exchange rates 47 47 - - - - 94 2,063 10,128 - - - - 12,191 Spare parts 36,652 Balance as at December 31, 2007 375,873 593,999 33,650 10,962 60,612 106,743 1,218,491

53 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 14 - Fixed Assets (cont’d)

14.2 Fixed assets under finance lease

The Group leases machines and motor vehicles under finance lease agreements. The net carrying amount of machines is NIS 38,802 thousand (2007: NIS 36,279 thousand). The net carrying amount of motor vehicles is NIS 120 thousand (2007: NIS 401 thousand).

14.3 Investment grants

Investment grants in the amount of NIS 348 thousand were received during the year ended December 31, 2008 (2007: NIS 12,743 thousand). See also Note 37.1

14.4 Real estate rights presented in the consolidated balance sheet as at December 31, 2008:

NIS thousands

Freehold – Fixed assets 327,383 Freehold – Investment property 20,869 Leasehold (1) 35,493

Total real estate rights (2) 383,745

(1) Classified as deferred expenses

(2) Real estate rights (freehold and leasehold) in the amount of NIS 140,408 thousand have not yet been registered in the name of the Company or the subsidiaries (since land parcellation has not yet been executed under the Planning & Construction Law).

14.5 Liens – see Note 26.2.

14.6 Fixed assets purchased on credit – Fixed assets in the amount of NIS 30,230 thousand were purchased on credit in the year ended December 31, 2008 (2007: NIS 22,881 thousand).

14.7 The cost of fixed assets includes advance payments and assets under construction.

54 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 15 - Intangible Assets

15.1 Changes in intangible assets

Computer Brands software Goodwill Other Total NIS thousands

Cost

Balance as at January 1, 2008 421,573 159,220 783,745 47,858 1,412,396 Acquisition through business combination 173,627 - 198,338 871 372,836 Additions - 8,778 20,999 2,097 31,874 Additions – self development - 20,734 - - 20,734 Disposal of subsidiary (11,949) (1,141) (88,010) - (101,100) Disposals - (922) - (364) (1,286) Effect of changes in exchange rates (82,572) (3,497) (162,455) (2,986) (251,510) Balance as a December 31,2008 500,679 183,172 752,617 47,476 1,483,944

Accumulated amortization

Balance as at January 1, 2008 25,836 77,377 (1) 63,159 22,897 189,269 Amortization for the year 4,139 17,385 - 9,314 30,838 Impairment 689 - 52,397 - 53,086 Disposal of subsidiary - (266) - - (266) Disposals (68) (918) - - (986) Effect of changes in exchange rates (1,132) (2,447) (8,063) (2,630) (14,272)

Balance as at December 31,2008 29,464 91,131 107,493 29,581 257,669

Balance as at December 31,2008 471,215 92,041 645,124 17,895 1,226,275

(1) Of this amount, NIS 12,234 is in respect of losses recognized in prior periods.

55 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 15 - Intangible Assets (cont'd)

15.1 Changes in intangible assets (cont'd)

Computer Brands software Goodwill Other Total NIS thousands

Cost

Balance as at January 1, 2007 *386,478 112,421 *705,291 *48,379 1,252,569

Acquisition through business combination - - 18,700 - 18,700 Additions 3,357 18,703 6,713 157 28,930 Additions- self development - 27,234 - - 27,234 Adjustment of goodwill in respect of put option to the minority shareholders - - 59,444 - 59,444 Disposals - - (6,125) (2,190) (8,315) Effect of changes in exchange rates 31,738 862 (278) 1,512 33,834 Balance as at December 31, 2007 421,573 159,220 783,745 47,858 1,412,396

Accumulated amortization

Balance as at January 1, 2007 18,849 61,553 60,229 13,813 154,444 Amortization for the year 3,127 15,120 - 8,929 27,176 Disposals - - - (1,460) (1,460) Effect of changes in exchange rates 3,860 704 2,930 1,615 9,109 Balance as at December 31, 2007 25,836 77,377 63,159 22,897 189,269

Balance as at December 31, 2007 395,737 81,843 720,586 24,961 1,223,127

* Reclassified, see also Note 3.23.2.

56 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 15 - Intangible Assets (cont’d)

15.2 Intangible assets with indefinite useful lives

As at December 31, 2008 intangible assets include an amount of NIS 391,087 thousand that is attributable to brands and trademarks having an indefinite useful life (December 31, 2007 – NIS 369,941 thousand). These assets were assessed as having indefinite useful lives since according to an analysis of the relevant factors, there is no foreseeable limit on the period they are predicted to generate positive cash flows for the Group.

The relevant factors that were analyzed included, inter alia, the length of time the brand or trademark is anticipated to be used; the existence of legal or contractual restrictions on their use; a review of the typical life cycle of similar branded products; the existence of indicators of changes in life style, competitive environment, market requirements and industry trends; the sales history of products from that brand, the length of time the brand exists on the market, and the awareness of the market to the brand name or trademark. Also taken into consideration is the length of time similar brands are used in the industry in which the Company operates.

15.3 Impairment testing for cash-generating units containing goodwill and intangible assets having indefinite useful lives

The following units have significant carrying amounts of goodwill and intangible assets having an indefinite useful life:

Goodwill -

2008 2007 NIS thousands

Israel (1) 83,102 83,102 Brazil 118,967 153,659 Serbia 100,612 173,121 Poland 81,167 100,224 USA (Sabra) 94,183 194,266 Russia 112,334 - Romania 29,879 -

620,244 704,372

(1) Excluding Elite Coffee To Go which is included in the coffee segment.

Intangible assets having an indefinite useful life –

2008 2007 NIS thousands

Brazil 149,390 197,899 Serbia 42,829 48,563 Poland 79,074 97,638 USA (Sabra) 12,775 25,841 Russia 107,019 -

391,087 369,941

57 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 15 - Intangible Assets (cont’d)

15.3 Impairment testing for cash-generating units containing goodwill (cont'd)

The recoverable amounts of the cash-generating units (except in the USA in 2007) are based on the calculation of their value in use. These calculations use cash flow projections that are based on the most current strategic operating plans for three to five years of the relevant unit. The cash flows for remaining periods are calculated using the relevant growth rate, which takes into account the anticipated growth rate of the category, industry, country and population. The estimated long-term rate of growth is 1.2%-4% (in 2007: 2%-3%). The projected cash flows were discounted according to discount rates of 9.3%-16.6% in 2008 (9%-14.5% in 2007); For one of the units, a discount rate of 40% was used. These discount rates reflect the risk of the cash-generating units in each relevant year.

As regards the operation in the USA, the recoverable amount in 2007 was based on fair value less selling costs. The fair value estimated for the unit is based on the price determined in the transaction described in Note 5.3.

Due to the financial crisis, in 2008 the Group recognized an impairment loss in the amount of NIS 40 million in respect of goodwill attributed to a subsidiary of Strauss Coffee B.V. in Serbia that constitutes a cash generating unit. The recoverable amount of the unit was calculated by discounting the future cash flows anticipated from the unit at a discount rate of approximately 15.5% (in comparison to 13.5% in 2007). Furthermore, during the year the Company recognized an impairment loss in the amount of NIS 12 million in respect of goodwill attributed to a subsidiary in the USA following the discontinuance of an operation. The losses were included in the item of other expenses.

15.4 Goodwill

December 31, 2008 December 31, 2007* Original Original amount Balance amount Balance NIS thousands

Balance of goodwill in jointly controlled entities not yet fully amortized 239,647 213,150 188,683 153,659 Balance of goodwill in subsidiaries not yet fully amortized 512,970 431,974 595,062 566,927

* Reclassified

Note 16 - Investment Property

16.1 Changes in investment property

December 31 2008 2007 NIS thousands

Balance as at January 1 18,420 19,551 Classification from assets held for sale 2,449 - Classification to fixed assets - (1,131)

Balance as at December 31 20,869 18,420

16.2 Composition of investment property balance

Total cost 21,000 18,551 Total depreciation (131) (131)

Balance as at December 31 20,869 18,420

58 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 16 - Investment Property (cont'd)

16.3 Fair value

The investment property includes 6 real estate assets (2007: 5 assets) owned by the Company. During 2008, the Group changed the plan to sell an asset that was presented as held for sale, due to difficulties in executing the plan.

The fair value of the real estate assets as at December 31, 2008, in the amount of NIS 63,721 thousand (December 31, 2007 – the value of such assets was NIS 55,536 thousand), was determined by a qualified independent appraiser having the appropriate professional authority and experience in the area and category of the real estate being valued. Of this amount, NIS 22,507 thousand was determined by a qualified appraiser for selling purposes.

Note 17 - Trade Payables

Composition –

December 31 2008 2007* NIS thousands

Open debts 734,641 685,876 Interested and related parties 11,627 6,834 Notes payable 11,236 30,157

757,504 722,867

* Several amounts in this note have been reclassified in order to correspond with the presentation in the current period.

Note 18 - Other Payables and Credit Balances

December 31 2008 2007* NIS thousands

Employees and other payroll related liabilities 142,297 144,612 Institutions 25,454 49,115 Jointly controlled companies 14,556 19,685 Other payables 35,418 43,289 Derivatives (1) 28,274 10,362 Accrued expenses 152,952 119,585 Interested and related parties - 6,210 Advances from customers 15,919 10,010 Put options to minority shareholders (2) - 198,799 Deferred income 18,885 16,767 433,755 618,434

(1) These derivatives reflect liabilities in respect of marketable futures transaction and are accounted for as financial liabilities measured at fair value through profit or loss. (2) As stated in Note 3.3.8 the exercise price of the options that were granted to the minority shareholders is reflected in the consolidated balance sheet as a financial liability. A financial liability in respect of put options that can be exercised immediately was classified as a current credit balance. As at December 31, 2008, the Group does not have any financial liabilities in respect of these options.

* Several amounts in this note have been reclassified in order to correspond with the presentation in the current period.

Note 19 - Provisions

59 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

19.1 Changes during the period

Legal Restructuring claims Other Total NIS thousands

Balance as at January 1, 2008 5,600 *18,601 *8,054 32,255 Provisions made during the period - 3,044 1,649 4,693 Provisions used during the period (2,272) (251) (460) (2,983) Provisions reversed during the period - (430) (6,679) (7,109) Effect of changes in exchange rates - 492 (633) (141)

Balance as at December 31, 2008 3,328 21,456 1,931 26,715

* Reclassified, see also Note 3.23.5.

19.2 Provisions in respect of legal claims

Provisions were made for legal claims as a result of legal proceedings held in the ordinary course of business of the group. These provisions are reversed when the proceedings have been concluded in favor of the Group. The timing of the cash flows anticipated in respect of these legal proceedings is uncertain since it depends on their results. Therefore, the provisions are not presented at their present value. The effect of their discounting is immaterial. See also Note 26 regarding legal claims.

19.3 Provision for restructuring

In June 2007 the Company’s Board of Directors approved a change in the operating model and organizational structure of the Group, in the headquarters of the Group and in its operations in Israel. The principal objective of the organizational change is to match the operating model and structure of the Group to its rate of growth and development, to its strategic plans, and to enable it to develop into one international company that operates according to leading international standards. Furthermore, the operating model and the new structure are supposed to lead to leverage of the Group’s competitive abilities and to focus it on understanding the customer and leading consumer trends, improve the cost structure, improve profitability and divert resources towards continuation of international expansion, develop a new organizational culture that encourages sharing, organizational flexibility and professionalism, improve Group-wide organizational processes, and improve expertise and professionalism in areas such as marketing and supply chains (including manufacturing), while achieving operating excellence.

Implementation of the restructuring plan is done gradually over two years. In 2007 the Company recorded a restructuring provision in the amount of NIS 5.6 million, in accordance with IAS 37 regarding provisions, contingent liabilities and contingent assets. Restructuring expenses in the total amount of NIS 14.7 million, including the aforementioned provision, were recorded in 2007 and were presented under other expenses. In 2008, the Company recorded restructuring expenses in the amount of NIS 8.3 million and used NIS 2.3 million of the said provision.

60 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 20 - Loans and Credit

20.1 The terms of the loans and their repayment dates are as follows:

December 31, 2008 Nominal Face Carrying interest value amount Currency % Repayment NIS thousands

Debentures NIS 0.7 2008-2011 249,625 261,746 Series A (see 20.2) Debentures NIS 4.1 2014-2018 743,652 795,169 Series B (see 20.3) Bank credit NIS 2.65 2009 250 250 Bank loans NIS 4.85 2009 13,400 13,400 Bank loans NIS 4.15 2009 10,470 10,470 Bank loans NIS 3.5 2009 10,300 10,300 Bank loans Real 6.7-15.39 2009-2013 75,020 77,394 Bank credit Euro Libor+ 1.75 2009 2,384 2,384 Bank credit Dollar Libor+ 1.75 2009 9,505 9,505 Finance lease Dollar 7.01 2009-2011 1,279 1,279 Bank loans Dollar 3.9-5.9 2009-2013 71,694 84,632 Bank credit Dollar Libor+ 1.45 2009 11,315 11,315 Bank credit Dollar Libor+ 1.5 2009 4,460 5,636 Bank credit Dollar Libor+ 0.875 2009 3,830 3,830 Bank credit Dollar Libor+ 0.875 2009 7,787 7,787 Bank credit Euro Libor+ 0.875 2009 5,742 5,742 Finance lease Euro 9-11 2011 1,075 1,075 Finance lease Euro 5 2010 11 11

Total 1,301,925

December 31, 2007 Nominal Face Carrying interest value amount Currency % Repayment NIS thousands

Debentures NIS 0.7 2008-2011 333,333 329,877 Series A (see 20.2) Debentures NIS 4.1 2014-2018 770,000 788,369 Series B (see 20.3) Bank credit NIS 5.2 2008 14,450 14,450 Bank credit NIS 5.25 2008 9,700 9,700 Bank credit NIS 5.25 2008 250 250 Bank credit NIS 5.6 2008 1,502 1,502 Bank credit NIS 5.75 2008 2,451 2,451 Bank loans NIS 4.9 2008-2011 559 559 Bank loans Dollar 5.5 - 7 2008-2013 24,979 24,979 Finance lease Dollar 5.5 - 7 2008-2013 4,177 4,177 Bank credit Dollar 4.05-4.41 2008 26,742 26,742 Bank credit Dollar 5.4 -6.7 2008 5,888 5,888 Bank credit Dollar 6.49 2008 4,045 4,045 Bank credit Euro 4.6-5.4 2008 10,798 10,798 Bank loans Other 8.5 2008-2010 3,322 3,322 Finance lease Other 8.5 2008-2010 2,100 2,100 Bank loans Dollar 5.7- 8.3 2008-2012 63,043 69,987 Bank loans Real 10.7-13.1 2008-2012 114,508 110,211

Total 1,409,407

61 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 20 - Loans and Credit (cont’d)

20.2 Series A debentures

On March 17, 2005, the Company issued 1,000,000 units in accordance with a prospectus for a total consideration of NIS 500 million. Each unit included NIS 500 par value of debentures (Series A) at the price of NIS 500 and 10 options (Series 1) (hereinafter: the options) at no cost. The value of the debentures was determined according to the yield of Series 5901 Galil debentures in the first three trading days after the issuance plus 0.5%. The effective interest rate taking into consideration the allocation of the proceeds is 3.2% p.a. The value of the issued options is the difference between the proceeds that were received (NIS 500 million) and the value of the debentures.

The terms of the debentures are as follows: ƒ Debentures of a par value of NIS 500,000,000 that are listed for trading on the Tel Aviv Stock Exchange. ƒ The debentures bear annual interest of 0.7% that is linked to the Israeli Consumer Price Index published on January 15, 2005. ƒ The principal of the debentures is linked to the Israeli Consumer Price Index that was published on January 15, 2005 and is repayable in six equal annual payments on December 31 of each of the years 2006 through 2011 (inclusive). Three of the installments have been paid as at balance sheet date. ƒ The debentures are not secured by any liens. ƒ The carrying amount of the debentures on the issuance date is net of issuance expenses in the amount of NIS 4.6 million. ƒ The effective interest rate on the date of issuance, which takes into account allocation of value to the options and issuance costs, is 3.4%. ƒ Net issuance proceeds in the amount of NIS 447 million were attributed to the debentures by means of the mechanism described above.

20.3 Series B debentures

On February 25, 2007 the Company completing raising the amount of NIS 770 million from institutional investors by means of debentures (Series B). On May 21, 2007 the Company listed the debentures for trading on the Tel Aviv Stock Exchange, by publishing a prospectus on May 10, 2007.

The terms of the debentures are as follows: ƒ The debentures bear annual interest of 4.1%. Until the registration for trading the Company paid to the holders of the debentures annual interest of 4.7%. The interest shall be paid every six months. ƒ The principal of the debentures shall be repaid in five equal annual payments between the years 2014 and 2018 (inclusive). ƒ The debentures (principal and interest) are linked to the CPI that was published on February 15, 2007. ƒ The effective rate of interest on the date of listing for trading, which takes into account issuance costs, was 4.2%.

20.4 Early redemption

On September 2, 2007 the Company’s Board of Directors approved a framework according to which the Company and/or its subsidiary can from time to time purchase Series B debentures of the Company. The framework for the purchase of the debentures is limited to NIS 50 million. In July 2008 the Company purchased on the stock exchange NIS 11,700 thousand par value of debentures (Series B), and in an off-floor transaction NIS 13,200 thousand par value of the same debentures, for a total consideration of NIS 27,305 thousand. In September 2008 the Company purchased on the stock exchange NIS 948 thousand par value of debentures (Series B) for NIS 998 thousand. In addition, in October 2008 the Company purchased on the stock exchange NIS 500 thousand par value of debentures (Series A) and NIS 500 thousand par value of debentures (Series B) for a total consideration of NIS 1,042 thousand.

As at balance sheet date, NIS 249,625 thousand par value of debentures (Series A) and NIS 743,652 thousand par value of debentures (Series B) are outstanding. The debentures that were purchased by the Company were delisted from the stock exchange and the Company is not permitted to reissue them.

Following the purchase of the debentures, the Company recognized in the current period a net loss on early redemption in the amount of NIS 481 thousand.

20.5 See Notes 26.2 and 26.3 regarding liens and guarantees.

62 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 21 - Short-Term Loans and Credit

Composition of current liabilities

December 31 2008 2007 NIS thousands

Current liabilities Bank loans 183,670 211,844 Current maturities 130,229 107,573

313,899 319,417

Note 22 - Long-Term Loans and Credit

22.1 Composition

December 31 2008 2007 NIS thousands

Liability in respect of finance lease 1,433 2,584 Debentures 966,113 1,035,776 Bank loans 20,480 51,630

988,026 1,089,990

22.2 Repayment schedule of non-current liabilities

December 31, 2008 NIS thousands

In second year 100,286 In third year 87,713 In fourth year 3,019 In fifth year 1,838 More than five years 795,170

988,026

22.3 Liability in respect of finance lease

Repayment schedule of the lease payments:

2008 2007 Minimum Minimum lease Interest Principal lease Interest Principal payments component component payments component component NIS thousands 3 Less than one year (current maturity) 1,057 125 932 4,049 356 3,693 Between one and five years 1,491 58 1,433 2,762 178 2, 584

63 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

2,548 183 2,365 6,811 534 6,277 Note 23 - Long-Term Payables and Credit Balances

Composition – December 31 2008 2007 NIS thousands

Accrued expenses 3,945 3,370 Institutions 4,026 890 Deferred income 24,851 29,039 Other payables 6,812 *9,756

39,634 43,055 * Reclassified. See Note 3.23.7

Note 24 - Employee Benefits

24.1 The labor laws in Israel require the Company to pay severance pay to employees that were dismissed or have retired (including those who left for other specific reasons). The liability for the payment of severance pay is calculated according to the labor agreements in effect, on the basis of salary components that in the opinion of management of the Company create a liability to pay severance pay.

The Company has two severance pay plans: one plan according to Section 14 of the Severance Pay Law, which is accounted for as a defined contribution plan; and another plan for employees to whom Section 14 does not apply, which is accounted for as a defined benefit plan. The Group’s liability in Israel for the payment of severance pay to it employees is mostly covered by current deposits in the names of the employees in recognized pension and severance pay plans, and by the acquisition of insurance policies, which are accounted for as plan assets.

In addition to these plans, the Company has an obligation to pay an adaptation bonus to senior employees. The Group’s obligation for the payment of adaptation bonuses is not covered by the current deposits in the names of the employees.

24.2 As regards its international operations, employee benefits are accounted for in accordance with the requirements of the law in each country in which the Group operates. These requirements usually comprise of monthly deposits in government plans.

The Company has an obligation to pay benefits to certain employees in accordance with personal employment contracts. In addition, the Company has an obligation to pay benefits to employees who have retired in accordance with the labor laws in Germany. These benefits were accounted for as a defined benefit plan.

24.3 Composition

December 31 2008 2007* NIS thousands

Defined benefit plan Present value of funded obligation 68,180 61,256 Present value of the un-funded obligation 23,136 20,590 91,316 81,846 Fair value of the plan assets (65,773) (60,912) Total present value of the obligation, net 25,543 20,934 Actuarial losses not yet recognized (10,693) (5,452) Total liability in respect of defined benefit plans 14,850 15,482

Share-based payment liability Less current maturity 722 847 Long-term share-based payment liability (251) (847) 471 - Total employee benefits liability 15,321 15,482

64 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

* Several amounts in this note have been reclassified in order to correspond with the presentation in the current period. Note 24 - Employee Benefits (cont’d)

24.4 Defined benefit plans

The Group separates defined benefit plans in accordance with the offsetting terms of the plans, as follows: December 31 2008 2007* NIS thousands

Presented as liabilities for the payment of employee benefits, net 22,197 22,146 Presented as assets designated for the payment of employee benefits, net (7,347) (6,664)

Total liability in respect of defined benefit plans, net 14,850 15,482

Long-term liabilities in respect of share-based payment 471 -

Total employee benefits, net 15,321 15,482

24.4.1 Changes in the liability for defined benefit plans

For the year ended December 31 2008 2007* NIS thousands

Liability in respect of defined benefit plans as at January 1 81,846 76,196 Benefits paid by the plans (8,507) (6,386) Current service costs and interest 9,944 8,380 Actuarial losses (gains) 5,973 (3,086) Other adjustments 2,060 6,742 Liability in respect of defined benefit plans as at December 31 91,316 81,846

24.4.2 Changes in plan assets

For the year ended December 31 2008 2007* NIS thousands

Fair value of plan assets as at January 1 60,913 51,833 Contributions paid into the plan 6,799 4,236 Benefits paid by the plan (8,229) (6,095) Expected return on plan assets 3,026 2,592 Other adjustments 1,445 8,187 Actuarial gains 1,819 160 Fair value of plan assets as at December 31 65,773 60,913

65 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 24 - Employee Benefits (cont’d)

24.4 Defined benefit plans (cont’d)

24.4.3 Expense recognized in the statement of income in respect of defined benefit plans

For the year ended December 31 2008 2007 NIS thousands

Current services costs 6,012 4,892 Interest on obligation 3,932 3,488 Expected return on plan assets (3,026) (2,592) Other adjustments 3,008 (5,500) Actuarial loss - 1,481 9,926 1,769

The expense was included in the following statement of income items:

For the year ended December 31 2008 2007* NIS thousands

Cost of sales 642 135 Selling and marketing expenses 547 271 General and administrative expenses 8,737 1,363 9,926 1,769

24.4.4 Actuarial assumptions

Principal actuarial assumptions as at the reporting date (weighted average):

For the year ended December 31 2008* 2007 %

Discount rate as at December 31 (1) 5.3% 3.6% Expected return on plan assets as at January 1 (2) 3.7%-7.26% 2%-4.86% Future salary increases 0%-5.97% 3% Demographic assumptions (3)

(1) The discount rate is based on debentures of the Government of Israel that bear a fixed rate of interest. (2) In 2008 the weighted rate of return was 5.22% (nominal). The rate of return was calculated as follows: a 5.3% rate of return on insurance companies; a 5.68% rate of return on new pension funds; a 7.26% rate of return on balanced old pension funds and of 3.7% on unbalanced pension funds; and a rate of return of 5.3% on provident funds.

In 2007 the rates of return were calculated as follows: a 2% real rate of return on old Government pension funds; in respect of old pension funds that are actuarially balanced a guaranteed rate of return of 5.57% was taken for 30%, a 1.57% subsidized rate of return for the other 70%; a real rate of return of 4.86% on 30% of the assets in new subsidized pension funds; and a rate of return of 4.25% for executive insurance policies from before 1989.

66 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 24 - Employee Benefits (cont’d)

24.4 Defined benefit plans (cont’d)

24.4.4 Actuarial assumptions (cont’d)

(3) The calculations are based on demographic assumptions as follows: a) Mortality rates for 2008 are based on the accepted mortality table of pension funds. The mortality rates for 2007 are based on mortality table 2007-3-6 of the Ministry of Finance. b) Rates of loss of ability to work are based on the document mentioned in item a above. c) In 2008 employee turnover rates are based on an analysis of historic data. According to this analysis, the turnover rate of employees is between 6.64% in the first year and 5.72% for employees employed 9 years or more. For senior employees, the turnover rate is between 6.67% in the first year and 3.24% for employees employed 9 years or more. In 2007 the turnover rate of employees having seniority of less than 10 years is estimated to be 2.5% per year. The turnover rate of employees having seniority of 10 years or more is estimated to be 1% per year.

* Principal assumptions for 2007 are in real terms, where as principal assumptions for 2008 are in nominal terms, taking into account expected annual inflation of 1.7%.

24.4.5 Historical information

December 31 2006 2005 2004 2003** NIS thousands

Defined benefit plan Present value of the obligation 76,196 68,527 62,750 38,744 Fair value of the plan assets* (51,833) (48,262) (40,360) (20,842) Total present value of the obligation, net 24,363 20,265 22,390 17,902 Actuarial losses not yet recognized (10,238) (7,345) (4,196) (1,209) Total liability in respect of defined benefit plans 14,125 12,920 18,194 16,693

* Including assets designated for the payment of employee benefits that were presented under assets designated for the payment of employee benefits. ** Before the merger with Strauss.

24.5 Defined Contribution Plans

In the year ended December 31, 2008, the Group recorded an expense of NIS 28,268 thousands with respect to defined contribution plans.

Note 25 - Share-Based Payments

25.1 In accordance with the plans from May 2003 for the remuneration of senior executives (which was updated in June 2004 and August 2006), the Company granted share options to senior executives of the Group at no cost. Each share option is exercisable into one ordinary share of a par value of NIS 1 on a “net in shares” basis as described hereunder.

The shares will be granted to the employee, in consideration for their par value, in an amount equal to the difference between the fair value of the share on the exercise date and the exercise price, multiplied by the amount of the share options and divided by the fair value of the share (as from 2004 – with the addition of an amount of shares equal to the total par value of the issued shares). The exercise price is different in each plan and it generally reflects a discount of 15% from the price on the stock exchange soon before approval of the plan. The exercise price or conversion ratio of each share option will be adjusted proportionately in respect of an allotment of bonus shares, a split and consolidation of the Company’s shares or an issuance of rights to the Company’s shareholders.

67 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 25 - Share-Based Payments (cont'd)

25.1 (cont'd)

According to the terms of the plans, the share options are exercisable in three equal portions commencing at the end of three, four and five years from the vesting date of the options. As regards share options granted from March 2008, the share options are exercisable in three equal portions commencing at the end of two, three and four years from the vesting date of the option. An employee entitled to exercise his options may do so during a further period of 3 years since the right to exercise such quantity of options was first created. Options that are not exercised by that date shall expire. In the case of termination of employer-employee relations, the employee will be entitled to exercise options the exercise date of which is 120/180 days from the date of termination of relations. After 120/180 days have elapsed from the date of termination of relations, any options not exercised shall expire.

With respect to employees in Israel, the above plans were approved under Section 102 of the Income Tax Ordinance, and accordingly, the options were deposited with a trustee. Under the plan, the employees will bear any tax that applies to the plan. As from May 2003 share options were granted to employees in accordance with Section 102 in the “capital gains path”.

25.2 Details of the fair values of the share options and the data used to make this valuation:

Nominal Expected Share exercise Expected annual Discount Number of Fair value price price life volatility rate Grant date options NIS NIS NIS Years % % thousands

May 2003 128,544 4,190 *22.59 26.36 2.5-5.6 35 5.5

June 2004 1,287,036 16,368 42.39 33.42 3.9-5.3 31 3.9

Dec. 2004 169,865 1,959 42.96 35.79 3.6-5.6 31 3.5

April 2005 40,866 347 40.43 33.22 4 31 3.2

Feb. 2006 269,299 2,970 42.58 35.65 4.2-5.6 31 3.5

Jan. 2007 69,106 1,202 43.91 36.58 4.86-6.48 30 3.41-3.56

Dec. 2007 280,732 6,595 57.25 46.93 4.62-6.16 30 2.95-3.63

* After splitting the options into shares of a par value of NIS 5

In addition to these grants, on August 28, 2006 the Company’s Board of Directors approved an update to the option plan for senior employees. The update included adjustment of the exercise price indicated on the various options, so that upon each distribution of a dividend the exercise price of the options shall be reduced by an amount equal to 100% of the declared dividend per share.

The fair value of the benefit as at the date of grant is NIS 4 million calculated on the basis of the Black-Scholes model. The benefit is recorded as an expense in the financial statements of the Company for periods beginning on July 1, 2006 and ending on March 31, 2011.

68 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 25 - Share-Based Payments (cont’d)

25.3 Grants in the reported period

On August 30, 2007 the Company’s Board of Directors approved the grant of 2,310,748 share options to the Company’s CEO. The exercise price of the options is linked to the CPI and bears annual interest of 4%. The entitlement to exercise the options shall vest in four portions, on December 31 of each of the years 2008-2011. The exercise period of each portion is one year from the vesting date. The grant was approved by the general meeting on January 7, 2008. The fair value of the benefit shall be recognized as an expense as from September 2007 until December 2011. On March 30, 2008 the Company granted 1,075,057 share options to 6 senior executives of the Group in accordance with the options plan for senior employees of the Group. The options vest in three equal portions commencing at the end of two, three and four years from the grant date. The employees are entitled to exercise their options during a further period of 3 years from the vesting date.

On November 17, 2008 the Company granted 231,158 share options to a senior executive of the Group in accordance with the options plan for senior employees of the Group. The options vest in three equal portions commencing at the end of two, three and four years from November 1, 2008. The employee is entitled to exercise his options during a further period of 3 years from the vesting date.

Details of the fair value of the aforementioned share options, and the data used in this assessment:

Nominal Expected Share exercise Expected annual Discount Number of Fair value price price life volatility rate Grant date options NIS NIS NIS Years % % thousands

January 2008 2,310,748 37,835 59.30 47.43 1.98-4.98 27-29 2.7-3.2

March 2008 1,075,057 14,885 51.16 51.88 3.85-5.39 27 2.59-2.7

November 2008 231,158 1,814 32.5 37.83 3.80-5.34 28 3.61-3.76

25.4 Changes in the number of share options: Number of share options 2008 2007

Balance as at January 1 4,175,495 1,984,059 Additional allotment (1) 1,306,215 2,660,589 Exercise of options(2) (58,470) (334,504) Forfeiture of options (22,686) (134,649) Balance as at December 31 (3) 5,400,554 4,175,495

(1) Excluding options allotted in January 2008. This allotment was approved by the Company’s Board of Directors in August 2007 (and subsequently by the general meeting in January 2008), and therefore already in 2007 the Company began recognizing expenses in respect of this grant on the basis of an estimate. (2) The weighted average share price on the exercise date of the options exercised in 2008 is NIS 44.89. (3) Of the balance of options as at balance sheet date, 1,403,301 options have vested (2007: 405,078).

69 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 25 - Share-Based Payments (cont’d)

25.5 Information on the share options outstanding as at December 31, 2008:

Nominal First third exercise price Linked to exercisable Number of options (NIS) CPI of from

5,520 26.36 April 2003 29.5.2008 17,165 26.36 April 2003 2.10.2006 1,156,727 33.42 April 2004 2.1.2007 78,825 35.79 October 2004 2.12.2007 40,866 33.22 February 2006 31.12.2007 95,377 35.65 January 2006 2.1.2009 39,273 35.65 January 2006 2.3.2009 34,553 36.58 November 2006 2.3.2009 34,553 36.58 November 2006 2.1.2009 70,476 46.93 October 2007 1.10.2010 62,254 46.93 October 2007 12.9.2010 49,334 46.93 October 2007 1.9.2010 49,334 46.93 October 2007 1.10.2010 24,667 46.93 October 2007 1.6.2010 24,667 46.93 October 2007 19.8.2010 2,310,748 47.43 July 2007 31.12.2008 1,075,057 51.88 February 2008 30.3.2010 231,158 37.83 October 2008 1.11.2010

5,400,554

25.6 On December 5, 2005 the parent company, Strauss Holdings, granted to the Company’s CEO and to the Company’s Chairperson of the Board, who at the time served also as the CEO and Chairperson of the Board of the parent company, non-recourse loans in the amount of NIS 35,008 thousand that are linked to the CPI and bear interest of 4%, against the pledging of 909,767 ordinary shares of the Company that were sold to them by the parent company on the same date.

The theoretical economic value of the benefits as at the date of granting the loans is NIS 12.8 million. The fair value of the benefit (80% of the benefit that was granted in the parent company) that was recorded under general and administrative expenses in the financial statements of the Company for periods beginning from January 1, 2006 and ending on December 31, 2008 is NIS 10.2 million.

The main assumptions that were used in this calculation of the fair value are as follows: expected life 5.07 years, risk-free interest rate of 5.9%, standard deviation of 31% and share price of NIS 38.48.

In November 2006 the CEO of the Company repaid a third of the loan he received from the parent company in the nominal amount of NIS 6,308 thousand against the purchase of 163,922 shares.

25.7 Share-based payments in subsidiaries

25.7.1 In accordance with agreements of a subsidiary with managers of the Max Brenner activity, the subsidiary shall take steps to concentrate the Max Brenner activity under a special company incorporated for this purpose. The managers will receive 5.8% of the capital of the new company in shares or in share options. The grants vest gradually. For as long as the new company is not registered for trading on the stock exchange, the managers have the right to sell their shares to the subsidiary in accordance with a predetermined valuation mechanism. The subsidiary’s obligation to purchase the shares is limited to the shares that have vested. If the activity is not managed by a special company the subsidiary shall compensate the managers on the basis of these economic understandings. The liability arising from these agreements is presented in Note 24.3.

25.7.2 In addition, the subsidiary undertook to allot options to a senior executive. The options will vest gradually until March 20, 2011. The grant has not yet been approved. The Company records expenses in respect of this grant on the basis of the estimated fair value of the options. 70 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

71 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 25 - Share-Based Payments (cont’d)

25.8 Salary expenses in respect of share-based payments For the year ended December 31 2008 2007 2006 NIS thousands

Expenses in respect of equity-settled grant (see Notes 25.2, 25.3, 25.6 and 25.7.1) 25,659 10,266 13,359 Change in terms of options (see Note 25.2) 692 1,352 1,830 Expenses (income) in respect of liability grant (see Note 25.7.2) (125) 600 247 Total expense included in salary expenses 26,226 12,218 15,436

Note 26 - Contingent Liabilities, Liens, Guarantees and Commitments

26.1 Contingent liabilities

26.1.1 Class actions

26.1.1.1 In April 2003 a request to certify a class action was filed with the Tel Aviv District Court against the Company with allegations concerning misleading acts of commission and omission of the Company towards its customers. As alleged in the request, the Company, which had marketed the products “Ice Coffee” and “Café Latte”, had misled the customers into thinking, inter alia, that these are “coffee” products while in fact these products only contained 12%-13% of coffee beans with the other ingredients being various powders such as sugar and milk. Further to the request that was filed by the plaintiff on November 9, 2008 the District Court of Petach Tikva ordered to strike the claim and the request to certify it as a class action.

26.1.1.2 On April 3, 2006 a claim was filed with the Tel Aviv District Court by parents to two children aged 4 and 10 suffering from the Celiac disease. The plaintiffs allege that like many other people suffering from Celiac they purchased before Passover a large amount of sweets manufactured by Elite that are kosher for Passover. They did this because “they relied on the products being free of gluten”.

The claim mainly alleges that the plaintiffs were misled to think that the products do not contain gluten, while the Company violated the Consumer Protection Law and Public Health Regulations (Food) (Gluten) – 1996.

Along with the personal claim, the plaintiffs submitted a request to certify the claim as a class action in the amount of NIS 375 million in accordance with the Class Actions Law - 2006. In the request to certify the claim as a class action, it is stated that there are 25,000 people suffering from Celiac in Israel and compensation in the amount of NIS 15,000 is requested for each one of them.

On August 4, 2008 the Tel Aviv Jaffa District Court approved the compromise the parties had signed in which the Company has undertaken to hold a consumer campaign for two years from the date of approval of the compromise, and to pay the plaintiffs and their representatives compensation and fees in the amount of NIS 200,000.

26.1.1.3 On June 7, 2006 a claim was filed with the Tel Aviv Jaffa District Court against the Company and Elite Food Confectionary Ltd. (which at the agreement of the parties was removed as a defendant and was replaced by Strauss Group Elite Confectionery Ltd.), in accordance with the Class Actions Law and the Consumer Protection Law along with a request to certify the claim as a class action.

The plaintiff alleges that for a number of years he had consumed halva flavored wafers and cream-nut flavored wafers that were manufactured by the defendants in packs of 500 grams. At a certain point, proximate to the date of filing the claim, he discovered that the weight of the pack was reduced to 400 grams although the wrapping and the price remained the same. The plaintiff contends that he was misled to think that he was purchasing 500 grams of wafers whereas the product he actually purchased only 72 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

weighed 400 grams. The plaintiff quantified the amount of the class action at NIS 51 million. Note 26 - Contingent Liabilities, Liens, Guarantees and Commitments (cont’d)

26.1 Contingent liabilities (cont’d)

26.1.1 Class actions (cont’d)

26.1.1.3 (cont'd)

On November 28, 2007 the parties signed a compromise agreement (hereinafter – the compromise) and they also signed a mutual request to the Court to approve the said compromise (hereinafter – the request). The compromise and request provided, inter alia, as follows: all the allegations and claims regarding the cream-nut flavored wafers will be dismissed; the claim regarding the halva flavored wafers shall be certified as a class action and be settled in accordance with and subject to the terms of the compromise agreement; in return for the withdrawal of the class action the defendants shall hold a campaign for the benefit of all the consumers of “Elite” brand wafers, by which the defendants shall sell to their customers a special pack containing two packs of Elite wafers (one truffles chocolate and crumbs flavored and the other cheese cake and crumbs flavored) at a price 25% lower than the total price of those two types of wafers.

The defendants shall pay the representative plaintiff the amount of NIS 5,000 and to the plaintiff’s representative a fee in the amount of NIS 20,000 with the addition of VAT.

The compromise was submitted to the Court on February 14, 2008 and is subject to its approval. All the aforementioned conditions will come into effect only upon approval of the compromise by the Court.

Management of the Company believes, on the basis of the opinion of its legal counsel, that the effect of the claim on the financial statements of the Company will be immaterial.

26.1.1.4 On August 28, 2006 a claim was filed with the Tel Aviv District Court against the Company, the Chief Rabbinate of Israel and the Religious Council and Local Rabbinate of Nahariya, by a mother and her daughter, religious Jews, who contend that they are strict in buying and consuming only products that were proclaimed as being kosher by the Chief Rabbinate of Israel. The plaintiffs contend that like many other people who observe laws of Kashrut, they had for years (1999-2004) purchased large amounts of dairy puddings manufactured by the Company because these products were portrayed by it as being kosher and approved by the Chief Rabbinate, although in reality the products contained imported gelatin produced from cattle bones, which as at the dates relevant to the claim did not receive the approval and a kosher certificate from the Chief Rabbinate in Israel. The plaintiffs mainly allege in the claim that they were misled to think that the products were kosher and approved by the Chief Rabbinate, and that the defendants violate the Consumer Protection Law and the Kashrut (Prohibition of Deceit) Law.

The plaintiffs contend that they and their families were caused non-pecuniary damage, i.e. mental anguish as a result of offending their honor and faith, the fabric of their values and personal philosophy, offending preferences deriving from religious principles, impairing the autonomy of the individual and negative feelings which include disgust and despise. The plaintiffs estimate this damage at the amount of NIS 3,000 for each plaintiff. Furthermore, the plaintiffs demand a refund of the cost of the products in the amount of NIS 3,801.6 for the mother and of NIS 19,008 for the daughter.

Together with the personal claim, the plaintiffs filed a request to certify the claim as a class action in the amount of NIS 12.3 billion in accordance with the Class Actions Law - 2006. In the request to certify the claim as a class action, it is stated that the public observing Kashrut in Israel that had purchased and/or consumed the products specified in the claim on the relevant dates consists of 1,904,000 people, and for each one of them compensation of NIS 3,000 is requested. On January 28, 2007 the Company submitted its reply to the request of the plaintiffs to certify the claim as a class action.

In the reply, the Court was requested to summarily dismiss the claim and the request to certify it as a class action, inter alia, for the following reasons: the claim is not suitable for being heard in the framework of a class action since the Kashrut (Prohibition of Deceit) Law is not one of the types of claims included in the second addendum to the Class Actions Law and does not permit submitting class actions on its basis; lack of statutory opponency with the Company as opposed to the authorized Kashrut authority; as well as arguments regarding the merits of the request, and principally: that the Company acted according to the law and therefore it is has a defense against liability; the facts themselves show that the request to certify the claim as a class action should not be approved because, inter alia, the Company received permits from 73 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

the Chief Rabbinate on all the relevant dates to use gelatin from non-kosher sources and it acted in

Note 26 - Contingent Liabilities, Liens, Guarantees and Commitments (cont’d)

26.1 Contingent liabilities (cont’d)

26.1.1 Class actions (cont’d)

26.1.1.4 (cont'd)

Transparency and with full cooperation; the cause of misleading does not exist in accordance with the Consumer Protection Law; the absence of damages; the non-existence of the conditions for certifying the claim as a class action (lack of personal cause for the plaintiffs against the Company, lack of facts regarding the existence of the group the plaintiffs contend they represent).

On April 16, 2007 the Chief Rabbinate submitted its reply to the request to certify a class action, in which it denies the allegations of the Company that it had received permits to use gelatin from non-kosher sources.

On June 13, 2007 the local rabbinate, which is also a defendant in the claim, submitted its reply to the request, by which its version of the events is the same and supports the facts that were presented by the Company, according to which the Chief Rabbinate had granted to the Company temporary permits to use the imported gelatin at the relevant times. The local rabbinate also submitted a request to summarily dismiss the claim.

On November 26, 2007 the Chief Rabbinate submitted a request to summarily dismiss the claim on the grounds of lack of cause or alternatively lack of material jurisdiction of the Tel Aviv District Court. On September 10, 2008 a hearing was held with respect to the request, and the claim against the Chief Rabbinate and the local rabbinate was struck out.

The Company has insurance coverage that is immaterial considering the size of the claim, subject to the terms of the policy and in addition to the deductible.

Management of the Company believes at this stage, on the basis of the opinion of its legal counsel, that it is unlikely that the claim will be certified as a class action, and in any case, the claim does not include any real data supporting the amount of the claim.

26.1.1.5 On August 28, 2007 a claim was filed with the Tel Aviv District Court against the Company, Strauss Health Ltd. and Tnuva Ltd. by two plaintiffs who contend that they suffer from colds and the flue in the winter months. The plaintiffs allege that they purchased and used probiotic products that are manufactured by the defendants – Actimel and Activia (manufactured by a subsidiary of the Company) and also Yoplait (manufactured by Tnuva). An expert opinion of Professor Daniel Rachmilevitch was attached to the claim and request. The principal allegations in the claim are that the defendants did not notify the public that the scientific benefits of probiotic beverages have not been proven in substantiated medical researches, that the defendants do not tell the public that the probiotic germs included in the aforementioned products are unable to strengthen the natural protection of the body and/or to “affect”/”shorten” the process of digestion, that healthy people do not require any strengthening of the immune system and improvement in their digestion, and that in order to achieve any health effects it is necessary to consume 1,350 billion probiotic germs per day, meaning that the consumers have to drink 135 bottles of yogurt a day.

The plaintiffs contend that the defendants have violated Regulation 2 of the Public Health Regulations (Food) (Prohibition on the Attribution of Healing Powers to a Food Product) – 1978 (Amendment 2) and Regulation 2A by attributing health characteristics to probiotic yogurt beverages, while indicating organs of the human body, and also Sections 2(a) and 2(a)(4) (Prohibition of Misleading) and Section 4(a)(1)4(b) (Requirement of Disclosure to the Consumer) of the Consumer Protection Law – 1981.

The plaintiffs contend that they incurred personal damages in the amount of NIS 2,303. In addition to the personal claim the plaintiffs submitted a request to certify it as a class action in the amount of NIS 1,433,602,800 in accordance with the Class Actions Law – 2006. NIS 1,331,243,561 of this amount is claimed from the Company and Strauss Health Ltd. This amount is based on the plaintiffs’ allegation in the request to certify the claim as a class action that 2.5% of the population, meaning 174,150 consumers, have used and/or use probiotic yogurts at a monthly cost of NIS 98.

74 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 26 - Contingent Liabilities, Liens, Guarantees and Commitments (cont’d)

26.1 Contingent liabilities (cont’d)

26.1.1 Class actions (cont’d)

26.1.1.5 (cont'd)

The reply of the Company and Strauss Health Ltd. was submitted to the Court together with counter opinions on its behalf of Prof. Emanuel Levental, an expert in gastroenterology and nourishment of the digestion system, Prof. Hendzel, an expert in immunology and infections and Dr. Ringel, a gastroenterologist. In response, the plaintiffs submitted a supplementary opinion of Prof. Rachmilevitch.

At this stage, the Company’s Management, basing itself upon the opinion of its legal counsel, does not believe this claim will be certified as a class action.

26.1.1.6 On December 2, 2007 a claim was filed with the Haifa District Court under the Class Actions Law and the Consumer Protection Law against Strauss Dairies Ltd. (and in its present name Strauss Health Ltd.) and against the Company. A request was also submitted to have the claim recognized as a class action.

The plaintiff contends that she regularly purchases various types of Danone yogurt products (hereinafter – the yogurt). According to the plaintiff, the provisions of the relevant standard require selling and marking the yogurt with its content being marked in units of volume according to the measures provided in the standard (150 ml., 200 ml., etc.), whereas in reality the yogurt is sold by the defendants seemingly according to the measures provided in the standard, but in units of weight (150 gr., 200 gr., etc.). The plaintiff alleges that in doing so the defendants reduced the quantity of the yogurt required by the standard by about 10% (as the quantity of 1gr. of yogurt is about 10% lower than the quantity of 1 ml. of the same product) and violated the provisions of the Consumer Protection Law, a statutory duty and became unlawfully enriched. The plaintiff set the amount of the class action at NIS 257 million. Furthermore, the plaintiff requested a declaratory order ordering the defendants to market the yogurt products according to the standard and to mark the content of their products according to measures of volume (ml.) and not as they presently do in measures of weight (gr.). On May 22, 2008 the defendants submitted their reply to the request to certify the claim as a class action.

At this stage, the Company’s Management, basing itself upon the opinion of its legal counsel, does not believe this claim will be certified as a class action.

26.1.1.7 On November 1, 2007 a claim and a request to certify the claim as a class action were filed with the Tel Aviv District Court against Yotvata Dairies. The plaintiff contends that she represents the group who bought 1% and 3% calcium enriched milk in cartons in October 2007, who expected to buy calcium enriched milk but instead received milk “without calcium”.

In her claim the plaintiff requests a refund of the cost of three cartons of milk she threw away, and the difference, for one month, between the price of calcium enriched milk of Yotvata Dairies and the price of a carton of milk of another dairy that is not enriched with calcium – which according to her is the market price of milk not enriched with calcium that she actually received. The personal claim of the plaintiff amounts to NIS 113.40. According to the plaintiff, the group of damaged people consists of 100,000 families and therefore the class action amounts to NIS 11,340,000.

The claim is in the initial stage of the request to certify it as a class action. At the agreement of the plaintiff’s representative, the reply of the dairy will be submitted upon the conclusion of the hearing on the request for disclosure of documents and after answers have been provided to a questionnaire.

At this stage, the Court was requested to order the plaintiff to answer the questionnaire and to disclose specific documents. The Court ordered the plaintiff to reply to the request, after which a decision will be made.

At this stage, the Company’s Management, basing itself upon the opinion of its legal counsel, does not believe this claim will be certified as a class action.

75 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 26 - Contingent Liabilities, Liens, Guarantees and Commitments (cont’d)

26.1 Contingent liabilities (cont’d)

26.1.1 Class actions (cont’d)

26.1.1.8 On April 8, 2008 a claim was filed against the Company and others with the District Court of Central Region by four plaintiffs who allege that they purchased and viewed a videotape intended for children that contains subliminal advertising, following which they incurred pecuniary and non-pecuniary damages. The plaintiffs allege that the subliminal advertising is contrary to the Consumer Protection Law, Communication Rules (Bezeq and Broadcasting) and impairs their autonomy, and also that they were caused mental anguish by being exposed to the subliminal advertising, which may have, inter alia, an effect on bad nutritional habits. The plaintiffs also allege that they may have “acted differently” had they been aware of the subliminal advertising.

In addition to the personal claim of NIS 1,000, the plaintiffs filed a request to certify the claim as a class action in the amount of NIS 100 million with respect to all the defendants. The Company intends to deny the allegations included in the claim and to act towards its dismissal.

Management of the Company evaluates at this stage, on the basis of the opinion of its legal counsel, that it is not likely that the claim will be certified as a class action.

26.1.1.9 On June 5, 2008, a claim was filed against the Company with the Petach Tikva District Court on the basis of the Class Actions Law and the Consumer Protection Law. A request to certify the claim as a class action was filed together with the claim. The plaintiff alleges that for a long period of time she regularly bought Danone yogurt products with chocolate coated Chinese pecans and Danone yogurt products with chocolate coated cereal. The plaintiff alleges that the percentage of fat indicated on the containers of the products is misleading, as the percentage indicates only the percentage of fat in the yogurt (without the additions), while in reality the percentage of fat including the additions is higher than that indicated on the containers of the products. The plaintiff set the amount of the class action at NIS 60.5 million, which according to her includes the pecuniary damage that was caused to the consumers as a result of the aforementioned, as well as the non-pecuniary damage that was allegedly caused to the members of the Group following impairment of individual will autonomy.

Further to a request that was submitted by the representative of the plaintiff, on December 4, 2008 the Court ordered to strike the claim and the request to certify it as a class action.

26.1.1.10 On September 25, 2008 a claim and request to certify the claims as a class action were filed with the District Court of Central Region against Strauss Holdings Ltd., together with the Company and other defendants, Tnuva and Tara, with respect to the excess amount allegedly paid by the plaintiffs, who are consumers of long-life UHT milk, in the seven years prior to the filing of the claim because of, inter alia, the existence of a restrictive trade arrangement between the defendants with respect to Ramat Hagolan Dairies. Strauss Holdings Ltd. is the parent company of the Company and it holds through its subsidiary one third of the shares of Ramat Hagolan Dairies, in equal parts with Tnuva and Tara. The Company, Tnuva and Tara sell long-life UHT milk that is produced by Ramat Hagolan Dairies. The amount in the personal claim and the amount claimed for all the members of the group cannot be estimated at this point.

Further to a request that was submitted by the representative of the plaintiff, on January 26, 2009 the Court ordered to strike the claim and the request to certify it as a class action.

26.1.1.11 On November 19, 2008 a claim and a request to certify the claim as a class action were filed with the District Court of Petach Tikva Region against Uri Horazo Yovata Dairies Ltd. The request is based on the allegation that Yotvata marks it products with the G.M.P. mark that indicates that its products were manufactured under proper conditions as defined in the law, without having received a permit from the Ministry of Health Food Service. The plaintiff alleges that she represents a group of consumers who were misled by Yotvata when they

76 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 26 - Contingent Liabilities, Liens, Guarantees and Commitments (cont’d)

26.1 Contingent liabilities (cont’d)

26.1.1 Class actions (cont’d)

26.1.1.11(cont'd)

Relied on the G.M.P. mark on its products and on what this mark represents, when in fact Yotvata was not allowed to use the mark. In doing so, the plaintiff alleges that Yotvata misleads its consumers and is unlawfully enriched on their account, since in her opinion Yotvava enjoys a 3% to 10% premium on the price of its products due to then being “misleadingly” being represented as bearing the G.M.P. mark. In her claim the plaintiff requests a refund of the “premium” supposedly earned by Yotvata as aforementioned, which is estimated by her to amount to 5% of the value of the products of Yotvava that she purchased in the last three and a half years (in which she started buying only products with the G.M.P. mark). In her request regarding the amount of the damage the plaintiff relies on an interview with the CEO of Yovata that was published in the “Globes” newspaper in 2007, by which the revenues of Yotvata in that year amounted to NIS 350 million, which the plaintiff multiplied by a premium of 3.5% per year, so that the damage to the group members amounts to NIS 12,250,000 per year and to NIS 49,000,000 in the last four years. To this she adds the non-pecuniary damage to the group in the estimated amount of NIS 10 million, so that the total amount of the claim is NIS 59 million. At the agreement of the plaintiff’s representative, and at the agreement of the Court, the reply of Yotvata will be submitted until March 31, 2009. Management of the Company evaluates at this stage, on the basis of the opinion of its legal counsel, that it is not likely that the claim will be certified as a class action.

26.1.1.12 In respect of the claims cited in Items 26.1.1.4 (“gelatin”), 26.1.1.5 (“probiotic beverages”) and 26.1.1.6 (“package marking”) of this note, in accordance with the merger agreement between the Company and Strauss Holdings from January 27, 2003, the Company has the right to compensation from Strauss Holdings, subject to the terms of the merger agreement, for part of the sums claimed, insofar as their cause originates from before the date of completing the merger (March 22, 2004).

26.1.2 Other claims and contingent liabilities

26.1.2.1 According to a letter of indemnity for officers of the Company, the Company has undertaken, without recourse, to indemnify officers of the Company with respect to any liability or expense (as defined in the letter of indemnity) that is imposed on the officer due to actions of the officer after the date of the letter of indemnity, which are directly or indirectly related to one or more of the events described in the letter of indemnity, or any part of them or anything related to them, either directly or indirectly. The amount of indemnity the Company will pay, in addition to amounts that are received from insurance companies, if any, regarding all of the officers and in respect of one or more of the events described in the letter of indemnity, was limited to 25% of the shareholders’ equity of the Company according to the most recent financial statements published before the actual date of payment of the indemnity. See also Note 26.4.6.

26.1.2.2 In 1998 Strauss Holdings (including any other corporation under its control that manufactures or markets dairy puddings) was declared a monopoly in dairy puddings. “Dairy puddings” were defined in the notice as a “non-fermented dairy product, sweetened with sugar or alternative sweetening agents, which contains, in addition to the dairy ingredients, typical flavoring ingredients (chocolate, vanilla, etc.), that is designed to be eaten with a spoon”. The Company (including companies under its control) was declared to be a monopoly in the chocolate bar market, in the area of instant coffee and in the home cocoa powder area. Following the aforementioned declarations, the Commissioner of Restrictive Trade Practices issued instructions to the monopoly owners. Some of the Group’s products are controlled by the Control on Commodities and Services Law – 1996.

26.1.2.3 On March 10, 2005 the Company and a consortium of underwriters signed an underwriting agreement regarding a prospectus for a public offer that was published by the Company on the same date. In the underwriting agreement the Company undertook to, inter alia, indemnify the underwriters or any one of them in respect of a liability imposed on them, if any, pursuant to a court ruling, which is due to the inclusion of a misleading detail in a prospectus, and in respect of reasonable legal expenses, including attorney fees, incurred by any of the underwriters or imposed by the court in proceedings that were held as specified in this item or with respect to a criminal proceeding from which the underwriter was acquitted or was found guilty of a violation that does not require proving the existence of criminal intent and which 77 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

relates to the inclusion of a misleading detail in a prospectus.

78 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 26 - Contingent Liabilities, Liens, Guarantees and Commitments (cont’d)

26.1 Contingent liabilities (cont’d) 26.1.2 Other claims and contingent liabilities (cont’d) 26.1.2.3 (cont'd) The Company’s indemnity undertaking described above is for a maximum of NIS 250 million, linked to the increase in the CPI. The aforementioned indemnity liability will not apply to any underwriter in respect of any amount imposed on the underwriter as a result of the inclusion of a misleading detail in a prospectus which was based on information that was provided to the Company in writing by the same underwriter, with the intention that it be used in the preparation of the prospectus.

26.1.2.4 In October 1994 Strauss Fresh Foods Ltd. (hereinafter: Strauss Fresh Foods) entered into an agreement (hereinafter in this clause – the “Agreement”) with Moon Park Industries (1994) Ltd. (presently under liquidation and receivership; hereinafter – Moon Park). In accordance with the Agreement, Moon Park was to have built the plant of Strauss Fresh Foods in Carmiel (hereinafter – the building) and to have leased it to Strauss Fresh Foods for a period of ten years less one day, with options to extend the lease for an additional ten years and five years. Moon Park did not complete construction of the building in the time prescribed, and on September 26, 1996 a memorandum of understanding was signed between Strauss Fresh Foods and Moon Park, following which Strauss Fresh Foods was forced to complete the construction of the building itself while incurring significant financial damages because of, inter alia, the breach of agreement by Moon Park, the building not being completed on time and the need to complete the construction at its own expense. In August 1998 a permanent receiver was appointed to Moon Park on behalf of Bank Leumi le-Israel B.M. (hereinafter – the permanent receiver). In November 1999 an additional receiver was appointed with respect to third of the rental fees due to Moon Park under the Agreement. The permanent receiver requested from Strauss Fresh Foods that it pay the rental fees he claimed were due to Moon Park under the Agreement. Strauss Fresh Foods argued in response that it was actually Moon Park that owed Strauss Fresh Foods considerable sums (as described above), and that Strauss Fresh Foods has the right to set off these amounts on a regular basis against the rental fees owing to Moon Park, if any. Further to an arbitration agreement that was reached by Strauss Fresh Foods and Moon Park (by means of the receivers), and which received judicial force, the parties began arbitration proceedings with the aim of resolving their disputes.

In December 2004 a claim was filed by Moon Park as part of the arbitration proceedings and in it, inter alia, Strauss Fresh Foods is requested to pay Moon Park the amount of NIS 16.6 million as rental fees in respect of the period until the filing of the claim and the arbitrator is requested to instruct Strauss Fresh Foods to wash its hands of the building. Strauss Fresh Foods has filed a defense to the arbitrator and also a counterclaim in respect of the damages that were caused to it by the conduct of Moon Park. Strauss Fresh Foods contends that it does not have to pay rent at all and that the sale of the asset by the receiver is subject to its right of refusal and also that the consideration that is received from the asset belongs mainly to it. The parties have recently reached a compromise by which Strauss shall purchase the building (and the land on which it is built) for the total price of NIS 14,176,800 so at to settle completely and absolutely all the allegations of the parties and end the arbitration proceedings between the parties. The compromise agreement is subject to the approval of the Court and to its content being awarded judicial force with any reservation and/or condition, and this approval will constitute a precondition for the agreement coming into effect. The receivers submitted the request for approval to the Court on February 17, 2009. The receivers have provided notice that a former shareholder of Moon Park is expected to object to the request for approval of the compromise (the former shareholder was even named as a party in the request). Management of the Company evaluates, on the basis of the opinion of its legal counsel, that the provision that was made is reasonable. The provision was offset from the loan that was granted to Moon Park for the purpose of completing the construction and the balance was included in other payables and credit balances.

79 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 26 - Contingent Liabilities, Liens, Guarantees and Commitments (cont’d)

26.1 Contingent liabilities (cont’d)

26.1.2 Other claims and contingent liabilities (cont’d)

26.1.2.5 On December 22, 1994 the Company filed a request to register a “Must” trademark with respect to a certain kind of candy and chewing gum. On May 22, 1996 an objection to registration of the aforementioned trademark was submitted to the Registrar of Trademarks on behalf of Cartier International B.V. The Company submitted its reply to the objection and the proceeding is being held before the Registrar of Trademarks. On July 31, 2008 the objection proceedings were cancelled and the trademark was registered. A similar proceeding is being held between the parties in France, where a decision was made against the Company.

26.1.2.6 In the framework of Strauss Coffee B.V. (former Elite International) selling its holdings in Excella in France, in Fort in Belgium and in Klaverblad in the Netherlands, in 2004, Elite International remained liable for any possible claims in respect of certain events deriving from before the signing of the agreement. These companies were liquidated in 2008 and the Company is no longer responsible for any claims in respect thereto. Furthermore, with respect to the agreement to sell shares of a company in Turkey from January 2005, the Company undertook to compensate the purchasers for tax demands relating to the period prior to the signing of the sale agreement, if such shall be made until January 14, 2010.

26.1.2.7 On December 29, 2004 the Company received a notice from the legal advisor of the Restrictive Trade Practices Authority that the Restrictive Trade Practices Authority had recommended to file a criminal indictment against the Company, the CEO of the activity in Israel and six other managers for violations of the Restrictive Trade Practices Law. A draft indictment was attached to the notice. In the indictment, the Company, the officer and the six employees are charged of violating Sections 29 and 29A of the Restrictive Trade Practices Law in that they used the Company’s status as a monopoly in the area of chocolate bars in order to place difficulties and barriers to the entrance of a competitor (Cadbury) on the markets. After a hearing and discussion were held with the Commissioner, the Company reached an agreement with the Commissioner that an indictment would not be filed and instead a request for an agreed order between the Company and the Commissioner would be submitted to the Restrictive Trade Practices Court. In accordance with the provisions of the order the Company and its managers undertook to honor certain undertakings, as detailed in the order, which mainly address sales by the Company to wholesalers and retailers in respect of competitive products. In practice the Company is acting in accordance with the said undertakings. In addition, the Company undertook to pay the State NIS 5 million, a sum already provided for in the Company’s financial statements published during 2005. The order did not involve an admission by the Company or any of its officers to their responsibility by law or to any breach by them of any provisions of the law. On January 10, 2007, the Restrictive Trade Practices Court confirmed the said order and on February 1, 2007 the amount the Company undertook to pay was paid. On February 20, 2008 the Commissioner of Restrictive Trade Practices announced that she intends to allow Carmit Candy Industries Ltd., the company that distributed Cadbury products in Israel, to read the material of the investigation that is in her possession regarding the “Elite – Cadbury” case. The Company objected to the disclosure of such documents to Carmit and on April 6, 2008 a temporary injunction preventing the transfer of the documents was issued. On May 18, 2008 the Commissioner filed a reply to the request to prevent the transfer of the documents. On July 8, 2008 the Commissioner announced that she intends to provide to Carmit tape recordings of employees of the Company from the investigation material, on the grounds that the temporary injunction does not apply to the tapes. On July 14, 2008 the Company requested from the Court to receive a clarification on this matter. On July 23, 2008 the Court decided that the injunction applies also to the tapes. On July 9, 2008 Carmit requested to join the proceeding, and on December 25, 2008 it was decided that Carmit would file a defense statement within 30 days.

80 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 26 - Contingent Liabilities, Liens, Guarantees and Commitments (cont’d)

26.1 Contingent liabilities (cont’d)

26.1.2 Other claims and contingent liabilities (cont’d)

26.1.2.8 There are several civil claims and several claims pending in the Labor Court against Strauss Marketing. The civil claims are mainly in respect of demands of former distributors to receive the value of the distribution line or compensation because of not being provided advance notice regarding termination of the distribution relations or compensation for the decline in value of the distribution line or compensation in respect of the lowering of commissions during the term of the distribution relations or compensation in respect of the expropriation of distribution points or compensation in respect of lost earnings as a result of opening distribution points in the distribution area or compensation in respect of the selling of distribution points at a low price or compensation in respect of the collection of high interest or general compensation in respect of mental anguish.

In the labor claims, former distributors demand recognition of employer-employee relations and to receive the social benefits they claim are due to them because of such relations, including severance pay, compensation for delay in the payment of salaries, payment for vacation and payment for employee vacation allowance. Based upon the opinion of its legal counsel, the Company believes the chances of the claims in the Labor Court to succeed are low.

26.1.2.9 In March 2006 Centroproizvod, which has various agreements with the Doncafe group including a license to use and purchase the C-KAFA brand, filed a claim against the Doncafe group to revoke contracts and to prohibit the use of the C-KAFA brand, as well as the refund of legal expenses, alleging that the Doncafe group has violated its liabilities towards it. The proceeding is in the stage of evidence. In reality the Doncafe group is continuing to develop and invest in the brand which is a significant component of its activity in the area. The parties are in advanced stages of negotiating a compromise. On June 10, 2008, the Court in Belgrad, Serbia, approved the compromise that was reached by the parties, pursuant to which the Don Café group is entitled to use the C-KAFA brand and the Doncafe group shall pay to the plaintiff the royalties due to it in the amount of NIS 3.8 million. The said amount was paid in June 2008.

26.1.2.10 On February 23, 2007, a claim was filed by Galil Importing Corp. against Strauss USA Inc. (hereinafter – Strauss USA), Blue & White Foods Products Corp. (hereinafter: B&W Products) and R.A.B. Food Group LLC. (hereinafter: R.A.B.) with the Supreme Court of the State of New York County of Nassau. On August 29, 2007, following the decision of the Court to accept the request of B&W Products to strike it from the claim due to lack of opponency, the plaintiff filed a revised claim that replaces the original defendant B&W Products with B&W LLC. According to the claim, the Company and R.A.B., which is contended to be the exclusive importer of the Company’s products in North America, violated the agreement with it from 1986, by which the plaintiff was appointed the exclusive distributor of the Company’s products in the area of New York, and has acted as such for 20 years. It is alleged that on January 1, 2007, without providing the plaintiff advance notice, the defendants granted B&W LLC the exclusive distribution rights of Elite products in the USA, and in doing so breached the exclusivity agreement with the plaintiff. The plaintiff demands from the Company and from R.A.B. compensation in the amount of $ 1 million in respect of breach of the agreement with it and compensation in the amount of $ 1 million respect of breach of good faith and decency duties. Furthermore, the plaintiff demands compensation from B&W LLC in the amount of $ 175,000 in respect of the inventory of products held by it without the ability of selling them, and finally punitive damages in the amount of $ 1 million because employees of B&W LLC had requested from the customers of the plaintiff to not purchase the products of the group from the plaintiff under the false claim that the products had expired. On October 3, 2007 B&W LLC filed on its behalf a revised reply to the revised claim. Furthermore, on August 3, 2007 the Company filed a preliminary request to summarily dismiss the claim against it (“motion for summary judgment”) which was denied by the Court on November 7, 2007. On January 16, 2008 the Company submitted to the Court a motion for reargument and an appeal on this decision to the proper appellate court. On March 18, 2008 the Court denied the motion of the Company. At this point the aforementioned court has not yet made a ruling on these matters. In the opinion of management of the Company, which is based on the opinion of its legal counsel, the chances of the claim being accepted are lower than 50%.

81 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 26 - Contingent Liabilities, Liens, Guarantees and Commitments (cont’d)

26.1 Contingent liabilities (cont’d)

26.1.2 Other claims and contingent liabilities (cont’d)

26.1.2.11 In August 2008 the Company received a demand from the Tax Authorities for the payment of customs in the amount of NIS 13.4 million in respect of import transactions of raw materials in prior years. The inquiry being held by the customs authority has not yet been completed. In the opinion of the Company and its legal counsel, the financial statements represent fairly the customs paid and payable in respect of these transactions.

26.1.2.12 Legal and monetary claims that were not mentioned in the previous sections were filed against Group companies. Claims in the civil courts and other claims total NIS 119.2 million (including claims of distributors mentioned in Note 26.1.2.8), of which the Company is entitled to indemnity in the amount in the amount of NIS 8.1 million. In the opinion of Company Management, based on the opinion of its legal counsel, the Company and its subsidiaries will not incur losses in excess of NIS 22.1 million as a result of the above-mentioned claims, in respect of which a provision has been made in the financial statements.

26.1.2.13 See Note 37.1.3 regarding benefits received by Group companies under laws for the encouragement of capital investments.

26.2 Liens

26.2.1 The following liens have been provided as security for the liabilities of the Group companies:

December 31 2008 2007 NIS thousands

On current assets abroad in favor of foreign banks and others 27,811 81,925 On real estate assets in favor of foreign bank 8,744 11,596

The decrease is mainly due to the cancellation of liens in North America after the American food concern Pepsico became a partner (see Note 5.3).

26.2.2 Current liens on machinery, equipment, tools, instruments, facilities and real estate of Group companies operating in Israel have been registered in favor of the State of Israel to secure the repayment of grants in the event of non-compliance with the terms and conditions stipulated.

26.2.3 Fixed and current liens on land, buildings, machinery, equipment, inventory and notes of Group companies operating in Israel and abroad have been registered in favor of the banks as security for credit.

26.2.4 There is an undertaking from January 13, 1993 in favor of the Investment Center to pledge the real estate rights in Sha’ar Hanegev in respect of grants received by Strauss Frito-Lay Ltd.

26.2.5 The Company has undertaken in favor of banks in Israel not to mortgage or to otherwise encumber assets without receiving the prior written consent of the banks.

26.2.6 As security for a liability relating to a real estate venture in the amount of NIS 8.7 million that was purchased from a third party, a subsidiary pledged a certain part of the real estate until such date as the land rights are finally and separately registered.

26.2.7 The Company, PRL (a company wholly owned by the Lima family, the other shareholders of Santa Clara Participaceos S.A, hereinafter – SCP) and SCP signed mutual liens on shares, so that Elite Do Brazil Participaceos Ltda (hereinafter – Elite Brazil) pledged its shares in SCP in favor of PRL under a first degree lien, and undertook to pledge all the shares or options of SCP that it receives during the period of the lien, and to pledge all income, profits, proceeds and rights as well as any amount that it receives due to the sale of SCP shares in the case of a breach of representations included in the agreements. 82 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 26 - Contingent Liabilities, Liens, Guarantees and Commitments (cont’d)

26.2 Liens (cont'd)

26.2.7 (cont'd)

Respectively, PRL pledged its shares in SCP in favor of Elite-Brazil under a first degree lien and undertook to pledge all the assets it receives. This was done in order to guarantee that each party complies with its liabilities, its payments and the representations provided by it. Until such time as any of the terms of the joint venture agreement are breached, the shareholders are entitled to enjoy the rights attached to their pledged shares. As a result of the restructuring of the Group companies in Brazil, according to which SCP was merged into Santa Clara Industria e Comercio de Alimentos (hereinafter: SC), the aforementioned lien on the shares will be amended so that the mutual lien will apply to the shares of SC.

26.3 Guarantees

26.3.1 Guarantees and comfort letters were given to banks and others with respect to the business activity of the Group as follows:

December 31 2008 2007 NIS thousands

In favor of subsidiaries and proportionately consolidated companies in Israel and abroad 869,511 564,832 In favor of others in Israel and abroad 150,482 239,503

26.3.2 Mutual guarantees limited (see aforementioned) and unlimited in amount exist between the Company and its subsidiaries as security for all liabilities towards banks and others.

26.4 Material commitments

26.4.1 As at December 31, 2008 the Group companies are party to various agreements for the payment of royalties in a minimum annual amount of no less than US$2.1 million.

26.4.2 The Group companies have commitments under lease agreements, see Note 27.

26.4.3 In the framework of an engagement regarding the investment of Pepsico Foods International (hereinafter: Pepsico) in Strauss Frito-Lay Ltd, the shareholders agreed that if the Company should become controlled (directly or indirectly) by someone not belonging to the Strauss family, Pepesico will have the right 12 months from the Company becoming thus controlled to purchase all the remaining shares of the Company in Strauss Frito-Lay Ltd at the market price that will be determined as specified in the agreement, on the condition that Pepsico had tried in good faith to cooperate in those 12 months and it can be reasonably said that its attempts were unsuccessful.

26.4.4 The Company provided sponsorship to the “Maccabi Tel Aviv” basketball team, at the amounts specified in the sponsorship agreement, up to (and including) the 2007/2008 game season. The sponsorship agreement ended in the 2007/2008 game season.

26.4.5 See Note 30 regarding commitments with respect to derivatives.

83 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 26 - Contingent Liabilities, Liens, Guarantees and Commitments (cont’d)

26.4 Material commitments (cont’d)

26.4.6 On May 11, 2006 the Board of Directors and Audit Committee of the Company approved increasing the liability limits of the Company’s existing directors and officers liability insurance policy to the limit of US$ 75 million per event and period in the event of capital being raised in London, as a framework decision and without any change in the annual premium limits. The decision was approved on June 18, 2006 by the Company’s general meeting. Furthermore, the Company’s Board of Directors and Audit Committee approved increasing the liability limits as aforementioned with respect to Mr. Michael Strauss, Ms. Ofra Strauss and Mr. Ran Midyan, who may be considered controlling shareholders of the Company because of their indirect holdings in the parent company.

On July 1, 2007 the actual liability limits were increased from US$ 40 million to US$ 50 million.

On June 12, 2008 the extraordinary meeting of the Company’s shareholders resolved to approve and ratify the Company’s liability insurance policy for officers and directors of the Company and its subsidiaries for the period from July 1, 2007 to June 30, 2008 with liability limits of US $ 50 million and the payment of an annual premium of US$ 90 thousand. It also resolved to empower the Company’s CEO to renew the insurance policy from time to time, at his discretion and according to the terms of the present policy and/or similar terms, for additional insurance periods until June 30, 2013, providing that the insurance coverage limit does not exceed US$ 150 million, the annual premium does not exceed US$ 250,000 and there are no material differences between the new policy’s terms and the existing terms. This transaction shall replace the framework transaction that was approved by the general shareholders’ meeting on March 22, 2004, which specified liability limits of US$ 40 million and a maximum annual premium of US$ 500 thousand.

26.4.7 An agreement between Strauss Health and its shareholders provides, inter alia, that for as long as there are directors representing Danone (a 20% shareholder of Strauss Health) on the board of directors of Strauss Health, Danone will have the right to veto certain board resolutions, including inter-company transactions and a resolution to distribute a dividend lower than 25% of the annual net income, an offer to the public or a change in share capital diluting Danone’s holding. It was also provided that Strauss Health is to coordinate its export activity with Danone.

26.4.8 On November 12, 1998 an agreement was signed between Kibbutz Yotvata, the Uri Horazo Yotvata Dairies (Limited Partnership), Yotvata and Strauss Health, whereby Strauss Health acquired, by way of an allotment of shares, 50% of Yotvata’s ordinary share capital and additional shares granting preference in management and in passing resolutions. Among other things, the agreement provides that for as long as the Kibbutz holds at least 20% of the ordinary share capital of Yotvata, a resolution by Yotvata’s board of directors or general meeting relating to certain matters enumerated in the agreement will require the approval of the Kibbutz’s representatives on the board of directors. A mutual option is granted in the agreement to the Kibbutz and to Strauss Health to make an exchange of shares, if certain conditions are fulfilled, in such a manner that Strauss Health will hold 100% of the control and equity in Yotvata, and the Kibbutz will own 6.4% of the share capital of Strauss Health as it is at such time.

26.4.9 Strauss Health and Yotvata have agreements with dairy farmers to purchase the full milk produce quotas of the dairy farmers.

26.4.10 On December 24, 2007 the Company signed an agreement with third parties (hereinafter: the sellers) regarding the purchase of a building in “Park Yanai” on 49 Hasivim St. Petach Tikva that serves as the main offices of the Company for the price of US$ 19 million with the addition of VAT. A caveat was registered on the asset in favor of the Company. As at the date of the financial statements, the amount of NIS 5.4 million is held by a trustee until all the tax approvals regarding the sale are provided by the sellers, which is to be no later than 12 months from the date of handing over possession of the building.

After the tax approvals of one of the sellers are provided, the amount deposited in trust as aforementioned will be reduced to 10% of the consideration.

84 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 26 - Contingent Liabilities, Liens, Guarantees and Commitments (cont’d)

26.4 Material commitments (cont’d)

26.4.10 (cont'd)

The sellers undertook that within 7 years from completing the project (including the last two buildings of the Park Yanai project), the sold asset will be registered as a condominium. In accordance with the agreement the Company shall bear the relative part, according to the proportion between the area of the asset and the area of the other buildings in the project, of the registration expenses. If and to the extent the registration of the condominium takes more than seven years, or at any earlier date at the discretion of the Company, the Company will be entitled to request from the sellers to lease the building under a perpetual lease for 999 years without any lease payments and/or other payment and to register the lease with the Land Registrar until such time as the building is registered as a condominium. The Company was granted by the individuals of the sellers an irrevocable personal guarantee as security for the commitment of the sellers to register the condominium. When the building was handed over the lease agreement was cancelled except for specific clauses as provided in the sale agreement, including provisions regarding the Company’s right of first refusal for six years as from December 1, 2006 as regards areas that are leased out and/or sold by the sellers in the remaining two buildings of the project and provisions regarding the commitment of the sellers to perform on their account the skeleton work on the asset and to bear completion and adaptation costs up to the amount provided in the agreement. The Company has undertaken to bear the rest of the completion and adaptation costs in the total amount of NIS 20 million.

26.4.11 In September 2008 the Company signed a series of agreements following which the private investment fund TPG invested in Strauss Coffee B.V., a subsidiary of the Company that is domiciled in the Netherlands (hereinafter – Strauss Coffee). In the framework of the transaction, the coffee operation of the Group in Israel was transferred to Strauss Coffee, which presently manages the entire coffee operation of the Group. In the agreements the Company undertook to not invest in a company whose main business is coffee, other than coffee shops, for as long as TPG holds more than 10% of the capital of Strauss Coffee. For further details see Note 5.7.

26.4.12 Regarding the indemnification for the sale of participation rights in Sabra, see note 5.3.

26.4.13 See Note 39 regarding commitments with interested and related parties.

Note 27 - Operating Leases

27.1 Leases in which the Group is the lessee

The Group companies are party to non-cancelable long-term property leasing agreements, pursuant whereto the following minimum rental fees shall be paid:

December 31 2008 2007 NIS thousands

In the first year 51,298 39,044 Between one and five years 106,085 84,937 In the fifth year and thereafter 130,544 111,718 287,927 235,699

The Group rents distribution and logistics centers in Zrifin, Acre, Haifa and Petach Tikva. The Group rents the distribution center in Zrifin from a third party for 25 years ending in November 2021. The Group rents the distribution center in Acre from a third party for a period of 10 years ending in February 2011. The Group has an option to extend the rental period for 10 years and after that for additional years. The Group rents the distribution center in Haifa from third parties for a period of 20 years until October 2018 and the distribution center in Petach Tikva from a related company of the Group until March 2012.

85 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 27 - Operating Leases (cont'd)

27.1 Leases in which the Group is the lessee (cont'd)

In addition, the Group rents, through a subsidiary, 2 stores in New York for the purpose of operating a chocolate bar. The rent period of these stores ends in 2021. In Israel, the Group rents 5 stores for the purpose of operating a chocolate bar. The rent period of these stores ends in 2009-2011.

The Group also rents through its subsidiary 5 sites in New York that are used for manufacture, storage, distribution and offices until 2018. It also rents through its subsidiary in Romania 4 sites for manufacture, storage, distribution and offices until 2022.

In the year ended December 31, 2008 an amount of NIS 50,402 thousand was recorded as an expense in the statement of income in respect of operating leases (2007 and 2006 – NIS 46,550 thousand and NIS 18,602 thousand, respectively).

27.2 Leases in which the Group is the lessor

The Group leases out part of its investment property held under operating leases (see Note 16). The future minimum lease payments in respect of non-cancelable lease contracts are as follows: December 31 2008 2007 NIS thousands

Up to one year 990 9 Between one and five years 777 137 Over five years - 555

1,767 701

In the year ended December 31, 2008 an amount of NIS 1,375 thousand was recognized as rental revenue in the statement of income (2007 and 2006 – NIS 305 thousand and NIS 238 thousand, respectively).

Note 28 - Capital and Reserves

28.1 Share capital

28.1.1 Composition

December 31 2008 2007 Number of shares (in thousands)

Authorized 150,000 150,000 Issued and paid-in 106,297 105,837

28.1.2 The holders of the ordinary shares are entitled to receive dividends as declared from time to time and to one vote per share at shareholders’ meetings of the Company. In respect of the treasury shares (see below), all rights are suspended until those shares are reissued.

28.1.3 On May 10, 2007 the Company published, at the Tel Aviv Stock Exchange, a prospectus for listing for trading of the debentures (Series B) mentioned in Note 20.3 and a shelf prospectus. The shelf prospectus enables the Company, for two years from the date it was published, to offer securities to the public in a tender, by means of shelf prospectus offering statements. The securities and their terms are described in Chapter 2 of the shelf prospectus. The issuance expenses in respect of the shelf prospectus and the listing of the debentures for trading amounted to NIS 3.3 million.

86 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 28 - Capital and Reserves (cont'd)

28.2 Options

Further to that mentioned in Note 20.2, in the framework of a block issuance on March 17, 2005, the Company issued 10,000,000 registered Series 1 options that are exercisable until March 17, 2009, in a way that each option is exercisable into one ordinary share, subject to adjustments following the distribution of bonus shares and a dividend, at an exercise price of NIS 100 if the exercise notice is provided by December 31, 2005 or of NIS 50 if the exercise notice is provided from January 1, 2006. The exercise price is linked to the CPI that was published on February 15, 2005. The options were classified as a financial liability in accordance with IAS 39. On July 13, 2006 the Court approved an arrangement for changing the terms of the options in a way that the exercise price of the options will be a fixed nominal price of NIS 54.46 (not linked to the Israeli CPI). In addition, in the event of the distribution of a cash dividend the exercise price will be reduced by 75% of the amount of the dividend per share. If in the calendar year the Company distributes a cash dividend of more than NIS 1.5 per share, then with respect to the amount in excess of NIS 1.5 per share, the exercise price will be reduced by 100% of the amount of the dividend per share. Due to this change the options were reclassified into equity. See Note 28.4 regarding the exercise price as at balance sheet date.

In the reported period 417,201 Series 1 options were exercised into 417,201 shares of the Company of NIS 1 par value for the price of NIS 22,228 thousand. As at December 31, 2008 there are 9,582,799 Series 1 options outstanding that are exercisable into 9,582,799 shares of NIS 1 par value.

On March 17, 2009, subsequent to balance sheet date, the options expired. Expiry of the options had no effect on the Company’s results of operation and financial position.

28.3 Treasury shares

28.3.1 As at balance sheet date the Company holds its own NIS 1 shares at a total par value of NIS 868 thousand, which constitute approximately 0.82% of its shares. The investment in these shares is presented according to the “treasury shares” method as a part of shareholders’ equity.

28.3.2 In October 2002 the Company’s Board of Directors carried a resolution regarding a framework for the acquisition of Company shares by the Company and/or a subsidiary from time to time, in the course of trading on or outside of the Stock Exchange. At this stage, the framework is to be a total amount that does not exceed NIS 40 million, its source being Company profits available for distribution pursuant to the Companies Law. The manner of acquisition, prices and dates will be prescribed by Company Management at its discretion. Under the Companies Law, the shares acquired will become “dormant shares” until they are sold by the Company. The date of sale will be determined by Company Management at its discretion. In the course of 2006-2008 the Company did not purchase any shares.

28.4 Dividend distribution

Total dividend distributed Dividend per share Declaration date Distribution date NIS thousands NIS September 14, 2008 (ex date: September 25, 2008) October 12, 2008 199,951 1.90 August 28, 2006 (ex date: September 11, 2006) September 26, 2006 149,791 1.43 March 1, 2006 (ex date: March 15, 2006) March 30, 2006 50,261 0.48

As a result of the dividend distribution, the exercise price of the options that were granted to employees, as described in Note 25.2, was adjusted Furthermore, as a result of the dividend distribution, the exercise price of the Series 1 options issued by the Company was adjusted to NIS 51.76 per option.

.

87 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 28 - Capital and Reserves (cont’d)

28.5 Translation reserve

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 monetary items that actually increase or decrease the net investment of the Group in foreign operations.

28.6 Capital reserve in respect of available-for-sale financial assets

The capital reserve in respect of available-for-sale financial assets comprises the cumulative net change in the fair value of available-for-sale financial assets until the investments are derecognised or impaired. As at December 31, 2008 the cumulative net change in the fair value of available-for-sale financial assets was recognized in the income statement due to impairment .

28.7 Capital management

The Company's policy is to preserve a strong capital base in order to maintain the Company's stability and support future development of the Group’s business. Management of the Company monitors return on capital, defined as the total amount of equity attributable to the shareholders of the Company other than the minority interests, and also the amount of dividends distributed to the ordinary shareholders.

The Company has undertaken in favor of banks in Israel not to mortgage or to otherwise encumber assets without receiving the prior written consent of the banks, that the total amount of the equity of the Company shall be no less than 30% of total balance sheet, and that new loans shall not be taken if this shall cause a deviation from the aforementioned ratio, unless the said banks shall give their prior written consent thereto. Furthermore, a commitment exists that no investments of any kind will be made, directly or indirectly, in companies whose objectives differ from those of the Group companies, without the prior written consent of banks in Israel, when the investment exceeds 50% of the shareholders’ equity. As at December 31, 2008 the Company is in compliance with these undertakings. As at balance sheet date, there are no bank loans that are subject to these financial covenants.

Note 29 - Segment Reporting

29.1 General

The Company implements IFRS 8 regarding operating segments. In accordance with the standard, segment information is presented in respect of the operating segments of the Group on the basis of the Group’s management and internal reports (hereinafter – management reports). The Group is divided into reportable operating segments on the basis of the management reports, which are based on the geographical location and the types of products and services, as follows:

y Israel – Including manufacture and sale of dairy products and milk beverages, salads, candy, snacks, honey products, olive oil and confitures. y Coffee – Including manufacture and sale of coffee products in Israel and abroad.

Other operations include the activity of the Group in North America (manufacture and sale of spreads and chilled salads), research and development in the area of water and the Max Brenner operation.

Presented hereunder is information regarding the results of the operating segments. The assessment of the Company’s performance in the framework of the management reports is based on operating profit, which includes the allocation of selling expenses and general and administrative expenses, less certain items, as follows:

y Exceptional doubtful debt expenses and income in respect of Clubmarket. y One-time impairment of assets. y Other expenses (income). y Valuation results of commodities hedging transactions as at the end of the year that are reported in cost of sales. y Expense in respect of share-based payment.

Inter-segment pricing is determined on an arms’ length basis.

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly cash, deposits and marketable securities, investments (other than investment property) and related revenue, loans and credit and related expenses, corporate assets and income tax assets and liabilities.

The segments' capital investment is the total cost incurred during the period to acquire fixed assets, intangible assets, investment property and deferred expenses (including in the framework of acquiring operations and subsidiaries).

88 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 29 - Segment Reporting (cont’d)

29.2 Details according to operating segments and reconciliation between the operating data of the segments and the consolidated report

Year ended December 31 2008 2007 2006 NIS thousands

Revenues Sales to external customers: Israel 2,671,118 2,673,093 2,583,952 Coffee 3,243,246 2,897,449 2,343,957 Other 331,511 390,405 227,878 Sales to other segments: Israel 27,254 30,832 13,142 Coffee 7,548 6,645 8,645 Other - 368 316

Total revenues of the segments 6,280,677 5,998,792 5,177,890

Cancellation of inter-segment sales (34,802) (37,845) (22,103)

Total consolidated revenues 6,245,875 5,960,947 5,155,787 Profit Israel 273,927 259,686 248,756 Coffee 255,187 231,337 192,448 Other (7,205) 21,219 (9,327)

Total profit of the segments 521,909 512,242 431,877

Unallocated income (expenses): Valuation of commodities hedging transactions as at the end of the year (9,621) (5,022) (302) Bad debt income (expenses) in respect of Clubmarket - 3,390 - Non-recurring impairment of assets (5,750) Other income (expenses) (1) 208,325 *(18,088) 153,826 Share based payment (26,226) (11,618) (15,436)

Total operating profit 688,637 480,904 569,965 Financing expenses (72,041) *(77,536) (44,222) Company’s equity in earnings of associate - - 4,377

Income before taxes on income 616,596 403,368 530,120

(1) In 2008 includes a loss of NIS 40 million in respect of impairment of goodwill attributed to the coffee segment and of NIS 12 million in respect of impairment of goodwill attributed to another segment.

* Reclassified. See Note 3.23.6.

89 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 29 - Segment Reporting (cont’d)

29.3 Additional information on operating segments

Year ended December 31 2008 2007 2006 NIS thousands

Depreciation and amortization (1) Israel 101,591 108,828 97,432 Coffee 118,069 72,153 63,234 Other 24,069 11,462 5,437

Total depreciation and amortization attributed to segments 243,729 192,443 166,103

Adjustments: Unallocated non-financial assets 5,495 2,033 1,413

Total depreciation and amortization 249,224 194,476 167,516

(1) Including impairment of assets

As at December 31 2008 2007* NIS thousands

Assets Israel 1,512,897 1,492,063 Coffee 2,534,745 2,265,888 Other 223,862 173,444

Total assets of the segments 4,271,504 3,931,395

Adjustments: Financial assets 818,937 682,387 Tax assets 104,164 50,482 Assets designated for the payment of employee Benefits 7,347 6,664 Unallocated non-financial assets 233,206 317,512

Total assets 5,435,158 4,988,440

* Several amounts in this note have been reclassified in order to correspond with the presentation in the current period.

90 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 29 - Segment Reporting (cont’d)

29.3 Additional information on operating segments (cont’d)

As at December 31 2008 2007 NIS thousands

Capital investments Israel 149,854 137,104 Coffee 506,784 132,411 Other 34,436 83,770

Total capital investments 691,074 353,285

Adjustments: Unallocated non-financial assets 25,480 97,759

Total capital investments 716,554 451,044

29.4 Information regarding geographical segments

Presented hereunder are the revenues of the Group from sales to external customers on the basis of the geographical location of the assets:

Year ended December 31 2008 2007 2006 NIS thousands

Israel 3,312,365 3,272,595 3,090,143 Europe (except Poland) 1,135,753 945,483 857,643 Poland 500,307 465,697 418,780 Brazil 1,024,705 945,498 604,767 USA 272,745 331,674 184,454

Total revenues 6,245,875 5,960,947 5,155,787

Presented hereunder are the non-current assets of the Group according to their geographical location:

As at December 31 2008 2007 NIS thousands

Assets Israel 1,108,207 *1,040,512 Europe (except Poland) 642,985 *365,633 Poland 259,181 322,625 Brazil 376,818 509,304 USA 144,577 276,565

Total assets 2,531,768 2,514,639

These assets include mainly fixed assets and intangible assets and do not include financial assets, deferred tax assets and assets designated for the payment of employee benefits.

*Reclassified

91 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 29 - Segment Reporting (cont’d)

29.5 Information regarding products and services

Presented hereunder are the revenues of the Group from sales to external customers according to groups of similar products and services:

Year ended December 31 2008 2007 2006 NIS thousands

Revenues Dairy products 1,270,323 1,243,702 1,191,357 Salads 476,726 539,341 407,806 Other health and life quality products 294,387 274,763 244,511 Sweets and baked products 728,664 716,171 736,374 Salted products 137,717 128,121 112,348 Coffee 3,243,246 2,897,449 2,343,957 Other 94,812 161,400 119,434

6,245,875 5,960,947 5,155,787

29.6 Information regarding primary customer

In 2008 group's sales to one of it's customers amounted to NIS 645,280 thousand (2007 – NIS 616,092 thousand, 2006 – NIS 601,356 thousand). The group's revenues group from its sales to this customer are included in the Israel segment.

Note 30 - Financial Instruments

The Group is exposed to the following risks as a result of using financial instruments: y Credit risk y Interest risk y Market risks that include: commodity price risks, foreign currency risks and CPI risks. y Liquidity risk.

This note provides information regarding the exposure of the Group to these risks and regarding the policy of the Group for the management of such risks.

In the sensitivity analyses the Company used the following models: 1. Options – Black & Scholes model, standard deviation and quotations of relevant underlying assets. 2. Forward transactions – According to the change in the price of the relevant underlying asset and interest differences deriving from interest rates and/or storage costs (for green coffee). 3. Debentures – According to the known interest curve and average duration of the debentures.

92 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 30 - Financial Instruments (cont’d)

30.1 Credit risks

Credit risk is the risk of the Group incurring a monetary loss if a customer or counterparty does not meet its contractual obligations, and it derives mainly from debit balances of customers.

On the retail market the Group sells to two principal customers: Customer A (10.3% of sales) and Customer B (7% of sales). The balance of the Company’s customers, other than the aforementioned two principal customers in Israel, is spread out and the risk deriving from the concentration of credit with a single customer or group of customers is immaterial.

The sales of the Group to its customers (in and outside of Israel) are mainly made on accepted market credit terms. The credit to retail customers of the private market in Israel (that are not included in the organized retail market) is guaranteed by credit insurance (that includes a deductible) and by various collateral, and the rest of the credit to the private market that is not covered by any security is at risk. Nevertheless, the wide spread of the Group’s customers in the private market reduces this risk. The credit to customers on the organized retail market is not guaranteed and is concentrated with a small number of customers, to whom the extent of the Group’s sales is large, and therefore the non-repayment of credit by any of the customers on the organized market may significantly impair the Group’ cash flows and business results. Most of the credit to foreign customers is not guaranteed.

The Company’s management constantly monitors customer debts and the financial statements include specific provisions for doubtful debts which properly reflect, according to the management’s assessment, the loss inherent in debts the collection of which is doubtful.

30.1.1 Exposure to credit risks

The carrying amount of financial assets reflects maximum credit exposure. The maximum exposure to credit risk on the reporting date was:

As at December 31 2008 2007 NIS thousands

Cash and cash equivalents 680,237 489,737 Trade receivables (1) 948,600 899,490 Other receivables (2) 38,664 *37,657 Deposits 15,063 41,511 Marketable securities (excluding derivatives) 18,011 18,016 Derivatives 23,406 *23,708 Investments and long-term loans 105,626 *133,123

Total 1,829,607 1,643,242

* Reclassified in order to correspond with the presentation in the current period.

(1) As at December 31, 2008 trade receivables in the amount of NIS 284,168 thousand is guaranteed by credit insurance and other collateral, as aforementioned. (2) Other financial receivables comprise: employees, accrued income, interested parties and other receivables.

30.1.2 See Note 8 regarding exposure to credit risks in respect of customers. Furthermore, see Note 13.3 on loans granted and Note 7 on investments in marketable securities regarding classification of financial assets according to different credit risks.

93 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 30 - Financial Instruments (cont’d)

30.2 Interest risks

The Company occasionally takes out floating interest loans and consequently its financial results (financing expenses) are exposed to risk due to interest changes. In December 2005 the Company engaged in an IRS transaction to receive floating interest based on the LIBOR and to pay a fixed rate of 3.99% on a principal of € 20,000 thousand, for which interest payments began in February 2006 and are expected to end in August 2011.

The interest rate swap transaction was realized during 2006. As at December 31, 2007 and December 31, 2008, the Company has no open IRS transactions.

30.2.1 Interest rate profile

The interest rate profile of the Group’s interest bearing financial instruments as at the date of the report are as follows:

As at December 31 2008 2007 NIS thousands

Fixed interest financial instruments Financial assets (1) 112,161 124,813 Financial liabilities (1,071,953) (1,262,172)

(959,792) (1,137,359) Floating interest financial instruments Financial assets 662,240 537,223 Financial liabilities (243,718) (147,235)

418,522 389,988

(1) Including a debenture in the amount of NIS 9,526 and 9,783 thousand 2008 and 2007, respectively that bears shekel interest of 10.5% p.a. for every day that the shekel Telbor interest rate per year is lower than or equal to 7%.

30.2.2 Fair value sensitivity analysis regarding fixed interest instruments

Most of the fixed interest assets and liabilities of the Group (such as deposits, loans granted and issued debentures) are not measured at fair value through profit or loss. Therefore, any change in the interest rate as at the reported date would not have a material effect on the statement of income.

94 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 30 - Financial Instruments (cont’d)

30.2.3 Cash flow sensitivity analysis regarding floating interest instruments

Changes in the absolute interest rates as at the reported date would have increased (decreased) shareholders’ equity (the equity attributable to all the Group’s shareholders) and the income for the period by the amounts presented below. This analysis was performed assuming that all the other variables remain the same and disregards tax effects.

December 31, 2008 Annual Increase of Increase of weighted Decrease of Decrease of 1% 0.5% interest 0.5% 1% NIS thousands

Total income (expense) 4,389 2,195 (8,902) (2,195) (4,389)

December 31, 2007 Annual Increase of Increase of weighted Decrease of Decrease of 1% 0.5% interest 0.5% 1% NIS thousands

Total income (expense) 3,900 1,950 (10,405) (1,950) (3,900)

30.3 Commodity risks

The prices of raw materials used in order to manufacture the Group companies’ products are affected, among other things, by uncontrollable factors, such as weather conditions. Therefore, the Group companies use derivative financial instruments in order to reduce the exposure to risks arising from unusual changes in the prices of raw materials required for production purposes (primarily green coffee).

30.3.1 As at December 31, 2008 the derivative financial instruments of the Group (green coffee) are as follows:

Carrying amount and Exercise/expiry date face value fair value NIS thousands

Forward contracts purchased, net July 08 - March 09 24,623 611 Options purchased: Buy Call March 09 – July 09 28,586 772 Buy Put March 09 – March 09 12,582 177 Options written: Sell Call March 09 – September 09 87,701 (2,980) Sell Put March 09 – July 09 40,171 (2,019) (3,439)

95 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 30 - Financial Instruments (cont’d)

30.3.2 Sensitivity analysis

An increase in the prices of the following commodities as at December 31 would have increased (decreased) shareholders’ equity (the equity attributable to all the Company’s shareholders) and income for the period, in respect of forward transactions and options, by the amounts presented below. This analysis was performed assuming that all the other variables remain the same, and disregards tax effects.

December 31, 2008 Fair value and Increase Increase Increase carrying Decrease Decrease Decrease (1) of 10% of 5% amount of 5% of 10% (2) NIS thousands

Arabica (3,103) (690) (164) (40) (457) (828) Robusta 3,183 2,155 1,095 (1,136) (2,315) (3,165)

Total 80 1,465 931 (3,439) (1,176) (2,772) (3,993)

December 31, 2007 Fair value and Increase Increase Increase carrying Decrease Decrease Decrease (1) of 10% of 5% amount of 5% of 10% (2) NIS thousands

Arabica (9,279) (2,111) (513) 224 (192) (504) Robusta 6,728 4,474 2,241 (2,351) (4,946) (6,918) Total (2,551) 2,363 1,728 5,244 (2,127) (5,138) (7,422)

(1) In the last ten years, on the basis of closing rates, there was a daily increase of 22% in the price of Arabica and of 15% in the price of Robusta. (2) In the last ten years, on the basis of closing rates, there was a daily decrease of 13% in the price of Arabica and of 13.5% in the price of Robusta.

30.4 Foreign currency risks

The Group is primarily exposed to foreign currency risks from purchase of raw materials, especially in the currencies that are different from the functional currency of the Group in Israel. The primary risk refers to the US dollar and the Euro.

Balances in foreign currency or linked thereto are stated in the financial statements according to the exchange rates in effect at the date of the financial statements. Presented hereunder are data on the representative exchange rates of the main currencies in the financial statements:

December 31 December 31 2008 2007 2006 2008 2007 2006 NIS %

Polish Zloty 1.2754 1.5748 1.4524(19.01 ) 8.43 2.94 Euro 5.2973 5.6592 5.5643 (6.39 ) 1.71 2.16 US dollar 3.802 3.8460 4.2250 (1.14 ) (8.97) (8.21) Pound Sterling 5.5481 7.7105 8.2884(28.0 ) (7.0) 4.4 Brazilian Real 1.6364 2.1702 1.9737 (24.6 ) 9.96 0.34

96 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 30 - Financial Instruments (cont’d)

30.4.1 The Group uses futures contracts in order to hedge part of its foreign currency risk. As at December 31, 2008 the derivative financial instruments of the Group (foreign currency) are as follows:

Date of expiration/ Currency Currency maturity/ receivable payable sale Fair value

Forward currency contracts Dollar NIS January 09- 538 November 09 Put options written Dollar NIS April 09 (937) Put options purchased NIS Dollar March 09-April 09 693 Call options written NIS Dollar March 09-April 09 (389) Forward currency contracts Euro NIS September 09- 1,257 November 09 Call options purchased Euro NIS June 09-July 09 3,475 Call options written NIS Euro June 09-November (2,387) 09 Forward currency contracts Dollar Zloty January 09 (116) Put options purchased Zloty Dollar January 09 111 Put options written Zloty Dollar January 09 (142) Forward currency contracts Dollar Real January 09 (188) Call options purchased Dollar Real January 09-June 09 6,434 Call options written Real Dollar January 09-August 09 (15,269)

(6,920)

30.4.2 Sensitivity analysis

Presented hereunder is a sensitivity analysis of the Group’s derivative instruments (foreign currency) as at December 31, 2008 and December 31, 2007 in NIS thousands. Any change in the exchange rates of the principal currencies as at December 31 would have increased (decreased) equity (the equity attributable to all the Company’s shareholders) and income for the period by the amounts presented below (in NIS thousands). This analysis was performed assuming that all the other variables remain the same, and disregards tax effects.

97 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 30 - Financial Instruments (cont’d)

30.4.2 Sensitivity analysis (con'td)

December 31, 2008 Exchange rate/ carrying 5% amount and 5% 10% 10% increase increase fair value decrease decrease

NIS/euro exchange rate 5.827 5.562 5.297 5.032 4.767 Effect of call options (3,375) (2,301) 1,088 (254) (1,104) Forward transactions 1,456 728 1,257 (728) (1,456) (1,919) (1,573) 2,345 (982) (2,560)

Real/Dollar exchange rate 2.547 2.431 2.315 2.199 2.084 Effect of call options (1,184) (721) (8,835) 983 2,230 Forward transactions 1,073 536 (188) (536) (1,073) (111) (185) (9,023) 447 1,157

NIS/Dollar exchange rate 4.182 3.992 3.802 3.612 3.422 Effect of call options (1,088) (385) (389) 183 259 Effect of put options 378 109 (244) 392 1,465 Forward transactions 9,900 5,001 538 (5,001) (9,900) 9,190 4,725 (95) (4,426) (8,176

Zloty/Dollar exchange rate 3.266 3.117 2.969 2.821 2.672 Effect of call options (234) (89) (142) 44 45 Effect of put options (41) (16) 111 98 390 Forward transactions 1,912 956 (116) (956) (1,912) 1,637 851 (147) (814) (1,477)

98 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 30 - Financial Instruments (cont’d)

30.4.2 Sensitivity analysis (con'td)

December 31, 2007 Exchange rate/ carrying 5% amount and 5% 10% 10% increase increase fair value decrease decrease

NIS/euro exchange rate 6.225 5.942 5.659 5.376 5.093 Effect of call options (681) (17 2.083 (1,232) (1,690)

Dollar/euro exchange rate 1.619 1.546 1.472 1.398 1.325 Effect of put options (317) (236) 343 746 2,443

NIS/£ exchange rate 8.482 8.097 7.711 7.325 6.940 Effect of call options (775) (244) (81) 64 71

NIS/dollar exchange rate 4.231 4.038 3.846 3.654 3.461 Effect of put options 6,638 3,982 (6,687) (4,377) (8,858) Forward transactions 3,283 1,642 (254) (1,642) (3,283) Total 9,921 5,624 (6,941) (6,019) (12,141)

Dollar/zloty exchange rate 2.717 2.594 2.47 2.347 2.223 Effect of call options 1,118 326 77 (57) (73)

99 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 30 - Financial Instruments (cont’d)

30.4.3 Linkage balance

The currency risk of the Group, based on carrying amounts, is as follows:

December 31, 2008 Non-financial NIS linked NIS unlinked Dollar Euro Brazilian Real Other (1) Total NIS thousands

Cash and cash equivalents - 50,894 40,864 545,724 2,235 40,520 - 680,237 Marketable securities and deposits 4,369 20,598 7,592 26 482 7 - 33,074 Trade receivables - 449,941 119,797 38,459 65,295 275,108 - 948,600 Income tax receivables ------94,934 94,934 Other receivables and debit balances 14,457 17,759 21,865 4,702 1,120 2,238 148,235 210,376 Inventory ------813,966 813,966 Other investments and long-term debit balances 33,720 23,055 794 31,996 15,955 106 - 105,626 Assets designated for the payment of employee benefits ------7,347 7,347 Fixed assets ------1,229,977 1,229,977 Intangible assets ------1,226,275 1,226,275 Deferred expenses ------54,647 54,647 Investment property ------20,869 20,869 Deferred tax assets ------9,230 9,230

(1) Including financial assets that were excluded from the scope of IFRS 7.

100 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 30 - Financial Instruments (cont’d)

30.4.3 Linkage balance (cont'd)

December 31, 2008 Non-financial NIS linked NIS unlinked Dollar Euro Brazilian Real Other (1) Total NIS thousands

Credit from banks and current maturities (90,802) (34,420) (108,466) (2,604) (77,607) - - (313,899) Trade payables - (401,764) (86,743) (88,539) (18,922) (161,536) - (757,504) Income tax payables ------(52,596) (52,596) Other payables and credit balances (121,806) (125,726) (62,983) (25,370) (13,817) (24,374) (59,679) (433,755) Provisions - (19,596) - (7,119 ) - - - (26,715) Loans and credit (966,112) - (20,901 ) (859) (154) - - (988,026) Long-term payables and credit balances - - (3,945 ) - (6,812 ) - (28,877) (39,634) Employee benefits ------(22,668) (22,668) Deferred taxes ------(102,017) (102,017)

Total (1,126,174) (19,259) (92,126) 496,416 (32,225) 132,069 3,339,643 2,698,344

(1) Including financial assets that were excluded from the scope of IFRS 7.

101 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 30 - Financial Instruments (cont’d)

30.4.3 Linkage balance (cont’d)

December 31, 2007* Non-financial NIS linked NIS unlinked Dollar Euro Brazilian Real Other (1) Total NIS thousands

Cash and cash equivalents - 390,896 44,936 (10,047) 2,948 61,004 - 489,737 Marketable securities and deposits 5,657 29,227 9,742 26 14,708 167 - 59,527 Trade receivables - 434,439 99,981 31,136 95,369 238,565 - 899,490 Income tax receivables ------39,462 39,462 Other receivables and debit balances 30,546 73,909 19,490 6,564 10,526 1,971 67,818 210,824 Inventory ------621,134 621,134 Assets held for sale ------2,820 2,820 Other investments and long-term debit balances 18,269 38,718 1,580 38,149 12,479 656 23,272 133,123 Assets designated for the payment of employee benefits ------6,664 6,664 Fixed assets ------1,218,491 1,218,491 Intangible assets ------1,223,126 1,223,126 Deferred expenses ------54,602 54,602 Investment property ------18,420 18,420 Deferred tax assets ------11,020 11,020 * Several amounts in this note have been reclassified in order to correspond with the presentation in the current period. (1) Including financial assets that were excluded from the scope of IFRS 7.

102 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 30 - Financial Instruments (cont’d)

30.4.3 Linkage balance (cont’d)

December 31, 2007 Non-financial NIS linked NIS unlinked Dollar Euro Brazilian Real Other (1) Total NIS thousands

Credit from banks and current maturities (82,654) (28,353) (112,561) (11,488) (82,273) (2,088) - (319,417) Trade payables - (433,640) (71,725) (87,968) (35,551) (93,983) - (722,867) Income tax payables ------(47,219) (47,219) Other payables and credit balances (13,471) (249,703) (222,954) (34,716) (21,222) (22,025) (54,343) (618,434) Provisions - (21,775) - (3,592 ) (5,608) (1,280) - (32,255) Loans and credit (1,036,163) - (23,265 ) (2,640) (27,922) - - (1,089,990) Long-term payables and credit balances - - (4,259 ) (4,047) (5,710) - (29,039) (43,055) Employee benefits ------(22,146) (22,146) Deferred taxes ------(125,264) (125,264)

Total (1,077,816) 256,990 (233,718) (78,622) (42,256) 182,987 3,008,818 1,967,793

* Several amounts in this note have been reclassified in order to correspond with the presentation in the current period. (1) Including financial assets that were excluded from the scope of IFRS 7.

103 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 30 - Financial Instruments (cont’d)

30.4 Foreign currency risks (cont’d)

30.4.4 Sensitivity analysis regarding financial assets (liabilities)

Any change in the exchange rates of the principal currencies as at December 31 would have increased (decreased) equity (the equity attributable to all the Company’s shareholders) and income for the period by the amounts presented below (in NIS thousands). This analysis was performed assuming that all the other variables remain the same, and disregards tax effects. The sensitivity analysis relates to foreign currency risk arising from financial items denominated in foreign currency that is not the functional currency of the Company and its investee companies. Therefore, the foreign currency risk arising from the translation of financial statements of foreign operations, which is reflected in a translation reserve, is not included in this sensitivity analysis.

December 31, 2008 10% 5% Exchange rate/ 5% 10% increase increase carrying amount decrease decrease

NIS/dollar exchange rate 4.182 3.992 3.802 3.612 3.422 Effect in NIS thousands 4,257 2,128 42,567 (2,128) (4,257)

NIS/euro exchange rate 5.827 5.562 5.297 5.032 4.768 Effect in NIS thousands 4,784 2,392 47,845 (2,392) (4,784)

Dollar/Brazilian Real exchange rate 2.556 2.440 2.323 2.207 2.091 Effect in NIS thousands (6,590) (3,295) (65,898) 3,295 6,590

Zloty/euro exchange rate 4.369 4.361 4.154 3.946 3.738 Effect in NIS thousands (1,776) (888) (17,757) 888 1,776

Serbian dinar/dollar exchange rate 8.570 8.181 7.791 7.402 7.012 Effect in NIS thousands (1,081) (540) (10,806) 540 1,081

Romanian Ron/ Euro exchange rate 0.274 0.261 0.249 0.236 0.224 Effect in NIS Thousands 3,712 1,856 37,123 (1,856) (3,712)

104 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 30 - Financial Instruments (cont’d)

30.4 Foreign currency risks (cont’d)

30.4.4 Sensitivity analysis regarding financial assets (liabilities)

December 31, 2007 10% 5% Exchange rate/ 5% 10% increase increase carrying amount decrease decrease

NIS/dollar exchange rate 4.231 4.038 3.846 3.654 3.461 Effect in NIS thousands (8) (4) (83) 4 8

NIS/euro exchange rate 6.225 5.942 5.659 5.376 5.093 Effect in NIS thousands (3,629) (1,815) (36,290) 1,815 3,629

Dollar/Brazilian Real Exchange rate 1.949 1.861 1.772 1.684 1.959 Effect in NIS thousands (3,754) (1,877) (37,537) 1,877 3,754

Zloty/euro exchange rate 3.953 3.773 3.594 3.414 3.234 Effect in NIS thousands (2,396) (1,198) (23,961) 1,198 2,396

Serbian dinar/dollar exchange rate 5.547 5.294 5.042 4.790 4.538 Effect in NIS thousands (407) (203) (4,069) 203 407

Romanian Ron/ Euro exchange rate 0.305 0.292 0.277 0.263 0.250 Effect in NIS thousands 4,721 2,360 47,209 (2,360) (4,721)

30.5 CPI risks

The Company has an excess of CPI-linked liabilities over CPI-linked assets (mainly in respect of the issuance of debentures in March 2005 and in February 2007). Balances linked to the Consumer Price Index are stated according to the latest CPI known at the date of the financial statements.

Presented hereunder are data on the Consumer Price Index (2006 average basis):

December 31 Annual rate of change 2008 2007 2006 2008 2007 2006 Points %

Last published CPI 106.5 101.9 99.13 4.51 2.79 (0.29)

30.5.1 The Company uses futures contracts for one year in order to hedge part of the CPI risk arising from the excess of liabilities. As at December 31, 2008 the financial instruments (CPI) of the Group are as follows:

Date of Carrying expiration/ amount and Currency Currency maturity/ fair value receivable payable sale NIS thousands

Futures CPI contracts (1) CPI NIS 01/09-07/10 1,355

(1) As at December 31, 2008 there are contracts in the amount of NIS 350 million. 105 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 30 - Financial Instruments (cont’d)

30.5 CPI risks (cont'd)

30.5.2 Sensitivity analysis

An increase (decrease) in the CPI compared to the index inherent in the liability value of the debentures would have increased (decreased) the equity (the equity attributable to all the Company’s shareholders) and income for the period in respect of the debentures (Series A and Series B) by the amounts presented below. This analysis was performed assuming that all the other variables remain the same, and disregards tax effects. In 2008 there was a change in the Company’s expectations regarding possible changes in the CPI.

December 31, 2008 Carrying 5% increase 2.5% increase amount 2.5% decrease 5% decrease NIS thousands

Series A 13,087 6,544 261,746 (6,544) (13,087) Series B* 40,446 20,223 808,917 (20,223) (40,446)

Total 53,533 26,767 1,070,663 (26,767) (53,533)

December 31, 2007 Carrying 3% increase 1.5% increase amount 1.5% decrease 3% decrease NIS thousands

Series A 9,896 4,948 329,877 (4,948) (9,896) Series B* 24,055 12,028 801,840 (12,028) (24,055)

Total 33,951 16,976 1,131,717 (16,976) (33,951)

* Including interest payable

An increase (decrease) in the anticipated CPI compared to the anticipated index inherent in the fair value of the futures CPI contracts would have increased (decreased) the equity (the equity attributable to all the Company’s shareholders) and income for the period in respect of these contracts by the amounts presented below. This analysis was performed assuming that all the other variables remain the same, and disregards tax effects.

December 31, 2008 Fair value and carrying 0.5% 1% increase 0.5% increase amount decrease 1% decrease NIS thousands

Futures CPI contracts 3,500 1,750 1,355 (1,750) (3,500)

December 31, 2007 Fair value and carrying 0.5% 1% increase 0.5% increase amount decrease 1% decrease NIS thousands

Futures CPI contracts 5,420 2,710 11,352 (2,710) (5,420)

106 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 30 - Financial Instruments (cont’d)

30.6 Liquidity risk

Liquidity risk is the risk that the Group will not be able to honor its financial liabilities when they come due. The Company anticipates that it will be able to honor its financial liabilities and also to continue the expansion of its business activity. The Company’s liabilities mainly derive from credit that was raised by issuing debentures (Series A and Series B). In addition to these liabilities, the Company has credit lines from banks that are not guaranteed. As at December 31, 2008, the Company has not utilized these credit lines. Over the years the Company’s business operations have generated positive cash flows that enable it to meet the financial obligations it assumed upon itself. Nevertheless, if the Company should require any sources of financing, in addition to those generated by its business operations, the Company will be able to use the additional credit lines at its disposal.

Presented hereunder are the contractual repayment dates of financial liabilities, including interest payments, without the effect of setoff agreements. This analysis is based on indices known as at balance sheet date, such as: the CPI, foreign currency exchange rates and interest rates.

December 31, 2008 Carrying Contractual 2014 and Note amount cash flow 2009 2010 2011 2012 2013 thereafter NIS thousands

Debentures Series A 20.1 261,746 279,814 93,915 93,271 92,627 - - - Debentures Series B 20.1 795,169 1,111,585 32,800 32,800 32,800 32,800 32,800 947,587 Bank credit 20.1 34,422 35,899 35,899 - - - - - Bank credit 20.1 29,797 29,797 29,797 - - - - - Bank loans 20.1 47,596 47,596 27,276 11,802 3,660 3,019 1,838 - Bank credit 20.1 2,384 2,384 2,384 - - - - - Bank loans 20.1 9,505 9,641 9,641 - - - - - Finance lease 20.1 1,279 1,366 776 557 33 - - - Bank credit 20.1 118,644 118,681 118,644 - - - - - Bank loans 20.1 297 297 148 148 - - - - Finance lease 20.1 1,086 1,086 222 853 11 - - -

1,301,925 1,638,146 351,502 139,431 129,131 35,819 34,638 947,587

As at December 31, 2008 the short-term financial liabilities of the Group in respect of trade and other payables, including derivatives, amount to NIS 1,131,001 thousand. In the opinion of management, all the financial liabilities will be repaid in the first six months of 2009 at amounts similar to their carrying amounts.

107 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 30 - Financial Instruments (cont’d)

30.6 Liquidity risk (cont'd) December 31, 2007 Carrying Contractual 2013 and Note amount cash flow 2008 2009 2010 2011 2012 thereafter NIS thousands

Debentures Series A 20.1 329,877 358,736 90,429 89,813 89,197 88,581 - - Debentures Series B 20.1 788,369 1,068,764 32,495 32,495 32,495 32,495 32,495 906,287 Bank credit 20.1 14,450 14,450 14,450 - - - - - Bank credit 20.1 9,700 9,700 9,700 - - - - - Bank credit 20.1 250 250 250 - - - - - Bank credit 20.1 1,502 1,502 1,502 - - - - - Bank credit 20.1 2,451 2,451 2,451 - - - - - Bank loans 20.1 559 617 195 209 196 17 - - Bank loans 20.1 24,979 27,590 5,529 13,375 5,068 1,250 1,250 1,118 Finance lease 20.1 4,177 4,610 1,848 2,762 - - - - Bank credit 20.1 26,742 26,742 26,742 - - - - - Bank credit 20.1 5,888 5,888 5,888 - - - - - Bank credit 20.1 4,045 4,045 4,045 - - - - - Bank credit 20.1 10,798 10,798 10,798 - - - - - Bank loans 20.1 3,322 3,847 749 3,098 - - - - Finance lease 20.1 2,100 2,201 2,190 11 - - - - Bank loans 20.1 69,987 70,456 67,876 1,290 1,290 - - - Bank loans 20.1 110,211 111,829 82,288 16,870 5,099 3,543 4,029 -

1,409,407 1,724,476 359,425 159,923 133,345 125,886 37,774 907,405

As at December 31, 2007 the short-term financial liabilities of the Group in respect of trade and other payables, including derivatives, amount to NIS 1,265,409 thousand.

108 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 30 - Financial Instruments (cont’d)

30.7 Fair value of financial instruments

30.7.1 Fair value

The carrying amount of the cash and cash equivalents, short-term investments, trade receivables, other receivables and debit balances, credit from banks and others, trade payables and other payables and credit balances is the same or proximate to their fair value.

Presented below are the carrying amounts and fair values of financial assets and liabilities that are not presented in the financial statements at fair value:

December 31, 2008 December 31, 2007 Carrying Carrying amount Fair value amount Fair value NIS thousands

Financial assets Investments and long-term debit balances (1) 25,307 26,470 20,484 21,247

Financial liabilities Series A Debentures including current maturity (2) 261,746 263,479 329,877 331,000 Series B Debentures (2) 808,918 799,426 801,840 793,100

(1) The fair value of long-term loans granted is based on the present value of the cash flows calculated on the basis of a weighted interest rate for similar loans having similar characteristics of 3.08%-4.00% (last year: 4%-5.25%).

(2) The fair value is based on the prices of the Tel Aviv Stock Exchange (the carrying amount includes interest accrued on Series B debentures as at December 31, 2008 and December 31, 2007 – NIS 13,749 thousand and NIS 13,471 thousand, respectively).

See Note 4 regarding determination of the fair value of financial instruments.

30.7.2. Sensitivity analysis of fair value of debentures

Changes in the rates of return of debentures would have changed the fair value of the debentures (Series A and Series B) by the amounts presented below:

December 31, 2008 Rate of return 10% increase 5% increase and fair value 5% decrease 10% decrease NIS thousands

Series A – yield 3.39% 3.23% 3.08% 2.93% 2.77% Series A – fair value 1,582 791 263,479 (791) (1,582)

Series B – yield 4.88% 4.66% 4.44% 4.22% 4.0% Series B – fair value 22,007 11,003 799,426 (11,003) (22,007)

Total 23,589 11,794 1,062,905 (11,794) (23,589)

109 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 30 - Financial Instruments (cont’d)

30.7 Fair value of financial instruments (cont'd)

30.7.2. Sensitivity analysis (cont'd)

December 31, 2007 Rate of return 10% increase 5% increase and fair value 5% decrease 10% decrease NIS thousands

Series A – yield 3.71% 3.54% 3.37% 3.20% 3.03% Series A - fair value (2,677) (1,339) 331,000 1,339 2,677

Series A – yield 4.84% 4.62% 4.40% 4.18% 3.96% Series B - fair value (24,253) (12,126) 793,100 12,126 24,253

Total (26,930) (13,465) 1,124,100 13,465 26,930

30.7.8 Other price risk

The Group’s investment in an available-for-sale financial asset is in shares listed for trading on the Tel Aviv Stock Exchange (see Note 11 and Note 13). In 2008 the Company recognized an impairment loss on the investment in the amount of NIS 8,245 thousand.

30.8.1. Sensitivity analysis of available-for-sale financial asset measured at fair value

Any change in the price of the share as at December 1, would have increased (decreased) the equity (the equity attributable to all the Company’s shareholders) and income for the period by the amounts presented below. This analysis was performed assuming that all the other variables remain the same, and disregards tax effects.

December 31, 2008 Fair value and carrying 20% increase 10% increase amount 10% decrease 20% decrease NIS thousands

Total 2,204 1,102 11,010 (1,102) (2,204)

An increase in the fair value of the financial asset subsequent to balance sheet date shall be reflected in equity, whereas a decrease in fair value shall be reflected in profit or loss.

Note 31 - Sales

For the year ended December 31 2008 2007* 2006* NIS thousands

Sales of manufactured products 5,299,787 4,928,255 4,313,915 Sales of other products 941,032 1,030,012 840,857 Other income (1) 5,056 2,680 1,015

6,245,875 5,960,947 5,155,787

* Several amounts in this note have been reclassified in order to correspond with the presentation in the current period.

(1) Other income includes mainly income from royalties and from rental of coffee machines.

110 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 32 - Cost of Sales

32.1 According to components For the year ended December 31 2008 2007 2006 NIS thousands

Materials consumed 3,311,486 3,116,180 2,643,905 Wages, salaries and related expenses 295,837 308,586 269,729 Depreciation and amortization 112,236 113,575 102,901 Other manufacturing expenses 268,897 236,158 224,047 Decrease (increase) in inventories of unfinished and finished goods (1) (28,710) (53,525) (29,761) 3,959,746 3,720,974 3,210,821

Valuation of balance of commodities hedging transactions as at the end of the year 9,621 5,022 302

3,969,367 3,725,996 3,211,123

(1) Including net loss of NIS 39,784 thousand (2007 and 2006: NIS 42,236 thousand and NIS 10,871 thousand thousand, respectively) in respect of inventory impairment losses.

32.2 According to source of income For the year ended December 31 2008 2007* 2006* NIS thousands

Manufactured products 3,344,094 2,949,488 2,749,888 Other products 614,225 771,138 460,866 Other income (1) 1,427 348 67 3,959,746 3,720,974 3,210,821

Valuation of balance of commodities hedging transactions as at the end of the year 9,621 5,022 302

3,969,367 3,725,996 3,211,123

(1) Costs in respect of other income include mainly maintenance expenses in respect of coffee machines. * Several amounts in this note have been reclassified in order to correspond with the presentation in the current period.

111 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 33 - Selling and Marketing Expenses

For the year ended December 31 2008 2007* 2006* NIS thousands

Salaries and related expenses 460,569 419,362 364,706 Advertising 371,900 358,672 309,601 Doubtful and bad debts 6,373 3,701 23,570 Other 119,464 112,182 93,296 Transport expenses 240,949 255,113 54,884 Maintenance expenses 194,842 195,430 343,017 Depreciation and amortization 44,625 45,649 36,668 Impairment loss on assets 3,609 - - Reimbursement of expenses by jointly controlled companies (15,556) (13,341) (12,773)

1,426,775 1,376,768 1,212,969

* Several amounts in this note have been reclassified in order to correspond with the presentation in the current period.

Note 34 - General and Administrative Expenses

For the year ended December 31 2008 2007* 2006* NIS thousands

Salaries and related expenses (1) 210,448 202,711 170,444 Depreciation and amortization 36,567 29,586 27, 636 Donations 2,649 1,999 5,453 Consulting fees 65,739 70,892 69,238 Other 58,706 58,900 44,811 Reimbursement of expenses by jointly controlled companies (4,688) (4,897) (2,026)

369,421 359,191 315,556 (1) Less: Salaries and related expenses capitalized to software for self-use 5,612 9,475 12,757

* Several amounts in this note have been reclassified in order to correspond with the presentation in the current period.

112 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 35 - Other Income (Expenses), Net

For the year ended December 31 2008 2007 2006 NIS thousands Other income Gain on sale of fixed assets, net 1,167 1,243 - Gain on sale of real estate (Ramat Gan and Lieber plot) - - 181,832 Gain on sale and partial disposal of subsidiaries (see Notes 5.3 and 5.9) 46,408 - - Gain on issuance of rights in subsidiary (see Note 5.7) 230,436 - - Dividend income on available-for-sale financial assets 1,257 *943 - Other income 15,325 1,635 - Total other income 294,593 3,821 181,832

Other expenses Loss on sale of fixed assets, net - - (12,573) Restructuring expenses (8,256) (14,699) - Issuance expenses - - *(12,077) Impairment loss on intangible assets (53,097) - - Loss on available-for-sale securities Transferred from equity (2,985) - - Loss on available-for-sale securities recognized in profit and loss (5,440) - - Loss from sale of operation - (3,340) - Cost of transactions that were not realized (11,708) - - Other expenses (4,782) (3,870) *(3,356) Total other expenses (86,268) (21,909) (28,006)

Other income (expenses), net 208,325 (18,088) 153,826

* Reclassified

Note 36 - Financing Expenses, Net 113 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

For the year ended December 31 2008 2007 2006 NIS thousands

Financing income: Interest income 33,051 45,387 23,746 Net gain on marketable securities - *569 2,066 Net gain from foreign currency rates 42,333 - 5,186 Differences from linkage to the Israeli CPI - - 760 Changes in fair value of embedded derivatives - 661 4,448 Gain from early redemption of debentures 59 - -

Total financing income 75,443 46,617 36,206

Financing expenses: Net loss on marketable securities (940) - - Changes in fair value of options - - (5,480 ) Interest expenses (93,805) (75,347) (74,252) Net loss from foreign currency rates - (672) - Differences from linkage to the Israeli CPI (49,165) (34,123) - Financing expenses in respect of liability from writing put option for the minority (3,034) (14,011) (696) Loss from early redemption of debentures (540) - -

Total financing expenses (147,484) (124,153) (80,428)

Financing expenses, net (72,041) (77,536) (44,222)

* Reclassified, see Note 3.23.6.

Additional information:

(1) A loss from impairment in trade receivables in the amount of NIS 6,373 thousand (2007 – NIS 3,701 thousand, 2006 – NIS 23,570 thousand) was presented under selling and marketing expenses. (2) In 2007 a gain in the amount of NIS 3,877 thousand from the revaluation of available-for-sale securities was recognized directly in equity; dividend income from these securities in the amount of NIS 943 thousand was recognized in other income. In 2008 an impairment loss from available-for-sale securities and dividend income from such securities in the amount of NIS 8,425 thousand and NIS 1,257 thousand, respectively, were recognized as other expenses or other income. (3) An expense in respect of hedging transactions on commodities in the amount of NIS 9,621 thousand (2007 – NIS 5,022 thousand, 2006 – NIS 302 thousand) was presented under cost of sales. (4) Exchange rate differences were included in the specific items to which the differences relate (income, cost of sales, etc.). Furthermore, a net loss from translation differences in the amount of NIS 234,402 thousand in respect of the translation of foreign operations (2007 – a gain of NIS 52,899 thousand; 2006 – a gain of NIS 32,870 thousand) was included directly in equity.

114 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 37 - Taxes on Income

37.1 Information about the tax environment of the Company in Israel

37.1.1 Amendments to the Income Tax Ordinance

The income of the Company, the subsidiaries and the jointly controlled companies in Israel (other than the income of an approved enterprise, see Note 37.1.3) are subject to the ordinary rate of tax.

On July 25, 2005 the Knesset passed the Law for the Amendment of the Income Tax Ordinance (No. 147 and Temporary Order) – 2005 (hereinafter: the Amendment). The Amendment provides for a gradual reduction in the company tax rate in the following manner: in 2006 the tax rate will be 31%, in 2007 the tax rate will be 29%, in 2008 the tax rate will be 27%, in 2009 the tax rate will be 26% and from 2010 onward the tax rate will be 25%. Furthermore, as from 2010, upon reduction of the company tax rate to 25%, real capital gains will be subject to tax of 25%.

Current and deferred tax balances for the years 2006-2008 are calculated in accordance with the new tax rates specified above.

37.1.2 Adjustments for inflation

On February 26, 2008 the Knesset enacted the Income Tax Law (Adjustments for Inflation) (Amendment No. 20) (Restriction of Effective Period) – 2008 (hereinafter – the Amendment). In accordance with the Amendment, the effective period of the Adjustments Law will cease at the end of the 2007 tax year and as from the 2008 tax year the provisions of the law shall no longer apply, other than the transitional provisions intended at preventing distortions in the tax calculations.

In accordance with the Amendment, as from the 2008 tax year, income for tax purposes will no longer be adjusted to a real (net of inflation) measurement basis. Furthermore, the depreciation of inflation immune assets and carried forward tax losses will no longer be linked to the CPI, so that these amounts will be adjusted until the end of the 2007 tax year after which they will cease to be linked to the CPI. The effect of the Amendment to the Adjustments Law is reflected in the calculation of current and deferred taxes as from 2008.

Income Tax Regulations, Adjustments for Inflation (Depreciation Rates) – 1996, which allow higher rates of depreciation than in Section 21 of the Ordinance, will continue to apply also after the Adjustments Law is no longer effective. Therefore, also in the forthcoming periods the Company will be able to claim higher rates of depreciation in accordance with the aforementioned regulations.

37.1.3 Benefits under laws for the encouragement of capital investments

In accordance with the Law for the Encouragement of Capital Investments – 1959 and the Law for the Encouragement of Agricultural Capital Investments – 1980 (hereinafter – the Capital Investments Encouragement Laws) some of the Group’s enterprises were granted the status of an “approved enterprise” which entitles them to investment grants or tax benefits (“alternative benefits route”). The benefits are contingent upon fulfillment of the terms provided in the Capital Investments Encouragement Laws and their related regulations, and in the letters of approval by which the investments in the approved enterprises were executed. The non-fulfillment of such terms could lead to the benefits being revoked and a refunding of the benefits with the addition of interest.

A. Alternative benefits route

Income deriving from the “approved enterprise” under the alternative benefits route is exempt from tax for a period of up to 10 years from the year in which the Company first had taxable income from the plan.

Details of the Group’s plans as at balance sheet date –

The company Benefit period Strauss Fresh Foods Until the end of 2008. Final performance approval had been received. See (1) below. Strauss Health Until the end of 2009. See (2) below. Strauss Health Fresh Vegetables Until the end of 2009. See (3) below.

(1) In the opinion of the management of Strauss Fresh Foods, the company is in compliance with the terms of 115 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

the letter of approval on a multi-annual basis. Note 37 - Taxes on Income (cont'd)

(2) In accordance with the approval received in the past from the Investment Center, the company did not comply with the marketing plan in 1998-2001. On April 6, 2006 Strauss Health received an amendment to the final performance certificate from the Investment Center that states that in 1998-2001 the company was in compliance with the marketing plan. On February 18, 2007 the company received the Investment Center’s approval to the change in the marketing plan that was requested by it on February 12, 2007; the approval is in effect as from the 2002 tax year.

(3) The manufacturing facilities of Strauss Health Fresh Vegetables Ltd. were granted the status of an “approved enterprise” in accordance with the Law for the Encouragement of Agricultural Capital Investments. Income deriving from the “approved enterprise” is exempt from tax for a period of 5 years from the year in which the company first had taxable income. The tax benefit periods end in 2007-2009. The benefits are contingent upon compliance with the terms of the approval. In the opinion of Strauss Health Fresh Vegetables Ltd. the company is in compliance with these terms.

B. Grant route

(1) In accordance with the Law for the Encouragement of Capital Investments, income from the “approved enterprise” under the grant route is subject to a reduced company tax rate of 25% for a period of seven years from the year in which the Company first had taxable income from the plan.

Income deriving from the first approved plan of Yotvata is subject to company tax of 25% for a period of 7 years. Income deriving from the other two plans is exempt from company tax in the first two benefit years and of 25% in the remaining five benefit years. In accordance with the aforementioned law the distribution of a dividend from the income subject to 0% tax will lead to a requirement to pay company tax of 25% from the amount of the distributed dividend.

(2) Details of the Group’s plans as at balance sheet date –

The company Benefit period Strauss Group Seven years beginning from 2001. The period ended in 2007. Elite Confectionery Has not yet commenced since the Company has not yet completed any significant investments in the enterprise. Strauss Frito-Lay Until the end of 2017. Has not yet received final performance approval. Yotvata – plan 9 Until the end of 2007. Has received final performance approval. Yotvata – plan 10 Until the end of 2009. Has received final performance approval. Yotvata – plan 11 Has not yet commenced.

As of present the companies that took advantage of the tax benefits as aforementioned are in compliance with the terms of the approval.

(3) Aviv Netivot Dairies Ltd. was granted “approved enterprise” status under the grant track in the framework of a letter of approval for the expansion of a plant for the manufacture of dairy products that was received in December 2002. As at the date of the financial statements, it has not yet provided a final performance report. Aviv Netivot Dairies Ltd. registered a floating lien on its assets in favor of the State of Israel as security for its liabilities relating to the receipt of the grants.

37.1.4 The Law for the Encouragement of Industry (Taxes) – 1969 and other laws

The Company and part of the Group companies (including Strauss Health, Elite Confectionery, Strauss Frito-Lay, Yotvata, Strauss Fresh Foods and Strauss Vegetables) are “industrial companies” as defined in the Law for the Encouragement of Industry (Taxes) – 1969. In accordance with this status they are entitled to benefits, the principal ones being as follows:

a. Higher rates of depreciation. b. Amortization of issuance expenses in three equal annual portions when registering the shares of the company for trading. c. The possibility of submitting consolidated tax returns by companies in the same line of business.

116 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 37 - Taxes on Income (cont'd)

37.2 Details regarding tax rates of investee companies abroad

The companies incorporated outside of Israel are subject to tax according to the tax laws in their countries of domicile.

The principal tax rates applicable to the business operations of these companies are as follows:

Romania – a tax rate of 16%; Poland – a tax rate of 19%; Brazil – a tax rate of 34%; Norway – a tax rate of 10%; Netherlands – a tax rate of 25.5% (effective as from January 1, 2007); Switzerland – a tax rate of 11%; Ukraine – a tax rate of 25%; Russia – a tax rate of 24%, Bulgaria – a tax rate of 10% (effective as from January 1, 2007); USA – a tax rate of 40%.

In respect of its operations in the North East of Brazil, the Company is entitled to benefits by means of a VAT refund at the rate of 56%-74% from the paid VAT. The benefit period of part of the benefits ends in 2009 and for part in 2018.

37.3 Approval of the Income Tax Commissioner to the merger of Strauss and the Company according to Section 103T of the Income Tax Ordinance

The merger agreement between the Company, Strauss Health and Strauss Fresh Foods (hereinafter: the merger agreement) provides that the parties undertake to strictly comply with all the conditions in order to preserve all tax benefits to which the parties and their shareholders are entitled, including the provisions of Part E2 of the Income Tax Ordinance and principally the conditions of Sections 103C and 103T, and the provisions and terms of the Income Tax Commissioner’s approval as agreed by the parties and described below.

For purposes of the Ordinance and the Inflationary Adjustments Law, the original price of the rights in the transferred companies, the balance of the original price, the value of the acquisition and the acquisition date will remain as they would have been in the transferring company if the rights had not been transferred. The foregoing is conditional on compliance with various conditions, as specified in the Income Tax Ordinance and the regulations thereunder.

Notwithstanding the provisions of any law, losses arising from the Company’s investment in its subsidiaries (Strauss Coffee B.V., foreign corporations held by Strauss Coffee B.V., Elite Confectionery USA Inc. and Elite Tepe) may not be set off against income from the sale of the rights or assets of Strauss Health and Strauss Fresh Foods.

The position of the Income Tax Commissioner is to not permit a capital loss, including on liquidation, or any other loss by the Company or any of its subsidiaries and their shareholders, directly or indirectly, for payments it had made under guarantees it had extended to foreign financial entities mentioned in the approval that are not taxable in Israel, to Strauss Coffee B.V., to foreign corporations held by Strauss Coffee B.V., to Elite Confectionery USA Inc. and Elite Tepe, or due to an investment in lieu of such guarantee given directly or indirectly. The approval mentions that the Strauss-Elite Holdings Group has duly noted the Commissioner’s position but disputes it, but agrees that the set-off of such losses against income from the sale of the rights or assets of Strauss Health and Strauss Fresh Foods will not be permissible.

37.4 Approval of the Tax Authority – split of the coffee operation in Israel and its merger with Strauss Coffee B.V. according to Section 105 of the Income Tax Ordinance

See Note 5.7 regarding the approval that was received from the Israeli Tax Authority with respect to the issuance of rights in a subsidiary, Strauss Coffee B.V.

117 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 37 - Taxes on Income (cont’d)

37.5 Approval of the Israeli Tax Authority – merger of Elite Confectionary from Strauss Group Ltd. with the Company in accordance with Section 103 of the Ordinance

Further to the TPG transaction (as mentioned in Note 5.7) the Company decided to merge the confectionary activity of the Group in Israel with the Company, so that it will concentrate all the confectionary manufacturing activity of the Group, by means of restructuring the Group.

In accordance with an agreed tax ruling, which was received from the Tax Authority on March 19, 2009 with respect to the said restructuring, the Company and its controlling shareholders are subject to various restrictions until the end of the required period (two years from the end of the tax year in which the restructuring was executed – December 31, 2010). In accordance with the agreed tax ruling the date of the restructuring is June 30, 2008.

37.6 Final tax assessments

Final tax assessments for periods between 2002 and 2006 have been issued to the Company and its principal local subsidiaries. For the principal overseas subsidiaries, final tax assessments for periods between 2002 and 2007 have been issued. Seven overseas subsidiaries have not yet been issued tax assessments since their incorporation.

37.7 Carried-forward tax losses

The Group has tax losses and an inflationary deduction carry-forward in the amount of NIS 265,061 thousand (2007: NIS 468,940 thousand). Deferred taxes were not recorded in respect of losses in the amount of NIS 233,423 thousand (2007: NIS 444,045 thousand).

37.8 Taxes on income recognized directly in equity

As at December 31, 2008 deferred taxes on income in the amount of NIS 825 thousand (NIS 969 thousand as at December 31, 2007) were included directly in equity in respect of income that was recognized directly in equity (revaluation of available-for-sale financial asset).

In addition, the effect of the translation of deferred taxes in respect of foreign operations was also included in equity.

37.9 Transfer prices

In November 2006 a general directive was published that allows interference in the price and terms of international transactions between related parties. The regulations provide principles for examining the market value of international transactions between related parties, and prescribe the reporting requirements regarding such transactions. The Company examines these transfer prices from time to time.

118 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 37 - Taxes on Income (cont’d)

37.10 Income tax expense in the statement of income

For the year ended December 31 2008 2007 2006 NIS thousands

Current taxes 111,242 100,592 136,602 Deferred taxes (1,979) 9,965 7,155

109,263 110,557 143,757

37.11 Reconciliation between the theoretical tax on the pre-tax income and the tax expenses recorded in the Company’s books:

For the year ended December 31 2008 2007 2006 NIS thousands

Income before taxes on income 616,596 403,368 530,120

Principal tax rate 27% 29% 31%

Taxes on income at the principal tax rate 166,481 116,977 164,337

Depreciation differences - 225 70 Permanent differences, net 19,536 11,058 19,700 Temporary differences (losses utilized) where deferred taxes were not recorded in the past 10,363 (2,538) 127 Minority share in income 2,910 (4,784) (2,521) Net differences resulting from the differences in tax rates abroad (5,243) (9,004) (13,005) Differences resulting from benefits and reduced tax Rates (1,868) (1,377) (24,190) Gain on partial disposal of subsidiaries (see notes 5.3, 5.7 (82,916) - - and 5.9) Classification of financing expenses to tax expenses - - 596 The Company’s share in earnings of affiliated company - - (1,357)

Taxes on income in the statement of income 109,263 110,557 143,757 Effective tax rate 17.72% 27.41% 27.12%

119 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 37 - Taxes on Income (cont’d)

37.12 Composition of deferred taxes included in assets (liabilities)

Decrease Changes in Decrease Changes in (increase) deferred (increase) deferred in in Company deferred tax taxes deferred tax taxes Balance as consolidate expense in recognized Balance as expense in recognized Balance as at d at at January 1, for the the directly December the directly December statement 31, statement 31, 2007 first time of income in equity 2007 of income in equity 2008

Deferred taxes in respect of: Provision for doubtful debts 15,491 63 (1,104) (345) 14,105 (416) 3,393 17,082 Provision for vacation and employee vacation allowance 11,815 73 (2,539) 1,528 10,877 609 - 11,486 Tax losses and deductions 3,858 737 487 1,973 7,055 2,274 119 9,448 Fundings for employees *1,433 33 7,600 (452) 8,614* (1,794) - 6,820 Inventory adjustment 1,232 - 463 59 1,754 (714) (1,743) (703) Other temporary differences 3,121 - 5,718 991 9,830 (3,280) 4,253 10,803

Fixed assets, other assets and deferred expenses (115,194) (1,869) (24,520) (21,819) (163,402) 6,487 10,682 (146,233) Hedging transactions (2,313) - 2,158 (1,291) (1,446) (1,960) (654) (4,060) Provision of employees (3,345) - 1,772 (58) (1,631) 773 3,428 2,570

(83,902) (963) (9,965) (19,414) (114,244) 1,979 19,478 (92,787)

10%-34% 10%-34% 10%-34%

* Reclassified, see Note 3.23.1.

120 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 38 - Basic and Diluted Earnings Per Share

The basic earnings per share as at December 31, 2008 is calculated by dividing the income attributable to the ordina shareholders in the amount of NIS 461,493 thousand (2007 and 2006: NIS 247,822 thousand and NIS 346,922 thousan respectively) by the weighted average number of ordinary shares, as follows:

Weighted average of ordinary shares:

For the year ended December 31 2008 2007 2006 NIS thousands

Balance as at January 1 105,837 105,691 105,519 With the addition of weighted average of options exercised for shares during the period 359 62 71 Less treasury shares (868) (868) (868) Less shares granted against non-recourse loans - - (866)

Weighted average number of ordinary shares used in the calculation of basic earnings per share 105,328 104,885 103,856

The diluted earnings per share as at December 31, 2008, 2007 and 2006 is calculated by dividing the income attributable the ordinary shareholders in the calculation of the basic earnings per share by the weighted average number of ordina shares outstanding, after adjustment in respect of all the dilutive potential ordinary shares, as follows

Weighted average of ordinary shares (diluted):

For the year ended December 31 2008 2007 2006 NIS thousands

Weighted average number of ordinary shares used in the calculation of basic earnings per share 105,328 104,885 103,856 Additional shares granted against loans - - 363 Effect of share options 347 136 175

Weighted average number of ordinary shares used in the calculation of diluted earnings per share 105,675 105,021 104,394

For purposes of calculating the dilutive effect of share options, the average market value of the Company’s shares wa based on market price quotations during the period in which the options were outstanding.

121 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 39 - Balances and Transactions with Interested and Related Parties

39.1 Identity of interested and related parties

The Company’s interested and related parties are the parent company, related parties of the parent company, jointly controlled companies (see Note 12), an associate (see Note 11) and members of the Board and senior management, who are the Company’s key management personnel.

39.2 Transactions with members of senior management

39.2.1 In 1998 the Company engaged one of its directors to provide consultation services for the price of US$ 13 thousand per month. The consultation agreement ended on March 31, 2008.

39.2.2 On January 7, 2008, after the approval of the Audit Committee on August 26, 2007 and the approval of the Board of Directors on August 30, 2007, the Company’s general meeting of shareholders approved the following transactions:

An employment agreement with the Company’s Chairperson of the Board effective as from January 1, 2008. The Chairperson will be entitled to a gross salary of NIS 116,000 per month, linked to the CPI and adjusted every three months. Furthermore, she will be entitled to an annual bonus of 12 salaries that will be calculated on the basis of compliance with financial targets, as will be provided every year in the annual work plan of the Company. The Chairperson will be also entitled to related social benefits, a car and the reimbursement of various expenses.

An employment agreement with the Company’s CEO effective as from January 1, 2008. The CEO will be entitled to a gross monthly salary of NIS 116,000, related social benefits, a car and the reimbursement of various expenses, an annual bonus of 12 salaries in accordance with the annual bonus plan of the Company’s management, which will be determined on the basis of compliance with financial targets and qualitative objectives that will be derived from the objectives of the Company’s work plan and be determined every year. In addition, the Company granted to the CEO options, as described in Note 25.3.

Upon the approval of the aforementioned employment agreements, the management agreement with the parent company, Strauss Holdings, was cancelled, see Note 39.3.1.

39.2.3 On May 4, 2008, after receiving the approval of the audit committee, the Company’s Board of Directors approved as follows:

1. To approve an adjustment to the remuneration of external directors serving on the Company’s board in accordance with the amendment form March 6, 2008 to the remuneration regulations, so that as from April 1, 2008 the remuneration of the Company’s external directors will be equal to the maximum amount permitted in the regulations.

2. To approve an adjustment to the remuneration of directors serving on the Company’s board who are not external directors (other than the Chairperson of the Board who is employed under a personal employment agreement and a director for whom it is advised to enter into a consultation agreement, see Note 39.2.4 hereunder) in accordance with the remuneration regulations, so that as from April 1, 2008 their remuneration will be equal to the maximum amount permitted in the regulations.

39.2.4 On June 12, 2008 the Company’s general meeting of shareholders decided, inter alia, as follows:

1. To approve the appointment of two external directors of the Company for a term of 3 years as from the date of approval of the appointment by the meeting and to pay them a participation remuneration and annual remuneration in the maximum amounts provided in the fourth supplement to the remuneration regulations, and that the said external directors will be entitled to all the benefits the Company grants to directors, Including indemnity and insurance, throughout their term of service with the Company.

122 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 39 - Balances and Transactions with Interested and Related Parties (cont'd)

39.2 Transactions with members of senior management (cont'd)

39.2.4 (cont'd)

2. To approve the appointment of two directors of the Company and to pay them a participation remuneration and annual remuneration in the maximum amounts provided in the fourth supplement to the remuneration regulations, and that the said two directors will be entitled to all the benefits the Company grants to directors, including indemnity and insurance, throughout their term of service with the Company.

3. To approve an agreement between the Company and a director by which the director will provide consultation services to the Company’s Board of Directors and the Chairperson of the Board, in consideration of monthly consultation fees in the amount of $ 15 thousand per month, which includes a directors remuneration for his service on the Board of Directors and its committees.

4. a) To approve a termination bonus for a director in a NIS amount equivalent to $ 120,000, which will be payable in monthly installments until the end of 2008 (see Note 39.2.1), following the director ending his service and activity as a consultant; b) to pay the said director, as from April 1, 2008 a participation remuneration and annual remuneration at the maximum amounts provided in the fourth supplement to the remuneration regulations. The director will continue to be entitled to all the benefits the Company grants to directors, including indemnity and insurance, throughout his term of service with the Company.

39.2.5 In addition to salaries, the members of senior management participate in the options plan of the Company, see Note 25. With respect to share options granted to seven managers on March 30, 2008 and on November 17, 2008, see Note 25.3.

39.2.6 The benefits to members of senior management are as follows:

For the year ended December 31 2008 2007 2006 NIS thousands

Short-term employee benefits 18,331 11,221 9,797 Post-employment benefits 3,688 236 384 Share-based payment 22,571 2,334 3,278 44,590 13,791 13,459

* The increase in 2008 is due to the Company employment agreement with the Company’s CEO, see Note 39.2.2.

123 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 39 - Balances and Transactions with Interested and Related Parties (cont’d)

39.2 Transactions with members of senior management (cont’d)

39.2.7 The benefits to members of the board are as follows:

For the year ended December 31 2008 2007 2006 Number of NIS Number of NIS Number of NIS people thousands people thousands people thousands

Directors not employed (1) 12 3,155 4 490 3 306 Employed Interested Parties 1 2,851 1 567 2 600 13 6,006 5 1,057 5 906

(1) In 2008, including two directors who concluded their term of service during the year.

39.2.8 See Notes 26.1.2.1 and 26.4.6 regarding a commitment to indemnify officers and a directors and officers insurance policy.

39.2.9 On February 25, 2009 a reduction of 15% in the salary (not including social benefits) of the Company’s CEO and Chairperson of the Board was approved, as well as a reduction of 10% in the salaries (not including social benefits) of the Company’s members of senior management in Israel, effective as from January 1, 2009 until December 31, 2009. The other service and employment conditions of the Chairperson of the Board, the CEO and the members of senior management remained the same.

39.3 Transactions with the parent company

39.3.1 In 1998 the Company engaged in a management agreement with Strauss Holdings for the supply of services. The agreement provides that in consideration for the services, the Company will pay 0.45% of its consolidated sales turnover on the basis of the previous year, in twelve equal monthly installments linked to the CPI. In the event of a real increase or decrease exceeding 20% in the consolidated sales turnover compared to the annual turnover in 1998, the payment will be reviewed by the parties and adjusted as required. It was also provided that if an unusual amount of services or additional services are provided the Company will bear their cost in addition to the management fees on the basis of their cost as agreed in advance by the parties. The merger agreement between Strauss and the Company from March 22, 2004 provides that the increase in the consolidated sales turnover of the Company as a result of the merger will not lead to a change in the management fees paid by the Company. In 2007 the Company paid NIS 22,762 thousand in respect of this agreement (2006 – NIS 18,283 thousand). Upon the approval of the employment agreements of the Company’s Chairperson of the Board and the CEO, as described above in Note 39.2.2, the management agreement was cancelled, effective as from January 1, 2008.

124 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 39 - Balances and Transactions with Interested and Related Parties (cont’d)

39.3 Transactions with the parent company (cont’d)

39.3.2 In the framework of the merger transaction from March 22, 2004, in which Strauss Holdings sold to the Company its holdings in the Strauss Fresh Foods Group (hereinafter – the transferred companies) in consideration for an allotment of shares by the Company, Strauss Holdings has undertaken in the agreement to indemnify the Company in respect of any damage, expense or loss incurred by the Company or the transferred companies as a result of or in connection with discrepancies in the representations of Strauss Holdings. Discrepancies in representations are considered to be monetary obligations imposed on the transferred companies, with causes from before the closing date, which were not properly or sufficiently disclosed in the financial statements of the transferred companies and their subsidiaries; or various receivable items that were overestimated. The indemnity provision will apply only if the cumulative amount of the shortfall caused (after deductions and set-offs in favor of Strauss Holdings pursuant to the agreement) exceeds NIS 30 million, this sum being linked to the CPI from the date of signing of the agreement (hereinafter – the “minimum amount”). The minimum amount will not apply in respect of a shortfall caused as a result of or in connection with a discrepancy in the representations of Strauss Holdings with respect to payments that the transferred companies and their subsidiaries were obligated to pay to their employees, or in the event of final tax assessments of the transferred companies (at the time of signing of the agreement) being “opened” (in the framework of an “assessment opening” proceeding). The right of action under the agreement will expire after three years have elapsed since March 22, 2004. This restriction will not apply in respect of claims with causes prior to March 22, 2004. As at the date of signing the financial statements, there is no shortfall, other than in respect of all that mentioned regarding class actions, see Note 26.1.1.12.

39.4 The prices and credit terms in respect of transactions with interested parties are prescribed according to customary commercial terms.

125 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 39 - Balances and Transactions with Interested and Related Parties (cont’d)

39.5 Balances and transactions with interested and related parties

The parent Directors and company members of and its Jointly senior related controlled Affiliated management parties companies companies (2) Total NIS thousands

As at December 31, 2008: Current assets from interested parties that are presented under trade and other Receivables 6,754 - - 30 6,784 Current liabilities to interested parties that are presented under trade and other payables (6,462) (19,721) - - (26,183) The highest balance of loans 9,889 - - 346 10,235 and debts of interested parties in the year

For the year ended December 31, 2008 (1): Sales 21,679 215 - - 21,894 Purchases (12,411) (39,183) - - (51,594) Selling, general and administrative expenses (18,487) - - (1,545) (20,032) Financing income, net 56 - - - 56

126 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 39 - Balances and Transactions with Interested and Related Parties (cont’d)

39.5 Balances and transactions with interested and related parties (cont’d) The parent Directors and company members of and its Jointly senior related controlled Affiliated management parties companies companies (2) Total NIS thousands

As at December 31, 2007: Current assets from interested parties that are presented under trade and other Receivables 5,642 - - 139 5,781 Current liabilities to interested parties that are presented under trade and other payables (8,469) (19,685) - - (28,154) The highest balance of loans and debts of interested parties in the year 9,134 - - 123 9,257

For the year ended December 31, 2007: Sales 16,280 74 - - 16,354 Purchases (12,528) (29,516) - - (42,044) Selling, general and administrative expenses (39,313) - - (1,057) (40,370) Repayment of loan granted to interested party - - - 435 435 Financing income, net 45 - - - 45

127 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 39 - Balances and Transactions with Interested and Related Parties (cont’d)

39.5 Balances and transactions with interested and related parties (cont’d)

The parent Directors and company members of and its Jointly senior related controlled Affiliated management parties companies companies (2) Total NIS thousands

As at December 31, 2006: Current assets from interested parties that are presented under trade and other Receivables 11,380 19 - 114 11,513 Current liabilities to interested parties that are presented under trade and other payables (8,030) (24,546) - - (32,576) The highest balance of loans and debts of interested parties in the year 15,813 23,161 21 13,739 52,734

For the year ended December 31, 2006: Sales 11,168 17 - - 11,185 Purchases (11,591) (15,444) (30,262) - (57,297) Selling, general and (18,443) 5,169 - (905) (14,179) administrative expenses Repayment of loan granted to - - - 13,467 13,467 interested party Financing income, net 216 - - 341 557

(1) Including purchases from Ramat Hagolan Dairies in the amount of NIS 11,128 thousand, the payment of rent to Rav Etgar Ltd. in the amount of NIS 4,195 thousand, net proceeds of NIS 26,560 thousand in respect of transactions with Strauss Ice Cream Ltd.

(2) Not including fee and remuneration to senior management – see Note 39.2

Note 40 - Critical Accounting Policies and Management’s Judgments

The judgments of management and its estimates are reviewed on an ongoing basis and are based on past experience and various matters, including anticipations regarding future events.

The Group makes estimates and assumptions regarding the future. The accounting estimates deriving from these assumptions are by nature different from actual results. The estimates and assumptions that in the next fiscal year may result in significant adjustment to the carrying amount of assets and liabilities are described hereunder.

Deferred tax assets

The Company recognizes deferred tax assets and liabilities in respect of difference between the carrying amount of assets and liabilities and their value for tax purposes. The Group regularly examines the ability to recover the deferred tax assets on the basis of past taxable income, anticipated taxable income, anticipated reversal dates of the temporary differences and tax planning. If the Group is unable to create sufficient taxable income in certain tax jurisdictions, or if there is a significant change in the effective tax rate or the expected date of reversal of the temporary difference, the Group may write-off part of the deferred tax assets. Such a write-off will lead to an increase in the effective tax rate and have an adverse effect on operating results.

128 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 40 - Critical Accounting Policies and Management’s Judgments (cont’d)

Employee benefits

The present value of employee post-employment benefits depends on a number of elements that are determined on an actuarial basis while applying various assumptions. The assumptions used in order to determine the net expense (income) in respect of these benefits include the long-term rate of return on the plan assets and the discount rate. Any change in these assumptions affects the carrying amount of the liability for employee benefits.

The Group determines the discount rate at the end of each year. The discount rate is used to discount the future cash flows anticipated in order to settle the liability. When determining the discount rate, the Group takes into account interest rates of debentures of the Government of Israel that bear a fixed rate of interest and have maturity dates similar to the maturity dates of the Group’s liability.

Other assumptions made in the calculation of the liability are partly based on present market conditions. Additional information is provided in Note 24.

A decrease in these factors will increase the actuarial losses not yet recognized as well as the chance that these losses will be outside the corridor limits and will therefore be recognized, according to the deferral mechanism, in the statement of income for 2009.

Asset impairment

In accordance with IAS 36 the Group examines on every balance sheet date the existence of any events or circumstances that may indicate an impairment in the value of non-financial assets included in its scope. When there are signs indicating impairment in value, the Group examines whether the carrying amount of the asset exceeds its recoverable amount. If necessary, the Company writes down the asset to its recoverable amount and recognizes an impairment loss. The assumptions regarding future cash flows are based on past experience with the specific asset or similar assets, and on the anticipations of the Group regarding the economic conditions that will exist over the remaining useful life of the asset. The Group uses estimates of appraisers when determining the net sale price of assets. With respect to real estate, the estimates take into account the market situation of real estate at a similar location. The competition in the retail market and in the real estate market may have a significant effect on the Group’s forecasts regarding future cash flows, the estimated remaining useful life and the sale price of the asset. See also Note 15.2 regarding the assumptions and the risk factors related to goodwill impairment.

Valuation of intangible assets and goodwill

The Group is required to allocate the acquisition cost of investee companies to assets that were acquired and to liabilities that were assumed on the basis of their estimated fair value. In large acquisitions, the Group engages independent appraisers who assist it in determining the fair value of these assets and liabilities. These valuations require management to apply significant estimates and assumptions. The principal intangible assets recognized in recent years, including the last acquisitions made in 2008, include trade marks and brands. Critical estimates used in estimating the useful life of these intangible assets include, inter alia, an estimate of the period of customer relations and anticipated market developments. Critical estimates used in order to estimate certain assets include, inter alia, anticipated cash flows from contracts with customers, replacement costs of brands and of fixed assets. The estimates of management regarding the fair value and useful life are based on assumptions considered reasonable by management but are uncertain, so that actual results may be different.

Share-based payment

The Group has several employee compensation plans that are settled by means of equity instruments or cash. The fair value of share options are based on certain assumptions, including, inter alia, the excepted volatility of the share price. In addition, the Group is required to estimate the number of options that will vest for the purpose of recording expenses in respect of share-based payments. These estimates are related to forecasts regarding sales and earnings per share. Material differences between the anticipated and actual market performance of the share, the exercise behavior of employees, the sales of the Group and the earnings per share may have a material effect on future expenses.

129 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 40 - Critical Accounting Policies and Management’s Judgments (cont’d)

Provision for doubtful debts

The Company applies the guidance provided in IAS 39 when determining whether there has been impairment in the value of the customers’ balance. This decision requires exercising significant discretion. When exercising this discretion the Group takes into account, inter alia, the aging analysis of the customers, the doubtful debts history, debt collection patterns, financial strength and a short-term analysis of the customer’s business and industry trends.

Contingent liabilities

The Group and its investee companies rely on the opinion of their legal counsel when they evaluate the changes in legal claims pending against them. The opinion of legal counsel is based on the best of their professional judgment and legal experience in various areas, and takes into account the current stage of these legal proceedings. The legal proceedings will ultimately be decided by the courts and therefore their results may be different from these estimates.

Note 41 - Condensed Separate Financial Statements of the Company

41.1 General

The separate financial statements of the Company are prepared in accordance with the accounting policies applied in the consolidated financial statements, except as follows:

y The investments in investee companies are presented on a cost basis; y Guarantees to subsidiaries are measured at fair value; and y Gains from transactions with investee companies were not eliminated.

130 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 41 - Condensed Separate Financial Statements of the Company (cont’d)

41.2 Balance sheet December 31 December 31 2008 2007 NIS thousands

Current assets Cash and cash equivalents 9,157 *405,482 Marketable securities and deposits 9,669 10,204 Trade receivables 12,153 84,700 Income tax receivables 114,406 40,708 Other receivables and debit balances 93,076 *77,445 Inventory 3,285 47,293

Total current assets 241,746 665,832

Investments and non-current assets Investment in investee companies 2,248,533 *1,962,551 Other investments and long-term debit 5,251 *17,861 balances Assets designated for the payment of employee benefits 12,392 6,664 Fixed assets 178,844 216,646 Intangible assets 82,343 79,502 Deferred expenses 4,628 *5,729 Deferred taxes 5,458 -

Total investments and non-current assets 2,537,449 2,288,953 2,779,195 2,954,785 Current liabilities Short-term loans and credit 101,103 82,469 Trade payables 70,390 189,048 Other payables and credit balances 185,882 66,279 Provisions 8,583 17,033

Total current liabilities 365,958 354,829

Non-current liabilities Long-term loans and credit 966,112 1,039,302 Employee benefits 4,771 (341) Deferred taxes - 4,033

Total non-current liabilities 970,883 1,042,994

Equity Share capital 242,121 241,660 Share premium 622,279 600,468 Treasury shares (19,845) (19,845) Retained earnings 597,799 734,679

Total equity 1,442,354 1,556,962

Total liabilities and equity 2,779,195 2,954,785

* Reclassified.

131 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 41 - Condensed Separate Financial Statements of the Company (cont’d)

41.3 Statement of income

For the year ended December 31 2008 2007 2006 NIS thousands

Sales 401,567 544,884 438,159 Cost of sales 225,152 341,407 287,064

Gross profit 176,415 203,477 151,095 Selling and marketing expenses: Doubtful debts expenses – Clubmarket - (3,390) - Other selling and marketing expenses 95,922 116,530 99,297

Total selling and marketing expenses 95,922 113,140 99,297 General and administrative expenses 44,438 44,907 41,059

140,360 158,047 140,356 Operating profit before other Income (expenses) 36,055 45,430 10,739

Other income (expenses), net (5,094) (14,593) 157,768

Operating profit 30,961 30,837 168,507 Financing income 190,725 126,435 13,896 Financing expenses (177,991) (52,696) (20,880)

Financing income (expenses), net 12,734 73,739 (6,984)

Income before taxes on income 43,695 104,576 161,523 Income tax saving (expense) (6,624) 4,517 (33,733)

Income for the period 37,071 109,093 127,790

132 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 41 - Condensed Separate Financial Statements of the Company (cont’d)

41.4 Statements of changes in shareholders' equity

Loan to purchase Share Share Treasury Company Retained capital premium shares shares earnings Total NIS thousands

Balance as at January 1, 2006 241,343 552,588 (19,845) (13,126) 670,794 1,431,754

Changes in 2006: Income for the period - - - - 127,790 127,790 Total recognized income for the period 127,790

Share-based payment - - - - 15,436 15,436 Exercise of options net of tax effect 172 2,265 - - - 2,437 Option warrants - 45,380 - - - 45,380 Repayment of loans by employees - - - 13,467 - 13,467 Interest accrued on loans to interested party and other employees net of tax effect - 235 - (341) - (106) Dividend paid - - - - (200,052) (200,052)

Balance as at December 31, 2006 241,515 600,468 (19,845) - 613,968 1,436,106

Changes in 2007: Income for the period - - - - 109,093 109,093 Total recognized income for the period 109,093

Share-based payment - - - - 11,618 11,618 Exercise of options 145 - - - - 145

Balance as at December 31, 2007 241,660 600,468 (19,845) - 734,679 1,556,962

133 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 41 - Condensed Separate Financial Statements of the Company (cont’d)

41.4 Statements of changes in shareholders' equity

Loan to purchase Share Share Treasury Company Retained capital premium shares shares earnings Total NIS thousands

Balance as at December 31, 2007 241,660 600,468 (19,845) - 734,679 1,556,962

Changes in 2008: Income for the period - - - - 37,071 37,071 Total recognized income for the period 37,071

Share-based payment - - - - 26,000 26,000 Exercise of options 461 21,811 - - - 22,272 Dividend paid - - - - (199,951) (199,951)

Balance as at December 31, 2008 242,121 622,279 (19,845) - 597,799 1,442,354

134 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 41 - Condensed Separate Financial Statements of the Company (cont’d)

41.5 Statement of cash flows

For the For the year ended year ended December 31, December 31, 2008 2007 NIS NIS thousands thousands

Cash flows from operating activities Income for the period 37,071 109,093 Adjustments: Depreciation 8,579 15,727 Amortization of intangible assets and deferred expenses 17,961 10,426 Other expenses (income), net (577) (2,653) Expenses in respect of share-based payment 22,684 8,552 Financing expenses, net 12,734 73,739 Income tax expense 6,624 4,517

Change in inventory (16,736) 4,120 Change in trade and other receivables (60,373) 203,577 Change in long-term trade receivables (1,018) 1,194 Change in trade and other payables (58,555) (172,409) Change in provisions and employee benefits 845 (3,677)

Interest paid (36,424) (18,704) Interest received 7,274 2,443 Income tax paid, net (35,363) 16,716

Net cash flows from (used in) operating activities (95,274) 252,661

Cash flows from investing activities Sale (purchase) of marketable securities, net 1,588 90,641 Proceeds from sale of fixed assets 1,060 7,620 Investment in investee companies (107,774) (432,567) Acquisition of fixed assets (45,675) (118,871) Dividends received from investee companies 80,551 124,700 Investment in intangible assets and deferred expenses (30,063) (45,727) Repayment of deposits and long-term loans granted 18,367 - Long-term loans granted (3,082) (633) Repayment of capital note 71,652 - Investment in deposits - (15,000)

Net cash flows from (used in) investing activities (13,376) (389,837)

Cash flows from financing activities Short-term bank credit, net 10,301 (149,256)

135 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 41 - Condensed Separate Financial Statements of the Company (cont’d)

41.5 Statement of cash flows (cont'd)

For the For the year ended year ended December 31, December 31, 2008 2007 NIS NIS thousands thousands

Receipt of long-term loans (91,984) (87,617) Issuance of debentures, net - 768,500 Proceeds from exercise of share options 22,272 145 Early repayment of debentures (28,313) - Dividends paid (199,951) -

Net cash flows from (used in) financing activities (287,675) 531,772

Net increase (decrease) in cash and cash equivalents (396,325) 394,596 Cash and cash equivalents as at January 1 405,482 10,886

Cash and cash equivalents as at December 31 9,157 405,482

41.6 Information on investing activities not involving cash flows

Further to the transaction described in Note 5.7, in 2008 the coffee operation of the Group in Israel was split and merged with Strauss Coffee. Part of the coffee operation was included, before the restructuring, in the Company’s operations. In consideration for the transfer of the operation, the Company was allotted additional shares in Strauss Coffee. Transfer of the operation to Strauss Coffee was recognized on the basis of the carrying amount of this operation; no gain or loss was recognized as a result of the transaction.

As a result of the transaction the Company recognized the following amounts:

Coffee Israel Sale NIS thousands

Trade and other receivables 162,221 Inventory 60,744 Fixed assets 77,316 Intangible assets 13,933 Investments 413 Trade and other payables (90,023) Long-term loans (1,461) Deferred taxes (10,847) Net identifiable assets and liabilities 210,296

Recognized investment in subsidiary 210,296

136 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f Convenience translation from Hebrew Strauss Group Ltd.

Notes to the Consolidated Financial Statements

Note 42 - Subsequent Events

42.1 On March 17, 2009 the Company’s Series 1 options expired. For further details see Note 28.2.

42.2 Further to that mentioned in Note 26.1.1.10 on January 26, 2009 the District Court of Central Region accepted the request of the plaintiff with the agreement of the defendants, including the Company, to strike the claim and request to certify the claim as a class action with respect to the alleged existence of a restrictive arrangement between the defendants, as regards Ramat Hagolan Dairies, without issuing an order for expenses.

137 WorldReginfo - aa04244e-f68b-4082-9e83-98ebdf642c5f