This English translation of the Board of Director’s Report is hereby made for convenience purposes
only, whilst the complete Hebrew version is the sole binding version. In the event of any conflict
between the Hebrew version and this English translation, the Hebrew version (which may be viewed at
Baran Group Ltd.’s web site at www.barangroup.com) shall prevail.
Board of Directors Report on the State of the Company's Business
for the period ended March 31, 2015
The Board of Directors of the Baran Group Ltd. (hereinafter: "the Company") is
pleased to present its Report on the state of the business of the Company's and its
consolidated subsidiaries (the Company and its subsidiaries will hereinafter jointly be
called: "the Group"), for the period of three months ended March 31, 2015.
The description of the Corporation and its business environment in the framework of
the Board of Directors Report, includes a condensed review of the Company's
operations which has been prepared on the assumption that the reader of the Report
has the Periodic Report of 2014, in its full Hebrew version, which was published on
March 31, 2015 (Ref. No. 2015-01-067726).
The information in the review relates to the whole Group, unless specifically stated
otherwise.
Condensed description of the Company and its business environment
The Company is a corporation which holds subsidiaries, all of which specialize in
providing engineering and management services and solutions in order to promote
and undertake engineering projects involving planning and implementation, including
assisting in finding and realizing financial solutions for the client in order to execute
the projects. These activities are carried out in Israel and abroad in the fields of
engineering design, communications infrastructures, transport, energy and
development, the treatment of water and waste and the delivery of water, including in
industrial and security fields, in a wide range of functions which are part and/or the
whole of the execution processes, construction and implementing development and
expansion plans, as from the planning stage until the stage of final delivery of the
project (the "product") to the client.
Key subjects (in Israel and abroad) which affected the operations and results in
the quarter of report:



Completing the consolidation of engineering units in Israel in managing
consolidation and synchronization between offices while canceling duplicity and
making standards more uniform in order to make the engineering product more
efficient and cheaper.
The continuing freezing of investments in the field of communications
infrastructure in Israel, since the reform carried out in the field, continuation of
reorganizations since then of the branch's operations.
Considerable stoppage and slow-down in projects in the field of gas in Israel, both
in converting plants for the use of gas energy and in connecting consumers to the
infrastructure, in view of the lack of clarity and definitions in the branch.
-1-




Considerable stoppage of investments in Israel and transferring them abroad by
traditional customers of the Company in the field of mining and processing natural
resources (phosphates, chlorine and bromine, potash, etc.), as a result of a change
in legislation and the rules of taxation and royalties.
The absence of government decisions and promoting new subjects due to the start
of the elections campaigns and the lack of an approved State budget.
Continuing effort and momentum in business and marketing development of
Baran International, promoting business contacts and proposals connected with
obtaining significant projects, as the Company reported in the past (in the second
half of 2014).
Continuing investment in the organizational and financial effort which has been
taking place for over a year in renewing and expanding the control abilities and
tools relating to operations.
The period of report is characterized by few investments in projects in the relevant
fields of the Group's operations in Israel, and strong competition around those projects
which are progressing and being issued. This is expressed in a decline in the level of
operations in Israel and an erosion in profitability, particularly when compared to
previous periods. As mentioned above, the discontinuation of existing projects and the
delay in promoting new projects have occurred for a number of reasons relating to
economic and business matters (in the fields of heavy and traditional industry) and
due to regulatory reasons and the economic planning (in the gas, communications and
the energy fields), which affected the level of operations combined with marketing
and development efforts, harmed profitability.
It is believed that some of the key subjects mentioned above will be solved in the
near future (budget approvals after the appointment of the Government, etc.),
while others will possibly continue to affect the Group's operations for a longer
period.
During the quarter, the marketing and business development efforts continued, both in
Israel and abroad. The development mainly focused on projects with a significant
potential, and where the period of time required up to the date of the engagement and
the start of realizing them is long – sometimes a few quarters, and often even years.
These efforts resulted in engagements with customers and with countries, and contacts
and negotiations at various stages of completion as result of price offers submitted
and partnerships arranged. As part of these activities, the Company reported prior to
the end of 2014 (on October 27, 2014 and November 5, 2014, Ref. 2014-01-181407
and 2014-01-188187) that it signed or is in the stage of advanced negotiations on
work and agreements of Baran International in the field of water infrastructures of
significant amounts of over 200 million dollars and 160 million euro, as detailed in
those reports.
These reports, are in addition to the agreement reported prior to the end of the
previous year (Ref. 2013-01-147180) and signed for the establishment of an
industrial plant for an amount of 80 million dollars (subject to completing the
financing), and despite the fact that time has passed since then, and the negotiations
are continuing around the subject of financing and the extent of the contract, and are
-2-
still in the promotion stages, some of which are continuing over and above what was
initially expected.
The Company focuses, correct as of the date of publishing the Report, on
achieving projects and entering into short-term agreements to be carried out in
the near future, whether, inter alia, it is in the middle of a period in which it
submitted and is submitting fairly numerous offers for tenders and work, in
order to obtain these projects.
Concurrently, as mentioned, the efforts of developing various operations continue
with a view to complete them and finalize agreements on long-term subjects.
The Company operates and manages its operations on a segmental basis of specialized
operations. This organization and the method of its operation, is reflected in the
results as detailed below.
At the end of the quarter of report, the Company – the Baran Group Ltd., is the
controlling shareholder in more than 60 subsidiaries and related companies operating
in 25 countries, 5 continents and employs about 1,160 employees (in the Company
and its subsidiaries).
The Group's management center is in Israel, where it started its operations 36 years
ago as an engineering company. The Group's operations outside Israel were, up to
2013, mainly projects connected with the telecom and communications infrastructures
market, and partly in projects in the field of complex engineering, while basing itself
on its management infrastructure and know-how in Israel. Since then, including the
quarter under report, considerable effort has been made in marketing and business
development activities in markets abroad. The emphasis is also on projects and
activities in the various fields of engineering to establish possible future operations
and a significant long-term backlog of work, despite the focusing in the past in the
field of communications and communication infrastructures, which are characterized
by short-term projects. At this stage the increase in international operating expenses,
has not yet been expressed in an equivalent increase in revenues. Concurrently with
the development of infrastructures in a number of countries there are countries where
operations declined significantly or were discontinued, including the US and Russia.
Most of the Group's revenues and profits over the years are from operations in Israel,
and also most of the profit is derived from operating units. A slowdown in operations
in Israel and the few relevant projects, for the reasons mentioned above, resulted in a
decline in Baran Israel's share of revenues compared to the other operations, and an
erosion in profitability.
The Company reports about the following two main segments in its financial
statements:
1.
The Baran Israel segment.
2.
The Baran International segment.
In addition the Company's consolidated financial statements have an "others"
segment, which includes various services and activities, each of which is for not
significant amounts compared to the Group's total operations, and is not combined or
included in the segments mentioned above. In addition, the "other" segment includes
and reflects also operations or events which occurred in the Group during the period
reviewed and which are not part of the operating segments activities.
-3-
1.
The Board of Directors explanations on the state of the Corporation's business,
results of its operations, its shareholders equity and cash flows
1.1
Financial position
1.1.1 Assets – an explanation on the main changes (in NIS thousands)
Item
13.31.5333
13.35.5332
Change
Explanation
Cash and cash
equivalents
58,734
78,152
(19,418)
Decline mainly in cash flows from
operating activities, and a transfer
of about NIS 15 million to the
investments portfolios (hereinafter
in the following item)
Financial
assets at fair
value through
the statement
of income
39,248
24,314
14,934
Increase in the liquid investments
portfolios
Customers and
revenues
receivable
181,391
220,186
(38,795)
Decline in customer debts in
Thailand and Germany
Other
24,991
20,350
4,641
An increase in the debt of an
affiliated company to the Group
Investments in
investee
companies
18,739
20,889
(2,150)
Decrease resulting mainly from a
loss in a company jointly held
presented by the equity method
Other
intangible
assets, net
15,414
14,097
1,317
Increase due to the Company's
investments in computerized
infrastructures and ERP
The Company's total assets as at March 31, 2015 aggregated NIS 418 million,
compared to NIS 458 million on December 31, 2014 and NIS 470 million on March
31, 2104.
The Company's current assets aggregated NIS 328 million compared to NIS 366
million on December 31, 2014 and NIS 380 million on March 31, 2014, and total
non-current assets aggregated NIS 90 million on the balance sheet date, a slight
decline of NIS 2 million compared to the end of 2014 and similar to the end of the
equivalent quarter in the previous year.
In the extent of current assets there is a decline in cash and liquid assets of NIS 19
million compared to the end of the previous year, most of the amount in this clause
declined as a result of transfer of the amounts and their presentation in the financial
-4-
assets item at fair value through the statement of income, which increased by NIS 15
million. The balance of the decline in the level of cash is from operating activities,
where in some of the operations cash levels declined, while in others (Thailand, South
Africa, and others) there was an increase during the quarter.
In the customers and revenues receivable and others item, there is a decline of NIS 34
million resulting both from a decline in the level of revenues in the quarter (about NIS
107 million compared to an average of NIS 125 million per quarter in 2014), and from
the collection of customers debts, amounts which were presented on December 31,
2014 still in the framework of the customers and revenues receivable item. The
reasons for the others changes in the assets items is presented in the above table.
1.1.2 Liabilities – Explanation of the main changes (in NIS thousands)
Item
13.31.5333
13.35.5332
Change
Explanation
Short-term credit
and loans and
current maturities
of long-term loans
98,467
97,094
1,373
Increase in utilizing shortterm credit lines from banks
in Israel
Trade payables
36,559
59,091
(22,532)
Decrease in supplier payables
mainly in Thailand and
Germany
Other
129,494
131,551
(2,057)
Decline partial resulting from
a decline in advances from
customers
Long-term loans
and other liabilities
less current
maturities
3,508
4,627
(1,119)
Repayment (partial) of longterm loan
The Company's current debts to financial and other institutions, to suppliers and to
others in the framework of current liabilities remained during the period similar to the
amounts at the end of 2014. In trade payables and others item, the decline of NIS 25
million concurrently with the decline mentioned above in the trade receivables item
also resulted from the decline in the level of operations. In other liabilities items, there
were no significant changes.
Total shareholders' equity at the end of the quarter stood at NIS 127 million, a decline
of NIS 14 million from the end of the previous quarter (the end of 2014), and its rate
to the total balance sheet was 30%, slightly lower than the rate at the end of 2014,
which stood at 31%, as can be seen in the following table.
-5-
Main balance sheet data (in NIS thousands):
Item
Data on March 31, 2015
Amount
(Expressed in
NIS
Thousands)
Data on December 31, 2014
Percentage
of the
Balance
Sheet
Amount
(Expressed
in NIS
Thousands)
Percentage
of the
Balance
Sheet
Total balance sheet
418,281
100%
458,188
100%
Shareholders' equity
126,928
30%
141,110
31%
Current assets
328,344
78%
365,826
80%
Fixed and other assets and
investments
89,937
22%
92,362
20%
Long-term liabilities
23,736
6%
26,052
6%
Current liabilities
267,617
64%
291,026
63%
13.31.5333
13.35.5332
Ratio between current assets and current liabilities (current
ratio)
1.2
1.3
Ratio between current assets, excluding inventory and current
liabilities (acid test ratio)
1.2
1.2
Rate of financial liabilities to total balance sheet
70%
69%
Rate of financial liabilities to gross shareholders' equity
230%
225%
-6-
1.2
Results of operations in the first quarter of 2015
In the first quarter of 2015 revenues stood at NIS 107 million, a decline of
13% compared to the level of revenues in the equivalent quarter in 2014, a
level which stood at NIS 122 million, a decline of 14% compared to average
quarterly revenues in the previous year (about NIS 125 million ). Revenues in
the quarter do not yet include any recognition of long-term projects and
agreements that the Company is working on (and reported in the past) – see
above at the beginning of this Report.
Gross profits during the quarter stood at NIS 16 million comprising 15% of
revenues. These quarterly gross profits and the rate of profits to revenue are
slightly above average profits and rate of profits in the last four quarters. The
decline in the rate of the quarterly gross profit stemmed mainly from a decline
in revenues from Baran Israel operations, as detailed below.
Selling, marketing, general and administrative expenses during this quarter
of 2015 stood at NIS 25 million, an amount which is lower than these
expenses in previous quarters. There is a process of a continuing decline in
general, administrative and marketing expenses in the last quarters due to a
reduction in activities and an initiated reduction in cost. The full effect of the
reductions is not yet expressed, and is expected to continue for another quarter
or two, until completing the various processes connected with this.
The Company's loss from operations during the quarter stood at NIS 8.8
million.
Net financing expenses during the present quarter were NIS 2.7 million and
also include an erosion of the rates of exchange in the countries of operations
(Germany, South Africa and others) against the shekel.
Loss before taxes during the quarter were NIS 12.4 million, similar to the loss
in 2014.
Taxes on income in the present quarter are lower and stood at NIS 300
thousands only, due to the loss from certain operations on the one hand and a
utilization of tax assets in other activities where this was relevant.
Net loss for the quarter is similar to the loss before taxes and stood at NIS 12.7
million.
-7-
1.3
Condensed statement of income
1.3.1 By years (in NIS thousands), for the year ended December 31
5332
5331
5335
5333
)*( 5333
NIS Thousands
055,787
345,494
043,535
335,883
777,577
775,747
757,737
078,035
873,857
735,784
Gross profit
Gross profit, %
Sales and marketing expenses
Management and general
expenses
Doubtful debt expenses in
respect of long-term debt
Other income
Other expenses
Net other gains (losses)
533172
32%
57,553
713136
35%
55,499
3423112
53%
77,734
3173332
53%
8,957
122,143
32%
77,355
80,707
85,475
757,070
98,547
759,748
730
73
45,375
43,054
78
954
)8,578(
757
708
)4,577(
57
747
)5,900(
754
5,557
09,859
Operating income (loss)
Operating income, %
Financial income
Financial expenses
)13536(
-5,575
7,405
)353757(
-7,797
70,457
553145
1%
77,705
77,397
573333
2%
75,757
58,877
323334
4%
7,700
39,877
0,735
73,745
3,830
78,775
38,777
5,874
479
74,087
)809(
)4,757(
)33763(
7,757
)443523(
78,754
133337
59,743
333355
3,094
33457
75,077
)353433(
)633221(
33153
33257
)333665(
373717
333611
333137
Net sales revenue
Cost of sales revenue
Net financial expenses
Equity in earnings (losses) of
associates
Income (loss) before taxes
on income
Taxes on income
Income (loss) for the period
from continuing operations
Income (loss) for the period
from discontinued
operations
Income (loss) for the period
)353433(
)433332(
353536
343616
)333665(
Allocation of income (loss)
for the period:
Company shareholders
Minority shareholders
Total
)59,770(
77,003
)353433(
)77,777(
774
)433332(
77,455
958
353536
70,705
7,788
343616
)77,779(
597
)333665(
*
The data for 2010 is before the new accounting standards come into force IFRS11 and IAS19 and before discontinued operations.
-8-
1.3.2 According to quarters (in NIS thousands) ended on:
March
31, 2015
December
31, 2014
September
30, 2014
June 30,
2014
March
31, 2014
NIS Thousands
Net revenues
Cost of revenues
106,997
90,975
139,915
129,947
129,226
112,933
110,009
92,192
121,637
95,321
Gross profit
Percentage gross profit
Selling and marketing
expenses
General and administrative
expenses
Other income
Other expenses
Other gains – net
16,022
15%
4,891
9,968
7%
5,706
16,293
13%
5,048
17,817
16%
5,094
26,316
22%
5,156
20,469
21,310
25,493
21,764
17,084
95
475
(9)
(22)
615
92
28
31,297
62
8
438
62
Income (loss) from
operations
Percentage income from
operations
Financing income
Financing expenses
(8,768)
(16,420)
17,113
(8,549)
4,138
-
-
13%
-
3%
69
2,757
1,570
636
110
194
255
5,980
275
540
Net financing expenses
(income)
Share in profits (losses) of
affiliated companies
2,688
(934)
84
5,725
265
(916)
1,746
568
801
(242)
Income (loss) before tax on
income
Taxes on income (tax benefit)
(12,372)
(13,740)
17,597
(13,473)
3,631
299
(2,415)
6,175
233
2,633
Income (loss) for the period
(12,671)
(11,325)
11,422
(13,706)
998
Allocation of income (loss)
for the period:
Company shareholders
Minority shareholders
(12,454)
(217)
(11,222)
(103)
(5,033)
16,455
(13,783)
77
873
125
Total
(12,671)
(11,325)
11,422
(13,706)
998
-9-
1.4
Operating segments
For the three months ended March 31, 2015
Baran
International
Sales
External
revenue
Inter--segmental
from
segment
Total sales revenue
Operating income (loss) margin
Operating income, %
Baran
Israel
Other
Total
Consolidated
59,963
46,036
998
2,342
106,997
59,963
(3,550)
-
46,036
823
2%
3,340
(6,043)
-
106,997
(8,768)
-
Baran
Israel
Other
Total
Consolidated
For the three months ended March 31 2014
Baran
International
Sales
External
revenue
Inter--segmental
from
segment
Total sales revenue
Operating income (loss) margin
Operating income, %
48,992
71,504
108
1,141
2,718
121,637
48,992
2,292
5%
71,612
6,541
9%
3,859
(4,693)
-
121,637
4,138
3%
2014:
Baran
International
Sales
External
revenue
Inter--segmental
from
segment
Total sales revenue
Operating income (loss) margin
Operating income, %
Baran
Israel
Other
570,700
545,455
777
4,832
77,938
500,787
265,655
(12,555)
-
230,411
)5,370(
-
77,785
77,505
77%
055,787
)4,778(
-
-10-
Total
Consolidated
1.4.1 Segmental revenues
The Company has two operating segments, and in the quarter of report there
was an increase in revenues in one of them compared to the equivalent quarter
in the previous year and a decline of revenues in the second segment, as detailed
below. Total segmental revenues in the quarter declined, mainly for reasons
detailed at the beginning of this review.
In the Baran International segment there was increase of NIS 11 million over 20%, compared to the equivalent period in the previous year. Segmental
revenues are from operations in South Africa, Europe and Asia. They stem
mainly from projects in the field of communications infrastructures, alternative
energy, construction and industry. The level of revenues increased compared to
the previous year and is particularly conspicuous in operations in Asia and
South Africa. The decline in revenues compared to the forecast occurred in
Europe, mainly in projects in Switzerland, about which the Company reported
on June 5, 2014, a project whose rate of receipt of work orders is slow. As
detailed at the beginning of this review, Baran International continues its
marketing and business development efforts, which are also accompanied by
significant expenses, but during this quarter have not yet reached significant
revenues and effect from the new revenue generating projects in this segment, in
those place where there are operations.
In the Baran Israel segment there was a decline of NIS 25.5 million in the
quarter's revenues compared to the equivalent quarter during the previous year,
and segment's revenues stood at NIS 46 million (compared to NIS 71.5 million
in the previous year).
The projects in this segment are mainly in the field of infrastructures in
transport, gas, petrochemicals and in the fields of process industry, where the
main decline in revenues belongs to operations branches in heavy and process
industries in the gas and telecom sectors. These three branches in Israel suffer
from a decline mainly due to regulatory reasons as a result of regulations
regularizations (the reforms in the communications field, the second Sheshinski
Committee regarding taxation and royalties of the Israel Chemicals Group and
the Israel Corporation, irregularities in tariffs and the structure of the gas and
energy economy, the elections and setting-up of the new government, without
an approved budget and more) which affect the operations and results in Baran
Israel. Finding a solution to all these difficulties and delays, solutions which
have started are a reason for optimism for the return of Baran Israel to the
previous levels of operations that existed in the past.
In the other segment, whose revenues are mainly from management fees, there
is a certain decline in revenues due to a decline in the segmental revenues
themselves (and management fees from them).
1.4.2 Operating income according to segments
-11-
The Baran International segment recorded an operating loss of NIS 3.6
million. The loss, although lower when compared to the average of the last
quarters, but is worse when compared to the equivalent quarter in the previous
year, when there was an operating income of NIS 2.3 million .During the
quarter of operations there was operating income in the Asia and Africa
segment, while operations and projects in Europe, the US (where operations
were discontinued) and South America, together with significant business
development and marketing expenses, recorded losses. The operations in Russia
declined significantly, although during the quarter these operations still
contributed to revenues and profit.
Baran Israel segment ended the quarter registering a low operating income of
NIS 823 thousand, a considerable decline from the operating income of NIS 6.5
million during the equivalent period in 2014. The rate of operating income to
revenues stood at 1.8%, a low rate which is not characteristic of operations in
the Baran Israel segment. Income in the segment is mainly in projects of
transport and civil infrastructures, While operations from process and heavy
industry projects, and and operations in the telecom, gas and energy recorded
losses due to the and difficulties described above.
In the "other" segment , an operating loss of NIS 6 million was recorded in the
third quarter, after an operating loss of NIS 4.7 million in the equivalent quarter
in the previous year. The increase in the loss stemmed both from a decline in
revenues as described above, and from an increase in expenses in business
development and the development of computerized infrastructures and control.
1.5 Liquidity
1.5.1 Most of the Group's companies in Israel have independent cash flows, with
responsibility for collections and working capital. In addition, the Group's
companies utilize the central management by the Group's head office, relating to
liquidity, working capital, engagements with the banking system, and financial
balances.
Consequently, also bank credit lines (for those companies) are obtained with an
overall Group arrangement. The other companies, mainly those abroad, are
managed partially independently, based on a uniform policy.
-12-
1.5.1 Cash flows from operating activities
For the period
ended March
31, 2015
Item
For the year
ended December
31, 2014
Change
NIS Thousands
Income (lIncome (loss) for
the period
Adjustments to statement of
income items
Changes in items of operating
assets and liabilities
(12,671)
(12,611)
(60)
5,343
(20,373)
25,716
5,057
1,524
3,533
Cash
from
Cash floCCash
flows fromflows
operations
operations
Cash paid for interest and
taxes, net
(2,271)
(2,271)
(2,422)
(31,460)
(31,460)
(14,218)
29,189
29,189
11,796
Net cash used for operating
activities
(4,693)
(45,678)
40,895
There were negative cash flows from operating activities of NIS 4.7 million (of
which NIS 2.4 million were taxes paid on account of previous years), compared
to 2014 when negative cash flows of NIS 45.7 million from operating activities
were recorded, including tax payments of NIS 8.5 million of which more than
NIS 3 million, were on account of previous years.
The negative cash flows during the quarter are on mainly from the operations of
Baran Israel and operations of the head office, which include, inter alia, business
development and infrastructure development, while Baran International recorded
positive cash flows from operating activities, the main ones being from
companies operating in Thailand and South Africa.
1.5.2 Cash flows from investing activities
Item
For
the
period ended
March
31,
2015
For the year ended
December 31, 2014
Change
NIS Thousands
Cash flows used for
investing activities
(17,188)
(24,908)
7,720
The cash flows used for investing activities during the first quarter of 2015,
aggregated NIS 17.2 million, and stemmed mainly from cash investments in
marketable securities, as detailed above. In 2014 it aggregated NIS 24.9 million of
-13-
which, NIS 9 million were payments to arrange tax assessment, and NIS 6.3 million
for the acquisition of operations.
1.5.3 Cash flows from financing activities
For the period
ended March
31, 2015
Item
For the year
ended December
31, 2014
Change
NIS Thousands
Net cash from financing
activities
2,187
18,516
(16,329)
The cash flows provided by financing activities aggregated NIS 2 million in the
quarter of report, an amount resulting mainly almost totally from an increase in shortterm credit from banks in Israel.
1.5.4 Balances of cash and cash equivalents and earmarked deposits
13.1.5333
Item
31.12.2014
NIS Thousands
Cash and cash equivalents
Short-term deposits
Financial assets at fair value through profit or
loss
Restricted cash
Total
1.6
58,734
62
39,248
78,152
55
24,314
12,651
110,695
110,695
12,957
115,478
115,478
Sources of financing
Item
Shareholders' equity
Long-term liabilities
Current liabilities
1.6.1
Data on March 31, 2015
Data on December 31, 2014
Amount
(Expressed
in NIS
Thousands)
Amount
(Expressed
in NIS
Thousands)
Percentage of
the Balance
Sheet
141,110
26,052
291,026
31%
6%
63%
Percentage
of the
Balance
Sheet
162,928
23,736
267,617
30%
6%
64%
The Group continues to finance its operations during the period of
report from revenues from its various and current operations, suppliers
credit, bank credit, and shareholders' equity. For further details about
this matter see the first part, chapter D clauses 8.3 and 8.5 to the
Periodic Report for 2014, in its Hebrew version.
-14-
1.6.2
The level of bank credit and credit lines remained at a similar level to
those at the Company's disposal at the end of 2014. At the end of the
quarter most of the financial credit was utilized by the Company or by
its subsidiaries. The non-financial credit (formal guarantees, foreign
currency transactions, etc.) was partially utilized. After the balance
sheet date the utilization of credit continued both for current working
capital and for guarantees for submitting offers and tenders to
customers.
The subsidiary in Germany has conditions (covenants) from the local
bank that provides the credit, to comply with the ratio of shareholders'
equity to the total balance sheet, which must not be less than 35%.
At the end of the quarter, most of the Baran Israel segment companies
have cross guarantees to banks, and in addition on the balance sheet
date, there are specific liens to some of the existing credit providers
(partially classified as "restricted cash" received in the Company's
balance sheet) against credit or specific loans, and/or an undertaking of
a negative lien. For more extensive and additional details see also the
first part of Chapter D, clause 8.5 in the Periodic Report for 2014 and
Note 16 and 37 to the financial statements attached thereto, in their
Hebrew version.
1.6.3
2.
As part of the sources of financing, there is suppliers' and other credit,
(about NIS 167 million on the balance sheet date). The suppliers' and
others credit declined during the quarter by NIS 23 million .
Significant or non-recurring events during the quarter of report
2.1
2.2
Option warrants for shares
2.1.1
On March 29, 2015 the Company granted its employees 708,290
option warrants for shares; for additional details see Note 6 to the
financial statements, in its full Hebrew version.
2.1.2
In February and March, 2015 - 2,522 option warrant were exercised to
shares out of Baran Plan AP 06/09 and the balance of the option
warrants to shares of 57,478 from the 06/09 Baran Plan expired, as
well as 2,500 from the Baran 10/07 Plan.
Engineering services agreement through work teams
Regarding the engineering service agreement through work teams see Note 42,
clause 1 to the Company's financial statements of 2014, in its full Hebrew
version.
2.3
Further to that mentioned in Note 39(b) to the Company's 2014 financial
statements, in its full Hebrew version regarding agreements and amendments
-15-
to agreement not yet approved by the Company, the Company is taking steps
to bring all the agreements between ICM (a company in which Baran Israel
Ltd. holds 50%, and 50% is held by ICT, a company controlled by the
controlling shareholder in the Company) and companies in the controlling
shareholders group, which were not yet approved in the Company, for proper
approval.
3.
2.4
In addition the Company is taking steps and formulating a plan of enforcing
internal administration according to the criteria stipulated by the Securities
Authority.
2.5
On March 31, 2015 the Company submitted a first draft of a shelf prospectus
to the Securities Authority and to the Tel Aviv Stock Exchange Ltd., on the
basis of the Company's financial statements as at December 31, 2014.
Regarding the postponement of the shelf prospectus in the quarter, see clause
7.6.
2.6
On March 31, 2015 Mr. Haim Assael discontinued serving as an officer in the
Company in the position of legal advisor. On the same day Mrs. Ertal
Mileikowsky Miriam was appointed as an officer in the Company in the
position of legal advisor.
Exposure to market risks and the methods of their management
3.1
The Corporation's policy relating the exposure to market risks and
management of financial risks
The Corporation's policy relating to the management of exposure as well as
sensitivity analyses to fair value and the effect of changes in market prices as
on the fair value on balance sheet balances, and off balance sheet balances on
March 31, 2015, are not significantly different from the report on December
31, 2014 (see also the second part, clause 8 to the Periodic Report of 2014, in
its full Hebrew version).
-16-
3.2
Terms of linkage of financial balances
Linked
to the
euro
Linked
to the
dollar
Linked to
the index
Unlinked
In another
foreign
currency or
linked to it
Total
March 31, 2015
NIS thousands
Assets:
Current assets:
Cash and cash equivalents
Financial assets at fair value
Short-term deposits
Restricted cash
Other receivables:
Trade receivables and
revenues receivable
Other
Current tax assets
Long-term loans and other
receivables
7,234
8,491
11,456
15,456
62
4,160
58,734
39,248
62
12,651
76,803
41,370
181,391
2,655
1,196
2,008
519
183
18,546
4,352
1,379
25,101
130,120
75,214
316,363
12,967
40,375
1,168
69,725
29
299
4
332
271
1,486
12,743
72,427
2,372
30,010
16,240
32,341
1,687
36,559
124,090
1,778
2,481
32,250
45,024
18,194
726
965
52,984
Liabilities:
Current liabilities:
Short-term credit from
banks
Financial derivatives
Other payables:
Trade
Other
Current tax liabilities
Other provisions
Long-term loans (including
current maturities)
Reserve for severance pay
less funded amount
Long-term supplier
13,341
444
32,944
15,215
7,305
11,239
9,076
12,192
3,833
6,597
91
109
2,240
26,703
14,272
13,323
13,323
4,709
80
4,789
36,108
1,786
19,655
176,258
51,520
285,327
16,876
31,158
5,446
(46,138)
23,694
31,036
-17-
Terms of linkage of financial balances
Linked
to the
euro
Linked
to the
dollar
Linked to
the index
Unlinked
In another
foreign
currency or
linked to it
Total
December 31, 2014
NIS thousands
Assets:
Current assets:
Cash and cash equivalents
Financial assets at fair value
Short-term deposits
Restricted cash
Other receivables:
Trade receivables and
revenues receivable
Other
Current tax assets
Long-term loans and other
receivables
Liabilities:
Current liabilities:
Short-term credit from
banks
Financial derivatives
Other payables:
Trade
Other
Current tax liabilities
Other provisions
Long-term loans (including
current maturities)
Reserve for severance pay
less funded amount
Long-term supplier
5,792
12,603
50
9,510
49,023
14,250
9,038
10,734
504
55
3,919
78,152
24,314
55
12,957
61,234
12,087
-
78,163
68,702
220,186
79
-
890
-
9,254
3,557
-
1,949
1,176
2,214
183
-
15,086
3,740
1,176
67,805
25,630
22,321
153,599
86,311
355,666
17,484
-
13,179
39,204
441
70,308
-
29
-
-
-
29
13,054
14,258
121
2,568
331
1,884
9,615
154
17,873
78,763
2,372
28,845
27,833
27,031
2,120
-
59,091
131,551
2,274
2,493
31,413
13,946
13,946
553
-
-
4,637
95
5,285
48,038
2,244
22,948
185,640
57,520
316,390
19,767
23,386
(627)
(32,041)
28,791
39,276
-18-
Aspects of Corporate Governance
5.
Process of approving the financial statements
The Company's Board of Directors is the organ in charge of top control over
approving its financial statements. The Board of Directors comprises nine
member, five of which have accounting and financial expertise.
Regarding the composition of the Board of Directors and the members on it
who have financial expertise see the fourth part, Regulation 29 of the Periodic
Report of 2014, in its full Hebrew version.
5.1
Committee for examining the financial statements
According to the provisions of the Company's Regulations (Directives
and Conditions Regarding the Process of Approving the Financial
Statements) – 2010, the Company's Board of Directors appointed a
Committee to Examine the Financial Statements from among its
members. The Committee has three director members. The Committee
is not the Company's Audit Committee.
Members of the Committee are Messrs: Zvi Lieber, Chairman of the
Committee (External Director), Shlomo Sherf (an Independent
Director) and Yitzhak Shisgal.
Members of the Committee submitted a declaration detailing their
qualifications, education and experience, and based on it the Company
sees them as Directors with accounting and financial expertise.
For additional details see the Periodic Report for 2014, clause 10 of the
second part, and Regulation 26 in the fourth part, in its full Hebrew
version.
5.2
Steps taken by the Committee in order to formulate its
recommendations to the Board of Directors
Prior to approving the financial statements for the first quarter of 2015,
a meeting took place of the Committee to Examine the Financial
Statements. At the Committee meeting - on May 27, 2015 – the
following members of the Committee participated: Mr. Zvi Lieber –
Chairman of the Committee, Mr. Shlomo Sherf and Mr. Yitzhak
Shisgal, and Mr. Nahman Tsabar – the Company's CEO and the
manager of its Russian division, Mr. Meir Dor, Chairman of the Board
of Directors and a controlling shareholder, and Mr. Ehud Reiger – as
observers at the meeting. Mr. Sasson Shilo – the Company's CFO, Ms.
Meirav Shir – the Company's accountant, Linda Messalem, CPA of
Brightman Almagor Zohar & Co – the Company's external auditor,
Ms. Iris Lipshitz, the Company's Secretary and Erez Cohen, CPA – the
Company's Internal Auditor.
-19-
At this meeting the Company's financial statements as at March 31,
2015 were discussed. A detailed presentation of the significant matters
in the financial statements was made, which included the following
subjects: Evaluations and estimates made in connection with the
financial statements including legal matters, internal audit connected
with the financial statements and completeness and proper disclosure
in the financial statements, the accounting policies adopted in the
statements and the accounting treatment implemented regarding
significant matters relating to the Corporation were presented,
(including examining the goodwill and deferred tax assets, provision
for tax and legal claims), including the matter of new accounting
standards first adopted (see also Note 3 to the financial statements),
and the financial results themselves were discussed.
The discussion was made on the basis of background material and draft
financial statements sent to the members of the Committee prior to the
meeting, and a detailed presentation.
The Committee formulated a recommendation to the Board of
Directors on the subjects discussed at the meeting, and on May 27,
2015 sent to the Company's Board of Directors its recommendations
regarding the approval of the Company's financial statements.
5.3
Process of approving the financial statements by the Board of Directors
The Company's Board of Directors stated that the sending of the
Committee's recommendation to examine the financial statements at
least one business day prior to the meeting of the Board of Directors in
which the financial statements were discussed is a reasonable time.
Members of the Board of Directors received the draft financial
statements a number of days prior to holding the meeting of the Board
of Directors in which the statements are brought for approval. At the
meeting of the Board of Directors where the financial statements were
discussed and approved, the Company's CEO and CFO reviewed in
detail the main points of the financial statements, the significant
matters in the financial reporting, the financial results, the financial
position and cash flows of the Company and presented data on the
Company's operations compared to previous periods.
At the meeting of the Board of Directors representatives of the
Company's auditor were invited, who also presented independently the
main points and process of the review, and the Company's external
auditor responded to every question and clarification to the financial
statements prior to their approval, and the Company's legal advisor and
accountant were also present.
The Company's financial statements were discussed at the Company's
Board of Directors meeting on May 28, 2015 and approved by the
Board of Directors on May 31, 2015.
-20-
Disclosure in connection with the Corporation's financial reporting
6.
Critical accounting estimates
On the date of the Report, there were no significant changes during the first
quarter of 2015, compared to the critical accounting estimates that the
Company makes use of for its financial statements.
For information regarding the significant accounting estimates used in the
preparation of the Company's financial statements and implementing its
accounting policy, see Note 4 to the Company's financial statements as at
December 31, 2014, in its full Hebrew version.
7.
Events after the date of the statements and their effect on the financial
position mentioned in the financial statements
7.1
On April 27, 2015 the Company's CEO, Mr. Nahman Tsabar and the
CEO of Baran Israel Mr. Dan Shenbach, expressed their wish to resign
from the Company. They will discontinue serving the Company on
May 31, 2015.
On May 14, 2015 Mr. Dan Ben Harush ended his period of service in
the position of the Company's VP Human Resources and continues his
function in Human Resources reporting to a member of Management.
7.2
On May 3, 2015 Mr. Giora Gutman was appointed as the Company's
CEO, in force from June 1, 2015.
7.3
Agreement to electrify the railways
On April 29, 2015, the Company was informed that on completing the
first stage of planning and implementing the tender to carry out the
electrification of the railways (carried out by a wholly owned
subsidiary of the Company) the Israel Railways intends to issue an
international tender in order to carry out the second stage of the project
- managing the implementation stage.
On May 18, 2015 the Company received formal notice from the Israel
Railways regarding completing the agreement to accompany and
manage the Railways electrification project, and this in view of the
decision of the Railways, according to which the transition to the
implementation stage of the project requires an international
management and supervision company with know-how and expertise
in projects of electrifying railways.
In view of the complexity of the transition and in order to carry out the
transfer in gradual and organized stages of the agreement which will be
formulated in a general outline, for continued work of the Company
-21-
and the Israel Railways in the coming months until completing the
agreement.
The balance of the consideration not yet exercised out of the agreement
mentioned above (will be deducted from the Company on completing
this agreement) will stand at NIS 21 –52 million; this amount should
have be paid to the Company over the coming years.
7.4
Notice from the controlling shareholder of "GARAPA BV"
On May 4, 2015 the controlling shareholder announced the following:
"GARAPA BV request to clarify that contrary to what was recently
published in the press, GARAPA BV and Meir Dor are cooperating in
order to promote the interests of the Baran Group Ltd. and intend also
to strengthen the relationships and cooperation between them for the
benefit of future operations of the Baran Group".
7.5
On May 5, 2015, the Annual General Meeting took place in which the
following resolutions were passed:



To approve the appointment of the firm Brightman Almagor Zohar
& Co. (the Deloitte firm) as the Company's auditors for 2015 and
authorizing the Company's Management to determine their fees.
To approve the appointment Messrs Meir Dor, Ehud Reiger, Israel
Gotman, Giora Shlomo (Meyuhas) independent director, Shlomo
Sherf, independent director, Itzhak Shisgal and Avraham (Baiga)
Shochat as directors in the Company.
In addition a discussion took place on the financial statements and
the Company's Board of Directors Report for the years 2013 and
2014.
7.6
On May 28 2015, the Company announced that it intends to publish a
shelf prospectus, as mentioned in clause 2.5 above, on the basis of the
financial statements as at March 31, 2015.
7.7
On May 28, 2015 the Audit Committee and Board of Directors of the
Company approved a transaction, which is not exceptional, in
accordance with Regulation 37a(6) to the Securities Regulations
(Periodic and Immediate Reports) – 1970 as detailed in Immediate
Report 2015-01-033294.
The Board of Directors thanks the Company's employees and managers in all the
Group's companies for their contribution to promote the Company and its objects.
Meir Dor
Chairman of the Board
Baran Group Ltd.
Date of approval: May 31, 2015
Nahman Tsabar
CEO
Baran Group Ltd.
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