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Sunfrost CEO Jacob Yaari and company vice-president Avi Litman have more than a few reasons to celebrate. The company they run is enjoying a fifth consecutive year of growth; the parent company, Tnuva, which acquired Sunfrost at a value of $12 million, is happily recording profits on paper of $40 million; and the company's recent bond issue, whose institutional tender was held at the end of last week, was oversubscribed.

The roadshow for the issue was so successful that Tnuva decided to respond to the demand for shares by selling NIS 20 million of its own holdings in Sunfrost. The share sale and the bond issue attracted interest in Sunfrost and created a positive atmosphere that sent trade in the company's stock up from a few thousand shekels a day to almost NIS 100,000.

Best of all, Yaari and Litman earned bonuses of 100,000 and 80,000 stock options respectively. An increase of 100 percent in Sunfrost's share price - not an unlikely scenario for a share that has quintupled in the last five years - will make them even more comfortable.

Yaari and Litman, who value Sunfrost at double its current worth, would earn about NIS 5 million each on such an increase. Another 32 junior executives will also receive a handsome bonus that has been rare until now in the food industry.

The name Osem popped up repeatedly in a conversation with Yaari, in several contexts. Yaari, who is now running a company with no debts to the banks and with coffers that will swell by another NIS 60 million on the completion of the public stage of the bond issue this coming Monday, is not afraid to make battle statements.

"We have brought forward the launch date for microwave pizza," says Yaari, "because Nestle acquired a company that makes pizzas, and we knew that Osem is interested in entering this growing field. Osem is apparently no longer contemplating entering the pizza business, or will pay for it dearly. I am not afraid. Immediately following the bond issue, we will start discussing investment alternatives. One of them will be meat substitutes. We can be Tivol's number 2 in Israel."

Raichman is happy too

Tnuva CEO Arik Raichman is pleased with Sunfrost's success. "The acquisition of Sunfrost at a value of $12 million was one of the best deals I made at Tnuva," says Raichman, who is currently preoccupied with Tnuva's upcoming stock offering and the sale of a parcel of shares to a big investor. Raichman declined to relate to the issue of meat substitutes, but does not dismiss entering this field.

"We are not doing anything against anyone, but are acting for the good of the company," he says. "Yaari is an excellent manager and he is probably cooking something up."

Sunfrost's success in its bond issue is no accident. The capital market is thirsty for a success story like that of Maadanot in the pizza field. Within four years, Maadanot increased its sales from NIS 59 million, in 2000, to NIS 113 million, in 2003, and controls some 70 percent of the frozen pizza market. Maadonot made its big jump in this field when it successfully branded frozen pizzas as a fitting substitute for restaurant pizza.

Yaari says that there is vast growth potential in pizzas, since the penetration of frozen pizzas in homes is still low (40 percent). Maadanot's numbers already look impressive: The company sells 300 tons of pizzas per month - some 3 million slices of pizza.

Yaari also explains the potential in microwaveable pizzas - the 17-minute difference (3 minutes in the microwave versus 20 minutes in the oven). "For the young generation, which is used to high speeds, 17 minutes is a long time," he says, adding that children do not use conventional ovens, but are allowed to use the microwave.

Yaari says that Sunfrost's main advantage is its ability to identify an opportunity and exploit it to the fullest. "That is what we did concerning frozen vegetables at Sunfrost and pizzas at Maadanot," says Yaari, explaining why Sunfrost reduced to a minimum the marketing of non-branded frozen vegetables and increased the sales of the branded packages.

"We earn a premium of NIS 2-3 per kilogram for the same produce, so the profitability is much greater. It is a zero sum game, because the amount we can sell in a season is determined a year and a half in advance, so we have to exploit sales such that all the merchandise is sold before the beginning of the next season, and at the highest possible price."

The fact that Sunfrost is focusing on its brands is also reflected in advertisement expenditures. "We could stop advertising now and earn twice as much profit in the next two years, but we have been building the brand for years and will continue to support it," Yaari says.

The expansion of the pizza and leaf pastry goods production lines is just one of the options being considered by Sunfrost for the investment of the funds the company is raising. Yaari stresses that no decision has yet been made regarding the company's future development. Yaari and Litman note that while the frozen vegetables market has sales of some 12,000 tons, it has synergistic markets such as the canned vegetables market (19,000 tons), the French fries market (10,000 tons) and the meat substitutes market (4,800 tons), all of which are potential markets.

Other markets

Possible growth engines for Maadanot are the expansion of the pizza operations and other unexhausted frozen food areas, such as jachnun and malawach (cooked or fried Yemenite pastries). Maadanot currently makes malawach and jachnun under both the Maadanot and Nargila labels, paying a symbolic annual concession fee for the latter. Frozen blintzes are also an undeveloped field in Israel. Still, Yaari says that this is a product that is consumed in Israel mainly over Shavuot.

Zoglobek, which competes with Maadanot in the baked goods market, is not waiting for Maadanot in order to forge ahead in the Yemenite breads field, and recently launched mini-malawachs in its "from the oven with love" line.