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A little less than a decade ago, Israel was in an uproar over the discovery that Tnuva routinely added silicon to its nonrefrigerated milk. The affair badly damaged the cooperative's reputation. Today, however, all that is long forgotten: Tnuva boasts several leading brand names, and its image is that of an innovator.

The man responsible for this turnaround was Arik Reichman, who took over as CEO shortly after the silicon affair broke. Reichman has not only improved the firm's image, he has also helped it recoup the 15 percent market share that it lost to competitors in the years before he took the helm.

Yet when it comes to the cooperative's financial results, it turns out that Reichman has been far less successful. According to the company's internal financial statements for January-July 2005 - copies of which were obtained by Haaretz - Reichman's tenure has been marked by ballooning bank debts, bad investments, low profitability and failure to meet the company's own goals.

The financial statements reveal that in 1999-2003, the cooperative's investments totaled NIS 2.7 billion, raising its debts to the banks to NIS 1.8 billion as of July 31, 2005. Tnuva also took out hundreds of millions of shekels in new loans in the first half of 2005; in addition, it is a guarantor for subsidiaries' bank debts to the tune of NIS 80 million.

That NIS 1.8 billion is a sizable debt burden for a company whose operating profits in January-July 2005 came to only NIS 206 million; Just servicing this debt cost the cooperative NIS 34 million during this seven-month period. Such a debt could significantly reduce the cooperative's value should Reichman carry out his plan to take Tnuva public.

Moreover, the massive investment did not produce a corresponding increase in profits. In 1999, the cooperative's net earnings totaled NIS 165 million. In 2004, its net earnings were NIS 162 million, and its projected bottom line for this year is NIS 160 million.

In fact, Tnuva's profitability is significantly lower than that of its main competitors: Its operating profit during the first half of 2005 came to only 3 percent of turnover, compared to 7.1 percent at Strauss-Elite and 10.7 percent at Osem. This difference is not obvious when comparing after-tax profits. However, Tnuva, being a cooperative rather than a company, is taxed at the ridiculously low rate of 4 percent.

Both the heavy bank debt and the low profitability are due in large part to a series of bad investments. One of the more recent was the establishment of Adom Adom, a plant that produces fresh meat. Tnuva invested NIS 160 million in the plant, which is capable of producing 15,000 tons of fresh meat a year, about 25 percent of Israel's current consumption. In practice, however, the plant produced only 233 tons of meat in the five months since it began operation in February, and sales, at NIS 6.7 million, were some 50 percent lower than Tnuva had predicted. Altogether, Adom Adom lost NIS 4.4 million in January-July 2005.

Reichman predicted that Adom Adom would take three years to break even and seven to eight years to repay its investment. But right now, even these unambitious forecasts look optimistic.

Yet another problematic investment was Tnuva's new dairy in Alon Tavor, which opened its doors in October 2004, some four years after work began. The dairy cost $228 million - about four times what Tnuva's leading rival, Strauss-Elite, invested in its new dairy in Ahihod. Liad Cohen, who runs Tnuva's dairy business, insisted that the higher costs were due to the higher quality of Tnuva's dairy. But according to the cooperative's internal reports, higher quality only accounts for $115 million of the difference. In other words, even Tnuva has no explanation for the remaining $55 million price differential.

Tnuva's soy venture has also thus far been a dismal failure. At the start of the decade, soy products appeared poised to be the hot new food item, and Tnuva decided to enter the market in a big way: It purchased Soy Magic - a company with annual sales of only NIS 2 million - for $10.5 million. Tnuva then invested an addition $2 million in the company. Yet two and a half years later, Soy Magic posted a net loss of NIS 1.8 million on turnover of NIS 8 million for January-July 2005. That turnover is significantly lower than the NIS 26 million a year that Tnuva believes is necessary for the company to break even.

Similarly, Tnuva paid NIS 16 million to purchase Olivia, which makes sauces and spreads, and gave the company a further NIS 16 million in loans, only to see it suffer a loss of NIS 2.7 million in January-July 2005.

In total, nine of Tnuva's 22 subsidiaries failed to meet the profit goals laid down in the cooperative's business plan for January-July 2005. While the NIS 13 million that the subsidiaries contributed to Tnuva's profits in January-July 2005 was substantially higher than the NIS 6.7 million they contributed during the same period of 2004, it is still well below the contribution called for in the cooperative's business plan, which was NIS 17.4 million.

Were Tnuva a publicly traded company, Reichman would undoubtedly have been asked some probing questions about its poor investments and its low profitability. But because it is a cooperative, owned by 630 moshavim and kibbutzim, he has thus far been spared this unpleasantness.