The Curd Amendment / Cottage Cheese Protests Hurt Tnuva's 2011 Profit, Not Sales

Estimates revealed by Mivtach Shamir show food giant's value shrank 30% in 4 years due to dividend withdrawals.

By Eran Azran

Tnuva managed to increase revenues last year by 6% but its profits shrank 17% because of the summer social protests, according to the company's own figures. They were revealed in an appraisal of the company by the financial advisory firm Giza Singer Even and were later announced by the publicly-traded company Mivtach Shamir, which owns 20.7% of Tnuva, Israel's biggest foodstuffs manufacturer.

Revenues rose to NIS 7.6 billion in 2011, an increase of 5.6% compared with 2010, according to the figures in the Giza report. But operating profit tumbled 25% as the company pared down its margins to NIS 531 million. EBITDA (earnings before interest, tax, depreciation and amortization ) dropped by nearly 19% to NIS 785 million.

The cost-of-living protests that lasted throughout the summer had been triggered by yet another price hike of cottage cheese, an Israeli staple at the breakfast and dinner table. Tnuva isn't the only cottage cheese manufacturer, but it is the biggest by far. As consumer anger focused on the company, its market share of cottage cheese eased back by 1.4% during the third quarter of 2011 compared with its market share in the first half of the year, Giza's economists wrote.

Giza presented evidence that Tnuva's trouble with margins lay in the protests: its sales increased by 6.6% in the first half of the year against the same period of the year before - mainly because the company jacked up its prices, they say.

But then came the protests. The company finished the year with estimated gross margins of 26%, down from 29.2% in 2010. Operating margins narrowed from 9.8% to 7% as the company aggressively marked down prices of certain products to appease the protesters.

Giza's economists concluded that Tnuva's value also shrank last year, from NIS 9.5 billion in 2009 to NIS 7.3 billion at the end of June 2011 (the first half of last year ). That is a drop of 30% and it isn't because of protesters shaking its tree. It's because Apax Partners, the international fund that controls Tnuva, massively withdrew dividends from it since acquiring the controlling interest four years ago, in January 2008.