Taking Stock / Dankner's Points of Light

Unlike Effie Rosenhause, the brand-new CEO at Supersol, Avi Patir, the brand-new CEO of American Israeli Paper Mills won't be able to gloat in a year or two about awesome turnarounds at the company he just took over, which like Supersol belongs to Nochi Dankner's IDB Holding Corporation group.

First of all, the outgoing CEO of AIP, Yaki Yerushalmi, is staying on as chairman. When the management stays, albeit in a different seat, a "turnaround" is unlikely. At most Patir will be able to boast that the company's results have stepped up a level.

Secondly, and this is more important, the company Yerushalmi handed over to Patir is a downright lovely one, squeaky-clean and impressive, which has tackled and conquered quite a few major challenges in the last decade.

It is beautifully symbolic that the day before AIP published its second-quarter financials, Kibbutz Amir and its diapers unit, Tafnukim, were forced to ask the courts for protection after heavy losses and debts that mounted to NIS 270 million.

Another Israeli diaper maker, Hogla, could have been reduced to the same sorry straits as Tafnukim if its owner, AIP, hadn't brought in the multinational Kimberly-Clark as its partner seven years back.

AIP's Hogla-Kimberly has also been suffering from steeply falling profits in the last couple of years on their Huggies diapers after Procter & Gamble - which makes Pampers - slashed prices. Without the tremendous R&D backing from Kimberly-Clark, little Hogla and its Huggies couldn't have survived the price war.

The second move that saved AIP, allowing it to continue growing despite the deep recession and strong competition from imports, is its strategic partner in producing A4-sized white paper - the Austrian company Neusiedler.

Moments before the intifada resumed, Yerushalmi managed to sign on Neusiedler as a strategic partner in paper production. Instead of producing dozens of kinds of products in small quantities floating around the local market, AIP turned into a major producer of a single kind of product, most of which is exported and sold through Neusiedler.

The common denominator in AIP's two moves is, of course, the recruitment of strategic multinationals as partners: Americans in diapers, and Austrians in white paper.

The Americans and Austrians came when the peace process was still going strong, assuming that one day, Israel would serve as a bridge to the entire Middle East. Yaki Yerushalmi, who understood perfectly well why AIP needed international partners, tirelessly promoted the concept of the New Middle East.

That New Middle East bubble has long since burst, but the partnerships proved their worth nonetheless. AIP and its foreign partners created genuine operating and marketing synergies, allowing them to contend with changing market conditions.

Cellcom calling

The management crisis at Cellcom under CEO Yitzhak Peterburg, the feuds between the cellular operator's shareholders, and the rapid growth of its younger, speedier rival Partner Communications leave one with the feeling that Cellcom could lose its leading position in Israel's cellular sector.

It could, but going by the second-quarter financials the company announced Wednesday, that sad fate won't arrive so fast. Cellcom reported improved operating profits, after several quarters of sliding figures.

More importantly, the company continues to generate positive cash flows, at a rate of NIS 1 billion a year. And even more importantly, in a departure from the past, when the entire cash flow was earmarked for investment in infrastructure, this year its investment has plunged, sharply increasing its disposable income.

All this means the company isn't borrowing any more, and is improving its liquidity situation and bolstering its financial status.

Facing a balance sheet like that, Partner's goal of becoming the No. 1 cellular provider looks highly ambitious indeed.

Letting the numbers do the talking

The second-quarter star in the IDB group is, unarguably, Clal Insurance. It also published its second-quarter financials this week.

Unlike so many of the IDB managers, Clal Insurance's chief, Avigdor Kaplan, doesn't have to shuffle about hanging his head and offering explanations. He just has to let the numbers do the talking.

As we predicted earlier, the company's results were stunning. It netted NIS 246 million in the first half, thanks to hefty capital market gains.

What can really be learned from its profit and loss statement? Not much. Putting aside its gains from investments, all the other items comprising the P&L at insurance companies are calculated though complicated actuarial formulas that only the pros at the company could possibly understand, and even they don't always know the true significance.

The bottom line is what counts, and is what gets consolidated into IDB's own financial statement. They are what will allow IDB to continue paying the fat dividends that the group's new owners need so badly, more than ever before.