Tambour-Unilever Joint Venture Loses NIS 21 Mln in Q2, May Not Survive as Going Concern

Diversey-Lever Israel, which markets chemicals and detergent, lost NIS 40 million in 18 months.

The entry of international giants into the Israeli market is not always a success story. A striking case in point is the Diversey-Lever venture, which started operating in November 1997, and has accumulated losses of NIS 40 million, half of which came in Q2 1999. Diversey-Levers accountants, Kesselman & Kesselman, say that the companys losses raise substantial doubts over its survival as a going concern.

Diversey-Lever was set up as part of a comprehensive deal, under which British-Dutch concern Unilever bought the Fantastik brand from Kedem Chemicals, which belongs to the Tambour group. Unilever, which previously made successful investments in Strauss Ice Cream and Witco, paid $11 million for Fantastik.

Parallel to this, Kedem Chemicals and Unilever signed an agreement to set up a joint company, to which were transferred Kedem Chemicals detergent and chemical products supply operations to the institutional market.

Kedem posted a NIS 20 million profit in 1997, following the sale of Fantastik, but the combined transaction turned out to be a long-term setback, which has already offset the one-time profit.

Diversey-Lever, which is Kedems one and only operation, ended 1998 with a NIS 11.3 million loss, following a NIS 3 million setup loss in the previous year. The heavy losses continued into 1999 as well. A NIS 25 million loss in January-June forced Diversey-Lever to make a sweeping goodwill write-off.

Since the beginning of the year, Diversey-Lever, run by Barry Spence and Duncan Gibson of Unilever has posted negative current cash flow of NIS 10.9 million. Its working capital deficit is NIS 19.9 million, and it has negative shareholders equity of NIS 12.4 million.

Diversey-Levers management is busy drawing up a recovery program, which includes layoffs and an operating expenses cut. The management is also looking into various possibilities for the continued financing of Diversey-Levers activity, such as financial coverage by banks, or an additional capital injection by shareholders.

Kedem Chemicals, which holds 49.9% of Diversey-Levers shares, does not consolidates its share of the losses, but only the shareholders equity deficit. Kedem Chemicals leases to Diversey-Lever land, machinery and equipment, and supplies it with manpower services for a fee.

Kedem, which ended the first half of 1999 with a NIS 10.1 million loss, says that Diversey-Lever plans to focus on product marketing and distribution and to significantly cut production. Diversey-Lever is therefore expected to stop renting land, machinery and equipment from Kedem in the course of Q3 1999. Kedems management has not yet taken a decision concerning its future operations.

Published by Israel's Business Arena August 15, 1999

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