Israeli fabrics company Avgol Nonwoven Industries Ltd. (TASE:AVGL) is moving its production operations out of the West Bank. The company reported yesterday that it would close down its production in the Barkan industrial zone in 2020 and move it to the production site in Dimona in the Negev. Avgol is following the example of other industrial companies, such as SodaStream, Ahava, and Barkan Wines, that have moved their production facilities to southern Israel and inside the Green Line (Israel's pre-1967 border).
Avgol manufactures nonwoven fabrics used mainly in disposable diapers and wet wipes. The company has production facilities in Israel, the US, China, Russia, and India. As of the end of 2018, Avgol had 250 employees in its plants in Barkan and Dimona and its offices in Tel Aviv.
Avgol announced yesterday that pursuant to its decision to focus its production in Israel at the Dimona site, and due to the aging of its production site in Barkan, the decrease in demand, and unprofitability of the products made at the Barkan site, it had decided to discontinue its activity in Barkan in 2020, with the aim of closing it down before the end of 2020 in order to cut costs. "The company expects a $1.6 million one-time loss relating to the termination of its activity at the Barkan site, which will be recorded in the fourth quarter of 2019. Beyond this one-time loss, no substantial effects on the results of the company's activity are expected," Avgol reported.
Avgol's decision to terminate production in the Barkan industrial zone comes after the company already sold its land and buildings in the Barkan plant for NIS 52.5 million in late 2017. Avgol rented the area and buildings in this plant from the buyer for the past two years at NIS 4.68 million a year. Avgol will discontinue its activity on the site when its lease expires.
Share price down 32% this year
In its reports, Avgol says that one of the company's special risks is the plant in Barkan beyond the Green Line, on which changes in the political situation are liable to have a negative impact. Avgol's current market cap is NIS 770 million, after its share lost 32% of its value since early 2019. Avgol improved its activity this year, after a decline in profit in 2018.
Avgol's net profit in the first nine months of 2019 was $8.7 million, 44.5% more than in the corresponding period last year. Avgol attributed the improvement in its net profit to a higher operating profit and lower income tax expenses. Avgol's net profit in 2018 plunged 43.3% to $11.7 million, a decline attributed by Avgol to the decrease in profit when its production lines in Dimona and India began operating, a larger discount granted to a key customer of the company, and a rise in shipping and storage expenses.
Published by Globes, Israel business news - en.globes.co.il - on December 25, 2019
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