Just as the government approved a NIS 2.75 billion increase in its budget, the Israel Defense Forces has canceled a key contract with Brill Shoe Industries, the maker of the boots issued to tens of thousands of soldiers every year.
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The company said on Sunday in response that it may have to shutter the plant that makes the boots after the Defense Ministry informed it on Thursday, the same day the budget increase was approved, that it would not be placing any orders during 2014 due to "cutbacks in the military budget" and "budget stringencies." The plant, located in Rishon Letzion, employs 120.
"Management and labor aren't at odds with each other, but both sides want to continue working and providing for their families and it’s the Defense Ministry that's preventing this," Brill said in a statement. "The plant is now working on 'gasoline fumes' – the production rate was reduced in order to continue operations at the plant, but this 'oil canister' won't last much longer."
Brill, which stressed that none of the company's other operations should be affected, said it still intends to try to convince the ministry to change its decision. Trading at a market capitalization of NIS 159 million, Brill manufactures and imports footwear, clothing and fashion accessories through its Gali and Solog retail chains. Brill shares ended unchanged on the Tel Aviv Stock Exchange at NIS 26.10. The company's shares have fallen 22% since the beginning of the year.
Brill previously warned that the plant could be closed if didn't secure a new contract with the Defense Ministry, after the ministry informed it in August that it planned to procure most of its army boots from U.S. sources, as the cost is lower and can be paid out of American military aid to Israel.
The contract was at risk of being canceled last year, too, but was salvaged after the Knesset Finance Committee intervened. Military sales comprise 5.6% of Brill's annual turnover, or about NIS 30 million a year, for 90,000 pairs of boots.
Brill recorded net income attributable to shareholders of NIS 25 million in 2012 and NIS 7.8 million in the second quarter of 2013. The company has equity amounting to NIS 185 million, accounting for 62% of its NIS 294 million balance sheet.