Polgat Registers Losses of NIS 10 Million in Q2

Clothing manufacturer has suffered from maintaining its production lines in Israel

Polgat recorded second-quarter net losses of NIS 10 million, compared to net profits of NIS 200,000 in the same period last year, despite a rise in sales from NIS 122 million in Q2 2000 to NIS 147 million in Q2 2001, the clothing manufacturer reported yesterday.

Second-quarter gross profits fell to 15 percent of revenues, compared to 18.4 percent during the same period last year.

Polgat's equity fell from NIS 255 million to NIS 248 million, but the firm's market price is valued at NIS 100 million.

Castro - another local fashion manufacturer which showed much more impressive Q2 results than Polgat - has stopped investing in production and is concentrating on marketing and brand positioning in Israel. Polgat, however, which closed down its chain of stores to focus on production and exports, has moved in the opposite direction.

Delta and Tefron, two other clothes makers, have realized for a long time that textile production is more suitable for countries where the cost of labor is significantly cheaper, up to tenfold, than in Israel. The two firms have also succeeded to install production facilities in target export countries, thereby avoiding taxes.

Polgat, on the other hand, still maintains production lines in Israel, and therefore, must deal with minimum wages, taxation and government aid. Only in the last two years has the company relocated some production operations in Egypt, Jordan, Portugal and Turkey, and has closed its Be'er Sheva plant, consolidating operations with its Kiryat Gat factory.

Although Israeli goods sold in Europe are tax-free, Polgat textiles bear a 14 percent tax since the European Union does not recognize Israeli goods not manufactured here.

Polgat announced on Wednesday that unless it receives NIS 6 million from the government, the Kiryat Gat plant will have to be shut down.

The company explained that demand for its products is influenced by the economic situation in target market countries. For example, Polgat's largest customer (46 percent), Marks & Spencer, is having financial difficulties. Israel's 10 percent increase in minimum wages at the beginning of Q2 also has had a significant impact on profitability, the company said.

Polgat is a multinational company focusing on producting and marketing men's wear. The firm's production operations abroad are run through two subsidiaries - Bagir and Guney-Polgat, a recently-founded Turkish company.