The new production line will begin operations in the first half of 2012, and will start three months later than the 4th Reico line Avgol is adding at its flagship factory in Mocksville, NC, USA, which is expected to produce and sell 60,000 metric tons annually during 2012.
This line is part of an effort to expand production capacity through the purchase of two new production lines in the US and China for an investment of $80 million, which Avgol reported eight months ago. This expansion will raise Avgol's production capacity by 30%, or 30,000 tons of finished products a year, so that overall company production of finished products will reach 140,000 tons a year. This expansion will allow the company to meet increased demand of company products.
The cost of the additional Chinese production line will be financed mainly by investment in equity from the Chinese partnership, bank financing, and/or with a shareholders' loan. The investment required to set up the new Chinese production line includes an investment of between $10.2 million and $12.4 million by Avgol in the Chinese partnership equity, as well as a $1.1 million investment by the Chinese partner in the partnership equity. The Chinese partnership will raise the remaining $27-30 million of the investment through local bank financing and/or a shareholders' loan.
Avgol currently operates two production lines in China, which supply 24,000 tons of finished products a year. The second production line began operating in the third quarter of 2010. Following its investments and its the increase in its partnership equity, Avgol's stake in the partnership will rise to 83-84% of partnership equity and the Chinese partner's will hold 16-17%.
“We identified great opportunities in the China/Asia Pacific markets, which are considered markets with high growth rates in the categories of disposable hygiene products and specifically baby diapers," says Shlomo Liran, Avgol’s CEO. "The investment in a third production line in China underscores our complete satisfaction with the investments we have made to date in China within the scope of the partnership, and prepares the groundwork for driving the sales momentum in response to the already high demands in China. This strategic decision is the outcome of the continuing increase in the volume of purchases and the expression of trust in Avgol and in its production lines by our major customers in China, as well as throughout the world. Increasing our production capacity will enable us to give expression to our competitive advantages – global presence, innovation, uncompromising quality and superb service to our customers, and to fortify Avgol’s positioning as a leading and preferred supplier for the long years ahead.”