Bagir Group Ltd Half-year Report (7027N)

Share Name	Share Symbol	Market	Type	Share ISIN	Share Description
Bagir Group Ltd.	LSE:BAGR	London	Ordinary Share	IL0011317216	ORD ILS0.04 (DI)

Industry Sector	Turnover	Profit	EPS - Basic	PE Ratio	Market Cap
	0	0		N/A	0

Bagir (LSE:BAGR)
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From Apr 2019 to Apr 2024

TIDMBAGR

RNS Number : 7027N

Bagir Group Ltd

26 September 2019

Bagir Group Ltd.

("Bagir", the "Group" or the "Company")

Interim Results

for the six months ended 30 June 2019

Bagir (AIM: BAGR), a designer, creator and provider of innovative tailoring is pleased to announce its results for the six months ended 30 June 2019.

H1 Trading Highlights

-- Steady trading period reflected in a 32% increase in revenues to $32.8m (H1 2018 $24.8m) driven by increased sale orders from existing customers and sales to 19 September 2019 were $46.0m with an order backlog of $20.1m

-- Improvement in adjusted EBITDA* to $1.0m (H1 2018: loss of $1.7m) and gross margin of 11.9% (2018: H1 6.7%)

   --    General and administrative expenses decreased to $1.1m in H1 2019 (H1 2018: $1.5m) 
   --    Reduced loss before tax of $1.05m (H1 2018: loss before tax of $3.6m) 
   --    Cash and cash equivalents of $1.6m as at 30 June 2019

-- On 19 June 2019, a new unconditional completion date, of 31 March 2020, was announced for Shandong Ruyi to make the remaining cash payment of $13.2m and complete the proposed transaction

-- Appointment of Micha Ronen as CEO, well known to the business having previously held the roles of CFO and Deputy CEO of the Group

-- Operational focus on providing innovative products to major apparel clients in the US and the UK alongside expanding the Group's uniform division

* The adjusted 'EBITDA' is a non-IFRS measure that the Company uses to measure its performance. It is defined as Earnings Before Interest, Taxation, Depreciation and Amortisation and non-cash share-based compensation and excluding company share is lossesgains of affiliated companies. In June 2019 the Adjusted EBITDA figure, excluding $0.01m other expenses (in June 2018 the Adjusted EBITDA figure, excludes $0.2M other expenses attributed to restructuring activities, and $1m one-off capital gain attributable to the acquisition in Ethiopia, net of other expenses).

Outlook

-- In addition to the cost reductions achieved in 2018, targeting further cost savings from the operational base during H2 2019 of approximately $0.8 m per annum

-- Commenced trial in Vietnam for a large Shandong Ruyi retail client with the potential to result in a significant suit order for 2020 and beyond

   --    Company on track to generate revenues in 2019 of around $59m (2018: $56.4m)

Micha Ronen, CEO of Bagir, said:

"Despite the challenging retail and political backdrop, Bagir has succeeded in delivering improvements in all operational parameters. We expect the market to continue to be challenging and we are in the process of taking all necessary steps to adjust our organization to the market conditions and to better leverage our advantages in the market.

We have agreed a new date for completion of the transaction with Shandong Ruyi and we are collaborating together to support potentially one of their clients with a large production order from Vietnam. At the same time we are focused on developing the Group on a standalone basis, operationally we see greater opportunities to exploit our innovative product ranges and to expand further into the tailored uniform market alongside the Group's core business of manufacturing tailored garments to major apparel clients in the US and UK."

For further information, please contact:

 
Bagir Group Ltd.                        via Novella on: 
 Tessa Laws, Non-Executive Chair         +44 (0) 20 3151 7008 
 Micha Ronen, Chief Executive Officer 
 Dotan Levy, Chief Financial Officer 
N+1 Singer 
 Mark Taylor 
 James Moat                             +44 (0) 20 7496 3000 
Novella 
 Tim Robertson 
 Fergus Young                           +44 (0) 20 3151 7008

For more information about Bagir, please visit the Company's website: http://www.bagir.com

Chairman's statement

Introduction

I am pleased to report a steady trading performance for the first six months of the year. Demand for the Group's tailored products increased significantly, reflected in the 32% rise in revenues for the period. This, together with an improvement in gross margin to 11.9%, led to the Group recording a positive adjusted EBITDA performance of $1.0m. There were, however, operational delays and increased production costs which held the business back and are key areas of focus for our management team under new CEO Micha Ronen who is also setting out a new strategy for taking the business forward.

Micha Ronen is well known to the Company and has already been instrumental in invigorating the marketing team and re-focusing the business on specific market opportunities.

On 19 June 2019, a new unconditional completion date, of 31 March 2020, was announced for Shandong Ruyi to make the remaining cash payment of $13.2m and complete the proposed transaction.

The Company has made use of the opportunity offered by Shandong Ruyi to acquire 335,000 meters of wool and wool blend fabrics worth $3.0m with payment not due until 30 March 2020 thereby creating an excellent commercial opportunity.

In the announcement made on 19 June 2019, the Company confirmed that Shandong Ruyi had committed to deliver the manufacturing equipment to the Company's Ethiopian manufacturing site by the end of September 2019. As at the date of this report, the manufacturing equipment has not yet been shipped to the Company's Ethiopian manufacturing site, and there is real concern that the manufacturing equipment will not be delivered by the above stated date. The Company continues to have conversations with senior management at Shandong Ruyi, however a new date for the delivery of the machinery has not been agreed. The Company will provide further updates on the discussions as and when there is more clarity on a delivery date.

Financial review

Revenue for the six months ended 30 June 2019 increased to $32.8m (H1 2018: $24.8m) and sales continued strongly post period end with revenue to 19 September 2019 of $46.0m supported by an order backlog of $20.1m and with another month during which the Company can secure orders for completion in the current year.

The gross margin for the six months ended 30 June 2019 was 11.8%, compared with 6.7% for the first half of 2018. Largely as a result of the cost reduction program the Company completed in 2018. The Company made an operating gain of $0.2m (H1 2018: loss of $2.7m) and had positive cash flows from operating activities of $0.3m (H1 2018: negative cash flow of $6.7m).

As a result of the corresponding improvement in revenues and lower costs detailed above, adjusted EBITDA for the first half of 2019 was $1.0m profit compared with a $1.7m loss in H1 2018.

General and administrative expenses have decreased to $1.1m in H1 2019 (H1 2018: $1.5m), reflecting the lower operating cost base following the cost reduction plan implemented in 2018.

In addition, the Company is targeting further fixed cost savings of $0.8m per annum which have already started and are planned to be completed by the end of 2019.

Cash and cash equivalents at 30 June 2019 amounted to $1.6m, (31 December 2018 $3.1m).

Trade payables include $1.5m for fabric purchased from Shandong Ruyi which is payable on 31 March 2020 (as at 25 September $3.0m).

Strategic Vision

Under Micha Ronen the Company is evolving its strategic vision for 2020 and beyond and we look forward to providing more detail in the Group's full year results announcement.

Our objective is to deliver consistently high quality, innovatively tailored apparel, efficiently and cost effectively to our global customer base. Since the outset the Company has built its reputation on innovation across all areas of tailored garment development and this continues to be true today. Reflecting the activities of modern life, garments created by Bagir incorporate fresh new styles and fabrics which transform the feel, weight and look of clothes. The Company's core customer focus is on the tailored garment market with a growing business in manufacturing uniforms for large corporates, an area which it believes there is significant potential to expand. While the retail market continues to be competitive and challenging, there is undoubted demand for our range of innovative apparel.

Over the last three years the Group has worked effectively to focus on three core manufacturing geographies in Vietnam, Egypt and Ethiopia. These three manufacturing facilities, in particular Ethiopia, over the medium-longer term, give the Group a competitive advantage in the production of textiles for export to the EU and US. This competitive advantage is centered on the facilities benefiting from duty free status for sales into the EU and US (except from Vietnam), highly competitive production costs and local government support for the textile industry.

The current geopolitical environment has meant garment manufacturing in China is looking to move production outside the domestic market in order to avoid potential US sanctions. As a result, there has been a significant rise in interest from China in our Vietnamese based production creating an opportunity for Bagir and the Company is progressing a range of potential manufacturing contracts from China.

Currently the Company is collaborating with Shandong Ruyi over a potential production contract out of Vietnam for one of their retail clients.

Operational Review

Operationally, the Group continues to focus on reducing costs where practical and is planning to make further reductions to the operational cost base during H2 2019. Our Ethiopian manufacturing site is producing 3,500 trousers per day and is on track to increase output to 4,000 trousers per day by the end of 2019. The Company has increased its focus on its wholly owned manufacturing site in Egypt as well as increasing production capacity in Vietnam.

On 19 June 2019, the Company announced that it had agreed to a further extension of the unconditional completion date, for Shandong Ruyi's proposed $16.5 million investment to acquire a 53.7% shareholding in Bagir, to 31 March 2020. The Company has no reason to believe that this intention has changed.

Outlook

The management team has a renewed focus under incoming CEO Micha Ronen and has a good pipeline of customer opportunities to further improve the Group's operational performance in 2020.

Tessa Laws

Chairman

 
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION 
 
                                        30 June        31 December 
                                    ----------------   ----------- 
                                     2019     2018        2018 
                                    -------  -------   ----------- 
                                       Unaudited        Audited 
                                    ----------------  ------------ 
                                      U.S. dollars in thousands 
                                    ------------------------------ 
    ASSETS 
 
CURRENT ASSETS: 
   Cash and cash equivalents          1,598    2,815         3,061 
    Short-term deposit                  130      129           127 
   Trade receivables                  8,753    4,045         9,141 
    Other receivables                 3,013    2,845         3,510 
   Inventories                       10,791    8,632         8,866 
                                    -------  -------   ----------- 
 
                                     24,285   18,466        24,705 
                                    -------  -------   ----------- 
 
 NON-CURRENT ASSETS: 
   Finance lease receivable             372        -           406 
   Property, plant and equipment      9,221    8,747         9,509 
   Goodwill                           5,775    5,775         5,775 
   Other intangible assets            1,815    2,425         2,114 
   Deferred taxes                        76      181           132 
                                    -------  -------   ----------- 
 
                                     17,259   17,128        17,936 
                                    -------  -------   ----------- 
 
                                     41,544   35,594        42,641 
                                    =======  =======   ===========