Bagir Group Ltd Half-year Report (5654Q)

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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TIDMBAGR

RNS Number : 5654Q

Bagir Group Ltd

13 September 2017

Bagir Group Ltd.

("Bagir" or the "Company")

Interim results

for the six months ended 30 June 2017

Bagir (AIM: BAGR), a designer, creator and provider of innovative tailoring, is pleased to announce its results for the six months ended 30 June 2017.

H1 Highlights

-- Revenues of $28.1m for the first half of 2017, in line with revised expectations (H1 2016 $33.5m).

-- EBITDA* and Adjusted EBITDA of $1.9m and $0.8m respectively in the first half of 2017, compared with EBITDA of $0.8m in H1 2016

-- Operating income of $1.0m for the first half of 2017 ($(0.1)m excluding the one-off capital gain, net of other expenses) compared with $0.0m in H1 2016

-- Cash and cash equivalents at 30 June 2017 of $7.0m ($8.6 and $4.0m at 31 December 2016 and 30 June 2016, respectively). The reduction in cash is mainly attributable to the acquisition in Ethiopia

-- Completed the strategic acquisition of the remaining 50% shareholding in Nazareth Garments, Ethiopia. This competitive edge site combines tariff free trade and low production costs with good connectivity for onward distribution

-- New product development has been an area of strength with six new concepts released in April including: The Transit Suit; City Traveller; Pack Away; Shaper Pants; 0.755 Suit; and the Heater Body Suit. Initial orders have already been taken for some of these lines from new and existing customers

* '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. The Adjusted EBITDA figure excludes $1.1m one-off capital gain attributable to the acquisition in Ethiopia, net of other expenses. The capital gain calculation is subject to final measurement of asset valuation that is expected to be completed by the annual audited report, but the Company does not expect any material change to this figure.

Eran Itzhak, CEO of Bagir, said:

"These results show the Group's continued progress towards establishing a core manufacturing base in Ethiopia coupled with the sites in Vietnam and Egypt that enables the Company to compete effectively for business from the world's leading retailers. The acquisition of 100% ownership of our Ethiopian site was an important step towards achieving this aim.

We continue to deliver on our reputation as an innovative tailor, building upon our 50 year heritage servicing major high-profile retailers with April's release of six new concepts already securing orders from high-street brands in the UK and Europe. Sales levels have been slightly slower than forecast but the medium term prospects coupled with increased capacity in Ethiopia remain very exciting."

For further information, please contact:

 
 Bagir Group Ltd.                 via Novella Communications 
  Eran Itzhak, Chief Executive     on: 
  Officer                          +44 (0) 20 3151 7008 
  Udi Cohen, Chief Financial 
  Officer 
  Tessa Laws, Non-Executive 
  Chairman 
 N+1 Singer 
  Alex Price                      +44 (0) 20 7496 3000 
 Novella 
  Tim Robertson 
  Toby Andrews                    +44 (0) 20 3151 7008

Chairman's statement

Introduction

Following on from the significant progress made in 2016, during which the Company repaid the bank debt, reduced annual costs by c.30% and created a stable platform, the Company has continued to implement its restructuring programme to create internationally competitive manufacturing bases to combine with the Company's innovative tailoring capabilities.

The Group generated revenues of $28.1m and EBITDA of $1.9m ($0.8m excluding one-off capital gain attributable to the acquisition in Ethiopia net of other expenses) compared with $0.8 in H1 2016.

Development of the new production lines at our facilities in Vietnam Hanoi and Ethiopia in order to support competitive solution orders has progressed, but is behind the original timetable, which impacted the Company's ability to secure these orders. Progress has been made on all fronts albeit slower than anticipated and the current level of our order book is in line with the board's expectations.

Bagir is a stable business and remains well placed. We remain confident of our strategic plan and our ability to substantially increase our customer base. Taking 100% control of our Ethiopian site at the end of June was a significant step forward in achieving this aim and creating a long-term competitive advantage for the Company.

Financial review

Revenue for the six months ended 30 June 2017 was $28.1m. The slight reduction in sales from the previous year was mainly in the UK market as a result of a reduction in order volumes driven by the Company's refusal to manufacture at non-profitable price levels. Nevertheless, the Company still managed to achieve important client wins during the period and secured orders from a number of well-known customers in France, South Africa and Australia.

The gross margin for the six months ended 30 June 2017 was 16.3%, compared with 17.8% for the first half of 2016. This decrease is primarily attributed to the reduction in revenues which in turn reduces our economies of scale and to the sales mix itself.

Selling and marketing expenses decreased to $2.6m in H1 2017 (H1 2016: $3.6m) and development costs decreased to $0.4m in H1 2017 (H1 2016: $1.0m), reflecting the lower operating costs following the recovery plan that the Company implemented during 2016. The Company is planning achieving further cost savings and a review is underway to identify opportunities to improve efficiencies across the business.

EBITDA for the first half of 2017 was in line with our revised expectations, with EBITDA of $1.9m ($0.8m excluding one-off capital gain attributable to the acquisition in Ethiopia net of other expenses) compared to $0.8 in H1 2016.

The operating income for the first half of 2017 amounted to $1.0m ($(0.1)m excluding the one-off capital gain, net of other expenses) compared with $0.0m in H1 2016.

Cash and cash equivalents at 30 June 2017 amounted to $7.0m (H1 2016 and 31 December 2016 $4.0m and $8.6m respectively) with the reduction in cash being mainly as a result of the investment in the acquisition of the remaining 50% shareholding in Ethiopia.

Operational review

The business is now focused on three core manufacturing geographies in Vietnam, Egypt and Ethiopia. A core part of our strategy being to streamline the Company's manufacturing base whilst also improving it. This has been achieved. The combination of the three bases provide strong competitive advantages as they enable us to benefit from duty free export status for sales to both the EU and US, highly competitive production costs and local governmental support for the textile industry.

In June 2017, the Company completed the strategic acquisition of the remaining 50% shareholding in Nazareth Garments, the joint venture owner of its manufacturing site in Nazareth, Ethiopia, for a total consideration of US$1.9 million. Our Ethiopian site is a key asset for the business as it has the potential to be a significant catalyst for future growth. Ethiopia offers tariff free trade and low production costs combined with good connectivity for onward distribution. Completing the acquisition took slightly longer than expected which had a knock-on effect on our operational plans, however, as 100% owners Bagir has full control over the company and the site is making good progress towards expanding its capacity.

In Vietnam, the readiness of production lines in Hanoi with a new subcontractor took longer than anticipated but progress is being made and this site too is expected to be able to provide a competitive solution for our UK, Europe and US markets.

Innovation and quality remains at the heart of all Company activity. Bagir is intensely proud of its track record created over the last 50 years of servicing leading western retailers. New product development has been an area of strength with the Company developing platforms to support made-to-measure and personalized garments. In April, six new concepts were released including: The Transit Suit; City Traveller; Pack Away; Shaper Pants; 0.755 Suit and the Heater Body Suit. Initial orders have already been taken for some of these lines from major high-street retailers in the UK and in Europe.

Outlook

Interest in Bagir's products and manufacturing capabilities from international retailers is high, in particular, in the potential output from our Ethiopia site. We are progressing this site and we remain confident of its ability to act as a catalyst for the Group to win high volume sales orders. We expect that by mid-2019 the site will be able to produce approximately 3,000 trousers per day. At this level and at the price point together with the tariff free advantages it can offer we believe that this will be one of the most attractive places in the world for manufacturing of tailored goods. It does take time to establish but we are following a clear plan and are confident of achieving our goals.

As we look towards the end of FY17 and beyond into FY18, we are seeing more requests for trial orders and have hosted site inspection visits from international retailers at our Ethiopian facility. This leads us to being confident in our ability to secure commercial orders from these retailers in the short-to-medium term.

Innovation remains core to Bagir's future strategy and we will be launching further new products aimed at not just cementing our product development reputation and relationships with existing international retailers but also at attracting new ones.

Over the last 18 months we have made significant cost reductions and, whilst this process is now largely complete, there remain one or two areas within which we hope to be able to make further savings in order to drive operational efficiencies. At the same time, we continue to look for synergistic acquisition targets or potential joint venture partners.

Our current order book for FY17 and FY18 is underpinned by long term clients and we are working on expanding upon this with our pipeline of good new business opportunities. We are on track to meet market forecasts although given that our financial year end falls in the middle of our peak manufacturing period, as is always the case a small percentage of orders may end up being manufactured in FY18.

Tessa Laws

Chairman

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

 
                                             30 June           31 December 
                                     ------------------------  ----------- 
                                            Unaudited            Audited 
                                     ------------------------  ----------- 
                                           2017         2016      2016 
                                     ----------------  ------  ----------- 
                                           U.S. dollars in thousands 
                                     ------------------------------------- 
    ASSETS 
 
CURRENT ASSETS: 
   Cash and cash equivalents                    7,050   3,979        8,624 
    Short-term deposit                            132     475           81 
   Trade receivables                            4,728   5,502        3,972 
    Other receivables                           2,414   2,813        2,288 
   Inventories                                  5,219   5,130        5,337 
                                     ----------------  ------  ----------- 
 
                                               19,543  17,899       20,302 
                                     ----------------  ------  ----------- 
 
 NON-CURRENT ASSETS: 
    Investment in a joint venture                   -   1,875        1,580 
   Property, plant and equipment                8,560     673          668 
   Goodwill                                     5,689   5,689        5,689 
   Other intangible assets                      3,149   4,545        3,873 
   Deferred taxes                                 360     328          340 
                                     ----------------  ------  ----------- 
 
                                               17,758  13,110       12,150 
                                     ----------------  ------  ----------- 
 
                                               37,301  31,009       32,452 
                                     ================  ======  ===========