LONDON (Alliance News) - Bagir Group Ltd saw its shares slide by over a quarter early Wednesday after it warned that 2014 operating earnings will be slightly below expectations after it suffered an exchange rate hit, and it launched a two-year "recovery plan".
The maker of formal wear like suits had a tough 2014 after its largest customer changed its buying strategy, meaning a loss of business for Bagir just weeks after it listed on the AIM market. The subsequent profit warnings prompted the company to launch a review of its business strategy and operating processes in September, after it agreed new banking covenants with its lenders in June.
Bagir has never identified the customer that changed buying strategy, but at the time of its IPO, it had said its largest UK customer was Marks & Spencer PLC.
In its trading update Wednesday, Bagir said it lost a substantial proportion of its planned revenue and the customer's new buying strategy looks set to continue. It managed to offset some of the loss by growing revenue by about 30% through additional sales to other existing or new customers.
However, the devaluation in the pound/dollar exchange rate in the fourth quarter of 2014 meant a USD0.4 million exchange rate hit, meaning its revenue for 2014 as a whole is now expected to be about USD97 million and adjusted earnings before interest, tax, depreciation and amortisation is expected to be "marginally below expectations".
The company reported Ebitda before exceptional items of about USD6.1 million in 2013 on revenue of USD99.5 million.
Its net debt stood at about USD14 million at the end of 2014, but the company said it has reset its financial covenants with its lenders for 2015 and 2016 to reflect its updated financial projections.
Bagir also said it has now completed its strategic review, and will restructure its management processes and reorganise its production, including its new Ethiopian factory which it said has been well received by customers and will start making a "significant contribution" from the start of 2016. It wants to save at least USD3 million a year, and expects the savings to be between USD1 million and USD1.5 million in 2015.
It said it will continue to focus on growing its quality tailored menswear private label business through existing and new customers, but also plans to further develop its brand licensing activity, mainly in the US, on a royalty paid basis. It said it had decided to focus its brand efforts on Peckham Rye in the UK, and won't extend its license agreement with Simon Carter beyond 2016, a move that will have "minimal impact in revenue".
"We are pleased with our underlying organic growth from other customers in the UK and the US during the year. Following the board's review, we have embarked on a comprehensive two year recovery plan. Our increased competitive advantages and our new factory in Ethiopia along with the additional private label sales are expected to deliver improved results in future years," Bagir Chief Executive Danny Taragan said in a statement.
Bagir shares were down 28.0% at 7.20 pence early Wednesday, making it one of the worst-performing stocks on the AIM All-Share index.
By Steve McGrath; stevemcgrath@alliancenews.com; @stevemcgrath1
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