BAGR.L Regulatory News (BAGR)

27 March 2015

Bagir Group Ltd.

("Bagir" or the "Company")

Final Results

for the year ended 31 December 2014

Bagir (AIM: BAGR), a designer, creator and provider of innovative formalwear tailoring, announces its results for the year ended 31 December 2014.

Financial highlights

· Revenue of $97.0m (2013: $99.5m)

· Gross margin of 17.4% (2013: 18.8%)

· Operating income of $0.5m (2013: $3.6m)

· Adjusted operating income of $3.4m* (2013: $5.6m)

· Profit (loss) before tax of $(3.2)m (2013: $(1.2)m)

· Adjusted profit (loss) before tax of $(0.3)m* (2013: $0.9m)

· Adjusted EBITDA of $3.8m** (2013: $6.1m)

· Basic and fully diluted earnings (loss) per share of $(0.09)*** (2013: $(0.39))

· Net debt at 31 December 2014 of $12.5m (31 December 2013: $50.3m)

· Cash and cash equivalents at 31 December 2014 of $11.4m (31 Dec. 2013: $2.7m)

* Adjusted for amortization of intangible assets of $2.4m, IPO expenses of $0.3m and non-recurring recovery plan consultancy costs of $0.2m (PBT including finance expenses on pre IPO debt)

** Adjusted for depreciation of $0.4m, amortization of $2.4m, IPO expenses and non-recurring recovery plan consultancy costs

*** Including finance expenses on pre IPO debt

Operational highlights

· Admission to trading on AIM in April 2014, raising approximately $29.7m after expenses

· Successfully grew revenues from new and other existing retail customers by approximately 30% (excluding work wear) to help compensate for the substantial loss of revenues from the Company's largest customer due to a change in that customer's buying strategy

· Acquisition of a 50% stake in Nazareth Garments Share Company ("Nazareth") in Ethiopia, for the manufacturing of garments for global sales

· Comprehensive review of the Company's business strategy and operating processes and commencement of a two year recovery plan

· Financial covenants have been reset with the Company's banks for the years 2015 and 2016, in line with the Company's updated financial projections

Danny Taragan, CEO of Bagir Group Ltd, said:

"2014 was a transformational year for Bagir with our successful IPO on AIM in April. However, the Company did suffer some headwinds during the period but, despite the reduction in sales from our largest customer, management expects to continue to grow revenues from other existing and new customers in the UK and in the US.

"The comprehensive review into the Company's business strategy and operating processes was successfully completed and a two year recovery plan has commenced. Once fully implemented, the recovery plan is expected to reduce the Company's operating costs, improve efficiency and enhance the Company's sales and marketing performance.

"The acquisition of Nazareth in November 2014 was an exciting development in Bagir's journey and this production facility in Ethiopia is expected to give Bagir a strong competitive advantage once the planned upgrades have been implemented. The Board thanks shareholders for their continued support and looks to the future with confidence."

For further information, please contact:

Strategic and Financial Review

In April 2014, Bagir completed a successful admission to trading on the AIM Market of the London Stock Exchange, raising approximately £20.0 million (US$33.5 million) before expenses through the placing of 35,714,285 new shares. IPO related costs amounted to approximately $3.8 million.

As announced in May 2014, the business lost a substantial proportion of its planned revenue due to a change in the buying strategy by its largest customer. The Company has however successfully grown revenue elsewhere by approximately 30% (excluding workwear) through additional sales to other existing and new retail customers.

In November 2014, the Company purchased a 50% stake in Nazareth Garments Share Company ("Nazareth"), an Ethiopian company which owns and operates a garment factory in Ethiopia. As this business and its facilities are developed as part of Bagir's investment, it is expected to give Bagir a strong competitive advantage due to its duty free exports to the EU and US, its competitive production costs and government's support for the textile industry.

In September 2014 the Company announced a comprehensive review of its business strategy and operating processes. This review has been completed and the Company has commenced a two year recovery plan. This plan is designed to increase the competitiveness of our business through both operational improvements and cost reductions.

The Company will continue to focus on growing its quality tailored menswear private label business through existing and new customers. In addition, the Company is planning to further develop its brand licensing activity, mainly in the US, on a royalty paid basis. As part of the recovery plan the Company's production and management processes will be restructured, with efficiency improvements supported by additional IT development. Once fully implemented, the plan is expected to achieve significant annual cost reductions.

The comprehensive two year recovery plan and the increased competitive advantage of the new factory in Ethiopia along with the organic growth with customers and additional private label sales, are expected to deliver improved results in future years and strengthen the position of the Company in its market place.

The Company's financial covenants have been reset by its banks for the years 2015 and 2016, in line with the Company's updated financial projections.

Revenue

Revenue for the year ended 31 December 2014 was $97.0m. This was a $2.5m reduction on the comparable period last year, which was due mainly to the reduction in sales to the Company's largest customer and a large project for a customer that was completed by the Company during 2013, which as expected, did not continue into 2014. This was partly offset by increased revenues with other customers in the UK and in the US during 2014.

Gross margin

The gross margin for the year ended 31 December 2014 was 17.4% compared with 18.8% for 2013. This decline was mainly due to the reduction in business from the Company's largest customer, the completion of the large project mentioned above which had relatively higher margins, negative currency impact of the devaluation of the pound\dollar exchange rate and the higher depreciation of amortized intangible assets ($1.6m in 2014 compared to $1.1m in 2013).

Operating expenses

The general and administrative expenses increased to $4.3m in the period (2013: $3.7m), due predominantly to the additional administrative costs associated with being a quoted company. In addition, $0.3m one-off costs were incurred associated with the Company's IPO. These costs have been included as part of the Company's operating expenses for the period.

The two year recovery plan being implemented by the Company is, once fully implemented, expected to reduce operating costs going forward.

Adjusted operating income and profit (loss) before taxation

Adjusted operating income and profit (loss) before tax (before $2.4m amortization of intangible assets (2013: $2.0m) and before $0.3m IPO expenses and $0.2m non-recurring recovery plan consultancy costs) for the year ended 31 December 2014 was $3.4m and $(0.3)m respectively, compared with $5.6m and $0.9m respectively for 2013. The loss before tax was after finance expenses on pre-IPO debt.

Adjusted EBITDA

Adjusted EBITDA (before IPO expenses and non-recurring recovery plan consultancy costs) for the year ended 31 December 2014 was $3.8m (2013: $6.1m).

Loss per share

Basic and fully diluted earnings (loss) per share for the period was $(0.09) (2013: $0.39 loss).

Net debt

As at 31 December 2014, net debt decreased significantly to approximately $12.5m compared with $50.3m at 31 December 2013. Net debt reduced as a result of the Company's IPO in April 2014 and the conversion of the Company's capital notes to shareholders and loans from shareholders into equity.

Cash and cash equivalents

As at 31 December 2014, cash and cash equivalents increased to $11.4m compared with $2.7m at 31 December 2013, as a result of the IPO proceeds.

Outlook

Despite the reduction in sales from the Company's largest customer, the Company expects to continue to grow the revenues from other existing and new customers in the UK and in the US.

Once fully implemented, the recovery plan is expected to reduce the Company's operating costs, improve efficiency and enhance the Company's sales and marketing performance.

In addition, the newly purchased production facility in Ethiopia is expected to give Bagir a strong competitive advantage once the planned upgrades have been implemented.

*) Reclassified.

*) After share split

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1:- GENERAL

a. Company description:

Bagir Group Ltd. ("the Company") is registered in Israel. The Company and its subsidiaries ("the Group") specialise in the manufacturing and marketing of men's and women's tailored fashion. The Company's Headquarters are located in Kiryat Gat, Israel. The Group's products are manufactured by a subsidiary and subcontractors. The Group's products are marketed in Europe (mainly in the U.K.), the U.S. and in other countries.

b. In April 2014 the Company completed an initial public offering ("IPO") and its shares were admitted to trading on the London Stock Exchange's Alternative Investment Market (AIM). In the IPO, the Company issued 35,714,285 Ordinary shares at a price of 56 pence per Ordinary share. The total gross funds raised in the IPO were GBP 20 million ($33.5 million) and IPO related costs amounted to approximately $3.8 million.

Concurrent with the IPO, the Company issued 11,383,925 Ordinary shares to certain shareholders in consideration for the extinguishment of all capital notes and loans due to these shareholders with a carrying amount of approximately $21,310 thousand (par value of approximately $25,989 thousand).

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES

Assessment of going concern:

The Board has adopted the going concern basis of accounting in preparing the financial statements. In assessing the appropriateness of doing so the Board has considered the principal risks and uncertainties of the business, the trading forecasts covering a twelve months period following the approval of the financial statements (including downside sensitivities) and the debt facilities provided by the Company's banks and the covenants relating to those facilities. 

NOTE 3:- NET EARNINGS (LOSS) PER SHARE

Details of the number of shares and loss used in the computation of basic and diluted loss per share:

(1) The data related to the computation of basic and diluted loss per share (options and warrants have not been included as they are antidilutive).

(2) The weighted number or shares are after share split.