TIDMBAGR
RNS Number : 4792B
Bagir Group Ltd
21 September 2018
21 September 2018
Bagir Group Ltd.
("Bagir", the "Group" or the "Company")
Interim results
for the six months ended 30 June 2018
Bagir (AIM: BAGR), a designer, creator and provider of
innovative tailoring is pleased to announce its results for the six
months ended 30 June 2018.
H1 Highlights
-- Revenues of $24.8m for the first half of 2018, in line with
management expectations (H1 2017 $28.1m).
-- Higher production costs in the first half of 2018, affected
gross margin and profitability, attributed to the following:
o recruitment and training of new production line teams in
Ethiopia as a result of the increase in production capacity
following the investment in new machinery in 2017;
o training of the new teams has led to higher than typical
anticipated raw material usage; and
o subcontractor's costs in Vietnam and Egypt have been higher
during the transition period where production has been moved to
more competitive costing programs.
-- Adjusted EBITDA* loss of $(1.7) and gross margin of 6.7% in
the first half of 2018 resulting from the above higher production
costs, compared with adjusted EBITDA* of $1.1m and gross margin of
16.4% in H1 2017.
-- Cash and cash equivalents at 30 June 2018 of $2.8m, which
includes $1.65m received from Shandong Ruyi in the period as
announced on 9 January 2018 ($2.6m and $7.1m at 31 December 2017
and 30 June 2017, respectively).
-- Identified and commenced a rationalization of operations,
focusing on fewer production sites and a reduction in the
operational cost base, expecting these measures to enable total
cost savings (including the savings announced on 20 November 2017)
by approximately $5m on an annualized basis.
-- The Company has posted a circular to its shareholders
containing further details of the proposed $16.5 million investment
(the "Proposed Investment") in the Company by Shandong Ruyi Fashion
Investment Holding Co., Ltd. ("Shandong Ruyi") and notice to
convene an Extraordinary General Meeting on 9 October at which the
resolutions required to [enact] the Proposed Investment will be
tabled.
* '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. The Adjusted EBITDA figure excludes $0.2M
other expenses in H1 2018 attributed to restructuring activities,
and $1m one-off capital gain attributable to the acquisition in
Ethiopia, net of other expenses.
Eran Itzhak, CEO of Bagir, said:
"Alongside our trading performance which reflects the investment
we have been making in expanding our Ethiopian production capacity,
we have made significant progress since the year end with the
strategic partnership with Shandong Ruyi, a global leader in
textiles, which, subject to shareholder approval, will result in
Shandong Ruyi investing $16.5 million into Bagir to support of the
growth of the business in particular the expansion of the Ethiopian
manufacturing site. This investment together with being in
partnership with Shandong Ruyi will undoubtedly be transformative
for Bagir."
For further information, please contact:
Bagir Group Ltd. via Novella on:
Eran Itzhak, Chief Executive Officer +44 (0) 20 3151 7008
Udi Cohen, Chief Financial Officer
Tessa Laws, Non-Executive Chairman
N+1 Singer
Mark Taylor
James Moat +44 (0) 20 7496 3000
Novella
Tim Robertson
Toby Andrews +44 (0) 20 3151 7008
For more information about Bagir, please visit the Company's
website: http://www.bagir.com
Chairman's statement
Introduction
During the first half of 2018, the Company had a positive sales
performance in line with management's expectations. Sales have been
positive yet the Group has continued to experience operational
delays and increased production costs which have reduced
profitability and gross margin. The development of the Ethiopia
production capacity following the investment in new machinery in
2017, has contributed to increased costs in addition to
subcontractorss costs during the transition period in Vietnam and
Egypt where production has been moved to more competitive costing
programs.
Looking ahead, the Group is undertaking a rationalisation of its
operations, focusing on fewer production sites and a reduction in
the Group's operational cost base. We expect an increased focus on
the US market, due to the large order sizes and the existing
competitive advantage of the Group's manufacturing locations as a
result of being able to export goods into the US duty free. The
Board expects that these measures, together with the operational
cost savings identified in the announcement on 20 November 2017,
will reduce the Group's operational cost base by approximately $5
million on an annualised basis.
As announced on 3 September 2018, the Company has posted a
circular to its shareholders containing further details of the
proposed investment of $16.5 million by Shandong Ruyi and notice to
convene an Extraordinary General Meeting on 9 October 2018 at which
the resolutions required to enact the investment will be
tabled.
The investment, combined with the reorganized operations and
production sites, should create a platform from which Bagir has the
potential to become a significant player in our market of apparel
manufacturing.
Financial review
Revenue for the six months ended 30 June 2018 was $24.8m, in
line with our expectations, despite facing continued and
challenging market conditions. Sales have been positive but the
Group has continued to experience operational delays and increased
production costs which have reduced profitability and gross margin.
The increase in production costs have largely resulted from the
recruitment and training of new production line teams in Ethiopia
as a result of the increase in production capacity following the
investment in new machinery in 2017. Training of the new teams has
further led to higher than expected levels of raw material usage.
Additionally, subcontractor costs, in Vietnam and Egypt have been
higher during a transition period where production has been moved
to more competitive costing programs.
As a result, the gross margin for the six months ended 30 June
2018 was 6.7%, compared with 16.4% for the first half of 2017.
As a result of the [temporary] increased production costs
detailed above, Adjusted EBITDA for the first half of 2018 was a
loss of $(1.7)m compared with $1.1m profit in H1 2017 (The 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 losses/gains of affiliated
companies. The Adjusted EBITDA figure excludes $0.2M other expenses
in H1 2018 attributed to restructuring activities and a $1m one-off
capital gain attributable to the acquisition in Ethiopia, net of
other expenses).
Looking ahead, the Group is undertaking a rationalisation of its
operations, focusing on fewer production sites and a reduction in
the Group's operational cost base. The Board expects that these
measures, together with the operational cost savings identified in
the announcement on 20 November 2017, will reduce the Group's
operational cost base by approximately $5 million on an annualised
basis. Selling and marketing expenses have decreased to $2.3m in H1
2018 (H1 2017: $2.7m) and general and administrative expenses have
decreased to $1.5m in H1 2018 (H1 2017: $1.7m), reflecting the
lower operating costs following the cost reduction plan that the
Company is implementing.
Cash and cash equivalents at 30 June 2018 amounted to $2.8m,
which includes $1.65m received from Shandong Ruyi in the period as
announced on 9 January 2018 (31 December 2017 and 30 June 2017:
$2.6m and $7.1m respectively). In the event that the Shandong Ruyi
investment is rejected by shareholders at the Extraordinary General
Meeting on 4 October 2018, the Company will be required to look for
further funding, to cover its ongoing working capital needs, in the
second half of the year. There can be no guarantee that such funds
would be available to the Company nor that they would be available
on terms which would not result in a substantially greater dilution
of Shareholders' interests.
Operational review
The Group continues to evolve its recovery plan, which commenced
in 2016, comprising a cost reduction strategy and an operational
strategy. The Group continues to make good progress reducing
operating costs across the business. As announced on 20 November
2017, following a review, the Group identified opportunities to
reduce the Group's overall operational cost base by approximately
$2 million on an annualised basis. This programme was anticipated
to be implemented in full during 2018.
Following further review of the Group's operations the Company
has identified further scope to increase the cost reduction
programme further to approximately $5.0 million of annualised cost
savings in total. This is to be achieved by reducing the number of
production sites from 6 to 5, increasing the focus on the Group's
largest market, the USA, together with a range of further
rationalisation initiatives. The expanded cost reduction programme
has commenced and is expected to complete by the end of the first
quarter of 2019.
The Group is focused on its 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 Vietnam), highly competitive
production costs and local government support for the textile
industry. The Company intends to reduce the number of third party
production sites in Vietnam from three to two, it will continue to
manufacture from its wholly owned site in Ethiopia and from its
50:50 joint venture and subcontractor in Egypt.
The Company signed a lease extension in August 2018 for the
building and its facilities for the Group's 50:50 joint venture
manufacturing facility in Egypt, from May 2020 to July 2022. The
Company has also signed a sub-contracting agreement with its Egypt
joint venture partner, for additional production capacity in the
Egypt joint venture partner's wholly owned Egyptian manufacturing
site, locking in capacity and production costs for 500 suits and
200 trousers per working day from 2019 until July 2022. These
developments will ensure the Group's ability to fulfill volume
orders from the USA from this duty free country, at competitive
prices, supporting the USA market growth strategy.
The site in Ethiopia which the Group now owns in its entirety is
considered by the Directors to be fundamental to the future growth
prospects of the Group. The Ethiopian facility produces suit
trousers, with a current production rate of approximately 2,500
trousers per day, which is expected to grow to 3,200 trousers per
day by the end of the year.
The USA is the Company's largest market and the Company will
increase its focus on the USA where the average transaction size is
larger.
Proposed Shandong Ruyi Investment Background
As confirmed in July 2017, the development of the production
lines at the Group's facilities in Vietnam and Ethiopia to support
larger volumes was slower than anticipated, impacting the Group's
ability to secure larger volume orders. In September 2017, the
Company confirmed that the manufacturing costs in Vietnam had
increased which affected the Company's bottom line and the Board
reaffirmed our aim to expand the Group's manufacturing base in
Ethiopia. The Directors believe that the investment by Shandong
Ruyi, which will be targeted directly at expediting the development
and expanding the manufacturing facility in Ethiopia, will
significantly accelerate the timetable for the operational
potential in Ethiopia to be realized, enabling the facility to
attract and compete for major apparel manufacturing contracts from
large international retailers which generate a level of return
acceptable to Bagir. After the Shandong Ruyi investment into Bagir
closes a strategic partnership will be formed between the Company
and Shandong Ruyi. The Directors believe that Shandong Ruyi, as a
result of its significant international textile and retail
investments, is well positioned to provide the Group with
significant new commercial opportunities, especially in the fields
of fabric design and development, and technical innovation.
The Directors also believe that the strategic partnership with
Shandong Ruyi will increase the Company's own profile and
reputation which should, in turn, increase customer interest in the
Group and, in particular, its Ethiopian manufacturing facility.
Shandong Ruyi has committed to evaluate ways in which it can
provide additional operational support to Bagir. The Directors
believe that the knowledge and expertise of Shandong Ruyi and the
directors it proposes will join our Board will improve the Group's
operations and trading performance.
Outlook
The Board believes that the proposed investment by Shandong
Ruyi, one of the largest textile manufacturers in China, reaffirms
their view that the Group's first mover advantage in Ethiopia is
potentially transformative to its medium-to-long term prospects.
The restructuring initiatives taking place across the Group will
better place the Group to take advantage of the proposed investment
and the commercial synergies that the strategic partnership with
Shandong Ruyi will offer.
The majority of the $16.5 million investment is expected to be
used to expand the Group's existing manufacturing facility in
Ethiopia. Some funds will be used to develop further the suit
trouser production line and to establish a jacket production line
and will increase the Ethiopian facility's ability to produce large
volume and high value orders. The expansion of the Ethiopian
facility will enable the Group to take advantage of the interest in
the facility from international retailers and improve its ability
to compete and win major apparel manufacturing contracts.
The Board is confident the proposed strategic partnership, if
approved by shareholders on 9 October 2018, will be
transformative.
Tessa Laws
Chairman
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
30 June 31 December
---------------- -----------
2018 2017 2017
------ -------- -----------
Unaudited Audited
---------------- ------------
U.S. dollars in thousands
------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 2,815 7,050 2,604
Short-term deposit 129 132 132
Trade receivables 4,045 4,728 3,203
Other receivables 2,845 2,492*) 2,981
Inventories 8,632 5,219 6,709
------ -------- -----------
18,466 19,621 15,629
------ -------- -----------
NON-CURRENT ASSETS:
Long-term receivables - 67*) 28
Property, plant and equipment 8,747 9,930*) 8,721
Goodwill 5,775 5,689 5,775
Other intangible assets 2,425 3,149 2,722
Deferred taxes 181 360 181
------ -------- -----------
17,128 19,195 17,427
------ -------- -----------
35,594 38,816 33,056
====== ======== ===========
*) Restated, See note 2e.
The accompanying notes are an integral part of the interim
condensed consolidated financial statements.
30 June 31 December
-------------------- -----------
2018 2017 2017
-------- ---------- -----------
Unaudited Audited
-------------------- ------------
U.S. dollars in thousands
----------------------------------
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Short-term credit 3,630 3,234 2,294
Trade payables 8,571 4,832 4,933
Advance on account for share purchase 1,650 - -
Other payables 3,995 5,146*) 4,073
17,846 13,212 11,300
-------- ---------- -----------
NON-CURRENT LIABILITIES:
Employee benefit liabilities 311 270 281
Payable for acquisition of subsidiary 1,909 2,382 2,154
Lease liabilities 324 872*) 580
Deferred taxes 1,138 1,379 1,128
-------- ---------- -----------
3,682 4,903 4,143
-------- ---------- -----------
EQUITY:
Share capital 3,284 3,284 3,284
Share premium 86,322 86,306 86,306
Capital reserve for share-based payment
transactions 1,788 1,702 1,757
Capital reserve for transactions with
shareholders 10,165 10,165 10,165
Adjustments arising from translation
of foreign operations (9,624) (8,895) (9,624)
Accumulated deficit (79,815) (73,807)*) (76,221)
-------- ---------- -----------
EQUITY ATRIBUTABLE TO EQUITY HOLDERS
OF THE COMPANY 12,120 18,755 15,667
Non-controlling interests 1,946 1,946 1,946
-------- ---------- -----------
Total equity 14,066 20,701 17,613
-------- ---------- -----------
35,594 38,816 33,056
======== ========== ===========
*) Restated, See note 2e.
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND
OTHER COMPREHENSIVE INCOME
Six months ended Year ended
30 June 31 December
------------------ ------------
2018 2017 2017
------- --------- ------------
Unaudited Audited
------------------ -------------
U.S. dollars in thousands
---------------------------------
Revenues from sales 24,798 28,093 51,091
Cost of sales 23,129 23,485*) 43,450
------- --------- ------------
Gross profit 1,669 4,608 7,641
Selling and marketing expenses 2,289 2,663*) 5,026
General and administrative expenses 1,459 1,677*) 3,299
Development costs 432 417*) 847
Other income - (1,392) (1,223)
Other expenses 189 250 291
------- --------- ------------
Operating income (loss) (2,700) 993 (599)
Finance income 9 - 10
Finance expenses (890) (1,116)*) (2,132)
Company's share of losses of a joint
venture - (184) (184)
Loss before taxes on income (3,581) (307) (2,905)
Tax expenses (13) (296) (123)
------- --------- ------------
Net loss for the period (all attributable
to the
equity holders of the company) (3,594) (603) (3,028)
------- --------- ------------
Other comprehensive loss:
Items to be reclassified or that are
reclassified to profit or loss when
specific conditions are met:
Adjustment arising from translation
of foreign operation - - (729)
Items not to be reclassified to profit
or loss in subsequent
periods:
Remeasurment gain on defined benefit
plans - - 11
------- --------- ------------
Total other comprehensive income (loss) - - (718)
------- --------- ------------
Total comprehensive loss (3,594) (603) (3,746)
======= ========= ============
Net loss attributable to equity holders
of the
Company (3,594) (603) (3,028)
======= ========= ============
Total comprehensive loss attributable
to equity
holders of the Company (3,594) (603) (3,746)
======= ========= ============
*) Restated, See note 2e.
The accompanying notes are an integral part of the interim
condensed consolidated financial statements.
Six months ended Year ended
30 June 31 December
----------------------------- --------------
2018 2017 2017
------------------- -------- --------------
Unaudited Audited
------------------- -------- ---------------
U.S. dollars in thousands (except
share and per share data)
----------------------------------------------
Loss per share attributable to equity
holders of the Company
Basic and diluted loss per share (0.01) (0.002) (0.01)
=================== ======== ==============
Weighted average number of Ordinary
shares for basic and diluted loss per
share (in thousands) 310,543 310,543 310,543
=================== ======== ==============
The accompanying notes are an integral part of the interim
condensed consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Attributable to equity holders of the Company
-------------------------------------------------------------------------------
Capital Capital Adjustments
reserve reserve arising
for for from
share-based transactions translation
Share Share payment with of foreign Accumulated Non-controlling Total
capital premium transactions shareholders operations deficit Total interests equity
------- ------- ------------ ------------ ----------- ----------- ------- --------------- -------
Unaudited
---------------------------------------------------------------------------------------------------------
U.S. dollars in thousands
---------------------------------------------------------------------------------------------------------
Balance at 1
January 2018 3,284 86,322 1,741 10,165 (9,624) (76,221) 15,667 1,946 17,613
------- ------- ------------ ------------ ----------- ----------- ------- --------------- -------
Total loss and
comprehensive
loss - - - - - (3,594) (3,594) - (3,594)
Cost of
share-based
payment - - 47 - - - 47 - 47
------- ------- ------------ ------------ ----------- ----------- ------- --------------- -------
Balance at 30
June 2018 3,284 86,322 1,788 10,165 (9,624) (79,815) 12,120 1,946 14,066
======= ======= ============ ============ =========== =========== ======= =============== =======
Attributable to equity holders of the Company
------------------------------------------------------------------------------
Capital Capital Adjustments
reserve reserve arising
for for from
share-based transactions translation
Share Share payment with of foreign Accumulated Non-controlling Total
capital premium transactions shareholders operations deficit Total interests equity
------- ------- ------------ ------------ ----------- ----------- ------ --------------- ------
Unaudited
-------------------------------------------------------------------------------------------------------
U.S. dollars in thousands
-------------------------------------------------------------------------------------------------------
Balance at 1
January 2017 3,284 86,306 1,580 10,165 (8,895) (73,204) 19,236 1,946 21,182
------- ------- ------------ ------------ ----------- ----------- ------ --------------- ------
Total loss and
comprehensive
loss - - - - - (603) (603) - (603)
Cost of
share-based
payment - - 122 - - - 122 - 122
Balance at 30
June 2017 3,284 86,306 1,702 10,165 (8,895) (73,807) 18,755 1,946 20,701
======= ======= ============ ============ =========== =========== ====== =============== ======
The accompanying notes are an integral part of the interim
condensed consolidated financial statements.
Attributable to equity holders of the Company
-------------------------------------------------------------------------------
Capital Capital Adjustments
reserve reserve arising
for for from
share-based transactions translation
Share Share payment with of foreign Accumulated Non-controlling Total
capital premium transactions shareholders operations deficit Total interests equity
------- ------- ------------ ------------ ----------- ----------- ------- --------------- -------
Audited
---------------------------------------------------------------------------------------------------------
U.S. dollars in thousands
---------------------------------------------------------------------------------------------------------
Balance at 1
January 2017 3,284 86,306 1,580 10,165 (8,895) (73,204) 19,236 1,946 21,182
------- ------- ------------ ------------ ----------- ----------- ------- --------------- -------
Loss for the
year - - - - - (3,028) (3,028) - (3,028)
------- ------- ------------ ------------ ----------- ----------- ------- --------------- -------
Other
comprehensive
income:
Adjustment arising
from translation
of foreign
operation - - - - (729) - (729) - (729)
Remeasurement
gain on
defined
benefit
plans - - - - - 11 11 - 11
------- ------- ------------ ------------ ----------- ----------- ------- --------------- -------
Total
comprehensive
income (loss) - - - - (729) (3,017) (3,746) - (3,746)
Options forfeited - 16 (16) - - - - - -
Cost of
share-based
payment - - 177 - - - 177 - 177
Balance at 31
December 2017 3,284 86,322 1,741 10,165 (9,624) (76,221) 15,667 1,946 17,613
======= ======= ============ ============ =========== =========== ======= =============== =======
*) Less than $1 thousands.
The accompanying notes are an integral part of the interim
condensed consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended Year ended
30 June 31 December
------------------------- ------------
2018 2017 2017
---------------- ------- ------------
Unaudited Audited
---------------- ------- -----------------
U.S. dollars in thousands
--------------------------------------------
Cash flows from operating activities:
Net loss (3,594) (603) (3,028)
---------------- ------- ------------
Adjustments to reconcile net loss to
net cash provided by (used in) operating
activities:
Gain from remeasurement of previous
investment in joint venture - (1,223) (1,223)
Bargain purchase gain - (95) -
Company's share of losses of a joint
venture - 184 184
Depreciation and amortization 784 1,130*) 1,926
Change in employee benefit liabilities 30 60 86
Cost of share-based payment 47 122 177
Loss from sale of property, plant and
equipment 2 - 121
Finance expenses, net 825 447*) 1,515
Deferred taxes, net 10 (20) 173
Income tax expense, net 2 316 (50)
Exchange differences on intercompany
current account - - 157
1,700 921 3,066
---------------- ------- ------------
Changes in asset and liability items:
Decrease (increase) in trade receivables (842) (339)*) 799
Decrease (increase) in other receivables 125 (165) (710)
Decrease (increase) in inventories (1,923) 162 (1,398)
Increase in trade payables 3,638 792 915
Decrease in other payables (68) (645)*) (1,193)
---------------- ------- ------------
930 (195) (1,587)
---------------- ------- ------------
Cash paid during the period for:
Interest paid (586) (590) (1,090)
Interest received - - 8
Taxes paid (3) (316) (298)
Taxes received - - 5
(589) (906) (1,375)
---------------- ------- ------------
Net cash used in operating activities (1,553) (783) (2,924)
---------------- ------- ------------
*) Restated, See note 2e.
The accompanying notes are an integral part of the interim
condensed consolidated financial statements.
Six months ended Year ended
30 June 31 December
--------------------------- ------------
2018 2017 2017
------------------ ------- ------------
Unaudited Audited
------------------ ------- ------------
U.S. dollars in thousands
-----------------------------------------
Cash flows from investing activities:
Acquisition of initially consolidated
subsidiary (a) - (1,811) (1,811)
Investment in a joint venture - (1,169) (1,169)
Purchase of property, plant and equipment (494) (273) (892)
Collection of finance receivable 44 45*) 83
Purchase of short-term deposits, net - (51) (51)
Net cash used in investing activities (450) (3,259) (3,840)
------------------ ------- ------------
Cash flows from financing activities:
Advance on account for share purchase 1,650 - -
Repayment of lease liabilities (372) (351)*) (720)
Receipt of short-term credit from others 1,336 3,219 2,280
Payment of liability for acquisition
of subsidiary (400) (400) (800)
Net cash provided by financing activities 2,214 2,468 760
------------------ ------- ------------
Exchange differences on balances of
cash and cash equivalents of foreign
operation - - (16)
------------------ ------- ------------
Increase (decrease) in cash and cash
equivalents 211 (1,574) (6,020)
Cash and cash equivalents at the beginning
of the period 2,604 8,624 8,624
------------------ ------- ------------
Cash and cash equivalents at the end
of the period 2,815 7,050 2,604
================== ======= ============
a) Acquisition of initially consolidated subsidiary
The subsidiary's assets and liabilities at date of
acquisition:
Working capital (excluding cash and
cash equivalents) - (1,893) (1,894)
Property, plant and equipment - 7,750 7,472
Deferred taxes - (1,379) (1,295)
Gain from remeasurement of investment
in company previously accounted for
at equity - (1,223) (1,223)
Goodwill - (95) 100
Investment in company previously
accounted for at equity - (1,349) (1,349)
---- -------- --------
- 1,811 1,811
==== ======== ========
b) Significant non-cash transactions:
Waiver of receivable from partner in
joint venture -672 672
=== ===
*) Restated, See note 2e.
The accompanying notes are an integral part of the interim
condensed 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") specialize in the
manufacturing and marketing of men's and women's tailored fashion.
The Company's Headquarter is located in Kiryat Gat, Israel. The
Group's products are manufactured by subsidiaries in Egypt and
Ethiopia and subcontractors. The Group's products are marketed in
U.S, Europe (mainly in the UK) and in other countries. As for
additional details, see Note 3.
b. The interim condensed consolidated financial statements for
the six months ended 30 June 2018 were approved for issue in
accordance with a resolution of the Board of Directors on 20
September 2018.
c. In November 2017, the Company signed a strategic Share
Purchase Agreement with a global textile manufacturer (the
Investor). According to the agreement, the Investor has committed
to make an investment of $16.5 million in the Company in
consideration for the issuance by the Company of 359,560,310
Ordinary shares that will represent 54% (fully diluted- 51%) of the
Company's enlarged issued share capital. The price per Ordinary
share is approximately 3.5 pence per share (based on exchange rate
as of 30 June 2018).
The transaction is subject to, inter alia, the approval of the
Company's shareholders and to the completion of various Chinese
foreign exchange and other regulatory requirements by the date of
closing.
Pursuant to the agreement, in January 2018 the Company received
a down payment of $1.65 million from the investor, which is
non-refundable in the event that the Investor fails to secure
Chinese regulatory consent but is refundable if the Company's
shareholders do not approve the agreement.
The Investor has committed to complete the transaction by 31
August 2018 and has paid a further $1.65 million, which was
received by the Company on 17 July 2018.
On 3 September 2018, after receiving the required information
from the Investor for publication of a circular to the Company's
shareholders and to convene an Extraordinary General Meeting for
the approval of the transaction, the Company posted the circular to
its shareholders and announced the notice of the Extraordinary
General Meeting to be held on 9 October 2018.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
a. Basis of preparation of the interim consolidated financial statements:
The interim condensed consolidated financial statements for the
six months ended 30 June 2018 have been prepared in accordance with
IAS 34, Interim Financial Reporting, as adopted by the European
Union. The interim condensed consolidated financial statements do
not include all the information and disclosures required in the
annual financial statements, and should be read in conjunction with
the Group's annual consolidated financial statements as at 31
December 2017.
The accounting policies applied in the preparation of the
interim condensed consolidated financial statements are consistent
with those followed in the preparation of the Group's consolidated
annual financial statements for the year ended 31 December 2017,
except as described below.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
b. Assessment of going concern:
In the six months ended 30 June 2018, the Group incurred an
operating loss of $2.7 million and had negative cash flows from
operating activities of approximately $1.6 million. Should the
proposed investment in the Company described in Note 1c above not
proceed, the Company would need to seek alternative sources of
funds in the second half of the financial year ending 31 December
2018 to enable it to fund its working capital needs. There can be
no guarantee that such funds would be available to the Company.
In order to address the above circumstances, the Group is
undertaking a rationalisation of its operations, focussing on fewer
production sites and a reduction in the Group's operational cost
base. The management and the Board of Directors expect these
measures, together with the operational cost savings, will reduce
the Group's operational cost base by approximately $5 million on an
annualised basis.
The Board of Directors has considered the principal risks and
uncertainties of the business, the trading forecasts prepared by
management (including the projected effects of the remedial actions
described above) covering a twelve-month period following the
approval of the financial statements and the resources available to
meet the Group's obligations for the aforementioned period. After
taking all of the above factors into consideration, the Board of
Directors has concluded that it is appropriate to apply the going
concern basis of accounting in preparing the financial
statements.
c. Financial Instruments
In July 2014, the IASB issued the final and complete version of
IFRS 9, "Financial Instruments" ("IFRS 9"), which replaces IAS 39,
"Financial Instruments: Recognition and Measurement". IFRS 9 mainly
focuses on the classification and measurement of financial assets
and it applies to all assets in the scope of IAS 39. IFRS 9 also
prescribes new hedge accounting requirements.
The adoption of IFRS 9 as of 1 January 2018 did not have a
material effect on the financial statements.
d. Commencing 1 January 2018, the subsidiary in Ethiopia changed
its functional currency from Ethiopian Birr to United States
Dollars (USD). Management's decision to change the functional
currency was based on the following considerations:
- All of the subsidiary's sales are presently export sales and
the sales prices are denominated and settled in USD;
- The subsidiary imports most of its raw materials and these
costs are mostly denominated in and settled in USD; and
- Most of the funds generated by the subsidiary from financing activities are generated in USD.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
e. Change in accounting policy:
The Company has restated its financial statements as of 30 June
30 2017 and for the six-month period then ended, in order to
retrospecively reflect the effect of the early adoption of IFRS 16,
"Leases", in 2017. Refer to Note 2l in the Annual Financial
Statements as of 31 December 2017.
Following are the effects of the early adoption of IFRS 16,
"Leases" on the Company's financial statements:
Consolidated statement of financial position:
As presented
As previously The in these financial
reported change statements
------------- ------- -------------------
U.S dollars in thousands
-------------------------------------------
As of 30 June 2017
(Unaudited):
Other receivables 2,414 78 2,492
============= ======= ===================
Long-term receivables - 67 67
============= ======= ===================
Property, plant and
equipment 8,560 1,370 9,930
============= ======= ===================
Other payables 4,474 672 5,146
============= ======= ===================
Lease liabilities - 872 872
============= ======= ===================
Accumulated deficit (73,778) (29) (73,807)
============= ======= ===================
Total equity 20,730 (29) 20,701
============= ======= ===================
Consolidated statement of profit or loss and other comprehensive
income:
As presented
As previously The in these financial
reported change statements
------------- ------- -------------------
U.S dollars in thousands
-------------------------------------------
Six months ended
30 June 2017 (Unaudited):
Cost of sales 23,516 (31) 23,485
============= ======= ===================
Selling and marketing
expenses 2,644 19 2,663
============= ======= ===================
General and administrative
expenses 1,688 (11) 1,677
============= ======= ===================
Development costs 427 (10) 417
============= ======= ===================
Finance expenses 1,054 62 1,116
============= ======= ===================
Loss before taxes
on income (278) 29 (307)
============= ======= ===================
Net loss (574) 29 (603)
============= ======= ===================
Total comprehensive
loss (574) 29 (603)
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
e. Change in accounting policy :(Cont.)
Consolidated statement of cash flows:
As presented
As previously The in these financial
reported change statements
------------- ------- -------------------
U.S dollars in thousands
-------------------------------------------
Six month ended 30
June 2017 (Unaudited):
From operating activities (1,089) 306 (783)
============= ======= ===================
From investing activities (3,304) 45 (3,259)
============= ======= ===================
From financing activities 2,819 (351) 2,468
============= ======= ===================
NOTE 3:- ADDITIONAL INFORMATION ON OPERATIONS
a. General:
As more fully described in the Annual Financial Statements as of
31 December 2017, due to a change in the structure of the Group's
internal organization that culminated in the second half of 2017,
the Group presently has only one operating segment - the
manufacturing and marketing of men and women's tailored fashion
(mainly men's).
b. Revenues by geographical area:
Six months ended Year ended
30 June 31 December
-------------------------- ------------
2018 2017 2017
------------------ ------ ------------
Unaudited Audited
------------------ ------ ------------
U.S. dollars in thousands
----------------------------------------
U.S. 17,762 21,839 39,571
Europe (mainly UK) 6,114 5,638 10,450
Other 922 616 1,070
------------------ ------ ------------
Total 24,798 28,093 51,091
================== ====== ============
NOTE 4:- SUBSEQUENT EVENTS
a. In August 2018, the Company signed an appendix to the
shareholders' agreement with the Egyptian partner of the Company's
subsidiary in Egypt (see Note 5 in the 2017 Annual Financial
Statements as of 31 December 2017). The parties agreed that upon
termination of the shareholders' agreement in 2022 the minimum
shareholders' equity will be approximately $3 million. As a result,
in the six-month period ending 31 December 2018, the Company will
record a reduction of the non-controlling interests in equity of
approximately $440 thousand and a corresponding increase in equity
attributable to equity holders of the Company.
b. In August 2018, the Company signed a subcontractor agreement
with a manufacturer in Egypt,, which is controlled by the Egyptian
partner of the Company's subsidiary in Egypt, according to which
the Company is obligated to purchase certain minimum quantities of
trousers and jackets at fixed prices over a period of four years
ending in July 2022 to support the Group's ability to fulfill
volume orders from the USA from this duty free country, supporting
the USA market growth strategy.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR URRRRWOAKUUR
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