Interim Results

25 September 2015

Bagir Group Ltd.

("Bagir" or the "Company")

Interim Results

for the six months ended 30 June 2015

Bagir (AIM: BAGR), a designer, creator and provider of innovative formalwear tailoring, announces its results for the six months ended 30 June 2015.

HIGHLIGHTS

· Revenue of $45.5m (H1 2014: $48.0m)

· Adjusted EBITDA of $(0.2)m* (H1 2014 :$1.7m)

· Operating (loss) income of $(1.9)m (H1 2014: $0.0m)

· Adjusted operating (loss) income of $(0.4)m** (H1 2014: $1.5m)

· Adjusted profit (loss) before tax of $(1.7)m** (H1 2014: $(0.9)m)

· Net debt at 30 June 2015 of $8.2m (31 Dec 2014: $12.5m)

· Competitive pressures and the deferral of sales planned for 2015 into 2016 are expected to result in a significantly worse second half trading performance

· Recovery Plan extended to focus core activities on higher value added products with better returns, and with other products supplied from the Ethiopia facility as it is developed; it will also include further significant reductions in overhead costs

· Actions being taken to restructure the Board on a more appropriate basis, with reduced costs

* Adjusted for depreciation of $0.2m, amortization of intangibles of $1.2m and non-recurring Recovery Plan consultancy cost of $0.2m

** Adjusted for amortization of intangibles of $1.2m and non-recurring Recovery Plan consultancy costs of $0.2m

Danny Taragan, CEO of Bagir, said:

"Despite the reduction in sales from our previous largest customer, as announced in May 2014, good progress has been made in broadening the Company's activities. The development of the Ethiopia facility is progressing well and this represents an attractive opportunity and source of increased competitive advantage.

"We will be extending our Recovery Plan to focus our core businesses on higher value added activities with better returns, enabling us to continue to materially improve cost efficiency."

For further information, please contact:

STRATEGIC AND FINANCIAL REVIEW

Despite the loss of a substantial proportion of revenue from its previous largest customer, as announced in May 2014, the Company has successfully grown revenue elsewhere during the six months to 30 June 2015, through additional sales to other existing and new retail customers.

Following a review of its business strategy and operating processes, the Company commenced a Recovery Plan (the "Plan") to improve the effectiveness of its processes and reduce costs. As part of the Plan, the Company decided to upgrade its IT systems and implementation of this has progressed well in the first half.

The Company expects the second half of the year to be more difficult than the first half, due to competitive pressures and the deferral of sales planned for 2015 into 2016. In light of this, the Company has decided to extend the scope of the Plan to focus core activities on higher value added products, with better returns, and with other products supplied from the Ethiopia facility as it is developed; it will also include further significant reductions in overhead costs.

The development of the production facility in Ethiopia, which was purchased in November 2014, is progressing to plan and the first production line of trousers for export is expected to be undertaken during the fourth quarter of 2015. The facility is expected to give Bagir a strong competitive advantage due to its duty free exports status for sales to the EU and US, its competitive production costs and government support for the textile industry. It is also intended that other products will progressively be provided by the facility as its capacity and expertise develops.

Revenue

Revenue for the six months ended 30 June 2015 was $45.5m compared with $48.0m for the first half of 2014. The reduction in revenue compared with the comparable period last year was mainly due to the decline in sales to the Company's former largest customer as announced last year. The Company has however successfully grown revenue elsewhere through additional sales to other existing and new retail customers.

Gross margin

The gross margin for the six months ended 30 June 2015 was 14.5% compared with 17.4% for the first half of 2014. This decline was also predominantly due to the reduction in higher margin sales to the Company's former largest customer and the impact of the devaluation of the pound\dollar exchange rate, which reduced gross profit by approximately $0.4m.

Operating expenses

Selling and marketing expenses increased to $5.0m in H1 2015 (H1 2014: $4.2m), mainly due to approximately $1.0m additional variable selling costs associated with different product mix and an increased level of smaller purchase orders. Other costs decreased as a result of the Plan.

The development costs decreased to $1.2m in H1 2015 (H1 2014: $1.8m) as a result of the Plan.

The general and administrative expenses increased to $2.2m in H1 2015 (H1 2014: $2.0m), due mainly to expenses arising from the Company's listing and $0.2m one-off consultancy costs associated with the implementation of the Plan. Other costs decreased.

Adjusted EBITDA

Adjusted EBITDA (before non-recurring recovery plan consultancy costs) for the six months ended 30 June 2015 was $(0.2)m (H1 2014: $1.7m).

Adjusted operating income and profit (loss) before taxation

Adjusted operating income (loss) and profit (loss) before tax (before $1.2m amortization of intangible assets and before $0.2m non-recurring Plan consultancy costs) for the six months ended 30 June 2015 was $(0.4)m and $(1.7)m respectively, compared with $1.5m and $(0.9)m respectively in the first half of 2014. The reduction in profit compared with the comparable period last year is due to the decline in sales to the Company's previous largest customer.

Loss per share

Basic and fully diluted earnings (loss) per share for the period was $(0.06) (H1 2014: $(0.10)).

Net debt

As at 30 June 2015, net debt decreased to $8.2m compared with $12.5m at 31 December 2014 and $8.5m at 30 June 2014. Net debt reduced mainly due to changes associated with the Company's working capital and approximately $2m increase in invoice financing.

The Company's financial covenants were reset with the Company's banks in January 2015 for the years 2015 and 2016 and the Company made an early repayment of $2.3m of long term loans in January 2015 that were originally scheduled for payment in monthly payments during 2015 and the first quarter of 2016.

As of 30 June 2015, the Company is complying with the financial covenants.

Cash and cash equivalents

As at 30 June 2015, cash and cash equivalents were $13.3m compared with $11.4m at 31 December 2014 and $16.1m at 30 June 2014.

OUTLOOK

The Company has made good progress in developing revenues to replace its previous largest customer during the six months to 30 June 2015. However, as noted above, the Company expects the second half of the year to be more difficult than the first half due to competitive pressures and the deferral of sales planned for 2015 into 2016. As a result, the Company expects trading for the second half of the current financial year to be significantly worse than the first half.

The refocusing of activities as part of the extension to the Plan is planned to result in a sustainable trading performance in 2016 with continuing improvement in subsequent years.

BOARD RESTRUCTURING AND BOARD COSTS

In light of the Company's current trading, the Directors of the Company have concluded that the Board should be restructured on a more appropriate basis, with significantly reduced costs. To achieve this:

Keith Hamill (Non-Executive Chairman) and George Adams (Independent Non-Executive Director) have decided to step down as of 30 September 2015, waiving notice entitlements under their appointment agreements.

Tessa Laws, who is currently an Independent Non-Executive Director, will become Non-Executive Chairman.

The Board will propose a shareholder resolution (in accordance with Israeli law) to appoint Donald Stewart (former Chairman of the Quoted Companies Alliance) as a new Independent Non-Executive Director in due course.

All remaining Non-Executive Directors have agreed to a 33% reduction in their fees from 1 October 2015, to be reviewed as at 31 December 2016.

BAGIR GROUP LTD.

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF 30 JUNE 2015

UNAUDITED

IN U.S. DOLLARS IN THOUSANDS

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

*) Reclassified.

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

The accompanying notes are an integral part of the interim condensed consolidated financial statements.

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") 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. As for operating segments, see Note 4.

b. The interim condensed consolidated financial statements for the six months ended 30 June 2015 were approved for issue in accordance with a resolution of the Board of Directors on 24 September 2015.

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 2015 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 2014.

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 2014. 

b. Fair value:

The fair value of cash and cash equivalents, short-term investments, trade and other receivables, bank deposits, credit and loans from banks and trade and other payables approximates their carrying amount.

NOTE 3:- SUPPLEMENTARY INFORMATION

a. In January 2015, the Company signed an amendment to the financing agreements with the banks in the framework of which the Company has undertaken as follows:

(1) The Company has undertaken to meet certain revised financial covenants regarding debt coverage ratio and minimum equity and tangible equity, and these covenants vary depending on whether Nazarath is consolidated.

(2) The Company also undertook to make an early repayment of $2.3 million in January 2015 of long-term loans (that were originally scheduled for payment in 2015 and in the first quarter of 2016) and an early repayment of $0.3 million in the fourth quarter of 2015 (that were originally scheduled for payment at the end of 2017).

 (3) Regarding its investment in the joint venture, Nazarath Garment Share Company ("Nazarath"):

- To inform the banks of any intention to obtain control of Nazarath and the effect of the consolidation of Nazarath on the Company's financial statements.

- To undertake that the Company's loans to Nazarath should not exceed $ 5 million.

- The Company's loans to Nazarath will be used to finance working capital and/or current investments rather than finance losses of Nazarath.

The early repayment of $2.3 million described in (2) above was made by the Company in January 2015.

As of 30 June 2015, the Company is complying with the financial covenants.

b. On 31 March 2015, the Company signed an agreement to acquire a computer IT system at a cost of approximately $ 600 thousands

c. Further to Note 5 to the annual consolidated financial statements as of 31 December 2014, on 1 July 2015, the Company extended the agreement with the Egyptian partner in the subsidiary in Egypt whereby the Company will continue to control and manage the subsidiary for an additional period of 7 years starting 1 July 2015, in consideration for a fixed annual payment of $ 800 thousands. Accordingly, the Company will continue to fully consolidate the financial statements of the Egyptian subsidiary.

NOTE 4:- OPERATING SEGMENTS

a. General:

The Group's activity is the manufacturing and marketing of men and women's tailored fashion (mainly men's).

The operating segments are identified on the basis of information that is reviewed by the chief operating decision maker ("CODM") to make decisions about resources to be allocated and assess its performance. The Group's products are primarily marketed to two geographical areas: Europe and the U.S. and, accordingly, the Company has two geographical segments. The Company's activities in Europe are concentrated primarily in the U.K.

b. Financial information on operating segments:

*) Reclassified.

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