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21 Sep 2018 | 07:59

Bagir reports steeper losses as production costs rise

Textile company Bagir reported Friday steeper loss for the first half of the year as margins were pressured by ongoing operational delays and increased production costs

For the six months ended 30 June 2018, losses were £3.58m, compared with a loss of $0.31m a year earlier and revenue fell to $24.8m from $28.1m, which was in line with management's expectations.

The higher production costs in the first half of 2018, which affected gross margin and profitability, was attributed to: The recruitment and training of new production line teams in Ethiopia, and an increase in subcontractor's costs in Vietnam and Egypt following a transition period in which production had been moved to more competitive costing programmes.

The company reported an adjusted earnings (EBITDA) loss of $1.7m and gross margin of 6.7% in the first half of 2018, compared with adjusted EBITDA of $1.1m and gross margin of 16.4% in the first half of last year 2017.

Looking ahead, the company said it would slim down operations, focusing on fewer production sites and on reducing group's operational cost base. This, together with the operational cost savings announced in November last year, would reduce the group's operational cost base by about $5m on an annualised basis.

The company said it was 'confident' the proposed strategic partnership with Shandong Ruyi, if approved by shareholders on 9 October 2018, would be transformative. '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,' said Eran Itzhak, CEO of Bagir. 'This investment together with being in partnership with Shandong Ruyi will undoubtedly be transformative for Bagir.'

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