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Bagir's share price scissored after it warns of higher production costs

Published: 09:00 21 Sep 2018 BST

Tailoring
The development of the production lines at the facilities in Vietnam and Ethiopia to support larger volumes was slower than anticipated

Shares in turnaround play Bagir Group PLC (LON:BAGR) retreated after the tailoring group revealed higher production costs had hit first-half profits.

The shares were marked 0.15p lower at 2.45p after the Israeli outfit posted an underlying loss (negative EBITDA) of US$1.7mln for the first half of 2018, compared to a positive outcome in the same period of last year of US$1.1mln.

Revenue of US$24.8mln was in line with management’s expectations but down from US$28.1mln the year before.

READ: Bagir doubles as Chinese textile group takes majority stake

The gross margin collapsed to 6.7% from 16.4% the year before, with the group citing the cost of recruiting and training new production line teams in Ethiopia (which resulted in a higher than usual amount of wasted material) plus higher subcontractor costs in Vietnam and Egypt as reasons for the decline.

"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 US$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," said Eran Itzhak, the chief executive officer of Bagir.

The group is looking at rationalising its operations, focusing on fewer production sites with a view to reducing its operating cost base by around US$5mln a year.

Aside from that, it is pinning its hopes on the potentially transformational strategic partnership with Shandong Ruyi; shareholders will vote on the proposed partnership on October 9.

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