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Bagir turnaround plan taking hold, says CEO Eran Itzhak

Menswear supplier Bagir’s turnaround plan is beginning to bear fruit following a difficult year, according to chief executive Eran Itzhak.

Sales at the firm were hit in 2015 by a “significant reduction” in business from Marks & Spencer. For the year to December 31, sales at Bagir, which also supplies Arcadia, were $75.2m (£57m), down from $97m (£73m) the previous year. The firm also made an adjusted EBITDA loss of $4.3m (£3.2m).

However, the recovery plan, which involves cutting costs, moving production sites and targeting high-volume retailers, is taking hold and the company said it was expecting a positive EBITDA this year.

“I’m confident in the future,” said Itzhak. “We have made the changes we needed to and we are back on track.”

Bagir has made an agreement with its lenders, Bank Leumi and Israel Discount Bank, to clear all outstanding debt – approximately $21m (£16m) – in exchange for a cash payment of $6.3m (£4.8m), an 8.3% stake in the company and a share of profits if the company generates annual EBITDA above $6.5m (£5m) between 2016 and 2024.

The firm also has plans to raise approximately $8.5m (£6.4m).

“Clearing the debt was stage one,” said Itzhak. “Stage two is raising the cash. We floated in April 2014, so we are approaching our own investors and new investors. We have already had interest from Israeli and UK firms. The additional money will be invested in the business, including our Ethiopian facility.”

As part of its restructure, Bagir moved its production from China, Romania and Burma to wholly or part-owned sites in Egypt, Vietnam and Ethiopia.

“We shifted production and the new sites all reflect our strategy to be cost-effective and tax-efficient, duty free,” said Itzhak.

In the last year, Bagir has made a 30% saving to all costs through an unspecified number of redundancies in the UK and the head office in Israel; a relocation to smaller offices in the UK; and reduced director fees and other overhead costs. The firm is aiming to reach a 40% saving by the end of 2016.

Itzhak said the firm is looking for new accounts in order to reach a 70/30 ratio between mass market and fast fashion orders. It currently has a 60/40 split.

“Some of our customers, like Topman, want a more fashion forward design for their design-driven shoppers, so we have to have the right product development to support it. You need the right mix of fast fashion customers. They don’t want black suits – they want purple and green, and they want it next month.

“However, you can’t survive on only the fashion people – you need the mass market as well. We are really focusing on increasing those big-volume orders to make sure we get up to 70%.”

Itzhak, who was promoted to chief executive in November from the role of vice president of business development and innovation, said the global nature of Bagir protects it from Brexit headwinds.

“We have a real advantage, as we are split across several markets, so are able to manage the risk,” he said. ”Brexit might be happening in the UK but a significant part of our revenue comes from the US, so it can compensate. The same thing goes for when the US market is weak; we can make that up from the UK, Australia and Africa.”

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