TIDMBAGR
RNS Number : 0682V
Bagir Group Ltd
04 April 2019
4 April 2019
Bagir Group Ltd.
("Bagir" or the "Company")
Final Results
Bagir (AIM: BAGR), a designer, creator and provider of
innovative tailoring, announces its final results for the year
ended 31 December 2018.
2018 Highlights
-- 10% revenue growth to $56.4m (2017: $51.1m) reflecting new
client wins and increased purchase orders from certain existing
customers.
-- Return to adj. EBITDA* profitability in H2 following short
term cost increases, due to expanding production capacity in
Ethiopia and moving to more cost competitive manufacturing programs
in Vietnam and Egypt, in the first half of the year.
-- Previously announced cost reduction program has successfully
saved $2.7m of annualized fixed costs.
-- Adjusted EBITDA* loss of $1.0m (2017: profit of $0.6m) in
line with management's expectations.
-- Cash and cash equivalents of $3.1m (2017: $2.6m)..
-- On 9 October 2018, shareholders approved Shandong Ruyi's
$16.5m proposed investment in and strategic partnership with
Bagir.
-- On 31 December 2018, a new unconditional completion date, of
30 May 2019, was announced for Shandong Ruyi to make the remaining
cash payment of $13.2m. All other conditions relating to the
proposed investment have been completed.
-- On 13 February 2019, it was announced that Shandong Ruyi will
provide suit jacket manufacturing equipment, with an estimated
market value of $1.3m, for nil consideration and improved credit
terms on the acquisition of up to 500,000 meters of wool and wool
blends fabrics.
* The Adjusted 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, non-cash share
based compensation and excluding other expenses/income. In 2018 the
Adjusted EBITDA figure, excluding $0.9m reorganization expenses,
net of other expenses (in 2017 the Adjusted EBITDA figure,
excluding $0.9m one-off capital gain attributable to the
acquisition in Ethiopia, net of other expenses).
Outlook
-- As announced on 31 December 2018, trading conditions are
likely to remain challenging in 2019, however, the Directors
believe that through implementing the strategic plan, together with
the ongoing operational cost base reductions and a strong order
backlog, the Company is well placed going into 2019.
-- Sales in the three months ended 31 March 2019 were $16.3m (31
March 2018: $11.2m), and the Company has an order backlog of
$30.6m.
-- The Directors expect that the completion of the proposed
investment by Shangdong Ruyi and its operational support will
transform the Company and its ability to compete and win major
apparel manufacturing contracts from the world's largest retailers,
developing the Ethiopian manufacturing base far quicker and with
more certainty than the Company would be able to do
independently.
Commenting on the results, CEO Eran Itzhak, said: "We have begun
this year well with sales of $16.3m already recorded for the first
3 months, a 46% increase compared to the prior year. This, together
with the benefits coming through from the cost reductions made last
year and the $30.6m backlog of orders, means the Company is well
placed for 2019."
Enquiries:
Bagir Group Limited
Eran Itzhak, Chief Executive Officer
Dotan Levy, Chief Financial Officer +44 (0) 20 7284
Tessa Laws, Non-Executive Chairman 7133
N+1 Singer (Nominated Adviser & Broker)
Mark Taylor +44 (0)20 7496
James Moat 3000
Novella Communications (Financial PR)
Tim Robertson +44 (0)20 3151
Toby Andrews 7008
Strategic and Financial Review
Introduction
Trading in 2018 reflected a challenging market environment.
While the Company achieved good topline growth and gained interest
from key global customers in the future manufacturing potential of
its sites in Egypt, Vietnam and in the longer-term, Ethiopia,
profitability in the period declined as a result of transitional
costs incurred during the first half due to the investment in
expanding the production lines in Ethiopia and the move to more
competitive costing manufacturing programs in Vietnam and
Egypt.
Operational review
Our strategy remains focused on creating internationally
competitive manufacturing bases, to combine with the Company's
innovative tailoring capabilities, with the aim of winning major
apparel manufacturing contracts from the world's largest retailers.
To that end, Bagir re-aligned its manufacturing bases to 3 key
geographical locations: Egypt, Ethiopia and Vietnam.
The Directors believe that Ethiopia, in particular, represents a
unique opportunity to establish a market leading base over the
medium to longer term. Ethiopia offers significant commercial
advantages given its tariff free trade to the Company's target
markets, low production costs and strong local government support
to the textile industry.
Alongside our focus on winning large apparel contracts, tailored
corporate workwear is a growing market for the Company. The Group
has established a successful business in this sector with
well-known clients in the aviation, transport and service sectors.
It is a specialist market with good margins in which Bagir has a
growing track record.
During the year the Company has continued to pursue its cost
reduction program. As part of this, the Company reduced the number
of production sites from six to five and will further reduce to
four sites by Q3 2019, from which point production will come from a
site in Egypt and Ethiopia and two sites in Vietnam. The reduction
is expected to enhance the Group's ability to monitor and control
output as well as reduce overhead costs.
As announced in the interim results in September 2018, the
Company was seeking to make cost savings of approximately $5.0
million on an annualized basis. This was, in part, to be achieved
by ceasing the Company's activities in the UK and focusing on the
larger US market. Since then, the Company has secured major apparel
contracts with leading UK retailers from which the net
contributions are expected to outweigh the benefits of the proposed
cost reductions. The Company will therefore maintain a UK office,
albeit with a smaller team, to service these key clients.
As a result of the above, the cost reduction program, which has
now completed, secured approximately $2.7 million of annualized
cost savings. In addition to the reduction of production sites, the
savings have primarily come from a workforce efficiency
program.
Financial results
Revenue for 2018 was in line with management expectations and
amounted to $56.4m compared with $51.1m for 2017 reflecting new
customer wins and increased purchase orders from certain existing
customers.
The costs associated with developing the Company's manufacturing
facilities in Ethiopia, together with the transitional costs of
moving production to more cost competitive manufacturing programs
in Vietnam and Egypt in H1, affected gross margin for 2018 which
decreased to 9.8% compared to 15.0% in 2017. In both Q3 and Q4 2018
the Company has returned to adj. EBITDA profitability and positive
cash flows.
Operating expenses for 2018 reduced, when compared with the same
period last year, to $8.2m (2017: $9.2m) as a result of the cost
reduction program. The Company expects that a further decrease of
$1.7m will be realized in 2019 due to the annualized cost savings
achieved this year.
Within operating expenses, selling and marketing expenses
decreased to $4.8m in 2018 (2017: $5.0m), development costs were
unchanged at $0.8m (2017: $0.8m) and general and administrative
expenses decreased to $2.6m (2017: $3.3m).
The Adjusted EBITDA* loss for 2018 amounted to $(1.0)m, compared
with Adjusted EBITDA* profit of $0.6m in 2017.
In 2017, the Company adopted IFRS 16 new accounting standard
with regard to leasing contracts. According to the standard,
leasing contracts for longer than 12 months are presented as an
asset and a liability in the financial statements at their fair
value and depreciated over the contract period. As a consequence of
implementing this new accounting standard, the depreciation costs
in 2018 and 2017 increased by c$0.6m.
In 2018, the Company had one off expenses of $1.1m, of which
$0.9m relates to one off charges in implementing the Company's cost
reduction and efficiency program.
As a result, the operating loss for 2018 amounted to $3.8m
compared with a loss of $0.6m in 2017.
The adjusted net loss** for 2018 amounted to $4.7m, compared
with an adjusted net loss** of $4.0m in 2017.
Cash and cash equivalents at 31 December 2018 increased to $3.1m
compared with $2.6m at 31 December 2017.
Short term credit at 31 December 2018 amounted to $10.0m
compared with $2.2m at 31 December 2017, mainly attributable to the
factoring facility changing to recourse terms, import financing
facility and a bank loan taken out Ethiopia (on 31 December 2017
the customer balance included $2.0m non-recourse factoring
facility).
* The Adjusted 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, non-cash share
based compensation and excluding other expenses/income. In 2018 the
Adjusted EBITDA figure, excluded $0.9m of reorganisation expenses,
net of other expenses (in 2017 the Adjusted EBITDA figure, excluded
$0.9m one-off capital gain attributable to the acquisition in
Ethiopia, net of other expenses).
**The Adjusted Net Loss is a non-IFRS measure that the Company
uses to measure its performance. It is defined as loss for the year
excluding other expenses/income. In 2018 the Adjusted EBITDA
figure, excluded $0.9m of reorganisation expenses, net of other
expenses (in 2017 the Adjusted EBITDA figure, excluded $0.9m
one-off capital gain attributable to the acquisition in Ethiopia,
net of other expenses)
Strategic Partnership with Shandong Ruyi
On 23 November 2017, the Company announced that it had signed a
proposed strategic partnership with Shangdong Ruyi, a leading Asian
global textile manufacturer, alongside a proposed investment of
$16.5 million to acquire c.54%
(c. 51% fully diluted) of the Company's enlarged issued share
capital.
Founded in 1972 and headquartered in Jining, Shandong, the
Shandong Ruyi Group is one of the largest textile enterprises in
China and ranks among the Top 100 Chinese multi-national companies.
The Shandong Ruyi Group predominately engages in textile offerings,
using wool, cotton, ecological fibers and synthetic fibres, and
owns a fully-integrated value chain with operations spanning across
raw materials cultivation, textiles processing, and design and sale
of brands and apparel.
The Shandong Ruyi Group operates 13 manufacturing facilities
domestically and boasts some of the largest production lines and
advanced technologies in China. The Shandong Ruyi Group also has
significant distribution with more than 5,000 points of sales (POS)
across 40 countries with a network that services a global customer
base spread across 6 continents. The Shandong Ruyi Group has over
30 subsidiaries in over 15 countries, with four listed
subsidiaries, with a combined market capitalisation of over $3
billion, in China, Japan, France and Hong Kong, being Shandong Ruyi
Woolen Garment Group Co., Limited, Renown Inc., SMCP SAS and
Trinity Limited respectively.
On October 9th 2018, the proposed investment by Shandong Ruyi
was approved by shareholders. Following this, on December 31st
2018, it was announced that a new unconditional date, of 30 May
2019, had been agreed by which Shandong Ruyi will have paid to
Bagir the remaining cash payment of $13.2m. All other conditions
relating to the transaction have been completed.
Post year end Ruyi have agreed to provide the Company with suit
jacket manufacturing equipment, with an estimated market value of
$1.3m, for exclusive and indefinite use in the Ethiopian
manufacturing facility for nil consideration.
The Ethiopian facility has existing capacity to produce up to
3,500 suit trousers per day. The addition of the new manufacturing
equipment will form the base of a new production line to
manufacture suit jackets which, together with an additional
investment of approximately $1.5 million, will be capable of
producing 500 suit jackets per day. The additional investment is
expected to take place after the completion of the investment by
Shandong Ruyi and the Company expects that the suit jacket line
will be fully operative by the end of H1 2020. This will be the
first stage of the Company's medium-term investment plans to
increase the capacity of the Ethiopian facility to approximately
3,000 full suits per day using the remaining investment proceeds of
$13.2 million from Shandong Ruyi (following the $3.3 million
non-refundable payments already received by the Company).
In addition, Shandong Ruyi, an existing supplier of the Company,
granted an extension of 90 days to their usual credit payment terms
on the acquisition of up to 500,000 meters of wool and wool blend
fabrics at market value. This extension to Shandong Ruyi's credit
terms will last until 30 June 2019.
Board changes in 2018
Jonathan Feldman stepped down as a non-executive director with
effect from the end of September 2018 and the Board reiterates its
thanks to him for his contribution to Bagir over the last year.
The Board is in a process of recruiting a new non-executive
external director.
Yehuda Cohen stepped down as a Chief Financial Officer, Deputy
CEO and director, with effect from March 2019 and the Board
reiterates its thanks to him for his contribution to Bagir over the
last 7 years. Dotan Levy has taken on the role of interim CFO.
Outlook
2018 was undoubtedly a strategically important year for the
business with significant progress being made rationalising the
business operations. Looking ahead for 2019, trading conditions are
likely to be similar to those experienced in 2018, however the
Board believes that Bagir is well placed given the operational cost
base reduction completed in 2018 and its strong order backlog.
Bagir will be working to complete the proposed investment with
Shandong Ruyi and to then invest behind realising the additional
potential of our manufacturing bases, particularly in Ethiopia, so
that Bagir is in a strong position to compete for key apparel
manufacturing contracts globally.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
31 December
---------------------------
2018 2017
------------- ------------
Note U.S. dollars in thousands
---- ---------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 7 3,061 2,604
Short-term deposits 8 127 132
Trade receivables 9 9,141 3,203
Other receivables 10 3,510 2,981
Inventories 11 8,866 6,709
------------- ------------
24,705 15,629
------------- ------------
NON-CURRENT ASSETS:
Finance lease receivable 12 406 28
Property, plant and equipment 13 9,509 8,721
Goodwill 14 5,775 5,775
Other intangible assets 14 2,114 2,722
Deferred taxes 26 132 181
------------- ------------
17,936 17,427
------------- ------------
42,641 33,056
============= ============
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
31 December
---------------------------
2018 2017
------------- ------------
Note U.S. dollars in thousands
---- ---------------------------
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Short-term credit and current maturities
of long-term loan from bank 15 9,995 2,294
Trade payables 16 7,794 4,933
Other payables 17 4,742 4,073
22,531 11,300
------------- ------------
NON-CURRENT LIABILITIES:
Loan from bank 18 476 -
Employee benefit liabilities, net 19 298 281
Payable for acquisition of subsidiary 20 1,646 2,154
Lease liabilities 21 1,557 580
Deferred taxes 26 1,147 1,128
5,124 4,143
------------- ------------
EQUITY: 24
Share capital 3,284 3,284
Share premium 86,322 86,322
Capital reserve for share-based payment
transactions 1,825 1,741
Capital reserve for transactions with
shareholders 10,165 10,165
Adjustments arising from translation of
foreign operations (9,624) (9,624)
Receipts on account of shares 3,136 -
Reserve from transactions with non-controlling
interests 438 -
Accumulated deficit (82,068) (76,221)
------------- ------------
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS
OF THE COMPANY 13,478 15,667
Non-controlling interests 1,508 1,946
------------- ------------
Total equity 14,986 17,613
------------- ------------
42,641 33,056
============= ============
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND
OTHER COMPREHENSIVE INCOME
Year ended
31 December
-----------------
2018 2017
-------- -------
U.S. dollars in
Note thousands
---- -----------------
Revenues from sales 25a 56,413 51,091
Cost of sales 25b 50,894 43,450
-------- -------
Gross profit 5,519 7,641
Selling and marketing expenses 25c 4,763 5,026
General and administrative expenses 25d 2,608 3,299
Development costs 25e 800 847
Other income 6 - (1,223)
Other expenses 25f 1,103 291
Operating loss (3,755) (599)
Finance income 25g 20 10
Finance expenses 25h (2,040) (2,132)
Company's share of losses of a joint venture - (184)
Loss before taxes on income (5,775) (2,905)
Tax expense 26 (72) (123)
-------- -------
Loss for the year (all attributable to equity
holders of the Company) (5,847) (3,028)
-------- -------
Other comprehensive income (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:
Remeasurement gain on defined benefit plans - 11
-------- -------
Total other comprehensive loss - (718)
-------- -------
Total comprehensive loss (5,847) (3,746)
======== =======
Loss attributable to equity holders of the
Company (5,847) (3,028)
======== =======
Total comprehensive loss attributable to
equity holders of the Company (5,847) (3,746)
======== =======
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND
OTHER COMPREHENSIVE INCOME
Year ended 31 December
------------------------
2018 2017
----------- -----------
U.S. dollars
(except share and
Note per share data)
---- ------------------------
Loss per share attributable to equity holders
of the Company (in dollars) 29
Basic and diluted loss per share (0.02) (0.01)
Weighted average number of Ordinary shares
for basic and diluted loss per share (in thousands) 310,543 310,543
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Attributable to equity holders of the Company
----------------------------------------------------------------------------------------------------------
Capital Capital Reserve Adjustments
reserve reserve from arising Receipts
for for transaction from on
share-based transactions with translation account
Share Share payment with non-controlling of foreign of Accumulated Non-controlling Total
capital premium transactions shareholders interests operations shares deficit Total interests equity
------- ------- ------------ ------------ ----------- ----------- ------- --------------- -------
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 (loss):
Adjustment arising
from translation
of
foreign operation - - - - - (729) - - (729) - (729)
Remeasurement gain
on defined
benefit
plans - - - - - - - 11 11 - 11
------- ------- ------------ ------------ --------------- ----------- -------- ----------- ------- --------------- -------
Total
comprehensive
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
Loss and other
comprehensive
loss for the
year - - - - - - - (5,847) (5,847) - (5,847)
------- ------- ------------ ------------ --------------- ----------- -------- ----------- ------- --------------- -------
Advance payment
in
respect of
share-capital
issuance, net of
related
expenses (Note
1d) - - - - - - 3,136 - 3,136 - 3,136
Reduction of
non-controlling
interests (Note
5) - - - - 438 - - - 438 (438) -
Cost of
share-based
payment - - 84 - - - - - 84 - 84
------- ------- ------------ ------------ --------------- ----------- -------- ----------- ------- --------------- -------
Balance at 31
December
2018 3,284 86,322 1,825 10,165 438 (9,624) 3,136 (82,068) 13,478 1,508 14,986
======= ======= ============ ============ =============== =========== ======== =========== ======= =============== =======
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended 31
December
---------------------------
2018 2017
------------- ------------
U.S. dollars in thousands
---------------------------
Cash flows from operating activities:
Loss (5,847) (3,028)
------------- ------------
Adjustments to reconcile loss to net cash used
in operating activities:
Gain from remeasurement of previous investment
in joint venture - (1,223)
Company's share of losses of a joint venture - 184
Depreciation and amortization 1,602 1,926
Deferred taxes, net 68 173
Change in employee benefit liabilities 17 86
Cost of share-based payment 84 177
Loss from sale of property, plant and equipment
and other assets 7 121
Finance expenses, net 1,859 1,515
Tax expense (income tax benefit), net 4 (50)
Exchange differences on intercompany current
account - 157
------------- ------------
3,641 3,066
------------- ------------
Changes in asset and liability items:
Decrease (increase) in trade receivables (3,870) 799
Increase in other receivables (547) (710)
Increase in inventories (2,157) (1,398)
Increase in trade payables 2,861 915
Increase (decrease) in other payables 646 (1,193)
------------- ------------
(3,067) (1,587)
------------- ------------
Cash paid during the year for:
Interest paid (1,397) (1,090)
Interest received - 8
Taxes paid (4) (298)
Taxes received - 5
(1,401) (1,375)
------------- ------------
Net cash used in operating activities (6,674) (2,924)
------------- ------------
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended
31 December
---------------------------
2018 2017
------- ------------------
U.S. dollars in thousands
---------------------------
Cash flows from investing activities:
Acquisition of initially consolidated subsidiary
(a) - (1,811)
Investment in joint venture - (1,169)
Purchase of property, plant and equipment (672) (892)
Addition to intangible assets (29) -
Collection of finance lease receivable 86 83
Purchase of short-term investments, net - (51)
Net cash used in investing activities (615) (3,840)
------- ------------------
Cash flows from financing activities:
Repayment of lease liabilities (710) (720)
Receipt of short-term credit from others 5,432 2,280
Receipt of long-term loan from bank, net 688 -
Receipts on account of shares, net of related
expenses 3,136 -
Payment of liability for acquisition of subsidiary (800) (800)
Net cash provided by financing activities 7,746 760
------- ------------------
Exchange differences on balances of cash and
cash equivalents of foreign operation - (16)
------- ------------------
Increase (decrease) in cash and cash equivalents 457 (6,020)
Cash and cash equivalents at the beginning of
the year 2,604 8,624
------- ------------------
Cash and cash equivalents at the end of the
year 3,061 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) -(1,894)
Property, plant and equipment - 7,472
Deferred taxes -(1,295)
Gain from remeasurement of investment in company
previously accounted for at equity -(1,223)
Goodwill - 100
Investment in company previously accounted for
at equity -(1,349)
-------
- 1,811
=======
b) Significant non-cash transactions:
Waiver of receivable from partner in joint
venture (see Note 6) - 672
=======
The accompanying notes are an integral part of the consolidated
financial statements.
NOTES TO 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 by 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 30.
b. In April 2014 the Company completed an initial public
offering ("IPO") and its shares were admitted to trading on the
London Stock Exchange's Alternative Investment Market (AIM).
c. In January 2017, the Company signed an agreement to acquire
the remaining 50% of a joint venture. In June 2017, the Company
completed the acquisition for a total consideration of $2.6
million, comprised of $1.9 million in cash and $0.7 million for
waiver of receivable from the partner in the joint venture. See
Note 6.
d. In the year ended 31 December 2018, the Group incurred an
operating loss of $3.8 million and had negative cash flows from
operating activities of $6.7 million. In order to address the above
circumstances, the Group has undertaken a rationalization of its
operations, focussing on fewer production sites and a reduction in
the Group's operational cost base.
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 Group
believes it has sufficient liquidity based on the cash and cash
equivalents as of 31 December 2018, and the expected cash to be
generated from operations to meet its financial obligations as they
fall due for at least the twelve months following the date of
approval of the consolidated financial statements. Accordingly, the
Board of Directors has concluded that it is appropriate to apply
the going concern basis of accounting in preparing the consolidated
financial statements.
e. In November 2017, the Company signed a strategic Share
Purchase Agreement with a global textile manufacturer, Shandong
Ruyi Technology Group Co,ltd (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.
The transaction was subject to, among others, 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
from the Investor a down payment of $1.65 million, which according
to the purchase agreement is non-refundable in the event that the
Investor fails to secure Chinese regulatory consent. In July 2018
the Company received an additional down payment of $1.65 million
which Group management has determined based, among others, on the
opinion of its attorneys, that this down payment is also
non-refundable in the event that the Investor fails to secure
regulatory consent. The down payments in the aggregate amount of $
3.3 million have been recorded in equity (net of expenses of $ 0.2
million) as receipts on account of shares.
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 published the circular
to its shareholders. An Extraordinary General Meeting was held on 9
October 2018 in which the shareholders approved the
transaction.
The Investor informed the Company that additional time is
necessary to receive Chinese Government approval for the investment
in the Company. As a consequence, the Company has agreed a new
unconditional completion date for the transaction of 30 May 2019 by
which time the Investor is required to pay the remaining cash
balance of $ 13.2 million. All other conditions relating to the
transaction have been completed by Bagir.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
The following accounting policies have been applied consistently
in the financial statements for all periods presented, unless
otherwise stated.
a. Basis of presentation of the financial statements:
The financial statements have been prepared in accordance with
International Financial Reporting Standards as adopted by the
European Union ("IFRS as adopted by the EU").
The financial statements have been prepared on a cost basis.
The Company has elected to present profit or loss items using
the function of expense method.
b. Consolidated financial statements:
The consolidated financial statements comprise the financial
statements of companies that are controlled by the Company
(subsidiaries). An investor controls an investee when it is
exposed, or has rights, to variable returns from its involvement
with the investee and has the ability to affect those returns
through its power over the investee. The consolidation of the
financial statements commences on the date on which control is
obtained and ends when such control ceases.
The financial statements of the Company and of the subsidiaries
are prepared as of the same dates and periods. The consolidated
financial statements are prepared using uniform accounting policies
by all companies in the Group. Significant intragroup balances and
transactions and gains or losses resulting from transactions
between the Company and the subsidiaries are eliminated in full in
the consolidated financial statements.
Non-controlling interests in a subsidiary represent the equity
in a subsidiary not attributable, directly or indirectly, to a
parent. Non-controlling interests are presented in equity
separately from the equity attributable to the equity holders of
the Company. Gains or losses and any component of other
comprehensive income are attributed to the Company and to
non-controlling interests. Losses are attributed to non-controlling
interests even if they result in a negative balance of
non-controlling interests in the consolidated statement of
financial position.
c. Business combinations and goodwill:
Business combinations are accounted for by applying the
acquisition method. The cost of the acquisition is measured at the
fair value of the consideration transferred on the date of
acquisition with the addition of non-controlling interests in the
acquiree. In each business combination, the Company chooses whether
to measure the non-controlling interests in the acquiree based on
their fair value on the date of acquisition or at their
proportionate share in the fair value of the acquiree's net
identifiable assets.
Direct acquisition costs are carried to the statement of profit
or loss as incurred.
In a business combination achieved in stages, equity interests
in the acquiree that had been held by the acquirer prior to
obtaining control are measured at the acquisition date fair value
while recognizing a gain or loss resulting from the revaluation of
the prior investment on the date of achieving control.
Goodwill is initially measured at cost which represents the
excess of the acquisition consideration and the amount of
non-controlling interests over the net identifiable assets acquired
and liabilities assumed.
d. Investment in a joint venture:
Joint arrangements are arrangements of which the Company has
joint control. Joint control is the contractually agreed sharing of
control of an arrangement, which exists only when decisions about
the relevant activities require the unanimous consent of the
parties sharing control. In joint ventures the parties that have
joint control of the arrangement have rights to the net assets of
the arrangement.
The Group's investment in a joint venture is accounted for using
the equity method. Under the equity method, the investment in the
joint venture is presented at cost with the addition of
post-acquisition changes in the Group's share of net assets,
including other comprehensive income of the joint venture. Profits
and losses resulting from transactions between the Group and the
joint venture are eliminated to the extent of the interest in the
joint venture.
Goodwill relating to the acquisition of a joint venture is
presented as part of the investment in the joint venture, measured
at cost and not systematically amortized. Goodwill is evaluated for
impairment as part of the investment in the joint venture as a
whole.
The financial statements of the Company and of the joint venture
are prepared as of the same dates and periods. The accounting
policies applied in the financial statements of the joint venture
are uniform and consistent with the policies applied the financial
statements of the Group.
e. Functional currency, presentation currency and foreign currency:
1. Functional currency and presentation currency:
The financial statements are presented in U.S. dollars, the
Company's functional currency.
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
- Part of the funds received by the subsidiary from financing activities is denominated in USD.
As of 1 January 2018, the functional currency of all of the
entities in the Group is the U.S. dollar.
The functional currency is the currency that best reflects the
economic environment in which an entity operates and conducts its
transactions. It is separately determined for each Group entity and
is used to measure its financial position and operating
results.
Assets and liabilities are translated at the closing rate at the
end of each reporting period. Goodwill arising from the acquisition
of a foreign operation and any fair value adjustments to the
carrying amounts of assets and liabilities on the date of
acquisition of the foreign operation are treated as assets and
liabilities of the foreign operation and are translated at the
closing rate at the end of each reporting period. Profit or loss
items are translated at average exchange rates for all the relevant
periods. All resulting translation differences are recognized as a
separate component of other comprehensive income (loss) in equity
under "adjustments arising from translation of foreign
operations".
Intragroup loans for which settlement is neither planned nor
likely to occur in the foreseeable future are, in substance, a part
of the investment in the foreign operation and are accounted for as
part of the investment and, accordingly, the exchange differences
from these loans (net of their tax effect) are recognized as other
comprehensive income (loss) under "adjustments arising from
translation of foreign operations".
Upon the full or partial disposal of a foreign operation
resulting in loss of control in the foreign operation, the
cumulative gain (loss) from the foreign operation which had been
recognized in other comprehensive income is transferred to profit
or loss. Upon the partial disposal of a foreign operation which
results in the retention of control in the subsidiary, the relative
portion of the cumulative amount recognized in other comprehensive
income is reattributed to non-controlling interests.
2. Transactions, assets and liabilities in foreign currency:
Transactions denominated in foreign currency (other than the
functional currency) are recorded upon initial recognition at the
exchange rate at the date of the transaction. After initial
recognition, monetary assets and liabilities denominated in foreign
currency are translated at the end of each reporting period into
the functional currency at the exchange rate at that date. Exchange
differences are recognized in profit or loss. Non-monetary assets
and liabilities denominated in foreign currency and measured at
fair value are translated into the functional currency using the
exchange rate prevailing at the date when the fair value was
determined.
3. Below are data about the exchange rates of significant
currencies in which the Group transacts in relation to the
dollar:
Representative
exchange rate
----------------
As of GBP 1 NIS 1
---------------------------- -------- ------
U.S. dollars
----------------
31 December 2018 1.14 0.26
31 December 2017 1.35 0.28
Change % %
---------------------------- -------- -----
Year ended 31 December 2018 (18.42) (0.52)
Year ended 31 December 2017 10 0.07
f. Cash equivalents:
Cash equivalents are considered as highly liquid investments,
including unrestricted short-term bank deposits with an original
maturity of three months or less from the date of investment or
with a maturity of more than three months, but which are redeemable
on demand without penalty and which form part of the Group's cash
management.
g. Short-term deposits:
Short-term bank deposits are deposits with an original maturity
of more than three months from the date of investment and which do
not meet the definition of cash equivalents. The deposits are
presented according to their terms of deposit.
h. Allowance for doubtful accounts (accounting policy until 31 December 2017):
The allowance for doubtful accounts is determined in respect of
specific debts whose collection, in the opinion of the Company's
management, is doubtful.
The Company did not recognize an allowance in respect of groups
of trade receivables that are collectively assessed for impairment
due to immateriality.
Impaired receivables are derecognized when they are assessed as
uncollectible.
i. Inventories:
Inventories are measured at the lower of cost and net realizable
value. The cost of inventories comprises costs of purchase and
costs incurred in bringing the inventories to their present
location and condition. Net realizable value is the estimated
selling price in the ordinary course of business less the estimated
costs of completion and the estimated selling costs.
The Company periodically evaluates the condition and age of
inventories and makes provisions for slow moving inventories.
Cost of inventories is determined as follows:
Raw materials and auxiliary materials- using the weighted
average method.
Finished products and work in progress - materials as above and
other costs on the basis of average costs including processing
expenses.
Parts - using the weighted average method.
j. Financial instruments:
As detailed in Note 2 (v) regarding the initial adoption of IFRS
9, "Financial Instruments" ("the Standard"), the Company elected to
adopt the provisions of the Standard retrospectively without
restatement of comparative data.
The accounting policy for financial instruments applied until 31
December 31 2017 is as follows:
1. Financial assets:
Financial assets within the scope of IAS 39 are initially
recognized at fair value plus directly attributable transaction
costs.
After initial recognition, the accounting treatment of financial
assets is based on their classification as follows:
Loans and receivables:
Loans and receivables are investments with fixed or determinable
payments that are not quoted in an active market. After initial
recognition, loans are measured based on their terms at amortized
cost plus directly attributable transaction costs using the
effective interest method and less any impairment losses.
Short-term receivables are measured based on their terms, normally
at face value.
2. Financial liabilities:
Liabilities are initially recognized at fair value. Loans and
other liabilities at amortized cost are presented net of direct
transaction costs.
After initial recognition, the accounting treatment of financial
liabilities is based on their classification as follows:
Financial liabilities at amortized cost:
After initial recognition, loans are measured based on their
terms at amortized cost less direct transaction costs using the
effective interest method.
3. Derecognition of financial instruments:
a) Financial assets:
A financial asset is derecognized when the contractual rights to
the cash flows from the financial asset expire or the Company has
transferred its contractual rights to receive cash flows from the
financial asset or assumes an obligation to pay the cash flows in
full without material delay to a third party and has transferred
substantially all the risks and rewards of the asset, or has
neither transferred nor retained substantially all the risks and
rewards of the asset, but has transferred control of the asset.
A transaction involving factoring of accounts receivable is
derecognized when the abovementioned conditions are met.
If the Company transfers its rights to receive cash flows from
an asset and neither transfers nor retains substantially all the
risks and rewards of the asset nor transfers control of the asset,
a new asset is recognized to the extent of the Company's continuing
involvement in the asset. When continuing involvement takes the
form of guaranteeing the transferred asset, the extent of the
continuing involvement is the lower of the original carrying amount
of the asset and the maximum amount of consideration received that
the Company could be required to repay.
b) Financial liabilities:
A financial liability is derecognized when it is extinguished,
that is when the obligation is discharged or cancelled or expires.
A financial liability is extinguished when the debtor (the Group)
discharges the liability by paying in cash, other financial assets,
goods or services; or is legally released from the liability.
When an existing financial liability is exchanged with another
liability from the same lender on substantially different terms, or
the terms of an existing liability are substantially modified, such
an exchange or modification is accounted for as an extinguishment
of the original liability and the recognition of a new liability.
The difference between the carrying amounts of the above
liabilities is recognized in profit or loss.
If the exchange or modification is not substantial, it is
accounted for as a change in the terms of the original liability
and no gain or loss is recognized on the exchange. When evaluating
whether the change in the terms of an existing liability is
substantial, the Company takes into account both quantitative and
qualitative considerations.
4. Impairment of financial assets:
The Group assesses at the end of each reporting period whether
there is any objective evidence of impairment of a financial asset
or group of financial assets as follows.
Financial assets carried at amortized cost:
Objective evidence of impairment exists when one or more events
that have occurred after the initial recognition of the asset have
a negative impact on the estimated future cash flows. The amount of
the loss recorded in profit or loss is measured as the difference
between the asset's carrying amount and the present value of
estimated future cash flows (excluding future credit losses that
have not yet been incurred) discounted at the financial asset's
original effective interest rate. If the financial asset has a
variable interest rate, the discount rate is the current effective
interest rate. In a subsequent period, the amount of the impairment
loss is reversed if the recovery of the asset can be related
objectively to an event occurring after the impairment was
recognized. The amount of the reversal, up to the amount of any
previous impairment, is recorded in profit or loss.
5. Extinguishing financial liabilities with equity instruments:
Equity instruments issued to replace a debt are measured at the
fair value of the equity instruments issued if their fair value can
be reliably measured. If their fair value cannot be reliably
measured, the equity instruments are measured based on the fair
value of the financial liability extinguished on the date of
extinguishment. The difference between the carrying amount of the
financial liability extinguished and the fair value of the equity
instruments issued is recognized in profit or loss.
The accounting policy for financial instruments applied
commencing from 1 January 2018 is as follows:
1. Financial assets:
Financial assets are measured upon initial recognition at fair
value plus transaction costs that are directly attributed to the
acquisition of the financial asset, excluding financial assets that
are measured at fair value through profit or loss whereby the
transaction costs are carried to profit or loss.
The Company classifies and measures debt instruments in the
financial statements based on the following criteria:
- The Company's business model for managing financial assets; and
- The contractual cash flow terms of the financial asset.
Debt instruments are measured at amortized cost when the
following criteria are met:
The Company's business model consists of holding the financial
assets for collecting contractual cash flows therefrom; and the
contractual cash flow terms of the financial asset provide
entitlement to cash flows which only include principal payments and
interest on the unpaid principal on predetermined dates. After
initial recognition, the instruments in this category are presented
according to their terms at amortized cost using the effective
interest rate method and less any provision for impairment.
Moreover, on the date of initial recognition, an entity may
decide, with no right of recourse, to change the classification of
a debt instrument to be measured at fair value through profit or
loss if such classification eliminates or significantly minimizes
measurement or recognition inconsistencies such as when the
underlying financial liabilities are also measured at fair value
through profit or loss.
2. Impairment of financial assets:
The Company reviews at the end of each reporting period the
provision for loss of financial debt instruments which are measured
at amortized cost. The Company has short-term financial assets,
such as trade receivables and finance lease receivables, in respect
of which the Company applies a simplified approach and measures the
loss allowance in an amount equal to the lifetime expected credit
losses.
An impairment loss on debt instruments measured at amortized
cost is recognized in profit or loss with a corresponding loss
allowance that is offset from the carrying amount of the financial
asset.
3. Derecognition of financial assets:
A financial asset is only derecognized when the following
criteria are met:
- The contractual rights to the cash flows from the financial asset has expired; or
- The Company has transferred substantially all the risks and
rewards deriving from the contractual rights to receive cash flows
from the financial asset or has neither transferred nor retained
substantially all the risks and rewards of the asset, but has
transferred control of the asset; or
- The Company has retained its contractual rights to receive
cash flows from the financial asset but has assumed a contractual
obligation to pay the cash flows in full without material delay to
a third party.
A transaction involving factoring of accounts receivable is
derecognized when the abovementioned conditions are met.
4. Financial liabilities:
Financial liabilities measured at amortized cost:
Financial liabilities are initially recognized at fair value
less transaction costs that are directly attributable to the issue
of the financial liability.
After initial recognition, the Company measures all financial
liabilities at amortized cost using the effective interest rate
method.
5. Derecognition of financial liabilities:
A financial liability is derecognized only when it is
extinguished, that is when the obligation is discharged or
cancelled or expires. A financial liability is extinguished when
the debtor discharges the liability by paying in cash, other
financial assets, goods or services; or is legally released from
the liability.
k. Fair value measurement:
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
Fair value measurement is based on the assumption that the
transaction will take place in the asset's or the liability's
principal market, or in the absence of a principal market, in the
most advantageous market.
The fair value of an asset or a liability is measured using the
assumptions that market participants would use when pricing the
asset or liability, assuming that market participants act in their
economic best interest.
Fair value measurement of a non-financial asset takes into
account a market participant's ability to generate economic
benefits by using the asset in its highest and best use or by
selling it to another market participant that would use the asset
in its highest and best use.
The Group uses valuation techniques that are appropriate in the
circumstances and for which sufficient data are available to
measure fair value, maximizing the use of relevant observable
inputs and minimizing the use of unobservable inputs.
All assets and liabilities measured at fair value or for which
fair value is disclosed are categorized into levels within the fair
value hierarchy based on the lowest level input that is significant
to the entire fair value measurement:
Level - Quoted prices (unadjusted) in active markets
1 for identical assets or liabilities.
Level - Inputs other than quoted prices included within
2 Level 1 that are observable either directly or
indirectly.
Level - Inputs that are not based on observable market
3 data (valuation techniques which use inputs that
are not based on observable market data).
l. Leases:
The Group applies IFRS 16, "Leases", commencing from 1 January
2017:
a. The Group as lessee
Leases are recognized as a right-of-use asset and corresponding
liability at the date of which the leased asset is available for
use by the Group. Each lease payment is allocated between the
liability and finance expense the finance expense is charged to
profit or loss over the lease period so as to produce a constant
periodic rate of interest on the remaining balance of the liability
for each period. The right-of-use asset is depreciated over the
shorter of the asset's useful life and the lease term on a
straight-line basis.
Assets and liabilities arising from a lease are initially
measured on a present value basis.
Lease liabilities include the net present value of the following
lease payments:
- fixed payments (including in-substance fixed payments), less any lease incentives,
- variable lease payment that are based on an index or a rate,
- the exercise price of a purchase option if the lessee is
reasonably certain to exercise that option, and
- payments of penalties for terminating the lease, if the lease
term reflects the lessee exercising that option.
The lease payments are discounted using the interest rate
implicit in the lease, if that rate can be determined, or the
Group's incremental borrowing rate.
Right-of-use assets are measured at cost comprising the
following:
- the amount of the initial measurement of lease liability,
- any lease payments made at or before the commencement date,
- any initial direct costs, and
- restoration costs.
Payments associated with short-term leases and leases of
low-value assets are recognized on a straight-line basis as an
expense in profit or loss. Short-term leases are leases with a
lease term of 12 months or less.
b. Subleases:
In a transaction in which the Company is a lessee of an
underlying asset (head lease) and the asset is subleased to a third
party, the Company assesses whether the risks and rewards
incidental to ownership of the right-of-use asset have been
transferred to the sub-lessee, among others, by evaluating the
sublease term with reference to the useful life of the right-of-use
asset arising from the head lease.
When substantially all the risks and rewards incidental to
ownership of the right-of-use asset have been transferred to the
sub-lessee, the Company accounts for the sublease as a finance
lease, otherwise it is accounted for as an operating lease.
On the commencement date of a finance lease, the leased asset is
derecognized and an asset, finance lease receivable, is recognized.
This asset is equal to the present value of the lease payments,
discounted at the interest rate implicit in the lease. Any
difference between the carrying amount of the leased asset before
derecognition and the net investment in the lease is recognized in
profit or loss.
m. Property, plant and equipment:
Items of property, plant and equipment are measured at cost,
including direct acquisition costs, less accumulated depreciation,
accumulated impairment losses and excluding day-to-day servicing
expenses. Parts of items of property, plant and equipment with a
cost that is significant in relation to the total cost of the item
are depreciated separately using the component method.
Depreciation is calculated on a straight-line basis over the
useful life of the assets at annual rates as follows:
% Mainly
%
----------- --------
Machinery and equipment 3.5 - 12 10
Motor vehicles 15 - 20 15
Buildings 3.5 3.5
Office furniture and equipment 6 - 33 7
Right of use leased assets and leasehold over the lease term
improvements (see below)
Right of use leased assets and leasehold improvements are
depreciated on a straight-line basis over the shorter of the lease
term (including any extension option held by the Group and intended
to be exercised) and the expected life of the asset.
Depreciation of an asset ceases at the earlier of the date that
the asset is classified as held for sale and the date that the
asset is derecognized. The useful life, depreciation method and
residual value of an asset are reviewed at least each year-end and
any changes are accounted for prospectively as a change in
accounting estimate
n. Intangible assets:
Separately acquired intangible assets are measured on initial
recognition at cost including direct acquisition costs. Intangible
assets acquired in a business combination are measured at fair
value at the acquisition date. Expenditures relating to internally
generated intangible assets, excluding capitalized development
costs, are recognized in profit or loss when incurred.
Intangible assets with a finite useful life are amortized over
their useful life and reviewed for impairment whenever there is an
indication that the asset may be impaired. The amortization period
and the amortization method for an intangible asset are reviewed at
least at each financial year end. Changes in the expected useful
life or the expected pattern of consumption of future economic
benefits embodied in the asset are accounted for prospectively as
changes in accounting estimates. The amortization of intangible
assets with finite useful lives is recognized in profit or
loss.
Development expenditures:
Development expenditures incurred on a development project are
recognized as an intangible asset if the Company can demonstrate:
the technical feasibility of completing the intangible asset so
that it will be available for use or sale; the Company's intention
to complete the intangible asset and use or sell it; the Company's
ability to use or sell the intangible asset; how the intangible
asset will generate future economic benefits; the availability of
adequate technical, financial and other resources to complete the
intangible asset; and the Company's ability to measure reliably the
expenditure attributable to the intangible asset during its
development.
n. Intangible assets: (Cont.)
The asset is measured at cost less any accumulated amortization
and any accumulated impairment losses. Testing of impairment is
performed annually over the period of the development project.
Amortization of the asset begins when development is complete and
the asset is available for use.
Software:
The Group's assets include computer systems comprising hardware
and software. Software forming an integral part of the hardware to
the extent that the hardware cannot function without the programs
installed on it is classified as property, plant and equipment. In
contrast, stand-alone software that adds functionality to the
hardware is classified as an intangible asset.
Amortization is calculated on a straight line basis over the
useful life of the assets at annual rates as follows:
Years
-----
Customer relationships 10
Capitalization of development costs - novel
products 3
Controlling rights acquired (see Note 5) 7
Software 10
o. Impairment of non-financial assets:
The Company evaluates the need to record an impairment of the
carrying amount of non-financial assets whenever events or changes
in circumstances indicate that the carrying amount is not
recoverable. If the carrying amount of non-financial assets exceeds
their recoverable amount, the assets are reduced to their
recoverable amount. The recoverable amount is the higher of fair
value less costs to sell and value in use. In measuring value in
use, the expected cash flows are discounted using a pre-tax
discount rate that reflects the risks specific to the asset. The
recoverable amount of an asset that does not generate independent
cash flows is determined for the cash-generating unit to which the
asset belongs. Impairment losses are recognized in profit or
loss.
An impairment loss of an asset, other than goodwill, is reversed
only if there have been changes in the estimates used to determine
the asset's recoverable amount since the last impairment loss was
recognized. Reversal of an impairment loss, as above, shall not be
increased above the lower of the carrying amount that would have
been determined (net of depreciation or amortization) had no
impairment loss been recognized for the asset in prior years, and
its recoverable amount. The reversal of impairment loss of an asset
presented at cost is recognized in profit or loss.
The following unique criteria are applied in assessing
impairment of these specific assets:
1. Goodwill:
For impairment testing, goodwill acquired in a business
combination is allocated on the acquisition date to each of the
Group's cash generating units that are expected to benefit from the
business combination.
The Company reviews goodwill for impairment once a year as of
December 31 or more frequently if events or changes in
circumstances indicate that there is an impairment.
Goodwill is tested for impairment by assessing the recoverable
amount of the cash-generating unit (or group of cash-generating
units) to which the goodwill has been allocated. An impairment loss
is recognized if the recoverable amount of the cash-generating unit
(or group of cash-generating units) to which goodwill has been
allocated is less than the carrying amount of the cash-generating
unit (or group of cash-generating units). Any impairment loss is
allocated first to goodwill.
Impairment losses recognized for goodwill cannot be reversed in
subsequent periods.
2. Intangible assets - development costs capitalized during the development period:
The impairment test is performed annually or more frequently if
events or changes in circumstances indicate that there is an
impairment.
p. Taxes on income:
Current or deferred taxes are recognized in profit or loss,
except to the extent that they relate to items which are recognized
in other comprehensive income or equity.
1. Current taxes:
The current tax liability is measured using the tax rates and
tax laws that have been enacted or substantively enacted by the end
of reporting period as well as adjustments required in connection
with the tax liability payable in respect of previous years.
2. Deferred taxes:
Deferred taxes are computed in respect of temporary differences
between the carrying amounts in the financial statements and the
amounts attributed for tax purposes.
Deferred tax balances are measured at the tax rate that is
expected to apply when the taxes are reversed in profit or loss or
equity, based on tax laws that have been enacted or substantively
enacted by the end of the reporting period.
Deferred tax assets are reviewed at the end of each reporting
period and reduced to the extent that it is not probable that they
will be utilized. Carry-forward operating loss and deductible
temporary differences for which deferred tax assets had not been
recognized are reviewed at the end of each reporting period and a
respective deferred tax asset is recognized to the extent that
their utilization is probable.
Taxes that would apply in the event of the disposal of
investments in investees have not been taken into account in
computing deferred taxes, as long as the disposal of the
investments in investees is not probable in the foreseeable future.
Also, deferred taxes that would apply in the event of distribution
of earnings by investees as dividends have not been taken into
account in computing deferred taxes, since the distribution of
dividends does not involve an additional tax liability or since it
is the Company's policy not to initiate distribution of dividends
that would trigger an additional tax liability.
Deferred taxes are offset if there is a legally enforceable
right to offset a current tax asset against a current tax liability
and the deferred taxes relate to the same taxpayer and the same
taxation authority.
q. Share-based payment transactions:
The Company's employees are entitled to remuneration in the form
of equity-settled share-based payment transactions ("equity-settled
transactions").
Equity-settled transactions:
The cost of equity-settled transactions with employees is
measured at the fair value of the equity instruments granted at
grant date. The fair value is determined using an acceptable
pricing model, additional details are given in Note 27. In
estimating fair value, the vesting conditions (consisting of
service conditions and performance conditions other than market
conditions) are not taken into account.
The cost of equity-settled transactions is recognized in profit
or loss together with a corresponding increase in equity during the
period which the performance and/or service conditions are to be
satisfied ending on the date on which the relevant employees become
fully entitled to the award ("the vesting period"). The cumulative
expense recognized for equity-settled transactions at the end of
each reporting period until the vesting date reflects the extent to
which the vesting period has expired and the Group's best estimate
of the number of equity instruments that will ultimately vest.
No expense is recognized for awards that do not ultimately vest,
except for awards where vesting is conditional upon a market
condition, which are treated as vesting irrespective of whether the
market condition is satisfied, provided that all other vesting
conditions (service and/or performance) are satisfied.
If the Company modifies the conditions on which
equity-instruments were granted, an additional expense is
recognized beyond the original computed expense. An additional
expense is recognized for any modification that increases the total
fair value of the share-based payment arrangement or is otherwise
beneficial to the employee at the modification date.
r. Employee benefits liabilities:
The Group has several employee benefit plans:
1. Short-term employee benefits:
Short-term employee benefits are benefits that are expected to
be settled wholly before 12 months after the end of the annual
reporting period in which the employees render the related
services. These benefits include salaries, paid annual leave, paid
sick leave, recreation and social security contributions and are
recognized as expenses as the services are rendered. A liability in
respect of a cash bonus or a profit-sharing plan is recognized when
the Group has a legal or constructive obligation to make such
payment as a result of past service rendered by an employee and a
reliable estimate of the amount can be made.
2. Post-employment benefits:
The plans are normally financed by contributions to insurance
companies and classified as defined contribution plans or as
defined benefit plans.
The Group has defined contribution plans for part of the Group's
employees overseas and for part of the Group's employees in Israel
pursuant to section 14 to the Severance Pay Law under which the
Group pays fixed contributions and will have no legal or
constructive obligation to pay further contributions if the fund
does not hold sufficient amounts to pay all employee benefits
relating to employee service in the current and prior periods.
Contributions to the defined contribution plan in respect of
severance or retirement pay are recognized as an expense when
contributed concurrently with performance of the employee's
services and no additional provision is required in the financial
statements.
The Group also operates a defined benefit plan in respect of
severance pay pursuant to the Severance Pay Law. According to the
Law, employees are entitled to severance pay upon dismissal or
retirement. The liability for termination of employment is measured
using the projected unit credit method.
The actuarial assumptions include rates of employee turnover and
expected salary increases based on the estimated timing of payment.
The amounts are presented based on discounted expected future cash
flows using a discount rate determined by reference to market
yields at the reporting date on high quality corporate bonds that
are linked to the Consumer Price Index with a term that is
consistent with the estimated term of the severance pay
obligation.
In respect of its severance pay obligation to certain of its
employees, the Company makes current deposits in pension funds and
insurance companies ("the plan assets"). Plan assets comprise
assets held by a long-term employee benefit fund or qualifying
insurance policies. Plan assets are not available to the Group's
own creditors and cannot be returned directly to the Group.
The liability for employee benefits shown in the statement of
financial position reflects the present value of the defined
benefit obligation less the fair value of the plan assets.
Remeasurements comprising of actuarial gains and losses and the
return on plan assets (excluding amounts included in net interest
on the net defined benefit liability) are recognized in other
comprehensive income in the period in which they occur.
s. Revenue recognition:
In conjunction with the early adoption of IFRS 16, the Group
elected to early adopt IFRS 15, "Revenue from Contracts with
Customers", in 2017. The adoption of IFRS 15 had no effect on the
consolidated financial statements.
Revenue from contracts with customers is recognized in profit or
loss when the control over the asset or service is transferred to
the customer. Revenue is measured and recognized at the amount of
the consideration that is expected to be received based on the
contract terms, taking into consideration any discounts and
significant financing component.
Following are the specific recognition criteria for the Group's
revenues which must be met before revenue is recognized:
Revenues from the sale of goods:
Revenue from the sale of goods is recognized in profit or loss
when the control of the goods is tranferred to the customer,
generally upon delivery of the goods to the customer.
t. Provisions:
A provision in accordance with IAS 37 is recognized when the
Group has a present obligation (legal or constructive) as a result
of a past event, it is probable that an outflow of resources
embodying economic benefits will be required to settle the
obligation and a reliable estimate can be made of the amount of the
obligation. If the Group expects part or all of the expense to be
reimbursed to the Company, such as in an insurance contract, the
reimbursement is recognized as a separate asset only when it is
virtually certain that it will be received by the Company. The
expense is recognized in profit or loss net of the reimbursed
amount.
u. Earnings (loss) per share:
Earnings per share are calculated by dividing the net income
(loss) attributable to equity holders of the Company by the
weighted number of Ordinary shares outstanding during the period.
Potential Ordinary shares are included in the computation of
diluted earnings per share when their conversion decreases earnings
per share from continuing operations. Potential Ordinary shares
that are converted during the period are included in diluted
earnings per share only until the conversion date and from that
date in basic earnings per share. The Company's share of earnings
of investees is included based on the earnings per share of the
investees multiplied by the number of shares held by the
Company.
v. Changes in accounting policies - initial adoption of new
financial reporting and accounting standards and amendments to
existing financial reporting and accounting standards:
1. Initial adoption of IFRS 9, "Financial Instruments":
In July 2014, the IASB issued the final and complete version of
IFRS 9, "Financial Instruments" ("the new Standard"), which
replaces IAS 39, "Financial Instruments: Recognition and
Measurement". The new Standard mainly focuses on the classification
and measurement of financial assets and it applies to all assets
within the scope of IAS 39.
The new Standard has been applied for the first time in these
financial statements retrospectively without restatement of
comparative data.
The adoption of the new Standard did not have a material impact
on the consolidated financial statements.
NOTE 3:- SIGNIFICANT ESTIMATES AND ASSUMPTIONS USED IN THE
PREPARATION OF THE FINANCIAL STATEMENTS
The preparation of the financial statements requires management
to make assessments, estimates and assumptions that have an effect
on the application of the accounting policies and on the reported
amounts of assets, liabilities, revenues and expenses. The basis of
the estimates and assumptions is reviewed regularly. The changes in
accounting estimates are reported in the period of the change in
estimate.
The key assumptions made in the financial statements concerning
uncertainties at the end of the reporting period and the critical
estimates computed by the Group that could result in a material
adjustment to the carrying amounts of assets and liabilities within
the next financial year are discussed below.
Impairment of goodwill:
The Group reviews goodwill for impairment at least once a year.
This requires management to make an estimate of the projected
future cash flows from the continuing use of the cash-generating
unit (or a group of cash-generating units) to which the goodwill is
allocated and also to choose a suitable discount rate for those
cash flows. See Note 14 for additional details.
NOTE 4:- DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR ADOPTION
The following are new standards that have been issued but are
not yet effective and which might have an impact on the financial
statements:
a. IFRIC 23, "Uncertainty over Income Tax Treatments":
In June 2017, the IASB issued IFRIC 23, "Uncertainty over Income
Tax Treatments" ("the Interpretation"). The Interpretation
clarifies the rules of recognition and measurement of assets or
liabilities in accordance with the provisions of IAS 12, "Income
Taxes", in situations of uncertainty involving income taxes. The
Interpretation provides guidance on considering whether some tax
treatments should be considered collectively, examination by the
tax authorities, measurement to reflect uncertainty involving
income taxes in the financial statements and accounting for changes
in facts and circumstances underlying the uncertainty.
The Interpretation is to be applied in financial statements for
annual periods beginning on 1 January 2019. Early adoption is
permitted. Upon initial adoption, the Company will apply the
Interpretation using one of two approaches:
(i) Full retrospective adoption, without restating comparative
data, by recording the cumulative effect through the date of
initial adoption in the opening balance of retained earnings.
(ii) Full retrospective adoption including restatement of comparative data.
The Company does not expect the Interpretation to have any
material effect on the financial statements.
b. Annual Improvements to IFRS Cycle for 2015-2017:
In December 2017, the IASB issued amendments to the following
standards in the context of the Annual Improvements to IFRS
2015-2017 Cycle:
IFRS Subject of amendment
IFRS The amendment clarifies that when an entity obtains
3 control of a business that is a joint operation
(as defined in IFRS 3), it remeasures previously
held interests in that business at fair value.
IFRS The amendment clarifies that when an entity obtains
11 joint control of a business that is a joint operation,
the entity does not remeasure previously held
interests in that business.
IAS 12 The amendment clarifies that all income tax consequences
of payment of dividends should be recognized in
profit or loss, other comprehensive income or
equity, based on the classification of the transaction
or event which created the distributable profits.
IAS 23 The amendment clarifies that borrowings made specifically
for the purpose of constructing a qualifying asset
will be classified for the purpose of capitalization
of borrowing costs to qualifying assets as funds
that an entity borrows generally when the underlying
qualifying asset is ready for its intended use
or sale and some of the specific borrowing related
to that qualifying asset remains outstanding at
that point.
The amendments will be applied for annual periods beginning on 1
January 2019. Each amendment may be early adopted separately by
providing the appropriate disclosures.
The Company estimates that the above amendments are not expected
to have a material impact on the financial statements.
c. IFRS 3, "Business Combinations":
In October 2018, the IASB issued an amendment to the definition
of a "business" in IFRS 3, "Business Combinations" ("the
Amendment"). The Amendment is intended to assist entities in
determining whether a transaction should be accounted for as a
business combination or as an acquisition of an asset.
The Amendment consists of the following:
1. Clarification that to meet the definition of a business, an
integrated set of activities and assets must include, as a minimum,
an input and a substantive process that together significantly
contribute to the ability to create output.
2. Removal of the reference to the assessment whether market
participants are capable of acquiring the business and continuing
to operate it and produce outputs by integrating the business with
their own inputs and processes.
3. Introduction of additional guidance and examples to assist
entities in assessing whether the acquired processes are
substantive.
4. Narrowing the definitions of "outputs" and "business" by
focusing on goods and services provided to customers.
5. Introducing an optional concentration test that permits a
simplified assessment of whether an acquired set of activities and
assets is not a business.
The Amendment is to be applied prospectively to all business
combinations and asset acquisitions for which the acquisition date
is on or after the beginning of the first annual reporting period
beginning on or after 1 January 2020, with earlier application
permitted.
NOTE 5:- INVESTMENT IN A SUBSIDIARY
The Company, through a wholly owned subsidiary, holds an
investment in a company in Egypt that was jointly owned and
controlled with another Egyptian company ("the Egyptian partner").
On 1 January 2009, the Company signed an agreement with the
Egyptian partner whereby the control and management will pass to
the Company for a period of six and half years starting 1 January
2009 in consideration for certain payments as described in the
agreement. Over the term of the agreement, the control and
management of the Egyptian company will be in the hands of the
Company and it shall bear all costs and entitled to all profits
relating to the Egyptian company. As a result of this agreement,
since 1 January 2009, the Company fully consolidates the financial
statements of the Egyptian company.
On 1 July 2015, the Company signed an extension of the agreement
with the Egyptian partner 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. At that date, the Company's management estimated that
the fair value of the assets of the Egyptian company approximated
their carrying amount. The Company recognized a liability in the
amount of the present value of the future fixed annual payments
discounted at rate of 15.7 % and, simultaneously, recognized an
intangible asset ("controlling rights") in the amount of $ $3,446
thousands that is amortized over the term of the agreement (7
years) (see also Note 20).
In August 2018, the Company signed an appendix to the
shareholders' agreement with the Egyptian partner. The parties
agreed that upon termination of the shareholders' agreement in 2022
the minimum shareholders' equity of the Egyptian subsidiary will be
approximately $3 million. As a result, in the year ended 31
December 2018, the Group recorded a reduction of the
non-controlling interests in equity of approximately $438 thousands
and a corresponding increase in equity attributable to equity
holders of the Company.
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. The total estimated commitment
according to the agreement is $3.3 million per year.
NOTE 6:- BUSINESS COMBINATION
The Company held 50% of the shares of Nazareth Garment Share
Company ("NGSC") which, up to the acquisition of the remaining 50%
and the beginning of consolidation, was treated as an investment in
a joint venture. NGSC is engaged in manufacturing tailored clothing
in Ethiopia.
In January 2017, the Company signed an agreement to acquire the
remaining 50% of the joint venture. The acquisition was conditional
on the fulfillment of certain procedural matters. In June 2017, the
Company completed the acquisition for a total consideration of $2.6
million, comprised of $1.9 million in cash and $0.7 million for
waiver of receivable from the partner in the joint venture.
As of 31 December 2017, the Company has recognized the fair
value of the assets acquired and liabilities assumed in the
business combination according to a final valuation by an external
valuation specialist of the identifiable assets acquired and
liabilities assumed.
The fair values of the identifiable assets and liabilities of
NGSC on the acquisition date:
U.S. dollars
in thousands
--------------
Cash and cash equivalents 89
Trade receivables 45
Other receivables 22
Inventories 44
Property, plant and equipment 7,472
Trade and other payables (1,333)
Deferred tax liability (1,295)
Goodwill 100
--------------
Total fair value of net identifiable assets 5,144
Gain from remeasurement to fair value of previous
investment in the
joint venture (1,223)
Carrying amount of investment in the joint venture (1,349)
Purchase price 2,572
==============
The deferred tax liability comprises the tax effect of the fair
value adjustments of the identifiable assets and liabilities.
Purchase consideration:
U.S. dollars
in thousands
-------------
Cash paid 1,900
Waiver of receivable due from the partner in
the joint venture 672
Total consideration 2,572
=============
Acquisition costs that are directly attributable to the
transaction of approximately $ 59 thousands were recorded as an
expense in other expenses, net.
Cash flow on the acquisition:
C U.S. dollars
in thousands
-------------
Cash and cash equivalents acquired 89
Cash paid (1,900)
-------------
Net cash outflow (1,811)
=============
NOTE 7:- CASH AND CASH EQUIVALENTS
31 December
---------------------------
2018 2017
------------- ------------
U.S. dollars in thousands
---------------------------
Cash in banks:
In U.S. dollars 2,651 2,387
In Sterling 44 8
In other currencies 366 209
------------- ------------
3,061 2,604
============= ============
NOTE 8:- SHORT-TERM DEPOSITS
Annual
interest
rate *) 31 December
-------- ---------------------------
2018 2018 2017
-------- ------------- ------------
% U.S. dollars in thousands
-------- ---------------------------
In U.S. dollars 0.08 60 60
In New Israeli Shekel (NIS) 0.2 67 72
127 132
============= ============
*) The above interest rates are the weighted average rates as of 31 December 2018.
NOTE 9:- TRADE RECEIVABLES
31 December
---------------------------
2018 2017
------------- ------------
U.S. dollars in thousands
---------------------------
Open accounts *) 9,169 3,227
Less - allowance for doubtful accounts
**) (28) (24)
------------- ------------
9,141 3,203
============= ============
*) 2017- the balance of $3,227 is net of receivables in the amount of $2,068 that were derecognized in their entirety due to non-recourse factoring arrangements.
2018 - Receivables in the amount of $8,075 (2017- $1,706) are
pledged as security for short-term financing under factoring
arrangements that do not meet the criteria for derecognition. See
Note 15.
**) Impaired debts are accounted for through recording an allowance for doubtful accounts.
The aging analysis of past due but not impaired trade
receivables is as follows:
Past due but not impaired
---------------------------------------
Neither
past due < 30 30 - 60 60 - 90 Over 90
(nor impaired) days days days days Total
--------------- ----- ------- ------- ------- -----
U.S. dollars in thousands
--------------------------------------------------------
31 December 2018 7,693 1,424 10 12 2 9,141
=============== ===== ======= ======= ======= =====
31 December 2017 3,185 - 7 1 10 3,203
=============== ===== ======= ======= ======= =====
See Note 23 for credit risk of trade receivables and Note 25 for
revenues from sales to major customers.
NOTE 10:- OTHER RECEIVABLES
31 December
---------------------------
2018 2017
------------- ------------
U.S. dollars in thousands
---------------------------
Prepaid expenses 269 316
Government authorities 1,212 772
Advances to suppliers 1,683 1,571
Other receivables*) 346 322
------------- ------------
3,510 2,981
============= ============
*) Includes finance lease receivable of $ 64 thousands in
respect of sublease of office space in the U.S (2017-$77 thousands)
-see Note 12.
NOTE 11:- INVENTORIES
31 December
---------------------------
2018 2017
------------- ------------
U.S. dollars in thousands
---------------------------
Finished products 1,227 1,438
Work in progress 970 584
Raw and auxiliary materials 2,855 2,752
Parts 292 239
Inventories in transit 3,522 1,696
------------- ------------
8,866 6,709
============= ============
Write down of inventories recorded in cost of sales totaled $
224 thousands (2017- $ 451 thousands).
2018 - Inventory in the amount of $3,039 thousands is pledged as
security for short-term factoring arrangements, see Note 15.
NOTE 12:- FINANCE LEASE RECEIVABLE
a. Composition:
31 December
---------------------------
2018 2017
------------- ------------
U.S. dollars in thousands
---------------------------
Total 470 105
Less - current maturities 64 77
------------- ------------
406 28
============= ============
The finance lease receivable is in respect of a sublease of
office space in the U.S, see Note 21 (a) (2). The finance lease
receivable as of 31 December 2018 and 2017 is neither past due nor
impaired.
b. Movement in net investment in the lease:
U.S. dollars
in thousands
-------------
Balance at January 1, 2018 105
New leases 439
Lease payments received 79
Finance income 5
Balance at December 31, 2018 470
=============
Presented in the financial statements as finance
lease receivables:
In current assets 64
=============
In non-current assets 406
=============
c. Maturity analysis of undiscounted lease payments receivable for finance leases:
U.S. dollars
in thousands
-------------
First year 100
Second year 110
Third year 111
Fourth year 114
Fifth year 117
Sixth year and thereafter 39
-------------
591
Unearned finance income (discount component) (121)
Net investment in the lease 470
=============
NOTE 13:- PROPERTY, PLANT AND EQUIPMENT
Composition and movement:
Right
Land of use
and Office leased
buildings Machinery Motor furniture Leasehold assets
2018: (3) and equipment vehicles and equipment improvements (4) Total
---------- -------------- --------- -------------- ------------- ------- -------
U.S. dollars in thousands
Cost (1):
Balance at 1
January
2018 5,310 9,247 86 1,204 929 1,615 18,391
Additions during
the year - 517 - 87 39 1,117 1,760
Disposals during
the year - (7) - (3) - (191) (201)
Balance at 31
December
2018 5,310 9,757 86 1,288 968 2,541 19,950
---------- -------------- --------- -------------- ------------- ------- -------
Accumulated
depreciation:
Balance at 1
January
2018 28 7,118 65 1,094 804 561 9,670
Additions during
the years 58 227 4 78 47 551 965
Disposals during
the year - (7) - (2) - (185) (194)
Balance at 31
December
2018 86 7,338 69 1,170 851 927 10,441
---------- -------------- --------- -------------- ------------- ------- -------
Depreciated cost
at 31 December
2018 5,224 2,419 17 118 117 1,614 9,509
========== ============== ========= ============== ============= ======= =======
Right
Land Office of use
and Machinery Motor furniture Leasehold leased
2017: buildings and equipment vehicles and equipment improvements assets Total
---------- -------------- --------- -------------- ------------- ------- -------
U.S. dollars in thousands
Cost (1):
Balance at 1
January
2017 - 7,585 77 1,213 1,021 - 9,896
Consolidation of
subsidiary (1) 6,145 1,268 22 37 - - 7,472
Additions during
the year 16 663 - 68 145 1,615 2,507
Exchange
differences (851) (187) (3) (7) - - (1,048)
Disposals during
the year - (82) (10) (107) (237) - (436)
Balance at 31
December
2017 5,310 9,247 86 1,204 929 1,615 18,391
---------- -------------- --------- -------------- ------------- ------- -------
Accumulated
depreciation:
Balance at 1
January
2017 - 7,041 70 1,134 983 - 9,228
Additions during
the years 33 161 5 64 48 561 872
Exchange
differences (5) (13) - - - - (18)
Disposals during
the year - (71) (10) (104) (227) - (412)
Balance at 31
December
2017 28 7,118 65 1,094 804 561 9,670
---------- -------------- --------- -------------- ------------- ------- -------
Depreciated cost
at 31 December
2017 5,282 2,129 21 110 125 1,054 8,721
========== ============== ========= ============== ============= ======= =======
(1) See Note 6.
(2) 2018 - Fully depreciated assets that are still in use amount
to approximately $8.4 million (2017- $ 8.1 million). Liens, see
Note 18b.
(3) Including non-depreciable land in the amount of $ 4.2 million.
(4) Rights of use leased assets composition:
31 December
---------------------------
2018 2017
--------------- ----------
U.S. dollars in thousands
---------------------------
Production plant 869 580
Offices 575 190
vehicles 170 284
--------------- ----------
1,614 1,054
--------------- ----------
NOTE 14:- GOODWILL AND OTHER INTANGIBLE ASSETS
a. Composition and movement:
Development Controlling
Customer costs - rights
2018: Software relationships novel products (1) Goodwill Total
-------- -------------- --------------- ----------- -------- ------
U.S. dollars in thousands
Cost:
Balance at 1 January
2018 462 8,487 6,052 3,446 25,533 43,980
Additions during the
year 29 - - - - 29
Balance at 31 December
2018 491 8,487 6,052 3,446 25,533 44,009
Accumulated amortization
and impairment:
Balance at 1 January
2018 98 8,487 5,908 1,232 19,758 35,483
Amortization recognized
during the period 52 - 93 492 - 637
Balance at 31 December
2018 150 8,487 6,001 1,724 19,758 36,120
-------- -------------- --------------- ----------- -------- ------
Net book value:
At 31 December 2018 341 - 51 1,722 5,775 7,889
======== ============== =============== =========== ======== ======
Development Controlling
Customer costs - rights
2017: Software relationships novel products (1) Goodwill Total
-------- -------------- --------------- ----------- -------- ------
U.S. dollars in thousands
Cost:
Balance at 1 January
2017 583 8,487 6,052 3,446 25,447 44,015
Consolidation of subsidiary
(2) - - - - 100 100
Exchange differences - - - - (14) (14)
Disposals during the
year (121) - - - - (121)
Balance at 31 December
2017 462 8,487 6,052 3,446 25,533 43,980
Accumulated amortization
and impairment:
Balance at 1 January
2017 60 8,064 5,832 739 19,758 34,453
Amortization recognized
during the period 62 423 76 493 - 1,054
Disposals during the
year (24) - - - - (24)
Balance at 31 December
2017 98 8,487 5,908 1,232 19,758 35,483
-------- -------------- --------------- ----------- -------- ------
Net book value:
At 31 December 2017 364 - 144 2,214 5,775 8,497
======== ============== =============== =========== ======== ======
(1) See Note 5.
(2) See Note 6.
b. Classification of amortization expenses and impairment loss in profit or loss:
Year ended
31 December
---------------------------
2018 2017
---------- ---------------
U.S. dollars in thousands
---------------------------
Cost of sales 543 569
Selling and marketing expenses - 423
General and administrative expenses 52 62
Other expenses 42 -
Total 637 1,054
========== ===============
c. Impairment testing of goodwill:
The Group management views the entire Group as a single cash
generating entity (CGU) which serves as the basis for Group
management's assessment of performance and operational decisions.
Accordingly, the goodwill relates to the entire Group's activities
for purposes of testing of impairment.
The recoverable amount of the Group CGU was determined based on
its fair value less costs of disposal, using the "Market Approach"
method based on the most recent committed transaction in the
Company's shares as also the "income approach" using the discounted
cash flow (DCF) method based on assumptions as the future
operations of the Group CGU, see Note 1e. It should be noted that
as of 31 December 2018, the Company has received from the Investor
cash down payments reflecting 20% of the transaction price. In
addition, the Investor continues to demonstrate its intention to
complete the transaction by, among others, committing to provide
the Group with manufacturing equipment for nil consideration and
also providing an extension of credit payment terms on the purchase
by the Group of certain raw materials from the Investor (see Note
32).
Based on the fair value derived from the price in this
transaction, it was determined that at 31 December 2018 there has
been no impairment of goodwill. The fair value measurement is
categorized as level 1 in the fair value hierarchy.
In order to obtain an additional indication of the fair value of
the Group CGU, the Company received a valuation performed by an
independent valuer. The valuation implemented the discounted cash
flow ("DCF") method based on assumptions as to the future
operations of the Group CGU. These assumptions are derived from the
Company's past results, and management's projected growth in the
Company and in the market, which reflect cash flows that market
participants would consider when assessing fair value.
Key assumptions used in calculating the fair value using the DCF
method at 31 December 2018:
%
----
Gross profit- for the period after the 5-year
management forecast 17.8
Discount rate (before tax) 15.0
Growth for the period after the 5-year management
forecast 2
The fair value determined in the valuation using the DCF method
also supported that as of 31 December 2018 there has been no
impairment of goodwill.
NOTE 15:- SHORT-TERM CREDIT AND CURRENT MATURITIES OF LONG-TERM
LOAN FROM BANK
Annual
interest
rate (3) 31 December
--------- ---------------------------
2018 2018 2017
--------- ------------- ------------
% U.S. dollars in thousands
--------- ---------------------------
Composition:
8.4 -
In U.S. dollars (1) 11.8 9,794 1,706
In NIS - 588
In other currencies (2) 8.5 201 -
9,995 2,294
============= ============
(1) Factoring arrangements for trade receivables and inventories
in transit to customers. See Note 9 and Note 11.
(2) Current maturities of long-term loan. See Note 18.
(3) Short-term credit bears interest at the rate of LIBOR plus a
margin. The above interest rates are the weighted average rates as
of 31 December 2018.
NOTE 16:- TRADE PAYABLES
31 December
---------------------------
2018 2017
------------- ------------
U.S. dollars in thousands
---------------------------
Open accounts:
In U.S. dollars 7,335 3,999
In GBP 140 149
In NIS 153 204
In other currency 166 581
------------- ------------
7,794 4,933
============= ============
NOTE 17:- OTHER PAYABLES
31 December
---------------------------
2018 2017
------------- ------------
U.S. dollars in thousands
---------------------------
Payroll and related expenses 1,428 1,184
Payable for acquisition of subsidiary
(1) 708 639
Income taxes payable 121 237
Current maturities of lease liabilities
(2) 573 606
Accrued expenses and other 2,017 1,407
------------- ------------
4,847 4,073
============= ============
(1) See Note 20.
(2) See Note 21.
NOTE 18:- LOAN FROM BANK
a. Composition:
December 31,
----------------
2018
----------------
USD in thousands
----------------
Total loan balance 677
Less - current maturities 201
476
================
b. Loan terms:
In October 2018, a subsidiary in Ethiopia received a loan from a
bank in the amount of BIRR 20,000,000 ($725,000). The loan is
repayable in 36 equal installments and bears an interest rate of
8.5% per annum.
The subsidiary has pledged a factory building as collateral for
the loan.
c. Maturity dates after the reporting date:
USD in thousands
----------------
2019- current maturity 201
2020 237
2021 239
677
================
NOTE 19:- EMPLOYEE BENEFIT LIABILITIES, NET
a. Post-employment benefits:
According to the labor laws and Severance Pay Law in Israel, the
Company is required to pay compensation to an employee upon
dismissal or retirement or to make current contributions in defined
contribution plans pursuant to section 14 to the Severance Pay Law,
as specified below. The Company's liability is accounted for as a
post-employment benefit. The computation of the Company's employee
benefit liability is made in accordance with a valid employment
contract based on the employee's salary and employment term which
establish the entitlement to receive the compensation.
The post-employment employee benefits are normally financed by
contributions classified as defined benefit plans or as defined
contribution plans as detailed below.
1. Defined contribution plans:
Section 14 to the Severance Pay Law, 1963 applies to part of the
compensation payments, pursuant to which the fixed contributions
paid by the Group into pension funds and/or policies of insurance
companies release the Group from any additional liability to
employees for whom said contributions were made. These
contributions and contributions for compensation represent defined
contribution plans.
As for the Group's foreign employees in certain countries, the
Group pays fixed contributions to cover the obligation for
employee-employer relations arising from the labor laws and the
employment contracts in those countries. These contributions
release the Group from any additional liability to employees for
whom the said contributions were made (defined contribution
plans).
31 December
---------------------------
2018 2017
------------- ------------
U.S. dollars in thousands
---------------------------
Expenses in respect of defined
contribution plans 158 184
============= ============
2. Defined benefit plans:
The Group accounts for that part of the payment of compensation
that is not covered by contributions in defined contribution plans,
as above, as a defined benefit plan for which an employee benefit
liability is recognized and for which the Group deposits amounts in
qualifying insurance policies.
a. Changes in the defined benefit obligation and fair value of plan assets:
2018:
Expenses recognized in profit or loss
----------------------------------------------------------------------
Total
Effect income
Past of (expense) Gain (loss)
service changes recognized from
Balance cost and in in profit remeasurement Balance
at 1 Current Net effect foreign or loss Payments in other at 31
January service interest of exchange for the from the comprehensive Contributions December
2018 cost expense settlements rates Adjustments period plan income by employer 2018
------- ------- -------- ----------- -------- ----------- ---------- -------- ------------- -------------- --------
U.S. dollars in thousands
---------------------------------------------------------------------------------------------------------------------------------------
Defined
benefit
obligation (962) (58) (44) 17 48 31 (6) 184 - - (784)
Fair value of
plan
assets 681 - 13 (8) (45) - (40) (167) - 12 486
------- ------- -------- ----------- -------- ----------- ---------- -------- ------------- -------------- --------
Net defined
benefit
asset
(liability) (281) (58) (31) 9 3 31 (46) 17 - 12 (298)
======= ======= ======== =========== ======== =========== ========== ======== ============= ============== ========
2017:
Expenses recognized in profit or loss
----------------------------------------------------------------------
Total
Effect income
Past of (expense) Gain (loss)
service changes recognized from
Balance cost and in in profit remeasurement Balance
at 1 Current Net effect foreign or loss Payments in other at 31
January service interest of exchange for the from the comprehensive Contributions December
2017 cost expense settlements rates Adjustments period plan income by employer 2017
------- ------- -------- ----------- -------- ----------- ---------- -------- ------------- -------------- --------
U.S. dollars in thousands
---------------------------------------------------------------------------------------------------------------------------------------
Defined
benefit
obligation (801) (58) (45) 14 (74) (11) (174) 17 (4) - (962)
Fair value of
plan
assets 591 - 18 (11) 69 - 76 (17) 15 16 681
------- ------- -------- ----------- -------- ----------- ---------- -------- ------------- -------------- --------
Net defined
benefit
asset
(liability) (210) (58) (27) 3 (5) (11) (98) - 11 16 (281)
======= ======= ======== =========== ======== =========== ========== ======== ============= ============== ========
b. Plan assets:
Plan assets comprise assets held by a long-term employee benefit
fund and qualifying insurance policies.
c. Plan Liabilities, net:
31 December
---------------------------
2018 2017
------------- ------------
U.S. dollars in thousands
---------------------------
Defined benefit obligation (784) (962)
Fair value of plan assets 486 681
------------- ------------
Total liabilities, net (298) (281)
============= ============
d. The key assumptions used in defined benefit plan:
31 December
-------------
2018 2017
------ -----
%
-------------
Discount rate of the plan liability
(1) 3.27 2.33
====== =====
Rate of increase in the Israeli
CPI 1.37 1.07
====== =====
Expected salary increases 0.90 0.78
====== =====
Employee turnover rate (2)
(1) Market yields on high quality corporate bonds.
(2) Employee turnover rates in 2018 and in 2017 are 20%, 15%,
10%, 5%, in the following age range18-35, 36-45, 46-50,
51-retirment, respectively.
NOTE 20:- PAYABLE FOR ACQUISITION OF SUBSIDIARY
Composition:
31 December
---------------------------
2018 2017
------------- ------------
U.S. dollars in thousands
---------------------------
Payable for acquisition of subsidiary
(1) 2,354 2,793
Less - current maturities 708 639
------------- ------------
1,646 2,154
============= ============
(1) Pursuant to an agreement extended in 2015, see Note 5.
(2) For the repayment schedule after the reporting date see Note 23(b).
NOTE 21:- LEASE LIABILITIES
a. Composition:
31 December
---------------------------
2018 2017
------------- ------------
U.S. dollars in thousands
---------------------------
Lease liabilities 2,130 1,186
Less - current maturities 573 606
------------- ------------
1,557 580
============= ============
The Group leases various properties:
(1) The Egyptian subsidiary leases the factory building from its
other shareholder. The lease agreement is until July 2022 at an
annual rent of $300 thousands till May 2020 and $350 thousands till
July 2022.
(2) A subsidiary in U.S leases an office building at an annual
rent of $211 thousands that originally was till May 2019. In 2018
the subsidiary renewed the agreement for a period of five years
from May 2019. The subsidiary has sub-leased a portion of the
property for the same lease period for annual rent of $101
thousands. See Note 12.
(3) The Company also has vehicle leasing agreements for periods of three years.
As more fully described in Note 2l, on adoption of IFRS 16 the
Group recognized lease liabilities in relation to these leases
which previously were classified as operating leases under IAS 17.
See Note 13 for the related right of use assets.
b. Information on leases in which the Company is a lessee:
Year ended
December 31,
2018
-------------
U.S. dollars
in thousands
-------------
Depreciation expense for right-of-use assets 551
Interest expense for lease liability 118
669
-------------
Income from subleasing right-of-use assets 79
-------------
Total expenses for leases 590
=============
NOTE 22:- COMMITMENTS AND CONTINGENCIES
1. A subsidiary has two exclusive licenses to use brand names in
certain countries in return for the payment of royalties at a
certain percentage of sales of products manufactured under these
brand names. The licenses are for varying periods ending from 2019
to 2021 with the possibility of extensions for certain licenses.
After the reporting date, one of the agreements was extended until
January 2020.
Total royalties in the year ended 31 December 2018 amounted to
approximately $ 98 thousands (2017- $116 thousands).
2. The Egyptian subsidiary provided bank guarantees in the
amount of approximately $ 50 thousands in favor of foreign
authorities.
3. For agreement with the Egyptian partner regarding purchase commitments, see Note 5.
NOTE 23:- FINANCIAL INSTRUMENTS
a. Financial risk factors:
The Group's activities expose it to various financial risks such
as market risk (including currency risk), credit risk and liquidity
risk. The Group's comprehensive risk management plan focuses on
activities that reduce to a minimum any possible adverse effects on
the Group's financial performance.
Risk management is performed by the finance unit, headed by the
Group's CFO. The finance unit identifies and manages financial
risks in collaboration with the Group's operating units. A team
comprising the Group's CEO and CFO was established for operating in
the foreign currency market. The Group's management updates the
Company's Board on the policy for risk management when the Group's
annual budget is presented and, where appropriate, when the annual
and interim financial statements are presented.
1. Exchange rate risk:
The Group operates in a large number of countries and is exposed
to exchange rate risk resulting from the exposure to fluctuations
in the exchange rates primarily of the Ethiopian Birr, the Egyptian
Pound and the NIS.
The Group has labor and operations costs in local currency in
its factories in Egypt (Egyptian Pound) and Ethiopia (Ethiopian
Birr) as well at the headquarters in Israel (NIS). Fluctuations in
the exchange rates of these currencies may affect the production
and operation costs of the company.
2. Credit risk:
Most of the cash and cash equivalents and short-term deposits as
of 31 December 2018 are deposited with major banks in Israel and
abroad.
In view of the large number of countries in which the Group
operates, its cash and cash equivalents and investments are
diversified among the various financial institutions and the Group
regularly examines evaluations of the credit stability of the
different financial institutions. Management considers the credit
risk for cash, cash equivalents and short-term deposits remote and
insignificant.
Trade receivables as of 31 December 2018 are mainly from
customers in the U.S. and Europe, including three major customers -
one in the UK and two in the U.S. (see Note 25 (a)). The Company
and certain subsidiaries insure receivables for all customers with
credit insurance. The Group performs ongoing reviews of the credit
granted to customers and the possibility of loss therefrom and
includes an adequate allowance for specific accounts whose
collection is doubtful.
3. Liquidity risk:
The Group finances its activities from its operations and loans
from bank.
b. Summary of liquidity risk:
The table below presents the maturity profile of the Group's
financial liabilities based on contractual undiscounted
payments:
31 December 2018:
Less
than 2 to
one 1 to 3 3 to 4 to
year 2 years years 4 years 5 years Total
--------------- -------- ------ -------- -------- --------
U.S. dollars in thousands
-------------------------------------------------------------------------
Short-term credit 9,794 - - - - 9,794
Trade payables 7,794 - - - - 7,794
Other payables 3,566 - - - - 3,566
Long-term loan from
bank
(including current
maturities) 270 270 225 - - 765
Lease liabilities 695 630 589 409 322 2,645
Payables for
acquisition
of subsidiary 1,000 800 800 400 - 3,000
23,119 1,700 1,614 809 322 27,564
=============== ========= ======= ========= ========= =======
31 December 2017:
Less
than 2 to
one 1 to 3 3 to 4 to
year 2 years years 4 years 5 years Total
------ -------- ------ -------- -------- ------
U.S. dollars in thousands
----------------------------------------------------
Short-term credit 2,294 - - - - 2,294
Trade payables 4,933 - - - - 4,933
Other payables 2,828 - - - - 2,828
Lease liabilities 714 512 122 - - 1,348
Payables for acquisition
of subsidiary 1,000 800 800 800 400 3,800
11,769 1,312 922 800 400 15,203
====== ======== ====== ======== ======== ======
c. Fair value:
The fair value of cash and cash equivalents, short-term
deposits, accounts receivable, trade and other payables approximate
their carrying amount due to the short-term maturities of these
items. The fair value of the finance lease receivable at 31
December 2018 approximates its carrying amount.
The Group has performed sensitivity tests of market risk factors
(principally foreign currency risk) that are liable to affect its
reported operating results or financial position. The test of risk
factors was determined based on the materiality of the exposure of
the operating results or financial condition with reference to the
functional currency and assuming that all the other variables are
constant. Based on the results of those tests, it was determined
that reasonably possible changes (5%) in foreign currency exchange
rates would not have a material impact on Group income before taxes
and on equity.
f. Changes in liabilities arising from financing activities:
Opening Closing
Balance Recognition Balance
1 January of new 31 December
2018 Cash flows Other adjustments lease 2018
---------- ---------- ----------------- ----------- ------------
U.S. dollars in thousands
--------------------------------------------------------------------
Short-term credit 2,294 5,432 2,068 - 9,794
Long-term credit, net - 688 (11) - 677
Lease liabilities (including
current maturities) 1,186 (710) 119 1,525 2,120
Payable for acquisition
of subsidiary (including
current maturities) 2,793 (800) 361 - 2,354
Opening Closing
Balance Recognition Balance
1 January of new 31 December
2017 Cash flows Other adjustments lease 2017
---------- ---------- ----------------- ----------- ------------
U.S. dollars in thousands
--------------------------------------------------------------------
Short-term credit - 2,294 - - 2,294
Lease liabilities (including
current maturities) - (720) 107 1,799 1,186
Payable for acquisition
of subsidiary (including
current maturities) 3,174 (800) 419 - 2,793
NOTE 24:- EQUITY
a. Composition of share capital as of:
31 December
-------------------------
2018 and 2017
-------------------------
Issued and
Authorized outstanding
----------- ------------
Number of shares
-------------------------
Ordinary shares of NIS 0.04 par value
each 355,330,017 310,542,881
=========== ============
b. Regarding an investment agreement in the Company and receipts
on account of shares, see Note 1 (e).
c. Capital reserves:
Adjustments arising from the translation of foreign
operations:
The reserve is used to record changes in the exchange rates of
foreign currency arising from the translation of the financial
statements of investees which constitute foreign operations.
Reserve from transaction with shareholders:
Assets and liabilities involved in a transaction between the
Company and the controlling shareholder or between companies under
common control are recognized at fair value at the date of the
transaction. The difference between the fair value and the
consideration determined in the transaction is presented in a
separate item in equity "reserve from transaction with
shareholders".
As a result of the remeasurement to fair value of shareholders'
loans, capital notes and fees payable in connection with the IPO in
2014, the difference between their carrying amounts and their fair
values in the amount of $ 10,165 thousands was recorded in the
Company's equity as capital reserve for transactions with
shareholders.
NOTE 25:- ADDITIONAL INFORMATION TO ITEMS IN THE STATEMENTS OF
PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
Year ended
31 December
---------------------------
2018 2017
------------- ------------
U.S. dollars in thousands
---------------------------
a. Revenues from sales to major customers:
Customer A - the U.S 24,051 19,457
============= ============
Customer B - the UK 8,513 13,557
============= ============
Customer C - the U.S 9,596 7,277
============= ============
b. Cost of sales:
Materials consumed 14,837 10,835
Payroll and related expenses 5,639 4,719
Subcontractors and subcontracted
work 25,759 23,541
Depreciation and amortization 1,187 871
Other manufacturing expenses 3,472 3,484
50,894 43,450
============= ============
Year ended
31 December
---------------------------
2018 2017
------------- ------------
U.S. dollars in thousands
---------------------------
c. Selling and marketing expenses:
Payroll and related expenses 1,604 1,608
Transportation and storage 2,304 1,997
Depreciation and amortization 201 647
Advertising 28 28
Bad debts and doubtful accounts 5 15
Other 621 731
------------- ------------
4,763 5,026
============= ============
d. General and administrative expenses:
Payroll and related expenses 1,507 2,132
Consulting 84 59
Listed company expenses 437 408
Depreciation and amortization 141 149
Other 439 551
-------------- -----------
2,608 3,299
============== ===========
Year ended
31 December
---------------------------
2018 2017
-------------- -----------
U.S. dollars in thousands
---------------------------
e. Development costs:
Payroll and related expenses 686 735
Material consumed 6 9
Other 108 103
-------------- -----------
800 847
============== ===========
f. Other expenses include mainly expenses in connection
with the Company efficiency program.
g. Finance income
Exchange rate 12 2
Income from finance lease 5 8
Other 3 -
-------------- -----------
20 10
============== ===========
h. Finance expenses:
Interest expenses from financial liabilities
measured at amortized cost 361 435
Interest for lease liabilities 119 107
Finance expenses in respect of short
term credit from factoring arrangements
and others 1,393 1,089
Exchange rate - 456
Other 167 45
-------------- -----------
2,040 2,132
============== ===========
NOTE 26:- TAXES ON INCOME
a. Tax laws applicable to the Company in Israel:
Income Tax (Inflationary Adjustments) Law, 1985:
According to the law, until 2007, the results for tax purposes
were adjusted for the changes in the Israeli Consumer Price Index
("CPI").
In February 2008, the "Knesset" (Israeli parliament) passed an
amendment to the Income Tax (Inflationary Adjustments) Law, 1985,
which limits the scope of the law starting 2008 and thereafter.
Since 2008, the results for tax purposes are measured in nominal
values, excluding certain adjustments for changes in the Israeli
CPI carried out in the period up to 31 December 2007. Adjustments
relating to capital gains such as for sale of property (betterment)
and securities continue to apply until disposal. Since 2008, the
amendment to the law includes, among others, the cancellation of
the inflationary additions and deductions and the additional
deduction for depreciation (in respect of depreciable assets
purchased after the 2007 tax year).
b. Tax laws applicable to foreign Group companies:
Foreign subsidiaries are taxed according to the tax laws in
their countries of residence.
c. Tax rates applicable to the income of the Group companies:
1. Companies in Israel:
The Israeli corporate income tax rate was 23% in 2018 and 24% in
2017.
2. Foreign subsidiaries:
The principal tax rates applicable to the subsidiaries whose
place of incorporation is outside Israel are:
A company incorporated in the U.S. - in 2018, the weighted tax
is at the rate of about 21% (2017-40%) (federal tax, state and city
tax in the place of operation of the company).
Company incorporated in the UK- 2018 - 19.25%.
A company incorporated in Egypt:
The statutory tax rate in Egypt is 22.5%. The company operates
in a free trade zone and is entitled to a full income tax
exemption. Free zone companies pay 1% from their exports and 0.1%
from their imports which included in the Company's cost of sales.
The tax and other benefits available to the company in the free
trade zone are for a period of 25 years commencing from 2003. Based
on an amendment published in 2013, the period of the company's
license to operate in the free trade zone is limited to the date on
which the lease of its property in the free trade zone ends. The
Company has extended the lease agreement until July 2022.
A company incorporated in Ethiopia- 2018- 30% (2017- 30%).
d. Final tax assessments:
The Company has not received final tax assessments since its
incorporation (July 2007), however, the assessments of the Company
are deemed final through 2013. The majority of foreign subsidiaries
have received final tax assessments until 2010-2012, inclusive.
e. Losses and deductions carried forward for tax purposes:
As of 31 December 2018, carry-forward operating losses and
temporary differences of the Company total approximately $ 54
million and capital tax losses total approximately $ 16
million.
As of 31 December 2018, carry-forward operating losses of
foreign subsidiaries total approximately $ 6.6 million.
Tax benefit of approximately $ 0.1 million relating to tax
losses of approximately $ 0.6 million was recorded.
The tax benefit in respect of the remaining losses and temporary
differences has not been recorded in the financial statements due
to the uncertainty of their utilization.
f. Deferred taxes:
Composition: Statement of
profit or loss
Statement of and other comprehensive
financial position income
--------------------- --------------------------
Year ended 31
31 December December
--------------------- --------------------------
2018 2017 2018 2017
---------- --------- ------------ ------------
U.S. dollars in thousands
-------------------------------------------------
Deferred tax liabilities:
Depreciable assets 1,147 1,128 19 (6)
========== =========
Deferred tax assets:
Carryforward tax losses 132 181 49 179
========== ========= ------------ ------------
Deferred tax expense 68 173
============ ============
The deferred taxes are computed at the tax rates of principally
24% (2017- 30%), based on the tax rates that are expected to apply
upon realization.
g. Tax expenses included in the statement of profit or loss and other comprehensive income:
Year ended
31 December
---------------------------
2018 2017
------------ -------------
U.S. dollars in thousands
---------------------------
Current taxes 4 291
Deferred taxes 68 173
Taxes in respect of previous years - (341)
------------ -------------
72 123
============ =============
The current taxes were computed at the average tax rate of about
24%.
h. Below is reconciliation between the tax expense assuming that
all the income was taxed at the statutory tax rates applicable to
the companies in Israel and the tax expense as reported in the
statement of profit or loss and other comprehensive income:
Year ended
31 December
---------------------------
2018 2017
------------- ------------
U.S. dollars in thousands
---------------------------
Loss before taxes on income (5,775) (2,905)
============= ============
Statutory tax rate in Israel 23% 24%
============= ============
Tax benefit computed at the statutory
tax rate (1,328) (697)
Increase (decrease) in taxes on income
resulting from the following factors:
Differences between statutory tax
rate in Israel and the tax rates on
foreign companies (162) 40
Nondeductible expenses 152 48
Differences in measurement basis between
tax purposes and financial reporting
purposes 27 (326)
Taxes in respect of previous years - (341)
Utilization of previously unrecognized
tax losses (187) -
Adjustment of deferred tax balances
following a change in tax rate - 179
Losses for which no tax benefit has
been recorded 1,249 1,111
Other 321 109
Tax expense 72 123
============= ============
NOTE 27:- SHARE-BASED PAYMENT
a. The expense recognized in the financial statements for
share-based payments is shown in the following table:
Year ended
31 December
---------------------------
2018 2017
------------- ------------
U.S. dollars in thousands
---------------------------
Equity-settled share-based payment
plans 84 177
============= ============
b. In May, 2017, the Company's Board of Directors granted
700,000 options to two employees (350,000 options each) on the
following terms:
Vesting of the options is to be based on certain stretch targets
as follow:
-- 25 per cent. After 1 year.
-- 25 per cent. Once the Company's share price is 8 pence or above.
-- 25 per cent. Once the Company's share price is 10 pence or above.
-- 25 per cent. Once the Company's share price is 12 pence or above.
The options will be exercisable at an exercise price of GBP
0.0475 and with a scheme length of 5 years.
The fair value of the options amounted to $19 thousands at the
date of the grant.
c. The total number of options under the Company's existing plan
are 29,463,900. According to the terms of the share options
granted, the vesting of 29,037,150 options will be accelerated and
become immediately exercisable upon takeover event or change of
control of the Company.
d. Movement during the year:
2018 2017
---------------------- ----------------------
Weighted Weighted
average average
Number exercise Number exercise
of options price of options price
----------- --------- ----------- ---------
USD USD
--------- ---------
Share options outstanding
at beginning of year 30,788,825 0.05 33,963,786 0.05
Share options granted
during the year - - 700,000 0.04
Share options forfeited
during the year (1,324,925) 0.05 (3,874,961) 0.05
Share options outstanding
at end of year 29,463,900 0.05 30,788,825 0.05
=========== ========= =========== =========
Share options exercisable
at end of year 6,506,299 0.05 6,592,974 0.045
=========== ========= =========== =========
(1) The weighted average remaining contractual life for the
share options outstanding as of 31 December 2018 is 7.65 years
(2017- 8.65 years).
(3) The range of exercise prices for share options outstanding
as of 31 December 2018 USD 0.01 for 294,250 options, USD 1.8 for
132,500 options, USD 0.048 for 29,662,075 options. and 0.04 for
700,000 options.
NOTE 28:- BALANCES AND TRANSACTIONS WITH RELATED PARTIES
a. Balances:
As of 31 December 2018:
Key management
personnel
----------------
U.S. dollars in
thousands
----------------
Other payables (2) 423
As of 31 December 2017:
Key management
personnel
----------------
U.S. dollars in
thousands
----------------
Other payables 360
b. Benefits to key management personnel: (1)
Year ended
31 December
-----------------
2018 2017
-------- -------
U.S. dollars in
thousands
-----------------
Short-term benefits (2) 990 1,329
Post-employment benefits 63 64
Share-based payment 42 98
-------- -------
1,095 1,491
======== =======
(1) Includes members of the Board of Directors.
(2) Includes termination expenses totaling US $ 124
thousands.
NOTE 29:- NET EARNINGS (LOSS) PER SHARE
Details of the number of shares and loss used in the computation
of basic and diluted loss per share:
Year ended 31 December
----------------------------------------------------------------------
2018 2017
---------------------------------- --------------------------------
Weighted number Weighted number
of shares *) Net loss of shares *) Net loss
--------------- --------------- --------------- -------------
U.S. dollars in U.S. dollars
In thousands thousands In thousands in thousands
--------------- --------------- --------------- -------------
310,543 (5,847) 310,543 (3,028)
=============== =============== =============== =============
*) The data related to the computation of diluted loss per share
(options and warrants) have not been included as they are
antidilutive.
NOTE 30:- ADDITIONAL INFORMATION ON OPERATIONS
a. General:
The Group has only one operating segment - the manufacturing and
marketing of men and women's tailored fashion (mainly men's).
b. Revenues by geographical area:
Year ended 31 December
---------------------------
2018 2017
------------- ------------
U.S. dollars in thousands
---------------------------
U.S. 41,572 39,571
Europe (mainly UK) 14,353 10,450
Other 488 1,070
Total 56,413 51,091
============= ============
c. The carrying amounts of non- current assets (property, plant
and equipment and intangible assets) in the Company's country of
domicile (Israel) and in foreign countries based on the location of
the assets, are as follows:
31 December
---------------------------
2018 2017
------------- ------------
U.S. dollars in thousands
---------------------------
Israel 1,071 1,855
UK 1,028 1,032
U.S. 6,651 6,210
Ethiopia 7,091 6,899
Other 1,557 1,222
17,398 17,218
============= ============
NOTE 31:- LIST OF INVESTEES
2018 2017
------------------------ ------------------------
Shares Shares Shares Shares
conferring conferring conferring conferring
voting rights voting rights
rights to profits rights to profits
----------- ----------- ----------- -----------
%
--------------------------------------------------
Active companies
Subsidiaries
Bagir Holdings (UK) Limited, 100 100 100 100
Bagir (BVI) Limited, British
Virgin Islands (a subsidiary
of Bagir Holdings (UK) Limited) 100 100 100 100
Bagir International, Inc., U.S.
(a subsidiary of Bagir Holdings
(UK) Limited. 100 100 100 100
Middle East Tailoring Company
SAE, Egypt (owned by Bagir (BVI)
and Bagir Holdings (UK) Limited)
*) 100 50 100 50
Nazareth Garments Share Company,
Ethiopia (see Note 6) 100 100 100 100
In liquidation
Bagir GmbH, Germany (a subsidiary
of Bagir Holdings (UK) Limited) 100 100 100 100
DRNBHV, Schuler Herrenkleiderfbrik
GmbH (a subsidiary of Bagir GmbH) 100 100 100 100
*) See Note 5.
NOTE 32:- SUBSEQUENT EVENTS
In February 2019, the Company announced that further to the
investment of $16.5 million by the Investor (see Note 1d), the
Investor intends to provide manufacturing equipment for the
exclusive and indefinite use of the Group in the Ethiopian
manufacturing facility. The manufacturing equipment will be
provided to the Company for no consideration. The market value of
the manufacturing equipment to be provided is estimated at
approximately $1.3 million. The manufacturing equipment is expected
to be delivered to the subsidiary in Ethiopia during 2019.
In addition, the Investor, an existing supplier of the Company,
has granted an extension of 90 days to their usual credit payment
terms on the acquisition of up to 500,000 meters of wool and wool
blend fabrics at market value. This extension to the investor's
credit terms will last until 30 June 2019.
After the completion of the investment in the Company by the
Investor that is expected to be received no later than May 2019,
the Company intends to invest approximately $1.5 million in the
manufacturing site in Ethiopia.
The new manufacturing equipment, together with the additional
investment by the Company will serve as the base of a new
production line in the Ethiopian site.
- - - - - - - - - - - - - -
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
FR UGUQPCUPBPGW
(END) Dow Jones Newswires
April 04, 2019 02:01 ET (06:01 GMT)
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