Silvano Fashion Group
Interim Management statement

Consolidated interim report for Q3 and 9 months 2012

Tallinn, 2012-11-15 18:42 CET --  

Summarized selected financial indicators of the Group for 9m 2012 compared to 9m 2011 and 30.09.2012 compared to 31.12.2011 were as follows:

Underlying formulas:

EBITDA = net profit for the period + depreciation and amortisation + net financial income + income tax expense + gain on net monetary position
Gross profit margin = gross profit / revenue
EBITDA margin = EBITDA / revenue
Net profit margin = net profit / revenue
Net profit margin attributable to equity holders of the Parent company = net profit attributable to equity holders of the Parent company / revenue
ROA (return on assets) = net profit attributable to owners of the Company for the last 4 quarters/ average total assets
ROE (return on equity) = net profit attributable to owners of the Company for the last 4 quarters/ average equity attributable to equity holders of the Company
EPS (earnings per share) = net profit attributable to owners of the Company/ weighted average number of ordinary shares
Price to earnings ratio = Share price at the end of reporting period/earnings per share, calculated based on the net profit attributable to owners of the Company for the last 4 quarters
Current ratio = current assets / current liabilities
Quick ratio = (current assets – inventories) / current liabilities

Business environment

We reported that the core markets the Group enjoy recovery in consumption and contribute to steady, organic growth of our business already in Q2 report, and that has not changed for Q3. Our Q3 sales numbers exceed those for both 2011 and 2010 comparable numbers. In June 2012 a 500^th store was opened under Milavitsa franchise. By end of Q3 total number of stores operated by Group and by franchise partners reached a total of 555. Geography of our franchise partners now covers more than 20 countries.

Russia, our core market in terms of total sales and total number of stores, showed 12% growth in sales for 9 months compared to previous year. Belarus, our number 2 market, matched the growth rate of Russia. The CIS (Commonwealth of Independent States) markets growth stands beyond 20% on average for the period. Demand in Ukraine and the Baltic States is solid.

On our main market, Russia’s economic growth is undisputable, though with some deceleration. By Rosstat preliminary data, the country’s GDP in Q3 advanced by 2.8%, which indicates a cumulative GDP growth from the beginning of the year by 3.8%. This also confirms the forecast data (according to EIU/Planet Retail data) on Russia, Turkey and Poland that are thought to be the fastest growing retail markets after China (Russia’s retail growth averages nearly 14% for near future).

Belarus economy showed seasonally weaker numbers for the GDP growth, yet exceeding the averages for the EU. By Belstat, Q3 GDP growth stood at 1.9%, for 9 months 2012: 2.5%. The inflation (consumer price index) rose by 16.1% from the beginning of the year, contributing continuously to the consumer demand. Sales in Belarus totalled 24 508 thousand EUR for 9 months 2012, a growth of 12% over the sales of the comparable period last year.

The reflection of the Ukrainian economy by the State Statistics Service showed real GDP decrease by 1.3% in Q3 2012 compared to year earlier. Ukrainian sales totalled 5 740 thousand EUR for 9 months 2012, showing an improvement of 19% year-to-year basis.

Baltic economies continue performing well. Estonia’s GDP growth amounted to 3.4% in the Q3 2012. Latvia’s GDP shows higher growth rates compared to Eurozone countries, whereas the Q3 2012 GDP growth was 5.3%. Lithuania’s preliminary GDP growth indication is 4.4% for Q3 2012. Our sales in the region totalled 2 530 thousand EUR in 9 months 2012, up from 2 306 thousand EUR in 9 months of 2011.

At the end of the reporting period the Group and its franchising partners operated 555 Milavitsa and Lauma Lingerie stores, an increase of 93 stores over the number a year ago, including 56 stores operated directly by the Group and the rest of them by franchising partners. The Group’s retail focus remains similar to previous year - promoting and supporting franchising partners mixed with own retail development.

Financial performance

Positive effect of the devaluation on the cost side has been levelled out by increased expenses for labour, utilities and to some extent materials sourced from Belarus. But main impact on results is coming from hyperinflationary accounting, which requires us to apply certain accounting methods that have negative influence on Group`s reported financial results and margins in 2012. Mainly this is due to the fact that Group`s major part of production expenses is generated in Belarus and Group has to hyperinflate them according to IAS 29 (9 m 2012 inflation rate in Belarus was more than 16%). But on the other hand Group`s sales in Russia are conducted via its subsidiaries and are not hyperinflated.

The Group`s sales amounted to 97 907 thousand EUR during 9 months 2012, representing a 13.1% increase as compared to the same period of previous year. Overall, wholesales increased by 12.6% and retail sales – by 16.1%.

The Group’s reported gross profit margin during 9 months 2012 decreased and was 36.3%, as compared to 51.1% in the respective period of previous year. Consolidated operating profit for 9 months 2012 amounted to 19 044 thousand EUR, compared to 30 008 thousand EUR in 9 months 2011. The consolidated operating profit margin was 19.5% (34.7% in 9 months 2011). Consolidated net financial income amounted to 874 thousand EUR in 9 months 2012, respective amount in 9 months 2012 was 13 407 thousand EUR.

Effective tax rate for 9 months 2012 amounted to 31% (23% in 9 months 2011). Notwithstanding the decrease of income tax rate in Belarus from 24% to 18% starting from 1 January 2012, effective tax rate increased compared to 9m 2011. This is due to the facts that the Group fully utilized accumulated tax losses in Russia and the Parent company collected dividends from its subsidiary.

Consolidated net profit attributable to equity holders of the Parent company amounted to 12 485 thousand EUR in 9 months 2012, compared to 27 638 thousand EUR in 9 months 2011; net profit margin attributable to equity holders of the Parent company was 12.8% against 31.9% in 9 months 2011. 

Financial position

As of 30 September 2012 consolidated assets amounted to 73 933 thousand EUR representing an increase of 8.0% as compared to the position as of 31 December 2011.

Property, plant and intangibles balances increased by 1 241 thousand EUR as compared to 31 December 2011 the key reason being the hyperinflation effect on opening balance.

Trade receivables increased by 5 126 thousand EUR as compared to 31 December 2011 and amounted to 17 241 thousand EUR as of 30 September 2012. Inventory balance decreased by 1 722 EUR thousand and amounted to 19 826 thousand EUR as of 30 September 2012. Changes in trade debtors and stock balance were in line with the seasonality trend of the business.

Hyperinflation effect on opening balance had a positive impact on the Group’s equity attributable to equity holders of the Parent company comprising 4 121 thousand EUR as of 30 September 2012. On the overall basis, equity attributable to equity holders of the Parent company increased by 6 607 thousand EUR and amounted to 49 071 thousand EUR as of 30 September 2012.

Current liabilities increased by 2 241 thousand EUR in 9 months 2012. Current and non-current loans and borrowings increased by 38 thousand EUR to 58 thousand EUR as of 30 September 2012.

Sales structure

Sales by markets

Sales in the major markets demonstrated a positive trend in terms of pieces sold in 9 months 2012 as compared to the respective period in 2011.

The majority of lingerie sales revenue during 9 months 2012 in the amount of 59 560 thousand EUR was generated in Russia, accounting for 60.8% of total sales during 9 months 2012. The second largest market was Belarus, where sales reached 24 508 thousand EUR, contributing 25% of lingerie sales (both retail and wholesale) as compared to 21 868 thousand EUR in 9 months 2011. Out of the 5 568 thousand EUR sales in the other markets major part is attributed to Kazakhstan and Moldova. 

Sales by business segments

During 9 months 2012, wholesale revenue amounted to 81 759 thousand EUR, representing 83.5% of the Group’s total revenue (9 months 2011: 83.9%). The main wholesale regions were Russia, Belarus, Ukraine, Kazakhstan, Moldova and the Baltic States.

Total lingerie retail sales of the Group in 9 months 2012 amounted to 15 817 thousand EUR, representing a 16% increase as compared to the previous year. Certain part of the growth is attributable to inflationary environment in Belarus, growth of sales measured in units totalled approximately 12.5% for 9 months 2012 over the same period last year.

As of 30 September 2012 there were altogether 555 Milavitsa and Lauma branded shops. Own retail operations are conducted in Belarus and Latvia. As of the end of 9 months 2012 the Group operated 56 own retail outlets (net increase of 2 stores in Q3 2012) with a total area of 4 914 square meters. As of 30 September 2012, there were 471 Milavitsa branded shops operated by Milavitsa trading partners in Russia, Belarus, Ukraine, Moldova, Kazakhstan, Uzbekistan, Kyrgyzstan, Latvia, Azerbaijan, Armenia, Germany, South Africa, Lithuania, Estonia, Georgia, United Arab Emirates, Iran, Slovenia, Belgium and Italy, resulting in net increase of 15 shops in Q3 2012, and increase by 81 shops compared to the end of Q3 2011. Additionally, as of 30 September 2012, there were 28 Lauma Lingerie retail outlets operated by Lauma Lingerie trading partners in Lithuania, Latvia, Estonia, Belarus and Albania. For Lauma Lingerie, the Group expects openings in Ukraine and Russia in the near future.

Production

Total volume of production of the Group amounted to 17 092 thousand pieces during 9 months 2012, representing a 11.6% increase as compared to respective period in the previous year.

Investments

During 9 months 2012 the Group’s investments totalled 1 102 thousand EUR with investments into retail amounting to 151 thousand EUR. Other investments were made into equipment and facilities to maintain effective production and to add capacity for production and logistics for future periods.

Personnel

As of 30 September 2012, the Group employed 3 222 employees including 396 in retail. The rest were employed in production, wholesale, administration and support operations.

Total salaries and related taxes in 9 months 2012 amounted to 15 933 thousand EUR. The remuneration of key management of the Group totalled EUR 374 thousand EUR.

Consolidated Statement of Financial Position

Consolidated Income Statement

         Aleksei Kadõrko
         Chief Financial Officer
         +372 6845 000
         info@silvanofashion.com