Market announcement

Title

Audited financial results for 2010

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Tallinn, Estonia, 2011-04-05 18:39 CEST (GLOBE NEWSWIRE) --


Management report

Selected Financial Indicators

In summary, the selected financial indicators of AS Silvano Fashion Group for
the last two years were as follows*: 



Statement of comprehensive income                        2010    2009  Change, %
In thousands of EUR                                                             
--------------------------------------------------------------------------------
Net sales                                              93,292  74,044      26.0%
Earnings before interest, taxes and depreciation       19,415   6,052     220.8%
 (EBITDA)                                                                       
Net profit / (loss) for the period                     15,064   1,391     983.0%
Net profit / (loss) attributable to owners of the      12,240    -165           
 Company                                                                        
Earnings / (loss) per share (EUR)                       0.310  -0.004           
Operating cash flow for the period                     16,854  11,754      43.4%



Statement of financial position                 31.12.2010  31.12.2009  Change, 
In thousands of EUR                                                      %      
--------------------------------------------------------------------------------
Total assets                                        65,085      54,352     19.7%
Total current assets                                49,974      39,452     26.7%
Total equity attributable to equity holders of      42,042      31,308     34.3%
 the Company                                                                    
Loans and borrowings                                    36       1,805    -98.0%
Cash and cash equivalents                           21,468       9,838    118.2%



Margin analysis                                   2010  2009  Change, %
In %                                                                   
-----------------------------------------------------------------------
Gross profit                                      39.8  43.5      -8.5%
EBITDA                                            20.8   8.2     153.7%
Net profit                                        16.1   1.9     747.4%
Net profit attributable to owners of the Company  13.1  -0.2           



Financial ratios                2010   2009  Change, %
------------------------------------------------------
ROA                            20.5%  -0.3%           
ROE                            33.4%  -0.5%           
Price to earnings ratio (P/E)    8.8    n/a           
Current ratio                    4.1    2.8      46.4%
Quick ratio                      2.8    1.6      75.0%



* All figures represent continuing operations only, since in 2009 the Group
divested its loss making apparel business line. 

Underlying formulas:

Gross margin = gross profit / sales revenue
EBITDA margin = EBITDA / sales revenue
Net profit margin = net profit / sales revenue
Net profit margin attributable to owners of the Company = net profit
attributable to owners of the Company / sales revenue 
ROA (return on assets) = net profit attributable to owners of the Company/
average total assets 
ROE (return on equity) = net profit attributable to owners of the Company/
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 
Current ratio = current assets / current liabilities
Quick ratio = (current assets - inventories) / current liabilities



Business results

In 2010 the Group's major markets continued the recovery. Economic situation in
Russia, the Group's key market, was steadily improving. The consumers'
purchasing power has increased and unemployment rate has lowered. Russian Ruble
strengthened by 3.8% against multi-currency basket in 2010 (from January till
December). In comparison, in 2009 Ruble weakened by 3.9%. Real effective
exchange rate of the Russian Ruble grew by 4.2% against USD and by 15.0%
against Euro. Based on the forecasts of the Ministry of Economics of Russian
Federation effective exchange rate of Russian Ruble expected to appreciate
close to 6 per cent against the benchmark currency basket 2011. Oil and gas
prices continue to support Russian economy. As a result, retail sales in the
end consumer market have grown since the beginning of 2010. The Group's sales
in Russia in 2010 increased by 24.1% above year-on-year basis. 

The Belarusian market was stable during 2009 and did not weaken in 2010.
According to the preliminary information Belarusian economy's GDP growth was
7.6% in 2010. In 2010 retail operations in Belarus demonstrated an increase of
50.2% in local currency terms and 47.7% in EUR terms as compared to 2009. 

Our expectations of the recovery of Ukrainian economy were not fully met, yet
the 2010 sales in EUR terms grew by 32.7% year-on-year basis. 

Despite the difficult situation that remains in the Baltics, where economy
suffered the most in 2009, Lauma Lingerie's 2010 sales in the Baltic countries
increased by 76.5% as compared to 2009. 

In general, 2010 sales level and market situation confirmed management forecast
of business recovery. 2010 sales demonstrated an increase of 26.0% as compared
to 2009 sales level in EUR terms and 18.4% in volume terms. Net profit in 2010
amounted to EUR 15.1 million compared to a loss of EUR 0.9 million in 2009;
EBITDA more than tripled during the given period. 

The opinion of the management of the Group is that the markets have stabilized
and that consumers have adjusted their purchasing patterns to the new market
conditions. 

On overall, apparel and lingerie markets were undersupplied during 2010,
especially in Russia, because of limited orders placed for finished garments by
major retailers in 2009 while the demand grew significantly. The situation is
favourable for the companies operating their own production units and for those
capable of fast restock of their retail outlets due to effective sourcing and
logistics solutions. At the same time this has increased severe rivalry for
local production capacities and created upward pressure on the cost of labour. 

At the end of the reporting period the Group and its franchising partners
operated 412 Milavitsa and Lauma Lingerie outlets, including 50 stores operated
directly by the Group and the rest by franchising partners. Number of shops
increased by 29.2% during 2010 (at the beginning of 2010 there were 319 shops).
The Group's retail focus has been shifted towards the promotion and support of
franchising in cooperation with existing and new partners. 

During 2010 the Group continued development and improvement of several business
areas including retail, logistics and supply chain management, marketing and
sales, and production planning. 



Key Events in 2010

Share buy-back program

On 9 November 2010 the Extraordinary General Meeting approved the supervisory
board's proposal to start a share buyback program under the following
conditions: 

-         SFG is entitled to buy back its own shares from the date of the
approval of the buyback until 30 June 2011; 
-         The total nominal value of own shares to be bought back by SFG may
not exceed 3,960,700 shares, i.e 10% of total share capital of SFG; 
-         The maximum price payable by SFG for one share to be 4.00 EUR;
-         The maximum amount payable by SFG for its own shares to be 15,842,800
EUR; 
-         Own shares to be paid for with assets exceeding the share capital,
compulsory reserves and share premium. 

The buyback period started on 15 November 2010. During the period from 15
November 2010 to 1 March 2011 number of shares bought back amounted to 133,629,
average price per share amounted to 2.7757 EUR resulting in total cost of
370,911 EUR. 

After the transactions listed above, AS Silvano Fashion Group owns 133,629 of
its own shares, which constitute 0.34% of the share capital. Under the buyback
program, shares up to the value of 15,308,284 Euros remain to be bought back.
The maximum amount of shares that remains to be bought back is 3,827,071. 

Decrease of share capital and conversion of share capital into EUR

The Extraordinary Shareholder Meeting held on 17 March 2011 decided upon
conversion of the share capital into Euros and upon decrease of the share
capital by 5,495,101.17 Euros to the amount of 19,750,000 Euros as follows: 

1.       To cancel 107,000 Company´s own A-shares that have been bought back by
the Company under the buy-back programme as adopted by the resolution of the
extraordinary general meeting of 9th of November 2010 and to reduce the share
capital by 1,070,000 kroons to 395,000,000 kroons. 

2.       After the cancellation of the own shares and the reduction of the
share capital related thereto, the total number of shares shall be 39,500,000. 

3.       The shares held by the shareholders are not subject to cancellation.

4.       The Company shall make no payments to the shareholders in connection
with the cancellation of the Company´s own shares. 

5.       To convert the share capital reduced by the cancellation of the own
shares and the nominal value of the shares into Euros as follows: 

5.1.     The amount of the share capital as being converted into euros is
25,245,101.17 euros and the nominal value of each share is 64 cents. 

5.2.     To reduce the share capital by 5,495,101.17 euros to 19,750,000 euros
in order to meet the requirements set forth in § 223(1) and § 223(2) of the
Commercial Code. 

5.3.     The share capital shall be reduced by means of decreasing the nominal
value of each share by 14 cents to 50 cents. 

5.4.     The conversion of the nominal value of shares into euros shall not
affect the rights attached to shares nor the relation of the nominal value of
shares to the share capital. The rounding of the results of the conversion of
shares' nominal value has no legal effect. 

5.5.     After the conversion and the reduction of the share capital the new
amount of share capital shall be 19,750,000 euros, which is divided into
39,500,000 A?shares with nominal value of 50 cents each share. 

5.6.     To pay to the shareholders 14 cents per each share for the decrease of
the nominal value of share. This amount shall be paid to the shareholders
within three months after entry of the decrease of share capital in the
Commercial Register provided that the claims of creditors submitted during the
term are secured or satisfied. 

Registration of share capital reduction

Another reduction of the share capital was decided by the Annual General
Meeting of SFG on 28 June 2010, by which the share capital of SFG was decreased
from EUR 25,564,659 (EEK 400,000,000) to EUR 25,313,487 (EEK 396,070,000) by
cancelling of 393,000 A-shares owned by SFG. The decrease of the share capital
of AS Silvano Fashion Group was registered in Estonian commercial register on
15 October 2010. 

Share buy-back program of the Group's subsidiary SP ZAO Milavitsa

On 21 May 2010 the parent company of the Group approved the share buy-back
program of the Group's largest subsidiary SP ZAO Milavitsa. The terms of the
program permitted a buy-back of up to 1,967 shares of SP ZAO Milavitsa,
representing up to 20% of all shares in SP ZAO Milavitsa, in the period between
June 2010 and February 2011; the offered price per share of SP ZAO Milavitsa
was 3,000,000 BYR. As the result 256 shares were acquired by SP ZAO Milavitsa
constituting 2.60% of all shares in SP ZAO Milavitsa. On 28 March 2011 the
Annual General Meeting of SP ZAO Milavitsa decided to cancel the shares bought
back. The respective adjustment of AS SFG's shareholding in SP ZAO Milavitsa
will be accounted for in H1 2011. 

Establishment of a subsidiary OOO Milavitsa Logistic

In the light of the increasing business volumes and potential business for the
services to be offered to all group companies, a joint-venture between the
Group's parent company AS Silvano Fashion Group and largest subsidiary SP ZAO
Milavitsa was created in December 2010. The newly founded company targets
rendering of the services for both in- and outbound logistics and distribution
of the Group's products. 

Changes in the supervisory board

The extraordinary general meeting of shareholders of AS Silvano Fashion Group
was held on 5 March 2010, in Tallinn. The meeting resolved to recall members of
the supervisory board of SFG Mr. Indrek Rahumaa and Mr. Priit Põldoja and to
elect Mr. Risto Mägi, Mr. Stephan Balkin, Mr. Otto Tamme and Mr. Sven Kunsing
to the supervisory board. 

On 24 March 2010 a member of the supervisory board Mr. Sven Kunsing presented
to SFG an application for his resignation from the position of a supervisory
board member, and requested that the application would be provided to the next
ordinary general meeting of SFG. The shareholders of the Company acknowledged
Sven Kunsing's resignation from the supervisory board on the Annual General
Meeting held on 28 June 2010. 

On 28 June 2010 Mr. Ants Susi was elected as the supervisory board member of
the Company. 

Changes in the management board

On 5 June 2010 the term of office of Dmitry Ditchkovsky and Sergei Kusonski as
management board members of SFG expired. Mr. Ditchkovsky and Mr. Kusonski kept
their positions in the management of SFG under employment agreements. 

On 5 August 2010 the supervisory board of AS Silvano Fashion Group decided to
elect Märt Meerits as the new management board member of SFG. On 8 November
2010 the supervisory board of AS Silvano Fashion Group appointed Mr. Märt
Meerits as the Chairman of the management board. Mr. Norberto Rodriguez was
appointed as the Vice Chairman of the management board. 

On 15 March 2011, Silvano Fashion Group supervisory board decided to call back
Baiba Gegere and Norberto Rodriguez Lopez from the management board of the
company. 

Establishment of an Audit Committee

On 8 November 2010, the supervisory board of Silvano Fashion Group approved the
formation of the Audit Committee on grounds of the Authorised Public
Accountants Act. The committee has three members: Ms. Jekaterina Stuge
(Chairperson), Ms. Maivi Ots and Mr. Otto Tamme. 



Financial performance

The Group's sales from continuing operations amounted to EUR 93,292 thousand in
2010, representing a 26.0% increase as compared to the previous year. Overall
wholesale sales from continuing operations increased by 37.7%, while retail
sales from continuing operations presented a decrease of 5.4%, mainly due to
closures of underperforming stores and the restructuring of the Group's
distribution model that was carried out by the management in 2009. Decrease in
retail sales is thus in line with management expectations and follows the
restructuring decisions taken in 2009 when loss-making own retail operations in
Russia were gradually discontinued. As the result, the proportion of own retail
sales in total sales decreased by 5.8% and came at 17.5% of total sales in
2010. 

The Group's gross margin from continuing operations in 2010 decreased and was
39.8%, as compared to 43.5% in the previous year. Decrease in gross margin is
mainly explained by higher customs duties on materials imported by the Group
from the EU after Belarus joining the Customs Union with Russia and by the
decline of the proportion of retail sales in total sales. 

The consolidated operating profit from continuing operations in 2010 amounted
to EUR 17,658 thousand, compared to EUR 3,863 thousand in 2009. The
consolidated operating margin from continuing operations was 18.9% (5.2% in
2009). The operating profit and the operating margin in 2009 were adversely
influenced by one-off expenses. 

Consolidated net profit from foreign exchange rate fluctuations amounted to EUR
805 thousand in 2010 and was mainly accrued in Q1 2010 and related to the
intra-group borrowings in EUR and USD. 

Effective tax rate for the year 2010 amounted to 22.2% and was lower than
expected due to relatively low effective tax rates in Q2 2010 (19.2%) and Q4
2010 (18.7%). Effective tax rate in 2010 improved significantly as compared to
the respective period in the previous year. While statutory tax rates in
Belarus and Russia remained unchanged, the improvement of the effective tax
rate is caused by the terminated loss making operations, lowering profitability
of the Group's largest subsidiary SP ZAO Milavitsa and use of tax loss of prior
years in Russia. 

Consolidated net profit from continuing operations attributable to equity
holders amounted to EUR 12,240 thousand in 2010, compared to net loss of EUR
165 thousand in 2009; net margin from continuing operations attributable to
equity holders was 13.1% (up from a negative margin of 0.2% in 2009). 

In 2010, the Group's return on equity amounted to 33.4% (-0.5% in 2009) and
return on assets was 20.5% (-0.3% in 2009). 



Financial position

As of 31 December 2010 consolidated assets amounted to EUR 65,085 thousand
representing an increase of 19.7% as compared to the position as of 31 December
2009. 

Property, plant and intangibles balances increased by EUR 657 thousand as
compared to 31 December 2009. Acquisitions of property, plant and intangible
assets amounted to EUR 2,419 thousand in 2010. 

Inventory balance amounted to EUR 15,792 thousand as of 31 December 2010 as
compared to EUR 17,019 thousand as of 31 December 2009. Decrease in inventories
is mainly explained by optimization of stock levels in the distribution and
retail companies of the Group. 

Trade receivables increased by EUR 1,230 thousand as compared to 31 December
2009 and amounted to EUR 9,642 thousand as of 31 December 2010. The balance of
trade receivables as of 31 December 2010 is in line with seasonality trends and
overall increase is mainly driven by increase in sales. 

Foreign exchange fluctuations had a positive impact on the Group's equity, in
the form of a positive change in the currency translation reserve in the amount
of EUR 335 thousand for 2010. On 21 September 2010 the Group paid out a
dividend in the amount of EUR 1,980 thousand. Equity attributable to equity
holders increased by EUR 10,734 thousand and amounted to EUR 42,042 thousand as
of 31 December 2010. 

Current liabilities decreased by EUR 1,922 thousand in 2010, in line with
management expectations. 

The liquidity position of the Group improved in 2010 with respect to the total
balance of borrowings and related maturities. Current and non-current loans and
borrowings decreased by EUR 1,769 thousand to EUR 36 thousand as of 31 December
2010. Loans received and loans repaid in 2010 amounted to EUR 765 thousand and
EUR 2,542 thousand respectively, including finance lease liabilities repaid in
the amount of EUR 53 thousand. In Q2 2010 the Group settled an overdraft
facility of AS Lauma Lingerie that amounted to EUR 925 thousand as of 31 March
2010. 

In 2009 the Group divested its loss making apparel business line through the
sale of shares in its former 100% subsidiary PTA Grupp AS. At the date of
disposal the Group had outstanding guarantees issued to Danske Bank A/S
Estonian branch securing certain borrowings and guarantee limits of PTA Grupp
AS. As of 31 December 2010 PTA Grupp AS's balance of borrowings and guarantees
from Danske Bank A/S Estonian branch that were secured by a surety provided by
SFG amounted respectively to EUR 178 thousand and EUR 228 thousand. 

Tax liabilities and other payables, including payables to employees, amounted
to EUR 4,216 thousand. Provisions amounted to EUR 136 thousand as of 31
December 2010. 



Sales

Sales by business segments

In thousands of EUR    2010    2009  Change
-------------------------------------------
Wholesale            76,536  55,583   37.7%
Retail               16,345  17,275   -5.4%
Other operations        411   1,186  -65.3%
-------------------------------------------
Total                93,292  74,044   26.0%
-------------------------------------------

Sales by markets

In 2010, the Group focused mainly on the Baltic, Russian, Belarusian and
Ukrainian markets. 

The majority of lingerie sales revenue in 2010 in the amount of EUR 53,721
thousand was generated in the Russian market, accounting for 57.6% of all
lingerie sales in 2010 as compared to EUR 43,295 thousand in 2009. Sales in
Russia comprise both retail sales and wholesale. The second largest region for
lingerie sales was Belarus, where sales reached EUR 25,531 thousand,
contributing 27.4% of lingerie sales (both retail and wholesale) as compared to
EUR 19,558 thousand in 2009. 

Although still affected by the economic situation, sales in the major markets
demonstrated a positive trend in terms of pieces sold in 2010 as compared to
the respective period in 2009. 

The most considerable sales growth took place on the Belarussian, Russian and
Ukrainian markets. Overall sales results in 2010 were slightly above management
expectations after a difficult year of 2009. 

Changes in the sales strategy introduced by Milavitsa in late 2009 and early
2010 were implemented in 2010 in Russia and Ukraine. The Group aims to increase
control over its distribution and its organizational structure has been
adjusted accordingly. 

To support the growth of sales, Milavitsa continued conducting additional
marketing activities in Belarus, Ukraine and Russia and implementing supportive
measures in the opening of new franchised stores. Joint programs with dealers
and distributors were continued in 2010 in the fields of marketing and
franchising. 

Milavitsa has been recognized as the most valuable Belarussian brand in the
report published by MPP Consulting, a Ukrainian brand rating agency. 

Intima, the largest and the most respected European lingerie magazine, produced
a substantial report on Milavitsa in its September issue which is available at
www.intima.fr. 

Lauma Lingerie experienced a sharp recovery in sales in their major markets
after being affected by the crisis. A new sales and marketing manager with
considerable experience in the industry has joined the Company. 

In terms of lingerie brands, “Milavitsa” core brand accounted for 72.1% of
total lingerie sales revenue in 2010 (2009: 74.4%) and amounted to EUR 66,967
thousand. “Lauma Lingerie” core brand accounted for 8.2% of total lingerie
sales (2009: 5.3%) and amounted to EUR 7,616 thousand. Other brands such as
“Alisee”, “Aveline”, “Hidalgo” and “Laumelle” comprised 19.7% of total lingerie
sales in 2010 (2009: 20.3%), amounting to EUR 18,298 thousand. 

Wholesale

In 2010, wholesale revenue amounted to EUR 76,536 thousand, representing 82.0%
of the Group's total revenue (2009: 75.1%). The main wholesale regions were
Russia, Belarus, Ukraine and the Baltic States. Gradual improvements in sales
were observed already in Q1 and Q2 2010 despite the expectations of the
difficult start of the year. Wholesale results in Q3 and Q4 continued improving
compared to the same period of 2009 demonstrating a positive trend. Substantial
growth has been achieved in Kazakhstan. 

Additional activities were introduced in the non-core markets targeted at the
diversification of the Group's sales towards the western European countries.
Some markets will be approached through sales agents, while others will be
served by local dealers. The Group will also seek private label production
opportunities where practical. 

Retail operations

Total lingerie retail sales of the Group in 2010 amounted to EUR 16,345
thousand, representing a 5.4% decrease as compared to the previous year. 

Own retail operations were conducted in Belarus, Russia and Latvia. At the end
of 2010 the Group operated 50 own retail outlets with a total area of 4,253
square meters. As of 31 December 2010, there were 348 Milavitsa branded shops
operated by Milavitsa trading partners in Russia, Belarus, Ukraine, Moldavia,
Kazakhstan, Uzbekistan, Kyrgyzstan, Latvia, Azerbaijan, Armenia, Cyprus,
Germany, Georgia and Slovenia. Some underperforming shops were closed or
relocated. Additionally, as of 31 December 2010, there were 14 Lauma Lingerie
retail outlets operated by Lauma Lingerie trading partners in Lithuania, Latvia
and Estonia. International retail expansion of Milavitsa resulted in opening of
Milavitsa branded stores in Germany, Georgia and Slovenia. The 200th Milavitsa
store was opened in Russia. Also a Milavitsa store was opened in Tverskaja
street, the major shopping street in Moscow. 

In 2010 9 new own lingerie stores were opened, including 5 under Milavitsa
brand name in Belarus and 4 stores under Lauma Lingerie brand name in Latvia.
One underperforming store was closed in Belarus, one - in Latvia, three
underperforming stores were closed in Russia and 18 stores were transferred to
Milavitsa's trading partners in the course of the strategy to shift focus from
own retail chain towards the development of Milavitsa franchise network, thus
terminating the loss making own retail operations in Russia. 

Number of own stores as of:

                        31.12.2010  31.12.2009
----------------------------------------------
Latvia                           8           5
Belarus                         42          38
Russia                           0          21
Total stores                    50          64
----------------------------------------------
Total sales area, sq m       4,253       5,523
----------------------------------------------

A number of sales promotions were conducted in the Milavitsa retail chain in
Belarus. Own retail operations in Belarus remain one of the key priorities for
the Group's further sales development in the country. Overall retail operations
in the country demonstrated a 50.2% growth in local currency terms and a 47.7%
growth in EUR terms as compared to 2009 mainly due to the number of new shops
opened in the recent year. Sales per square meter in the like-for-like shops
have increased as well. 

In the Baltics, retail sales decreased by 38.2% as compared to the previous
year and amounted to EUR 759 thousand. Decrease in own retail sales in the
Baltics is explained by the divestment of Lithuanian retail operations in
November 2009. 

In respect of lingerie retail in Russia the strategic decision to shift focus
from own retail chain towards the development of Milavitsa franchise network
was made in H2 2009, that resulted in the termination of the loss making own
retail operations in Russia. As the result, the Group's own Oblicie stores were
rebranded to Milavitsa and a transfer of stores to Milavitsa's trading partners
commenced while non-performing stores were closed. During H1 2010 all 21
remaining stores were either transferred to trading partners or closed. As of
30 June 2010 the Group did not have any own retail stores in Russia. Certain
structural and management changes have been made in the Group's Russian
operations (including the establishment of a separate franchise department) to
implement the selected franchise development strategy. 

Own stores by concept

Market   Milavitsa  Lauma Lingerie  Total  Sales area,
            stores          stores                sq m
------------------------------------------------------
Belarus         42               0     42        3,824
Latvia           0               8      8          429
------------------------------------------------------
Total           42               8     50        4,253
------------------------------------------------------



Discontinued operations

Discontinued operations' reported results in 2009 include operations of PTA
(apparel business line) for H1 2009. Results of PTA operations are presented in
the consolidated income statement as a single line item under ‘Loss from
discontinued operations'. 

Production, sourcing, purchasing and logistics

Due to the high demand on the market the Group's manufacturing companies
increased their production and purchasing volumes in 2010. 

The total volume of production in SP ZAO Milavitsa amounted to 17,209 thousand
pieces in 2010, representing a 20.3% increase as compared to the previous year.
The total production volume in Lauma Lingerie amounted to 1,162 thousand pieces
in 2010, showing an increase of 75.5% as compared to the respective period in
the previous year. Production capacities in SP ZAO Milavitsa in 2010 increased
in order to prepare for increased production volumes in 2011. 

In 2010 main efforts were directed towards change and improvement of the
interfaces and modules of the system processing customers' orders. It has
allowed using high performance sorter machine in order to address shipments to
the clients effectively. Decision on the construction of new logistics center
which will provide development of the Group for the coming 5-10 years is
expected to be taken in 2011. 

Capital investments

In 2010, the Group's investments totalled EUR 2,419 thousand with investments
into retail amounting to EUR 355 thousand. Other investments were made in
equipment and facilities to maintain effective production and to add capacity
for 2011. 

Personnel

As of 31 December 2010, the Group employed 3,193 employees including 470 in
retail and 2,127 in production. The rest were employed in wholesale,
administration and support operations. The average number of employees in 2010
was 3,146. 

Total salaries and wages in 2010 amounted to EUR 17,980 thousand. The
remuneration of the members of the management board totalled EUR 357 thousand.
The members of the management board also serve as executives for the Group's
subsidiaries. 



Outlook for 2011

All major countries of the Group's operations are expected to demonstrate
growth in 2011. IMF forecasts Russian GDP growth of 4.5% in 2011 (World
Economic Outlook). CIS countries (Russia excluded) are expected to grow by 5.1%
in 2011 and by 5.2% in 2012. Inflation rate for 2011 is expected at 7-8% in
Russia and Belarus, and 9% in Ukraine. Economy of Baltic States will grow by
3-4% in 2011 with inflation rate of 2% in Lithuania, 3% in Latvia and 3.7% in
Estonia (Swedbank forecasts). 

The consumer demand is reviving in the Company's all markets including Russia,
Ukraine, Belarus and Baltics. However, this boom is mainly correlated with
delayed demand and seasonality trends. The delayed demand will be covered in
the first quarter of 2011. 

Retail chains are foreseeing upcoming positive trends mainly in big cities and
start opening new outlets.  Pre-crisis level of sales (number of units per
purchase and value per purchase) is expected to recover by 2011. Food retail
chains notice changes in consumer behaviour towards “smart buying”. The current
problem for retailers is price increase for major consumer goods, which affects
consumers' willingness to spend. 

In 2010 apparel, lingerie and shoe markets demonstrated 15% growth. In 2011 we
expect a growth rate of 12-15%. In 2011, besides demand reviving, we foresee
the restoration of demand structure. During the crisis the demand moved towards
cheaper products. For example, medium and upper medium segment in
apparel/lingerie market shrank by 50%, whereas mass-market lost only 10%. Also
there is no “impulse buying” contribution in apparel/lingerie retail sales as
it was accounted up to 30% in total sales before crisis, now consumers buy
goods purposefully. Major retail chains in apparel and lingerie come back to
retail expansion, which was stopped during the crisis (Sela, Savage, Melon
Fashion Group, Finn Flare, Glance). 

The Group's overall strategy focuses on the organic growth in 2011, improved
logistics, strengthening its retail business model, and polishing brand
management. 2011 Group's goals are based on double-digit growth for the major
export markets. Management does not forecast any substantial devaluation of
local currencies in major export markets against USD and Euro that would result
in lowering purchasing power, particularly for imported goods, and shrinking of
consumer demand. 

To achieve organic growth in 2011 the Group plans further development of its
retail and wholesale operations. Improvement of logistics through launching a
new project - distribution center (DC) - that is supposed to be designed in
2011 with subsequent construction in 2012. DC will solve the logistics capacity
problem that Company is currently facing. Existing logistics is currently being
restructured to address the growing retail demand for customized, low-quantity
shipments and shortened lead-time. 

In retail, the main focus for 2011 will be on the franchising partners' retail
networks, i.e. Milavitsa branded stores in Russia, Ukraine and other CIS
countries and Lauma stores in Baltics. The Group's own retail network will be
developed in Belarus and Latvia. The target for the Group's owns retail is to
continue increasing efficiency of retail operations and adding up 10 outlets
per annum. The Group will continue supporting its franchising model by
enhancing brand awareness and recognition, supplementing collections, and
performing consumer campaigns and other marketing measures for all the markets.
For all own shops in Belarus and partners' stores in other countries the Group
will launch an IT support system enhancing supply chain management and stock
planning for the wholesalers and the shops. 

In wholesale, the main focus for 2011 will be on upgrading the existing
wholesale network, strengthening relationships with existing dealers, exploring
new markets and new product niches, and improving planning and logistics for
wholesale distribution. The Group restructures its planning principles to
assist trading partners in placing more precise orders by reducing the
lead-time from orders to actual shipments. The Group plans to work on raising
existing dealers' loyalty to the Group and its products via closer
communication with partners, offering competitive terms and conditions,
providing marketing and PR support, organizing round-table conferences with key
accounts on a regular basis. For the geographical exposure, the Group will work
to insure a high penetration ratio at all markets. 

In general, in 2011 the Group goals are:

-    launching new logistics project - distribution center,

-    raising efficiency of the retail business model and franchising policies,

-    proactive sales and market diversification,

-    brand management (product brands and retail concepts),

-    international product sourcing.



Consolidated statement of financial position

As of 31 December                                             2010     2009
In thousands of EUR                                                        
---------------------------------------------------------------------------
ASSETS                                                                     
Non-current assets                                                         
Property, plant and equipment                               11,446   10,753
Intangible assets                                              534      570
Investment property                                          1,299    1,284
Investments in equity accounted investees                      106      139
Available-for-sale financial assets                            370      362
Deferred tax asset                                           1,324    1,158
Other receivables                                               32      634
Total non-current assets                                    15,111   14,900
Current assets                                                             
Inventories                                                 15,792   17,019
Corporate income tax asset                                      59      464
Other tax receivable                                         1,517    1,462
Trade receivables                                            9,642    8,412
Other receivables                                            1,188    1,167
Prepayments                                                    288      609
Cash and cash equivalents                                   21,468    9,838
Non-current assets classified as held for sale                  20      481
Total current assets                                        49,974   39,452
TOTAL ASSETS                                                65,085   54,352
                                                                           
LIABILITIES AND EQUITY                                                     
Equity                                                                     
Share capital at par value                                  25,313   25,565
Share premium                                               14,130   14,271
Own shares                                                    -311     -450
Statutory capital reserve                                       67       67
Other reserves                                                 453        0
Translation reserve                                        -11,588  -11,922
Retained earnings                                           13,978    3,777
Total equity attributable to equity holders of the parent   42,042   31,308
Non-controlling interest                                    10,974    8,701
Total equity                                                53,016   40,009
Non-current liabilities                                                    
Loans and borrowings                                             0      259
Other payables                                                   0       93
Total non-current liabilities                                    0      352
Current liabilities                                                        
Loans and borrowings                                            36    1,546
Trade payables                                               7,681    7,925
Corporate income tax payable                                   608      227
Other tax payable                                              712    1,587
Other payables                                               1,131      912
Provisions                                                     136      217
Accrued expenses                                             1,757    1,536
Deferred income                                                  8       41
Total current liabilities                                   12,069   13,991
Total liabilities                                           12,069   14,343
TOTAL LIABILITIES AND EQUITY                                65,085   54,352



Consolidated income statement
For the year ended 31 December

in thousands of EUR                                       2010     2009
-----------------------------------------------------------------------
Continuing operations                                                  
Revenue                                                                
Sales revenue                                           93,292   74,044
Costs of goods sold                                    -56,132  -41,862
Gross Profit                                            37,160   32,182
                                                                       
Other operating income                                   1,145      864
Distribution costs                                      -9,986  -11,552
Administrative costs                                    -8,146  -10,138
Other operating expenses                                -2,515   -7,493
Operating profit                                        17,658    3,863
                                                                       
Finance income and finance costs                                       
Interest expenses                                          -75     -527
Currency exchange income                                   805      972
Other financial income                                   1,004      611
Net finance income                                       1,734    1,056
                                                                       
Share of profit or loss of equity accounted investees      -36      -20
Profit before tax                                       19,356    4,899
Income tax expense                                      -4,292   -3,508
Profit from continuing operations                       15,064    1,391
                                                                       
Discontinued operations                                                
Loss from discontinued operation (net of income tax)         0   -2,303
Profit/ (loss) for the period                           15,064     -912
                                                                       
Attributable to                                                        
Owners of the Company                                   12,240   -2,468
Non-controlling interest                                 2,824    1,556
                                                                       
Earnings per share                                                     
Basic earnings per share (in EUR)                         0.31    -0.06
Diluted earnings per share (in EUR)                       0.31    -0.06
                                                                       
Continuing operations                                                  
Basic earnings per share (in EUR)                         0.31   -0.004
Diluted earnings per share (in EUR)                       0.31   -0.004



The report has been duly signed by Management Board of Silvano Fashion Group.
The Supervisory Board approval of the report is foreseen before the Annual
General Meeting. 



Märt Meerits
Member of the board of Aktsiaselts Silvano Fashion Group
E-mail: [email protected]
Tel: +372 684 5000; Fax: +372 684 5300
Address: Tulika 15/17, 10613 Tallinn, Estonia
http://www.silvanofashion.com