Market announcement

Title

Consolidated interim report for Q3 and 9 months 2011

Message

Tallinn, Estonia, 2011-11-08 18:31 CET (GLOBE NEWSWIRE) --
Selected Financial Indicators

In summary, the selected financial indicators of AS Silvano Fashion Group for
Q3 2011 and 9 months 2011 were as follows: 

In thousands of EUR                               Q3 2011      Q3 2010   Change,
                                                                               %
Sales revenue                                      30,355       25,672     18.2%
Earnings before interest, taxes and                12,516        6,016    108.0%
 depreciation (EBITDA)                                                          
Net profit for the period                           8,355        4,342     92.4%
Net profit attributable to owners of the            6,915        3,448    100.6%
 Company                                                                        
Earnings per share (EUR)                             0.18         0.09    100.0%
Operating cash flow for the period                  6,500        8,917    -27.1%
                                                                                
In thousands of EUR                              9 months     9 months   Change,
                                                     2011         2010         %
Sales revenue                                      86,549       72,435     19.5%
Earnings before interest, taxes and                31,049       15,836     96.1%
 depreciation (EBITDA)                                                          
Net profit for the period                          33,646       12,116    177.7%
Net profit attributable to owners of the           27,638        9,619    187.3%
 Company                                                                        
Earnings per share (EUR)                             0.70         0.24    191.7%
Operating cash flow for the period                 22,402       16,111     39.0%
                                                                                
In thousands of EUR                            30.09.2011   31.12.2010   Change,
                                                                               %
Total assets                                       62,852       65,085     -3.4%
Total current assets                               53,296       49,974      6.6%
Total equity attributable to equity holders        39,834       42,042     -5.3%
 of the Company                                                                 
Loans and borrowings                                   43           36     19.4%
Cash and cash equivalents                          23,014       21,468      7.2%



Margin analysis                                      Q3 2011  Q3 2010  Change, %
Gross profit margin                                    56.3%    39.4%      42.9%
EBITDA margin                                          41.2%    23.4%      76.1%
Net profit margin                                      27.5%    16.9%      62.7%
Net profit margin attributable to owners of the        22.8%    13.4%      70.1%
 Company                                                                        



Margin analysis                                  9 months     9 months   Change,
                                                     2011         2010         %
Gross profit margin                                 51.1%        40.2%     27.1%
EBITDA margin                                       35.9%        21.9%     63.9%
Net profit margin                                   38.9%        16.7%    132.9%
Net profit margin attributable to owners of         31.9%        13.3%    139.8%
 the Company                                                                    



Financial ratios               30.09.2011  31.12.2010  Change, %
ROA                                  49.4        20.5     141.0%
ROE                                  77.3        33.4     131.4%
Price to earnings ratio (P/E)         3.6         8.8     -59.1%
Current ratio                         3.5         4.1     -14.6%
Quick ratio                           2.5         2.8     -10.7%





Underlying formulas:

Gross profit 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 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 Results

  Year 2011 has so far been great success to SFG. Strong consumer demand in our
core market Russia combined with the lowering production cost per unit due to
currency devaluation in Belarus created ideal conditions for improvements in
sales and gross margin at the same time.  The seasonality effect of the third
quarter is a further contributor to the increase in sales, both in volume and
in monetary terms. The same parallel can be drawn with Q3 in 2010. 

Economic situation in Russia, the Group's key market, stayed firm throughout
the whole three quarters. Nevertheless, Russian economy is not isolated from
the global economy, thus the expectations of the consumers and the retailers
about the outlook of the future have deteriorated. One of the indicators is the
volatility and trend of the currency pairs EUR/USD and EUR/RUB whereas Russian
rouble has weakened throughout the whole Q3. Despite oil and gas prices that
continue to support Russian economy, the world financial markets uncertainty
and up-coming political campaign in Russia resulted in vulnerable economic
situation in the country in Q3, probably extended into Q4 2011. 

In Ukraine, the infamous gas deal court case might result in slowing down of US
and EU financial support of the Ukrainian economy with certain pressure on the
Ukrainian authorities, which can eventually worsen consumer demand. 

The Belarusian consumer market has been affected by de facto devaluation of the
local currency and multiple exchange rates since Q2 2011. Q3 2011 retail sales
were partially driven by the willingness to get rid of local currency and
convert it into consumer goods. 

The Baltic markets have recovered from the bottom but the growth outlook is
vague. Nevertheless, 2 new Milavitsa and 1 new Lauma Lingerie franchise store
have been opened in Estonia, which ascertains that there is hope for
improvement. Our own retail network sales stalled in Latvia (9 month y-o-y unit
sales dropped by 1.2%, compensated by slightly higher mark-ups at the stores). 

At the end of the reporting period the Group and its franchising partners
operated 462 Milavitsa and Lauma Lingerie outlets, including 53 stores operated
directly by the Group and the rest by franchising partners. 

9m 2011 sales demonstrated annual increase of 19.5% compared to 9m 2010. 9m
2011 EBITDA climbed to EUR 31,049 thousand, an increase of 96.1% compared to 9m
2010; 9m 2011 normalized net profit (excluding effect of foreign exchange,
mainly due to the devaluation of Belarusian rouble) stood at EUR 20,967
thousand and up by 82.1% compared to 9m 2010. 

Third quarter sales amounted to EUR 30,355 thousand, EBITDA - to EUR 12,516
thousand, and normalized net profit (excluding effect of foreign exchange) - to
EUR 9,964 thousand. 

Financial performance

The Group sales amounted to EUR 86,549 thousand in 9 months 2011, representing
a 19.5% increase compared to the previous year. Overall wholesales increased by
22.9% and retail sales by 4.7%. 9 month 2010 retail sales include retail sales
generated in Russia in the amount of EUR 1,268 thousand. However own retail
operations in Russia were fully discontinued by the Group in H1 2010 following
the restructuring decisions taken in 2009. Thus like for like increase in
retail sales amounted to 16.0%. 

The Group gross margin increased in 9 months 2011 and reached 51.1% compared to
40.2% in the respective period of the previous year. Positive effect was
observed in Q2 and Q3 2011 mainly due to devaluation of Belarusian rouble,
which generates cost savings in Euro terms in Belarus. 

The consolidated operating profit amounted to EUR 30,008 thousand during 9
months of 2011, compared to EUR 14,511 thousand in 9 months of 2010. The
consolidated operating profit margin was 34.7% (20.0% in 9 months of 2010).
Significant growth in operating profit margin is mainly explained by the fact
that most of the Group's revenue is denominated in Russian roubles and Euros
whereas significant part of the costs is linked to Belarusian rouble. 

SFG foresees the positive cost effect to continue also in Q4 due to the
devaluation of Belarusian rouble that has positive effect on the gross margins,
hence also on the profitability of the Group. 

Consolidated net profit from foreign exchange rate fluctuations amounted to EUR
12,679 thousand in 9 months of 2011. The main constituents to the foreign
exchange gain in the amount of EUR 12,485 thousand are sales denominated in
Russian roubles and short-term deposits denominated in Euros. 

Effective tax rate for 9 months 2011 amounted to 22.5% (23.0% in 9 months
2010). The number is lower than expected due to the decrease of statutory tax
rate in Belarus from 26.28% to 24%. The Group continues utilizing the benefit
of tax losses of prior years in Russia. 

All dividend and capital reduction payments to SFG shareholders during the
reporting period have been carried out without any additional tax burden to the
Group. 

Consolidated net profit attributable to equity holders amounted to EUR 27,638
thousand in 9 months of 2011, compared to EUR 9,619 thousand in 9 months of
2010; net profit margin attributable to equity holders was 31.9% against 13.3%
in 9 months of 2010. 

In 9 months of 2011, Group's return on equity (ROE) amounted to 77.3% (33.4% in
2010) and return on assets (ROA) reached 49.4% (20.5% in 2010). 

Financial position

As of 30 September 2011 consolidated assets amounted to EUR 62,852 thousand
representing a decrease of 3.4% compared to the year-end. Part of the decrease
is related to the payouts to the SFG shareholders (capital decrease), the
devaluation of the Belarusian rouble being another factor, decreasing the value
of assets based in Belarus in EUR terms. 

Property, plant and intangibles balances decreased by EUR 3,758 thousand
compared to the year-end; the key reason being the impact of the foreign
exchange rate decrease in the monetary amount of EUR 6,207 thousand. 

Trade receivables increased by EUR 1,571 thousand as compared to 31 December
2010 and totalled EUR 11,213 thousand as of 30 September 2011. Inventory
balance decreased by EUR 644 thousand and totalled EUR 15,148 thousand as of 30
September 2011. Reduction in inventory balance is partially related to the
seasonality of the business. 

Foreign exchange fluctuations had significant impact on the non-monetary
currency translation reserve (adjustment reserve for the revaluation of foreign
currency assets and liabilities), which decreased by EUR 22,161 thousand in 9
months 2011. Since currency translation reserve affects directly owners'
equity, on the overall basis, equity attributable to equity holders decreased
by EUR 2,208 thousand and amounted to EUR 39,834 thousand as of 30 September
2011. 

Current liabilities increased by EUR 3,361 thousand in 9 months 2011. The main
constituent for the increase was income tax liability that increased from EUR
608 thousand to EUR 4,391 thousand. Most of the income tax was recognized in
Belarus as a result of higher operating profits and gains from currency
exchange fluctuations both originating from devaluation of BYR. 

Current and non-current loans and borrowings increased by EUR 7 thousand to EUR
43 thousand as of 30 September 2011. Loans received and loans repaid in 9
months 2011 amounted to EUR 711 thousand and EUR 681 thousand respectively,
including finance lease liabilities repaid in the amount of EUR 7 thousand. 

Tax liabilities and other payables, including payables to employees, amounted
to EUR 8,594 thousand. Provisions amounted to EUR 233 thousand as of 30
September 2011. 

Sales

Sales by business segments

              9 months     9 months     Change    9 months 2011    9 months 2010
              2011 EUR     2010 EUR        EUR  percentage from  percentage from
              thousand     thousand   thousand            sales            sales
Wholesal        72,634       59,098     13,536            83.9%            81.6%
e                                                                               
Retail          13,621       13,006        615            15.8%            17.9%
Other              294          331        -37             0.3%             0.5%
 operati                                                                        
ons                                                                             
Total           86,549       72,435     14,114           100.0%           100.0%



Sales by markets

In 9 months 2011, the Group focused mainly on the Baltics, Russian, Belarusian
and Ukrainian markets. 

Total sales by markets



            9 months      9 months     Change    9 months 2011     9 months 2010
            2011 EUR      2010 EUR        EUR  percentage from   percentage from
            thousand      thousand   thousand            sales             sales
Russia        53,199        41,186     12,013            61.5%             56.9%
Belaru        21,868        20,019      1,849            25.3%             27.6%
s                                                                               
Baltic         2,306         4,267     -1,961             2.7%              5.8%
s                                                                               
Ukrain         4,811         3,806      1,005             5.6%              5.3%
e                                                                               
Other          4,365         3,157      1,208             4.9%              4.4%
 marke                                                                          
ts                                                                              
Total         86,549        72,435     14,114           100.0%            100.0%



The majority of lingerie sales revenue in 9 months of 2011 in the amount of EUR
53,199 thousand was generated in the Russian market, accounting for 61.5% of
all sales compared to EUR 41,186 thousand in 9 months of 2010 (an increase of
29.2% y-o-y). Sales in Russia for 9 months of 2011 comprise wholesale only, but
include both retail sales and wholesale for 9 months of 2010. The second
largest region was Belarus, where sales reached EUR 21,868 thousand,
contributing 25.3% of lingerie sales (both retail and wholesale) compared to
EUR 20,019 thousand in 9 months of 2010 (an increase of 9.2% y-o-y) 

Sales in the major markets demonstrated positive trend in terms of pieces sold
in 9 months of 2011 compared to the respective period in 2010. 

The most considerable sales growth took place on the Belarusian, Russian and
Ukrainian markets. 

Changes in the sales strategy and organization structure introduced by SFG-held
SP ZAO Milavitsa in late 2009 and early 2010 were implemented in 2010 in Russia
and Ukraine. As a result the Group increased control over its distribution
channels. 

To support the growth of sales, the Group 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 continued in 9 months of 2011 in the field of marketing and
franchising. 

SFG-held Lauma Lingerie demonstrated an increase in sales during 9 months 2011
mainly due to their performance in Russia, Ukraine, Belarus and Kazakhstan, the
proportion of the sales in the Baltics eventually decreased. 

In terms of lingerie brands “Milavitsa” core brand accounted for 72.8% of total
lingerie sales revenue in 9 months of 2011 (9 months of 2010: 72.6%) and
amounted to EUR 62,794 thousand. “Lauma Lingerie” core brand accounted for 8.5%
of total lingerie sales (9 months of 2010: 8.0%) and amounted to EUR 7,332
thousand. Other brands such as “Alisee”, “Aveline”, “Hidalgo” and “Laumelle”
comprised 18.7% of total lingerie sales in 9 months of 2011 (9 months of 2010:
19.4%), amounting to EUR 16,129 thousand. 

Wholesale

In 9 months of 2011, wholesale revenue amounted to EUR 72,634 thousand,
representing 83.9% of the Group's total revenue (9 months of 2010: 81.6%). The
main wholesale regions were Russia, Belarus, Ukraine and the Baltic States.
Substantial growth has been achieved in Russia, Ukraine and Kazakhstan mainly
due to the success of the local wholesale partners. 

Logistics and production issues caused significant undersupply of wholesalers
by Milavitsa in August which was partially recovered in September. By the
beginning of October some Russian wholesalers were overstocked by Milavitsa
products. 

Lower than expected retail sales and wholesales in August-October coupled by
the negative macroeconomic forecast and rouble foreign exchange rate
fluctuations in Russia led to moderate outlook for Q3-2012 by Milavitsa trading
partners. 

Retail operations

Total lingerie retail sales of the Group in 9 months of 2011 amounted to EUR
13,621 thousand, representing a 4.7% increase compared to the previous year. 

Own retail operations were conducted solely in Belarus and Latvia. As of 30
September 2011 the Group operated 53 own retail outlets with a total area of
4,689 square meters. In 9 months of 2011 5 new own lingerie stores were opened,
including 4 stores under Milavitsa brand name in Belarus and 1 store under
Lauma Lingerie brand name in Latvia, 2 stores under Milavitsa brand name were
closed. 

Number of own stores as of:



                        30.09.2011  31.12.2010
Latvia                           9           8
Belarus                         44          42
Total stores                    53          50
Total sales area, sq m       4,689       4,253


The 400th landmark reached

As of 30 September 2011, there were 390 Milavitsa branded shops operated by
Milavitsa trading partners in Russia, Belarus, Ukraine, Moldavia, Kazakhstan,
Uzbekistan, Kyrgyzstan, Latvia, Azerbaijan, Armenia, Germany, Georgia,
Slovenia, Iran and Estonia, resulting in net increase of 42 shops during 9
months 2011. Additionally, as of 30 September 2011, there were 19 Lauma
Lingerie retail outlets operated by Lauma Lingerie trading partners in
Lithuania, Latvia, Estonia and Albania, of which 6 were opened and 1 was closed
due to store relocation in 9 months 2011. The 400th Milavitsa store was opened
in Belarus on 1 April 2011. In February a Milavitsa store was opened on
Kreschatik street, the major shopping street in Kiev (Ukraine). Estonia became
the 15th and Iran became the 16th country where Milavitsa established
franchised retail operations. Retail operations in Cyprus were terminated
decreasing the number of countries with active franchised retail operations. 

A number of sales promotions were conducted in the Milavitsa retail chain in
Belarus including a co-branding campaign with Oriflame. 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 68.8% growth in local currency terms and a 17.0% growth in EUR
terms as compared to 9 months 2010 mainly due to the number of new shops opened
in the recent year. Devaluation in Belarus has also contributed to consumer
spending rush despite the increase in prices. Sales per square meter in the
like-for-like shops have increased as well, though not that significantly.
Sales in some Belarusian shops dropped after the most recent price increase.
Additional price increase has been scheduled for November 2011. 

Having mentioned standstill in the volumes sold via own retail stores in the
Baltics, retail sales remained at the level of previous year and amounted to
EUR 604 thousand. Improvement of the efficiency of sales and increase in both
volume and sales revenue shall be addressed during 2012 and beyond. 

Own retail operations in Russia were fully terminated in H1 2010. As a result 9
months of 2010 retail sales include retail sales generated in Russia in the
amount of EUR 1,268 thousand, while 9 months of 2011 retail sales were
generated in Belarus and Latvia only. The strategic decision was made in 2009
to shift focus from own retail chain towards the development of Milavitsa
franchise network 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 stores  Total  Sales area,
            stores                                       sq m
Belarus         44                      0     44        4,212
Latvia           0                      9      9          477
Total           44                      9     53        4,689



Production, sourcing, purchasing and logistics

The total volume of production in SP ZAO Milavitsa amounted to 15,309 thousand
pieces in 9 months of 2011, representing a 22.3% increase compared to the
respective period in the previous year. The total production volume in Lauma
Lingerie amounted to 1,214 thousand pieces in 9 months of 2011, showing an
increase of 35.2% compared to the respective period in the previous year. 

Investment

In 9 months of 2011, the Group investments totalled EUR 3,541 thousand with
investments into retail amounting to EUR 118 thousand. Other investments were
made into equipment and facilities to maintain effective production and to add
capacity. 

Personnel

As of 30 September 2011, the Group employed 3,244 employees including 416 in
retail and 2,062 in production. The rest were employed in wholesale,
administration and support operations. 

Total salaries and wages in 9 months 2011 amounted to EUR 13,440 thousand. The
remuneration of the members of the Management Board and Supervisory Board of
the parent company totalled EUR 77 thousand. 



Consolidated statement of financial position



Unaudited

In thousands of EUR                           30.09.2011  31.12.2010  30.09.2010
ASSETS                                                                          
Current assets                                                                  
Cash and cash equivalents                         23,014      21,468      21,233
Assets classified as held for sale                    14          20          45
Prepayments                                          504         288         713
Trade receivables                                 11,213       9,642       8,920
Other receivables                                  1,608       1,188         406
Corporate income tax asset                             0          59         103
Other tax receivables                              1,795       1,517       1,091
Inventories                                       15,148      15,792      12,382
Total current assets                              53,296      49,974      44,893
                                                                                
Non-Current assets                                                              
Investments in equity accounted investees             65         106         129
Other receivables                                     35          32         661
Available-for-sale financial assets                  193         370         359
Deferred tax asset                                   335       1,324       1,212
Investment property                                  706       1,299       1,265
Property, plant and equipment                      7,914      11,446      10,618
Intangible assets                                    308         534         513
Total non-current assets                           9,556      15,111      14,757
TOTAL ASSETS                                      62,852      65,085      59,650
                                                                                
LIABILITIES AND EQUITY                                                          
Current liabilities                                                             
Loans and borrowings                                  43          36          66
Trade payables                                     6,993       7,681       6,338
Corporate income tax payable                       4,391         608         881
Other tax payable                                  1,554         712         632
Other payables                                       926       1,131       1,071
Provisions                                           233         136         181
Accrued expenses                                   1,283       1,757       1,230
Deferred income                                        7           8           1
Total current liabilities                         15,430      12,069      10,400
Non-current liabilities                                                         
Loans and borrowings                                   0           0         286
Deferred tax liability                               433           0           0
Other liabilities                                      0           0           0
Total non-current liabilities                        433           0         286
Total liabilities                                 15,863      12,069      10,686
                                                                                
Equity                                                                          
Share capital at per value                        19,750      25,313      25,565
Share premium                                     14,060      14,130      14,271
Own shares                                          -289        -311        -450
Statutory capital reserve                            231          67          67
Other reserves                                         7         453         349
Translation reserve                              -33,749     -11,588     -12,743
Retained earnings                                 39,824      13,978      11,416
Total equity attributable to equity holders       39,834      42,042      38,475
 of the Company                                                                 
Non-controlling interest                           7,155      10,974      10,489
Total equity                                      46,989      53,016      48,964
TOTAL LIABILITIES AND EQUITY                      62,852      65,085      59,650



Consolidated income statement for 9 months 2011

Unaudited

In thousands of EUR                                 9 months 2011  9 months 2010
                                                                                
Revenue                                                                         
Sales revenue                                              86,549         72,435
Costs of goods sold                                       -42,311        -43,340
Gross Profit                                               44,238         29,095
                                                                                
Other operating income                                        468            453
Distribution costs                                         -8,029         -7,238
Administrative expenses                                    -4,858         -6,250
Other operating expenses                                   -1,811         -1,549
Operating profit                                           30,008         14,511
                                                                                
Finance income and finance costs                                                
Interest expenses                                             -14            -72
Gains on conversion of foreign currencies                  12,679            603
Other financial income                                        742            695
Net finance income                                         13,407          1,226
                                                                                
Share of profit/(loss) of equity accounted                     13             -9
 investees                                                                      
Profit before tax                                          43,428         15,728
                                                                                
Income tax expense                                         -9,782         -3,612
Profit for the period                                      33,646         12,116
                                                                                
Attributable to                                                                 
Owners of the Company                                      27,638          9,619
Non-controlling interest                                    6,008          2,497
                                                                                
                                                                                
Earnings per share                                                              
Basic earnings per share (EUR)                               0.70           0.24
Diluted earnings per share (EUR)                             0.70           0.24