Market announcement

Title

Audited financial results for 2011

Message

Tallinn, Estonia, 2012-04-30 17:47 CEST (GLOBE NEWSWIRE) --


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                        2011    2010  Change, %
In thousands of EUR                                                             
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net sales                                             103 558  93 292      11.0%
Earnings before interest, taxes and depreciation       29 840  19 415      53.7%
 (EBITDA)                                                                       
Net profit for the period                              25 629  15 064      70.1%
Net profit attributable to owners of the Company       21 501  12 240      75.7%
Earnings per share (EUR)                                 0.55    0.31      77.4%
Operating cash flow for the period                     28 080  16 854      66.6%



Statement of financial position                 31.12.2011  31.12.2010   Change,
In thousands of EUR                                                            %
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Total assets                                        68 485      65 085      5.2%
Total current assets                                51 881      49 974      3.8%
Total equity attributable to equity holders of      42 464      42 042      1.0%
 the Company                                                                    
Loans and borrowings                                    20          36    -44.4%
Cash and cash equivalents                           17 967      21 468    -16.3%



Margin analysis                                   2011  2010  Change, %
In %                                                                   
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Gross profit                                      44.8  39.8      12.6%
EBITDA                                            28.8  20.8      35.1%
Net profit                                        24.7  16.1      53.4%
Net profit attributable to owners of the Company  20.8  13.1      58.8%



Financial ratios                2011   2010  Change, %
------------------------------------------------------
------------------------------------------------------
ROA                            32.2%  20.5%      57.1%
ROE                            50.9%  33.4%      52.4%
Price to earnings ratio (P/E)    5.5    8.8     -59.1%
Current ratio                    3.6    4.1     -12.2%
Quick ratio                      2.1    2.8     -25.0%



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

Year 2011 has been financially the strongest in our history, and we have
reached the pre-crisis sales levels with positive operating cash flow and
insignificant net debt. 

The growth in business volumes was well supported by the low cost production
environment, more specifically, the production cost in EUR terms in Belarus.
The inflationary environment in Belarus, and the classification of the country
“hyperinflationary” by the International Accounting Standards in 2011, affected
the results in the Group reporting currency. 

Therefore, we are outlining the key business drivers for 2011 that should guide
the investors in their investment decisions: 

  -- Total, corrected net sales reached EUR 103.6 million, an increase of 11%
     compared to 2010;
  -- Earnings before interest, taxes, depreciation and amortization (EBITDA),
     probably the best indicator for businesses’ ability to generate cash,
     advanced to EUR 29.8 million, an increase by 53.7%;
  -- Production volume reached nearly 22 million units, representing a 19%
     increase a year;
  -- Points of sale: total number of shops (own + franchise) reached 497 units,
     54 of them operated directly by the Group;
  -- Cash distribution to shareholders reached a record of EUR 0.29 per share.

Our sales mix by regions has not changed significantly. Russia remains our core
market with 64% of the Group’s total sales. Thanks to our strong own local
retail network and extremely high brand awareness in Belarus, the country is
generating 22.9% of the total sales. The next significant market is Ukraine
with 5.2% of the Group sales, followed by other CIS countries. The actual sales
in the Baltic countries (sold physically in the Baltic stores) reached 3.0%
from the total. The fastest growth of franchise stores in Russia implies to
likely improving sales there. 

Economic situation in Russia, the Group’s key market, stayed firm throughout
the whole year. Q4 strengthening of the Russian ruble against Euro and other
currencies is a positive factor to our business. Russian retails sales data
indicates nearly 7% growth for the country, the best figure since the crisis in
2008. This is best summarized as sustainable economic growth, low inflation and
a federal budget surplus. We estimate a CPI growth of around 5%, stable RUB/EUR
and RUB/USD environment for 2012. 

The Belarusian consumer market stabilized in Q4 so did the currency. The dual
exchange rate policy was abolished, leading to more transparent exchange rates. 

Ukraine has surprised us with exceptionally strong local currency and buoyant
demand. At the time of release of the current report, there is no clarity on
the Ukraine-Russian gas deal, having significant impact on the consumer
spending ability and economy as a whole. We nevertheless anticipate inflation
for 2012 around 8%. 

The Baltic markets have recovered from the bottom, reflected also in the retail
statistics. We would, nevertheless, not anticipate significant changes in the
consumer demand for 2012. 

At the end of the reporting period the Group and its franchising partners
operated 497 Milavitsa and Lauma Lingerie outlets, including 54 stores operated
directly by the Group and the rest by franchising partners. Number of shops
increased by 20.6% during 2011 (at the beginning of 2011 there were 412 shops).
The Group’s retail focus has been shifted towards the promotion and support of
franchising in cooperation with existing and new partners. 

Financial performance

The Group’s sales amounted to EUR 103 558 thousand in 2011, representing an
11.0% increase as compared to the previous year. Overall wholesale sales
increased by 15.0%, while retail sales presented a decrease of 6.9%, 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. Retail sales
in Belarus and Latvia, where Group continuing its operations increased compared
to 2010 by 0.9%. 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 16.0%
and came at 14.7% of total sales in 2011. 

The Group’s gross margin in 2011 increased and was 44.8%, as compared to 39.8%
in the previous year. Cost savings mainly explains increase in gross margin in
EUR terms as a result of devaluation of Belarusian ruble. 

The consolidated operating profit in 2011 amounted to EUR 27 885 thousand,
compared to EUR 17 658 thousand in 2010. The consolidated operating margin was
26.9% (18.9% in 2010). Main reason for the growth in operating margin is also
explained by benefits generated from the devaluation of Belarusian ruble and
resulted cost savings in EUR terms. 

Consolidated net profit from foreign exchange rate fluctuations amounted to EUR
17 536 thousand in 2011 and was mainly accrued in Q2 and Q4 2011 as a result of
two one-time devaluations of Belarusian ruble. Almost all foreign exchange gain
was generated by Belarusian subsidiaries as a result of revaluation of monetary
balances (mainly trade receivables and cash) denominated in EUR and RUB. 

Effective tax rate for the year 2011 amounted to 31.9% (22.2% in 2010). The
growth of the effective tax rate is explained by the loss on net monetary
position totaling EUR 8 646 thousand, which is calculated according to IAS 29
“Financial Reporting in Hyperinflationary Economies” and is non-deductible
expense. Effective tax rate without effect of loss on net monetary positions
amounted to 26.0%. In 2011 the Group continued to use tax loss of prior years
in Russia. Another positive influence on effective tax rate in 2011 was a
reduction of statutory tax rate in Belarus from 26.28% to 24.0%. In 2012, the
general rate of corporate income tax in Belarus has been decreased from 24% to
18%. 

Consolidated net profit attributable to equity holders amounted to EUR 21 501
thousand in 2011, compared to net profit of EUR 12 240 thousand in 2010; net
margin attributable to equity holders was 20.8% (13.1% in 2010). 

In 2011, the Group’s return on equity amounted to 50.9% (33.4% in 2010) and
return on assets was 32.2% (20.5% in 2010). 

Financial position

As of 31 December 2011 consolidated assets amounted to EUR 68 485 thousand
representing an increase of 5.2% as compared to the position as of 31 December
2010. 

Property, plant and intangibles balances increased by EUR 2 393 thousand as
compared to 31 December 2010. Acquisitions of property, plant and intangible
assets amounted to EUR 4 335 thousand in 2011. 

Inventory balance amounted to EUR 21 548 thousand as of 31 December 2011 as
compared to EUR 15 792 thousand as of 31 December 2010. Increase is in line
with management expectations. 

Trade receivables decreased by EUR 178 thousand as compared to 31 December 2010
and amounted to EUR        9 464 thousand as of 31 December 2011. The balance
of trade receivables as of 31 December 2011 is in line with seasonality trends. 

Equity attributable to equity holders increased by EUR 422 thousand and
amounted to EUR 42 464 thousand as of 31 December 2011.The following factors
resulted in such an insignificant increase: 

  -- The Group paid out dividends in the amount of EUR 1 970 thousand;
  -- Share capital reduction resulted into payments to shareholders and decrease
     in capital in the amount of EUR        9 466 thousand;
  -- Effect of hyperinflation on Belarusian subsidiaries gave negative effect in
     the amount of EUR 9 781 thousand.

Current liabilities increased by EUR 2 343 thousand in 2011, the main driven
factor was increase in corporate income tax liability. 

The liquidity position of the Group improved in 2011 with respect to the total
balance of borrowings and related maturities. Current and non-current loans and
borrowings decreased by EUR 16 thousand to EUR 20 thousand as of 31 December
2011. Loans received and loans repaid in 2011 amounted to EUR 1 704 thousand
and EUR 1 664 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 8 427 thousand. Provisions amounted to EUR 459 thousand as of 31
December 2011. 

Sales

Sales by business segments

In thousands of EUR     2011    2010  Change
--------------------------------------------
--------------------------------------------
Wholesale             88 006  76 536   15.0%
Retail                15 226  16 345   -6.9%
Other operations         326     411  -20.5%
Total                103 558  93 292   11.0%



Sales by markets

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

The majority of lingerie sales revenue in 2011 in the amount of EUR 66 283
thousand was generated in the Russian market, accounting for 63.9% of all
lingerie sales in 2011 as compared to EUR 53 721 thousand in 2010. The second
largest region for lingerie sales was Belarus, where sales reached EUR 23 702
thousand, contributing 22.9% of lingerie sales (both retail and wholesale) as
compared to EUR 25 531 thousand in 2010. 

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

The most considerable sales growth took place on the Russian and Ukrainian
markets. Decrease in sales in EUR terms on Belarusian market was caused by
significant devaluation of Belarusian ruble. However, taking into account the
level of inflation, depreciation of local currency and all other consequent
negative trends in Belarusian economy in 2011, management expects the situation
to stabilize in 2012. 

Effective implementation of sales strategy, introduced by Milavitsa in
2009-2010 allowed to increase control over its distribution chain in Russia and
to shift to a new and more effective level of collaboration with trading
partners. 

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 2011 in the fields of marketing and
franchising. A number of sales promotions were launched in 2011 in Milavitsa
retail stores. A co-branding campaign with Oriflame was launched in Belarus in
Q1 2011 and is planned to be continued as a benchmark for 2012 promotions
activity. 

In terms of lingerie brands, “Milavitsa” core brand accounted for 72.7% of
total lingerie sales revenue in 2011 (2010: 72.1%) and amounted to EUR 75 050
thousand. “Lauma Lingerie” core brand accounted for 8.4% of total lingerie
sales (2010: 8.2%) and amounted to EUR 8 671 thousand. Other brands such as
“Alisee”, “Aveline”, “Hidalgo” and “Laumelle” comprised 18.9% of total lingerie
sales in 2011 (2010: 19.7%), amounting to EUR     19 511 thousand. 

Wholesale

In 2011, wholesale revenue amounted to EUR 88 006 thousand, representing 85.0%
of the Group’s total revenue (2010: 82.0%). The main wholesale regions were
Russia, Belarus, Ukraine and the Baltic states. Substantial growth has been
achieved in Moldova. 

The Group continues active work in the non-core markets targeted at the
diversification of the Group’s sales towards the western European countries and
South countries. Franchised retail operations were started in 4 new countries
including Estonia, Iran, South Africa and Lithuania. 

Retail operations

Total lingerie retail sales of the Group in 2011 amounted to EUR 15 226
thousand, representing a 6.9% decrease as compared to the previous year. 

Own retail operations were conducted in Belarus and Latvia. At the end of 2011
the Group operated 54 own retail outlets with a total area of 4 754 square
meters. As of 31 December 2011, there were 420 Milavitsa branded shops operated
by Milavitsa trading partners in Russia, Belarus, Ukraine, Moldavia,
Kazakhstan, Uzbekistan, Kyrgyzstan, Latvia, Azerbaijan, Armenia, Germany, South
Africa, Lithuania, Estonia, Georgia and Slovenia. Some underperforming shops
were closed or relocated. Additionally, as of 31 December 2011, there were 23
Lauma Lingerie retail outlets operated by Lauma Lingerie trading partners in
Lithuania, Latvia and Estonia. 

In 2011 110 new lingerie stores were opened, including 101 under Milavitsa
brand name and 9 stores under Lauma Lingerie brand name. 27 underperforming
stores were closed in Belarus. The major reasons for closing shops are
relocation, inefficiency and end of lease. 

Number of own stores as of:

                        31.12.2011  31.12.2010
----------------------------------------------
----------------------------------------------
Latvia                           9           8
Belarus                         45          42
----------------------------------------------
Total stores                    54          50
----------------------------------------------
Total sales area, sq m       4 754       4 253



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. Sales increase in units
sold was equal to 2% and was mainly attributed to the number of new shops
opened in the recent year. The main reason for decrease in net sales in EUR
terms is significant devaluation of Belarusian ruble during 2011. Devaluation
in Belarus has also contributed to consumer spending rush in certain periods
despite the increase in prices. 

In the Baltics, retail sales increased by 6.1% as compared to the previous year
and amounted to EUR 806 thousand. Increase in own retail sales in the Baltics
is explained by the growth of number of stores from 8 to 9 and growth of sales
per square meter in the like-for-like shops. 

Own stores by concept

Market   Milavitsa  stores  Lauma Lingerie stores  Total  Sales area, sq m
--------------------------------------------------------------------------
Belarus                 45                      0     45             4 277
Latvia                   0                      9      9               477
Total                   45                      9     54             4 754



Production, sourcing and purchasing

Due to the high demand on the market the Group’s manufacturing companies
increased their production and purchasing volumes in 2011. 

The total volume of production in SP ZAO Milavitsa amounted to 20 406 thousand
pieces in 2011, representing an 18.6% increase as compared to the previous
year. The total production volume in Lauma Lingerie amounted to     1 531
thousand pieces in 2011, showing an increase of 31.8% as compared to the
respective period in the previous year. Production capacities in SP ZAO
Milavitsa in 2011 increased in order to prepare for increased production
volumes in 2012. In 2011 main efforts were directed towards change and
improvement of the interfaces and modules of the management information system
processing customers’ orders. 

Capital investments

In 2011, the Group’s investments totaled EUR 4 370 thousand with investments
into retail amounting to EUR 253 thousand. Other investments were made in
equipment and facilities to maintain effective production and to add capacity
for 2012. 

Personnel

As of 31 December 2011, the Group employed 3 300 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 3 193. 

Total salaries and related taxes in 2011 amounted to EUR 16 630 thousand. The
remuneration of the members of the management board totaled EUR 692 thousand.
The members of the management board also serve as executives for the Group’s
subsidiaries. 

Hyperinflation accounting

Belarus is recognized as being a hyperinflation economy within the context of
IAS 29 “Financial Reporting in Hyperinflation Economies” (“IAS 29”) as per the
decision taken by four big audit companies in the fourth quarter of 2011 after
closely monitoring of the situation in the country. Accordingly, implementation
of hyperinflation accounting as per IAS 29 has been required  in the financial
statements of our subsidiaries in Belarus. 

Following indicators describe a hyperinflationary economy:

  -- Wealth is accumulated in non-monetary assets and local currency is
     immediately invested to maintain purchasing power;
  -- Prices are quoted in foreign currency, prices for credit sales and
     purchases are calculated to compensate for expected loss of purchasing
     power;
  -- Interest rates, wages and prices are linked to price index;
  -- Cumulative inflation rate over three years is approaching, or exceeds, 100%
     and is expected to remain at that high level for the following years.

The implementation of “hyperinflation accounting” affected various items of AS
Silvano Fashion Group consolidated financial statements as of 31 December 2011
and will affect all periods thereafter for the foreseeable future. Already
published financial statements of prior periods (as well as quarterly reports
for 2011) will not be restated. In principal the adoption of “hyperinflation
accounting” had the following impacts on AS Silvano Fashion Group: 

  -- Balance sheet - As of 31 December 2011 all non-monetary items were one-time
     inflation adjusted as of their acquisition date, which lead to an
     appreciation of assets and equity leading also to higher depreciation and
     amortization. In the following periods these items will be adjusted for the
     inflation of the respective reporting period.
  -- Income statement – All items had been inflation adjusted starting from the
     1 January 2011 and converted to EUR at the period-end FX rate instead of
     period average. Net gain or loss of the monetary items as well as
     liabilities was reported separately.
  -- Cash flow statement – Inflation adjustments in the balance sheet as well as
     in the profit and loss statement impacted the cash flow statement.

IAS 29 has not been applied in an European country before. As a result of
complexity of the implementation of the standard and the absence of the agreed
approaches and principles within the professional community before February
2012, some numbers in our published Q4 2012 report, differ from the numbers in
Annual report. The main difference came from alternative treatment of
Hyperinflation effect on equity and income statement. However the corrections
made in Annual report do not change total amount of equity attributable to
shareholders of the Group as of 31 December 2012. 

Consolidated income statement
For the year ended 31 December

In thousands of EUR                                       2011     2010
                                                      -----------------
                                                      -----------------
                                                                       
Sales revenue                                          103 558   93 292
Costs of goods sold                                    -57 200  -56 132
Gross profit                                            46 358   37 160
                                                                       
Other operating income                                     954    1 145
Distribution costs                                     -10 796   -9 986
Administrative costs                                    -6 416   -8 146
Other operating expenses                                -2 215   -2 515
Operating profit                                        27 885   17 658
                                                                       
Finance income and finance costs                                       
Interest expenses                                          -29      -75
Currency exchange income                                17 536      805
Other financial income                                     823    1 004
Net finance income                                      18 330    1 734
                                                                       
Share of profit or loss of equity accounted investees       77      -36
Profit before tax                                       46 292   19 356
Income tax expense                                     -12 017   -4 292
Profit before loss on net monetary position             34 275   15 064
                                                                       
Loss on net monetary position                           -8 646        0
Profit for the period                                   25 629   15 064
                                                                       
Attributable to                                                        
Owners of the Company                                   21 501   12 240
Non-controlling interest                                 4 128    2 824
                                                                       
Earnings per share                                                     
Basic earnings per share (in EUR)                         0.55     0.31
Diluted earnings per share (in EUR)                       0.55     0.31



Consolidated statement of financial position
As of 31 December

In thousands of EUR                                          2011     2010
                                                          ----------------
                                                          ----------------
ASSETS                                                                    
Current assets                                                            
Cash and cash equivalents                                  17 967   21 468
Prepayments                                                   251      288
Trade receivables                                           9 464    9 642
Other receivables                                             345    1 188
Corporate income tax asset                                     44       59
Other tax receivable                                        2 259    1 517
Non-current assets classified as held for sale                  3       20
Inventories                                                21 548   15 792
Total current assets                                       51 881   49 974
Non-current assets                                                        
Other receivables                                              14       32
Available-for-sale financial assets                           424      370
Deferred tax asset                                            236    1 324
Investments in equity accounted investees                     127      106
Investment property                                         1 430    1 299
Property, plant and equipment                              14 203   11 446
Intangible assets                                             170      534
Total non-current assets                                   16 604   15 111
TOTAL ASSETS                                               68 485   65 085
LIABILITIES AND EQUITY                                                    
Current liabilities                                                       
Trade payables                                              7 427    7 681
Corporate income tax payable                                3 679      608
Other tax payable                                             322      712
Other payables                                                999    1 131
Deferred income                                                 0        8
Loans and borrowings                                           20       36
Accrued expenses                                            1 506    1 757
Provisions                                                    459      136
Total current liabilities                                  14 412   12 069
Non-current liabilities                                                   
Deferred tax liability                                      1 921        0
Total non-current liabilities                               1 921        0
Total liabilities                                          16 333   12 069
Equity                                                                    
Share capital at par value                                 15 800   25 313
Share premium                                              14 070   14 130
Other reserves                                                 63      453
Statutory capital reserve                                     231       67
Retained earnings                                          12 536   13 978
Own shares                                                   -308     -311
Translation reserve                                            72  -11 588
Total equity attributable to equity holders of the parent  42 464   42 042
Non-controlling interest                                    9 688   10 974
Total equity                                               52 152   53 016
TOTAL LIABILITIES AND EQUITY                               68 485   65 085