Market announcement

Title

Consolidated interim report for Q2 and 6 months of 2014 (unaudited)

Message

Tallinn, 2014-08-01 19:00 CEST (GLOBE NEWSWIRE) --


Selected Financial Indicators

Summarized selected financial indicators of the Group for 6 months 2014
compared to 6 months 2013 and 30.06.2014 compared to 31.12.2013 were as
follows: 

in thousands of EUR                                    6m 2014  6m 2013   Change
--------------------------------------------------------------------------------
Revenue                                                 54 660   68 947   -20.7%
EBITDA                                                   9 351   12 131   -22.9%
Net profit for the period                                5 633    8 335   -32.4%
Net profit attributable equity holders of the Parent     5 025    7 616   -34.0%
 company                                                                        
Earnings per share (EUR)                                  0.13     0.19   -33.7%
Operating cash flow for the period                        -993    6 658  -114.9%

in thousands of EUR                               30.06.2014  31.12.2013  Change
--------------------------------------------------------------------------------
Total assets                                          82 003      76 629    7.0%
Total current assets                                  60 657      55 080   10.1%
Total equity attributable to equity holders of        54 418      52 370    3.9%
 the Parent company                                                             
Loans and borrowings                                      72          79   -8.9%
Cash and cash equivalents                             17 521      19 165   -8.6%

Margin analysis, %                                      6m 2014  6m 2013  Change
--------------------------------------------------------------------------------
Gross profit                                               35.1     33.9    3.4%
EBITDA                                                     17.1     17.6   -2.8%
Net profit                                                 10.3     12.1  -14.8%
Net profit attributable equity holders of the Parent        9.2     11.0  -16.8%
 Company                                                                        

Financial ratios, %            30.06.2014  31.12.2013  Change
-------------------------------------------------------------
ROA                                  10.7        13.4  -20.4%
ROE                                  15.6        19.9  -21.5%
Price to earnings ratio (P/E)         9.3         9.5   -1.8%
Current ratio                         3.4         4.7  -28.0%
Quick ratio                           1.8         2.6  -28.6%



Consolidated Statement of Financial Position

in thousands of EUR                                           30.06.14  31.12.13
--------------------------------------------------------------------------------
ASSETS                                                                          
Current assets                                                                  
Cash and cash equivalents                                       17 521    19 165
Prepayments                                                        266       196
Trade and other receivables                                     15 225    10 846
Inventories                                                     27 645    24 873
Total current assets                                            60 657    55 080
                                                                                
Non-current assets                                                              
Investments in associates                                          124       124
Available-for-sale investments                                     515       497
Deferred tax asset                                                 698       460
Intangible assets                                                  757       719
Investment property                                              1 630     1 592
Property, plant and equipment                                   17 622    18 157
Total non-current assets                                        21 346    21 549
TOTAL ASSETS                                                    82 003    76 629
                                                                                
LIABILITIES AND EQUITY                                                          
Current liabilities                                                             
Current borrowings                                                  72        79
Trade and other payables                                        12 618    10 837
Tax liabilities                                                  5 398       905
Total current liabilities                                       18 088    11 821
                                                                                
Non-current liabilities                                                         
Deferred tax liability                                             236     1 953
Total non-current liabilities                                      236     1 953
Total liabilities                                               18 324    13 774
                                                                                
Equity                                                                          
Share capital                                                   11 820    11 820
Share premium                                                   13 822    13 822
Treasury shares                                                   -876      -224
Statutory reserve capital                                        1 306     1 306
Unrealised exchange rate differences                            -1 211    -1 215
Retained earnings                                               29 557    26 861
Total equity attributable to equity holders of the Parent       54 418    52 370
 company                                                                        
Non-controlling interest                                         9 261    10 485
Total equity                                                    63 679    62 855
TOTAL EQUITY AND LIABILITIES                                    82 003    76 629

 Consolidated Income Statement

in thousands of EUR                           2Q 2014  2Q 2013  6m 2014  6m 2013
--------------------------------------------------------------------------------
Revenue                                        27 565   36 888   54 660   68 947
Cost of goods sold                            -17 806  -23 691  -35 495  -45 564
Gross Profit                                    9 759   13 197   19 165   23 383
                                                                                
Distribution expenses                          -3 647   -4 141   -7 593   -8 385
Administrative expenses                        -1 842   -1 746   -3 466   -3 404
Other operating income                             70      126      391      434
Other operating expenses                         -332     -769     -641   -1 158
Operating profit                                4 008    6 667    7 856   10 870
                                                                                
Currency exchange income/(expense)               -362     -591     -640     -595
Other finance income/(expenses)                    49      151      249      408
Net financial income                             -313     -440     -391     -187
                                                                                
Profit (loss) from associates using equity         -8       16        1        8
 method                                                                         
Profit before tax and gain/(loss) on net        3 687    6 243    7 466   10 691
 monetary position                                                              
                                                                                
Income tax expense                             -1 200   -1 360   -2 814   -2 655
Profit before gain/(loss) on net monetary       2 487    4 883    4 652    8 036
 position                                                                       
                                                                                
Gain on net monetary position                     955     -382      981      299
Profit for the period                           3 442    4 501    5 633    8 335
Attributable to :                                                               
Equity holders of the Parent company            3 135    4 089    5 025    7 616
Non-controlling interest                          307      412      608      719
                                                                                
Earnings per share from profit attributable      0.08     0.10     0.13     0.19
 to equity holders of the Parent company,                                       
 both basic and diluted (EUR)                                                   



Business environment

Silvano Fashion Group with its brand portfolio is a recognized market leader in
the lingerie segment in Russia, Belarus, Ukraine, has exceptionally strong
foothold in other Russian-speaking countries (including Kazakhstan and Moldova)
and is a recognized player in the Baltic consumer markets. 

When the first quarter business volumes were primarily affected by the weakness
of the currencies, and the standoff in Ukraine, then the second quarter of the
business can be described by a set of internal and external factors that
affected lower business volume across all our main markets, with the exception
of the Baltic States. First, the consumer weakness in our main consumer markets
– Russia, Belarus, Ukraine, Kazakhstan – continued. Some relief was noticed
through the stabilization of our main sales currency – the Russia’s Rouble (see
also graph below). Secondly, the amendment of the supply terms (announced to
investors on May 04, 2014) that shall allow the Company to establish unified
pricing to countries in the Customs Union (Russia, Belarus and Kazakhstan) and
create opportunities for existing and new customers that would drive our
wholesale and franchise business in the near future. 

On the currencies, one can notice the stabilization of the Russia’s Rouble
(RUB) exchange rate against Euro (EUR), and stable Belarus Rouble (BYR). The
devaluation of the Ukraine Hryvnia (UAH) has been absorbed on the expense of
the Ukrainian consumers. The stabilization of the RUB allows us to deliver our
Russian customers at more stable prices; the strength of the BYR is more
controversial since the cost environment for us measured in EUR remains
challenging. We do not expect the currencies being an issue for the second half
of 2014. 

Having spoken of the countermeasures that the Company has undertaken, we can
speak of the advancements in the gross margin, significant decreases in other
operating expenses, the trend that should continue also forward. 

The Group’s sales in Q2 2014 were below the benchmark in Q2 2013, the net sales
reached 27 565 thousand EUR, compared to 36 888 thousand EUR a year ago. The
corresponding numbers for 6 months of 2014 were 54 660 thousand EUR against 68
947 thousand EUR for 6 months of 2013. The sales volumes decreased both in
wholesale and retail segment (franchise) of our business. 

Overall during 6 months of 2014 the biggest drop in sales came from wholesale
segment (43 407 thousand EUR in 6 months of 2014 vs. 57 562 thousand EUR in 6
months of 2013). Among key markets, the main backdrop we experienced in Russia
(-10 743 thousand EUR), in Belarus decrease was -1 047 thousand EUR, in Ukraine
-2 494 thousand EUR, we improved our sales in the Baltic States by 299 thousand
EUR. 

The net profit stood at 3 442 thousand Euros in Q2 2014 compared to 4 501
thousand EUR a year ago. The corresponding net profit for 6 months of 2014 was
5 633 thousand EUR compared to 8 335 thousand EUR a year ago. The Group’s
EBITDA reached 9 351 thousand EUR in 6 months of 2014 compared to 12 131
thousand EUR in the corresponding period of 2013. 

The economic outlook for most of our major markets remains unchanged from what
we indicated in the previous report. According to IMF, the Russia’s economic
growth (measured in GDP) in 2014 constitutes around 1%. Russia’s takeover of
Crimea injects geopolitical tension, and the capital outflow from the country’s
economy continues. The main reason for the backdrop in sales in Russia, though,
was reasoned by historic overstock accumulated by our trading partners there.
The amendment of the supply terms created a temporary drop in order volumes,
that we see stabilizing for the remaining part of the year. As of end of Q2
2014 there were 385 Milavitsa stores in Russia. 

Belarus economic growth is stalling because of cooling economic climate of its
main export market – Russia. The country has managed targeted inflation policy
rather well that also has created some stability for the currency (Belarus
Rouble weakened by 5.80% against Euro during 6 months of 2014). There are a
total of 54 stores operated directly by the Group and 5 franchise stores. The
Group’s sales revenue in Belarus reached 15 511 thousand EUR for 6 months of
2014 compared to 16 558 thousand EUR for the same period a year ago. 

Negative information flow regarding Ukraine is continuously on the radar of
global media. The currency depreciated further during Q2 2014, and has
stabilized after dropping 45% against Euro. For the Group, the 6 months of 2014
net sales dropped to 2 665 thousand EUR compared to 5 159 thousand EUR for the
same period a year ago. We have very vague visibility about the outlook for
2014. There are 100 franchise stores in total in the country as of end of Q2
2014. 

In the Baltics, the Group primarily operates via own stores and franchise
partners. The Group operates 9 own stores, complemented by 31 partner stores in
the region. The sales in the Baltic countries aggregated 1 591 thousand EUR for
6 months of 2014, compared to 1 292 thousand EUR for the same period a year
ago. 

On the store openings, during 6 months of 2014 net increase (including openings
and store closures primarily due to relocations) for Milavitsa stores were 4
units and 3 openings under the Lauma Lingerie brand. The Group therefore
operated directly and via franchise a total of 683 stores. Total geography of
our franchise partners covers more than 20 countries, including Milavitsa and
Lauma Lingerie branded stores. 

Financial performance

The Group`s sales amounted to 54 660 thousand EUR during 6 months of 2014,
representing a 20.7% decrease as compared to the same period of previous year.
Overall, wholesales decreased by 24.6% and retail sales decreased by 3.7%. 

The Group’s reported gross profit margin during 6 months of 2014 improved
year-on-year basis and stood at 35.1%, reported gross margin was 33.9% in the
respective period of previous year. Consolidated operating profit for 6 months
of 2014 amounted to 7 856 thousand EUR, compared to 10 870 thousand EUR in 6
months of 2013. The consolidated operating profit margin was 14.4% for 6 months
of 2014 (15.8% in 6 months of 2013). Consolidated EBITDA for 6 months of 2014
was 9 351 thousand EUR, which is 17.1% in margin terms (12 131 thousand EUR and
17.6% for 6 months of 2013). 

During 6 months of 2014 the Group distributed profit from subsidiaries to the
Parent company, which brought additional 0.5 million EUR in tax expenses. The
total tax expense stood at 2 814 thousand EUR for 6 months of 2014 compared to
2 655 thousand EUR during the corresponding period of the last year. Currency
exchange losses in 6 months of 2014 amounted to 640 thousand EUR (595 thousand
EUR in 6 months of 2013). Gain on net monetary position, which is highly
dependent on exchange rates` movements, increased by 682 thousand EUR compared
to 6 months of 2013. As a result consolidated net profit attributable to equity
holders of the Parent company for 6 months of 2014 amounted to 5 025 thousand
EUR, compared to 7 616 thousand EUR in 6 months of 2013, net profit margin
attributable to equity holders of the Parent company for 6 months of 2014 was
9.2% against 11.0% in 6 months of 2013. 

Financial position

As of 30 June 2014 consolidated assets amounted to 82 003 thousand EUR
representing an increase by 7.0% as compared to the position as of 31 December
2013. 

Trade and other receivables increased by 4 379 thousand EUR as compared to 31
December 2013 and amounted to 15 225 thousand EUR as of 30 June 2014. Inventory
balance increased by 2 772 thousand EUR and amounted to 27 645 thousand EUR as
of 30 June 2014. Changes in trade debtors and stock balance were in line with
the seasonality trend of the business. 

Equity attributable to equity holders of the Parent company increased by 2 048
thousand EUR and amounted to 54 418 thousand EUR as of 30 June 2014. 

Current liabilities increased by 6 267 thousand EUR during 6 months of 2014.
Current and non-current loans and borrowings decreased by 7 thousand EUR to 72
thousand EUR as of 30 June 2014. 

Sales structure

Sales by markets

in thousands of        6 months      6 months  Change     6 months      6 months
 EUR                       2014          2013                 2014          2013
                                                            % from  % from sales
                                                             sales              
--------------------------------------------------------------------------------
Russia                   30 545        41 288  -26.0%        55.9%         59.9%
Belarus                  15 511        16 558   -6.3%        28.4%         24.0%
Ukraine                   2 665         5 159  -48.3%         4.9%          7.5%
Baltics                   1 591         1 292   23.1%         2.9%          1.9%
Other markets             4 348         4 650   -6.5%         8.0%          6.7%
Total                    54 660        68 947  -20.7%       100.0%        100.0%

The majority of lingerie sales revenue during 6 months of 2014 in the amount of
30 545 thousand EUR was generated in Russia, accounting for 55.9% of total
sales. The second largest market was Belarus, where sales reached 15 511
thousand EUR, contributing 28.4% of lingerie sales (both retail and wholesale).
Other markets overtook the 3rd largest market position, reaching 4 348 thousand
EUR, contributing 8% of lingerie sales of the Group. 

Sales by business segments

in thousands of        6 months      6 months  Change   6 months      6 months  
 EUR                       2014          2013             2014          2013    
                                                          % from    % from sales
                                                          sales                 
--------------------------------------------------------------------------------
Wholesale                43 407        57 562  -24.6%        79.4%         83.5%
Retail                   10 770        11 183   -3.7%        19.7%         16.2%
Other operations            483           202  139.1%         0.9%          0.3%
Total                    54 660        68 947  -20.7%       100.0%        100.0%



During 6 months of 2014 wholesale revenue amounted to 43 407 thousand EUR,
representing 79.4% of the Group’s total revenue (6 months of 2013: 83.5%). The
main wholesale regions were Russia, Ukraine, Belarus, Kazakhstan and Moldova. 

Total lingerie retail sales of the Group in 6 months of 2014 amounted to 10 770
thousand EUR, representing 19.7% of the Group’s total revenue (6 months of
2013: 16.2%). 

As of 30 June 2014 there were altogether 683 Milavitsa and Lauma branded shops.
Own retail operations were conducted in Belarus and Latvia. As of the end of 6
months of 2014 the Group operated 63 own retail outlets. As of 30 June 2014,
there were 582 Milavitsa branded shops operated by Milavitsa trading partners
in Russia, Ukraine, Moldova, Kazakhstan, Uzbekistan, Kyrgyzstan, Azerbaijan,
Armenia, Germany, South Africa, Lithuania, Estonia, Georgia, United Arab
Emirates, Iran, Slovenia, Belgium and Italy. Additionally, as of 30 June 2014,
there were 37 Lauma Lingerie retail outlets operated by Lauma Lingerie trading
partners in Estonia, Latvia, Lithuania, Belarus, Russia, Ukraine, Saudi Arabia
and Albania. 

Own & franchise store locations, geography

               Own  Franchise  Total
------------------------------------
Russia           0        385    385
Ukraine          0         98     98
Belarus         54          5     59
Baltics          9         31     40
Kazakhstan       0         31     31
Moldova          0         26     26
Other regions    0         44     44



Investments

During 6 months of 2014 the Group’s investments into property, plant and
equipment totalled 202 thousand EUR. Investments were made into equipment and
facilities to maintain effective production for future periods. 

Personnel

As of 30 June 2014, the Group employed 3 002 employees including 487 in retail.
The rest were employed in production, wholesale, administration and support
operations. 

Total salaries and related taxes during 6 months of 2014 amounted to 12 029
thousand EUR. The remuneration of key management of the Group, including the
key executives of the subsidiaries, totalled 529 thousand EUR. 

Changes in the distribution companies

During 6 months 2014 and until the release of the report, Silvano Fashion Group
has changed business names of the distribution companies belonging to the
Group. The main reason for this is to change the focus of the distribution
companies from being the logistics arm to the production company into
contemporary sales organizations that have the responsibility for the
development of the Group’s business and its whole portfolio of brands. During
this process, the distribution companies in Russia, Ukraine, Belarus and Latvia
are renamed into “Silvano Fashion”. 

Decisions made by governing bodies during 6 months 2014

On 30 June 2014 Silvano Fashion Group held its regular Annual General Meeting
of Shareholders. The Meeting adopted following decisions. 

- The Meeting approved the 2013 Annual Report.
- The Meeting decided to distribute dividends in the amount 0.10 EUR per share
(record date 14.07.2014, paid out on 15.07.2014). 
- The Meeting decided to re-appoint AS PricewaterhouseCoopers as the Group`s
auditor for financial year 2014. 
- The Meeting decided to cancel the 400 000 own shares acquired within the own
share buy-back programme as approved by the shareholders of AS Silvano Fashion
Group on 28th of June 2013; 
- The Meeting decided to adopt a share buy-back program in the following:
effective period until 30.06.2015; maximum number of shares to be acquired not
more than 1 000 000; maximum share price 2.00 EUR per share. 




         Aleksei Kadõrko
         Chief Financial Officer
         Silvano Fashion Group
         [email protected]