Market announcement

Title

Consolidated interim report for Q1 of 2016 (unaudited)

Message

Tallinn, 2016-05-06 17:10 CEST (GLOBE NEWSWIRE) --


Selected Financial Indicators

Summarized selected financial indicators of the Group for Q1 of 2016 compared
to Q1 of 2015 and 31.03.2016 compared to 31.12.2015 were as follows: 

in thousands of EUR                                    Q1 2016  Q1 2015   Change
--------------------------------------------------------------------------------
Revenue                                                 13 358   13 073     2.2%
EBITDA                                                   4 818    2 351   104.9%
Net profit for the period                                2 114     -349  -705.7%
Net profit attributable equity holders of the Parent     2 159     -521  -514.4%
 company                                                                        
Earnings per share (EUR)                                  0.06    -0.01  -674.0%
Operating cash flow for the period                       2 603      678   284.0%



in thousands of EUR                               31.03.2016  31.12.2015  Change
--------------------------------------------------------------------------------
Total assets                                          54 072      53 635    0.8%
Total current assets                                  42 919      40 870    5.0%
Total equity attributable to equity holders of        41 116      40 194    2.3%
 the Parent company                                                             
Loans and borrowings                                       0           0     N/A
Cash and cash equivalents                             22 976      21 274    8.0%



Margin analysis, %                                     Q1 2016  Q1 2015   Change
--------------------------------------------------------------------------------
Gross profit                                              57.5     44.8    28.4%
EBITDA                                                    36.1     18.0   100.6%
Net profit                                                15.8     -2.7  -692.8%
Net profit attributable equity holders of the Parent      16.2     -4.0  -505.6%
 company                                                                        



Financial ratios, %            31.03.2016  31.12.2015  Change
-------------------------------------------------------------
ROA                                  22.0        17.4   26.4%
ROE                                  29.5        23.7   24.3%
Price to earnings ratio (P/E)         4.8         5.0   -4.3%
Current ratio                         4.5         4.2    7.9%
Quick ratio                           2.9         2.6   12.7%



Consolidated Statement of Financial Position



in thousands of EUR                                     Note  31.03.16  31.12.15
--------------------------------------------------------------------------------
ASSETS                                                                          
Current assets                                                                  
Cash and cash equivalents                                       22 976    21 274
Current loans granted                                                6         6
Trade and other receivables                              2       4 770     4 120
Inventories                                              3      15 167    15 470
Total current assets                                            42 919    40 870
                                                                                
Non-current assets                                                              
Investments in associates                                            0         1
Available-for-sale investments                                     331       372
Deferred tax asset                                                 536       465
Intangible assets                                                  344       443
Investment property                                                999     1 130
Property, plant and equipment                            4       8 943    10 354
Total non-current assets                                        11 153    12 765
TOTAL ASSETS                                                    54 072    53 635
                                                                                
LIABILITIES AND EQUITY                                                          
Current liabilities                                                             
Trade and other payables                                 5       7 452     7 985
Tax liabilities                                                  2 018     1 661
Total current liabilities                                        9 470     9 646
                                                                                
Non-current liabilities                                                         
Deferred tax liability                                              13        13
Total non-current liabilities                                       13        13
Total liabilities                                                9 483     9 659
                                                                                
Equity                                                                          
Share capital                                            6      11 400    11 400
Share premium                                                   11 914    11 914
Treasury shares                                          6      -1 039      -579
Statutory reserve capital                                        1 306     1 306
Unrealised exchange rate differences                           -17 015   -16 238
Retained earnings                                               34 550    32 391
Total equity attributable to equity holders of the              41 116    40 194
 Parent company                                                                 
Non-controlling interest                                         3 473     3 782
Total equity                                                    44 589    43 976
TOTAL EQUITY AND LIABILITIES                                    54 072    53 635



Consolidated Income Statement



in thousands of EUR                                         Note      Q1      Q1
                                                                    2016    2015
--------------------------------------------------------------------------------
Revenue                                                      8    13 358  13 073
Cost of goods sold                                                -5 677  -7 217
Gross Profit                                                       7 681   5 856
                                                                                
Distribution expenses                                             -2 015  -2 323
Administrative expenses                                           -1 121  -1 709
Other operating income                                                83     123
Other operating expenses                                            -252    -252
Operating profit                                                   4 376   1 695
                                                                                
Currency exchange income/(expense)                                -1 519     -89
Other finance income/(expenses)                                       65     173
Net financial income                                              -1 454      84
                                                                                
Profit (loss) from associates using equity method                      0      -2
Profit before tax                                                  2 922   1 777
                                                                                
Income tax expense                                                  -808  -2 126
                                                                                
Profit for the period                                              2 114    -349
Attributable to :                                                               
Equity holders of the Parent company                               2 159    -521
Non-controlling interest                                             -45     172
                                                                                
Earnings per share from profit attributable to equity          7    0.06   -0.01
 holders of the Parent company, both basic and diluted                          
 (EUR)                                                                          

Business environment

Group`s results for Q1 of 2016 were defined by continued difficulties in
economies of its major sales markets. The Group didn`t manage to demonstrate
desired growth rate of sales compared to low base of Q1 of 2015, but the Group
is holding last year level. Total sales in Q1 of 2016 amounted to 13 358
thousand EUR, up by 2.2% compared to Q1 of 2015. Previously undermined by
devaluations and high inflation rates purchasing power in region`s countries
remain low, future expectations are still more on a negative or neutral side.
Policy makers in CIS countries tend to delay real economic reforms substituting
them by rhetoric and cosmetic changes; therefore it is hard to see some kind of
relatively fast recovery in growth rates of economies under discussion. 

Over the year the Group managed to cut its production, commercial and
administrative expenses. Gross profit margin in Q1 of 2016 is up to 57.5% from
44.8% in Q1 of 2015. Compared to Q1 of 2015 commercial and administrative
expenses diminished respectively by 13.3% and 34.4%. Personnel expenses
decreased by 35%; average quarterly number of employees diminished by 16%, the
remaining part is attributable to devaluation of national currencies in Belarus
and Russia. 

Russian statistics for Q1 of 2016 somewhat improved compared to 2015, inflation
rate is falling and is currently under 7% in yearly terms, GDP declined “only”
by 1.4% during 3 months of 2016. Russian economy is starting to adapt to new
reality. Group`s sales on Russian market totalled 7 675 thousand EUR, growth is
26.3% compared to Q1 of 2015. Group`s Russian subsidiary opened 6th store in
January 2016, 2 more stores were opened in April 2016. Depending on
opportunities the Group will continue opening own stores. In addition to
growing sales and better control of the market this allows further developing
of retail concept of Group`s brands to make it more attractive for us and our
franchisee retail partners. 

Belarusian economy at the moment isn`t demonstrating signs of stabilisation,
GDP decreased by 3.6% in Q1 of 2016. Nominal salaries stand still.
International financial institutions predict that in 2016 Belarusian GDP will
fall by around 3%, inflation rate will be 12% - 15%. Major factors behind this
are believed to be unreformed economy (particularly public sector and
state-controlled entities), delayed impact of recession in main trading partner
– Russia, continued devaluation of Belarusian rouble, low demand for
consumption, high level of debts in economy. Share of problematic credits in
banking sector is growing, according to official statistics it was 11.55% of
banking assets as of the end of March 2016. Group`s sales in Belarus in Q1 of
2016 were 4 071 thousand EUR diminishing by 19.8% compared to Q1 of 2015. In
Belarus the Group will focus on improving profitability of its retail business,
we will also continue to expand our store chain there depending on availability
of reasonably priced selling areas. 

Our partners in Kazakhstan as well are struggling with reduced demand of
customers and devaluation of national currency. The process of optimisation in
number and quality of stores is an ongoing activity there, total number of
franchising stores diminished by 7 during Q1 of 2016. Group`s sales to
Kazakhstan clients fell by 28% in Q1 of 2016 and amounted to 460 thousand EUR.
The Group expects stabilisation of Kazakhstan market in 2016. 

Ukraine economy is supposed (particularly IMF projections) to return to
positive growth in 2016, supported by improving consumer and investor
confidence, gradually rising real incomes, and a gradual easing of credit
conditions. Group`s efforts to establish more productive relationships with
partners there led to improvement of quarterly sales by 55.5% to the level of
297 thousand EUR, although comparison base is relatively low. 

Financial performance

The Group`s sales amounted to 13 358 thousand EUR during Q1 of 2016,
representing a 2.2% increase as compared to the same period of previous year.
Overall, wholesales increased by 10.9% and retail sales decreased by 18.8%,
measured in EUR. 

The Group’s reported gross profit margin during Q1 of 2016 continued to improve
increasing to 57.5%, reported gross margin was 44.8% in the respective period
of previous year. Consolidated operating profit for Q1 of 2016 amounted to 4
376 thousand EUR, compared to 1 695 thousand EUR in Q1 of 2015. The
consolidated operating profit margin was 32.8% for Q1 of 2016 (13.0% in Q1 of
2015). Consolidated EBITDA for Q1 of 2016 was 4 818 thousand EUR, which is
36.1% in margin terms (2 351 thousand EUR and 18.0% for Q1 of 2015). 

Reported consolidated net profit attributable to equity holders of the Parent
company for Q1 of 2016 amounted to 2 159 thousand EUR, compared to net loss of
521 thousand EUR in Q1 of 2015, net profit margin attributable to equity
holders of the Parent company for Q1 of 2016 was 16.2% against -4.0% in Q1 of
2015. 

Financial position

As of 31 March 2016 consolidated assets amounted to 54 072 thousand EUR
representing an increase by 0.8% as compared to the position as of 31 December
2015. 

Trade and other receivables increased by 650 thousand EUR as compared to 31
December 2015 and amounted to 4 770 thousand EUR as of 31 March 2016. Inventory
balance decreased by 303 thousand EUR and amounted to 15 167 thousand EUR as of
31 March 2016. 

Equity attributable to equity holders of the Parent company increased by 922
thousand EUR and amounted to 41 116 thousand EUR as of 31 March 2016. Current
liabilities decreased by 176 thousand EUR during Q1 of 2016. 

Sales structure

Sales by markets

in thousands       Q1      Q1     Change,  Change,  Q1 2016, % of  Q1 2015, % of
 of EUR          2016    2015     th. EUR        %          sales          sales
--------------------------------------------------------------------------------
Russia          7 675   6 077       1 598    26.3%          57.5%          46.5%
Belarus         4 071   5 076      -1 005   -19.8%          30.5%          38.8%
Kazakhstan        460     639        -179   -28.0%           3.4%           4.9%
Ukraine           297     191         106    55.5%           2.2%           1.5%
Moldova           232     219          13     5.9%           1.7%           1.7%
Latvia            219     259         -40   -15.4%           1.6%           2.0%
Estonia           119      58          61   105.2%           0.9%           0.4%
Lithuania          77      85          -8    -9.4%           0.6%           0.7%
Other markets     208     469        -261   -55.7%           1.6%           3.6%
Total          13 358  13 073         286     2.2%         100.0%         100.0%

The majority of lingerie sales revenue during Q1 of 2016 in the amount of 7 675
thousand EUR was generated in Russia, accounting for 57.5% of total sales. The
second largest market was Belarus, where sales reached 4 071 thousand EUR,
contributing 30.5% of lingerie sales (both retail and wholesale). Volumes in
Kazakhstan decreased significantly to 460 thousand EUR, there was a remarkable
increase in Ukraine – 55.5%. 

Sales by business segments

in thousands       Q1      Q1   Change,  Change,      Q1 2016, %      Q1 2015, %
 of EUR          2016    2015       EUR        %      from sales      from sales
--------------------------------------------------------------------------------
Wholesale      10 208   9 208     1 000    10.9%           76.4%           70.4%
Retail          3 131   3 857      -726   -18.8%           23.4%           29.5%
Other              19       8        12   154.2%            0.1%            0.1%
 operations                                                                     
Total          13 358  13 073       286     2.2%          100.0%          100.0%

During Q1 of 2016 wholesale revenue amounted to 10 208 thousand EUR,
representing 76.4% of the Group’s total revenue (Q1 of 2015: 70.4%). The main
wholesale regions were Russia, Belarus, Kazakhstan and Ukraine. 

Our retail revenue decreased by 18.8% and amounted to 3 131 thousand EUR, this
represents 23.4% of the Group`s total revenue. The decrease in retail revenue
is mainly attributable to Belarusian operations. 

Own & franchise store locations, geography

               Own  Franchise  Total
------------------------------------
Russia           6        392    398
Ukraine          0         92     92
Belarus         56          2     58
Baltics          8         25     33
Kazakhstan       0         51     51
Moldova          0         26     26
Other regions    0         40     40
Total           70        628    698

At the end of the reporting period the Group and its franchising partners
operated 649 Milavitsa and 49 Lauma Lingerie branded stores, including 70
stores operated directly by the Group. 

Production, sourcing, purchasing and logistics

During Q1 of 2016 the Group’s investments into property, plant and equipment
totalled 42 thousand EUR. Investments were made mainly into opening and
renovating own stores, as well into equipment and facilities to maintain
effective production for future periods. 

Personnel

As of 31 March 2016, the Group employed 2 041 employees including 355 in
retail. The rest were employed in production, wholesale, administration and
support operations. 

Total salaries and related taxes during Q1 of 2016 amounted to 2 758 thousand
EUR (4 241 thousand EUR in Q1 of 2015). The remuneration of key management of
the Group, including the key executives of all subsidiaries, totalled 258
thousand EUR. 

Aleksei Kadõrko

Chief Financial Officer
Silvano Fashion Group
Tel +372 6845 000
E-mail: [email protected]