Market announcement

Title

Consolidated interim report for Q2 and 6 months of 2016 (unaudited)

Message

Tallinn, 2016-07-29 16:00 CEST (GLOBE NEWSWIRE) --


Selected Financial Indicators

Summarized selected financial indicators of the Group for 6 months of 2016
compared to 6 months of 2015 and 30.06.2016 compared to 31.12.2015 were as
follows: 



in thousands of EUR                                     6m 2016  6m 2015  Change
--------------------------------------------------------------------------------
Revenue                                                  30 595   34 498  -11.3%
EBITDA                                                   11 218    8 546   31.3%
Net profit for the period                                 6 133    3 052  101.0%
Net profit attributable equity holders of the Parent      5 986    2 756  117.2%
 company                                                                        
Earnings per share (EUR)                                   0.16     0.07  120.9%
Operating cash flow for the period                        8 708    8 241    5.7%



in thousands of EUR                               30.06.2016  31.12.2015  Change
--------------------------------------------------------------------------------
Total assets                                          59 216      53 635   10.4%
Total current assets                                  47 842      40 870   17.1%
Total equity attributable to equity holders of        40 609      40 194    1.0%
 the Parent company                                                             
Loans and borrowings                                       0           0     N/A
Cash and cash equivalents                             28 546      21 274   34.2%



Margin analysis, %                                      6m 2016  6m 2015  Change
--------------------------------------------------------------------------------
Gross profit                                               56.3     45.2   24.7%
EBITDA                                                     36.7     24.8   48.0%
Net profit                                                 20.0      8.8  126.6%
Net profit attributable equity holders of the Parent       19.6      8.0  144.9%
 company                                                                        



Financial ratios, %            30.06.2016  31.12.2015  Change
-------------------------------------------------------------
ROA                                  22.9        17.4   31.9%
ROE                                  30.9        23.7   30.3%
Price to earnings ratio (P/E)         6.0         5.0   19.7%
Current ratio                         3.2         4.2  -23.7%
Quick ratio                           2.3         2.6  -13.3%

 Consolidated Statement of Financial Position



in thousands of EUR                                     Note  30.06.16  31.12.15
--------------------------------------------------------------------------------
ASSETS                                                                          
Current assets                                                                  
Cash and cash equivalents                                       28 546    21 274
Current loans granted                                                6         6
Trade and other receivables                              2       5 198     4 120
Inventories                                              3      14 092    15 470
Total current assets                                            47 842    40 870
                                                                                
Non-current assets                                                              
Investments in associates                                            0         1
Available-for-sale investments                                     340       372
Deferred tax asset                                                 741       465
Intangible assets                                                  321       443
Investment property                                              1 019     1 130
Property, plant and equipment                            4       8 953    10 354
Total non-current assets                                        11 374    12 765
TOTAL ASSETS                                                    59 216    53 635
                                                                                
LIABILITIES AND EQUITY                                                          
Current liabilities                                                             
Trade and other payables                                 5      12 060     7 985
Tax liabilities                                                  2 730     1 661
Total current liabilities                                       14 790     9 646
                                                                                
Non-current liabilities                                                         
Deferred tax liability                                              14        13
Total non-current liabilities                                       14        13
Total liabilities                                               14 804     9 659
                                                                                
Equity                                                                          
Share capital                                            6      11 400    11 400
Share premium                                                   11 914    11 914
Treasury shares                                          6      -1 427      -579
Statutory reserve capital                                        1 306     1 306
Unrealised exchange rate differences                           -15 411   -16 238
Retained earnings                                               32 827    32 391
Total equity attributable to equity holders of the              40 609    40 194
 Parent company                                                                 
Non-controlling interest                                         3 803     3 782
Total equity                                                    44 412    43 976
TOTAL EQUITY AND LIABILITIES                                    59 216    53 635



 Consolidated Income Statement



in thousands of EUR                       Note      2Q      2Q  6m 2016  6m 2015
                                                  2016    2015                  
--------------------------------------------------------------------------------
Revenue                                    8    17 237  21 425   30 595   34 498
Cost of goods sold                              -7 694     -11  -13 371  -18 921
                                                           704                  
Gross Profit                                     9 543   9 721   17 224   15 577
                                                                                
Distribution expenses                           -2 215  -2 460   -4 230   -4 783
Administrative expenses                         -1 144  -1 556   -2 265   -3 265
Other operating income                              86     123      169      246
Other operating expenses                          -306    -320     -558     -572
Operating profit                                 5 964   5 508   10 340    7 203
                                                                                
Currency exchange income/(expense)                -975    -942   -2 494   -1 031
Other finance income/(expenses)                     36      87      101      260
Net financial income                              -939    -855   -2 393     -771
                                                                                
Profit (loss) from associates using                  0       2        0        0
 equity method                                                                  
Profit before tax                                5 025   4 655    7 947    6 432
                                                                                
Income tax expense                              -1 006  -1 254   -1 814   -3 380
                                                                                
Profit for the period                            4 019   3 401    6 133    3 052
Attributable to :                                                               
Equity holders of the Parent company             3 827   3 277    5 986    2 756
Non-controlling interest                           192     124      147      296
                                                                                
Earnings per share from profit             7      0.10    0.08     0.16     0.07
 attributable to equity holders of the                                          
 Parent company, both basic and diluted                                         
 (EUR)                                                                          



Business environment and results

Group`s results for 6 months of 2016 were defined by continued difficulties in
economies of its major sales markets – Russia, Belarus, Kazakhstan and Ukraine.
The Group didn`t achieve growth rate of sales compared to 6 months of 2015.
Total sales during 6 months of 2016 amounted to 30 595 thousand EUR. Previously
undermined by devaluations and high inflation rates purchasing power in
region`s countries remains 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 6 months of 2016 is up to 56.3%
from 45.15% in 6 months of 2015. Compared to 6 months of 2015 commercial and
administrative expenses diminished respectively by 11.6% and 30.6%. Personnel
expenses decreased by 22%; total number of employees compared to the beginning
of 2016 diminished by 3%. 

Russian statistics is somewhat improving compared to 2015, inflation rate is
falling and is currently ca 7% in yearly terms, GDP declined “only” by 0.7%
during Q2 of 2016. Russian economy is starting to adapt to new reality, but
purchasing power of population in real terms is still falling.  Group`s sales
on Russian market totalled 17 303 thousand EUR, decline is 5.7% compared to 6
months of 2015. Group`s Russian subsidiary opened 5 more stores in Q2 of 2016,
2 more stores were opened in July 2016. 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 2.5% in 6 months of 2016, nominal retail turnover decreased by
1.6%, 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 pressure on Belarusian
rouble, low demand for consumption, high level of debts in economy. Share of
problematic credits in banking sector is continuously growing, according to
official statistics it was more that 12% of banking assets as of the end of
June 2016. Group`s sales in Belarus in 6 months of 2016 were 9 145 thousand EUR
and diminishing by 18.1% compared to 6 months 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 6 months of 2016. Group`s sales to
Kazakhstan clients fell by 35.9% during 6 months of 2016 and amounted to 1 075
thousand EUR. The Group expects stabilisation of Kazakhstan market in the end
of 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 sales by 17% to the level of 903 thousand
EUR, although comparison base is relatively low. 



Financial performance

The Group`s sales amounted to 30 595 thousand EUR during 6 months of 2016,
representing a 11.3% decrease as compared to the same period of previous year.
Overall, wholesales decreased by 10.7% and retail sales decreased by 13.6%,
measured in EUR. 

The Group’s reported gross profit margin during 6 months of 2016 continued to
improve increasing to 56.3%, reported gross margin was 45.2% in the respective
period of previous year. Consolidated operating profit for 6 months of 2016
amounted to 10 340 thousand EUR, compared to 7 203 thousand EUR in 6 months of
2015. The consolidated operating profit margin was 33.8% for 6 months of 2016
(20.9% in 6 months of 2015). Consolidated EBITDA for 6 months of 2016 was 11
218 thousand EUR, which is 36.7% in margin terms (8 546 thousand EUR and 24.8%
for 6 months of 2015). 

Reported consolidated net profit attributable to equity holders of the Parent
company for 6 months of 2016 amounted to 5 986 thousand EUR, compared to net
profit of 2 756 thousand EUR in 6 months of 2015, net profit margin
attributable to equity holders of the Parent company for 6 months of 2016 was
19.6% against 8.0% in 6 months of 2015. 



Financial position

As of 30 June 2016 consolidated assets amounted to 59 216 thousand EUR
representing an increase by 10.4% as compared to the position as of 31 December
2015. 

Trade and other receivables increased by 1 078 thousand EUR as compared to 31
December 2015 and amounted to 5 198 thousand EUR as of 30 June 2016. Inventory
balance decreased by 1 378 thousand EUR and amounted to 14 092 thousand EUR as
of 30 June 2016. 

Equity attributable to equity holders of the Parent company increased by 415
thousand EUR and amounted to 40 609 thousand EUR as of 30 June 2016. Current
liabilities increased by 5 144 thousand EUR during 6 months of 2016. 



Sales structure

Sales by markets

in thousands      6m      6m     Change,   Change,  6m 2016, % of  6m 2015, % of
 of EUR          2016    2015      EUR        %             sales          sales
--------------------------------------------------------------------------------
Russia          17 303  18 340     -1 037    -5.7%          56.6%          53.2%
Belarus          9 145  11 169     -2 023   -18.1%          29.9%          32.4%
Kazakhstan       1 075   1 675       -601   -35.9%           3.5%           4.9%
Ukraine            903     772        131    17.0%           3.0%           2.2%
Moldova            672     579         93    16.1%           2.2%           1.7%
Latvia             506     575        -69   -12.0%           1.7%           1.7%
Estonia            204     118         86    72.9%           0.7%           0.3%
Lithuania          173     202        -29   -14.4%           0.6%           0.6%
Other markets      614   1 068       -454   -42.5%           2.0%           3.1%
Total           30 595  34 498     -3 902   -11.3%         100.0%         100.0%



The majority of lingerie sales revenue during 6 months of 2016 in the amount of
17 303 thousand EUR was generated in Russia, accounting for 56.6% of total
sales. The second largest market was Belarus, where sales reached 9 145
thousand EUR, contributing 29.9% of lingerie sales (both retail and wholesale).
Volumes in Kazakhstan decreased significantly to 1 075 thousand EUR, there was
a remarkable increase in Ukraine and Moldova – accordingly 17.0% and 16.1%. 



Sales by business segments



in thousands       6m      6m   Change,  Change,      6m 2016, %      6m 2015, %
 of EUR          2016    2015       EUR        %      from sales      from sales
--------------------------------------------------------------------------------
Wholesale      23 245  26 038    -2 793   -10.7%           76.0%           75.5%
Retail          7 297   8 446    -1 149   -13.6%           23.9%           24.5%
Other              53      14        38   265.1%            0.2%            0.0%
 operations                                                                     
Total          30 595  34 498    -3 904   -11.3%          100.0%          100.0%



During 6 months of 2016 wholesale revenue amounted to 23 245 thousand EUR,
representing 76.0% of the Group’s total revenue (6 months of 2015: 75.5%). The
main wholesale regions were Russia, Belarus, Kazakhstan and Ukraine. 

Our retail revenue decreased by 13.6% and amounted to 7 297 thousand EUR, this
represents 23.9% 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          11        383    394
Ukraine          0         92     92
Belarus         56          2     58
Baltics          9         24     33
Kazakhstan       0         51     51
Moldova          0         26     26
Other regions    0         40     40
Total           76        618    694



At the end of the reporting period the Group and its franchising partners
operated 645 Milavitsa and 49 Lauma Lingerie branded stores, including 76
stores operated directly by the Group. 



Production, sourcing, purchasing and logistics

During 6 months of 2016 the Group’s investments into property, plant and
equipment totalled 207 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 30 June 2016, the Group employed 1 989 employees including 361 in retail.
The rest were employed in production, wholesale, administration and support
operations. 

Total salaries and related taxes during 6 months of 2016 amounted to 5 745
thousand EUR (7 407 thousand EUR in 6 months of 2015). The remuneration of key
management of the Group, including the key executives of all subsidiaries,
totalled 511 thousand EUR. 

Decisions made by governing bodies during 6 months 2016

On June 29, 2016 Silvano Fashion Group held its regular Annual General Meeting
of Shareholders. The Meeting adopted following decisions. 

·         The Meeting approved the 2015 Annual Report.

·         The Meeting decided to distribute dividends in the amount 0.15 EUR
per share (record date 13.07.2016, payment completed on 15.07.2016). 

·         The Meeting decided to re-appoint AS PricewaterhouseCoopers as the
Group`s auditor for financial year 2016. 

·         The Meeting decided to cancel the 1 000 000 own shares acquired
within the own share buy-back programme as approved by the shareholders of AS
Silvano Fashion Group on 29th of June 2015; 

·         The Meeting decided to adopt a share buy-back program in the
following: effective period until 30.06.2017; maximum number of shares to be
acquired not more than 1 000 000; maximum share price 2.70 EUR per share. 



Aleksei Kadõrko

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