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Silvano Fashion Group Quarterly report Consolidated Interim Financial Report for Q1 and 3 months of 2017 (unaudited)

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Silvano Fashion Group
Quarterly report

Consolidated Interim Financial Report for Q1 and 3 months of 2017 (unaudited)



Selected Financial Indicators



Summarized selected financial indicators of the Group for Q1 of 2017 compared
to Q1 of 2016 and 31.03.2017 compared to 31.12.2016 were as follows: 



in thousands of EUR                                     Q1 2017  Q1 2016  Change
--------------------------------------------------------------------------------
Revenue                                                  14 542   13 358    8,9%
EBITDA                                                    2 909    4 818  -39,6%
Net profit for the period                                   109    2 114  -94,8%
Net profit attributable equity holders of the Parent         50    2 159  -97,7%
 company                                                                        
Earnings per share (EUR)                                  0,001    0,057  -98,2%
Operating cash flow for the period                        2 908    2 604   11,7%



                                                                                
in thousands of EUR                                   31.03.20  31.12.20  Change
                                                      17        16              
Total assets                                          58 526    56 145    4,2%  
Total current assets                                  44 870    42 677    5,1%  
Total equity attributable to equity holders of the    43 921    43 402    1,2%  
 Parent company                                                                 
Cash and cash equivalents                             23 121    22 303    3,7%  
                                                                                
Margin analysis, %                                    Q1 2017   Q1 2016   Change
Gross profit                                          46,6      57,5      -18,9%
EBITDA                                                20,0      36,1      -44,6%
Net profit                                            0,75      15,8      -95,3%
Net profit attributable equity holders of the Parent  0,34      16,2      -97,9%
 company                                                                        



Financial ratios, %            31.03.2017  31.12.2016  Change
ROA                            7,0         14,7        -52,4%
ROE                            9,3         19,6        -52,5%
Price to earnings ratio (P/E)  26,8        13,2        103,0%
Current ratio                  3,9                     -20,4%
Quick ratio                    2,3         3,0         -23,3%



Consolidated Statement of Financial Position

in thousands of EUR                                 Note  31.03.2017  31.12.2016
--------------------------------------------------------------------------------
ASSETS                                                                          
Current assets                                                                  
Cash and cash equivalents                                     23 121      22 303
Current loans granted                                              9          19
Trade and other receivables                          2         3 729       4 168
Inventories                                          3        18 011      16 187
Total current assets                                          44 870      42 677
                                                                                
Non-current assets                                                              
Long-term receivables                                            233          21
Investments in associates                                         27          19
Available-for-sale investments                                   375         369
Deferred tax asset                                             1 128       1 012
Intangible assets                                                269         291
Investment property                                            1 101       1 091
Property, plant and equipment                        4        10 523      10 665
Total non-current assets                                      13 656      13 468
TOTAL ASSETS                                                  58 526      56 145
                                                                                
LIABILITIES AND EQUITY                                                          
Current liabilities                                                             
Trade and other payables                             5         9 815       6 894
Tax liabilities                                                1 737       1 857
Total current liabilities                                     11 552       8 751
                                                                                
Non-current liabilities                                                         
Deferred tax liability                                            13          37
Total non-current liabilities                                     13          37
Total liabilities                                             11 565       8 788
                                                                                
Equity                                                                          
Share capital                                        6        11 100      11 100
Share premium                                                 10 787      10 787
Treasury shares                                      6        -1 956        -998
Statutory reserve capital                                      1 306       1 306
Revaluation reserve                                              710         710
Unrealised exchange rate differences                          -9 541     -10 968
Retained earnings                                             31 515      31 465
Total equity attributable to equity holders of the            43 921      43 402
 Parent company                                                                 
Non-controlling interest                                       3 040       3 955
Total equity                                                  46 961      47 357
TOTAL EQUITY AND LIABILITIES                                  58 526      56 145

Consolidated Income Statement



in thousands of EUR                                         Note      Q1      Q1
                                                                    2017    2016
--------------------------------------------------------------------------------
Revenue                                                      8    14 542  13 358
Cost of goods sold                                                -7 759  -5 677
Gross Profit                                                       6 783   7 681
                                                                                
Distribution expenses                                             -2 874  -2 015
Administrative expenses                                           -1 275  -1 121
Other operating income                                                43      83
Other operating expenses                                            -270    -252
Operating profit                                                   2 407   4 376
                                                                                
Currency exchange income/(expense)                                -1 198  -1 519
Other finance income/(expenses)                                       67      65
Net financial income                                              -1 131  -1 454
                                                                                
Profit (loss) from associates using equity method                      9       0
Profit before tax                                                  1 285   2 922
                                                                                
Income tax expense                                                -1 176    -808
                                                                                
Profit for the period                                                109   2 114
Attributable to :                                                               
Equity holders of the Parent company                                  50   2 159
Non-controlling interest                                              59     -45
Earnings per share from profit attributable to equity        7      0,00    0,06
 holders of the Parent company, both basic and diluted                          
 (EUR)                                                                          



Business environment and results


The Group`s sales amounted to 14 542 thousand EUR during Q1 of 2017,
representing a 8.9% increase as compared to the same period of previous year.
The Group’s gross profit during Q1 of 2017 amounted to 6 783 thousand EUR and
decreased by 11.7% compared to Q1 of 2016. Gross margin during Q1 of 2017
decreased to 46.6% from 57.5% in the respective to Q1 of 2016. 

Consolidated operating profit Q1 of 2017 decreased by 45.0% to 2 407 thousand
EUR, compared to 4 376 thousand EUR in Q1 of 2016. Consolidated EBITDA for Q1
of 2017 decreased by 39.6% and was 2 909 thousand EUR, compared to 4 818
thousand EUR in Q1 of 2016. 

Reported consolidated net profit for Q1of 2017 amounted to 109 thousand EUR,
decreasing by 94.8% compared to prior result of 2 114 thousand EUR. Net profit
attributable to equity holders of the Parent company for Q1 of 2017 decreased
by 97.7% and amounted to 50 thousand EUR. 

Group`s results for 3 months of 2017 were defined by continued challenges in
economies of its major sales markets – Russia, Belarus and Ukraine. Group
achieved growth in sales compared to 3 months of 2016, but gross margin and
gross profit decreased compared to same period last year. The purchasing power
in region`s countries remains low, therefore it is hard to see some kind of
relatively fast recovery in growth rates of economies under discussion. 

The recovery in economic activity, which started in Russia in the second
quarter of 2016, appears to be fragile. Russian economy is adapting to new
reality, but purchasing power of population in real terms is still low.
Following a buoyant performance in January, consumer demand weakened in
February. Retail trade contracted by 0.4% in real terms month to month,
seasonally adjusted. Retail trade yearly decrease was 2.6% in February.
Inflation slowed further in March, partly aided by the ruble’s appreciation.
Supported by a stronger ruble, the monthly inflation totalled 0.1% in March
2017 compared to 0.5% in the same period last year. The 12-month Consumer Price
Index (CPI) decreased in March to 4.3%. Unemployment declined to 5.2% in
February. Real wages continued to grow, rising in February by 1.3% compared to
the same period of previous year; however, the growth decelerated. Real
disposable incomes contracted in February by 4.1% compared to the same period
in 2016, and they decreased in monthly terms after seasonal adjustment. 

Group`s sales on Russian market totalled 8 076 thousand EUR, increase is 5.2%
compared to 3 months of 2016. In local currency sales decreased by 20.2% during
3 months. Group`s Russian subsidiary opened 3 stores in Q1 of 2017, total 30
own stores is now opened. The Group will continue opening own stores as this
gives growing sales opportunity and better control of the market. 

Belarusian economy at the moment isn`t demonstrating signs of stabilisation
yet. The economy is projected to emerge from the recession over the course of
this year as loans from international institutions will support activity.
However, the overall economic situation will remain bleak as Russia—Belarus’
main trading partner—will not make a strong recovery in 2017. Against this
backdrop analysts forecast that GDP will increase by just 0.2-0.4% in 2017.
Consumer prices rose 0.3% in March from the previous month, down from
February’s 0.5% increase and the lowest reading in three months. According to
the Belstat, March’s increase came on the back of higher prices for services
and non-food goods. Inflation cooled in March, dropping to 6.4% from 7.0% in
February. This marked the lowest reading since July 2010. Annual average
inflation was 10.6% in March, below February’s 11.2% and also a multi-year low.
Analysts see inflation averaging 10.3% in 2017. 

Group`s sales in Belarus in 3 months of 2017 were 4 201 thousand EUR and
increasing 3.2% compared to 3 months of 2016. Sales in local currency decreased
by 8.1% at the same period. 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 sales areas. 

Recent developments in Ukraine are starting to derail the economy’s fragile
recovery. The government formalized an economic blockade of the rebel-held
eastern regions in March, escalating a tense political situation, a large a
number of Ukrainian companies located in this territory. On a bright note, the
government received USD 1.0 billion in fresh funds from the IMF in April.
However, a number of reforms need to be implemented to secure additional aid
going forward. The economic blockade has soured the country’s economic outlook.
Analysts see GDP rising by 2.4% this year. In March, consumer prices rose 1.8%
from the previous month, which followed February’s 1.0% increase. March’s
reading was driven by soaring prices for clothing and footwear as well as
higher prices for housing, electricity, gas and other fuels. Inflation edged up
from February’s 14.2% to 15.1% in March—a 12-month high. However, annual
average inflation continued to ease, falling from 11.1% in February to 10.6% in
March, the lowest result since November 2014. Analysts expect inflation to end
2017 at 9.3%. 

Group`s sales in Ukraine in 3 months of 2017 reached the level of 701 thousand
EUR, which is 136% more than previous year same period. Sales in local currency
increased by 137% during same period. 



Financial performance

The Group`s sales amounted to 14 542 thousand EUR during Q1 of 2017,
representing a 8.9% increase as compared to the same period of previous year.
Overall, wholesales decreased by 1.1% and retail sales increased by 41.0%,
measured in EUR. 

The Group’s gross profit during Q1 of 2017 amounted to 6 783 thousand EUR and
decrease by 11.7% compared to previous year. The gross margin during Q1 of 2017
decreased to 46.4%, from 57.5% in the respective period of previous year. The
cost of sold goods increased by 36.7%. 

Consolidated operating profit for Q1 of 2017 amounted to 2 407 thousand EUR,
compared to 4 376 thousand EUR in Q1 of 2016, decrease 45.0%. The consolidated
operating profit margin was 16.6% for Q1 of 2017 (32.8% in Q1 of 2016).
Consolidated EBITDA for Q1 of 2017 decreased by 39.6% and amounted to 2 909
thousand EUR, which is 20.0% in margin terms (4 818 thousand EUR and 36.0% for
Q1 of 2016). 

Reported consolidated net profit attributable to equity holders of the Parent
company for Q1 of 2017 amounted to   50 thousand EUR, compared to net profit of
2 159 thousand EUR in Q1 of 2016, net profit margin attributable to equity
holders of the Parent company for Q1 of 2017 was 0.75% against 15.8% in Q1 of
2016. 

Financial position

As of 31 March 2017 consolidated assets amounted to 58 526 thousand EUR
representing an increased by 4.2% as compared to the position as of 31 December
2016. 

Trade and other receivables decreased by 439 thousand EUR as compared to 31
December 2016 and amounted to 3 729 thousand EUR as of 31 March 2017. Inventory
balance increased by 1 824 thousand EUR and amounted to 18 011 thousand EUR as
of 31 March 2017. 

Equity attributable to equity holders of the Parent company increased by 519
thousand EUR and amounted to 43 921 thousand EUR as of 31 March 2017. Current
liabilities increased by 2 801 thousand EUR during Q1 of 2017. 



Sales structure

Sales by markets

Group sales in its 3 major markets – Russia, Belarus and Ukraine – were 89.2%
of its total sales.  Decreased in local currencies sales growth was accordingly
20.2% in Russia and 8.1% in Belarus. In Ukraine sales in local currency
measured 137.0%. 

                 Q1 2017  Q1 2016  Change    Change, %
------------------------------------------------------
Russia, th RUB   505 396  633 188  -127 792    -20,20%
Belarus, th BYN    8 570    9 323      -753     -8,10%
Ukraine, th UAH   20 230    8 536    11 694    137,00%



Group sales results by markets measured in EUR are presented below:

in thousands      Q1      Q1     Change,   Change,  Q1 2017, % of  Q1 2016, % of
 of EUR          2017    2016      EUR        %         sales          sales    
--------------------------------------------------------------------------------
Russia           8 076   7 674        402     5,2%          55,5%          57,5%
Belarus          4 201   4 071        130     3,2%          28,9%          30,5%
Ukraine            701     297        404   136,0%           4,8%           2,2%
Baltics            370     304         66    21,7%           2,6%           2,3%
Other markets    1 194   1 012        182    18,0%           8,2%           7,6%
Total           14 542  13 358      1 184     8,9%        100,00%        100,00%



The majority of lingerie sales revenue during Q1 of 2017 in the amount of 8 076
thousand EUR was generated in Russia, accounting for 55.5% of total sales. The
share of Russian market decreased by 2.0 pp. The second largest market was
Belarus, where sales reached to 4 201 thousand EUR, contributing 28.9% of
lingerie sales (both retail and wholesale). 



Sales by business segments

in thousands      Q1      Q1     Change,   Change,  Q1 2017, % of  Q1 2016, % of
 of EUR          2017    2016      EUR        %         sales          sales    
--------------------------------------------------------------------------------
Wholesale       10 096  10 208       -112    -1,1%          69,4%          76,4%
Retail           4 414   3 131      1 283    41,0%          30,4%          23,5%
Other               32      19         13    68,4%           0,2%           0,1%
 operations                                                                     
Total           14 542  13 358      1 184     8,9%         100,0%         100,0%

During Q1 of 2017 wholesale revenue decreased by 1.1% and amounted to 10 096
thousand EUR, representing 69.4% of the Group’s total revenue (Q1 of 2016:
76.4%). The share of wholesale decreased by 7.0 pp during the Q1 of 2017. The
main wholesale regions were Russia, Belarus and Ukraine. 

Group´s retail revenue increased by 41.0% and amounted to 4 414 thousand EUR,
this represents 30.4% of the Group`s total revenue. 



Own & franchise store locations by countries

               Own  Franchise  Total
------------------------------------
Russia          30        371    401
Ukraine          0         50     50
Belarus         60          5     65
Baltics          7         26     33
Other regions    0        124    124
Total           97        576    673



At the end of the reporting period the Group and its franchising partners
operated 624 Milavitsa and 49 Lauma Lingerie branded stores, including 97
stores operated directly by the Group. 

Investments

During Q1 of 2017 the Group’s investments into property, plant and equipment
totalled 160 thousand EUR, in previous year same period 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 2017, the Group employed 2 235 employees, including 475 people
in retail operations, during same period previous year accordingly total
employee count 2041, including 355 in retail. The rest were employed in
production, wholesale, administration and support operations. In 31.12.2016
there were 2163 employees, including 480 in retail. 

Total salaries and related taxes during Q1 of 2017 amounted to 2 764 thousand
EUR, in Q1 of 2016 total 2 758 thousand EUR, increase by 0.2%. The remuneration
of key management of the Group, including the key executives of all
subsidiaries, totalled 232 thousand EUR, decrease by 10.1% 

Decisions made by governing bodies during Q1 2017

On February 2, 2017 Silvano Fashion Group Extraordinary Meeting of Shareholders
decided to change Silvano Fashion Group AS shareholders General Meeting
decision from June 29, 2016 of its share buyback program terms and set the new
maximum price at which Silvano Fashion Group AS may buy back its own shares
within the own share buy-back programme is EUR 3.30 per share. 







Jarek Särgava

Member of the Management Board

Silvano Fashion Group AS

Tel +372 6845 000
E-mail: [email protected]

www.silvanofashion.com