Management Report Q4, 2006
Important Events in Q4, 2006
Recording Acquisition of Silvano Fashion Group AS in Accounting
and Consolidated Reports
PTA Grupp AS (hereinafter referred to as ‘PTA') acquired the
subsidiary - public limited company Silvano Fashion Group AS
(hereinafter referred to as ‘SFG') - on 16 October 2006. The
performance results of the subsidiary are consolidated as of 1
October 2006. Financial statements of SFG as of 30 September
2006, which were audited by auditors in the course of survey on
financial information, served as a basis for recording the
business combination. The reports have been prepared on the
basis of the principles of the International Financial
Reporting Standards - IFRS.
In accounting of PTA the acquisition of the subsidiary SFG has
been recorded at the adjusted purchase method, in accordance
with which the acquisition cost of the subsidiary is the
balance sheet value of its net assets EEK 404,263 thousand
(EUR 25,837 thousand). The purchase method under IFRS 3 has not
been applied as in accordance with IFRS 3.3 the aforementioned
standard is not applicable with regard to business
combinations, whose parties are units under joint control.
The comparative data presented in the Interim Report are the
financial ratios of PTA for 2005. No comparative data of SFG
for 2005 have been presented as the company had no essential
operating activities, which could be compared to the period
under review.
Consolidated Performance Results of Q4 and 12 months of 2006
The performance results of PTA Grupp were considerably affected
by consolidation of the performance results related to
acquisition of the subsidiary, SFG, as of Q4, 2006.
In Q3 of 2006 PTA earned net profit in the amount of EEK 35.1
million (EUR 2.2 million), which increased by EEK 30.0 million
(EUR 1.9 million) as compared to Q4 of the previous year. The
net profit of Q4 of this year increased by approximately 6.9
times as compared to Q4 of the previous year and the achieved
profit margin amounted to 10.9%. The sharp increase in profit
in Q4 is due to consolidation of the performance results of the
subsidiary SFG within the performance results of PTA Grupp.
The sales revenue in Q4 amounted to EEK 322.2 million (EUR 20.6
million), increasing by EEK 297.0 million (EUR 19.0 million) as
compared to the same period of the previous year. Addition of
the sales turnover of SFG increased the consolidated turnover
of PTA Grupp in Q4 by EEK 286.5 million (EUR 18.3 million).
Compared to the same period of the previous year, the turnover
of PTA related to sales of apparel increased by EEK 10.5
million (EUR 0.7 million), i.e. 41.9%.
The operating profit of the Group in Q4 increased by EEK 52.2
million (EUR 3.3 million) and the operating profit margin
amounted to 18.3% (in Q3 of 2005: 0.3%).
The consolidated sales revenue of PTA Grupp for 12 months of
2006 amounted to EEK 423.0 million (EUR 27.0 million). The
sales revenue increased by EEK 308.5 million (EUR 19.7
million), including the sales revenue of PTA increased by
EEK 22 million (EUR 1.4 million) as compared to the year 2005.
The operating profit of the Group for the 12 months amounted to
EEK 67.9 million (EUR 4.3 million). The operating profit margin
for the 12 months amounted to 16.0% (12 months of 2005: 2.6%).
The net profit for the 12 months amounted to EEK 42.9 million
(EUR 2.7 million).
Sales Revenue
Sales by Products/Services
With regard to sales of products an important change took place
in Q4 of 2006. In relation to acquisition of the subsidiary, as
of Q4 new sales segment - lingerie, which formed 67.3% of the
sales revenue of 2006 - was added. Compared to the year 2005,
apparel sales revenue increased by EEK 21.8 million (EUR 1.4
million), forming 26.2% of the consolidated sales revenue (12
months of 2005: 77.9%). The sales revenue of the subcontracted
service has remained almost at the same level as compared to
the previous year. Increasing by EEK 0.6 million (EUR 0.04
million), the sales of the subcontracted service formed 5.2% of
the sales revenue (in 2005: 18.7%).
Sales by Markets
In 2006 the sales volume to the Estonian market increased
EEK 19.4 million (EUR 1.2 million) as compared to the previous
year, forming 17.5% of the consolidated sales revenue (2005:
47.8%) and increasing 35.4% as compared to the same period of
the previous year.
In 2006 the structure and sales volume of export countries
changed considerably. While up to now the main export markets
of PTA Grupp have been Finland and Latvia, the main export
markets of SFG are now Belarus and Russia. Compared to the same
period of the previous year, in 2006 the export increased by
EEK 289.2 million (EUR 18.5 million). Export made up 82.5% of
total sales revenue (2005: 52.2%). The export sales in main
export markets of PTA increased 21.2%, incl. to Latvia 22.4%
and to Finland 19.9%.
Retail Sale
With regard to acquisition of SFG, in addition to the retail
chain of women's apparel as of Q4 of 2006 the Group also
operates the following retail chains of lingerie: Oblicie,
Splendo, Lauma and Milavitsa. By the end of 2006 the Group had
in total 51 stores with a total area of 6,075 square metres.
The retail sales areas are located in Estonia, Latvia, Russia,
Belarus and Poland. Entry into the Lithuanian and Ukrainian
markets with the retail chains of PTA and Oblicie is being
prepared. The total retail sales of the Group in 2006 amounted
to EEK 82.5 million (EUR 5.3 million), which is formed from the
PTA retail sales turnover of the year and the sales turnover of
the retail chains of lingerie for Q4.
The PTA retail chain turnover amounted to EEK 78.2 million
(EUR 5.0 million) in 2006, increasing 22.4% as compared to the
previous year. In total the PTA retail sales chain included 13
stores with a total retail sales area of 3,020 square metres
(31 December 2005: 2,646 square metres). At the end of the year
2 first stores selling women's apparel and operating under the
PTA trademark were opened in Russia. The increase in the sales
of the like-for-like spaces was 28% as compared to the year
2005. The increase in the retail sale was supported by a
renewed collection, the successful launch of the regular
customer programme and the general growth in consumption. The
retail sales results at the end of the year were supported by
the successful sales of women's festive apparel collection and
the well-timed marketing campaigns.
At the end of the year 2006 the Oblicie retail chain had 13
stores in Russia with the total retail sales area of 1,313
square metres, of which the first store was opened in May 2006.
In Q4 of 2006 the retail sales of lingerie in Russia amounted
to EEK 4.1 million (EUR 0.3 million). In November 2006 SFG
expanded to Poland, acquiring the Splendo lingerie retail sale
chain. The Splendo lingerie retail sale chain has 7 stores with
307 square metres.
Wholesale
In 2006 the wholesale amounted to EEK 314.3 million (EUR 20.1
million). The sharp increase in wholesale turnover is due to
adding the wholesale turnover of Q4 to the turnover of the
Group.
In 2006 the sales turnover of women's apparel increased 34.2%
as compared to the same period of the previous year, incl. the
wholesale turnover increased almost twice in Q4 as compared to
Q4 of the year 2005.
Sales of Subcontracted Service
The sales turnover of subcontracted service is at the same
level as compared to the previous year. Small increase in
service provision by EEK 0.7 million (EUR 0.04) is due to
provision of a new subcontracted service - lingerie
manufacturing.
In 2006 the proportion of women's apparel manufactured by
outside producers increased. For lingerie manufacturing,
subcontracted service is purchased from other Belarusian
companies producing lingerie.
Profit
The results of PTA Grupp of Q4 and 12 months of 2006 were
affected considerably by consolidation of the performance
results related to acquisition of the subsidiary SFG within the
Group. The net profit of the Group for the year 2006 amounted
to EEK 42.9 million (EUR 2.7 million). The net profit related
to sales of lingerie in the amount of EEK 34.7 million (EUR 2.2
million) was added to the result of the Group in Q4. The net
profit related to sales of women's apparel in 2006 amounted to
EEK 8.3 million (EUR 0.5 million).
The operating profit before depreciation of fixed assets and
financial income and expenses formed EEK 79.6 million (EUR 5.1
million), increasing by EEK 69.7 million (EUR 4.4 million) as
compared to the same period last year.
The total operating charges amounted to EEK 346.1 million
(EUR 22.1 million). The increase in costs is related to
consolidation of the performance results of SFG within the
performance results of PTA Grupp as of Q4 and thus cannot be
compared to the results of the previous year.
The total financial income and expenses of the Group for 2006
amounted to EEK 11.4 million (EUR 0.7). The negative goodwill
arisen as a result of acquisition of subsidiaries of SFG in the
amount of EEK 9.5 million (EUR 0.6 million) has been recorded
under income.
Balance Sheet and Ratios
The consolidated balance sheet total of the Group amounted to
EEK 812.5 million (EUR 51.9 million) as of 31 December 2006. As
compared to the end of previous year the balance sheet total
has increased by EEK 760.6 million. The increase in balance
sheet total is related to acquisition of SFG and consolidation
of the same within the performance results of PTA Grupp.
The balance of trade receivables in the Group is at the usual
level, taking into consideration the fact that the subsidiaries
of SFG are mainly engaged in wholesale. The balance of
inventories with regard to women's apparel has increased 29% as
compared to that at the end of the year 2005 and with regard to
lingerie more than 14%. With regard to women's apparel the
increase in the balance of inventories is related to expansion
of activities into new markets, incl. particularly to the
Russian market, and with regard to lingerie the increase is
related to better provision of products to customers and
completion of new collections at the end of the year. Fixed
assets increased mainly with regard to opening new stores in
Q4.
Trade creditors of the Group as a whole are at a bit lower
level than the usual arrears, incl. trade creditors of PTA have
increased by about 18% as compared to the end of the last year.
With regard to increase in sales volumes and the needs of the
stores to be opened in Q1 of 2007, the volumes of deliveries of
PTA have also increased.
As of the end of the accounting period the balance of debts
amounts to EEK 29.9 million (EUR 1.9 million) and it has
increased by EEK 14.6 million (EUR 0.9 million) since the
beginning of the year. The increase in the balance of debts is
due to adding the debts of SFG to the debts of the Group.
Employees
As of 31 December 2006 the number of employees of PTA Grupp AS
amounted to 2,909 (as of 31 December 2005: 414), including in
production 2,569 (as of 31 December 2005: 294) and in retail
trade 215 (as of 31 December 2005: 104).
The Main Figures of the Group
The main financial indicators and ratios that characterize the
consolidated data of the PTA Grupp AS Group for the 12 months
of 2006 are as follows:
12 months 12 months Change
Main financial indicators 2006 2005
Operating revenue, EEK thousand 425 712 132 473 221%
Operating profit/loss before 79 617 9 888 69 729
depreciation of fixed assets and
financial income/expenses
(EBITDA), EEK thousand
Margin, % 18,7% 7,5% -
Operating profit/loss (EBIT), EEK 67 872 2 938 64 934
thousand
EBIT to net sales, % 16,0% 2,6% -
Profit/loss of the period, 42 902 -3 215 46 117
thousand EEK
Profit margin, % 10,1% -2,8% -
ROA, % 9,9% -4,0% -
ROE, % 18,4% -19,3% -
Earnings per share (EPS), EEK 5,07 -1,66 6,73
Current debt ratio 3,62 0,95 -
Quick ratio 2,28 0,24 -
Inventory turnover ratio 3,31 4,3 -
The ratios were calculated as follows:
Profit margin = Net profit / Sales revenue
Return on assets (ROA) = Net profit (attributable to parent) /
Average total assets
Return on Equity (ROE) = Net profit (attributable to parent) /
Average owners' equity
Earnings per share (EPS) = Net profit (attributable to parent)
/ Average number of ordinary shares
Current debt ratio = Current assets / Current liabilities
Quick ratio = (Current assets - Inventories) / Current
liabilities
Inventory turnover ratio = Net sales / Average inventory for
the period
Balance Sheet
Consolidated, unaudited
31.12. 31.12. 31.12. 31.12.
2006 2005 2006 2005
EEK EEK EUR EUR
thousand thousand thousand thousand
ASSETS
Current assets
Cash at bank and in 200,392 2,831 12,807 181
hand
Trade receivables 112,046 3,052 7,161 195
Other short-term
receivables and
prepaid expenses 55,252 2,589 3,531 165
Prepaid taxes 21,186 25 1,354 2
Inventories 230,117 25,496 14,708 1,630
Total current assets 618,993 33,993 39,561 2,173
Fixed assets
Long-term financial
investments 3,649 0 233 0
Non-trade receivables 550 750 35 48
Tangible assets 172,778 10,536 11,043 673
Intangible assets 16,551 6,622 1,058 423
Total fixed assets 193,528 17,908 12,369 1,144
Total assets 812,521 51,901 51,930 3,317
LIABILITIES AND
OWNERS`
EQUITY
Current liabilities
Borrowings 29,907 15,294 1,911 977
Trade payables 86,436 12,573 5,524 804
Taxes liabilities 25,825 2,836 1,651 181
Other short-term 27,553 5,178 1,761 331
payables
Short-term provision 1,192 12 76 1
Total current 170,913 35,893 10,923 2,294
liabilities
Long-term liabilities
Long-term borrowings 9,544 134 610 9
Other long-term
payables 109 173 7 11
Long-term provisions 139 143 9 9
Total long-term 9,792 450 626 29
liabilities
Total liabilities 180,705 36,343 11,549 2,323
Owners`equity
Share capital 379,472 19,469 24,253 1,244
(nominal value)
Share premium 85,253 40,994 5,449 2,620
Legal reserve 1,046 1,046 67 67
Retained profit -45,977 -42,762 -2,939 -2,733
Unrealised exchange
rate
differences -10,688 26 -683 2
Net profit/loss for 42,902 -3,215 2,742 -206
financial year
Total equity 452,008 15,558 28,889 994
attributable to
majority shareholder
Minority interest 179,808 0 11,492 0
Total equity 631,816 15,558 40,381 994
TOTAL LIABILITIES AND 812,521 51,901 51,930 3,317
OWNERS` EQUITY
Income Statement-Q4
Consolidated, unaudited
2006 2005 2006 2005
Q4 Q4 Q4 Q4
EEK EEK EUR EUR
thousand thousand thousand thousand
Operating revenue
Sales revenue 322,150 25,102 20,589 1,604
Other operating revenue 2,380 17,487 152 1,117
Total operating revenue 324,530 42,589 20,741 2,721
Change in finished goods and work 6,264 -1,060 400 -68
in progress
Goods, raw materials and services
services -156,406 -11,405 -9,996 -729
Other operating expenses -45,063 -7,525 -2,880 -481
Staff costs -60,474 -11,032 -3,865 -705
Other operating charges -2,317 -3,236 -148 -206
Total operating charges -257,996 -34,258 -16,489 -2,189
EBITDA 66,534 8,331 4,252 532
Depreciation -7,696 -1,680 -492 -107
Operating profit/loss 58,838 -6,651 3,760 425
Financial income/expenses
Interest expenses -45 -1,320 -3 -84
Gains / losses on conversion of
foreign currencies 1,886 175 121 11
Other financial income / expenses 1,035 -49 66 -3
Written-off negative goodwill 9,468 0 605 0
Total financial income / expenses 12,344 -1,194 789 -76
Profit before corporate income 71,182 5,457 4,549 349
tax
Corporate income tax -18,921 -360 -1,209 -23
Net profit 52,261 5,097 3,340 326
Net profit attributable to 17,186 0 1,098 0
minority shareholders
Net profit attributable to parent 35,075 0 2,242 0
company
Earnings per share
Basic earnings per share 1.26 2.62 0.08 0.17
(EEK/EUR)
Diluted earnings per share 1.26 2.62 0.08 0.17
(EEK/EUR)
Income Statement-12 months
Consolidated, unaudited
2006 2005 2006 2005
12 12 12 12
months months months months
EEK EEK EUR EUR
thousand thousand thousand thousand
Operating revenue
Sales revenue 423,048 114,524 27,038 7,319
Other operating revenue 2,664 17,949 170 1,147
Total operating revenue 425,712 132,473 27,208 8,466
Change in finished goods and 8,214 -5,849 525 -374
work in progress
Goods, raw materials and
services -192,451 -41,674 -12,300 -2,663
Other operating expenses -66,722 -26,629 -4,264 -1,702
Staff costs -91,867 -44,037 -5,871 -2,815
Other operating charges -3,269 -4,396 -209 -281
Total operating charges -346,095 -122,585 -22,119 -7,835
EBITDA 79,617 9,888 5,089 631
Depreciation -11,745 -6,950 -751 -444
Operating profit/loss 67,872 2,938 4,338 187
Financial income/expenses
Interest expenses -938 -5,895 -60 -377
Gains / losses on conversion 1,884 175 120 11
of foreign currencies
Other financial income / 987 -73 63 -4
expenses
Written-off negative goodwill 9,468 0 605 0
Total financial income / 11,401 -5,793 728 -370
expenses
Profit before corporate 79,273 -2,855 5,066 -183
income tax
Corporate income tax -19,185 -360 -1,226 -23
Net profit 60,088 -3,215 3,840 -206
Net profit attributable to 17,186 0 1,098 0
minority shareholders
Net profit / loss 42,902 0 2,742 0
attributable to parent
company
Earnings per share
Basic earnings per share 5.07 -1.66 0.32 -0.11
(EEK/EUR)
Diluted earnings per share 5.07 -1.66 0.32 -0.11
(EEK/EUR)
Peeter Larin
Chairman of the Management Board
tel+372 6 710 700