Business results
For PTA Group the past financial year was one of pivotal
change. Our traditional business segment - manufacturing
and distribution of women's apparel started generating a
profit thanks to streamlining and a change in strategy
and we expanded to the Lithuanian, Ukrainian and Russian
retail markets.
In October 2006 we acquired a 100% stake in Silvano
Fashion Group AS, a multinational holding company, and
diversified into a new business segment - lingerie
manufacturing and distribution. The transaction created
significant intra-Group synergies. From now on, our
manufacturing entities are going to focus on
manufacturing our own-brand products and the subsidiaries
which are engaged in distribution are going to focus on
distributing those products in the markets in which they
operate. The vertically integrated Group will retain up
to two thirds of the end-price of the lingerie and
apparel produced by the Group.
Profit
PTA Group ended 2006 with consolidated net sales of 422.7
million kroons, an almost 3.7-fold improvement on the
prior financial year. Operating results were
significantly enhanced by the consolidation of SFG from 1
October 2006 - approximately 68% of our year-on-year
sales growth may be attributed to the consolidation of
SFG. In addition, results were positively impacted by
rapid growth in the Baltic and Russian lingerie and
women's apparel markets, which are our primary sales
markets.
Consolidated operating profit surged to 79.0 million
kroons, a 4.7-fold increase on 2005. The acquisition of
SFG boosted the Group's operating profit by 69.6 million
kroons. Consolidated operating margin improved from 14.7%
to 18.7%.
Consolidated net profit amounted to 45.0 million kroons
against 10.7 million kroons in 2005 and the period's net
margin was 10.6% (2005: 9.3%). In terms of segments, 36.9
million kroons of net profit resulted from lingerie sales
and 8.1 million kroons from the sales of women's apparel
and subcontracting services.
Balance sheet
In 2006 consolidated assets grew 15.6 times to 812.1
million kroons. Both assets and liabilities increased
mainly on account of the acquisition of SFG although
expansion to new markets also played a role.
Trade receivables remained at an ordinary level,
considering that SFG's subsidiaries Milavitsa and Lauma
Lingerie sell their products mostly on a credit basis.
Inventories experienced a 9-fold increase. Compared to
the prior year-end, at 31 December 2006 inventories of
women's apparel and lingerie were approximately 30% and
17% larger respectively. Inventory growth results
primarily from expansion to new markets - year-end
inventory balances include the stocks manufactured for
new stores which were opened at the beginning of 2007. In
connection with the expansion of the retail network, the
Group made rental prepayments for store premises which
increased other receivables and prepayments.
Property, plant and equipment and intangible assets
increased by 171.7 million kroons, mostly in connection
with the acquisition of SFG.
Current liabilities increased approximately 4.8 times
compared to the end of 2005. At 31 December 2006 trade
payables were slightly below the ordinary level.
Substantial growth in tax liabilities and other payables
including payables to employees results from the
consolidation of SFG, but remain on an expected level.
Current and non-current loans and borrowings increased by
24.0 million kroons. Loans received and loans repaid
during the period amounted to 32.0 million kroons and
29.5 million kroons respectively. The figures for loans
received and repaid include the transformation of two non-
current loans received at the beginning of 2006 into a
short-term loan of 7.6 million kroons. In connection with
the acquisition of SFG, year-end loans and borrowings
increased by 24.7 million kroons. The figure includes
finance lease liabilities of 16.2 million kroons and
other loans and borrowings of 8.5 million kroons.
Equity increased more than 40-fold, surpassing the 631.6
million kroon threshold. As a result of a share issue,
share capital increased by 360.0 million kroons and share
premium by 42.0 million kroons.
Sales by business segments
In millions of kroons 2006 2005 Change
Women's apparel 111.1 89.2 +24.6%
Lingerie 270.2 0 -
Subcontracting services 41.4 25.3 +63.6%
and other sales
Total 422.7 114.5 +269.2%
In connection with the acquisition of SFG, the Group
acquired a new business segment - lingerie which
accounted for 64% of consolidated net sales in 2006.
Sales by markets
In 2006 our main markets and sales volumes changed
considerably. If previously the principal markets were
the Baltic countries and Finland, the acquisition of SFG
supplemented them with Belarus and Russia.
In 2006 the economic environment was favourable in all
our primary markets. The fastest economic growth was
posted by the Baltic countries: Lithuania 7.4%, Estonia
11.4% and Latvia 11.7%. Although triggered largely by
strong domestic demand, economic growth has increased the
customers' purchasing power. In 2006 our sales in the
Baltics grew by 65%, 46% of this resulting from growth in
the sales of women's apparel and 54% from diversification
into the lingerie business in the fourth quarter of 2006.
Rapid economic growth continued also in Russia (6.7%) and
Ukraine (7.0%). If for PTA Group penetration of the
Russian market at the end of 2006 was a new experience,
for the subsidiaries of SFG Russia has been the main
market for a long time. In 2006 sales growth in the new
markets stemmed from growth in lingerie sales.
Retail operations
In the reporting period retail sales grew by 95% to 124.5
million kroons; 76% of the growth is attributable to the
addition of lingerie sales and 24% to the sales of
women's apparel. In connection with expansion, one of the
priorities is to improve retail sales of lingerie and
women's apparel in Russia and other CIS countries.
As a result of the acquisition of SFG, since the fourth
quarter of 2006 the Group has been operating not only the
women's fashion chain PTA but also lingerie chains
Oblicie, Splendo, Lauma and Milavitsa. We have retail
premises in Estonia, Latvia, Russia, Belarus and Poland.
At the end of 2006, PTA and Oblicie were preparing for
penetration of the Lithuanian and Ukrainian retail
markets. In 2006 the relative importance of retail
markets changed considerably. The proportions of Estonia
and Latvia declined on account of the addition of Belarus
although retail sales in Estonia grew by 26% and in
Latvia by 38%.
At the end of 2006 we had 51 retail outlets with a total
area of 6,705 square metres. During the year the number
of stores increased by 40 and sales space grew 2.5 times.
We opened 15 new stores with a total sales area of 1,745
square metres and acquired 25 stores with a total of
2,272 square metres through business combinations.
Market PTA Oblicie Other Total Sales
stores stores stores area,
sq m
Estonia 7 - - 7 1,738
Latvia 4 - 2 6 1,142
Poland - - 7 7 307
Belarus - - 16 16 1,773
Russia 2 13 - 15 1,745
Total 13 13 25 51 6,705
Sales by the PTA chain totalled 78.2 million kroons, 22%
up on 2005. By the year-end the PTA chain comprised 13
stores with total retail premises of 3,020 square metres
(31 December 2005: 2,646 square metres). At the end of
the reporting period, we opened our first two PTA fashion
stores in Russia.
At the year-end, the Oblicie chain had 13 stores in
Russia. The chain's total retail area is 1,313 square
metres and the first store was opened in May 2006. Fourth-
quarter lingerie sales in Russia totalled 4.3 million
kroons. In November 2006 SFG expanded to Poland where it
acquired the Splendo lingerie chain. The Splendo chain
comprises 7 stores with a total retail area of 307 square
metres.
In 2006 PTA chain's like-for-like sales grew by 28%. Like-
for-like sales are sales generated by premises which were
open and had the same sales space both in the reporting
and a comparable preceding period. The growth in retail
sales was facilitated by new collections, a successful
launch of the loyal customer programme and a general rise
in consumption. Year-end sales were enhanced by thriving
sales of women's eveningwear and well-timed marketing
campaigns.
In 2006 PTA chain's sales efficiency (sales per square
metre) improved by 10%. However, compared to the prior
year, the rise in sales efficiency decelerated due to the
penetration of new markets and the opening of new stores.
In the period of launch, the sales efficiency of a store
is lower than that of a well established one. During a
period of active expansion, raising the efficiency of a
store opened in a new market to an acceptable level may
take a year or a year and a half.
Information on other chains' like-for-like sales and
efficiency trends is not available because Oblicie began
operating in 2006 and other chains have not gathered
similar prior period data.
The strong results of the women's apparel segment are
based on successful sales of well-received collections.
Compared to prior periods, the collections of 2006
included a considerably larger proportion of casual
garments whose sales have improved substantially. The
impact of the sales of casual garments was especially
notable during the summer months. On the other hand, the
autumn collection was also warmly received and its sales
were not hindered by unusually warm and good weather in
the third quarter. Well-timed and -designed discounts
improved sales and did not have any major effect on the
segment's operating results. The loyal customer
programme, which was launched in the first quarter,
exceeded expectations - by the year-end over 22,000
people had joined. In addition to developing loyalty, the
programme serves as an effective direct marketing channel
and allows measuring the efficiency of our marketing
campaigns.
To improve the image and international success of the
chain, in the second half of the year a new interior
design concept was developed for PTA stores in
association with the British company Brand Projects Ltd.
The new concept will first be implemented in the PTA
stores which will be opened at the beginning of 2007 in
Lithuania, Ukraine and Russia
Developments in the lingerie segment are discussed in the
section Brief overview of new group companies.
Wholesale operations
In 2006, wholesale trade accounted for approximately 61%
of consolidated sales revenue, contributing 256.8 million
kroons. The abrupt upswing in wholesale revenue results
from the acquisition of lingerie wholesalers.
Historically, the main sales channel of lingerie
manufacturers Milavitsa and Lauma Lingerie has been
wholesaling. Milavitsa performs its wholesale operations
through subsidiaries in Russia and Lauma Lingerie has
long-standing relations with wholesale intermediaries.
Wholesale of women's apparel grew 34%. Growth was
significantly facilitated by association with the Finnish
retail company Anttila OY. In terms of markets, the
largest growth was attained in the Finnish market (2.5
times up) although the growth achieved in the Estonian
market was considerable as well (60% up).
Investment
In 2006 PTA Group's capital expenditures totalled 29.5
million kroons (2005: 2.2 million kroons). In connection
with the acquisition of SFG, the Group acquired non-
current assets of 160.7 million kroons.
Acquisitions of equipment and fixtures accounted for 52%
of capital investments, majority of which was for retail
premises development. Plant and equipment for
manufacturing facilities accounted for 30% of capital
investments.
Investments in the acquisition and development of
software grew substantially. In 2006 the parent reached
the final phase in the implementation of new software.
The Group expects to connect subsidiaries which are
engaged in the sales of women's apparel in its uniform
system in 2007. Milavitsa is planning to implement
financial accounting software Axapta in 2007.
Personnel
At 31 December 2006 the Group employed 2,909 people (31
December 2005: 414 people): 2,551 in manufacturing
operations (31 December 2005: 276), 177 in retail
operations (31 December 2005: 64) and 181 in
administration (31 December 2005: 74). During the year
the number of employees increased 7 times, primarily in
connection with the acquisition of SFG.
At the year-end the largest number of people was working
at the Group's manufacturing entities: 1,976 at
Milavitsa, 476 at Lauma Lingerie and 243 at Klementi.
Employee wages and salaries totalled 71.0 million kroons
(2005: 33.1 million kroons). The remuneration of the
members of the Group's management board amounted to 1.8
million kroons (2005: 0.8 million kroons).
Outlook for 2007
The Group's overall strategy foresees simultaneous
expansion of retail operations and development of
lingerie and apparel manufacturing operations. The Group
has adopted an expansion plan for the next four years
according to which development efforts will be focused on
the two main retail chains - Oblicie to market lingerie
and PTA to market women's apparel. In addition, the Group
will continue operating retail stores under the Lauma,
Milavitsa and Splendo brand names.
In the next four years we intend to expand our retail
operations above all in the Russian, Belarusian, Baltic
and Ukrainian markets.
In 2007 we expect to:
· double the number of our stores from 51 to 100;
· increase our sales space more than two-fold by
opening new stores: from 6,705 square metres to 15,000
square metres; and
· begin implementing a new interior design concept at
our existing stores.
Other important objectives include improving the stores'
retail sales efficiency by enhancing brand awareness and
recognition, supplementing our collections, and
performing consumer campaigns and other marketing events.
Most of the period's capital expenditures will be
directed at developing retail operations. According to
plan, capital investments will amount to 31 million
kroons.
Our manufacturing entities will focus on manufacturing
our own brand products. Sales of subcontracting services
will decline in connection with an increase in own needs.
Selected financial data
The Group's operating results are best summarised in the
following figures and ratios:
2006 2005 Change
Key figures and ratios
Sales revenue, in thousands of 422,682 114,524 308,158
kroons
Revenue, in thousands of kroons 435,460 146,185 289,275
EBITDA, in thousands of kroons 90,676 23,600 67,076
EBIT, in thousands of kroons 79,007 16,814 62,193
Operating margin, % 18.7% 14.7% -
Profit / loss for the period, in 44,990 10,661 34,329
thousands of kroons
Net margin, % 10.6% 9.3% -
ROA, % 10.4% 13.5% -
ROE, % 19.3% 64.1% -
EPS, in kroons 4.08 5.51 -1.43
Current ratio 3.63 0.95 -
Quick ratio 2.28 0.24 -
Inventory turnover ratio 3.31 4.26 -
Underlying formulas:
Operating margin = operating profit / sales revenue
Net margin = net profit attributable to equity holders of
the parent / sales revenue
ROA (return on assets) = net profit attributable to
equity holders of the parent / average total assets
ROE (return on equity) = net profit attributable to
equity holders of the parent / average equity
EPS (earnings per share) = net profit attributable to
equity holders of the parent / weighted average number of
ordinary shares
Current ratio = current assets / current liabilities
Quick ratio = (current assets - inventories) / current
liabilities
Inventory turnover ratio = sales revenue / period's
average inventories
Consolidated balance sheet
As at 31 December
In thousands of kroons 2006 2005
ASSETS
Current assets
Cash and cash equivalents 200,460 2,831
Trade receivables 111,729 3,052
Other receivables and 45,094 2,589
prepayments
Prepaid taxes 31,568 25
Inventories 230,255 25,496
Total current assets 619,106 33,993
Non-current assets
Investments in equity accounted
investees 78 0
Available-for-sale financial
assets 1,772 0
Other receivables 2,349 750
Property, plant and equipment 172,281 10,536
Intangible assets 16,551 6,622
Total non-current assets 193,031 17,908
TOTAL ASSETS 812,137 51,901
LIABILITIES AND EQUITY
Current liabilities
Loans and borrowings 29,907 15,294
Trade payables 87,534 12,573
Corporate income tax liability 5,976 294
Other tax liabilities 19,369 2,476
Other payables 27,815 5,178
Provisions 12 12
Total current liabilities 170,613 35,827
Non-current liabilities
Loans and borrowings 9,544 134
Deferred tax liabilities 201 66
Other liabilities 0 173
Provisions 139 143
Total non-current liabilities 9,884 516
Total liabilities 180,497 36,343
Equity
Share capital at par value 379,472 19,469
Share premium 83,011 40,994
Statutory capital reserve 1,046 1,046
Translation reserve -10,710 26
Accumulated losses -987 -45,977
Total equity attributable to
equity holders of the parent 451,832 15,558
Minority interest 179,808 0
Total equity 631,640 15,558
TOTAL LIABILITIES AND EQUITY 812,137 51,901
Consolidated income statement
In thousands of kroons 2006 2005
Revenue
Sales revenue 422,682 114,524
Other income 12,778 31,661
Total revenue 435,460 146,185
Changes in inventories of
finished goods and work in
progress 8,214 -5,849
Materials, consumables and
services used -190,600 -41,674
Other operating expenses -68,591 -29,412
Personnel expenses -91,864 -44,037
Depreciation and amortisation -11,669 -6,786
expense
Other expenses -1,943 -1,613
Total expenses -356,453 -129,371
Operating profit 79,007 16,814
Financial income and expenses
Financial income 3,858 184
Financial expenses -1,371 -5,977
Net financial items 2,487 -5,793
Share of profit of equity
accounted investees 44 0
Profit before tax 81,538 11,021
Income tax expense -19,362 -360
Profit for the period 62,176 10,661
Attributable to
Equity holders of the parent 44,990 10,661
Minority interest 17,186 0
Earnings per share
Basic earnings per share (in 4.08 5.51
kroons)
Diluted earnings per share 4.08 5.51
(in kroons)
Peeter Larin
Chairman of the Management Board
Tel + 372 6 710 700