Audited financial result 2007 25.04.2008
Business results
PROFITS
2007 was the first full year of new group operations. The Group was
concentrating on rapid retail expansion of both business segments - lingerie and
women's apparel. In 2007, the Group rapidly expanded in the Russian, Lithuanian
and Ukrainian markets, with new shops also opened in Estonia, Belarus and
Poland. Start-up periods of new stores in Russia are longer and store operating
expenses are much higher than in the Baltics or Poland, which affects the
Group's overall retail performance results. In addition, the Group rearranged
store formats for the Oblicie concept to improve sales efficiency. The faster
expenditure growth is also explained by an increase of Russian retail operations
in the Group's overall store portfolio. The Baltic operations posted a
development in the first half of the year but the Group's results in the region
decreased following the general decline in the Baltic economies in the second
half of the year.
SFG ended 2007 with consolidated net sales of EEK 1.542 million, representing a
3.7-fold increase on 2006. Following the acquisition in 2006, the comparable
results for 2006 comprise former PTA Grupp AS operations for the whole 2006 and
consolidated AS Silvano Fashion Group results for the 4th quarter 2006. The
results were boosted by growth in the Baltic, Russian, Belorussian and Ukrainian
lingerie and women's apparel markets, which are our primary sales markets.
Consolidated operating profit amounted to EEK 321.5 million, representing a
4.1-fold increase on 2006. The consolidated operating margin reached 20.8% (up
from 18.8% in 2006).
In 2007, the Group increased its shareholding in Milavitsa SP ZAO, resulting in
gains from the business combination booked in 2007 totalling EEK 89.4 million.
Consolidated net profit attributable to equity holders amounted to EEK 186.9
million (up from EEK 44.9 million in 2006) and the net margin was 12.1% (up from
10.6% in 2006).
In 2007, the Group's return on equity was 31.5% (up from 19.3% in 2006) and
return on assets was 19.7% (up from 10.4% in 2006).
BALANCE SHEET
At 31 December 2007, consolidated assets amounted to EEK 1,089.6 million (up
from EEK 812.1 million at 31 December 2006). The increases in both assets and
liabilities are mainly related to retail expansion.
Trade receivables remained at the ordinary level, given that the subsidiaries
Milavitsa SP ZAO and AS Lauma Lingerie sell their products mostly on credit.
Inventories increased by EEK 107.3 million to reach EEK 337.5 million at 31
December 2007. The inventory growth results primarily from the retail expansion.
Due to the expansion of the retail network, the Group made rental prepayments
for store premises, which increased other receivables and prepayments.
Property, plant and intangibles increased by EEK 85.7 million, of which 43.8
million represents the retail growth.
Current liabilities increased by 44.1 million. Tax liabilities, other payables,
including payables to employees, and provisions amounted to EEK 66.6 million,
remaining at the expected level.
Current and non-current loans and borrowings dropped by EEK 10.2 million to
EEK 29.2 million. Loans received and loans repaid during the period amounted to
EEK 20.9 million and EEK 36.2 million respectively. This includes finance lease
liabilities of EEK 10.9 million.
Equity grew by EEK 238.4 million to reach EEK 870.1 million. As a result of the
share issue, SFG's share capital increased by EEK 20.5 million and the share
premium grew by EEK 140.3 million.
SALES
Sales by business segments
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| In millions of EEK | 2007 | 2006 | Change |
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| Women's apparel | 155.7 | 111.1 | +40.8% |
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| Lingerie | 1,347.4 | 270.2 | +397.7% |
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| Subcontracting services and other sales | 39.3 | 41.4 | -3.8% |
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| Total | 1,542.4 | 422.7 | +265.2% |
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Sales by markets
In 2007, we continued our focus on East European markets, mainly the Baltic
states, Russia, Belarus and Ukraine.
In 2007, the economic environment grew in all markets of the Group. In 2007, the
GDP growth for the Baltics stood at 7.1% in Estonia, 8.7% in Lithuania and 8.1%
in Latvia. In the past few years, the Baltic markets were driven by strong
domestic demand and the economic growth increased the purchasing power of
customers. Starting from the second half of 2007, the Baltic economies faced a
slow-down, and the analysts expect that recovery will start in the second half
of 2008, or 2009 at the latest. In 2007, Russia and Ukraine posted 8.1% and 7.3%
economic growth, respectively. According to the analysts, the economic outlook
for Russia for the coming years is positive and the GDP growth is forecasted at
5-6% a year.
Retail operations
Total retail sales of the Group in 2007 amounted to EEK 280.0 million,
representing a 2.2‑fold increase on 2006.
Retail operations were conducted in Estonia, Latvia, Russia, Belarus, Poland,
Lithuania and Ukraine. At the end of 2007, the Group operated 115 retail outlets
with a total area of 12,454 square metres.
Women's apparel was retailed in Estonia, Latvia, Lithuania, Russia and Ukraine.
At the end of 2007, the Group operated 30 women's apparel stores with a total
sales area of 5,741 square metres (up from 2,688 square metres in 2006).
Lingerie was retailed in Russia, Belarus, Latvia, Lithuania, Ukraine and Poland.
At the end of 2007, the Group operated 85 lingerie stores with a total area of
6,713 square metres.
in 2007, 60 new stores were opened: 17 women's apparel stores operating under
the PTA brand (9 in Russia, 4 in Lithuania, 1 in Estonia and 3 in Ukraine) and
22 lingerie stores under the Oblicie brand (20 in Russia, 1 in Poland and 1 in
Ukraine). 16 lingerie stores were acquired in Lithuania. 3 stores under the
Milavitsa name were opened in Belarus. In Poland, 2 Splendo stores were closed
and 4 new stores opened.
The number of stores at 31 December:
2007 2006
Estonia 8 7
Latvia 6 6
Poland 10 7
Belarus 23 20
Russia 44 15
Lithuania 20 -
Ukraine 4 -
Total stores 115 55
Total sales area, sq m 12,454 6,997
In 2007, women's apparel retail revenue increased by 46%, amounting to EEK 118.9
million. The retail increase was supported by the sales increase in the
like-for-like spaces and by the considerably greater number of stores. The
increase in retail of women's apparel in the like-for-like spaces was 9%. In the
Baltics, PTA retail revenue growth was 22%. The growth in the Baltics was
supported by expansion into the Lithuanian market. As Russia and Ukraine are new
markets for women's apparel, comparable figures are not available.
The like-for-like increase in the Oblicie lingerie retail chain is about 40% for
stores operating longer than one year. The major objective in the lingerie
business was rapid retail expansion mainly in Russia. In addition to the general
seasonal marketing campaigns directed to the new markets, marketing operations
were focused on campaigns supporting the expansion on the Russian market.
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| Market | PTA | Oblicie | Other | Total | Sales area, |
| | stores | stores | stores | | sq m |
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| Russia | 11 | 33 | - | 44 | 4,849 |
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| Ukraine | 3 | 1 | - | 4 | 522 |
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| Estonia | 8 | - | - | 8 | 1,759 |
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| Latvia | 4 | - | 2 | 6 | 1,169 |
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| Lithuania | 4 | - | 16 | 20 | 1,626 |
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| Belarus | - | - | 23 | 23 | 2,041 |
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| Poland | - | 1 | 9 | 10 | 488 |
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| Total | 30 | 35 | 50 | 115 | 12,454 |
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Wholesale
In 2007, wholesale amounted to EEK 1,223.6 million, representing 79.3% of the
Group's total revenue. The main wholesale regions were Russia, Ukraine, the
Baltic states and Belarus for lingerie, and Finland and the Baltic states for
women's apparel. in 2007, revenue from wholesale of women's apparel increased by
28.9%, amounting to EEK 43.8 million. Most of the lingerie wholesale partners
are located in Russia.
Investment
In 2007, the Group's investments totalled EEK 150.9 million. A total of EEK 43.8
million was invested in retail operations, while other investments were made in
plant and facilities to maintain effective production. Investments in IT
development totalled EEK 9.4 million.
Personnel
At the end of December 2007, the Group employed a staff of 3,581, including 552
in retail and 2,243 in production. The rest are employed in wholesale,
administration and support operations. The average number of employees in 2007
was 3,450.
The total salaries and wages for 2007 amounted to EEK 294.2 million. The
remuneration paid to members of the Management Board totalled EEK 3.6 million.
Four members of the Management Board also serve as executives for the portfolio
companies.
Outlook for 2008
The Group's overall strategy foresees expansion of retail operations. The Group
has adopted an expansion plan 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 monobrand
retail stores under Lauma and Milavitsa.
In the coming years, the Group will focus its retail expansion on Russia,
Ukraine, Baltic states and Belarus. 60 new stores are to be opened in 2008.
Other important objectives include improving the store retail sales efficiency
by enhancing brand awareness and recognition, supplementing our collections, and
performing consumer campaigns and other marketing events.
Most of the capital expenditure will go towards developing retail operations.
According to our plan, capital investments in retail expansion will amount to
EEK 40.7 million. Our planned investments in plant will amount to EEK 36.0
million.
Our manufacturing entities will focus on manufacturing our own brand products.
Sales of subcontracting services will decline because of an increase in our own
needs. A substantial part of Lauma Lingerie production is to be shifted to
Belarus and China.
Selected financial data
The Group's operating results are best summarised in the following figures and
ratios:
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| Key figures and ratios | 2007 | 2006 | Change |
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| Sales revenue, in thousands of EEK | 1,542,438 | 422,682 | 1,119,756 |
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| Revenue, in thousands of EEK | 1,648,232 | 435,393 | 1,212,839 |
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| EBITDA, in thousands of EEK | 360,086 | 90,990 | 269,096 |
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| EBIT, in thousands of EEK | 321,548 | 79,321 | 242,227 |
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| Operating margin, % | 20.8% | 18.8% | - |
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| Profit/loss for the period, in thousands | 186,914 | 44,990 | 141,924 |
| of EEK | | | |
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| Net margin, % | 12.1% | 10.6% | - |
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| ROA, % | 19.7% | 10.4% | - |
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| ROE, % | 31.5% | 19.3% | - |
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| EPS, in EEK | 4.81 | 4.08 | 0.73 |
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| Current ratio | 3.64 | 3.63 | - |
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| Quick ratio | 2.07 | 2.28 | - |
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Underlying formulas:
Operating margin = operating profit / sales revenue
Net margin = net profit attributable to parent equity holders / sales revenue
ROA (return on assets) = net profit attributable to parent equity holders /
average total assets
ROE (return on equity) = net profit attributable to parent equity holders /
average equity
EPS (earnings per share) = net profit attributable to parent equity holders /
weighted average number of ordinary shares
Current ratio = current assets / current liabilities
Quick ratio = (current assets - inventories) / current liabilities
Dmitry Ditchkovsky
Chairman of the Management Board
25 April 2008
Consolidated balance sheet
As at 31 December
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| In thousands of EEK | | 2007 | 2006 |
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| ASSETS | | | |
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| Non-current assets | | | |
--------------------------------------------------------------------------------
| Property, plant and equipment | | 246,541 | 172,281 |
--------------------------------------------------------------------------------
| Intangible assets | | 27,976 | 16,551 |
--------------------------------------------------------------------------------
| Investment property | | 22,954 | 0 |
--------------------------------------------------------------------------------
| Investments in equity accounted investees | | 876 | 78 |
--------------------------------------------------------------------------------
| Available-for-sale financial assets | | 8,480 | 1,772 |
--------------------------------------------------------------------------------
| Other receivables | | 595 | 2,349 |
--------------------------------------------------------------------------------
| Total non-current assets | | 307,422 | 193,031 |
--------------------------------------------------------------------------------
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| Current assets | | | |
--------------------------------------------------------------------------------
| Inventories | | 337,528 | 230,255 |
--------------------------------------------------------------------------------
| Prepaid taxes | | 24,471 | 31,568 |
--------------------------------------------------------------------------------
| Trade receivables | | 158,531 | 111,729 |
--------------------------------------------------------------------------------
| Other receivables | | 29,713 | 10,680 |
--------------------------------------------------------------------------------
| Prepayments | | 51,680 | 34,414 |
--------------------------------------------------------------------------------
| Cash and cash equivalents | | 180,233 | 200,460 |
--------------------------------------------------------------------------------
| Total current assets | | 782,156 | 619,106 |
--------------------------------------------------------------------------------
| TOTAL ASSETS | | 1,089,578 | 812,137 |
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| LIABILITIES AND EQUITY | | | |
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| Equity | | | |
--------------------------------------------------------------------------------
| Share capital at par value | | 400,000 | 379,472 |
--------------------------------------------------------------------------------
| Share premium | | 223,293 | 83,011 |
--------------------------------------------------------------------------------
| Statutory capital reserve | | 1,046 | 1,046 |
--------------------------------------------------------------------------------
| Translation reserve | | -76,512 | -10,710 |
--------------------------------------------------------------------------------
| Retained earnings | | 185,927 | -987 |
--------------------------------------------------------------------------------
| Total equity attributable to | | 733,754 | 451,832 |
| equity holders | | | |
| of the parent | | | |
--------------------------------------------------------------------------------
| Minority interest | | 136,313 | 179,808 |
--------------------------------------------------------------------------------
| Total equity | | 870,067 | 631,640 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Non-current liabilities | | | |
--------------------------------------------------------------------------------
| Loans and borrowings | | 4,068 | 9,544 |
--------------------------------------------------------------------------------
| Deferred tax liabilities | | 201 | 201 |
--------------------------------------------------------------------------------
| Other liabilities | | 360 | 0 |
--------------------------------------------------------------------------------
| Provisions | | 139 | 139 |
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| Total non-current liabilities | | 4,768 | 9,884 |
--------------------------------------------------------------------------------
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| Current liabilities | | | |
--------------------------------------------------------------------------------
| Loans and borrowings | | 25,160 | 29,907 |
--------------------------------------------------------------------------------
| Trade payables | | 122,888 | 87,534 |
--------------------------------------------------------------------------------
| Corporate income tax liability | | 3,192 | 5,976 |
--------------------------------------------------------------------------------
| Other tax liabilities | | 23,486 | 19,369 |
--------------------------------------------------------------------------------
| Other payables | | 17,430 | 10,366 |
--------------------------------------------------------------------------------
| Provisions | | 22,462 | 17,461 |
--------------------------------------------------------------------------------
| Accrued expenses | | 125 | 0 |
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| Total current liabilities | | 214,743 | 170,613 |
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| Total liabilities | | 219,511 | 180,497 |
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| TOTAL LIABILITIES AND EQUITY | | 1 089,578 | 812,137 |
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Consolidated income statement
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| In thousands of EEK | | | 2006 |
| | | 2007 | |
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| Revenue | | | |
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| Sales revenue | | 1,542,438 | 422,682 |
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| Costs of goods sold | | -870,780 | -242,847 |
--------------------------------------------------------------------------------
| Gross Profit | | 671,658 | 179,835 |
--------------------------------------------------------------------------------
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| Other operating income | | 105,794 | 12,711 |
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| Distribution costs | | -213,958 | -59,085 |
--------------------------------------------------------------------------------
| Administrative costs | | -170,552 | -42,019 |
--------------------------------------------------------------------------------
| Other operating expenses | | -71,394 | -12,121 |
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| Operating profit | | 321,548 | 79,321 |
--------------------------------------------------------------------------------
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| Finance income and expenses | | | |
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| Finance income | | 18,047 | 3,544 |
--------------------------------------------------------------------------------
| Finance expenses | | -3,630 | -1,371 |
--------------------------------------------------------------------------------
| Net finance income | | 14,417 | 2,173 |
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| Share of profit of equity accounted | | 988 | 44 |
| investees | | | |
--------------------------------------------------------------------------------
| Profit before tax | | 336,953 | 81,538 |
--------------------------------------------------------------------------------
| Income tax expense | | -92,943 | -19,362 |
--------------------------------------------------------------------------------
| Profit for the period | | 244,010 | 62,176 |
--------------------------------------------------------------------------------
| Attributable to | | | |
--------------------------------------------------------------------------------
| Equity holders of the parent | | 186,914 | 44,990 |
--------------------------------------------------------------------------------
| Minority interest | | 57,096 | 17,186 |
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| Earnings per share | | | |
--------------------------------------------------------------------------------
| Basic earnings per share (in EEK) | | 4,81 | 4.08 |
--------------------------------------------------------------------------------
| Diluted earnings per share (in EEK) | | 4,81 | 4.08 |
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