Consolidated interim report for Q4 and 12 months of 2008 27.12.2009 PROFITS AS Silvano Fashion Group ended the fourth quarter of 2008 with consolidated net sales of EEK 292.2 million (EUR 18.7 million), representing a 20.0% decline compared to the fourth quarter of 2007. The Group's gross margin in the fourth quarter of 2008 reached 50.1% compared to 46.5% in the fourth quarter of 2007. In the fourth quarter of 2008, the Group had a normalised2 operating loss of EEK 29.3 million (EUR 1.9 million), representing a 157.5% decline compared to Q4 2007. The consolidated operating margin2 equalled -10.0% (down from 14.0% in Q4 2007). Consolidated net result attributable to equity holders2 amounted to EEK -74.6 million (EUR -4.9 million), compared to EEK 24.1 million (EUR 1.5 million) in Q4 2007, and the net margin2 was -26.2% (down from 6.6% in Q4 2007). In 2008, consolidated net sales of AS Silvano Fashion Group totalled EEK 1,694.8 million (EUR 108.3 million), showing 9.9% increase compared to 2007. The Group's gross and operating margins2 in 2008 stood at 43.9% and 7.6% respectively (43.6% and 15.1% (normalised1) in 2007). Operating profit2 of 2008 amounted to EEK 129.3 million (EUR 8.3 million) compared to normalised EEK 231.6 million (EUR 14.8 million) in 2007 . The Group ended 2008 with a net loss2 of EEK 35.9 million (EUR 2.3 million), representing a 136.8% decline compared to 20071, and net margin2 equalled -2.1% (6.3% in 20071). In 2008, the Group's return on equity2 was -5.2% (down from 16.4% (normalised1) in 2007) and return on assets2 was -3.1% (down from 10.3% (normalised1) in 2007). BALANCE SHEET At 31 December 2008, consolidated assets amounted to EEK 1,208.5 million (EUR 77.2 million), up from EEK 1,089.6 million (EUR 69.6 million) at 31 December 2007. Trade receivables have increased by EEK 9.5 million (EUR 0.6 million). Inventories increased by EEK 96.9 million (EUR 6.2 million) to reach EEK 434.4 million (EUR 27.8 million) at 31 December 2008. The growth in inventory results primarily from the slowdown in customers consumption, also due to the expansion of the retail network, the Group made rental prepayments and deposits for store premises, which increased other receivables and prepayments. Property, plant and intangibles increased by EEK 35.1 million (EUR 2.2 million). Current liabilities increased by EEK 190.7 million (EUR 12.2 million). Tax liabilities, other payables, including payables to employees, and provisions amounted to EEK 119.2 million (EUR 7.6 million), remaining at the expected level. Current and non-current loans and borrowings increased by EEK 108.9 million (EUR 7.0 million) to EEK 138.1 million (EUR 8.8 million), including finance lease liabilities of EEK 7.1 million (EUR 0.5 million.) Equity attributable to equity holders decreased by EEK 92.5 million (EUR 5.9 million) to reach EEK 641.2 million (EUR 41.0 million). SALES Sales by business segments 2008EEK 2007EEK ChangeEEK 2008EUR 2007EUR ChangeEUR 2008EEK 2007EEK million million million million million million perc perc Women's apparel 201.2 155.7 45.5 12.9 10.0 2.9 11.9% 10.1% Lingerie 1,419.8 1,347.4 72.4 90.7 86.1 4.6 83.8% 87.4% Subcontracting services and other sales 73.8 39.3 34.5 4.7 2.5 2.2 4.3% 2.5% Total 1,694.8 1,542.4 152.4 108.3 98.6 9.7 100.00% 100.00% Sales by markets In 2008, the Group mainly focused on Russia, Belarus and Ukraine markets. Total sales by markets 2008EEK 2007EEK ChangeEEK 2008EUR 2007EUR ChangeEUR 2008EEK 2007EEK million million million million million million perc perc Estonia 139.2 167.3 -28.1 8.9 10.7 -1.8 8.2% 10.8% Finland 33.0 39.6 -6.6 2.1 2.5 -0.4 2.0% 2.6% Latvia 46.1 50.1 -4.0 2.9 3.2 -0.3 2.7% 3.2% Belarus 268.2 278.9 -10.7 17.1 17.8 -0.7 15.8% 18.1% Ukraine 137.1 99.5 37.6 8.8 6.4 2.4 8.1% 6.5% Russia 927.0 766.0 161.0 59.3 49.0 10.3 54.7% 49.7% Other markets 144.2 141.0 3.2 9.2 9.0 0.2 8.5% 9.1% Total 1,694.8 1,542.4 152.4 108.3 98.6 9.7 100.00% 100.0% Women's apparel The main driver of growth for women's apparel sales was the expansion of the PTA retail chain. In 2008, retail sales were 90.0% from the total revenue of the women's apparel segment (2007: 76.5%). Retail sales volume in the Baltics increased by 2.5%, amounting to EEK 96.7 million (EUR 6.2 million). Sales revenue in Russia was EEK 63.8 million (EUR 4.1 million) giving 3.8 times growth to 2007 and in Ukraine EEK 22.5 million (EUR 1.4 million). Lingerie The majority of lingerie sales revenue in 2008 was earned on the Russian market, amounting to EEK 863.2 million (EUR 55.2 million), accounting for 59.3% of all lingerie sales volume for 2008, compared to 2007: EEK 829.2 million (EUR 53.0 million). Sales in Russia comprise both retail sales and wholesale. The second biggest region of lingerie sales is Belarus, amounting to EEK 267.7 million (EUR 17.1 million), contributing 18.4% of all lingerie sales revenue (also comprising both retail sales and wholesale) compared to 2007: EEK 278.9 million (EUR 17.8 million). Sales in Russia were heavily affected by the financial crisis and devaluation of the Russian rouble. As the result sales in Q4 were lower in comparison to 2008. Economic chaos in Ukraine and devaluation of Hryvnia resulted in substantial drop in sales in the country. Sales in Belarus were not affected by the crisis in the neighboring countries in Q4 and reached the planned figures. Similarly to the women's apparel segment, the Baltic sales of lingerie were affected by the economic slowdown (and significantly higher inflation) in the region, which continues to have an effect on consumer spending. In terms of lingerie brands, the sales of “Milavitsa” core brand accounted for 76.1% of total lingerie sales revenue in 2008 (2007: 75.7%) and amounted to EEK 1,080.0 million (EUR 69.0 million). The sales of “Lauma” core brand accounted for 5.7% of total lingerie sales (2007: 7.5 %) and amounted to EEK 80.8 million (EUR 5.2 million). Other brands such as “Alisee”, “Aveline”, “Laumelle”, “Lauma Aqua” and “Laumelle Aqua” comprised 18.2% of total lingerie sales in 2008 (2007: 16.8%), amounting to EEK 259.1 million (EUR 16.6 million). Retail operations Total retail sales of the Group in 2008 amounted to EEK 476.5 million (EUR 30.5 million), representing a 70.5% increase on 2007. Retail operations were conducted in Estonia, Latvia, Russia, Belarus, Poland, Lithuania and Ukraine. At the end of 2008, the Group operated 134 retail outlets with a total area of 14,566 square meters. Women's apparel was retailed in Estonia, Latvia, Lithuania, Russia and Ukraine. At the end of 2008, the Group operated 37 women's apparel stores with a total sales area of 6,833 square meters. Lingerie was retailed in Russia, Belarus, Latvia, Lithuania, Ukraine, Poland and Estonia. At the end of 2008, the Group operated 97 lingerie stores with a total area of 7,733 square meters. In 2008, 36 new stores were opened: 13 in the apparel business (operating under PTA brand name), including 4 in Ukraine, 7 in Russia, 1 in Estonia and 1 in Lithuania, and 23 stores in the lingerie business, including 9 under Oblicie name (7 in Russia, 1 in Ukraine and 1 in Estonia), 12 under Milavitsa name (7 in Belarus and 5 in Russia), 1 store under Lauma Lingerie brand name in Latvia and 1 stock outlet in Estonia. Seventeen underperforming stores were closed: 5 PTA stores in Russia, 1 PTA store in Ukraine, 6 Oblicie stores in Russia, 1 Oblicie store in Ukraine, 2 Milavitsa stores in Belarus and 2 Splendo stores in Poland. Number of stores at 31 December: 31.12.2008 31.12.2007 Estonia 11 8 Latvia 7 6 Poland 8 10 Belarus 28 23 Russia 52 44 Lithuania 21 20 Ukraine 7 4 Total stores 134 115 Total sales area, sq m 14,566 12,454 In 2008, women's apparel retail revenue compared to 2007 increased by 59.3%, amounting to EEK 188.6 million (EUR 12.0 million). The total like-for-like growth was a negative 3% mainly because of the drop of sales in the Baltics. The like-for-like growth in Russia was +33%, in Estonia -4% and in Latvia -3% in 2008. Results in Baltics are influenced by overall macro economical situation and by the fact that the Baltic stores have already been in operation for long enough to be close to optimal capacity. The like-for-like increase in the Oblicie lingerie retail chain in Russia is about 49% for stores operating longer than one year, however it is still below breakeven on average. Retail development continues to be the major objective of the Group, however the focus has been shifted towards franchising versus directly operated stores. In Q4 the Group opened 4 Milavitsa monobrand shops in Russia and one Oblicie shop was re-branded to Milavitsa. Intention is to capitalise on the brand awareness in the country. The remaining Oblicie stores will be re-branded to Milavitsa in 2009. Stores by concept Market PTA Oblicie Milavitsa Other Total Sales area Russia 13 34 5 - 52 5,467 Ukraine 6 1 - - 7 994 Estonia 9 1 - 1 11 2,120 Latvia 4 - - 3 7 1,196 Lithuania 5 - - 16 21 1,883 Belarus - - 28 - 28 2,554 Poland - 1 - 7 8 352 Total 37 37 33 27 134 14,566 Wholesale In 2008, wholesale amounted to EEK 1,144.5 million (EUR 73.2 million), representing 67.5% of the Group's total revenue (2007: 79.3%). The main wholesale regions were Russia, Belarus, Ukraine and the Baltic States for lingerie, and Finland and the Baltic states for women's apparel. In 2008, revenue from wholesale of women's apparel decreased by 53.0% compared to 2007, amounting to EEK 19.5 million (EUR 1.3 million). Lingerie wholesale in 2008 decreased by 4.8% compared to 2007, amounting to EEK 1,124.9 million (EUR 71.9 million). Most of the lingerie wholesale partners are located in Russia. There was a slow down in wholesales operations in Russia and Ukraine in Q4 due to the financial crisis. Investment In 2008, the Group's investments totalled EEK 93.3 million (EUR 6.0 million). A total of EEK 38.6 million (EUR 2.5 million) was invested in retail operations, EEK 12.4 million (EUR 0.8 million) was invested in real estate for retail needs in Belarus, while other investments were made in equipment and facilities to maintain effective production. Personnel At the end of December 2008, the Group employed a staff of 3,901 including 851 in retail and 2,319 in production. The rest are employed in wholesale, administration and support operations. The average number of employees in 2008 was 3,953. The total salaries and wages for 2008 amounted to EEK 355.2 million (EUR 22.7 million). The remuneration paid to members of the Management Board totalled EEK 4.4 million (EUR 0.3 million). Four members of the Management Board also serve as executives for the Group's subsidiaries. Sale of Splendo Polska Sp. z o.o. The Group has entered into a share purchase agreement for the sale of all its shares (90% of the share capital) in Splendo Polska Sp. z o.o., a Polish retail subsidiary operating 6 retail outlets. The closing of the transaction is expected to occur within four weeks, subject to the fulfilment of certain conditions precedent. Taking account of the SFG's total investment in Splendo, the transaction is estimated to generate a loss of approximately EEK 18.8 million (EUR 1.2 million). The sale of Polish retail operations will improve the efficiency of the group, as SFG's business model adjusts to the global economic downturn. The management intends to focus its short- and mid-term efforts on SFG's primary target markets of Russia, Ukraine, Belarus and the Baltics. Further action may be expected in the coming quarters to ensure that SFG remains competitive in the changing market conditions. Selected financial data The Group's operating results are best summarised in the following figures and ratios: Key figures and ratios 31.12.2008 31.12.2007 Change Net sales (EEK million) 1,694.8 1,542.4 152.4 Net income, attributable to shareholders (EEK million)-119.0 186.9 -305.9 Earnings before interest, taxes and depreciation (EBITDA) ( EEK million) 95.0 360.1 -265.1 Earnings before interest and taxes (EBIT) (EEK million) 46.2 321.5 -275.3 Net sales (EUR million) 108.3 98.6 9.7 Net income attributable to shareholders (EUR million) -7.6 11.9 -19.5 Earnings before interest, taxes and depreciation (EBITDA) ( EUR million) 6.1 23.0 -16.9 Earnings before interest and taxes (EBIT) (EUR million) 3.0 20.6 -17.6 Operating margin, % 2.7% 20.8% - Net margin, % -7.0% 12.1% - ROA, % -10.4% 19.7% - ROE, % -17.3% 31.5% - Earnings per share (EPS), in EEK -2.97 4.85 - Earnings per share (EPS), in EUR -0.19 0.31 - Current ratio 2.1 3.6 - Quick ratio 1.1 2.3 - 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 Balance Sheet Consolidated, unaudited 31.12.2008 31.12.2007 31.12.2008 31.12.2007 EEK th EEK th EUR th EUR th ASSETS Non-current assets Property, plant and equipment 293,530 246,541 18,760 15,757 Intangible assets 16,085 27,976 1,028 1,788 Investment property 23,141 22,954 1,479 1,467 Investments in equity accounted investees 2,879 876 184 56 Available-for-sale financial assets 8,778 8,480 561 542 Other receivables 1,643 595 105 38 Total non-current assets 346,056 307,422 22,117 19,648 Current assets Inventories 434,412 337,528 27,764 21,572 Prepaid taxes 62,070 24,471 3,967 1,564 Trade receivables 4 168,013 158,531 10,738 10,132 Other receivables 5 66,623 29,713 4,258 1,899 Prepayments 49,209 51,680 3,145 3,303 Cash and cash equivalents 7 82,129 180,233 5,249 11,519 Total current assets 862,456 782,156 55,121 49,989 TOTAL ASSETS 1 208,512 1 089,578 77,238 69,637 LIABILITIES AND EQUITY Equity Share capital at par value 400,000 400,000 25,565 25,565 Share premium 223,293 223,293 14,271 14,271 Own shares -7,041 0 -450 0 Statutory capital reserve 1,046 1,046 67 67 Translation reserve -58,086 -76,512 -3,713 -4,890 Retained earnings 82,035 185,927 5,243 11,883 Total equity attributable to equity holders of the parent 641,247 733,754 40,983 46,896 Minority interest 141,977 136,313 9,074 8,712 Total equity 783,224 870,067 50,057 55,608 Non-current liabilities Loans and borrowings 18,197 4,068 1,163 260 Deferred tax liabilities 201 201 13 13 Other liabilities 1,314 360 84 23 Provisions 125 139 8 9 Total non-current liabilities 19,837 4,768 1,268 305 Current liabilities Loans and borrowings 119,946 25,160 7,666 1,608 Trade payables 167,951 122,888 10,734 7,854 Corporate income tax liability 4,006 3,192 256 204 Other tax liabilities 18,150 23,486 1,160 1,501 Other payables 23,892 17,430 1,527 1,113 Provisions 70,817 22,462 4,526 1,436 Accrued expenses 689 125 44 8 Total current liabilities 405,451 214,743 25,913 13,724 Total liabilities 425,288 219,511 27,181 14,029 TOTAL LIABILITIES AND EQUITY 1 208,512 1 089,578 77,238 69,637 Income Statement 12 months of 2008 Consolidated, unaudited 31.12.2008 31.12.2007 31.12.2008 31.12.2007 EEK th EEK th EUR th EUR th Net sales 1 694,762 1 542,438 108,315 98,580 Costs of goods sold -950,969 -870,780 -60,778 -55,653 Gross Profit 743,793 671,658 47,537 42,927 Other operating income 34,579 105,794 2,210 6,761 Distribution costs -337,607 -213,958 -21,577 -13,674 Administrative expenses -219,976 -170,552 -14,059 -10,900 Other operating expenses -174,585 -71,394 -11,158 -4,563 Operating profit 46,204 321,548 2,953 20,551 Interest expenses -5,070 -2,926 -324 -187 Gains/losses on conversion of foreign currencies -62,054 4,256 -3,966 272 Other financial income / expenses 6,697 13,087 428 836 Total financial income / expenses -60,427 14,417 -3,862 921 Share of profit of equity accounted investees 1,752 988 112 63 Profit before corporate income tax -12,471 336,953 -797 21,535 Corporate income tax -87,777 -92,943 -5,610 -5,940 Net profit for period -100,248 244,010 -6,407 15,595 Net profit attributable to parent company -118,961 186,914 -7,603 11,946 Net profit attributable to minority shareholders 18,713 57,096 1,196 3,649 Earnings per share Basic earnings per share (EEK/EUR) 10 -2.97 4.81 -0.19 0.31 Diluted earnings per share (EEK/EUR) 10 -2.97 4.81 -0.19 0.31 Income Statement-Q4 Consolidated, unaudited 31.12.2008 31.12.2007 31.12.2008 31.12.2007 Q4 EEK th Q4 EEK th Q4 EUR th Q4 EUR th Net sales 292,169 365,313 18,673 23,348 Costs of goods sold -145,936 -195,488 -9,327 -12,494 Gross Profit 146,233 169,825 9,346 10,854 Other operating income 20,215 22,304 1,292 1,425 Distribution costs -97,526 -73,624 -6,233 -4,705 Administrative expenses -59,786 -45,254 -3,821 -2,892 Other operating expenses -121,559 -22,295 -7,769 -1,425 Operating profit -112,423 50,956 -7,185 3,257 Interest expenses -2,457 -908 -157 -58 Gains/losses on conversion of foreign currencies -47,080 -563 -3,009 -36 Other financial income / expenses -2,018 6,875 -129 439 Total financial income / expenses -51,555 5,404 -3,295 345 Share of profit of equity accounted investees -626 988 -40 63 Profit before corporate income tax -164,604 57,348 -10,520 3,665 Corporate income tax -13,174 -20,562 -842 -1,314 Net profit for period -177,778 36,786 -11,362 2,351 Net profit attributable to parent company -159,533 24,094 -10,196 1,540 Net profit attributable to minority shareholders -18,245 12,692 -1,166 811 Earnings per share Basic earnings per share (EEK/EUR) 10 -3.99 0.60 -0.25 0.04 Diluted earnings per share (EEK/EUR) 10 -3.99 0.60 -0.25 0.04