Silvano Fashion Group Quarterly report 23.11.2009
SFG: Consolidated interim report for Q3 and 9 months of 2009
Business results
In Q3 2009, high season factors improved sales in the major lingerie markets of
Silvano Fashion Group (“SFG” or the “Company”, and together with its
subsidiaries the “Group”). The economy in the key markets of the Group (Russia
and Belarus) showed signs of stabilization and recovery. Consumer demand has
been recovering since May 2009. Consumers have adjusted their spending to the
new market and pricing conditions. Local currencies, except for Ukrainian
Hryvnia, have stabilized against Euro and USD. In Ukraine currency exchange
fluctuations as well as political environment still prevent economic and
consumer demand recovery in the country.
For SFG Q3 2009 demonstrated a 3.0% increase in sales from continuing operations
compared to Q2 2009 while being 23.4% lower than in Q3 2008. Retail operations
in Belarus demonstrated an increase of 30.7% in local currency terms and 3.2% in
EUR terms compared to Q3 2008. The Group achieved a like-for-like increase in
retail sales in Russia as compared to the respective period in 2008. Lingerie
retail sales in the Baltic countries decreased by 31.9% compared to Q3 2008.
As of the end of the reporting period the Group and its franchising partners
operated over 320 Milavitsa and other lingerie outlets. Of that 82 stores are
operated by the Group and the rest is operated by franchising partners. The
Group's retail focus has been shifted towards the promotion and support of the
franchising in cooperation with existing and potential partners. In Q3 2009 the
Group continued restructuring of its own retail business in Russia, closing
ineffective stores.
Financial performance
The Group's sales from continuing operations amounted to EEK 898,099 thousand
(EUR 57,399 thousand) in the 9 months' period ended 30 September 2009,
representing a 27.8% decline as compared to the respective period in the
previous year. Overall wholesales from continuing operations decreased by 30.1%
and retail continuing operations presented a decrease of 16.8%. The proportion
of retail sales in total sales increased by 3.2% and reached 24.7% of total
sales in 9M 2009. The Group's sales from continuing operations in Q3 2009
amounted to EEK 329,032 thousand (EUR 21,029 thousand), a decrease of 23.4% as
compared to the respective period in the previous year.
The Group's gross margin from continuing operations in the 9 months' period
improved slightly and was 43.1%, as compared to 42.6% in the respective period
in the previous year. This positive effect was observed in Q2 and Q3 2009 mainly
due to the increased sales prices in key markets and the beneficial impact of
the devaluation of Belorussian Rouble on production costs.
The consolidated operating profit from continuing operations amounted to EEK
63,181 thousand (EUR 4,038 thousand), representing a 61.7% decline compared to
9M 2008. The consolidated operating margin from continuing operations was 7.0%
(13.2% in 9M 2008). The operating profit and the operating margin were adversely
influenced by one-off expenses related to the restructuring of Russian
operations.
In the nine months of 2009 the Group continued with the restructuring of Russian
retail operations. One-off expenses related to the restructuring of Russian
operations in 9M 2009 amounted to EEK 39,289 thousand (EUR 2,511 thousand),
including EEK 13,863 thousand (EUR 886 thousand) in Q1 2009, EEK 18,353 thousand
(EUR 1,173 thousand) in Q2 3009 and EEK 7,072 thousand (EUR 452 thousand) in Q3
2009, and partially related to initiatives started in prior periods. The Group
will continue closing inefficient stores in the fourth quarter of the year, with
provisions to cover future restructuring losses related to Russian retail chain
restructuring currently amounting to EEK 5,946 thousand (EUR 380 thousand). The
operating loss of the Russian retail operations in 9M 2009 was EEK 66,451
thousand (EUR 4,247 thousand), including one-off expenses amounting to EEK
39,289 thousand (EUR 2,511 thousand).
Loan receivable in the amount of EEK 20,356 thousand (EUR 1,301 thousand) was
fully provided based on the management's assessment of the recoverability of the
loan in Q1 2009. The expenses related to the provision have been recognized in
other operating expenses from continuing operations in 9M 2009. The management
will continue actions to recover the loan balance and certain progress on the
loan restructuring has been reached in Q3 2009.
In total one-off continuing operating losses related to the restructuring of
Russian operations and the provisioning of a loan amounted to EEK 59,645
thousand (EUR 3,812 thousand) in the 9 months' period ended 30 September 2009.
As the result, consolidated normalised operating profit from continuing
operations amounted to EEK 122,826 thousand (EUR 7,850 thousand) for the 9
months' period ended 30 September 2009, representing a 25.5% decline compared to
9M 2008. The consolidated normalised operating margin from continuing operations
reached 13.7% (13.2% in 9M 2008).
On 30 June 2009 the Group closed the transaction for the sale of all shares in
PTA Grupp AS (“PTA”) held by the Group to PTA Holding OÜ for total consideration
of EEK 15,224 thousand (EUR 973 thousand), including EEK 7,401 thousand (EUR 473
thousand) paid upon closing by way of taking over certain liabilities of the
Group and the remaining part of the purchase price being payable in cash by 31
December 2011 at the latest and carrying interest until full payment. The
transaction resulted in a EEK 23,845 thousand (EUR 1,524 thousand) loss in the
consolidated results of the Group in 9M 2009 (Note 15). Further details of the
transaction are provided in section ‘Key events'. In accordance with the
requirements of the International Financial Reporting Standards PTA operations
(apparel business line) are now regarded as discontinued operations for the
purposes of financial reporting. Accordingly, PTA's financial performance is not
consolidated in sales and expenses, but instead the consolidated loss from PTA's
business operations in the amount of EEK 12,189 thousand (EUR 779 thousand) for
the 6 months' period ended 30 June 2009 and the loss generated by the sales
transaction are recorded separately in the consolidated income statement as a
loss from discontinued operations in the total amount of EEK 36,034 thousand
(EUR 2,303 thousand).
Consolidated net profit from foreign exchange rate fluctuations amounted to EEK
9,576 thousand (EUR 612 thousand) in the 9 months' period ended 30 September
2009. SP ZAO Milavitsa accrued a foreign exchange gain in the amount of EEK
32,717 thousand (EUR 2,091 thousand) that was caused mainly by EUR-denominated
intra-Group trading in Q1 2009, while Russian operations suffered a loss from
foreign exchange rate fluctuations. Starting from April 2009, all trading to
Russia is Russian Rouble denominated to minimise unrealized foreign exchange
gains and losses within the Group.
Corporate income tax from continuing operations amounted to EEK 61,695 thousand
(EUR 3,943 thousand) and effective tax rate for the Group increased
significantly compared to respective period of the previous year. Income tax
expense in 9M 2009 was higher than anticipated due to taxable foreign exchange
gains of SP ZAO Milavitsa. However, high overall effective tax rate is the
temporary result of the loss making subsidiaries' net loss position for the
reporting period, non-tax deductable one-off expenses discussed above and other
non-tax deductable expenses in Belarus (mainly employee remuneration).
During 9M 2009, Consolidated net loss from continuing operations attributable to
equity holders amounted to EEK 7,683 thousand (EUR 491 thousand), compared to
net profit of EEK 47,112 thousand (EUR 3,011 thousand) in 9M 2008; net margin
from continuing operations was -0.9% (down from a positive margin of 3.8% in 9M
2008). However in Q3 2009 consolidated net profit from continuing operations
attributable to equity holders demonstrated an increase of 40.9% as compared to
the respective period in prior year and amounted to EEK 8,089 thousand (EUR 517
thousand); net margin from continuing operations was 2.5% against 1.3% in Q3
2008.
Consolidated normalised net profit from continuing operations (excluding one-off
expenses in the amount of EEK 59,645 thousand (EUR 3,812 thousand) attributable
to equity holders amounted to EEK 46,940 thousand (EUR 3,000 thousand), compared
to a net profit of EEK 47,112 thousand (EUR 3,011 thousand) in 9M 2008;
normalised net margin from continuing operations was 7.8% (6.8% in 9M 2008).
In 9M 2009 the Group's return on equity was negative and amounted to -7.7% (5.3%
in 9M 2008) and return on assets was -4.3% (3.5% in 9M 2008).
Financial position
As of 30 September 2009 consolidated assets amounted to EEK 843,492 thousand
(EUR 53,909 thousand) representing a decrease of 30.2% as compared to the
position as of 31 December 2008. The value of total asset base in EUR terms was
significantly impacted by the devaluation of the Belarusian Rouble which
depreciated against the Euro by 31.1% in 9M 2009, decreasing the value of assets
based in Belarus in EUR terms. Furthermore, due to the closing of the PTA sales
transaction on 30 June 2009 the financial position of PTA is not consolidated as
of 30 September 2009, causing a further decrease in the assets of the Group.
Property, plant and intangibles balances decreased by EEK 118,429 thousand
(EUR 7,569 thousand) as compared to 31 December 2008, the key reason being the
impact of the foreign exchange rate in the amount of EEK 57,440 thousand (EUR
3,671 thousand) and the sale of PTA in the amount of EEK 23,360 thousand (EUR
1,493 thousand).
Trade receivables decreased by EEK 37,614 thousand (EUR 2,404 thousand) as
compared to 31 December 2008 and amounted to EEK 130,399 thousand (EUR 8,334
thousand) as of 30 September 2009. Payment discipline of key customers in Russia
improved during 9M 2009. Inventory balance decreased by EEK 198,305 thousand
(EUR 12,674 thousand) and amounted to EEK 236,107 thousand (EUR 15,090 thousand)
as of 30 September 2009. This was partially related to the disposal of PTA;
however, a major decrease was achieved through changes in the production
planning to adjust to the new level of the working capital resulting from
decreased sales volumes and through the devaluation of the Belarusian Rouble
which depreciated against the Euro by 31.1% in 9M 2009, decreasing the value of
inventories based in Belarus in EUR terms.
Foreign exchange fluctuations also left a negative impact on the Group's equity,
in the form of a negative change in currency translation reserve in the amount
of EEK 172,848 thousand (EUR 11,047 thousand). On the overall basis, equity
attributable to equity holders decreased by EEK 142,801 thousand (EUR 9,126
thousand) and amounted to EEK 498,446 thousand (EUR 31,857 thousand) as of 30
September 2009.
Current liabilities decreased by EEK 204,369 thousand (EUR 13,062 thousand) in
the 9 months' period, in line with management expectations.
The liquidity position of the Group improved during Q2 and Q3 2009 with respect
to the total balance of borrowings and related maturities. Current and
non-current loans and borrowings decreased by EEK 100,279 thousand (EUR 6,409
thousand) in Q2 and Q3 to EEK 42,387 thousand (EUR 2,709 thousand) as of 30
September 2009. Loans received and loans repaid during the 9 months' period
amounted to EEK 87,824 thousand (EUR 5,613 thousand) and EEK 154,165 thousand
(EUR 9,853 thousand) respectively, including finance lease liabilities repaid in
the amount of EEK 5,315 thousand (EUR 340 thousand). PTA loan balance in the
amount of EEK 31,606 thousand (EUR 2,020 thousand) was eliminated from
consolidated financial position as the result of the PTA sales transaction. In
July 2009 a credit line facility of Lauma Lingerie AS was prolonged with
Unicredit Bank in Latvia, decreasing the available facility's limit with the
bank from EEK 31,293 thousand (EUR 2,000 thousand) to EEK 26,599 thousand (EUR
1,700 thousand) until January 2010 and to EEK 21,905 thousand (EUR 1,400
thousand) after that date. Information on the maturity of current borrowings is
presented in Note 8 to the summarized financial statements.
Tax liabilities and other payables, including payables to employees, amounted to
EEK 39,076 thousand (EUR 2,497 thousand). Provisions amounted to EEK 19,684
thousand (EUR 1,258 thousand) as of 30 September 2009 and included provisions
for the restructuring of Russian retail operations in the amount of EEK 548
thousand (EUR 35 thousand).
Sales from continuing operations
Women's apparel operations were fully divested as of 30 September 2009 after the
sale of PTA in the end of H1 2009 and are no longer part of continuing
operations of the Group. Continuing operations include production and sale of
women lingerie.
Sales by business segments
--------------------------------------------------------------------------------
| | 9 | 9 | Change | 9 | 9 | Change | 9 | 9 |
| | month | months | EEK | months | months | EUR | months | months |
| | s | 2008 | thousa | 2009 | 2008 | thousa | 2009 | 2008 |
| | 2009 | EEK | nd | EUR | EUR | nd | percen | percen |
| | EEK | thousa | | thousa | thousa | | tage | tage |
| | thous | nd | | nd | nd | | from | from |
| | and | | | | | | sales | sales |
--------------------------------------------------------------------------------
| Whole | 671,1 | 960,35 | -289,1 | 42,895 | 61,378 | -18,48 | 74.7% | 77.2% |
| sale | 61 | 7 | 96 | | | 3 | | |
--------------------------------------------------------------------------------
| Retai | 221,4 | 266,21 | -44,79 | 14,151 | 17,014 | -2,863 | 24.7% | 21.4% |
| l | 15 | 1 | 6 | | | | | |
--------------------------------------------------------------------------------
| Other | 5,523 | 17,180 | -11,65 | 353 | 1,098 | -745 | 0.6% | 1.4% |
| opera | | | 7 | | | | | |
| tions | | | | | | | | |
--------------------------------------------------------------------------------
| Total | 898,0 | 1,243, | -345,6 | 57,399 | 79,490 | -22,09 | 100.0% | 100.0% |
| | 99 | 748 | 49 | | | 1 | | |
--------------------------------------------------------------------------------
Sales by markets
In 9M 2009, the Group focused mainly on the Baltic, Russian, Belarusian and
Ukrainian markets.
Total sales by markets
--------------------------------------------------------------------------------
| | 9 | 9 | Change | 9 | 9 | Change | 9 | 9 |
| | month | months | EEK | months | months | EUR | months | months |
| | s | 2008 | thousa | 2009 | 2008 | thousa | 2009 | 2008 |
| | 2009 | EEK | nd | EUR | EUR | nd | percen | percen |
| | EEK | thousa | | thousa | thousa | | tage | tage |
| | thous | nd | | nd | nd | | from | from |
| | and | | | | | | sales | sales |
--------------------------------------------------------------------------------
| Russi | 519,6 | 728,33 | -208,6 | 33,211 | 46,549 | -13,33 | 57.9% | 58.6% |
| a | 39 | 3 | 94 | | | 8 | | |
--------------------------------------------------------------------------------
| Belar | 240,0 | 266,80 | -26,74 | 15,343 | 17,052 | -1,709 | 26.7% | 21.5% |
| us | 66 | 6 | 0 | | | | | |
--------------------------------------------------------------------------------
| Ukrai | 47,84 | 97,165 | -49,31 | 3,058 | 6,210 | -3,152 | 5.3% | 7.8% |
| ne | 7 | | 8 | | | | | |
--------------------------------------------------------------------------------
| Balti | 45,06 | 62,665 | -17,60 | 2,880 | 4,005 | -1,125 | 5.0% | 5.0% |
| cs | 2 | | 3 | | | | | |
--------------------------------------------------------------------------------
| Other | 45,48 | 88,779 | -43,29 | 2,907 | 5,674 | -2,767 | 5.1% | 7.1% |
| marke | 5 | | 4 | | | | | |
| ts | | | | | | | | |
--------------------------------------------------------------------------------
| Total | 898,0 | 1,243, | -345,6 | 57,399 | 79,490 | -22,09 | 100.0% | 100.0% |
| | 99 | 748 | 49 | | | 1 | | |
--------------------------------------------------------------------------------
The majority of lingerie sales revenue in 9M 2009 in the amount of EEK 519,639
thousand (EUR 33,211 thousand) was generated in the Russian market accounting
for 57.9% of all lingerie sales in 9M 2009 as compared to EEK 728,333 thousand
(EUR 46,549 thousand) in the respective period in 2008. Sales in Russia comprise
both retail sales and wholesale. The second largest region for lingerie sales
was Belarus where sales reached EEK 240,066 thousand (EUR 15,343 thousand),
contributing 26.7% of lingerie sales (both retail and wholesale) as compared to
EEK 266,806 thousand (EUR 17,052 thousand) in 9M 2008.
Sales in the major markets, including Russia and Ukraine, although still
affected by the economic situation and devaluation of the local currencies,
demonstrated a positive trend compared to the first and to the second quarters
mainly due management actions supported by seasonal increase in customer demand.
As the result, sales in Q3 2009 improved significantly as compared to Q1 2009;
however, were still lower as compared to the respective period in prior year.
Wholesale operations started improving as many of the Group's Russian and
Ukrainian wholesales partners realized their excess stock levels reducing them
to the normal operational levels after being overstocked in Q4 2008 after a
sharp decrease in demand caused by the overall economic crisis.
Sales decrease in Belarus was lower compared to the reduction in sales in
Russia, Ukraine and the Baltic countries leading to the growing share of the
Belarusian market in the total sales in the 9M 2009, compared to respecting
period of previous year. This is an effect of more stable economic situation in
Belarus compared to the neighboring countries as well as the tight control over
distribution that the Group has developed in the country.
A number of actions have been introduced to the market including additional
marketing activities in Belarus, Ukraine and Russia and supportive measures in
the opening of the franchised stores. Dealers and distributors were motivated to
increase their sales activities in the exchange for favorable pricing
opportunities.
A new order processing and reservation system introduced by Milavitsa at the end
of Q2 allowed trading partners a broader access to its stock and speeded up
packing and delivery. As the result Milavitsa managed to reach 2008 sales in
terms of units sold during the summer months.
Changes in the top management of the Group's Russian operations took place in
June-August 2009 in order to execute a new sales strategy in that core market
and improve corporate governance of the Russian subsidiaries of the Group.
Changes in the sales strategy were introduced to the trading partners in late
September. The Group's targets to increase control over distribution and to
adjust the organizational structure accordingly.
In terms of lingerie brands, the sales of “Milavitsa” core brand accounted for
74.6% of total lingerie sales revenue in 9M 2009 (9M 2008: 76.2%) and amounted
to EEK 665,857 thousand (EUR 42,556 thousand). The sales of “Lauma” core brand
accounted for 5.2% of total lingerie sales (9M 2008: 7.0%) and amounted to EEK
46,408 thousand (EUR 2,966 thousand). Other brands such as “Alisee”, “Aveline”,
“Hidalgo” and “Laumelle” comprised 20.2% of total lingerie sales in 9M 2009 (9M
2008: 16.8%), amounting to EEK 180,311 thousand (EUR 11,524 thousand) mainly due
to growth of sales of lower priced goods under “Aveline” brand.
Wholesale
In 9M 2009, wholesale amounted to EEK 671,161 thousand (EUR 42,895 thousand),
representing 74.7% of the Group's total revenue (9M 2008: 77.2%). The main
wholesale regions were Russia, Belarus, Ukraine and the Baltic States. Gradual
improvements were observed in Q3 2009 with an increase in lingerie wholesales of
37.3% as compared to Q1 2009 as many of the Milavitsa's Russian and Ukrainian
wholesales partners had adjusted their working capital levels to the new market
and trading circumstances caused by crisis at the end of 2008. Most of the
lingerie wholesale partners are located in Russia, a key market for the Group.
A new channel of distribution was introduced in Ukraine by Milavitsa in late
2008 and early 2009. The channel allowed the Group to offset sharp decrease in
sales caused by the economic crisis and the inability of the old distribution to
address it. Although still below the 2008 level, sales in the Ukrainian market
demonstrated positive trends in Q2 and Q3.
Lauma Lingerie experienced a sharp reduction in sales in their major markets
being affected by the crisis to a greater extent due to its higher pricing
positioning and inability of the distribution partners to meet the current
market conditions. Certain changes in the management of the company were made to
address the market realities. Lauma Lingerie is in process of implementation of
the revised sales strategy in respect of the core markets, including Russia,
Ukraine and Baltics.
Retail operations
Total lingerie retail sales of the Group in 9M 2009 amounted to EEK 221,415
thousand (EUR 14,151 thousand), representing a 16.8% decrease as compared to the
respective period in 2008.
Lingerie retail operations were conducted in Latvia, Russia, Belarus, and
Lithuania. At the end of 9M 2009 the Group operated 82 own retail outlets with a
total area of 6,697 square meters.
In 9M 2009 14 new stores in the lingerie business were opened, including 9 under
Milavitsa name in Belarus, 1 under Yamamay and 2 under Jockey brand names in
Lithuania and 2 stores under Lauma Lingerie brand name in Latvia. 31
underperforming stores were closed: 13 PTA stores in Russia, 13 Oblicie stores
in Russia, 2 Milavitsa stores in Belarus, 3 Amadea line stores in Lithuania. 18
Oblicie stores in Russia were rebranded to Milavitsa.
Number of stores as at:
--------------------------------------------------------------------------------
| | 30.09.2009 | 31.12.2008 |
--------------------------------------------------------------------------------
| Latvia | 5 | 3 |
--------------------------------------------------------------------------------
| Poland | 0 | 7 |
--------------------------------------------------------------------------------
| Belarus | 35 | 28 |
--------------------------------------------------------------------------------
| Russia | 26 | 52 |
--------------------------------------------------------------------------------
| Lithuania | 16 | 16 |
--------------------------------------------------------------------------------
| Total stores | 82 | 106 |
--------------------------------------------------------------------------------
| Total sales area, sq m | 6,697 | 9,549 |
--------------------------------------------------------------------------------
In Belarus, two ineffective stores were closed and 9 new “Milavitsa” stores were
opened, adding to the growth of the retail sales in the country. A number of
sales promotions were conducted in the Milavitsa retail chain.
In the Baltics, retail sales decreased by 21.7% as compared to 9M 2008,
amounting to EEK 17,086 thousand (EUR 1,092 thousand). Altogether, 5 new
lingerie shops were opened in the Baltics (3 in Lithuania, and 2 in Latvia).
In respect to lingerie retail in Russia, in Q2 and Q3 2009 the Group's main
focus was on rebranding Oblicie stores to Milavitsa stores, closing
poor-performing stores, and improving sales performance. As a result, 11
lingerie stores were closed, 18 stores were rebranded. Due to a number of
marketing and sales activities the Group achieved a like-for-like increase in
sales in June-August as compared to the respective period in 2008. The Group
will continue closing inefficient stores or relocating them to better locations.
In the Baltics, the overall consumer market demand continued to deteriorate
which affected practically all retail segments. Lingerie retail sales sharply
decreased as compared to Q3 2008. The Group closed 3 inefficient stores in
Lithuania within 9M 2009, and entered into a share purchase agreement for the
sale of all its shares in UAB „Linret LT“ in November 2009. The closing of the
transaction will take place within the month of November.
Stores by concept
--------------------------------------------------------------------------------
| Market | Milavitsa | Oblicie | Other | Total | Sales |
| | stores | stores | stores | | area, sq m |
--------------------------------------------------------------------------------
| Russia | 22 | 4 | 0 | 26 | 2,184 |
--------------------------------------------------------------------------------
| Latvia | 0 | 0 | 5 | 5 | 330 |
--------------------------------------------------------------------------------
| Lithuania | 0 | 0 | 16 | 16 | 941 |
--------------------------------------------------------------------------------
| Belarus | 35 | 0 | 0 | 35 | 3,242 |
--------------------------------------------------------------------------------
| Total | 57 | 4 | 21 | 82 | 6,697 |
--------------------------------------------------------------------------------
Discontinued operations
Discontinued operations results include operations of PTA (apparel business
line) for 6 months period ended 30 June 2009. Operational results of PTA
operations are presented in the consolidated income statement as a single line
item under ‘Loss from discontinued operations'.
Production, sourcing, purchasing and logistics
Due to increased uncertainty in the marketplace and sharply falling demand in Q4
2008 and Q1 2009 the Group's manufacturing companies reduced their production
and purchasing volumes in 9M 2009. In addition, adjustments in the production
planning process were made to adjust for changing circumstances, for example the
Group's largest production subsidiary SP ZAO Milavitsa switched from quarterly
production planning to monthly planning. As the result of the adjustments in
production and sourcing volumes as well as in the production planning process
the Group was able to decrease inventories to normal levels. Consequently, the
Group's working capital position was improved significantly and timely
deliveries to the customers are now secured.
In respect of production outsourcing, the number of cooperation partners
remained at the level of Q2 2009. The total volume of production in SP ZAO
Milavitsa amounted to 10,548 thousand pieces in 9M 2009, representing a 28.2%
decrease as compared to the respective period in previous year. The total
production volumes in Lauma Lingerie amounted to 436 thousand pieces in the 9
months' period ended 30 September 2009, showing a decrease of 69.9% as compared
to previous year. In broad terms, the utilisation of own production capacities
in SP ZAO Milavitsa remained at the level of 2008, while outsourced production
capacities with cooperation partners were the major source for the production
output decrease.
In respect of logistics, a new warehouse complex Machuliszhi in Belarus with
total storage capacity of 1,032 thousand pieces of garments was put into
operation in Q1 2009. Furthermore, SP ZAO Milavitsa has started to implement a
supply chain management system on the basis of IFS software application and the
planned date of finalising the project is February 2010.
Investment
In 9M 2009 the Group's investments in continuing operations totalled EEK 27,821
thousand (EUR 1,778 thousand) with investments into retail amounting to EEK
14,191 thousand (EUR 907 thousand), including EEK 1,815 thousand (EUR 116
thousand) in Q3 2009. Other investments were made in equipment and facilities to
maintain effective production.
Personnel
At the end of September 2009, the Group employed 3,197 employees including 522
in retail and 2,005 in production. The rest were employed in wholesale,
administration and support operations. The average number of employees in 9M
2009 was 3,135.
Total salaries and wages in 9M 2009 amounted to EEK 179,560 thousand (EUR 11,476
thousand). The remuneration paid to members of the Management Board totalled EEK
6,384 thousand (EUR 408 thousand). Four members of the Management Board also
serve as executives for the Group's subsidiaries.
Key Events in 9M 2009
Changes in the top management of the Group's Russian operations
Within the third quarter of 2009 the Supervisory Boards of ZAO STK Milavitsa,
wholesale operator of the Group in Russia, and ZAO Linret, retail operator of
the Group in Russia, appointed Mr. Evgeny Prigodich the new General Director of
both companies. Mr. Prigodich used to head OOO Trading Company Milavitsa, the
wholesale operator of the Group in Ukraine.
Changes in the general management of the Group's Russian operations constitute a
part of a set of measures aimed at adjusting the Group's organizational
structure to the changing market conditions.
Sale of shares in PTA Grupp AS
On 30 June 2009 the Group entered into an agreement for the sale of all shares
in PTA held by the Group to PTA Holding OÜ for a total consideration of EEK
15,224 thousand (EUR 973 thousand). The transaction was performed immediately
upon signing. EEK 7,401 thousand (EUR 473 thousand) was paid on the date of the
closing of the transaction by way of taking over certain liabilities of the
Group and EEK 7,823 thousand (EUR 500 thousand) will be paid in cash by 31
December 2011 at the latest, carrying interest until full payment. The
obligation to pay the purchase price is secured by a share pledge over 100% of
all shares in PTA in favour of the Group.
PTA operates in the field of manufacture, retail and wholesale of women's
apparel under the „PTA“ trademark. With the sale of the apparel business, the
Group will focus on its core business - manufacturing and sale of lingerie. The
sale will enable the Group to reallocate financial and managerial resources to
its core operations and improve the efficiency of management. Furthermore, in
the long term the effect on the Group's net profit is expected to be positive,
as PTA made a net loss of EEK 12,189 thousand (EUR 779 thousand) in 6 months
period ended 30 June 2009.
As at the date of disposal PTA had two loans and an overdraft from Danske Bank
A/S Estonian branch outstanding which are secured by a surety provided by SFG.
The surety agreement was not terminated after PTA sales transaction and balance
of loans and credit line amounted to EEK 26,427 thousand (EUR 1,689 thousand) as
of 30 September 2009; however, the liability of the Group to Danske Bank A/S
Estonian branch is in turn secured by a commercial pledge over PTA's assets.
PTA Holding OÜ is related to Peeter Larin (a member of the management board in
PTA), who was a member of the management board and is a shareholder in PTA
Holding OÜ. Therefore, the transaction was made with a related party within the
meaning of the Tallinn Stock Exchange rules. The transaction was not a material
transaction with a related party within the meaning of the Tallinn Stock
Exchange rules.
Changes in the composition of the Management Board
On 29 May 2009, the Supervisory Board of the Group resolved to recall the
current members of the Management Board Mr. Dmitry Podolinski and Mr. Peeter
Larin and to appoint Mr. Norberto Rodriguez as the new member of the Management
Board of the Group. Mr. Rodriguez joined the Group's management team as a Chief
Logistics Officer in October 2007. His main responsibilities include the
development and implementation of the corporate strategy in logistics. Currently
Mr. Rodrigues also serves as a Deputy General Director at Milavitsa being
responsible for logistics, IT, quality management and other business processes.
Changes in the Management Board form a part of a complex of measures aimed at
adjusting the Group's organizational structure to the changing market
conditions.
Splendo Polska Sp. z o.o. disposal
The closing of the agreement for the sale of the Company's shares (90% of the
share capital) in Splendo Polska Sp. z o.o., a Polish retail subsidiary
operating 6 retail outlets, was completed in October 2009. The operating results
of Splendo Polska Sp. z o.o. were not consolidated in the Group's financial
results in 2009 and a loss related to the transaction was fully provided as of
31 December 2008.
Selected financial data
The Group's operating results are summarised in the following figures and
ratios:
--------------------------------------------------------------------------------
| Key figures and ratios | 30.09.20 | 30.09.200 | Change |
| | 09 | 8 | |
--------------------------------------------------------------------------------
| Net sales from continuing operations (EEK | 898,099 | 1,243,748 | -345,649 |
| thousand) | | | |
--------------------------------------------------------------------------------
| Net profit from continuing operations, | -7,683 | 47,112 | -54,795 |
| attributable to shareholders (EEK | | | |
| thousand) | | | |
--------------------------------------------------------------------------------
| Earnings before interest, taxes and | 89,874 | 197,038 | -107,164 |
| depreciation (EBITDA) from continuing | | | |
| operations (EEK thousand) | | | |
--------------------------------------------------------------------------------
| Earnings before interest and taxes (EBIT) | 63,181 | 164,775 | -101,594 |
| from continuing operations (EEK thousand) | | | |
--------------------------------------------------------------------------------
| Net sales from continuing operations (EUR | 57,399 | 79,490 | -22,091 |
| thousand) | | | |
--------------------------------------------------------------------------------
| Net profit from continuing operations, | -491 | 3,011 | -3,502 |
| attributable to shareholders (EUR | | | |
| thousand) | | | |
--------------------------------------------------------------------------------
| Earnings before interest, taxes and | 5,744 | 12,593 | -6,849 |
| depreciation (EBITDA) from continuing | | | |
| operations (EUR thousand) | | | |
--------------------------------------------------------------------------------
| Earnings before interest and taxes (EBIT) | 4,038 | 10,531 | -6,493 |
| from continuing operations (EUR thousand) | | | |
--------------------------------------------------------------------------------
| Operating margin from continuing | 7.0% | 13.2% | - |
| operations, % | | | |
--------------------------------------------------------------------------------
| Net margin from continuing operations, % | -0.9% | 3.8% | - |
--------------------------------------------------------------------------------
| ROA, % | -4.3% | 3.5% | - |
--------------------------------------------------------------------------------
| ROE, % | -7.7% | 5.3% | - |
--------------------------------------------------------------------------------
| Earnings per share (EPS), in EEK | -1.10 | 1.01 | - |
--------------------------------------------------------------------------------
| Earnings per share (EPS), in EUR | -0.07 | 0.07 | - |
--------------------------------------------------------------------------------
| Current ratio | 2.9 | 3.2 | - |
--------------------------------------------------------------------------------
| Quick ratio | 1.7 | 1.8 | - |
--------------------------------------------------------------------------------
Underlying formulas:
Operating margin from continuing operations = operating profit from continuing
operations / sales revenue
Net margin from continuing operations = net profit from continuing operations
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
____________________________
Dmitry Ditchkovsky
Chairman of the Management Board
____________________________
Sergei Kusonski
Member of the Management Board
___________________________
Baiba Gegere
Member of the Management Board
___________________________
Norberto Rodriguez
Member of the Management Board
Consolidated statement of financial position
Unaudited
--------------------------------------------------------------------------------
| | 30.09. | 30.09. | 31.12. | 30.09.2 | 30.09.2 | 31.12.2 |
| | 2009 | 2008 | 2008 | 009 | 008 | 008 |
--------------------------------------------------------------------------------
| | EEK | EEK | EEK | EUR | EUR | EUR |
| | thousa | thousa | thousa | thousan | thousan | thousan |
| | nd | nd | nd | d | d | d |
--------------------------------------------------------------------------------
| ASSETS | | | | | | |
--------------------------------------------------------------------------------
| Non-current assets | | | | | | |
--------------------------------------------------------------------------------
| Property, plant and | 182,20 | 290,74 | 293,53 | 11,645 | 18,582 | 18,760 |
| equipment | 5 | 5 | 0 | | | |
--------------------------------------------------------------------------------
| Intangible assets | 8,981 | 47,613 | 16,085 | 574 | 3,043 | 1,028 |
--------------------------------------------------------------------------------
| Investment property | 19,809 | 23,626 | 23,141 | 1,266 | 1,510 | 1,479 |
--------------------------------------------------------------------------------
| Investments in | 2,206 | 3,317 | 2,879 | 141 | 212 | 184 |
| equity accounted | | | | | | |
| investees | | | | | | |
--------------------------------------------------------------------------------
| Available-for-sale | 6,681 | 8,856 | 8,716 | 427 | 566 | 557 |
| financial assets | | | | | | |
--------------------------------------------------------------------------------
| Other long term | 29,588 | 673 | 26,051 | 1,891 | 43 | 1,665 |
| receivables | | | | | | |
--------------------------------------------------------------------------------
| Total non-current | 249,47 | 374,83 | 370,40 | 15,944 | 23,956 | 23,673 |
| assets | 0 | 0 | 2 | | | |
--------------------------------------------------------------------------------
| Current assets | | | | | | |
--------------------------------------------------------------------------------
| Inventories | 236,10 | 378,75 | 434,41 | 15,090 | 24,207 | 27,764 |
| | 7 | 7 | 2 | | | |
--------------------------------------------------------------------------------
| Prepaid taxes | 22,343 | 45,735 | 62,070 | 1,428 | 2,923 | 3,967 |
--------------------------------------------------------------------------------
| Trade receivables | 130,39 | 202,78 | 168,01 | 8,334 | 12,960 | 10,738 |
| | 9 | 0 | 3 | | | |
--------------------------------------------------------------------------------
| Other receivables | 21,890 | 66,389 | 42,277 | 1,399 | 4,243 | 2,702 |
--------------------------------------------------------------------------------
| Prepayments | 9,591 | 66,811 | 49,209 | 613 | 4,270 | 3,145 |
--------------------------------------------------------------------------------
| Cash and cash | 166,49 | 128,17 | 82,129 | 10,641 | 8,192 | 5,249 |
| equivalents | 5 | 7 | | | | |
--------------------------------------------------------------------------------
| Assets classified | 7,197 | 0 | 0 | 460 | 0 | 0 |
| as held for sale | | | | | | |
--------------------------------------------------------------------------------
| Total current | 594,02 | 888,64 | 838,11 | 37,965 | 56,795 | 53,565 |
| assets | 2 | 9 | 0 | | | |
--------------------------------------------------------------------------------
| TOTAL ASSETS | 843,49 | 1,263, | 1,208, | 53,909 | 80,751 | 77,238 |
| | 2 | 479 | 512 | | | |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| LIABILITIES AND | | | | | | |
| EQUITY | | | | | | |
--------------------------------------------------------------------------------
| Equity | | | | | | |
--------------------------------------------------------------------------------
| Share capital | 400,00 | 400,00 | 400,00 | 25,565 | 25,565 | 25,565 |
| | 0 | 0 | 0 | | | |
--------------------------------------------------------------------------------
| Share premium | 223,29 | 223,29 | 223,29 | 14,271 | 14,271 | 14,271 |
| | 3 | 3 | 3 | | | |
--------------------------------------------------------------------------------
| Own shares | -7,041 | 0 | -7,041 | -450 | 0 | -450 |
--------------------------------------------------------------------------------
| Statutory capital | 1,046 | 1,046 | 1,046 | 67 | 67 | 67 |
| reserve | | | | | | |
--------------------------------------------------------------------------------
| Translation reserve | -172,8 | -52,82 | -58,08 | -11,047 | -3,376 | -3,713 |
| | 48 | 3 | 6 | | | |
--------------------------------------------------------------------------------
| Retained earnings | 53,996 | 226,49 | 82,035 | 3,451 | 14,476 | 5,243 |
| | | 9 | | | | |
--------------------------------------------------------------------------------
| Total equity | 498,44 | 798,01 | 641,24 | 31,857 | 51,003 | 40,983 |
| attributable to | 6 | 5 | 7 | | | |
| equity holders of | | | | | | |
| the parent | | | | | | |
--------------------------------------------------------------------------------
| Non-controlling | 132,16 | 176,63 | 141,97 | 8,447 | 11,289 | 9,074 |
| interest | 6 | 4 | 7 | | | |
--------------------------------------------------------------------------------
| Total equity | 630,61 | 974,64 | 783,22 | 40,304 | 62,292 | 50,057 |
| | 2 | 9 | 4 | | | |
--------------------------------------------------------------------------------
| Non-current | | | | | | |
| liabilities | | | | | | |
--------------------------------------------------------------------------------
| Loans and | 11,047 | 8,089 | 18,197 | 706 | 517 | 1,163 |
| borrowings | | | | | | |
--------------------------------------------------------------------------------
| Deferred tax | 266 | 201 | 201 | 17 | 13 | 13 |
| liabilities | | | | | | |
--------------------------------------------------------------------------------
| Other liabilities | 485 | 56 | 1,314 | 31 | 3 | 84 |
--------------------------------------------------------------------------------
| Provisions | 0 | 125 | 125 | 0 | 8 | 8 |
--------------------------------------------------------------------------------
| Total non-current | 11,798 | 8,471 | 19,837 | 754 | 541 | 1,268 |
| liabilities | | | | | | |
--------------------------------------------------------------------------------
| Current liabilities | | | | | | |
--------------------------------------------------------------------------------
| Loans and | 31,340 | 62,117 | 116,25 | 2,003 | 3,970 | 7,430 |
| borrowings | | | 4 | | | |
--------------------------------------------------------------------------------
| Trade payables | 111,73 | 130,79 | 167,95 | 7,141 | 8,359 | 10,734 |
| | 3 | 0 | 1 | | | |
--------------------------------------------------------------------------------
| Corporate income | 3,380 | 3,583 | 4,006 | 216 | 229 | 256 |
| tax liability | | | | | | |
--------------------------------------------------------------------------------
| Other tax | 18,526 | 19,887 | 18,150 | 1,184 | 1,271 | 1,160 |
| liabilities | | | | | | |
--------------------------------------------------------------------------------
| Deferred tax | 0 | 0 | 0 | 0 | 0 | 0 |
| liability | | | | | | |
--------------------------------------------------------------------------------
| Other payables | 15,866 | 39,652 | 27,584 | 1,014 | 2,534 | 1,763 |
--------------------------------------------------------------------------------
| Provisions | 19,684 | 24,299 | 70,817 | 1,258 | 1,553 | 4,526 |
--------------------------------------------------------------------------------
| Accrued expenses | 240 | 0 | 689 | 15 | 0 | 44 |
--------------------------------------------------------------------------------
| Deferred income | 313 | 31 | 0 | 20 | 2 | 0 |
--------------------------------------------------------------------------------
| Total current | 201,08 | 280,35 | 405,45 | 12,851 | 17,918 | 25,913 |
| liabilities | 2 | 9 | 1 | | | |
--------------------------------------------------------------------------------
| Total liabilities | 212,88 | 288,83 | 425,28 | 13,605 | 18,459 | 27,181 |
| | 0 | 0 | 8 | | | |
--------------------------------------------------------------------------------
| TOTAL LIABILITIES | 843,49 | 1,263, | 1,208, | 53,909 | 80,751 | 77,238 |
| AND EQUITY | 2 | 479 | 512 | | | |
--------------------------------------------------------------------------------
Consolidated statement of comprehensive income - 9 months
Unaudited
--------------------------------------------------------------------------------
| | 2009 9 | 2008 9 | 2009 9 | 2008 9 |
| | months | months | months | months |
| | EEK | EEK | EUR | EUR |
| | thousand | thousand | thousand | thousand |
| | | (restate | | (restated |
| | | d) | | ) |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Continuing operations | | | | |
--------------------------------------------------------------------------------
| Net sales | 898,099 | 1,243,74 | 57,399 | 79,490 |
| | | 8 | | |
--------------------------------------------------------------------------------
| Costs of goods sold | -511,253 | -714,533 | -32,675 | -45,667 |
--------------------------------------------------------------------------------
| Gross Profit | 386,846 | 529,215 | 24,724 | 33,823 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Other operating income | 19,543 | 13,879 | 1,249 | 887 |
--------------------------------------------------------------------------------
| Distribution costs | -133,137 | -184,614 | -8,509 | -11,799 |
--------------------------------------------------------------------------------
| Administrative expenses | -118,789 | -142,118 | -7,592 | -9,083 |
--------------------------------------------------------------------------------
| Other operating expenses | -91,282 | -51,587 | -5,834 | -3,297 |
--------------------------------------------------------------------------------
| Operating profit | 63,181 | 164,775 | 4,038 | 10,531 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Interest expenses | -7,338 | -1,392 | -469 | -89 |
--------------------------------------------------------------------------------
| Gains/losses on conversion of | 9,576 | -15,803 | 612 | -1,010 |
| foreign currencies | | | | |
--------------------------------------------------------------------------------
| Other financial income / | 7,291 | 8,715 | 466 | 557 |
| expenses | | | | |
--------------------------------------------------------------------------------
| Total financial income / | 9,529 | -8,480 | 609 | -542 |
| expenses | | | | |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Share of profit of equity | -298 | 2,378 | -19 | 152 |
| accounted investees | | | | |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Profit before corporate income | 72,412 | 158,673 | 4,628 | 10,141 |
| tax | | | | |
--------------------------------------------------------------------------------
| Corporate income tax | -61,695 | -74,603 | -3,943 | -4,768 |
--------------------------------------------------------------------------------
| Profit from continuing | 10,717 | 84,070 | 685 | 5,373 |
| operations | | | | |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Discontinued operations | | | | |
--------------------------------------------------------------------------------
| Profit / (loss) of | -36,034 | -6,540 | -2,303 | -418 |
| discontinued operation (net of | | | | |
| income tax) | | | | |
--------------------------------------------------------------------------------
| Profit/ (loss) for the period | -25,317 | 77,530 | -1,618 | 4,955 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Profit attributable to: | | | | |
--------------------------------------------------------------------------------
| Owners of the Company | -43,717 | 40,572 | -2,794 | 2,593 |
--------------------------------------------------------------------------------
| Non-controlling interest | 18,400 | 36,958 | 1,176 | 2,362 |
--------------------------------------------------------------------------------
| Profit for the period | -25,317 | 77,530 | -1,618 | 4,955 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Earnings per share | | | | |
--------------------------------------------------------------------------------
| Basic earnings per share | -1.10 | 1.01 | -0.07 | 0.07 |
| (EEK/EUR) | | | | |
--------------------------------------------------------------------------------
| Diluted earnings per share | -1.10 | 1.01 | -0.07 | 0.07 |
| (EEK/EUR) | | | | |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Continuing operations | | | | |
--------------------------------------------------------------------------------
| Basic earnings per share | -0.19 | 1.18 | -0.01 | 0.08 |
| (EEK/EUR) | | | | |
--------------------------------------------------------------------------------
| Diluted earnings per share | -0.19 | 1.18 | -0.01 | 0.08 |
| (EEK/EUR) | | | | |
--------------------------------------------------------------------------------
Consolidated statement of comprehensive income - 9 months
Unaudited
--------------------------------------------------------------------------------
| | 2009 9 | 2008 9 | 2009 9 | 2008 9 |
| | months | months | months | months |
| | EEK | EEK | EUR | EUR |
| | thousand | thousand | thousand | thousand |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Profit for the period | -25,317 | 77,530 | -1,618 | 4,955 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Other comprehensive income | | | | |
--------------------------------------------------------------------------------
| Foreign currency translation | -142,863 | 30,433 | -9,130 | 1,945 |
| differences for foreign | | | | |
| operations | | | | |
--------------------------------------------------------------------------------
| Disposal of subsidiary | 16,820 | 0 | 1,075 | 0 |
--------------------------------------------------------------------------------
| Non-controlling interest from | 0 | 94 | 0 | 6 |
| business combination | | | | |
--------------------------------------------------------------------------------
| Other comprehensive income for | -126,043 | 30,527 | -8,055 | 1,951 |
| the period | | | | |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Total comprehensive income | -151,360 | 108,057 | -9,673 | 6,906 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Total comprehensive income | | | | |
| attributable to: | | | | |
--------------------------------------------------------------------------------
| Owners of the Company | -142,801 | 64,261 | -9,126 | 4,107 |
--------------------------------------------------------------------------------
| Non-controlling interest | -8,559 | 43,796 | -547 | 2,799 |
--------------------------------------------------------------------------------
| Total comprehensive income | -151,360 | 108,057 | -9,673 | 6,906 |
--------------------------------------------------------------------------------
Attachments
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