Silvano Fashion Group Quarterly report
Consolidated Interim Financial Report for Q1 and 3 months of 2017 (unaudited)
Selected Financial Indicators
Summarized selected financial indicators of the Group for Q1 of 2017 compared to Q1 of 2016 and 31.03.2017 compared to 31.12.2016 were as follows:
| in thousands of EUR | Q1 2017 | Q1 2016 | Change |
| Revenue | 14 542 | 13 358 | 8,9% |
| EBITDA | 2 909 | 4 818 | -39,6% |
| Net profit for the period | 109 | 2 114 | -94,8% |
| Net profit attributable equity holders of the Parent company | 50 | 2 159 | -97,7% |
| Earnings per share (EUR) | 0,001 | 0,057 | -98,2% |
| Operating cash flow for the period | 2 908 | 2 604 | 11,7% |
| in thousands of EUR | 31.03.2017 | 31.12.2016 | Change |
| Total assets | 58 526 | 56 145 | 4,2% |
| Total current assets | 44 870 | 42 677 | 5,1% |
| Total equity attributable to equity holders of the Parent company | 43 921 | 43 402 | 1,2% |
| Cash and cash equivalents | 23 121 | 22 303 | 3,7% |
| Margin analysis, % | Q1 2017 | Q1 2016 | Change |
| Gross profit | 46,6 | 57,5 | -18,9% |
| EBITDA | 20,0 | 36,1 | -44,6% |
| Net profit | 0,75 | 15,8 | -95,3% |
| Net profit attributable equity holders of the Parent company | 0,34 | 16,2 | -97,9% |
| Financial ratios, % | 31.03.2017 | 31.12.2016 | Change |
| ROA | 7,0 | 14,7 | -52,4% |
| ROE | 9,3 | 19,6 | -52,5% |
| Price to earnings ratio (P/E) | 26,8 | 13,2 | 103,0% |
| Current ratio | 3,9 | -20,4% | |
| Quick ratio | 2,3 | 3,0 | -23,3% |
Consolidated Statement of Financial Position
| in thousands of EUR | Note | 31.03.2017 | 31.12.2016 |
| ASSETS | |||
| Current assets | |||
| Cash and cash equivalents | 23 121 | 22 303 | |
| Current loans granted | 9 | 19 | |
| Trade and other receivables | 2 | 3 729 | 4 168 |
| Inventories | 3 | 18 011 | 16 187 |
| Total current assets | 44 870 | 42 677 | |
| Non-current assets | |||
| Long-term receivables | 233 | 21 | |
| Investments in associates | 27 | 19 | |
| Available-for-sale investments | 375 | 369 | |
| Deferred tax asset | 1 128 | 1 012 | |
| Intangible assets | 269 | 291 | |
| Investment property | 1 101 | 1 091 | |
| Property, plant and equipment | 4 | 10 523 | 10 665 |
| Total non-current assets | 13 656 | 13 468 | |
| TOTAL ASSETS | 58 526 | 56 145 | |
| LIABILITIES AND EQUITY | |||
| Current liabilities | |||
| Trade and other payables | 5 | 9 815 | 6 894 |
| Tax liabilities | 1 737 | 1 857 | |
| Total current liabilities | 11 552 | 8 751 | |
| Non-current liabilities | |||
| Deferred tax liability | 13 | 37 | |
| Total non-current liabilities | 13 | 37 | |
| Total liabilities | 11 565 | 8 788 | |
| Equity | |||
| Share capital | 6 | 11 100 | 11 100 |
| Share premium | 10 787 | 10 787 | |
| Treasury shares | 6 | -1 956 | -998 |
| Statutory reserve capital | 1 306 | 1 306 | |
| Revaluation reserve | 710 | 710 | |
| Unrealised exchange rate differences | -9 541 | -10 968 | |
| Retained earnings | 31 515 | 31 465 | |
| Total equity attributable to equity holders of the Parent company | 43 921 | 43 402 | |
| Non-controlling interest | 3 040 | 3 955 | |
| Total equity | 46 961 | 47 357 | |
| TOTAL EQUITY AND LIABILITIES | 58 526 | 56 145 |
Consolidated Income Statement
| in thousands of EUR | Note | Q1 2017 | Q1 2016 |
| Revenue | 8 | 14 542 | 13 358 |
| Cost of goods sold | -7 759 | -5 677 | |
| Gross Profit | 6 783 | 7 681 | |
| Distribution expenses | -2 874 | -2 015 | |
| Administrative expenses | -1 275 | -1 121 | |
| Other operating income | 43 | 83 | |
| Other operating expenses | -270 | -252 | |
| Operating profit | 2 407 | 4 376 | |
| Currency exchange income/(expense) | -1 198 | -1 519 | |
| Other finance income/(expenses) | 67 | 65 | |
| Net financial income | -1 131 | -1 454 | |
| Profit (loss) from associates using equity method | 9 | 0 | |
| Profit before tax | 1 285 | 2 922 | |
| Income tax expense | -1 176 | -808 | |
| Profit for the period | 109 | 2 114 | |
| Attributable to : | |||
| Equity holders of the Parent company | 50 | 2 159 | |
| Non-controlling interest | 59 | -45 | |
| Earnings per share from profit attributable to equity holders of the Parent company, both basic and diluted (EUR) | 7 | 0,00 | 0,06 |
Business environment and results
The Group`s sales amounted to 14 542 thousand EUR during Q1 of 2017, representing a 8.9% increase as compared to the same period of previous year. The Group’s gross profit during Q1 of 2017 amounted to 6 783 thousand EUR and decreased by 11.7% compared to Q1 of 2016. Gross margin during Q1 of 2017 decreased to 46.6% from 57.5% in the respective to Q1 of 2016.
Consolidated operating profit Q1 of 2017 decreased by 45.0% to 2 407 thousand EUR, compared to 4 376 thousand EUR in Q1 of 2016. Consolidated EBITDA for Q1 of 2017 decreased by 39.6% and was 2 909 thousand EUR, compared to 4 818 thousand EUR in Q1 of 2016.
Reported consolidated net profit for Q1of 2017 amounted to 109 thousand EUR, decreasing by 94.8% compared to prior result of 2 114 thousand EUR. Net profit attributable to equity holders of the Parent company for Q1 of 2017 decreased by 97.7% and amounted to 50 thousand EUR.
Group`s results for 3 months of 2017 were defined by continued challenges in economies of its major sales markets – Russia, Belarus and Ukraine. Group achieved growth in sales compared to 3 months of 2016, but gross margin and gross profit decreased compared to same period last year. The purchasing power in region`s countries remains low, therefore it is hard to see some kind of relatively fast recovery in growth rates of economies under discussion.
The recovery in economic activity, which started in Russia in the second quarter of 2016, appears to be fragile. Russian economy is adapting to new reality, but purchasing power of population in real terms is still low. Following a buoyant performance in January, consumer demand weakened in February. Retail trade contracted by 0.4% in real terms month to month, seasonally adjusted. Retail trade yearly decrease was 2.6% in February. Inflation slowed further in March, partly aided by the ruble’s appreciation. Supported by a stronger ruble, the monthly inflation totalled 0.1% in March 2017 compared to 0.5% in the same period last year. The 12-month Consumer Price Index (CPI) decreased in March to 4.3%. Unemployment declined to 5.2% in February. Real wages continued to grow, rising in February by 1.3% compared to the same period of previous year; however, the growth decelerated. Real disposable incomes contracted in February by 4.1% compared to the same period in 2016, and they decreased in monthly terms after seasonal adjustment.
Group`s sales on Russian market totalled 8 076 thousand EUR, increase is 5.2% compared to 3 months of 2016. In local currency sales decreased by 20.2% during 3 months. Group`s Russian subsidiary opened 3 stores in Q1 of 2017, total 30 own stores is now opened. The Group will continue opening own stores as this gives growing sales opportunity and better control of the market.
Belarusian economy at the moment isn`t demonstrating signs of stabilisation yet. The economy is projected to emerge from the recession over the course of this year as loans from international institutions will support activity. However, the overall economic situation will remain bleak as Russia—Belarus’ main trading partner—will not make a strong recovery in 2017. Against this backdrop analysts forecast that GDP will increase by just 0.2-0.4% in 2017. Consumer prices rose 0.3% in March from the previous month, down from February’s 0.5% increase and the lowest reading in three months. According to the Belstat, March’s increase came on the back of higher prices for services and non-food goods. Inflation cooled in March, dropping to 6.4% from 7.0% in February. This marked the lowest reading since July 2010. Annual average inflation was 10.6% in March, below February’s 11.2% and also a multi-year low. Analysts see inflation averaging 10.3% in 2017.
Group`s sales in Belarus in 3 months of 2017 were 4 201 thousand EUR and increasing 3.2% compared to 3 months of 2016. Sales in local currency decreased by 8.1% at the same period. In Belarus the Group will focus on improving profitability of its retail business, we will also continue to expand our store chain there depending on availability of reasonably priced sales areas.
Recent developments in Ukraine are starting to derail the economy’s fragile recovery. The government formalized an economic blockade of the rebel-held eastern regions in March, escalating a tense political situation, a large a number of Ukrainian companies located in this territory. On a bright note, the government received USD 1.0 billion in fresh funds from the IMF in April. However, a number of reforms need to be implemented to secure additional aid going forward. The economic blockade has soured the country’s economic outlook. Analysts see GDP rising by 2.4% this year. In March, consumer prices rose 1.8% from the previous month, which followed February’s 1.0% increase. March’s reading was driven by soaring prices for clothing and footwear as well as higher prices for housing, electricity, gas and other fuels. Inflation edged up from February’s 14.2% to 15.1% in March—a 12-month high. However, annual average inflation continued to ease, falling from 11.1% in February to 10.6% in March, the lowest result since November 2014. Analysts expect inflation to end 2017 at 9.3%.
Group`s sales in Ukraine in 3 months of 2017 reached the level of 701 thousand EUR, which is 136% more than previous year same period. Sales in local currency increased by 137% during same period.
Financial performance
The Group`s sales amounted to 14 542 thousand EUR during Q1 of 2017, representing a 8.9% increase as compared to the same period of previous year. Overall, wholesales decreased by 1.1% and retail sales increased by 41.0%, measured in EUR.
The Group’s gross profit during Q1 of 2017 amounted to 6 783 thousand EUR and decrease by 11.7% compared to previous year. The gross margin during Q1 of 2017 decreased to 46.4%, from 57.5% in the respective period of previous year. The cost of sold goods increased by 36.7%.
Consolidated operating profit for Q1 of 2017 amounted to 2 407 thousand EUR, compared to 4 376 thousand EUR in Q1 of 2016, decrease 45.0%. The consolidated operating profit margin was 16.6% for Q1 of 2017 (32.8% in Q1 of 2016). Consolidated EBITDA for Q1 of 2017 decreased by 39.6% and amounted to 2 909 thousand EUR, which is 20.0% in margin terms (4 818 thousand EUR and 36.0% for Q1 of 2016).
Reported consolidated net profit attributable to equity holders of the Parent company for Q1 of 2017 amounted to 50 thousand EUR, compared to net profit of 2 159 thousand EUR in Q1 of 2016, net profit margin attributable to equity holders of the Parent company for Q1 of 2017 was 0.75% against 15.8% in Q1 of 2016.
Financial position
As of 31 March 2017 consolidated assets amounted to 58 526 thousand EUR representing an increased by 4.2% as compared to the position as of 31 December 2016.
Trade and other receivables decreased by 439 thousand EUR as compared to 31 December 2016 and amounted to 3 729 thousand EUR as of 31 March 2017. Inventory balance increased by 1 824 thousand EUR and amounted to 18 011 thousand EUR as of 31 March 2017.
Equity attributable to equity holders of the Parent company increased by 519 thousand EUR and amounted to 43 921 thousand EUR as of 31 March 2017. Current liabilities increased by 2 801 thousand EUR during Q1 of 2017.
Sales structure
Sales by markets
Group sales in its 3 major markets – Russia, Belarus and Ukraine – were 89.2% of its total sales. Decreased in local currencies sales growth was accordingly 20.2% in Russia and 8.1% in Belarus. In Ukraine sales in local currency measured 137.0%.
| Q1 2017 | Q1 2016 | Change | Change, % | |
| Russia, th RUB | 505 396 | 633 188 | -127 792 | -20,20% |
| Belarus, th BYN | 8 570 | 9 323 | -753 | -8,10% |
| Ukraine, th UAH | 20 230 | 8 536 | 11 694 | 137,00% |
Group sales results by markets measured in EUR are presented below:
| in thousands of EUR | Q1 2017 | Q1 2016 | Change, EUR | Change, % | Q1 2017, % of sales | Q1 2016, % of sales |
| Russia | 8 076 | 7 674 | 402 | 5,2% | 55,5% | 57,5% |
| Belarus | 4 201 | 4 071 | 130 | 3,2% | 28,9% | 30,5% |
| Ukraine | 701 | 297 | 404 | 136,0% | 4,8% | 2,2% |
| Baltics | 370 | 304 | 66 | 21,7% | 2,6% | 2,3% |
| Other markets | 1 194 | 1 012 | 182 | 18,0% | 8,2% | 7,6% |
| Total | 14 542 | 13 358 | 1 184 | 8,9% | 100,00% | 100,00% |
The majority of lingerie sales revenue during Q1 of 2017 in the amount of 8 076 thousand EUR was generated in Russia, accounting for 55.5% of total sales. The share of Russian market decreased by 2.0 pp. The second largest market was Belarus, where sales reached to 4 201 thousand EUR, contributing 28.9% of lingerie sales (both retail and wholesale).
Sales by business segments
| in thousands of EUR | Q1 2017 | Q1 2016 | Change, EUR | Change, % | Q1 2017, % of sales | Q1 2016, % of sales |
| Wholesale | 10 096 | 10 208 | -112 | -1,1% | 69,4% | 76,4% |
| Retail | 4 414 | 3 131 | 1 283 | 41,0% | 30,4% | 23,5% |
| Other operations | 32 | 19 | 13 | 68,4% | 0,2% | 0,1% |
| Total | 14 542 | 13 358 | 1 184 | 8,9% | 100,0% | 100,0% |
During Q1 of 2017 wholesale revenue decreased by 1.1% and amounted to 10 096 thousand EUR, representing 69.4% of the Group’s total revenue (Q1 of 2016: 76.4%). The share of wholesale decreased by 7.0 pp during the Q1 of 2017. The main wholesale regions were Russia, Belarus and Ukraine.
Group´s retail revenue increased by 41.0% and amounted to 4 414 thousand EUR, this represents 30.4% of the Group`s total revenue.
Own & franchise store locations by countries
| Own | Franchise | Total | |
| Russia | 30 | 371 | 401 |
| Ukraine | 0 | 50 | 50 |
| Belarus | 60 | 5 | 65 |
| Baltics | 7 | 26 | 33 |
| Other regions | 0 | 124 | 124 |
| Total | 97 | 576 | 673 |
At the end of the reporting period the Group and its franchising partners operated 624 Milavitsa and 49 Lauma Lingerie branded stores, including 97 stores operated directly by the Group.
Investments
During Q1 of 2017 the Group’s investments into property, plant and equipment totalled 160 thousand EUR, in previous year same period 42 thousand EUR. Investments were made mainly into opening and renovating own stores, as well into equipment and facilities to maintain effective production for future periods.
Personnel
As of 31 March 2017, the Group employed 2 235 employees, including 475 people in retail operations, during same period previous year accordingly total employee count 2041, including 355 in retail. The rest were employed in production, wholesale, administration and support operations. In 31.12.2016 there were 2163 employees, including 480 in retail.
Total salaries and related taxes during Q1 of 2017 amounted to 2 764 thousand EUR, in Q1 of 2016 total 2 758 thousand EUR, increase by 0.2%. The remuneration of key management of the Group, including the key executives of all subsidiaries, totalled 232 thousand EUR, decrease by 10.1%
Decisions made by governing bodies during Q1 2017
On February 2, 2017 Silvano Fashion Group Extraordinary Meeting of Shareholders decided to change Silvano Fashion Group AS shareholders General Meeting decision from June 29, 2016 of its share buyback program terms and set the new maximum price at which Silvano Fashion Group AS may buy back its own shares within the own share buy-back programme is EUR 3.30 per share.
Jarek Särgava
Member of the Management Board
Silvano Fashion Group AS
Tel +372 6845 000 E-mail: info@silvanofashion.com
www.silvanofashion.com
