OREANDA-NEWS. June 01, 2015.

Selected Financial Indicators  

Summarized selected financial indicators of the Group for Q1 2015 compared to Q1 2014 and 31.03.2015 compared to 31.12.2014 were as follows:

in thousands of EUR Q1 2015 Q1 2014 Change
Revenue 13 073 27 095 -51.8%
EBITDA 2 351 4 547 -48.3%
Net profit for the period -349 2 191 -115.9%
Net profit attributable equity holders of the Parent
company		 -521 1 890 -127.6%
Earnings per share (EUR) -0.01 0.05 -127.7%
Operating cash flow for the period 678 753 -9.9% 
in thousands of EUR 31.03.2015 31.12.2014 Change
Total assets 59 771 67 339 -11.2%
Total current assets 42 050 47 005 -10.5%
Total equity attributable to equity holders of the Parent company 42 454 46 753 -9.2%
Loans and borrowings 0 0 NA
Cash and cash equivalents 12 248 13 308 -8.0%
Margin analysis, % Q1 2015 Q1 2014 Change
Gross profit 44.8 34.7 29.0%
EBITDA 18.0 16.8 7.2%
Net profit -2.7 8.1 -133.0%
Net profit attributable equity holders of the Parent
company		 -4.0 7.0 -157.1%
Financial ratios, % 31.03.2015 31.12.2014 Change
ROA 9.4 11.9 -21.5%
ROE 13.4 17.2 -22.3%
Price to earnings ratio (P/E) 7.9 5.0 56.6%
Current ratio 3.2 3.6 -12.6%
Quick ratio 1.3 1.6 -14.6%

 Consolidated Statement of Financial Position 

in thousands of EUR 31.03.2015 31.12.2014
ASSETS    
Current assets    
Cash and cash equivalents 12 248 13 308
Current loans granted 24 329
Trade and other receivables 5 680 6 906
Inventories 24 098 26 462
Total current assets 42 050 47 005
     
Non-current assets    
Long-term receivables 0 241
Investments in associates 84 84
Available-for-sale investments 473 525
Deferred tax asset 478 649
Intangible assets 624 687
Investment property 1 465 1 638
Property, plant and equipment 14 597 16 510
Total non-current assets 17 721 20 334
TOTAL ASSETS 59 771 67 339
     
LIABILITIES AND EQUITY    
Current liabilities    
Trade and other payables 9 865 9 703
Tax liabilities 3 480 3 335
Total current liabilities 13 345 13 038
     
Non-current liabilities    
Deferred tax liability 0 283
Total non-current liabilities 0 283
Total liabilities 13 345 13 321
     
Equity    
Share capital 11 700 11 700
Share premium 13 066 13 066
Treasury shares -1 205 -585
Statutory reserve capital 1 306 1 306
Unrealised exchange rate differences -7 252 -5 649
Retained earnings 24 839 26 915
Total equity attributable to equity holders of the Parent company 42 454 46 753
Non-controlling interest 3 972 7 265
Total equity 46 426 54 018
TOTAL EQUITY AND LIABILITIES 59 771 67 339

Consolidated Income Statement

in thousands of EUR Q1 2015 Q1 2014
Revenue 13 073 27 095
Cost of goods sold -7 217 -17 689
Gross Profit 5 856 9 406
     
Distribution expenses -2 323 -3 946
Administrative expenses -1 709 -1 624
Other operating income 123 321
Other operating expenses -252 -309
Operating profit 1 695 3 848
     
Currency exchange income/(expense) -89 -278
Other finance income/(expenses) 173 200
Net financial income 84 -78
     
Profit (loss) from associates using equity method -2 9
Profit before tax and gain/(loss) on net monetary position 1 777 3 779
     
Income tax expense -2 126 -1 614
Profit before gain/(loss) on net monetary position -349 2 165
     
Gain on net monetary position 0 26
Profit for the period -349 2 191
Attributable to :    
   Equity holders of the Parent company -521 1 890
   Non-controlling interest 172 301
     
Earnings per share from profit attributable to equity holders of the Parent company, both basic and diluted (EUR) -0.01 0.05

 Business environment

Before touching upon the topic of macro environment, we need to underpin the extreme weakness (and seasonally weak) quarter for apparel business on all our core markets. It is well known that retailers try to off-load as much of the unsold seasonal collections in the beginning of the first quarter, throwing in all means of sales incentives etc. To a great extent, such behaviour started already last fall, keeping the consumers stocked up and withholding their purchases for the future. As put by one of the analysts: “there are perfect storms and perfect stills, and this is a perfect still for the apparel retail” when it comes to Russia. There is no good news for the consumers to incentivize them to buy.

For Russia, our core market, in the average price segment, i.e. non-expensive brands, the market contracted by as much as by 60% y-o-y (our quarterly drop in Russia against Q1 2014 stood at -62%). The market contracted also on our other main markets, including Belarus and the Baltics where we operate also our own stores. Some retailers believe that the situation is not going to improve too soon, which leads to squeeze-out of those players whose economics would not support maintaining the market share. Silvano has played its hand relatively well as we started downsizing early and sustained our margins as much as it was feasible. Russia’s Rouble that has outperformed foreign currencies has had almost no effect on our sales and our franchise partners are reporting dropping traffics at both shopping centres and street retail.

In Belarus, our like-for-like sales in Q1 in the retail showed also slowdown in business: -4% in local currency, but -24% in Euros. Adding wholesale segment to this, the drop is somewhat bigger. The consumption in Belarus has clearly been affected by the buying spree at the end of the year drop in the export business (that has affected many local production companies, hence also the income of the workforce) and tight monetary policy conducted by the central bank. From the macroeconomic perspective, the GDP of the country contracted by 2% during the first quarter of 2015 compared to the same period last year.

In Ukraine, taking into account that the troubles started in the middle of first quarter of 2014, the drop in our sales turnover quarter-on-quarter constitutes 84%. In light of the 5th consecutive negative quarter for the national economy, reportedly -17.6% for Q1 2015, together with nearly 60% inflation, the number reflects harsh reality for the retail trade there.

In the first quarter we did not do well in the Baltic market (-48%) and the other markets (-34%), either.

Nevertheless, some optimism can be built onto stronger sales currencies (appreciation of the Russia’s Rouble, stabilisation of the exchange rate of Ukrainian Hryvnia) and the start of the busy season for the lingerie retail business. Also when it comes to our business margins, then our gross margin in the first quarter (44.8% vs. 34.7%) improved, partly due to the abolition of the hyperinflation accounting, but also due to reduction in operational business costs. Smaller business volumes affect the operating profit margin, and we are working further on the fixed cost base. For the bottom line, internal dividend transfers, and financial operations lead to higher income tax expense, which should level out during the next quarters.

The Group’s sales in Q1 2015 retreated from the benchmark in Q1 2014, the net sales reached 13 073 thousand EUR, compared to 27 095 thousand EUR a year ago. The wholesale segment contributed 9 208 thousand EUR in Q1 2015 (21 929 thousand EUR in Q1 2014). The retail segment contributed 3 857 thousand EUR for Q1 2015 (4 905 thousand EUR a year ago).

The net loss to shareholders of the Parent company stood at -521 thousand Euros in Q1 2015 compared to net profit of 1 890 thousand EUR in Q1, 2014. The Group’s EBITDA reached 2 351 thousand EUR in Q1 2015 compared to 4 547 thousand EUR in the corresponding period of 2014.

At the end of Q1 2015, the Group and its franchise partners operated 684 stores altogether, of which 66 stores where managed by the Group. Total geography of our franchise partners covers more than 20 countries, including Milavitsa and Lauma Lingerie branded stores.

Financial performance

The Group`s sales amounted to 13 073 thousand EUR during Q1, 2015, representing a 52% decrease as compared to the same period of previous year. Overall, wholesales decreased by 58.0% and retail sales decreased by 21.4%.

The Group’s reported gross profit margin during Q1 2015 increased year-to-year to 44.8%, reported gross margin was 34.71% in the respective period of previous year. Consolidated operating profit for Q1 2015 amounted to 1 695 thousand EUR, compared to 3 848 thousand EUR in Q1 2014. The consolidated operating profit margin was 13.0% for Q1 2015 (14.2% in Q1 2014). Consolidated EBITDA for Q1 2015 was 2 351 thousand EUR, which is 18.0% in margin terms (4 547 thousand EUR and 16.8% for Q1 2014).

During Q1 2015 the Group continued with internal restructuring, which will allow us to streamline internal management and intragroup capital allocation. This brought 1.9 million EUR of additional income tax expense. As a result reported consolidated net loss attributable to equity holders of the Parent company for Q1 2015 amounted to -521 thousand EUR, compared to net profit of 1 890 thousand EUR in Q1 2014, net profit margin attributable to equity holders of the Parent company for Q1 2015 was -4.0% against 7.0% in Q1 2014. 

Financial position

As of 31 March 2015 consolidated assets amounted to 59 771 thousand EUR representing decrease by 11.2% as compared to the position as of 31 December 2014.

Trade and other receivables decreased by 1 226 thousand EUR as compared to 31 December 2014 and amounted to 5 680 thousand EUR as of 31 March 2015. Inventory balance decreased by 2 364 thousand EUR and amounted to 24 098 thousand EUR as of 31 March 2015.

Equity attributable to equity holders of the Parent company decreased by 4 299 thousand EUR and amounted to 42 454 thousand EUR as of 31 March 2015. Current liabilities increased by 307 thousand EUR during Q1 2015.

Sales structure

Sales by markets

in thousands of EUR Q1 2015 Q1 2014 Change Q1 2015
% from sales		 Q1 2014
 % from sales
Russia 6 077 16 015 -62.1% 46.5% 59.1%
Belarus 5 076 6 926 -26.7% 38.8% 25.6%
Ukraine 220 1 393 -84.2% 1.7% 5.1%
Kazakhstan 639 977 -34.6% 4.9% 3.6%
Baltics 409 794 -48.5% 3.1% 2.9%
Moldova 219 384 -43.0% 1.7% 1.4%
Other markets 434 606 -28.4% 3.3% 2.2%
Total 13 073 27 095 -51.8% 100.0% 100.0%

The majority of lingerie sales revenue during Q1 2015 in the amount of 6 077 thousand EUR was generated in Russia, accounting for 46.5% of total sales. The second largest market was Belarus, where sales reached 5 076 thousand EUR, contributing 38.8% of lingerie sales (both retail and wholesale). Volumes in Ukraine decreased significantly to 220 thousand EUR, and none of the regions remained untouched from the drop in sales.

Sales by business segments

in thousands of EUR Q1 2015 Q1 2014 Change, % Q1 2015, % from sales Q1 2014, % from sales
Wholesale  9 208    21 929   -58.0% 70.4% 80.9%
Retail  3 857    4 905   -21.4% 29.5% 18.1%
Other operations  8    261   -97.0% 0.1% 1.0%
Total  13 073    27 095   -51.8% 100.0% 100.0%

During Q1 2015 wholesale revenue amounted to 9 208 thousand EUR, representing 70.4% of the Group’s total revenue (Q1 2014: 80.9%). The main wholesale regions were Russia, Ukraine, Belarus, Kazakhstan and Moldova.

Total lingerie retail sales of the Group in Q1 2015 amounted to 3 857 thousand EUR, representing 29.5% of the Group’s total revenue.

As of 31 March 2015 there were altogether 684 Milavitsa and Lauma branded shops. Own retail operations were conducted in Belarus and Latvia. As of the end of Q1 2015 the Group operated 66 own retail outlets. As of 31 March 2015, there were 577 Milavitsa branded shops operated by Milavitsa trading partners. Additionally, as of 31 March 2015, there were 41 Lauma Lingerie retail outlets operated by Lauma Lingerie trading partners.

Own & franchise store locations, geography

  Own Franchise Total
Russia 0 367 367
Ukraine 0 92 92
Belarus 56 8 64
Baltics 10 32 42
Kazakhstan 0 46 46
Moldova 0 26 26
Other regions 0 47 47

Investments

During Q1 2015 the Group’s investments into property, plant and equipment totalled 291 thousand EUR. Investments were made into equipment and facilities to maintain effective production for future periods. 

Personnel

As of 31 March 2015, the Group employed 2 346 employees including 429 in retail. The rest were employed in production, wholesale, administration and support operations.

Total salaries and related taxes during Q1 2015 amounted to 4 241 thousand EUR. The remuneration of key management of the Group, including the key executives of the subsidiaries, totalled 350 thousand EUR.