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SFG: Audited financial results for 2009

Spekuliantai.lt | 2010-04-30 | NASDAQ OMX biržų naujienos | perskaitė: 1459
Raktiniai žodžiai: AS Silvano Fashion Group, SFG
SFG: Audited financial results for 2009

Silvano Fashion Group Annual report/ annual accounts 30.04.2010

Audited financial results for 2009

Business results

The Group's results for 2009 were affected by the world economic crisis.
Company's major markets shrinked substantially. Purchasing power diminished
because of local currency devaluations in Russia, Belarus, Ukraine, growing
unemployment and negative future expectations of the population. GDP in 2009 as
compared to 2008 decreased by 15% in Ukraine and by 7,9% in Russia. In Belarus
GDP grew slightly by 0,2%. Unemployment in Russia and Ukraine increased
significantly and was 10% and 9% respectively.

Consumption in major markets suffered significantly because of local currency
devaluation in 2008 and 2009 in Russia, Ukraine and Belarus. Ukrainian Hryvnia
was devalued by 60% against Euro, Russian Rouble - by 30%, Belarussian Rouble -
by 33%. As a result, lingerie and apparel markets in the core markets of the
Group shrinked by 30-40% as estimated by industry analysts.

In 2009 the Group was confronted by the aggressive price competition. Most of
the competitors in the retail were lowering their retail prices offering
on-going sales and promotion discounts throughout the year. At the same time
manufacturers in a situation of significant overstocking as the result of sharp
decrease in consumer demand, were acting aggressively to minimise their working
capital levels and to recover the cash flows through discounting of stocks.

As the result, 2009 results were affected by severe economic turmoil and high
level of uncertainty in business environment. Despite the market circumstances
the Group managed to deliver the results in line with the revised forecast in
May 2009.

During 2009 the Group initiated major restructuring in several areas including
retail, logistics and supply chain management, marketing and sales, and
production planning.

Retail. At the end of the reporting period the Group and its franchising
partners operated 310 Milavitsa and other lingerie outlets, including 64 stores
operated directly by the Group and the rest - by franchising partners. The
Group's retail focus has been shifted towards the promotion and support of
franchising in cooperation with existing and new trading partners. At the same
time the Group will continue operating its own stores in Belarus.

Logistics and supply chain management. The major objective for 2009 was to
adjust logistics to new market demand conditions calling for fast and addressed
shipments to particular clients based on ordered SKUs. In addition, growing
number of shops required more detailed planning of replenishments and robust
forecast tools based on the current sales and planned stock level. As one of the
response measures was installation of high performance sorter machine that
allows fast and precise pick-ups and packaging of finished goods to be delivered
fast to the growing number of the addresses. In addition, the packaging approach
was changed to a smaller amount of goods being packed in one package to serve
clients with high percentage of retail operations. In 2009 the Group started
implementation of IFS supply chain management system with the objective to
optimize stock levels and improve ordering system for the Group and its
customers and plans to finalize the implementation in H2 2010.

Marketing and sales. In 2009 a new sales strategy for the Russian market was
developed. The revision of strategies for other markets will follow in 2010. The
major target is to establish additional control over distribution by selecting
exclusive trading partners in charge of the regional development, to introduce
mandatory reporting systems, and to encourage trading partners to develop
Milavitsa branded stores in their regions.

The structure of the Group was adjusted to address the emphasis on the brand and
product portfolio management aiming to improve the brand image and launch new
fashion collections more superior to the competitors' offer. In addition, the
new system of the orders collection was also introduced in 2009 that provides
faster market information and raised quality of the customer orders.
Never-out-of-stock approach for bestselling models in classic collection was
developed and will be launched in 2010.

Production planning. The Group is in process of upgrading the Axapta Production
Planning module in 2010 addressing the respective changes in order collection
and logistics procedures. The Group now operates a flexible planning system
allowing quick response to changing market conditions.

Key Events in 2009

Changes in the composition of the Management Board

In Q1 2009 the Group named Ms. Baiba Gegere as the new Chief Financial Officer
of the Group and she was appointed to the Management Board of SFG by the
Supervisory Board decision adopted on 4 March 2009.
In addition, in Q1 2009 SFG's Supervisory Board removed Mr. Remigiusz Pilat from
the Management Board with immediate effect in connection with the changes in the
structure of SFG's Polish operations.

In Q2 the Supervisory Board of the Group resolved to recall the 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 the Chief Logistics Officer in
October 2007

Sale of 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. The transaction was performed immediately upon signing. EEK
7,401 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 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 focused on its core business - design, manufacturing and sale of lingerie.
The sale enabled the Group to reallocate financial and managerial resources to
its core operations and improve the efficiency of management. PTA made a net
loss of EEK 12,189 thousand in 6 months period ended 30 June 2009.

Sale of UAB “Linret LT”

In November 2009 the Group closed the sale of all its shares in UAB Linret LT.
Linret LT was a Lithuanian retail subsidiary, operating 14 retail outlets.

Linret LT was engaged primarily in the distribution of Lauma Lingerie and
Milavitsa goods in Lithuania through retail chain under Amadea Line brand and
also operated franchised stores under Jockey and Yamamay brands. Linret LT made
a loss of EEK 9,278 thousand in the first ten months of 2009. Taking into
account the decrease in consumer demand in Lithuania, and the overall state of
the Lithuanian economy, the management was of the opinion that it was unlikely
that Linret LT will become profitable in 2010 or will generate positive cash
flows in the observable future.

Taking into account the total investment of SFG in Linret LT, the transaction
generated an accounting profit of approximately EEK 782 thousand. The Group
intends to continue the shift to franchise operations in Baltics under Lauma
Lingerie brand.

Sale of Splendo Polska Sp. z o.o.

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 7 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.

Changes in significant shareholdings

The shareholders' register of SFG includes all legal owners of the shares but
does not necessarily reflect the allocation of voting rights among shareholders.
However, shareholders must notify SFG of changes in allocation of voting rights
where a shareholder increases or reduces its participation above or below 5, 10,
15, 20, 25 or 50 per cent, 1/3 or 2/3 of all votes represented by shares. Based
on such notifications, SFG identifies the persons holding significant

Based on the aforementioned notifications received up to date, the following
persons held significant shareholdings in SFG:

Mr. Toomas Tool held 9,810,983 shares (24.52% of all votes) as of 28 December

Mr. Stephan David Balkin held 8,000,000 shares (20% of all votes) as of 23
December 2009;

Funds managed by Pioneer Pekao Investment Management SA held 4,065,529 shares
(10.16% of all votes) as of 14 August 2009.

During Q4 2009, the shareholding of SIA Alta Capital Partners reduced below 5%
of all votes to 1,864,286 shares (4.66% of all votes based on notification from
3 February 2010) and shareholdings of Mr. Toomas Tool and Mr. Stephan David
Balkin increased as indicated above.

Changes in the top management of the Group's Russian operations

Within the fourth quarter of 2009 Nikolay Dolgiy was appointed the general
manager for both of the Group's largest Russian subsidiaries - ZAO “STK
Milavitsa” and ZAO “Linret”. Mr. Dolgiy (33) is a skilled manager with over 10
years' experience in managerial positions, primarily in the field of retail.
From August 2009, Mr. Dolgiy worked as the first deputy general manager of STK
Milavitsa responsible for sales.

Restructuring of Russian Retail Operations

In December 2009 an action plan was approved for the restructuring of the
Group's loss-making retail operations in Russia. The plan included the transfer
of Milavitsa retail outlets to franchise partners and the closing of inefficient
stores. Other cost-cutting measures under the action plan included the
optimisation of the office and warehouse lease expenses and a reduction in the
number of employees. The decision to switch to the franchise business model in
Russia followed similar reorganization measures in Poland and Lithuania.

Financial performance

The Group's sales from continuing operations amounted to EEK 1,158,537 thousand
in 2009, representing a 26.7% decline as compared to the previous year. Overall
wholesale sales from continuing operations decreased by 26.8% and retail sales
from continuing operations presented a decrease of 24.4%. The proportion of
retail sales in total sales increased by 0.7% and reached 23.3% of total sales
in 2009.

The Group's gross margin from continuing operations in 2009 increased and was
43.5%, as compared to 41.0% in the previous year. One-off adjustments related to
restructuring of Russian operations increased cost of goods sold in 2009 and
amounted to EEK 6,572 thousand. As the result, normalized gross margin amounted
to 44.0% demonstrating a slight increase in profitability as compared to 2008.
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
Belarusian Rouble on production costs.

The consolidated operating profit from continuing operations amounted to EEK
60,443 thousand, representing a 17.0% increase compared to the year 2008. The
consolidated operating margin from continuing operations was 5.2% (3.3% in
2008). The operating profit and the operating margin were adversely influenced
by one-off expenses in 2009 and 2008.

In 2009, the Group continued with the restructuring of Russian retail
operations. One-off expenses related to the restructuring of Russian operations
in 2009 amounted to EEK 53,167 thousand, including EEK 13,863 thousand in Q1
2009, EEK 18,353 thousand in Q2 2009, EEK 7,072 thousand in Q3 2009 and EUR
13,879 thousand in Q4 2009 and partially related to initiatives started in prior
periods. The Group will finalize closing or transfer of inefficient stores to
franchise partners in H1 2010. Restructuring provisions to cover future
restructuring losses related to Russian retail chain amounted to EEK 2,425
thousand as of 31 December 2009. The operating loss of the Russian retail
operations in 2009 was EEK 103,440 thousand, including one-off expenses
amounting to EEK 53,167 thousand.

Loan receivable in the amount of EEK 20,356 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 2009. The management will continue
actions to recover the loan balance.

In total one-off continuing operating losses related to the restructuring of
Russian operations and the provisioning of a loan amounted to EEK 73,523
thousand in 2009 (total normalization adjustments amounted to EEK 83,130
thousand in 2008). As the result, consolidated normalised operating profit from
continuing operations amounted to EEK 133,966 thousand for the year 2009,
representing a 0.6% decline as compared to 2008. The consolidated normalised
operating margin from continuing operations reached 11.6% (8.5% in 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, including EEK 7,401thousand 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 loss in the consolidated results of the Group in 2009 (Note 36).
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 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.

Consolidated net profit from foreign exchange rate fluctuations amounted to EEK
15,208 thousand in 2009. SP ZAO Milavitsa accrued a foreign exchange gain in the
amount of EEK 37,356 thousand that was caused partially 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.

Income tax expenses from continuing operations amounted to EEK 54,888 thousand
against EEK 87,777 thousand in the previous year. In Q4 2009 the Group
recognized a deferred tax in the amount of EEK 18,119 thousand. Income tax
expense in 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).

For the year 2009, consolidated net loss from continuing operations attributable
to equity holders amounted to EEK 2,582 thousand, compared to net loss of EEK
111,091 thousand in 2008 (Note 28); net margin from continuing operations
attributable to equity holders was -0.2% (up from a negative margin of 7.0% in

Consolidated normalised net profit from continuing operations attributable to
equity holders (excluding one-off expenses in the amount of EEK 73,523 thousand)
amounted to EEK 64,387 thousand, compared to net loss of EEK 31,415 thousand in
2008 (one-off expenses in 2008 amounted to EEK 83,130 thousand); normalised net
margin from continuing operations was 5.6% (-2.0% in 2008).

In 2009, the Group's return on equity was negative and amounted to -6.8% (-17.3%
in 2008) and return on assets was -3.8% (-10.4% in 2008).

Financial position

As of 31 December 2009 consolidated assets amounted to EEK 850,423 thousand
representing a decrease of 29.6% 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
33.4% in 2009, decreasing the value of assets based in Belarus in EUR terms.
Furthermore, due to the sale of PTA on 30 June 2009 and the sale of UAB “Linret
LT” in November 2009, the financial position of PTA and UAB “Linret LT” are not
consolidated as of 31 December 2009, causing a further decrease in the assets of
the Group.

Property, plant and intangibles balances decreased by EEK 132,448 thousand as
compared to 31 December 2008, the key reason being the impact of the foreign
exchange rate in the amount of EEK 60,102 thousand and the sale of PTA and UAB
“Linret LT” in the amount of EEK 25,674 thousand.

Trade receivables decreased by EEK 36,395 thousand as compared to 31 December
2008 and amounted to EEK 131,618 thousand as of 31 December 2009. Payment
discipline of key customers in Russia improved during 2009. Inventory balance
decreased by EEK 168,123 thousand and amounted to EEK 266,289 thousand as of 31
December 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 33.4% in 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 128,453 thousand for the year. On the overall basis, equity attributable
to equity holders decreased by EEK 151,391 thousand and amounted to EEK 489,856
thousand as of 31 December 2009.

Current liabilities decreased by EEK 186,532 thousand in 2009, in line with
management expectations.

The liquidity position of the Group improved in 2009 with respect to the total
balance of borrowings and related maturities. Current and non-current loans and
borrowings decreased by EEK 106,209 thousand to EEK 28,242 thousand as of 31
December 2009. Loans received and loans repaid in 2009 amounted to EEK 102,609
thousand and EEK 177,338 thousand respectively, including finance lease
liabilities repaid in the amount of EEK 13,722 thousand. PTA loan balance in the
amount of EEK 31,606 thousand was eliminated from the consolidated financial
position as the result of the PTA sales transaction. However, as at the date of
disposal PTA had two loans and an overdraft from Danske Bank A/S Estonian branch
outstanding which were secured by a surety provided by AS Silvano Fashion Group.
The surety agreement was not terminated after the PTA sales transaction and the
balance of loans and credit line amounted to EEK 23,423 thousand as of 31
December 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. In January
2010 a credit line facility of Lauma Lingerie with Unicredit Bank in Latvia was
prolonged, decreasing the available facility's limit with the bank from EEK
21,905 thousand to EEK 17,211 thousand until 31 March 2010 and to EEK 15,647
thousand until 30 April 2010. Information on the maturity of current borrowings
is presented in Note 29 to the consolidated financial statements.

Tax liabilities and other payables, including payables to employees, amounted to
EEK 68,790 thousand. Provisions amounted to EEK 3,395 thousand as of 31 December
2009 and included provisions for the restructuring of Russian retail operations
in the amount of EEK 2,441 thousand.

Sales from continuing operations

Women's apparel operations were fully divested as of 31 December 2009 after the
sale of PTA at the end of H1 2009 and are no longer part of continuing
operations of the Group. Continuing operations include design, production and
sale of women lingerie.

Sales by business segments
| | 2009 | 2008 | Change |
| Wholesale | 869,685 | 1,188,139 | -26.8% |
| Retail | 270,295 | 357,384 | -24.4% |
| Other operations | 18,557 | 34,860 | -46.8% |
| Total | 1,158,537 | 1,580,383 | -26.7% |

The majority of lingerie sales revenue in 2009 in the amount of EEK 677,420
thousand was generated in the Russian market, accounting for 58.5% of all
lingerie sales in 2009 as compared to EEK 898,521 thousand in 2008. Sales in
Russia comprise both retail sales and wholesale. The second largest region for
lingerie sales was Belarus, where sales reached EEK 306,016 thousand,
contributing 26.4% of lingerie sales (both retail and wholesale) as compared to
EEK 361,169 thousand in 2008.

Sales in the major markets, including Russia, Belarus, and Ukraine, were heavily
affected by the economic situation and devaluation of the local currencies. As
the result, sales in 2009 were lower as compared to 2008. Wholesale operations
decreased to a larger extent than retail operations.

Starting from Q2 sales in the major markets, including Russia and Ukraine
demonstrated a positive trend as compared to the first quarter. As the result,
sales in Q2 and Q3 2009 improved as compared to Q1 2009 however were still lower
than in Q2 and Q3 2008. Milavitsa sales in the summer months were at the 2008

Although still affected by the economic situation and the devaluation of the
local currencies, sales in the major markets demonstrated positive trend in
terms of pieces sold in Q4 2009 as compared to the respective period in 2008. As
the result, in the Group's largest subsidiary SP ZAO Milavitsa, sales in Q4 2009
improved in volume terms as compared to Q4 2008; however, sales decreased in
monetary terms due to increased proportion of cheaper products in the sales and
additional discounts introduced in H2 2009. In Q4 2009 the Group suffered from
customer traffic slowdown attributable in part to swine flue worries and a
relatively cold winter.

Wholesale operations improved during the year as many of the Group's Russian and
Ukrainian wholesale partners realized their excess stock levels reducing them to
the normal operational levels after being overstocked in 2008 as a result of a
sharp decrease in demand caused by the overall economic crisis.

Decrease in sales in Belarus was lower as compared to sales trends in Russia,
Ukraine and the Baltic countries, leading to the growing share of the Belarusian
market in the total sales in 2009 as compared to the previous year. This is an
effect of the 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 new franchised stores. Dealers and distributors were motivated to
increase their sales activities in the exchange for favorable pricing

A new order processing and reservation system introduced by Milavitsa at the end
of Q2 allowed trading partners broader access to the Group's stock, speedier
packing and delivery. As the result Milavitsa managed to reach 2008 sales level
in terms of units sold during summer months and exceed last year's level in Q4

Changes in the top management of the Group's Russian operations took place in
the second half of 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 and later developed and presented to the trading partners in
December. The Group targets increased control over its distribution and intends
to adjust its organizational structure accordingly.

In terms of lingerie brands, the sales of “Milavitsa” core brand accounted for
74.4% of total lingerie sales revenue in 2009 (2008: 76.1%) and amounted to EEK
848,139 thousand. The sales of “Lauma Lingerie” core brand accounted for 5.3% of
total lingerie sales (2008: 5.7%) and amounted to EEK 60,412 thousand. Other
brands such as “Alisee”, “Aveline”, “Hidalgo” and “Laumelle” comprised 20.3% of
total lingerie sales in 2009 (2008: 18.2%), amounting to EEK 231,429 thousand
mainly due to the growth of sales of lower priced goods under “Aveline” brand.


In 2009, wholesale revenue amounted to EEK 869,685 thousand, representing 75.1%
of the Group's total revenue (2008: 75.2%). The main wholesale regions were
Russia, Belarus, Ukraine and the Baltic States. Gradual improvements in sales
were observed already in Q2 2009. Furthermore, the second half of 2009
demonstrated an increase in lingerie wholesale revenue of 5.6% as compared to
the first half of 2009 as many of the Milavitsa's Russian and Ukrainian
wholesale partners had adjusted their working capital levels to the new market
and trading circumstances caused by the crisis at the end of 2008. Most of the
lingerie wholesale partners are located in Russia, the key market for the Group.

Milavitsa franchised stores which are being serviced through wholesale partners
were affected by the crisis to a much smaller degree, as compared to purely
wholesales deliveries ending in the uncontrolled retail (open markets, kiosks,
department stores, other).

A new channel of distribution was introduced in Ukraine by Milavitsa in late
2008 and early 2009. The channel allowed the Group to offset the sharp decrease
in sales caused by the economic crisis and the inability of the old distribution
network to address the new circumstances. Although still below the 2008 level,
sales in the Ukrainian market demonstrated positive trends in Q2 and Q3 2009. Q4
2009, however, saw a slowdown in Ukrainian sales caused by the difficult
economic situation in the country, flue quarantine in some shopping centres and
pre-election uncertainty.

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 current market
conditions. Certain changes in the management of the company were made to
address the market realities. Lauma Lingerie is in the process of implementing a
revised sales strategy for its core markets including Russia, Ukraine and the

Retail operations

Total lingerie retail sales of the Group in 2009 amounted to EEK 270,295
thousand, representing a 24.4% decrease as compared to 2008.

Lingerie retail operations were conducted in Latvia, Russia, Belarus, and
Lithuania. At the end of 2009 the Group operated 64 own retail outlets with a
total area of 5,523 square meters. Additionally as of 31 December 2009 there
were more than 250 Milavitsa branded shops operated by Milavitsa trading
partners in Russia, Belarus, Ukraine, Moldavia, Kazakhstan, Uzbekistan,
Kirgizstan, Latvia, Romania, Azerbaijan, Armenia, Portugal and Cyprus, of which
10 shops were opened in Q4.

In 2009 17 new own lingerie stores were opened, including 12 under Milavitsa
name in Belarus, 2 stores under Lauma Lingerie brand name in Latvia, 1 under
Yamamay and 2 under Jockey brand names in Lithuania. Yamamay and Jockey shops
along with other shops in Lithuania were subsequently sold as a result of the
disposal by the Group of all its shares in UAB “Linert LT” in November 2009.
Details of the transaction are provided in section ‘Key events'. Additionally,
33 underperforming stores were closed: 13 PTA stores, 15 Oblicie stores and 3
Milavitsa stores in Russia, 2 Milavitsa stores in Belarus. 18 Oblicie stores in
Russia were rebranded to Milavitsa.

Number of own stores as at:

| | 31.12.2009 | 31.12.2008 |
| Latvia | 5 | 3 |
| Poland | 0 | 7 |
| Belarus | 38 | 28 |
| Russia | 21 | 52 |
| Lithuania | 0 | 16 |
| Total stores | 64 | 106 |
| Total sales area, sq m | 5,523 | 9,549 |

In Belarus, two ineffective stores were closed and 12 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. Own retail
operations in Belarus remain one of the key priorities for the Group's further
sales development in Belarus.

In the Baltics, the overall consumer market demand continued to deteriorate
affecting practically all retail segments. Lingerie retail sales decreased by
31.4% as compared to 2008, amounting to EEK 19,214 thousand. The decision to
divest the Group's retail subsidiary in Lithuania was taken in H2 2009 due to
adverse current market situation and its prospects.

In respect of lingerie retail in Russia, in the first half of 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, 18
lingerie stores were closed and 18 stores were rebranded.

The strategic decision to shift focus from own retail chain towards the
development of Milavitsa franchise network was made in H2 2009 to terminate the
loss making own retail operations in Russia. As the result, the Group's own
Oblicie stores were rebranded to Milavitsa and a transfer of stores to Milavitsa
trading partners was commenced while non-performing stores are being closed.
Certain structural and management changes have been made in the Group's Russian
operations (including the establishment of a separate franchise department and
the recruitment of the new experienced general manager) to implement the
selected strategy.

Own stores by concept

| Market | Milavitsa | Oblicie | Lauma | Total | Sales area, |
| | stores | stores | Lingerie | | sq m |
| | | | stores | | |
| Belarus | 38 | 0 | 0 | 38 | 3,411 |
| Russia | 19 | 2 | 0 | 21 | 1,754 |
| Latvia | 0 | 0 | 5 | 5 | 358 |
| Total | 57 | 2 | 5 | 64 | 5,523 |

Discontinued operations

Discontinued operations' results include operations of PTA (apparel business
line) for 6 months' period ended 30 June 2009. 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 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 has improved significantly.

The total volume of production in SP ZAO Milavitsa amounted to 14,303 thousand
pieces in 2009, representing a 24.3% decrease as compared to the previous year.
The total production volumes in Lauma Lingerie amounted to 660 thousand pieces
in 2009, showing a decrease of 65.3% as compared to the 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 were the major
source for the production output decrease. However, at the end of 2009 the
number of cooperation partners for outsourced production in Q4 2009 increased by
30% compared to Q3 2009 with majority of new contracts concluded in late
December 2009 in order to prepare for the increased production volumes in 2010.

In respect of logistics, the implementation of a supply chain management system
on the basis of IFS software application is in process is planned to be
finalised in H1 2010.

Capital investments

In 2009, the Group's investments in continuing operations totalled EEK 22,750
thousand with investments into retail amounting to EEK 6,478 thousand. Other
investments were made in equipment and facilities to maintain effective


At the end of December 2009, the Group employed 3,164 employees including 472 in
retail and 1,992 in production. The rest were employed in wholesale,
administration and support operations. The average number of employees in 2009
was 3,085.

Total salaries and wages in 2009 amounted to EEK 263,426 thousand. The
remuneration of the members of the Management Board totalled EEK 10,092
thousand. The members of the Management Board also serve as executives for the
Group's subsidiaries.

Outlook for 2010

The Group's overall strategy focuses on organic growth in 2010, improved
logistics, and strengthening its franchising model. For 2010 management expects
the first stage of recovery in major export markets and slight growth in
consumer demand. 2010 Group's goals are based on upper single-digit growth for
the major export markets. Management does not forecast any substantial
devaluation of local currencies in major export markets against USD and Euro
that would result in lowering purchasing power, particularly for imported goods,
and shrinking of consumer goods consumption.

To achieve organic growth in 2010 the Group is planning further development of
its retail and wholesale operations. Improvement of logistics and the upgrade of
the franchising model are two core activities to focus on in 2010. Logistics is
currently being restructured to address the growing retail demand for
customized, low-quantity shipments and shortened lead-time. In franchising the
key point is to motivate, firstly, the existing partners to grow in depth by
adding new shops in the region and raising efficiency of retail operations and,
secondly, potential partners in new geographical areas where the Group's shops
are not yet present.

In retail, the main focus for 2010 will be on the franchising partners' retail
networks, i.e. Milavitsa branded stores in Russia, Ukraine and other CIS
countries. Newly developed franchising policies and standards are currently
being implemented by the partners including logistics, pricing, retailing
principles, IT support, and HR policies with close monitoring and support from
the Group. The Group's own retail network will be limited to the home market of
the Group's largest subsidiary, Milavitsa - Belarus - where the Group currently
operates 38 own stores and Latvia market. The target for the Group's own retail
is to continue increasing efficiency of retail operations and adding up 8-10
outlets per annum in 2010. The goal is to maintain the current level of sales
per square meter with moderate expansion and investments into new stores. In
Russia, the Group will complete the restructuring of own retail operations
whereby own shops will be fully transferred to franchising partners in the
regions in H1 2010.

The Group will continue supporting its franchising model by enhancing brand
awareness and recognition, supplementing collections, and performing consumer
campaigns and other marketing measures for all the markets. For all own shops in
Belarus and partners' stores in other countries the Group will launch IT support
system enhancing supply chain management and stock planning for the wholesalers
and the shops.

In wholesale, the main focus for 2010 will be on upgrading existing wholesale
network, strengthening relationships with existing dealers, exploring new
markets and new product niches, and improving planning and logistics for
wholesale distribution. Upgrading existing distribution network calls for new
wholesale policies including pricing, special events, new collections'
presentations, as well as better collection and analysis of orders. The Group
plans to restructure its planning principles and calendar to assist dealers in
placing more precise orders by reducing the lead-time from order to actual
shipment. The Group plans to work on raising existing dealers' loyalty to the
Group and its products via closer communication with partners, offering
competitive terms and conditions, providing marketing and PR support, organizing
round-table conferences with key accounts on a quarterly basis. For the
geographical expansure, the Group will work to insure a uniform penetration
ratio in all markets. New planning and logistics procedures are intended to
clearly reflect the difference between classic and fashion collections offerings
and are aimed at shortening lead-time, allowing wholesale partners to prepare
more detailed and precise forecasts.

In 2009 the Group performed major restructurings of the loss making apparel and
lingerie retail operations. Restructuring of Russian operations will be
finalized in H1 2010. As the result, the Group's operations are expected to
generate positive cash flows and strong basis for the profitability in 2010 have
been created.

In general, in 2010 the Group aims at raising efficiency of the existing
operations, upgrading logistics, finalization of restructuring of Russian
operations and strengthening its franchising model and polishing brands.

Selected financial data

The Group's operating results are summarised in the following figures and

| Key figures and ratios | 2009 | 2008 | Change |
| Net sales from continuing | 1,158,537 | 1,580,383 | -421,846 |
| operations (EUR thousand) | | | |
| Net profit from continuing | -2,582 | -111,091 | 108,509 |
| operations, attributable to the | | | |
| owners of the company (EUR | | | |
| thousand) | | | |
| Earnings before interest, taxes | 94,693 | 93,175 | 1,518 |
| and depreciation (EBITDA) from | | | |
| continuing operations (EUR | | | |
| thousand) | | | |
| Earnings before interest and | 60,443 | 51,649 | 8,794 |
| taxes (EBIT) from continuing | | | |
| operations (EUR thousand) | | | |
| Operating margin from continuing | 5.2% | 3.3% | - |
| operations, % | | | |
| Net margin from continuing | -0.2% | -7.0% | - |
| operations attributable to the | | | |
| owners of the company, % | | | |
| ROA, % | -3.8% | -10.4% | - |
| ROE, % | -6.8% | -17.3% | - |
| Earnings per share (EPS), in EUR | -0.97 | -2.97 | - |
| Current ratio | 2.8 | 2.1 | - |
| Quick ratio | 1.6 | 1.1 | - |

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 the owners of the company/ sales revenue
ROA (return on assets) = net profit attributable to the owners of the company/
average total assets
ROE (return on equity) = net profit attributable to the owners of the company/
average equity attributable to equity holders of the parent
EPS (earnings per share) = net profit attributable to the owners of the company/
weighted average number of ordinary shares
Current ratio = current assets / current liabilities
Quick ratio = (current assets - inventories) / current liabilities

Consolidated statement of financial position

As of 31 December

| In thousands of EEK | 2009 | 2008 |
| ASSETS | | |
| Non-current assets | | |
| Property, plant and equipment | 168,248 | 293,530 |
| Intangible assets | 8,919 | 16,085 |
| Investment property | 20,090 | 23,141 |
| Investments in equity accounted investees | 2,175 | 2,879 |
| Available-for-sale financial assets | 5,664 | 8,716 |
| Deferred tax asset | 18,119 | 0 |
| Other receivables | 9,920 | 26,051 |
| Total non-current assets | 233,135 | 370,402 |
| Current assets | | |
| Inventories | 266,289 | 434,412 |
| Corporate income tax asset | 7,260 | 15,115 |
| Other tax receivable | 22,875 | 42,574 |
| Trade receivables | 131,618 | 168,013 |
| Other receivables | 18,260 | 46,658 |
| Prepayments | 9,529 | 49,209 |
| Cash and cash equivalents | 153,931 | 82,129 |
| Assets classified as held for sale | 7,526 | 0 |
| Total current assets | 617,288 | 838,110 |
| TOTAL ASSETS | 850,423 | 1,208,512 |
| Equity | | |
| Share capital at par value | 400,000 | 400,000 |
| Share premium | 223,293 | 223,293 |
| Own shares | -7,041 | -7,041 |
| Statutory capital reserve | 1,046 | 1,046 |
| Translation reserve | -186,539 | -58,086 |
| Retained earnings | 59,097 | 82,035 |
| Total equity attributable to equity holders of | 489,856 | 641,247 |
| the parent | | |
| Non-controlling interest | 136,141 | 141,977 |
| Total equity | 625,997 | 783,224 |
| Non-current liabilities | | |
| Loans and borrowings | 4,052 | 18,197 |
| Deferred tax liabilities | 0 | 203 |
| Other liabilities | 1,455 | 1,312 |
| Provisions | 0 | 125 |
| Total non-current liabilities | 5,507 | 19,837 |
| Current liabilities | | |
| Loans and borrowings | 24,190 | 116,254 |
| Trade payables | 123,999 | 167,951 |
| Corporate income tax payable | 3,552 | 4,006 |
| Other tax payable | 24,831 | 18,150 |
| Other payables | 14,270 | 27,584 |
| Provisions | 3,395 | 44,296 |
| Accrued expenses | 24,033 | 27,210 |
| Deferred income | 649 | 0 |
| Total current liabilities | 218,919 | 405,451 |
| Total liabilities | 224,426 | 425,288 |
| TOTAL LIABILITIES AND EQUITY | 850,423 | 1,208,512 |

Consolidated income statement

For the year ended 31 December

| In thousands of EEK | 2009 | 2008 |
| | | (re-resented*) |
| Continuing operations | | |
| Revenue

Taip pat skaitykite

DPK: Decisions of the regular meeting of shareholders dated 27.05.2013


VLN: The results of the primary placement auction of Lithuanian Government securities

VLN: VVP pirminio platinimo aukciono rezultatai

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