Baltic States – CIS, Estonia, Markets and Companies

As representatives of Silvano Fashion Group inform, the 2007 operating profit result included 89.4 million kroon income from negative goodwill write-off as the result of shareholding increase in SP ZAO Milavitsa, that partly explains the decrease in profits.

In 2008, due to rapid downturn in the global economy, the group reassessed the investment priorities, and concluded that the goodwill, related to an investment in UAB Linret LT, planned in amount of 11 million kroons, and in France Style Lingerie S.A.R.L. (21.9 million kroons), would not be recovered. As the result, the total goodwill write-off in the amount of 32.9 million kroons was made to other operating expenses.

The group published its plans and forecasts regarding the year 2009. "Overall strategy entails further development of retail and wholesale operations, while at the same time taking into account the current economic crisis that has already resulted in shrinking of consumer demand, slowdown in shopping malls' traffic and limited access to financing for wholesale partners," representatives of the company said in the statement.

The enterprise is going to focus mainly on franchising partners' retail networks in retail sector, i.e. Milavitsa branded stores in Russia, Ukraine and other CIS countries.

Revised franchising policies and standards are going to be communicated to the partners, including business model (logistics, pricing, retailing principles), IT support, monitoring, and HR policies. The second important retail development objective is to enhance efficiency of the group's own retail operations in Belarus, Russia and Baltics. In Belarus, the Group operates 28 stores. Its goal is to maintain the current level of sales per square meter with moderate expansion and investments into new stores (three-five new stores in 2009). In Russia, the group will operate only lingerie stores.

The group intends to close lingerie stores with negative retail contribution and rebrand the remaining stores as Milavitsa stores in 2009. Out of the current 39 lingerie stores the management aims to close two stores in the first half of 2009, and to decide on further store closure after evaluation of 2009 first-quarter shop performance.

The group plans to stop the activity of PTA stores in Russia, that have shown low potential of becoming a sustainable apparel retail brand for Russia.

As to the Baltics, the company plans to operate PTA apparel shops (21 retail outlets), and close two under-performing lingerie stores in Lithuania, as well as rebrand most of the remaining Amadea Line retail outlets (14 stores), operated by Linret LT into Lauma Lingerie stores. Besides, the enterprise also intends to open a few franchise stores of Jockey (men underwear), and Yamamay.

Silvano Fashion Group also drafted a plan on enhancing operations of all the shops. The company plans to improve brand awareness and recognition, supplement collections, and organise consumer campaigns and other marketing events on all of the markets. For all own and partners' stores, the group will be gradually implementing IT support improving supply chain management within the system and stock planning for the stores.

Regarding the wholesale, the main focus for 2009 will be on upgrading the existing network, strengthening relationship with existing dealers, exploring new markets and new product niches, and improving planning and logistics for wholesale distribution.

As reported, the group's manufacturing entities will focus on manufacturing its own brand products. Lauma Lingerie has accomplished reorganization, downsizing its staff and shifting production to Belarus and China. The downsizing program was successfully accomplished, the total staff was reduced from 416 to 184 employees, the total cost of the downsizing was 4.5 million kroons.

The Group operates the PTA, Oblicie, Milavitsa, Lauma, Amadea and Splendo retail chains which distribute the PTA, Milavitsa, Alisee, Lauma and Laumelle brands in Estonia, Latvia, Lithuania, Russia, Belarus, Ukraine and Poland. The Group's products are also distributed through wholesale channels.