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Silvano Fashion Group: Business Model & Revenue Breakdown Analysis

Learn about the existing structure, major markets, production model & financial performance of Silvano Fashion Group in 2008. Discover key highlights and growth strategies.

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Silvano Fashion Group: Business Model & Revenue Breakdown Analysis

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  1. Silvano Fashion Group4Q 2008 Highlights www.silvanofashion.com

  2. Business model – existing structure Lingerie Apparel Milavitsa Belarus Lauma Lingerie Latvia Klementi Estonia PTA Grupp Estonia Splendo Poland KT Oy Finland Vision Latvia Gimil Belarus Linret Russia Prekyba Lithuania PTA Ukraine Junona Belarus Linret LT Lithuania TK Milavitsa Belarus Linret Russia PTA Ukraine STK Milavitsa Russia Wholesale Production Retail Holding FSL France

  3. Markets & Brands

  4. Revenue Breakdown Lingerie 83,7% Apparel 11,9% Subcontracting 4,4% Wholesales 66,5% of sales in 2008 (79,3% of lingerie) Retail 17,3% of sales in 2008 (20,7% of lingerie) Wholesales 1,0% of sales in 2008 (9,0% of clothing) Retail 10,8% of salesin 2008 (91,0% of clothing) 4,4% of sales in 2008 Top Wholesales Distributors: Branded retail outlets Top Wholesales Distributors: Branded retail outlets STK Milavitsa (Russia) TK Milavitsa (Belarus) TK Milavitsa (Ukraine) PTA 37Stores Milavitsa 33 Stores Anttila (Finland) Apranga (Lithuania) Tallinna Kaubamaja (Estonia) Oblicie 37 Stores 98,4%in wholesale in 2008 Lauma, Amadea 20 Stores 1,6%in wholesale in2008 Data as of 31.12.2008 Please note that the wholesales/retail split includes only direct retail sales of Oblicie, PTA, Splendo, Lauma, Amadea and Milavitsa stores Splendo 7 Stores 150+ Milavitsa stores owned and operated by independent distributors

  5. Wholesales Distribution Lingerie98,4%in wholesales in 2008 Apparel1,6%in wholesales in 2008 • 3 Top Wholesales Distributors in 2008: • STK Milavitsa (Russia) • TK Milavitsa (Belarus) • TK Milavitsa (Ukraine) • 3 Top Wholesales Distributors in 2008: • Anttila (Finland) • Apranga (Lithuania) • Tallinna Kaubamaja (Estonia) Major Markets Major Markets 7 7

  6. Sales by regions 2008 2007

  7. Sales by Regions (Apparel vs Lingerie)

  8. Product Brand Portfolio Milavitsa Belarus LaumaLingerie Latvia PTA Estonia Linret Russia/Lithuania Splendo Poland

  9. Lingerie Sales by Brands 2008 2007

  10. Operations

  11. Retail Network as of 31.12.2008 WITH QUICKLY GROWING OUTLET NETWORK THE IMPORTANCE OF RETAIL CHANNEL WILL GROW • 60 shopes opened/acquired in 2007 • 36 new stores opened in 2008 • 17 shops closed in 2008 • 134 shops in operations • Delays in Shopping Center openings • Retail development put on hold in Q4 • 5 directly operated Milavitsa stores in Russia (new and rebranded) Baltics Russia 13 shops 18 shops 5 shops 1 shop 4 shops 34 shops 16 shops 28 shops 7 shops 1 shop 6 shops 1 shop Poland Ukraine Belarus 150+ MILAVITSA BRANDED OUTLETS OWNED AND OPERATED BY DISTRIBUTORS – FRANCHISE PROGRAM IS BEING LAUNCHED

  12. Retail Brand Portfolio TK Milavitsa Belarus LaumaLingerie Latvia PTA Baltics/Ukraine Linret Russia/Lithuania Splendo Poland

  13. Production Model OWN PRODUCTION FACILITIES ALLOW FOR FASTER RESPONSE TO CHANGING CUSTOMER DEMAND LINGERIE APPAREL Apparel factory in Tallin, Estonia Own production 34% Own production 31% Outsourced 66% Outsourced 69% Lingerie factory in Liepaja, Latvia Lingerie factory in Minsk, Belarus 16 sourcing partners 2 sourcing partners in Ukraine WHILE MAINTAINING OWN PRODUCTION FACILITIES SHARE OF OUTSOURCING WILL BE INCREASING

  14. Personnel 2008 2007

  15. Financials & Business Development

  16. 2008 Key Performance Indicators * Normalized results by the adjustments described on slide 21

  17. Q4 and 2008 Financial Performance Consolidated P&L * Normalized results by the adjustments described on slide 21 19 19

  18. 2008 Financial Performance • EUR 108.3 million consolidated net sales, 9.8% increase compared to 2007 • Significant growth of retail sales to reach 28.1% from total sales, compared to 18.1% in 2007 • 11.9% apparel sales proportion in total sales up from 10.1% in 2007 • Gross margin improved from 43.5% in 2007 to 43.9% in 2008 • The margin improvement was mainly driven by the growth in retail sales • One-off write-offs in Q4 2008 amounted to EUR 5.3 million. Normalized EBITDA EUR 11.4 million excluding one-offs • EUR 3.9 million net loss from foreign exchange (EUR 0.3 million gain in 2007) • partially generated by intercompany trading and borrowing balances within the Group denominated in EUR currency • Average BYR/EUR rate in 2008 was 3134,80 as compared to 2937,06 in 2007 • Average RUR/EUR rate in 2008 was 36,45 as compared to 35,03 in 2007 • EUR 7.6 million total net loss of the Group • 163.6% decline compared to 2007 • net margin equalled -7.0% (12.1% in 2007) • Negative 17.3% ROE • Down from 31.5% in 2007 • ROA was -10.4% • Down from 19.7% in 2007 • Deterioration of ROA partially caused by increase in working capital, mainly increase in inventories and trade accounts receivable

  19. One-off expenses in 2008 • Russian retail restructuring • In Q4 2008 it management decided that all PTA stores in Russia and selected Oblicie stores should be closed in 1H 2009 based on performance up to date and due to deteriorating market situation. A loss related to Russian retail operations restructuring was estimated in the approximate amount of EUR 2.1 million and was recognized in other operating expenses in the amount of EUR 1.9 million and EUR 0.2 million in COGS • Splendo disposal • In Q4 the Group negotiated a share purchase agreement for the sale of all its shares (90% of the share capital) in Splendo Polska Sp. z o.o., a Polish retail subsidiary. Transaction was expected to generate a loss of approximately EUR 1.2 million taking into account the Group’s total investment in Splendo. The amount was fully provided as other operating expenses in 2008 • Goodwill impaired • Goodwill in the amount of EUR 2.1 million was assessed to be impairied and write-off recorded in other operating expenses

  20. Balance Sheet • EUR 77.2 million consolidated assets at 31 December 2008 • Up from EUR 69.6 million at 31 December 2007 • EUR 0.6 million increase in trade receivables in 2008. • EUR 6.2 million increase in inventory to reach EUR 27.8 million at 31/12/2008 • The growth in inventory was driven primarily by slowdown in customer consumption 4Q 2008 and also due to the expansion of the retail network • Property, plant and intangibles increased by EUR 2.2 million. • Current liabilities increased by EUR 12.2 million • mainly due to increase in loans and borrowings • Equity attributable to equity holders decreased by EUR 5.9 million to EUR 41.0 million

  21. Income Statement – Retail and Wholesales

  22. Income Statement – Lingerie and Apparel

  23. Marginsin 2008 Revenue, EBITDA, Net Profit (€ ‘000) EBITDA, Net Profit Margin (%) -7,0 p.p. 9,9% -11,0 p.p. 25 25

  24. Margins in Q4 2008 Revenue, EBITDA, Net Profit (€ ‘000) Revenue, EBITDA, Net Profit (%) -21,7 p.p. -42,5 p.p. -20,0% 26 26

  25. Anti-Crisis Steps Implemented in Q4 • Focus on the lingerie business • Product matrix reconsidered to reduce the number of articles • Most expensive, slow moving models terminated • New launches reduced • Cost-cutting procedures • Ukrainian wholesales channel restructured • Termination of the Polish operations • Construction of logistics terminal in Belarus put on hold • Payment terms to be extended for customers • Price decrease to be considered • Moratorium on price increase with suppliers, extended payment terms, push for lower prices

  26. Retail Expansion Reconsidered • 17 underperforming shops closed • Limited number of lingerie shops to be opened in 2009 • All PTA stores in Russia to be closed in 1H 2009 • Selected Oblicie stores to be closed in 1H 2009 • Focus on franchising • Entry-level Milavitsa shop concept to be introduced for franchising • Oblicie shops to be rebranded into Milavitsa • SFG opened the first directly operated Milavitsa shop in Russia • To capitalize on brand awareness and extend business opportunities • To polish existing franchised model • 150+ Milavitsa stores in 11 countries • 5 Milavitsa directly operated stores in Russia by the end of the year • 4 new, 1 re-branded • The first Jockey store opened in Vilnius • Under franchising agreement with Jockey Intl • One store in Kaunas to be rebranded to Jockey

  27. Share Buyback Programme • The extraordinary general meeting of shareholders of SFG held on 6 October 2008 authorised the buyback of SFG’s own shares under the following conditions: • SFG is entitled to buy back its own shares within one year of the resolution of the general meeting of the shareholders, • the total nominal value of own shares to be bought back by SFG may not exceed 10% of total share capital of SFG, the maximum price payable by SFG for one share will be EUR 3.50, • the maximum amount payable by SFG for its own shares is EUR 3,000,000, • own shares will be paid for with assets exceeding the share capital, compulsory reserves and share premium. • To date, the amount of shares bought back is 393,000, the average price per share was 1.15 EUR and total cost amounted to 450,106 EUR. • After the transactions above, SFG owns 393,000 of its own shares, which constitute 0.9825% of the share capital. • Under the buyback program, shares up to the maximum value of 2,547,032 million Euros remain to be bought back. The maximum amount of shares that remains to be bought back is 3,607,000.

  28. Sale of the Polish Subsidiary • In Q4 the Group negotiated a share purchase agreement for the sale of all its shares (90% of the share capital) in Splendo Polska Sp. z o.o., a Polish retail subsidiary • transaction was signed in Q1 2009 • Transaction to generate a loss of approximately EUR 1.2 million taking into account the Group’s total investment in Splendo • The amount was fully provided as other operating expenses in 2008 • The sale of loss-making subsidiary will end cash outflows to Polish operations • Net loss of Splendo Polska Sp. z.o.o. amounted to EUR 0.9 million in 2008 • Splendo to be acquired by a local wholesale partner of the Group • Splendo retail outlets will continue their business after being rebranded as “Milavitsa” franchise stores

  29. For further information please contact Baiba.Gegere@silvanofashion.com www.silvanofashion.com

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