Annual report 2008
Ispis E-mailThe Management Board presents the financial statements for Magma d.d. (the Company) and its subsidiaries (the Group) for the year which ended on 31st December 2008. The financial statements of the Company are presented separately.
Operative and financial overview
During the third quarter, for the first time the Group presented the new chain of stores of products for decorating and furnishing homes called Magma home. Today Magma home operates on 15 locations on a total of 5.000m2 and already participated in the turnover structure for 2008 with more than 2% on the annual level. If we look at the second half of the year only, when this chain entered the market, then it is visible that it participated in the total retail turnover structure with 5%. In such complex and difficult conditions in the market, the Group realised a total consolidated turnover of 995.9 M HRK, which is a growth of 20.45% in relation to turnover achieved in 2007. The Group realised a loss of 89.8 M HRK, which is mostly the consequence of reservation for the future periods in the amount of 27.8 M HRK (due to expected cost of restructuring, reducing the value of stock and non-realised exchange rate differences on December 31st 2008, primarily for claims within the Group).
Capital investment in 2008 amounted to 111.5 M HRK while the planned amount of capital investment for 2009 is 17 M HRK. The cost of financing grew by 12.8 M HRK (by 84.1% in relation to 2007) due to increased need to finance capital investment and the growth of interest rates.
If we analyse sales results in divisions, it is visible that the most important effects of the purchasing power decline were visible through reduced demand and sales decline in the chain of franchise fashion stores which realised a negative trend of -17.33% in Like to like comparison and the loss of margin in the amount of 35 M HRK. These stores are primarily focused on customers of medium purchasing power whose consumer habits have been altered in conditions of reduced home budgets in favour of the brands of more acceptable prices.
In these conditions, the Group’s own brands realised growth rates above expectations (Urban Republic +50%, Coconut +55%, North Spirit +69%, Sport fashion and Kids fashion Magma brands +50%) but their growth was not enough to compensate for the losses realised in the chain of franchise fashion stores.
For that reason, the Group has carried out the first part of restructuring retail network during 2008, where content was changed in 15 stores, 4 stores were closed, and 18 new stores were opened. The whole restructuring process is carried out in the way that the content of the stores is changed in favour of those fashion brands which achieve better results, enable growth and opening of new workplaces since they are more adjusted to the existing preferences of customers. Negative result is also the consequence of a series of additional costs realised during 2008, primarily the costs of relocation into the new distribution centre which were in total 23 M HRK. The growth of salaries’ costs arose due to increased number of working hours engaged in logistics during implementation and adjustment to the new IT system for managing warehouse activities WAMAS. The cost of employees’ salaries grew by 123%, from 8.2 M HRK in 2007 to 18.4 M HRK in 2008.
Negative results in 2008 were realised by daughter companies in Slovenia, Hungary and Serbia, while companies in Bosnia and Herzegovina and Hong Kong operated with profit, however, their profit could not compensate for the losses realised by other companies of the Group.
High amounts of negative differences in exchange rates, caused by depreciation of national currencies, had a significant influence on the loss realised in Hungary and Serbia.
After the start of the process of restructuring and investment realised during 2008, in 2009 the Group continued undertaking a series of measures focused on increasing efficiency of business operations. Increasing the efficiency of logistics system led to optimisation of a series of business processes which resulted in reduction of the number of employees from 1.957 (December 31st, 2008) to 1.536 (February 28th, 2009) which is a reduction of 21.5%
The process of restructuring retail network has continued in 2009 and by January 31st 9 stores were closed, and the assortment will be changed in a part of the stores.
Activities focused on reduction of stock level, which started in January 2009, will be finished by June 30th 2009, which will have a positive influence on the level of working capital involved in regular business activities of the Group. Increased control and the monitoring of costs, together with other undertaken measures, create a real precondition for profit realisation in 2009.
The Board of directors will suggest to the Supervisory Board and the General Assembly the change of a date of a business year which will be different from the calendar year and will end on July 31st.
