Silbon and Álvaro Moreno · 2020. 10. 9. · Silbon is planning to partner with Amazon and El...

4A ADE Bilingüe

Silbon and Álvaro Moreno

Student: Carlos León Barbadillo

Tutor: Mariano Lasarte López

Presentation Date: 05/05/2020

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INDEX 1. REASON, PURPOSE AND METHODOLOGY OF THE COMPARISON

BETWEEN SILBON AND ÁLVARO MORENO ............................................ 3

2. DESCRIPTION OF THE CLOTHING INDUSTRY ....................................... 3

3. INFORMATION ABOUT THE TWO COMPANIES ...................................... 5

3.1. INFORMATION ABOUT SILBON .......................................................... 5

3.1.1. History ............................................................................................ 5

3.1.2. Evolution ......................................................................................... 5

3.1.3. Future perspectives ........................................................................ 6

3.2. INFORMATION ABOUT ÁLVARO MORENO ....................................... 6

3.2.1. History ............................................................................................ 6

3.2.2. Evolution ......................................................................................... 6

3.2.3. Future perspectives ........................................................................ 6

4. BALANCE SHEET ANALYSIS ..................................................................... 7

4.1. SILBON ................................................................................................. 7

4.1.1. Asset Accounts ............................................................................... 7

4.1.2. Stockholders’ Equity Accounts ..................................................... 10

4.1.3. Liabilities Accounts ....................................................................... 12

4.2. ÁLVARO MORENO............................................................................. 14

4.2.1. Asset Accounts ............................................................................. 14

4.2.2. Stockholders’ Equity Accounts ..................................................... 17

4.2.3. Liabilities Accounts ....................................................................... 19

4.3. COMPARISON .................................................................................... 21

5. PROFIT AND LOSS ANALYSIS ................................................................ 26

5.1. SILBON ............................................................................................... 26

5.2. ÁLVARO MORENO............................................................................. 30

5.3. COMPARISON .................................................................................... 34

6. RATIOS’ ANALYSIS .................................................................................. 39

6.1. LIQUIDITY RATIOS ............................................................................ 39

6.2. LEVERAGE FINANCIAL RATIOS ....................................................... 41

6.3. EFFICIENCY RATIOS ......................................................................... 44

6.4. PROFITABILITY RATIOS ................................................................... 46

6.5. MARKET VALUE RATIOS .................................................................. 50

7. CONCLUSION ........................................................................................... 51

7.1. GENERAL CONCLUSIONS ................................................................ 51

7.2. SPECIFIC CONCLUSIONS ................................................................ 52

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7.2.1. Silbon ............................................................................................ 52

7.2.2. Álvaro Moreno .............................................................................. 53

8. BIBLIOGRAPHY ........................................................................................ 55

9. FIGURE INDEX ......................................................................................... 57

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1. REASON, PURPOSE AND METHODOLOGY OF THE COMPARISON BETWEEN SILBON AND ÁLVARO MORENO

Silbon and Álvaro Moreno have made themselves a name in the clothing industry because they capture the essence of classic men’s style, but with an innovative approach, which adapts the more traditional style to today’s trends. Their clothes are not just made to be worn on special occasions. More and more people are modelling them every day, especially youngsters and children. This helps to develop brand loyalty, as it is a style which children and teenagers can continue to identify themselves with later on.

The purpose of this paper is to analyse the evolution of these two Spanish businesses, which are very interesting from an accounting point of view, since Silbon has been growing at a stable rate throughout its eleven years of existence and seeks security without taking too much risk. Meanwhile, Álvaro Moreno has grown considerably, greatly as a result of its increasing popularity due to its classic designs and low prices. Therefore, it is interesting to compare a company which has increased its potential at a slower rate - yet with very positive results, with a company which has remained somewhat unknown in the past few years and is now one of the reference brands in Spanish clothing. Both have a very similar style, focusing on classic men’s style clothing, and also children’s, at reasonable prices and being appealing to people of all ages, especially younger people.

The methodology to be used relates to the last three accounting years: 2018, 2017 and 2016. Furthermore, not only will there be an analysis of their balance sheets and profit and loss statements, but also a calculation of the relevant ratios. This will provide a clear view of how positively or negatively they have been performing, and lead to some suggestions which could help them improve their results.

2. DESCRIPTION OF THE CLOTHING INDUSTRY

Nowadays, young people are becoming increasingly aware of their physical appearance and the way they portray themselves: their hairstyle, the clothes they wear and the overall image that people perceive of them. This induces them to seek their own style, which must fit their values, how they can feel comfortable and the way they want people to see them.

In this case, Silbon and Álvaro Moreno, as well as other brands such as El Ganso, Massimo Dutti or Scalpers, have contributed to help craft this personal image and style. While many prefer a more classic style, an original and perhaps more modern twist helps differentiate the clothes and, in turn, also those who wear them. This is represented by one of El Ganso’s values: “Dressy but messy”, meaning dressed up but with an informal touch. Reflecting this value, Álvaro

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Moreno differentiates itself from other brands by mixing two or three colours in one same item of clothing, instantly catching the consumer’s attention and turning a classic item into a more unique piece.

The clothing industry has experienced significant growth in the last few years, representing 2,9% of Spain’s GDP in 20191. People see what they wear as a way to express themselves and the options available to achieve this are nowadays ever-ranging. One century ago, the vast majority of people would be dressed in the same style or very similarly, yet consumers now seek individuality. People not only want to look different, but they also want to feel it, and almost become someone capable of establishing a particular trend.

The clothing sector offers clothes for all kinds of tastes, from classic and formal to informal, or active wear. Brands design, produce and sell every single day and continue to do so by following not only trends, but also their unique style, which will suit a determined segment of potential consumers. Although a great number of this type of companies manufacture their products in Asian countries because of the low production costs, both Silbon’s and Álvaro Moreno’s products are made in Spain, which is one of the reasons why they have been chosen for this coursework, as some may consider this to be atypical.

According to the CNAE (Clasificación Nacional de Actividades Económicas), Silbon is positioned 123rd in the ranking of the sector with large billing and it is still increasing. Meanwhile, Álvaro Moreno is ranked 27th with corporate billing. To have a better idea of how similar companies are ranked, Zara is number one with 2.049.295.283 € of billing and Scalpers is number 21 with 55.469.242 € of billing.

1 (2019) Sectorial report of the Spanish economy, Spanish Export Credit Agency (CESCE] [https://issuu.com/cesce.es/docs/informe_sectorial_cesce_2019]

https://issuu.com/cesce.es/docs/informe_sectorial_cesce_2019

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Figure 2.1. Spanish Retail trade of clothing in specialised establishments sector ranking showing Álvaro Moreno’s and Silbon’s position2

3. INFORMATION ABOUT THE TWO COMPANIES

3.1. INFORMATION ABOUT SILBON

3.1.1. History

Silbon started in Córdoba (Andalucía, Spain) in 2009 and was founded by Pablo López (CEO) and Rafael Díaz (co-founder), when it sold its first collection of thirty British style jackets, having made an initial investment of €3,000. After that, in September 2010, it opened its first retail store in the same city, being the founders themselves who would help clients in store.

Having initially tried two different logos, first a Silbón duck (Eurasian wigeon) and afterwards the letters “SB”, it switched to two crossed tennis rackets, which has remained its characteristic symbol. Although at the beginning it focused on a British style, it decided to evolve and adapt its clothes not only to businessmen, but also to men who wanted to dress nicely but differently to what other brands had to offer.

3.1.2. Evolution

In 2011, it opened their online store and a retail store in Tenerife (Canary Islands) thanks to its ambition and the success of previous marketing campaigns. In 2012, it arrived in Madrid, where it now has two shops and a corner shop in El Corte Inglés of Nuevos Ministerios. Afterwards, in 2013, Silbon landed in Barcelona. The year 2015 meant a great advance, as it opened six retail stores and its logistic centre in Córdoba, as well as introduced its Corporate Social Responsibility (CSR) plan. Moreover, in 2017 it opened yet another five stores and achieved €1,000,000 in online sales. Going international, in 2018 it opened a store in Paris, as well as its flagship centre in Córdoba. Last year, in 2019, it opened one more store and several corner shops in different El Corte Inglés stores across Spain, and online sales amounted to 25% of its total sales.

2 Spanish Retail trade of clothing in specialised establishments sector ranking (elEconomista.es) [https://ranking-empresas.eleconomista.es/SILBON-CLASICO.html & https://ranking-empresas.eleconomista.es/ALVARO-MORENO.html?_ga=2.167778791.75724070.1587728434-117454686.1580828060#ranking-sectorial-empresas]

https://ranking-empresas.eleconomista.es/SILBON-CLASICO.html

https://ranking-empresas.eleconomista.es/ALVARO-MORENO.html?_ga=2.167778791.75724070.1587728434-117454686.1580828060#ranking-sectorial-empresas




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3.1.3. Future perspectives

Silbon is planning to partner with Amazon and El Corte Inglés with the aim of expanding its online presence and growing more than 50% in this field.

3.2. INFORMATION ABOUT ÁLVARO MORENO

3.2.1. History

Álvaro Moreno started working in his father’s clothing store, Vilymoda, at the age of thirteen, where he learned everything about this type of business and the dedication it requires. Several years later, in 2005, he decided to start his own company, naming it after himself. He defines its style as: “modern, but also classic, daring in some products” 3.

He started selling both men’s and women’s clothes but, after noticing the larger sales volumes of men’s clothing, he decided to focus more on these. For many years he manufactured only classic men’s clothes, however he decided to bid for younger styles too, as well as a kid’s clothing line, which was launched in 2018. Up until 2019, the company had been manufacturing in Spain, Portugal, Italy and China; but now all this work is done in Osuna (Seville), where Moreno is originally from.

3.2.2. Evolution

As previously mentioned, Álvaro Moreno has evolved in terms of clothes manufacturing and style, yet also from an expansion point of view. Aside from its retail stores, it has four corner shops in El Corte Inglés stores in Madrid, Seville, Córdoba and Valladolid. Currently, it has forty-six stores and this number is due to increase.

Another aspect worth noting, which has played a key role in sales, is e-commerce. In order to promote it, Álvaro Moreno uploads new clothes every ten days and advertises them on social media.

3.2.3. Future perspectives

The brand is planning to expand internationally by opening two stores in Portugal very soon: one in Lisbon and another one in Porto. Additionally, Álvaro Moreno wants to reach one hundred retail stores by 2023.

3 Pereira, M.J. (2018): Álvaro Moreno, empresario de moda: «Empecé trabajando con 13 años en la tienda de mi padre» (ABCdesevilla) [https://sevilla.abc.es/sevilla/sevi-alvaro-moreno-empresario-moda-empece-trabajando-13-anos-tienda-padre-201811090727_noticia.html]

https://sevilla.abc.es/sevilla/sevi-alvaro-moreno-empresario-moda-empece-trabajando-13-anos-tienda-padre-201811090727_noticia.html


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4. BALANCE SHEET ANALYSIS

4.1. SILBON

4.1.1. Asset Accounts

Figure 4.1.1.1. Silbon’s Asset accounts table. Source: own elaboration

In terms of Assets, both Non-Current and Current Assets have increased in the past three financial years, mostly from 2017 to 2018, when there was an increase of €948.999,00. This was mainly due to the increase in Non-Current Assets, which will be analysed in more depth in the following paragraphs.

Intangible assets are valued according to their acquisition price, taking into account their useful life and the possible losses that their deterioration may entail. From 2016 to 2017, there was an increase of €14.222,59, meaning that there were more expenditures on patents and technology, which is what this account relates to. Later on, from 2017 to 2018, there was an increase of €26.885,00, which is nearly double that of the previous year, although this makes sense, keeping in mind that during the last year the company released its Kids and Cycling collections.

Property, plant and equipment has suffered an increase too, since Silbon has continued opening stores, more precisely five in 2017, and in 2018 its flagship store in Córdoba and a retail store in Paris. Hence, both differences, €34.455,02 between 2016 and 2017, and €164.934,00 between 2017 and 2018, are justified. Furthermore, cash is destined for the following purposes in this case: buildings,

2018 2017 2016

ASSETS

A) NON-CURRENT ASSETS 1.832.574,00 1.172.933,00 1.116.327,13

I. Intangible assets 65.273,00 38.388,00 24.165,41

II. Property, plant and equipment 250.447,00 85.513,00 51.057,98

III. Real estate investments

IV. Long-term investments in group companies and associates 1.495.166,00 1.041.331,00 1.032.008,37

V. Long-term financial investments 21.688,00 7.700,00 9.095,37

VI. Deferred tax assets

VII. Non-current commercial debtors

B) CURRENT ASSETS 1.789.851,00 1.500.493,00 1.052.312,73

I. Non-current assets held for sale

II. Stocks 820.461,00 216.718,00 125.416,00

III. Trade and other receivables 425.522,00 662.397,00 555.372,17

1. Sales and service customers 424.588,00 662.397,00 555.372,17

a) Long-term sales and service customers

b) Short-term sales and service customers 424.588,00 662.397,00 555.372,17

2. Shareholders (partners) for required disbursements

3. Other debtors 934,00

IV. Short-term investments in group and associated companies 35.597,00 115.452,00 131.036,25

V. Short-term financial investments 75.547,00 25.319,00 25.018,70

VI. Short-Term Accruals

VII. Cash and cash equivalents 432.724,00 480.607,00 215.469,61

TOTAL ASSETS (A + B) 3.622.425,00 2.673.426,00 2.168.639,86

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technical facilities, other facilities, furniture, equipment for information processes and conveying elements.

Long-term investments in group companies and associates’ value is measured by accumulated depreciation costs, and stockholders’ equity from other subsidiaries is also taken into consideration. These other group companies are: Silbon Málaga, Silbon Pontezuelas 29 SL, Silbon G5 CLASIC S.L., Silbon Málaga S.L., Silbon Pontezuelas 29 S.L., Silbon Velázquez XIII S.L., Silbon Jaen S.L., SilJerez S.L., SilZarabon Textil S.L., Silbon Bilbao S.L., and Silbon France S.A.R.L. (established in 2018). From 2016 to 2017, there was an increase of only €9.322,63, which is quite low in comparison to the following year’s €453.835,00. However, this may be explained by Silbon’s investment of €250.000,00 in its French subsidiary and of €157.000,00 in the retail store in Bilbao.

Observing the Long-term financial investments account, it seems that Silbon has not prioritised these very much, with a decrease of €-1.395,37 between 2016 and 2017, and an increase of €13.988,00 from 2017 to 2018. It registers guarantees given for rental contracts in which its acts as a tenant.

Figure 4.1.1.2. Silbon’s Asset accounts graph. Source: own elaboration

Current Assets have continued to increase, although the most notable growth took place between 2016 and 2017 with €448.180,27 in comparison to the following year’s increase of €289.358,00; mostly due to decreases in Trade and other receivables and in Short-term investments in group and associated companies.

Stocks have increased at a gigantic pace, since in the first two years (being analysed) there was an increase of €91.302,00 focused only in commercials. Meanwhile, between 2017 and 2018 the increase of €603.743,00 was due to

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2018 2017 2016

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three payments: commercials, raw materials and other supplies, and advances to suppliers.

As previously mentioned, Trade and other receivables have suffered significant variations. First, it increased by €107.024,83 and afterwards it decreased by more than double with €-236.875,00. However, the explanation is that there were more expenses, as in 2018 it paid: customers for sales and services, clients, group companies and associates, personnel, and credits with public administrations; although the last two were not included in 2017.

Short-term investments in group and associated companies corresponds to the current accounts with group companies, and such account has done nothing but decrease; €-15.584,25 from 2016 to 2017 and €-79.855,00 from 2017 to 2018, while Short-term financial investments have increased. These have grown thanks to a fixed-term deposit of €50.000,00 with a financial entity, which explains the difference between 2017 and 2018.

Cash and cash equivalents has also displayed considerable changes, as it firstly increased by €265.137,39 from 2016 to 2017, however it stopped growing and went down by €-47.883,00 the next year; meaning that the company lost some liquidity.

The graph provides a visual outlook of the accounts relating to both types of Assets, which have greater figures. With regard to Non-Current Assets, the greatest investment consists of Long-term investments in group companies and associates, which are in fact its retail stores, through which it achieves its main source of income. Similarly, with respect to Property, plant and equipment, it is mainly focused on its new logistic centre, where most of the production takes place and from which it sends online orders. On the Current Assets side, Stocks represent the greatest figure over the last year due to Silbon’s expansion, which required it to increase the availability of products to be sold. With respect to Trade and other receivables, and Cash and cash equivalents, both have similar effects, 2017 being its most meaningful year. Its decrease in 2018 could be explained by the previously mentioned expansion, as it used part of that liquidity in order to facilitate the company’s growth.

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4.1.2. Stockholders’ Equity Accounts

Figure 4.1.2.1. Silbon’s Stokholders’ Equity accounts table. Source: own elaboration

Stockholders’ Equity has grown in these last three years: €56.794,65 in the first two and €185.013,00 from 2017 to 2018. This triple increase may result from Silbon’s expansion in 2018, through its presence in Paris, at El Corte Inglés, the flagship store, etc.

Each year there are €3.920,00 in Cash because all 392 shares of €10,00 each are divided between Pablo López Carmona (CEO), Rafael Díaz Flores (co-founder) and Juan Jurado Ávalos (company secretary) in the following subsidiaries: Silbon Velázquez XIII, S.L., Silbon Pontezuelas, S.L. and G5 SB Classic, S.L.

The Share Premium is also the same quantity since 2016, when they reached an agreement for a share capital increase of €941.472,00, €820,00 of which were destined to Cash.

The increase in Reserves is related to the profit, as it is a percentage of the result of the year, meaning that the company has improved year on year, with an increment of €51.418,60 from 2016 to 2017 and of €56.794,00 the following year, which is a stable growth.

The result of the year will be explained in depth in the Profit and Loss Analysis.

As can be observed in the graph below, the main source of Equity is the Share premium which, as already explained, is a constant amount every year; hence, it is interesting to see how the Result for the year has never been the greatest source of income, but in fact cash from shares. Nevertheless, this may denote

2018 2017 2016

STOCKHOLDERS' EQUITY AND LIABILITIES

A) STOCKHOLDERS' EQUITY 1.363.225,00 1.178.212,00 1.121.417,35

A-1) Book equity 1.363.225,00 1.178.212,00 1.121.417,35

I. Cash 3.920,00 3.920,00 3.920,00

1. Issued cash 3.920,00 3.920,00 3.920,00

2. (Uncalled-for cash)

II. Share premium 940.652,00 940.652,00 940.651,52

III. Reserves 233.640,00 176.846,00 125.427,40

1. Cash reserves

2. Other reserves 233.640,00 176.846,00 125.427,40

IV. (Shares and holdings in own assets)

V. Results of previous years

VI. Other partner contributions

VII. Result for the year 185.013,00 56.794,00 51.418,43

VIII. (Interim dividend)

IX. Other equity instruments

A-2) Adjustments for change in value

A-3) Grants, donations and legacies received

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that a high percentage of the company’s profit may go to the shareholders previously mentioned, and it is them who distribute this money in order to keep the company’s liquidity at a decent level.

Figure 4.1.2.2. Silbon’s Stockholders’ Equity graph. Source: own elaboration

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4.1.3. Liabilities Accounts

Figure 4.1.3.1. Silbon’s Liabilities accounts table. Source: own elaboration

The first thing to point out in relation to Liabilities is that while Non-current Liabilities have decreased (€-64.849,38 from 2016 to 2017 and €-20.885,00 from 2017 to 2018), Current Liabilities have increased significantly (€512.840,87 from 2016 to 2017 and €784.871,00 from 2017 to 2018), meaning that there was a reduction in costs and an increase in income.

In relation to the previous comments, Long-term debt has also dropped, €-64.849,38 between 2016 and 2017, and €-20.885,00 between 2017 and 2018. This last reduction is also due to the additional liability with Lease creditors in 2018.

2018 2017 2016

B) NON-CURRENT LIABILITIES 102.756,00 123.641,00 188.490,38

I. Long-term provisions

II. Long-term debt 102.756,00 123.641,00 188.490,38

1. Debts with credit institutions 81.984,00 123.641,00 188.490,38

2. Lease creditors 20.772,00

3. Other long-term debts

III. Long-term debts with group and associated companies

IV. Deferred tax liability

V. Long-term accruals

VI. Non-current commercial creditors

VII. Debt with special long-term characteristics

C) CURRENT LIABILITIES 2.156.444,00 1.371.573,00 858.732,13

I. Liabilities linked to non-current assets held for sale

II. Short-term provisions 27.041,00 15.166,00

III. Short term debts 496.459,00 64.859,00 58.023,55


2. Lease creditors 5.437,00

3. Other short term debts 2.094,00 5.236,30-

IV. Short-term debts to group and associated companies

V. Trade and other payables 1.632.944,00 1.291.548,00 800.708,58

1. Creditors 1.258.997,00 1.084.766,00 656.707,27

a) Long-term suppliers

b) Short-term suppliers 1.258.997,00 1.084.766,00 656.707,27

2. Other creditors 373.947,00 206.782,00 144.001,31

VI. Short-term accruals

VII. Debt with special short-term characteristics

TOTAL STOCKHOLDERS' EQUITY AND LIABILITIES (A + B + C) 3.622.425,00 2.673.426,00 2.168.639,86

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Figure 4.1.3.2. Silbon’s Liabilities accounts graph. Source: own elaboration

As Current Liabilities started to grow, its Short-term provisions had to appear at the same time, which explains the sudden inclusion and increase of these, with an injection of €15.166,00 in 2017 and an increase of €11.875,00 by 2018.

Short-term debt faced some difficulties, since in 2016 it had negative numbers in the Other Short-term debt account, meaning that interest rates were greater than the return on the investment, which can be somewhat risky. However, it was not a particularly high amount, €-5.236,30, and the following year it was reduced to a positive €2.094,00. On the other hand, the appearance of new debt to Lease creditors in 2018 contributed to the already significant increase in Short-term debt. The latter only increased by €6.835,45 between 2016 and 2017, however it rose by €431.600,00 the next year, mostly due to Debts with credit institutions.

Trade and other receivables considerably increased; €490.839,42 in the first two years and €341.396,00 by 2018, which are quite high increases, mainly caused by Short-term suppliers’ creditors. However, as the company grew, the account of Other creditors, which represents debts with employees (wages and bonuses), taxes owed to the Government and customers who have done prepayments, also grew thanks to the company’s growth in the last two years.

It is quite clear how Non-Current Liabilities have played a secondary role in comparison with Current Liabilities. The latter is much lower than the former, focused only in Long-term debt, which has diminished too, while Short-term got higher and higher. On the other hand, Trade and other payables has always been the main liability, more specifically in relation to Short-term suppliers, as they would not charge such high interest rates as banks would and are able to provide a more immediate loan.

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4.2. ÁLVARO MORENO

4.2.1. Asset Accounts 2018 2017 2016

ASSETS

A) NON-CURRENT ASSETS 2.434.030,26 1.363.539,36 1.298.222,66

I. Intangible assets 3.000,00 6.000,00 22.500,00

1. Development

2. Concessions

3. Patents, licenses, trademarks and similar

4. Goodwill

5. Computer applications

6. Research 22.500,00

7. Intellectual Property

8. Other intangible assets 3.000,00 6.000,00

II. Tangible fixed assets 2.071.252,85 1.064.113,14 1.057.816,01

1. Land and buildings 1.215.648,19 1.051.132,30 1.057.816,01

2. Technical installations and other tangible fixed assets 855.604,66 12.980,84

3. Immobilized in progress and advances

III. Real estate investments

1. Land

2. Constructions

IV. Long-term investments in group companies and associates

1. Equity instruments

2. Business loans

3. Debt securities

4. Derivatives

5. Other financial assets

6. Other investments

V. Long-term financial investments 359.777,41 293.426,22 217.906,65


2. Business loans

3. Debt securities

4. Derivatives

5. Other financial assets 359.777,41 293.426,22 217.906,65


VI. Deferred tax assets

VII. Non-current commercial debtors

B) CURRENT ASSETS 15.216.273,17 7.519.321,80 5.057.313,08

I. Non-current assets held for sale

II. Stocks 4.444.408,25 2.548.215,86 2.194.237,63

1. Commercial 4.444.408,25 2.548.215,86 2.194.237,63

2. Raw materials and other supplies

a) Raw materials and other long-term supplies

b) Raw materials and other short-term supplies

3. Products in progress

a) Long production cycle

b) Short production cycle

4. Finished products

a) Long production cycle

b) Short production cycle

5. By-products, waste and recovered materials

6. Advances to suppliers

III. Trade and other receivables 387.698,61 143.090,42 166.842,91

1. Sales and service customers 381.131,85 134.793,66 135.819,66

a) Long-term sales and service customers

b) Short-term sales and service customers 381.131,85 134.793,66 135.819,66

2. Clients group companies and associates

3. Sundry debtors

4. Staff 5.512,45 5.512,45 5.512,45

5. Current tax assets

6. Other loans to public authorities 1.054,31 2.784,31 25.510,80

7. Shareholders (partners) for required disbursements

IV. Short-term investments in group and associated companies


2. Loans to companies

3. Debt securities

4. Derivatives

5. Other financial assets


V. Short-term financial investments 4.412,85 4.412,85 4.412,85

1. Equity instruments 300,55 300,55 300,55

2. Loans to companies

3. Debt securities

4. Derivatives

5. Other financial assets 4.112,85 4.112,85 4.112,85



VII. Cash and cash equivalents 10.379.753,46 4.823.602,67 2.691.819,69

1. Treasury 10.379.753,46 4.823.602,67 2.691.819,69

2. Other equivalent liquid assets

TOTAL ASSETS (A + B) 17.650.303,43 8.882.861,16 6.355.535,74

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Figure 4.2.1.1. Álvaro Moreno’s Asset accounts table. Source: own elaboration

The most notable increase is that of the Non-Current Assets, which experienced a significant jump of €1.070.490,90 from 2017 to 2018, which is rather impressive after taking a look at the increase of just €65.316,70 between 2016 and 2017. Moreover, Current Assets have risen as well, and even more so in the last two years, by €7.696.951,37, than between the first two being analysed, which was less than double: €2.462.008,72.

With respect to Intangible assets, what first stands out is their reduction in these past three years. Firstly by €-16.500,00 between 2016 and 2017, and afterwards by just €3.000,00 from 2017 to 2018. In 2016, the €22.500,00 were destined to pay Research on patents, licenses, trademarks or similar, and IT applications. On the other hand, Álvaro Moreno spent less in the following two years, first €6.000,00 and then €3.000,00, on Other intangible assets which, according to the deposit of accounts, corresponds to the same quantity paid for patents, licenses, trademarks or similar.

Tangible fixed assets is clearly the account where one of the big increments is reflected, as between 2017 and 2018 it increased by €1.007.139,71, most of which (€842.623,82) was used for Technical installations and other tangible fixed assets, since Álvaro Moreno invested in a logistic centre, hence no longer outsourcing production to other manufacturers; all this matching with a lower amount of €164.515,89 in Land and buildings. With regard to 2016 and 2017, there is a low increase of €6.297,13, despite there being a decrease of a similar amount in Land and buildings. However, such reduction is compensated by an increase of €12.980,84 in Technical installations and other tangible fixed assets.

Figure 4.2.1.2. Álvaro Moreno’s Asset accounts graph. Source: own elaboration

-

2.000.000,00

4.000.000,00

6.000.000,00

8.000.000,00

10.000.000,00

12.000.000,00

14.000.000,00

16.000.000,00

18.000.000,00

20.000.000,00

2018 2017 2016

ASSETS

ASSETS A) NON-CURRENT ASSETS I. Intangible assets

II. Tangible fixed assets V. Long-term financial investments B) CURRENT ASSETS

II. Stocks III. Trade and other receivables V. Short-term financial investments

VII. Cash and cash equivalents TOTAL ASSETS (A + B)

16

Long-term financial investments increased by lower amounts year on year: by €75.519,57 from 2016 to 2017 and by €66.351,19 from 2017 to 2018. These investments were made to cover Other financial assets from Real Value assets with changes in Profit and Loss.

In terms of Current Assets, as previously mentioned, these are the ones which have increased the most. One of the major contributors to this has been Stocks, more precisely commercial ones, which have increased by €353.978,23 in the first two years to €1.896.192,39 by 2018. These are materials bought to be used directly for selling products, such as spare parts, packaging, containers and office supplies and, since Álvaro Moreno invested in the logistic centre during that same period, such quantity is justified due to all the materials and machines needed.

Trade and other receivables is one of the accounts which has suffered the most significant changes, as from 2016 to 2017 it decreased by €-23.752,49, while the following year it increased by €244.608,19. This is mainly due to an increase of €246.338,19 in the last two years in relation to Short-term sales and service customers, compared with the reduction of €-1.026,00 the previous year. Furthermore, Staff costs have remained stable as an ongoing expense with no variation. Lastly, a continuous decrease in Other loans to public authorities is in fact positive for the company, as less money is being owed. In this case, it went down by €-22.726,49 from 2016 to 2017 and by €-1.730,00 from 2017 to 2018.

Short-term financial investments have remained constant these last three years, and they are relatively low investments, hence constituting a very small contribution to Current Assets. Firstly, Equity instruments, with a constant investment of €300,55 from Other Real Value Assets with changes in Profit and Loss. Secondly, Other financial assets, which are Credit Derivatives and others, entail an investment of €4.112,85.

Cash and cash equivalents have been the biggest contribution to Current Assets, as the Treasury amount of the first two years being analysed, €2.131.782,98, more than doubled, reaching €5.556.150,79 between 2017 and 2018. These liquidity augmentations have resulted in a very positive impact on Álvaro Moreno, which will be reflected in Stockholders’ Equity. This cash in the Treasury account is usually accumulated and destined to Reserves, which will then be used to reduce debt.

The accounts show that Current Assets are by far higher than Non-Current Assets. In terms of the latter, Tangible fixed assets seem to be their main priority in this area, especially due to the latest acquisitions, such as the logistic centre in the last year. However, cash in this account is normally destined to cover maintenance costs and investments in new retail stores. In relation to Current Assets, these have also experienced an interesting increase, particularly in the last two years; again, due to the opening of the logistic centre, it had the potential to drastically increase stock. Linked to this, Cash and equivalents more than

17

doubled over these last two years too thanks to the even more vast number of products it could now sell, mainly thanks to the logistic centre. As previously stated, the liquidity in this cash account is usually destined to Reserves and to pay debt.

4.2.2. Stockholders’ Equity Accounts

Figure 4.2.2.1. Álvaro Moreno’s Stockholders’ Equity accounts table. Source: own elaboration

It must be noted that there is a remarkable difference in Stockholders’ Equity in these three last years: €1.890.668,14 between 2016 and 2017 is already a very high amount of cash. However, €5.258.854,20 between 2017 and 2018 completely changes the game for Álvaro Moreno. During this last year it had made the majority of its expansions until then, with Black Friday significantly contributing to Book equity.

The amount of Issued Cash is always fixed, as there has not been any variation in the number of shares, hence dividends always generate a constant benefit of €10.000,00.

Reserves have suffered slight changes, since from 2016 to 2017 they increased by €110.303,78 in terms of Other reserves, which are usually destined to avoid restrictions on share capital or the limit on legal reserves. From 2017 onwards it

2018 2017 2016

STOCKHOLDERS' EQUITY AND LIABILITIES

A) STOCKHOLDERS' EQUITY 10.038.780,04 4.779.925,84 2.889.257,70

A-1) Book equity 10.038.780,04 4.779.925,84 2.889.257,70

I. Cash 10.000,00 10.000,00 10.000,00

1. Issued cash 10.000,00 10.000,00 10.000,00

2. (Uncalled-for cash)

II. Share premium

III. Reserves 455.721,56 455.721,56 345.417,78

1. Legal and statutory 2.000,00 2.000,00 2.000,00

2. Other reserves 453.721,56 453.721,56 343.417,78

3. Revaluation reserve

4. Capitalization reserve

IV. (Shares and holdings in own assets)

V. Results of previous years 4.005.562,30 1.790.958,62 1.048.077,32

1. Remainder 4.005.562,30 1.790.958,62 1.048.077,32

2. (Negative results from previous years)

VI. Other partner contributions

VII. Result for the year 5.567.496,18 2.523.245,66 1.485.762,60

VIII. (Interim dividend)

IX. Other equity instruments

A-2) Adjustments for changes in value

I. Available-for-sale financial assets

II. Hedging operations

III. Non-current assets and related liabilities held for sale

IV. Conversion difference

V. Others

A-3) Grants, donations and legacies received

18

started to be the same quantity: €455.721,56, which will be really helpful for the company in order to pay debt. In addition, Legal and statutory reserves have always been constant with an amount of €2.000,00.

The Remainder of the Results of previous years have been positive, with a growth of €742.881,30 in the first two and of €2.214.603,68 by 2018. Although these are profitable results for the business, it has not yet decided which account it will assign these quantities to, although it is very likely that they will go to Treasury or Reserves. However, taking a look at how Álvaro Moreno has been evolving, it will most likely surely invest this cash in Reserves and use it in order to pay off debts and to reinvest, meaning expansion and higher profits for the next year, thereby reducing expenses and liabilities.

Lastly, the Result of the year has been the major contributor to these increases: €1.037.483,06 from 2016 to 2017 and €3.044.250,52 from 2017 to 2018. This will be explained in more depth in the Profit and Loss analysis.

Figure 4.2.2.2. Álvaro Moreno’s Stockholders’ Equity accounts graph. Source: own elaboration

Most of the Equity stems from the Result of the year and the Result of previous years, not excluding Reserves, which has a considerable amount too. Although the Result of the year provides the highest amount of cash, it still has to be distributed in the company. This means that the following year’s Balance Sheet will show as a Result of previous years the true quantity that has been reinvested in the company. However, after observing the evolution of these three last years, it seems highly likely that it will be an even higher amount for both accounts.

-

2.000.000,00

4.000.000,00

6.000.000,00

8.000.000,00

10.000.000,00

12.000.000,00

EQUITY

2018 2017 2016

19

4.2.3. Liabilities Accounts

Figure 4.2.3.1. Álvaro Moreno’s Liabilities accounts table. Source: own elaboration

The variation in Non-Current Liabilities has mainly taken place in the Long-term debt account and, more specifically, in Debts with credit institutions. While such liabilities have decreased by more than double, Current Liabilities have increased at a drastic rate. In this case, from 2016 to 2017, Debts with credit institutions decreased by €-59.851,28 and by a similar amount, €-48.276,51, from 2017 to 2018, which seems quite stable. Moreover, Deferred tax liability meant a very low expense of €62,50 in 2016, which had been paid in 2017.

2018 2017 2016

B) NON-CURRENT LIABILITIES 52.618,79 100.895,30 160.809,08

I. Long-term provisions

1. Long-term employee benefit obligations

2. Environmental actions

3. Provisions for restructuring

4. Other provisions

II. Long-term debt 52.618,79 100.895,30 160.809,08

1. Bonds and other negotiable securities


3. Lease creditors

4. Derivatives

5. Other financial liabilities

III. Long-term debts with group and associated companies

IV. Deferred tax liability 62,50

V. Long-term accruals

VI. Non-current commercial creditors

VII. Debt with special long-term characteristics

C) CURRENT LIABILITIES 7.558.904,60 4.002.040,02 3.305.468,96

I. Liabilities linked to non-current assets held for sale

II. Short-term provisions

1. Provisions for greenhouse gas emission rights

2. Other provisions

III. Short term debts 4.059.515,45 2.090.801,68 269.578,62

1. Bonds and other negotiable securities

2. Debts with credit institutions 77.302,08 2.054.130,76 269.578,62

3. Lease creditors

4. Derivatives

5. Other financial liabilities 3.982.213,37 36.670,92

IV. Short-term debts to group and associated companies

V. Trade and other payables 3.499.389,15 1.911.238,34 3.035.890,34

1. Suppliers 759.996,67- 377.524,13- 1.188.317,09

b) Long-term suppliers

b) Short-term suppliers 759.996,67- 377.524,13- 1.188.317,09

2. Suppliers, group companies and associates

3. Sundry creditors 1.247.359,36 959.632,96 933.488,62

4. Staff (outstanding remuneration) 526.700,12 328.943,25 249.938,77

5. Current tax liabilities 1.697.932,21 753.122,43

6. Other payables to public authorities 798.286,87 259.853,59 664.145,86

7. Customer Advances 10.892,75- 12.789,76-


VII. Debt with special short-term characteristics

TOTAL STOCKHOLDERS' EQUITY AND LIABILITIES (A + B + C) 17.650.303,43 8.882.861,16 6.355.535,74

20

Current Liabilities have increased at a very high rate due to the numerous increments in short-term debts, especially with financial intermediaries, in particular with BBVA, Banco Santander and Caja Sur. Between 2016 and 2017 they increased by €696.571,06 and the following year they experienced their most significant rise: five times more, in other words, by €3.556.864,58.

As previously stated, Short-term debt has been the main contributor to the increase in Current Liabilities, with some interesting variations in its accounts. Firstly, Debts with credit institutions increased by €1.784.552,14 in the first two years being analysed, but they then decreased by a greater amount (€-1.976.828,68) between 2017 and 2018. The most plausible reason for this is the increase in Other financial liabilities, since Álvaro Moreno decided to stop depending so much on banks and switched to other non-credit institutions which could lend them large amounts of cash. These Other financial liabilities started with a loan of €36.670,92, and drastically increased by €3.945.542,45 in the next year, which clearly shows the difference between Debts with credit institutions and those Other financial liabilities that made it reach €4.059.515,45 in 2018. The most likely reason for these high liabilities in the last year would be that Álvaro Moreno reinvested part of the capital from the previous year in the company, in order to avoid an over dependence on banks.

Figure 4.2.3.2. Álvaro Moreno’s Liabilities accounts graph. Source: own elaboration

Trade and other payables have suffered an interesting variation in these three years, as it first decreased by €-1.124.652,00 and later on it rose by €1.588.150,81. This relates to the 2016-2017 period, when Álvaro Moreno depended more on bank loans, and not so much on suppliers, meanwhile towards 2018 it shifted to the latter. Despite this dependence on suppliers, negative numbers in Short-term suppliers are not necessarily a negative sign for the

-2.000.000,00

-1.000.000,00

-

1.000.000,00

2.000.000,00

3.000.000,00

4.000.000,00

5.000.000,00

6.000.000,00

7.000.000,00

8.000.000,00

LIABILITIES

2018 2017 2016

21

company, as they commonly tend to be prepaid expenses, usually indicating that it is profitable enough to be able to pay in advance.

On the other hand, these liabilities not only increased because of the different type of financing, but also due to higher costs, which most likely result from all the stores it opened throughout the period of 2017-2018. Firstly, Sundry creditors increased by €26.144,34 between 2016 and 2017, and multiplied by approximately eleven times more the following year, by €287.726,40. This account refers to those creditors relating to services provided, bills of exchange payable and creditors for joint operations. Secondly, Staff (outstanding remuneration) costs increased by €79.004,48 from 2016 to 2017 and then by €197.756,87 from 2017 to 2018, which makes sense, as the number of employees grew exponentially thanks to the opening of the new retail stores. Thirdly, Current tax liabilities appeared in 2017 and increased by a considerable amount of €944.809,78 by 2018 and relate to the payment of corporate tax. Fourthly, Other payables to public authorities has suffered different variations, since it decreased by €-404.292,27 from 2016 to 2017, but then increased by €538.433,28 the next year, meaning that it accumulated debt mainly with the State and with Social Security. Lastly, Customer advances are in fact positive results, since negative numbers in this case mean receivable cash, although the figures are relatively low: €-12.789,76 in 2017 and it decreased €1.897,01 in 2018.

There is a very clear difference between Non-Current and Current Liabilities, since the former only has a continuously decreasing amount in Long-term debt, while the latter has increased by millions. This is mainly due to two accounts: Short-term debts and Trade and other payables. As previously explained, the reason why debt with banks has decreased and Other financial liabilities has increased is the reinvestment by Álvaro Moreno, meaning that in this way the interest will be repaid to the company instead of to a bank, since the CEO himself prefers to use equity instead of loans. On the other hand, the other big part of these liabilities relates to services and taxes, which is reasonable, considering the extent to which the company has grown.

4.3. COMPARISON

The first difference to point out from the Balance Sheets of these two Spanish companies is the way they display the accounts in their accounts deposit. On the one hand, Silbon has a more compact and summarised way of presenting them, yet it provides an explanation for each variation in their reports. On the other hand, Álvaro Moreno unbundles nearly all of the accounts in order to show directly where a change took place instead of giving detailed explanations in their reports. While both methods end up being equally useful at the time of analysing their data, written explanations are particularly helpful in order to better

22

understand what has happened and how any issues have been solved. It must be noted that Álvaro Moreno is much bigger than Silbon, as shown at the beginning of this paper. As such, its numbers should always be higher, yet it is really interesting to see how companies operating in the same industry manage their resources in different ways and obtain such different results.

Figure 4.3.1. Silbon and Álvaro Moreno’s interannual variation in Non-Current Assets accounts table. Source: own elaboration

Figure 4.3.2. Silbon and Álvaro Moreno’s interannual variation in Non-Current Assets accounts graph. Source: own elaboration

Regarding Assets, it is evident that Álvaro Moreno has much higher numbers than Silbon, although they allocate them in very different ways. Silbon invests very similar amounts in both Non-Current and Current Assets, while Álvaro Moreno values Current Assets much more and assigns a lower amount to Non-Current. Firstly, what the company from Córdoba values most in this regard is Long-term investments in group companies and associates, which are usually retail stores; while Álvaro Moreno does not even have cash set aside for this account. Secondly, Property, plant and equipment is definitely the biggest investment for Álvaro Moreno in Non-Current Assets, and the second highest for Silbon, despite it being lower in its case.

NON-CURRENT ASSETS 2016-2017 2017-2018

SILBON 4,83% 36,00%

ÁLVARO MORENO 4,79% 43,98%

0,00%

5,00%

10,00%

15,00%

20,00%

25,00%

30,00%

35,00%

40,00%

45,00%

50,00%

2016-2017 2017-2018

NON-CURRENT ASSETS

SILBON ÁLVARO MORENO

23

Figure 4.3.3. Silbon and Álvaro Moreno’s interannual variation in Current Assets table. Source: own elaboration

Figure 4.3.4. Silbon and Álvaro Moreno’s interannual variation in Current Assets graph. Source: own elaboration

While in significantly uneven quantities, it is interesting to see how in Current Assets both have the vast amount of money in Stocks and in Cash and cash equivalents. Nevertheless, Silbon distributes them in a more balanced way, despite the fact that in 2016 and 2017 it had more in Cash than in Stocks. Meanwhile, in 2018 the highest amount went to Stocks and fairly equal sums went to Trade and other receivables and to Cash. In the case of the latter, it is reasonable to think that most of it must go to Reserves, due to the lack of liquidity from Results of previous years. As for Álvaro Moreno, over the three years, Cash and cash equivalents has always had higher numbers, even though in 2016 it had resembling figures. As previously mentioned, thanks to such high sums, it is able to distribute this cash to Reserves as well as to pay off debt and reinvest in the company.

Figure 4.3.5. Silbon and Álvaro Moreno’s interannual variation in Stockholders’ Equity table. Source: own elaboration

CURRENT ASSETS 2016-2017 2017-2018

SILBON 29,87% 16,17%


0,00%

10,00%

20,00%

30,00%

40,00%

50,00%

60,00%

2016-2017 2017-2018

CURRENT ASSETS


EQUITY 2016-2017 2017-2018

SILBON 4,82% 13,57%


24

Interestingly, in Silbon, the Result of the year is not what has produced the most equity. Instead, it is the Share premium which has produced the most equity, which, as explained in its Equity Analysis, is a fixed amount of €940.652,00 every year following the shareholders agreeing to an increase in the capital of the company. On the other hand, as expected, the main sources of equity for Álvaro Moreno are the Result of the year and mostly Results of previous years, despite the latter being lower in the Balance Sheet. The reason for this is that the Result of the year still has to be split between different accounts (Expenses, Reserves, etc.). However, the Results of previous years will show what has truly remained as an income for the company and it can then decide how to redistribute that cash again.

Figure 4.3.6. Silbon and Álvaro Moreno’s interannual variation in Stockholders’ Equity graph. Source: own elaboration

The other major accounts of these two companies must also be taken into consideration, such as Reserves in both cases, although Álvaro Moreno has set aside a relatively low amount in comparison to Silbon, whose Reserves have been increasing at an average rate of around 15%. In contrast, Álvaro Moreno’s Reserves rate has been experiencing a slightly lower increase at 10%. Additionally, as previously described, the Result of the year is not a big contribution to Silbon’s Equity because most of the cash is intended for the payment of debts, more specifically, to suppliers and to a lesser extent to banks. Fortunately for Álvaro Moreno, it can add Results from previous years, thanks to their outstanding performance.

0,00%

10,00%

20,00%

30,00%

40,00%

50,00%

60,00%

2016-2017 2017-2018

EQUITY


25

Figure 4.3.7. Silbon and Álvaro Moreno’s interannual variation in Non-Current Liabilities table. Source: own elaboration

Figure 4.3.8. Silbon and Álvaro Moreno’s interannual variation in Non-Current Liabilities graph. Source: own elaboration

In terms of Liabilities, both Silbon and Álvaro Moreno have in common that they have more Current Liabilities than Non-Current. It is interesting to see how in Long-term debts the only account where they have Non-Current Liabilities, the business from Córdoba has more cash than Álvaro Moreno, despite having significantly lower liquidity.

Figure 4.3.9. Silbon and Álvaro Moreno’s interannual variation in Current Liabilities table. Source: own elaboration

In Current liabilities, they take different paths: Silbon highly depends on Trade and other payables, and always has done over these last three financial years, as it has a greater dependence on Suppliers rather than on banks. By contrast, Álvaro Moreno has a greater figure of Short-term debts, as it somewhat relies on banks and mostly on non-financial credit institutions, as explained in the Liabilities analysis. However, like Silbon, it does have considerable debts with Suppliers,

NON-CURRENT LIABILITIES 2016-2017 2017-2018

SILBON -52,45% -20,32%

ÁLVARO MORENO -59,38% -91,75%

-100,00%

-90,00%

-80,00%

-70,00%

-60,00%

-50,00%

-40,00%

-30,00%

-20,00%

-10,00%

0,00%

2016-2017 2017-2018

NON-CURRENT LIABILITIES


CURRENT LIABILITIES 2016-2017 2017-2018

SILBON 37,39% 36,40%


26

as displayed in Trade and other receivables. In fact, in 2016 such debt amounted to the majority of its Current Liabilities.

Figure 4.3.10. Silbon and Álvaro Moreno’s interannual variation in Current Liabilities graph. Source: own elaboration

5. PROFIT AND LOSS ANALYSIS

5.1. SILBON

0,00%

5,00%

10,00%

15,00%

20,00%

25,00%

30,00%

35,00%

40,00%

45,00%

50,00%

2016-2017 2017-2018

CURRENT LIABILITIES


2018 2017 2016

1. Net turnover 5.492.179,00 3.976.911,00 2.851.080,57

2. Change in stocks of finished goods and work in progress

3. Work carried out by the company for its assets

4. Supplies 3.349.749,00- 2.555.742,00- 2.052.506,08-

5. Other operating income 89.397,00 20.253,00 8.320,25

6. Staff costs 1.005.520,00- 640.271,00- 360.495,90-

7. Other operating expenses 925.121,00- 675.084,00- 358.003,09-

8. Depreciation of fixed assets 45.043,00- 17.452,00- 15.094,33-

9. Allocation of grants for non-financial and other assets

10. Excess provisions

11. Impairment and results of disposals of fixed assets

12. Negative difference of business combinations

13. Other results 4.947,00- 4.751,00- 2.150,31-

A) OPERATING RESULT (1 + 2 + 3 + 4 + 5 + 6 + 7 + 8 + 9 + 10 + 11 + 12 + 13) 251.196,00 103.864,00 71.151,11

14. Net Income 408,00 338,00 210,00

a) Allocation of grants, donations and legacies of a financial nature

b) Other financial income 408,00 338,00 210,00

15. Financial expenses 8.401,00- 8.727,00- 1.367,57-

16. Change in fair value of financial instruments

17. Exchange rate differences

18. Impairment and gains or losses on disposals of financial instruments 5.000,00-

19. Other income and expenditure of a financial nature

a) Addition of financial expenses to assets

b) Financial income from creditors' agreements

c) Other income and expenses

B) OPERATING RESULT (14 + 15 + 16 + 17 + 18 + 19) 12.993,00- 8.389,00- 1.157,57-

C) PROFIT BEFORE TAX ( A + B) 238.203,00 95.475,00 69.993,54

20. Taxes on profits 53.190,00- 38.681,00- 18.575,11-

D) RESULT FOR THE YEAR (C + 20) 185.013,00 56.794,00 51.418,43

27

Figure 5.1.1. Silbon’s Profit and Loss table. Source: own elaboration

It is clear from Silbon’s Profit and Loss accounts that if Net turnover has increased by millions, the company has been performing very positively over the past three years, with an increase of €1.125.830,43 between 2016 and 2017 and of €1.515.268,00 the following year, as sales and customer service have continuously improved. This will be better understood after the explanations below.

As a consequence of expansions and new collections, the increase in Supplies is comprehensible, €-503.235,92 between 2016 and 2017, and it was even greater between 2017 and 2018, with €-794.007,00, as they have been two of the most active years for the company. This can also be observed with respect to Non-current Assets, which have experienced a significant growth in the last two years.

Other operating income follows the same trail as the previous account in the sense that it is related to Non-Current Assets, since it has increased by €11.932,75 from 2016 to 2017 and by €69.144,00 from 2017 to 2018, more precisely with Intangible assets and Property, plant and equipment. This income is not part of the company’s main economic activity; hence this income originates from patents and leasing.

Staff costs have increased significantly due to the fact that Silbon, as already mentioned, has grown in several aspects these last years, such as the opening of the new stores. Between 2016 and 2017, staff costs increased by €-279.775,10, and between 2017 and 2018 by €-365.249,00. New retail stores and higher production mean more employees; therefore, these quantities are in line with the increase in wages expenses and social security expenses.

Other operating expenses have not increased so gradually, which is a positive sign, as in the first two years being analysed it increased by €-317.080,91 and by €-250.037,00 the following year. These have to do with: leases and royalties, repairs and maintenance, independent professional services, transport (the highest expense), insurance premiums, banking and similar services, advertising and publicity, supplies, other services, tributes, other current operating expenses and loss on trade credit deterioration (this last one was not an expense in 2018).

It must be noted that these last two types of accounts mentioned, Staff costs and Other operating expenses, suffered some changes in 2017, as in that year’s deposit account and also in that of 2018 there were slight variations. The reason for this is that certain corrections were made in order for them to appear as they do in the data above, as before that the result for the year was €88.926,74. Some expenses had to be added: €-11.044,00 to social security, €-15.166,00 to sales returns and €-5.922,00 to auditing expenses.

28

Depreciation of fixed assets has also increased negatively, first by €-2.357,67, which is a relatively low amount, and afterwards by €-27.591,00, as their acquisitions grew, and also the value loss of their assets. If an estimated recoverable amount of an asset is lower than its actual book value, this value will be reduced to its recoverable amount. This will immediately be recognised as an expense.

Other results have slightly decreased, €-2.600,69 between 2016 and 2017, and only €-196,00 between 2017 and 2018, which is a relief for the company, since such expenses are usually produced by floods, fires or fines.

Figure 5.1.2. Silbon’s Operating Result evolution graph. Source: own elaboration

It is quite astonishing to see how the Operating result is so low in comparison to Net turnover, as it only represents 2,5% in 2016, 2,6% in 2017 and 4,6% in 2018 in terms of profitability. However, when analysing Liabilities, it makes perfect sense, since it not only has Non-Current Liabilities with credit institutions, but also much higher Current Liabilities with both credit institutions and mostly Short-term suppliers. In addition, it is already quite obvious that despite there being such a huge difference between these results and Net turnover, from which a great part has to be used to pay liabilities, a generous amount is also given back to shareholders, which is a reasonable explanation to why there is such a low Operating result and how the company has been increasing its liabilities.

The low amounts of Other financial income came from the leasing of other installations, slightly augmenting by €128,00 from 2016 to 2017 and by just €70,00 the next year. Financial expenses mainly come from the payment of the amortisation of technical facilities. Between 2016 and 2017 it increased by €-7.359,43, meanwhile between 2017 and 2018 Financial expenses decreased by €326,00. This is a positive sign, not only because it is reflective of a reduction in costs, but also because it shows some stabilisation.

0,00%

0,50%

1,00%

1,50%

2,00%

2,50%

3,00%

3,50%

4,00%

4,50%

5,00%

2018 2017 2016

OPERATING RESULT

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Impairment and gains or losses on disposals of financial instruments suffered a loss of €5.000,00 during 2018 due to an impairment in the subsidiary Silbon Granada S.L.

Figure 5.1.3. Silbon’s Profit and Loss evolution graph. Source: own elaboration

Taxes on profits are worth emphasising given their irregular variations, as in 2016 they were 27%, in 2017 41% (which is the most significant percentage) and in 2018 22%. As explained in the 2017 account deposit, “because certain transactions are treated differently for corporate income tax purposes and for the preparation of these financial statements, the tax base for the year differs from the accounting profit before tax. Deferred tax assets and liabilities arise from the allocation of income and expenses to different periods for the purposes of current tax legislation and for the preparation of the financial statements. Deferred tax assets arising from tax loss carryforwards are recognised to the extent that it is probable that the Company will obtain future taxable profits that will enable them to be utilised. As a result, among other things, of the different possible interpretations of current tax legislation, additional liabilities could arise as a result of the inspection being carried out on the Company. In any event, the Board of Directors considers that such liabilities, if any, would not materially affect the financial statements.”4.

To conclude, the Results of the years analysed are optimistic for the business, since from 2016 to 2017 they increased by €5.375,57 and by 2018 they suffered a drastic growth of €128.219,00; mostly thanks to Net turnover and Other operating income, as explained above.

4 Silbon’s 2017 Deposit account

-4.000.000,00

-2.000.000,00

-

2.000.000,00

4.000.000,00

6.000.000,00

2018 2017 2016

PROFIT AND LOSS

1. Net turnover 2. Change in stocks of finished goods and work in progress3. Work carried out by the company for its assets 4. Supplies5. Other operating income 6. Staff costs7. Other operating expenses 8. Depreciation of fixed assets9. Allocation of grants for non-financial and other assets 10. Excess provisions11. Impairment and results of disposals of fixed assets 12. Negative difference of business combinations13. Other results A) OPERATING RESULT (1 + 2 + 3 + 4 + 5 + 6 + 7 + 8 + 9 + 10 + 11 + 12 + 13)14. Net Income 15. Financial expenses16. Change in fair value of financial instruments 17. Exchange rate differences18. Impairment and gains or losses on disposals of financial instruments 19. Other income and expenditure of a financial natureB) OPERATING RESULT (14 + 15 + 16 + 17 + 18 + 19) C) PROFIT BEFORE TAX ( A + B)20. Taxes on profits D) RESULT FOR THE YEAR (C + 20)

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5.2. ÁLVARO MORENO

2018 2017 2016

A) CONTINUING OPERATIONS

1. Net turnover 38.598.603,66 26.003.475,37 15.442.104,37

a) Sales 38.598.603,66 26.003.475,37 15.442.104,37

b) Services provided

c) Income of a financial nature from holding companies

2. Change in stocks of finished goods and work in progress 720,35-

3. Work carried out by the company for its assets 37.250,00

4. Supplies 16.433.279,60- 10.236.351,05- 6.015.985,42-

a) Consumption of goods 15.109.564,15- 9.165.701,73- 4.542.018,00-

b) Consumption of raw materials and other consumables 1.125.978,34- 922.499,16- 1.315.246,45-

c) Work done by other companies 197.737,11- 148.150,16- 158.720,97-

d) Deterioration of goods, raw materials and other supplies

5. Other operating income 2.324,36 7.639,45 2.545,72-

a) Ancillary and other current management income 2.324,36 7.639,45 2.545,72-

b) Operating subsidies included in the profit for the year

6. Staff costs 6.862.490,09- 5.361.995,34- 3.252.264,26-

a) Wages, salaries and similar 5.299.963,16- 4.186.329,02- 3.252.264,26-

b) Social charges 1.562.526,93- 1.175.666,32-

c) Provisions

7. Other operating expenses 7.624.275,78- 5.318.430,59- 3.790.042,94-

a) External services 5.881.590,33- 4.353.571,96- 3.202.526,75-

b) Tributes 1.742.685,45- 964.858,63- 587.516,19-

c) Losses, impairment and changes in provisions for trade operations

d) Other current management expenditure

e) Greenhouse gas emission costs

8. Depreciation of fixed assets 197.459,60- 1.851.778,47- 365.254,86-

9. Allocation of grants for non-financial assets and others

10. Excess provisions

11. Impairment and results of disposals of fixed assets

a) Deterioration and losses

b) Results from disposals and others

c) Impairment and gains or losses on disposals of fixed assets of holding companies

12. Negative difference of business combinations

13. Other results 141,41- 3.737,89 2.435,60

A.1) OPERATING RESULT (1 + 2 + 3 + 4 + 5 + 6 + 7 + 8 + 9 + 10 + 11 + 12 + 13) 7.483.281,54 3.282.826,91 2.018.446,77

14. Net Income 159.291,28 45.797,90 6.558,26

a) Of holdings in equity instruments

a 1) In group and associated companies

a 2) In third parties

b) Of negotiable securities and other financial instruments 159.291,28 45.797,90 6.558,26

b 1) From group and associated companies

b 2) From third parties 159.291,28 45.797,90 6.558,26

c) Allocation of grants, donations and legacies of a financial nature

15. Financial expenses 262.376,34- 117.247,54- 43.904,89-

a) For debts to group and associated companies 3.252,47- 5.784,98- 8.489,39-

b) For debts to third parties 259.123,87- 111.462,56- 35.415,50-

c) For updating provisions

16. Change in fair value of financial instruments

a) Trading portfolio and others

b) Recognition of available-for-sale financial assets in profit or loss

17. Exchange rate differences 38.208,09- 152.975,28

18. Impairment and gains or losses on disposals of financial instruments

a) Deterioration and losses

b) Results from disposals and others

19. Other income and expenditure of a financial nature

a) Addition of financial expenses to assets

b) Financial income from creditors' agreements

c) Other income and expenses

A.2) FINANCIAL PERFORMANCE (14 + 15 + 16 + 17 + 18 + 19) 141.293,15- 81.525,64 37.346,63-

A.3) PRE-TAX RESULT (A.1 + A.2) 7.341.988,39 3.364.352,55 1.981.100,14

20. Taxes on profits 1.774.492,21- 841.106,89- 495.337,54-

A.4) PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS (A.3 + 20) 5.567.496,18 2.523.245,66 1.485.762,60

B) DISCONTINUED OPERATIONS

21. Profit for the year from discontinued operations net of tax

A.5) YEAR'S RESULT (A.4 + 21) 5.567.496,18 2.523.245,66 1.485.762,60

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Figure 5.2.1. Álvaro Moreno’s Profit and Loss table. Source: own elaboration

Álvaro Moreno’s profit for the year nearly doubled between 2016 and 2017, with an increase of €1.037.483,06, and it more than doubled from 2017 to 2018, when it rose by €3.044.250,52. Although this final result may look low in comparison to Sales, the explanation for the whole Operating Result will provide some clarity to this huge difference.

Net turnover, as a result of Sales, has been increasing by millions every year, precisely by €10.561.371,00 during the first two years being analysed and by €12.595.128,29 during the last two. This was mainly thanks to all the expansions the brand did during this period. Besides, Black Friday has also been one of the big contributors to such high numbers, since Álvaro Moreno’s stores are very strategically located in the main shopping areas of the cities where it sells, like Carmen Street in Madrid, between the Metro stations of two important squares, Callao and Sol.

Supplies has been the biggest expense for the company, as from 2016 to 2017 numbers decreased by €-4.220.365,63 and from 2017 to 2018 by €-6.196.928,55. These figures are shown in the Supplies account and are reflective of the company’s growth over these last few years and of how more retail stores would mean greater sales volumes. In relation to sales, Consumption of raw materials and other consumables has experienced a number of variations, as it firstly increased by €392.747,29, meaning that it could have reduced costs by using spare materials; however between the last two years it decreased by €-203.479,18, in particular because of expansion. As well as the previous account, this one had less expenses between the first two years being analysed, amounting to €10.570,81, but it then increased again in the last two years, by €-49.586,95, as Álvaro Moreno started to depend more on suppliers, as previously explained in the Liabilities analysis.

Contrary to the accounts previously analysed, Other operating income increased by €10.185,17 and by 2018 it had decreased by €-5.315,09; all this in reference to Ancillary and other current management income. This account relates to income from leases, commissions, staff services and various services.

Staff costs have more than doubled over these three years, since between 2016 and 2017 they rose by €-2.109.731,08 and the subsequent year by €-1.500.494,75. Although at first sight this decrease could be seen as there having been a reduction in the number of employees, this is not the case. Firstly, Wages, salaries and similar have in fact increased: by €-934.064,76 from 2016 to 2017 and by €-1.113.634,14 from 2017 to 2018. Consequently, the numbers match the facts, in other words, expansion led to more employees. Finally, Social charges have led to Staff costs descending at a lower rate in the last year, given that in

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2017 it meant a lower impact, of €-1.175.666,32, than in 2018 with €-1.562.526,93.

Figure 5.2.2. Álvaro Moreno’s Profit and Loss evolution graph. Source: own elaboration

Other operating expenses have increased considerably: between 2016 and 2017 by €-1.528.387,65 and by €-2.305.845,19 between 2017 and 2018. The main costs relate to External expenses with increases of €-1.151.045,21 during the first two years being analysed and of €-1.528.018,37 in 2018, which can be linked to the growth of Non-Current Assets and, more precisely, of Tangible fixed assets. This expense encompasses research and development, leases, reparations, independent professional services, transport, insurance premiums, banking and similar services, advertising and public relations, etc. On the other hand, Tributes represent lower scale costs, since they are mainly taxes and mean a lower percentage of Other operating expenses; rising by €-377.342,44 from 2016 to 2017 and by €-777.826,82 the following year.

Depreciation of fixed assets has suffered some interesting variations, as numbers started decreasing by a considerable amount: €-1.486.523,61 between 2016 and 2017, however then from 2017 to 2018 they rose by €1.654.318,87. The reason for such a drastic difference is that Álvaro Moreno depreciated according to the tables of the Agencia Estatal de Administración Tributaria (known as the “AEAT”) and, as such, it could not take advantage of the freedom of depreciation or accelerated depreciation, since it no longer meets the requirements of article 101.4 of the Corporate Income Tax Law 27/2014.

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The Other results account represents very low quantities of out of business results, and it is interesting to see how they have changed in these last three last years: between 2016 and 2017 it increased by €1.302,29 and from 2017 to 2018 it decreased by €-3.879,30.

Figure 5.2.3. Álvaro Moreno’s Operating Result evolution graph. Source: own elaboration

Taking into account the size to which the company has grown, it stands out how the Operating Result represents a relatively low fraction of Net turnover. However, as already stated in the Equity Analysis, Álvaro Moreno reinvests a large proportion of its profit in the company, which explains why expenses are high. By reinvesting in the company, it is able to achieve greater results the following year, which is reflected in Álvaro Moreno’s performance over the three years being analysed.

Net Income is the only positive account in terms of Financial performance, which has grown in these last three years: by €39.239,64 between 2016 and 2017 and by €113.493,38 the next year. These result from negotiable securities and other financial instruments from third parties, which likely relate to a change in financing from banks to non-credit institutions.

Financial expenses have been the main contributor to the downgrade of Financial performance, although they have also been quite proportional in terms of how they have been increasing, since their enlargement between 2017 and 2018 (€-145.128,80) is double the amount it increased by from 2016 to 2017 (€-73.342,65). The key factor to this increase has been the debts to third parties accounts, which is connected to the main source of Net Income; moreover, it has been decreasing by a similar amount to the main account (Financial expenses). In addition, debts to group and associated companies have decreased each year,

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2018 2017 2016

OPERATING RESULT

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firstly by €2.704,41 and then the last two years by €2.532,51, which seems to be a constant reduction, and thus a positive decrease of debt for the company.

In the Exchange rate differences account, opposite results can be observed: firstly, it meant gains of €152.975,28 in 2017, however it went down to losses of €-38.208,09 in 2018.

Lastly, the Result of the year has done nothing but increase over the period of these last three years being analysed, since between 2017 and 2018 it increased by €1.037.483,06, and the following year it more than doubled, reaching €3.044.250,52. This not only means outstanding results, but also an opportunity to continue growing thanks to Álvaro Moreno’s reinvestments.

5.3. COMPARISON

Figure 5.3.1. Silbon and Álvaro Moreno’s Net turnover interannual variation table. Source: own elaboration

Figure 5.3.2. Silbon and Álvaro Moreno’s Net turnover interannual variation graph. Source: own elaboration

It must be emphasised that the two companies’ Net turnovers are very different, as Álvaro Moreno’s is tens of millions, while Silbon’s is a few million. However, their Operating result and result of the year are not as proportionate as one would expect. It must be added that just like with the Balance Sheets, Silbon’s Profit and Loss is more succinct, but it includes more in-depth explanations in its reports. As for Álvaro Moreno, its accounts are more detailed, showing each subaccount, but with very few clarifications.

NET TURNOVER 2016-2017 2017-2018

SILBON 28,31% 27,59%


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NET TURNOVER


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Figure 5.3.3. Silbon and Álvaro Moreno’s Expenses interannual variation table. Source: own elaboration

Figure 5.3.4. Silbon and Álvaro Moreno’s Expenses interannual variation graph. Source: own elaboration

To begin with, some expenses accounts, such as Supplies, Staff costs, Other operating expenses and depreciation of fixed assets, have been increasing proportionately, which is in accordance with how both companies have been increasing over the period of these three years being analysed. It is worth pointing out how Other operating income has always been higher in Silbon’s case, and increasing at a considerable rate, mostly between 2017 and 2018. By contrast, Álvaro Moreno’s accounts show very different results, as in 2016 it was even negative, although it managed to increase in 2017, and it then went up again to just a couple of thousand in 2018.

Figure 5.3.5. Silbon and Álvaro Moreno’s Operating Results interannual variation table. Source: own elaboration

EXPENSES 2016-2017 2017-2018

SILBON 28,35% 26,98%


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35,00%

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45,00%

2016-2017 2017-2018

EXPENSES


OPERATING RESULTS 2016-2017 2017-2018

SILBON 31,50% 58,65%


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Figure 5.3.6. Silbon and Álvaro Moreno’s Operating Results interannual variation graph. Source: own elaboration

While Operating results have already been analysed in their respective Profit and Loss Analysis, it must be highlighted that they have allocated their resources in contrasting manners. Observing Silbon’s Operating results, its profitability over 2016, 2017 and 2018 has been 3,2% on average, which is extremely low in comparison to its Net turnover. This is where Liabilities come in and, more specifically, Current ones which, considering they are not so different to Álvaro Moreno’s, Silbon’s are proportionately higher. With respect to the company from Seville, it has experienced a profitability of approximately 15% these last three years, which is not so high either, although it makes more sense when taking Current Liabilities into consideration as well, given the amount of debt they have had to pay, especially to non-financial credit institutions.

Figure 5.3.7. Silbon and Álvaro Moreno’s Net Income interannual variation table. Source: own elaboration

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70,00%

2016-2017 2017-2018

OPERATING RESULTS


NET INCOME 2016-2017 2017-2018

SILBON 37,87% 17,16%


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Figure 5.3.8. Silbon and Álvaro Moreno’s Net Income interannual variation graph. Source: own elaboration

Net Income is more or less proportionate in the case of both companies, as for Silbon it is a low sum of a few hundreds of Euros. Meanwhile, for Álvaro Moreno it has increased from just a few thousand to more than €150.000,00, hence experiencing a considerable jump. Additionally, Financial expenses have remained fairly constant for Silbon since 2017, while Álvaro Moreno’s have experienced a significant increase of hundreds of Euros.

Figure 5.3.9. Silbon and Álvaro Moreno’s Taxes on Profits interannual variation table. Source: own elaboration

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2016-2017 2017-2018

NET INCOME


TAXES ON PROFITS 2016-2017 2017-2018

SILBON 51,98% 27,28%


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2016-2017 2017-2018

TAXES ON PROFITS


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Figure 5.3.10. Silbon and Álvaro Moreno’s Taxes on Profits interannual variation graph. Source: own elaboration

Lastly, Silbon has experienced an exponential increase in terms of taxes from approximately 25% to 40%, which is an extremely high amount of cash; however, as stated in their memories, they had some tax liabilities to cover. Contrary to them, Álvaro Moreno has kept at a constant rate of 25% in taxes, which is more common and a good sign in terms of legal payments.

Figure 5.3.11. Silbon and Álvaro Moreno’s Results for the Years interannual variation table. Source: own elaboration.

Figure 5.3.12. Silbon and Álvaro Moreno’s Results for the Years interannual variation graph. Source: own elaboration

For all these reasons, it is now more understandable why Silbon has such a low amount in the Result of the year account (due to its high debt and expenses). If a comparison is made between Álvaro Moreno’s Net turnover and the Year’s Results, the company is more than five times more profitable than Silbon. Yet Álvaro Moreno has not gone so far in terms of profitability. Despite the two companies’ respective turnovers, their profitability margins are very similar. In any event, the most important aspect is that both businesses have been achieving positive results, i.e. profits, yet once they start to pay off their debts, they will be able to generate higher profit margins.

RESULTS FOR THE YEARS 2016-2017 2017-2018

SILBON 9,47% 69,30%


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2016-2017 2017-2018

RESULTS FOR THE YEARS


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6. RATIOS’ ANALYSIS

6.1. LIQUIDITY RATIOS

“Liquidity ratios are financial ratios that measure a company’s ability to repay both short and long-term obligations.”5

Figure 6.1.1. Silbon and Álvaro Moreno’s Current ratios table. Source: own elaboration

Figure 6.1.2. Silbon and Álvaro Moreno’s Current ratios graph. Source: own elaboration

“The current ratio measures a company’s ability to pay off short-term liabilities with current assets:

Current ratio = Current assets / Current liabilities.”6

The Current ratio for the company from Córdoba has been decreasing over these last three years. Liabilities have been rising at a higher rate than Assets, and so the company’s ability to pay off short-term liabilities with current assets is starting to diminish. This ratio is an excellent indicator of how valuable Álvaro Moreno’s assets are, as these are what it uses for its main activity, thus enabling it to pay Short-term Liabilities.

Interestingly, Silbon has not been so different from Álvaro Moreno in terms of the Current ratio, especially in 2016. However, this difference grew exponentially by

5 & 6 Definition from: [https://corporatefinanceinstitute.com/resources/knowledge/finance/financial-ratios/]

Current ratio 2018 2017 2016

SILBON 83% 109% 123%

ÁLVARO MORENO 201% 188% 153%

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2018, as Álvaro Moreno’s ability to pay Short-term Liabilities was around 48% higher than in 2016, while Silbon’s was over 40% lower.

“The Acid-test ratio measures a company’s ability to pay off short-term liabilities with quick assets:

Acid-test ratio = Current assets – Inventories / Current liabilities”7

It is not necessary to calculate the Acid-test ratio in this case due to the lack of Inventories in both companies, as maintaining them entails more costs.

Figure 6.1.3. Silbon and Álvaro Moreno’s Cash ratios table. Source: own elaboration

Figure 6.1.4. Silbon and Álvaro Moreno’s Cash ratios graph. Source: own elaboration

“The cash ratio measures a company’s ability to pay off short-term liabilities with cash and cash equivalents: Cash ratio =

Cash and Cash equivalents / Current Liabilities”8

While Cash ratio is not particularly high in Silbon (although they have a reasonable percentage, particularly in 2017), their ability to pay off short-term liabilities with cash is starting to decrease, after seeing the 2018 result. Cash ratio


Cash ratio 2018 2017 2016

SILBON 20% 35% 25%


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2016 2017 2018

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is another good factor for gauging Álvaro Moreno’s performance, as its increase in Cash means that it is even more able, especially since 2017, to pay its debts with cash.

Something different occurs in relation to the Cash ratio compared with Current ratio, as in Silbon it firstly increased, however it reached its lowest value (out of these three last years) in 2018. Meanwhile, in 2017, Álvaro Moreno started to be more than able to pay its Short-term Liabilities with Cash and cash equivalents.

“The Operating cash flow ratio is a measure of the number of times a company can pay off current liabilities with the cash generated in a given period:

Operating cash flow ratio = Operating cash flow / Current liabilities”9

The lack of cash flow in both companies means there is no need to calculate the Operating cash flow ratio.

6.2. LEVERAGE FINANCIAL RATIOS

“Leverage ratios measure the amount of capital that comes from debt. In other words, leverage financial ratios are used to evaluate a company’s debt levels.”10 The first thing that stands out in Leverage Financial ratios is that Silbon’s are higher than Álvaro Moreno’s, however, this already indicates that the latter company is performing better than the first one.

Figure 6.2.1. Silbon and Álvaro Moreno’s Debt ratios table. Source: own elaboration


Debt ratio 2018 2017 2016

SILBON 62% 56% 48%


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Figure 6.2.2. Silbon and Álvaro Moreno’s Debt ratios graph. Source: own elaboration

“The debt ratio measures the relative amount of a company’s assets that are provided from debt:

Debt ratio = Total liabilities / Total assets”11

Evidently, after looking at the results of Silbon’s Debt ratio, it is fair to say that there is a greater dependence on Debt for Asset payments, as it has grown year on year. As for Álvaro Moreno: in 2017, not even half of the Assets were provided from debt, as seen in the Debt ratio results, and in 2018 this number decreased slightly, since from 2017 Equity has been greater than Liabilities.

Debt ratio was not so negative for Silbon in 2016, meaning that over half of its assets were not provided from debt, meanwhile that same year the opposite happened in Álvaro Moreno’s case. By 2017, things turned around for the two businesses and results started to increase for Silbon (due to its dependence on debt) and to decrease for Álvaro Moreno.

Figure 6.2.3. Silbon and Álvaro Moreno’s Debt-to-equity ratios table. Source: own elaboration

Figure 6.2.4. Silbon and Álvaro Moreno’s Debt-to-equity ratios graph. Source: own elaboration

11 Definition from: [https://corporatefinanceinstitute.com/resources/knowledge/finance/financial-ratios/]

Debt-to-equity ratio 2018 2017 2016

SILBON 166% 127% 93%


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“The debt to equity ratio calculates the weight of total debt and financial liabilities against shareholders’ equity:

Debt to equity ratio = Total liabilities / Shareholder’s equity”12

Silbon’s Debt-to-equity ratio shows that Debt doubles even more than Stockholders’ Equity, meaning that the company finances much more through debt than through its own means. Debt-to-equity ratio indicates that Liabilities in Álvaro Moreno dropped while Equity rose, mostly from 2016 to 2017.

As Equity decreased for the company from Córdoba, its ratio was higher; in the meantime, Álvaro Moreno’s equity took off and its ratio diminished.

“The interest coverage ratio shows how easily a company can pay its interest expenses:

Interest coverage ratio = Operating income / Interest expenses”13

Neither of the two companies has Interest expenses, therefore there is no Interest coverage ratio.

Figure 6.2.5. Silbon and Álvaro Moreno’s Debt service coverage ratios table. Source: own elaboration


Debt service coverage ratio 2018 2017 2016

SILBON 15% 11% 3%


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Figure 6.2.6. Silbon and Álvaro Moreno’s Debt service coverage ratios graph. Source: own elaboration

“The debt service coverage ratio reveals how easily a company can pay its debt obligations:

Debt service coverage ratio = Operating income / Total debt service”14

Silbon’s Debt service coverage ratio shows that its ability to pay debt obligations has been increasing at a good rate: from just 3,5% in 2016 to 15% in 2018, which is a really significant increase. The Debt service coverage ratio, like the first two Leverage Financial ratios analysed, has increased too, meaning that while Álvaro Moreno’s ability to cover debt may be somewhat challenging, such ability is starting to improve.

Lastly, both companies’ debt has increased and, consequently, so has their ratio, although Silbon’s has grown at a much higher rate than Álvaro Moreno’s.

6.3. EFFICIENCY RATIOS

“Efficiency ratios, also known as activity financial ratios, are used to measure how well a company is utilising its assets and resources.”15

Figure 6.3.1. Silbon and Álvaro Moreno’s Asset turnover ratios table. Source: own elaboration


Asset turnover ratio 2018 2017 2016

SILBON 152% 149% 131%



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Figure 6.3.2. Silbon and Álvaro Moreno’s Asset turnover ratios graph. Source: own elaboration

“The asset turnover ratio measures a company’s ability to generate sales from assets:

Asset turnover ratio = Net sales / Total assets”16

By contrast to Debt, Asset turnover results in Silbon are particularly positive, as a consequence of the main activity of the company, i.e. generating sales from its Assets. The Asset turnover ratio in Álvaro Moreno presents some interesting results, with those of 2017 being the highest, as despite the outstanding performance of the company, their ability to generate Sales from Assets decreased in the last year, although it is still a very positive result, but lower than that of 2016.

After taking a look at the Asset turnover ratios, it is surprising to see how Silbon’s have increased while Álvaro Moreno’s has gone down, both at similar rates. Nevertheless, this seems logical once a quick view is taken to the company from Seville’s Profit and Loss, since its expenses are also considerably high.

“The Inventory turnover ratio measures how many times a company’s inventory is sold and replaced over a given period:

Inventory turnover ratio = Cost of goods sold / Average inventory”17


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2016 2017 2018

Asset turnover ratio


https://corporatefinanceinstitute.com/resources/knowledge/finance/asset-turnover/


46

“The days sales in inventory ratio measures the average number of days that a company holds on to inventory before selling it to customers:

Days sales in inventory ratio = 365 days / Inventory turnover ratio”18

As previously stated, neither of the two companies keeps Inventories, therefore Inventory turnover and Days sales in inventory ratios are excluded.

“The accounts receivable turnover ratio measures how many times a company can turn receivables into cash over a given period:

Receivables turnover ratio = Net credit sales / Average accounts receivable”19

Similarly to Inventories, there are no Net credit Sales, hence this ratio cannot be calculated.

6.4. PROFITABILITY RATIOS “The Profitability ratios measure a company’s ability to generate income relative to revenue, balance sheet assets, operating costs, and equity.”20

Figure 6.4.1. Silbon and Álvaro Moreno’s Gross margin ratios table. Source: own elaboration

18, 19 & 20 Definition from: [https://corporatefinanceinstitute.com/resources/knowledge/finance/financial-ratios/]

Gross margin ratio 2018 2017 2016

SILBON 5% 3% 2%


https://corporatefinanceinstitute.com/resources/knowledge/modeling/days-sales-in-inventory/


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Figure 6.4.2. Silbon and Álvaro Moreno’s Gross margin ratios graph. Source: own elaboration

“The Gross margin ratio compares the gross profit of a company to its net sales to show how much profit a company makes after paying its cost of goods sold:

Gross margin ratio = Gross profit / Net sales”21

Out of all the ratios, Profitability ratios are the lowest for Silbon, which is not a good indicator of the company’s performance. With Gross margin ratio, there is a slight increase of just 3% over the three years, which leads to the conclusion that it is improving at a very slow pace. This ratio has already been discussed in the Profit and Loss Analysis of Álvaro Moreno, although it is worth pointing out again how it has been increasing at a slow rate, while still being quite profitable, especially with a considerable increase from 2017 to 2018.

As can be observed in the graph, 2018 has been the most significant year for both companies in terms of profits, up until now. Additionally, it is evident from the slopes that Álvaro Moreno had a more substantial increase than Silbon, denoting a higher margin between profits and costs.

Figure 6.4.3. Silbon and Álvaro Moreno’s Operating margin ratios table. Source: own elaboration


0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

2016 2017 2018

Gross margin ratio


Operating margin ratio 2018 2017 2016

SILBON 2% 1% 0%




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Figure 6.4.4. Silbon and Álvaro Moreno’s Operating margin ratios graph. Source: own elaboration

“The Operating margin ratio compares the operating income of a company to its net sales to determine operating efficiency:

Operating margin ratio = Operating income / Net sales”22

Although again there is not a significant change, it must be pointed out how Silbon obtained not only a positive Operating margin ratio, but also improved it, meaning that there is starting to be a greater difference between Operating income and Net sales. Through this ratio, it can be stated that the operating efficiency of Álvaro Moreno is extremely low, despite having a minor increase in the last two years.

The only link to be made between the two in this case is how Silbon has surpassed Álvaro Moreno, which is not very common, after looking back at previous comparisons.

Figure 6.4.5. Silbon and Álvaro Moreno’s Return on assets ratios. Source: own elaboration

22 Definition from: [https://corporatefinanceinstitute.com/resources/knowledge/finance/financial-ratios]

0%

0%

0%

1%

1%

1%

1%

1%

2%

2%

2016 2017 2018

Operating margin ratio


Return on assets ratio 2018 2017 2016

SILBON 0% 0% 0%


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Figure 6.4.6. Silbon and Álvaro Moreno’s Return on assets ratios graph. Source: own elaboration

“The Return on assets ratio measures how efficiently a company is using its assets to generate profit:

Return on assets ratio = Net income / Total assets”23

Results in Silbon are completely nil due to its low Net income value, hence there is an almost unnoticeable percentage of Return on assets. Meanwhile, observing the Return on assets ratio in Álvaro Moreno, it can be noted that such a low rise indicates that the company has managed to be more efficient in terms of generating profit from assets, although results are still too low, but constantly increasing since 2017.

In addition, the only comment to be made in relation to Return on assets ratio is that Álvaro Moreno does show some results, while Silbon does not.

Figure 6.4.7. Silbon and Álvaro Moreno’s Return on equity ratios table. Source: own elaboration


0%

0%

0%

0%

0%

1%

1%

1%

1%

1%

1%

2016 2017 2018

Return on assets ratio


Return on equity ratio 2018 2017 2016

SILBON 0% 0% 0%




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Figure 6.4.8. Silbon and Álvaro Moreno’s Return on equity ratios graph. Source: own elaboration

“The Return on equity ratio measures how efficiently a company is using its equity to generate profit:

Return on equity ratio = Net income / Shareholder’s equity”24

As well as with the previous ratio, Silbon presents results pretty much equal to zero, again due to the lack of a more substantial Net income. Moreover, with respect to Álvaro Moreno, it is fair to say that Return on equity ratio shows some positive results thanks to its increase, but the same occurs as with Return on assets ratio: numbers are not high enough.

Similarly to the Return on assets ratio, the company from Seville is the only one which presents conclusive results, unlike Silbon.

6.5. MARKET VALUE RATIOS

“Market value ratios are used to evaluate the share price of a company’s stock.”25

Figure 6.5.1. Silbon and Álvaro Moreno’s Book value per share ratios table. Source: own elaboration

24 & 25 Definition from: ["https://corporatefinanceinstitute.com/resources/knowledge/finance/financial-ratios]

0%

0%

0%

1%

1%

1%

1%

1%

2%

2%

2016 2017 2018

Return on equity ratio


Book value per share ratio 2018 2017 2016

SILBON 347761% 300564% 286076%

ÁLVARO MORENO

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“The book value per share ratio calculates the per-share value of a company based on equity available to shareholders:

Book value per share ratio = Shareholder’s equity / Total shares outstanding”26

Figure 6.5.2. Silbon and Álvaro Moreno’s Book value per share ratios graph. Source: own elaboration

The Book value per share ratio offers an interesting result due to the fact that there are 392 Total shares outstanding and these have remained unchanged for the time being, as explained in Silbon’s Equity Analysis. Therefore, a certain change in Book equity does have a significant impact on this ratio. Lastly, since shares are all distributed among the Board of directors, there are none left to profit the company’s dividends, which explains why there is no Dividend yield ratio or Price-earnings ratio. On the other hand, there are no Market Value ratios in Álvaro Moreno due to the fact that there are no shares at all, hence no dividends are being issued.

There are no more Market Value ratios shown due to the fact that they cannot be calculated without certain data in the case of Silbon, such as dividend per share and earnings per share.

7. CONCLUSION

7.1. GENERAL CONCLUSIONS

Silbon has been improving its performance over the last three years, however it must still considerably improve its results in order to show significant margins between profits and expenses. As already stated, it is evident that, despite a great


0%

50000%

100000%

150000%

200000%

250000%

300000%

350000%

400000%

2016 2017 2018

Book value per share ratio




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part of its profit being destined to pay debt, a not insignificant percentage is kept by shareholders.

Moreover, the company continues to grow largely thanks to loans from banks and other creditors. Although it has proven that this works in a certain way, it would be more advisable for shareholders to reinvest part of their profit in the company, thus reducing debts and increasing the capital of the company.

On the other hand, Silbon has not taken too many risks, opening stores in popular commercial areas and corner shops in some El Corte Inglés stores, which is a sound commercial strategy. However, it should make a greater effort to differentiate itself from other similar brands such as El Ganso or Scalpers. A suggestion might be to focus on producing a women’s collection again, yet in the past this did not work so well. However, now that it has the advantage of being bigger and better known, it might be a strategy worth looking into. Lastly, their objective of selling its products on Amazon could considerably increase its online presence, which has delivered excellent results to date, constituting a significant part of sales. This would allow Silbon to reach a wider audience of consumers around the globe, instead of just Spain and its store in Paris.

Álvaro Moreno has grown at a completely different rate, with results of tens of millions every year, becoming one of the big clothing companies in Spain in 2018. While the quality of its products is perhaps slightly lower than that of its competitors, low prices and clothes that look good make Álvaro Moreno particularly appealing to consumers. It must be added that this business strategy has proven to be really successful, hence there are no changes needed in that respect.

With such high revenues often come high costs, but a considerable number of dividends to the CEO, Álvaro Moreno himself, are then reinvested in the company to reduce the company’s debt with banks and pay interests. This is a similar strategy to the one followed by Amancio Ortega with companies from the Inditex group, such as Zara.

For now, it is focusing on a national expansion, although it is eyeing with the idea of opening a store in Portugal. Álvaro Moreno’s outstanding results show that there is likely to be less room for improvement, yet international growth could be the next right step for the company.

7.2. SPECIFIC CONCLUSIONS

7.2.1. Silbon

The accounts show that Current Assets are by far higher than Non-Current Assets. In terms of the latter, Tangible fixed assets seem to be their main priority in this area, especially due to the latest acquisitions, such as the logistic centre in the last year. However, cash in this account is normally destined to cover

53

maintenance costs and investments in new retail stores. In relation to Current Assets, these have also experienced an interesting increase, particularly in the last two years; again, due to the opening of the logistic centre, it had the potential to drastically increase stock. Linked to this, Cash and equivalents more than doubled over these last two years too thanks to the even more vast number of products it could now sell, mainly thanks to the logistic centre. As previously stated, the liquidity in this cash account is usually destined to Reserves and to pay debt.

The main source of Equity is the Share premium which, as already explained, is a constant amount every year; hence, it is interesting to see how the Result for the year has never been the greatest source of income, but in fact cash from shares. Nevertheless, this may denote that a high percentage of the company’s profit may go to the shareholders previously mentioned, and it is them who distribute this money in order to keep the company’s liquidity at a decent level.

It is quite clear how Non-Current Liabilities have played a secondary role in comparison with Current Liabilities. The latter is much lower than the former, focused only in Long-term debt, which has diminished too, while Short-term got higher and higher. On the other hand, Trade and other payables has always been the main liability, more specifically in relation to Short-term suppliers, as they would not charge such high interest rates as banks would and are able to provide a more immediate loan.

7.2.2. Álvaro Moreno

The accounts show that Current Assets are by far higher than Non-Current Assets. In terms of the latter, Tangible fixed assets seem to be their main priority in this area, especially due to the latest acquisitions, such as the logistic centre in the last year. However, cash in this account is normally destined to cover maintenance costs and investments in new retail stores. In relation to Current Assets, these have also experienced an interesting increase, particularly in the last two years; again, due to the opening of the logistic centre, it had the potential to drastically increase stock. Linked to this, Cash and equivalents more than doubled over these last two years too thanks to the even more vast number of products it could now sell, mainly thanks to the logistic centre. As previously stated, the liquidity in this cash account is usually destined to Reserves and to pay debt.

Most of the Equity stems from the Result of the year and the Result of previous years, not excluding Reserves, which has a considerable amount too. Although the Result of the year provides the highest amount of cash, it still has to be distributed in the company. This means that the following year’s Balance Sheet will show as a Result of previous years the true quantity that has been reinvested

54

in the company. However, after observing the evolution of these three last years, it seems highly likely that it will be an even higher amount for both accounts.

There is a very clear difference between Non-Current and Current Liabilities, since the former only has a continuously decreasing amount in Long-term debt, while the latter has increased by millions. This is mainly due to two accounts: Short-term debts and Trade and other payables. As previously explained, the reason why debt with banks has decreased and Other financial liabilities has increased is the reinvestment by Álvaro Moreno, meaning that in this way the interest will be repaid to the company instead of to a bank, since the CEO himself prefers to use equity instead of loans. On the other hand, the other big part of these liabilities relates to services and taxes, which is reasonable, considering the extent to which the company has grown.

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8. BIBLIOGRAPHY

Account deposits of Silbon and Álvaro Moreno for the years: 2016, 2017 and 2018, obtained from registradores.org

(2017): Álvaro Moreno toma impulso: crece con El Corte Inglés, abre tres tiendas y amplía su sede (modaes.es) [https://www.modaes.es/empresa/alvaro-moreno-toma-impulso-crece-con-el-corte-ingles-abre-tres-tiendas-y-amplia-su-sede.html]

(2019) Sectorial report of the Spanish economy, Spanish Export Credit Agency (CESCE] [https://issuu.com/cesce.es/docs/informe_sectorial_cesce_2019]

For the Ratios’ calculations (corporatefinanceinstitute.com) [https://corporatefinanceinstitute.com/resources/knowledge/finance/financial-ratios]

Grimaldi, A. (2019): Álvaro Moreno triplicará instalaciones tras crecer un 350% en la venta digital (Diario de Sevilla) [https://www.diariodesevilla.es/economia/Alvaro-Moreno-expansion-instalaciones-Osuna-crecimento-digital_0_1397560909.html]

de la Huerga, J. (2019): "No sé coser ni diseñar ropa, soy tendero" (Diario de Sevilla) [https://www.diariodesevilla.es/entrevistas/entrevista-alvaro-moreno_0_1402060231.html]

Ibáñez, N. (2019). Silbon, moda masculina que convierte lo clásico en actual (CincoDías; EL PAÍS ECONOMÍA) [https://cincodias.elpais.com/cincodias/2019/08/29/companias/1567089437_183314.html]

Jiménez, R. (2018). “Somos la marca de las raquetas con nombre de pato. Todo surgió como una casualidad, y acertamos” (córdobahoy) [http://www.cordobahoy.es/articulo/gente/entrevista-silbon/20181124132803052101.html]

Losa, J.L. (2019): Álvaro Moreno se lanza a producir sus propias prendas en Osuna (elEconomista.es) [https://www.eleconomista.es/andalucia/noticias/10165334/10/19/Alvaro-Moreno-se-lanza-a-producir-sus-propias-prendas-en-Osuna.html]

Official web page of Álvaro Moreno [https://www.alvaromoreno.com/es/empresa/]

Official web page of Silbon [https://silbonshop.com/es/content/historia]

Pereira, M.J. (2018): Álvaro Moreno, empresario de moda: «Empecé trabajando con 13 años en la tienda de mi padre» (ABCdesevilla)

https://www.modaes.es/empresa/alvaro-moreno-toma-impulso-crece-con-el-corte-ingles-abre-tres-tiendas-y-amplia-su-sede.html



https://issuu.com/cesce.es/docs/informe_sectorial_cesce_2019

https://www.diariodesevilla.es/economia/Alvaro-Moreno-expansion-instalaciones-Osuna-crecimento-digital_0_1397560909.html

https://www.diariodesevilla.es/economia/Alvaro-Moreno-expansion-instalaciones-Osuna-crecimento-digital_0_1397560909.html

https://www.diariodesevilla.es/entrevistas/entrevista-alvaro-moreno_0_1402060231.html

https://www.diariodesevilla.es/entrevistas/entrevista-alvaro-moreno_0_1402060231.html

https://cincodias.elpais.com/cincodias/2019/08/29/companias/1567089437_183314.html

https://cincodias.elpais.com/cincodias/2019/08/29/companias/1567089437_183314.html

http://www.cordobahoy.es/articulo/gente/entrevista-silbon/20181124132803052101.html

http://www.cordobahoy.es/articulo/gente/entrevista-silbon/20181124132803052101.html

https://www.eleconomista.es/andalucia/noticias/10165334/10/19/Alvaro-Moreno-se-lanza-a-producir-sus-propias-prendas-en-Osuna.html

https://www.eleconomista.es/andalucia/noticias/10165334/10/19/Alvaro-Moreno-se-lanza-a-producir-sus-propias-prendas-en-Osuna.html

https://www.alvaromoreno.com/es/empresa/

https://silbonshop.com/es/content/historia

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[https://sevilla.abc.es/sevilla/sevi-alvaro-moreno-empresario-moda-empece-trabajando-13-anos-tienda-padre-201811090727_noticia.html]

Ruso, F. (2018): El imperio de Álvaro Moreno, el sevillano que dejó sin ropa a Dani Mateo y a 'El Intermedio' (EL ESPAÑOL) [https://www.elespanol.com/reportajes/20181118/alvaro-moreno-sevillano-sin-dani-mateo-intermedio/353715715_0.html]

Spanish Retail trade of clothing in specialised establishments sector ranking (elEconomista.es) [https://ranking-empresas.eleconomista.es/SILBON-CLASICO.html]

Spanish Retail trade of clothing in specialised establishments sector ranking (elEconomista.es) [https://ranking-empresas.eleconomista.es/ALVARO-MORENO.html?_ga=2.167778791.75724070.1587728434-117454686.1580828060#ranking-sectorial-empresas]



https://www.elespanol.com/reportajes/20181118/alvaro-moreno-sevillano-sin-dani-mateo-intermedio/353715715_0.html

https://www.elespanol.com/reportajes/20181118/alvaro-moreno-sevillano-sin-dani-mateo-intermedio/353715715_0.html






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9. FIGURE INDEX

Figure 2.1. .................................................................................................................... 5 Figure 4.1.1.1................................................................................................................ 7 Figure 4.1.1.2................................................................................................................ 8 Figure 4.1.2.1.............................................................................................................. 10 Figure 4.1.2.2.............................................................................................................. 11 Figure 4.1.3.1.............................................................................................................. 12 Figure 4.1.3.2.............................................................................................................. 13 Figure 4.2.1.1.............................................................................................................. 15 Figure 4.2.1.2.............................................................................................................. 15 Figure 4.2.2.2.............................................................................................................. 18 Figure 4.2.3.1.............................................................................................................. 19 Figure 4.2.3.2.............................................................................................................. 20 Figure 4.3.1. ............................................................................................................... 22 Figure 4.3.2. ............................................................................................................... 22 Figure 4.3.3. ............................................................................................................... 23 Figure 4.3.4. ............................................................................................................... 23 Figure 4.3.5. ............................................................................................................... 23 Figure 4.3.6. ............................................................................................................... 24 Figure 4.3.7. ............................................................................................................... 25 Figure 4.3.8. ............................................................................................................... 25 Figure 4.3.9. ............................................................................................................... 25 Figure 4.3.10. ............................................................................................................. 26 Figure 5.1.1. ............................................................................................................... 27 Figure 5.1.2. ............................................................................................................... 28 Figure 5.1.3. ............................................................................................................... 29 Figure 5.2.1. ............................................................................................................... 31 Figure 5.2.2. ............................................................................................................... 32 Figure 5.2.3. ............................................................................................................... 33 Figure 5.3.1. ............................................................................................................... 34 Figure 5.3.2. ............................................................................................................... 34 Figure 5.3.3. ............................................................................................................... 35 Figure 5.3.4. ............................................................................................................... 35 Figure 5.3.5. ............................................................................................................... 35 Figure 5.3.6. ............................................................................................................... 36 Figure 5.3.7. ............................................................................................................... 36 Figure 5.3.8. ............................................................................................................... 37 Figure 5.3.9. ............................................................................................................... 37 Figure 5.3.10. ............................................................................................................. 38 Figure 5.3.11. ............................................................................................................. 38 Figure 5.3.12. ............................................................................................................. 38 Figure 6.1.1. ............................................................................................................... 39 Figure 6.1.2. ............................................................................................................... 39 Figure 6.1.3. ............................................................................................................... 40 Figure 6.1.4. ............................................................................................................... 40 Figure 6.2.1. ............................................................................................................... 41 Figure 6.2.2. ............................................................................................................... 42

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Figure 6.2.3. ............................................................................................................... 42 Figure 6.2.4. ............................................................................................................... 42 Figure 6.2.5. ............................................................................................................... 43 Figure 6.2.6. ............................................................................................................... 44 Figure 6.3.1. ............................................................................................................... 44 Figure 6.3.2. ............................................................................................................... 45 Figure 6.4.1. ............................................................................................................... 46 Figure 6.4.2. ............................................................................................................... 47 Figure 6.4.3. ............................................................................................................... 47 Figure 6.4.4. ............................................................................................................... 48 Figure 6.4.5. ............................................................................................................... 48 Figure 6.4.6. ............................................................................................................... 49 Figure 6.4.7. ............................................................................................................... 49 Figure 6.4.8. ............................................................................................................... 50 Figure 6.5.1. ............................................................................................................... 50 Figure 6.5.2. ............................................................................................................... 51

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