FINANCIAL HIGHLIGHTS, 2006
- Net sales at EEK 900mln, +32% yoy
- Retail sales up 35% yoy
- Like-for-like sales growth 13% yoy
- Gross margin at 54.5%
- Operating profit EEK 97.3mln, +30% yoy
- Operating margin at 10.8%
- Profit before income tax EEK 91.3mln, +29% yoy
- Net profit EEK 87.4mln, +20% yoy
- Net margin at 9.7%
- Return on equity 35.9%
Chairman of the Board, Meelis Milder: “The year 2006 was a successful
introduction of the three-year strategic period of the Baltika Group. The year
was completed with record sales and net profit of EEK 900 million and 87
million, respectively. We opened more stores per year than ever - altogether 32
- and increased the sales space operated by the Group by 54%. As our goal is
profitable growth, it is a great pleasure to see higher gross margin level in
2006 (54.5%) in comparison with the last year as well as higher inventory
turnover rate. We also achieved a strong growth of 13% in like-for-like sales in
2006.
In accordance with our strategic goals, we completed several projects in 2006
that support the future growth: among others we have made our brands larger and
stronger, we acquired a new brand to enter the premium market for ladies and
started preparations for entering new Central and Eastern European markets in
2007-2008.”
Baltika Group's net profit in 2006 amounted to EEK 87.4 million (EUR 5.6
million) and net profit margin reached 9.7% (2005: 10.7%). The Group's net
profit grew 20.2% yoy. Baltika's 2006 net sales increased 32.1%, while retail
sales posted a growth of 34.7% and wholesale increased 24.6% in comparison with
the previous year. The Group's gross margin rose to 54.5%, compared with 51.6%
in 2005. Operating margin stood at 10.8% (2005: 11.0%).
Baltika's 4Q 2006 sales totalled EEK 281.2 million (EUR 18.0 million), up 47.7%
yoy. Retail sales grew 49.3% and wholesale 40.0%. In the fourth quarter, the
Group's gross margin was 57.4% (4Q 2005: 53.2%) and operating margin 12.9% (4Q
2005: 15.2%). Net profit in 4Q grew 18.0% yoy to EEK 31.1 million (EUR 2.0
million) bringing net margin to 11.1% (4Q 2005: 13.8%).
SALES
Sales by segment
--------------------------------------------------------------------------------
| EEK mln | 4Q 2006 | 4Q 2005 | +/- | 2006 | 2005 | +/- |
--------------------------------------------------------------------------------
| Retail sales | 248.1 | 166.2 | 49.3% | 736.4 | 546.8 | 34.7% |
--------------------------------------------------------------------------------
| Wholesale | 29.8 | 21.3 | 40.0% | 150.6 | 120.9 | 24.6% |
--------------------------------------------------------------------------------
| Subcontracting | 0 | 0 | 0% | 0 | 0.6 | -100.0% |
--------------------------------------------------------------------------------
| Other sales | 3.3 | 2.9 | 12.5% | 12.5 | 12.8 | -1.7% |
--------------------------------------------------------------------------------
| Total | 281.2 | 190.3 | 47.7% | 899.5 | 680.9 | 32.1% |
--------------------------------------------------------------------------------
1 EUR = 15.6466 EEK
RETAIL SALES
In 2006, Baltika continued expanding its store network faster than before - the
average sales space of the Baltika Group increased by 30% as compared to the 8%
growth in 2005. As a result, the growth of retail sales was also faster in 2006
reaching 34.7% (2005: 30.1%). The Group's retail sales totalled EEK 736.4
million (EUR 47.1 million) in 2006.
Like-for-like sales (sales in comparable stores) increased 13% in 2006. A store
is comparable if it has been open and has had an unchanged sales area during the
reporting period and during the comparable preceding period.
As a result of fast growth, the share of retail sales also increased in the
Group's total sales. In 2006, retail sales represented 82% of Baltika's total
sales compared to 80% in 2005.
The Group's sales efficiency (sales/m2) was up 3% yoy in 2006. The growth of the
Group's average sales efficiency has slowed down in 2006 as compared to previous
year reflecting initial lower sales density of new stores. In 2006, a lot of new
stores were opened in Russia and Ukraine moving from capital cities to major
regional cities where it takes time for the new shopping centres to build up
customer traffic. Hence, it takes up to 12-18 months for a store to achieve
planned sales density at such locations. At the same time, stores opened at
high-quality and already established centres achieve the planned sales density
almost immediately.
Sales density is also affected by enlarging store formats. More than half of the
Monton shops opened in 2006 are 300 square metres or larger. In November 2006,
Baltika opened the largest Monton store to date - a 500 square metre shop - in
Moscow's newest and largest shopping and leisure centre Evropeisky. This shop is
a good example of Monton's strategic direction to start operating larger stores.
The Group also continued to improve stock management in 2006 - the inventory
turnover ratio increased 9% over the year from 4.92 to 5.38. A strategically
important investment in terms of future expansion and stock management was
completed in July when Baltika's new logistics centre started operating. If
compared with the old one, the new logistics centre has much higher capacity and
enables to handle increasing quantities of merchandise faster, making inventory
management more flexible and efficient.
In 2006, investments into customer service were prioritised including
implementation of extensive sales and customer service training for staff. In
addition, two brands, Monton and Mosaic, received new store formats that are
flexible and can be used in stores with different floor space as well as
comfortable and attractive shop environments for customers. Consequently, we
have seen progress in customer service in our stores and in the number of loyal
customers. In 2006, the number of people who visited Baltika's stores in six
markets grew 37%.
Bearing in mind the strategic goals and future growth, the Group extended its
brand portfolio by the acquisition of Ivo Nikkolo fashion brand. With this
acquisition, Baltika entered the premium ladies' fashion market. Also, in the
beginning of the year Baltika successfully carried out a name change of one of
its brands - CHR/Evermen became Mosaic. The name change was implemented in order
to simplify the brand's name and thus enhance the concept's international
competitiveness.
In the fourth quarter of 2006, the Group's retail sales grew 49.3% and amounted
to EEK 248.1 million (EUR 15.9 million). The 4Q sales growth was driven by new
store openings during the last 12 months as well as increasing sales efficiency
in like-for-like stores. Fourth quarter like-for-like sales posted a strong
growth of 14% on an annual basis.
OVERVIEW BY MARKETS
The macroeconomic environment in Baltika's markets continued to be favourable
throughout 2006. The fastest economic growth occurred in Baltika's home market
i.e. the Baltic countries (7-12%). The overall economic growth is carried
through into the purchasing power of our customers. In the Baltic countries,
retail sales of textiles, clothing, footwear and leather goods in constant
prices increased by 35-42% in 2006. The GDP growth in Russia and Ukraine was
also strong last year - respectively 6.7% and 7.0% according to preliminary
data.
Retail sales by market
--------------------------------------------------------------------------------
| EEK mln | 2006 | 2005 | +/- | Share of markets, |
| | | | | 2006 |
--------------------------------------------------------------------------------
| Estonia | 202.2 | 153.0 | 32% | 28% |
--------------------------------------------------------------------------------
| Latvia | 105.7 | 74.3 | 42% | 14% |
--------------------------------------------------------------------------------
| Lithuania | 178.8 | 130.5 | 37% | 24% |
--------------------------------------------------------------------------------
| Ukraine | 128.5 | 98.6 | 30% | 17% |
--------------------------------------------------------------------------------
| Russia | 86.7 | 51.3 | 69% | 12% |
--------------------------------------------------------------------------------
| Poland | 34.4 | 39.2 | -12% | 5% |
--------------------------------------------------------------------------------
| Total | 736.4 | 546.8 | 35% | 100% |
--------------------------------------------------------------------------------
The Baltic countries maintained their 66% share in Baltika's retail sales in
2006. As only a few new stores were opened in these markets in 2006, sales
growth in the Baltics was mainly driven by good performance of like-for-like
stores. Estonia and Latvia saw especially strong rise in sales per square metre.
In Lithuania, sales growth was also supported by eight new openings in 2005.
In terms of individual markets, Estonia was Baltika's largest retail market last
year based on sales revenues. With EEK 202.2 million (EUR 12.9 million) Estonia
accounted for 28% of the Group's retail sales. Baltika's retail sales in Estonia
increased 32% in 2006. Lithuania where retail sales grew 37% yoy to EEK 178.8
million (EUR 11.4 million) continued in the second position with its 24% share.
Latvia posted the strongest growth in retail sales among the Baltic States -
sales were up 42% yoy and totalled EEK 105.7 million (EUR 6.8 million).
The largest number of stores in 2006 was opened in Ukraine and Russia. Ten new
shops were opened in Ukraine doubling Baltika's sales space to ca 4,000 square
metres in that market. Majority of stores were opened outside the capital in
other large cities such as Odessa, Donetsk and Dnepropetrovsk. Only one store
was opened in Kiev, the capital city, because of the deficit of modern shopping
centre developments in Ukraine's capital. The situation in Kiev should improve
in 2008.
Due to high inflation caused by the increase in the prices of gas, household
expenditures and food, the Ukrainian people tended to be less interested in
shopping for fashion clothing in 2006. On average, the prices of goods and
services in Ukraine increased by 9.1% in 2006 while the prices of services alone
increased by 27.8%. Nevertheless, Baltika's retail sales increased 30% in
Ukraine in 2006 and amounted to EEK 128.5 million (EUR 8.2 million). Though, due
to the above mentioned reasons, like-for-like sales growth in Ukraine was twice
as low as the Group's average for 2006.
Russia saw the largest number of new openings in 2006 - altogether 15 new stores
(including nine stores in 4Q). As a result, Baltika's retail space increased
four times in Russia last year to ca 5,000 square metres. The Group moved into
two new cities, Krasnodar and Nizhni Novgorod, and opened two additional stores
in Kazan. The largest expansion took place in St. Petersburg where eight new
stores were opened taking the total to ten. This has had a positive effect on
Baltika's brand awareness among customers in St. Petersburg. In Moscow,
Baltika's Monton brand is strengthening its position by opening flagship stores
in the two most important shopping centres of the city. In November 2006, a
Monton store was opened in Moscow's newest and largest shopping and leisure
centre Evropeisky and in January 2007, another Monton store was opened in
Moscow's most popular shopping centre Ohotniy Ryad.
Development of shopping centres has accelerated in the two most important cities
of Russia - Moscow and St. Petersburg. The trend is expected to continue in the
coming years. Shopping centre development is gathering speed also in the other
large cities of Russia. Under these circumstances, it is most important for
Baltika to choose the best locations and open stores. It has to be noted,
though, that the competition in the retail sector is high and in some cases the
offering of shopping centres exceeds the demand from customers. These are large
cities where it takes time for customer habits to change so that shopping in big
centres becomes a common practice. Hence, the starting period of new stores is
longer in the Russian market if compared to Baltika's home market and can last
up to 12-18 months. Therefore one of the main tasks of Baltika, besides
expansion, is to increase the number of loyal customers and strengthen overall
brand awareness in the Russian market. The latter is fostered by opening of the
flagship stores in Moscow.
In Russia, the Baltika Group's retail sales grew 69% in 2006 to EEK 86.7 million
(EUR 5.5 million). Although Russia accounted for just 12% of the Group's retail
sales in 2006, this market is expected to become more and more important in the
future along with continuing expansion. In April 2006, Baltika also became a
sole owner of its Russian subsidiary after acquiring an additional 49.9% stake
in the company.
Despite decreasing sales in Poland, Baltika saw very positive developments in
that market in 2006. Sales in Poland totalled EEK 34.4 million (EUR 2.2 million)
decreasing 12% over the year. Overall sales decreased due to closing of three
stores out of Baltika's eight stores in the market. As a result of closings,
sales area was cut by 38%, however, sales dropped only 12% because the Polish
market achieved a 16% growth in sales efficiency (sales/m2) and a 9% growth in
like-for-like sales in 2006. Positive trends appeared in the second half of 2006
when like-for-like sales growth reached 21% versus the same period last year.
Poland is currently the smallest of Baltika's markets, with five stores and
sales comprising 5% of the Group's retail sales.
OVERVIEW BY BRANDS
In terms of brands Monton accounted for the largest share (52%) of the total
retail sales in 2006. The sales of Mosaic were 33% and Baltman 11% of the
Group's retail sales. The new brand Ivo Nikkolo - acquired in September 2006 -
accounted for only one percent of the retail sales. The rest, 3%, came from
factory outlet stores and one multibrand store that sells several brands
together.
Monton as the largest brand of Baltika posted a solid growth in 2006, achieving
the retail sales of EEK 385 million (EUR 24.6 million) which is 31% more than in
2005. The sales growth was driven by increasing number of stores, a better
coordinated base collection, and successful launch of new product groups. The
year 2006 marked expansion both for the whole Baltika Group as well as Monton -
15 new stores were opened taking the total number of stores to 44. In accordance
with the set goals Monton started to operate larger stores, opening eight
300-400 square meter shops and one 500 square meter flagship store in Moscow. In
future Monton will focus on opening average (300-400 m²) and large (500 m² and
larger) stores. In order to become more attractive for the client the base
collection choice was expanded, a new lingerie and beachwear collection was
launched, and several new product groups were introduced into the collection of
accessories. Compared with the growth of the clothing sales, the sales of
accessories grew even faster (+47%). This growth was based on very successful
launch of sun-glasses, Monton's own stockings and socks collections and a more
focussed choice of accessories that better matched the base collection. In
addition, Monton men's collection witnessed a higher growth than the average
growth of the whole brand.
Last year Monton increased brand awareness by creating the uniforms for the very
successful Estonian Olympic Team for the 2006 Torino Olympic Winter Games. The
co-operation with the Estonian Olympic Committee will continue in preparation
for the 2008 Beijing Summer Olympics. Monton is also chosen by the Olympic
Committee of Ukraine as the official partner to dress its sportsmen for the 2008
Beijing Summer Olympics.
The past year showed that Monton is continuously innovative and is able to
surprise clients with exciting marketing, to successfully launch new product
groups, to wisely develop the base collection, and to productively operate on
larger store areas. In 2007 Monton aims to launch its footwear collection and
become even more efficient.
The year 2006 marked the birth of the brand Mosaic - in February Baltika changed
the name of one of its concepts and CHR/Evermen stores became Mosaic. The name
change was carried out in order to simplify the brand's name and thus enhance
the concept's international competitiveness, especially in large markets such as
Russia and Ukraine where the brand awareness is currently limited due to the
small number of stores. The name change can be definitely regarded successful -
with the 56% retail sales growth Mosaic was the fastest growing Baltika brand in
2006. The retail sales of Mosaic amounted to EEK 242 million (EUR 15.4 million)
in 2006. The growth in sales revenue was due to both the growth of sales
efficiency in like-for-like stores and opening of new stores. By the end of
2006, the number of Mosaic stores reached 45, out of which 14 were newly opened
stores.
Collection-wise the year was good for both Mosaic women's and men's collections.
The greatest change in women's collection took place in autumn - the party
collections were introduced in stores already in September and new items were
added in October and November. In future the Mosaic women's collection will
offer festive clothes all year round. The Mosaic men's collection witnessed
significant changes becoming more stylish and including more fashionable
details. The aim of the change is to increase the sales efficiency of the Mosaic
men's collection. In 2006 this goal was already achieved in the Baltic countries
and in 2007 the goal is to increase sales efficiency in all other markets. The
accessories collection also witnessed a noteworthy development in 2006 as a
result of which the sales of accessories increased by 71% compared with the
previous year. In 2007 it is planned to increase the relative share of the
accessories even more.
The 2007 will be remarkable for Mosaic - in spring the brand will launch its
first children's collection in the larger stores. In future Mosaic will become a
brand for the whole family. The women's, men's and also accessories' collections
will be developed in the direction established with the 2006 name change. The
collections will be balanced with each other and develop together with the
client who expects the Mosaic products to be new, stylish and fashionable. Also,
from the year 2007 onwards the number of collections will be increased from four
to seven per year.
The retail sales of Baltman totalled EEK 80 million (EUR 5.1 million) in 2006,
increasing by 39% compared with the previous year. In 2006 three new stores were
opened and by the end of the year Baltman had 15 stores in five countries. The
year 2006 as a whole was successful for the brand. This was mostly due to
offering the target client a collection enabling a more specific choice, also a
more fashionable and high-quality product which is characteristic of the brand's
core values. New details, innovative materials and finishings, plus additions to
the present product ranges have all been most favourably received by the
customers. In the range of accessories the results of the year 2006 can also be
regarded successful - a more specific and wider choice resulted in a larger than
expected sales revenue. The sales were enhanced by timely and successful
campaigns, especially the Baltman Travel suit campaign. In addition, last year
Baltman and the Estonian national football team signed a sponsorship agreement.
As provided by the agreement, the Estonian national football team will wear
Baltman Travel suits at public events during the next two years. To dress the
national football team is the aim of any serious men's brand. Last year Baltman
also renewed the co-operation agreement with the Latvian national football team.
In September 2006 Baltika acquired a well-known Estonian fashion brand Ivo
Nikkolo. The aim of the acquisition was to expand the brand portfolio and to
enter the premium fashion market for ladies. Together with the trademark rights
Baltika also took over the three Ivo Nikkolo stores in Estonia. Merging the Ivo
Nikkolo brand with Baltika has been successful - the brand's turnover after the
merger was more than EEK 5.0 million (EUR 0.35 million), delivering an estimated
sales growth of 40% compared with the same period of the previous year.
Ivo Nikkolo brand has found its own niche in the Baltika Group's brand portfolio
- the brand will focus on ladies fashion in future. The aim is to maintain Ivo
Nikkolo's specific style and enlarge the assortment. The production facilities
of Baltika Group enable to offer the top-level sewing quality vital for premium
brand. The assortment of casual clothing will also be broader and as a result
the whole collection will become more balanced. In addition, in 2007 the number
of collections will be increased to seven collections per year.
In 2006 a new store environment and concept were developed for Ivo Nikkolo
brand. The aim of the brand is to offer the client a comfortable and spirited
shopping environment with attentive and personal service. In the upcoming years
Baltika plans to expand the chain of Ivo Nikkolo stores into the markets
presently covered by other Baltika brands. The first new concept stores will be
opened in 2007 in Lithuania and Latvia. All in all, 8-12 Ivo Nikkolo stores are
planned to be opened in 2007-2008.
SHOPS AND SALES AREA
As of the end of 2006, the Baltika Group operated 112 shops in six countries,
with total sales area of 19,594 square metres. As of the end of 2005, Baltika's
retail system comprised 86 stores with total sales area of 12,736 square metres.
During 2006, 32 new stores were opened, nine closed (including relocated stores)
and three stores were added with the acquisition of Ivo Nikkolo. All the new
stores were opened in shopping centres. The net growth of the retail system in
2006 was 26 stores and 6,858 square metres as a result of which the sales area
operated by Baltika increased by 54% over the year.
In terms of markets, the largest retail chain expansion took place in Russia and
Ukraine last year with 15 and 10 new store openings, respectively. Four stores
were opened in Latvia, two in Estonia and one in Lithuania.
Number of shops by country
--------------------------------------------------------------------------------
| | 31.12.2006 | 31.12.2005 |
--------------------------------------------------------------------------------
| Estonia | 28 | 24 |
--------------------------------------------------------------------------------
| Latvia | 13 | 10 |
--------------------------------------------------------------------------------
| Lithuania | 22 | 23 |
--------------------------------------------------------------------------------
| Ukraine | 21 | 12 |
--------------------------------------------------------------------------------
| Russia | 23 | 9 |
--------------------------------------------------------------------------------
| Poland | 5 | 8 |
--------------------------------------------------------------------------------
| Total shops | 112 | 86 |
--------------------------------------------------------------------------------
| Total sales area, m2 | 19,594 | 12,736 |
--------------------------------------------------------------------------------
In terms of brands, the largest number of stores were opened under the Monton
(15) and Mosaic (14) names. In addition, three multibrand shops in Russia were
converted into Mosaic stores. A total of three Baltman stores were opened. As of
the end of 2006, the stores were divided between the concepts as follows: 45
Mosaic, 44 Monton, 15 Baltman, 3 Ivo Nikkolo and 4 factory outlet stores. In
addition, Baltika still had one multibrand store that sells several brands
together.
In the fourth quarter Baltika opened 13 new stores and closed one. Most of the
4Q openings took place in Russia - a total of nine stores. Three stores were
opened in Ukraine and one in Lithuania.
WHOLESALE
In 2005, wholesale sales of Baltika's brands amounted to EEK 150.6 million (EUR
9.6 million) and represented 17% of Baltika's net sales. The growth of wholesale
sales of almost 25% yoy was stronger than expected. The biggest contributor to
growth was Russian wholesale.
One of Baltika's largest wholesale clients in Russia is a company that operates
around 30 stores in the Siberia and Ural region that sell Baltika's brands. The
other wholesale partners are mainly department stores in the Baltics and Finland
such as Stockmann and Tallinn Department Store Group. Two brands - Mosaic and
Baltman - are mostly distributed wholesale whereas Mosaic accounts for almost
half of Baltika's wholesale. Monton is only sold wholesale to Baltika's Russian
partner.
The fourth quarter of the year is traditionally a low one for wholesale.
Baltika's 4Q wholesale sales totalled EEK 29.8 million (EUR 1.9 million) and
accounted for 11% of the Group's net sales. However, wholesale sales posted a
solid growth of 40.0% yoy in the last quarter of the year.
EARNINGS AND MARGINS
2006 was the first year in Baltika's three-year strategic period during which
the Group's goal is to grow profitably. The year was successful - the Group
expanded rapidly as well as prepared several projects that facilitate fast
growth in the future (construction of the new logistics centre, acquisition of a
new brand, name change of one of the brands, development of shop concepts,
development and launch of new product groups). Although the Group increased its
sales space rapidly in more risky markets such as Russia and Ukraine where the
starting period of new stores is longer putting pressure upon the profit
margins, the Group maintained strong profitability in 2006. Overall, the results
were supported by solid growth of retail sales (+35% yoy), including good growth
in like-for-like sales (+13%), better sales efficiency (+3%) and more efficient
inventory management.
The Group's gross profit margin in 2006 rose to 54.5% from the corresponding
figure of 51.6% in 2005. Gross profitability was bolstered by better intake
margins and more accurate product pricing on the markets. As a result of strong
sales, 4Q gross margin rose to 57.4% (4Q 2005: 53.2%). In 2006, the Group's
gross profit amounted to EEK 490.6 million (EUR 31.4 million) and was up by
39.7% versus 2005.
The Group's operating expenses are growing in conjunction with the expansion of
the retail network. Despite the fact that the new shops have initially lower
sales density while operating costs are reported in full, the Group was able to
maintain the operating margin almost unchanged in comparison with 2005. In 2006,
operating margin stood at 10.8% compared with 11.0% in 2005 and operating profit
increased 29.9% to EEK 97.3 million (EUR 6.2 million).
Baltika's operating profit in 2006 includes some one-off revenues from the sale
and revaluation of real estate in the amount of EEK 11.89 million (EUR 760
thousand). In the third quarter, Baltika received EEK 7.51 million (EUR 480
thousand) from sale of a building lease on a plot located in Lasnamäe Industrial
Park in Tallinn. A factory will be built on the site by November 2007 for
relocation of the production premises of Baltika's joint venture OÜ Baltika
Tailor from Veerenni 24, Tallinn. In the fourth quarter, EEK 4.38 million (EUR
280 thousand) was recorded as revenue from the revaluation of the Group's real
estate investments. In 2005, Baltika's operating profit included one-off
revenues from the revaluation of the Group's real estate investments in the
amount of EEK 13.74 million (EUR 878 thousand).
In 2006, fluctuations in foreign exchange rates had a negative impact on the
results. Other operating expenses include foreign exchange losses in the amount
of EEK 4.71 million (EUR 301 thousand) in 2006. In 2005, the Group received
foreign exchange gains in the amount of EEK 4.93 million (EUR 315 thousand) -
recorded in other operating income.
The Group's financial expenses totalled EEK 6.0 million (EUR 386 thousand)
increasing by 53.0% over the year. Financial expenses grew mostly as a result of
foreign exchange losses. Foreign exchange gains of EEK 645 thousand (EUR 41
thousand) earned in 2005 were replaced by foreign exchange losses in the amount
of EEK 863 thousand (EUR 55 thousand) in 2006. Interest expenses grew 5.8% yoy
to EEK 5.7 million (EUR 366 thousand) in 2006.
The Group's profit before income tax grew 28.7% over the year and amounted to
EEK 91.3 million (EUR 5.8 million) in 2006.
The Baltika Group's net profit after taxes and minority shareholding amounted to
EEK 87.4 million (EUR 5.6 million) in 2006, up 20.2% versus last year. Net
margin reached 9.7% (2005: 10.7%).
In the fourth quarter of 2006, Baltika's net profit amounted to EEK 31.1 million
(EUR 2.0 million) and net profit margin was 11.1% (4Q 2005: 13.8%).
The Group's return on equity was 35.9% in 2006 (2005: 44.1%) and return on
assets 18.3% (2005: 22.2%).
BALANCE SHEET
On 31 December 2006, the total assets of the Baltika Group amounted to EEK 596.4
million (EUR 38.1 million), up 58% in comparison with the end of the previous
year. The growth is attributed to the Group's fast expansion.
Due to the strong growth and the credit terms of the wholesale sales, trade
receivables increased by EEK 46.8 million (EUR 3.0 million) over the year,
reaching EEK 86.4 million (EUR 5.5 million). Other receivables and prepaid
expenses have grown mainly because of increasing prepayments of rent and
value-added tax in Russia and Ukraine.
As of the end of the year, the Group's total inventories stood at EEK 200.7
million (EUR 12.8 million), up by EEK 56.2 million (EUR 3.6 million) or 39%
since the end of 2005. The growth is mainly due to increasing number of shops in
Baltika's retail network. The Group's inventory turnover ratio (net
sales/average inventories) increased from 4.92 to 5.38 in 2006, reflecting more
efficient stock management.
Likewise, due to major expansion of Baltika's retail business, supplier payables
expanded by EEK 51.7 million (EUR 3.3 million) to EEK 96.5 million (EUR 6.2
million) by the end of 2006.
At the end of the year, the Group's borrowings amounted to EEK 147.4 million
(EUR 9.4 million), including bank loans of EEK 105.0 million (EUR 6.7 million).
The rest of the debt consists of finance lease liabilities (EEK 11.2 million/EUR
0.7 million) and bonds (EEK 31.2 million/EUR 2.0 million). Over the year, the
Group's borrowings have increased by EEK 54.6 million (EUR 3.5 million),
including bank loans by EEK 41.7 million (EUR 2.7 million). Bank loans have
increased mainly due to the usage of the bank's overdraft in the amount of EEK
31.9 million (EUR 2.0 million). As of 31.12.2005, the bank's overdraft was not
used. Overall debt level has grown because of the need to finance the expansion
of the retail space and the construction of the new logistics centre. In 2006,
the Group made loan repayments in the amount of EEK 12.7 million (EUR 0.8
million).
As of the end of 2006, the Group's total net debt (Interest-bearing liabilities
less Cash and Current financial assets) amounted to EEK 134.8 million (EUR 8.6
million), and the net debt to equity ratio stood at 44.3%. A year ago, net debt
to equity ratio was 31.3%.
The Group's equity grew by EEK 96.3 million (EUR 6.2 million) in 2006 to EEK
304.2 million (EUR 19.4 million).
INVESTMENTS
The Group's investments in 2006 totalled EEK 130.4 million (EUR 8.33 million).
In 2005, investments amounted to EEK 36.2 million (EUR 2.31 million).
A total of EEK 75.6 million (EUR 4.83 million) was invested in the retail system
and EEK 33.8 million (EUR 2.16 million) in the new logistics centre. The
acquisition of an additional 49.9% stake in the Russian subsidiary cost EEK 6.3
million (EUR 0.40 million). Investments in information technology, software and
licences amounted to EEK 10.2 million (EUR 0.65 million). The rest of the
investments of EEK 4.5 million (EUR 0.29 million) were made in production
equipment and other fixed assets.
ENLARGEMENT OF THE SHARE CAPITAL
As a result of converting D-bonds into shares, the share capital of Baltika
increased by EEK 1,176,000 (EUR 75,160) in the fourth quarter of 2006. The
company issued 117,600 new shares with a nominal value of EEK 10.00 (EUR 0.64)
per share. The total issue price of the shares was EEK 28.95 (EUR 1.85) per
share including a premium of EEK 18.95 (EUR 1.21) per share. The share premium
in the transaction was EEK 2,228,520 (EUR 142,428).
As of the end of the year, the share capital of Baltika amounted to EEK
62,149,500 (EUR 3,972,077) consisting of 6,214,950 common shares.
The Group's share capital increased by EEK 3,920,000 (EUR 250,534) during 2006,
as a result of the conversion of 392,000 C- and D-bonds into shares. The share
premium in the transactions was EEK 9,083,440 (EUR 580,538).
As of the end of 2006, all the convertible bond programs of Baltika Group were
completed.
PERSONNEL
As of the end of 2006, Baltika Group employed 1,915 people (31.12.2005: 1,678),
including 857 (630) in retail, 866 (896) in production, and 192 (152) at the
head office. During 2006, the number of employees increased by 237 people, while
the largest growth occurred in retail (+227) as a result of opening new stores.
The number of people employed outside Estonia was 689 (483) representing 36% of
the Group's employees. The average number of personnel stood at 1,777 (1,651) in
2006.
In 2006, the Baltika Group's wages and salaries amounted to EEK 137.5 million
(EUR 8.8 million). The remuneration paid to the members of the Management Board
and Supervisory Board totalled EEK 6.1 million (EUR 0.4 million).
OUTLOOK AND GOALS FOR 2007
In 2007, Baltika Group will continue implementation of its profitable growth
strategy:
- The Group's goal in 2007 is to increase net sales at least 40%. During the
year, 20-25 new stores are planned to be opened taking the Group's total to
132-137 by the end of the year;
- Continuing expansion into Central and Eastern Europe, Baltika plans to enter
one or two new markets (Czech Republic and Romania);
- Gross margin will be improved (54.5% in 2006);
- The brands will launch new product groups: Mosaic will launch childrenswear
during the spring-summer season and Monton will present footwear during the fall
season;
- Ivo Nikkolo starts expansion into the other Baltic markets (Latvia and
Lithuania) in 2007;
- Investments are continuing into information technology related to the
management of inventory and overall retail system;
- In the fall of 2007, a new production building will be completed in the
suburbs of Tallinn for relocation of the Group's production company Baltika
Tailor that is currently located in the city centre at Veerenni 24. After that,
the real estate owned by Baltika at Veerenni 24 is ready for extensive
development.
REPORTING CALENDAR IN 2007
In 2007, the consolidated financial results of AS Baltika will be published on
the following dates:
2006 audited annual report March 28
2007 1Q results April 24
2007 2Q results July 24
2007 3Q results October 23
In addition, in the beginning of every month the sales results of the preceding
month will be published.
KEY FIGURES OF THE GROUP (2006)
--------------------------------------------------------------------------------
| | 31.12.2006 | 31.12.2005 | +/- |
--------------------------------------------------------------------------------
| Net sales (EEK mln) | 899.5 | 680.9 | 32.1% |
--------------------------------------------------------------------------------
| Retail sales (EEK mln) | 736.4 | 546.8 | 34.7% |
--------------------------------------------------------------------------------
| Share of retail sales in net sales | 82% | 80% | |
--------------------------------------------------------------------------------
| Number of directly managed stores | 112 | 86 | 30.2% |
--------------------------------------------------------------------------------
| Sales area (m2) | 19,594 | 12,736 | 53.8% |
--------------------------------------------------------------------------------
| Number of employees (end of | 1,915 | 1,678 | 14.1% |
| period) | | | |
--------------------------------------------------------------------------------
| Gross margin, % | 54.5% | 51.6% | |
--------------------------------------------------------------------------------
| Operating margin, % | 10.8% | 11.0% | |
--------------------------------------------------------------------------------
| EBT margin, % | 10.1% | 10.4% | |
--------------------------------------------------------------------------------
| Net margin, % | 9.7% | 10.7% | |
--------------------------------------------------------------------------------
| Current ratio | 1.5 | 2.1 | -28.6% |
--------------------------------------------------------------------------------
| Inventory turnover | 5.38 | 4.92 | 9.3% |
--------------------------------------------------------------------------------
| Debt to equity ratio | 48.5% | 44.6% | |
--------------------------------------------------------------------------------
| Return on equity | 35.9% | 44.1% | |
--------------------------------------------------------------------------------
| Return on assets | 18.3% | 22.2% | |
--------------------------------------------------------------------------------
Formulas for key ratios
Gross margin = (Net sales-COGS)/Net sales
Operating margin = Operating profit/Net sales
EBT margin = Profit before corporate income tax/Net sales
Net margin = Net profit (attributable to parent)/Net sales
Current ratio = Current assets/Current liabilities
Inventory turnover = Net sales/Average inventories*
Debt to equity ratio = Interest-bearing liabilities/Equity
ROE (Return on equity) = Net profit (attributable to parent)/Average equity*
ROA (Return on assets) = Net profit (attributable to parent)/Average total
assets*
*Based on 12-month average
1 EUR = 15.6466 EEK
CONSOLIDATED INCOME STATEMENT
(unaudited, in EEK thousand)
--------------------------------------------------------------------------------
| | 4Q 2006 | 4Q 2005 | 2006 | 2005 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Net sales | 281,164 | 190,335 | 899,481 | 680,906 |
--------------------------------------------------------------------------------
| Cost of goods sold | -119,869 | -89,068 | -408,919 | -329,827 |
--------------------------------------------------------------------------------
| Gross profit | 161,295 | 101,267 | 490,562 | 351,079 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Distribution costs | -96,978 | -59,873 | -300,879 | -207,704 |
--------------------------------------------------------------------------------
| Administrative and general | -30,097 | -24,058 | -97,926 | -85,232 |
| expenses | | | | |
--------------------------------------------------------------------------------
| Other operating income | 4,873 | 11,640 | 12,482 | 19,817 |
--------------------------------------------------------------------------------
| Other operating expenses | -2,701 | 37 | -6,907 | -3,053 |
--------------------------------------------------------------------------------
| Operating profit | 36,392 | 29,013 | 97,332 | 74,907 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Financial income (expenses) | -4,753 | -2,248 | -6,037 | -3,947 |
--------------------------------------------------------------------------------
| Gains (losses) from joint | 0 | -1,273 | -234 | -861 |
| ventures | | | | |
--------------------------------------------------------------------------------
| Gains (losses) from other | -1,568 | -210 | 322 | 1,205 |
| investments | | | | |
--------------------------------------------------------------------------------
| Interest expenses | -1,846 | -1,376 | -5,730 | -5,415 |
--------------------------------------------------------------------------------
| Foreign exchange gains | -1,346 | 514 | -863 | 645 |
| (losses) | | | | |
--------------------------------------------------------------------------------
| Other financial income | 7 | 97 | 468 | 479 |
| (expenses) | | | | |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Profit before corporate income | 31,639 | 26,765 | 91,295 | 70,960 |
| tax | | | | |
--------------------------------------------------------------------------------
| Corporate income tax | -244 | -3,029 | -3,136 | -4,280 |
--------------------------------------------------------------------------------
| Net profit | 31,395 | 23,736 | 88,159 | 66,680 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Net loss attributable to | 320 | -2,598 | 783 | -5,984 |
| minority shareholders | | | | |
--------------------------------------------------------------------------------
| Net profit attributable to | 31,075 | 26,334 | 87,376 | 72,664 |
| parent company | | | | |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Basic earnings per share, EEK | 5.06 | 4.52 | 14.54 | 12.62 |
--------------------------------------------------------------------------------
| Diluted earnings per share, | 5.01 | 4.30 | 14.12 | 12.11 |
| EEK | | | | |
--------------------------------------------------------------------------------
CONSOLIDATED INCOME STATEMENT
(unaudited, in EUR thousand)
--------------------------------------------------------------------------------
| | 4Q 2006 | 4Q 2005 | 2006 | 2005 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Net sales | 17,970 | 12,165 | 57,487 | 43,518 |
--------------------------------------------------------------------------------
| Cost of goods sold | -7,661 | -5,692 | -26,135 | -21,080 |
--------------------------------------------------------------------------------
| Gross profit | 10,309 | 6,472 | 31,353 | 22,438 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Distribution costs | -6,198 | -3,827 | -19,230 | -13,275 |
--------------------------------------------------------------------------------
| Administrative and general | -1,924 | -1,538 | -6,259 | -5,447 |
| expenses | | | | |
--------------------------------------------------------------------------------
| Other operating income | 311 | 744 | 798 | 1,267 |
--------------------------------------------------------------------------------
| Other operating expenses | -173 | 2 | -441 | -195 |
--------------------------------------------------------------------------------
| Operating profit | 2,326 | 1,854 | 6,221 | 4,788 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Financial income (expenses) | -304 | -144 | -386 | -252 |
--------------------------------------------------------------------------------
| Gains (losses) from joint | 0 | -81 | -15 | -55 |
| ventures | | | | |
--------------------------------------------------------------------------------
| Gains (losses) from other | -100 | -13 | 21 | 77 |
| investments | | | | |
--------------------------------------------------------------------------------
| Interest expenses | -118 | -88 | -366 | -346 |
--------------------------------------------------------------------------------
| Foreign exchange gains | -86 | 33 | -55 | 41 |
| (losses) | | | | |
--------------------------------------------------------------------------------
| Other financial income | 0 | 6 | 30 | 31 |
| (expenses) | | | | |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Profit before corporate income | 2,022 | 1,711 | 5,835 | 4,536 |
| tax | | | | |
--------------------------------------------------------------------------------
| Corporate income tax | -16 | -194 | -200 | -274 |
--------------------------------------------------------------------------------
| Net profit | 2,007 | 1,517 | 5,634 | 4,262 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Net loss attributable to | 20 | -167 | 50 | -382 |
| minority shareholders | | | | |
--------------------------------------------------------------------------------
| Net profit attributable to | 1,986 | 1,683 | 5,584 | 4,644 |
| parent company | | | | |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Basic earnings per share, EUR | 0.32 | 0.29 | 0.93 | 0.81 |
--------------------------------------------------------------------------------
| Diluted earnings per share, | 0.32 | 0.27 | 0.90 | 0.77 |
| EUR | | | | |
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
(unaudited, in EEK thousand)
--------------------------------------------------------------------------------
| | 31.12.2006 | 31.12.2005 |
--------------------------------------------------------------------------------
| ASSETS | | |
--------------------------------------------------------------------------------
| Current assets | | |
--------------------------------------------------------------------------------
| Cash and bank | 12,584 | 25,961 |
--------------------------------------------------------------------------------
| Current financial assets | 0 | 1,808 |
--------------------------------------------------------------------------------
| Trade receivables | 86,402 | 39,566 |
--------------------------------------------------------------------------------
| Other receivables and prepaid expenses | 42,069 | 14,992 |
--------------------------------------------------------------------------------
| Inventories | 200,702 | 144,459 |
--------------------------------------------------------------------------------
| Total current assets | 341,757 | 226,786 |
--------------------------------------------------------------------------------
| Non-current assets | | |
--------------------------------------------------------------------------------
| Investments in joint ventures | 0 | 234 |
--------------------------------------------------------------------------------
| Investment property | 23,572 | 27,193 |
--------------------------------------------------------------------------------
| Deferred income tax assets | 4,462 | 3,598 |
--------------------------------------------------------------------------------
| Other non-current assets | 11,077 | 4,708 |
--------------------------------------------------------------------------------
| Property, plant and equipment | 166,448 | 88,089 |
--------------------------------------------------------------------------------
| Intangible assets | 49,074 | 26,491 |
--------------------------------------------------------------------------------
| Total non-current assets | 254,633 | 150,313 |
--------------------------------------------------------------------------------
| TOTAL ASSETS | 596,390 | 377,099 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| LIABILITIES AND EQUITY | | |
--------------------------------------------------------------------------------
| Current liabilities | | |
--------------------------------------------------------------------------------
| Borrowings | 88,179 | 30,278 |
--------------------------------------------------------------------------------
| Supplier payables | 96,535 | 44,782 |
--------------------------------------------------------------------------------
| Tax liabilities | 23,006 | 17,563 |
--------------------------------------------------------------------------------
| Accrued expenses | 18,174 | 13,505 |
--------------------------------------------------------------------------------
| Other short-term payables | 7,022 | 466 |
--------------------------------------------------------------------------------
| Total current liabilities | 232,916 | 106,594 |
--------------------------------------------------------------------------------
| Non-current liabilities | | |
--------------------------------------------------------------------------------
| Long-term borrowings | 59,234 | 62,553 |
--------------------------------------------------------------------------------
| Total non-current liabilities | 59,234 | 62,553 |
--------------------------------------------------------------------------------
| TOTAL LIABILITIES | 292,150 | 169,147 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| EQUITY | | |
--------------------------------------------------------------------------------
| Share capital at par value | 62,150 | 58,230 |
--------------------------------------------------------------------------------
| Share premium | 59,088 | 49,690 |
--------------------------------------------------------------------------------
| Reserves | 9,721 | 9,532 |
--------------------------------------------------------------------------------
| Retained earnings | 73,521 | 13,077 |
--------------------------------------------------------------------------------
| Net profit for the period | 87,376 | 72,664 |
--------------------------------------------------------------------------------
| Currency translation differences | 4,319 | 4,131 |
--------------------------------------------------------------------------------
| Total equity attributable to majority | 296,175 | 207,324 |
| shareholder | | |
--------------------------------------------------------------------------------
| Minority interest | 8,065 | 628 |
--------------------------------------------------------------------------------
| TOTAL EQUITY | 304,240 | 207,952 |
--------------------------------------------------------------------------------
| TOTAL LIABILITIES AND EQUITY | 596,390 | 377,099 |
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
(unaudited, in EUR thousand)
--------------------------------------------------------------------------------
| | 31.12.2006 | 31.12.2005 |
--------------------------------------------------------------------------------
| ASSETS | | |
--------------------------------------------------------------------------------
| Current assets | | |
--------------------------------------------------------------------------------
| Cash and bank | 804 | 1,659 |
--------------------------------------------------------------------------------
| Current financial assets | 0 | 116 |
--------------------------------------------------------------------------------
| Trade receivables | 5,522 | 2,529 |
--------------------------------------------------------------------------------
| Other receivables and prepaid expenses | 2,689 | 958 |
--------------------------------------------------------------------------------
| Inventories | 12,827 | 9,233 |
--------------------------------------------------------------------------------
| Total current assets | 21,843 | 14,495 |
--------------------------------------------------------------------------------
| Non-current assets | | |
--------------------------------------------------------------------------------
| Investments in joint ventures | 0 | 15 |
--------------------------------------------------------------------------------
| Investment property | 1,507 | 1,738 |
--------------------------------------------------------------------------------
| Deferred income tax assets | 285 | 230 |
--------------------------------------------------------------------------------
| Other non-current assets | 708 | 301 |
--------------------------------------------------------------------------------
| Property, plant and equipment | 10,638 | 5,630 |
--------------------------------------------------------------------------------
| Intangible assets | 3,136 | 1,693 |
--------------------------------------------------------------------------------
| Total non-current assets | 16,274 | 9,607 |
--------------------------------------------------------------------------------
| TOTAL ASSETS | 38,117 | 24,102 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| LIABILITIES AND EQUITY | | |
--------------------------------------------------------------------------------
| Current liabilities | | |
--------------------------------------------------------------------------------
| Borrowings | 5,636 | 1,935 |
--------------------------------------------------------------------------------
| Supplier payables | 6,170 | 2,862 |
--------------------------------------------------------------------------------
| Tax liabilities | 1,470 | 1,122 |
--------------------------------------------------------------------------------
| Accrued expenses | 1,162 | 863 |
--------------------------------------------------------------------------------
| Other short-term payables | 449 | 30 |
--------------------------------------------------------------------------------
| Total current liabilities | 14,886 | 6,813 |
--------------------------------------------------------------------------------
| Non-current liabilities | | |
--------------------------------------------------------------------------------
| Long-term borrowings | 3,786 | 3,998 |
--------------------------------------------------------------------------------
| Total non-current liabilities | 3,786 | 3,998 |
--------------------------------------------------------------------------------
| TOTAL LIABILITIES | 18,672 | 10,811 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| EQUITY | | |
--------------------------------------------------------------------------------
| Share capital at par value | 3,972 | 3,722 |
--------------------------------------------------------------------------------
| Share premium | 3,776 | 3,176 |
--------------------------------------------------------------------------------
| Reserves | 621 | 609 |
--------------------------------------------------------------------------------
| Retained earnings | 4,699 | 836 |
--------------------------------------------------------------------------------
| Net profit for the period | 5,584 | 4,644 |
--------------------------------------------------------------------------------
| Currency translation differences | 276 | 264 |
--------------------------------------------------------------------------------
| Total equity attributable to majority | 18,930 | 13,251 |
| shareholder | | |
--------------------------------------------------------------------------------
| Minority interest | 515 | 40 |
--------------------------------------------------------------------------------
| TOTAL EQUITY | 19,445 | 13,291 |
--------------------------------------------------------------------------------
| TOTAL LIABILITIES AND EQUITY | 38,117 | 24,102 |
--------------------------------------------------------------------------------
Ülle Järv
CFO, Member of the Management Board
+372 630 2741
Further information:
Triin Palge
Head of investor relations
+372 630 2886
triin.palge@baltikagroup.com
