In general Baltika’s fourth quarter operating results met the management’s expectations – both sales and sales efficiency grew and benefits from the cost cutting efforts made during 2011 were realised. With the strong fourth quarter the Group reached by the end of the year operating income-expense balance and stable financial position. In addition Baltika has adapted it’s business model to be more flexible and cost efficient.
Baltika fourth quarter revenue increased by 401 thousand euros ( ie 3%) and sales efficiency grew by 10%. The Baltic region showed stable growth and sales in Russia were satisfactory. Sales results were supported by strong collections, including special occasion clothing of Monton and Ivo Nikkolo, in addition the autumn collection sales were partly delayed due to warm weather to last quarter.
The efforts made in restructuring the store network and cost control continue to show results in the fourth quarter of 2011: the distribution expenses decreased by 613 thousand euros (ie 8%) compared to prior year comparative period and administrative and general expenses were reduced by 11%.
As a result of the above mentioned positive factors the operating profit from regular operations (before other operating income and expense) was 930 thousand euros compared to 60 thousand euros in the fourth quarter of 2010. This is best fourth quarter operating profit before other income and expense since 2008 third quarter and in fourth quarter comparison since year 2006.
Despite the regular operating income (before other operating income and expense) one-off non-cash expenses resulted in significant net loss. With the year-end accounting procedures and company’s conservative approach, the quarter resulted in significant net loss – 1,880 thousand euros, but as the one-off items discussed below, were non-cash, no changes are made to future financial plans due to it. The Group’s cash position and net debt position improved significantly during the final quarter of the year. The main one-off non-cash items in other operating expense in fourth quarter are 1,176 thousand euros from changing prior year inventory accounting principle, 645 thousand euros allowance for third party receivables, 150 thousand euros fixed asset write-down, 500 thousand euros change to investment property fair value.
The restructuring of the Group’s retail network is now complete, and other initiatives designed to improve operating and financial results will continue in 2012. Baltika management target for the full year of 2012 is 5% sales growth, sales efficiency growth of 10% and positive EBITDA of ca. 3 million euros. The targets are in accordance with the budget approved by Supervisory Council on February 15 2012, which does not include possible impact from exiting real estate business. Group plans for 2012 include exiting the real-estate business, further developing our multi-channel strategy, including the development of e-store, gradual implementation of store concept upgrades for two largest brands Monton and Mosaic and development of multi-brand strategy, including starting with concessions, to continue the improvement of retail sales efficiency.
In 2012 AS Baltika is planning to exit real estate business and sell office property and land in Tallinn, located at Veerenni Street 24. The company has finished the development process started in 2007, whereby the former factory building has been transformed into complete Baltika Quarter. The Quarter is mainly occupied by external tenants, and Baltika occupies for head office and store “Moetänav” 37% of the total rentable space and plans to continue renting after possible sale of the scheme. With the sale of property the company will focus on its main activity - fashion retailing, AS Baltika has chosen as the property transaction advisor Catella Corporate Finance. With the proceeds from sale the company will reduce leverage and improve its investing capability.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
| 31 Dec 2011 | 31 Dec 2010 | ||
| ASSETS | |||
| Current assets | |||
| Cash and bank | 863 | 823 | |
| Trade and other receivables | 2,189 | 3,119 | |
| Inventories | 10,048 | 10,804 | |
| Total current assets | 13,100 | 14,746 | |
| Non-current assets | |||
| Deferred income tax asset | 838 | 838 | |
| Other non-current assets | 629 | 780 | |
| Investment property | 8,549 | 7,069 | |
| Property, plant and equipment | 8,031 | 12,121 | |
| Intangible assets | 3,665 | 3,898 | |
| Total non-current assets | 21,712 | 24,706 | |
| TOTAL ASSETS | 34,812 | 39,452 | |
| EQUITY AND LIABILITIES | |||
| Current liabilities | |||
| Borrowings | 3,178 | 2,125 | |
| Trade and other payables | 6,785 | 6,981 | |
| Total current liabilities | 9,963 | 9,107 | |
| Non-current liabilities | |||
| Borrowings | 15,144 | 17,953 | |
| Other liabilities | 83 | 37 | |
| Total non-current liabilities | 15,227 | 17,990 | |
| TOTAL LIABILITIES | 25,190 | 27,096 | |
| EQUITY | |||
| Share capital at par value | 25,056 | 20,129 | |
| Share premium | 89 | 1,332 | |
| Reserves | 2,494 | 2,784 | |
| Retained earnings | -11,592 | -4,961 | |
| Net loss for the period | -5,863 | -6,344 | |
| Currency translation differences | -727 | -747 | |
| Total equity attributable to equity holders of the parent | 9,457 | 12,194 | |
| Non-controlling interest | 165 | 162 | |
| TOTAL EQUITY | 9,622 | 12,356 | |
| TOTAL LIABILITIES AND EQUITY | 34,812 | 39,452 |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
| Q4 2011 | Q4 2010 | 2011 | 2010 | ||
| Revenue | 15,485 | 15,084 | 53,409 | 52,207 | |
| Cost of goods sold | -7,001 | -6,770 | -25,042 | -25,171 | |
| Gross profit | 8,484 | 8,314 | 28,367 | 27,036 | |
| Distribution costs | -6,812 | -7,425 | -27,095 | -28,446 | |
| Administrative and general expenses | -742 | -829 | -2,864 | -2,928 | |
| Other operating income | 36 | 248 | 59 | 646 | |
| Other operating expenses | -2,490 | -770 | -2,917 | -1,027 | |
| Operating loss | -1,524 | -461 | -4,450 | -4,719 | |
| Finance income | 2 | 40 | 3 | 201 | |
| Finance costs | -314 | -525 | -1,344 | -1,406 | |
| Loss before income tax | -1,836 | -947 | -5,791 | -5,925 | |
| Income tax expense | -44 | -332 | -69 | -407 | |
| Net loss | -1,880 | -1,279 | -5,860 | -6,332 | |
| Loss attributable to: | |||||
| Equity holders of the parent company | -1,883 | -1,279 | -5,863 | -6,344 | |
| Non-controlling interest | 3 | 0 | 3 | 12 | |
| Other comprehensive income (loss) | |||||
| Currency translation differences | -30 | 30 | 20 | -145 | |
| Total comprehensive income (loss) | -1,910 | -1,249 | -5,840 | -6,477 | |
| Comprehensive income (loss) attributable to: | |||||
| Equity holders of the parent company | -1,913 | -1,249 | -5,843 | -6,490 | |
| Non-controlling interest | 3 | 0 | 3 | 12 | |
| Basic earnings per share, EUR | -0.05 | -0.05 | -0.19 | -0.27 | |
| Diluted earnings per share, EUR | -0.05 | -0.05 | -0.19 | -0.27 |
Maigi Pärnik
Member of the Management Board
maigi.parnik@baltikagroup.com