Baltika ended the fourth quarter with 1,024 thousand euros profit before tax and net profit was 865 thousand euros. The year 2013 profit before tax was 269 thousand euros and net profit 102 thousand euros.
After a weak third quarter the fourth quarter showed improvement of results. Although the unusual warm autumn weather lasted till the end of the year and realisation of stock was at lower margins than planned due to weak start of the season, Baltika reached close to the level of results of best quarters in last years.
Group total revenue increased by 506 thousand euros i.e. 3% compared to the fourth quarter of previous year. Particulary positive is the development of wholesale and e-commerce that sales increased by 56% in the fourth quarter which meets the expectations set for 2013 to develop also other sale channels and increase sales volumes through wholesale and franchise partners.
The retail sales also grew after the third quarter 2% decline: fourth quarter increase of 1% signifies yearly total growth of 4%. The Baltics showed strongest growth in retail in the fourth quarter (7%) with the highest sales increase in Latvia (12%). Yearly the largest growth was achieved by Estonia (12%), followed by Latvia (9%) and Lithuania (2%).
While the results of Baltic countries are satisfactory, then Eastern-Europe had negative impact on the overall results. Retail sales in Russia decreased by 19% in the fourth quarter. The uncertainty of economic future, weakening rouble (rouble weakened ca 11% during the year 2013) and risen prices have significantly decreased consumer confidence and are stopping the recovery in fashion retail.
Retail sales in Ukraine decreased by 2% in the fourth quarter, but in local currency small growth with 2% was achieved. The rising political conflict and weakening hryvna in the second half year have added to the country’s economic crisis. Uncertain politic and economic situation deteriorates both consumer demand and international trade.
Company’s gross margin for the fourth quarter was 54.3%, a decrease of 1.8 percentage points year-over-year. The slide in the margin is attributable to problems in Russian and Ukrainian markets and weak sales results in the third quarter due to which the stock was realized in the fourth quarter with lower margins than planned. There was also price pressure from intensifying competition and growth of sales area in the Baltic countries.
Main courses of action for 2014
While the first half-year of 2013 met the expectation of the company, then the negative second half-year developments in Ukraine and Russia with very weak third quarter result do not allow to consider the yearly financial result sufficient. One of the main targets for 2014 is to carry out the plan to minimise the risks of Ukraine and Russia impacting group total results. One of the options towards which action is taken is changing the model of operating in these markets.
In addition, in 2014 focus is on strengthening the position in the Baltic countries and continued development of other sales channels. Baltic retail is core to the company’s economic stability and ground for growth. To maintain the position in the Baltic market with tight competition - renovation and opening of new stores is needed. Work is continued to expand franchise network and preparation has been started to launch the sale of all brands in addition to Monton through international e-commerce by the end of 2014.
Achieving the targets for 2014 requires investments and sufficient financing of working capital. In accordance with the investment plan disclosed in the second half of year 2012 retail network requires investments and stronger working capital position will allow better possibilities for decision making and increasing profitability.
While the initial investment plan foresaw that 2013 positive cash-flow provides for the required investments then below planned results necessitated the need to work out 2014 financing plan, which includes both bank and investors. Notion has been agreed with banks to increase the overdraft limit by up to 2 million euros which will cover most cost efficiently the seasonal need for larger working capital. Supervisory Council has decided to propose shareholders employing 2 million euros for 3 years through public offering of convertible bonds. Largest shareholder of Baltika KJK Fund, Sicav-SIF will take up the offer in full amount if needed.
Highlights of the period until the date of release of this quarterly report
Consolidated statement of financial position
|31 Dec 2013||31 Dec 2012|
|Cash and cash equivalents||852||2,078|
|Trade and other receivables||1,514||1,836|
|Total current assets||16,117||15,385|
|Deferred income tax asset||494||637|
|Other non-current assets||1,013||1,088|
|Property, plant and equipment||3,023||2,256|
|Total non-current assets||8,223||8,131|
|EQUITY AND LIABILITIES|
|Trade and other payables||7,503||7,005|
|Total current liabilities||10,661||8,603|
|Total non-current liabilities||2,171||4,727|
|Share capital at par value||8,159||7,159|
|Net profit for the period||102||804|
|Currency translation differences||-1,090||-689|
|TOTAL LIABILITIES AND EQUITY||24,340||23,516|
Consolidated statement of profit and loss
|Q4 2013||Q4 2012||2013||2012|
|Cost of goods sold||-7,634||-7,109||-27,138||-25,615|
|Administrative and general expenses||-741||-734||-2,869||-2,722|
|Other operating income||101||285||155||341|
|Other operating expenses||-126||-141||-404||-184|
|Profit before income tax||1,024||1,294||269||1,056|
|Income tax expense||-159||-219||-167||-251|
|Profit attributable to:|
|Equity holders of the parent company||865||1,075||102||804|
|Basic earnings per share, EUR||0.02||0.03||0.00||0.02|
|Diluted earnings per share, EUR||0.02||0.03||0.00||0.02|