Source: Baltika

Baltika's unaudited financial results, fourth quarter and 12 months 2013

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.

Financial position

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

  • In October, Valanga OOO, Baltika’s franchise partner in Belarus, opened the first two Monton brand stores in Minsk. The total area of the stores is 380 sqm. According to plan, in the next five years at least five Monton stores, with a sales area of 150-250 sqm, will be opened in Belarus.
  • In October, Batman’s designer Aivar Lätt alias Antonio received the highest recognition in the Estonian fashion world – the Golden Needle award. According to Antonio, his special Baltman Limited Edition collection, which was created for the Golden Needle, represents the essence of his work so far. Baltika’s designers have been rewarded with Golden Needle award eight times throughout the years.
  • At the end of October, Monton presented to the media and the guests of the Estonian Olympic Committee the collection of outfits created for the 2014 Sochi Winter Olympics. The limited collection combines the Estonian national colours and ethnic patters and stands out for its clean and clear colour solution. The outfit created for the Olympic delegation received attention and recognition both in local media and abroad.
  • Baltman, Baltika’s brand with longest history, opened in November in Akropolis shopping centre in Vilnius, Lithuania new concept store which was developed in co-operation with creative agency Dan Pearlman. The first Baltman flagship store with new look was opened in September in Rocca al Mare shopping centre in Tallinn, Estonia. The interior design of the new concept store has been nominated for 2013 annual prize of Estonian Interior Decorators Union.
  • NASDAQ OMX recognized in January Baltic listed companies with the best investor relations and where Baltika received the prize in two categories - best investor relationship on NASDAQ OMX Baltic market and the best Annual and Corporate Governance report. Third place was achieved in both categories.
  • In the fourth quarter, the number of the Group’s stores grew by five. Two new stores – Monton and Mosaic - were opened in October in Gulliver shopping centre in Kiev, Ukraine and Blue Inc. London store in Rocca al Mare shopping centre in Tallinn, Estonia. In November new concept Baltman store was opened in Akropolis shopping centre in Vilnius, Lithuania and Baltika outlet store in Ülemiste shopping centre in Tallinn, Estonia which will remain open until the shopping centre is under renovation - until March. Two stores were closed in January – Mosaic store in Piramida shopping centre in Kiev, Ukraine and Monton store in Planeta shopping centre in Krasnojarsk, Russia. Due to ending contracts Monton, Baltman and Bastion stores will be closed in March and April in Viru Keskus shopping centre in Tallinn Estonia.
  • Council decided on 26 February 2014 to propose to the annual general meeting of shareholders to issue convertible bonds with bondholder option in the total amount of 2 million euros. Price for the exchanged shares is 60 days prior to decision average market price – 0.58 euros. The 3 year convertible bonds with 7.5% interest will be issued through public offering.

Consolidated statement of financial position

  31 Dec 2013 31 Dec 2012
Current assets    
Cash and cash equivalents 852 2,078
Trade and other receivables 1,514 1,836
Inventories 13,751 11,471
Total current assets 16,117 15,385
Non-current assets    
Deferred income tax asset 494 637
Other non-current assets 1,013 1,088
Property, plant and equipment 3,023 2,256
Intangible assets 3,693 4,150
Total non-current assets 8,223 8,131
TOTAL ASSETS 24,340 23,516
Current liabilities    
Borrowings 3,158 1,598
Trade and other payables 7,503 7,005
Total current liabilities 10,661 8,603
Non-current liabilities    
Borrowings 2,171 4,702
Other liabilities 0 25
Total non-current liabilities 2,171 4,727
Share capital at par value 8,159 7,159
Share premium 684 63
Reserves 1,182 1,182
Retained earnings 2,471 1,667
Net profit for the period 102 804
Currency translation differences -1,090 -689
TOTAL EQUITY 11,508 10,186


Consolidated statement of profit and loss

  Q4 2013 Q4 2012 2013 2012
Revenue 16,694 16,188 58,353 56,332
Cost of goods sold -7,634 -7,109 -27,138 -25,615
Gross profit 9,060 9,079 31,215 30,717
Distribution costs -7,300 -7,021 -27,446 -26,193
Administrative and general expenses -741 -734 -2,869 -2,722
Other operating income 101 285 155 341
Other operating expenses -126 -141 -404 -184
Operating profit 994 1,468 651 1,959
Finance income 6 0 6 61
Finance costs 24 -174 -388 -964
Profit before income tax 1,024 1,294 269 1,056
Income tax expense -159 -219 -167 -251
Net profit 865 1,075 102 805
Profit attributable to:        
   Equity holders of the parent company 865 1,075 102 804
   Non-controlling interest 0 0 0 1
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