Baltika’s first-quarter net loss from continuing operations amounted to 910 thousand euros compared with a loss of 439 thousand euros a year ago. The Group considers the 10% retail sales growth in Baltics as a good result, but the Group’s overall result from continuing operations was undermined by a 23% sales decrease in the Russian market.
Due to the complicated situation in Ukraine and Russia, reducing Eastern European risks became a priority. The Group considered different scenarios for Ukraine and decided to change its model of operation. Management began looking for a partner with knowledge about the Ukrainian market to whom the current Ukrainian retail business could be sold and with whom a long-term franchise agreement could be signed for sustaining a presence in the region. In connection with the intention of disposing of the entity, the assets of the Ukrainian sales organisation, Baltika Retail Ukraina, were reclassified to non-current assets held for sale.
At 31 March 2013, the assets of Baltika Retail Ukraina totalled 1,095 thousand euros, consisting of inventories, lease prepayments and non-current assets, and liabilities approximately in the same value, consisting mainly of trade payable to Baltika for merchandise. Because of the unstable situation in the region, the Group wrote the subsidiary’s assets down by 1,095 thousand euros.
In connection with Baltika’s exit from the Ukrainian retail business, which represented a major line of business of the Group, the first-quarter results of the Ukrainian entity are presented as discontinued operation. The results of the discontinued operation are reported separately from continuing operations to allow better assessment of the performance of continuing operations. For comparability, the figures for 2013 have been adjusted accordingly.
The first-quarter loss of the discontinued operation amounted to 1,572 thousand euros, including the loss of 1,095 thousand euros resulting from the write-down of its assets. Thus, the Group’s total first-quarter loss amounted to 2,482 thousand euros.
The Group’s first-quarter revenue grew by 496 thousand euros or 4% year over year. The largest sales growth, 67%, occurred in e-commerce, which is consistent with the 2014 target of placing greater focus on the development of other sales channels. Wholesale revenue grew by 15% and retail revenue by 3%.
First-quarter retail sales growth in the Baltics (10%) met expectations. The region’s growth driver was Latvia (16%), followed by Estonia (9%) and Lithuania (8%). The Baltic region posted the past five years’ best first-quarter results, including the strongest revenue, the highest sales efficiency and the largest gross profit per square metre.
While performance in the Baltics can be considered satisfactory, the Group’s overall performance was weakened by its performance in Eastern Europe. First-quarter retail sales in the Russian market dropped by 23%. Uncertainties about the future of the Russian economy, the weakening of the rouble and inflation have lessened consumer confidence and impeded recovery of the fashion industry.
Baltika’s first-quarter gross margin was 48.6%, 3.5 percentage points down from a year ago. The slide in the margin is partly attributable to weak sales caused by the problems prevailing in the Russian market, which have been magnified by the weakening of the rouble against the euro. The gross margin for the Russian market dropped by 5.5 percentage point year over year. In addition in the first couple of months, the margin was also affected by weaker sales during the autumn and winter season, which increased inventories that had to be disposed of at steeper discounts. In the Baltic region, prices remain under strong pressure due to heightening competition and growth in retail space.
Highlights of the period until the date of release of this quarterly report
Consolidated statement of financial position
|31 March 2014||31 Dec 2013|
|Cash and cash equivalents||458||852|
|Trade and other receivables||1,342||1,514|
|Total current assets||14,210||16,117|
|Deferred income tax asset||494||494|
|Other non-current assets||843||1,013|
|Property, plant and equipment||2,809||3,023|
|Total non-current assets||7,744||8,223|
|EQUITY AND LIABILITIES|
|Trade and other payables||6,989||7,503|
|Total current liabilities||9,416||10,661|
|Total non-current liabilities||3,707||2,171|
|Share capital at par value||8,159||8,159|
|Net profit (loss) for the period||-2,482||102|
|Currency translation differences||-1,316||-1,090|
|TOTAL LIABILITIES AND EQUITY||21,954||24,340|
Consolidated statement of profit and loss
|1 Q 2014||1 Q 2013|
|Cost of goods sold||-6,254||-5,594|
|Administrative and general expenses||-717||-735|
|Other operating income||2||9|
|Other operating expenses||-74||-7|
|Loss before income tax||-905||-439|
|Income tax expense||-5||0|
|Net loss from continuing operations||-910||-439|
|Net loss for the period from discontinued operations||-1,572||-164|
|Net loss for the period||-2,482||-603|
|Basic earnings per share, EUR||-0.06||-0.02|
|Diluted earnings per share, EUR||-0.06||-0.02|