Baltika's unaudited financial results, first quarter 2014

| Source: Baltika

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

  • 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 February the spring-summer collections of Monton, Bastion, Mosaic, Ivo Nikkolo and Baltman were presented in Tallinn at Moelava. UK men’s fashion brand Blue Inc London, who is represented by Baltika in Baltics, also showed its new collection. Spring mood was completed with performance of singer Mari Pokinen. Colourful fashion show was broadcasted live in Delfi TV.
  • Baltika signed a franchise agreement on 13th of March with Spanish enterprise Mirworld Organization, who will open the first Monton brand store in Tenerife, in August 2014. Spain is the second country that Baltika enters with its brand as franchisor. The first two Monton franchise stores were opened in Belarus last year.
  • Council decided, on 26th of March 2014, to propose to the Annual General Meeting of shareholders, to issue convertible bonds with bondholder option in the total amount of 3 million euros. Proposal is for issuance of 600 convertible bonds with issuance price of 5,000 euros.  The subscription for the bonds will take place from 14th to 28th of July 2014. The bond will bear 6.5% interest p.a. and each bond will give its owner the right to subscribe 10,000 AS Baltika shares of the company with subscription price 0.5 euros.
  • The Annual General Meeting of AS Baltika, held on 28 April 2014, decided to approve the Annual report for 2013 and profit allocation to retained earnings. Meeting elected the auditors for auditing the financial years 2014-2016 to be AS PricewaterhouseCoopers. Annual General Meeting decided to conditionally increase the share capital of the Company and to issue convertible bonds according to the Terms and Conditions of J-Bonds presented by Council.
  • On 29 April 2014 Baltika signed an agreement by which Baltika Retail Ukraina Ltd (BRU) was sold to OÜ Ellipse Group. The owner of the acquirer is Boriss Loifenfeld, the Baltika’s adviser in Eastern European matters. BRU will continue cooperation with Baltika as franchise partner, contract was signed in 29 April for next five years. BRU’s assets and liabilities were sold for a price close to carrying amount and as a result of the sales transaction Baltika will recognise a receivable from BRU in amount of 1.25 million euros, for what the parties have agreed a five-year settlement schedule. The receivable is secured with BRU’s commercial assets. Collectability of this receivable depends on the development of the Ukrainian economy and improvements in the entity’s operating results. Baltika will keep the impairment made in the first quarter as alloeance reserve for BRU receivable.
  • In January two shops were closed – Mosaic shop in Piramida shopping centre in Kiev, Ukraine and Monton in Planeta shopping centre in Krasnojarsk, Russia. Mosaic in Tsentraal shopping centre in Jõhvi, Estonia was moved to the better location and to bigger area and has received positive feedback from customers. In March three new stores were opened in Russia – two Mosaic shop-in-shop stores at partners’ multibrand stores in Mega shopping centres in Krasnodar and Jekaterinburg and Outlet store in Peterburg, in Varshavsky Express centre.  In Tallinn, Estonia two shops were closed – temporary Outlet store in Ülemiste centre and Monton store in Viru Keskus shopping centre.


Consolidated statement of financial position

  31 March 2014 31 Dec 2013
Current assets    
Cash and cash equivalents 458 852
Trade and other receivables 1,342 1,514
Inventories 12,410 13,751
Total current assets 14,210 16,117
Non-current assets    
Deferred income tax asset 494 494
Other non-current assets 843 1,013
Property, plant and equipment 2,809 3,023
Intangible assets 3,598 3,693
Total non-current assets 7,744 8,223
TOTAL ASSETS 21,954 24,340
Current liabilities    
Borrowings 2,427 3,158
Trade and other payables 6,989 7,503
Total current liabilities 9,416 10,661
Non-current liabilities    
Borrowings 3,707 2,171
Total non-current liabilities 3,707 2,171
Share capital at par value 8,159 8,159
Share premium 715 684
Reserves 1,182 1,182
Retained earnings 2,573 2,471
Net profit (loss) for the period -2,482 102
Currency translation differences -1,316 -1,090
TOTAL EQUITY 8,831 11,508


Consolidated statement of profit and loss

  1 Q 2014 1 Q 2013
Continuing operations    
Revenue 12,171 11,675
Cost of goods sold -6,254 -5,594
Gross profit 5,917 6,081
Distribution costs -5,954 -5,711
Administrative and general expenses -717 -735
Other operating income 2 9
Other operating expenses -74 -7
Operating loss -826 -363
Finance income 0 17
Finance costs -79 -93
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
Continuing operations -0.02 -0.01
Discontinued operations -0.04 0.00
Diluted earnings per share, EUR -0.06 -0.02
Continuing operations -0.02 -0.01
Discontinued operations -0.04 0.00