Baltika’s first quarter resulted in net loss in the amount of 1,136 thousand euros. The result of last year comparative period was loss of 2,482 thousand euros and comparative figure of continued operations was loss of 910 thousand euros.
In connection with Baltika’s exit from the Ukrainian retail business in 2014, which represented a major line of business of the Group, the results of the Ukrainian entity are presented as discontinued operation. Therefore the results of the discontinued operation are reported separately from continuing operations, to allow better assessment of the performance of continuing operations.
Baltika’s sales increased by 154 thousand euros that is 1% compared to the first quarter last year. Largest sales growth figures came from e-commerce with 245%, wholesale and franchise with 69% that is in line with strategic objective of preferential development of other channels and to grow sales both in wholesale and franchise and in e-store. Retail sales decrease was 6%.
First quarter was a challenge for Baltics as last year same period sales were the largest of prior five years. Retail sales grew in the Baltics by 1%, increase of 62 thousand euros. Meanwhile the results were different by countries – when Latvia showed the largest sales growth (+5%) then in Lithuania the quarter was better in terms of efficiency figures and gross profit growth. Economy in Baltics remained stable in the first quarter - economic situation is improving domestic demand. In the same time tourist flow from Eastern and Finnish neighbours to Baltics decreased. Baltic countries first quarter result was most impacted by weak January, where goods from previous season were realised with higher than planned discount and in smaller amount. Trend was upward in the quarter – March sales results were in line with expectations.
Russian unstable economy, weaker rouble and rising prices continue to decrease consumer confidence and hinder developments in fashion industry. Despite the complicated economic situation sales efficiency increased in first quarter by 8% in local currency. Sales revenue in local currency decreased in first quarter by 11%, while the average operating area of stores decreased by 18%. Due to reduced operating area and weaker currency the first quarter retail was down by 731 thousand euros (-40%). In total, result of Russia in first quarter improved with the optimisation of costs and closing of loss making stores.
Company gross profit margin in the first quarter was 44.5% that is 4.1 percentage points lower than in the same period last year. The decrease of gross profit margin has from one side been impacted by the lower margin in wholesale and franchise, which proportion from sales has increased from 8% to 13%. In addition Group’s margin is impacted from US dollar strengthening driven increase of purchase prices of goods and weakening of rouble. Russian retail gross profit margin decreased by 9.1 percentage points compared to same period in prior year.
Baltika has initiated a number of initiatives to catch up with the yearly financial targets shortage. Strong control is on head-office operating expense, general stock level is reduced and usage made more efficient, restructuring is taking place in product department to strengthen process based management.
Highlights of the period until the date of release of this quarterly report
- Nasdaq Baltic Market exchanges awarded in January those with best investors’ relations and Baltika received the nomination in two categories – 5th place in the Best Investors Relations in the Baltic Market and 2-3rd place in The Best Annual Report and Corporate Governance Report.
- On January 30, 2015 the Supervisory Board of AS Baltika suspended Maigi Pärnik-Pernik Management Board contract for the duration of her maternity leave. The Management Board member responsible for the finance function during the leave of Maigi Pärnik-Pernik is Meelis Milder.
- Additional problem to economic situation in Russia has proved to be the situation in banking sector. Baltika Group companies have used in Russia several banks services, including one among the top largest 100 banks in Russia, ООО Судостроительный банк. The bank has had liquidity issues since January and on 16th February 2015 the Central Bank of Russia withdrew their license. No disruption has thus far occurred with the other banks used. Baltika is working together with law firm partners on resolving the matter to know when and how much funds from what was held on the account would be returned. Baltika’s operations continue as usual and the possible maximum loss is not significant.
- On 20 February 2015, OÜ Baltika TP and OÜ Baltika Retail executed a merger agreement according to which OÜ Baltika Retail is the acquiring company and OÜ Baltika TP the company being merged. Since July 2012 Baltika TP has been dormant and the goal of the merger is to minimise Baltika TP administrative management costs. Proposed merger is within the Group and therefore results in no changes to the Baltika Group assets, rights and obligations amount, content and nature. The merger will have no economic effect on the other subsidiaries of the Group.
- Supervisory Council decided on 26 of March 2015 to propose to the Annual General Meeting of shareholders to increase conditionally the share capital of AS Baltika for the option scheme for Management Board members, by issuing additionally up to 1,000,000 (one million) registered shares with the nominal value of 0.20 euros and with the issuance price of 0.20 euros per each share. Each share option grants its owner the right to acquire 1 (one) share of the Company. The subscription of the shares takes place within two years after the lapse of a period of three years from the execution of the option agreement with the eligible persons of the share option program.
- Supervisory Council of AS Baltika decided to recall from the Management Board starting from 14 April 2015 Management Board member Andrew James David Paterson.
- The Annual General Meeting of AS Baltika, held on 27 April 2015, decided to approve the Annual report for 2014 and covering of net loss from retained earnings. Meeting elected to extend the powers of current Supervisory Council members for next three year term and agreed to the remuneration of Supervisory Council members in accordance with the proposal. The meeting decided to increase conditionally the share capital of AS Baltika, to issue ordinary shares in accordance with Terms and conditions of Share Option Program proposed by Supervisory Council
- Baltika continued the optimisation of Russian retail market, four stores were closed: Monton and Mosaic stores in Novosibirsk, Monton store in Nizni Novgorod and outlet store in St. Petersburg. One new Ivo Nikkolo store was opened in March in Tasku shopping centre in Tartu, Estonia that is the only flagship store of this brand in Tartu. Baltika’s brands franchise stores portfolio saw addition of three new stores in January: franchise partner Gold Button opened outlet store in Moscow, Russia and franchise partner Mirworld opened Baltman and Bastion flagship stores in Tenerife, in Spain.
Consolidated statement of financial position
| 31 March 2015 | 31 Dec 2014 | |
| ASSETS | ||
| Current assets | ||
| Cash and cash equivalents | 450 | 710 |
| Trade and other receivables | 2,397 | 1,890 |
| Inventories | 13,581 | 13,415 |
| Total current assets | 16,428 | 16,015 |
| Non-current assets | ||
| Deferred income tax asset | 420 | 420 |
| Other non-current assets | 606 | 605 |
| Property, plant and equipment | 3,151 | 2,895 |
| Intangible assets | 3,292 | 3,180 |
| Total non-current assets | 7,469 | 7,100 |
| TOTAL ASSETS | 23,897 | 23,115 |
| EQUITY AND LIABILITIES | ||
| Current liabilities | ||
| Borrowings | 1,973 | 2,692 |
| Trade and other payables | 7,407 | 7,019 |
| Total current liabilities | 9,380 | 9,711 |
| Non-current liabilities | ||
| Borrowings | 6,396 | 4,584 |
| Other liabilities | 131 | 83 |
| Total non-current liabilities | 6,527 | 4,667 |
| TOTAL LIABILITIES | 15,907 | 14,378 |
| EQUITY | ||
| Share capital at par value | 8,159 | 8,159 |
| Share premium | 841 | 809 |
| Reserves | 1,182 | 1,182 |
| Retained earnings | 1,310 | 2,573 |
| Net profit (loss) for the period | -1,136 | -1,263 |
| Currency translation differences | -2,366 | -2,723 |
| TOTAL EQUITY | 7,990 | 8,737 |
| TOTAL LIABILITIES AND EQUITY | 23,897 | 23,115 |
Consolidated statement of profit and loss
| Q1 2015 | Q1 2014 | |
| Continuing operations | ||
| Revenue | 12,325 | 12,171 |
| Cost of goods sold | -6,843 | -6,254 |
| Gross profit | 5,482 | 5,917 |
| Distribution costs | -5,751 | -5,954 |
| Administrative and general expenses | -738 | -717 |
| Other operating income | 1 | 2 |
| Other operating expenses | -16 | -74 |
| Operating loss | -1,022 | -826 |
| Finance costs | -117 | -79 |
| Loss before income tax | -1,139 | -905 |
| Income tax expense | 3 | -5 |
| Net loss from continuing operations | -1,136 | -910 |
| Net loss for the period from discontinued operations | 0 | -1,572 |
| Net loss for the period | -1,136 | -2,482 |
| Basic earnings per share, EUR | -0.03 | -0.06 |
| Continuing operations | -0.03 | -0.02 |
| Discontinued operations | 0.00 | -0.04 |
| Diluted earnings per share, EUR | -0.03 | -0.06 |
| Continuing operations | -0.03 | -0.02 |
| Discontinued operations | 0.00 | -0.04 |
Meelis Milder
Chairman of the Board
meelis.milder@batikagroup.com
