Baltika’s sales increased by 211 thousand euros that is 2% compared to the same period last year and were 13,181 thousand euros. Largest sales growth figures came from e-commerce with 246% and wholesale and franchise revenue with 39%. Sales in these channels increased by 474 thousand euros compared to the same period last year. Retail sales decreased by 2% compared to last year second quarter. Half-year total sales revenue amounted to 25,506 thousand euros that is 1% more than comparative figure in prior year. Baltika continues the planned development of other (in addition to own retail channel) sales channels. Thus the half-year proportion of sales to wholesale and franchise partners has increased from 7% to 11% and e-store proportion of sales respectively from 0.6% to 2%.
In addition to e-channel revenue strong growth e-com has an important role in supporting retail sales. Increasingly more clients make their choice through e-channel in the form of pre-shopping and then finalising the purchase in regular store or checking from the e-channel whether their chosen product and size are available in their favourite store. Integration of e-channel and regular store for client convenience continues to be important course of direction.
Retail sales in Baltics (91% from retail sales) in the second quarter were 10,692 thousand euros, that is 591 thousand euros i.e. 6% more than in same period last year. Largest sales growth by countries came from Estonia and Lithuania. Sales growth 11% in Estonia was supported by larger sales area. Lithuania has constantly shown this year better results than other Baltic countries. In Lithuania sales and sales efficiency grew by 4% in the second quarter.
To reduce the risks related to Russian business loss making stores have been closed and Russian proportion from retail sales has decreased to 9% in the second quarter compared to 16% in prior year. In Russia, where average sales area in second quarter was 25% lower than in last year same period, revenue also decreased, by -44%. In addition to lower sales area the sales result was impacted by weaker rouble. Efficiency in local currency was not far from that of prior year (-2%). At the same time the operating expense of Russian market decreased much more than only by the reduction of sales area, which ensured for second quarter for the market in total (retail and wholesale) operating without a loss.
Company gross profit margin in the second quarter was 52.1% that is 4.4 percentage points lower than in the same period last year. The main reasons behind the decrease of gross profit margin in second quarter (as well as first half-year) were: increase in goods average purchase price due to US dollar strengthening (lower intake margin compared to last year); need to use up on Baltic market excessive stock resulting from order cancellations of eastern markets (Russia, Belarus and Ukraine) wholesale partners; discounts in Russia from closing sales related to reduction in Russian retail system; general decrease in retail margin from devaluation of rouble and seasonal items deeper discounts due to colder than usual summer. Group gross profit margin is also impacted by structural differences: lower margin wholesale and franchise proportion has increased in second quarter from 6% to 8% and Russian retail that has higher gross profit margin proportion has decreased.
Baltika’s second quarter resulted in net profit in the amount of 67 thousand euros. The result of last year same period continued operations was a profit of 405 thousand euros and with discontinued operations result was net profit of 648 thousand euros. Half-year net loss was 1,069 thousand euros. Continued operations comparative period figure was a loss of 505 thousand euros and with discontinued operations net loss of 1,834 thousand euros.
Baltika acts to adjust to the negative external factors impacting 2015 results: unfavourably strong dollar exchange rate to euro that impacts purchase cost, reduction of retail area due to economic situation in Russia, reduced Finnish and Eastern-European tourist flow and spending in Baltics. Activities to reduce parent entity operating expense and improve efficiency continued in the second quarter. Changes made and to be made in product division processes (centralisation of goods purchase management, centrally managed product development processes improvement and implementation in years 2015-2016) and steps taken to optimise level of stock will impact due to long purchase cycle only from next year. First results can be seen in reduced level of materials, where compared to prior year end of June balance has decreased by 19%. As a result of the simplification of management structure, which expense is in second quarter, the number of employees in parent entity has reduced with the half-year by 10 people.
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.
Highlights of the period until the date of release of this quarterly report
- Supervisory Council of AS Baltika recalled from the Management Board starting from 14 April 2015 Management Board member Andrew James David Paterson.
- Simplifying parent entity management structure, merging Merchandising function with Sales and Marketing division and centralisation of Buying and Supply Chain function.
- The Annual General Meeting of AS Baltika, held on 27 April 2015, approved 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 e-store andmorefashion.com was elected to be the winner of 2014 „E-tegu“ (E-com achievement“) on 29 of April in Estonian E-Commerce yearly conference. Baltika was recognized for its achievements in the integration of e-com and regular shops, multilingual e-store that allows better information and choices already before shopping and allows the possibility to shop for wider circle of customers and bigger export possibilities for Baltika.
- Two new stores were opened in Baltika’s own retail network in second quarter, both in Estonia. New store representing both Monton and Mosaic brands opened at the end of April in Viljandi and new Monton store opened in Tallinn Lasnamäe Centrum in May. Baltika’s brands franchise store portfolio saw addition of one new store in April in Ukraine, with the opening of Monton store in Dnepropetrovsk. Larger renovations took place in Tartu Lõunakeksus Monton and Mosaic stores.
Consolidated statement of financial position
| 30 June 2015 | 31 Dec 2014 | |
| ASSETS | ||
| Current assets | ||
| Cash and cash equivalents | 562 | 710 |
| Trade and other receivables | 2,038 | 1,890 |
| Inventories | 13,269 | 13,415 |
| Total current assets | 15,869 | 16,015 |
| Non-current assets | ||
| Deferred income tax asset | 420 | 420 |
| Other non-current assets | 731 | 605 |
| Property, plant and equipment | 3,257 | 2,895 |
| Intangible assets | 3,229 | 3,180 |
| Total non-current assets | 7,637 | 7,100 |
| TOTAL ASSETS | 23,506 | 23,115 |
| EQUITY AND LIABILITIES | ||
| Current liabilities | ||
| Borrowings | 1,937 | 2,692 |
| Trade and other payables | 7,032 | 7,019 |
| Total current liabilities | 8,969 | 9,711 |
| Non-current liabilities | ||
| Borrowings | 6,334 | 4,584 |
| Other liabilities | 180 | 83 |
| Total non-current liabilities | 6,514 | 4,667 |
| TOTAL LIABILITIES | 15,483 | 14,378 |
| EQUITY | ||
| Share capital at par value | 8,159 | 8,159 |
| Share premium | 809 | 809 |
| Reserves | 1,182 | 1,182 |
| Retained earnings | 1,310 | 2,573 |
| Net loss for the period | -1,069 | -1,263 |
| Currency translation differences | -2,368 | -2,723 |
| TOTAL EQUITY | 8,023 | 8,737 |
| TOTAL LIABILITIES AND EQUITY | 23,506 | 23,115 |
Consolidated statement of profit and loss
| Q2 2015 | Q2 2014 | 6M 2015 | 6M 2014 | |
| Continuing operations | ||||
| Revenue | 13,181 | 12,970 | 25,506 | 25,141 |
| Cost of goods sold | -6,310 | -5,639 | -13,153 | -11,893 |
| Gross profit | 6,871 | 7,331 | 12,353 | 13,248 |
| Distribution costs | -6,034 | -6,090 | -11,785 | -12,044 |
| Administrative and general expenses | -608 | -751 | -1,346 | -1,468 |
| Other operating income | 12 | 21 | 13 | 18 |
| Other operating expenses | -52 | -4 | -68 | -73 |
| Operating profit (loss) | 189 | 507 | -833 | -319 |
| Finance costs | -122 | -92 | -239 | -171 |
| Profit (loss) before income tax | 67 | 415 | -1,072 | -490 |
| Income tax expense | 0 | -10 | 3 | -15 |
| Net profit (loss) from continuing operations | 67 | 405 | -1,069 | -505 |
| Net profit (loss) for the period from discontinued operations | 0 | 243 | 0 | -1,329 |
| Net profit (loss) for the period | 67 | 648 | -1,069 | -1,834 |
| Basic earnings per share, EUR | 0.00 | 0.02 | -0.03 | -0.04 |
| Continuing operations | 0.00 | 0.01 | -0.03 | -0.01 |
| Discontinued operations | - | 0.01 | - | -0.03 |
| Diluted earnings per share, EUR | 0.00 | 0.02 | -0.03 | -0.04 |
| Continuing operations | 0.00 | 0.01 | -0.03 | -0.01 |
| Discontinued operations | - | 0.01 | - | -0.03 |
Meelis Milder
Chairman of the Board
meelis.milder@batikagroup.com
