Baltika’s sales were 13,149 thousand euros and decreased by 1,499 thousand euros compared to the same period last year. Sales growth came from e-commerce with 104%. Wholesale and franchise sales decreased by 19% compared to last year third quarter, when pre-opening stock deliveries were made to franchise partners new shops. Retail sales decreased by 10% compared to last year third quarter. Baltika nine months total sales revenue amounted to 38,655 thousand euros that is 3% less than comparative figure in prior year.
Baltika e-channel celebrated one year from the launch of new web store Andmorefashion.com that covers all brands. This year has included more than two and a half times higher sales volumes and in addition e-store Andmorefashion.com won the „Eesti aasta e-tegu“ (“Estonian e-com achievement of the year”) given during Estonian E-Commerce yearly conference. Nine months total sales through e-com were 699 thousand euros that is 2% from Baltika total revenue.
Retail sales in Baltics (90% from retail sales) were 10,290 thousand euros in the third quarter, that is 143 thousand euros i.e. 1% less than in same period last year. Unusually warm weather at the end of summer and in the beginning of autumn period, resulted in weak august sales and impacted sales of the quarter.
In the third quarter another store was closed in Krasnodar Russia. At the end of quarter there was 10 stores in Russia. Due to 22% smaller average sales area and weaker rate of Russian rouble the third quarter sales results have also decreased. Similarly to other retail markets Russian sales result in August was lower than usual, quarter total resulted in decrease of 49% compared to same period last year. Russian sales in third quarter were 1,147 thousand euros. In local currency the third quarter sales decreased by 24%.
Company’s gross profit margin in the third quarter was 45.1% that is 3.9 percentage points lower than in the same period last year. The gross profit margin continued to be impacted by higher average purchase price due to stronger US dollar. Euro has become stronger compared to dollar in the second part of third quarter compared to the lowest point in this year March, but considering the time difference from purchase to sales the impact does not yet reflect in third quarter results. Gross profit margin was also impacted by warmer weather than usual as purchases of autumn collection were postponed and ending season discounted stock purchases proportion from sales was higher than usual.
Baltika’s third quarter result was net loss in the amount of 650 thousand euros. The result of last year same period was a profit of 151 thousand. Nine months cumulative net loss was 1,719 thousand euros. Continued operations comparative period figure was a loss of 354 thousand euros and with discontinued operations net loss of 1,683 thousand euros.
Work with reducing Baltika parent entity operating expense and improve efficiency continued in the third quarter. Centralisation of goods purchase management, work toward optimisation of stock level and efficient head-office processes is bringing first results – parent entity operating expenses have decreased by 7% compared to last year same period. Inventory level has decreased by 1,579 thousand euros compared to last year third quarter end figure. Baltika will have to continue with centrally managed product development, inventory management processes improvement and increasing efficiency.
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 previous period first 4 months of the Ukrainian entity are presented as discontinued operation. Therefore the comparative period results of the discontinued operation are reported separately from continuing operations, to allow better assessment of the performance of continuing operations.
Baltika 9 months 2015 results have been impacted mostly by gross profit margin, primarily by decrease of margin. One reason behind low gross profit margin is the negative trends in EUR/USD exchange rate, that substantially impacts Baltika’s material and finished goods intake margin. Another factor impacting the margin is the sudden decrease of Russian retail market and rouble related currencies consumers purchase power. Due to the length of Baltika’s purchase cycle the intake margin is improving from end of current year third quarter and reaching expected level. Planned decrease of Baltika’s Russian retail network, closing of unprofitable stores and decrease of market overall expenses have taken place from the start of the year. Baltika has accepted decreases of orders from its eastern neighbours (Russia, Belarus, Kazakhstan) to support the partners. This has created additional discount pressure on the Baltic retail market. Now the partners business is stabilising and level of inventory is becoming under control. In the same time of liquidating reasons of gross profit decrease, the Group main entity has worked with its operating expenses and decrease of intake volumes and achieved cost savings. Baltika management estimates that the last half-year work is giving results and the usual level of profitability should return in coming months.
Highlights of the period until the date of release of this quarterly report
- The traditional fashion show to launch autumn-winter season was held on 5th of August. The newest creations from designers and autumn season trends were shown in Baltika Quarter.
- E-store Andmorefashion.com that covers all brands celebrated first year of operations.
- At the 8th of September 2015 meeting the Supervisory Board of AS Baltika decided to extend the contracts of the Chairman of the Management Board Meelis Milder and member of the Management Board Kati Kusmin for another 3-year term. The Management Board will continue with three members: Meelis Milder, Kati Kusmin and Maigi Pärnik-Pernik. Maire Milder will continue among Group executives on current position as director of Branding and Retail Development.
- A new store was opened in Baltika’s own retail network in third quarter, when new Monton store was opened in Tallinn, Solaris shopping centre in the beginning of September. Planned closing of stores continued in Russia and a Monton store was closed in Krasnodar, Oz Mall shopping centre.
- From November 2nd 2015 Tiina Varamäe will start working as an Estonian retail market Director and Member of the Board in Baltman OÜ. Tiina has a long work experience in Baltika in years 2004-2012 as a Head of Retail Operations Manager and as an Estonian Market Director.
Consolidated statement of financial position
| 30 Sept 2015 | 31 Dec 2014 | |
| ASSETS | ||
| Current assets | ||
| Cash and cash equivalents | 354 | 710 |
| Trade and other receivables | 2,616 | 1,890 |
| Inventories | 12,388 | 13,415 |
| Total current assets | 15,358 | 16,015 |
| Non-current assets | ||
| Deferred income tax asset | 420 | 420 |
| Other non-current assets | 718 | 605 |
| Property, plant and equipment | 3,190 | 2,895 |
| Intangible assets | 2,990 | 3,180 |
| Total non-current assets | 7,318 | 7,100 |
| TOTAL ASSETS | 22,676 | 23,115 |
| EQUITY AND LIABILITIES | ||
| Current liabilities | ||
| Borrowings | 5,228 | 2,692 |
| Trade and other payables | 6,869 | 7,019 |
| Total current liabilities | 12,097 | 9,711 |
| Non-current liabilities | ||
| Borrowings | 3,360 | 4,584 |
| Other liabilities | 232 | 83 |
| Total non-current liabilities | 3,592 | 4,667 |
| TOTAL LIABILITIES | 15,689 | 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 | -1,719 | -1,263 |
| Currency translation differences | -2,754 | -2,723 |
| TOTAL EQUITY | 6,987 | 8,737 |
| TOTAL LIABILITIES AND EQUITY | 22,676 | 23,115 |
Consolidated statement of profit and loss
| Q3 2015 | Q3 2014 | 9M 2015 | 9M 2014 | ||
| Continuing operations | |||||
| Revenue | 13,149 | 14,648 | 38,655 | 39,789 | |
| Cost of goods sold | -7,217 | -7,467 | -20,370 | -19,360 | |
| Gross profit | 5,932 | 7,181 | 18,285 | 20,429 | |
| Distribution costs | -5,849 | -6,173 | -17,634 | -18,217 | |
| Administrative and general expenses | -583 | -694 | -1,929 | -2,162 | |
| Other operating income | 7 | 22 | 20 | 34 | |
| Other operating expenses | -35 | -49 | -103 | -116 | |
| Operating profit (loss) | -528 | 287 | -1,361 | -32 | |
| Finance costs | -122 | -125 | -361 | -296 | |
| Profit (loss) before income tax | -650 | 162 | -1,722 | -328 | |
| Income tax expense | 0 | -11 | 3 | -26 | |
| Net profit (loss) from continuing operations | -650 | 151 | -1,719 | -354 | |
| Net loss for the period from discontinued operations | 0 | 0 | 0 | -1,329 | |
| Net profit (loss) for the period | -650 | 151 | -1,719 | -1,683 | |
| Basic earnings per share, EUR | -0.02 | 0.00 | -0.04 | -0.04 | |
| Continuing operations | -0.02 | 0.00 | -0.04 | -0.01 | |
| Discontinued operations | - | - | - | -0.03 | |
| Diluted earnings per share, EUR | -0.02 | 0.00 | -0.04 | -0.04 | |
| Continuing operations | -0.02 | 0.00 | -0.04 | -0.01 | |
| Discontinued operations | - | - | - | -0.03 |
Meelis Milder
Chairman of the Board
meelis.milder@batikagroup.com
