Baltika Group’s third quarter resulted in net loss in the amount of 471 thousand euros. The result of last year same period was a net loss of 296 thousand euros.
In the third quarter Group’s revenue remained at the same level as last year and was 12,001 thousand euros. Retail revenue in the third quarter was 9,435 thousand euros, decreasing 1% compared to the same period last year. At the same time e-store and wholesale and franchise sales continued to increase. The retail sales in the Baltic region was mainly impacted by the August result, which stayed strongly below last year’s level. The number of visitors in shopping centres decreased drastically in August probably due to warm weather, which in turn had a major impact on retail sales result. In the third quarter, Estonian retail market was the only market, which showed revenue growth.
Wholesale and franchise revenue increased 4% in third quarter and was 2,222 thousand euros. Starting from spring of 2017, Baltika sells Mosaic brand to Russian shopping centre chain Lady & Gentleman CITY. Mosaic collection is represented in five Lady & Gentleman CITY shopping centres in the largest cities in Russia. In addition to the new customer, sales growth is continually supported by franchise market in Serbia entered in the beginning of the year and Peek & Cloppenburg department stores chain. At the end of the third quarter there were 32 franchise stores representing Baltika’s brands, forming 26% of the total stores portfolio. In nine months total the wholesale and franchise revenue increased 7% and was 5,443 thousand euros.
Revenue from Baltika Group’s e-store Andmorefashion.com increased 29% in the third quarter and was 321 thousand euros. The best-selling brand in e-store was Monton, comprising of 32% from e-store revenue. As usual, the most popular product was the dress, which sold 2,500 pieces in the third quarter. Development of the e-store continued in third quarter: stores providing Click&Collect service in Latvia got an addition (adding the option to order e-shop packages to Monton store in Riga Spice), the e-shop homepage and shopping cart were updated, which improves e-customer’s user experience. In nine months total, the e-store Andmorefashion.com revenue increased 38% and exceeded the one million euro threshold.
The company’s gross profit margin in the third quarter was 44.0% decreasing by 1.4 percentage points in the year. Gross profit margin continues to be affected by higher markdowns in retail business compared to last year. The gross profit for the quarter was 5,284 thousand euros, decreasing by 148 thousand euros compared to last year’s comparable result. The nine months total gross profit amounted to 16,548 thousand euros (9 months 2016: 16,922 thousand euros).
Group’s third quarter and nine months total distribution and general expense remained at the last year level. The distribution and general expense ratio to revenue in the third quarter was 46.6% i.e. ratio has decreased by 0.1 percentage points in the year. In nine months total, the ratio was 49.4% (9 months 2016: 49.5%).
In nine months, Baltika’s revenue increased 1% compared to same period last year. The e-store and wholesale and franchise revenue showed growth; with that one of the company’s objectives for 2017 – revenue growth in all of the sales channels – was partly met. Company ended the nine months with a loss in the amount of 862 thousand euros, the comparative result from previous year was a loss in the amount of 443 thousand euros. The main reason for the weak result is the lower than expected retail sales due to deeper mark-downs, which in turn decreased the gross profit.
Highlights of the period until the date of release of this quarterly report
- Financial Supervision Authority approved on 10th of July 2017 the Convertible K-bond offering prospectus. The offering comprises of 900 bonds with issuance price of 5,000 euros, therefore total of 4,500,000 euros. Bonds with the term of two year bear 6% interest p.a. Each bond gives to its owner the right to subscribe for 15,625 shares of the Company with subscription price 0.32 euros per share. The offer period ended on 16 August 2017 at 2 p.m. Public offering of bonds was exercised in 99% extent: from 900 bonds offered 889 bonds were subscribed, in the total amount of 4,445,000 euros. Subscription applications were submitted by shareholders of AS Baltika and also by other investors.
- In August, AS Baltika redeemed 600 J-series bonds in total issue price of 3,000,000 euros. The three-year J-series bonds were issued on 28th of July 2014, bearing an annual interest of 6.5%, issuance price per bond was 5,000 euros. Each J-series bondholder had an opportunity to convert the bonds into the K-series convertible bonds, which was used: out of 600 J‑series bonds 593 bonds with accrued interest were exchanged for K-series bonds. For the outstanding 7 J-bonds the company returned to investors the amounts paid for the bonds with accrued interests.
- On 30 August 2017 AS Baltika was informed of following changes in substantial shareholding: with a purchase of new shares on 30 August 2017 KJK Fund Sicav-SIF (on ING Luxembourg S.A. account) shareholding in AS Baltika has increased to 38.90 percentage and E.Miroglio Finance S.A (on Clearstream Banking Luxembourg S.A. account) shareholding has increased to 17.78 percentage. With a disposal of shares on 30 August 2017 OÜ BMIG shareholding in AS Baltika is 0 percentage and the shareholding under Meelis Milder control (direct holding, immediate family members and entities under his control) was 3.06 percentage.
- In September the biggest brand in Baltika’s portfolio Monton celebrated its 15th birthday. For the occasion, Monton designers created a special collection named “Freedom” as a tribute to all free spirits, to freedom of creation and expression and to free Estonia.
- To Celebrate Estonia’s 100th and Canada's 150th birthday, a premiere under the concept called Northern Spirit EstoSyle was held in Toronto in Canada in September. During this event, eight internationally most recognized Estonian fashion and design brands were showcased, including three Baltika’s brands: Monton, Baltman and Ivo Nikkolo.
- On 11 November 2017, Supervisory Board decided to recall the head of purchasing and supply chain Ingrid Uibukant from the Management Board starting from 18th of December 2017. Management Board of Baltika AS will continue with two members: Chief Executive Officer Meelis Milder and Chief Financial Officer Maigi Pärnik-Pernik.
- On October, Baltika Group renewed its e-store growth strategy with a clear goal to increase sales outside the Baltic states. Within this process a market entry strategy was established that integrates strengths of a physical store with strengths of Baltika Group’s e-store Andmorefashion.com. The goal is to offer unified customer experience across channels and connect the classical retail business with opportunities of an e-store. Currently, the first pilot project is prepared in order to use the strategy to enter Finnish market.
Consolidated statement of financial position
| 30 Sept 2017 | 31 Dec 2016 | |
| ASSETS | ||
| Current assets | ||
| Cash and cash equivalents | 428 | 419 |
| Trade and other receivables | 3,380 | 1,956 |
| Inventories | 10,716 | 11,096 |
| Total current assets | 14,524 | 13,471 |
| Non-current assets | ||
| Deferred income tax asset | 228 | 228 |
| Other non-current assets | 529 | 522 |
| Property, plant and equipment | 2,519 | 3,022 |
| Intangible assets | 1,540 | 1,676 |
| Total non-current assets | 4,816 | 5,448 |
| TOTAL ASSETS | 19,340 | 18,919 |
| EQUITY AND LIABILITIES | ||
| Current liabilities | ||
| Borrowings | 4,197 | 5,835 |
| Trade and other payables | 5,461 | 6,923 |
| Total current liabilities | 9,658 | 12,758 |
| Non-current liabilities | ||
| Borrowings | 5,416 | 1,196 |
| Total non-current liabilities | 5,416 | 1,196 |
| TOTAL LIABILITIES | 15,074 | 13,954 |
| EQUITY | ||
| Share capital at par value | 8,159 | 8,159 |
| Share premium | 496 | 496 |
| Reserves | 1,345 | 1,182 |
| Retained earnings | -4,872 | -5,049 |
| Net profit (loss) for the period | -862 | 177 |
| TOTAL EQUITY | 4,266 | 4,965 |
| TOTAL LIABILITIES AND EQUITY | 19,340 | 18,919 |
Consolidated statement of profit and loss
| 3 Q 2017 | 3 Q 2016 | 9M 2017 | 9M 2016 | |
| Revenue | 12,001 | 11,966 | 34,490 | 34,289 |
| Cost of goods sold | -6,717 | -6,534 | -17,942 | -17,367 |
| Gross profit | 5,284 | 5,432 | 16,548 | 16,922 |
| Distribution costs | -5,053 | -4,985 | -15,205 | -15,094 |
| Administrative and general expenses | -541 | -605 | -1,820 | -1,874 |
| Other operating income (-expense) | -43 | -14 | -23 | -51 |
| Operating loss | -353 | -172 | -500 | -97 |
| Finance costs | -118 | -124 | -362 | -346 |
| Loss before income tax | -471 | -296 | -862 | -443 |
| Net loss for the period | -471 | -296 | -862 | -443 |
| Basic earnings per share from net loss for the period, EUR | -0.01 | -0.01 | -0.02 | -0.01 |
| Diluted earnings per share from net loss for the period, EUR | -0.01 | -0.01 | -0.02 | -0.01 |
Maigi Pärnik-Pernik
Member of the Management Board
Find presentation of Q3 results: http://www.baltikagroup.com/investors/presentations/
