Published: 2015-07-30 15:45:00 CEST
Baltika
Half Year financial report

Baltika's unaudited financial results, second quarter and 6 months of 2015

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


Baltika_Interim report 2Q 2015.pdf