Baltika's unaudited financial results, third quarter and 9

A strong half-year was followed by decreased sales in third quarter 2013 and brought a net loss of 784 thousand euros. Nine months ended with a net loss of 763 thousand euros, a weakening of 493 thousand euros year-over-year. 

The main factor that undermined third quarter performance was the situation in the retail segment. Unusual warm weather in August and September dampened demand for autumn goods in all  Baltika’s five retail markets. In addition, consumer behaviour was affected by increasing uncertainty and slackening economic growth, particularly in Russia, but to a lesser extent also in the Baltics. Competition intensity in Estonia and Lithuania has grown due to new brands entered the market and retail sales area has widened.

In the first half-year the Group’s retail sales grew by 8%, in the third quarter there was 2% shrinkage, which lowered nine-month retail sales growth to 5%. In the third quarter, moderate retail sales growth was achieved in the Baltics (2%), where the growth driver was Estonia (5%). In nine-month terms, the strongest retail sales growth was recorded in Estonia (14%), followed by Latvia (8%) and Lithuania (4%).

In the third-quarter retail sales in Russia fell by 14% and in Ukraine by 6%. Addition to slackening economic growth, sales were driven down by the weakening of the exchange rates of the Russian rouble against euro. The Group’s nine-month foreign exchange loss amounted to 372 thousand euros.

Wholesale and e-commerce revenues grew by 20% in third quarter which meets the expectations set for 2013 to develop also other sale channels and increase sales volumes through wholesale partners and franchise.

Compared with the third quarter last year, the Group’s total revenue decreased by 135 thousand euros, i.e. 1%. Gross margin for the third quarter was 48.9%, a decrease of 2.9 percentage points year-over-year. The slide in the margin is attributable to consumers’ unseasonably weak demand for autumn-winter goods due what the proportion of new season garments sale from total sales was smaller than in last year. 

Although after two weak months, sales resumed growth in October, the figures did not fully meet management’s expectations. Weaker than expected results at the beginning of the fourth quarter may put achievement of the company’s financial targets for 2013, which were released on 1 October, at risk. The current year’s fluctuating sales figures along with the uncertainties prevailing in the economy make it difficult to make forecasts for the near future.

Highlights of the period until the date of release of this quarterly report

•    At the request received from KJK Fund Sicav-SIF in June, the company’s H-bonds were converted into ordinary shares. On 16 July, the 5,000,000 ordinary shares were transferred to the shareholder’s client account at the Estonian Central Register of Securities. The new shares account for 12.3% of the new total number of shares. Thus, the interest of Baltika’s largest investor (through the account of ING Luxembourg S.A.) increased to 30.86%. Baltika now has 40,794,850 ordinary shares with a par value of 0.2 euros each.
•    In August, the Group celebrated its 85th anniversary with a fashion evening where Baltika’s brands presented their new collections for the coming season and the guests could get a glimpse into the origins of Estonian fashion through rare documentary footage featuring the birth and development of the domestic fashion industry.
•    In August, the first Blue Inc London store was opened in Riga, Latvia, in line with a franchise agreement signed with A Levy & Son Ltd in May, which grants Baltika the right to represent the Blue Inc trademark in the Baltics. The next Blue Inc stores were opened in September in Valmiera, Latvia, and in October in Tallinn, Estonia. 
•    In October, Valanga OOO, Baltika’s franchise partner in Belarus, opened the first two Monton brand stores in Minsk. The total area of the stores is 380 sqm. According to plan, in the next five years at least five Monton stores with a sales area of 150-250 sqm will be opened in Belarus.
•    In October, Baltman’s designer Aivar Lätt alias Antonio received the highest recognition in the Estonian fashion world – the Golden Needle award. According to Antonio, his special Baltman Limited Edition collection, which was created for the Golden Needle, represents the essence of his work so far. The colourful collection, which also included some female fashion, played with grunge-style elements, bold and vibrant colour and design solutions. Baltika’s designers have been rewarded with Golden Needle award eight times throughout the years.
•    At the end of October, Monton presented to the media and the guests of the Estonian Olympic Committee the collection of outfits created for the 2014 Sochi Winter Olympics, after which all who wished could pre-order the new items from Monton’s e-shop. The limited collection combines the Estonian national colours and ethnic patters and stands out for its clean and clear colour solution. The well-thought-out ensemble was created by Monton’s head designers Piret Puppart and Peeter Rästa. The collection will be made available in the retail network in the last days of November.
•    In the third quarter, the number of the Group’s stores grew by four. In July a Monton multi-brand store was opened in the Riga Plaza shopping centre in Latvia and in August an Ivo Nikkolo store was opened in the Alfa shopping centre and the first Blue Inc store was opened the Origo shopping centre (both in Riga). In September, the second Blue Inc store was opened in the Valleta shopping centre in Valmiera, Latvia, and the first new-concept Baltman store was opened in the Rocca al Mare shopping centre in Estonia. In Russia, one store was closed. In addition to changes to the retail system, which were made in the third quarter,  three new stores were opened in October: a Blue Inc store in the Rocca al Mare shopping centre in Tallinn and two stores, which sell Monton and Mosaic fashion products in the Gulliver shopping centre in Kiev, Ukraine.

Consolidated statement of financial position

Consolidated statement of comprehensive income

Maigi Pärnik Member of the Management Board maigi.parnik@baltikagroup.com