Baltika’s net profit for second quarter of 2013 amounted to 624 thousand euros, that is 9% improved results compared to prior year 572 thousand euros. Half-year total resulted with the strong second quarter in profit : 21 thousand euros, that exceeds prior year same period result by 492 thousand euros.
Planned increase of net profit was achieved with good sales in Baltic countries, somewhat increased gross margin and cost control.
Despite the cold spring that affected sales in first quarter, company considers both sales growth and efficiency satisfactory. When first quarter retail sales growth was 7% %, then in the second quarter by 10% and, thus, total sales growth for the first half-year was 8%. Retail sales continued to grow in the largest markets of the company in the Baltic countries - the highest growth rates were posted by Estonia (19%) and Latvia (13%). Lithuania achieved both sales and efficiency growth of 10%, which efficiency figure was the best in the Group.
The performance of the Eastern European markets that contribute a smaller proportion of the company’s revenue was not as strong – in Russia retail sales decreased by 1% and in Ukraine by 2%. The Russian market seems to be undergoing a certain decline in consumer confidence, the Ukrainian results were undermined by cutbacks in the sales area. In addition the hryvna and ruble depreciated in the second quarter resulting with half-year 242 thousand euros foreign exchange loss for the company.
Despite the trend set in the fashion industry by many competitors that launched their discount campaigns earlier than usual, Baltika was able to maintain its gross margin also in the second quarter, where it increased to 59.2%, a 0.2 percentage point improvement year-over-year.
Baltika sales growth has been supported with opening of new stores and investments into retail network, that will continue as planned – third quarter will include opening of new brand Blue Inc stores as franchisee.
The Management Board believes that the company’s annual targets are achievable in spite of certain sales growth speed decline and pressure resulting from the Russian market where consumer behaviour continues to be conservative. Achieving the targets is supported by positive trends in the Baltic countries that have largest portion of the company’s revenue base (70%), where stable sales growth should allow company to achieve its profitability targets (before the effects of foreign exchange differences and taxes).
Highlights from the period and until making quarterly report public
- In April AS Baltika signed franchise agreement to open Monton fashion stores in Belarus with Belarusian retail operator Valanga OOO. The plan involves opening in the next five years at least 5 Monton stores with 150-250m2 operating area in Minsk. The first Monton store in Belarus and Baltika’s first store under franchise agreement will be opened this year in September.
- Baltika signed in May a contract as franchisee with A Levy & Son Ltd attaining representation rights of Blue Inc trademarks in Baltic countries. Taking the franchise is part of Baltika’s strategic goal to use retail network operator experience to grow sales and market share in the Baltic countries. First Blue Inc London stores will be opened in the third quarter in Tallinn, Estonia; Riga and Valmiera in Latvia.
- In May, the Estonian Olympic Committee and Baltika signed a sponsoring agreement for the next four years. Baltika’s Monton brand has been the official sponsor of the Estonian Olympic Committee and has supplied official uniforms and leisurewear for the athletes of the Estonian delegation since 2004.
- Based on a request received from KJK Fund, Sicav-SIF in June 2013 the conversion of H-bonds to Baltika shares process was started. 5,000,000 Baltika ordinary shares were transferred on 16th July to the securities account of shareholder in Estonian CSD. New shares make up 12.3% of the amount of new total shares. The largest shareholder holding (on ING Luxembourg S.A. account) increased to 30.86%. Baltika now has 40,794,850 ordinary shares with the nominal value of 0.2 euros per share.
- In July, management of the ladies wear collections of the Monton and Mosaic brands was assigned to Iivika Rõõmberg who has been involved in different stages of Baltika’s product development and production operations for 13 years already.
- The number of stores increased in the quarter by 3. In April new Monton stores were opened: SkyMall shopping centre in Kiev, Ukraine, Galleria Riga centre in Latvia and Ufa Semja centre in Russia; Mosaic store in Ufa Mega centre in Russia and in Estonia mixed brand store Moetänav. Ivo Nikkolo store was opened in Galleria Riga centre in Latvia. Three stores in different countries were closed in the second part of the quarter.
Consolidated statement of financial position
| 30 June 2013 | 31 Dec 2012 | |
| ASSETS | ||
| Current assets | ||
| Cash and cash equivalents | 786 | 2,078 |
| Trade and other receivables | 1,864 | 1,836 |
| Inventories | 13,175 | 11,471 |
| Total current assets | 15,825 | 15,385 |
| Non-current assets | ||
| Deferred income tax asset | 637 | 637 |
| Other non-current assets | 1,102 | 1,088 |
| Property, plant and equipment | 2,800 | 2,256 |
| Intangible assets | 3,942 | 4,150 |
| Total non-current assets | 8,481 | 8,131 |
| TOTAL ASSETS | 24,306 | 23,516 |
| EQUITY AND LIABILITIES | ||
| Current liabilities | ||
| Borrowings | 1,701 | 1,598 |
| Trade and other payables | 6,743 | 7,005 |
| Total current liabilities | 8,444 | 8,603 |
| Non-current liabilities | ||
| Borrowings | 4,169 | 4,702 |
| Other liabilities | 17 | 25 |
| Total non-current liabilities | 4,186 | 4,727 |
| TOTAL LIABILITIES | 12,630 | 13,330 |
| EQUITY | ||
| Share capital at par value | 7,159 | 7,159 |
| Not registered share capital | 1,500 | 0 |
| Share premium | 125 | 63 |
| Reserves | 1,182 | 1,182 |
| Retained earnings | 2,471 | 1,667 |
| Net profit for the period | 21 | 804 |
| Currency translation differences | -782 | -689 |
| TOTAL EQUITY | 11,676 | 10,186 |
| TOTAL LIABILITIES AND EQUITY | 24,306 | 23,516 |
Consolidated statement of comprehensive income
| Q2 2013 | Q2 2012 | 6M 2013 | 6M 2012 | |
| Revenue | 14,264 | 13,157 | 27,450 | 25,800 |
| Cost of goods sold | -5,818 | -5,412 | -12,242 | -11,600 |
| Gross profit | 8,446 | 7,745 | 15,208 | 14,200 |
| Distribution costs | -6,764 | -6,235 | -13,339 | -12,819 |
| Administrative and general expenses | -707 | -684 | -1,442 | -1,368 |
| Other operating income | 37 | 156 | 38 | 189 |
| Other operating expenses | -171 | -15 | -151 | -25 |
| Operating profit | 841 | 967 | 314 | 177 |
| Finance income | -17 | -90 | 0 | 17 |
| Finance costs | -200 | -292 | -293 | -634 |
| Profit (loss) before income tax | 624 | 585 | 21 | -440 |
| Income tax expense | 0 | -13 | 0 | -31 |
| Net profit (loss) | 624 | 572 | 21 | -471 |
| Profit (loss) attributable to: | ||||
| Equity holders of the parent company | 624 | 572 | 21 | -472 |
| Non-controlling interest | 0 | 0 | 0 | 1 |
| Other comprehensive loss | ||||
| Currency translation differences | -113 | -194 | -93 | -116 |
| Total comprehensive income (loss) | 511 | 378 | -72 | -587 |
| Comprehensive income (loss) attributable to: | ||||
| Equity holders of the parent company | 511 | 378 | -72 | -588 |
| Non-controlling interest | 0 | 0 | 0 | 1 |
| Basic earnings per share, EUR | 0.02 | 0.02 | 0.00 | -0.01 |
| Diluted earnings per share, EUR | 0.02 | 0.02 | 0.00 | -0.01 |
Maigi Pärnik Member of the Management Board maigi.parnik@baltikagroup.com
