Baltika’s Unaudited Financial Results, Third Quarter and 9 Months of 2019Baltika Group ended the third quarter with a net loss of 1,241 thousand euros. The net loss for the same period last year was 814 thousand euros. The result for the third quarter of 2019 includes a negative impact of 77 thousand euros on the new accounting standard IFRS 16. The Group's sales revenue decreased by 12% in the third quarter compared to the same period last year and amounted to 9,758 thousand euros. The biggest sales channel (91%), retail, sales decreased by 6% and totalled 8,835 thousand euros. Revenue decreased in all three Baltic markets, which was mainly driven by the weak September result and the closure of Bastion brand, which is a part of Baltika Group's ongoing restructuring plan. Excluding the negative impact of the closure of Bastion, sales in August and July remained at the previous year's level. The third quarter sales revenue of Baltika Group e-store Andmorefashion.com increased by 33% compared to the same period last year and was 512 thousand euros. The brand with the biggest share of sales revenue is Monton, which accounts for 38% of the sales revenue of the e-shop. Compared to the third quarter of last year, sales increased in all major markets. The most distant countries where Baltika`s brand orders were shipped in the third quarter were Turkey, Israel, Japan, Australia and USA. The sales revenue of business customers decreased by 75% compared to the third quarter of last year and was 308 thousand euros. The decrease in sales revenue of approximately 1 million euros is related to the termination of contracts with franchise partners in Eastern Europe and Peek & Cloppenburg, a chain of department stores in Germany and Central Europe. The sharp decline in business customers` sales was expected, as the gradual exit from business customer sales channel is part of Baltika Group's ongoing restructuring plan. The gross profit for the quarter was 4,484 thousand euros, decreasing by 549 thousand euros compared to the same period last year (Q3 2018: 5,033 thousand euros). The decrease in gross profit is due to decreased sales revenue both in retail and business customers. The company's gross profit margin in the third quarter was 45.9%, which is 0.3 percentage points higher than last year's third quarter margin (Q3 2018: 45.6%). The Group's distribution expenses in the third quarter were 4,788 thousand euros, a decrease of 380 thousand euros compared to the same period last year. Administrative and general expenses decreased by 5% i.e 29 thousand euros in the third quarter and were 543 thousand euros. A consistent and significant reduction in marketing and administrative expenses is a part of Baltika Group's ongoing restructuring plan. Baltika Group's nine month sales revenue decreased by 9% compared to the same period last year and was 29,491 thousand euros. Retail sales decreased 4% and business customers´ sales 62%, while e-store sales increased 23%. The company's net result for the first nine months of the year was 3,300 thousand loss, compared with a net loss of 1,669 thousand last year. The main reason for the weak nine-month result was a significant decrease in retail and business customers` sales. In addition, the nine-month result includes the negative impact of the new accounting standard IFRS 16 of 289 thousand euros. As of 1 January 2019, IFRS 16, “Leases”, amended the recognition of lease contracts so that the rent payments for the remaining term of the lease period are recognized in the statement of financial position at their present value as both assets and liabilities, and period rent expenses are not recognized in income statement, instead of that the depreciation and interest expense are recognized in the income statement. The impact of the mandatory new accounting standard IFRS 16 on the income statement is shown in the table below. | | 3Q 2019 | 9 M 2019 | | Decrease in rent expenses | 1,661 | 4,876 | | Increase in depreciation | -1,544 | -4,548 | | Increase in operating profit | 117 | 328 | | Calculated interest expense on lease liabilities | -194 | -617 | | Decrease in the net profit | -77 | -289 |
In addition, IFRS 16 has a significant impact on the company's various balance sheet assets and liabilities. As at 30.09.19, fixed assets (i.e all lease payments at their present value, up to the end of the contract term) increased by 15,869 thousand euros and at the same time short-term lease liabilities increased by 5,487 thousand euros and long-term lease liabilities by 10,670 thousand euros. Equity As of the end of the third quarter, the equity of the company does not comply with the requirements of the Commercial Code. The Management of the Group is working on meeting the net asset requirement set out in the Commercial Code. | EQUITY | 30 September 2019 | | Share capital at par value | 5,408 | | Share premium | 0 | | Reserves | 0 | | Retained earnings | -341 | | Net profit (loss) for the period | -3,300 | | TOTAL EQUITY | 1,767 |
Consolidated statement of financial position
| | 30 Sept 2019 | 31 Dec 2018 | | ASSETS | | | | Current assets | | | | Cash and cash equivalents | 202 | 428 | | Trade and other receivables | 1,069 | 866 | | Inventories | 10,600 | 10,707 | | Total current assets | 11,871 | 12,001 | | Non-current assets | | | | Deferred income tax asset | 286 | 286 | | Other non-current assets | 213 | 287 | | Property, plant and equipment | 17,632 | 1,878 | | Intangible assets | 507 | 543 | | Total non-current assets | 18,638 | 2,994 | | TOTAL ASSETS | 30,509 | 14,995 | | | | | | LIABILITIES AND EQUITY | | | | Current liabilities | | | | Borrowings | 8,886 | 7,829 | | Trade and other payables | 4,529 | 5,934 | | Total current liabilities | 13,415 | 13,763 | | Non-current liabilities | | | | Borrowings | 15,327 | 1,165 | | Total non-current liabilities | 15,327 | 1,165 | | TOTAL LIABILITIES | 28,742 | 14,928 | | | | | | EQUITY | | | | Share capital at par value | 5,408 | 4,079 | | Share premium | 0 | 0 | | Reserves | 0 | 1,107 | | Retained earnings | -341 | 0 | | Net profit (loss) for the period | -3,300 | -5,119 | | TOTAL EQUITY | 1,767 | 67 | | TOTAL LIABILITIES AND EQUITY | 30,509 | 14,995 |
Consolidated statement of profit and loss and comprehensive income | | 3Q 2019 | 3Q 2018 | 9M 2019 | 9M 2018 | | Revenue | 9,758 | 11,026 | 29,491 | 32,410 | | Client bonus provision | 0 | 0 | 0 | 0 | | Revenue after client bonus provision | 9,758 | 11,026 | 29,491 | 32,410 | | Cost of goods sold | -5,274 | -5,993 | -14,826 | -16,462 | | Gross profit | 4,484 | 5,033 | 14,665 | 15,948 | | | | | | | | Distribution costs | -4,788 | -5,168 | -14,843 | -15,504 | | Administrative and general expenses | -543 | -572 | -2,028 | -1,733 | | Other operating income (-expense) | -73 | 37 | -24 | 24 | | Operating profit (loss) | -920 | -670 | -2,230 | -1,265 | | | | | | | | Finance costs | -321 | -144 | -1,070 | -404 | | Profit (loss) before income tax | -1,241 | -814 | -3,300 | -1,669 | | | | | | | | Income tax expense | 0 | 0 | 0 | 0 | | | | | | | | Net profit (loss) for the period | -1,241 | -814 | -3,300 | -1,669 | | | | | | | | Total comprehensive income (loss) for the period | -1,241 | -814 | -3,300 | -1,669 | | | | | | | | | | | | | | Basic earnings per share from net loss for the period, EUR | -0.04 | -0.02 | -0.11 | -0.04 | | | | | | | | Diluted earnings per share from net loss for the period, EUR | -0.04 | -0.02 | -0.11 | -0.04 |
Maigi Pärnik-Pernik
Member of the Management Board
maigi.parnik@baltikagroup.com
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