Published: 2020-02-28 15:00:00 CET
Baltika
Interim Management statement

Baltika’s Unaudited Financial Results, Fourth Quarter and 12 Months of 2019

Baltika Group ended the fourth quarter with the loss of 2,609 thousand euros which includes extraordinary impairment loss of 2,400 thousand euros related to Group’s lease contract for production units and restructuring plan and a negative impact of 119 thousand euros on the new accounting standard IFRS 16. Last year’s same period result was net loss in the amount of 3,450 thousand euros, including non-recurring costs in amount of 3,600 thousand euros (allowance for impairment, particularly for Eastern European franchise partners and non-recurring costs related with restructuring plan). Fourth quarter regular net results (excluding non-recurring costs and IFRS 16 impact) remained at last year's level, which was strongly driven by the decrease of sales which was offset by significant decrease in recurring fixed costs.

In the fourth quarter, Group’s sales revenue decreased 17% compared with the last year same period and was 10,139 thousand euros. Channel, with the biggest share (91%), retail, decreased 17% and was 9,294 thousand euros. Sales revenue decreased in all three Baltics market which was mainly driven by the sharp decrease of outerwear and knitwear sales due to warm winter and also due to the closure of Bastion brand.

The fourth quarter sales revenue of Baltika Group e-store Andmorefashion.com increased by 15% compared to the same period last year and was 542 thousand euros. The sales revenue of business customers decreased by 62% compared to the fourth quarter of last year and was 228 thousand euros. 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 Group's distribution expenses in the fourth quarter were 4,745 thousand euros decreasing by 22%, i.e 1 330 thousand euros compared to the same period last year. A consistent and significant reduction in distribution and administrative expenses is a part of Baltika Group's ongoing restructuring plan.

2019 12 months

Company ended the twelve months with the loss of 5,909 thousand euros, including non-recurring costs related to Baltika's ongoing restructuring plan in the amount of 2,700 thousand euros and negative impact of IFRS 16 in the amount of 408 thousand euros. Last year loss was 5,119 thousand euros.

In twelve months total, Baltika's sales decreased by 11% and was 39,630 thousand euros. E-commerce showed a 21% increase in sales, retail decreased by 7% and business customers sales decreased by 62%. The gross profit of the company was 19,191 thousand eurot, which is 2,345 thousand euros less than in 2018. The decline in gross profit in 2019 was due to the decrease in retail sales in the Baltics, especially in the fourth quarter, which was affected by the sharp decrease in demand for outerwear and knitwear due to the warmer winter. Gross profit was also negatively affected by the closure of Baltika's production company Baltika Tailor OÜ, which liquidation costs totalled to 675 thousand euros in 2019.

Baltika's distribution and administrative expenses (excluding non-recurring costs and the impact of IFRS 16) decreased for the twelve months by 1,708 thousand euros, of which majority i.e 900 thousand euros was driven by the decrease of recurring fixed costs in Baltika's head office. Baltika Group`s restructuring plan which was disclosed in March 2019 set out as one of its goals to reduce Baltika Group's fixed costs by 2 million euros by the end of 2020. The activities related with restructuring started in April-May and by the end of 2019 about 50% of the target was met. In 2020, fixed costs of 2 million euros will continue to be reduced according to the plan.

Non-recurring costs and IFRS 16 impact

The Group's non-recurring costs in 2019 were approximately 2,700 thousand euros, of which 1,363 thousand euros were non-recurring costs related to the implementation of the restructuring plan. During the termination of Baltika Tailor OÜ operations the number of employees was reduced by 336 and the non-recurring costs related with liquidation amounted to 675 thousand euros in 2019. In addition, operations at both headquarter and retail markets were restructured, resulting in a non-recurring costs of 688 thousand euros in 2019. During the year, the number of Group employees decreased by 446 people.

In addition, in the fourth quarter the extraordinary impairment loss of 1,330 thousand euros related to Group’s lease contract for production unit was made related to the discontinuation of production in the Group's Estonian units. As of 31 December 2019, the assets right of use and lease liabilities in the statement of financial position are recognized from 1st of January 2019 when IFRS 16 standard was first applied. Due to the closure of the production units, the Group no longer uses these assets for its own business activities, therefore the value of the assets has been estimated in accordance to the possible future uses.

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. As at 31.12.19, fixed assets (i.e all lease payments at their present value, up to the end of the contract term) increased by 16,040 thousand euros and at the same time short-term lease liabilities increased by 5,383 thousand euros and long-term lease liabilities by 12,396 thousand euros.

The impact of the mandatory new accounting standard IFRS 16 on the income statement is shown in the table below.

 4Q 20192019
Decrease in rent expenses1,7026,578
Increase in depreciation-1,601-6,149
Increase in operating profit101429
Calculated interest expense on lease liabilities-220-837
Decrease in the net profit-119-408

Equity
As of the end of the fourth quarter, the equity of the company does not comply with the requirements of the Commercial Code. At the end of the reporting period, the Group's equity was 1,203 thousand euros. In order to comply with the law, the equity should be at least 2,704 thousand euros. The Management of the Group is working on meeting the net asset requirement set out in the Commercial Code.

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

  • On 1st of November 2019 AS Baltika, as the sole shareholder of OÜ Baltika Tailor, decided to dissolve the company and to start with the liquidation proceedings.
  • On 16th of December 2019, an amendment to the loan agreement of AS Baltika and KJK Fund SICAV-SIF (under liquidation) was signed, according to which the loan in the amount of 2,045 thousand euros is non-interest bearing and has no fixed maturity date. The repayment date will be agreed by the parties but will not be earlier than May 2022.
  • On January 2020 The Supervisory Board of AS Baltika meeting hold on 23th of January 2020 approved the plan to reorganise group structure. Part of the company`s restructuring plan is to change group management more efficient. In order to achieve that group structure will be changed more flat and lean. Supervisory Board decided to liquidate AS Baltika's subsidiary Baltika Sweden AB (dormant). In addition, it was decided that AS Baltika acquires 100% shareholding in OÜ Baltman, a subsidiary of OÜ Baltika Retail (holding company) for 0.15 million euros. OÜ Baltman manages the Baltics retail companies SIA Baltika Latvija and UAB Baltika Lietuva.

Consolidated statement of financial position

 31 Dec 201931 Dec 2018
ASSETS  
Current assets  
Cash and cash equivalents264428
Trade and other receivables621866
Inventories7,64410,707
Assets classified as held for sale280
Total current assets8,55712,001
Non-current assets  
Deferred income tax asset281286
Other non-current assets222287
Property, plant and equipment1,6831,878
Right-of-use assets16,0400
Intangible assets536543
Total non-current assets18,7622,994
TOTAL ASSETS27,31914,995
   
LIABILITIES AND EQUITY  
Current liabilities  
Borrowings1,7317,829
Lease liabilities5,3830
Trade and other payables4,1185,934
Total current liabilities11,23213,763
Non-current liabilities  
Borrowings2,4881,165
Lease liabilities12,3960
Total non-current liabilities14,8841,165
TOTAL LIABILITIES26,11614,928
   
EQUITY  
Share capital at par value5,4084,079
Share premium00
Reserves2,0451,107
Retained earnings-3410
Net profit (loss) for the period-5,909-5,119
TOTAL EQUITY1,20367
TOTAL LIABILITIES AND EQUITY27,31914,995


Consolidated statement of profit and loss and comprehensive income

 4Q 20194Q 201820192018
     
     
Revenue10,13912,28139,63044,691
Client bonus provision810810
Revenue after client bonus provision10,22012,28139,71144,691
Cost of goods sold-5,694-6,693-20,520-23,155
Gross profit4,5265,58819,19121,536
     
Distribution costs-4,745-6,075-19,588-21,579
Administrative and general expenses-644-642-2,672-2,375
Impairment loss of trade receivables-152-2,229-31-2,229
Other operating income (-expense)-1,267-40-1,412-16
Operating profit (loss)-2,282-3,398-4,512-4,663
     
Finance costs-321-149-1,391-553
Profit (loss) before income tax-2,603-3,547-5,903-5,216
     
Income tax expense-697-60
     
Net profit (loss) for the period-2,609-3,450-5,909-5,119
     
Total comprehensive income (loss) for the period-2,609-3,450-5,909-5,119
     
     
Basic earnings per share from net loss for the period, EUR-0.05-0.08-0.16-0.13
     
Diluted earnings per share from net loss for the period, EUR-0.05-0.08-0.16-0.13



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


Attachment


Baltika_Interim_report_4Q 2019.pdf