Baltika Group ended the first quarter with a net loss of 1,442 thousand euros.
The loss for the same period last year was 982 thousand euros. The result for
the first quarter of 2019 includes a negative impact of 117 thousand euros on
the new accounting standard IFRS 16.
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.
1Q 2019
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Decrease in rent expenses 1,605
Increase in depreciation -1,502
Increase in operating profit 103
Calculated interest expense on lease liabilities -220
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Decrease in the net profit -117
In addition, IFRS 16 has a significant impact on the company's various balance
sheet assets and liabilities. As at 31.03.19, fixed assets (i.e all lease
payments at their present value, up to the end of the contract term) are
increasing by 16,577 thousand euros and at the same time short-term lease
liabilities increasing by 6,815 thousand euros and long-term lease liabilities
by 9,879 thousand euros.
The Group's sales revenue decreased by 10% in the first quarter compared to the
same period last year and amounted to 9,270 thousand euros. The largest sales
channel, retail, sales decreased by 2% and totalled 7,975 thousand euros.
Revenue decreased by 5% in both the Estonian and Latvian markets, while sales
revenue in Lithuania increased by 6%. For several consecutive quarters, there
has been a downward trend in the sales of formal clothing and the men's segment,
while demand for dresses and outerwear has increased.
The sales revenue of business customers (wholesale, franchise and consignment
customers) in the first quarter was 708 thousand euros, decreasing by 58%
compared with last year. The decrease in sales revenue of nearly 1 million euros
is related to the termination of contracts of franchise partners of Belarus and
Ukraine and the decrease in Russian franchise volumes. Another important reason
for the decrease in sales revenue was the change in cooperation agreement with
Peek & Cloppenburg, a chain of German and Central European department stores, in
autumn 2018, and closure of Spanish franchise stores.
The sales revenue of the first quarter of the Baltika Group's online store
Andmorefashion.com increased by 16% compared to the same period last year and
amounted to 544 thousand euros. Monton accounted for 37% of sales in the first
quarter, followed by Mosaic with 26%. The most distant countries to which
Baltika's brand orders were shipped in the first quarter were Japan, Australia,
USA and Canada.
The quarter's gross profit was 4,434 thousand euros, lower by 449 thousand euros
compared to the same period last year (1Q 2018: 4,883 thousand euros). The
decrease in gross profit is primarily due to the decreased sales revenue of
business customers. The gross profit margin was 47.8%, the same level as in the
first quarter of the previous year (1Q 2018: 47.2%).
In the first quarter, Group's marketing expenses were 5 029 thousand euros,
decreasing by 98 thousand euros compared to the same period last year. The
decrease in distribution costs is primarily related to the recognition of leases
in the Group's balance sheet due to the change in accounting policies of IFRS
16 "Leases".
Equity
As of the end of the first quarter, the equity of the company is negative and
the shareholders' meeting on 12 April 2019 confirmed the following resolutions
in order to restore equity and comply with the requirements of the Commercial
Law: to increase the nominal value of AS Baltika share to 1 euro and to change
the existing shares so that for every 10 shares one new share is given,
thereafter decrease the nominal value of the share to 0.10 euros and decrease
share capital from 4,079 thousand euros to 408 thousand euros to cover the
losses. In addition, a decision was taken to increase the share capital by 5
million euros via public offering in August 2019.
KJK Fund, Sicav-SIF, the largest shareholder, holding 38.9% of shares of AS
Baltika, has confirmed its willingness to subscribe for new shares pursuant to
its proportion of holding and according to terms specified in the Prospectus, up
to 5,000 thousand euros depending on usage of other participants' subscription
rights. This means that KJK Fund, Sicav-SIF will also subscribe to shares which
it is given additional subscription rights according to the allocation terms
specified in the Prospectus and which are not subscribed by other shareholders.
The impact of the resolutions confirmed at the General Meeting of Shareholders
on the Group's financial position is shown in the pro forma equity table below.
pro forma pro forma
31 March 2019 entry(1) entry(2) pro forma
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EQUITY
Share capital at
par value 4,079 -3,672 5,000 5,408
Share premium 0 0 0 0
Reserves 1,107 -1,107 0 0
Retained earnings -5,119 4,779 0 -340
Net profit (loss)
for the period -1,442 0 0 -1,442
TOTAL EQUITY -1,375 0 5,000 3,625
(1 )pro forma entry agenda number 7 of the annual general meeting of
shareholders impact: "To decrease the share capital in the remaining amount of
losses 4,012,972 euros after all reserves have been used to cover these losses
by simplified reduction as follows: to decrease the share capital with three
million six hundred seventy one thousand five hundred thirty six (3,671,536)
euros.
(2)pro forma entry agenda number 8 of the annual general meeting of shareholders
impact: "To increase the share capital of AS Baltika by issuing additionally
fifty million (50,000,000) ordinary shares with the nominal value of 0.10 euros
with the issuance price of 0.10 euros. The share capital of AS Baltika will be
increased by five million (5,000,000) euros and the new amount of the share
capital is 5,407,949 (five million four hundred seven thousand nine hundred and
forty nine) euros."
Highlights of the period until the date of release of this quarterly report
* In March 2019, the Supervisory Board of AS Baltika approved the business
plan for 2019 and 2020. The main parts of the operational plan are
optimizing the brand portfolio and sales channels, digitalisation and
changing the purchasing base. With the transition to an optimized brand
portfolio, significant simplification of business processes and dissolving
the production in Estonian production units, Baltika Group's fixed costs
will be reduced by nearly two million euros over the next 12 months.
* In March 2019, the Supervisory Board of AS Baltika approved Mae Hansen, the
third member of the management board of AS Baltika. She is responsible for
implementing the company's 2019 and 2020 business plan.
* In 14 March 2019 the Supervisory Board decided to present to the general
meeting of shareholders the proposal to increase the nominal value of the
share to 1 euro and to exchange the existing shares so that for each 10
shares one new share is given, thereafter decrease the nominal value of the
share to 0.10 euros and decrease share capital from 4,079 thousand euros to
408 thousand euros to cover the losses in order to implement the 2019-2020
operational plan and meet the net asset requirement set out in the
Commercial Code.
* In 14 March 2019 Supervisory Board decided to propose to the general meeting
of shareholders to increase in August 2019 the share capital by 5 million
euros via public offering.
* In 14 March 2019 Supervisory Board gave the consent to the management board
to take a loan of 3 million euros from KJK Fund SICAV-SIF in the next 2
months. The loan was taken into two parts - 1,500 thousand euros was taken
in March 2019 and 1,500 thousand euros in April 2019. The loan bears a 6%
interest and is repaid from the funds generated from the share emission in
August 2019.
* In 12 April 2019, the Annual General Meeting of AS Baltika shareholders
approved the annual report for 2018 and the confirmation of losses. The
General Meeting resolved to recall Valdo Kalm, member of the Supervisory
Board of AS Baltika. In order to bring the equity into accordance with the
requirements of the Commercial Code, the general meeting adopted a decision
to increase the nominal value of AS Baltika share to 1 euros and to exchange
the existing shares so that 1 new share can be received for every 10 shares,
then reduce the nominal value of the share to 0.1 euros and reduce the share
capital from 4,079 thousand to 408 thousand euros to cover losses. In
addition, a decision was made to increase the share capital by 5 million
euros via public offering in August 2019.
Consolidated statement of financial position
31 March 2019 31 Dec 2018
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ASSETS
Current assets
Cash and cash equivalents 465 428
Trade and other receivables 1,092 866
Inventories 10,48 10,707
Total current assets 12,037 12,001
Non-current assets
Deferred income tax asset 286 286
Other non-current assets 213 287
Property, plant and equipment 18,288 1,878
Intangible assets 529 543
Total non-current assets 19,316 2,994
TOTAL ASSETS 31,353 14,995
LIABILITIES AND EQUITY
Current liabilities
Borrowings 15,957 7,829
Trade and other payables 5,907 5,934
Total current liabilities 21,864 13,763
Non-current liabilities
Borrowings 10,864 1,165
Total non-current liabilities 10,864 1,165
TOTAL LIABILITIES 32,728 14,928
EQUITY
Share capital at par value 4,079 4,079
Share premium 0 0
Reserves 1,107 1,107
Retained earnings -5,119 0
Net profit (loss) for the period -1,442 -5,119
TOTAL EQUITY -1,375 67
TOTAL LIABILITIES AND EQUITY 31,353 14,995
Consolidated statement of profit and loss and comprehensive income
1Q 2019 1Q 2018
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Revenue 9,27 10,343
Cost of goods sold -4,836 -5,46
Gross profit 4,434 4,883
Distribution costs -5,029 -5,127
Administrative and general expenses -598 -595
Other operating income (-expense) 117 -17
Operating profit (loss) -1,076 -856
Finance costs -366 -126
Profit (loss) before income tax -1,442 -982
Income tax expense 0 0
Net profit (loss) for the period -1,442 -982
Total comprehensive income (loss) for the period -1,442 -982
Basic earnings per share from net loss for the period, EUR -0.04 -0.02
Diluted earnings per share from net loss for the period, EUR -0.04 -0.02
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Maigi Pärnik-Pernik
Member of the Management Board
maigi.parnik@baltikagroup.com
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