Market announcement

Title

Baltika's unaudited financial results, second quarter and 6 months of 2015

Message

Baltika’s sales increased by 211 thousand euros that is 2% compared to the same
period last year and were 13,181 thousand euros. Largest sales growth figures
came from e-commerce with 246% and wholesale and franchise revenue with 39%.
Sales in these channels increased by 474 thousand euros compared to the same
period last year. Retail sales decreased by 2% compared to last year second
quarter. Half-year total sales revenue amounted to 25,506 thousand euros that
is 1% more than comparative figure in prior year. Baltika continues the planned
development of other (in addition to own retail channel) sales channels. Thus
the half-year proportion of sales to wholesale and franchise partners has
increased from 7% to 11% and e-store proportion of sales respectively from 0.6%
to 2%. 

In addition to e-channel revenue strong growth e-com has an important role in
supporting retail sales. Increasingly more clients make their choice through
e-channel in the form of pre-shopping and then finalising the purchase in
regular store or checking from the e-channel whether their chosen product and
size are available in their favourite store. Integration of e-channel and
regular store for client convenience continues to be important course of
direction. 

Retail sales in Baltics (91% from retail sales) in the second quarter were
10,692 thousand euros, that is 591 thousand euros i.e. 6% more than in same
period last year. Largest sales growth by countries came from Estonia and
Lithuania. Sales growth 11% in Estonia was supported by larger sales area.
Lithuania has constantly shown this year better results than other Baltic
countries. In Lithuania sales and sales efficiency grew by 4% in the second
quarter. 

To reduce the risks related to Russian business loss making stores have been
closed and Russian proportion from retail sales has decreased to 9% in the
second quarter compared to 16% in prior year. In Russia, where average sales
area in second quarter was 25% lower than in last year same period, revenue
also decreased, by -44%. In addition to lower sales area the sales result was
impacted by weaker rouble. Efficiency in local currency was not far from that
of prior year (-2%). At the same time the operating expense of Russian market
decreased much more than only by the reduction of sales area, which ensured for
second quarter for the market in total (retail and wholesale) operating without
a loss. 

Company gross profit margin in the second quarter was 52.1% that is 4.4
percentage points lower than in the same period last year. The main reasons
behind the decrease of gross profit margin in second quarter (as well as first
half-year) were: increase in goods average purchase price due to US dollar
strengthening (lower intake margin compared to last year); need to use up on
Baltic market excessive stock resulting from order cancellations of eastern
markets (Russia, Belarus and Ukraine) wholesale partners; discounts in Russia
from closing sales related to reduction in Russian retail system; general
decrease in retail margin from devaluation of rouble and seasonal items deeper
discounts due to colder than usual summer. Group gross profit margin is also
impacted by structural differences: lower margin wholesale and franchise
proportion has increased in second quarter from 6% to 8% and Russian retail
that has higher gross profit margin proportion has decreased. 

Baltika’s second quarter resulted in net profit in the amount of 67 thousand
euros. The result of last year same period continued operations was a profit of
405 thousand euros and with discontinued operations result was net profit of
648 thousand euros. Half-year net loss was 1,069 thousand euros. Continued
operations comparative period figure was a loss of 505 thousand euros and with
discontinued operations net loss of 1,834 thousand euros. 

Baltika acts to adjust to the negative external factors impacting 2015 results:
unfavourably strong dollar exchange rate to euro that impacts purchase cost,
reduction of retail area due to economic situation in Russia, reduced Finnish
and Eastern-European tourist flow and spending in Baltics. Activities to reduce
parent entity operating expense and improve efficiency continued in the second
quarter. Changes made and to be made in product division processes
(centralisation of goods purchase management, centrally managed product
development processes improvement and implementation in years 2015-2016) and
steps taken to optimise level of stock will impact due to long purchase cycle
only from next year. First results can be seen in reduced level of materials,
where compared to prior year end of June balance has decreased by 19%. As a
result of the simplification of management structure, which expense is in
second quarter, the number of employees in parent entity has reduced with the
half-year by 10 people. 

In connection with Baltika’s exit from the Ukrainian retail business in 2014,
which represented a major line of business of the Group, the results of the
Ukrainian entity are presented as discontinued operation. Therefore the results
of the discontinued operation are reported separately from continuing
operations, to allow better assessment of the performance of continuing
operations. 

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

  -- Supervisory Council of AS Baltika recalled from the Management Board
     starting from 14 April 2015 Management Board member Andrew James David
     Paterson.
  -- Simplifying parent entity management structure, merging Merchandising
     function with Sales and Marketing division and centralisation of Buying and
     Supply Chain function.
  -- The Annual General Meeting of AS Baltika, held on 27 April 2015, approved
     the Annual report for 2014 and covering of net loss from retained earnings.
     Meeting elected to extend the powers of current Supervisory Council members
     for next three year term and agreed to the remuneration of Supervisory
     Council members in accordance with the proposal. The meeting decided to
     increase conditionally the share capital of AS Baltika, to issue ordinary
     shares in accordance with Terms and conditions of Share Option Program
     proposed by Supervisory Council.
  -- Baltika e-store andmorefashion.com was elected to be the winner of 2014
     „E-tegu“ (E-com achievement“) on 29 of April in Estonian E-Commerce yearly
     conference. Baltika was recognized for its achievements in the integration
     of e-com and regular shops, multilingual e-store that allows better
     information and choices already before shopping and allows the possibility
     to shop for wider circle of customers and bigger export possibilities for
     Baltika.
  -- Two new stores were opened in Baltika’s own retail network in second
     quarter, both in Estonia. New store representing both Monton and Mosaic
     brands opened at the end of April in Viljandi and new Monton store opened
     in Tallinn Lasnamäe Centrum in May. Baltika’s brands franchise store
     portfolio saw addition of one new store in April in Ukraine, with the
     opening of Monton store in Dnepropetrovsk. Larger renovations took place in
     Tartu Lõunakeksus Monton and Mosaic stores.



Consolidated statement of financial position

                                  30 June 2015  31 Dec 2014
-----------------------------------------------------------
ASSETS                                                     
Current assets                                             
Cash and cash equivalents                  562          710
Trade and other receivables              2,038        1,890
Inventories                             13,269       13,415
Total current assets                    15,869       16,015
Non-current assets                                         
Deferred income tax asset                  420          420
Other non-current assets                   731          605
Property, plant and equipment            3,257        2,895
Intangible assets                        3,229        3,180
Total non-current assets                 7,637        7,100
TOTAL ASSETS                            23,506       23,115
                                                           
EQUITY AND LIABILITIES                                     
Current liabilities                                        
Borrowings                               1,937        2,692
Trade and other payables                 7,032        7,019
Total current liabilities                8,969        9,711
Non-current liabilities                                    
Borrowings                               6,334        4,584
Other liabilities                          180           83
Total non-current liabilities            6,514        4,667
TOTAL LIABILITIES                       15,483       14,378
                                                           
EQUITY                                                     
Share capital at par value               8,159        8,159
Share premium                              809          809
Reserves                                 1,182        1,182
Retained earnings                        1,310        2,573
Net loss for the period                 -1,069       -1,263
Currency translation differences        -2,368       -2,723
TOTAL EQUITY                             8,023        8,737
TOTAL LIABILITIES AND EQUITY            23,506       23,115



Consolidated statement of profit and loss

                                                    Q2      Q2  6M 2015  6M 2014
                                                  2015    2014                  
--------------------------------------------------------------------------------
Continuing operations                                                           
Revenue                                         13,181  12,970   25,506   25,141
Cost of goods sold                              -6,310  -5,639  -13,153  -11,893
Gross profit                                     6,871   7,331   12,353   13,248
                                                                                
Distribution costs                              -6,034  -6,090  -11,785  -12,044
Administrative and general expenses               -608    -751   -1,346   -1,468
Other operating income                              12      21       13       18
Other operating expenses                           -52      -4      -68      -73
Operating profit (loss)                            189     507     -833     -319
                                                                                
Finance costs                                     -122     -92     -239     -171
                                                                                
Profit (loss) before income tax                     67     415   -1,072     -490
                                                                                
Income tax expense                                   0     -10        3      -15
                                                                                
Net profit (loss) from continuing operations        67     405   -1,069     -505
                                                                                
Net profit (loss) for the period from                0     243        0   -1,329
 discontinued operations                                                        
                                                                                
Net profit (loss) for the period                    67     648   -1,069   -1,834
                                                                                
Basic earnings per share, EUR                     0.00    0.02    -0.03    -0.04
Continuing operations                             0.00    0.01    -0.03    -0.01
Discontinued operations                              -    0.01        -    -0.03
                                                                                
Diluted earnings per share, EUR                   0.00    0.02    -0.03    -0.04
Continuing operations                             0.00    0.01    -0.03    -0.01
Discontinued operations                              -    0.01        -    -0.03



Meelis Milder
Chairman of the Board
[email protected]