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Baltika’s Unaudited Financial Results, Second Quarter and 6 Months of 2019

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Baltika Group ended the second quarter with a net loss of 616 thousand euros.
The net profit for the same period last year was 127 thousand euros. The result
for the second quarter of 2019 includes a negative impact of 95 thousand euros
on the new accounting standard IFRS 16.

The Group's sales revenue decreased by 5% in the second quarter compared to the
same period last year and amounted to 10,463 thousand euros. The largest sales
channel (90%), retail, sales decreased by 3% and totalled 9,461 thousand euros.
Revenue decreased in Estonian and Latvian markets, respectively 6% and 3%, while
sales revenue in Lithuania stayed at last year level. The main reason for the
decrease in retail sales in the Baltic market was the weak April result, the
sales results of May remained at the level of the previous year. With very
strong retail sales, June, showed the increase in sales revenue of dresses in
all brands as well as in all markets. Sales revenue growth was supported by warm
weather. In addition to that, sales of the new summer clothes collection at the
full price were higher than in the same period last year. Men and formal
clothing sales revenue continues to decrease, while demand for dresses and
jersey has increased.

The sales revenue of the second quarter of the Baltika Group's online store
Andmorefashion.com increased by 24% compared to the same period last year and
amounted to 469 thousand euros. With the biggest share of sales revenue was
Monton, which accounted for 34% of sales in the second quarter. Compared with
the second quarter last year, the sales revenue increased in all main markets.
The most distant countries to which Baltika's brand orders were shipped in the
second quarter were Israel, Japan, Australia, USA and Canada.

The sales revenue of business customers (wholesale and franchise customers) in
the second quarter was 413 thousand euros, decreasing by 51% compared with last
year. The decrease in sales revenue of 420 thousand 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 closure of Spanish, Tenerife franchise store in the end
of 2018 and due to the change in cooperation agreement with Peek & Cloppenburg,
a chain of German and Central European department stores, in autumn 2018.

The quarter's gross profit was 5,748 thousand euros, lower by 284 thousand euros
compared to the same period last year (2Q 2018: 6,032 thousand euros). The
decrease in gross profit is primarily due to the decreased sales revenue of
retail and business customers. The company`s gross profit margin in second
quarter was 54.9%, which is 0.3 p.p higher than the second quarter of the
previous year (2 Q 2018: 54.6%).

In the second quarter, Group's distribution expenses were 5,026 thousand euros,
decreasing by 183 thousand euros compared to the same period last year.
Administrative and general expenses increased in second quarter by 28%, i.e 321
thousand euros and amounted to 887 thousand euros. The increase in
administrative and general expenses is driven by the one-off costs related with
the former member of Management Board, Meelis Milder, severance pay.

In the first half of the year, the Group's sales revenue decreased by 8%
compared to the same period last year and amounted to 17,437 thousand euros.
Retail sales decreased by 2% and sales to business customers by 56%, while the
sales revenue of the e-store increased by 19%. The Group ended the half-year
with a net loss of 2,058 thousand euros, the comparable result of the previous
year was a net loss of 855 thousand euros. The main reasons for the weak result
of the half-year were the sharp decrease in the sales revenue of business
customers and the decrease in retail sales. In addition, the half-year result
includes a negative effect of 212 thousand euros of 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.

                                                     2Q 2019      6M 2019
--------------------------------------------------------------------------
  Decrease in rent expenses                            1 610        3 215

  Increase in depreciation                            -1 502       -3 004

  Increase in operating profit                           108          211

  Calculated interest expense on lease liabilities      -203         -423
--------------------------------------------------------------------------
  Decrease in the net profit                             -95         -212

In addition, IFRS 16 has a significant impact on the company's various balance
sheet assets and liabilities. As at 30.06.19, fixed assets (i.e all lease
payments at their present value, up to the end of the contract term) increased
by 15,075 thousand euros and at the same time short-term lease liabilities
increased by 6,543 thousand euros and long-term lease liabilities by 8,744
thousand euros.

Equity

As of the end of the second 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.

The exchange of shares and the increase of the nominal value of the shares were
completed on 6 May 2019 and the reduction of share capital was completed on 27
May 2019.

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 full realization of the public share emission on the Group's
financial position is shown in the pro forma equity table below.

 EQUITY                           30 June 2019 pro forma entry pro forma
------------------------------------------------------------------------
 Share capital at par value                408           5,000     5,408

 Share premium                               0               0         0

 Reserves                                    0               0         0

 Retained earnings                        -341               0      -341

 Net profit (loss) for the period       -2,058               0    -2,058

 TOTAL EQUITY                           -1,991           5,000     3,009

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.

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

 1. In 12 April 2019, the Annual General Meeting of AS Baltika shareholders
    approved the increase of the nominal value of AS Baltika share from 0.1
    euros to 1 euros and to exchange the existing shares so that 1 new share can
    be received for every 10 shares. The exchange of shares was completed on May
    6, 2019.
 2. In 12 April 2019, the Annual General Meeting of AS Baltika shareholders
    approved the reduction of the the nominal value of the share to 0.1 euros
    from 1 euros by reducing the share capital by 3,672 thousand euros to cover
    losses. The reduction of share capital was completed on May 27, 2019.
 3. On May 20, 2019, an agreement between KJK Fund Sicav-SIF, the major
    shareholder of the company, and AS Baltika about the on short-term
    convertible bonds (K-bonds) with the maturity date of August 2019, was
    signed. Between KJK Fund, Sicav-SIF and AS Baltika an agreement has been
    made for refinancing the bonds with the aim of converting the amount payable
    for the bonds into a long-term loan with a maturity of May 20 2022 with an
    annual interest rate of 6%.
 4. On June 26, 2019 company's Supervisory Board approved the resignation of
    Meelis Milder, member of the Management Board of the company. On the same
    date, the mandate of Meelis Milder's Management Board member ended. Meelis
    Milder will continue as an advisor to the company on the basis of a one-year
    contract signed on June 26, 2019.
 5. By decision of the company's Supervisory Board, from June 26, 2019 the CEO
    of AS Baltika is Mae Hansen, who will be responsible for implementing the
    2019-2020 action plan, confirmed by the Supervisory Board on March 2019.
    From June 26, 2019 the Management Board of AS Baltika continues with two
    members, Mae Hansen as a CEO, who will be responsible for the sales,
    marketing and retail business processes and Maigi Pärnik-Pernik, who will be
    responsible for product development and support functions.
 6. On 12 July 2019, AS Baltika terminated the franchise contract before the
    deadline with the Russian franchise partner OÜ Ellipse Group.
 7. On 16 July 2019, at 10:00 am, the offering period of AS Baltika public share
    emission began.

Consolidated statement of financial position



                                     30 June 2019   31 Dec 2018

  ASSETS

  Current assets

  Cash and cash equivalents                 1,101           428

  Trade and other receivables                 998           866

  Inventories                              10,920        10,707

  Total current assets                     13,019        12,001

  Non-current assets

  Deferred income tax asset                   286           286

  Other non-current assets                    213           287

  Property, plant and equipment            16,804         1,878

  Intangible assets                           520           543

  Total non-current assets                 17,823         2,994

  TOTAL ASSETS                             30,842        14,995



  LIABILITIES AND EQUITY

  Current liabilities

  Borrowings                               17,824         7,829

  Trade and other payables                  5,460         5,934

  Total current liabilities                23,284        13,763

  Non-current liabilities

  Borrowings                                9,549         1,165

  Total non-current liabilities             9,549         1,165

  TOTAL LIABILITIES                        32,833        14,928



  EQUITY

  Share capital at par value                  408         4,079

  Share premium                                 0             0

  Reserves                                      0         1,107

  Retained earnings                          -341             0

  Net profit (loss) for the period         -2,058        -5,119

  TOTAL EQUITY                             -1,991            67

  TOTAL LIABILITIES AND EQUITY             30,842        14,995

Consolidated statement of profit and loss and comprehensive income

                                                2Q 2019 2Q 2018 6M 2019 6M 2018





 Revenue                                        10,463  11,041  19,733  21,384

 Client bonus provision                         0       0       0       0

 Revenue after client bonus provision           10,463  11,041  19,733  21,384

 Cost of goods sold                             -4,715  -5,009  -9,551  -10,469

 Gross profit                                   5,748   6,032   10,182  10,915



 Distribution costs                             -5,026  -5,209  -10,055 -10,336

 Administrative and general expenses            -887    -566    -1,485  -1,161

 Other operating income (-expense)              -68     4       49      -13

 Operating profit (loss)                        -233    261     -1,309  -595



 Finance costs                                  -383    -134    -749    -260

 Profit (loss) before income tax                -616    127     -2,058  -855



 Income tax expense                             0       0       0       0



 Net profit (loss) for the period               -616    127     -2,058  -855



 Total comprehensive income (loss) for the      -616    127     -2,058  -855
 period





 Basic earnings per share from net loss for the -0.03   0.00    -0.07   -0.02
 period, EUR



 Diluted earnings per share from net loss for   -0.03   0.00    -0.07   -0.02
 the period, EUR


Maigi Pärnik-Pernik
Member of the Management Board
[email protected]
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