Börsiteade

Pealkiri

Consolidated interim report for the third quarter and 9 months of 2015

Teade

Baltika’s sales were 13,149 thousand euros and decreased by 1,499 thousand
euros compared to the same period last year. Sales growth came from e-commerce
with 104%. Wholesale and franchise sales decreased by 19% compared to last year
third quarter, when pre-opening stock deliveries were made to franchise
partners new shops. Retail sales decreased by 10% compared to last year third
quarter. Baltika nine months total sales revenue amounted to 38,655 thousand
euros that is 3% less than comparative figure in prior year. 

Baltika e-channel celebrated one year from the launch of new web store
Andmorefashion.com that covers all brands. This year has included more than two
and a half times higher sales volumes and in addition e-store
Andmorefashion.com won the „Eesti aasta e-tegu“ (“Estonian e-com achievement of
the year”) given during Estonian E-Commerce yearly conference. Nine months
total sales through e-com were 699 thousand euros that is 2% from Baltika total
revenue. 

Retail sales in Baltics (90% from retail sales) were 10,290 thousand euros in
the third quarter, that is 143 thousand euros i.e. 1% less than in same period
last year. Unusually warm weather at the end of summer and in the beginning of
autumn period, resulted in weak august sales and impacted sales of the quarter. 

In the third quarter another store was closed in Krasnodar Russia. At the end
of quarter there was 10 stores in Russia. Due to 22% smaller average sales area
and weaker rate of Russian rouble the third quarter sales results have also
decreased. Similarly to other retail markets Russian sales result in August was
lower than usual, quarter total resulted in decrease of 49% compared to same
period last year. Russian sales in third quarter were 1,147 thousand euros. In
local currency the third quarter sales decreased by 24%. 

Company’s gross profit margin in the third quarter was 45.1% that is 3.9
percentage points lower than in the same period last year. The gross profit
margin continued to be impacted by higher average purchase price due to
stronger US dollar. Euro has become stronger compared to dollar in the second
part of third quarter compared to the lowest point in this year March, but
considering the time difference from purchase to sales the impact does not yet
reflect in third quarter results. Gross profit margin was also impacted by
warmer weather than usual as purchases of autumn collection were postponed and
ending season discounted stock purchases proportion from sales was higher than
usual. 

Baltika’s third quarter result was net loss in the amount of 650 thousand
euros. The result of last year same period was a profit of 151 thousand. Nine
months cumulative net loss was 1,719 thousand euros. Continued operations
comparative period figure was a loss of 354 thousand euros and with
discontinued operations net loss of 1,683 thousand euros. 

Work with reducing Baltika parent entity operating expense and improve
efficiency continued in the third quarter. Centralisation of goods purchase
management, work toward optimisation of stock level and efficient head-office
processes is bringing first results – parent entity operating expenses have
decreased by 7% compared to last year same period. Inventory level has
decreased by 1,579 thousand euros compared to last year third quarter end
figure. Baltika will have to continue with centrally managed product
development, inventory management processes improvement and increasing
efficiency. 

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
previous period first 4 months of the Ukrainian entity are presented as
discontinued operation. Therefore the comparative period results of the
discontinued operation are reported separately from continuing operations, to
allow better assessment of the performance of continuing operations. 

Baltika 9 months 2015 results have been impacted mostly by gross profit margin,
primarily by decrease of margin. One reason behind low gross profit margin is
the negative trends in EUR/USD exchange rate, that substantially impacts
Baltika’s material and finished goods intake margin. Another factor impacting
the margin is the sudden decrease of Russian retail market and rouble related
currencies consumers purchase power. Due to the length of Baltika’s purchase
cycle the intake margin is improving from end of current year third quarter and
reaching expected level. Planned decrease of Baltika’s Russian retail network,
closing of unprofitable stores and decrease of market overall expenses have
taken place from the start of the year.  Baltika has accepted decreases of
orders from its eastern neighbours (Russia, Belarus, Kazakhstan) to support the
partners. This has created additional discount pressure on the Baltic retail
market. Now the partners business is stabilising and level of inventory is
becoming under control. In the same time of liquidating reasons of gross profit
decrease, the Group main entity has worked with its operating expenses and
decrease of intake volumes and achieved cost savings. Baltika management
estimates that the last half-year work is giving results and the usual level of
profitability should return in coming months. 

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

  -- The traditional fashion show to launch autumn-winter season was held on 5th
     of August. The newest creations from designers and autumn season trends
     were shown in Baltika Quarter.
  -- E-store Andmorefashion.com that covers all brands celebrated first year of
     operations.
  -- At the 8th of September 2015 meeting the Supervisory Board of AS Baltika
     decided to extend the contracts of the Chairman of the Management Board
     Meelis Milder and member of the Management Board Kati Kusmin for another
     3-year term. The Management Board will continue with three members: Meelis
     Milder, Kati Kusmin and Maigi Pärnik-Pernik. Maire Milder will continue
     among Group executives on current position as director of Branding and
     Retail Development.
  -- A new store was opened in Baltika’s own retail network in third quarter,
     when new Monton store was opened in Tallinn, Solaris shopping centre in the
     beginning of September. Planned closing of stores continued in Russia and a
     Monton store was closed in Krasnodar, Oz Mall shopping centre.
  -- From November 2nd 2015 Tiina Varamäe will start working as an Estonian
     retail market Director and Member of the Board in Baltman OÜ. Tiina has a
     long work experience in Baltika in years 2004-2012 as a Head of Retail
     Operations Manager and as an Estonian Market Director.



Consolidated statement of financial position

                                  30 Sept 2015  31 Dec 2014
-----------------------------------------------------------
ASSETS                                                     
Current assets                                             
Cash and cash equivalents                  354          710
Trade and other receivables              2,616        1,890
Inventories                             12,388       13,415
Total current assets                    15,358       16,015
Non-current assets                                         
Deferred income tax asset                  420          420
Other non-current assets                   718          605
Property, plant and equipment            3,190        2,895
Intangible assets                        2,990        3,180
Total non-current assets                 7,318        7,100
TOTAL ASSETS                            22,676       23,115
                                                           
EQUITY AND LIABILITIES                                     
Current liabilities                                        
Borrowings                               5,228        2,692
Trade and other payables                 6,869        7,019
Total current liabilities               12,097        9,711
Non-current liabilities                                    
Borrowings                               3,360        4,584
Other liabilities                          232           83
Total non-current liabilities            3,592        4,667
TOTAL LIABILITIES                       15,689       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                 -1,719       -1,263
Currency translation differences        -2,754       -2,723
TOTAL EQUITY                             6,987        8,737
TOTAL LIABILITIES AND EQUITY            22,676       23,115





Consolidated statement of profit and loss

                                              Q3 2015  Q3 2014  9M 2015  9M 2014
--------------------------------------------------------------------------------
Continuing operations                                                           
Revenue                                        13,149   14,648   38,655   39,789
Cost of goods sold                             -7,217   -7,467  -20,370  -19,360
Gross profit                                    5,932    7,181   18,285   20,429
                                                                                
Distribution costs                             -5,849   -6,173  -17,634  -18,217
Administrative and general expenses              -583     -694   -1,929   -2,162
Other operating income                              7       22       20       34
Other operating expenses                          -35      -49     -103     -116
Operating profit (loss)                          -528      287   -1,361      -32
                                                                                
Finance costs                                    -122     -125     -361     -296
                                                                                
Profit (loss) before income tax                  -650      162   -1,722     -328
                                                                                
Income tax expense                                  0      -11        3      -26
                                                                                
Net profit (loss) from continuing operations     -650      151   -1,719     -354
                                                                                
Net loss for the period from discontinued           0        0        0   -1,329
 operations                                                                     
                                                                                
Net profit (loss) for the period                 -650      151   -1,719   -1,683
                                                                                
                                                                                
Basic earnings per share, EUR                   -0.02     0.00    -0.04    -0.04
Continuing operations                           -0.02     0.00    -0.04    -0.01
Discontinued operations                             -        -        -    -0.03
                                                                                
Diluted earnings per share, EUR                 -0.02     0.00    -0.04    -0.04
Continuing operations                           -0.02     0.00    -0.04    -0.01
Discontinued operations                             -        -        -    -0.03



Meelis Milder
Chairman of the Board
[email protected]