Baltika Group ended the fourth quarter with the loss of 1,472 thousand euros, which includes an allowance for impairment, particularly for Eastern European franchise partners in the amount of 1,605 thousand euros. Last year’s comparable result was net profit in the amount of 920 thousand euros.
In the fourth quarter, Group’s sales revenue decreased 5% compared with the last year same period and was 12,281 thousand euros. Channel, with the largest share, retail, decreased 4% and was 11,160 thousand euros. Sales revenue decreased the most in Estonia and Lithuania, Latvian result stayed in the last year’s level. Sales of formal clothes and men`s clothes continued to decline.
Business customers` (wholesale, franchise and consignation) sales revenue in fourth quarter was 604 thousand euros decreasing by 30% compared with the last year same period. The main reason for the decline in sales revenue was the change of the cooperation agreement with the department store chain in Germany and Central Europe, Peek & Cloppenburg, in this autumn, according to which Monton collections are no longer sold in most department stores in Germany. Another important reason of the decrease in sales revenue was the continued decrease in franchise sales volumes in Russia, Belarus and Ukraine.
Baltika Group’s e-store Andmorefashion.com revenue increased 10% in the fourth quarter compared with the same period last year and was 472 thousand euros. Monton formed 37% of the fourth quarter’s e‑store sales and sales revenue increased 11% compared to year before.
Gross profit for the quarter was 6,368 thousand euros, decreasing by 754 thousand euro compared with the same period last year (4Q 2017: 7,122 thousand euros). Gross profit decrease was driven by lower sales, which was amplyfied by 3 percentage points lower gross profit margin compared with the fourth quarter of last year (4Q 2017: 51.9%). The decrease of the margin is caused by the higher purchase prices and the increased sales volumes of the products sold at discount.
Group’s distribution expense in the fourth quarter was 5,501 thousand euros, increasing by 76 thousand euros compared with the same period last year. Distribution expenses has increased in retail segment due to the growth of expenses related to rental agreements and costs related to entering Finnish retail market.
12 months of 2018
Company ended the twelve months with the loss of 3,141 thousand euros, which includes an allowance for impairment in amount of 1,605 thousand euros (particularly the allowance for impairment for Eastern European franchise partners). Last year’s result was net profit in the amount of 58 thousand euros. The negative result was mainly driven by the business customers and retail sales revenue decrease, respectively nearly 2 and 1 million euro and higher distribution costs related to entering Finnish market.
In twelve months total Baltika’ s sales revenue decreased by 6% and was 44,691 thousand euros. E-commerce showed sales growth by 16%, retail decreased by 3% and business customers sales decreased by 31%. Company’ s gross profit was 22,316 thousand euros, which is 1,354 thousand euros less than in 2017. Gross profit decrease in 2018 is driven by the decrease of sales revenue of business customers, particularly Germany and Eastern-European region customers. In addition, the gross profit was influenced by the decrease in Estonian retail sales, particularly in fourth quarter and men’ s segment lower sales. Women’ s segment gross profit increased compared with the last year and the most impacted the improvement of the result Monton’ s women collection gross profit increase by 3%.
Baltika`s Strategy 2022 was based on the international growth but due to the changes in fashion industry which resulted in lower sales and the unexpectedly negative financial results of franchise partners, Management Board has formalized a new 2019 and 2020 action and financial plan. A new plan focuses on changing the business plan radically, including restructuring the brand portfolio, focusing on home markets, simplificying business processes and reducing the costs significantly. Management Board has presented the modified plan to the Supervisory Board and the 2019-2020 action and financial plan will be decided in coming weeks, after that the public will be informed. If the action plan will be approved by the Supervisory Board it might influence the Management Board`s estimates of trade receivables, inventories and fixed assets impairment which may result in one-off costs. Due to that, the financial results in the 2018 annual report disclosed on 20th of March in 2019 may change compared with the results disclosed in this report.
Highlights of the period until the date of release of this quarterly report
- In November, a new concept store, Vèrenni, representing all Baltika Group`s brands was opened in T1 Mall of Tallinn department store. In the new concept, the products in the store are grouped based on the customer needs, i.e according to the situation in which the clothes are needed. During the first months, the store proved to be particularly popular among men, who thought it was easier to find the clothes, which were grouped this way.
- As the complex economic and political situation in Ukraine and Belarus has caused a significant decrease in sales volumes and solvency of Baltika’s franchise partners on these markets, Baltika decided to terminate franchise agreements before the end of their period of validity with Belarusian and Ukrainian partners in the first quarter of 2019. Cooperation with Russian franchise partner will continue but on a smaller scale. Consequently, Baltika evaluates the Eastern European partners’ liabilities as not fully collectable and thus creates an allowance for impairment in 2018. The early termination of the agreements results in a decrease of nearly 1,000 thousand euros in Baltika`s wholesale and franchise sales revenue in 2019.
- In December, two new Monton sales points were opened in the Slovenian department stores in Ljubljana and Celjes due to the rapidly growing sales volumes of the consignment partner Montecristo SL.
Consolidated statement of financial position
| 31 Dec 2018 | 31 Dec 2017 | |
| ASSETS | ||
| Current assets | ||
| Cash and cash equivalents | 428 | 704 |
| Trade and other receivables | 1,264 | 2,055 |
| Inventories | 11,016 | 10,499 |
| Total current assets | 12,708 | 13,258 |
| Non-current assets | ||
| Deferred income tax asset | 286 | 189 |
| Other non-current assets | 513 | 487 |
| Property, plant and equipment | 1,986 | 2,395 |
| Intangible assets | 1,480 | 1,513 |
| Total non-current assets | 4,265 | 4,584 |
| TOTAL ASSETS | 16,973 | 17,842 |
| LIABILITIES AND EQUITY | ||
| Current liabilities | ||
| Borrowings | 7,829 | 1,309 |
| Trade and other payables | 5,934 | 5,984 |
| Total current liabilities | 13,763 | 7,293 |
| Non-current liabilities | ||
| Borrowings | 1,165 | 5,363 |
| Total non-current liabilities | 1,165 | 5,363 |
| TOTAL LIABILITIES | 14,928 | 12,656 |
| EQUITY | ||
| Share capital at par value | 4,079 | 8,159 |
| Share premium | 0 | 496 |
| Reserves | 1,107 | 1,345 |
| Retained earnings | 0 | -4,872 |
| Net profit (loss) for the period | -3,141 | 58 |
| TOTAL EQUITY | 2,045 | 5,186 |
| TOTAL LIABILITIES AND EQUITY | 16,973 | 17,842 |
Consolidated statement of profit and loss and comprehensive income
| 4Q 2018 | 4Q 2017 | 2018 | 2017 | |
| Revenue | 12,281 | 12,969 | 44,691 | 47,459 |
| Client bonus provision | 0 | 16 | 0 | 16 |
| Revenue after client bonus provision | 12,281 | 12,985 | 44,691 | 47,475 |
| Cost of goods sold | -5,913 | -5,863 | -22,375 | -23,805 |
| Gross profit | 6,368 | 7,122 | 22,316 | 23,670 |
| Distribution costs | -5,501 | -5,425 | -21,005 | -20,630 |
| Administrative and general expenses | -642 | -567 | -2,375 | -2,387 |
| Other operating income (-expense) | -1,645 | -12 | -1,621 | -35 |
| Operating profit (loss) | -1,420 | 1,118 | -2,685 | 618 |
| Finance costs | -149 | -159 | -553 | -521 |
| Profit (loss) before income tax | -1,569 | 959 | -3,238 | 97 |
| Income tax expense | 97 | -39 | 97 | 0 |
| Net profit (loss) for the period | -1,472 | 920 | -3,141 | 58 |
| Total comprehensive income (loss) for the period | -1,472 | 920 | -3,141 | 58 |
| Basic earnings per share from net loss for the period, EUR | -0.04 | 0.02 | -0.08 | 0.00 |
| Diluted earnings per share from net loss for the period, EUR | -0.04 | 0.02 | -0.08 | 0.00 |
Maigi Pärnik-Pernik
Member of the Management Board
maigi.parnik@baltikagroup.com
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