Last update: 21.07.2024 20:58 (GMT+3)
Baltika FINANCIAL RESULTS 03/01/2004
2003 PRELIMINARY RESULTS
AS Baltika comments on financial results of 2003
1. Implementation of strategy
The retail strategy implementation plan of AS Baltika
prescribed the following main goals for 2003:
- to improve the efficiency of operation of retail
sales space;
Result: in 2003, sales in like-for-like spaces
(comparable spaces by retail brand since September 2002)
increased by 8% in total compared to the previous year,
whereas growth occurred on all the retail markets of BG.
Total sales efficiency (sales per square metre) decreased
by 18% compared to 2002, of which 4% was attributable to
the fall in the exchange rate. The decrease was the
greatest (-31%) in the first half-year; in the second
half, retail efficiency was below the previous year’s
result by 9%, of which 5% was attributable to the fall in
the exchange rate. The sales efficiency was the highest
on the Lithuanian and Ukrainian markets and the lowest in
Poland.
- to reduce the percentage of old (older and one
season) inventories in the system;
Result: inventories at the end of the 2003 autumn season
were 50% smaller than at the end of 2002. The volume of
inventories made and purchased in 2002 or earlier
decreased by EEK 105m during 2003; a majority of such
inventories were sold via the company’s own retail
system, which resulted in longer discount periods and
higher discount rates. Because of the reduction in
inventories, one of the main activities at the end of
2003 was to ensure supplies of new goods for the 2004/I
season, which was more successful than the same period of
the previous year: in December, EEK 22m (EUR 1.4m) worth
of the new season’s goods (in warehouse prices) were
ready for dispatch in the warehouse; the same figure for
the previous year was EEK 3.2m (EUR 0.1m).
- to increase sales (particularly in the retail
system);
Result: the consolidated net sales of Baltika increased
by 2.3% in 2003 compared to 2002 (EEK 496.7m/EUR 31.74m
in 2003 against EEK 485.4m/EUR 31.03m in 2002). Retail
sales increased by 26% (from EEK 254.6m/EUR 16.27m in
2002 to EEK 320.7m/EUR 20.5m in 2003).
- to ensure and strengthen the positive cash flow.
BG’s cash flow from operating activities was EEK
+25.3m/EUR 1.62m in 2003; the cash flow was negative, EEK
-30.0m/EUR1.92m in the same period of the previous year.
The activities that BG uses to ensure a stronger cash
flow are: reduction of investments, additional savings of
costs in the second half-year, more exact planning of
financing activities, and improvement of the inventories
management system.
2. General results
Sales
The unaudited net sales of AS Baltika for 2003 were EEK
496.7m /EUR 31.74m, which is an increase of 2.3% compared
to the previous year (EEK 485.5m/EUR 31.03m). The
consolidated net sales of the fourth quarter of 2003 were
EEK 131.5m/EUR 8.40m. Compared to the same period of
2002, net sales increased by 5.97% (from EEK 124.1m/EUR
7,93m)
A larger growth was achieved in retail sales on the five
markets, which was one of the strategic goals of Baltika
Group in 2003. The retail net sales of 2003 were EEK
320.7m/EUR20.5m, which is 26% more than in 2002 (EEK
254.6m/EUR 16.27m), and retail sales accounted for 64.6%
of total sales (52% in 2002). Wholesale sales of own
products, which amounted to EEK 122.7m/EUR 7.84m,
decreased by 29% compared to 2002 (by EEK 50.1m/EUR 3.2m)
and subcontracting sales totalled EEK 50.8m/EUR 3.25m,
which was also less than in 2002 by 4%.
Export totalled EEK 358m/EUR 22.88m in 2003, forming 72%
of total sales (EEK 354.6m/EUR 22.66m and 73% in 2002,
respectively). Sales were the largest on the Estonian
market (EEK 139.6m/EUR 8.92., growth 6.7%), followed by
Lithuania (EEK 81.2m/EUR 5.19m, growth 12.9%) and the
Ukraine (EEK 55.4m/EUR 3.54m, growth 1.8%). The largest
growth was achieved on the Polish market (EEK 48.5m/EUR
3.1m, growth 38.6%), although the result did not meet
expectations.
The main factors that influenced sales results in 2003
were: - fall in the average exchange rates (the Polish
zloty -12.5%, the Ukrainian grivna -16.7%, and the
Latvian lat -9.4%), the higher than planned discount
rates and the constantly lower than expected result on
the Polish market when compared to other retail markets.
An estimated EEK 18m/EUR 1.15m of sales were lost in 2003
because of the fall in exchange rates.
The sales of the Monton retail brand, which celebrated
its first anniversary in September 2003, formed 73% of
the retail sales of Baltika Group in 2003, totalling EEK
234.0m/EUR 14.96m.
The CHR/Evermen retail chain, launched on four markets in
the second half of 2003, accounted for 13.2% of the
retail sales of Baltika Group, i.e. EEK 42.3m/EUR 2.70m.
The Baltman retail chain, which was launched on three
markets in 2003, accounted for 8.3% of the retail sales
of Baltika Group, i.e. EEK 26.6m/EUR 1.70m.
A more general problem in retail trade in 2003 was the
extensive length of discount periods (end-of-season
sales) and the insufficient supply of new products at the
beginning of the season, resulting in a decrease in both
discount rates and sales.
Financial results
The net loss of Baltika for 2003 was EEK 34.57m/EUR 2.21m
before supplementary and extraordinary events.
The net loss of Baltika for the fourth quarter was EEK
4.17m/EUR 0.27m before supplementary and extraordinary
events. In the same period of the previous year, Baltika
made a profit of EEK 1.1m/EUR 0.07m.
Considering the large foreign exchange losses, the need
to revalue investments in the markets where exchange
losses occurred, the need to alter the principles of
inventory valuation due to reconstruction of the
enterprise from a manufacturing business into a retail
business, and the situation on the Polish market, the
company decided to record the following economic events
as supplementary expenses:
- to change the inventory valuation principle in
accordance with international retail practice as regards
end-of-season fashion products, and to form additional
provisions of EEK 17.8m/EUR 1.14m for improving inventory
turnover and accelerating the sales of products older
than one season;
- to expense the costs of closing down a retail outlet
in Poland, EEK 2.4m/EUR0.15m, in January 2004;
- to revaluate the net investments made in Poland and
the Ukraine, totalling EEK 6.53m/EUR 0.42m;
- considering the net loss of EEK 12m/ EUR 0.77m from
the Polish market in 2003, to take a conservative
approach to the calculation principle of deferred income
tax, and therefore expense EEK 1.7m/EUR 0.11m.
Considering the above circumstances, the net loss of AS
Baltika for 2003 was EEK 63.0m/EUR 4,0m. The result for
the same period of 2002 was a profit of EEK 6.8m/EUR
0.43m.
Fluctuations in the retail margins and efficiency by
market also influenced the results of operating
activities. The risk is highest on the Polish market,
which is the location of 30% of Monton’s sales space,
while the sales efficiency is the lowest in Poland.
Margins have also been influenced by the fact that the
purchasing price of products in BG is euro-based while
the sales currencies in Poland, the Ukraine, and
Latvia, are partly influenced by the falling exchange
rate of the US dollar. Although operating expenses on
these markets, converted into Estonian kroons, were
also smaller because of the fall in the exchange rates,
the loss of margins outbalanced the saving on expenses.
Operating expenses increased by a total of 9% in 2003
compared to the previous year. The increased expenses in
retail trade were related to the addition of new retail
spaces. As a result of the cost saving programme launched
in the second half of the year, operating and labour
expenses decreased in the entire system by nearly EEK 9m
compared to the initial budget.
Depreciation costs have increased because of the large
investments made in retail sale, production, and
information technology in the second half of 2002 and in
2003. Investments totalled EEK 16m/ EUR 1.02min 2003,
including EEK 7.1m/EUR 0.45m in retail trade development,
EEK 1.8m/EUR 0.12m in production equipment renewal, EEK
6.2m/0.39m in the launch of IT projects, and EEK 0.9m/EUR
0.06m in other areas. The fall of EURIBOR and achievement
of better loan conditions decreased interest expenses by
EEK 1.1m/EUR 0.07m compared to the previous year.
Balance sheet
The consolidated balance sheet total of Baltika was EEK
329.6m/EUR 21.07m as of 31 December 2003, having
decreased by EEK 43.3m/EUR 2.77m since the beginning of
the year. The cash balance increased by EEK 2.8m/EUR
0.18m. Inventories have decreased in the system by EEK
28.0m/EUR 1.79m since the beginning of the year.
The balance of short-term and long-term liabilities was
EEK 7.3m/EUR 0.47m less than at the end of 2002; debt
obligations totalled EEK 138.8m/EUR 8.87m.
The main ratios of AS Baltika Group as of 31 December
2003 were:
31.12.2003 31.12.2002
Annual increase in sales, 2.3 17.0
%
Percentage of retail 64 52
sales in net sales
Number of retail outlets 66 55
Retail space owned by BG 10 109 8684
(m2)
Markets managed by own 6 6
retail organisations
operating profit to net -11.2 2.8
sales, %
- net profit to net -12.7 1.4
sales, %
Return on equity (net -42.7 4.0
profit/12 months’ average
equity), %
Return on assets (net -17.5 3.7
profit/12 month’s average
assets), %
3. Development of retail trade
An important activity in 2003 was the segmentation of the
BG market, resulting in changes in the BG retail space
structure. In the first half of 2003, renewed concepts of
the two minor retail brands, Baltman and CHR/EM, were
prepared, on which basis the sales spaces of these retail
concepts were significantly increased. The sales spaces
of these retail concepts increased relatively more in the
second half of 2003.
The balanced brand portfolio creates better opportunities
for remaining competitive on different markets and
increases the possibility of meeting the needs of a
larger customer group.
As of the end of the year, BG had 10,109 m2 of sales
space and 66 outlets in six countries: Estonia, Latvia,
Lithuania, the Ukraine, Poland, and Sweden: 31 Monton
outlets, 9 Baltman outlets, 18 CHR/EM outlets and 8
Baltika factory (stock) outlets. A total of 1425 m2 of
sales space and 11 new outlets were added during the
year. Together with franchise agreements and shop-in-shop
spaces, Baltika had 11,552 m2 of managed retail space and
81 outlets at the end of the year.
Three inefficient outlets were closed in January 2004:
two in Estonia and one in Poland. Closing of inefficient
sales spaces continues in 2004.
Intensive work on increasing and strengthening the
customer base continued in 2003. By the end of the year,
46,000 people had joined the Monton customer programme.
CHR/EM and Baltman had 14,000 and 3,500 regular
customers, respectively, at the end of the year.
4. Production
The goal of the Baltika production units is to cover the
needs of its retail and wholesale system as fully as
possible, so as to ensure high quality and flexible
reaction particularly to the retail system’s needs. The
production volume was 820,000 products in 2003 (818,000
products in 2002).
5. Organisation and management
The transition to division-based management that started
at the end of 2002 was finished in mid-2003, when the
Product Division and Retail Division were created, and
Business Processes Division was divided into two:
Financial Service and Business Processes Service. A major
structural change was carried out in 1 August, when three
brand-based sub-units were formed: the Monton, Baltman,
and CHR/Evermen brand teams, consisting of brand
managers, designers, and merchandisers. Since the
autumn-winter season of 2003, the main profit centres of
BG are the market retail organisations (maximisation of
income earned on a market (in a country)), and brand
teams (maximisation of the sales income of a brand).
The new production information system PROTEX, implemented
in 2003, and the currently developed sales information
system JAFFEX together with the retail market information
systems created preconditions for an operative management
of the retail trade system from the BG centre from the
beginning of 2004.
The success of implementation of the new BG retail
concept on the different markets of the group varied in
2003. While the results of the second half of 2003 on the
Baltic markets more or less met expectations, the
Ukrainian and particularly the Polish results were not
satisfactory (although the significant cheapening of the
Ukrainian grivna and the Polish zloty relative to the
euro had its objective role). To improve results in
Poland, a special working group was set up and the market
organisation was reduced in the autumn of 2003; the
outlet in the Wola centre in Warsaw that yielded the
greatest loss was closed down at the beginning of 2004.
In connection with poor results on the Ukrainian market
in 2003, the director for the Ukrainian market was
replaced in January 2004.
As of the end of December 2003, the group employed 1714
people, including 491 in retail trade, 1062 in
production, and 316 outside Estonia.
6. Plans for 2004
According to the four-year retail development strategy of
BG, the planned goals for 2004 are:
- a modest increase in sales;
- entry into the Russian retail market via a joint
venture;
- significant increase in inventory turnover in
inventory management;
- rehabilitation of the Polish market continues; the
goal is to reach the break-even point on the outlets
level and to minimise market management costs.
Unless this goal is achieved, Baltika considers
leaving the Polish market in 2005.
The investments planned to be made in 2004 are modest (up
to EEK 15m/EUR 0.96m), including up to 2000 m2 of new
retail space on all the existing markets (except for
Poland) and Russia collectively.
January results
The unaudited consolidated net sales of Baltika in
January were EEK 40.6m/EUR 2.59m, which is 10% more than
in January 2003 (EEK 36.8m/EUR 2.35m). Retail sales
amounted to EEK 25.1m/EUR 1.60m (16.5% growth). Sales
grew on all the retail markets of Baltika except for
Poland, where the level of 2002 was maintained with sales
below EEK 0.6m /EUR 0.04m. Sales on like-for-like spaces
(comparable outlets during a comparable period) grew by
6.7%. The net loss for January was EEK 4.5m/EUR 0.29m,
which is greater than the result for January 2003 by 33%
(EEK -6.7m/EUR - 0.43m). Three inefficient outlets were
closed: one in Poland and two in Estonia.
Income
Statement
(consolidated, unaudited)
th. EEK
IV Q 2003 IV Q 2002 2003 2002
Revenue 131 449 124 059 496 686 485 440
Net sales 118 71 603 6 023
Other revenue 131 567 124 130 497 289 491 463
Total revenue
Expenses
Raw (74 647) (43 048) (224 112) (179 500)
materials,goo
ds, services
Change in 2 465 2 354 (659) 1 621
inventories
Other (37 768) (37 401) (136 825) (126 096)
operating
expenses
Personnel (43 680) (40 649) (164 192) (151 043)
expenses
Depreciation (5 846) (4 643) (22 399) (19 230)
of fixed
assets
Other (3 243) (1 365) (4 507) (3 460)
expenses
Total (162 719) (124 752) (552 694) (477 708)
expenses
Operating (31 152) (622) (55 405) 13 755
profit (loss)
Financial 268 478 814 763
income
Financial (1 626) (1 926) (7 787) (9 036)
expenses
Profit (loss) (32 510) (2 070) (62 378) 5 482
before taxes
Income tax (444) 2 418 (465) 2 150
expense
Profit (loss) (32 954) 348 (62 843) 7 632
before
minority
interest
Minority (318) (734) 188 834
interest
Net profit (32 636) 1 082 (63 031) 6 798
(loss)
Income
Statement
(consolidated, unaudited)
th. EUR
IV Q 2003 IV Q 2002 2003 2002
Revenue
Net sales 8 401 7 929 31 744 31 025
Other revenue 8 4 39 385
Total revenue 8 409 7 933 31 783 31 410
Expenses
Raw (4 771) (2 751) (14 322) (11 472)
materials,good
s, services
Change in 158 150 (42) 104
inventories
Other (2 414) (2 390) (8 745) (8 059)
operating
expenses
Personnel (2 792) (2 598) (10 494) (9 653)
expenses
Depreciation (374) (297) (1 432) (1 229)
of fixed
assets
Other expenses (207) (87) (288) (221)
Total expenses (10 400) (7 973) (35 323) (30 531)
Operating (1 991) (40) (3 540) 879
profit (loss)
Financial 17 31 52 49
income
Financial (104) (124) (498) (578)
expenses
Profit (loss) (2 078) (133) (3 986) 350
before taxes
Income tax (28) 155 (30) 137
expense
Profit (loss) (2 106) 22 (4 016) 488
before
minority
interest
Minority (20) (47) 12 53
interest
Net profit (2 086) 69 (4 028) 434
(loss)
Balance sheet 31.12.03
(consolidated, unaudited)
th.EUR
ASSETS 31.12.03 31.12.02
Current assets
Cash and bank 12 836 10 010
Shares and other 377 542
securities
Customer receivables 45 727 47 609
Other receivables and 13 601 19 306
prepaid expenses
Prepaid income tax 221 150
Inventories 147 846 175 857
Total current assets 220 608 253 474
Non-current assets
Long-term investments 3 084 3 292
Deferred tax assets 2 310 2 868
Tangible fixed assets 89 741 108 382
Intangible fixed assets 13 851 4 921
Total non-current assets 108 986 119 463
TOTAL ASSETS 329 594 372 937
LIABILITIES AND OWNER`S
EQUITY
Current liabilities
Debt obligations 69 336 90 633
Customer prepayments for 260 149
goods and services
Accounts payable 53 939 33 708
Other tax liabilities 10 634 8 086
Accrued expenses 10 515 7 769
Total current liabilities 144 684 140 345
Non-current liabilities
Long-term debt 69 482 55 469
Other long-term 32 141
liabilities
Total non-current 69 514 55 610
liabilities
TOTAL LIABILITIES 214 198 195 955
Minority interest 7 119 7 049
OWNER`S EQUITY 108 277 169 933
Share capital (par value) 54 994 54 444
Share premium 42 490 41 665
Other restricted equity 22 885 22 885
Retained profit 50 939 44 141
Profit (loss) for the (63 031) 6 798
accounting period
TOTAL LIABILITIES AND 329 594 372 937
OWNER`S EQUITY
Balance sheet
31.12.03
(consolidated)
th.EUR
ASSETS 31.12.03 31.12.02
Current assets
Cash and bank 12 836 10 010
Shares and 377 542
other
securities
Customer 45 727 47 609
receivables
Other 13 601 19 306
receivables and
prepaid
expenses
Prepaid income 221 150
tax
Inventories 147 846 175 857
Total current 220 608 253 474
assets
Non-current
assets
Long-term 3 084 3 292
investments
Deferred tax 2 310 2 868
assets
Tangible fixed 89 741 108 382
assets
Intangible 13 851 4 921
fixed assets
Total non- 108 986 119 463
current assets
TOTAL ASSETS 329 594 372 937
LIABILITIES AND
OWNER`S EQUITY
Current
liabilities
Debt 69 336 90 633
obligations
Customer 260 149
prepayments for
goods and
services
Accounts 53 939 33 708
payable
Other tax 10 634 8 086
liabilities
Accrued 10 515 7 769
expenses
Total current 144 684 140 345
liabilities
Non-current
liabilities
Long-term debt 69 482 55 469
Other long-term 32 141
liabilities
Total non- 69 514 55 610
current
liabilities
TOTAL 214 198 195 955
LIABILITIES
Minority 7 119 7 049
interest
OWNER`S EQUITY 108 277 169 933
Share capital 54 994 54 444
(par value)
Share premium 42 490 41 665
Other 22 885 22 885
restricted
equity
Retained profit 50 939 44 141
Profit (loss) (63 031) 6 798
for the
accounting
period
TOTAL 329 594 372 937
LIABILITIES AND
OWNER`S EQUITY
Ülle Järv
Financial Director
+372 6302 731
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