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Baltika: Management report 1999

09.03.2000, Baltika, TLN
BALTIKA
ANNOUNCEMENT

GROUP MANAGEMENT REPORT 1999

1. Financial Results

At the end of 1998 and during the first half of 1999 Baltika
continued to operate on its main markets under conditions of
economic recession/stagnation. The analysts' forecasts predicting
the rapid recovery of economy in the beginning of the year were
replaced with more conservative and pessimistic opinions. In
reality the whole year 1999 turned out to be a year of economic
recession/stagnation, with only the very end of the year indicating
first signs of recovery.
Due to the market and economic conditions AS Baltika set the
following goals for year 1999:

- increased liquidity
- decreased operating expenses
- decreased number of employees
- improvement of client risk management to overcome the crisis
- development of retail trading
- increased flexibility in production and product development
- definition of target markets
- entrance to "major markets" to ensure company's continuous
development in year 2000

AS Baltika consolidated net sales in 1999 amounted to EEK 288.9
million, which is 3.1% (EEK 8.6 million) more than in 1998.
1999 net profit amounted to EEK 1.8 million (incl. EEK 1.2 million
of Baltika group), providing EEK 0.4 million growth on annual
basis. Consolidated net profit declined by EEK 0.7 million. In 1999
AS Baltika profit figure was lower also due to the following
extraordinary factors:

- sale of inventories left in storage from Russian crisis in fall
1998, (effect on profit: -2.9 million EEK)
- sale of previous seasons' products inventories (effect on profit:
-2.0 million EEK)
- investments to enter Poland's market (1.5 million EEK), the
effect of which can be evaluated during the coming periods
- higher than usual discounts in stores of subsidiary AS Baltman to
decrease inventories in Q1 (-1.5 million EEK)
- proceeds from sale of real estate in Lithuania (3.0 million EEK)
- increase in allowance for doubtful accounts (-1.5 million EEK)
- gains related to amended income tax law (0.7 million EEK)

AS Baltika market capitalization as of 31.12.1998 stood at EEK 66.7
million, group owners equity EEK 114.7 million, and share capital
EEK 48.0 million.
1999 1998
operating profit margin 2.6% 3.3%
net profit margin 0.4% 0.7%
earnings per share 0.25 0.41
return on owners equity 1.0% 1.7%

At the end of 1999, Baltika's share price stood at EEK 13.490,
increasing annually 46.3% (TALSE index increased by 38.3%).

2. Significant Events in 1999

Commercial activities
- new marketing concept for chain of Baltman stores:
"Baltman-different choices" (September)
- Investments to new stores in Tallinn (April) and Kaunas
(December)

Marketing
- Export development program to Polish market, establishment of
subsidiary Baltika Poland sp.z.o.o. (May-December)
- Trademark and product development of Christine Collection -
launching of CHR (August)

Production
- Improvement of technological equipment (April-December)

Management
- Shareholders' general meeting elected new members to the
Supervisory Board: Miles W. Burger (chairman), Joakim J. Helenius
and Reet Saks - members.
- Due to restructuring the Management Board members Avo Reiska and
Tõnis Kotkas left (31.07.1999), to be replaced with James Hayhow
(Baltika production director)(01.08.1999).
- Maire Milder was appointed the CEO (May) and Management Board
member (December) of subsidiary Baltman
- Executive management (30 people) participated in Goldratti
international training program (March-April).
- Silvia Palu was appointed the CEO of affiliated company AS Elina
STC (January).

3.Production Activities

In 1999 AS Baltika produced 753.8 thousand product articles, which
is 78.2 thousand (9.4%) less than in 1998.
298.1 thousand articles were produced under AS Baltika trademarks,
which is 39.5% of total output volume. Company bought in 34.1% of
total output, incl. 17.4 thousand in Russian "Slavjanka" and 174.4
thousand in subsidiary AS Elina STC. AS Virulane produced in 1999
its own products 18.4 thousand articles (38.3 thousand in 1998) and
subcontracting works 103.3 thousand (95 thousand in 1998).

4. Marketing

AS Baltika consolidated net sales in 1999 amounted to EEK 288.9
million, which is EEK 8.6 million or 3.1% more than in 1998 (1998
net sales EEK 280.3 million). Sales to export markets totaled 64.5%
(EEK 186.4 million) of total net sales. Baltika continues to lead
conservative sales policy with Russia, as a result of which the
sales volume in the Russian region dropped on y-o-y basis by 18.2
million EEK. Subcontracting increased by EEK 11.4 million (EEK 73.7
million in 1999 and EEK 62.3 million in 1998, respectively).
Subcontracting works accounted for 25.5% of net turnover.

5. Personnel and Management

Average number of employees in AS Baltika in 1999 stood at 717 (763
workers in 1998); average number of group employees was 1,458.
AS Baltika Supervisory consists of 3 people, including: Miles W.
Burger - chairman, Joakim J. Helenius and Reet Saks - members).

AS Baltika Management Board consists of 3 persons: chairman Meelis
Milder (AS Baltika managing director), members James Hayhow (AS
Baltika production director), Ülle Järv (AS Baltika chief
accountant).
AS Baltika Management Board members are also the employees of the
company, who received in 1999 EEK 1,082.6 thousand in total
salaries.
The Management and Supervisory Board members (and their related
persons) own shares in the company as follows:
amount %
Miles W. Burger 38,000 0.79
Meelis Milder 395,239 8.23
Ülle Järv 4,763 0.10


Meelis Milder
Chairman of the Management Board
+372 63 02 731

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