Baltika Group Released Unaudited Financial Results 1Q

OREANDA-NEWS. May 11, 2012. Strong sales results supported Baltika in exceeding its expected results for the first quarter. Owing to the seasonal nature of the retail market, the first quarter is the weakest for Baltika and the company ended it with a loss of 1,043 thousand euros, a more than two-fold improvement on the loss incurred in the same period last year. Better than forecasted results, continued cost control and increasing efficiency support achieving the planned financial target for 2012, which is an EBITDA of 3 million euros.

The sales increase in all first quarter months was based on strong collections and overall growth in consumption in most of Baltika’s markets. Although the average retail sales area was 8% smaller, Baltika’s first quarter sales increased by 872 thousand euros i.e. 7% year over year and sales efficiency improved by 16%. The main growth driver continued to be the Baltic region but, considering the decrease in sales area, Russia also posted very good results, achieving a 16% improvement in sales efficiency.

The restructuring of retail network in 2011, which finalised with closing stores in the first quarter of current year, gave results in decreasing distribution expenses. In the first quarter of 2012 distribution expenses decreased by 444 thousand euros compared to last year and distribution costs ratio to net sales has improved by 8 percentage points (52% compared to 60% in 2011).

An 8% decrease in administrative and general expenses proves that the changes made in the third quarter of 2011 to streamline management and on-going cost control are yielding results. In the first quarter operating expenses have decreased by 503 thousand euros and ratio to net sales has improved by 9 percentage points compared to first quarter of 2011.

2012 fourth quarter highlights

In February, Baltika began selling under a concession agreement the products of the German lifestyle brand Stones in eight of its Baltic Baltman and multi-brand stores. The purpose of the move is to improve the stores’ sales efficiency and to offer the customers a wider product range.

In February, the company opened a new sales channel, the Monton e-store, by which the Monton collection has been dispatched to more than 15 European countries. In Estonia the e-store was launched in April concurrently with the sale of the Olympic fan collection. The official international launch of the e-store and the associated marketing campaign are scheduled for the beginning of the autumn season.

According to 2011 year end plans seven stores were closed in the the first quarter of 2012 – main closures were in January when four Monton and Mosaic stores were closed in Russia, Mosaic brand store in Latvia and Ukraine, Baltman store in Lithuania.

In the first quarter, Baltika began working with Catella Corporate Finance to find potential buyers for the Baltika Quarter. Company has received offers from several potential buyers and sales process is in line with the planned time schedule.

The annual general meeting of shareholders was held on 20 April 2012

The annual general meeting decided on simplified reduction of share capital to 7,159 thousand euros, which makes the equity required by Commercial Code amount to 3,579 thousand euros. The decision ensures compliance with the Commercial Code requirement.

The annual general meeting decided the issuance of two types of convertible bonds. 5,000,000 convertible bonds (H-Bond) are issued on 10 May 2012 with nominal amount of 0.3 euros – every bond gives the owner the right to subscribe for one share of the Company, subscription period is 11 May 2013–10 May 2014. Bonds carry 7.5% interest per annum.

2,350,000 convertible bonds are issued to the management of the Baltika Group of companies on 30 June 2012 with the nominal amount of 0.01 euros. Each bond gives the owner the right to subscribe for one share of the Company, subscription period is 1 July 2015 to 31 December 2015. The subscription price of the share will be the average sales price of the share for the preceding three months, e.g. from 19 January 2012 to 19 April 2012.

Consolidated statement of financial position

Consolidated statement of comprehensive income