Baltika's unaudited financial results, third quarter of 2022 and 9
months 2022
The third quarter was eventful for the Group. We
had set ourselves big challenges for the third quarter, and we are
happy to say that the set goals were met:
- In July, we completed the closing of the Moetänava store. As
the Group is currently only involved in the development of Ivo
Nikkolo products, the Moetänava sized trading space did not support
our new business model. After the closure of Moetänava, we opened a
new Ivo Nikkolo outlet store in the Arsenal center in Tallinn,
which has been very well received by our customers.
- At the beginning of August, we closed an important financing
transaction (partial sale of Ivo Nikkolo trademarks, which the
Group continues to use under an exclusive license), which will
significantly support the growth of the Group’s business in the
following years.
- At the end of September, we opened our new Ivo Nikkolo e-store
to offer customers the best possible shopping experience. The
opening of the new e-store is the first step in our decision to
actively move forward with the development of our omnichannel
strategy. Also, at the same time as the opening of the new e-store,
the entire Group switched to a new Enterprise Resource Planning
(ERP) system, which enables the Group to make better management
decisions in the future.
The result of the third quarter was
significantly affected by our strategic decision to sell some of
the Ivo Nikkolo trademarks and to continue using the trademarks
under an exclusive license. The purpose of the transaction is to
finance the Group's business activities, and the Group will use the
amounts received from the transaction to finance core activities,
projects, and investments. The sales price of the trademarks was
8,000 thousand euros, and the money will be received by the Group
in four instalments, the last payment to the Group will take place
at the end of 2024. Despite the transfer of trademarks, the Group
retains the exclusive right to use the trademarks for 10 years
based on an exclusive trademark license agreement. The period of
the license agreement is automatically renewed for the following
one year and after the end of each subsequent renewed period unless
the contracting party provides the other party with a notification
of a different content no less than three months before the end of
the period. The validity of the license agreement ends in any case
when the legal protection of all trademarks has ended. Otherwise,
the license agreement can only be terminated by written agreement
of the parties. The Group pays a license fee of a maximum of 345
thousand euros per year for the use of trademarks, depending on the
turnover. As a result of the transaction, the Group received a
one-time profit in the amount of 7,436 thousand euros, which
explains the increase in operating and net profit for the quarter
compared to the third quarter of last year. The transaction also
had a positive effect on the Group's equity: as a result of the
transaction, the Group's equity is in compliance with the 50% share
capital requirement stipulated in the Commercial Code.
The opening of the new Ivo Nikkolo e-store on
September 22 marks the beginning of our decision to take a strong
step forward with the development of the omnichannel strategy. In
nine months, sales through other channels account for approximately
10% of total sales. The Group aims to double this share next year
through the omnichannel strategy and the development of additional
functionalities of the e-store. Together with the opening of the
new e-store, the Group switched to a new ERP system. The
introduction of the new system also means that the entire Group
implements a single ERP system. The group-wide ERP system allows
the Group to collect, store and analyse its business data in a
centralized location, providing more opportunities and transparency
for making strategic management decisions.
The Group ended the third quarter with a net
profit of 6,611 thousand euros. The result of the third quarter has
been significantly affected by the conclusion of the contract for
the sale of the Ivo Nikkolo trademarks and the contract for the
exclusive use of the Ivo Nikkolo trademarks. The adjusted result
for the third quarter, without taking into account the effect of
the previously mentioned transaction, was a net loss of EUR 825
thousand. Compared to the same period last year, the Group's
adjusted result weakened by 433 thousand euros (last year, the
Group ended the third quarter with a net loss of 392 thousand
euros). The weakening of the adjusted result is related to the
transition from five brands (Monton, Mosaic, Baltman, Bastion and
Ivo Nikkolo) to one brand (Ivo Nikkolo) and the closing of
unprofitable stores.
The sales revenue of the Group in the third
quarter was 2,427 thousand euros, decreasing by 36% compared to the
same period last year (Q3 2021: 3,817 thousand euros). The sale of
Ivo Nikkolo products accounted for 99% of the third quarter’s sales
revenue, whereas in the comparable period, the sale of Ivo Nikkolo
products accounted for 69% of the entire third quarter’s sales
revenue – the remaining 31% was the sales revenue of the
discontinued brands Monton, Mosaic, Baltman and Bastion. The reason
for the decrease in sales revenue were as follows:
- The Group has continued to close unprofitable stores as
planned. In nine months, we have closed 10 unprofitable stores.
During 2022, unprofitable stores will continue to be closed in
Estonia, as the market with the largest number of stores. The
closing of unprofitable stores is planned to be completed by the
end of 2022.
- The sales revenue of the third quarter of last year included
the sales revenue of the discontinued brands Monton, Mosaic,
Baltman and Bastion. The sales result of the third quarter of this
year includes the revenue from the sale of discontinued brands at a
minimum (1%), in the comparable period, the sales revenue of
discontinued brands made up 31% of the sales revenue of the third
quarter.
- In 2021, Ivo Nikkolo underwent a renewal course. The
transitional collection released last July and August was similar
in style to Monton. In addition, during the transition season,
customers found the Ivo Nikkolo collection still in the Monton
store fronts. These circumstances supported additional sales of Ivo
Nikkolo products in the comparable period.
E-com sales revenue for the third quarter was
200 thousand euros, decreasing by 36% compared to the same period
last year. The result of the e-store in the third quarter of 2021
is not fully comparable, because in the comparable period the Group
had two e-stores, Monton and Ivo Nikkolo, therefore the result of
the e-store in the third quarter of last year included the sale of
discounted products of the discontinued brands Baltman and Monton
through the Monton e-store shop. The Monton e-shop was finally
closed in September 2021.
The gross profit for the third quarter was 1,321
thousand euros, decreasing by 45% compared to the same period last
year (Q3 2021: 1,921 thousand euros). The Group's gross profit
margin was 54% in the third quarter, an improvement of 4 percentage
points compared to the same period last year (Q3 2021: 50%). The
increase in raw material and transportation prices and the
strengthening of the US dollar led to a significant cost increase
in the price and delivery of goods. Despite the increase in prices,
the Group has been able to improve the gross margin thanks to
well-managed discounts and partially passing on price increases to
customers.
The Group's distribution and administration
expenses were 2,022 thousand euros in the third quarter, decreasing
by 28% compared to the same period last year (Q3 2021: 2,590
thousand euros). The decrease in retail costs is related to general
cost savings and the closing of unprofitable stores. The group's
general administrative expenses have remained at a similar level to
the same period last year.
The Group ended the quarter with cash and cash
equivalents of 282 thousand euros, using the bank’s overdraft
facility in the amount of 2,042 thousand euros (out of the limit of
3,000 thousand euros) at the end of the quarter.
Baltika continues to implement its strategy:
- We develop modern, high-quality products in our women’s fashion
brand Ivo Nikkolo, which is available in Estonia, Latvia and
Lithuania and in our e-store.
- We continue with the development of our omnichannel strategy
and e-store functionalities.
- We continue to open new Ivo Nikkolo concept stores in the
Baltics. At the end of November this year, we will open a new Ivo
Nikkolo concept store in the Panorama shopping centre in
Vilnius.
Ongoing quarter
Ivo Nikkolo’s fall collection has been well
received. In October, sales of Ivo Nikkolo products through all
channels increased by 10 percent compared to the same period in
2021. Retail sales efficiency (sales per m2 per month, EUR) was 138
EUR, increasing by 23% compared to October last year. The increase
in the turnover of Ivo Nikkolo products is an important sign that
the demand for our products remains even if the general purchasing
power of customers decreases.
In the fourth quarter, the Group will continue
with general cost savings and productivity enhancements to make the
business even smoother and more efficient. In the fourth quarter,
the Group plans to close three stores, two of which are
unprofitable (one each in Estonia and Lithuania) and one store in
Estonia that does not match the profile of Ivo Nikkolo stores. The
closing of the store in Lithuania will be replaced by a new Ivo
Nikkolo concept store.
In the fourth quarter, the focus is also on
marketing activities. In October, we started an extensive brand
awareness campaign in Latvia and Lithuania, which will last until
the end of the year. In October, Ivo Nikkolo presented a modern
feminine clothing and accessory collection at Riga Fashion Week
(11.10.2022) and Tallinn Fashion Week (20.10.2022).
By the fourth quarter of 2022, the overall
market situation for inventory purchases will be more negative due
to external factors compared to the same period last year, mainly
due to increased inventory prices and transportation costs. To
avoid possible delays in the supply chain, the Group has brought
inventory orders forward, therefore an increase in inventory levels
is expected in the following periods.
Consolidated statement of financial
position
|
30 Sept 2022 |
31 Dec 2021 |
ASSETS |
|
|
Current
assets |
|
|
Cash and cash
equivalents |
282 |
614 |
Trade and other
receivables |
194 |
696 |
Inventories |
2,414 |
2,491 |
Total
current assets |
2,890 |
3,801 |
Non-current assets |
|
|
Deferred income
tax asset |
80 |
80 |
Trade and other
receivables |
5,716 |
0 |
Other
non-current assets |
162 |
172 |
Property, plant
and equipment |
1,181 |
855 |
Right-of-use
assets |
5,046 |
5,956 |
Intangible
assets |
595 |
631 |
Total
non-current assets |
12,781 |
7,694 |
TOTAL
ASSETS |
15,671 |
11,495 |
|
|
|
LIABILITIES AND EQUITY |
|
|
Current
liabilities |
|
|
Borrowings |
356 |
364 |
Lease
liabilities |
1,884 |
1,692 |
Trade and other
payables |
2,310 |
2,438 |
Total
current liabilities |
4,550 |
4,494 |
Non-current liabilities |
|
|
Borrowings |
3,201 |
2,425 |
Lease
liabilities |
3,191 |
4,264 |
Trade and other
payables |
151 |
0 |
Total
non-current liabilities |
6,543 |
6,689 |
TOTAL
LIABILITIES |
11,094 |
11,183 |
|
|
|
EQUITY |
|
|
Share capital at
par value |
5,408 |
5,408 |
Reserves |
4,431 |
4,431 |
Retained
earnings |
-9,527 |
-6,627 |
Net profit
(loss) for the period |
4,265 |
-2,900 |
TOTAL
EQUITY |
4,577 |
312 |
TOTAL
LIABILITIES AND EQUITY |
15,671 |
11,495 |
Consolidated statement of profit or loss and other
comprehensive income
|
3Q 2022 |
3Q 2021 |
9m 2022 |
9m 2021 |
|
|
|
|
|
|
|
|
|
|
Revenue |
2,427 |
3,817 |
6,810 |
9,156 |
Cost of goods
sold |
-1,106 |
-1,896 |
-3,452 |
-4,707 |
Gross
profit |
1,321 |
1,921 |
3,358 |
4,449 |
|
|
|
|
|
Distribution
costs |
-1,706 |
-2,287 |
-5,340 |
-6,124 |
Administrative
and general expenses |
-316 |
-303 |
-949 |
-1,138 |
Other operating
income (-expense) |
7,372 |
369 |
7,420 |
1,054 |
Operating
profit (loss) |
6,670 |
-300 |
4,489 |
-1,759 |
|
|
|
|
|
Finance
costs |
-59 |
-92 |
-224 |
-251 |
Profit
(loss) before income tax |
6,611 |
-392 |
4,265 |
-2,010 |
|
|
|
|
|
Income tax
expense |
0 |
0 |
0 |
0 |
|
|
|
|
|
Net
profit (loss) for the period |
6,611 |
-392 |
4,265 |
-2,010 |
|
|
|
|
|
Total
comprehensive income (loss) for the
period |
6,611 |
-392 |
4,265 |
-2,010 |
|
|
|
|
|
|
|
|
|
|
Basic earnings
per share from net profit (loss) for the period, EUR |
0.12 |
-0.01 |
0.08 |
-0.04 |
|
|
|
|
|
Diluted earnings
per share from net profit (loss) for the period, EUR |
0.12 |
-0.01 |
0.08 |
-0.04 |
Brigitta KippakChairman of The Management Board,
CEObrigitta.kippak@baltikagroup.com
- Baltika_Interim_Report_3Q 2022
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