Baltika’s Unaudited Financial Results, Second Quarter and 6 Months of 2020
Baltika Group ended the second quarter with a net profit of 3,965 thousand euros, which includes operating income in amount of 4,620 thousand euros connected with restructuring of creditors' claims in accordance to the restructuring plan approved on 19 June 2020 and the reversal of the impairment of the right to use the property arising from the lease agreements for the production buildings in the amount of 1,320 thousand euros, which was formed in the end of 2019. The loss for the same period last year was 616 thousand euros. The recurring financial results of the second quarter have been strongly affected by the global COVID-19 pandemic. In the second quarter, COVID-19 had the strongest impact on Baltika Group's operations in Estonia, where stores were opened by a government decision on 11 May, in Lithuania from 25 April and in Latvia until 11 May stores were open part-time and closed during weekends.
The Group's sales revenue for the second quarter was 3,707 thousand euros, decreasing by 65% compared to the same period last year. The E-shop showed a very strong sales result, where the sales revenue in the conditions of the COVID-19 crisis increased by 41% compared to the previous year. The strongest results in the E-shop were made by Monton and Ivo Nikkolo, especially in May, where a number of special campaigns and offers were made, which attracted customers to buy. Retail sales revenue in the second quarter decreased by 68% and sales to business customers decreased by 84%, which is related to the strategic decision to exit this sales channel.
The gross profit for the quarter was 1,822 thousand euros, decreasing by 3,926 thousand euros compared to the same period of the previous year (Q2 2019: 5,748 thousand euros). The company's gross profit margin was 49.2% in the second quarter, which is 5.7 percentage points lower than the margin of the second quarter of the previous year (Q2 2019: 54.9%). The decrease in gross profit is driven by the sharp decrease in sales revenue and the decrease in gross margin is related to the deep discount offers made during COVID-19 crises.
The Group's distribution and administrative expenses in the second quarter were 3,524 thousand euros, decreasing by 40% i.e 2,389 thousand euros compared to the same period last year. Consistent and significant reduction in distribution and administrative expenses is a part of Baltika Group's ongoing restructuring plan, and during the COVID-19 crisis the company has taken radical steps to reduce fixed costs at an accelerated tempo and in proportion with the lost sales.
In the first half of the year, the Group's sales revenue decreased by 50% compared to the same period last year and amounted to 9,844 thousand euros. Retail sales decreased by 52% and sales revenue of business customers by 80%, while sales revenue of the e-store increased by 15%. The Group ended the half-year with a net profit of 1,491 thousand euros, which includes operating income in amount of 4,620 thousand euros connected with restructuring of creditors' claims in accordance to the restructuring plan approved on 19 June 2020 and the reversal of the impairment of the right to use the property arising from the lease agreements for the production buildings in the amount of 1,320 thousand euros, which was formed in the end of 2019. The comparable result of the previous year was a net loss of 2,058 thousand euros. The weak recurring financial results for the first half of the year is related to the global COVID-19 pandemic and the consequent closure of stores for almost two months.
Baltika's distribution and administrative expenses in the first half of the year totalled 8,516 thousand euros, decreasing by 3,024 thousand euros compared to the same period last year. 1,100 thousand euros i.e 36% of the decrease was driven by the decrease of recurring fixed costs of Baltika's head office. One of the goals of the company's restructuring plan announced in March 2019 was to reduce Baltika Group's fixed costs by 2 million euros by the end of 2020. Restructuring activities started in April-May and by the end of 2019 about 50% of the target (900 thousand euros) was achieved and by the end of the first half of 2020 the remaining 50% of the target has been successfully achieved.
Consolidated statement of financial position
| 30 June 2020 | 31 Dec 2019 | |
| ASSETS | ||
| Current assets | ||
| Cash and cash equivalents | 1,400 | 264 |
| Trade and other receivables | 327 | 621 |
| Inventories | 7,253 | 7,644 |
| Assets classified as held for sale | 0 | 28 |
| Total current assets | 8,980 | 8,557 |
| Non-current assets | ||
| Deferred income tax asset | 281 | 281 |
| Other non-current assets | 235 | 222 |
| Property, plant and equipment | 1,429 | 1,683 |
| Right-of-use assets | 11,537 | 16,040 |
| Intangible assets | 549 | 536 |
| Total non-current assets | 14,031 | 18,762 |
| TOTAL ASSETS | 23,011 | 27,319 |
| LIABILITIES AND EQUITY | ||
| Current liabilities | ||
| Borrowings | 31 | 1,731 |
| Lease liabilities | 3,972 | 5,383 |
| Trade and other payables | 6,050 | 4,118 |
| Total current liabilities | 10,053 | 11,232 |
| Non-current liabilities | ||
| Borrowings | 3,448 | 488 |
| Lease liabilities | 8,041 | 12,396 |
| Total non-current liabilities | 11,489 | 12,884 |
| TOTAL LIABILITIES | 21,542 | 24,116 |
| EQUITY | ||
| Share capital at par value | 5,408 | 5,408 |
| Share premium | 0 | 0 |
| Reserves | 820 | 4,045 |
| Retained earnings | -6,250 | -341 |
| Net profit (loss) for the period | 1,491 | -5,909 |
| TOTAL EQUITY | 1,469 | 3,203 |
| TOTAL LIABILITIES AND EQUITY | 23,011 | 27,319 |
Consolidated statement of comprehensive income
| 2Q 2020 | 2Q 2019 | 6m 2020 | 6m 2019 | |
| Revenue | 3,707 | 10,463 | 9,844 | 19,733 |
| Client bonus provision | 0 | 0 | 0 | 0 |
| Revenue after client bonus provision | 3,707 | 10,463 | 9,844 | 19,733 |
| Cost of goods sold | -1,885 | -4,715 | -5,275 | -9,551 |
| Gross profit | 1,822 | 5,748 | 4,569 | 10,182 |
| Distribution costs | -2,806 | -5,026 | -7,006 | -10,055 |
| Administrative and general expenses | -718 | -887 | -1,510 | -1,485 |
| Other operating income (-expense) | 5,841 | -68 | 5,878 | 49 |
| Operating profit (loss) | 4,139 | -233 | 1,931 | -1,309 |
| Finance costs | -174 | -383 | -440 | -749 |
| Profit (loss) before income tax | 3,965 | -616 | 1,491 | -2,058 |
| Income tax expense | 0 | 0 | 0 | 0 |
| Net profit (loss) for the period | 3,965 | -616 | 1,491 | -2,058 |
| Total comprehensive income (loss) for the period | 3,965 | -616 | 1,491 | -2,058 |
| Basic earnings per share from net loss for the period, EUR | 0.07 | -0.03 | 0.03 | -0.07 |
| Diluted earnings per share from net loss for the period, EUR | 0.07 | -0.03 | 0.03 | -0.07 |
Flavio Perini
Member of the Management Board, CEO
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