The Group continues strengthening its financial position, which will involve sale of assets not directly required for the core business, negotiations with banks and suppliers and arrangement of an additional share issue.
“Despite the continuing crisis and decline in sales, we succeeded in reducing the loss for the first quarter of 2010 by a half compared with the first quarter of 2009 – from 62.6 million kroons to 32 million kroons,” said Meelis Milder, Chairman of the Management Board of Baltika.”Baltika continues strengthening its financial position, which will involve sale of assets not directly required for the core business, negotiations with banks to restructure the existing loan portfolio, negotiations with suppliers to achieve better settlement terms and price concessions, and increasing share capital through an additional share issue.”
During the first quarter the Group disposed of an industrial property at Ahtme and sold its coat manufacturing operation in Rakvere. In the second quarter the Group plans to sell a manufacturing property in Rakvere. The management board will propose that the annual general meeting increase the company’s share capital by up to ca 9 million shares by a private placement, with the price of 12 kroons per share. Emission is supported by main shareholders.
In order to strengthen its business model, Baltika has involved in the strategic planning process the international strategy consultancy Roland Berger. In partnership with the consultants, the Group will create by the summer a new growth strategy for the next 3 to 5 years that will provide tools for maximising the potential of Baltika’s retail markets and brands and enhancing the efficiency of its business model.
“The Group’s performance in the first quarter of 2010 was still influenced by the economic crisis prevailing in its principal markets. The first markets to exit the crisis are Russia and Estonia that ended the first quarter with sales comparable to a year ago (Russia -5% and Estonia -7%). Lithuania and Latvia are in more difficult position (year-over-year shortfall -29% and -28%), but thanks to the biggest cutback in operating expenses at the level of stores the net result in Latvia was positive. Ukraine reached practically break-even point at the level of stores and Poland reached retail efficiency comparable to a year ago,” added Meelis Milder.
Baltika’s sales for the first quarter were still 20% smaller than a year ago but the shortfall has been decreasing on a quarterly basis (Q3 2009: -33%; Q4 2009: -28%; Q1 2010: -20%) and on a monthly basis (November: -32%; December: -26%; January: -22%; February: -20%; and March: -16%).
Baltika Group’s gross margin for the retail system was 50% (Q1 2009: 41%). “Higher profitability results from a better inventory structure, more favourable purchasing margins, an upward price correction in the Russian and Ukrainian markets and smaller discounts in the Baltic countries and Central Europe,” said Meelis Milder.