FINANCIAL HIGHLIGHTS, Q1 2009 - Revenue 221 million kroons (-16.9% yoy) - Retail sales 194 million kroons (-14.2% yoy) - Gross margin 42.9% - Operating loss 55.1 million kroons - Net loss 62.6 million kroons - Sales area 13% growth yoy In the first quarter of 2009, the Group's revenues totalled 221.0 million kroons (14.1 million euros), a 16.9% decrease compared with a year ago. First quarter retail revenue declined by 14.2%. At constant exchange rates, retail revenue contracted by 5.5%. The period's gross margin was 42.9%. In Q1 2009, Baltika Group earned operating loss of 55.1 million kroons (3.5 million euros) and net loss of 62.6 million kroons (4.0 million euros). The Group opened five stores, increasing its sales area by 13% yoy. REVENUE Revenue by business segment -------------------------------------------------------------------------------- | EEK million | Q1 2009 | Q1 2008 | +/- | -------------------------------------------------------------------------------- | Retail | 193.5 | 225.5 | -14.2% | -------------------------------------------------------------------------------- | Wholesale | 27.3 | 40.1 | -32.0% | -------------------------------------------------------------------------------- | Other | 0.2 | 0.5 | -52.2% | -------------------------------------------------------------------------------- | Total | 221.0 | 266.1 | -16.9% | -------------------------------------------------------------------------------- EUR 1 = EEK 15.6466 RETAIL Owing to the overall economic downturn and a decline in consumer spending, Baltika's first quarter retail revenue decreased by 14.2% to 193.5 million kroons (12.4 million euros) compared with a year ago. Sales were further undermined by the weakening of the Ukrainian, Russian, Polish and Czech currencies against the Estonian kroon. At constant exchange rates, retail revenue contracted by 5.5%. Comparable store revenue shrank by 18% compared with a year ago. The Baltic and Eastern and Central European markets followed opposite trends. Leaving aside the opening of new stores, comparable store revenues in all the Baltic countries slumped equally. Baltika's Eastern and Central European markets, on the other hand, posted growth figures - in local currencies the Ukrainian, Russian and Polish revenues for the first quarter grew by 20%, 9% and 16% respectively. Retail sales by market -------------------------------------------------------------------------------- | EEK million | Q1 2009 | Q1 2008 | +/- | Percentage, Q1 | | | | | | 2009 | -------------------------------------------------------------------------------- | Lithuania | 46.6 | 52.3 | -11% | 24% | -------------------------------------------------------------------------------- | Estonia | 41.5 | 51.8 | -20% | 21% | -------------------------------------------------------------------------------- | Russia | 36.7 | 40.9 | -10% | 19% | -------------------------------------------------------------------------------- | Ukraine | 32.2 | 37.5 | -14% | 17% | -------------------------------------------------------------------------------- | Latvia | 25.7 | 33.2 | -23% | 13% | -------------------------------------------------------------------------------- | Poland | 7.1 | 7.7 | -8% | 4% | -------------------------------------------------------------------------------- | Czech Republic | 3.7 | 2.1 | 76% | 2% | -------------------------------------------------------------------------------- | Total | 193.5 | 225.5 | -14% | 100% | -------------------------------------------------------------------------------- EUR 1 = EEK 15.6466 In terms of brands, the largest contributor is Monton that accounted for 54% of the Group's retail sales for the first quarter of 2009. The sales of Monton amounted to 105 million kroons (6.7 million euros), 16% down on the prior year. Retail sales of Mosaic decreased by 11% yoy to 67 million kroons (4.3 million euros) contributing 35% to the Group's retail revenue. Retail sales of Baltman declined by 31% yoy to 13 million kroons (0.8 million euros). Only the sales of the Ivo Nikkolo brand expanded (+31% yoy) in the first quarter and totalled 9 million kroons (0.6 million euros). STORES AND SALES AREA At the end of March 2009 the Group had 133 stores with a total sales area of 27,042 square metres. Compared with March 2008, the net growth of the retail system was nine stores and ca 3,000 square metres as a result of which the sales area operated by the Group increased by 13% yoy. Stores by market -------------------------------------------------------------------------------- | | 31.03.2009 | 31.03.2008 | -------------------------------------------------------------------------------- | Lithuania | 33 | 29 | -------------------------------------------------------------------------------- | Estonia | 31 | 29 | -------------------------------------------------------------------------------- | Russia | 23 | 21 | -------------------------------------------------------------------------------- | Ukraine | 22 | 22 | -------------------------------------------------------------------------------- | Latvia | 16 | 16 | -------------------------------------------------------------------------------- | Poland | 6 | 5 | -------------------------------------------------------------------------------- | Czech Republic | 2 | 2 | -------------------------------------------------------------------------------- | Total stores | 133 | 124 | -------------------------------------------------------------------------------- | Total sales area, sqm | 27,042 | 23,964 | -------------------------------------------------------------------------------- In the first quarter, Baltika opened five stores - three in Lithuania and two in Estonia - and closed six - three in Lithuania, two in Ukraine and one in Estonia. The main reason for the closures was the transfer of the store to a new location in the same city. According to plan, in the second quarter ten stores will be launched, most of them in Tallinn, Estonia, because Baltika will open all four of its brand stores both in the Rocca al Mare shopping centre and the office and business centre in the Baltika Quarter, which will soon be completed. According to an agreement, in the second quarter Baltika will take over the operation of seven stores belonging to its Russian wholesale partner in the Ural region. The stores are located in Ekaterinburg, Ufa, Perm and Tjumen in Russia. The takeover is aligned with the Group's strategic decisions to mitigate the risks arising from reliance on a wholesale partner and to expand retail operations to the Siberia-Ural region in Russia. By the end of the first half-year, the retail area operated by Baltika Group will grow to approximately 30,000 square metres. WHOLESALE First quarter wholesale revenues totalled 27.3 million kroons (1.7 million euros), a 32.0% decrease compared with a year ago. However, the cooperation contract signed in 2008 with one of the leading European department store chains Peek&Cloppenburg has got off to a good start. The Mosaic collection has been well received by the customers - new orders have been placed for the autumn-winter season and the number of department stores offering the Mosaic collection will be increased from 13 to 17. In connection with the takeover of stores from the Russian wholesale partner and the reclassification of the business involved from wholesaling to retailing, the wholesale revenue forecast for 2009 has been lowered to 70-80 million kroons (4.5-5.1 million euros). The initial forecast was 90-100 million kroons (5.8-6.4 million euros). EARNINGS AND MARGINS The Group's performance in 2009 has been strongly influenced by the economic recession and the devaluation of currencies. The first quarter is typically characterized by the seasonal discounts offered in January and February. Due to a deep sales slump and higher than anticipated inventory levels, the discounts provided in the first quarter of 2009 were larger than usual and extended over a longer period. This had a marked impact on profitability - the gross margin for the first quarter dropped to 42.9% (Q1 2008: 52.0%) and gross profit for the period decreased by 31.4% to 94.9 million kroons (6.1 million euros) compared with a year ago. Another reason for more aggressive discounting was the need to generate liquidity for financing purchases for the new season. In addition, margins were adversely impacted by the devaluation of currencies that began in November 2008. According to the exchange rates quoted by the Bank of Estonia, compared with a year ago the average exchange rates for the first quarter weakened as follows: the Ukrainian hryvnia 28.7%, the Polish zloty 20.2%, the Russian rouble 18.0% and the Czech koruna 7.4%. In the first half-year, Baltika will focus on reducing inventories and adjusting operating expenses to the lower revenue levels. The Group has launched a programme for cutting operating and management expenses and streamlining all processes. The savings and rightsizing measures described below should yield benefits in the second half of the year. In order to reduce personnel expenses, the Group has laid off 25 people from the head office and 40 retail staff across the markets. Effective from 1 April, the salaries of all managers and office personnel were reduced by 10%. The logistics centre has been transferred to shorter work time. At production units, work will be reorganised, production lines will be readjusted and the basis for remuneration will be changed. The number of staff will be reduced in line with shrinkage in production volumes. By the end of the first quarter, the Group had laid off approximately 100 production staff. According to plan, by the end of the year one factory will be closed and all production operations in Tallinn, Estonia, will be transferred to a single factory. The target is to reduce labour costs in manufacturing by 20%. In cutting the costs of the retail system, it is essential to reduce store operating expenses including rental costs. In this area, some success has already been achieved - in the first quarter the average store operating expenses per square metre decreased by 15% compared with a year ago. This was achieved by changing the basis of employee remuneration and improving work efficiency. The Group is continuing negotiations with shopping centres regarding its leases; the target is to reduce rental costs by up to 20%. Additionally, some inefficient stores in the retail system will be closed. Thanks to decisive cost-cutting, administrative and general expenses for the first quarter decreased by 11.9% compared with a year ago and distribution costs declined 4.3% despite growth in the sales area. Baltika ended the first quarter of 2009 with an operating loss of 55.1 million kroons (3.5 million euros). For comparison, operating loss for the first quarter of 2008 amounted to 7.3 million kroons (0.5 million euros). In the first quarter of 2008, the Group also benefited from gain on the revaluation of investment property of 11.25 million kroons (0.7 million euros), which was recognised in other operating income. In 2009, there has been no similar income. Financial expenses for the first quarter grew by 93.0% to 7.3 million kroons (0.5 million euros), mainly on account of an increase in foreign exchange losses. The growth in borrowings expanded interest expenses by 26.2% compared with a year ago. The consolidated net loss for the first three months of 2009 (after tax and minority interest) amounted to 62.6 million kroons (4.0 million euros). The loss for the first quarter of 2008 amounted to 11.0 million kroons (0.7 million euros). BALANCE SHEET At 31 March 2009, Baltika's consolidated assets amounted to 784 million kroons (50.1 million euros), remaining at the same level as at the end of 2008. Trade and other receivables decreased by 5 million kroons (0.3 million euros) compared with the end of 2008, amounting to 93 million kroons (6.0 million euros) at 31 March. Trade and other payables grew within the same period by 22 million kroons (1.4 million euros) to 230 million kroons (14.7 million euros). At the end of March, inventories totalled 277 million kroons (17.7 million euros), 4% down from the end of 2008. At the end of the first quarter, the Group's borrowings totalled 322 million kroons (20.6 million euros), comprising bank loans of 313 million kroons (20.0 million euros) and finance lease liabilities of 9 million kroons (0.6 million euros). Compared with the end of the previous financial year, the debt burden has grown by 49 million kroons (3.2 million euros). The rise is largely attributable to the construction of a new office building, which is being financed solely with a bank loan. At the end of March, borrowings related to the construction of the office building amounted to 94 million kroons (6.0 million euros). The new office building will be completed on schedule by the end of May 2009. The construction loan has increased the Group's net debt (interest-bearing liabilities less cash and bank balances) to equity ratio to 137.8%. At the end of 2008 the corresponding figure was 88.2%. INVESTMENT The Group's investments for the first quarter of 2009 totalled 37.0 million kroons/2.4 million euros (Q1 2008: 22.3 million kroons/1.4 million euros). Investments in real estate development (phase I of the Baltika Quarter) amounted to 31.3 million kroons (2.0 million euros), in the retail business 4.2 million kroons (0.3 million euros) and in other activities 1.5 million kroons (0.1 million euros). PEOPLE At the end of March 2009, Baltika Group employed 1,902 (31 March 2008: 1,951) people including 939 (967) in the retail business, 758 (763) in production operations and 205 (221) in the head office. The number of people employed outside Estonia was 756 (781), i.e., 40% of all employees. The three months' average number of employees was 1,938 (Q1 2008: 1,956). The Group's employee remuneration expenses for the first quarter of 2009 totalled 53.4 million kroons/3.4 million euros (Q1 2008: 56.1 million kroons/3.6 million euros). Payments made to members of the supervisory council and management board totalled 1.05 million kroons/67 thousand euros (Q1 2008: 1.16 million kroons/74 thousand euros). KEY FIGURES OF THE GROUP (Q1 2009) -------------------------------------------------------------------------------- | | 31.03.2009 | 31.03.2008 | +/- | -------------------------------------------------------------------------------- | Revenue (EEK million) | 221.0 | 266.1 | -16.9% | -------------------------------------------------------------------------------- | Retail sales (EEK million) | 193.5 | 225.5 | -14.2% | -------------------------------------------------------------------------------- | Share of retail sales in revenue | 88% | 85% | | -------------------------------------------------------------------------------- | Number of stores | 133 | 124 | 7.3% | -------------------------------------------------------------------------------- | Sales area (sqm) | 27,042 | 23,964 | 12.8% | -------------------------------------------------------------------------------- | Number of employees (end of | 1,902 | 1,951 | -2.5% | | period) | | | | -------------------------------------------------------------------------------- | Gross margin | 42.9% | 52.0% | | -------------------------------------------------------------------------------- | Operating margin | -24.9% | -2.7% | | -------------------------------------------------------------------------------- | EBT margin | -28.2% | -4.2% | | -------------------------------------------------------------------------------- | Net margin | -28.3% | -4.1% | | -------------------------------------------------------------------------------- | Current ratio | 1.1 | 1.7 | -35.3% | -------------------------------------------------------------------------------- | Inventory turnover | 4.48 | 5.18 | -13.5% | -------------------------------------------------------------------------------- | Debt to equity ratio | 140.4% | 60.9% | | -------------------------------------------------------------------------------- | Return on equity | -28.1% | 1.8% | | -------------------------------------------------------------------------------- | Return on assets | -11.7% | 0.9% | | -------------------------------------------------------------------------------- EUR 1 = EEK 15.6466 Definitions of key ratios Gross margin = (Revenue-Cost of goods sold)/Revenue Operating margin = Operating profit/Revenue EBT margin = Profit before income tax/Revenue Net margin = Net profit (attributable to parent)/Revenue Current ratio = Current assets/Current liabilities Inventory turnover = Revenue/Average inventories* Debt to equity ratio = Interest-bearing liabilities/Equity Return on equity (ROE) = Net profit (attributable to parent)/Average equity* Return on assets (ROA) = Net profit (attributable to parent)/Average total assets* *Based on 12-month average CONSOLIDATED INCOME STATEMENT (unaudited, in EEK thousand) -------------------------------------------------------------------------------- | | Q1 2009 | Q1 2008 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Revenue | 221,017 | 266,056 | -------------------------------------------------------------------------------- | Cost of goods sold | -126,091 | -127,630 | -------------------------------------------------------------------------------- | Gross profit | 94,926 | 138,426 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Distribution costs | -131,382 | -137,315 | -------------------------------------------------------------------------------- | Administrative and general expenses | -11,334 | -12,862 | -------------------------------------------------------------------------------- | Other operating income | 11 | 12,032 | -------------------------------------------------------------------------------- | Other operating expenses | -7,319 | -7,554 | -------------------------------------------------------------------------------- | Operating profit (loss) | -55,098 | -7,273 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Financial income (expenses) | -7,293 | -3,778 | -------------------------------------------------------------------------------- | Interest expenses, net | -3,122 | -2,474 | -------------------------------------------------------------------------------- | Foreign exchange losses, net | -4,166 | -1,593 | -------------------------------------------------------------------------------- | Other financial income (expenses), | -5 | 289 | | net | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Profit (loss) before income tax | -62,391 | -11,051 | -------------------------------------------------------------------------------- | Income tax | -151 | -443 | -------------------------------------------------------------------------------- | Net profit (loss) | -62,542 | -11,494 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Net profit (loss) attributable to | -62,563 | -11,023 | | equity holders of the parent company | | | -------------------------------------------------------------------------------- | Net profit (loss) attributable to | 21 | -471 | | minority shareholders | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Basic earnings per share, EEK | -3.36 | -0.59 | -------------------------------------------------------------------------------- | Diluted earnings per share, EEK | -3.36 | -0.59 | -------------------------------------------------------------------------------- CONSOLIDATED INCOME STATEMENT (unaudited, in EUR thousand) -------------------------------------------------------------------------------- | | Q1 2009 | Q1 2008 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Revenue | 14,126 | 17,004 | -------------------------------------------------------------------------------- | Cost of goods sold | -8,059 | -8,157 | -------------------------------------------------------------------------------- | Gross profit | 6,067 | 8,847 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Distribution costs | -8,397 | -8,776 | -------------------------------------------------------------------------------- | Administrative and general expenses | -724 | -822 | -------------------------------------------------------------------------------- | Other operating income | 1 | 769 | -------------------------------------------------------------------------------- | Other operating expenses | -468 | -483 | -------------------------------------------------------------------------------- | Operating profit (loss) | -3,521 | -465 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Financial income (expenses) | -466 | -241 | -------------------------------------------------------------------------------- | Interest expenses, net | -200 | -158 | -------------------------------------------------------------------------------- | Foreign exchange losses, net | -266 | -102 | -------------------------------------------------------------------------------- | Other financial income (expenses), | 0 | 18 | | net | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Profit (loss) before income tax | -3,988 | -706 | -------------------------------------------------------------------------------- | Income tax | -10 | -28 | -------------------------------------------------------------------------------- | Net profit (loss) | -3,997 | -735 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Net profit (loss) attributable to | -3,999 | -704 | | equity holders of the parent company | | | -------------------------------------------------------------------------------- | Net profit (loss) attributable to | 1 | -30 | | minority shareholders | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Basic earnings per share, EUR | -0.21 | -0.04 | -------------------------------------------------------------------------------- | Diluted earnings per share, EUR | -0.21 | -0.04 | -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEET (unaudited, in EEK thousand) -------------------------------------------------------------------------------- | | 31.03.2009 | 31.12.2008 | -------------------------------------------------------------------------------- | ASSETS | | | -------------------------------------------------------------------------------- | Current assets | | | -------------------------------------------------------------------------------- | Cash and bank | 5,910 | 8,671 | -------------------------------------------------------------------------------- | Trade and other receivables | 93,266 | 98,369 | -------------------------------------------------------------------------------- | Inventories | 277,002 | 288,431 | -------------------------------------------------------------------------------- | Total current assets | 376,178 | 395,471 | -------------------------------------------------------------------------------- | Non-current assets | | | -------------------------------------------------------------------------------- | Deferred income tax asset | 5,547 | 5,547 | -------------------------------------------------------------------------------- | Other non-current assets | 8,460 | 6,103 | -------------------------------------------------------------------------------- | Investment property | 165,353 | 134,098 | -------------------------------------------------------------------------------- | Property, plant and equipment | 169,636 | 180,580 | -------------------------------------------------------------------------------- | Intangible assets | 58,586 | 59,604 | -------------------------------------------------------------------------------- | Total non-current assets | 407,582 | 385,932 | -------------------------------------------------------------------------------- | TOTAL ASSETS | 783,760 | 781,403 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | EQUITY AND LIABILITIES | | | -------------------------------------------------------------------------------- | Current liabilities | | | -------------------------------------------------------------------------------- | Borrowings | 119,819 | 103,967 | -------------------------------------------------------------------------------- | Trade and other payables | 230,263 | 207,946 | -------------------------------------------------------------------------------- | Total current liabilities | 350,082 | 311,913 | -------------------------------------------------------------------------------- | Non-current liabilities | | | -------------------------------------------------------------------------------- | Borrowings | 201,959 | 168,388 | -------------------------------------------------------------------------------- | Other liabilities | 304 | 0 | -------------------------------------------------------------------------------- | Deferred income tax liability | 2,196 | 2,196 | -------------------------------------------------------------------------------- | Total non-current liabilities | 204,459 | 170,584 | -------------------------------------------------------------------------------- | TOTAL LIABILITIES | 554,541 | 482,497 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | EQUITY | | | -------------------------------------------------------------------------------- | Share capital at par value | 186,449 | 186,449 | -------------------------------------------------------------------------------- | Reserves | 26,133 | 26,133 | -------------------------------------------------------------------------------- | Retained earnings | 89,953 | 108,722 | -------------------------------------------------------------------------------- | Net profit (loss) for the period | -62,563 | -18,947 | -------------------------------------------------------------------------------- | Currency translation differences | -13,277 | -7,165 | -------------------------------------------------------------------------------- | Total equity attributable to equity holders | 226,695 | 295,192 | | of the parent company | | | -------------------------------------------------------------------------------- | Minority interest | 2,524 | 3,714 | -------------------------------------------------------------------------------- | TOTAL EQUITY | 229,219 | 298,906 | -------------------------------------------------------------------------------- | TOTAL LIABILITIES AND EQUITY | 783,760 | 781,403 | -------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEET (unaudited, in EUR thousand) -------------------------------------------------------------------------------- | | 31.03.2009 | 31.12.2008 | -------------------------------------------------------------------------------- | ASSETS | | | -------------------------------------------------------------------------------- | Current assets | | | -------------------------------------------------------------------------------- | Cash and bank | 378 | 554 | -------------------------------------------------------------------------------- | Trade and other receivables | 5,961 | 6,287 | -------------------------------------------------------------------------------- | Inventories | 17,704 | 18,434 | -------------------------------------------------------------------------------- | Total current assets | 24,042 | 25,275 | -------------------------------------------------------------------------------- | Non-current assets | | | -------------------------------------------------------------------------------- | Deferred income tax asset | 355 | 355 | -------------------------------------------------------------------------------- | Other non-current assets | 541 | 390 | -------------------------------------------------------------------------------- | Investment property | 10,568 | 8,570 | -------------------------------------------------------------------------------- | Property, plant and equipment | 10,842 | 11,541 | -------------------------------------------------------------------------------- | Intangible assets | 3,744 | 3,809 | -------------------------------------------------------------------------------- | Total non-current assets | 26,049 | 24,666 | -------------------------------------------------------------------------------- | TOTAL ASSETS | 50,091 | 49,941 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | EQUITY AND LIABILITIES | | | -------------------------------------------------------------------------------- | Current liabilities | | | -------------------------------------------------------------------------------- | Borrowings | 7,658 | 6,645 | -------------------------------------------------------------------------------- | Trade and other payables | 14,716 | 13,290 | -------------------------------------------------------------------------------- | Total current liabilities | 22,374 | 19,935 | -------------------------------------------------------------------------------- | Non-current liabilities | | | -------------------------------------------------------------------------------- | Borrowings | 12,908 | 10,762 | -------------------------------------------------------------------------------- | Other liabilities | 19 | 0 | -------------------------------------------------------------------------------- | Deferred income tax liability | 140 | 140 | -------------------------------------------------------------------------------- | Total non-current liabilities | 13,067 | 10,902 | -------------------------------------------------------------------------------- | TOTAL LIABILITIES | 35,442 | 30,837 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | EQUITY | | | -------------------------------------------------------------------------------- | Share capital at par value | 11,916 | 11,916 | -------------------------------------------------------------------------------- | Reserves | 1,670 | 1,670 | -------------------------------------------------------------------------------- | Retained earnings | 5,749 | 6,949 | -------------------------------------------------------------------------------- | Net profit (loss) for the period | -3,999 | -1,211 | -------------------------------------------------------------------------------- | Currency translation differences | -849 | -458 | -------------------------------------------------------------------------------- | Total equity attributable to equity holders | 14,488 | 18,866 | | of the parent company | | | -------------------------------------------------------------------------------- | Minority interest | 161 | 237 | -------------------------------------------------------------------------------- | TOTAL EQUITY | 14,650 | 19,104 | -------------------------------------------------------------------------------- | TOTAL LIABILITIES AND EQUITY | 50,091 | 49,941 | -------------------------------------------------------------------------------- Ülle Järv CFO, Member of the Management Board +372 630 2741