THE FOURTH REPORT OF THE REORGANIZATION ADVISOR ON THE FULFILLMENT
OF THE REORGANIZATION PLAN
On 19 June 2020, Harju County Court approved the
reorganization plan of AS Baltika (Baltika). The
restructuring advisor needs to submit a report to the court and the
impacted creditors every six months. The first report was submitted
in December 2020. The fourth report is hereby published to all
investors. The data and numbers in the report refer to Baltika on a
stand-alone basis, not as a Group i.e. the numbers are not
consolidated.
The results of the first four months of 2022
were significantly affected by the war in Ukraine, which
significantly reduced the number of store visits throughout the
Baltics in the first weeks of March. In addition, during the first
quarter, the entire Baltics continued to suffer from high a
COVID-19 morbidity rate and this offered challenges in terms of
day-to-day operations and, of course, store visits.
Due to the reorganization proceedings, Baltika
has been able to take the following successful steps in
implementing its business strategy – closing most of the
unprofitable stores and launching the new store concept in three
locations. Although Baltika’s sales revenue decreased due to the
planned closure of unprofitable stores, this is compensated by the
opening of the new concept stores. Baltika opened new Ivo Nikkolo
concept stores in March and April in the Spice shopping center in
Riga, in the Rotermann Quarter in Tallinn and in the Riga Plaza
shopping center in Riga.
According to the reorganization advisor,
Baltika’s financial position has improved because of the approval
of the reorganization plan and the implementation of reorganization
measures. Baltika’s management and the representative of the
majority shareholder have presented the reorganization advisor a
plan to restore equity without increasing the share capital.
Baltika confirms that it will be able to successfully fulfil the
commitments made in the reorganization plan and restore the
company’s equity.
Brigitta KippakMember of the Management
Boardbrigitta.kippak@baltikagroup.com
THE REPORT OF THE REORGANISATION ADVISOR ON
THE FULFILMENT OF THE REORGANISATION PLAN
Harju County Court confirmed with 19.06.2020
ruling for civil case 2-20-4688 the reorganisation plan of AS
Baltika (hereafter Baltika).
In accordance with § 50 of the Reorganisation
Act, the reorganisation advisor of Baltika hereby presents to the
court and creditors the fourth written report regarding the
fulfilment of the reorganisation plan.
To verify the fulfilment of the reorganisation
plan and evaluate the financial situation, the reorganisation
advisor has used the audited accounts of Baltika as at 31.12.2021
and unaudited accounts as at 30.04.2022.
Fulfilment of the reorganisation
plan
The claims of 30 creditors in the total amount
of 12 206 649.74 euros were transformed based on the
reorganisation plan. Claims were transformed in two groups.
Total financial impact of reduction of claims
based on the reorganisation plan is 5 045 198 euros,
which is recorded under other operating revenue in Baltika’s 2020
profit and loss statement.
Based on the reorganisation plan Baltika had to
pay interest on the claims in Group I and starting from June of
2021 start payments of principal amounts in Group I. Baltika has
fulfilled this obligation to Swedbank AS. Other creditors in Group
I have confirmed to reorganisation advisor that they do not require
Baltika to pay in accordance with the reorganisation plan and agree
to be paid later.
Based on the reorganisation plan payments of
principal amounts of claims in Group II have to begin from the end
of 2021. The company has fulfilled this obligation before
31.12.2021.
Baltika’s financial
situation
Within the first six month after the
confirmation of reorganisation plan Baltika’s financial situation
had been positively influenced by both transformation of the
creditors’ claims and also several substantive changes in Baltika´s
operations, as a result of which compared to the state prior to
reorganisation, the gross profit of Baltika from the sale of
goods had improved and various operating expenses have reduced
(incl rent expenses that fall under several operating expenses,
payroll).
The below table contains the prognosis of 2021
profit and loss statement presented in the reorganisation plan of
Baltika, actual profit and loss for 2021, the figures for 4 months
from the prognosis (01.01.2022 until 30.04.2022) and the actual
profit and loss statement for the four months of 2022.
Thousand euros |
Prognosis 12 months 2021 in reorganisation
plan |
Actual 12 months 2021 |
Prognosis 4 months 2022 |
Actual 4 months 2022 |
Revenue |
17 535 |
6 113 |
8 944 |
1 499 |
Total revenue |
17 535 |
6 113 |
8 944 |
1 499 |
Cost of goods sold |
12 202 |
5 402 |
4 978 |
1 209 |
Gross profit |
5 333 |
711 |
3 966 |
290 |
Gross profit margin |
30% |
12% |
44% |
19% |
Various operating expenses |
2 432 |
1 640 |
845 |
403 |
Payroll |
2 267 |
2 028 |
814 |
616 |
Depreciation, amortisation and impairment |
162 |
56 |
65 |
39 |
Other operating expense (-) /income (+) |
-119 |
111 |
0 |
-7 |
Operating income (-loss) |
591 |
-2 902 |
2 243 |
-774 |
Results of 2021 have been significantly affected
by restrictions caused by Covid-19 pandemic and closure of stores
in Lithuania, Latvia and Estonia. Sharp decline in revenue starting
from December 2020 (stores were completely closed in Latvia and
Lithuania from December of 2020 and in Estonia from March of 2021,
and reopened to visitors in May of 2021 in Lithuania and Estonia
and June of 2021 in Latvia), which was partly compensated by an
increase in revenue from e-channel, meant that during 2021
Baltika’s actual revenue, gross profit and operating profit were
considerably lower than the respective figures presented in the
prognosis in the reorganisation plan.
Revenue, gross profit and operating profit for
the four months of 2022 were significantly affected by the
following events:
- Unpredicted state of war between Russia and Ukraine that had an
impact of the sales of Baltika in the first weeks of March (decline
in number of visitors to stores). The strongest impact was
experienced in the Lithuanian market where visitor numbers began to
decline from the second half of February (local media was covering
the threat of potential war). By the end of March the situation in
the Baltics had stabilised and visitor numbers started to recover
gradually.
- All Baltic countries experienced high rates of COVID-19 cases
in the first quarter of 2022, which impacted negatively on the
visits to stores and also presented challenges to everyday
management of stores’ operations, due to which quality of service
also declined and impacted on sales negatively.
- Decline in revenue resulted from planned closure of loss making
stores:
- In January of 2022 three stores were closed in Estonia:
- Narva Fama
- Pärnu Kaubamajakas
- Tallinn Viru Centre
- In March of 2022 two more stores were closed:
- In Nautica centre in Tallinn
- In Spice trade centre in Riga
- In April of 2022 the outlet store in Tallinn was closed
In Estonia, which is the market with the largest
number of stores, closure of loss making stores is planned to
continue until July of 2022.
Decline in revenue will be compensated by
opening of three new Ivo Nikkole concept stores:
-
- 17.03.2022 in Spice trade centre in Riga
- 28.03.2022 in Rotermann quarter in Tallinn
- 6.4.2022 in Riga Plaza trade centre in Riga
The actual cumulative profit and loss for 28
months from 1 January 2020 to 30 April 2022, the period which
reflects the effect of reorganisation plan and closure of stores
due to COVID-19, shows that cumulatively both actual total revenue
and total operating profit are significantly lower than foreseen on
the reorganisation plan (see table below).
Thousand euros |
Prognosis in reorganisation plan
for 28 months till 30.04.2022 |
Actual for 28 months till 30.04.2022 |
Revenue |
38 779 |
17 503 |
Total revenue |
38 779 |
17 503 |
Cost of goods sold |
28 482 |
15 190 |
Gross profit |
10 297 |
2 313 |
Gross profit margin |
27% |
13% |
Various operating expenses |
6 121 |
4 182 |
Payroll |
6 614 |
5 221 |
Depreciation, amortisation and impairment |
364 |
176 |
Other operating expense (-) /income (+) |
3 776 |
3 851 |
Operating income (-loss) |
974 |
-3 415 |
The comparison between actual profit and loss
for 28 months and prognosis made while compiling reorganisation
plan shows that actual various operating expenses and payroll
expenses are lower than in prognosis. Therefore, the deficit of
operating profit can be explained by lower revenue and gross
profit, which in turn is caused by the circumstances described
above (closed stores, low visitor number due to high rates of Covid
cases, and war in Ukraine).
For the fulfilment of the reorganisation plan it
is important that Baltika’s future financial results, considering
the worsening in 2021 and the first half of 2022, are such that
they allow repayment of creditors’ claims in accordance with the
terms of the reorganisation plan. According to explanations
provided to reorganisation advisor by Baltika’s management,
Baltika’s financial results and cash flows would be sufficient for
that purpose.
The number of Baltika’s employees reduced from
112 as at the end of March 2020 to 58 as at 31.10.2020 and 39 as at
30.04.2022.
Baltika’s shareholders’ equity is € -821
thousand as at 30.04.2022. Baltika’s consolidated equity as per
audited annual financial statements for the year ended 31.12.2021
is also not meeting the requirements of the Commercial Code of
Estonia (as of year-end equity amounts to €312 thousand, according
to the first quarter interim report as of 31.03.2022 equity
decreases to €-1,033 thousand). In the Management Report for
2021 the management states that a detailed plan for restoring
sufficient equity level would be discussed at the next general
meeting of shareholders, which has not yet taken place by the date
of this report.
As at 30.04.2022 Baltika had overdue payables to
suppliers in the amount of €369 thousand, of which €138 thousand
have not been paid as of the date of this report, of the later
amount majority is formed by a supplier invoice disputed due to
quality problems. Baltika’s free cash (unused bank overdraft)
balance as of 30 April 2022 is €738 thousand. Company’s current
receivables amount to €2 494 thousand and current liabilities
to €1 724 thousand. Therefore there are currently no
indications of liquidity problems.
Based on the above, the reorganisation
advisor is of the opinion that as a result of confirming of the
reorganisation plan and implementing the reorganisation measures
Baltika´s financial situation has improved. Baltika has followed in
its operations the reorganisation plan and fulfilled the
reorganisation measures. Due to worsening of financial performance
from the end of 2020, Baltika’s equity as of 30 April 2022 has
become negative, which indicates that uncertainty exists that may
cast doubt upon Baltika’s ability to continue as a going concern.
Baltika’s management and a representative of majority shareholder
have presented reorganisation advisor with a plan that would result
in restoring the equity without a share capital increase, but
reorganisation advisor is not in a position to disclose details of
this plan. Restoring of equity to the level prescribed by the
Commercial Code is thus dependent on realisation of the
aforementioned plan or may alternatively be achieved by decision of
the general meeting of shareholders’ to raise additional share
capital. Assuming one of these alternatives materialises,
fulfilling the reorganisation plan, including paying the creditors’
claims in the period set out in reorganisation plan is still
realistic.
The reorganisation advisor confirms, that he has
forwarded this report in addition to the court also to all the
creditors that are impacted by reorganisation. In Tallinn, on 17
June, 2022
Artur SuitsReorganisation advisor of Aktsiaselts
Baltika
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