Market announcement

Title

The sixth report of the reorganization advisor on the fulfillment of the reorganization plan

Message

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  sixth  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 reorganization process has allowed Baltika to continue with business
restructuring. We have closed the majority of unprofitable stores and launched a
new store concept in four locations. We have optimized business processes and
significantly reduced operating costs. The processes related to cost
optimization, efficiency improvement, and profitability enhancement will
continue throughout 2023. The decisions and changes made during the
reorganization process are already having a positive impact on Baltika's
financial results. Baltika confirms its ability to successfully fulfill the
reorganization plan and the commitments made in the plan.

Brigitta Kippak

Chairman of The Management Board, CEO

[email protected] (mailto:[email protected] )


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  sixth 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 31.12.2022 and unaudited accounts as at 30.04.2023.

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.  Baltika has fulfilled this obligation to Swedbank AS. Other creditors in
Group  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 had to begin from the end of 2021. The first payments were made before
the  deadline  or  31 December  2021, the  second  payments were made before the
deadline of 31 December 2022.

Baltika's financial situation

Within  the  first  six  month  after  the  confirmation  of reorganisation plan
Baltika's   financial   situation   has   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 has improved
and  various operating expenses have reduced (incl rent expenses that fall under
several operating expenses, payroll).

The  below  table  contains  the  prognosis  of  2022 profit  and loss statement
presented  in the  reorganisation plan  of Baltika,  actual profit  and loss for
2022, the figures for 4 months from the prognosis (01.01.2023 until 30.04.2023)
and the actual profit and loss statement for four months of 2023.

+-------------------+-------------------+-----------+--------------+-----------+
|                   |Prognosis 12 months|           |              |           |
|                   |2022 in            |Actual  12 |Prognosis   4 |Actual   4 |
|Thousand euros     |reorganisation plan|months 2022|months 2023   |months 2023|
+-------------------+-------------------+-----------+--------------+-----------+
|Revenue            |             19 014|      2 887|         9 618|      1 971|
+-------------------+-------------------+-----------+--------------+-----------+
|Total revenue      |             19 014|      2 887|         9 618|      1 971|
+-------------------+-------------------+-----------+--------------+-----------+
|Cost of goods sold |             13 451|      4 060|         5 359|      1 423|
+-------------------+-------------------+-----------+--------------+-----------+
|Gross profit       |              5 564|     -1 173|         4 259|        548|
+-------------------+-------------------+-----------+--------------+-----------+
|Gross profit margin|                29%|       -41%|           44%|        28%|
+-------------------+-------------------+-----------+--------------+-----------+
|Various   operating|                   |           |              |           |
|expenses           |              2 353|      1 150|           905|        319|
+-------------------+-------------------+-----------+--------------+-----------+
|Payroll            |              2 312|      1 562|           830|        534|
+-------------------+-------------------+-----------+--------------+-----------+
|Depreciation,      |                   |           |              |           |
|amortisation    and|                   |           |              |           |
|impairment         |                187|        140|            73|         39|
+-------------------+-------------------+-----------+--------------+-----------+
|Other     operating|                   |           |              |           |
|expense (-) /income|                   |           |              |           |
|(+)                |                  0|      7 379|             0|          4|
+-------------------+-------------------+-----------+--------------+-----------+
|Operating income (-|                   |           |              |           |
|loss)              |                711|      3 354|         2 450|       -339|
+-------------------+-------------------+-----------+--------------+-----------+

Revenue  for 2022 was 2 887 th. Euro and has declined 53% in comparison to 2021
(2021:  6 113 th.  Euro).  Revenue  was  significantly affected by the following
events:

  * Unpredictable state of war between Russia and Ukraine that had an impact of
    the sales of Baltika from the first weeks of March.
  * 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.
  * During 2022 a total of 12 stores were closed resulting is significant
    decline in revenue compared to 2021. Decline in revenue was compensated by
    opening of four new concept stores and one outlet store.
  * Adjustment of intra-group transfer pricing that resulted in decreasing of AS
    Baltika's revenue by 2 330 th Euro.

Operating  profit  for  2022 was  materially  impacted  by  Baltika's  strategic
decision to sell part of Ivo Nikkolo trademarks and continue using them under an
exclusive licence agreement. As a result of this transaction, Baltika recorded a
one-off  gain of 7 436 th Euro and as a result operating profit for the year was
3 354 th Euro.

Revenue for 01.01.2023 - 30.04.2023 was 1 971 thousand Euro, an increase of 31%
compared  to the same period  last year (01.01.2022 - 30.04.2022: 1 499 thousand
Euro) Increase in revenue was caused by the following:

  * Demand for Ivo Nikkolo products has increased in comparison to previous
    year.  Revenue of retail segment of Baltika grew 7% during the first four
    months of 2023 as compared to the same period previous year.
  * Group's retail segment has been growing organically. As of end of April last
    year Baltika was operating 30 stores, whereas at the end of April this year
    the number of stores was 25. Hence Baltika was able to grow revenue despite
    of decreasing number of stores.

Gross  profit  for  01.01.2023 -  30.04.2023 was  548 th. Euro, and gross profit
margin  28%. Gross profit  for the  comparable period  of the  previous year was
290 th. Euro  and gross profit  margin 19%. Gross profit  margin has improved by
nine  percentage points. Comparable period saw  a significant increase in prices
of  raw materials and cost of transportation. In addition, during the comparable
period  US dollar was  strong in relation  to Euro, which  caused a considerable
increase  in the cost of goods and  their procurement. By the end of 2022 prices
of  raw  materials  and  transportations  started  to  decline and US Dollar was
weakening  against  Euro.  As  a  result,  Baltika  was able to procure goods on
considerably more favourable terms as compared to same period last year.

Operating loss for 01.01.2023 - 30.04.2023 was 339 thousand Euro. Operating loss
for  the comparable period the previous  year was 774 thousand Euro. Baltika has
decreased  its operating loss by 56%. Reduction of  loss is a result of material
increase  in  revenue,  improved  gross  margin,  and  continuous  reduction  of
expenses.

The prognosis vs actual cumulative profit and loss for 40 months from 1 January
2020 to 30 April 2023 is presented in the table below.

+--------------------------+---------------------------+-----------------------+
|                          |Prognosis in reorganisation|                       |
|                          |                   plan for|   Actual for 40 months|
|Thousand euros            |  40 months till 30.04.2023|        till 30.04.2023|
+--------------------------+---------------------------+-----------------------+
|Revenue                   |                     48 849|                 20 861|
+--------------------------+---------------------------+-----------------------+
|Total revenue             |                     48 849|                 20 861|
+--------------------------+---------------------------+-----------------------+
|Cost of goods sold        |                     36 955|                 19 463|
+--------------------------+---------------------------+-----------------------+
|Gross profit              |                     11 894|                  1 398|
+--------------------------+---------------------------+-----------------------+
|Gross profit margin       |                        24%|                     7%|
+--------------------------+---------------------------+-----------------------+
|Various operating expenses|                      7 629|                  5 248|
+--------------------------+---------------------------+-----------------------+
|Payroll                   |                      8 112|                  6 700|
+--------------------------+---------------------------+-----------------------+
|Depreciation, amortisation|                           |                       |
|and impairment            |                        487|                    317|
+--------------------------+---------------------------+-----------------------+
|Other operating expense (-|                           |                       |
|) /income (+)             |                      3 776|                 11 241|
+--------------------------+---------------------------+-----------------------+
|Operating income (-loss)  |                       -558|                    374|
+--------------------------+---------------------------+-----------------------+

While  observing  the  actual  profit  and  loss  for  40 months  (01.01.2020 to
30.04.2023), into  which period fall the impact of reorganisation of claims, the
impact  of closure of  stores due to  Covid-19, lower number of  visitors due to
high  number of  Covid cases  within population,  and the   impact of the war in
Ukraine,  as  well  as  decline  in  demand  caused  by rising energy prices and
inflation,  one can see  that cumulatively both  actual revenue and gross profit
are  lower than  in prognosis  made while  compiling reorganisation plan. At the
same  time actual various operating expenses and payroll expenses are lower than
in  prognosis.  Due  to  the  one-off  gain  of  7 436 th  Euro from the sale of
trademarks,  cumulative operating  profit of  Baltika is  374 th Euro,  and this
result  is  significantly  better  that  in  the  prognosis made while compiling
reorganisation plan.

Baltika's shareholders' equity as of 30 April 2023 is 2 480 thousand Euro.

For  the fulfilment  of the  reorganisation plan  it is important that Baltika's
future  financial results, considering the worsening  of results 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 the forecast
made  by Baltika's management and presented to reorganisation advisor, Baltika's
projected 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 40 as at 30.04.2023.

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, due to which 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.

Tallinn, 16.06.2023.a.

Artur Suits
Reorganisation advisor of Aktsiaselts Baltika