Market announcement

Title

The second 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  second  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.

Due to the reorganization proceedings, Baltika has been able to focus and follow
through  with its business turnaround  during the last year  - switching to just
one  brand (Ivo  Nikkolo), optimizing,  and also  heavily reducing all operating
expenses  even further than what was  previously indicated in the reorganization
plan. The new in-store assortment and the new business strategy have also helped
Baltika  survive the  negative impact  of the  second wave  of Covid-19. Baltika
confirms  it will certainly be able  to successfully complete the reorganization
plan  and will manage the  payment of all obligations  according to the plan, if
not  even earlier  than expected  if there  will not  be any additional or other
negative  business scenarios  in particular  due to  Covid-19 further spread all
over Baltics.

Flavio Perini

Member of 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
reorganization plan of AS Baltika (hereafter Baltika).

In accordance with § 50 of the Reorganisation Act, the reorganization advisor of
Baltika  hereby presents  to the  court and  creditors the second written report
regarding the fulfillment of the reorganization plan.

To  verify the fulfillment of the reorganization plan and evaluate the financial
situation,  the reorganization advisor has used  the audited accounts of Baltika
as of 31.12.2020 and unaudited accounts as of 30.04.2021.

Fulfillment of the reorganization plan

The  claims  of  30 creditors  in  the  total amount of 12 206 649.74 euros were
transformed  based on the reorganization plan.  Claims were transformed into two
groups.

The  total financial impact  of reduction of  claims based on the reorganization
plan  is 5 045 198 euros,  which is  recorded under  other operating  revenue in
Baltika's 2020 profit and loss statement.

During the reporting period, Baltika did not have to repay any principal claims.
Such  obligation starts from June 2021 for Group I and the end of 2021 for Group
II.

Baltika  paid in April of 2021 to the creditor of Group I - Swedbank - an amount
of  85 000 euros towards the liability arising from loan agreement 10-078395-JI.
Such  repayment ahead  of schedule  was due  to Baltika's  decision to  sell the
Monton  trademark (Baltika  had previously  decided to  discontinue using it) to
Shenzhen  Maiteng International Apparel Co. Ltd. As the trademark was pledged to
secure  Baltika's liability to Swedbank, the latter agreed to release the pledge
only  on the condition that the proceeds from the sale of the trademark would be
used  towards repayment of  the liability. As  the result of  the release of the
pledge  and sale of the trademark, Baltika's liability to Swedbank has decreased
by 85 000 euros.

Based  on the reorganization plan  Baltika had to pay  interest on the claims in
Group I. Baltika has fulfilled this obligation.

Baltika's financial situation

Within  the first six  months after the  confirmation of the reorganization 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 the
reorganization,  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).

Results   of  the  first  half  of  2021 are  being  significantly  affected  by
restrictions  caused  by  the  Covid-19 pandemic  and  the  closure of stores in
Lithuania,  Latvia,  and  Estonia.  The  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
the  period  of  December  2020 to  April  2021 Baltika's  actual revenue, gross
profit, and operating profit were considerably lower than the respective figures
presented in the prognosis in the reorganization plan.

The  below  table  contains  the  prognosis  of  2020 profit  and loss statement
presented  in the  reorganization plan  of Baltika,  actual profit  and loss for
2020, the   figures   for   4 months   from   the  prognosis  (01.01.2021  until
30.04.2021), and the actual profit and loss statement for four months.

+-------------------+-------------------+-----------+--------------+-----------+
|                   |Prognosis 12 months|           |              |           |
|                   |2020 in         the|Actual  12 |Prognosis   4 |Actual   4 |
|Thousand euros     |reorganization plan|months 2020|months 2021   |months 2021|
+-------------------+-------------------+-----------+--------------+-----------+
|Revenue            |12 300             |9 891      |8 248         |2 286      |
+-------------------+-------------------+-----------+--------------+-----------+
|Total revenue      |12 300             |9  891     |8 248         |2 286      |
+-------------------+-------------------+-----------+--------------+-----------+
|Cost of goods sold |11 302             |8 578      |4 516         |1 656      |
+-------------------+-------------------+-----------+--------------+-----------+
|Gross profit       |998                |1 313      |3 732         |630        |
+-------------------+-------------------+-----------+--------------+-----------+
|Gross profit margin|8.1%               |13,3%      |45,2%         |27,55%     |
+-------------------+-------------------+-----------+--------------+-----------+
|Various   operating|                   |           |              |           |
|expenses           |2 844              |2 140      |873           |506        |
+-------------------+-------------------+-----------+--------------+-----------+
|Payroll            |3 533              |2 576      |798           |899        |
+-------------------+-------------------+-----------+--------------+-----------+
|Depreciation,      |                   |           |              |           |
|amortization,   and|                   |           |              |           |
|impairment         |137                |82         |56            |34         |
+-------------------+-------------------+-----------+--------------+-----------+
|Other     operating|                   |           |              |           |
|expense (-) /income|                   |           |              |           |
|(+)                |3 895              |3 747      |119           |84         |
+-------------------+-------------------+-----------+--------------+-----------+
|Operating income (-|                   |           |              |           |
|loss)              |-1 622             |262        |2 124         |-725       |
+-------------------+-------------------+-----------+--------------+-----------+

A  comparison shows that the actual operating profit of Baltika for 2020 was far
better  than the prognosis made when  compiling the reorganization plan, but the
actual  operating profit for the first four months of 2021 is considerably worse
than  the prognosis made when compiling  the reorganization plan. Looking at the
combined  profit  and  loss  for  16 months  or  the  period  from 01.01.2020 to
30.04.2021, which reflects both the impact of the measures of the reorganization
plan  and the impact of the  closure of stores due to  the second wave of Covid-
19, one  can see that  cumulatively both combined  figures of actual revenue and
operating  profit are lower than those  of prognosis in reorganization plan (see
table below).

+--------------------------+---------------------------+-----------------------+
|                          |Prognosis in reorganization|                       |
|                          |                   plan for|   Actual for 16 months|
|Thousand euros            |  16 months till 30.04.2021|        till 30.04.2021|
+--------------------------+---------------------------+-----------------------+
|Revenue                   |                     20 548|                 12 177|
+--------------------------+---------------------------+-----------------------+
|Total revenue             |                     20 548|                 12 177|
+--------------------------+---------------------------+-----------------------+
|Cost of goods sold        |                     15 818|                 10 234|
+--------------------------+---------------------------+-----------------------+
|Gross profit              |                      4 730|                  1 943|
+--------------------------+---------------------------+-----------------------+
|Gross profit margin       |                        23%|                    16%|
+--------------------------+---------------------------+-----------------------+
|Various operating expenses|                      3 718|                  2 646|
+--------------------------+---------------------------+-----------------------+
|Payroll                   |                      4 331|                  3 475|
+--------------------------+---------------------------+-----------------------+
|Depreciation, amortization|                           |                       |
|and impairment            |                        193|                    116|
+--------------------------+---------------------------+-----------------------+
|Other operating expense (-|                           |                       |
|) /income (+)             |                      4 014|                  3 831|
+--------------------------+---------------------------+-----------------------+
|Operating income (-loss)  |                        502|                   -463|
+--------------------------+---------------------------+-----------------------+

The  comparison between actual profit and  loss for 16 months and prognosis made
while compiling reorganization plan shows that actual various operating expenses
and  payroll expenses  are lower  than in  prognosis. Therefore,  the deficit of
operating  profit can be fully explained by lower gross profit, which in turn is
caused by the circumstances of the first four months of 2021 (closed stores).

For  the fulfillment of the reorganization  plan, it is important that Baltika's
future  financial results, considering the temporary worsening in the first half
of  2021, are such that they allow  repayment of creditors' claims in accordance
with  the terms of  the reorganization plan.  According to the  forecast made by
Baltika's  management  for  2021 (presented  to  reorganization  advisor in June
2021), and  assuming normalization of retail activities from the summer of 2021
onwards, 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 of 31.10.2020 and 53 as of 30.04.2021.

Baltika's shareholders' equity is EUR 1 883 thousand as of 30.04.2021.

As  of 30.04.2021 Baltika basically  has no overdue  payables (as of 30.04.2021
Baltika  had  255 euros  worth  of  overdue  liabilities  which were paid at the
beginning  of May. In addition, Baltika had an unrecognized liability of 15 914
GBP, which it had disputed, but settled in May following an agreement).

Based  on the  above, the  reorganization advisor  is of  the opinion  that as a
result of confirming the reorganization plan and implementing the reorganization
measures Baltika´s financial situation has improved. Baltika has followed in its
operations  the reorganization plan, due  to which fulfilling the reorganization
plan,  including  paying  the  creditors'  claims  in  the period set out in the
reorganization plan is still realistic.

The  reorganization  advisor  confirms,  that  he  has  forwarded this report in
addition  to  the  court  also  to  all  the  creditors  that  are  impacted  by
reorganization.

Tallinn, 14.06.2021.a.

Artur Suits
Reorganisation advisor of Aktsiaselts Baltika