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Information about sale of Russian subsidiaries and the related write-offs as at 31.12.2015

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Baltika will end operating Russian retail market and will at the same time sell
Russian subsidiaries for approximately 400,000 euros to a partner with whom a
five-year franchise agreement will be signed to continue selling Baltika’s
brands and operating stores in Russian market. 

In 2015 fourth quarter Baltika revalued all the Russian market assets down to
prepare for Baltika's Russian entities sales transaction. At the end of year
2015 Baltika made in total 4,645 thousand euros non-cash write-offs recorded in
profit and loss statement and non-cash profit in other comprehensive income was
2,969 thousand euros. Due to above-mentioned transactions Baltika’s balance and
equity decreased in amount of 1,676 thousand euros. 

Sales transaction

Due to Russian macroeconomic situation and weak rouble rate Baltika has been
working on managing Russian market risks. From the beginning of 2015 Baltika
has decreased share of Russian retail system as planned, by closing
non-profitable stores and by decreasing market general costs. While at the
beginning of the last year Baltika had 15 retail shops in Russian market, then
as of today the number of shops have been decreased to 8. 

Reorganized retail system in Russia and positive Ukraine franchise operating
experience enables Baltika to broaden cooperating with Ukrainian line partner
and use the same model in Russia. On 22 February 2016 Baltika signed an
agreement with Ellipse Group to sell 100% of shares of Russia’s retail
operating company OOO Olivia that owns subsidiaries OOO Stelsing and OOO Plazma
(hereinafter RU). 

RU entities operate retail stores that represent Baltika’s brands Monton and
Mosaic in Russia (6 stores in St. Petersburg, 1 in Kazan and 1 in Kaliningrad). 

Ellipse Group is the company that bought Ukrainian retail system, the owner of
the company is Boriss Loifenfeld. 

Sales price and the payment schedule

Ellipse Group will buy 100% of Baltika RU companies. The price received for the
RU entities is approximately 400 000 euros and it is structured as follows:
entities shares sales price is 115 euros and in addition about 400 thousand
euros receivable will remain from RU entities. Amount will be specified on 1
March 2016 according to the amount of inventories and other current assets;
payment schedule is agreed for 5 years, but it will depend on RU entities
financial results. 

Though the receivable is secured with movables pledge on RU assets, its
collectability depends on the development of the Russian economy and
improvements in the entity’s operating results, thus based on conservatism
Baltika will leave allowance reserve on the receivable from sale. 



RU entities financial results, contracts and Board members

RU entities have not taken loans from third parties. Baltika has goods
sale-purchase agreements with OOO Stelsing and OOO Plazma, which will remain
valid under the terms and conditions of franchise agreement signed on 22 of
February. 

In accordance with Nasdaq Tallinn Exchange Rules and Regulations the issuer has
to disclose material (over 10% from sales) subsidiary financial results for
previous three financial years and last two years audited results. Russian
subsidiaries have been audited in line with Group audit and therefore audited
results cannot be disclosed. Therefore, Baltika will disclose RU entities
consolidated unaudited profit and loss statement and statement of financial
position (attached). After the end of last financial year only one change has
occurred when one additional store was closed in line with plans. 

From Group results Baltika RU companies’ retail economic results in last three
years are as followed: 

in thousand euros                                            2013   2014    2015
--------------------------------------------------------------------------------
Revenue                                                     8,917  7,730   4,492
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Net loss                                                     -307   -104    -870
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Write-offs related to sale                                      -      -  -4,645
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Dividend                                                        -      -       -
--------------------------------------------------------------------------------
RU revenue from Baltika Group revenue (with discontinued      15%    14%      8%
 operations)                                                                    
--------------------------------------------------------------------------------

The registered director of OOO Olivia is Larissa Kafka, OOO Stelsing director
is Tatjana Zomareva and in OOO Plazma the registered director is Natalia
Abdrashitova. 

AS Baltika confirms that OOO Olivia, OOO Stelsing and OOO Plazma have no court
or arbitration proceedings which may have a significant effect on the business
activity. 

AS Baltika confirms that the above-mentioned transaction cannot be treated as a
transaction with a related party and the members of the Supervisory and
Management Boards of AS Baltika do not have any other personal interest in the
transaction. 

Signing franchise agreement

Ellipse Group with RU companies will continue to cooperate with Baltika as
franchise partner and on 22 February cooperation agreement was signed for the
next five years. 

Exit from Russian retail market allows to focus entirely on profit making
Baltic retail markets and developing other sales channels (wholesale, franchise
and e-com). 

Impact to Baltika’s profit and loss statement and balance from selling Russian
subsidiaries 

In 2015 fourth quarter Baltika revalued all the Russian market assets down to
prepare for RU companies sales transaction. On Baltika’s consolidated balance,
all the Russian current and non-current assets in the amount of 791 thousand
euros have been revalued down as at 31 December 2015. In addition to assets
Baltika revalued down Russian entities goodwill in the amount of 885 thousand
euros and expensed Russian market related currency differences in the amount of
2,969 thousand euros. 

At the end of year 2015 Baltika made in total 4,645 thousand euros non-cash
write-offs recorded in profit and loss statement and non-cash profit in other
comprehensive income was 2,969 thousand euros. Due to above-mentioned
transactions Baltika’s total assets and equity decreased in amount of 1,676
thousand euros. 

Meelis Milder
Chairman of the Management Board
[email protected]