Management Report for Q2 and 6 months of 2007 In the second quarter 2007, PTA Grupp AS earned a net profit of EEK 112.8 million (EUR 7.2 million), which increased by EEK 110.3 million (EUR 7.0 million) compared to the second quarter of the previous year. The net margin of the second quarter of this year is 27.5% (Q2 2006: 8.6%). Q2 sales increased by 3.2 times yoy to EEK 410.7 million (EUR 26.2 million) and the Group's gross margin in Q2 2007 reached 46.3% compared to 51.0% in the second quarter of 2006. Operating margin reached 39.7% (10.3% in Q2 2006) and operating profit was EEK 162.9 million (EUR 10.4 million) compared to EEK 3.1 million (EUR 0.2 million) in Q2 2006. Cumulative six month sales of PTA Grupp AS amounted to EEK 779.2 million (EUR 49.8 million), having increased 12.8 times compared to the first six month of 2006. The Group's gross and operating margins in the first half of the year stood at 43.9% and 29.0% respectively (45.5% and 6.3% in the six months of 2006). Operating profit in the first six months of 2007 amounted to EEK 226.0 million (EUR 14.4 million) compared to EEK 3.9 million (EUR 0.2 million) in six the first six months of 2006. Net profit for the first six months of 2007 amounted to EEK 146.3 million (EUR 9.4 million) and net margin reached 18.8% (5.0% in the first six months of 2006). The remarkable growth in company's results and profits is explained by the acquisition of AS Silvano Fashion Group in 2006 which has directly affected earnings per share. By H1 2006 earnings per share stood at EEK 1.56 (EUR 0.10) whereas by H1 2007 earnings per share amount to EEK 3.86 (EUR 0.25) which is 2.5 times more compared to the previous year. Sales Revenue Sales by Products/Services In the first half of 2007 the sales revenue related to sales of women's apparel increased by EEK 21.8 million (EUR 1.4 million) compared to the first half of 2006, forming 9.0% of the Group's sales revenue (H1 2006: 79.4%). Lingerie sales in first half of 2007 amounted to EEK 690.1 million (EUR 44.1 million) forming 88.6% of total Group's sales revenue. The sales of subcontracting services and other sales increased by EEK 6.2 million (EUR 0.4 million) compared to the same period in 2006. Sales of subcontracting services and other sales in the first half of 2007 amounted to EEK 18.8 million (EUR 1.2 million) forming 2.4 % of total sales revenue. Sales by business segments 6 6 6 6 6 6 months months Change months months Change months months 2007 2006 EEK 2007 2006 EUR 2007 2006 EEK EEK mill. EUR EUR mill. perc. perc. fromsalesfrom.sales Women's apparel 70.3 48.5 21.8 4.5 3.1 1.4 9.0% 79.4% Linge- rie 690.1 - 690.1 44.1 - 44.1 88.6% - Subcontr acting services and other sales 18.8 12.6 6.2 1.2 0.8 0.4 2.4% 20.6% Total 779.2 61.1 718.1 49.8 3.9 45.9 100.0% 100.00% Sales by Markets Women's apparel Women's apparel sales revenue has increased in all markets. On the first half of 2007 sales volume in the Estonian market increased by EEK 7.5 million (EUR 0.5 million) in comparison with the same period of the previous year, amounting to 50.6% of the sales revenue of women's apparel (58.8% in the first half of 2006). The sales volume in Latvia increased by 22.1% in the first half-year, amounting to EEK 16.0 million (EUR 1.0 million) and in Finland by 35.7%, amounting to EEK 7.6 million (EUR 0.5 million). Lingerie The majority of lingerie sales revenue in the first half of 2007 was earned on the Russian market (amounting to EEK 366.3 million (EUR 23.4 million) giving 52.9% of all lingerie sale volume for the first half of 2007). Sales in Russia comprise both retail sales and wholesale. The second biggest region of lingerie sales is Belarus, amounting to EEK 139.1 million (EUR 8.9 million) giving 20.1 % of all lingerie sales revenue (also comprising both retail sales and wholesale). As lingerie is a new business line for the Group, comparable figures of previous periods are not available. In terms of lingerie brands, sales of “Milavitsa” core brand accounted for 75.0% of total lingerie sales revenue in the first half of 2007 and amounted to EEK 517.5 million (EUR 33.1 million). The sales of “Lauma” brand accounted for 7.7% of total lingerie sales and amounted to EEK 53.1 million (EUR 3.4 million). Other brands such as “Alisee”, “Aveline”, “Laumelle”, “Lauma Aqua”, “Laumelle Aqua” and “Bellita” comprised 17.3 % of total lingerie sales in the first half of 2007 amounting to EEK 119.4 million (EUR 7.6 million). Total sales by markets 6 6 Change 6 6 Change 6 6 months months EEK months months EUR months months 2007 2006 million 2007 2007 2007 2006 EEK EEK EUR EUR million percen percen million million millon millon tage tage from from sales sales Estonia 92.4 28.5 63.9 5.9 1.8 4.1 12.2% 58.7% Finland 25.9 5.6 20.3 1.7 0.4 1.3 3.4% 11.5% Latvia 25.2 13.1 12.1 1.6 0.8 0.8 3.3% 27.0% Belarus 139.1 - 139.1 8.9 - 8.9 18.3% - Ukraine 51.0 - 51.0 3.3 - 3.3 6.7% - Russia 366.3 - 366.3 23.4 - 23.4 48.2% - Other 60.5 1.3 59.2 3.8 0.1 3.7 7.9% 2.8% markets Total 760.4 48.5 711.9 48.6 3.1 45.5 100.0% 100.0% Retail Sales Total retail sales of the Group in the first half of 2007 amounted to EEK 96.3 million (EUR 6.2 million), increasing 2.7 times compared to the first six months of 2006. Retail sales are conducted in Estonia, Latvia, Russia, Belarus, Poland, Lithuania and Ukraine. As of the end of June 2007, the Group operated 67 retail outlets with a total area of 8,554 square meters. Women's apparel retail sales are conducted in Estonia, Latvia, Lithuania and Russia. As of the end of June 2007, women's apparel was sold in 19 stores with a total sales area of 4,191 square meters (30 June 2006: 2,688 square meters). Lingerie retail sales are conducted in Russia, Belarus, Latvia and Poland. As of the end of June 2007 there were 48 stores with a total area of 4,363 square meters selling lingerie products. Within the first six months of 2007 12 new stores were opened: six in the apparel business (operating under the “PTA” name), including three in Russia, two in Lithuania and one in Estonia, and six stores in the lingerie business under the “Oblicie” name in Russia. The Group intends to continue its retail expansion. Number of stores 30.06.2007 31.12.2006 Estonia 8 7 Latvia 6 6 Poland 7 7 Belarus 20 20 Russia 24 15 Lithuania 2 - Total stores 67 55 Total sales area, m2 8,554 6,705 The increase in retail sales of women's apparel of the like-for-like spaces was 19% compared to the first half of 2006. Overall increase in sales per square meter in the PTA apparel stores was 6% in the first half of 2007. In the first half of 2007 the main objective for the women's apparel segment was the entry into the Lithuanian retail market, preparatory work for the entry into the Ukrainian market and the continuing expansion of the apparel retail chain in Russia. The entry into the new markets as well as comparatively low sales per square meter in new stores within first months in operations resulted in overall lower growth of sales per square meter. Increase in retail sales was supported by increase in sales in the same stores and expansion of the PTA retail chain. The like-for-like increase in the Oblicie lingerie retail chain is about 32% for stores operating more than one year. In the first half of 2007 the main objective for the Group's lingerie retail operations was the opening of new stores in Russia. In addition to the general seasonal marketing campaigns directed to the new markets, marketing operations were focused on campaigns supporting the expansion on the Russian market. As lingerie sale is a new business line for the Group, comparable figures of previous years cannot be presented. Wholesale In the first half of 2007 the wholesales amounted to EEK 663.4 million (EUR 42.4 million) giving 85.1% of the Group's total revenue. Russia, Ukraine and Belarus were main wholesales regions in lingerie business while Finland and the Baltic States accounted for the vast majority of wholesales in the apparel business of the Group. Sales revenue from wholesale of women's apparel increased by 34.1 % in H1 2007 compared to H1 2006. As soon as lingerie sale is a new business line for the Group, comparable figures of previous years cannot be presented. Sales of subcontracting and other services Sales of subcontracting and other services amounted to EEK 18.8 million (EUR 1.2 million), a 49.2% increase compared to the first six months of 2006. Sales of subcontracting services increased in the women's apparel segment on account of the Finnish market. Increase in turnover of 49.2% in comparison with the same period of the previous year was mainly caused by the increase in the price of sewing and the price of full services sold to customers. Profits The Group's gross margin in the first half of 2007 was 43.9% (45.5% in the first six months of 2006). Gross profit in the first six months of 2007 amounted to EEK 341.8 million (EUR 21.8 million) compared to EEK 27.8 million (EUR 1.8 million) in the first six months of 2006, increasing 12.1 times mainly due to the operations of Silvano Fashion Group acquired in 2006. Operating profit in the first half of 2007 amounted to EEK 226.0 million (EUR 14.4 million), resulting in operating profit margin of 29.0% (6.3% in the first six months of 2006). Within the first half of 2007, the Group increased its shareholding in its subsidiary Milavitsa resulting in gains from business combination booked in the second quarter of 2007 in the total amount of EEK 72.2 million (EUR 4.6 million). The net profit of the Group (after taxes and minority shareholding) for the first half of 2007 amounted to EEK 146.3 million (EUR 9.4 million). The net profit margin for the first half of 2007 was 18.8% compared to 5.0% in the same period of the previous year. Balance sheet The total assets on the consolidated balance sheet amounted to EEK 927.1 million (EUR 59.3 million) as of 30 June 2007. Compared to the end of the previous year the balance sheet total assets have increased by EEK 115.0 million (EUR 7.3 million). Both assets and liabilities have increased in connection with rapid retail expansion. As of the end of June the inventories of the Group amounted to EEK 281.6 million (EUR 18.0 million) increasing by EEK 51.3 million (EUR 3.3 million) over the first half of the year. The increase in the balance of inventories is related to the expansion of activities in Russia and other retail markets. Trade receivables have increased by EEK 61.9 million (EUR 4.0 million) amounting to EEK 173.6 million (EUR 11.1 million). Trade receivables balance is higher due to wholesale seasonality and due to a change in the terms of agreements with some customers made in order to retain competitiveness, especially in the CIS markets. Trade payables have increased by EEK 33.5 million (EUR 2.1 million) compared to the end of previous year amounting to EEK 121.0 million (EUR 7.7 million).The volumes of trade payables increased on account of the increase in sales volumes and the implementation of the store opening plan. At the end of June 2007, the Group's borrowings amounted to EEK 31.5 million (EUR 2.0 million), having decreased by EEK 7.9 million (EUR 0.5 million) since the beginning of year. In H1 2007, the overdraft limit of PTA Grupp AS was increased by EEK 6.0 million (EUR 0.4 million) amounting in total to EEK 11.0 million (EUR 0.7 million). Investments During the first six months of 2007 the Group's investments totaled EEK 64.5 million (EUR 4.1 million). A total of EEK 21.0 million (EUR 1.3 million) was invested in retail operations, other investments were made in equipment and facilities to maintain effective production operations. Personnel As of the end of the first half of 2007, the Group employed 3,290 employees, including 492 in retail operations and 2,219 in production and the rest in wholesale, administration and support. As the result of the merger with Silvano Fashion Group in 2006, the staff outside Estonia comprises 89.3% of the total workforce (2,938 employees). Total salaries and wages for the first half of 2007 amounted to EEK 116.1 million (EUR 7.4 million). Remuneration paid to the members of the Management Board and Supervisory Board totaled EEK 0.8 million (EUR 0.05 million). Change in the format of income statement Starting from the first half of 2007, the Group uses a new format of income statement. The need to change format arose from expanding retail activities. The new format of income statement allows for a better presentation of the Group's consolidated results as a retail group. The income statements of the previous financial periods were restated to make them comparable with the new format. Selected financial data (six months 2007) Key figures and ratios 30.06.2007 30.06.2006 Change Net sales (EEK million) 779.2 61.1 718.1 Net income (EEK million) 146.3 3.0 143.3 Earnings before interest, 244.3 6.6 237.7 taxes and depreciation (EBITDA) ( EEK million) Earnings before interest 226.0 3.9 222.1 and taxes (EBIT) (EEK million) Net sales (EUR million) 49.8 3.9 45.9 Net income (EUR million) 9.4 0.2 9.2 Earnings before interest, 15.6 0.4 15.2 taxes and depreciation (EBITDA) ( EUR million) Earnings before interest 14.4 0.2 14.2 and taxes (EBIT) (EUR million) Operating margin, % 29.0% 6.3% - Net margin, % 18.8% 5.0% - ROA, % 12.9% 5.5% - ROE, % 16.8% 17.7% - Earnings per share (EPS), 3.86 1.56 - in EEK Earnings per share (EPS), 0.25 0.10 - in EUR Current ratio 3.1 1.2 - Quick ratio 1.9 0.2 - Underlying formulas: Operating margin = operating profit / sales revenue Net margin = net profit attributable to equity holders of the parent / sales revenue ROA (return on assets) = net profit attributable to equity holders of the parent / average total assets ROE (return on equity) = net profit attributable to equity holders of the parent / average equity EPS (earnings per share) = net profit attributable to equity holders of the parent / weighted average number of ordinary shares Current ratio = current assets / current liabilities Quick ratio = (current assets - inventories) / current liabilities Balance Sheet Consolidated, unaudited 30.06 30.06 31.12 30.06 30.06 31.12 .2007 .2006 .2006 .2007 .2006 .2006 EEK EEK EEK EUR EUR EUR thous thous thous thous thous thous and and and and and and ASSETS Current assets Cash and cash equivalents 139,020 3,514 200,460 8,885 225 12,812 Trade receivables 173,583 2,400 111,729 11,094 153 7,141 Other receivables and prepayments 65,591 2,117 45,094 4,192 135 2,882 Prepaid taxes 22,171 206 31,568 1,417 13 2,017 Inventories 281,561 34,758 230,255 17,995 2,222 14,716 Total current assets 681,926 42,995 619,106 43,583 2,748 39,568 Non-current assets Investments in equity accounted investees 7,651 0 78 489 0 5 Available-for-sale financial assets 1,737 0 1,772 111 0 113 Other receivables 5,101 650 2,349 326 42 150 Property, plant and equipment 213,917 8,363 172,281 13,671 534 11,011 Intangible assets 16,801 6,589 16,551 1,074 421 1,058 Total non-current assets 245,207 15,602 193,031 15,671 997 12,337 TOTAL ASSETS 927,133 58,597 812,137 59,254 3,745 51,905 LIABILITIES AND EQUITY Current liabilities Loans and borrowings 24,972 13,932 29,907 1,596 890 1,911 Trade payables 121,013 13,738 87,534 7,734 878 5,594 Corporate income tax liability 6,916 0 5,976 442 0 382 Other tax liabilities 21,968 4,279 19,369 1,404 273 1,238 Other payables 36,832 3,544 27,815 2,354 227 1,778 Provisions 12 12 12 1 1 1 Total current liabilities 211,713 35,505 170,613 13,531 2,269 10,904 Non-current liabilities Loans and borrowings 6,556 4,250 9,544 419 272 610 Deferred tax liabilities 201 0 201 13 0 13 Other liabilities 0 127 0 0 8 0 Provisions 139 141 139 9 9 9 Total non-current liabilities 6,896 4,518 9,884 441 289 632 Total liabilities 218,609 40,023 180,497 13,972 2,558 11,536 Equity Share capital at par value 379,472 19,469 379,472 24,252 1,244 24,252 Share premium 83,011 40,994 83,011 5,305 2,620 5,305 Statutory capital reserve 1,046 1,046 1,046 67 67 67 Translation reaserve -27,867 13 -10,710 -1,781 1 -684 Retained earnings 145,310 -42,948 -987 9,287 -2,745 -63 Total equity attributable to equity holders of the parent 580,972 18,574 451,832 37,130 1,187 28,877 Minority interest 127,552 0 179,808 8,152 0 11,492 Total equity 708,524 18,574 631,640 45,282 1,187 40,369 TOTAL LIABILITIES AND EQUITY 927,133 58,597 812,137 59,254 3,745 51,905 Income Statement-H1 Consolidated, unaudited 2007 2006 2007 2006 H1 H1 H1 H1 EEK EEK EUR EUR thousand thousand thousand thousand Sales revenue 779,201 61,088 49,800 3,904 Costs of goods sold -437,369 -33,292 -27,953 -2128 Gross Profit 341,832 27,796 21,847 1,776 Distribution costs -89,968 -15,863 -5,750 -1014 Administrative expenses -77,560 -7,543 -4,957 -482 Other operating income 82,411 219 5,267 14 Other operating expenses -30,667 -740 -1,960 -47 Operating profit 226,048 3,869 14,447 247 Financial income/expenses Interest expenses -391 -546 -25 -34 Gains/losses on conversion of foreign currencies -1,267 0 -81 0 Other financial income / expenses 1,596 -30 102 -2 Total financial income / expenses -62 -576 -4 -36 Profit before corporate 225,986 3,293 14,443 211 income tax Corporate income tax -47,487 -264 -3,035 -17 Net profit 178,499 3,029 11,408 194 Net profit attributable to parent company 146,297 3,029 9,350 194 Net profit attributable to minority shareholders 32,202 0 2,058 0 Earnings per share Basic earnings per share 3.86 1.56 0.25 0.10 (EEK/EUR) Diluted earnings per share 3.86 1.56 0.25 0.10 (EEK/EUR) Income Statement-Q2 Consolidated, unaudited 2007 2006 2007 2006 Q2 Q2 Q2 Q2 EEK EEK EUR EUR thousand thousand thousand thousand Sales revenue 410,676 29,986 26,247 1,916 Costs of goods sold -220,586 -14,697 -14,098 -939 Gross Profit 190,090 15,289 12,149 977 Distribution costs -49,881 -8,042 -3,188 -514 Administrative expenses -33,933 -3,804 -2,169 -243 Other operating income 79,402 127 5,075 8 Other operating expenses -22,745 -488 -1,454 -31 Operating profit 162,933 3,082 10,413 197 Financial income/expenses Interest expenses 0 -303 0 -19 Losses on conversion of -1,127 76 -72 5 foreign currencies Other financial income / -1,776 -27 -113 -2 expenses Total financial income / -2,903 -254 -185 -16 expenses Profit before corporate 160,030 2,828 10,228 181 income tax Corporate income tax -23,652 -264 -1,512 -17 Net profit 136,378 2,564 8,716 164 Net profit attributable to 112,824 2,564 7,211 164 parent company Net profit attributable to 23,554 0 1,505 0 minority shareholders Earnings per share Basic earnings per share 2.97 1.32 0.19 0.08 (EEK/EUR) Diluted earnings per share 2.97 1.32 0.19 0.08 (EEK/EUR) Peeter Larin Member of the Management Board phone: + 372 6710 700