Pieno Zvaigzdes

Quarterly Report • Sep 15, 2016

Pieno Žvaigždės, AB Confirmation of the Management

Vilnius, September 2016

Financial statements and the Report for the 6 months 2016

We, Aleksandr Smagin, Chief Executive Officer and Audrius Statulevičius, Chief Financial Officer, hereby confirm that, to the best of our knowledge, Interim Report for the six months of 2016 includes a fair review of the development and performance of the business.

We, Aleksandr Smagin, Chief Executive Officer and Audrius Statulevičius, Chief Financial Officer, hereby confirm that, to the best of our knowledge, Interim Financial Statements of the six months of 2016 prepared in accordance with IFRS, give true and fair view of the assets, liabilities, financial position, profit or loss and cash flows of AB "Pieno žvaigždės".

CEO

Pieno Žvaigždės, AB Aleksandr Smagin

CFO

Pieno Žvaigždės, AB Audrius Statulevičius

PIENO ŽVAIGŽDĖS, AB

INTERIM FINANCIAL STATEMENTS

And

INTERIM REPORT

For the 6 months 2016

VILNIUS, SEPTEMBER 2016

TABLE OF CONTENT

1. Accounting Period for which the present Report has been Prepared3
2. Key Data on the Issuer3
3. Type of the Issuer's main activities3
4. Agreements with intermediaries of public trading in securities3
5. The Issuer's authorized capital3
6. Securities admitted to the trading lists of the stock exchanges3
7. The objective review of the Company's state, activity performance and development; the description of the main risk types and uncertainties encountered by the enterprise4
8. Analysis of financial and non-financial activity results, information related to environment and personnel issues6
9. The number of the own shares acquired and transferred during the reporting period, where they are acquired or transferred against payment 6
10. Information about branches and representative offices6
11. Significant events occurred after the end of the six months of year7
12. Information about research and development activity7
13. Shareholders 7
14. Staff 7
15. Change of the issuer's Articles of Association8
16. Management:8
17. Additional notes about financial statements9
18. Information on the major related parties' transactions9
19. Significant up-to-date developments in the issuer's performance 9
20. Future plans10
21. Financial statements 11
21.1. Statement of financial position11
21.2. Statement of comprehensive income12
21.3. Statement of cash flows13
21.4. Statement on changes in equity 14
21.5. Notes to the financial statements15

1. Accounting Period for which the present Report has been Prepared

The present Report has been prepared for the 6 months 2016

2. Key Data on the Issuer

Company name	Public Limited Liability Company "Pieno žvaigždės"
Registration date and time	The company was reregistered on 23 December 1998
Company code	124665536
VAT payer code	LT246655314
Authorized capital	13,088,981.51 Euro, divided into 45,134,419 0,29 euro nominal value shares.
Address	Perkūnkiemio str. 3, LT-12127 Vilnius, Lithuania
Telephone	(+370 5) 246 14 14
Fax	(+370 5) 246 14 15
E-mail	info@pienozvaigzdes.lt
Internet website	www.pienozvaigzdes.lt

3. Type of the Issuer's main activities

The Company's main activity is manufacturing of Milk products.

4. Agreements with intermediaries of public trading in securities

Joint-Stock Company Siauliu Bankas (company code 12025254, registered address Šiaulių m. Sav. Šiauliai. Tilžės g. 149, tel. 1813 e-mail: info@sb.lt) is accountant of AB Pieno Zvaigzdes shares.

5. The Issuer's authorized capital

The authorized capital registered in the Register Centre is 13,088,981.51 EUR. The authorized capital divided into 45 134 419 ordinary shares (nominal value 0.29 EUR). All ordinary registered shares of AB Pieno Zvaigzdes are fully paid up.

6. Securities admitted to the trading lists of the stock exchanges

6.1. The ordinary registered shares of AB Pieno Zvaigzdes were admitted to the Official List of the NASDAQ OMX Vilnius Stock Exchange. Type of shares – Ordinary registered shares; Number of shares – 45,134,419; Total nominal value – 13,088,981.51 EUR;

ISIN code – LT0000111676;

All information about Pieno zvaigzdes, AB securities trading available on Nasdaq Vilnius stock exchange site.

6.2. Currently the Company has no debt securities issues.

6.3. 2016 04 29 AGM of AB Pieno zvaigdes took the decision to cancel own bought shares (4,500,000 units). The new Articles of Association with reduced share capital (new number of shares - 45,134,419 and the total nominal value - 13 088 981.51 euros) was registered on 2016 08 10. After that date the company hasn't bought any own shares.

7. The objective review of the Company's state, activity performance and development; the description of the main risk types and uncertainties encountered by the enterprise

Pieno Žvaigždės, AB was established on 23 December 1998 after merger of independent milk processing companies operating in Lithuania: AB Mažeikių Pieninė and AB Pasvalio Sūrinė. Later, AB Kauno Pienas and in 2004 AB Panevėžio Pienas were also merged into Pieno Žvaigždės, AB. The current structure of the Company enables to specialise production in separate branches and reach the highest efficiency as well as even distribution of raw milk collection capacities in the country.

Pieno Žvaigždės, AB is the largest milk processing company in Lithuania, which currently produces more than 500 different products. The Company operates not only in the local market but also exports production to the countries of the European Union, CIS, and Asia. Different types of ferment cheese, whey flour and fresh milk products produced by Pieno Žvaigždės, AB are the main products produced for export which are well known for their irreproachable quality. The products are awarded with quality certificates.

The main activity of the Issuer is processing of milk. The mentioned business is risky due to eventual changes in product and raw materials markets, competition as well as eventual legal, political, technological and social changes, which are directly or indirectly related to the Issuer's business and may have a negative influence on the Issuer's cash flows and operating results.

The main raw material used by the Issuer is milk, the sales quota for processing of which to the EU milk processing companies is limited by national milk quota. Limitations put on supply of raw milk may result in lack of raw milk and an increase in prices for raw milk. These changes may have a negative influence on the cash flows and operating results of the Issuer.

The Issuer's business (especially collection and transportation of milk) is a labour consuming activity. The lack of human resources and an increase in salary costs may negatively affect the operating results of the Issuer.

Information on financial risks is presented in the annual financial statements (note 21 of the explanatory information).

Pieno Žvaigždės, AB has integrated the quality and environment management system as to the requirements of ISO 9001:2008 and ISO 14001:2004. As of March 2012 the Company is implementing the food safety management system as to ISO 22000:2005, which will be integrated into the existing management system. In December 2013, the affiliate Pasvalio Sūrinė received the certificate confirming the implementation of food safety management system complying with requirement of FSSC 22000. Other three affiliates of Pieno Žvaigždės, AB have finalised the implementation of the food management system and received certificate according to the requirements of FSSC 22000 at the beginning of the year 2015.

Assurance of the quality of dairy products, especially of their safety, i.e. harmlessness to consumers, is one of the major tasks of the Company. The functioning food safety system allows to monitor risk factors and important control points that are related to milk production processes, transportation, consumption and improves the quality control. The Company has prepared, implemented and operate the programs which provide for conditions, measures and behaviour rules to prevent biological, chemical, allergic and physical contamination and ensure high quality and safety of the dairy products.

During the years 1998–2002 the State Food and Veterinarian Office assigned the affiliates of Pieno Žvaigždės, AB with certificates for export to EU, which allow exporting dairy products bearing identification marks to the EU countries. Furthermore, all the branches of the Company are approved for export to Russia and Belarus.

A primary certification of the quality management system in the Company's affiliates was performed in 2002. The granted certificates proved that the establishment, documentation and maintenance of the quality management system complied with the ISO 9001 standard. The certification audit in the affiliates and issuance of the certificates was performed by an international certification firm TUV CERT. During 2005–2006, the environment management system complying with the requirements of ISO 14001 standards was integrated into the quality management system, and in February 2007 Pieno Žvaigždės, AB received the certificate confirming the integrated quality and environment management system complying with the requirements of ISO 9001 and ISO 14001 standards operates in the Company. Every year, the certifying firm performs supervision audits of the Company, and every 3 years the recertification takes place. Pieno Žvaigždės, AB aims to continuous improvement and better efficiency of its operations and processes, thus, for the purpose of more efficient use of external audit results for company improvement, in 2013, Pieno Žvaigždės, AB changed the certification firm. As of 2013, external audit of management systems is performed by certifying firm DNV.

The Company's affiliates Kauno Pienas an Panevezio Pienas are certified for production of ecological products (ecological yogurts, ecological sour cream, ecological curd and cottage cheese). After each annual review, a public company Ekoagros issues a new certificate on the Company's compliance with the requirements. Production of ecological dairy products requires adhering to strict requirements set not only for production processes but also for their compound parts. The certified ecological products are marked with the following additional information: certification mark of ecological products, code of the certifying firm, and reference to the growth place of agricultural goods used for production.

Certain products of the Company are assigned with specific quality certificates HALAL (whey powder and cream) and KOSHER (whey powder).

The Company's management has undertaken to produce safe and high-quality dairy products that satisfy the clients' needs and expectations, with low impact on environment to the maximum extent, all being defined in the Company's policy on the safety and quality of food and environment protection.

8. Analysis of financial and non-financial activity results, information related to environment and personnel issues

	2016 06 30	2015 06 30
Key figures, million EUR
Turnover	72,8	82,4
Gross profit	15,6	17,1
Profit before tax, interest and depreciation (EBITDA)	3,1	3,9 1,2
Investment in property, plant and equipment	2,6

Main quality management and environmental principles:

• The quality management system is oriented towards a customer, thus a lot of attention is devoted to fulfilling customers' needs and expectations;
• Principles of cleaner production must be adhered to; the aspects that significantly influence the environment must be identified and managed, and proper preparation for emergency situation must be insured.
• Management of the Company sets united aims and goals. Heads of the Company create environment where all employees take part in order to achieve aims.
• Employees of all levels are involved in Company's work.
• All activities of the Company, as well as the recourses related to them are managed as a process.
• Interconnected processes are defined, understood and managed as a system, and this increases Company's capacity and efficiency.
• Company's target is constant improvement. Improvement activities are integrated with Company's strategy and every worker seeks improvement of a product, process and systems.
• High-scoring solutions are based on data and information analysis.
• A lot of attention is devoted to connections with suppliers.

Enjoyment of the ISO 9001 and ISO 14001 certificates proves that the structure, duties and responsibilities are strictly defined in the Company, processes and procedures set out, major documents controlled and constantly renewed, checked and that management activities are carried out regularly, while the non-conforming ones are identified, analysed and corrected, even more, the prevention of environmental is ensured.

The Company's top management annually reviews and confirms food safety, quality and environmental policies

9. The number of the own shares acquired and transferred during the reporting period, where they are acquired or transferred against payment

Through the 6 months of 2016 the Company did not purchase or sell any own shares.

10. Information about branches and representative offices

Pieno Žvaigždės, AB comprises four production branches:

• Branch Kauno Pienas, Taikos pr. 90, LT-51181 Kaunas;
• Branch Mažeikių Pieninė, Skuodo St. 4, LT-89100 Mažeikiai;
• Branch Pasvalio Sūrinė, Mūšos St. 14, LT-39104 Pasvalys;
• Branch Panevėžio Pienas, Tinklų St. 9, LT-35115 Panevėžys.

11. Significant events occurred after the end of the six months of year

No significant events have occurred after the end of six months of the financial year.

12. Information about research and development activity

The Company continuously makes investments and searches for new ways how to ensure a constant and better efficiency growth of its activity.

13. Shareholders

Based on the latest data available (April 21, 2016) the Company had 3 674 shareholders. The shareholders holding by the right of ownership or in trust more than 5 per cent of the Company's authorized capital:

Names of shareholders	Number shares, units	Share of the capital %	Share of votes % / Share of votes with related persons %
ŽŪKB "SMILGELĖ" J.TUMO VAIŽGANTO 8/27-3. VILNIUS, ĮM.K. 2490652	6 710 200	14.87	14.87
UAB "AGROLITAS IMEKS LESMA" LAISVĖS PR.125, VILNIUS, ĮM.K. 2191855	6 195 459	13.73	13.73
SEB ESTONIA AS CUSTODIAN FOR BANK AUSTRIA EEEEUH002 TORNIMAE 2 15010, TALLINN	4 122 022	9.13	9.13
SWEDFUND INTERNATIONAL SVEAVAGEN 24-26, BOX 3286, SE-103 65 STOCKHOLM, SWEDEN	2 985 477	6.61	6.61
Kvaraciejus Julius	7 085 907	15.70	15.70 / 32.35
Kvaraciejienė Regina	2 126 959	4.71	4.71 / 32.35
Klovas Voldemaras	3 142 567	6.96	6.96 / 32.35
Klovienė Danutė	878 328	1.95	1.95 / 32.35
Smagin Aleksandr	1 323 536	2.93	2.93 / 32.35
Gžegož Rogoža	46 150	0.10	0.10 / 32.35

14. Staff

	2016 06 30	2015 06 30
Average number of employees	1 778	1 815
With university education	390	392
With further education	409	411
With secondary education	872	890
With not completed secondary education	107	122

	2016 06 30	2015 06 30
Average number of employees	1 778	1 815
Managers	59	61
Specialists	409	405
Workers	1 310	1 349
	2016 06 30	2015 06 30
Average payroll, EUR
Managers	1 742	1 752
Specialists	869	853
Workers	653	619

15. Change of the issuer's Articles of Association

Pursuing the Articles of Association of the Company, the Articles may be exclusively changed by the general meeting of shareholders, according to the Law of the Republic of Lithuania.

16. Management:

The managing bodies of the company are as follows: General shareholders' meeting, the Management Board and the Chief Executive Officer.

The Management Board is a collegial management body comprised of 7 (seven) members. The Board members are elected for the 4 years period.

The competence and procedure of announcement of the shareholders' meeting complies with the competence and procedure of announcement of the shareholders' meeting established by the Law on Joint Stock Companies.

Management Board
Name, surname	Official duties	Number shares, units	Share of the capital %	From	Until
Audrius Statulevičius	chairman	-	-	2016 04 29	2020 04 28
Julius Kvaraciejus	member	7 085 907	15.70	2016 04 29	2020 04 28
Voldemaras Klovas	member	3 142 567	6.96	2016 04 29	2020 04 28
Aleksandr Smagin	member	1 323 536	2.93	2016 04 29	2020 04 28
Gžegož Rogoža	member	46 150	0.10	2016 04 29	2020 04 28
Regina Kvaraciejienė	member	2 126 959	4.71	2016 04 29	2020 04 28
Artiom Smagin	member	-	-	2016 04 29	2020 04 28

Administration

Name, surname	Official duties	Number shares, units	Share of the capital %
Aleksandr Smagin	CEO	1 323 536	2.93
Audrius Statulevičius	CFO	-	-

17. Additional notes about financial statements

The financial statements prepared according to the IFRS. Financial statements for the 6 months 2015 are not audited. All additional information about financial statements is presented in the notes to the financial statements.

18. Information on the major related parties' transactions

No significant or unrepresentative agreements or transactions were concluded between related parties in the first 6 months of 2016.

19. Significant up-to-date developments in the issuer's performance

All the publicly disclosed information available on the company's web site www.pienozvaigzdes.lt

Date Market	Subject
VLN 19.08.2016 10:56	Information about share capital of Pieno zvaigzdes AB
02.08.2016 VLN 17:00	Pieno zvaigzdes AB, unaudited financial results for the first six months of 2016
31.05.2016 VLN 18:00	Pieno zvaigzdes AB, not audited financial results for the first three months of 2016 Attachments:
28.04.2016 VLN 16:58	Pieno Zvaigzdes AB, Financial statements for the year 2015 Attachments:
28.04.2016 VLN 16:54	Resolutions of Annual General Shareholders' Meeting of Pieno Zvaigzdes AB Attachments:
20.04.2016 VLN 20:47	Pieno zvaigzdes AB, not audited financial results for the first three months of 2016
05.04.2016 VLN 17:19	Pieno Zvaigzdes Notification on material event Annual General Shareholders' Meeting of Pieno Zvaigzdes AB

Date	Market	Subject
		Attachments:
26.02.2016 20:00	VLN	Pieno zvaigzdes AB, not audited financial results for the year 2015 Attachments:
08.01.2016 17:08	VLN	Regarding the announcement of interim information

20. Future plans

The company did not change its plans and forecasts for the year 2016.

21. Financial statements

Prepared according to IFRS, not audited

21.1. Statement of financial position

Thousand EUR	2016.06.30	2015.12.31
Assets
Property, plant and equipment	49 276	50 753
Intangible assets	78	72
Investments available for sale	22	80
Long-term receivables	287	290
Deferred tax
Total non-current assets	49 663	51 195
Inventories	11 443	14 298
Receivables	12 471	12 609
Cash and cash equivalents	413	551
Total current assets	24 327	27 458
Total assets	73 990	78 653
Equity
Share capital	13 088	14 394
Share premium	7 891	7 891
Own shares	0	(6 660)
Reserves	5 078	12 118
Retained earnings	2 318	4 437
Total equity	28 375	32 180
Liabilities
Government grants	796	930
Interest-bearing loans and borrowings	28 396	26 200
Deferred tax	910	910
Total non-current liabilities	30 102	28 040
Provisions	-	-
Interest-bearing loans and borrowings	2 411	4 787
Income tax payable	1	68
Trade and other amounts payable	13 101	13 578
Total current liabilities	15 513	18 433
Total liabilities	45 615	46 473
Total equity and liabilities	73 990	78 653

21.2. Statement of comprehensive income

Thousand EUR	2016.01.01 - 2016.06.30	2015.01.01 - 2015.06.30
Revenue	72 789	82 374
Cost of sales	(57 221)	(65 245)
Gross profit	15 568	17 129
Other operating income, net	204	140
Sales and administrative expenses	(16 488)	(17 429)
Operating profit before finance costs	( 716)	( 160)
Finance income	87	54
Finance expenses	( 812)	( 389)
Finance income/expenses, net	( 725)	( 335)
Profit before tax	(1 441)	( 495)
Corporate income tax	0	0
Profit for the year	(1 441)	( 495)
Earnings per share (EUR)	- 0,03	- 0,01
Thousand EUR	2016.04.01 - 2016.06.30	2015.04.01 - 2015.06.30
Revenue	38 039	42 583
Cost of sales	(29 309)	(33 062)
Gross profit	8 730	9 521
Other operating income, net	158	170
Sales and administrative expenses	(8 701)	(9 626)
Operating profit before finance costs	187	65
Finance income	32	32
Finance expenses	( 329)	( 205)
Finance income/expenses, net	( 297)	( 173)
Profit before tax	( 110)	( 108)

Corporate income tax 0 0 Profit for the year ( 110) ( 108) Earnings per share (EUR) - 0,00 - 0,00

21.3. Statement of cash flows

Thousand EUR	2016.06.30	2015.06.30
Cash flows from operating activities
Net profit	(1 441)	(495)
Adjustments:
Depreciation and amortisation	3 970	4 178
Amortisation of government grants	(135)	(161)
Result of disposal of property, plant and equipment	(161)	(8)
Change in vacation reserve	(4)	255
Change in impairment loss of inventories	2 287	-
Interest income/expenses, net	397	335
Income tax	1	-
Cash flows from ordinary activities before changes in the working capital	4 914	4 104
Change in inventories	578	3 852
Change in receivables	(3 266)	(646)
Change in trade and other payable amounts	1 515	743
Cash flows from operating activities	3 741	8 053
Interest paid	(406)	(363)
Income tax paid	(55)	(263)
Net cash flow from operating activities	3 280	7 427
Cash flows from investing activities
Acquisition of property, plant and equipment	(2 633)	(1 143)
Acquisition of intangible assets	(27)	(17)
Proceeds on sale of property, plant and equipment	239	132
Interest received	9	-
Net cash flow used in investing activities	(2 412)	(1 028)
Cash flows from financing activities
Loans received	3 034	5 790
Repayment of borrowings	(2 200)	(6 858)
Issue (redemption) of shares	-	18
Dividends paid	(1 956)	(3 724)
Government grants received	116	-
Net cash from/(used in) financing activities	(1 006)	(4 774)
Change in cash and cash equivalents	(138)	1 625
Beginning cash	551	717
Ending cash	413	2 342

21.4. Statement on changes in equity

000 EUR	Share capital	Share premiu m	Own shares	Compul sory reserve	Revalua tion reserve	Other reserve s	Retained earnings	Total equity
As at 1 January 2015	14 375	7 891	0	1 570	3 371	348	12 231	39 786
Profit allocation								0
Dividends							(3 723)	(3 723)
Change of share capital	19						( 19)	0
Revaluation of fixed
assets Depreciation of								0
revaluated part					( 141)		141	0
Other income							115	115
Net profit for 2015							( 495)	( 495)
As at 30 June 2015	14 394	7 891	0	1 570	3 230	348	8 250	35 683
As at 1 July 2015	14 394	7 891	0	1 570	3 230	348	8 250	35 683
Profit allocation								0
Dividends								0
Own shares buyback Revaluation of fixed			(6 660)			7 112	(7 112)	(6 660)
assets								0
Depreciation of
revaluated part					( 141)		141	0
Other income								0
Net profit for 2015							3 157	3 157
As at 31 December 2015	14 394	7 891	(6 660)	1 570	3 089	7 460	4 436	32 180
As at 1 January 2016	14 394	7 891	(6 660)	1 570	3 089	7 460	4 436	32 180
Profit allocation								0
Dividends							(2 482)	(2 482)
Change of share capital	(1 305)						1 305	0
Own shares buyback Depreciation of			6 660			(6 900)	240	0
revaluated part					( 142)		142	0
Other income							118	118
Net profit for 2016							(1 441)	(1 441)
As at 30 June 2016	13 089	7 891	0	1 570	2 947	560	2 318	28 375

21.5. Notes to the financial statements

AB Pieno Žvaigždės was established by way of merger of stock companies Mažeikių Pieninė, Pasvalio Sūrinė, Kauno Pienas and Panevėžio pienas.

The main office of the Company is located in Vilnius and the branches – in Mažeikiai, Pasvalys, Kaunas and Panevėžys.

Ordinary shares of the Company are quoted in the NASDAQ OMX Vilnius Stock Exchange.

The Company is engaged in production and sales of milk products to retail stores directly and through distributors.

Statement of compliance

These are the financial statements of a separate company AB Pieno Žvaigždės, which have been prepared in accordance with International Financial Reporting Standards (IFRS).

Main indicators of the Company's' performance

Ratios	2016.01.01 - 2016.06.30	2015.01.01 - 2015.06.30
Sales, Thousand EUR	72 789	82 374
Gross profit, Thousand EUR	15 568	17 129
EBITDA, Thousand EUR	3 119	3 857
Current ratio (at the end of period)	1,49	1,44
Book value per share (at the end of period), EUR	0,63	0,72
Net profit per share	-0,03	-0,01

Ratios	2016.04.01 - 2016.06.30	2015.04.01 - 2015.06.30
Sales, Thousand EUR	38 039	42 583
Gross profit, Thousand EUR	8 730	9 521
EBITDA, Thousand EUR	2 106	2 050
Current ratio (at the end of period)	1,49	1,44
Book value per share (at the end of period), EUR	0,63	0,72
Net profit per share	-0,00	-0,01

Inventories

Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

The cost of inventories is based on the first-in first-out principle and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of overheads based on normal operating capacity.

Inventories, Thousand EUR	2016.06.30	2015.12.31
Raw materials	5 116	5 724
Stored production	6 215	8 461
Goods for resale	112	113
Total:	11 443	14 298

Segment reporting

A segment is a distinguishable component of the Company that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. Company sales production mainly in domestic market, Russia, EU.

Sales, Thousand EUR	2016.01.01 - 2016.06.30	2015.01.01 - 2015.06.30
Lithuania	49 217	51 372
Other EU countries	16 496	23 624
Other non EU countries	7 076	7 378
Total:	72 789	82 374

Sales, Thousand EUR	2016.04.01 -	2015.04.01 -
	2016.06.30	2015.06.30
Lithuania	25 715	26 044
Other EU countries	8 504	12 326
Other non EU countries	3 820	4 213
Total:	38 039	42 583

Post balance sheet events

There were no other significant events after the balance sheet date.