Pieno Zvaigzdes

Quarterly Report • Aug 29, 2014

Pieno Žvaigždės, AB Confirmation of the Management

Vilnius, August 2014

Financial statements and the Report for the 6 months 2014

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 2014 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 2014 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 2014

VILNIUS, AUGUST 2014

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. The Issuer's authorized capital3
5. Agreements with intermediaries of public trading in securities3
6. Shareholders4
7. Securities admitted to the trading lists of the stock exchanges4
8. Staff 5
9. Change of the issuer's Articles of Association5
10. Management:5
11. Additional notes about financial statements6
12. Information on the major related parties' transactions6
13. Significant up-to-date developments in the issuer's performance 6
14. Future plans8
15. Financial statements 9
15.1. Statement of financial position9
15.2. Statement of comprehensive income10
15.3. Statement of cash flows11
15.4. Statement on changes in equity 12
15.5. Notes to the financial statements13

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

The present Report has been prepared for the 6 months 2014.

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	1246 65536
VAT payer code	LT 246655314
Authorized capital	49 634 419 Litas, divided into 49 634 419 one litas 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. The Issuer's authorized capital

The authorized capital registered in the Register Centre is 49 634 419 LTL. The authorized capital divided into 49 634 419 ordinary shares (nominal value 1 LTL). All ordinary registered shares of AB Pieno Zvaigzdes are fully paid up.

5. Agreements with intermediaries of public trading in securities

The company has signed agreement with the financial brokerage company AB Finasta (Maironio str. 11, Vilnius, telephone 1813, telephone number from abroad +370 5 203 2233, fax +370 5 203 2244 e-mail info@finasta.com) concerning management of securities accounting.

6. Shareholders

Based on the latest data available (May 14, 2014) the Company had 3 766 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 %
SKANDINAVISKA ENSKILDA BANKEN AB
SERGELS TORG 2, 10640 STOCKHOLM, SWEDEN	6 959 219	14,02	14,02
UAB "AGROLITAS IMEKS LESMA" LAISVĖS PR.125,
VILNIUS, ĮM.K. 2191855	6 405 459	12,9	12,9
SWEDFUND INTERNATIONAL SVEAVAGEN 24-26,	4 700 000	9.47	9.47
BOX 3286, SE-103 65 STOCKHOLM, SWEDEN
ŽŪKB "SMILGELĖ" J.TUMO VAIŽGANTO 8/27-3.
VILNIUS, ĮM.K. 2490652	5 655 048	11,39	11,39
Kvaraciejus Julius	7 085 907	14,28	14,28/31,28
Kvaraciejienė Regina	2 126 959	4,28	4,28/31,28
Klovas Voldemaras	2 842 567	5,73	5,73/31,28
Klovienė Danutė	878 328	1,77	1,77/31,28
Smagin Aleksandr	2 547 123	5,13	5,13/31,28
Gžegož Rogoža	46 150	0,09	0,09/31,28

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

7.1. 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 – 49 634 419;

Total nominal value – 49 634 419 Lt;

ISIN code – LT0000111676;

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

7.2. Currently the Company has no debt securities issues.

7.3. By the end of the six months of 2014 the company hasn't bought any own shares.

8. Staff

	2014 06 30	2013 06 30
Average number of employees	2 276	2 325
With university education	463	460
With further education	530	690
With secondary education	1 059	1 000
With not completed secondary education	224	175
Average payroll, litas	2014 06 30	2013 06 30
Managers	5 859	6 381
Specialists	2 770	2 997
Workers	2 118	2 305

9. 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.

10. 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
Paul Bergqvist	chairman	-	-	2012 04 27	2016 04 26
Hans Mideus	member	-	-	2012 08 07	2016 04 26
Audrius Statulevičius	member	-	-	2012 04 27	2016 04 26
Julius Kvaraciejus	member	7 085 907	14.28	2012 04 27	2016 04 26
Voldemaras Klovas	member	2 842 567	5.73	2012 04 27	2016 04 26
Aleksandr Smagin	member	2 547 123	5.13	2012 04 27	2016 04 26
Gžegož Rogoža	member	46 150	0.09	2012 04 27	2016 04 26

Administration

Name, surname	Official duties	Number shares, units	Share of the capital %
Aleksandr Smagin	CEO	2 547 123	5.13
Audrius Statulevičius	CFO	-	-

11. Additional notes about financial statements

The financial statements prepared according to the IFRS. Financial statements for the 6 months 2014 are not audited. All additional information about financial statements is presented in the notes to the financial statements.

12. 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 2014.

13. 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

2014-08-13 Regarding import restrictions to the Russian Federation

Milk products import from all EU and other countries to Russian Federation was stopped from 6th August 2014 by decision of Russian authorities. Pieno Zvaigzdes export to Russian Federation accounted from 30% to 35 % of total sales. Partly these sales will be compensating by sales to other markets (with lower profitability). But it will not be possible to compensate all lost sales by the end of this year. Based on present situation and taking into account actual sales of this year expected sales for the whole year of 2014 will be around 800 million litas (230 million EUR). Sales restriction to the Russian market does not pose a threat to the continuity of company's business, but will have a negative impact on the company's profitability.

2014-05-30 Pieno zvaigzdes AB, not audited financial results for the first three months of 2014

Based on preliminary unaudited results Company's sales over first three months in 2014 accounted to LTL 227.4 million (EUR 65.9 million), 22% higher compare to a year ago. Sales resulted over first three months in 2013 were LTL 186.4 million (EUR 54.0 million). Sales increased in both domestic and export markets. Export volumes increased by 30% and domestic sales increased by 12%.

Over the first three months of the year Company's EBITDA accounted to LTL 10.9 million (EUR 3.2 million) and decreased by 29.3% compare with EBITDA of LTL 15.4 million (EUR 4.5 million) a year ago.

Company earned a net profit of LTL 2.4 million (EUR 0.7 million) or 65% less compare with a net profit of LTL 6.9 million (EUR 2.0 million) over same period in 2013.

2014-04-29 Resolutions of Annual General Shareholders' Meeting of Pieno Zvaigzdes AB

Annual Meeting of Shareholders of Pieno Zvaigzdes AB (registered address Perkunkiemio 3, Vilnius, Lithuania, company code 124665536) took part on 29 April 2014 at 10.00 am.

N	Agenda	Resolution
o
1.	Annual Report.	Listened.
	Audit report on
	the company's
2.	financial accounts	Listened.
	and the Annual
	Report
	Approval of
3.	audited financial	Approve Company's audited financial statements 2013.
	statements 2013
	Company's profit
4.	distribution	Approve profit distribution (attached).
	Election of the	Elected members to the Audit Committee for the next year:
		Jūratė Zarankienė (independent member, chairman of the
5.	Audit Committee	committee);
	members	Danutė Kairevičienė (member of the committee)

Shareholders' resolutions

PROFIT DISTRIBUTION

(Approved by annual shareholders meeting, April 29, 2014)

Items	Amount (in Litas)	Amount (in EUR)
Profit brought forward from the end of previous year	12.189.629	3.530.361
Financial year profit (loss)	9.891.788	2.864.860
Transfers from reserves	13.200.000	3.822.984
Profit to be appropriated	35.281.417	10.218.205
Appropriation of profit:
– dividends *	11.912.261	3.450.029
– management board bonus	500.000	144.810
– own shares buy back reserve	0	0
– to social activities reserve	700.000	202.734
Profit ( loss) to be carried forward at the end of the financial year	22.169.156	6.420.631

* 0,24 LTL (0,0695 EUR) per share.

14 May 2014 is the account day for the shareholders' rights, i.e. persons who are shareholders by the end of this day will have the right to profit sharing (dividend).

2014-02-28 Pieno zvaigzdes AB, not audited financial results for the year 2013

Based on preliminary unaudited results Company's sales over year 2013 accounted to LTL 759.4 million (EUR 219.9 million) or 1.3% less compare to a year ago. Sales resulted in 2012 were LTL 769.0 million (EUR 222.7 million). Sales increased in domestic market domestic by 4% and decreased in export markets by 6%

Over the year 2013 Company's EBITDA accounted to LTL 42.5 million (EUR 12.3 million) and decreased by 39% compare with EBITDA of LTL 70.1 million (EUR 20.3 million) a year ago.

Company earned a net profit of LTL 9.9 million (EUR 2.9 million) or 66% less compare with a net profit of LTL 29.0 million (EUR 8.4 million) in 2012.

Company did not achieve initially forecast results for the year 2013 due to Lithuanian dairy production import restrictions to Russian Federation in last quarter of 2013.

14. Future plans

Milk products import from all EU and other countries to Russian Federation was stopped from 6th August 2014 by decision of Russian authorities. Based on that expected sales for the whole year of 2014 will be around 800 million litas (230 million EUR). Sales restriction to the Russian market does not pose a threat to the continuity of company's business, but will have a negative impact on the company's profitability.

15. Financial statements

Prepared according to IFRS, not audited

15.1. Statement of financial position

Thousand Litas	2014.06.30	2013.12.31
Assets
Property, plant and equipment	203 334	207 255
Intangible assets	220	294
Investments available for sale	275	275
Long-term receivables	1 034	999
Deferred tax
Total non-current assets	204 863	208 823
Inventories	75 884	98 385
Receivables	86 975	54 677
Cash and cash equivalents	4 802	2 355
Total current assets	167 661	155 417
Total assets	372 524	364 240
Equity
Share capital	49 634	49 634
Share premium	27 246	27 246
Own shares	-	-
Reserves	19 262	32 730
Retained earnings	27 290	22 082
Total equity	123 432	131 692
Liabilities
Government grants	4 881	5 663
Interest-bearing loans and borrowings	123 330	112 365
Deferred tax	1 704	1 704
Total non-current liabilities	129 915	119 732
Provisions	-	-
Interest-bearing loans and borrowings	34 280	34 579
Income tax payable	645	-
Trade and other amounts payable	84 252	78 237
Total current liabilities	119 177	112 816
Total liabilities	249 092	232 548
Total equity and liabilities	372 524	364 240

15.2. Statement of comprehensive income

Thousand Litas	2014.01.01 - 2014.06.30	2013.01.01 - 2013.06.30
Revenue	467 799	399 077
Cost of sales	(407 654)	(326 219)
Gross profit	60 145	72 858
Other operating income, net	1 093	424
Sales and administrative expenses	(55 178)	(60 995)
Operating profit before finance costs	6 060	12 287
Finance income	323	326
Finance expenses	(2 085)	( 997)
Finance income/expenses, net	(1 762)	( 671)
Profit before tax	4 298	11 616
Corporate income tax	( 645)	(1 742)
Profit for the year	3 653	9 874
Earnings per share (Litas)	0,07	0,20
Thousand Litas	2014.04.01 - 2014.06.30	2013.04.01 - 2013.06.30
Revenue	240 397	212 643
Cost of sales	(207 793)	(173 767)
Gross profit	32 604	38 876
Other operating income, net	585	( 13)
Sales and administrative expenses	(30 794)	(34 976)
Operating profit before finance costs
	2 395	3 887
Finance income	141	133
Finance expenses Finance income/expenses, net	(1 067) ( 926)	( 529) ( 396)
Profit before tax	1 469	3 491
Corporate income tax	( 221)	( 523)

Earnings per share (Litas) 0,03 0,06

15.3. Statement of cash flows

Thousand Litas	2014.06.30	2013.06.30
Cash flows from operating activities
Net profit	3.653	9.874
Depreciation and amortisation	15.445	14.550
Amortisation of government grants	(781)	(681)
Result of disposal of property, plant and equipment	(2.586)	(323)
Change in vacation reserve	1.122	1.831
Change in impairment loss of inventories	1.019	-
Interest income/expenses, net	1.924	1.498
Income tax	645	1.742
Cash flows from ordinary activities before changes in the working capital	20.441	28.491
Change in inventories	21.483	5.797
Change in receivables	(42.809)	4.289
Change in trade and other payable amounts	11.145	7.530
Cash flows from operating activities	10.260	46.107
Interest paid	(1.924)	(1.524)
Income tax paid	0	(2.422)
Net cash flow from operating activities	8.336	42.161
Cash flows from investing activities
Acquisition of property, plant and equipment	(13.285)	(17.014)
Acquisition of intangible assets	(25)	(30)
Proceeds on sale of property, plant and equipment	2.743	47
Interest received	-	26
Net cash flow used in investing activities	(10.567)	(16.971)
Cash flows from financing activities
Loans received	32.120	31.368
Repayment of borrowings	(21.454)	(31.115)
Dividends paid	(5.988)	(27.098)
Government grants received	-	3.950
Net cash from/(used in) financing activities	4.678	(22.895)
Change in cash and cash equivalents	2.447	2.295
Beginning cash	2.355	4.528
Ending cash	4.802	6.823

15.4. Statement on changes in equity

000 LTL	Share capital	Share premiu m	Own shares	Compul sory reserve	Revalua tion reserve	Other reserve s	Retained earnings	Total equity
As at 1 January 2013	49 634	27 246	0	5 420	15 099	13 040	38 060	148 499
Profit allocation Dividends Acquisition of own						160	( 160) (27 098)	0 (27 098)
shares Revaluation of fixed								0
assets Depreciation of								0
revaluated part					( 528)		528	0
Net profit for 2013							9 874	9 874
As at 30 June 2013	49 634	27 246	0	5 420	14 571	13 200	21 204	131 275
As at 1 July 2013	49 634	27 246	0	5 420	14 571	13 200	21 204	131 275
Profit allocation								0
Dividends							( 201)	( 201)
Reduction of share
capital								0
Revaluation of fixed
assets								0
Depreciation of revaluated part					( 461)		461	0
Net profit for 2013							618	618
As at 31 December 2013	49 634	27 246	0	5 420	14 110	13 200	22 082	131 692
As at 1 January 2014	49 634	27 246	0	5 420	14 110	13 200	22 082	131 692
Profit allocation						(12 000)	12 000	0
Dividends							(11 913)	(11 913)
Acquisition of own
shares								0
Revaluation of fixed assets								0
Depreciation of
revaluated part					(1 288)		1 288	0
Net profit for 2014							3 653	3 653
As at 30 June 2014	49 634	27 246	0	5 420	12 822	1 200	27 110	123 432

15.5. 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	2014.01.01 - 2014.06.30	2013.01.01 - 2013.06.30
Sales, Thousand Litas	467 799	399 077
Gross profit, Thousand Litas	60 145	72 858
EBITDA, Thousand Litas	20 724	26 156
Current ratio (at the end of period)	1,4	1,6
Book value per share (at the end of period), LTL	2,49	2,64
Net profit per share	0,07	0,20

Ratios	2014.04.01 - 2014.06.30	2013.04.01 - 2013.06.30
Sales, Thousand Litas	240 397	212 643
Gross profit, Thousand Litas	32 604	38 876
EBITDA, Thousand Litas	9 797	10 712
Current ratio (at the end of period)	1,4	1,6
Book value per share (at the end of period), LTL	2,49	2,64
Net profit per share	0,07	0,06

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 Litas	2014.06.30	2013.12.31
Raw materials	21 712	22 448
Stored production	53 372	74 013
Goods for resale	800	1 924
Total:	75 884	98 385

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 Litas	2014.01.01 - 2014.06.30	2013.01.01 - 2013.06.30
Lithuania	198 205	175 530
Other EU countries	83 340	37 322
Other non EU countries	186 254	186 225
Total:	467 799	399 077

Sales, Thousand Litas	2014.04.01 -	2013.04.01 -
	2014.06.30	2013.06.30
Lithuania	104 582	92 154
Other EU countries	47 097	18 563
Other non EU countries	88 718	101 926
Total:	240 397	212 643

Post balance sheet events

Milk products import from all EU and other countries to Russian Federation was stopped from 6 th August 2014 by decision of Russian authorities. Pieno Zvaigzdes export to Russian Federation accounted from 30% to 35 % of total sales. Partly these sales will be compensating by sales to other markets (with lower profitability). But it will not be possible to compensate all lost sales by the end of this year. Based on present situation and taking into account actual sales of this year, expected sales for the whole year of 2014 will be around 800 million litas (230 million EUR). Sales restriction to the Russian market does not pose a threat to the continuity of company's business, but will have a negative impact on the company's profitability.

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