LPP explains its exit process from the Russian market

• Contrary to the information contained in the Hindenburg Research material, LPP has not been engaged in any operational or commercial activities in Russia since May 2022.
• LPP Group does not own the Russian company, nor does it have any personal relationship with it. The Group does not, directly or indirectly, control the Russian company or influence its operations in any way.
• The Polish clothing manufacturer made a transaction to sell the Russian company, which, as a completely independent entity, sells goods in Russia on its own behalf and on its own account, including, inter alia, goods purchased during the so-called transition period.
• Kazakhstan is not a transit market for LPP. The Company has not shipped goods to Russia through that country.
• Neither LPP nor persons from the Company’s Management Board have planned or plan to return to operations in the Russian market.

In response to the Hindenburg Research intelligence agency’s report published on 15 March, the Polish clothing manufacturer explains in detail the process of LPP Group’s exit from the Russian market in 2022.

Following the outbreak of war in Ukraine, LPP immediately decided to leave Russia as soon as possible. The investor search process was conducted under time pressure and with a very limited pool of potential buyers. Some of them were only interested in buying back merchandise from LPP, others offered to take over the most attractive locations in shopping centres, while still others offered to swap stores for European locations. At the time of the war outbreak, the company had a portfolio of 557 stores located in the Russian market. After considering all possible options, with the primary aim of maintaining the company’s stability and the safety of its employees, the Russian business was sold in 2022 to a buyer with no connection to the LPP Group. Since the decision to dispose of the Russian company’s assets, neither LPP nor individuals on the Company’s Management Board have planned or plan to return to operations in this market.

– The decision to sell the business we had been building for 20 years was one of the most difficult ones we had to face and at the same time the only right one to be made at that time. We were operating in unprecedented conditions, under enormous time pressure. In this extremely difficult situation, we had to reconcile the needs of investors and recover at least part of the funds invested in that market with the needs of our employees, who had been building the business there together with LPP for many years. In the context of these events, I perceive the false claims published against LPP as a manipulative attempt and act to the detriment not only of the company and our employees, but also of investors and business partners, dictated only by the desire to achieve profits at this cost. I am convinced that the truth will speak for itself, and as a company of public trust and an organisation operating on strong foundations, we will quickly regain the lost image and trust – comments Marek Piechocki, CEO of LPP.

Pursuant to the sales agreement concluded in 2022, the Russian company – as a completely independent entity, acting on its own behalf and on its own account – sells goods in Russia, including, inter alia, goods acquired during the so-called transition period. According to the contract, this is the time during which the investor will gradually assume complete autonomy over the individual business areas of the acquired company, including, among other things, building its own team responsible for the purchase of goods, their distribution and IT systems. The payment for the sale of the company including the receivable from the stores in the amount of PLN 601 million – in accordance with the plan agreed with the investor – was split into tranches. The transition period is scheduled to last until the end of 2026 at the most and in no way implies that LPP will continue to trade in Russia. However, the Group intends to shorten this period.

Under the terms of the transaction, during the transition period, LPP was obliged by the buyer to supply goods to the investor’s purchasing agents (FGT and AFIE companies), which are in no way related to LPP and operate completely independently, and whose activities are standard practice in the international retail industry. The share of sales made to purchasing agents is small (3% in 2024) and has been decreasing significantly year on year. Goods have been transferred at cost price and LPP currently does not make any profit from this. This is part of the so-called transition period and not the manifestation of the company’s commercial activities.

Since the conclusion of the transaction, the buyer has also operated its own POS store system using bar-codes completely independently and has taken the decision to code the goods according to its own needs.

Referring to the information contained in the intelligence agency’s report, the Management Board of LPP Group also strongly denies that the company made any deliveries to Russia through Kazakhstan. LPP’s sales to the company in Kazakhstan, which manages 23 stores operating in this market, amounted to USD 15 million in 2022.

Since the sale of the Russian business and the complete withdrawal from any activity in this market, the LPP Group has been successively implementing the scenario of strengthening its presence in the markets of Southern and Central Europe, tapping into the greatest growth potential in the value-for-money segment. The driving force for LPP in this regard is Sinsay brand, which, due to its competitive advantages (store format, wide offer, attractive price, and omnichannel), the company intends to develop intensively in the coming years, both in terms of physical stores and online sales.

Thanks to the adopted strategy, the financial situation of the LPP Group is stable and the company has promising growth prospects in 2024. Unaudited estimates for 4Q2023 show double-digit year-on-year sales growth achieved through new store openings, growing LFL in physical stores and sales increases in the online channel. Sales figures for the period from 1 February to 15 March 2024 indicate, in the case of the Sinsay brand, a 60% increase in e-commerce sales and a 29% increase in traditional sales, with the other four brands up 6% and 4% respectively.

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LPP is a Polish family business and one of the fastest growing clothing companies in the region of Central and Eastern Europe. For 30 years, it has been successfully operating in Poland and abroad, offering its collections in such prestigious capitals as London, Helsinki or Tel Aviv. LPP manages five fashion brands: Reserved, Cropp, House, Mohito, and Sinsay, whose offer is available today in stationary and online stores in nearly 40 markets worldwide. The company has a chain of over 2000 stores with the total area of 1.9 million m2 and distributes clothing and accessories to 3 continents every year. LPP also plays an important role as it employs nearly 30 thousand people in its offices and sales structures in Poland, Europe, Asia, and Africa. The company is listed on the Warsaw Stock Exchange in the WIG20 index and belongs to the prestigious MSCI Poland index.