Klementi            FINANCIAL RESULTS           14.06.2005



AUDITED FINANCIAL RESULTS 2004



MANAGEMENT REPORT





General information on the AS Klementi Group



The  Klementi  group  is an international  apparel  trade

group  which is engaged in the design, manufacturing  and

marketing of women’s apparel as well as the provision  of

sewing subcontracting services.



As of 31.12.2004, the Klementi Group whose parent company

is   AS   Klementi   consisted  of  four   wholly   owned

subsidiaries: Klementi Trading OY, UAB Klementi  Vilnius,

Klementi Trading AB and SIA Vision. The subsidiaries  are

engaged  in  the  retail  and wholesale  distribution  of

apparel in Finland, Sweden, Latvia and Lithuania.



The  Klementi Group operates a retail store  chain  under

the  PTA trademark in Estonia and Latvia and owns factory

stores  in  Estonia and Sweden. The company  markets  the

trademarks PTA, Mallimari, Piretta and Mastercoat of  the

Klementi  Group through its own retail chain as  well  as

through wholesalers. The factory stores sell apparel from

past  seasons'  collections. Apparel personally  tailored

for  customers using expanded designs and fabrics is sold

under the Avenue trademark.





Results of operations of AS Klementi for 2004



In  2004, the consolidated net sales of AS Klementi  were

128.6  million  kroons  and the  loss  amounted  to  11.9

million  kroons.  As  compared to  2003,  the  net  sales

decreased  by  3.7%  (net sales in  2003:  133.6  million

kroons) and the loss by 9.7 million kroons.



The  composition of sales changed as compared to the year

before.  The  apparel sales made up 78.2% of total  sales

(2003: 82.2%). The share of subcontracting products  grew

by 4.9% in 2004. Exports decreased by over 8% as compared

to  2003.  The  decrease  in sales  was  related  to  the

decrease   of  the  wholesale  turnover  in  the   Nordic

countries, especially in Sweden and Finland.



As of 31.12.2004, the consolidated balance sheet total of

the  Klementi Group was 105.8 million kroons,  decreasing

by  16.1 million kroons as compared to the previous year-

end.  The decline of the balance sheet total was  related

to  more  aggressive  sales of older inventories,  better

management of receivables and the reduction of  the  cost

of  non-current assets. Significantly improved cash flows

enabled  the company to reduce borrowings by 4.5  million

kroons  and  supplier payables by 0.6 million  kroons  as

compared to the beginning of the year.





Products and markets



A decision was made to start developing the PTA trademark

beginning  with  the second half of 2004. In  conjunction

with  this,  the  product development activities  of  the

company  were  reorganised and the chain  of  stores  was

rearranged  into the PTA retail chain. This  change  will

lead  to  better procurement prices, reduction of product

development  costs, more optimal planning of  inventories

as  well as more efficient usage of the marketing  budget

to support one brand.



In  conjunction with this, the company made the expansion

and  development  of  its  own  retail  store  chain  its

strategic priority.



In  the  autumn  of 2004, the retail store  chain  of  AS

Klementi  was  reorganised and it  was  turned  into  the

stores operating under the PTA trademark.



The  women’s  apparel  of  AS Klementi  was  marketed  in

addition to Estonia also in the Nordic countries, Latvia,

Lithuania  and Russia. In 2004, the largest sales  growth

occurred in Latvia where apparel sales more than doubled.



Retail sales



In  2004,  the  group’s  retail sales  amounted  to  60.7

million  kroons,  an increase of 22% as compared  to  the

previous year. Retail revenue amounted to 60% (2003: 45%)

of  apparel  sales  revenue. Total retail  sales  revenue

increased  by  11.0  million kroons, most  of  which  was

related  to  the  improvement of efficiencies  of  retail

spaces.  The  average  retail  sales  per  square   meter

increased by almost 29% as compared to the previous year.

Most of the sales occurred in Estonia whereas Latvia  had

the largest sales volume growth of almost 30%.



As of the year-end 2004, the Klementi Group had 10 stores

with  the  sales space of 2744 square meters (31.12.2003:

10 stores with the sales space of 2689 square meters).



Wholesale distribution



Wholesale  apparel sales decreased by over 30%  in  2004.

This   is  primarily  related  to  lower  sales  in   the

Scandinavian  countries, where the decline of  the  sales

turnover  resulted  from  inappropriate  positioning   of

apparel marketed under the PTA trademark as well  as  the

collection  failing to meet the expectations.  Since  the

second  half  of  2004,  AS  Klementi  has  changed   the

positioning of the PTA trademark, leading the company  to

expect   higher  sales  in  the  Scandinavian   countries

beginning with 2006.



Subcontracting sales



Subcontracting  sales volume increased by  26%  in  2004.

Last   financial   year,  the  number  of  subcontracting

business  partners  who purchased  the  full  service  of

manufacturing  apparel  instead of  purchasing  just  the

sewing  service  increased. Also, the  manufacturing  and

sales  of  occupational apparel was begun  in  accordance

with  the  customers’ requests. Gradual  transition  from

offering sewing services to offering the full service  of

manufacturing   apparel  (incl.   the   preparation   and

placement  of  products,  increasing  and  decreasing  of

patterns, cutting, etc.) helped to increase net sales and

made  the  provision of the subcontracting  service  more

profitable.



Manufacturing



In  2004,  the production volume of AS Klementi decreased

by  0.8  million  standard minutes.  The  improvement  of

sewing  efficiencies of 7.6% ensured the need for  making

own  products  and enabled to significantly increase  the

volume of the subcontracting sewing service. The new wage

system  also  helped  to  increase  sewing  efficiencies,

increasing the motivation of employees and improving  the

contribution-based pay system.



In 2004, AS Klementi improved the production technologies

by   implementing   new  working  methods   and   special

equipment.  Production  technological  improvements  have

enabled   to   improve  cooperation   with   Scandinavian

subcontracting clients.



Personnel and wage policy



As   of   31.12.2004,   Klementi  employed   448   people

(31.12.2003: 487 people), including 418 women and 30 men.

During  the year, 77 people started to work at  Klementi,

including  32  production workers; 116  people  left  the

company,  including 80 production workers. The number  of

employees decreased on average by 39 people or 6.7% in  a

year.



Of production workers, 65.7% worked on a piecework basis,

5%  in ancillary positions, 4.2% at warehouses, 10.2%  in

retail  trade. Managers and specialists made up 14.9%  of

all employees. Forty-six people were on maternity leave.



As  of  31.12.2004, 18 people worked at the subsidiaries,

including:



Subsidiary  Klementi Vilnius UAB had  no  employees  (the

subsidiary is under liquidation proceedings);



Subsidiary Klementi Trading OY: 1 employee;



Subsidiary Klementi Trading AB: 4 employees;



Subsidiary SIA Vision: 13 employees.



The  group  employed 485 people on average in  2004,  and

their wages and salaries amounted to

34.4 million kroons.





Capital expenditures



In  2004,  capital expenditures amounted to  2.6  million

kroons,  almost  97% of which was invested  in  property,

plant  and  equipment. The volume of capital expenditures

stayed at the same level as in 2003.





Management Board and Supervisory Board



In 2004, the members of the Supervisory Board received no

remuneration.   The  members  of  the  Management   Board

received 720 thousand kroons as remuneration.





Financial ratios (group)



                                                        2004     2003



increase of net sales vs. last year                     -3.7%     0.3%



share of apparel in net sales                           78.3%    82.3%



inventory turnover [net sales/average inventory]         4.2      4.3



receivable    turnover                                    28       39

[(receivables–customer prepayments)/average daily net sales]



liquidity ratio                                         0.26     0.29

[(current assets-inventories) /current liabilities]      



current ratio [current assets/currentliabilities]       0.72     0.79



EBIT margin      [operating profit/net sales]          -4.5%    -11.9%



net margin       [net profit/net sales]                -9.3%    -16.6%



return on equity [net profit/average equity]          -50.4%   -66.16%



return on assets [net profit/average cost of assets]  -10.4%   -17.68%





Plans for 2005



In  2005,  the expansion of the chain of PTA stores  will

continue  in  Estonia and Latvia and the  retail  network

will also be expanded to Russia and the Ukraine.



In  2005,  a  more modern and attractive interior  design

concept of PTA stores will be worked out. The first store

with  the new interior design will be opened in  Riga  in

spring.



Next  year,  the number of PTA stores is  planned  to  be

doubled  in Latvia and three stores will be renovated  in

Estonia.



The  main  focus  of the retail trade is to  improve  the

efficiencies  of  retail sales. The following  activities

have been planned to be implemented to achieve this:

-    Grow the awareness of the PTA trademark

-    Optimisation of the retail spaces of stores and

     search for new retail spaces

-    improvement  of  the methods for managing  retail

     inventories

-    expansion  of  the  range  of  products   within

     collections



The  range  of  products  within the  PTA  collection  is

planned  to  be  expanded. The main plan  calls  for  the

expansion of casual apparel in the apparel collection and

increasing the range of accessories at the stores.



In 2005, the gradual transition from basic subcontracting

sewing service will continue to be replaced with the full

service  of  apparel manufacturing (so-called  full-price

products),  creating additional value for the client  and

enabling  the  company  to use its total  resources  more

efficiently and profitably.



Beginning  with  1 January 2005, new integrated  economic

software  Microsoft Axapta, which significantly  improves

the  quality  of  the  company’s  management  information

thereby  enabling  better management of  inventories  and

retail sales margins, will be implemented.



The volume of capital expenditures in 2005 is 2 million

kroons.









2004 FINANCIAL STATEMENTS





Management Board’s confirmation of the financial statements



The   Management  Board  of  AS  Klementi  confirms   the

correctness  and  completeness of AS  Klementi’s  (parent

company)  and  the group’s 2004 financial  statements  as

presented on pages 8-35.



The Management Board confirms that:



-     The  financial  statements have  been  prepared  in

      accordance   with  the  generally  accepted  accounting

      principles   and   International  Financial   Reporting

      Standards;



-     the  financial statements present a true  and  fair

      view  of  the  financial position, the results  of  the

      operations and the cash flows of the parent company and

      the group;



-    AS Klementi is a going concern.









Balance sheet



in thousands of kroons

                        Group    Group     Parent     Parent 

                                                            

                      31.12.04 31.12.03  31.12.04   31.12.03

                             

» Assets                                                     

Cash and bank            3 400    2 916     1 802      2 100

Trade receivables        9 906   14 862     7 807      5 649

Other receivables        1 706    1 097    12 430     16 527

Prepayments              1 141      945       404        554

Inventories             28 255   33 284    25 139     24 474

Total current assets    44 408   53 104    47 582     49 304

                                                            

Subsidiaries and             -        -     3 711      2 493

associates

Long-term financial        955    1 173     1 018      1 219

investments    

Property, plant and     52 896   60 403    51 854     59 212

equipment

Intangible assets        7 574    7 306     5 698      5 208

Total non-current       61 425   68 882    62 281     68 132

assets

                                                             

TOTAL ASSETS           105 833  121 986   109 863    117 436

                                                             

» Liabilities and                                            

equity

Borrowings              43 183   48 386    43 183     48 386

Customer prepayments       223      470       223        470

Supplier payables        9 189    9 745     9 107      7 544

Other payables               -        -     4 563          7

Tax liabilities          1 399    2 255     1 340      1 728

Accrued expenses and     7 747    6 051     7 355      4 222

prepayments

Short-term provisions       12       12        12         12

Total current           61 753   66 919    65 783     62 369

liabilities

                                                             

Long-term borrowings    26 219   25 487    26 219     25 487

Other long-term             25        -        25          0

payables

Long-term provisions       148       68       148         68

Total non-current       26 392   25 555    26 392     25 555

liabilities

                                                             

TOTAL LIABILITIES       88 145   92 474    92 175     87 924

                                                             

Share capital at        18 969   18 969    18 969     18 969

nominal value

Share premium           40 294   40 294    40 294     40 294

Revaluation reserve     13 876   15 578    13 876     15 578

Statutory reserve        1 046    1 046     1 046      1 046

capital

Retained earnings      -44 735  -24 798   -44 735    -24 798

Unrealised exchange        139       64       139         64

rate differences

Net loss for           -11 901  -21 641   -11 901    -21 641

financial year

                                                             

TOTAL EQUITY            17 688   29 512    17 688     29 512

                                                             

TOTAL LIABILITIES AND  105 833  121 986   109 863    117 436

EQUITY

 

 



Income statement

 

in thousands of kroons

                        Group    Group     Parent     Parent 

                                                            

                         2004     2003       2004       2003

                                                             

Net sales             128 606  133 630    116 572    127 874  

                                                           

Other operating         4 233    2 254      4 215      2 261   

income

TOTAL OPERATING       132 839  135 884    120 787    130 135     

INCOME

                                                             

Change in work-in-      5 825    3 220        389      4 473     

progress and

inventories of

finished goods

Goods, raw materials   49 265   50 634     47 878     50 016     

and services

Operating expenses     28 754   35 504     28 341     35 670   

Staff costs            44 644   52 720     41 565     46 938   

Depreciation and        7 610    7 572      7 009      7 022    

amortisation                                               

Other operating         2 564    2 152      2 564      2 119   

expenses

TOTAL OPERATING       138 662  151 802    127 746    146 238     

EXPENSES

                                                             

OPERATING LOSS         -5 823  -15 918     -6 959    -16 103     

                                  

                                                             

Net financial income        -        -      1 096       -394     

and expenses from

subsidiaries

Interest expenses      -5 922   -5 754     -5 938     -5 314     

Foreign exchange         -156       45       -100       -158     

loss

Other financial             -      -14          -        328     

income/expenses

                                                             

Total financial        -6 078   -5 723     -4 942      -5538 

income/expenses                                              

NET LOSS              -11 901  -21 641    -11 901    -21 641 

                                                             

                                                             

Loss per ordinary       -6.27   -13,19      -6.27     -13,19  

share (kr)

Diluted loss per        -6.27   -13,19      -6.27     -13,19  

ordinary share (kr)





Toomas Leis

Chairman

+372 6 710 700