Operating Behind Enemy Lines: How Fashion Powerhouse LPP S.A. Masked A Fake Russia ‘Sell-Off’ Using Front Entities And Encrypted Barcodes

Operating Behind Enemy Lines: How Fashion Powerhouse LPP S.A. Masked A Fake Russia ‘Sell-Off’ Using Front Entities And Encrypted Barcodes

• LPP S.A. is an $8.4 billion vogue retailer primarily based in Poland that lays declare to being the biggest vogue firm in Central and Eastern Europe.
• Until Russia invaded Ukraine in February 2022, Russia was LPP’s largest worldwide market, producing ~19.2% of income from 553 shops. LPP had main enlargement plans for Russia in accordance with firm disclosures and a former government who instructed us: “[LPP] had plans to open a whole lot of extra shops [in Russia] … that was the most important market that we wished to develop”.
• Russia’s invasion of Ukraine in February 2022 triggered a mass exodus of international corporations from Russia. This resulted in a 46.6% drop in LPP’s share value as traders feared the lack of key progress prospects.
• Trade relations with Russia pose a critical danger for Polish corporations like LPP attributable to each sanction and reputational dangers—97% of Polish residents have an unfavourable view of Russia post-invasion, in accordance with a survey performed by the Pew Research Center in spring 2022.
• As not too long ago as November 2023, former Russian president and shut ally of Vladimir Putin, Dmitry Medvedev, labelled Poland a “harmful enemy” and insinuated that it may very well be a candidate for invasion.
• On April 28^th, 2022, LPP introduced plans to distance itself from Russia by divesting its Russia division. A deal progressed quickly: Weeks later, on May 19^th, 2022, it introduced it had concluded negotiations with an unnamed purchaser, finalizing a sale on June 30^th, 2022.
• Despite saying it misplaced ~20% of revenues from divesting its Russian operations, LPPs complete income nonetheless remarkably grew 13% total in FY 2022/23. Reported income throughout markets excluding Russia was up 40.5% year-on-year.
• The market has rewarded LPP’s reported 40.5% core income progress—nearly exceptional within the retail attire business—by sending the inventory again towards all-time highs.
• We imagine LPP was in a position to submit these outstanding outcomes as a result of its divestment of its Russia enterprise has been a whole sham.
• LPP says it offered its Russian property (known as “Re Trading”) to a imprecise “Chinese consortium” in a ~$382 million deal. We discovered that the customer was a Dubai-based shell known as “Far East Services” with no disclosure of its homeowners or administrators.
• Far East Services was included simply at some point earlier than LPP introduced it had reached an settlement to promote its Russian subsidiary. It has no externally verifiable presence, monitor document within the vogue business, or obvious associations with China.
• A former senior LPP worker instructed us the deal was “a façade to cover [the] fact of not promoting Russian operations”, including that LPP’s Russian operations are nonetheless “immediately managed by LPP HQ and board”.
• A former supervisor described LPP CEO and founder Marek Piechocki’s method: He didn’t “give a f*ck about some conflict between Russia and Ukraine. This [war] is simply non permanent.”
• Operational particulars provide different clues that LPP retained management of the Russia enterprise. For instance, LPP’s Russian shops re-opened the day after its sale contract was agreed; 37 days earlier than the deal even closed.
• ‘Big Four’ auditor Ernst & Young issued a certified opinion on LPP´s 2021/22 audited monetary statements over accounting points referring to its Russian property. 5 days after LPP’s claimed Russian divesture, LPP switched auditors to Grant Thornton, a second-tier audit agency with a historical past of lacking indicators of accounting malfeasance.
• LPP stated it will solely help the brand new purchaser for a “transitory interval”, however proof suggests LPP continues to promote, and may monitor and management stock being offered, in Russia.
• We dispatched secret customers to “Far East Services” flagship shops in Moscow and St. Petersburg in December 2023. Almost all clothes we photographed have been similar designs and colours to fall/winter collections in LPP´s on-line catalogues in Poland, indicating that LPP’s merchandise are nonetheless by some means making their method into Russia at the very least 18 months after the claimed divestiture.
• Further, Russian in-house product codes have been an precise match for the product codes in LPP´s Polish catalogue.
• Barcodes discovered on Russian merchandise at first appeared principally out-of-date, issued to random Chinese corporations, or counterfeited to masks the merchandise’ true origin.
• However, LPP shows proven to us element how LPP deliberate to switch barcodes to covertly monitor Russia merchandise through its personal IT programs– concealing its continued management of the stock.
• Additional paperwork present how LPP senior administration can encrypt legitimate barcodes registered to LPP in Poland and disguise them as unrelated Chinese barcodes.
• We reverse-engineered 65 barcodes at “Far East Services” retail shops in Russia utilizing LPP’s secret methodology. Once decoded, they have been a exact match to LPP barcodes registered in Poland. We view this as dead-on proof of LPP’s elaborate steps to hide its sham Russia divestiture.
• “For me the shock is…that that is LPP as a result of they’re actually, that is the most important Polish clothes model proprietor. So it’s exhausting to think about that, that they’ll do one thing like that,” a supervisor at GS1 Global, the Polish department of the barcodes requirements group, instructed us.
• LPP additionally set out plans in inside paperwork to cover exports of its merchandise to Russia – cloaking the true possession of the products through two entrance corporations arrange by key LPP insiders. LPP’s export scheme was put into apply from mid-2022, in accordance with our evaluation of over 335,000 thousand import-export records.
• The first entrance firm – Singapore-based ‘Asia Fashion Import Export’ – was arrange the day Russia invaded Ukraine by a key member of Semper Simul Foundation, LPP’s controlling shareholder affiliated with CEO Marek Piechocki.
• The second entrance firm – ‘Fashion Group Tekstil’ – was a dormant Turkish firm till an LPP worker acquired it 7 months after Russia’s invasion of Ukraine. “Far East Services”, the customer of LPP’s Russian property, later took management of 95% of Fashion Group Tekstil.
• LPP stepped again and handed a lead supply-chain function to the related-party entrance corporations, primarily based on our evaluation of barcodes and import-export records.
• LPP additionally seems to be utilizing Kazakhstan as a backdoor to assist provide Russia shops. Import-export records present that LPP shipped ~$755 million of merchandise to its Kazakh subsidiary in 2023, regardless of Kazakhstan solely accounting for 1% of LPP’s brick-and-mortar shops.
• If discovered to nonetheless be working in Russia, LPP could also be in breach of mortgage and finance agreements with its major creditor, PKO BP Bank, which offered ~62% of its loans and borrowings as of its newest year-end. PKO wrote us: “In precept the financial institution doesn’t finance entities working in Russia or in cooperation with Russian contractors.”
• We suspect LPP has additional masked its sham Russia divestment by accounting manipulation. We discovered that greater than two-thirds of the income progress in 2022/23, representing $732 million or 20% of complete income, got here from an unexplained “Other” phase, in accordance with the English model of LPP’s annual report. In the earlier 3 years, this “Other” phase by no means represented greater than 2% of LPP’s complete income.
• Meanwhile, administration has extracted money from their LPP stake by margin loans, a dangerous type of financing. On December 5^th, 2023, LPP´s controlling shareholder, an affiliate of LPP’s CEO Marek Piechocki, pledged 20% of its stake in LPP, value $490 million on the time.
• Overall, we imagine LPP devised an elaborate sham ‘divestment’ to proceed earning profits in Russia regardless of the devastating conflict, whereas making an attempt to deceive traders and shoppers in Poland, Ukraine, and its different key markets.

Initial Disclosure: After intensive analysis, we now have taken a brief place in shares of LPP S.A. (WSE:LPP). This report represents our opinion, and we encourage each reader to do their very own due diligence. Please see our full disclaimer on the backside of the report.

Background: $8 Billion Fast Fashion Retailer Based In Poland

LPP S.A. is an $8.4 billion (PLN 33.1 billion) fast-fashion clothes and residential equipment retailer headquartered within the port of Gdansk, Poland.

It was based as a family-led, wholesale clothes enterprise in 1991 simply after the Soviet bloc collapsed and Poland started transitioning to a market financial system. It listed on the Warsaw Stock Exchange in 2001.

Co-founder Marek Piechocki is LPP’s Chairman and CEO.[1] The Malta-registered Semper Simul Foundation – consisting principally of Piechocki household pursuits – is LPP’s controlling shareholder, proudly owning about 31.2% of LPP’s shares with 60.8% voting management.[2] Piechocki’s two sons sit on the administration and supervisory boards of LPP. [Pg. 10]

Explaining Semper Simul´s management of LPP, Piechocki stated in a media interview in December, 2023:

“The Semper Simul Foundation, which is a big shareholder of LPP, additionally invests in different tasks. When creating it, I wished LPP to at all times be protected and… to be in household palms for generations.”

LPP grew from promoting low cost, imported Turkish sweaters to now having 2,206 shops, totalling greater than 1.9 million sq. meters of retail area throughout 27 international locations, per LPP’s most up-to-date outcomes. 

The firm sells below its flagship model Reserved, streetwear model Cropp, youth informal model House, ladies´s assortment Mohito, and lower-cost clothes and residential equipment model Sinsay.

LPP doesn’t personal manufacturing crops. Rather, it outsources the manufacture of its designs to greater than 1,200 third-party suppliers, of which 93% are in Asia.

LPP now lays declare to being the biggest vogue firm in Central and Eastern Europe.

Part I: Background On LPP’s Russian Business

Until Russia Invaded Ukraine In February 2022, Russia Was LPP´s Biggest International Market, Generating ~19.2% Of Revenue From 553 Stores In The Prior Year

Former LPP Executive: “We Had Plans To Open Hundreds Of More Stores [In Russia]. Hundreds. That Was The Biggest Market That We Wanted To Grow”

LPP opened its first retailer in Russia in 2002. By the tip of its 2021/2022 monetary 12 months, LPP had 553 shops in Russia – one-quarter of its 2,244 shops globally at the moment.

For the interval of February 1st, 2021, to January 31th, 2022, Russia accounted for 19.2% of LPP´s complete income of about $3.4 billion (PLN 14.02 billion). LPP’s residence nation of Poland accounted for 39.3% of revenues and 952 shops. [3]

The subsequent largest worldwide marketplace for LPP after Russia was Ukraine, which generated 7.1% of firm income from 159 shops.

With a inhabitants of greater than 141 million in Russia versus about 38 million in Poland, LPP considered Russia as a serious goal for future progress, as outlined within the firm factbook and different shows for the 12 months 2020/21:

“We see long-term progress potential in Russia, attributable to giant variety of cities with inhabitants above 1 million.”

A former senior supervisor confirmed these progress plans to us:

“The future was like we had plans to open a whole lot of extra shops [in Russia]. Hundreds. That was the most important market that we wished to develop. That was the technique and that’s the method we seemed on the map months earlier than the conflict, that will probably be crucial market.”

Russia’s Invasion Of Ukraine Triggered A 46.6% Drop In LPP’s Share Price Due To Investors Fearing The Loss Of Its Key Growth Prospects

Less than a month after LPP’s 2021-22 fiscal interval ended, LPP’s progress plans for Russia have been abruptly thwarted by the conflict.

On February 21^st, 2022, after Russia declared a number of Ukrainian areas ‘impartial’, LPP’s inventory started to fall. The plunge accelerated on February 24^th, 2022, when Russia invaded Ukraine, with LPP’s inventory bottoming on March 7, 2022.

During this 14-day interval, LPP’s inventory value fell by 46.6% as traders feared LPP would lose its key progress market.

Russia’s Invasion Of Ukraine Sparked A “Mass Corporate Exodus” From Russia Due To The Threat Of Sanctions, Along With Consumer And Investor Backlash

Sanctions, extreme reputational harm, worldwide strain, banking restrictions, and the danger of Russian authorities interference have all been cited as main dangers for corporations which have chosen to stay in Russia.

The U.S. and EU introduced new sanctions towards Russia starting hours after Russia launched its invasion of Ukraine. [1,2]

A company exodus from Russia rapidly adopted. On March 1, 2022, CNBC reported:

“The confluence of Russia’s invasion of Ukraine and the next barrage of Western sanctions has triggered a mass company exodus from Moscow.”

Hundreds of multinationals suspended operations in Russia or fully divested because the invasion, together with at the very least 19 Polish corporations which have withdrawn from Russia, in accordance with probably the most complete databases maintained by the Chief Executive Leadership Institute on the Yale School of Management.

Jeffrey Sonnenfeld, founding father of Yale’s Chief Executive Leadership Institute warned of the PR catastrophe awaiting these worldwide companies who decide to stay in Russia:

“When the conflict ends, they’re going to be seen as Nazi collaborators have been seen.”

Trade Relations With Russia Pose A Serious Risk For Polish Companies Like LPP

97% Of Polish Citizens Have An Unfavourable View Of Russia Post-Invasion – Pew Research Center

Poland – itself as soon as a satellite tv for pc state of the united states – has been a member of NATO since 1999 and a part of the European Union since May 2004. Its japanese border with Russia-ally Belarus and war-ravaged Ukraine additionally marks the japanese frontier of each the NATO and EU blocs.[4] [5]

As such, Poland would turn out to be the NATO and EU frontline if Russia have been to widen its Ukraine conflict westward.

As not too long ago as November 2023, former Russian president and shut ally of Vladimir Putin, Dmitry Medvedev, labelled Poland a “harmful enemy” and insinuated that it may very well be a candidate for invasion.

On February 8^th, 2023, whereas Putin stated in an interview that he had little interest in sending Russian troops to Poland, he additionally falsely claimed that Poland collaborated with Hitler and pushed “Hitler to start out World War II.”

Beyond particular sanctions imposed by the European Union, of which Poland is a member, there isn’t any blanket ban on commerce between Russia and Poland and imports and exports have continued, albeit on a a lot decreased stage.

However, because the invasion of Ukraine, 97% of Poles have unfavourable views of Russia, the least beneficial country-wide stance of any of the nationalities surveyed, in accordance to a research performed by the Pew Research Center within the spring of 2022.

Incoming Polish Prime Minister Donald Tusk has pledged to rally worldwide help for Ukraine. At his inauguration in mid-December 2023, he pledged: “Poland’s full involvement with Ukraine on this merciless battle with the Russian aggressor.”

On April 28^th, 2022, LPP Announced Plans To Distance Itself From Russia By Divesting Its Russia Division

On May 19^th, 2022, It Announced It Had Concluded Negotiations With A Buyer

Given the potential post-Russian-invasion penalties, LPP introduced that it will progressively droop operations in Russia and halt provides and shortly after stated it will sell-off its whole operation in Russia.

Some timeline fundamentals:

• On March 4^th, 2022, 8 days after Russia invaded Ukraine, LPP introduced that it will droop operations in Russia and halt provides.
• On March 29^th, 2022, the corporate issued a assertion saying it had shut down all Russian shops (~553 shops complete) and fully suspended the transport of products to its Russian branches.
• On April 28^th, 2022, only one month later, LPP stated it had taken the choice to promote its Russian enterprise.
• On May 19^th, 2022, simply 3 weeks after asserting its resolution to promote and regardless of the continued conflict, LPP stated it had concluded negotiations for promoting its Russia subsidiary.
• On May 23^rd, 2022, 4 days later, it signed the gross sales contract.

In temporary, it took LPP solely 25 days between deciding to promote its Russian enterprise (consisting of 553 shops) and executing a sale and buy settlement.[6] [7]

Bull Case: Despite Saying It Lost ~20% Of Revenues By Divesting Its Russian Operations, LPP’s Total Revenue Still Remarkably Grew 13% Overall In FY 2022/23

LPP Also Reportedly Increased Its Number Of Overall Stores Outside Of Russia By 30% In 21 Months. Its Stock Has Rocketed Back Near All-Time-Highs

In the fiscal 12 months that ended on January 31^st, 2023, regardless of shedding its largest worldwide market representing 19.2% of revenues and 25% of its shops, LPP remarkably reported 13% total income progress. [Pg. 91] [Pg. 85]

When adjusting LPP’s FY 2022/23 figures to exclude its Russian operations, the remainder of the corporate reportedly elevated its revenues by 40% from the prior 12 months, in accordance with restated figures from LPP’s Annual Report. [Pgs. 85, 92]

This meteoric progress was achieved with a extra diversified income combine by nation. Beyond Poland, no nation contributed greater than 8.4% of complete revenues, in accordance with the LPP’s Annual Report 2022/23.

And by some means, the corporate has not slowed down. During the first 3 quarters of FY 2023/24, LPP reported 7% income progress year-over-year.

As an additional reflection of its progress past Russia, LPP reported it had elevated its variety of complete shops by 30% in 21 months, opening 515 shops from January 31^st, 2022, to October 31^st, 2023.[8]

Investors have cheered LPP’s post-Russia reported progress and now see LPP as a competitor to Inditex and H&M. The firm plans to increase in Italy, Great Britain, Greece, and Germany, as reported by Forbes.

LPP’s inventory value has doubled since reaching a backside in October 2022, indicating that the market has purchased into the corporate´s claims of progress with out Russia.

Part II: LPP’s Divestment Of Its Russia Business Appears To Have Been A Sham

We imagine the important thing purpose LPP’s metrics have remained regular regardless of its claimed Russia divestment is as a result of the corporate by no means really divested its Russian property.

LPP Says It Sold Its Russian Assets (“RE Trading”) To A “Chinese Consortium” In A ~$382 Million Deal

The Buyer Entity Is A Dubai-Based Shell With No Disclosure Of Owners Or Directors

LPP didn’t initially identify the customer of its Russia enterprise and described it solely as a “Chinese consortium.” The purchaser was later described as an “Asian investor” in LPP’s 2022-23 annual report.

The transaction had “two components” described as (i) the sale of the shops and (ii) the sale of products. No money was initially exchanged.

The first aspect, the shops, have been offered for ~$135 million (PLN 601 million), to be paid in instalments inside 4 years. The second aspect represented ~$247 million (PLN 1.1 billion) of outdated stock, with the steadiness to be paid out by the tip of May 2023. [Pg. 10]

The new purchaser additionally has the choice of promoting the corporate again to LPP by the tip of 2026, giving LPP an opportunity to retake possession of its Russia enterprise after the conflict ends.[9]

LPP CEO Piechocki described cost for its Russian subsidiary as “nonetheless ongoing” in a December 2023 interview with Poland´s financial newspaper of document:

“It remains to be ongoing, the primary giant instalment will probably be in December (2023) … The enterprise is offered, however funds are nonetheless to be acquired. I’ll inform you in January (2024) whether or not they’re coming in.”

The New Buyer, “Far East Services”, Was Incorporated One Day Before LPP Announced It Had Reached An Agreement To Sell Its Russian Subsidiary

Russian company records present that the customer was Far East Services-FZCO, a Dubai-based shell with no disclosure of homeowners or administrators. [Pgs. 2-3]

Far East Services – FZCO was included in Dubai on May 18^th, 2022, at some point earlier than LPP introduced it had concluded negotiations for promoting its Russian property, in accordance with the UAE nationwide financial register.

Russian company records present Far East Services-FZCO took management of 95% of shares of LPP´s Russia subsidiary RE Trading on June 30^th, 2022.[10] [Pgs. 2-3]

The remaining 5% was transferred to Anna Pilyugina, in accordance to the Russian authorities information company TASS.[11] Pilyugina has been “normal director” of LPP´s Russian subsidiary RE Trading since at the very least 2013, in accordance with the Russian enterprise registry. [Pg. 2]

Pilyugina’s minority stake was later transferred to a different Dubai free zone entity, General Consulting Services-FZCO, on March 2^nd, 2023, in accordance with Russian company records.[12] [Pg. 3]

Far East Services Has No Externally Verifiable Presence Or Track Record In The Fashion Industry Or Associations With China

One would count on {that a} consortium that defines itself as “one of many largest corporations within the vogue business” working 500+ shops in Russia would have some sort of documented on-line presence about its monitor document. However, this isn’t the case with Far East Services, additionally often known as FES Retail.

The web site related to FES Retail doesn’t identify any executives on the firm. The FES Retail area was registered in June 2022, from Russia, after LPP introduced the sale of its Russian operations.

Other than the information articles referring to the acquisition of LPP’s Russian enterprise and an announcement to shut 50 shops, FES Retail hasn’t clearly communicated its technique, plans, or company initiatives for the enterprise, per a March 11^th, 2024 search on Yandex, a Russian search engine.

Oddly, 17 Russian certificates of conformity issued to Re Trading after LPP offered it nonetheless used an LPP e mail (extra on this later). From these certificates we additionally discovered an handle for FES Retail in Dubai registered to a submit workplace field.

The P.O. field matches the handle of a distribution firm in Dubai, Worldwide Distribution Center FZCO.

We talked to Khamid Ismatullaev, the founder and managing director of Worldwide Distribution Center. He instructed us that he didn’t acknowledge the identify Far East Services nor has any enterprise relationship with it:

“I don’t acknowledge an organization known as Far East Services.”

“We don’t ship to Russia any product, as a result of Russia is sanctioned. So, I’m not in a position to. I’m not allowed to promote from the producers.”

We discover it odd that the “Chinese Consortium” behind FES Retail has no verifiable presence, no monitor document of working within the vogue business, and no clear affiliation with China.

“Sources In The Company Indicated That The ‘Chinese Consortium’ Is LPP Structures In China” – Kommersant, Russian Business Newspaper

In a quick article revealed on July 4^th, 2022,  after Russian authorities had accredited the sale, Moscow-based enterprise newspaper Kommersant cited unnamed firm sources alleging that Far East Services was only a shell masking LPP´s continued possession of its Russian subsidiary:

“LPP spoke about plans to promote its Russian enterprise to a consortium from China again in May. Then Kommersant’s sources within the firm indicated that the ‘Chinese consortium’ is LPP buildings in China, the place about 30% of the group’s merchandise are produced. According to its personal information, LPP has maintained an workplace in Shanghai since 1997.”

A Former Senior LPP Employee Told Us The Deal With Far East Services Was “A Façade To Hide [The] Truth Of Not Selling Russian Operations”

The Employee Said That LPP’s Russian Operations Are Still “Directly Controlled By LPP HQ And Board Directly”

Given that Dubai´s company secrecy legal guidelines make it inconceivable to confirm the homeowners or constituent entities of Far East Services, we reached out to former LPP workers to study extra.[13]

The reply by e mail from one senior worker, previously primarily based at LPP headquarters, was categorical:

1. “1. LPP has by no means offered RE Trading to three^rd social gathering proprietor. All you may see, agreements, statements, modifications in public records and and many others., are solely a facade to cover [the] fact of not promoting Russian operations.
2. Whoever is the registered proprietor of RE Trading is linked by second layer authorized bonds.            
3. All operations of RE Trading are immediately managed by LPP HQ and Board immediately.                            
4. All the above isn’t disclosed to shareholders, collectors (banks) and particularly to monetary establishments and particularly regulatory places of work like Revenue and Financial Supervision Authority.”

The former worker stated plans to create a brand new company construction to deal with the Russia enterprise and cross it off as an impartial purchaser had been developed on the highest authorized and monetary ranges in LPP:

“The major architect for authorized setup is Sławomir Łoboda. He is Vice President in addition to Legal counsel for LPP and Piechocki household. Łoboda was the one who was touring to Kazakhstan, Turkey and Singapore as properly to China. He was accompanied by Przemysław Lutkiewicz, the CFO, and by one other lawyer Adam Gosz.”

In addition to being a board member of LPP, Loboda can be listed as one of many beneficiaries of the Malta-registered Semper Simul Foundation – LPP´s controlling shareholder, which is predominantly comprised of members of the founding Piechocki household.[14] [Pg. 4]

Gosz lists his function at LPP as main counsel on issues together with “data and regulatory obligations” and “proceedings earlier than the Polish Financial Supervision Authority”, per LinkedIn. He lists his job at LPP concurrently along with his employment at Loboda´s non-public regulation agency.

Former Senior Employee: “They Are Using The Same Suppliers” And “They Are Using The LPP Funding Structure To Finance The Supply Of Goods”

The former senior worker stated all key choices referring to enterprise in Russia continued to be overseen by LPP, even after the claimed divestiture:

“From the very starting, your complete setup was made to completely management all the Russian operation from LPP HQ. All collections are designed in Gdansk (or Krakow). Yes, they’re utilizing the identical suppliers and [what´s] extra, they’re utilizing the LPP funding construction to finance the availability of products.”

Former Manager Described CEO Marek Piechocki’s Approach: He Didn’t “Give A F*ck About Some War Between Russia And Ukraine. This [War] Is Just Temporary.”

A former departmental supervisor we contacted was additionally satisfied that the brand new purchaser, Far East Services, was intently associated to LPP. 

They stated detailed data was most likely restricted to some high decision-makers however they have been conscious that LPP bosses had been devising a method of what to do within the occasion of conflict since at the very least December 2021.

The former supervisor described the danger of shedding income from Russia as an “existential life risk” for LPP and stated they believed CEO and co-founder Marek Piechocki – whom they stated they knew personally – would search for a long-term, “PR-proof” answer:

“Marek [Piechocki] has each Chinese mind-set in addition to Anglo-Saxon mind-set. This is a novel mentality in Poland. This man is like Polish Steve Jobs…so his understanding is that ‘I don’t give a fuck about some conflict between Russia and Ukraine. This is simply non permanent. What ought to I do within the perspective of 100 years? What resolution would be the greatest for this firm…if my youngsters have a look at my life or my grandkids have a look at my life, how, what did I do 100 years earlier than?’”[15]

Former LPP Russian Employee Noted An Odd Absence Of Due-Diligence On The Deal: “We Never Saw Any Chinese People In The Office”

Just as senior workers primarily based within the Poland HQ doubted that LPP had the truth is divested its Russia enterprise to a Chinese consortium, others in Russia shared comparable views.

One former Moscow-based worker instructed us that LPP shops closed steadily throughout March 2022, and through March and April, all employees have been furloughed:

“We didn´t work. We waited for some announcement, for some plan what we’ll do subsequent.”  

They stated rumors started circulating {that a} “Chinese company” was about to purchase them out.

Most workers have been notified of the sale through a company memo, they stated. This screenshot copy was posted on Telegram on July 4, 2022, by Russian journalist Ksenia Sobchak, saying it had been handed to her by an organization worker.

The assertion is addressed to “Dear Colleagues!” from RE Trading normal director Anna Pilyugina. The message states RE Trading has been acquired by FES-Far East Services and is “now immediately linked with China and the international locations of the Far East.”

Contrary to nearly each main buyout deal, which might be topic to intensive on web site due-diligence, the previous Moscow worker stated they by no means noticed any signal of the brand new homeowners or their representatives within the Moscow head workplace. Nor, they are saying, have been there any modifications in administration construction to point that RE Trading was half of a bigger, worldwide firm:

“We by no means noticed any Chinese individuals within the workplace. And you may think about, when you offered some massive monetary energetic [asset] which is that this firm – this firm has nonetheless like 500 shops in Russia. When you´re promoting the enterprise most likely as a purchaser, you need, you want to see one thing by your [own] eyes. We didn’t we didn’t see any, any Chinese individuals.”

They added that they believed the Russia enterprise continued to be directed by LPP from Poland, albeit with a higher diploma of autonomy in operating day-to-day operations:

“In my logic, you ought to be within the workplace. You ought to be within the place if you purchase such a giant enterprise. And as an individual [personally], after all, I feel that homeowners are nonetheless in Poland and so they simply squeezed the quantity of individuals which talk with Russian subsidiary workplace. Just this quantity of persons are squeezed to probably the most reliable ones as a result of it may very well be actually harmful for the Polish firm additionally as a result of their authorities don’t need to make any operations with Russia.”

Operational Details Offer Clues That LPP Retained Control Of Its Russia Business

For Example, LPP´s Russia Stores Re-Opened The Day After Its Sale Contract Was Agreed, A Full 37 Days Before The Deal Even Closed

Per its March 29^th, 2022, press launch, LPP stated it had “closed all shops in Russia”. The closures have been confirmed by native Russian vloggers in addition to by our dialog with a former worker. LPP then inked its sale contract with the then-unnamed purchaser consortium on May 23^rd, per LPP’s annual report. [Pg. 116]

Normally, in a change of management transaction, corporations wait till a deal is closed earlier than handing over management of its bodily places, leases, workers, payroll, inventories, and all the opposite components of a enterprise.

Contrary to this, LPP’s Russian shops opened the very subsequent day after its gross sales contract was agreed to, a full 37 days earlier than the deal closed on June 30^th, 2022.

On May 24^th, 2022, the day after LPP inked its sale contract, a YouTube video revealed by Russian vlogger Sergei Baklykov reveals LPP shops had re-opened in St Petersburg´s prestigious Galeria shopping center nonetheless below the LPP model names.

Beyond the oddly fast reopening timing, we’d have additionally anticipated the shops to open below a brand new model identify, given LPP’s personal May 19^th, 2022, announcement that made clear that the customer would have “no rights in any respect to utilise commerce names and emblems of clothes manufacturers owned by LPP SA” as a part of LPP’s claimed full exit of the Russia market.

“Just two days in the past once I filmed right here it was closed. But right now 5 manufacturers of Polish firm known as LPP Group they’re re-opened once more after two month of being on pause,” Baklykov states within the video.

At the time this video was revealed, Russian authorities may nonetheless have rejected the transaction, particularly on condition that the customer had solely been in existence 6 days and had no seen monitor document of working a vogue empire chargeable for 6,500 jobs in Russia.

The swift re-opening appeared to point each a particularly excessive stage of belief and a superbly easy operational handover between LPP and the customer, a mix of components that don’t usually exist within the enterprise world.

Other operational oddities additionally point out that LPP retained surreptitious management. For instance, after the sale, RE Trading utilized for Russian certificates of conformity, required to export sure merchandise to Russia, utilizing an LPP E-mail. [Pg. 2]

‘Big Four’ Auditor Ernst & Young Issued A Qualified Opinion On LPP’s 2021/22 Audited Financial Statements Over Accounting Relating To Its Russian Assets

Then, 5 Days After LPP’s Claimed Russian Divesture, LPP Downgraded Auditors To Grant Thornton, A Second-Tier Audit Firm

Grant Thornton’s UK CEO and Member Of Its Board Of Governors: “We Are Not Doing What The Market Thinks. We Are Not Looking For Fraud…We Are Not Set Up To Look For Fraud”

As one would count on from one of many high 10 largest corporations buying and selling within the Warsaw Stock Exchange, LPP was audited by E&Y, a ‘Big Four’ audit agency.

However, On April 20^th, 2022, E&Y issued a certified opinion on LPP’s 2021/22 monetary statements. The foundation for this certified opinion was LPP’s resolution to guide an early impairment of its Russian property. The firm solely corrected its 2021/22 monetary statements in August 2023 after the Polish Financial Supervision Authority insisted. The restated financials acknowledge the impairment of LPP’s Russian property within the corresponding interval by which Russia invaded Ukraine (i.e. FY 2022/23).

After this disagreement, on July 5^th, 2022, 5 days after formally promoting its Russian operation, the Supervisory Board of LPP downgraded the corporate auditors to Grant Thornton, a second-tier audit agency.

The outgoing CEO of Grant Thornton’s UK operation and a former member of Grant Thornton’s Board of Governors, David Dunckley infamously stated in a 2019 parliamentary testimony:

“We should not doing what the market thinks. We should not on the lookout for fraud and we aren’t trying on the future and we aren’t giving an announcement that the accounts are appropriate…we aren’t set as much as search for fraud.”

We suppose Grant Thornton is an ideal alternative for corporations on the lookout for an auditor that may ignore indicators of malfeasance.

Part III: Evidence Suggests LPP Continues To Sell, Track, And Control Russia Inventory

LPP Said It Would Only Support The New Buyer For A “Transitory Period”

Despite These Terms, LPP´s Recent Fall/Winter Collections Were On Sale In Russia And Inventory Is Controlled and Tracked From Its Poland HQ, According to Internal Documents And Barcode Evidence

Under the phrases of the sale contract, LPP agreed to help Far East Services for a “transitory” interval whereas it arrange its personal inventory purchases, logistics, and IT procedures. LPP didn’t specify the period of the transition.

The buy settlement, initially introduced on May nineteenth, 2022, expressly prohibited FES Retail from utilizing LPP emblems sooner or later however did allow the clearance sale of LPP-branded inventory already in Russia at the moment:

“The Company [LPP] notifies that, as agreed by the events to the transaction in query, the customer will purchase no rights in any respect to utilise commerce names and emblems of clothes manufacturers owned by LPP SA, but it shall purchase the appropriate to make clearance gross sales of all of the inventory owned by the Russian firm.”

Given the wording of that settlement, we’d count on Far East Services and RE Trading to perform independently of LPP after a restricted transition.

If LPP had genuinely divested its Russia enterprise, after a interval of clearance gross sales of present LPP stock, we’d anticipate finding recent inventory and merchandise with completely different designs, completely different in-house product reference codes, and legitimate barcodes provided on the market within the Russian shops.

That’s not what we discovered.

Our evaluation of FES Retail merchandise, company filings, export records, and a handful of inside paperwork point out that LPP employees covertly devised various strategies to ship LPP items to Russia whereby it might nonetheless management operations from LPP’s headquarters. We describe our findings within the subsequent 2 sections.

We Dispatched Secret Shoppers To FES Retail’s Flagship Stores In Russia In December 2023

Almost All Garments We Photographed Were Identical To The Recent Fall/Winter Collections in LPP´s Online Catalogs In Poland

Russian In-House Product Codes Exactly Matched Those In LPP´s Polish Catalog

LPP’s company presentation says it creates all of its collections in Poland, and that it takes 30-100 days for its designs to hit shops.

LPP claims that it “fully halted shipments of products to Russia” within the fast aftermath of the invasion of Ukraine, by March 2022.

Thus, below the phrases of the sale settlement, there isn’t any purpose why designs from LPP´s current Fall/Winter assortment ought to be available in shops now operated by Far East Services (often known as FES Retail) 18 months after LPP claimed to have divested.

In December 2023, we dispatched small groups of secret customers to 10 separate shops in Moscow and St. Petersburg, previously operated by LPP and now operated by Far East Services below its new, barely modified model names: RE, CR, XC, MO and СИН (“FES Retail shops”).[16] [17]

Our evaluation reveals that the designs, materials, and colours of clothes provided in FES Retail shops are overwhelmingly similar to current Fall/Winter collections featured on the similar time in LPP’s on-line retailer in Poland and its different Central European markets. Many gadgets have been additionally offered inside the same value vary. Almost all of the gadgets we noticed within the Russian shops have been marked with the marginally modified emblems now registered to FES Retail, indicating this was new inventory (not outdated, out-of-season clearance gadgets).

In nearly all circumstances, the identical-looking merchandise on show at FES Retail retailers in Russia have been additionally marked with labels bearing the very same in-house product codes utilized by LPP to determine fashions and merchandise variants in Poland and different markets. [18]

This appears to be a transparent indication that LPP HQ continues to regulate operations in Russia proper all the way down to the important core features of clothes design and product labelling.

Examples: Products In LPP’s ‘Divested’ Russian Stores Were An Exact Match With Styles And Product Codes From LPP’s Recent Fall/Winter Catalog Collection

For instance, we discovered this woven jacket and skirt on the market within the RE retailer in St Petersburg for about $60.60. It had the in-house product code 9105E-55X.

The similar outfit might be present in Reserved’s Polish on-line retailer. The product code utilized by LPP can be 9105E-55X and matches the one from the gown accessible in Russia.

It was discounted on the US greenback equal of $24.80, from its regular value of $54.60, which is $6 cheaper than in Russia.

We discovered this “black sweater with a fireplace motif” on the market at a CR retailer in St Petersburg, for the US greenback equal of $28.12.[19] It had the in-house product code 3422W-33X.

As with the earlier instance, an similar sweater with the very same in-house product code 3422W-33X was accessible at CROPP’s Polish on-line retailer, the place it offered for the equal of $28.76.[20]

And, on the XC retailer in Moscow we photographed this black and white woven miniskirt on the market for about $19.50. It had the in-house product code 5829X-MC1.

An similar miniskirt was on the market on LPP´s House model on-line retailer in Poland for $22.34. As with nearly all the clothes we in contrast, the in-house product code within the Russian retailer matched the web Polish in-house product code.[21]

These are only a pattern of the just about 70 gadgets we recognized within the Russian shops that shared similar designs and matching in-house product references with these within the Polish on-line retailer. For additional particulars, see Appendix A. [22]

Barcodes We Found On Russian Merchandise Were Mostly Out-Of-Date And Seemed To Have Been Issued To Random Chinese Companies Or Counterfeited, Masking The Products’ True Origin

Barcodes – also referred to as EANs or GTINs – are a voluntary normal which have turn out to be ubiquitous within the retail business. The solely requirements physique licensed to license barcodes is GS1, a world community with in-country branches.

The use of correct and legitimate barcodes is “particularly essential to the attire business,” in accordance with the GS1 UK department, including:

“GS1 requirements make it attainable to supply trusted details about a product all through its lifecycle. This improves transparency and traceability.”

LPP has a number of, energetic registrations with GS1 Poland and is predicted to stick to world requirements. RE Trading can be a GS1 member and so we’d, likewise, count on them to abide by the agreed norms.[23] Global requirements point out that for branded gadgets, corresponding to these offered by LPP and FES Retail, the model proprietor is chargeable for licensing the barcodes from GS1. [Pg. 215]

But nearly all of the barcodes we documented throughout our retailer visits in Moscow and St Petersburg weren’t the truth is registered to LPP, RE Trading, or FES Retail, in accordance with GS1 database searches.

Instead, they appeared to have been registered to a random array of Chinese corporations, many with little or no obvious hyperlink to the garment commerce. These embrace expertise, meals, grease, chemical, baggage and toy producers, primarily based on our search of the GS1 world database.[24]

About 2/3 of these barcodes appeared “inactive” and “now not being saved up-to-date by the unique producer or distributor”, per GS1. The the rest have been listed as “energetic” however registered to liquor, meals, and nut producers. Details in Appendix A.

The overwhelming majority of the gadgets we inspected within the Russian shops started with the “695” prefix, certainly one of a number of nation codes issued by the GS1 department in China.

For instance, the tag under, from a pair of ladies´s purple cigarette pants at a Moscow MO retailer, reveals barcode quantity 6955524186447.

When we tried to confirm the barcode on one of many GS1 databases, we discovered that the document was “inactive.” Furthermore, the corporate that had initially registered the GTIN was Chongqing Wuweitang Food Co., Ltd.

The search end result said the sequence was “now not being saved up-to-date by the unique producer or distributor,” indicating that the sequence is now not legitimate.

We obtained comparable outcomes with the overwhelming majority of the tags we reviewed.

“Maybe They Just Do Not Want To Show That They Are From Poland And That Their Products Still Exist In Russian Market. Anyway, It Looks Like They Are Using GTINs [Barcodes] Illegally” – Executive at GS1 Poland Branch

The GS1 requirements group describes barcodes as “fingerprints to your merchandise and places, giving everybody confidence that your merchandise and places are uniquely recognized alongside the availability chain”. GS1, through its Hong Kong department, warns:

“Unauthorised barcode quantity sellers undermine the integrity of the GS1 system, create confusion available in the market and disrupt the functioning of provide chains.”

We described our findings, initially with out mentioning LPP particularly by identify, to a supervisor on the GS1 Poland department. The response was direct:

“Maybe they simply don’t need to present that they’re from Poland and that their merchandise nonetheless exist in Russian market. Anyway, it appears to be like like they’re utilizing GTINs illegally and simply have taken the Chinese numbers with none rights.”

Internal Documents Show How LPP Modified Barcodes To Covertly Track Russia Merchandise Via Its Own IT Systems– Concealing Its Continued Control

In PowerPoint Presentations, LPP Bosses Explained How To Encrypt Valid Barcodes Registered To LPP In Poland Into Unrelated Chinese Barcodes

LPP offered greater than 430 million clothes gadgets worldwide in 2022/23, per its factbook. For LPP, like different main retailers, barcodes (also referred to as GTINs and EANs) are a key device for stock and price administration programs from the manufacturing unit to the store ground.

We imagine that as LPP deliberate to proceed to produce its Russia shops, it wanted a technique to handle the stock and provide chain through the corporate´s personal IT programs whereas on the similar time conceal that LPP had not genuinely divested from Russia.

During our investigation, a former LPP worker shared 3 PowerPoint shows – entitled “Roadmap for programs modifications” – ready by members of LPP´s IT division in November and December 2022 and in February 2023.[25]

The former worker recommended these paperwork may need proof that LPP continued to regulate the Russia enterprise regardless of claims it had divested.

At first they have been incomprehensible, crammed with undefined acronyms, incomplete names and firm jargon. Their significance solely grew to become obvious after we had gathered barcode information from the shops in Russia and examined 1000’s of import-export records, as detailed later.

Just a few traces from the presentation dated December fifth, 2022, present how LPP devised a system to encrypt its Polish-registered barcodes to masks the supply of the merchandise being despatched to Russia, whereas on the similar time making certain that these barcodes may nonetheless be dealt with by LPP´s IT system. [Pg. 3]

This strikes us as dead-on proof that LPP devised a fancy system to hide its pretend divestment from Russia.

In the PowerPoint presentation dated December 5^th 2022, LPP IT consultants particularly talked about “EAN quantity 695” – the identical China nation prefix we discovered on the overwhelming majority of the barcodes from shops in Moscow and St Petersburg.[26]  [Pg. 3]

Just a few traces later in the identical presentation, LPP´s builders described find out how to disguise or encrypt the common, LPP-registered barcodes (EANs) that LPP was utilizing in its different markets to create seemingly new barcodes with no obvious connection to LPP for merchandise destined for RE Trading shops in Russia. [Pg. 4]

The proposed encryption would nonetheless permit LPP’s programs and scanner to deal with disguised barcodes, in accordance with one of many shows. [Pg. 4]

Dozens Of Barcodes We Documented In FES Retail´s “Divested” Stores In Russia Are A Precise Match To LPP´s Registered Barcodes In Poland When Decrypted Using LPP’s Secret Formula

We Believe This Is Direct Evidence That LPP Continues to Manage The Inventory In Its Russian Stores And That It Took Elaborate Steps To Conceal The Sham Divestment

The presentation referenced LPP’s barcode encryption “formulation”. A translation of the presentation says:

“Please be sure that by altering solely the primary 3 digits with out altering the verify digit, our programs and scanners will be capable to deal with them [new EANs]” [Pg. 4]

Generally, the primary 3 digits of a 13-digit barcode are a nation prefix.

As talked about, many of the merchandise we documented from our secret purchasing in Russian FES Retail’s shops use the prefix “695,” related with China, the nation of the claimed acquirer of LPP’s Russia enterprise.

Meanwhile, LPP merchandise are registered with the “590” nation prefix for Poland, in accordance with a search by social gathering identify in one of many GS1 databases.

The “verify digit” is the final digit of a barcode sequence and it “makes positive the barcode is accurately composed,” in accordance with GS1. This quantity outcomes from a calculation utilizing all the opposite numbers within the barcode.

As an instance, we utilized the partial formulation indicated in LPP’s PowerPoint shows, to decrypt the barcode discovered on the ladies´s purple cigarette pants bought by certainly one of our secret customers from a MO retailer in Moscow.

Our steps:

Step 1 – We took the barcode proven – 6955524186447 – and changed the Chinese prefix “695” with the Polish prefix “590” and eliminated the ultimate “verify digit” – that gave us 590552418644.

Step 2 – We recalculated the verify digit, utilizing the GS1 web site.

Step 3 – We added the brand new “verify digit” to create the decrypted 13-digit barcode – 5905524186443.

Step 4 –  We verified our new, modified barcode in one of many GS1 databases to see if we may discover a match.

We discovered that the decrypted barcode is presently legitimate and is registered to LPP S.A. for precisely the identical mannequin of Mohito model ladies´s purple cigarette trousers that we had bought on the MO (previously Mohito) retailer in Moscow.

The above on-line certification reveals the barcode is energetic and registered to LPP and in addition lists an in-house product code that’s similar on each the merchandise in Russia and in Poland. This signifies that despite the fact that the Russian barcodes look fully completely different from the Polish ones, they confer with the identical merchandise within the LPP stock, as soon as decrypted by LPP´s IT system.

Below is a abstract of our decryption methodology for the barcodes we present in Russia.

Using the identical methodology, we decrypted 64 different barcodes connected to clothes in Russian shops. See Appendix A.

Once decrypted, the barcodes from “divested” Russian FES Retail shops, which at first sight seemed like principally out-of-date Chinese barcodes, have been an ideal digit-for-digit match to “energetic” barcodes presently registered to LPP in Poland, and which correspond to particular gadgets of clothes.

“For Me The Shock Is…That This Is LPP Because They Are Really, This Is The Biggest Polish Clothing Brand Owner” – Manager Of GS1 Poland, The Barcodes Standards Organization

In a follow-up telephone name with a supervisor on the Poland department of GS1, the barcode requirements group, we confirmed them the precise barcode proof. They have been shocked:

“For me, the, the shock… is that that is LPP as a result of they’re actually, that is the most important Polish clothes model proprietor. So it’s exhausting to think about that, that they’ll do one thing like that.”

“The truth is that it’s actually exhausting to think about that such firm does such unlawful issues as a result of we cooperate with LPP for a very long time and they’re actually, they so far as I do know, they actually care of the status and the entire features associated to ESG and such circumstances. So it’s actually exhausting to think about that they, they do that on objective.”

We telephoned Jacek Kujawa, the previous vice-chairman of LPP´s board and former head of LPP´s Silky Coders IT division. His LinkedIn profile reveals he labored for the corporate since 2004 till his resignation in October 2023 in issues of funding, enlargement of distribution and data expertise.

We requested him if his division had helped LPP pretend barcodes used on merchandise on the market in Russia. He hung up the primary name and on a quick second name, earlier than once more hanging up, he stated:

“I stated you there isn’t any, there isn’t any risk that I talk about LPP. But I’m sorry, I’m sorry I can not proceed this name.”

In conclusion, we imagine that LPP – lengthy after its claimed divestment – continues to promote its merchandise at FES Retail shops in Russia.

Part IV: Post-Divestment, LPP Laid Plans To Triangulate Exports Of Its Merchandise To Russia Through Two Front Companies Set Up By Key LPP Insiders

LPP Documents Dub The Scheme To Hide Its Involvement In Trade With Russia As The “Big Bang”

After discovering that the merchandise in LPP’s “divested” Russian shops match the designs, product codes, and decrypted barcodes of LPP’s Polish merchandise, we additionally wished to know how the merchandise are shipped to the Russian retailers.

LPP doesn’t personal manufacturing crops. Instead, it sources its clothes from greater than 1,200 suppliers, identified as ready-made-garment (RMG) producers, based in Asia.[27]

The 3 LPP IT division PowerPoint shows in November and December 2022 and February 2023, which we referred to in Part 3, additionally left clues as to how LPP may covertly proceed to ship merchandise from its producers to Russia after claiming to have divested its enterprise there after June 30^th, 2022.

The November 21^st, 2022, PowerPoint presentation entitled “Roadmap for programs modifications” is dated 6 months after LPP stated it had executed the sale contract for its Russia enterprise. The doc maps out two fashions for exporting items to RE Trading — LPP´s supposedly divested Russia subsidiary. [Pgs. 6-7]

Using the primary “enterprise mannequin”, which LPP builders confer with as “Model no. 2”, LPP would proceed to buy the products from its third-party producers. LPP builders confer with LPP on this mannequin as “first purchaser entity”.[28] [Pg. 6]

LPP would then resell the products to a second purchaser who would deal with export to Russia as an export middleman, per the presentation. That mannequin would necessitate LPP invoicing the middleman entity for the price of the products and for the price of transport through its subsidiary LPP Logistics, in accordance with the presentation. [Pg. 6]

Using the second mannequin, which LPP builders confer with as “Model no.5”, LPP would now not immediately buy or export – below its personal identify – items despatched to RE Trading, the purportedly divested Russian subsidiary.  The buying would as an alternative be carried out by entrance corporations. [Pg. 7]

The PowerPoint presentation refers back to the transition from the primary to the second mannequin because the “Big Bang”. [Pg. 3]

That change would imply that LPP wouldn’t seem on paperwork because the purchaser of merchandise and would additionally get rid of its identify from many of the paper path. As a end result, it will assist conceal LPP´s involvement in on-going commerce with Russia. [Pg. 7]

The presentation doesn’t spell out in full the names of the middleman or entrance corporations LPP was planning to make use of however offers the abbreviations – FGT and AFIE. It refers to Russia by the internationally standardized nation code RU. [29] [Pg. 3]

We decoded the names by an evaluation of export records. The FGT and AFIE initials used within the presentation match Fashion Group Tesktil (FGT) and Asia Fashion Import Export (AFIE), two entities related to LPP which have been surreptitiously sending export shipments to RE Trading after LPP claimed to have divested its Russian operation.

Our analysis signifies that these 2 entities are entrance corporations meant to masks the export of LPP’s items to Russia.

Front Company #1: Asia Fashion Import Export PTE Ltd. (AFIE)

Asia Fashion Import Export Was Set Up By A Key Member Of Semper Simul Foundation, LPP’s Controlling Shareholder, The Day Russia Invaded Ukraine

Internal LPP shows used the initials “AFIE” when describing one of many middleman entities used to ship LPP clothes to Russia. [Pg. 2] We imagine this referred to Asia Fashion Import Export Pte. Ltd., primarily based on the matching initials, the timing of the corporate incorporation, and an evaluation of export information.

Asia Fashion was included, initially below the identify Pretty Wardrobe Pte. Ltd., in Singapore on February 24^th, 2022, the day Russia invaded Ukraine. [Pg. 1] Its founding shareholder and director was Anita Chew Peck Hwa, in accordance with Singaporean company records. [Pg. 1]

Anita Chew Peck Hwa, is also referred to as Anita Ricquier, in accordance with records from UK’s Companies House. [Pg. 7]

Since at the very least April 2021, Ricquier has been listed as a member of the supervisory board of the Malta-registered Semper Simul Foundation, LPP’s controlling shareholder, per a helpful proprietor report filed with Poland´s Central Register of Beneficial Owners. [30] [Pg. 1]

This basis “is intently related to Mr. Marek Piechocki,” LPP’s CEO and Founder, in accordance with LPP’s annual report, and given her place within the basis, Ricquier clearly seems to be a trusted confidante. [Pgs. 64, 67]

Anita Ricquier can be the founder and managing director of Singapore-based company companies firm Camelot Trust, which was the unique registered workplace for Asia Fashion Import Export.[31]

On May 10^th, 2022, 9 days earlier than LPP introduced it had reached a deal to promote its Russia enterprise, the corporate modified its unique identify from Pretty Wardrobe to Asia Fashion Import Export. [Pg. 1] The sole shareholding was transferred to a distinct particular person related to ~30 Singapore-registered corporations additionally registered at Camelot Trust’s major workplace handle, in accordance with Singaporean Corporate Records. [Pg. 3] [32] [33]

Front Company #2: Fashion Group Tekstil Limited (FGT)

Fashion Group Tekstil Was A Dormant Turkish Company Until It Was Acquired 7 Months After Russia’s Invasion Of Ukraine By An LPP Employee In Turkey

7 Months After The Acquisition, Far East Services Obtained Control Of 95% Of Fashion Group Tekstil

Internal LPP shows additionally used the initials “FGT” when describing one other of the middleman entities used to ship merchandise to Russia. We imagine this referred to Fashion Group Tekstil, primarily based on an evaluation of export information, Turkish company filings, and the primary identify of the corporate´s supervisor being cited within the paperwork. [Pg. 2-4]

Fashion Group Tekstil was included in Turkey on September 11^th, 2014, below a distinct identify, per Turkey’s official Trade Registry Gazette.[34] [Pg. 1]

The firm had no registration records, implying no exercise, till September 15^th, 2022, primarily based on a evaluation of company paperwork by a Turkish company lawyer we employed.

On that day, all the corporate shares have been transferred to a person named Emine Demet Ata and the corporate was renamed Fashion Group Tekstil Limited, per Turkey’s official Gazette. [Pg. 1]

The new proprietor, also referred to as Demet Ata, was a key Turkey-based worker of LPP at the moment she acquired the shares of Fashion Group Tekstil, in accordance with her LinkedIn profile. [35]

One of the interior shows we obtained, dated December 5^th, 2022, described the subsequent steps to be “modelled and submitted to Demet” involving “the communication course of between LPP, the provider and the Turkish firm when it comes to putting and executing orders, deliveries and funds” associated to FGT. [Pg. 3]

This signifies clear coordination between LPP and FGT below Demet Ata on the time of the presentation. [Pg. 3]

On April thirteenth, 2023, Far East Services, the Dubai-registered entity that had bought LPP´s Russia enterprise a 12 months earlier, took a 95% stake in Fashion Group Tekstil, through a recent capital injection, with Demet Ata retaining 5%. [Pg. 1] Demet Ata retained her duties as supervisor for Fashion Group, and no different firm representatives are listed in Turkish company records. [Pg. 3]

No Far East Services executives are named on that doc, which had been signed by a Turkish proxy lawyer, in accordance with different particulars on the doc, reviewed by the Turkish company lawyer we employed.

LPP´s Export Triangulation Scheme Was Put Into Practice From Mid-2022, Based On Our Analysis Of Over 335,000 Import-Export Records

LPP Stepped Back And Handed A Lead Role To The Related-Party Front Companies

Using information from worldwide commerce aggregator Tradesparq, we analysed greater than 335,000 import-export records from January 1^st, 2021, to December 31^st, 2023, exhibiting shipments of LPP merchandise to Central Asia, together with imports to Russia by RE Trading – the subsidiary LPP claimed to have divested.[36]

These records clearly reveal that the 2 fashions LPP secretly devised, as referenced in PowerPoint shows described above, have been progressively applied within the second half of 2022 and thru 2023.

Both entrance corporations, arrange by LPP insiders and in addition described above – Fashion Group Tekstil and Asia Fashion Import Export – performed a central function in that scheme, Tradesparq export information reveals.

Trading information from Tradesparq present exporter, importer, model, worth, and producers of the products shipped to RE Trading.

The implementation of the scheme gave the impression to be geared toward obscuring LPP´s continued function in producing and supplying items to RE Trading in Russia, after it claimed that it had suspended shipments and subsequently divested.

Between June 30^th, 2022, the date on which LPP formally accomplished its purported divestment, and December 31^st, 2022, RE Trading imported $335.9 million of products. And, from January 1^st 2023 to December 31^st, 2023, RE Trading imported $370.6 million of merchandise, per our evaluation of Tradesparq information.

That means in your complete interval since divestment till the tip of 2023, RE Trading imported to Russia a complete of at the very least $706.5 million of merchandise. The producer of the products in 99.6% of those shipments was both listed as LPP or Asia Fashion Import Export.[37]

In the three calendar quarters previous to the claimed sell-off, LPP immediately exported nearly two-thirds of the products to its then-subsidiary RE Trading, per Tradesparq. [38] But submit ‘divestment’, LPP largely ceased exporting on to Russia below its personal identify and as an alternative exports appear to have been triangulated through the entrance corporations we described – Asia Fashion Import Export and Fashion Group Tekstil.[39]

In the interval from June 30^th, 2022, to December 31^st, 2023, LPP was listed as “exporter” for simply 0.53% of the worth of exports to RE Trading; Fashion Group Tekstil accounted for 27.2% and Asia Fashion Import Export for 14.6%. The exporter for 46.2% of the worth of exports in that interval was listed as “clean” however nearly actually shipped by LPP or Asia Fashion Import Export on condition that these 2 entities have been listed as “producer” of 99.9% of those items, per Tradesparq. [40]

LPP Was Effectively Replaced By Front Company ‘Asia Fashion Import Export’ As “Producer” Of Goods Sold In FES Retail Stores, According To Export Records

The second section of the plan devised by LPP´s IT division progressively obscured LPP´s function as “producer” of the products being equipped to RE Trading in Russia, per the Tradesparq information.

As talked about, between June 30^th, 2022, and, December 31^st, 2023, LPP and Asia Fashion Import Export – the entrance firm arrange by a key LPP insider – have been listed as “producers” for a mixed complete of 99.6% of the worth of imports acquired by RE Trading, per Tradesparq records.[41]

A extra detailed examination reveals that LPP the truth is handed over its function as main “producer” of the products to Asia Fashion Import Export in March 2023, per Tradesparq information. [42]

Further confirming our export information findings, our secret customers photographed labels just like the one under on clothes they bought at shops in FES Retail shops. These labels present Asia Fashion Import Export because the “producer” of the garment.[43]

In quick, the export information clearly signifies that after the claimed divestment, LPP continued to ship its merchandise to shops in Russia through the triangulation scheme it referenced in shows we obtained. [Pgs. 3, 6-7]

Later, it handed over accountability for manufacturing of the merchandise to a related-party entrance firm.

LPP Appears To Be Using Kazakhstan As A Backdoor To Help Supply Russia Stores

LPP Shipped ~$755.5 Million Of Merchandise To Its Kazakh Subsidiary In Calendar Year 2023

But Kazakhstan Only Accounts For 1% Of LPP´s Bricks-And-Mortar Stores And No Online Sales

In 2018, LPP started operations in Kazakhstan, a Central Asian nation of 19.5 million individuals on Russia´s southern border.

Currently, Kazakhstan has 23 bodily shops out of LPP’s 2,206 world complete shops, as disclosed in LPP´s third-quarter 2023/24 outcomes.

In 2020/21, the final 12 months LPP seems to offer a country-by-country income breakdown, Kazakhstan generated roughly $7.7 million gross sales (PLN 29 million), rating it 18 out of 23 international locations the place LPP had a presence at the moment, in accordance with LPP’s 2020/21 Annual Report.

Before the invasion of Ukraine, shops in Kazakhstan have been stocked from LPP´s distribution heart in neighboring Russia, in accordance with the corporate’s 2020/21 factbook – the final version that particulars provide logistics to Kazakhstan. After Russia’s invasion of Ukraine, LPP started exporting on to its subsidiary in Kazakhstan, LPP Kazakhstan. [Pg. 14]

In distinction to the small footprint of LPP’s gross sales infrastructure in Kazakhstan, the quantity of LPP’s exports there appears wildly disproportionate. Between January 1^st, 2023 and December 31^st, 2023, LPP exported $755.5 million of merchandise to Kazakhstan, per Tradesparq information.

LPP filings give no indication of high-volume exports being shipped into Kazakhstan and the Central Asian nation isn’t listed amongst LPP´s high markets. Thus, LPP supplies no clear rationalization for the pattern.

As a part of the Eurasian Economic Union, as soon as items have been processed on the level of entry in Kazakhstan, they are often moved freely with out additional customs checks or obligation funds into Russia.

Western corporations have shifted provide routes to Russia, following the outbreak of conflict, and are redirecting items particularly through Turkey and Kazakhstan, in accordance with a Reuters investigation.

There is rising proof and concern from the U.S. Treasury Department that Kazakhstan has turn out to be the “Kremlin´s Secret Ally”, serving to Russia circumvent wartime sanctions, transferring banned items in and serving to a whole lot of 1000’s of Russians transfer cash out.

In temporary, we suspect the sudden spike in LPP’s shipments to Kazakhstan is as a result of the ultimate vacation spot is definitely Russia.

Part V: Conflicting Financial Disclosures, Bank Covenant Implications And Share Pledges

LPP Reportedly Lost 19.2% Of Its Revenue Due To Its Russia Divestiture But Claimed It Boosted Sales By 40% In Non-Russian Markets in 2022/23 – Covering The Shortfall By A Large Margin

More Than Two-Thirds Of The Revenue Bump Appears To Have Come From Unexplained $732.5 Million “Other” Sales Detailed In Final Quarter Of 2022/23

As talked about earlier, LPP’s future progress plans, previous to the invasion, had targeted closely on Russia, which accounted for 19.2% of group revenues in 2021/22.

Yet submit ‘divestiture’, LPP’s 2022/23 financials defied the chances, reporting non-Russia income progress that’s nearly exceptional on the earth of retail – amply overlaying the Russia shortfall:

“In 2022/23, the Group’s income was generated from the gross sales of 5 manufacturers of their on-site and on-line shops. At the identical time, they have been 40.5% larger than the gross sales recorded by the Group a 12 months in the past on persevering with operations (with out recognising the income from Russia).” [44]

As talked about, even together with the Russia shortfall in 2021/22, previous to restatement, LPP´s 2022/23 income elevated 13.5% year-on-year. 

But conflicting monetary disclosures obscure the supply of the elevated income in 2022/23.

In LPP´s English-language model of its annual report, evaluating 2022/23 to restated 2021/22 figures, greater than two-thirds of the income bump – roughly $732.5 million (PLN 3.172 billion) – comes from “different” gross sales, not accounted for below LPP´s 5 manufacturers.[45]

In the three years main as much as LPP’s divestment from Russia, its “Other” manufacturers phase by no means represented greater than 2% of LPP’s income. But after the Russian divestment, the phase all of the sudden spiked to twenty% of complete group income. [Pg. 33] [Pg. 31]

Value Of “Other” Sales Booked In This fall 2022/23 Closely Matches 2022 Annual Revenue From LPP´s Divested Russia Operations

The Amount Only Appears In LPP´s English-Language Report, Conflicting With The Polish Version

There are not any additional explanations about particularly what’s included in “Other” gross sales.

But the lion´s share of “Other” gross sales, about $697 million (PLN 3.018 bln), was solely disclosed within the ultimate quarter of 2022/23.[46]

That quantity matches nearly precisely the 2022 annual revenues of RE Trading – LPP´s “divested” Russian subsidiary – in accordance with RE Trading monetary report accessible within the Russian company registry. [Pg. 4] In This fall 2022/23 alone, PLN ~3.018 billion was reported in “Other” revenues. By comparability, RE Trading´s 2022 revenues have been disclosed PLN 3.015 billion (RUB ~47.78 billion).[47]

That determine is both an astonishing coincidence or a sign that LPP could have camouflaged Russian revenues and continued consolidating them into group accounts for 2022/23.

Further obscuring the truth of accounting procedures and precisely what’s included in “Other” gross sales, LPP´s English-language disclosures battle with its Polish-language disclosures – each posted on the identical company web site.

The Polish model reveals a a lot decrease worth  of “Other” gross sales on the finish of 2022/23. The English model present 15x extra.[48] By distinction, the Polish model reveals larger values for model gross sales all year long. But each variations present the identical complete income.

There isn’t any fast rationalization for the distinction in shows.

If Found To Still Be Operating In Russia, LPP May Be In Breach Of Loan And Finance Agreements With Poland´s Largest Bank

“In Principle The Bank Does Not Finance Entities Operating In Russia Or In Cooperation With Russian Contractors” – PKO BP Bank

LPP had credit score amenities with 6 banks of $546.3 million (PLN 2.3 billion) as of October 31^st, 2023, “used for financial institution ensures, letters of credit score for commerce finance or as working capital overdrafts”, per its third-quarter outcomes. [Pg. 43]

Additionally, it had a complete $928 million (PLN 3.9 billion) in “commerce and different liabilities”. Of that, $617.6 million (PLN 2.6 billion) comprised provide chain finance packages with 5 banks, (1) HSBC Polska SA, (2) Santander Polska SA, (3) Bank Pekao SA, (4) PKO BP SA, and (5) BNP Paribas, per filings. [Pgs. 26, 43]

We contacted these entities to ask about financial institution coverage and attainable covenants on loans and financing amenities for Polish corporations buying and selling with Russia post-invasion, with out mentioning LPP by identify.

PKO BP is Poland’s largest financial institution and its major shareholder is the Polish state. [Pg. 61] It was additionally LPP´s major creditor, offering ~62% of loans and borrowings as of the tip of 2022/23, per filings. 

In an e mail response to Hindenburg, a spokesperson for PKO BP financial institution stated per financial institution coverage it did “not finance entities working in Russia” and anticipated its shoppers to reveal if they’d commerce relations in Russia:

“PKO BP complies with all of the worldwide sanctions imposed on Russia, its residents and Russian enterprises. In addition, PKO BP has devised and adopted an inside credit score coverage in accordance with which in precept the financial institution doesn’t finance entities working in Russia or in cooperation with Russian contractors.”

“Our shoppers should open up to us if they’ve ongoing commerce relations with subsidiaries or important buying and selling companions in Russia, even when these subsidiaries should not sanctioned.”

On December 5^th 2023, Semper Simul Foundation Pledged 20% Of Its Stake In LPP

At The Time Of The Transaction, The Shares Pledged Were Worth $490 Million

On December 5^th, 2023, Semper Simul Foundation, an entity intently related with Marek Piechocki and LPP’s largest shareholder, established a pledge of 120,000 shares of LPP, in accordance with a present report issued by the corporate.

Semper Simul Foundation’s stake in LPP consists of 578,889 shares— or 31.2% of the corporate.

The 120,000 shares pledged symbolize 20.7% of Semper Simul’s complete stake in LPP. On the day of the transaction, the shares pledged have been value ~$490 million.[49]

Share pledges (aka margin loans) are when shareholders use shares as collateral for debt. They are a dangerous type of debt as a result of if the collateral (shares) drops in worth, it may set off a margin name from collectors, which may create the danger of a pressured sale of shares, including draw back strain to the inventory value.[50]

This isn’t the primary time the Semper Simul Foundation has obtained a margin mortgage. In August 2021, BNP Paribas acted as mandate lead arranger (MLA), safety agent and calculation agent for a “Margin Call Facility” of $91 million to Semper Simul Foundation.[51] [Pg. 37] It seems that this facility was used to extend Semper Simul’s stake in LPP utilizing leverage.

Conclusion

Overall, we expect LPP devised an elaborate sham ‘divestment’ technique to proceed retailing in Russia whereas making an attempt to idiot traders and shoppers in Poland, Ukraine, and its different markets into considering in any other case.

While we can not anticipate the impression it will have on LPP’s manufacturers, we suspect a mass-deception meant to idiot most of its client base gained’t be considered positively.

We additionally suspect LPP’s financials have falsely reported the Russia divestiture whereas it surreptitiously continues operations, giving traders a misunderstanding that LPP has skilled fast progress following its Russia sale. We suspect this concern could also be of curiosity to regulators, financial institution lenders, and auditors (if auditor Grant Thornton decides that auditors do the truth is have a accountability to analyze malfeasance).

Appendix A

In December 2023, We Documented 65 Items In The FES Retail Stores In Russia That Are Identical To LPP’s Current Polish Offerings

Below is a desk containing the info from 65 clothes that our secret customers documented in FES Retail shops in Russia in December 2023 and the corresponding, similar product from LPP´s Fall/Winter stock accessible from the web retailer in Poland.

Links to pictures of every of the 65 gadgets present in Russia, their corresponding LPP merchandise, and the GS1 registrations for the encrypted and decrypted barcodes related to every product might be seen on this presentation.

Our secret customers initially documented a complete of 76 clothes, every with completely different and clearly marked in-house product codes and barcodes. But we excluded 11 of these as a result of they both had LPP labels that might probably be attributed to outdated stock or had no matches to accessible Fall/Winter stock on LPP on-line shops.

Item Description	Encrypted Barcode In Russia	In-house product code present in Russia	Encrypted Barcode Owner	Decrypted Barcode	In-house product code discovered within the decrypted barcode	LPP Inventory matching the in-house product code from decrypted barcode	Images
Floral gown	6955874973728	9175E-MLC	JIANGMEN PENGJIANG DISTRICT FUTUO HOUSEHOLD PRODUCTS CO LTD	5905874973724	9175E-MLC	Reserved Online Store	Pg. 1
Sherpa sweater	6955874927240	3716W-08X	JIANGMEN PENGJIANG DISTRICT FUTUO HOUSEHOLD PRODUCTS CO LTD	5905874927246	3716W-08X	Cropp Online Store	Pg. 2
Black gown	6955874900304	9207E-99X	JIANGMEN PENGJIANG DISTRICT FUTUO HOUSEHOLD PRODUCTS CO LTD	5905874900300	9207E-99X	Reserved Online Store	Pg. 3
Blue jacket	6955874705282	XV409-MLC	FOSHAN SANSHUI JINHAILING HARDWARE AND ELECTRICAL APPLIANCES CO LTD NO	5905874705288	XV409-MLC	Reserved Online Store	Pg. 4
Dress with ornament	6955874688103	9182E-99X	LIANJIANG WEIZHIYU ELECTRIC CO. LTD.	5905874688109	9182E-99X	Reserved Online Store	Pg. 5
Mini skirt	6955874286477	7159Q-99X	FOSHAN NANHAI VICK WEAVING FACTORY	5905874286473	7159Q-99X	Reserved Online Store	Pg. 6
Skirt with a belt	6955874273897	7158Q-19X	FOSHAN NANHAI VICK WEAVING FACTORY	5905874273893	7158Q-19X	Reserved Online Store	Pg. 7
Transparent shirt	6955874207089	9774H-MLC	“BARCODE NUMBER IS INCORRECT”	5905874207089	9774H-MLC	Reserved Online Store	Pg. 8
Suit vest	6955874028428	XV412-81X	SHANTOU CHENGHAI DISTRICT YIFA STROLLER TOY FACTORY	5905874028424	XV412-81X	Reserved Online Store	Pg. 9
Pink sweater	6955724725194	6102V-03M	LINGQING XINCHUN PRINTING FACTORY	5905724725190	6102V-03M	Reserved Online Store	Pg. 10
Brown blazer	6955724828789	9250B-80M	SHANDONG SISHUI QUETUO BIANSTONE CO LTD	5905724828785	9250B-80M	Reserved Online Store	Pg. 11
Sweatshirt with a collar	6955724542210	3704W-85M	NANJING RUIHANG DAILY NECESSITIES CO LTD.	5905724542216	3704W-85M	Cropp Online Store	Pg. 12
Short jacket	6955724465687	3703P-MLC	WUHAN HUIGUANG RIXIN LIGHTING TECHNOLOGY CO. LTD	5905724465683	3703P-MLC	Reserved Online Store	Pg. 13
Leopard print shirt	6955724462235	6415V-80X	WUHAN HUIGUANG RIXIN LIGHTING TECHNOLOGY CO. LTD	5905724462231	6415V-80X	Reserved Online Store	Pg. 14
Dress with sequins	6955724457347	6030X-MC1	WUHAN HUIGUANG RIXIN LIGHTING TECHNOLOGY CO. LTD	5905724457343	6030X-MC1	House Online Store	Pg. 15
Black jacket	6955724354370	4876V-99X	WUHAN DINGKANG TECHNOLOGY CO. LTD	5905724354376	4876V-99X	Reserved Online Store	Pg. 16
Bathrobe	6955724340243	6544Y-MLC	WUHAN DINGKANG TECHNOLOGY CO. LTD	5905724340249	6544Y-MLC	House Online Store	Pg. 17
Black gown	6955724297554	3919W-99X	JINGZHOU SAIWEI CHILDREN’S CLOTHING CO. LTD	5905724297550	3919W-99X	Cropp Online Store	Pg. 18
Red sweater	6955724287098	5807V-33X	JINGZHOU SAIWEI CHILDREN’S CLOTHING CO. LTD	5905724287094	5807V-33X	Reserved Online Store	Pg. 19
Black pants	6955724153607	7114Y-59X	XIANTAO XINGHAI RICE INDUSTRY CO. LTD	5905724153603	7114Y-59X	Reserved Online Store	Pg. 20
Red jacket	6955724125147	5722B-33X	XIANTAO XINGHAI RICE INDUSTRY CO. LTD	5905724125143	5722B-33X	Reserved Online Store	Pg. 21
Corduroy jacket	6955724087568	3705P-80X	GONGAN COUNTY FUHUA FOOD FACTORY	5905724087564	3705P-80X	Reserved Online Store	Pg. 22
Mini gown	6955724082662	9105E-55X	GONGAN COUNTY FUHUA FOOD FACTORY	5905724082668	9105E-55X	Reserved Online Store	Pg. 23
Knitted jumper	6955724081610	5956V-02X	GONGAN COUNTY FUHUA FOOD FACTORY	5905724081616	5956V-02X	Reserved Online Store	Pg. 24
Blue jacket	6955724073578	3699P-55X	GONGAN COUNTY FUHUA FOOD FACTORY	5905724073574	3699P-55X	Reserved Online Store	Pg. 25
Sweater with a wave	6955724048934	6102V-02X	GONGAN COUNTY FUHUA FOOD FACTORY	5905724048930	6102V-02X	Reserved Online Store	Pg. 26
Zip-up hoodie	6955724041492	3694W-90X	GONGAN COUNTY FUHUA FOOD FACTORY	5905724041498	3694W-90X	Cropp Online Store	Pg. 27
White cardigan	6955724038034	8276Z-01X	GONGAN COUNTY FUHUA FOOD FACTORY	5905724038030	8276Z-01X	Cropp Online Store	Pg. 28
Checkered skirt	6955621939717	5829X-MC1	SHENZEN ADMIRE TECHNOLOGY CO. LTD	5905621939713	5829X-MC1	House Online Store	Pg. 29
Blouse with lace ornament	6955621915131	6007X-99X	SHENZEN ADMIRE TECHNOLOGY CO. LTD	5905621915137	6007X-99X	Mohito Online Store	Pg. 30
Black shirt	6955621856373	6975Y-99X	SHENZEN QINCHUANGDA TECHNOLOGY CO. LTD	5905621856379	6975Y-99X	House Online Store	Pg. 31
Black jacket	6955621847005	4690X-99X	SHENZEN QINCHUANGDA TECHNOLOGY CO LTD	5905621847001	4690X-99X	Sinsay Online Store	Pg. 32
Black mini skirt	6955621732257	ZB930-99X	SHENZHEN HUAYI LIANSHENG TOYS CO. LTD	5905621732253	ZB930-99X	Sinsay Online Store	Pg. 33
Jacket with buttons	6955621705183	4855V-59X	SHENZEN HUAYI LIANSHENG TOYS  CO LTD	5905621705189	4855V-59X	Reserved Online Store	Pg. 34
Knitted gown	6955621601508	6682V-85M	HUANYIN TECHNOLOGY (SHENZEN) CO LTD	5905621601504	6682V-85M	Reserved Online Store	Pg. 35
White shirt	6955621577674	6091W-00X	SHENZEN AMBASSADOR LUGGAGE INDUSTRIAL CO LTD	5905621577670	6091W-00X	Mohito Online Store	Pg. 36
Vest with fur	6955621508784	7118U-88X	SHENZEN AMBASSADOR LUGGAGE INDUSTRIAL CO LTD	5905621508780	7118U-88X	House Online Store	Pg. 37
White sweater	6955621424879	5895V-01X	SHENZEN ZHIZEN TECHNOLOGY CO LTD	5905621424875	5895V-01X	Reserved Online Store	Pg. 38
Short jacket	6955621359973	4859V-MLC	SHENZEN HUIFENG YUANTONG TECHNOLOGY CO LTD	5905621359979	4859V-MLC	Reserved Online Store	Pg. 39
Wool sweater	6955621295875	4812X-90M	SHENZEN BAILIFENG TECHNOLOGY CO LTD	5905621295871	4812X-90M	Cropp Online Store	Pg. 40
Boyfriend denims	6955621235727	5087X-99J	SHENZEN BAILIFENG TECHNOLOGY CO LTD	5905621235723	5087X-99J	Sinsay Online Store	Pg. 41
Beige purse	6955621201739	7118W-80X	SHENZEN BAILIFENG TECHNOLOGY CO LTD	5905621201735	7118W-80X	Mohito Online Store	Pg. 42
Knitted skirt	6955571847643	6830V-08M	LINYI YUANHE RAIN GEAR CO.	5905571847649	6830V-08M	Reserved Online Store	Pg. 43
Black gown	6955571830676	1118I-99X	LINYI YUANHE RAIN GEAR CO.	5905571830672	1118I-99X	Reserved Online Store	Pg. 44
Shirt gown	6955571733571	9494W-90X	LINYI LANSHAN DISTRICT CHAOXIANG DAILY CHEMICAL CO LTD	5905571733577	9494W-90X	House Online Store	Pg. 45
Faux shearling coat	6955571726238	5661B-82X	LINYI LANSHAN DISTRICT CHAOXIANG DAILY CHEMICAL CO LTD	5905571726234	5661B-82X	Reserved Online Store	Pg. 46
Flame sweater	6955571565745	3422W-33X	CHENGDU WANSHIFU LIQUOR CO LTD	5905571565741	3422W-33X	Cropp Online Store	Pg. 47
Black cargo denims	6955571541886	7757W-90M	CHENGDU WANSHIFU LIQUOR CO LTD	5905571541882	7757W-90M	Cropp Online Store	Pg. 48
Turtleneck	6955571512107	5875V-85M	CHENGDU WANSHIFU LIQUOR CO LTD	5905571512103	5875V-85M	Reserved Online Store	Pg. 49
Black gown	6955571500067	1121L-99X	CHENGDU WANSHIFU LIQUOR CO LTD	5905571500063	1121L-99X	Reserved Online Store	Pg. 50
Gray sweater	6955571481717	7528W-85M	JINZHOU YIXING FOOD FACTORY	5905571481713	7528W-85M	House Online Store	Pg. 51
Leather jacket	6955571309097	7096U-99X	DANDONG YAYA FOOD CO. LTD	5905571309093	7096U-99X	House Online Store	Pg. 52
Turtleneck sweater	6955571100311	6175V-90M	PUYANG TIANYU GREASE CO. LTD	5905571100317	6175V-90M	Reserved Online Store	Pg. 53
Black jacket	6955524835000	6657J-99X	DONGGUAN TAIWEI SPORTS GOODS CO LTD	5905524835006	6657J-99X	Sinsay Online Store	Pg. 54
Black jacket	6955524769251	1883W-99X	YANCHUAN ZHICHENG INDUSTRY AND TRADE CO LTD	5905524769257	1883W-99X	House Online Store	Pg. 55
Stripped shirt	6955524650900	1763X-01X	ZHUHAI MEINUO COSMETICS CO LTD	5905524650906	1763X-01X	House Online Store	Pg. 56
Tracksuit jogger	6955524618252	3536W-09M	ZHUHAI MEINOU COSMETICS CO. LTD	5905524618258	3536W-09M	Cropp Online Store	Pg. 57
Red trousers	6955524186447	4277W-33X	CHONGQING WUWEITANG FOOD CO. LTD	5905524186443	4277W-33X	Mohito Online Store	Pg. 58
Red jacket	6955524185990	4273W-33X	CHONGQING WUWEITANG FOOD CO. LTD	5905524185996	4273W-33X	Mohito Online Store	Pg. 59
Black puffer coat	6955524185044	3726W-99X	CHONGQING WUWEITANG FOOD CO. LTD	5905524185040	3726W-99X	Cropp Online Store	Pg. 60
Straight match jean	6955524120915	8917W-59J	CHONGQING WUWEITANG FOOD CO. LTD	5905524120911	8917W-59J	House Online Store	Pg. 61
Brown jacket	6955459468229	7140U-88X	GUANGDONG NANDU JIAHUA MEDIA CO LTD	5905459468225	7140U-88X	House Online Store	Pg. 62
Blue jean	6955459330948	6526W-59J	“BARCODE NUMBER IS INCORRECT”	5905459330942	6526W-59J	House Online Store	Pg. 63
Green turtleneck sweater	6955459330175	7594W-79X	FOSHAN XINGCHAN NUT FOOD CO. LTD	5905459330171	7594W-79X	Mohito Online Store	Pg. 64
Black coat	6955459100754	1964W-99M	SHAANXI RUNZHE TEXTILE CO LTD	5905459100750	1964W-99M	House Online Store	Pg. 65

Disclosure: We Are Short Shares of LPP S.A. (WSE: LPP)

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Use of Hindenburg Research’s analysis is at your individual danger. In no occasion ought to Hindenburg Research or any affiliated social gathering be answerable for any direct or oblique buying and selling losses attributable to any data on this report. You additional conform to do your individual analysis and due diligence, seek the advice of your individual monetary, authorized, and tax advisors earlier than making any funding resolution with respect to transacting in any securities coated herein. You ought to assume that as of the publication date of any short-biased report or letter, Hindenburg Research (probably together with or by our members, companions, associates, workers, and/or consultants) together with our shoppers and/or traders has a brief place in all shares (and/or choices of the inventory) coated herein, and subsequently stands to appreciate important good points within the occasion that the value of any inventory coated herein declines. Following publication of any report or letter, we intend to proceed transacting within the securities coated herein, and we could also be lengthy, quick, or impartial at any time hereafter no matter our preliminary advice, conclusions, or opinions. This isn’t a proposal to promote or a solicitation of a proposal to purchase any safety, nor shall any safety be provided or offered to any particular person, in any jurisdiction by which such provide can be illegal below the securities legal guidelines of such jurisdiction. Hindenburg Research isn’t registered as an funding advisor within the United States, Poland, or have comparable registration in some other jurisdiction. To the most effective of our means and perception, all data contained herein is correct and dependable, and has been obtained from public sources we imagine to be correct and dependable, and who should not insiders or linked individuals of the inventory coated herein or who could in any other case owe any fiduciary obligation or obligation of confidentiality to the issuer. However, such data is offered “as is,” with out guarantee of any variety – whether or not specific or implied. Hindenburg Research makes no illustration, specific or implied, as to the accuracy, timeliness, or completeness of any such data or with regard to the outcomes to be obtained from its use. All expressions of opinion are topic to alter with out discover, and Hindenburg Research doesn’t undertake to replace or complement this report or any of the knowledge contained herein.

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[1] Piechocki is reportedly media-shy, rides his bicycle to work and lists certainly one of his high hobbies as gathering second-hand vinyl records from Polish flea markets.

[2] Semper Simul Foundation’s firm registration quantity in Malta is PFLP 170.

[3] LPP´s monetary 12 months presently runs from February 1 to January 31.

[4] Poland´s japanese frontier features a 247 mile (398 km) border with Belarus and 332 mile (535 km) border with Ukraine. Poland additionally shares a 144 mile (232 km) northern border with Kaliningrad Oblast, a Russian-owned enclave, that has no direct land entry to Russia. It is very strategic for Russia as a result of it’s a Baltic Sea port that continues to be largely ice-free.

[5] Poland´s relations with its neighbors have been formed by wars during the last century. Poland fought off a Soviet invasion try in 1920. In 1939, Nazi Germany invaded a part of Poland, with different areas of Poland occupied by the Soviet Union. During the Cold War, Poland was a part of the Warsaw Pact.

[6] In distinction to LPP’s expedited 25-day sale of its 553 shops in Russia:

1. It took nearly 8 months for Inditex, the proprietor of Zara, between halting operations in Russia and asserting a purchaser for 245 out of the 514 shops the corporate had in Russia. [Pg. 75] Russian authorities accredited the deal 5 months later, as reported by The Financial Times.
2. H&M paused all gross sales in Russia on March 2^nd, 2022. H&M’s Russian enterprise has been on the market since at the very least July 2022, as reported by Reuters. H&M’s 2023 annual report doesn’t point out the sale of Russian property.

[7] Under Russian emergency countersanctions laws, the transaction wanted to be licensed by a Russian authorities fee earlier than it may very well be accomplished. The sale of LPP’s Russian subsidiary was “confirmed and legitimised on 30 June 2022, by a call of a Russian courtroom, having jurisdiction over the corporate’s registered workplace,” in accordance with LPP’s 2022-23 annual report. [Pg. 116]

[8] Just earlier than Russia invaded Ukraine, LPP had 1,691 shops outdoors Russia as of January 31^st, 2022, in accordance with the LPP Annual Report 2021/22. As of October 31^st, 2023, the corporate reported 2,206 shops, in accordance with the LPP Q3 2023/24 report.

This enlargement has principally been pushed by the expansion of LPP’s decrease margin Sinsay model. Sinsay multiplied its retailer footprint by 4x in international locations corresponding to Bulgaria, Bosnia & Herzegovina, and Slovenia from FY 2022/21 to FY 2022/23, in accordance with the corporate factbooks. [Pg. 7] [Pgs. 6-7]

[9] The phrases of the sale, on the face of it, appear favorable to the purchaser however in any other case seem like broadly in line with Russian authorities counter sanctions imposed on international investments after the outbreak of conflict.

[10] Source: Russian company records. Search phrases “RE Trading” enterprise registration quantity OGRN 1127747192540

[11] Pilyugina, has been related to LPP since July 2006 and continued to listing her job title as “CEO at Reserved (LPP S.A., Russia)” till at the very least November 9^th, 2023, in accordance with an archived model of her LinkedIn profile.

[12] Her LinkedIn profile has been not too long ago up to date. She seems as “CEO, proprietor” for “FES Retail, GCS FZCO.” FES Retail is the business identify utilized by Far East Services because the proprietor of LPP’s former Russian operation, in accordance with its web site. We imagine GCS FZCO is an acronym for General Consulting Services-FZCO. There isn’t any point out of her earlier expertise with LPP, in her new LinkedIn profile.

[13] Dubai has made some modifications to its banking and company secrecy legal guidelines to keep away from being blacklisted however company possession particulars are nonetheless solely accessible by the monetary authorities.

[14] Beneficiary particulars of Semper Simul Foundation should not accessible on the Malta Business Registry, however they’re disclosed through the Polish Central Register of Beneficial Owners. LPP S.A´s helpful homeowners should not registered on the positioning so we ran a seek for certainly one of LPP´s 100% owned subsidiaries LPP Logistics utilizing the corporate quantity (KRS) 0000833726.

[15] The supervisor defined that what they described as Piechocki´s Chinese-style, long-range planning had been developed throughout lengthy durations spent in China within the Nineteen Nineties sourcing suppliers for his clothes traces.

[16] The manufacturers now utilized by Far East Services (FES Retail) are: RE (previously Reserved), CR (previously Cropp), MO (previously Mohito), XC (previously House) and СИН (previously Sinsay).

[17] Secret customers visited 10 shops, representing FES Retail’s 5 distinct manufacturers, in Moscow and St. Petersburg in December 2023. They bought a small choice of clothes and took roughly 250 photographs within the shops. This permitted us to determine 76 separate gadgets, together with every merchandise´s corresponding in-house product code and barcode (GTIN).

[18] The in-house product codes discovered on the tags are usually 8 characters lengthy, adopted by a touch and characters referring to the scale of the piece.

[19] FX Rate across the time, 1 USD = 92.40 RUB.

[20] FX Rate 1 USD = 4.0277 PLN

[21] This product seems within the second line of outcomes when sorting by “newest” on the ladies’s skirt class of House’s on-line retailer for Poland, indicating it’s a part of LPP’s newest product providing.

[22] Of the 76 separate gadgets we documented within the Russian shops, with their corresponding barcodes (GTINs) and in-house product codes, we achieved the next end result: of the 76 in-house product codes, 65 have been a precise match for an similar product within the Polish on-line retailer; 2 barcodes have been duplicated, 2 others have been a precise match however have been listed as presently unavailable within the Polish on-line retailer; 2 offered matching designs however a distinct coloration; 4 couldn’t be discovered; 1 merchandise had a distinct product code in Russia in comparison with Poland.

[23] LPP has at the very least 75 registered license keys starting with the Poland prefix “590”, per GS1, which might allow it to generate a whole lot of 1000’s of particular person barcodes. RE Trading has 7 so-called license keys registered, enabling it to generate licensed barcodes, all with Russia nation prefixes. Asia Fashion Import Export has no registered barcode swimming pools of its personal, per GS1. Using the “discover firm” tab at GS1 UK insert search phrases: “Poland” + “LPP S.A”, “Russian Federation” + “РЕ ТРЭЙДИНГ”, “Singapore”/”China” + “Asia Fashion Import Export”.

[24] Of the 76 barcodes we photographed, 70 barcodes had initially been registered to an array of 37 completely different Chinese corporations with a “695” prefix, 5 have been registered to LPP and carried the Poland “590” prefix, and one appeared “incorrect”.

[25] LPP´s IT division is a 100%-owned entity known as Silky Coders. Its Polish-language web site describes it because the “technological basis for LPP”.

[26] Of the 76 barcodes (GTINs/EANs) we documented, 71 had Chinese “695” prefixes and 5 had Polish “590” prefixes. Details in Appendix A.

[27] Such outsourcing is a typical apply utilized by different LPP opponents, corresponding to H&M, Zara, and Gap, in accordance with a research sponsored by a UN company. [Pgs. 3, 4]

[28] As we’ll see later, import-export information doesn’t listing LPP as purchaser or “first purchaser entity”, however slightly “producer”.

[29] RU is the internationally standardized code for the Russian Federation below ISO 3166.

[30] The Central Register of Beneficial Owners doesn’t embrace information for LPP S.A however particulars of the members of the Semper Simul Foundation might be seen, for instance, through entries for LPP Logistics – a 100%-owned subsidiary of LPP S.A (KRS quantity 0000833726).

[31] The unique registered handle of Asia Fashion was the Camelot Trust places of work, at 137 Telok Ayer Street #08-01 Singapore. [Pg. 2]

[32] The particular person is Noor Asikin Binte Abdul Rahim. [Pg. 3] It isn’t clear whether or not Noor Asikin is certainly one of Ricquier’s direct workers at company companies firm Camelot Trust in Singapore, however she is clearly a daily Camelot nominee. Asikin options as a shareholder or director of at the very least 41 Singapore-registered corporations – three-quarters of that are registered at Camelot Trust´s major workplace handle, in accordance with Singaporean company records.

[33] Asia Fashion Import Exports is registered as an “exempted non-public firm” (EPC) below Singapore company laws and, on the face of it, is not obliged to file monetary statements. This provides an extra layer of opacity and makes it inconceivable to verify through public records even the fundamental underpinnings of its monetary and enterprise operations.

[34] The firm was included in Ankara on Sept. 11, 2014 below the identify 9 Danışmanlık İş Geliştirme ve Bilişim Ticaret Limited Şirketi. (Business Development and Information Technology Trade Company Ltd.)

[35] Certificates for numerous skilled programs linked to her LinkedIn profile present Demet Ata´s full identify as Emine Demet Ata.

[36] Our methodology consisted of looking Tradesparq information utilizing the principle time period “РЕ ТРЭЙДИНГ” (Cyrillic spelling of RE Trading) as “importer”. We additionally used secondary searches utilizing “Asia Fashion Import Export” and “Fashion Group Tekstil” as importers to Russia. We then used pivot tables to research the a whole lot of 1000’s of import-export entries to construct a transparent image of how LPP has continued to commerce and provide shops in Russia.

[37] The complete determine of merchandise acquired, although in a roundabout way imported, by RE Trading may very well be larger.  Between July 14th, 2022 and the tip of 2022, Asia Fashion Import Export imported 7,673 tonnes of merchandise valued at $118,386,340 to Russia, per our evaluation of Tradesparq information. That appears prone to have been carried out on behalf of RE Trading on condition that Asia Fashion Import Export lists no different import companions in Russia, per Tradesparq.

[38] In the three calendar quarters previous to the claimed sell-off, LPP immediately exported at the very least 60.55% of the products to its then-subsidiary RE Trading, per Tradesparq. The exporter for twenty-four.74% of exports throughout that interval was listed as “clean” and the rest was shipped by a gaggle of greater than 60 different exporters. Almost 97% of the merchandise shipped throughout that interval was listed as “produced” by LPP.

[39] In LPP’s paperwork, LPP´s IT division referred to this as “mannequin no.2” – by which LPP would hand over accountability for exports to Russia to middleman corporations it named by the initials “FGT” and “AFIE”. [Pg. 3]

[40] The the rest have been exported by a gaggle of greater than 30 different apparently unrelated exporters, per our evaluation of the info.

[41] The remaining 0.4% was produced by 10 different suppliers.

[42] In LPP’s PowerPoint shows, LPP´s IT division referred to this as “mannequin no.5” or the “Big Bang” – by which LPP would stop being “first purchaser entity” (the identical function we imagine is denoted by “producer” within the export records) for items being exported to Russia and would get replaced by middleman corporations it named by the initials “FGT” and “AFIE”. [Pgs. 3, 6-7]

[43] The handle related to Asia Fashion Import Export on the label is the handle for Camelot Trust’s headquarters in Singapore.

[44] Results from Russia have been categorised as “discontinued operations” within the 2022/23 report and outcomes from 2021/22 have been “restated” and Russia revenues have been eliminated, with the intention to allow like-for-like comparisons.

[45]  USD/PLN trade fee for Jan. 31^st 2023 was 1 USD/PLN 4.33.

[46] The figures in quarterly reviews in each English and Polish present all manufacturers rising by 2022/23 and present no giant disclosures in “Other” till the English-language full-year disclosure. [Q1, Q2, Q3]

During FY 2022/23, LPP modified the time period used to explain the “Other” phase on the “Sales Broken Down By Brand” or “Sales of our model” tables for his or her English reviews. For the Q1 Report, they used “Outlet.” For H1 Report, they used the Polish phrase Pozostałe, which implies “the remaining,” in accordance with Google Translate. For Q3 and Annual reviews they used the phrase “Other.”

[47] For the complete math: In the primary 9 months of 2022/23, “Other” gross sales totalled simply PLN 154 million, which means PLN 3.018 billion ($697 million utilizing USD/PLN fee at January 31^st, 2023) was added to revenues in simply This fall 2022/23 (for a full-year complete of PLN 3.172 billion). RE Trading´s 2022 revenues in Rubles have been disclosed as ~RUB 47.78 billion, equal to PLN 3.015 billion ($696.3 million), utilizing the identical RUB/PLN trade fee LPP makes use of in its calculations for the interval.

[48] Additionally, the quantities proven as “different” on the English-language model at finish 2022/23 are 44x greater than in restated 2021/22 figures.

[49] LPP shares closed at PLN 16,300 on December 5^th, 2023. FX Rate 1 USD = 3.9910 PLN

[50] Marek Piechocki says that the Semper Simul Foundation invests in different tasks, corresponding to accommodations and retail parks in Poland. However, he additionally implied that the muse used the dividends from LPP to make these investments, in accordance with an interview revealed by Poland´s financial newspaper of document, revealed on December 2023. Therefore, it’s unclear the usage of proceeds from this margin mortgage.

[51] On July 22^nd, 2021, Semper Simul Foundation additionally pledged 87,000 shares. FX Rate 1 USD = 3.8386 PLN

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March 15, 2024 at 08:14AM