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

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  • LPP S.A. is an $8.4 billion fashion retailer based in Poland that lays claim to being the largest fashion company in Central and Eastern Europe.
  • Until Russia invaded Ukraine in February 2022, Russia was LPP’s biggest international market, generating ~19.2% of revenue from 553 stores. LPP had major expansion plans for Russia according to company disclosures and a former executive who told us: “[LPP] had plans to open hundreds of more stores [in Russia] … that was the biggest market that we wanted to grow”.
  • Russia’s invasion of Ukraine in February 2022 triggered a mass exodus of foreign companies from Russia. This resulted in a 46.6% drop in LPP’s share price as investors feared the loss of key growth prospects.
  • Trade relations with Russia pose a serious risk for Polish companies like LPP due to both sanction and reputational risks—97% of Polish citizens have an unfavourable view of Russia post-invasion, according to a survey conducted by the Pew Research Center in spring 2022.
  • As recently as November 2023, former Russian president and close ally of Vladimir Putin, Dmitry Medvedev, labelled Poland a “dangerous enemy” and insinuated that it could be a candidate for invasion.
  • On April 28th, 2022, LPP announced plans to distance itself from Russia by divesting its Russia division. A deal progressed rapidly: Weeks later, on May 19th, 2022, it announced it had concluded negotiations with an unnamed buyer, finalizing a sale on June 30th, 2022.
  • Despite saying it lost ~20% of revenues from divesting its Russian operations, LPPs total revenue still remarkably grew 13% overall in FY 2022/23. Reported revenue across markets excluding Russia was up 40.5% year-on-year.
  • The market has rewarded LPP’s reported 40.5% core revenue growth—virtually unheard of in the retail apparel industry—by sending the stock back toward all-time highs.
  • We believe LPP was able to post these remarkable results because its divestment of its Russia business has been a complete sham.
  • LPP says it sold its Russian assets (called “Re Trading”) to a vague “Chinese consortium” in a ~$382 million deal. We found that the buyer was a Dubai-based shell called “Far East Services” with no disclosure of its owners or directors.
  • Far East Services was incorporated just one day before LPP announced it had reached an agreement to sell its Russian subsidiary. It has no externally verifiable presence, track record in the fashion industry, or apparent associations with China.
  • A former senior LPP employee told us the deal was “a façade to hide [the] truth of not selling Russian operations”, adding that LPP’s Russian operations are still “directly controlled by LPP HQ and board”.
  • A former manager described LPP CEO and founder Marek Piechocki’s approach: He didn’t “give a f*ck about some war between Russia and Ukraine. This [war] is just temporary.”
  • Operational details offer other clues that LPP retained control of the Russia business. For example, LPP’s Russian stores re-opened the day after its sale contract was agreed; 37 days before the deal even closed.
  • ‘Big Four’ auditor Ernst & Young issued a qualified opinion on LPP´s 2021/22 audited financial statements over accounting issues relating to its Russian assets. 5 days after LPP’s claimed Russian divesture, LPP switched auditors to Grant Thornton, a second-tier audit firm with a history of missing signs of accounting malfeasance.
  • LPP said it would only support the new buyer for a “transitory period”, but evidence suggests LPP continues to sell, and can track and control inventory being sold, in Russia.
  • We dispatched secret shoppers to “Far East Services” flagship stores in Moscow and St. Petersburg in December 2023. Almost all garments we photographed were identical designs and colors to fall/winter collections in LPP´s online catalogues in Poland, indicating that LPP’s products are still somehow making their way into Russia at least 18 months after the claimed divestiture.
  • Further, Russian in-house product codes were an exact match for the product codes in LPP´s Polish catalogue.
  • Barcodes found on Russian merchandise at first seemed mostly out-of-date, issued to random Chinese companies, or counterfeited to mask the products’ true origin.
  • However, LPP presentations shown to us detail how LPP planned to modify barcodes to covertly track Russia merchandise via its own IT systems– concealing its continued control of the inventory.
  • Additional documents show how LPP senior management can encrypt valid barcodes registered to LPP in Poland and disguise them as unrelated Chinese barcodes.
  • We reverse-engineered 65 barcodes at “Far East Services” retail stores in Russia using LPP’s secret methodology. Once decoded, they were a precise match to LPP barcodes registered in Poland. We view this as dead-on evidence of LPP’s elaborate steps to conceal its sham Russia divestiture.
  • “For me the shock is…that this is LPP because they are really, this is the biggest Polish clothing brand owner. So it’s hard to imagine that, that they can do something like that,” a manager at GS1 Global, the Polish branch of the barcodes standards organization, told us.
  • LPP also set out plans in internal documents to hide exports of its merchandise to Russia – cloaking the true ownership of the goods via two front companies set up by key LPP insiders. LPP’s export scheme was put into practice from mid-2022, according to our analysis of over 335,000 thousand import-export records.
  • The first front company – Singapore-based ‘Asia Fashion Import Export’ – was set up the day Russia invaded Ukraine by a key member of Semper Simul Foundation, LPP’s controlling shareholder affiliated with CEO Marek Piechocki.
  • The second front company – ‘Fashion Group Tekstil’ – was a dormant Turkish company until an LPP employee acquired it 7 months after Russia’s invasion of Ukraine. “Far East Services”, the buyer of LPP’s Russian assets, later took control of 95% of Fashion Group Tekstil.
  • LPP stepped back and handed a lead supply-chain role to the related-party front companies, based on our analysis of barcodes and import-export records.
  • LPP also appears to be using Kazakhstan as a backdoor to help supply Russia stores. Import-export records show that LPP shipped ~$755 million of merchandise to its Kazakh subsidiary in 2023, despite Kazakhstan only accounting for 1% of LPP’s brick-and-mortar stores.
  • If found to still be operating in Russia, LPP may be in breach of loan and finance agreements with its main creditor, PKO BP Bank, which provided ~62% of its loans and borrowings as of its latest year-end. PKO wrote us: “In principle the bank does not finance entities operating in Russia or in cooperation with Russian contractors.”
  • We suspect LPP has further masked its sham Russia divestment through accounting manipulation. We found that more than two-thirds of the revenue growth in 2022/23, representing $732 million or 20% of total revenue, came from an unexplained “Other” segment, according to the English version of LPP’s annual report. In the previous 3 years, this “Other” segment never represented more than 2% of LPP’s total revenue.
  • Meanwhile, management has extracted cash from their LPP stake through margin loans, a risky form of financing. On December 5th, 2023, LPP´s controlling shareholder, an affiliate of LPP’s CEO Marek Piechocki, pledged 20% of its stake in LPP, worth $490 million at the time.
  • Overall, we believe LPP devised an elaborate sham ‘divestment’ to continue making money in Russia despite the devastating war, while trying to deceive investors and consumers in Poland, Ukraine, and its other key markets.

Initial Disclosure: After extensive research, we have taken a short position in shares of LPP S.A. (WSE:LPP). This report represents our opinion, and we encourage every reader to do their own due diligence. Please see our full disclaimer at the bottom 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 clothing and home accessories retailer headquartered in the port of Gdansk, Poland.

It was founded as a family-led, wholesale clothing business in 1991 just after the Soviet bloc collapsed and Poland began transitioning to a market economy. 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 mostly of Piechocki family interests – is LPP’s controlling shareholder, owning about 31.2% of LPP’s shares with 60.8% voting control.[2] Piechocki’s two sons sit on the management and supervisory boards of LPP. [Pg. 10]

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

“The Semper Simul Foundation, which is a significant shareholder of LPP, also invests in other projects. When creating it, I wanted LPP to always be safe and… to be in family hands for generations.”

LPP grew from selling cheap, imported Turkish sweaters to now having 2,206 stores, totalling more than 1.9 million square meters of retail space across 27 countries, per LPP’s most recent results. 

The company sells under its flagship brand Reserved, streetwear brand Cropp, youth casual brand House, women´s collection Mohito, and lower-cost clothing and home accessories brand Sinsay.

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

LPP now lays claim to being the largest fashion company in Central and Eastern Europe.

(LPP’s brands. Source: LPP)

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 store in Russia in 2002. By the end of its 2021/2022 financial year, LPP had 553 stores in Russia – one-quarter of its 2,244 stores globally at that time.

For the period of February 1st, 2021, to January 31th, 2022, Russia accounted for 19.2% of LPP´s total revenue of about $3.4 billion (PLN 14.02 billion). LPP’s home country of Poland accounted for 39.3% of revenues and 952 stores. [3]

The next largest international market for LPP after Russia was Ukraine, which generated 7.1% of company revenue from 159 stores.

(LPP’s revenue by country for the FY ending January 31st, 2022. Source: LPP Annual Report 2021/22)

With a population of more than 141 million in Russia versus about 38 million in Poland, LPP viewed Russia as a major target for future growth, as outlined in the company factbook and other presentations for the year 2020/21:

“We see long-term growth potential in Russia, due to large number of towns with population above 1 million.”

A former senior manager confirmed these growth plans to us:

“The future was like we had plans to open hundreds of more stores [in Russia]. Hundreds. That was the biggest market that we wanted to grow. That was the strategy and that is the way we looked at the map months before the war, that it will be the most important 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 period ended, LPP’s growth plans for Russia were abruptly thwarted by the war.

On February 21st, 2022, after Russia declared several Ukrainian regions ‘independent’, LPP’s stock began to fall. The plunge accelerated on February 24th, 2022, when Russia invaded Ukraine, with LPP’s stock bottoming on March 7, 2022.

During this 14-day period, LPP’s stock price fell by 46.6% as investors feared LPP would lose its key growth market.

(LPP Stock Chart for Q1 2022)

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, severe reputational damage, international pressure, banking restrictions, and the risk of Russian government interference have all been cited as major risks for companies that have chosen to remain in Russia.

The U.S. and EU announced new sanctions against Russia beginning hours after Russia launched its invasion of Ukraine. [1,2]

A corporate exodus from Russia quickly followed. On March 1, 2022, CNBC reported:

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

Hundreds of multinationals suspended operations in Russia or entirely divested since the invasion, including at least 19 Polish companies that have withdrawn from Russia, according to one of the most comprehensive databases maintained by the Chief Executive Leadership Institute at the Yale School of Management.

Jeffrey Sonnenfeld, founder of Yale’s Chief Executive Leadership Institute warned of the PR disaster awaiting those international businesses who opt to remain in Russia:

“When the war ends, they’re going to be seen as Nazi collaborators were 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 once a satellite state of the USSR – has been a member of NATO since 1999 and part of the European Union since May 2004. Its eastern border with Russia-ally Belarus and war-ravaged Ukraine also marks the eastern frontier of both the NATO and EU blocs.[4] [5]

As such, Poland would become the NATO and EU frontline if Russia were to widen its Ukraine war westward.

(Source: CIA World Factbook)

As recently as November 2023, former Russian president and close ally of Vladimir Putin, Dmitry Medvedev, labelled Poland a “dangerous enemy” and insinuated that it could be a candidate for invasion.

(Source: Polskie Radio)

On February 8th, 2023, while Putin said in an interview that he had no interest in sending Russian troops to Poland, he also falsely claimed that Poland collaborated with Hitler and pushed “Hitler to start World War II.”

Beyond specific sanctions imposed by the European Union, of which Poland is a member, there is no blanket ban on trade between Russia and Poland and imports and exports have continued, albeit on a much reduced level.

However, since the invasion of Ukraine, 97% of Poles have unfavourable views of Russia, the least favourable country-wide stance of any of the nationalities surveyed, according to a study conducted by the Pew Research Center in the spring of 2022.

(Source: Cambridge University-backed from Poland NGO Citing a Pew Research Center Survey)

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

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

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

Given the potential post-Russian-invasion consequences, LPP announced that it would progressively suspend operations in Russia and halt supplies and soon after said it would sell-off its entire operation in Russia.

Some timeline basics:

  • On March 4th, 2022, 8 days after Russia invaded Ukraine, LPP announced that it would suspend operations in Russia and halt supplies.
  • On March 29th, 2022, the company issued a statement saying it had shut down all Russian stores (~553 stores total) and completely suspended the transport of goods to its Russian branches.
  • On April 28th, 2022, just one month later, LPP said it had taken the decision to sell its Russian business.
  • On May 19th, 2022, just 3 weeks after announcing its decision to sell and despite the ongoing war, LPP said it had concluded negotiations for selling its Russia subsidiary.
  • On May 23rd, 2022, 4 days later, it signed the sales contract.

In brief, it took LPP only 25 days between deciding to sell its Russian business (consisting of 553 stores) and executing a sale and purchase agreement.[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 year that ended on January 31st, 2023, despite losing its biggest international market representing 19.2% of revenues and 25% of its stores, LPP remarkably reported 13% overall revenue growth. [Pg. 91] [Pg. 85]

When adjusting LPP’s FY 2022/23 figures to exclude its Russian operations, the rest of the company reportedly increased its revenues by 40% from the prior year, according to restated figures from LPP’s Annual Report. [Pgs. 85, 92]

This meteoric growth was achieved with a more diversified revenue mix by country. Beyond Poland, no country contributed more than 8.4% of total revenues, according to the LPP’s Annual Report 2022/23.

(LPP’s revenue by country for the FY that ended in January 31st, 2023. Source: LPP Annual Report 2022/23)

And somehow, the company has not slowed down. During the first 3 quarters of FY 2023/24, LPP reported 7% revenue growth year-over-year.

As a further reflection of its growth beyond Russia, LPP reported it had increased its number of total stores by 30% in 21 months, opening 515 stores from January 31st, 2022, to October 31st, 2023.[8]

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

LPP’s stock price has doubled since reaching a bottom in October 2022, indicating that the market has bought into the company´s claims of growth without Russia.

(LPP Stock Chart for Since January 2022)

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

We believe the key reason LPP’s metrics have remained steady despite its claimed Russia divestment is because the company never actually divested its Russian assets.

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 did not initially name the buyer of its Russia business and described it only as a “Chinese consortium.” The buyer was later described as an “Asian investor” in LPP’s 2022-23 annual report.

The transaction had “two elements” described as (i) the sale of the stores and (ii) the sale of goods. No cash was initially exchanged.

The first element, the stores, were sold for ~$135 million (PLN 601 million), to be paid in instalments within 4 years. The second element represented ~$247 million (PLN 1.1 billion) of old inventory, with the balance to be paid out by the end of May 2023. [Pg. 10]

The new buyer also has the option of selling the company back to LPP by the end of 2026, giving LPP a chance to retake ownership of its Russia business after the war ends.[9]

LPP CEO Piechocki described payment for its Russian subsidiary as “still ongoing” in a December 2023 interview with Poland´s economic newspaper of record:

“It is still ongoing, the first large instalment will be in December (2023) … The business is sold, but payments are still to be received. I will tell you in January (2024) whether they are 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 corporate records show that the buyer was Far East Services-FZCO, a Dubai-based shell with no disclosure of owners or directors. [Pgs. 2-3]

Far East Services – FZCO was incorporated in Dubai on May 18th, 2022, one day before LPP announced it had concluded negotiations for selling its Russian assets, according to the UAE national economic register.

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

The remaining 5% was transferred to Anna Pilyugina, according to the Russian government news agency TASS.[11] Pilyugina has been “general director” of LPP´s Russian subsidiary RE Trading since at least 2013, according to the Russian business registry. [Pg. 2]

Pilyugina’s minority stake was later transferred to another Dubai free zone entity, General Consulting Services-FZCO, on March 2nd, 2023, according to Russian corporate records.[12] [Pg. 3]

(Anna Pilyugina’s LinkedIn Profiles Sources: LinkedIn and Archive.ph)

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

One would expect that a consortium that defines itself as “one of the largest companies in the fashion industry” operating 500+ stores in Russia would have some type of documented online presence about its track record. However, this is not the case with Far East Services, also known as FES Retail.

The website associated with FES Retail doesn’t name any executives at the company. The FES Retail domain was registered in June 2022, from Russia, after LPP announced the sale of its Russian operations.

Other than the news articles relating to the purchase of LPP’s Russian business and an announcement to close 50 stores, FES Retail hasn’t clearly communicated its strategy, plans, or corporate initiatives for the business, per a March 11th, 2024 search on Yandex, a Russian search engine.

Oddly, 17 Russian certificates of conformity issued to Re Trading after LPP sold it still used an LPP email (more on this later). From these certificates we also found an address for FES Retail in Dubai registered to a post office box.

(Source: Russian Certificate of Conformity Issued to RE Trading)

The P.O. box matches the address of a distribution company in Dubai, Worldwide Distribution Center FZCO.

(Source: Worldwide Distribution Center FZCO’s website)

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

“I don’t recognize a company called Far East Services.”

“We don’t ship to Russia any product, because Russia is sanctioned. So, I’m not able to. I’m not allowed to sell from the manufacturers.”

We find it odd that the “Chinese Consortium” behind FES Retail has no verifiable presence, no track record of operating in the fashion industry, and no clear association with China.

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

In a brief article published on July 4th, 2022,  after Russian authorities had approved the sale, Moscow-based business newspaper Kommersant cited unnamed company sources alleging that Far East Services was just a shell masking LPP´s continued ownership of its Russian subsidiary:

“LPP spoke about plans to sell its Russian business to a consortium from China back in May. Then Kommersant’s sources in the company indicated that the ‘Chinese consortium’ is LPP structures in China, where about 30% of the group’s products are produced. According to its own data, LPP has maintained an office 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 corporate secrecy laws make it impossible to verify the owners or constituent entities of Far East Services, we reached out to former LPP employees to learn more.[13]

The reply by email from one senior employee, formerly based at LPP headquarters, was categorical:

  1. “1. LPP has never sold RE Trading to 3rd party owner. All you can see, agreements, statements, changes in public records and etc., are only a facade to hide [the] truth of not selling Russian operations.
  2. Whoever is the registered owner of RE Trading is linked through second layer legal bonds.            
  3. All operations of RE Trading are directly controlled by LPP HQ and Board directly.                            
  4. All the above is not disclosed to shareholders, creditors (banks) and especially to financial institutions and especially regulatory offices like Revenue and Financial Supervision Authority.”

The former employee said plans to create a new corporate structure to handle the Russia business and pass it off as an independent buyer had been developed at the highest legal and financial levels in LPP:

“The main architect for legal setup is Sławomir Łoboda. He is Vice President as well as Legal counsel for LPP and Piechocki family. Łoboda was the one who was traveling to Kazakhstan, Turkey and Singapore as well to China. He was accompanied by Przemysław Lutkiewicz, the CFO, and by another lawyer Adam Gosz.”

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

Gosz lists his role at LPP as leading counsel on matters including “information and regulatory obligations” and “proceedings before the Polish Financial Supervision Authority”, per LinkedIn. He lists his job at LPP concurrently with his employment at Loboda´s private law firm.

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 employee said all key decisions relating to business in Russia continued to be overseen by LPP, even after the claimed divestiture:

“From the very beginning, the entire setup was made to fully control all of the Russian operation from LPP HQ. All collections are designed in Gdansk (or Krakow). Yes, they are using the same suppliers and [what´s] more, they are using the LPP funding structure to finance the supply of goods.”

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 manager we contacted was also convinced that the new buyer, Far East Services, was closely related to LPP. 

They said detailed knowledge was probably limited to a few top decision-makers but they were aware that LPP bosses had been devising a strategy of what to do in the event of war since at least December 2021.

The former manager described the risk of losing revenue from Russia as an “existential life threat” for LPP and said they believed CEO and co-founder Marek Piechocki – whom they said they knew personally – would look for a long-term, “PR-proof” solution:

“Marek [Piechocki] has both Chinese way of thinking as well as Anglo-Saxon way of thinking. This is a unique mentality in Poland. This guy is like Polish Steve Jobs…so his understanding is that ‘I don’t give a fuck about some war between Russia and Ukraine. This is just temporary. What should I do in the perspective of 100 years? What decision will be the best for this company…if my kids look at my life or my grandkids look at my life, how, what did I do 100 years before?’”[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 employees based in the Poland HQ doubted that LPP had in fact divested its Russia business to a Chinese consortium, others in Russia shared similar perspectives.

One former Moscow-based employee told us that LPP stores closed gradually during March 2022, and during March and April, all staff were furloughed:

“We didn´t work. We waited for some announcement, for some plan what we will do next.”  

They said rumors began circulating that a “Chinese corporation” was about to buy them out.

Most employees were notified of the sale via a corporate memo, they said. This screenshot copy was posted on Telegram on July 4, 2022, by Russian journalist Ksenia Sobchak, saying it had been passed to her by a company employee.

(Source: Ksenia Sobchak Telegram Channel BloodySX)

The statement is addressed to “Dear Colleagues!” from RE Trading general director Anna Pilyugina. The message states RE Trading has been acquired by FES-Far East Services and is “now directly connected with China and the countries of the Far East.”

Contrary to almost every major buyout deal, which would be subject to extensive on site due-diligence, the former Moscow employee said they never saw any sign of the new owners or their representatives in the Moscow head office. Nor, they say, were there any changes in management structure to indicate that RE Trading was part of a larger, international company:

We never saw any Chinese people in the office. And you can imagine, if you sold some big financial active [asset] which is this company – this company has still like 500 stores in Russia. When you´re selling the business probably as a buyer, you want, you would like to see something by your [own] eyes. We didn’t we didn’t see any, any Chinese people.”

They added that they believed the Russia business continued to be directed by LPP from Poland, albeit with a greater degree of autonomy in running day-to-day operations:

“In my logic, you should be in the office. You should be in the place when you buy such a big business. And as a person [personally], of course, I think that owners are still in Poland and they just squeezed the amount of people which communicate with Russian subsidiary office. Just this amount of people are squeezed to the most trustworthy ones because it could be really dangerous for the Polish company also because their government don’t want 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 29th, 2022, press release, LPP said it had “closed all stores in Russia”. The closures were confirmed by local Russian vloggers as well as through our conversation with a former employee. LPP then inked its sale contract with the then-unnamed buyer consortium on May 23rd, per LPP’s annual report. [Pg. 116]

Normally, in a change of control transaction, companies wait until a deal is closed before handing over control of its physical locations, leases, employees, payroll, inventories, and all the other elements of a business.

Contrary to this, LPP’s Russian stores opened the very next day after its sales contract was agreed to, a full 37 days before the deal closed on June 30th, 2022.

On May 24th, 2022, the day after LPP inked its sale contract, a YouTube video published by Russian vlogger Sergei Baklykov shows LPP stores had re-opened in St Petersburg´s prestigious Galeria shopping mall still under the LPP brand names.

Beyond the oddly rapid reopening timing, we would have also expected the stores to open under a new brand name, given LPP’s own May 19th, 2022, announcement that made clear that the buyer would have “no rights whatsoever to utilise trade names and trademarks of clothing brands owned by LPP SA” as part of LPP’s claimed full exit of the Russia market.

(Images from video published on May 24, 2022. Source: YouTube)

“Just two days ago when I filmed here it was closed. But today five brands of Polish company called LPP Group they are re-opened again after two month of being on pause,” Baklykov states in the video.

At the time this video was published, Russian authorities could still have rejected the transaction, especially given that the buyer had only been in existence 6 days and had no visible track record of operating a fashion empire responsible for 6,500 jobs in Russia.

The swift re-opening seemed to indicate both an extremely high level of trust and a perfectly smooth operational handover between LPP and the buyer, a combination of elements that don’t generally exist in the business world.

Other operational oddities also indicate that LPP retained surreptitious control. For example, after the sale, RE Trading applied for Russian certificates of conformity, required to export certain products to Russia, using an LPP E-mail. [Pg. 2]

(Source: Russian Certificate of Conformity Issued to RE Trading in December 2023)

‘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 expect from one of the top 10 largest companies trading in the Warsaw Stock Exchange, LPP used to be audited by E&Y, a ‘Big Four’ audit firm.

However, On April 20th, 2022, E&Y issued a qualified opinion on LPP’s 2021/22 financial statements. The basis for this qualified opinion was LPP’s decision to book an early impairment of its Russian assets. The company only corrected its 2021/22 financial statements in August 2023 after the Polish Financial Supervision Authority insisted. The restated financials recognize the impairment of LPP’s Russian assets in the corresponding period in which Russia invaded Ukraine (i.e. FY 2022/23).

After this disagreement, on July 5th, 2022, 5 days after officially selling its Russian operation, the Supervisory Board of LPP downgraded the company auditors to Grant Thornton, a second-tier audit firm.

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

“We are not doing what the market thinks. We are not looking for fraud and we are not looking at the future and we are not giving a statement that the accounts are correct…we are not set up to look for fraud.”

We think Grant Thornton is a perfect choice for companies looking for an auditor that will ignore signs 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 terms of the sale contract, LPP agreed to support Far East Services for a “transitory” period while it set up its own stock purchases, logistics, and IT procedures. LPP did not specify the duration of the transition.

The purchase agreement, initially announced on May 19th, 2022, expressly prohibited FES Retail from using LPP trademarks in the future but did permit the clearance sale of LPP-branded stock already in Russia at that time:

“The Company [LPP] notifies that, as agreed by the parties to the transaction in question, the buyer will buy no rights whatsoever to utilise trade names and trademarks of clothing brands owned by LPP SA, yet it shall acquire the right to make clearance sales of all the stock owned by the Russian company.”

Given the wording of that agreement, we would expect Far East Services and RE Trading to function independently of LPP after a limited transition.

If LPP had genuinely divested its Russia business, after a period of clearance sales of existing LPP inventory, we would expect to find fresh stock and products with different designs, different in-house product reference codes, and valid barcodes offered for sale in the Russian stores.

That’s not what we found.

Our analysis of FES Retail products, corporate filings, export records, and a handful of internal documents indicate that LPP staff covertly devised alternative methods to ship LPP goods to Russia whereby it can still control operations from LPP’s headquarters. We describe our findings in the next 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 corporate presentation says it creates all of its collections in Poland, and that it takes 30-100 days for its designs to hit stores.

LPP claims that it “completely halted shipments of goods to Russia” in the immediate aftermath of the invasion of Ukraine, by March 2022.

Thus, under the terms of the sale agreement, there is no reason why designs from LPP´s recent Fall/Winter collection should be available in stores now operated by Far East Services (known as FES Retail) 18 months after LPP claimed to have divested.

In December 2023, we dispatched small teams of secret shoppers to 10 separate stores in Moscow and St. Petersburg, formerly operated by LPP and now operated by Far East Services under its new, slightly modified brand names: RE, CR, XC, MO and СИН (“FES Retail stores”).[16] [17]

Our analysis shows that the designs, fabrics, and colors of clothing offered in FES Retail stores are overwhelmingly identical to recent Fall/Winter collections featured at the same time in LPP’s online store in Poland and its other Central European markets. Many items were also sold within a similar price range. Almost all the items we observed in the Russian stores were marked with the slightly modified trademarks now registered to FES Retail, indicating this was new stock (not old, out-of-season clearance items).

In almost all cases, the identical-looking products on display at FES Retail outlets in Russia were also marked with labels bearing the exact same in-house product codes used by LPP to identify models and item variants in Poland and other markets. [18]

This seems to be a clear indication that LPP HQ continues to control operations in Russia right down to the critical core functions of clothing 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 example, we found this woven jacket and skirt for sale in the RE store in St Petersburg for about $60.60. It had the in-house product code 9105E-55X.

(Source: Hindenburg Researcher)

The same outfit can be found in Reserved’s Polish online store. The product code used by LPP is also 9105E-55X and matches the one from the dress available in Russia.

It was discounted at the US dollar equivalent of $24.80, from its normal price of $54.60, which is $6 cheaper than in Russia.

We found this “black sweater with a fire motif” for sale at a CR store in St Petersburg, for the US dollar equivalent of $28.12.[19] It had the in-house product code 3422W-33X.

(Source: Hindenburg Researcher)

As with the previous example, an identical sweater with the exact same in-house product code 3422W-33X was available at CROPP’s Polish online store, where it sold for the equivalent of $28.76.[20]

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

(Source: Hindenburg Researcher)

An identical miniskirt was for sale on LPP´s House brand online store in Poland for $22.34. As with almost all the garments we compared, the in-house product code in the Russian store matched the online Polish in-house product code.[21]

(Source: House Polish Online Store)

These are just a sample of the almost 70 items we identified in the Russian stores that shared identical designs and matching in-house product references with those in the Polish online store. For further details, 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 known as EANs or GTINs – are a voluntary standard that have become ubiquitous in the retail industry. The only standards body authorized to license barcodes is GS1, a global network with in-country branches.

The use of accurate and valid barcodes is “especially important to the apparel industry,” according to the GS1 UK branch, adding:

“GS1 standards make it possible to provide trusted information about a product throughout its lifecycle. This improves transparency and traceability.”

LPP has multiple, active registrations with GS1 Poland and is expected to adhere to global standards. RE Trading is also a GS1 member and so we would, likewise, expect them to abide by the agreed norms.[23] Global standards indicate that for branded items, such as those sold by LPP and FES Retail, the brand owner is responsible for licensing the barcodes from GS1. [Pg. 215]

But almost all the barcodes we documented during our store visits in Moscow and St Petersburg were not in fact registered to LPP, RE Trading, or FES Retail, according to GS1 database searches.

Instead, they appeared to have been registered to a random array of Chinese companies, many with little or no apparent link to the garment trade. These include technology, food, grease, chemical, luggage and toy manufacturers, based on our search of the GS1 global database.[24]

About 2/3 of those barcodes appeared “inactive” and “no longer being kept up-to-date by the original manufacturer or distributor”, per GS1. The remainder were listed as “active” but registered to liquor, food, and nut manufacturers. Details in Appendix A.

The overwhelming majority of the items we inspected in the Russian stores began with the “695” prefix, one of several country codes issued by the GS1 branch in China.

For example, the tag below, from a pair of women´s red cigarette pants at a Moscow MO store, shows barcode number 6955524186447.

(Source: Hindenburg Researcher)

When we tried to verify the barcode on one of the GS1 databases, we found that the record was “inactive.” Furthermore, the company that had originally registered the GTIN was Chongqing Wuweitang Food Co., Ltd.

The search result stated the sequence was “no longer being kept up-to-date by the original manufacturer or distributor,” indicating that the sequence is no longer valid.

(Source: Verified by GS1)

We obtained similar results with the vast 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 standards organization describes barcodes as “fingerprints for your products and locations, giving everyone confidence that your products and locations are uniquely identified along the supply chain”. GS1, via its Hong Kong branch, warns:

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

We described our findings, initially without mentioning LPP specifically by name, to a manager at the GS1 Poland branch. The response was direct:

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 illegally and just have taken the Chinese numbers without any 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 sold more than 430 million clothing items worldwide in 2022/23, per its factbook. For LPP, like other major retailers, barcodes (also known as GTINs and EANs) are a key tool for inventory and cost management systems from the factory to the shop floor.

We believe that as LPP planned to continue to supply its Russia stores, it needed a method to manage the inventory and supply chain via the company´s own IT systems while at the same time conceal that LPP had not genuinely divested from Russia.

During our investigation, a former LPP employee shared 3 PowerPoint presentations – entitled “Roadmap for systems modifications” – prepared by members of LPP´s IT department in November and December 2022 and in February 2023.[25]

The former employee suggested these documents might have evidence that LPP continued to control the Russia business despite claims it had divested.

At first they were incomprehensible, filled with undefined acronyms, incomplete names and company jargon. Their significance only became apparent after we had gathered barcode data from the stores in Russia and examined thousands of import-export records, as detailed later.

(LPP Presentation)

A few lines from the presentation dated December 5th, 2022, show how LPP devised a system to encrypt its Polish-registered barcodes to mask the source of the merchandise being sent to Russia, while at the same time ensuring that those barcodes could still be handled by LPP´s IT system. [Pg. 3]

This strikes us as dead-on evidence that LPP devised a complex system to conceal its fake divestment from Russia.

In the PowerPoint presentation dated December 5th 2022, LPP IT experts specifically mentioned “EAN number 695” – the same China country prefix we found on the overwhelming majority of the barcodes from stores in Moscow and St Petersburg.[26]  [Pg. 3]

(LPP Presentation, Translated via Google)

A few lines later in the same presentation, LPP´s developers described how to disguise or encrypt the regular, LPP-registered barcodes (EANs) that LPP was using in its other markets to create seemingly new barcodes with no apparent connection to LPP for merchandise destined for RE Trading stores in Russia. [Pg. 4]

The proposed encryption would still allow LPP’s systems and scanner to handle disguised barcodes, according to one of the presentations. [Pg. 4]

(LPP Presentation, Translated via Google)

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 “formula”. A translation of the presentation says:

“Please make sure that by changing only the first 3 digits without changing the check digit, our systems and scanners will be able to handle them [new EANs]” [Pg. 4]

Generally, the first 3 digits of a 13-digit barcode are a country prefix.

As mentioned, most of the products we documented from our secret shopping in Russian FES Retail’s stores use the prefix “695,” associated with China, the country of the claimed acquirer of LPP’s Russia business.

Meanwhile, LPP products are registered with the “590” country prefix for Poland, according to a search by party name in one of the GS1 databases.

The “check digit” is the last digit of a barcode sequence and it “makes sure the barcode is correctly composed,” according to GS1. This number results from a calculation using all the other numbers in the barcode.

(Structure of barcode found in a FES Retail Store. Source: Hindenburg Researcher)

As an example, we applied the partial formula indicated in LPP’s PowerPoint presentations, to decrypt the barcode found on the women´s red cigarette pants purchased by one of our secret shoppers from a MO store in Moscow.

(Source: Hindenburg Researcher)

Our steps:

Step 1 – We took the barcode shown – 6955524186447 – and replaced the Chinese prefix “695” with the Polish prefix “590” and removed the final “check digit” – that gave us 590552418644.

Step 2 – We recalculated the check digit, using the GS1 website.

(Source: GS1)

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

Step 4 –  We verified our new, modified barcode in one of the GS1 databases to see if we could find a match.

We found that the decrypted barcode is currently valid and is registered to LPP S.A. for exactly the same model of Mohito brand women´s red cigarette trousers that we had purchased at the MO (formerly Mohito) store in Moscow.

(Source: Verified by GS1)

The above online certification shows the barcode is active and registered to LPP and also lists an in-house product code that is identical on both the item in Russia and in Poland. This means that even though the Russian barcodes look completely different from the Polish ones, they refer to the same item in the LPP inventory, once decrypted through LPP´s IT system.

(Hindenburg Secret Shopper Wearing MO Red Trousers Marked With Barcode We Analyzed And Recalculated)  

Below is a summary of our decryption method for the barcodes we found in Russia.

(Methodology Used To Decrypt Russian Barcodes)

Using the same method, we decrypted 64 other barcodes attached to garments in Russian stores. See Appendix A.

Once decrypted, the barcodes from “divested” Russian FES Retail stores, which at first sight looked like mostly out-of-date Chinese barcodes, were a perfect digit-for-digit match to “active” barcodes currently registered to LPP in Poland, and which correspond to specific items of clothing.

“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 phone call with a manager at the Poland branch of GS1, the barcode standards organization, we showed them the specific barcode evidence. They were shocked:

“For me, the, the shock… is that this is LPP because they are really, this is the biggest Polish clothing brand owner. So it’s hard to imagine that, that they can do something like that.”

“The fact is that it’s really hard to imagine that such company does such illegal things because we cooperate with LPP for a long time and they are really, they as far as I know, they really care of the reputation and the whole aspects related to ESG and such cases. So it’s really hard to imagine that they, they do this on purpose.”

We telephoned Jacek Kujawa, the former vice-chairman of LPP´s board and former head of LPP´s Silky Coders IT department. His LinkedIn profile shows he worked for the company since 2004 until his resignation in October 2023 in matters of investment, expansion of distribution and information technology.

We asked him if his department had helped LPP fake barcodes used on products for sale in Russia. He hung up the first call and on a brief second call, before again hanging up, he said:

“I said you there is no, there is no possibility that I speak about LPP. But I’m sorry, I’m sorry I cannot continue this call.”

In conclusion, we believe that LPP – long after its claimed divestment – continues to sell its products at FES Retail stores 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 finding that the products in LPP’s “divested” Russian stores match the designs, product codes, and decrypted barcodes of LPP’s Polish products, we also wanted to understand how the products are shipped to the Russian outlets.

LPP does not own manufacturing plants. Instead, it sources its clothing from more than 1,200 suppliers, known as ready-made-garment (RMG) manufacturers, based mostly in Asia.[27]

The 3 LPP IT department PowerPoint presentations in November and December 2022 and February 2023, which we referred to in Part 3, also left clues as to how LPP could covertly continue to ship merchandise from its manufacturers to Russia after claiming to have divested its business there after June 30th, 2022.

The November 21st, 2022, PowerPoint presentation entitled “Roadmap for systems modifications” is dated 6 months after LPP said it had executed the sale contract for its Russia business. The document maps out two models for exporting goods to RE Trading — LPP´s supposedly divested Russia subsidiary. [Pgs. 6-7]

Using the first “business model”, which LPP developers refer to as “Model no. 2”, LPP would continue to purchase the goods from its third-party manufacturers. LPP developers refer to LPP in this model as “first buyer entity”.[28] [Pg. 6]

LPP would then resell the goods to a second buyer who would handle export to Russia as an export intermediary, per the presentation. That model would necessitate LPP invoicing the intermediary entity for the cost of the goods and for the cost of transport via its subsidiary LPP Logistics, according to the presentation. [Pg. 6]

(LPP Presentation)

Using the second model, which LPP developers refer to as “Model no.5”, LPP would no longer directly purchase or export – under its own name – goods sent to RE Trading, the purportedly divested Russian subsidiary.  The purchasing would instead be carried out by front companies. [Pg. 7]

(LPP Presentation)

The PowerPoint presentation refers to the transition from the first to the second model as the “Big Bang”. [Pg. 3]

That switch would mean that LPP would not appear on paperwork as the purchaser of merchandise and would also eliminate its name from most of the paper trail. As a result, it would help conceal LPP´s involvement in on-going trade with Russia. [Pg. 7]

The presentation does not spell out in full the names of the intermediary or front companies LPP was planning to use but gives the abbreviations – FGT and AFIE. It refers to Russia by the internationally standardized country code RU. [29] [Pg. 3]

(LPP Presentation)

We decoded the names through an analysis of export records. The FGT and AFIE initials used in the presentation match Fashion Group Tesktil (FGT) and Asia Fashion Import Export (AFIE), two entities associated with LPP that have been surreptitiously sending export shipments to RE Trading after LPP claimed to have divested its Russian operation.

Our research indicates that these 2 entities are front companies meant to mask the export of LPP’s goods 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 presentations used the initials “AFIE” when describing one of the intermediary entities used to ship LPP clothing to Russia. [Pg. 2] We believe this referred to Asia Fashion Import Export Pte. Ltd., based on the matching initials, the timing of the company incorporation, and an analysis of export data.

Asia Fashion was incorporated, originally under the name Pretty Wardrobe Pte. Ltd., in Singapore on February 24th, 2022, the day Russia invaded Ukraine. [Pg. 1] Its founding shareholder and director was Anita Chew Peck Hwa, according to Singaporean corporate records. [Pg. 1]

(Asia Fashion Import Export records showing Anita Chew Peck Hwa as Founding Shareholder. Source: Singapore Corporate Records)

Anita Chew Peck Hwa, is also known as Anita Ricquier, according to records from UK’s Companies House. [Pg. 7]

(Anita Ricquier’s Signature. Source: Companies House)

Since at 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 beneficial owner report filed with Poland´s Central Register of Beneficial Owners. [30] [Pg. 1]

(Beneficial Owners Report of an LPP subsidiary showing Anita Ricquier as a Member of the supervisory body of LPP’s controlling shareholder. Source: Poland´s Central Register of Beneficial Owners)

This foundation “is closely associated with Mr. Marek Piechocki,” LPP’s CEO and Founder, according to LPP’s annual report, and given her position in the foundation, Ricquier clearly appears to be a trusted confidante. [Pgs. 64, 67]

Anita Ricquier is also the founder and managing director of Singapore-based corporate services company Camelot Trust, which was the original registered office for Asia Fashion Import Export.[31]

On May 10th, 2022, nine days before LPP announced it had reached a deal to sell its Russia business, the company changed its original name from Pretty Wardrobe to Asia Fashion Import Export. [Pg. 1] The sole shareholding was transferred to a different individual associated with ~30 Singapore-registered companies also registered at Camelot Trust’s main office address, according to 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 presentations also used the initials “FGT” when describing another of the intermediary entities used to ship products to Russia. We believe this referred to Fashion Group Tekstil, based on an analysis of export data, Turkish corporate filings, and the first name of the company´s manager being cited in the documents. [Pg. 2-4]

Fashion Group Tekstil was incorporated in Turkey on September 11th, 2014, under a different name, per Turkey’s official Trade Registry Gazette.[34] [Pg. 1]

The company had no registration records, implying no activity, until September 15th, 2022, based on a review of corporate documents by a Turkish corporate lawyer we hired.

On that day, all the company shares were transferred to an individual named Emine Demet Ata and the company was renamed Fashion Group Tekstil Limited, per Turkey’s official Gazette. [Pg. 1]

The new owner, also known as Demet Ata, was a key Turkey-based employee of LPP at that time she acquired the shares of Fashion Group Tekstil, according to her LinkedIn profile. [35]

(Demet Ata LinkedIn Profile. Source: LinkedIn)

One of the internal presentations we obtained, dated December 5th, 2022, described the next steps to be “modelled and submitted to Demet” involving “the communication process between LPP, the supplier and the Turkish company in terms of placing and executing orders, deliveries and payments” related to FGT. [Pg. 3]

This indicates clear coordination between LPP and FGT under Demet Ata at the time of the presentation. [Pg. 3]

(LPP Presentation, Translated via Google)

On April 13th, 2023, Far East Services, the Dubai-registered entity that had purchased LPP´s Russia business a year earlier, took a 95% stake in Fashion Group Tekstil, via a fresh capital injection, with Demet Ata retaining 5%. [Pg. 1] Demet Ata retained her duties as manager for Fashion Group, and no other company representatives are listed in Turkish corporate records. [Pg. 3]

No Far East Services executives are named on that document, which had been signed by a Turkish proxy lawyer, according to other details on the document, reviewed by the Turkish corporate lawyer we hired.

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 data from international trade aggregator Tradesparq, we analysed more than 335,000 import-export records from January 1st, 2021, to December 31st, 2023, showing shipments of LPP merchandise to Central Asia, including imports to Russia by RE Trading – the subsidiary LPP claimed to have divested.[36]

These records clearly demonstrate that the two models LPP secretly devised, as referenced in PowerPoint presentations described above, were progressively implemented in the second half of 2022 and through 2023.

Both front companies, set up by LPP insiders and also described above – Fashion Group Tekstil and Asia Fashion Import Export – played a central role in that scheme, Tradesparq export data reveals.

Trading data from Tradesparq show exporter, importer, brand, value, and producers of the goods shipped to RE Trading.

(Example of excerpt from Tradesparq data download January 11th, 2024, showing involvement of related-party front companies created by LPP insiders in exports to Russia)

The implementation of the scheme seemed to be aimed at obscuring LPP´s continued role in producing and supplying goods to RE Trading in Russia, after it claimed that it had suspended shipments and subsequently divested.

Between June 30th, 2022, the date on which LPP officially completed its purported divestment, and December 31st, 2022, RE Trading imported $335.9 million of goods. And, from January 1st 2023 to December 31st, 2023, RE Trading imported $370.6 million of merchandise, per our analysis of Tradesparq data.

That means in the entire period since divestment until the end of 2023, RE Trading imported to Russia a total of at least $706.5 million of merchandise. The producer of the goods in 99.6% of these shipments was either listed as LPP or Asia Fashion Import Export.[37]

In the three calendar quarters prior to the claimed sell-off, LPP directly exported almost two-thirds of the goods to its then-subsidiary RE Trading, per Tradesparq. [38] But post ‘divestment’, LPP largely ceased exporting directly to Russia under its own name and instead exports seem to have been triangulated via the front companies we described – Asia Fashion Import Export and Fashion Group Tekstil.[39]

(Source: Hindenburg Analysis of Tradesparq Import-Export Data)

In the period from June 30th, 2022, to December 31st, 2023, LPP was listed as “exporter” for just 0.53% of the value 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 value of exports in that period was listed as “blank” but almost certainly shipped by LPP or Asia Fashion Import Export given that those 2 entities were listed as “producer” of 99.9% of these goods, 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 phase of the plan devised by LPP´s IT department progressively obscured LPP´s role as “producer” of the goods being supplied to RE Trading in Russia, per the Tradesparq data.

As mentioned, between June 30th, 2022, and, December 31st, 2023, LPP and Asia Fashion Import Export – the front company set up by a key LPP insider – were listed as “producers” for a combined total of 99.6% of the value of imports received by RE Trading, per Tradesparq records.[41]

A more detailed examination shows that LPP in fact handed over its role as primary “producer” of the goods to Asia Fashion Import Export in March 2023, per Tradesparq data. [42]

(Source: Hindenburg Analysis of Tradesparq Import-Export Data)

Further confirming our export data findings, our secret shoppers photographed labels like the one below on garments they purchased at stores in FES Retail stores. These labels show Asia Fashion Import Export as the “manufacturer” of the garment.[43]

(Label on a woman´s CR brand sweater. Source: Hindenburg secret shopper in St. Petersburg)

In short, the export data clearly indicates that after the claimed divestment, LPP continued to ship its products to stores in Russia via the triangulation scheme it referenced in presentations we obtained. [Pgs. 3, 6-7]

Later, it handed over responsibility for production of the merchandise to a related-party front company.

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 began operations in Kazakhstan, a Central Asian nation of 19.5 million people on Russia´s southern border.

Currently, Kazakhstan has 23 physical stores out of LPP’s 2,206 global total stores, as disclosed in LPP´s third-quarter 2023/24 results.

In 2020/21, the last year LPP appears to give a country-by-country revenue breakdown, Kazakhstan generated approximately $7.7 million sales (PLN 29 million), ranking it 18 out of 23 countries where LPP had a presence at that time, according to LPP’s 2020/21 Annual Report.

Before the invasion of Ukraine, stores in Kazakhstan were stocked from LPP´s distribution center in neighboring Russia, according to the company’s 2020/21 factbook – the last edition that details supply logistics to Kazakhstan. After Russia’s invasion of Ukraine, LPP began exporting directly to its subsidiary in Kazakhstan, LPP Kazakhstan. [Pg. 14]

In contrast to the small footprint of LPP’s sales infrastructure in Kazakhstan, the volume of LPP’s exports there seems wildly disproportionate. Between January 1st, 2023 and December 31st, 2023, LPP exported $755.5 million of merchandise to Kazakhstan, per Tradesparq data.

LPP filings give no indication of high-volume exports being shipped into Kazakhstan and the Central Asian nation is not listed among LPP´s top markets. Thus, LPP provides no clear explanation for the trend.

As part of the Eurasian Economic Union, once goods have been processed at the point of entry in Kazakhstan, they can be moved freely without further customs checks or duty payments into Russia.

Western companies have shifted supply routes to Russia, following the outbreak of war, and are redirecting goods especially via Turkey and Kazakhstan, according to a Reuters investigation.

(Source: Reuters)

There is growing evidence and concern from the U.S. Treasury Department that Kazakhstan has become the “Kremlin´s Secret Ally”, helping Russia circumvent wartime sanctions, moving banned goods in and helping hundreds of thousands of Russians move money out.

In brief, we suspect the sudden spike in LPP’s shipments to Kazakhstan is because the final destination is actually 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 mentioned earlier, LPP’s future growth plans, prior to the invasion, had focused heavily on Russia, which accounted for 19.2% of group revenues in 2021/22.

Yet post ‘divestiture’, LPP’s 2022/23 financials defied the odds, reporting non-Russia revenue growth that is virtually unheard of in the world of retail – amply covering the Russia shortfall:

“In 2022/23, the Group’s revenue was generated from the sales of five brands in their on-site and online stores. At the same time, they were 40.5% higher than the sales recorded by the Group a year ago on continuing operations (without recognising the revenue from Russia).” [44]

As mentioned, even including the Russia shortfall in 2021/22, prior to restatement, LPP´s 2022/23 revenue increased 13.5% year-on-year. 

But conflicting financial disclosures obscure the source of the increased revenue in 2022/23.

In LPP´s English-language version of its annual report, comparing 2022/23 to restated 2021/22 figures, more than two-thirds of the revenue bump – approximately $732.5 million (PLN 3.172 billion) – comes from “other” sales, not accounted for under LPP´s five brands.[45]

(Source: LPP Annual Report 2022/23)

In the 3 years leading up to LPP’s divestment from Russia, its “Other” brands segment never represented more than 2% of LPP’s revenue. But after the Russian divestment, the segment suddenly spiked to 20% of total group revenue. [Pg. 33] [Pg. 31]

(LPP Revenues by brands from FY2019/20 to FY2022/23. Source: LPP’s 2020/21 and 2022/23 Annual Reports)

Value Of “Other” Sales Booked In Q4 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 no further explanations about specifically what is included in “Other” sales.

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

(LPP Revenues by brands for FY2022/23 by quarter. Source: LPP’s 2022/23 Q1 Report, H1 Report, Q3 Report and Annual Report)

That amount matches almost exactly the 2022 annual revenues of RE Trading – LPP´s “divested” Russian subsidiary – according to RE Trading financial report available in the Russian corporate registry. [Pg. 4] In Q4 2022/23 alone, PLN ~3.018 billion was reported in “Other” revenues. By comparison, RE Trading´s 2022 revenues were disclosed PLN 3.015 billion (RUB ~47.78 billion).[47]

That figure is either an astonishing coincidence or an indication that LPP may have camouflaged Russian revenues and continued consolidating them into group accounts for 2022/23.

Further obscuring the reality of accounting procedures and exactly what is included in “Other” sales, LPP´s English-language disclosures conflict with its Polish-language disclosures – both posted on the same corporate website.

The Polish version shows a much lower value  of “Other” sales at the end of 2022/23. The English version show 15x more.[48] By contrast, the Polish version shows higher values for brand sales throughout the year. But both versions show the same total revenue.

There is no immediate explanation for the difference in presentations.

(Source: LPP Annual Report 2022/23 in English and LPP Annual Report 2022/23 in Polish)

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 facilities with 6 banks of $546.3 million (PLN 2.3 billion) as of October 31st, 2023, “used for bank guarantees, letters of credit for trade finance or as working capital overdrafts”, per its third-quarter results. [Pg. 43]

Additionally, it had a total $928 million (PLN 3.9 billion) in “trade and other liabilities”. Of that, $617.6 million (PLN 2.6 billion) comprised supply chain finance programs 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 those entities to ask about bank policy and possible covenants on loans and financing facilities for Polish companies trading with Russia post-invasion, without mentioning LPP by name.

PKO BP is Poland’s largest bank and its main shareholder is the Polish state. [Pg. 61] It was also LPP´s main creditor, providing ~62% of loans and borrowings as of the end of 2022/23, per filings. 

In an email response to Hindenburg, a spokesperson for PKO BP bank said per bank policy it did “not finance entities operating in Russia” and expected its clients to disclose if they had trade relations in Russia:

“PKO BP complies with all the international sanctions imposed on Russia, its citizens and Russian enterprises. In addition, PKO BP has devised and adopted an internal credit policy according to which in principle the bank does not finance entities operating in Russia or in cooperation with Russian contractors.”

“Our clients have to disclose to us if they have ongoing trade relations with subsidiaries or significant trading partners in Russia, even if those subsidiaries are not sanctioned.”

On December 5th 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 5th, 2023, Semper Simul Foundation, an entity closely associated with Marek Piechocki and LPP’s largest shareholder, established a pledge of 120,000 shares of LPP, according to a current report issued by the company.

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

The 120,000 shares pledged represent 20.7% of Semper Simul’s total stake in LPP. On the day of the transaction, the shares pledged were worth ~$490 million.[49]

Share pledges (aka margin loans) are when shareholders use shares as collateral for debt. They are a risky form of debt because if the collateral (shares) drops in value, it could trigger a margin call from creditors, which could create the risk of a forced sale of shares, adding downside pressure to the stock price.[50]

This is not the first time the Semper Simul Foundation has obtained a margin loan. In August 2021, BNP Paribas acted as mandate lead arranger (MLA), security agent and calculation agent for a “Margin Call Facility” of $91 million to Semper Simul Foundation.[51] [Pg. 37] It appears that this facility was used to increase Semper Simul’s stake in LPP using leverage.

(Source: BNP Paribas Bank Polska S.A. Group Q3 2021 Presentation)


Overall, we think LPP devised an elaborate sham ‘divestment’ strategy to continue retailing in Russia while trying to fool investors and consumers in Poland, Ukraine, and its other markets into thinking otherwise.

While we cannot anticipate the impact this will have on LPP’s brands, we suspect a mass-deception meant to fool most of its consumer base won’t be viewed positively.

We also suspect LPP’s financials have falsely reported the Russia divestiture while it surreptitiously continues operations, giving investors a false impression that LPP has experienced rapid growth following its Russia sale. We suspect this issue may be of interest to regulators, bank lenders, and auditors (if auditor Grant Thornton decides that auditors do in fact have a responsibility to investigate 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 table containing the data from 65 garments that our secret shoppers documented in FES Retail stores in Russia in December 2023 and the corresponding, identical product from LPP´s Fall/Winter inventory available from the online store in Poland.

Links to images of each of the 65 items found in Russia, their corresponding LPP products, and the GS1 registrations for the encrypted and decrypted barcodes associated with each product can be seen in this presentation.

Our secret shoppers initially documented a total of 76 garments, each with different and clearly marked in-house product codes and barcodes. But we excluded 11 of those because they either had LPP labels that could possibly be attributed to old inventory or had no matches to available Fall/Winter inventory on LPP online stores.

Item DescriptionEncrypted Barcode In RussiaIn-house product code found in RussiaEncrypted Barcode OwnerDecrypted BarcodeIn-house product code found in the decrypted barcodeLPP Inventory matching the in-house product code from decrypted barcodeImages
Floral dress69558749737289175E-MLCJIANGMEN PENGJIANG DISTRICT FUTUO HOUSEHOLD PRODUCTS CO LTD59058749737249175E-MLCReserved Online StorePg. 1
Sherpa sweater69558749272403716W-08XJIANGMEN PENGJIANG DISTRICT FUTUO HOUSEHOLD PRODUCTS CO LTD59058749272463716W-08XCropp Online StorePg. 2
Black dress69558749003049207E-99XJIANGMEN PENGJIANG DISTRICT FUTUO HOUSEHOLD PRODUCTS CO LTD59058749003009207E-99XReserved Online StorePg. 3
Dress with decoration69558746881039182E-99XLIANJIANG WEIZHIYU ELECTRIC CO. LTD.59058746881099182E-99XReserved Online StorePg. 5
Mini skirt69558742864777159Q-99XFOSHAN NANHAI VICK WEAVING FACTORY59058742864737159Q-99XReserved Online StorePg. 6
Skirt with a belt69558742738977158Q-19XFOSHAN NANHAI VICK WEAVING FACTORY59058742738937158Q-19XReserved Online StorePg. 7
Transparent shirt69558742070899774H-MLC“BARCODE NUMBER IS INCORRECT”59058742070899774H-MLCReserved Online StorePg. 8
Suit vest6955874028428XV412-81XSHANTOU CHENGHAI DISTRICT YIFA STROLLER TOY FACTORY5905874028424XV412-81XReserved Online StorePg. 9
Pink sweater69557247251946102V-03MLINGQING XINCHUN PRINTING FACTORY59057247251906102V-03MReserved Online StorePg. 10
Brown blazer69557248287899250B-80MSHANDONG SISHUI QUETUO BIANSTONE CO LTD59057248287859250B-80MReserved Online StorePg. 11
Sweatshirt with a collar69557245422103704W-85MNANJING RUIHANG DAILY NECESSITIES CO LTD.59057245422163704W-85MCropp Online StorePg. 12
Short jacket69557244656873703P-MLCWUHAN HUIGUANG RIXIN LIGHTING TECHNOLOGY CO. LTD59057244656833703P-MLCReserved Online StorePg. 13
Leopard print shirt69557244622356415V-80XWUHAN HUIGUANG RIXIN LIGHTING TECHNOLOGY CO. LTD59057244622316415V-80XReserved Online StorePg. 14
Dress with sequins69557244573476030X-MC1WUHAN HUIGUANG RIXIN LIGHTING TECHNOLOGY CO. LTD59057244573436030X-MC1House Online StorePg. 15
Black jacket69557243543704876V-99XWUHAN DINGKANG TECHNOLOGY CO. LTD59057243543764876V-99XReserved Online StorePg. 16
Bathrobe69557243402436544Y-MLCWUHAN DINGKANG TECHNOLOGY CO. LTD59057243402496544Y-MLCHouse Online StorePg. 17
Black dress69557242975543919W-99XJINGZHOU SAIWEI CHILDREN’S CLOTHING CO. LTD59057242975503919W-99XCropp Online StorePg. 18
Red sweater69557242870985807V-33XJINGZHOU SAIWEI CHILDREN’S CLOTHING CO. LTD59057242870945807V-33XReserved Online StorePg. 19
Black pants69557241536077114Y-59XXIANTAO XINGHAI RICE INDUSTRY CO. LTD59057241536037114Y-59XReserved Online StorePg. 20
Red jacket69557241251475722B-33XXIANTAO XINGHAI RICE INDUSTRY CO. LTD59057241251435722B-33XReserved Online StorePg. 21
Corduroy jacket69557240875683705P-80XGONGAN COUNTY FUHUA FOOD FACTORY59057240875643705P-80XReserved Online StorePg. 22
Mini dress69557240826629105E-55XGONGAN COUNTY FUHUA FOOD FACTORY59057240826689105E-55XReserved Online StorePg. 23
Knitted jumper69557240816105956V-02XGONGAN COUNTY FUHUA FOOD FACTORY59057240816165956V-02XReserved Online StorePg. 24
Blue jacket69557240735783699P-55XGONGAN COUNTY FUHUA FOOD FACTORY59057240735743699P-55XReserved Online StorePg. 25
Sweater with a wave69557240489346102V-02XGONGAN COUNTY FUHUA FOOD FACTORY59057240489306102V-02XReserved Online StorePg. 26
Zip-up hoodie69557240414923694W-90XGONGAN COUNTY FUHUA FOOD FACTORY59057240414983694W-90XCropp Online StorePg. 27
White cardigan69557240380348276Z-01XGONGAN COUNTY FUHUA FOOD FACTORY59057240380308276Z-01XCropp Online StorePg. 28
Checkered skirt69556219397175829X-MC1SHENZEN ADMIRE TECHNOLOGY CO. LTD59056219397135829X-MC1House Online StorePg. 29
Blouse with lace decoration69556219151316007X-99XSHENZEN ADMIRE TECHNOLOGY CO. LTD59056219151376007X-99XMohito Online StorePg. 30
Black shirt69556218563736975Y-99XSHENZEN QINCHUANGDA TECHNOLOGY CO. LTD59056218563796975Y-99XHouse Online StorePg. 31
Black jacket69556218470054690X-99XSHENZEN QINCHUANGDA TECHNOLOGY CO LTD59056218470014690X-99XSinsay Online StorePg. 32
Black mini skirt6955621732257ZB930-99XSHENZHEN HUAYI LIANSHENG TOYS CO. LTD5905621732253ZB930-99XSinsay Online StorePg. 33
Jacket with buttons69556217051834855V-59XSHENZEN HUAYI LIANSHENG TOYS  CO LTD59056217051894855V-59XReserved Online StorePg. 34
Knitted dress69556216015086682V-85MHUANYIN TECHNOLOGY (SHENZEN) CO LTD59056216015046682V-85MReserved Online StorePg. 35
White shirt69556215776746091W-00XSHENZEN AMBASSADOR LUGGAGE INDUSTRIAL CO LTD59056215776706091W-00XMohito Online StorePg. 36
Vest with fur69556215087847118U-88XSHENZEN AMBASSADOR LUGGAGE INDUSTRIAL CO LTD59056215087807118U-88XHouse Online StorePg. 37
White sweater69556214248795895V-01XSHENZEN ZHIZEN TECHNOLOGY CO LTD59056214248755895V-01XReserved Online StorePg. 38
Short jacket69556213599734859V-MLCSHENZEN HUIFENG YUANTONG TECHNOLOGY CO LTD59056213599794859V-MLCReserved Online StorePg. 39
Wool sweater69556212958754812X-90MSHENZEN BAILIFENG TECHNOLOGY CO LTD59056212958714812X-90MCropp Online StorePg. 40
Boyfriend jeans69556212357275087X-99JSHENZEN BAILIFENG TECHNOLOGY CO LTD59056212357235087X-99JSinsay Online StorePg. 41
Beige handbag69556212017397118W-80XSHENZEN BAILIFENG TECHNOLOGY CO LTD59056212017357118W-80XMohito Online StorePg. 42
Knitted skirt69555718476436830V-08MLINYI YUANHE RAIN GEAR CO.59055718476496830V-08MReserved Online StorePg. 43
Black dress69555718306761118I-99XLINYI YUANHE RAIN GEAR CO.59055718306721118I-99XReserved Online StorePg. 44
Shirt dress69555717335719494W-90XLINYI LANSHAN DISTRICT CHAOXIANG DAILY CHEMICAL CO LTD59055717335779494W-90XHouse Online StorePg. 45
Faux shearling coat69555717262385661B-82XLINYI LANSHAN DISTRICT CHAOXIANG DAILY CHEMICAL CO LTD59055717262345661B-82XReserved Online StorePg. 46
Flame sweater69555715657453422W-33XCHENGDU WANSHIFU LIQUOR CO LTD59055715657413422W-33XCropp Online StorePg. 47
Black cargo jeans69555715418867757W-90MCHENGDU WANSHIFU LIQUOR CO LTD59055715418827757W-90MCropp Online StorePg. 48
Turtleneck69555715121075875V-85MCHENGDU WANSHIFU LIQUOR CO LTD59055715121035875V-85MReserved Online StorePg. 49
Black dress69555715000671121L-99XCHENGDU WANSHIFU LIQUOR CO LTD59055715000631121L-99XReserved Online StorePg. 50
Gray sweater69555714817177528W-85MJINZHOU YIXING FOOD FACTORY59055714817137528W-85MHouse Online StorePg. 51
Leather jacket69555713090977096U-99XDANDONG YAYA FOOD CO. LTD59055713090937096U-99XHouse Online StorePg. 52
Turtleneck sweater69555711003116175V-90MPUYANG TIANYU GREASE CO. LTD59055711003176175V-90MReserved Online StorePg. 53
Black jacket69555248350006657J-99XDONGGUAN TAIWEI SPORTS GOODS CO LTD59055248350066657J-99XSinsay Online StorePg. 54
Black jacket69555247692511883W-99XYANCHUAN ZHICHENG INDUSTRY AND TRADE CO LTD59055247692571883W-99XHouse Online StorePg. 55
Stripped shirt69555246509001763X-01XZHUHAI MEINUO COSMETICS CO LTD59055246509061763X-01XHouse Online StorePg. 56
Tracksuit jogger69555246182523536W-09MZHUHAI MEINOU COSMETICS CO. LTD59055246182583536W-09MCropp Online StorePg. 57
Red trousers69555241864474277W-33XCHONGQING WUWEITANG FOOD CO. LTD59055241864434277W-33XMohito Online StorePg. 58
Red jacket69555241859904273W-33XCHONGQING WUWEITANG FOOD CO. LTD59055241859964273W-33XMohito Online StorePg. 59
Black puffer coat69555241850443726W-99XCHONGQING WUWEITANG FOOD CO. LTD59055241850403726W-99XCropp Online StorePg. 60
Straight fit jean69555241209158917W-59JCHONGQING WUWEITANG FOOD CO. LTD59055241209118917W-59JHouse Online StorePg. 61
Brown jacket69554594682297140U-88XGUANGDONG NANDU JIAHUA MEDIA CO LTD59054594682257140U-88XHouse Online StorePg. 62
Blue jean69554593309486526W-59J“BARCODE NUMBER IS INCORRECT”59054593309426526W-59JHouse Online StorePg. 63
Green turtleneck sweater69554593301757594W-79XFOSHAN XINGCHAN NUT FOOD CO. LTD59054593301717594W-79XMohito Online StorePg. 64
Black coat69554591007541964W-99MSHAANXI RUNZHE TEXTILE CO LTD59054591007501964W-99MHouse Online StorePg. 65

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

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

[2] Semper Simul Foundation’s company registration number in Malta is PFLP 170.

[3] LPP´s financial year currently runs from February 1 to January 31.

[4] Poland´s eastern frontier includes a 247 mile (398 km) border with Belarus and 332 mile (535 km) border with Ukraine. Poland also shares a 144 mile (232 km) northern border with Kaliningrad Oblast, a Russian-owned enclave, that has no direct land access to Russia. It is highly strategic for Russia because it is a Baltic Sea port that remains largely ice-free.

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

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

  1. It took almost 8 months for Inditex, the owner of Zara, between halting operations in Russia and announcing a buyer for 245 out of the 514 stores the company had in Russia. [Pg. 75] Russian authorities approved the deal five months later, as reported by The Financial Times.
  2. H&M paused all sales in Russia on March 2nd, 2022. H&M’s Russian business has been for sale since at least July 2022, as reported by Reuters. H&M’s 2023 annual report doesn’t mention the sale of Russian assets.

[7] Under Russian emergency countersanctions legislation, the transaction needed to be authorized by a Russian government commission before it could be completed. The sale of LPP’s Russian subsidiary was “confirmed and legitimised on 30 June 2022, by a decision of a Russian court, having jurisdiction over the company’s registered office,” according to LPP’s 2022-23 annual report. [Pg. 116]

[8] Just before Russia invaded Ukraine, LPP had 1,691 stores outside Russia as of January 31st, 2022, according to the LPP Annual Report 2021/22. As of October 31st, 2023, the company reported 2,206 stores, according to the LPP Q3 2023/24 report.

This expansion has mostly been driven by the growth of LPP’s lower margin Sinsay brand. Sinsay multiplied its store footprint by 4x in countries such as Bulgaria, Bosnia & Herzegovina, and Slovenia from FY 2022/21 to FY 2022/23, according to the company factbooks. [Pg. 7] [Pgs. 6-7]

[9] The terms of the sale, on the face of it, seem favorable to the purchaser but otherwise appear to be broadly in line with Russian government counter sanctions imposed on foreign investments after the outbreak of war.

[10] Source: Russian corporate records. Search terms “RE Trading” business registration number OGRN 1127747192540

[11] Pilyugina, has been associated with LPP since July 2006 and continued to list her job title as “CEO at Reserved (LPP S.A., Russia)” until at least November 9th, 2023, according to an archived version of her LinkedIn profile.

[12] Her LinkedIn profile has been recently updated. She appears as “CEO, owner” for “FES Retail, GCS FZCO.” FES Retail is the commercial name used by Far East Services as the owner of LPP’s former Russian operation, according to its website. We believe GCS FZCO is an acronym for General Consulting Services-FZCO. There is no mention of her previous experience with LPP, in her new LinkedIn profile.

[13] Dubai has made some changes to its banking and corporate secrecy laws to avoid being blacklisted but corporate ownership details are still only accessible by the financial authorities.

[14] Beneficiary details of Semper Simul Foundation are not available on the Malta Business Registry, but they are disclosed via the Polish Central Register of Beneficial Owners. LPP S.A´s beneficial owners are not registered on the site so we ran a search for one of LPP´s 100% owned subsidiaries LPP Logistics using the company number (KRS) 0000833726.

[15] The manager explained that what they described as Piechocki´s Chinese-style, long-range planning had been developed during long periods spent in China in the 1990s sourcing suppliers for his clothing lines.

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

[17] Secret shoppers visited 10 stores, representing FES Retail’s five distinct brands, in Moscow and St. Petersburg in December 2023. They purchased a small selection of garments and took approximately 250 photos in the stores. This permitted us to identify 76 separate items, along with each item´s corresponding in-house product code and barcode (GTIN).

[18] The in-house product codes found on the tags are generally 8 characters long, followed by a dash and characters referring to the size of the piece.

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

[20] FX Rate 1 USD = 4.0277 PLN

[21] This product appears in the second line of results when sorting by “latest” on the women’s skirt category of House’s online store for Poland, indicating it is part of LPP’s latest product offering.

[22] Of the 76 separate items we documented in the Russian stores, with their corresponding barcodes (GTINs) and in-house product codes, we achieved the following result: of the 76 in-house product codes, 65 were an exact match for an identical product in the Polish online store; 2 barcodes were duplicated, 2 others were an exact match but were listed as currently unavailable in the Polish online store; 2 presented matching designs but a different color; 4 could not be found; 1 item had a different product code in Russia compared to Poland.

[23] LPP has at least 75 registered license keys beginning with the Poland prefix “590”, per GS1, which would enable it to generate hundreds of thousands of individual barcodes. RE Trading has 7 so-called license keys registered, enabling it to generate authorized barcodes, all with Russia country prefixes. Asia Fashion Import Export has no registered barcode pools of its own, per GS1. Using the “find company” tab at GS1 UK insert search terms: “Poland” + “LPP S.A”, “Russian Federation” + “РЕ ТРЭЙДИНГ”, “Singapore”/”China” + “Asia Fashion Import Export”.

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

[25] LPP´s IT department is a 100%-owned entity called Silky Coders. Its Polish-language website describes it as the “technological foundation 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 common practice used by other LPP competitors, such as H&M, Zara, and Gap, according to a study sponsored by a UN agency. [Pgs. 3, 4]

[28] As we will see later, import-export data does not list LPP as purchaser or “first buyer entity”, but rather “producer”.

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

[30] The Central Register of Beneficial Owners does not include data for LPP S.A but details of the members of the Semper Simul Foundation can be seen, for example, via entries for LPP Logistics – a 100%-owned subsidiary of LPP S.A (KRS number 0000833726).

[31] The original registered address of Asia Fashion was the Camelot Trust offices, at 137 Telok Ayer Street #08-01 Singapore. [Pg. 2]

[32] The individual is Noor Asikin Binte Abdul Rahim. [Pg. 3] It is not clear whether Noor Asikin is one of Ricquier’s direct employees at corporate services company Camelot Trust in Singapore, but she is clearly a regular Camelot nominee. Asikin features as a shareholder or director of at least 41 Singapore-registered companies – three-quarters of which are registered at Camelot Trust´s main office address, according to Singaporean corporate records.

[33] Asia Fashion Import Exports is registered as an “exempted private company” (EPC) under Singapore corporate regulations and, on the face of it, is not obliged to file financial statements. This adds an additional layer of opacity and makes it impossible to check via public records even the basic underpinnings of its financial and business operations.

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

[35] Certificates for various professional courses linked to her LinkedIn profile show Demet Ata´s full name as Emine Demet Ata.

[36] Our methodology consisted of searching Tradesparq data using the main term “РЕ ТРЭЙДИНГ” (Cyrillic spelling of RE Trading) as “importer”. We also used secondary searches using “Asia Fashion Import Export” and “Fashion Group Tekstil” as importers to Russia. We then used pivot tables to analyze the hundreds of thousands of import-export entries to build a clear picture of how LPP has continued to trade and supply stores in Russia.

[37] The total figure of merchandise received, though not directly imported, by RE Trading could be higher.  Between July 14th, 2022 and the end of 2022, Asia Fashion Import Export imported 7,673 tonnes of merchandise valued at $118,386,340 to Russia, per our analysis of Tradesparq data. That seems likely to have been carried out on behalf of RE Trading given that Asia Fashion Import Export lists no other import partners in Russia, per Tradesparq.

[38] In the three calendar quarters prior to the claimed sell-off, LPP directly exported at least 60.55% of the goods to its then-subsidiary RE Trading, per Tradesparq. The exporter for 24.74% of exports during that period was listed as “blank” and the remainder was shipped by a group of more than 60 other exporters. Almost 97% of the merchandise shipped during that period was listed as “produced” by LPP.

[39] In LPP’s documents, LPP´s IT department referred to this as “model no.2” – in which LPP would hand over responsibility for exports to Russia to intermediary companies it named by the initials “FGT” and “AFIE”. [Pg. 3]

[40] The remainder were exported by a group of more than 30 other apparently unrelated exporters, per our analysis of the data.

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

[42] In LPP’s PowerPoint presentations, LPP´s IT department referred to this as “model no.5” or the “Big Bang” – in which LPP would cease being “first buyer entity” (the same role we believe is denoted by “producer” in the export records) for goods being exported to Russia and would be replaced by intermediary companies it named by the initials “FGT” and “AFIE”. [Pgs. 3, 6-7]

[43] The address associated with Asia Fashion Import Export on the label is the address for Camelot Trust’s headquarters in Singapore.

[44] Results from Russia were classified as “discontinued operations” in the 2022/23 report and results from 2021/22 were “restated” and Russia revenues were removed, in order to permit like-for-like comparisons.

[45]  USD/PLN exchange rate for Jan. 31st 2023 was 1 USD/PLN 4.33.

[46] The figures in quarterly reports in both English and Polish show all brands growing through 2022/23 and show no large disclosures in “Other” until the English-language full-year disclosure. [Q1, Q2, Q3]

During FY 2022/23, LPP changed the term used to describe the “Other” segment on the “Sales Broken Down By Brand” or “Sales of our brand” tables for their English reports. For the Q1 Report, they used “Outlet.” For H1 Report, they used the Polish word Pozostałe, which means “the remaining,” according to Google Translate. For Q3 and Annual reports they used the word “Other.”

[47] For the full math: In the first nine months of 2022/23, “Other” sales totalled just PLN 154 million, meaning PLN 3.018 billion ($697 million using USD/PLN rate at January 31st, 2023) was added to revenues in just Q4 2022/23 (for a full-year total of PLN 3.172 billion). RE Trading´s 2022 revenues in Rubles were disclosed as ~RUB 47.78 billion, equivalent to PLN 3.015 billion ($696.3 million), using the same RUB/PLN exchange rate LPP uses in its calculations for the period.

[48] Additionally, the amounts shown as “other” on the English-language version at end 2022/23 are 44x more than in restated 2021/22 figures.

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

[50] Marek Piechocki says that the Semper Simul Foundation invests in other projects, such as hotels and retail parks in Poland. However, he also implied that the foundation used the dividends from LPP to make these investments, according to an interview published by Poland´s economic newspaper of record, published on December 2023. Therefore, it is unclear the use of proceeds from this margin loan.

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