AS Kalev Reg. no: 10000952 Address: Põrguvälja tee 6 Lehmja, Rae vald Harjumaa 75 301 Phone: 6 077 710 Fax: 6 077 725 E-mail: [email protected] http://www.kalev.ee 9 MONTHS INTERIM REPORT Beginning of the period 1.07.2003 End of the period 31.03.2004 Core activities: Production, wholesale, retail, export and import of confectionery products incl. half finished products Development, management, leasing, purchase and sale of real estate 0 TABLE OF CONTENTS 1. Comments on Financial Results Page 2 2. Financial statements Page 5 Balance sheet Page 6 Income statement Page 8 Cash flow statement Page 10 Statement on changes in owner’s equity Page 12 Accounting principles and basis of estimations Page 13 Notes to the Interim Report Page 15 1 1. COMMENTS ON FINANCIAL RESULTS The consolidated net sales of Kalev Ltd in the first 9 months of the financial year 2003/2004 totalled 332.2 million kroons (21.2 million euros), which exceeds the net sales of the last financial year by 24%. The consolidated net profit of the company in the given financial year amounted to 22 million kroons (1.4 million euros), which constitutes an increase of 22%, compared to the first 9 months of the financial year 2002/2003. Increase in consolidated net sales was facilitated by the incorporation of the new subsidiary – AS Kalev Jõhvi Tootmine (formerly known as AS Järle) – in the Kalev Group at the beginning of 2004, as well as the sales growth of two subsidiaries – AS Kalev Paide Tootmine and AS Kalev Real Estate Company (AS Kalev REC) – in the given period. The increase in the consolidated net profit of Kalev Ltd in the first 9 months of the financial year 2003/2004, compared to the same period last year, was conditioned by the revenue earned from other operating activities. The company’s main activities – i.e. production and sales of confectionery products – have stabilised after the relocation of the company to the new plant building in the 1st quarter of the financial year, and after the initial difficulties upon launch of production were overcome. The company focuses on and continues to strive towards increasing profitability of the main activities. At the same time, the price of Kalev Ltd’s main raw material – sugar – is bound to increase by approximately 9 kroons per kilogram after Estonia’s accession to the European Union. As a result, the company will incur annual additional expenses in the estimated amount of 37 million kroons. Kalev Ltd’s relocation to the new plant building also had an effect on the company’s administrative and general expenses in the given period. General and administrative expenses include single costs on relocation and (dis)assembly of production equipment as well as launch of production in the total amount of 15.2 million kroons (0.97 million euros). Other revenue of the company in the given period includes the fee for waiver from the right of repurchase agreed in the contract of purchase and sale under the law of obligations on the legal share (18070/52410) of the real estate located at Pärnu mnt 139 in Tallinn in the amount of 30 million kroons (1.9 million euros). The total sales of Kalev Ltd’s confectionery products amounted to nearly 6,000 tonnes in the first 9 months of the financial year 2003/2004 – an increase of 9%, compared to the same period last year. The increase in total sales was mostly conditioned by the addition of cookies and baked goods to the company's product portfolio at the beginning of 2004. The domestic market constituted 76% of the total sales of confectionery products, and 24% of the sales was exported. In the given period, Latvia and Ukraine remained the company’s main export countries. In addition to the above countries, Kalev Ltd also exported its products to Russia, the Scandinavian countries and the US. In the first 6 months of the financial year 2003/2004, the main emphasis of Kalev Ltd’s marketing and sales activities lay in the preparation and successful launch of Christmas sales. 2 In October, Kalev Ltd launched the biggest Christmas collection in the company’s history, which contained over 50 items. The company also expanded its product selection by introducing new products – gingerbread and alcohol-free mulled wine. The company’s Christmas sales were supported by a thematic advertising campaign in various media channels. Kalev Ltd sold a total of 520 tonnes of Christmas products, compared to the 450 tonnes sold in the previous year. In the first 6 months of the financial year, the company also launched a new product at the market – a mixture of toffee and puffed corn called Mõnus Maius, which was declared Estonia's Best Confectionery Product 2003 at the competition held by the Association of Estonian Food Industry. In addition, the company launched, for export purposes, Bitter chocolate with new additives, as well as The Sealords and Mermaid chocolates for sales through the tax-free system. In the 3rd quarter of the financial year 2003/2004, the company focused on the launch and sales of the Valentine’s Day and Easter product portfolio. New products included the boxed chocolate Coco, hazelnut candy Maiuspala, Magus Mäng, Kuldne Kalev and vanilla- flavoured Souffle. In addition, the company launched, as an extension of the Oops! candy family, the banana and peppermint-flavoured Oops! candies. According to the retail trade survey of the market research supplier AC Nielsen, Kalev Ltd’s share at market was 43.1% in February/March of 2004 as regards chocolate and sugar confectionery products. The company’s position was strongest in the chocolate candy and candy bar sector, with market shares of 61.5% and 52.2%, respectively. Kalev Ltd’s market share in the cookie sector was 19.1% in February/March of the given period. On 24 December 2003, Kalev Ltd acquired 99.1% of the shares AS Järle. The purpose of acquiring the shares of AS Järle was to aggressively enter the Estonian cookie market, and to launch operations in the bread and dark bread sector in accordance with the long-term development strategy of Kalev Ltd. The extraordinary General Meeting of the Shareholders of AS Järle, which was held on 5 February 2004, decided to change the business name of the subsidiary to AS Kalev Jõhvi Tootmine. The company is located at Põrguvälja tee 6, Lehmja, Rae Parish, Harju County. On 20 February 2004, Kalev Ltd concluded a sales agreement on the shares of 10 private individuals, thus acquiring 59.4% of the shares of the private limited company (OÜ) Maiasmokk. The company must pay 51,700 kroons for the above share. OÜ Maiasmokk has long-term experience in the production and marketing of baked goods through both its cafe and other retail companies. Kalev Ltd plans to change the cafe, through the acquired subsidiary, into an exclusive coffee shop, and start offering high-quality candies in addition to baked goods. The company also plans to open the Estonian Candy Museum on the second floor of the building. The building, located at Pikk 16 and leased indefinitely to OÜ Maiasmokk, is owned by the City of Tallinn. The specific amount of the investments required for renovating the facade of the building, and the cafe and museum premises, as well as the lease terms and conditions, are still being negotiated. 3 In the first 9 months of the financial year 2003/2004, the average number of employees amounted to 723 in Kalev Group—an increase of 22%, compared to the same period last year. This increase was mostly conditioned by the incorporation of the staff of AS Kalev Jõhvi Tootmine in the group. 4 2. FINANCIAL STATEMENTS Declaration of the Chairman According to the the Chairman of the Management Board of AS Kalev, the interim report of Kalev Group, set out on pages 5-21 gives a true and fair view of the financial results of the company in the first 9 months of the financial year in accordance with the principle of going concern. The Kalev Group (hereinafter the Group) incorporates the parent company and five subsidiaries, of which the parent company Kalev Ltd is the majority shareholder. This interim report has not been audited or otherwise inspected by auditors. Põrguvälja, 27 May 2004 Oliver Kruuda The Chairman 5 BALANCE SHEET (in kroons) ASSETS Note 31.03.04 31.03.03 30.06.03 Consolidated Consolidated Consolidated CURRENT ASSETS No EEK EEK EEK CASH AND BANK 3 254 736 1 138 053 8 591 080 CUSTOMER RECEIVABLES 1 123 610 798 131 297 696 90 024 044 PREPAID EXPENSES 19 740 351 11 917 363 5 308 235 INVENTORIES 85 853 581 57 695 522 40 726 937 TOTAL CURRENT ASSETS 232 459 466 202 048 634 144 650 296 NON-CURRENT ASSETS MISCELLANEOUS LONG-TERM RECEIVABLES 330 180 887 180 330 180 TANGIBLE ASSETS 2 363 089 521 225 000 168 255 038 885 REAL ESTATE INVESTMENTS 3 61 665 519 18 063 950 75 573 095 INTANGIBLE ASSETS 2 -9 019 603 242 357 217 715 TOTAL NON-CURRENT ASSETS 416 065 617 244 193 655 331 159 875 T O T A L A S S E T S 648 525 083 446 242 289 475 810 171 LIABILITIES AND OWNER’ EQUITY LIABILITIES CURRENT LIABILITIES 4 65 235 634 3 059 521 27 346 235 PREPAYMENTS FROM CUSTOMERS 14 333 000 93 347 497 042 SUPPLIER PAYABLES 127 466 816 72 211 471 76 162 122 TAXES PAYABLE 5 577 867 14 441 582 4 537 792 OTHER PAYABLES 16 595 672 11 030 543 10 275 440 TOTAL CURRENT LIABILITIES 229 208 988 100 836 463 118 818 631 NON-CURRENT LIABILITIES 4 156 549 867 123 938 734 116 381 525 TOTAL NON-CURRENT LIABILITIES 156 549 867 123 938 734 116 381 525 MINORITY INTEREST 189 300 OWNER’S EQUITY SHARE CAPITAL 78 775 000 78 775 000 78 775 000 REVALUATION RESERVE 17 159 388 112 812 302 17 159 388 STATUTORY LEGAL RESERVE 1 537 837 1 537 837 1 537 837