1. COMMENTS ON ECONOMIC ACTIVITIES 1.1. General information and changes in organisational structure AS Kalev pursues several fields of activity, including manufacturing and sale of foodstuffs, real-estate related activities, and media (publishing and printing services). The company has long-term experience in the chocolate, sugar and flour confectionery product segment as well as the dairy product segment. Foodstuff production is carried out in five production plants located in Põrguvälja (in Rae Municipality), Paide, Viljandi, Jõhvi and Kiviõli. Kalev's sales activities are pursued through a pan-Estonian retail chain which consists of 15 candy stores and cafes. AS Kalev has also been involved in real estate development and administration for a longer period of time. AS Kalev has continually diversified its activities, branching out to the media business, publishing and printing. A restructuring process was launched in AS Kalev Group last financial year. A significant portion of the results were already seen in the financial year. At the end of last financial year (in May 2006), AS Kalev Chocolate Factory was established for the purpose of manufacturing and marketing chocolate and sugar confectionery products. In September in the financial year 2006/2007, AS Kalev Chocolate Factory also started manufacturing the pastry and flour confectionery products of subsidiaries AS Vilma and AS Kalev Jõhvi Tootmine. A new subsidiary was incorporated under the AS Kalev Group structure in the first quarter of the financial year 2006/2007. AS Kalev Real Estate Company (AS Kalev REC) acquired BCA Center, a private limited company which has a share capital of 40,000 kroons and is fully owned by AS Kalev REC. Through OÜ BCA Center, AS Kalev REC participated in the Private Partnership for Tallinn Schools Project competitions. Winning of these competitions, OÜ BCA Center concluded a contract on the right of superficies on registered immovables which accommodate five schools. OÜ BCA Center obliged to reconstruct the real estate objects (a total area of nearly 27,700 m2) and lease them out to Tallinn City for a term of thirty years. The average rent was established at 155 kr/m2, which includes maintenance and periodical major repairs of the school buildings and the surrounding areas (administration, maintenance of technical systems, interior and exterior cleaning) during the term of the contract. The investment obligation is secured by AS Kalev REC and must be fulfilled in the second half of 2008 at the latest. As the most renowned Estonian company and a major advertiser, AS Kalev has a direct relationship with the media market. This is also the reason for expansion of the investment portfolio towards the press market. As a socially active company, AS Kalev acknowledges its co-responsibility in the shaping of the public opinion, even though the company has no intentions of intervening in the contents of the acquired publications. The company aims at creating additional value for various publications. In the publishing and printing segment, AS Kalev is expecting a long-term and stable profit from the relatively quickly growing media market. In the second quarter of the financial year, several new subsidiaries and associated companies were incorporated into Kalev Group. AS Kalev acquired a 19.4% stake in AS PR Põhjarannik. AS Kalev won the right to purchase the company at the auction held on 21 November 2006 where AS Kalev was declared the best bidder. AS PR Põhjarannik's main activities include publication, printing services and organisation of information dissemination. Among other things, AS PR Põhjarannik issues the daily “Põhjarannik” in both Estonian and Russian, with the paper issue covering a majority of north-eastern Estonia. On 28 November, AS Kalev concluded a contract under which the company acquired 100% of the shares of AS Inreko Press. The main fields of activity of AS Inreko Press include publishing, and organisation of public events and press events. The public limited company publishes journals and books (including, for instance, "Sporditäht" and "Ärielu"). On 19 December 2006, AS Kalev concluded a contract under which the company acquired all shares of OÜ Olliwood. Under the contract, the ownership was transferred to AS Kalev on the moment of the notarisation of the contract of sale. OÜ Olliwood's main activities include publishing - including, for instance, "Just" and "Basket", and the children's publication "Muumi" — and organisation of public and press events. On 20 December 2006, AS Kalev's subsidiary AS Kalev Real Estate Company acquired 100% of the private limited company BCA Kinnisvara. OÜ BCA Kinnisvara has a share capital of 40,000 kroons. The purpose of the acquisition was to participate in various real estate development project competitions. As of this moment, OÜ BCA Kinnisvara has not yet started its economic activities. The third quarter of the financial year saw the incorporation of a few more subsidiaries and associated companies into AS Kalev Group. On 20 February, AS Kalev concluded a contract on the purchase and sale of an 80% stake in AS Uniprint. AS Uniprint is involved with the provision of printing services―various advertising and small publications, official documents and quality journals. AS Kalev had previously concluded a contract under which the company acquired 20% of the shares in the above public limited company. With the transaction, AS Kalev thus effectively became the full owner of AS Uniprint. Under the contract, AS Kalev had to pay a total of nearly 54.8 million kroons for 80% of the shares, with 4 million kroons of the purchase price paid by AS Kalev on the day of conclusion of the contract of sale. In April, AS Kalev paid 24.1 million kroons of the transaction price, with nearly 26.7 million kroons to be paid by 5 April 2009 at the latest. If the company pays for the shares before the term indicated in the contract of sale, the purchase price will be reduced by deducting an annual 6% of the purchase price for the period of advance payment of the purchase price by AS Kalev. The right of ownership over the shares will be transferred to AS Kalev on the day of payment of the last instalment. Until transfer of the right of ownership over the shares, the sellers shall encumber the AS Uniprint shares which form the object of the contract of sale for the benefit of AS Kalev. With the contract concluded on 3 January 2007, AS Kalev also acquired, in March, 50% of the shares of AS Uniprint's subsidiary AS Unipress. On 12 March 2007, AS Kalev concluded a contract under which the company acquired all shares of AS Eksklusiiv. Under the contract, the ownership over 100% of the shares was transferred to AS Kalev on 14 March 2007. AS Eksklusiiv's main field of activity is publication of “Avenüü” and “Avenüü Professional” journals. On 11 April 2007, AS Kalev's subsidiary AS Kalev Paide Tootmine acquired 22,065 shares of Valmetek Invest AS―i.e. 34.4% of the total number of the company's shares. AS Kalev Paide Tootmine now holds a 65.6%% stake in Valmetek Invest AS, since nearly one third of the shares of the above company was already acquired by AS Kalev Paide Tootmine in February 2006. AS Kalev Paide Tootmine will pay a total of 27.96 million kroons for the acquired shares, with 5 million kroons of the purchase price paid prior to the conclusion of the contract of sale of shares, and 4.57 million kroons paid by the buyer on 1 June 2007. The remainder of the purchase price must be paid in equal quarterly instalments from 1 September 2007 to 1 September 2008. An annual 10% interest will be charged from AS Kalev Paide Tootmine on the unpaid part of the purchase price. The buyer has the right to prematurely pay the purchase price or a part of the purchase price. The above acquisitions do not constitute related party transactions in the meaning of the stock exchange rules. On 17 May 2007, an entry was made in the commercial register on the establishment of AS Kalev Meedia. The company is fully owned by AS Kalev, and has a share capital of 400,000 kroons, which is divided into 400000 shares with a nominal value of 10 EEK per share. AS Kalev Meedia is AS Kalev's subsidiary which is involved in the media sector, managing and developing publishing activities. AS Kalev Meedia will take over the publications of AS Inreko Press and OÜ Olliwood (Ärielu, Sporditäht, Just, Basket, Muumi) and integrate all media products to be acquired or developed in the future. On 12 June 2007, AS Kalev Meedia concluded a contract under which the company acquired all shares of OÜ Eesti Spordikanal. The rights associated with the shares were transferred to the buyer upon conclusion of the contract. AS Kalev Meedia is now the sole shareholder of the company, holding one share with a nominal value of 40,000 kroons. The main field of activity of OÜ Eesti Spordikanal is TV program production and broadcasting. The company is still in its early stages of development into a TV channel. The acquisition of the above share partially constitutes a related party transaction. 50% of OÜ Eesti Spordikanal was owned by Oliver Kruuda, General Manager of AS Kalev. Under the contract of sale, AS Kalev Meedia will pay Oliver Kruuda the sales price of the share which corresponds to the nominal value of the share―i.e. 20,000 kroons. Kalev Group's parent company is AS Kalev. In addition, the group incorporates nineteen subsidiaries (AS Uniprint is considered a subsidiary since, under the shareholders' agreement, the group is obliged to purchase all shares of the company in 2008 at the latest). AS Kalev has a significant interest in the following companies: -------------------------------------------------------------------------------- | Name of | Location | As of 31.06.2007 | As of 31.06.2006 | | subsidiary | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | AS Kalev Paide | Estonia | 100% | 100% | | Tootmine | | | | -------------------------------------------------------------------------------- | AS Valmetek | Estonia | 65.6% | 31% | | Invest | | | | -------------------------------------------------------------------------------- | AS Kalev Jõhvi | Estonia | 99.10% | 99.10% | | Tootmine | | | | -------------------------------------------------------------------------------- | AS Vilma | Estonia | 100% | 100% | -------------------------------------------------------------------------------- | AS Kalev Real | Estonia | 100% | 100% | | Estate Company | | | | | (AS Kalev REC) | | | | -------------------------------------------------------------------------------- | EOOD Stude REC | Bulgaria | 100% | 0% | -------------------------------------------------------------------------------- | OÜ BCA Center | Estonia | 100% | 0% | -------------------------------------------------------------------------------- | OÜ BCA | Estonia | 100% | 0% | | Kinnisvara | | | | -------------------------------------------------------------------------------- | OÜ Maiasmokk | Estonia | 81.26% | 81.26% | -------------------------------------------------------------------------------- | AS Kalev | Estonia | 100% | 0% | | Chocolate | | | | | Factory | | | | -------------------------------------------------------------------------------- | AS Kalev | USA | 100% | 100% | | Merchant | | | | | Services Ltd | | | | -------------------------------------------------------------------------------- | OÜ Sugarstar | Estonia | 100% | 0% | -------------------------------------------------------------------------------- | AS Inreko Press | Estonia | 100% | 0% | -------------------------------------------------------------------------------- | OÜ Olliwood | Estonia | 100% | 0% | -------------------------------------------------------------------------------- | AS Eksklusiiv | Estonia | 100% | 0% | -------------------------------------------------------------------------------- | AS Kalev Meedia | Estonia | 100% | 0% | -------------------------------------------------------------------------------- | OÜ Eesti | Estonia | 100% | 0% | | Spordikanal | | | | -------------------------------------------------------------------------------- | AS Uniprint | Estonia | 40% | 0% | -------------------------------------------------------------------------------- | AS Unipress | Estonia | 40% | 0% | -------------------------------------------------------------------------------- 1.2. Financial results In the first 12 months of the financial year 2006/2007, AS Kalev Group had an average of 879 employees (787 employees in the comparative period last financial year). The net sales and net profit of AS Kalev Group companies for the first 12 months of the financial year 2006/2007 have been brought out in the below tables (in thousands of kroons and euros), separately for each company. Comparative data has been brought out on 13 companies. The financial indicators of the subsidiary Kalev Merchant Services Ltd have not been consolidated, since the balance sheet volume of the subsidiary only makes up less than 0.5% of the parent company's turnover. Data on associated companies has not been included in the tables. The data on AS Kalev Paide Tootmine, AS Kalev Real Estate Company, AS Kalev Meedia and AS Uniprint also include the corresponding financial results of their subsidiaries. -------------------------------------------------------------------------------- | | Net sales | Net profit | -------------------------------------------------------------------------------- | EEK | 2006/2007 | 2005/2006 | 2006/2007 | 2005/2006 | -------------------------------------------------------------------------------- | | 12 months | 12 months | 12 months | 12 months | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | AS Kalev | 144 479 | 423 491 | -62 792 | 28 989 | -------------------------------------------------------------------------------- | AS Kalev | 315 726 | 413 546 | 29 407 | -44 930 | | Paide | | | | | | Tootmine* | | | | | -------------------------------------------------------------------------------- | AS Kalev | 87 518 | 75 363 | 79 373 | 127 496 | | REC* | | | | | -------------------------------------------------------------------------------- | AS Kalev | 40 575 | 32 753 | -3 877 | -3 728 | | Jõhvi | | | | | | Tootmine | | | | | -------------------------------------------------------------------------------- | OÜ Maiasmokk | 7 121 | 7 255 | -916 | -3 099 | -------------------------------------------------------------------------------- | AS Vilma | 29 503 | 36 064 | -1 316 | -1 342 | -------------------------------------------------------------------------------- | AS Kalev | 452 182 | 0 | 23 614 | 0 | | Chocolate | | | | | | Factory | | | | | -------------------------------------------------------------------------------- | OÜ Sugarstar | 3 613 | 0 | -1 065 | 0 | -------------------------------------------------------------------------------- | AS Inreko | 3 853 | 0 | -288 | 0 | | Press | | | | | -------------------------------------------------------------------------------- | OÜ Olliwood | 4 911 | 0 | -1 852 | 0 | -------------------------------------------------------------------------------- | OÜ Eksklusiv | 1 350 | 0 | -1 305 | 0 | -------------------------------------------------------------------------------- | AS Kalev | 1 431 | 0 | -558 | 0 | | Meedia* | | | | | -------------------------------------------------------------------------------- | AS Uniprint* | 54 755 | 0 | 2 294 | 0 | -------------------------------------------------------------------------------- * consolidated -------------------------------------------------------------------------------- | | Net sales | Net profit | -------------------------------------------------------------------------------- | EUR | 2006/2007 | 2005/2006 | 2006/2007 | 2005/2006 | -------------------------------------------------------------------------------- | | 12 months | 12 months | 12 months | 12 months | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | AS Kalev | 9 234 | 27 066 | -4 013 | 1 853 | -------------------------------------------------------------------------------- | AS Kalev | 20 179 | 26 430 | 1 879 | -2 872 | | Paide | | | | | | Tootmine* | | | | | -------------------------------------------------------------------------------- | AS Kalev | 5 593 | 4 817 | 5 073 | 8 148 | | REC* | | | | | -------------------------------------------------------------------------------- | AS Kalev | 2 593 | 2 093 | -248 | -238 | | Jõhvi | | | | | | Tootmine | | | | | -------------------------------------------------------------------------------- | OÜ Maiasmokk | 455 | 464 | -59 | -198 | -------------------------------------------------------------------------------- | AS Vilma | 1 886 | 2 305 | -84 | -86 | -------------------------------------------------------------------------------- | AS Kalev | 28 900 | 0 | 1 509 | 0 | | Chocolate | | | | | | Factory | | | | | -------------------------------------------------------------------------------- | OÜ Sugarstar | 231 | 0 | -68 | 0 | -------------------------------------------------------------------------------- | AS Inreko | 246 | 0 | -18 | 0 | | Press | | | | | -------------------------------------------------------------------------------- | OÜ Olliwood | 314 | 0 | -118 | 0 | -------------------------------------------------------------------------------- | OÜ Eksklusiv | 86 | 0 | -83 | 0 | -------------------------------------------------------------------------------- | AS Kalev | 91 | 0 | -36 | 0 | | Meedia* | | | | | -------------------------------------------------------------------------------- | AS Uniprint* | 3 499 | 0 | 147 | 0 | -------------------------------------------------------------------------------- *consolidated The economic activities of AS Kalev and the financial indicators of the group for the financial year 2006/2007 were affected by several factors, of which group restructuring, which was launched at the end of last financial year, product portfolio reorganisation and effects of the external environment proved to be the most significant. The consolidated net sales for the 12 months of the financial year amounted to 925.7 million kroons (59.2 million euros). Net sales have increased by 4%, compared to the same period last year, with the decrease in sales of dairy products having the biggest effect on total sales. The consolidated net profit for the financial year 2006/2007 amounted to nearly 30.5 million kroons (1.9 million euros), compared to the 1.2 million kroons (0.1 million euros) in the comparative period. Important factors contributing to the results of AS Kalev Group for the financial year 2006/2007: 1) a near 33% increase in gross profit was guaranteed by the increase in revenue from goods created by the company (4.1%) while total expenses showed a decrease (1.5%); 2) an annual 10% increase in revenue from confectionery products; 3) reversal of the previous negative results from dairy product sales in a situation where the segment turnover decreased by one-fourth; 4) a near one-third increase in profit from the real estate segment, compared to the previous period. AS Kalev has increased gearing in the financing of its activities and development. The company has issued short-term bonds. The group's financial expenses have been increased by loan refinancing, bond redemption and new mortgage loans. The purposes mainly involve financing activities in the field of real estate administration and development. The most important financial ratios of AS Kalev Group have been brought out in the below table: -------------------------------------------------------------------------------- | | AS Kalev Group | | -------------------------------------------------------------------------------- | | 01.07.2006- | 01.07.2005- | -------------------------------------------------------------------------------- | | 30.06.2007 | 30.06.2006 | -------------------------------------------------------------------------------- | Current ratio | 0.61 | 0.63 | -------------------------------------------------------------------------------- | Financial gearing | 0.80 | 0.70 | -------------------------------------------------------------------------------- | Asset turnover ratio | 0.79 | 1.14 | -------------------------------------------------------------------------------- | Net profit margin (%) | 3.3% | -4.9% | -------------------------------------------------------------------------------- | ROA (%) | 2.6% | 5.6% | -------------------------------------------------------------------------------- * The financial ratios have been calculated based on the following methods: Current ratio = current assets / current liabilities Financial gearing = total liabilities / average total assets Asset turnover ratio = revenue / average total assets Net profit margin = net profit / revenue * 100% Return on assets (ROA) = net profit / average total assets * 100% 1.3. Product market and sales The total sales volume of AS Kalev for the financial year 2006/2007 was 9,990 tons in the confectionery product segment and 11,643 tons in the dairy product segment. Thus, compared to last financial year, the sales volume decreased by 5.5% in the confectionery product segment and 15% in the dairy product segment. 1.3.1.Confectionery products According to the retail trade survey conducted by AC Nielsen (as of April/May 2007), AS Kalev Group is the firm leader of the Estonian chocolate and sugar confectionery product market. The company's market share was nearly 37% as regards turnover (an increase of 0.4 percentage points from last year) and 40.2% as regards volume. Kalev's market share in the local biscuit market has increased to 10.1%, moving the company up to second position; and the market share in the white and dark bread market to 3%. As a results of active product development, the company launched a total of 65 new products in the financial year 2006/2007, of which flour confectionery goods made up two-thirds. The sales volume of new products made up 10% of total sales for the period. 90% of the confectionery products of Kalev Group were sold on the domestic market, and 10% exported to different foreign markets. The total volume of chocolate and sugar confectionery products sold amounted to 6,030 tons. The volume thus showed no material changes from last financial year. In the given period, 33% of total export of chocolate and sugar confectionery products went to Russia (i.e. a significant decrease from last year), 32% to Latvia, 8% to Finland, 4% to Lithuania, and 6% to other countries, with total sales in the Travel Retail segment amounting to 17%. The total export volume of confectionery products decreased by 9%, compared to last financial year. This was mostly conditioned by the near one-third decrease of Russian export, compared to last period. AS Kalev Group's total volume of flour confectionery product sales, incl. pastry products and biscuits, amounted to 3,960 tons in the financial year 2006/2007, decreasing by 10% from last year. 99% of the flour confectionery products were sold on the domestic market, with the remainder exported to Baltic States and Russia. Three new flavours were launched in the Kalev brand chocolate series―Kalev's tiramisu-flavoured milk chocolate with biscuit pieces (100g), Kalev's milk chocolate with biscuit and plum pieces (100g) and Kalev's white chocolate with biscuit and strawberry pieces (100g). One of the most popular flavours of the series―white chocolate with rice crisp and blueberry pieces―was also launched as a 200g tablet. Kalev also expanded its Bitter series, adding new products Bitter dark chocolate with almonds (100g) and Bitter dark chocolate with hazelnuts (50g). The children's chewing candy series Draakon saw the addition of a new cherry-yoghurt-flavoured Draakon, as well as launch of the new Draakon Mix (420g). New candies launched by Kalev included the cocoa-flavoured wafer candies and cherry-flavoured jelly candy, with the latter also launched in 20g format. In addition, the product selection was also expanded with the launch of the 35g Tallinn wafer candy. The giftbox series saw the addition of two new praline candies: "Kadriorg” (435g) and "Assortment of praline candies” (150g). The Souffle series was also expanded with the launch of "Kalev Souffle assortment” chocolate candies (235g) and Kalev Souffle vanilla-flavoured chocolate candies (155g). In addition to the launch of the above new products, Kalev modernised the packages of several boxed candy products. In the pastry and flour confectionery product segment, the company launched 19 different white and dark bread products under "Linda" and "Kalevipoeg" trademarks in the financial year 2006/2007. In addition, Kalev launched 6 sorts of plaited buns, 4 sorts of cakes and 2 new sorts of muffins. The traditional mould biscuit series were complemented by toffee and chocolate-flavoured biscuits, with "Kaeraküpsis" (220g) biscuits added to the confectionery biscuit series, and "Nisukliiküpsis" biscuits with fructose and strawberry pieces added to the low-calorie biscuit series with healthy additives. A new tart portfolio with 11 new products was launched under Kalev trademark. The popular Vilma flour mix series saw two new additions: Vilma chocolate muffin powder (400g) and Vilma wafer powder (380g). 1.3.2. Dairy products The company manufactured a total of 11,453 tons of various dairy products from the crude milk stored by AS Kalev Paide Tootmine in the financial year 2006/2007―mainly cream, skimmed milk and milk powder as well as high-temperature pasteurized milk. Whole milk and skimmed milk powder as well as cream made up the majority (nearly 87%) of the total output. New products launched by AS Kalev included cream powder. The total volume of diary product sales―skimmed milk and milk powder, high-temperature pasteurized milk, cream, butter―amounted to 11,643 tons in the given period, with 80% being exported to EU members, and one fifth sold in Estonia. Similarly to previous periods, Germany remained the most important export destination for dairy products, making up 84% of the total export of dairy products (i.e. 66% of the total sales of dairy products). Major changes in the period involved product sales prices. The internal EU prices for whole milk and skimmed milk powder were more favourable for the producer, compared to the base period: for instance, the average wholesale price of skimmed milk powder increased by nearly 30% in Germany, compared to July last year (1,995 EUR/ton last year; 2,536 EUR/ton in the reporting year). Similar trends, albeit smaller, can be seen in milk powder prices in Europe. Influenced by the price rally on the global market, the prices for skimmed milk and milk powder continued to rise (e.g. the average wholesale price of skimmed milk powder at the end of the second quarter of 2007 was 3,301 EUR/ton). For the producer, these are positive trends, since the increase in the price of raw materials is regulated by previous agreements. Namely, AS Kalev's subsidiary AS Kalev Paide Tootmine concluded, for the first half-year 2007, crude milk buying-in contracts under which the company will supply nearly 160 tons of crude milk a day. The negotiated price formation was based on a co-operation model which considers a long-term partnership between the parties and which was satisfactory for both dairy producers and processors. Under the agreement, the price of crude milk will be formed on the basis of the European average prices for milk powder, skimmed milk powder and butter. 1.3.3. Real estate activities AS Kalev pursues real estate management and development activities through its subsidiary AS Kalev Real Estate Company (hereinafter Kalev REC), and through its subsidiaries and associated companies. In the real estate segment, the most important project had to do with the development activities of the subsidiary OÜ BCA Center in the reconstruction of five schools within the framework of the Public-Private Partnership (PPP) for Tallinn Schools Project. Kalev REC also continued further development of ongoing real estate projects: the company completed the 19-apartment residential building in Marat Street in Tallinn, and the 25-apartment building in Hommiku Street in Pärnu. Within the framework of the above projects, 17 and 22 apartments had been sold by the end of the financial year, respectively. The company also sold the registered immovable located at Tobias 5 in the Kadriorg region in Tallinn. According to the detailed plan, an apartment building with a total area of 1,800 m2 may be built on the immovable. Kalev REC's Bulgarian-based subsidiary EOOD Stude REC launched construction of a 6,500 m2 apartment building in Sofia. The building is scheduled to be completed in the spring or early summer of 2008. Although the company's real estate segment has, so far, focused on development of residential and commercial space, AS Kalev REC is paying increasing attention to the public real estate market. With this purpose, the company has actively participated in the so-called PPP project competitions. Several development project competitions were held in the public sector in the financial year. The biggest projects included the auction of the right of superficies on the so-called Kopli lines, organised by the City of Tallinn, and the auction of the right of superficies on Pae park in Lasnamäe. AS Kalev REC came second in the first competition (but the winner failed to conclude a contract with the City of Tallinn). The results of the second competition had not been published as of the moment of the preparation of this Annual Report (the terms and conditions of the competition were contested). 1.3.4. Media and publishing AS Kalev became actively involved in the media market in the financial year 2006/2007: AS Kalev acquired several media companies with the aim of expanding its investment portfolio into the relatively quickly-growing publishing and printing segment. In the course of business expansion, AS Kalev acquired AS Inreko Press (whose main publications include the gossip magazine "Ärielu“ and the sport magazine "Sporditäht“), OÜ Olliwood (which publishes the tabloid "Just“, the children's magazine "Muumi“ and the sports magazine "Basket“), AS Ekslusiiv (which publishes the "Avenüü" and "Avenüü professional" magazines which are mainly designed for women), and OÜ Eesti Spordikanal (which aims at launching a new television channel on the Estonian media landscape). According to the Estonian Media Survey conducted by TNS Emor in the second quarter of 2007, "Just" had 45,000 readers, "Sporditäht" 30,000 readers, "Avenüü" 20,000 readers, "Muumi" 18,000 readers, "Ärielu" 8,000 readers and "Basket" 8,000 readers. In order to bring AS Kalev's media activities under a single organisational structure, AS Kalev Meedia was established on 18 May 2007. The aim was to consolidate different publishing companies, allowing to create synergy in the future, and to optimise activities and resources. AS Kalev has specified the objectives and further development of the offered products in the media segment. Future expectations have to do with achieving the growth targets established for the published journals, as well as new media products, including launch of a new television channel. In the reporting year, AS Kalev expanded its business into the printing service sector by acquiring a stake in AS Uniprint and Unipress. AS Uniprint is among the leading Estonian print houses, rendering high-quality printing services already for over 15 years. The AS Uniprint printing plant produces various advertising and small brochures, official documents and quality journals. AS Uniprint and Unipress both hold quality and environmental management system certificates ISO 9001:2001 and ISO 14001:1998. In addition to Estonian customers, the sheet printing plant Uniprint and the periodicals printing plant Unipress which are both specialised in high-quality printing also serve Scandinavian and Russian customers through their branch offices. Thus, in addition to the existing customer base, AS Kalev's subsidiaries can also directly contribute to the satisfaction of AS Kalev Group's demand for different printing services in the production of advertising, small brochures and high-quality publications. 1.4. Future activities The home market is the main market for AS Kalev's sugar and chocolate confectionery products. It is therefore important for the company to maintain its current market share. The company continues to pursue its goal of increasing the profitability of the sales of its confectionery and dairy products through assortment optimisation and production efficiency enhancement. The profitability of the production activities are closely tied with various exogenous factors: the lack of skilled labour on the local market, and the general wage increase have a direct effect on the company's expenses, with the local economy and economic-political factors on foreign markets having an effect on the demand. Further to the development in the supply of production factors, the investment plan includes projects designed for reducing the labour required for the processes. Product development will play an important role. In the chocolate confectionery segment, the company will focus on developing chocolate tablets, chocolate candy and boxed chocolate candy. In the sugar confectionery segment, the focus will lie on chewing candy and toffee. Product development will include both extension of the best before dates and creation of new flavours. In the pastry and flour confectionery sector, the company is continually pursuing its goal of achieving a material increase in the white and dark bread market share in the next few years, thus taking third position among Estonian bakeries. The share of pastry products will increase in the flour confectionery segment, with continual focus to be paid to the biscuit and flour mix segment. Further activities in the dairy product sector will depend on the global market as well as on AS Kalev's strategy in the sector, which has yet to be specified. We expect to focus on product positioning, in order to guarantee sustainable production in the conditions of the planned changes. In order to achieve the established goals, we plan to review our product portfolio, and bring it into line with the group strategy, by considering the market situation. AS Kalev's real estate activities are pursued through AS Kalev REC and its direct subsidiaries. The quick growth in the real estate sector in Estonia has allowed AS Kalev Group to actively pursue real estate development and management. So far, the main attention has focused around residential and commercial space development. In the future, the company plans to develop its activities also in the public real estate sector. AS Kalev is set to change its strategy in accordance with the dynamics of the sector, and the occurrences on the real estate market. Major changes in the next financial year will revolve around AS Kalev's new fields of activity―media and printing services. Namely, the company is planning to renew its current product portfolio, both in essence and form. AS Kalev also plans to launch several new products in the next financial year, including a new television channel. The general objective of AS Kalev Meedia is to achieve a significantly stringer market position in the media sector. AS Kalev will develop the printing sector in accordance with the options of the sheet printing plant and periodicals printing plant which have specialised in high-quality printing services, satisfying the demand of Kalev Group and out-house customers for advertising and other printing services. INCOME STATEMENT in thousands of kroons and euros -------------------------------------------------------------------------------- | | Consolidated (in EEK) | Consolidated (in EUR) | -------------------------------------------------------------------------------- | | 12 months | 12 months | 12 months | 12 months | -------------------------------------------------------------------------------- | | 2007 | 2006 | 2007 | 2006 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Revenue | 925 704 | 889 623 | 59 163 | 56 857 | -------------------------------------------------------------------------------- | Cost of sales | -734 235 | -745 734 | -46 926 | -47 789 | | of goods and | | | | | | services | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | GROSS PROFIT | 191 470 | 143 889 | 12 237 | 9 196 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Marketing | -117 675 | -103 153 | -7 521 | -6 593 | | expenses | | | | | -------------------------------------------------------------------------------- | Administrative | -87 221 | -61 012 | -5 574 | -3 899 | | and general | | | | | | expenses | | | | | -------------------------------------------------------------------------------- | Other income | 82 422 | 41 360 | 5 268 | 2 643 | | and expenses | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | OPERATING | 68 996 | 21 084 | 4 410 | 1 347 | | PROFIT | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Financial | -38 288 | -19 790 | -2 447 | -1 265 | | income | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | PROFIT BEFORE | 30 708 | 1 294 | 1 963 | 83 | | INCOME TAX | | | | | -------------------------------------------------------------------------------- | Income tax | -282 | 0 | -18 | 0 | -------------------------------------------------------------------------------- | NET PROFIT | 30 426 | 1 294 | 1 945 | 83 | | BEFORE | | | | | | MINORITY | | | | | | INTEREST | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Profit | 34 | -141 | 2 | -9 | | attributable | | | | | | to minority | | | | | | interest | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | PROFIT | 30 460 | 1 153 | 1 947 | 74 | | ATTRIBUTABLE | | | | | | TO THE PARENT | | | | | | COMPANY | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | EPS | | | | | | attributable | | | | | | to owners of | | | | | | the parent | | | | | | company | | | | | -------------------------------------------------------------------------------- | (basic EPS and | 1,29 | 0,05 | 0,08 | 0,003 | | diluted EPS, | | | | | | in kroons) | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | | Consolidated (in EEK) | Consolidated (in EUR) | -------------------------------------------------------------------------------- | | 4th q | 4th q | 4th q | 4th q | -------------------------------------------------------------------------------- | | 2007 | 2006 | 2007 | 2006 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Revenue | 204 142 | 175 075 | 13 047 | 11 189 | -------------------------------------------------------------------------------- | Cost of sales | -165 263 | -149 573 | -10 562 | -9 559 | | of goods and | | | | | | services | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | GROSS PROFIT | 38 880 | 25 502 | 2 485 | 1 630 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Marketing | -35 409 | -29 454 | -2 263 | -1 882 | | expenses | | | | | -------------------------------------------------------------------------------- | Administrative | -15 136 | -11 790 | -967 | -754 | | and general | | | | | | expenses | | | | | -------------------------------------------------------------------------------- | Other income | 32 701 | -15 221 | 2 090 | -973 | | and expenses | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | OPERATING | 21 036 | -30 963 | 1 344 | -1 979 | | PROFIT | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Financial | -15 534 | -9 427 | -993 | -602 | | income | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | PROFIT BEFORE | 5 502 | -40 390 | 352 | -2 581 | | INCOME TAX | | | | | -------------------------------------------------------------------------------- | Income tax | -282 | 0 | -18 | 0 | -------------------------------------------------------------------------------- | NET PROFIT | 5 220 | -40 390 | 334 | -2 581 | | BEFORE | | | | | | MINORITY | | | | | | INTEREST | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Profit | 5 | 274 | 0 | 18 | | attributable | | | | | | to minority | | | | | | interest | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | PROFIT | 5 225 | -40 116 | 334 | -2 564 | | ATTRIBUTABLE | | | | | | TO THE PARENT | | | | | | COMPANY | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | EPS | | | | | | attributable | | | | | | to owners of | | | | | | the parent | | | | | | company | | | | | -------------------------------------------------------------------------------- | (basic EPS and | 0,22 | -1,69 | 0,01 | -0,11 | | diluted EPS, | | | | | | in kroons) | | | | | -------------------------------------------------------------------------------- BALANCE SHEET in thousands of kroons and euros -------------------------------------------------------------------------------- | | Consolidated (in EEK) | Consolidated (in EUR) | -------------------------------------------------------------------------------- | | 30.06.2007 | 30.06.2006 | 30.06.2007 | 30.06.2006 | -------------------------------------------------------------------------------- | ASSETS | | | | | -------------------------------------------------------------------------------- | Current | | | | | | assets | | | | | -------------------------------------------------------------------------------- | Cash | 17 337 | 10 080 | 1 108 | 644 | -------------------------------------------------------------------------------- | Receivables | 148 050 | 134 930 | 9 462 | 8 624 | -------------------------------------------------------------------------------- | Prepayments | 2 653 | 1 715 | 170 | 110 | -------------------------------------------------------------------------------- | Inventories | 218 617 | 240 334 | 13 972 | 15 360 | -------------------------------------------------------------------------------- | Total | 386 657 | 387 059 | 24 712 | 24 738 | | current | | | | | | assets | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Non-current | | | | | | assets | | | | | -------------------------------------------------------------------------------- | Long-term | 3 733 | 7 230 | 239 | 462 | | investments | | | | | | and | | | | | | receivables | | | | | -------------------------------------------------------------------------------- | Investment | 214 601 | 89 944 | 13 716 | 5 748 | | property | | | | | -------------------------------------------------------------------------------- | Property, | 644 876 | 545 840 | 41 215 | 34 886 | | plant and | | | | | | equipment | | | | | -------------------------------------------------------------------------------- | Intangible | 62 635 | 4 560 | 4 003 | 291 | | assets | | | | | -------------------------------------------------------------------------------- | Total | 925 846 | 647 574 | 59 172 | 41 388 | | non-current | | | | | | assets | | | | | -------------------------------------------------------------------------------- | TOTAL ASSETS | 1 312 503 | 1 034 633 | 83 884 | 66 125 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | LIABILITIES | | | | | | AND OWNER'S | | | | | | EQUITY | | | | | -------------------------------------------------------------------------------- | Liabilities | | | | | -------------------------------------------------------------------------------- | Current | | | | | | liabilities | | | | | -------------------------------------------------------------------------------- | Short-term | 348 317 | 240 464 | 22 262 | 15 368 | | borrowings | | | | | -------------------------------------------------------------------------------- | Prepayments | 1 461 | 27 821 | 93 | 1 778 | | from | | | | | | customers | | | | | -------------------------------------------------------------------------------- | Payables to | 284 439 | 286 717 | 18 179 | 18 325 | | suppliers | | | | | | and other | | | | | | payables | | | | | -------------------------------------------------------------------------------- | Provisions | 0 | 3 200 | 0 | 205 | -------------------------------------------------------------------------------- | Total | 634 218 | 558 202 | 40 534 | 35 676 | | current | | | | | | liabilities | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Non-current | | | | | | liabilities | | | | | -------------------------------------------------------------------------------- | Long-term | 304 837 | 132 908 | 19 483 | 8 494 | | borrowings | | | | | -------------------------------------------------------------------------------- | Total | 304 837 | 132 908 | 19 483 | 8 494 | | non-current | | | | | | liabilities | | | | | -------------------------------------------------------------------------------- | Total | 939 054 | 691 110 | 60 017 | 44 170 | | liabilities | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Owner's | | | | | | equity | | | | | -------------------------------------------------------------------------------- | Share | 236 325 | 236 325 | 15 104 | 15 103 | | capital | | | | | -------------------------------------------------------------------------------- | Mandatory | 4 020 | 4 020 | 257 | 257 | | reserve | | | | | -------------------------------------------------------------------------------- | Revaluation | 111 108 | 116 315 | 7 101 | 7 434 | | reserve | | | | | -------------------------------------------------------------------------------- | Retained | 21 941 | -13 225 | 1 402 | -845 | | earnings | | | | | -------------------------------------------------------------------------------- | Total equity | 373 395 | 343 435 | 23 864 | 21 950 | | attributable | | | | | | to owners of | | | | | | the parent | | | | | | company | | | | | -------------------------------------------------------------------------------- | Minority | 54 | 88 | 3 | 5 | | interest | | | | | -------------------------------------------------------------------------------- | Total | 373 449 | 343 523 | 23 867 | 21 955 | | owner's | | | | | | equity | | | | | -------------------------------------------------------------------------------- | TOTAL | 1 312 503 | 1 034 633 | 83 884 | 66 125 | | LIABILITIES | | | | | | AND OWNER'S | | | | | | EQUITY | | | | | --------------------------------------------------------------------------------
12-MONTH INTERIM STATEMENTS
| Source: Luterma
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