Explanation of differences between 12 months interim report and 2007/2008
audited annual report of AS Kalev.
1. IFRIC 12 (Service Concession Arrangements) addresses how service concession
operators should apply existing International Financial Reporting Standards
(IFRSs) to account for the obligations they undertake and rights they receive
in service concession arrangements. The interpretation is mandatorily
applicable to accounting periods commencing on January 1st 2008 or later.
Kalev group implemented the principle described in IFRIC 12 reporting standard
already in its annual report of previous, i.e. the 2007/2008 economic year.
The audited 2007/2008 annual report of AS Kalev has implemented all IFRIC 12
requirements and due to this change in calculation principles the accrued
income from private partnership project of Tallinn schools increased in the sum
of 13 million Estonian kroons and financial costs increased in the sum of 5
million Estonian kroons compared to the previously disclosed interim report.
Initially the claims deriving from service concession arrangement were
reflected as short-dated, but in the course of auditing 307 million Estonian
kroons of claims were reclassified as long-dated.
2. In the 12 months interim report AS Kalev reflected assets waiting for sale
in a separate column, and did not calculate depreciation from transferable
assets. Whereas the assumed sales transaction was closed and at the time of
submitting the annual report there is no sufficient certainty regarding
possible new transactions, then, being guided from IFRS 5 requirements, the
audited report does not reflect such assets any more as assets waiting for
sale. Due to this aspect the AS Kalev 2007/2008 economic year depreciation cost
was adjusted in total by 12 million Estonian kroons.
3. Compared to the interim report the 2007/2008 audited annual report
calculated in milk sphere additionally depreciation from not installed devices
in total sum of 11 million Estonian kroons.
4. In the 12 months interim report of AS Kalev ALTA claims in the amount of 59
million Estonian kroons guarantee cover provided by GKG Investeeringute AS to
AS Kalev were reflected as income. This sum has been transferred by GKG
Investeeringute AS to AS Kalev for securing claim of the latter against Alta.
In case of realization of corresponding claims the realized sum, plus
reasonable accrued interest, shall be refundable to GKG Investeeringute AS.
Until the corresponding claim has not been realized, the guarantee cover shall
not be refunded. By suggestion of auditors only claims and obligations in the
same sum have been amended in the annual report in comparison with the interim
report.
5. From debt obligations of AS Kalev, which in their essence were long-term
loans at the time of compilation of the report, loans in the sum of 255
million Estonian kroons were reclassified into short-term loans, because of
fact that agreements for changing these loans into long-term loans were entered
into after the balance sheet date.
----------------------------------------
Consolidated annual report 2007/2008
CONSOLIDATED MANAGEMENT REPORT
1. Economic and legal environment
1.1. Effect of the economic environment
In the financial year 2007/2008, AS Kalev was affected by the chaotic
macroeconomic climate, factor price increases, increase in the price of loan
capital and the development of the company's activity directions. With regard to
production inputs, several significantly unfavourable changes could be seen in
certain raw material prices; similarly to the previous period. Personnel
expenses continued to show a rapid increase as well. At the same time, the
demand for AS Kalev's goods was sustained by major export markets, as well as by
the domestic market, which reached the end of its period of quick economic
growth.
The rate of growth of Estonian GDP and total demand showed a sudden deceleration
during the period. The average rate of growth in demand for the past three years
(nearly an annual 9%) dropped to 1%. This real growth is many times smaller than
the indicator for a longer period, with the growth in demand being smaller than
the rate of growth in total output for the first time in a decade. Even though
real demand in the Estonian economy grew by 1.2%, with GDP growing twice that
amount, total output for the period from July 2007 to June 2008 decreased by
nearly 5%. Different sectors showed different dynamics. Food and beverage
production decreased by 10% (while the turnover from these goods increased by
10%). With regard to the activities pursued by Kalev Group (see Chapter 2), the
biggest growth can be seen in the turnover from pastry products, which showed an
increase of nearly 18% compared to the same period last year. At the same time,
the production volume of these goods only showed marginal growth of 1%. As a
result of the rapid decrease in domestic demand, the production volumes have
dropped, regardless of the increase in export turnover. The dairy sector, for
example, saw one of the biggest drops in production (13%), even though the price
increase boosted both export and total turnover by nearly 15%. Profitability
indicators showed a similar trend - the average for the processing industry
dropped by two percentage points compared to last year, amounting to 7% in the
period. Food and beverage production showed a profit margin of 5% (i.e. a drop
of one percentage point) and dairy production a decrease of 3% (i.e. a drop of
one percentage point).
Kalev Group products fall among commodities for which real demand has remained
modest or negative. Even though wage dynamics supported growth in general
consumption, the real annual growth in private consumption was lower than 2%
(compared to the 10% in the previous three years). At the same time, real growth
in wages has been rapid in Estonia, while tensions brewing on the labour market
with regard to both skills and availability―for the employer, such an employment
situation means limited options in a situation where production capacities need
to be increased. For this reason, Kalev Group made the necessary investments in
order to control the changes caused by the quick growth in the cost structure.
Overall development indicates that the slow growth in productivity exerts major
pressure on the competitive abilities of Estonian companies. The production
branches with the biggest cost pressure are showing the lowest profit margin.
The price pressure has a negative effect on the entire economy, being divided
between some or all branches of economy and causing a cost combination through
lower wage levels, smaller profit and/or a decrease in budget revenue. According
to Statistics Estonia, the real growth in the export of domestic goods has been
negative for the past four quarters (-3.5%), compared to the 5% growth in the
previous period.
The increase in consumer prices was rapid for the fourth year in a row. The
shopping cart price increase exceeds an annual 11% at the moment of the
preparation of the financial statements. Food prices have shown an even greater
increase of 18%. Inflation in Estonia reflects both the particular stage of the
economic cycle and the consequent "bottlenecks" as well as the effect of EU
economic integration and globalisation. The double-digit inflation has reduced
the purchasing power in the domestic market and is affecting consumer behaviour.
This is especially evident in a situation where expenses on food and energy make
up a relatively big part of the local consumer's budget. High and/or rising
inflation often reflects bigger changes and uncertainty regarding the future,
and does not therefore facilitate corporate investments. It is vital for the
economy in general that the inflation be stopped and the general price increase
in Estonia diminish to the level of the first half of the decade (4%).
At the same time, we have detected signs of growing caution since the middle of
2007―end consumption is no longer growing as fast as income. Since private
consumption forms the most important part of total demand (making up more than a
half of total demand), the above changes in consumption decelerate economic
growth. In addition, we must take into consideration the changes in consumer
preferences. Surveys on demand for sweets indicate great price sensitivity among
the Estonian population. At the same time, we can also see signs of a major
shift towards growth in consumer awareness of healthier eating habits. Product
development in the chocolate confectionery segment is therefore paying more
attention to exploiting the potential of dark chocolate in order to materialise
scientific conclusions of the health benefits of the particular foodstuff with
respect to higher antioxidant levels in products with a bigger cocoa content.
The cost of debt capital required for financing activity has also showed an
increase compared to the last financial year. As the loan conditions have become
stricter, and the overall cost of capital has increased, this will have its
effect on the demand for construction and capital goods, as well as consumption.
Under the conditions of poor external demand and low economic activity, the cost
pressure is of secondary importance in the profit margin. In such conditions,
maintaining of the market share and increasing of the total sales plays a much
bigger role.
Final product price formation is based on various factors of demand and supply.
In Estonia, cost prices of industrial goods have increased a little over 7% in
the period, while the increase in the price of food and beverages amounts to an
annual 20%. The price increase of energy carriers as well as different
production factors is evident in the production cost dynamics. For example, the
price of cocoa beans (quoted in US dollars on the global market) showed a 50%
increase, and reached an all-time record height at the end of June 2008. As the
demand for cocoa beans exceeds supply, and the raw material deficit will last
through 2009, the cocoa bean future prices on the London stock exchange have
rocketed. It is only due to the strengthening of the Estonian kroon (which is
pegged to the euro through the currency board system) that the real increase in
the price of cocoa beans has remained relatively modest: approximately 30%.
Cocoa bean futures prices (also quoted in US dollars on the global market) are
showing a 4-5% drop for 12 months. Still, the continually negative global
harvest estimates of major cocoa producers do not raise confidence with respect
to any drop in the price of the raw material.
The buying-in price of the second important raw material for Kalev
Group―milk―has increased by nearly 25% in the past 12 months in Estonia. The
price dynamics varied―while at the beginning of 2008, milk buying-in price had
increased by one-third, compared to June 2007, the price has showed some
decrease from April 2008. Year-on-year, the milk buying-in price in Estonia had
increased by less than one-fifth as of June 2008. Crude milk prices have shown a
remarkable increase in Europe in the past 12 months (up to 80%), and have
conditioned a near 20% increase in the dairy product prices of different
countries. The “Agricultural Outlook for 2008 to 2017” forecast prepared by OECD
and FAO for the next 10 years with respect to sugar, grain and milk powder
forecasts an average of 30% price increase in this product group, while the
price of butter is forecasted to increase by over 60% from the current level.
Corporate expenses on packaging, transport and logistics have gone up. This is
especially due to the increase in production input prices. For this reason, the
profit forecasts of the food industry are significantly affected by the above
factors. In the world's leading food concerns (e.g. Cadbury, Nestlé, Danone) in
the branch, the negative effect of the raw material price increases on the
corporate profit margin is estimated to amount to an average of 300 base points.
For the Estonian companies in general, the negative increase in profitability
has lasted for over a year: from the second quarter of 2007, the surplus and
mixed income from corporate operations has decreased with each quarter, compared
to the same period last year.
1.2. Changes in the legal environment
The Estonian tax policy pushes towards direct remission of taxes and increase of
indirect taxation. Nonetheless, the major expenses incurred by local companies
on labour will prevail, as changes in production factor prices influence the
effect of labour expenses on the company. In addition to state taxes, personnel
expenses are also affected by agreements concluded between employees and trade
unions, as well as minimum wage agreements established by the state. Minimum
wage agreements concluded in the past three years have raised the minimum wage
in Estonia by an aggregated 62% (from 1 January 2008, minimum wage increased by
nearly 21%, compared to the previous period). Such quick growth has had a direct
effect on overall wage increase. Under the conditions of a lack of skilled
workers, a relatively modest flexibility of the labour market, limited growth in
production and establishment of additional EU regulations, a rapid increase in
minimum wage may exert ever-increasing pressure on the expenses and profit
margin of companies.
In June 2008, the new draft Employment Contracts Act was prepared in
co-operation between social partners, aiming at modernising the legislation
regulating the Estonian labour market. Several international surveys and
comparisons indicate the hampering effect of the Estonian labour market
regulations on the growth of employment and their non-compliance with modern
employment relationships―i.e. which is officially recognised as inflexibility of
the labour market (with sights on ensuring flexibility). As employment relations
is in dire need of modernisation in Estonia, we are looking forward to a
constructive discussion and passing of the regulations by the parliament.
In July 2006, the European Commission initiated reform in order to change the
organisation of the community sugar market within the framework of the EU
community agricultural policy. As a result of the reform, the minimum price for
white sugar, which was three times higher than the global market price, will
drop by a total of 36% in four years (the lowering of the sugar price in stages:
20% by the first year, 27.5% by the second year, 35% by the third year and 36%
by the fourth year). Standardisation of the EU sugar price with the global sugar
price (i.e. price reduction) serves the best interests of AS Kalev.
In June 2007, the European Commission resolved to cancel all subsidies for dairy
product export. This is in line with the reform of the EU common agricultural
policy (CAP) and is conditioned by the development of the global raw material
prices. For instance, the price of both milk powder and butter has reached an
all-time high. At the same time, the European Commission has taken the position
that, should the market reverse, the intervention in dairy product trade will
resume. On 1 April 2008, EU milk production quotas were raised by 2% within the
framework of the CAP reforms. The gradual increase in quotas resulted in the
above decrease in milk price. As the reform provides for full cancellation of
the quotas in the European Union by the year 2015, the European Commission has
recommended, in order to ensure a smooth transition to the market conditions, a
1% increase in quotas between 2009 and 2014. Further reforms will provide for
the cancellation of the obligation to leave uncultivated 10% of the land. The
growing food demand will thus result in the increase in the production of
agricultural products.
2. Overview of AS Kalev Group
AS Kalev pursues several fields of activity, including manufacturing and sale of
foodstuffs, media, real-estate-related activities, publishing and printing
activities. The company has long-term experience in the chocolate, sugar and
flour confectionery product segment as well as the pastry and dairy product
segment. AS Kalev has also pursued various real estate development and
management projects for a longer period of time. Last financial year, AS Kalev
expanded its activities into media, publishing and related areas. These areas
have shown remarkable development in the period. Among other things, the company
launched a television channel. Foodstuff production is divided into five
production plants, located in Põrguvälja (in Rae Municipality, Harju County),
Paide, Viljandi, Jõhvi and Kiviõli. Kalev's products are sold, among other
channels, through the pan-Estonian retail chain which consists of 15 candy
stores and cafes.
The table below lists the fields of activity pursued by AS Kalev in accordance
with the Estonian Classification of Economic Activities (EMTAK 2008) as well as
the Estonian version of the classification of economic activities in the
European Community (NACE, Rev. 2):
--------------------------------------------------------------------------------
| EMTAK code | NACE code | Field of activity |
--------------------------------------------------------------------------------
| 1082 | C 10.82 | Production of chocolate and sugar |
| | | confectionery products |
--------------------------------------------------------------------------------
| 1071 | C 10.71 | Production of pastry products |
--------------------------------------------------------------------------------
| 1051 | C 10.51 | Milk processing, production of dairy products |
| | | and cheese |
--------------------------------------------------------------------------------
| 6810,6820 | L | Real estate activities |
| | 68.10,68.20 | |
--------------------------------------------------------------------------------
| 5814 | J 58.14 | Publishing of magazines and other periodicals |
--------------------------------------------------------------------------------
| 6020 | J 60.20 | Television programmes and broadcasting |
--------------------------------------------------------------------------------
| 94995 | S 94.99 | Leisure and entertainment activities |
--------------------------------------------------------------------------------
| 18122 | C 18.12 | Printing of periodicals, advertising |
| | | materials, etc. |
--------------------------------------------------------------------------------
Kalev Group's parent company is AS Kalev. In addition, the group incorporates
eighteen subsidiaries. The share of AS Kalev in these companies has been
disclosed in Note 21. AS Kalev group underwent a restructuring process in 2006.
This was reflected in the financial results for both the previous financial year
and the reporting period. AS Uniprint became was incorporated as a subsidiary in
the last financial year. Pursuant to the shareholders' agreement, AS Kalev had
the right to purchase all of the company's shares. However, AS Kalev did not
exercise this right (see Note 21.6).
The first organisational change was introduced at the beginning of the financial
year 2007/2008. Namely, AS Kalev acquired a share with a nominal value of 40
thousand EEK in the private limited company Soltari Invest under the contract
concluded on 17 August 2007. With the transaction, AS Kalev became the sole
shareholder of the private limited company which was renamed into AgriStock OÜ.
The subsidiary is involved in the development of the processing of, storage of
and reloading of grain products. The above acquisition does not constitute a
related party transaction in the meaning of the stock exchange rules.
At the end of 2007, AS Kalev Chocolate Factory launched the transition to
product group-based production, starting to manufacture pastry products and
flour confectionery products in different production plants. The specialisation
served the goal of enhancing logistical and production efficiency in order to
ease the pressure on cost price increase, and bring the know-how under a single
production unit. The first stage of this process involved changes in biscuit
production in the Kiviõli production plant of AS Kalev Jõhvi Tootmine. In the
second stage, pastry production was fully transferred to the Jõhvi plant, partly
by exploiting the labour resources made available with the first stage. At the
same time, the group's flour confectionery production was transferred to the AS
Vilma production plant in Viljandi.
In February 2008, Kati Kusmin, who also serves as member of the management
boards of AS Kalev's subsidiaries AS Kalev Chocolate Factory, AS Kalev Jõhvi
Tootmine and AS Vilma, was appointed the new managing director of OÜ Maiasmokk.
In January 2008, AS Kalev transferred its share in the subsidiary OÜ Maiasmokk
to its other subsidiary AS Kalev Chocolate Factory. The transfer of the share of
OÜ Maiasmokk and appointment of a new managing director had to do with the
transfer of the food production companies of AS Kalev.
The members of the Management Board of AS Kalev are elected and removed pursuant
to the procedure provided by the Commercial Code. Under the Commercial Code, the
members of the Management Board and appointed and removed by the Supervisory
Board of AS Kalev. A member of the Management Board shall be elected for a
specified term of three years unless the Articles of Association prescribe
another term. Extension of the term of office of a member of the Management
Board shall not be decided earlier than one year before the planned date of
expiry of the term of office, and not for a period longer than the maximum term
of office prescribed by the law or the Articles of Association
A member of the Management Board may be removed by resolution of the Supervisory
Board of AS Kalev regardless of the reason. Rights and obligations arising from
a contract concluded with the member of the Management Board shall terminate
pursuant to the contract. A member of the Management Board may resign from the
Management Board with good reason if he or she gives notice of his or her
resignation to the Supervisory Board and, if this is impossible, submits a
relevant application to the registrar of the commercial register. With good
reason, a court may appoint a new member to replace a removed member of the
Management Board on the petition of the Supervisory Board, a shareholder or
other interested person. The authority of the court-appointed member of the
Management Board shall continue until appointment of a new member of the
Management Board by the Supervisory Board. The members of the Management Board
of AS Kalev shall be appointed for a term of three years in accordance with the
Articles of Association of AS Kalev. If the Management Board has more than two
members, the Supervisory Board of AS Kalev shall elect the Chairman of the
Management Board amongst the members of the Management Board.
Pursuant to the Commercial Code, a resolution on amendment of the Articles of
Association shall be adopted if at least two-thirds of the votes that
participate in the meeting are in favour. A resolution on amendment of the
Articles of Association shall enter into force as of the making of a
corresponding entry in the commercial register. The Articles of Association of
AS Kalev have not prescribed a greater majority requirement. AS Kalev only has
one type of share.
AS Kalev may be represented in all legal acts by any member of the Management
Board. Under the Articles of Association, if the Management Board of AS Kalev
has three or more members, the public limited company may be represented in all
legal acts by the Chairman of the Management Board alone, or by other members of
the Management Board together with the Chairman of the Management Board.
Pursuant to the Commercial Code, joint representation shall apply with regard to
third persons only if it is entered in the commercial register. The members of
the Management Board of AS Kalev shall not have the right to issue or repurchase
shares. No agreements have been concluded between AS Kalev and its Management
Board members or employees, stipulating any monetary compensation in connection
with the takeover set forth in section 19 of the Securities Market Act.
A contract of purchase and sale of shares was concluded on 20 September 2007
between AS Kalev and Alta Capital Partners S.C.A on the transfer of the shares
of AS Kalev Paide Tootmine, AS Kalev Chocolate Factory, AS Kalev Jõhvi Tootmine,
AS Vilma and OÜ Maiasmokk. Since Alta Capital Partners S.C.A failed to pay the
purchase price for the shares by the established term (30 May 2008), the seller
did not transfer the shares which formed the object of the contract of purchase
and sales. AS Kalev thus considered the contract of purchase and sale, concluded
with Alta Capital Partners S.C.A as terminated.
3. Economic activities and financial results
AS Kalev remains one of the most reputable companies in the eyes of people
living in Estonia, as revealed by the prominence and reputation survey conducted
among major Estonian companies by TNS Emor in April 2008. The survey was
conducted among about fifty of the most reputable local companies for the ninth
year in a row. According to the latest poll, Estonians consider Kalev the most
agreeable company after AS Hansapank (the survey was conducted before the bank's
name change), with respect to both attitude scales and general mindset as well
as authority image. The results of the survey conducted by TNS Emor reveal that,
according to Estonian residents, Kalev has been the most reputable company for
the past five years, with an average rating of 8.1 points.1 TNS Emor applies a
10-point scale for the survey, with 1 being "very negative" and 10 "very
positive"
AS Kalev's financial results for the financial year 2007/2008 were affected by
several factors, including the group's rapid expansion into other fields of
activity, the effect of macroeconomic conditions on the decrease in demand and
increase in factor prices, reorganisation of the product portfolio and group
restructuring, which was launched in the previous period.
The net sales and net profit of AS Kalev Group companies for the financial year
2007/2008 are shown in the below tables (in thousands of EEK and euros)
separately for each company. Comparative data is given for 14 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 is
not 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.
* consolidated
** calculated change in turnover, as a result of which production activities
previously attributed to AS Kalev have been attributed to AS Kalev Chocolate
Factory since 01.07.2006, and sale of goods since 01.09.2006.
*** the activities of subsidiaries involved in the media segment have been
attributed to AS Kalev Meedia since 01.06.2007.
* consolidated
** calculated change in turnover, as a result of which production activities
previously attributed to AS Kalev have been attributed to AS Kalev Chocolate
Factory since 01.07.2006, and sale of goods since 01.09.2006.
*** the activities of subsidiaries involved in the media segment have been
attributed to AS Kalev Meedia since 01.06.2007.
Important factors contributing to the results of core activities of AS Kalev
Group for the financial year 2007-2008 are the following:
The consolidated net sales of AS Kalev for the financial year 2007/2008 amounts
to 1,348 million EEK (86,2 million EUR), - i.e. 46% growth compared with the net
sales of the previous financial year. The substantial increase reflects Kalev
Group's expansion, — an outcome of implementing the activity plans set out in
the previous period. The consolidated net profit for the financial year
2007/2008 amounted to 97,9 million EEK (6,26 million EUR); compared to 30,4
million EEK (1,95 million EUR) in the comparative period.
Important factors contributing to the consolidated financial results of AS Kalev
Group for the financial year 2007-2008 are the following:
Almost 46% increase in net sales of goods and services compared to the
comparative period;
16% increase in consolidated gross profit compared to the comparative period;
The importance of domestic revenue has increased - almost 70% of sales are from
Estonia, whereby the importance of exported decreased from 36% in the
comparative period to 30% in the current period;
the revenue from media and event marketing has increased rapidly - sales of
those segments has doubled, however the result of afore mentioned business
segments are still negative;
the realization in the real estate segment has tripled compared to the
comparative period - various projects initiated in previous years were launched.
The focus from residential and commercial space development has moved to public
sector real estate. In conclusion, the real estate segment proved to be one of
the most significant business segments during the financial period;
2% nominal increase was achieved in sales of grocery segment, the most
significant increase was in sales of sugar- and chocolate confectionery product
segment (11.5% to the comparative period)
AS Kalev has slightly increased its gearing in order to finance its development.
Company issued bonds to refinance the obligations of its core activity. The
increase in current assets eased the financial pressure and increased the
current ratio of the Group (see the table below). The increase in finance
leverage was caused by increasing liabilities of the Group followed by the
increase in financial expenses. However, the increase in sales of goods exceeded
the Group's financial expenses. Therefore the overall growth of financial
leverage has been marginal.
In terms of expense items, the biggest growth - one third on annual basis - took
place in administrative expenses. However, it will remain 11 percent point below
the increase that took place in the previous year. This growth has been caused
by the current period trends in the macro-economy as well as by the expansion of
activities to various sectors.
The 44% growth in personnel expenses of Kalev Group has been largely caused by
the number of employees, that increased by more than one third and by the
inflationary environment of the Estonian labour market. AS Kalev Group employed
an average of 1,184 people in the financial year 2007-2008; in the comparative
year the Group employed 879 people as an average.
An overview of the risks (including both financial and non-financial risks)
affecting the economic activities of AS Kalev, and corporate risk management,
has been provided in Note 25.
The profitability of the Group has improved compared to the previous period (see
net profit margin indicators in the following table). Return on assets (ROA) has
more than doubled compared to the previous period, reaching 6.4% of consolidated
financial results of Group.
The most important financial ratios of AS Kalev Group*:
--------------------------------------------------------------------------------
| | AS Kalev Group |
--------------------------------------------------------------------------------
| | 01.07.2007- | 01.07.2006- |
--------------------------------------------------------------------------------
| | 30.06.2008 | 30.06.2007 |
--------------------------------------------------------------------------------
| Current ratio | 0.46 | 0.61 |
--------------------------------------------------------------------------------
| Financial gearing | 0.74 | 0.8 |
--------------------------------------------------------------------------------
| Asset turnover ratio | 0.86 | 0.79 |
--------------------------------------------------------------------------------
| Net profit margin (%) | 7.26% | 3.30% |
--------------------------------------------------------------------------------
| ROA (%) | 6.27% | 2.60% |
--------------------------------------------------------------------------------
* The financial ratios have been calculated as follows:
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%
4. Product market and sales
4.1. Sales volume
As regards volume, the total sales of AS Kalev's confectionery and dairy
products amounted to 21,988 tons in the financial year 2007/2008 (21,633 tons in
the previous financial year). This constitutes 1.6% real growth, year-on-year.
Still, the product sales dynamics are different for different groups of goods:
in the confectionery segment, AS Kalev's sales decreased by 6.8% (the total
output for the financial year amounted to 9,312 tons, compared to the 9,990 tons
in the previous financial year). In the dairy product segment, total sales
increased by 8.8% (a total of 12,676 tons, compared to the 11,643 tons in the
last financial year).
4.2. Confectionery products
According to the retail trade survey conducted by AC Nielsen in June/July 2008,
AS Kalev Chocolate Factory is the Estonian market leader in the chocolate and
sugar confectionery segment: The survey revealed that Kalev's market share is
nearly 37%, as regards turnover, and 41% as regards volume (33% and 39% in the
comparative period, respectively). Compared to the previous period, the
company's market share increased the most in the chocolate candy category, with
the market share rising to 53% as regards turnover and 65% as regards volume.
The market share also increased in the boxed chocolate category, with the share
amounting to 32% as regards turnover and 35% as regards volume. Kalev maintained
its market share in the chocolate bar category at 54% as regards turnover and
55% as regards volume. In the domestic biscuit market, Kalev Group's market
share was approximately 9% in the period (on par with last year), with the
market share as regards volume exceeding 11%, ranking Kalev third among
manufacturers in the segment. According to AC Nielsen, the total sales of AS
Kalev rank the company second on the Baltic sweets market, with the market share
amounting to 12% as regards turnover and 14% as regards volume.
As a result of active product development, the company launched a total of 86
new products in the financial year 2007/2008 (including 36 products in the sugar
and chocolate confectionery segment and 50 products in the flour confectionery
segment). The turnover of new products amounted to 10% of the total turnover in
the period.
Three new flavours were launched in the Kalev brand chocolate series: dark
chocolate with raspberry (100g), milk chocolate with whole hazelnuts (200g) and
white chocolate with cranberry and coconut (100g). The Kalev brand 200-gram
chocolate series saw two new additions ― dark chocolate with raspberry
(previously marketed in 100g bars) and milk chocolate with cookie pieces and
plum. The company also launched a new Kalev Special chocolate series ― white
chocolate with cashews (50g), milk chocolate with hazelnuts (50g) and milk
chocolate in three different packages (50g, 100g, 300g).
Two new products ― cocoa flavoured chewing candy and fruit flavoured chewing
candy ― were introduced in the Draakon chewing candy series. The Kalev Toffee
series also saw two additions: the Kalev Toffee Cocoa toffee with cookie pieces
(150g) and Kalev Toffee Mix (475g). The company also launched a new caramel
candy - the Kalev Caramel green apple flavoured hard candy with vitamin C (in
150 g and 2 kg packaging). New candy in the Kalev Praline series included the
tiramisu-flavoured praline candy, praline candy with almond, praline candy with
strawberry, plum-flavoured praline candy as well as praline candy with coffee
and caramelised nuts. Black currant and plum-flavoured candy (175g) was added to
the Kalev Marmalade series. The boxed chocolate candy series saw new praline
candy products - Tallinna Vanalinn (175g), Kannel (350g), Kalev Finest Pralinės
- selection of praline candy (350g) and the Kalev Finest Pralinės
tiramisu-flavoured praline candy (85g). In the giftbox series, the company
launched new dragee products: the tiramisu-flavoured cocoa-coated almonds,
cherry in milk chocolate and hazelnut in milk chocolate in Kalev Dragee 130-gram
packages. Three of the most popular products in the Kalev Praline series ― the
tiramisu flavoured candy, candy with almonds and candy with cashews ― were also
launched in 150-gram giftboxes and in a mixed 350-gram package.
As regards volume, Kalev Group's total sale of sugar and chocolate confectionery
products amounted to 9,312 tons in the financial year 2007/2008. This
constitutes a 6% decrease, compared to the total volume of sales of
confectionery products in the comparative period.
At the same time, the dynamics of the sale of confectionery products was
different for different product groups: quicker-than-average growth could be
seen in the sale of chocolate bars (25%), dragee (21%) and boxed chocolate
candies (15%); the sale of candy increased by 6% compared to the last financial
year. The biggest growth (as regards volume), compared to the same period in the
last financial year, could be seen in the sale of chocolate bars (+22%). The
same of boxed chocolate candy increased by 15%, while the sale of candy
decreased by 5%. Christmas sales were a great contributor to the total sale of
confectionery products: in the last few months of 2007, AS Kalev Chocolate
Factory sold a total of over 250 tons of (i.e. nearly 440 thousand) Christmas
packages of different size and contents. This constitutes a 23% (i.e. over 46
tons) growth, compared to the same period last financial year. Total Christmas
sales amounted to 550 tons, with candy packages 45%, chocolate bars 29%,
gingerbread cookies 18% and boxed chocolate candy 8%. The Christmas selection
included 37 products with different thematic designs.
In the pastry and flour confectionery group, the company launched a total of 19
different pastry products under "Linda", "Kalevipoeg" and "Sakala" trademarks in
the financial year 2007/2008. Kalev launched four new pastries under the "Linda"
trademark: cherry pie (3x55 g), flaky cheese pastry (2x55 g), curd pie (3x60 g)
and vanilla rolls (3x60 g). The classic "Linda" curd cake (250 g) was added to
the coffee cake selection. The company also launched a new muffin. A new
selection (a total of 14 products) of cakes was launched under the "Linda"
trademark, with the group's cake portfolio seeing the addition of three new
flavours―-the peach cheesecake (850 g), cheesecake (700g) and chocolate
cheesecake (730g). The popular "Vilma" flour mix series saw two new
additions―-the thin crust pizza powder (400g) and the vanilla-flavoured cake
powder (350g). In the biscuit segment, all biscuits have a new visual and
packaging. The tiramisu-flavoured biscuits (180 g) were added to the product
portfolio, with "Nisukliiküpsis" biscuits with raspberry and pumpkin seeds added
to the low-calorie series with healthy ingredients.
The total volume of sale of flour confectionery products (including pastry
products, biscuits and flour mixes) for the financial year 2007/2008 amounted to
2,956 tons. This constitutes a 23% decrease from the total sales of flour
confectionery products in the comparative period. Similarly to sugar and
chocolate confectionery segments, different sales dynamics can be distinguished
among the product groups of the flour confectionery segment: for instance, the
total volume of sale of flour mixes increased by nearly 17%, compared to the
comparative period, and the sale of biscuits by 9%. The share of export is
immaterial in the flour confectionery segment.
In the first half of the financial year 2007/2008, a majority (88%) of the
confectionery product output (i.e. sugar, chocolate and flour confectionery
products) was sold at the domestic market, with export amounting to 12% of the
turnover (8% in the last financial year). Export sales of confectionery products
increased by 80%, compared to last year. In the financial year, export to Baltic
countries made up more than half of Kalev Group's confectionery product export:
33% was exported to the Lithuanian market (only 3% in the comparative period)
and 26% to Latvia; 22% was sold to Travel Trade; 9% to Russia and 8% to Finland.
4.3. Dairy products
Different dairy products were produced from the crude milk2 Stocking of raw
material and use of the raw material in the production process took place in the
first three quarters of the financial year; raw materials were not stocked in
the fourth quarter, with the company pursuing service projects. supplied by AS
Kalev Paide Tootmine in the financial year. Due to the market conditions and
production/economic reasons, the company focused mainly on the production of
cream, skimmed milk and condensed skimmed milk (these made up nearly 77% of the
output). AS Kalev Paide Tootmine added higher-fat powders, skimmed milk and milk
concentrate to its list of products in the reporting period.
Due to the unfavourable raw material and final price situation in Estonia and
abroad, the company temporarily suspended production activities in AS Kalev
Paide Tootmine in March 2008. At the same time, sales activities were continued.
From April 2008, AS Kalev Paide Tootmine provides contracting services,
including to AS Tere. These services mainly include manufacturing of products
(mainly powder, fresh cream and drinking milk) which require no milk purchase by
the company. Condensed skimmed milk sales made up nearly 37% of the total sales
volume of AS Kalev Paide Tootmine in the period. The share of cream was 29% and
skimmed milk powder 10% of the total sales volume. Production volume increased
by nearly 10.7%, compared to the comparative period, amounting to a total of
12,676 tons. Nearly two-thirds (nearly four-fifths in the comparative period) of
the total output of AS Kalev Paide Tootmine was exported to the European Union
(mainly Germany).
The increase in the price of stocked milk has had a significant influence on the
results for the financial year, as well as on the whole dairy market. According
to Statistics Estonia, the average increase in production prices for
agricultural products increased by one-fifth from last year, with the price of
milk rising by 22%. By the time of preparation of this report, the raw material
price increases in Estonia had ceased.
The main focus of product development in AS Kalev Paide Tootmine lies in the
creation of additional options for enhancing the value of the raw material. The
company thus made bigger investments than in the comparative period ― the cream
production line was improved with automatic sample-takers in order to get a
better sample of the raw material. The company also implemented methods of
analysis for more accurate measurement of the fat content. For enhancing the
value of milkfat by offering it in powdered form, the cream powder production
technology was improved: AS Kalev Paide Tootmine added a homogenisator to the
production line, and renewed the powder transportation system to bring it into
line with the requirements for transporting more glutinous powder. The most
important development project focused on creating additional option for
valuation of skimmed milk and milk in the production of concentrate (as an
alternative to the drying technology), as well as creating loading options for
the concentrate.
4.4. 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 real estate activities, the group
bases the portfolio formation on the principle of conservatism. Quick
macro-economic changes in the market segment have no significant effect on the
group's economic results. 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 Private Partnership
for Tallinn Schools Project (the scheduled term of completion of three schools
was July 2008 and two schools December 2008).
The earlier real estate projects of AS Kalev REC have been further developed -
the company has sold all apartments in the 19-apartment building in Marati tänav
in Tallinn, as well as the 25-apartment building in Hommiku tänav in Pärnu. By
the time of preparation of this report, a detailed plan for the Ringi 56a real
estate owned by AS Kalev REC's associate OÜ Ringi Haldus has been completed,
permitting construction of a 4,600 m2 apartment building. Design work on the
building has already commenced. Detailed plans on Kalev REC's registered
immovables at Tervise 5 and Pärnu mnt 139 (legal share) have been completed in
the volume of the preliminary building design documentation.
In January 2008, Kalev REC concluded a real right contract on the acquisition of
10 apartment properties in the Tallinn Old Town (at Kinga 1). The transaction
price amounted to 77 million EEK, of which the buyer paid 15.4 million EEK prior
to the conclusion of the contract, and the remainder after the presentation of
the real right contract to the land registry department. Kalev REC has
established a combined mortgage on the acquired apartment properties in the
amount of 42 million EEK and 18.6 million EEK for the benefit of AS Hansapank.
AS Kalev REC's Bulgarian-based subsidiary EOOD Stude REC is about to complete
construction of the 6,500 m2 apartment building in Sofia. A permit for use of
the building will be applied by the end of 2008. Brokers have already been
appointed for the sale of the apartments (apartments have been on sale since
August 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. The Kalev Group's subsidiary involved in the
real estate segment is still eager to participate in various private partnership
projects.
4.5. Media
AS Kalev Meedia and its subsidiary OÜ Eesti Spordikanal are involved in three
segments: print media, Internet and television. AS Kalev Meedia publishes the
gossip magazine Just, the financial magazine Ärielu, sports magazines
Sporditäht, Basket and Jalka; the fashion and lifestyle magazines Avenüü and
Avenüü Professional, the IT magazine Praktiline Arvutikasutaja as well as the
children's magazines Muumi and Muumi Mõistatuste ja Värviraamat. These
publications had the following average print runs in the financial year: Just
13,300, Ärielu 5,000, Sporditäht 6,200, Basket 4,600, Jalka 6,900, Avenüü 7,400,
Avenüü Professional 1,400, Muumi 9,100, Muumi Mõistatuste- ja Värviraamat 5,000,
Praktiline Arvutikasutaja 4,000. At the same time, actual reader numbers are
remarkably bigger for these publications—according to the Estonian Media Survey
conducted by TNS Emor in the second quarter of 2008, Just had 41,000, Sporditäht
12,000, Avenüü 15,000, Muumi 14,000, Ärielu 5,000, Basket 7,000 and Praktiline
Arvutikasutaja 7,000 readers.
In the reporting period, the company upgraded the sports magazine Sporditäht.
With a new concept and under the supervision of a new editor-in-chief, the
magazine is published as a weekly since September 2007. To launch the new
product, the company organised an extensive advertising campaign. This was also
the first bigger public campaign for AS Kalev Meedia. Major changes were
introduced to the contents and format of the gossip magazine Just at the end of
2007. In February 2008, AS Kalev Meedia acquired the IT publication Praktiline
Arvutikasutaja, with Ando Urbas remaining as the editor-in-chief. AS Kalev
Meedia believes Praktiline Arvutikasutaja has great potential—the magazine can
be marketed to an even wider target group.
The company has also completed several bigger projects. In October 2007, a new
concept was developed for the financial magazine Ärielu. A new web-based news
portal, www.kalev.ee, was completed. In March 2008, the company introduced
changes in the design and functionality of the news portal with the aim of
making the portal more attractive and the contents more user-friendly for the
readers. According to the current statistics, the news portal had an average of
22,516 unique visitors per week, 74,477 per month.
The new sports-orientated news and entertainment channel KalevSport was launched
by AS Kalev Meedia's subsidiary OÜ Eesti Spordikanal on 12 November 2007.
According to the TV Audience Meter Survey conducted by TNS EMOR between 12
November 2007 and 30 June 2008 (target group: Estonian population over the age
of 4), the Daily Reach of Kalev Sport was 40,000, the Daily Reach % was 3.1 and
the Daily Share was 0.3%. A total of 446,000 people watched the Kalev Sport
channel in the period.
To create synergy between the different pursuits - print media, Internet,
telemedia - and ensure the consequent increase in content quality, cost
efficiency and competitiveness, the different editorial offices were brought to
AS Kalev Meedia's new premises at Tornimäe 5 in the heart of Tallinn. The
company also completed the photo studio in the reporting period. As of 30 June
2008, 119 people were employed in Kalev Group's media segment (including 82 in
AS Kalev Meedia and 37 in OÜ Spordikanal).
5. Securities
The shares of AS Kalev have been listed in the secondary list of the OMX Tallinn
Stock Exchange since 12 August 1996. The share has a nominal value of 10 EEK.
23,632,500 shares have been listed on the stock exchange (AS Kalev's share ISIN
number: EE3100002460; abbreviation: KLV1T).
In the period from 1 July 2006 to 30 June 2008, a total of 7.9 million shares of
AS Kalev were traded, generating a turnover of 222 million EEK (14.2 million
euros). An average of 7 transactions were made per trading day. The average
price for the period amounted to 24.46 EEK (1.56 euros) per share. The highest
price for the period was 31.29 EEK (2 euros), and the lowest price 17.32 EEK
(1.1 euros). The closing price as of 30 June 2008 was 24.25 EEK (1.55 euros) per
share. AS Kalev's market capitalisation increased a little more than 30%,
compared to the beginning of the period, amounting to 573 million EEK (36.6
million euros) as of 30 June 2008.
AS Kalev's biggest shareholders as of the end of the financial year 2007/2008
(i.e. on 30 June 2008) included Rubla AS (73.14% of the shares), Vipes Invest OÜ
(10%) and Moonrider OÜ (7.52%).
6. Organisation and personnel
6.1. Organisational management
Kalev Group's strategic management has been in accordance with the plan and in
line with the strategic choices. Consequently, the organisation adjusted to the
expansion into new segments, as well as the optimizing of its product portfolio
and enhancement of profitability. In order to facilitate the implementation of
its strategy, AS Kalev has made improvements in terms of better combining
strategic and operative planning and enhancing transparency.
The organisation has also expanded into a new segment - the media. To assure the
implementation of coordinated activity toward changes, a new Group company - AS
Kalev Meedia - was to take over the staff, assets and product management of the
media companies.
6.2. Human resource management
AS Kalev Group's personnel expenses reached to nearly 156, 2 million EEK (9,98
million EEK) and the average number of employees in the group was 1184.
Personnel expenses in terminative business activities amounted to 106 million
EEK (6.77 million EUR) and 881 people were employed in those segments. In the
previous comparative period personnel expenses were 123 million EEK (7,86
million EUR) and the average number employed in the Group was 879 people. The
significant increase in number of employees in Group is based on the rapid
development of media segment, however due to the restructuring in food industry
segment in the beginning of 2008, 42 employees were made redundant. During the
period of July 1, 2007 until June 30, 2008 altogether 58 employees were made
redundant from Kalev Group The compensation fee in amount of 1,3 million EEK
(0,08 million EUR) was paid. In the comparative period of the previous financial
year 15 employees were made redundant, who got compensation fee in amount of 0,7
million EEK (0,04 million EUR)
The significant increase in personnel expenses has been largely caused by the
need to offer competitive salary in Estonian labour market, which experienced a
rapid growth of salaries.
The company conducted 77 recruitment competitions and the staff turnover
amounted to 12,2%. With the growing tension between supply and demand on the
Estonian labour market, the staff turnover has not increased and compared to the
previous financial year the indicator has decreased. Due to restructuring of
process flows, the number of possible errors has been reduced and therefore
risks related to core activities decreased.
Among the biggest projects, installment of personnel-, working hours- and salary
accounting software combined with training, health and other components, was
completed. The upgraded system enables to prepare better surveys and reports,
and also gives better IT possibilities to promote personnel administration. The
system for giving instructions to blue-collar workers, for aptitude test, for
training and remuneration was developed in relation to the project “20 Võtit”
and will be implemented in AS Kalev Chocolate Factory in the next financial
year.
6.3. Quality management
AS Kalev Group companies pursue quality, thus continually contributing to
quality management. AS Kalev Paide Tootmine passed the ISO 2001:2000 regular
audit in previous financial year (the company holds the corresponding
BVQI-issued quality certificates). AS Kalev, who is expanding business areas has
waived itself from formal re-certification and ISO certificates, while
continuing the use of the quality management system, and further development
activities in the company.
7. Corporate Governance Recommendations
Exercising its management practices in legitimate manner, AS Kalev as a listed
company acts in accordance with Estonian legislation and the requirements of the
Tallinn Stock Exchange. AS Kalev acts in accordance with the following
principles: openness and the equal treatment of shareholders. The operative
information to the public and investors is delivered through the webpage of
Kalev Group: providing the users with all stock exchange news, financial
reports, historical background, information regarding production development,
affairs, campaigns etc. Since the group consist of several bigger subsidiaries,
the webpage also refers to relevant contact information. Kalev's webpage also
enables to register online orders from company's broad product portfolio and
send filled order to preferred place throughout Estonia.
The Management Board members, nominated by the parent company, are responsible
for operative management of business activities of the companies belonging to
the group. The Supervisory Board members are responsible for strategic
management of various business areas of the group. Outside of Estonia the
commercial customs are supervised by local management. Considering the small
number of management team, there has been no need for the establishment of
special committees or other supplementary management bodies. The internal
procedures necessary for the sustainable management of the group are regulated
by appropriate rules and prescriptions. The Management and the Supervisory Board
meetings are held on agreed regularity. Risk evaluation and risk management is
regularly performed by internal audit function and its findings are reported to
the management.
7.1. Corporate Governance Recommendations Report 2007
The purpose of the Corporate Governance Recommendations established by the OMX
Tallinn Stock Exchange and the Financial Supervision Authority (harmonized
version covering all three Baltic stock exchange since January 1, 2007) is to
change the activity and management of listed company more transparent, to point
out the rights of shareholders to get better distribution of information and
effective management of companies. In accordance with Corporate Governance
Recommendations (hereinafter “CGR”). Together with the annual report AS Kalev
presents also a report where the Management Board confirms their compliance with
the CGR or explains the reasons for non-compliance. AS Kalev has complied with
the CGR while preparing the annual report; however AS Kalev can not comply with
some points of the CGR arising from peculiarities of business of the company.
Following are the points mentioned and explanations for non-compliance:
2.2.1 ”The Management Board has more than one member and a Chairman is elected
amongst the members. The Management Board or Supervisory Board establish' the
area of responsibility for each member of the Management Board, defining as
clearly as possible the duties and powers of each board member. The principles
for co-operation between the members of the board is established. The Chairman
of the Supervisory Board concludes a service contract with each member of the
board.”
AS Kalev has a single manager, nominated by the Supervisory Board. With the
manager a service contract is concluded where also the duties, obligations and
responsibilities of the manager is defined.
The Management Board of majority of AS Kalev subsidiaries consist of two or more
members with whom respective service contracts have been concluded.
2.2.7 „Base wages, bonuses, resignation compensation, other payable benefits and
bonus schemes of each Management Board member as well as their essential
features are disclosed in clear and unambiguous manner on the website of the
Issuer and in the Corporate Governance Recommendations Report. Information
published is clear and unambiguous if it directly expresses the amount of
expense to the Issuer or the amount of foreseeable expense as of the day of
disclosure.“
The service fee of the Management Board member is received just by the manager
of AS Kalev according to the contract concluded with the Supervisory Board. The
Contract concluded with the manager of AS Kalev defines base wages (fixed amount
every month), however resignation compensations, bonuses or other additional
payments are not provided in the contract.
3.2.5 „The amount of remuneration of a member of the Supervisory Board is
published in the Corporate Governance Recommendations Report, indicating
separately base and bonus payments (incl. compensation for termination of
contract and other payable benefits).”
The Supervisory Board members of AS Kalev are as follows:
Heino Priimägi, who was nominated as a Supervisory Board member with the
resolution of AS Kalev shareholders on the General Meeting held on December 02,
2004;
Ülo Suurkask, whose authority as Supervisory Board member was prolonged until
December 2, 2009 according to the resolution of AS Kalev General Meeting held on
December 08, 2006;
Marko Kaha, who was nominated as a Supervisory Board member with the resolution
of AS Kalev shareholders on the General Meeting held on December 14, 2005.
Monthly salary (fixed amount in every month) has been decided to the members of
AS Kalev Supervisory Board (see Note 22). No additional payments or
supplementary compensations are paid to the Supervisory Board of AS Kalev.
5.3 ”General strategy directions of the Issuer as also approved by Supervisory
Board are accessible to the shareholders on the Issuer's website.”
The Management of the Group is on the opinion that strategy is a part of a
business secret and not a subject of disclosure. However, general directions and
material subjects are covered in the management report which is a mandatory part
of the annual report.
5.6 ”The Issuer discloses the dates and places of meetings with analysts and
presentations and press conferences organized for analysts, investors or
institutional investors on its website. The Issuer enables the shareholders to
participate on these events and discloses the presentations on its website. The
Issuer does not arrange meetings with analysts and presentations for investors
directly before deadlines of publishing financial reports”.
The group acts in accordance with the principle of equal treatment of
shareholders. Mandatory, important and price sensitive information is first and
foremost disclosed in Tallinn Stock Exchange system and then on company's
webpage. In addition, every shareholder has the right to receive information
from the company at their own convenience, and arrange meetings.
However, the management of the company does not prioritize keeping the time
schedules and content of shareholders' meetings since the information is limited
to public only. The same rule applies to all meetings, including those held
immediately before publishing the financial reports.
6.2. Election of the Auditor and auditing of the Financial Statements
On the Annual General Meeting of the shareholders of AS Kalev on December 20,
2007, an auditor was chosen for the financial period of 2007-2008. Based on the
shareholders decision, the financial statements of AS Kalev for the designated
period is audited by Ernst & Young Baltic AS. Information about the auditor is
obtainable on the auditor's website. Remuneration of the auditor is stated in
the audit contract and as agreed between the parties it is not disclosed.
According to the guidelines of the Financial Supervision Authority “Public
financial supervision over the rotation of auditors of certain persons.“ from
September 24, 2003, the company organizes the rotation of the auditor, assuring
the independence of the auditor and replacing the executive auditor at least
after every five years.
8. Main activity directions for the financial year 2007-2008
From different fields of activities of AS Kalev, the dairy production
development is executed by AS Kalev Paide Tootmine. Dairy production is mainly
influenced by developments on the world market and by positioning of company's
product portfolio. The goal of AS Kalev in this field is to keep expanding.
(e.g. well recognized companies of OÜ Põlva Piim Tootmine and AS Tere were
acquired after the end of the current financial year) and to become the biggest
dairy processor instead of being so called commodity-type producer. Performed
technical work to design the product portfolio of AS Kalev Paide Tootmine
creates additional possibilities to process fat and gives more opportunities to
increase export. AS Tere offers one of the broadest ranges of production by
having over 160 different products in its portfolio. OÜ Põlva Piim Tootmine has
already specialized on producing (commodity) dairy products for export. Afore
mentioned changes in consolidating dairy production result from the goal to
become competitive supplier of dairy products in all Baltic countries.
The development of the second segment in food production of Kalev group -
confectionary products - executed by AS Kalev Chocolate Factory. The aim is to
remain on the leader's position in domestic market in both the sugar and
chocolate confectionery segment and hold its position in the Baltic countries'
market. In general product development, the company is pursuing the extension of
expiry dates as well as the creation of healthy products and new flavours. In
the chocolate confectionery segment, the company will focus on developing
chocolate bars, chocolate candy and boxed chocolate candy. In the sugar
confectionery segment, the focus is lie on chewing candy and toffee. In the
pastry and flour confectionery sector, the main focus is on the domestic market,
where over two third of the production is realized. At the same time we can
detect potential in biscuit and flour mix export and therefore the attention in
the future will be put in afore mentioned product groups. The general product
development activity and equipment investments will support mainly the most
important product groups. The goal of expansion is to increase profitability,
improve export capacity, increase production efficiency and decrease the volume
of handwork by implementing new equipment. Assortment optimization supports the
profitability increase.
AS Kalev's real estate activities are pursued by AS Kalev REC and its
subsidiaries. The past 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 on residential and commercial space
development. In the future, the company plans to develop its activities in the
public sector real estate, including projects in the form of public-privat
partnership. AS Kalev has reassessed its operation strategy due to the sector
dynamics and the recent signals about the changes in the real estate sector.
Significant changes are taking place in media and event marketing sector, a new
field of activity for AS Kalev. It is planned to continue the development of
magazines (content and volume), increase the number of readers and sale of
advertisement. Recently a photo-studio was completed to provide publications
with operational and high-quality photo material. In addition to the current
activities, we are considering opportunities for expansion in media sector,
including the launch of a new publication. The development activities comprise
also internet news portal www.kalev.ee and television channel “Kalev Sport”
aiming to enhance their market position in media sector. In addition to focusing
on current television channel of news and sport, the development of media
segment is open also to other directions.
CONSOLIDATED INCOME STATEMENT
for the financial years ended June 30
--------------------------------------------------------------------------------
| | in thousand EEK | in thousand EUR* |
--------------------------------------------------------------------------------
| | 2008 | 2007 | 2008 | 2007 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Sales of goods (incl. sold | 1 326 241 | 917 616 | 84 762 | 58 646 |
| property recognized under | | | | |
| inventory) | | | | |
--------------------------------------------------------------------------------
| Sales revenue from services | 14 647 | 3 460 | 936 | 221 |
--------------------------------------------------------------------------------
| Rental income | 7 510 | 4 629 | 480 | 296 |
--------------------------------------------------------------------------------
| Total net sales | 1 348 398 | 925 705 | 86 178 | 59 163 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Cost of sales | -1 125 | -734 235 | -71 960 | -46 926 |
| | 928 | | | |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Gross profit | 222 470 | 191 470 | 14 218 | 12 237 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Other operating income | 206 807 | 106 731 | 13 217 | 6 822 |
--------------------------------------------------------------------------------
| Marketing expenses | -144 878 | -117 675 | -9 259 | -7 521 |
--------------------------------------------------------------------------------
| Administrative expenses | -116 207 | -87 221 | -7 427 | -5 574 |
--------------------------------------------------------------------------------
| Other operating expenses | -17 537 | -24 309 | -1 121 | -1 554 |
--------------------------------------------------------------------------------
| Operating profit | 150 655 | 68 996 | 9 629 | 4 410 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Financial income | 15 168 | 4 274 | 969 | 273 |
--------------------------------------------------------------------------------
| Financial expenses | -67 448 | -42 562 | -4 311 | -2 720 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Pretax profit | 98 375 | 30 708 | 6 287 | 1 963 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Income tax | -431 | -282 | -28 | -18 |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Net profit for the financial | 97 944 | 30 426 | 6 260 | 1 945 |
| year | | | | |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| net profit (loss) attributable | -5 | -34 | 0 | -2 |
| to minority interest | | | | |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| net profit (loss) attributable | 97 939 | 30 460 | 6 260 | 1 947 |
| to the shareholders of the | | | | |
| Parent | | | | |
--------------------------------------------------------------------------------
| Basic and diluted earnings per | 4.144 | 1.289 | 0.265 | 0.082 |
| share for net profit (loss) | | | | |
| attributable to the | | | | |
| shareholders of the Parent (in | | | | |
| EEK / in EUR) | | | | |
--------------------------------------------------------------------------------
* In accordance with the rules of Tallinn Stock Exchange, the main financial
statements are presented also in euro (EUR), which represents unaudited
supplementary information that does not form part of the Group's consolidated
financial statements.
CONSOLIDATED BALANCE SHEET
as of June 30
--------------------------------------------------------------------------------
| | in thousand EEK | in thousand EUR* |
--------------------------------------------------------------------------------
| | 2008 | 2007 | 2008 | 2007 |
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| ASSETS | | | | |
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| Current assets | | | | |
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| Cash and cash | 103 495 | 17 337 | 6 615 | 1 108 |
| equivalents | | | | |
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| Receivables | 170 678 | 148 050 | 10 908 | 9 462 |
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| Prepayments | 2 149 | 2 653 | 137 | 170 |
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| Inventories | 191 952 | 218 617 | 12 268 | 13 972 |
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| Total current assets | 468 274 | 386 657 | 29 928 | 24 712 |
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| Non-current assets | | | | |
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| Investment in | 30 629 | 129 | 1 957 | 8 |
| associates | | | | |
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| Long term financial | 382 673 | 3 604 | 24 457 | 230 |
| assets | | | | |
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| Investment | 335 990 | 214 601 | 21 474 | 13 716 |
| properties | | | | |
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| Property, plant and | 572 024 | 644 876 | 36 559 | 41 215 |
| equipment | | | | |
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| Intangible assets | 20 761 | 62 635 | 1 327 | 4 003 |
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| Total non-current | 1 342 077 | 925 846 | 85 774 | 59 172 |
| assets | | | | |
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| TOTAL ASSETS | 1 810 352 | 1 312 503 | 115 703 | 83 884 |
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| LIABILITIES AND | | | | |
| EQUITY | | | | |
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| Current liabilities | | | | |
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| Borrowings | 696 070 | 348 317 | 44 487 | 22 262 |
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| Customer prepayments | 18 584 | 1 461 | 1 188 | 93 |
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| Trade accounts | 304 817 | 284 439 | 19 481 | 18 179 |
| payable and other | | | | |
| payables | | | | |
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| Total current | 1 019 471 | 634 217 | 65 156 | 40 534 |
| liabilities | | | | |
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
| Non-current | | | | |
| liabilities | | | | |
--------------------------------------------------------------------------------
| Borrowings | 319 489 | 304 837 | 20 419 | 19 483 |
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| Total non-current | 319 489 | 304 837 | 20 419 | 19 483 |
| liabilities | | | | |
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| Total liabilities | 1 338 960 | 939 054 | 85 575 | 60 017 |
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| Equity | | | | |
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| Share capital | 236 325 | 236 325 | 15 104 | 15 104 |
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| Mandatory legal | 5 543 | 4 020 | 354 | 257 |
| reserve | | | | |
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| Revaluation reserve | 106 215 | 111 108 | 6 788 | 7 101 |
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| Retained earnings | 123 251 | 21 941 | 7 877 | 1 402 |
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| Equity attributable | 471 334 | 373 395 | 30 124 | 23 864 |
| to the shareholders | | | | |
| of the Parent | | | | |
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| Minority interests | 58 | 54 | 4 | 3 |
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| Total equity | 471 392 | 373 449 | 30 127 | 23 867 |
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| TOTAL LIABILITIES | 1 810 352 | 1 312 503 | 115 703 | 83 884 |
| AND EQUITY | | | | |
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* In accordance with the rules of Tallinn Stock Exchange, the main financial
statements are presented also in euro (EUR), which represents unaudited
supplementary information that does not form part of the Group's consolidated
financial statements.
Tarmo Maasikamäe
Financial Director
grupp@kalev.ee
tel 6886600
