SAKU ÕLLETEHAS

COMMENTARY TO FINANCIAL RESULTS



MANAGEMENT REPORT OF 2000



Operating Environment



In 2000, the following factors influenced the economic performance of the Saku

Brewery:



· Cool weather in summer and the resulting decrease of consumption during

  the main season.



· Increasing competition in the beer, mineral water, and non-alcoholic

beverages' market.



· Internationalisation of the activities of the enterprise.



· The activities of the enterprise as the sales representative of  PepsiCo

products in Estonia.



· Changes in Estonian legislation, the change of the Income Tax Act in

particular.



The overview of the market situation, the sales activities, and the results

have been provided under Market and Consumption.



In 2000, the Baltic cooperation of the enterprises belonging to the Baltic

Beverages Holding (BBH) became more active. The Saku Brewery contributed to

the cooperation by exporting to the other enterprises canned beer and

importing water and non-alcoholic beverages in the PET bottles.



In the reporting period ORKLA, the majority owner of the BBH, and Carlsberg

concluded an agreement to establish a new enterprise - the Carlsberg

Breweries. For the present moment this has also been reviewed and accepted by

the authorities. The objective of the alliance is to optimise the use of the

existing potential by increasing international cooperation.



Due to active realisation of the agreement between BBH and PepsiCo Inc

(assumption of the sales responsibility for the PepsiCo non-alcoholic

beverages marketing, as of January 1, 2000) and the vigorous entry into the

non-alcoholic beverages market, the Saku Brewery received new investments and

a compensation share  from PepsiCo Inc. Also, joint activities were conducted

in the purchase and sales of advertising services.



The following changes in Estonia's legislation have had a major effect on the

activities of the Saku Brewery:



· Entry into force of the new Income Tax Act on January 1, 2000, according

to which the enterprises do not have an obligation to pay taxes on income

earned and can reinvest their profits without taxation. However, complementary

taxation has been imposed on several expenses and activities at a considerably

higher rate than before. During the reporting period the Saku Brewery paid

such additional `cost taxes' of 1,178 kroons.  In addition, final income tax

is to be paid on dividends distributed (except dividends distributed to

resident legal persons). The amount of income tax payable on dividends may be

reduced using a co-efficient that is calculated as a ratio of aggregate income

tax paid and net profits earned in 1994-1999. The Saku Brewery may adjust the

amount of tax payable on dividends - the coefficient is 0.232 and, as of

December 31, 2000, the sum of retained earnings for 1994-1999 amounted to

102,723 thousand kroons.

  

· Another important legislative development has been the entry into force

of the Alcohol Excise Act on January 1, 2001. According to this law the

production of alcohol is possible only based on the excise warehouse

principle. The purpose of the Act is to harmonise the conditions of alcohol

production, warehousing, and distribution with the European legal acts to

provide for the free movement of alcoholic beverages in the EU. Several new

reporting and supervision requirements have been imposed on the activities of

the excise warehouse keeper. The Customs Board of Estonia has issued an

activity license to the Saku Brewery to operate an excise warehouse.



The consumer price index reflecting the consumption situation in Estonia grew

in 2000 on an average by 4% and in December 2000 by 5% in comparison to

December 1999.



The market value of the Saku Brewery was measured by the growth of the value

of its share by 14% (calculated as the ratio of the sales prices of the share

on the first and last stock exchange days of 2000).



During the reporting period the Saku Brewery operated as a parent company of

the group; however, no major activities took place in the subsidiaries AS Saku

Linnas (presently under liquidation) and Saku Keldri OÜ.







Market and Consumption



In 2000 the estimated size of Estonia's beer market was 87.8 million litres

which is 1% smaller than in 1999 (88.6 million litres). Imported beers

accounted for about 6.2 million litres or about 7%, thus representing a

decrease in relation to 1999 by three percentage points.



The Saku Brewery continued in 2000 as the leader of Estonia's beer market with

the total market share of 48%, thereby achieving its main objective. During

the reporting period the market share of the Tartu Brewery reached 31% and the

share of Viru Olu, the third brewery, was 9%.



Despite the increasing competition (an entry to the market of a major

competitor with renovated production facilities and an established trademark),

during the period the market share of the Saku Brewery decreased only by two

percentage points. The main reason for the decrease in the market share was

that the Saku Brewery did not follow the competitors into the heavy discount

campaigning of especially strong and cheap beer brands. The segment of the

very strong and cheap beers, although in the short run it allows to expand the

market share, has a negative effect on profitability of the enterprise.



The main product of the Saku Brewery-Saku Originaal-maintained in 2000 the

secure leader position in the beer market. According to a survey by Emor, it

continued to be the best known and most beloved beer brand of Estonia.



The estimated beer consumption per capita reached 64 litres. In 1999, the same

figure was 61 litres. However, there was no actual rise in the consumption of

beer-the difference between the two figures was caused by the reassessment of

the population number by the Statistical Office of Estonia.



The estimated size of the mineral water market was 23 million litres which was

on an average 10% bigger than in 1999 (21 million litres). The per capita

mineral water consumption reached about 16.5 litres, thus showing an increase

of 10% over 1999. In 2000 the Saku Brewery's mineral water brand Vichy

Classique also belonged among the most popular mineral waters of Estonia and

retained the second position in the market.



In 2000, the estimated size of Estonia's non-alcoholic beverages' market was

43 million litres. The per capita consumption of non-alcoholic beverages

amounted to 31 litres. The market share of PepsiCo, who started in 2000

practically from zero, amounted to 4%.



In the 2000, sales of beer, mineral water and soft drinks the more modest than

average results were caused by low consumption due to the worse than average

spring and summer weather.



The total sales of the Saku Brewery in 2000 amounted to 51.7 million litres

and remained on an average on the same level as in 1999 (51.6 million litres).

The sales volume of beers accounted for 45.9 million litres of the total sales

which is 1.7 million litres or  3% less than in 1999. The sales of mineral

water amounted to 3.5 million litres which is 0.4 million litres or 10% less

than in 1999. Good results were achieved in the new segment of soft drinks

where sales exceeded 2 million litres.



In 2000 the volume of exports of the original production of the Saku Brewery

reached 3.7 million litres and grew in comparison to the previous year by

23.3%. In the reporting period the exports of original production accounted

for 8% of the total sales of original production. The Saku Brewery exported

its production to Finland, Latvia, Lithuania, and the USA.



The share of imports in the total sales of the Saku Brewery in 2000 reached

5.8 million litres. In comparison to the previous year the increase was 38.1%

(1999 - 4.2 million litres) and it was achieved mainly due to the PepsiCo

beverages.









Economic Activities and Results



The net sales of the group amounted to 729,619 thousand kroons which was 2% or

14,579 thousand kroons bigger than the previous year's figure. The main

changes in the net turnover structure stem from changes in the product

portfolio: the share of imported beverages rose by 1.5 percentage points and

the share of services by 0.7 percentage points which respectively brought

about a decrease in the share of beers by 1.4 percentage points and the share

of bottles by 0.9 percentage points. The latter was brought about by a

decrease in returnable bottles and a rise in the use of disposable packaging.



The group's operating expenses amounted to 664,601 thousand kroons marking a

growth  of 4% or 23,496 thousand kroons whereas the ratio of operating

expenses to  operating income grew in the reporting period by 0.6 percentage

points over the previous period's results. In operating expenses the biggest

growth can be noted in  depreciation due to major investments made in recent

years and the re-classification of operating leases as  finance leases, and

the expenditures on advertising, additional materials and imported beverages

that supported the change in the product portfolio. The increase in labour

expenses was brought about by the need to ensure the competitiveness of the

enterprise on the labour market.



The operating income of the Saku Brewery amounted to 73,944 thousand kroons

and it decreased in relation to the previous year by 2,095 thousand kroons or

3%. The net profit for 2000 was 73,955 thousand kroons; the net profit per

share was 9.24 kroons and it grew by 21%.



The direct tax burden of the Saku Brewery in 2000 amounted to 220,567 thousand

kroons; whereas the alcohol excise payments totalled 129,798 thousand kroons.



Among the financial indicators reflecting the effectiveness of the economic

activities, a declining tendency was observable in the ratios relating to

assets, owners' equity, and net turnover as well as the liquidity ratios.

This shows that during the financial year assets and costs grew more quickly

than turnover and income.



As of December 31, 2000, the enterprise had 269 full-time employees. The

members of the Management Board were not compensated for their activities on

the board and, during the period reported, the compensations paid to the

members of the Council amounted to 100 thousand kroons.





Investments



The year 2000 was characterised by intensive investment activities. During the

period the Saku Brewery purchased tangible and intangible fixed assets of 60.8

million kroons and made financial investments of 10.6 million kroons. The

investments were completely financed with internal funds. Production-related

investments of 20.8 million kroons were directed at upgrading a boiling line

of the brew house, the yeast storage facility, raising the quality of yeast,

and renovating a part of the bottling line. Investments began in increasing

the capacity of the fermenting tanks.



29.9 million kroons were allocated to acquire marketing and sales support

equipment and equipment for long-term use. The financial investments, the

acquisition of the shares and bonds of AS Rocca al Mare Suurhall, have been

made with the future in mind and are related to ensuring the marketing and

sales rights. To upgrade the logistical solutions both in the area of

warehousing as well as in transport, the enterprise bought additional real

estate from the Saku Autobaas and tidied up the territory of the former Saku

Linnas. Total investments in this area amounted to 6.3 million kroons.



The computer systems were developed and the means of transportation were

acquired for 3.4 million kroons.





Ruth Roht

Public Relations Manager

+372 6 508 303