AS Kalev              Financial report            1.12.2005



AS Kalev 3 months interim report 2005/2006



Comments on financial results



Characteristic indicators for the first three months of the

financial year 2005/2006, compared to the same period in the

financial year 2004/2005:



                                                

in thousands of kroons and                      

euros

                                   %        EEK           EUR

Increase in revenue               31     53 261         3 404

Increase in revenue from          18     21 484         1 373

domestic market

Increase in operating             26      1 298            83

profit

Increase in revenue from          31     36 056         2 305

dairy products

Increase in revenue from          14     10 968           701

confectionery products

Increase in revenue from          24      3 910           250

pastry products

Increase in export of             53      1 360            87

confectionery products (to

Eastern Europe)



Kalev Group pursues three principal fields of activity:

chocolate and sugar confectionery product and baked goods

manufacturing and sale, dairy product manufacturing and

sale, and real estate development and administration. The

company manufactures its products at five production plants

located in Põrguvälja (in the vicinity of Tallinn), Paide,

Viljandi, Jõhvi and Kiviõli. AS Kalev also owns a pan-

Estonian retail chain, consisting of 13 candy stores and

cafes. The newest candy store was opened in the historic

market building in Rakvere at the beginning of November.



Kalev Group’s parent company is AS Kalev. In addition to the

parent company, the Group incorporates six subsidiaries. As

of 30 September 2005, AS Kalev had a significant interest in

the following companies:



Name of subsidiary      Location     As of        As of

                                  30.09.2005   30.09.2004

                                                          

AS Kalev Paide Tootmine   Estonia        100%         100%

AS Kalev Jõhvi Tootmine   Estonia       99.1%        99.1%

AS Vilma                  Estonia      60.67%       60.67%

AS Kalev Real Estate      Estonia        100%        59.3%

Company (AS Kalev REC)

OÜ Maiasmokk              Estonia      81.26%       81.26%

AS Kalev Merchant             USA        100%         100%

Services



In the first quarter of the financial year 2005/2006, Kalev

Group employed an average of 783 people. The shares of AS

Kalev have been listed on the Tallinn Stock Exchange since

1996.





1. Economic activities and financial results



Consolidated net sales and net profit in the first quarter

of the financial year 2005/2006 (by group companies; in

thousands of kroons):



                    Net sales                Net profit

              2005/2006    2004/2005   2005/2006    2004/2005

             1st quarter  1st quarter 1st quarter  1st quarter

                                                              

AS Kalev          87 159       79 371      -1 708       -7 532

AS Kalev         119 841       93 967     - 4 571        2 089

Paide

Tootmine

AS Kalev REC      14 986       13 806       7 908        7 491

AS Kalev           8 385       10 712         -56       -2 518

Jõhvi

Tootmine

OÜ Maiasmokk       1 787        1 558        -103           68

AS Vilma          10 083       10 095       1 047          832



The consolidated net sales of AS Kalev Ltd for the first

three months of the financial year 2005/2006 amounted to 228

169 thousand kroons (14 583 thousand euros) - a 30.5%

increase, compared to the same period last year (2004/2005:

174 908 thousand kroons - i.e. 11 178 thousand euros). The

31% increase in revenue from dairy products was the main

contributor to the increase in AS Kalev’s consolidated net

sales. At the same time, revenue from confectionery products

increased by 14%.



In the first quarter of the financial year 2005/2006, the

company earned 623 thousand kroons (40 thousand euros) in

consolidated net profit. In the first three months of the

last financial year, the company earned 52 thousand kroons

(4 thousand euros) in net profit. The financial indicators

of a majority of the group companies improved in the given

period. Among other things, AS Kalev succeeded in decreasing

its loss (see the above table). This was conditioned, on the

one hand, by enhanced production efficiency and product

portfolio optimization, and, on the other hand, by increase

in the export of confectionery products to Russia (53%) and

in the sale of confectionery products on the home market

(4%). AS Kalev Paide Tootmine showed the biggest decrease in

net profit in the first three months of the financial year,

compared to the same period last year (see the above table).

The loss suffered by the above company was conditioned by

unprofitable (i.e. high-priced) raw milk supply agreements

that were concluded with milk producers and will expire on

31 December 2005. These agreements were concluded at the end

of the last calendar year amid expectations of a price

increase on the European market. Unfortunately, the price of

dairy products failed to rise to the forecast level.



The 18.1% increase in the company’s marketing expenses in

the first three months of the financial year 2005/206 was,

above all, conditioned by the expanded product assortment

and tightening competition on the end-consumer market.



The 4 597-thousand-kroon increase in other operating items

in the given period were mostly conditioned by the

revaluation of real estate to its fair value, as well as

reduction of provisions to AS Kalev Paide Tootmine at the

end of the financial year 2004/2005. The provision was

established in order to cover the potential loss which is

liable to arise due to the unfavourable market situation and

raw milk buying-in contracts until December 2005. In the

first quarter of the financial year, the provision was

reduced proportionally with the period by increasing "Other

operating items".



Administrative expenses decreased by 16.6% in the given

period, compared to the same period last year. This was,

above all, conditioned by changes in the group structure.



In the financial year 2004/2005, Kalev Group employed an

average of 783 people. The group companies employed an

average of 826 people in the same period last year.



The most important financial ratios of Kalev Group:



                                     Group

                           01.07.2005-    01.07.2004-

                           30.09.2005     30.09.2004

Current ratio              0.66           0.88

Debt ratio                 0.29           0.25

Asset turnover ratio       0.71           0.61

Net profit margin (%)      0.5%           0.2%

Return on assets (%)       0.1%           0.1%



The ratios are calculated based on the following methods:



Current ratio: current assets / current liabilities

Debt ratio: total liabilities / balance sheet total

Asset turnover ratio: revenue / average total assets

Net profit margin: net profit / revenue * 100%

Return on assets: net profit / average total assets * 100%





2. Product market and sales



2.1. Confectionery products



AS Kalev retains its position as the leader of the Estonian

chocolate and sugar confectionery market. According to the

retail survey conducted by AC Nielsen Eesti, AS Kalev’s

market share was 43% in August-September 2005, as regards

chocolate confectionery and sugar confectionery products. In

the biscuit sector, the company’s market share was 14% in

the same period.



Product development is still considered a priority by AS

Kalev. The company aims at developing and launching new and

innovative products by considering the needs of the

consumers on the home and foreign markets. In the given

period, the company focused its marketing and sales

activities on the launch of the Christmas collection, which

contains 70 product items, and preparation of the

accompanying sales campaign.



As a result of active product development, the following new

products in the standard assortment were launched on the

market in the given period. The newest addition to the

Draakon chews family is the apple-flavoured Draakon; in

addition the company started selling strawberry, blueberry

and apple-flavoured Draakon chews in 16.5-gram mini-packs.

The gift box Collection series was improved with an

assortment of handcrafted candies - the 220-gram Classic

Collection. The company also introduced a new series of

pralines by launching the first product in the series:

marzipan praline. These products are to be marketed as bulk

goods as well as in 150-gram mini-packs.



In the given period, the company also refreshed its candy

packages. Five classic candies - the marmalade candies Lily

and Tiina, pralines Kalev and Oravake and wafer candies

Tallinn - will, from now on, be more distinctive and bear a

more recognisable product trademark. Other candies received

new matching packages. The popular AS Vilma flour mix

package was also updated in the given period.



2.2. Dairy products



The volume of raw milk stocked by AS Kalev Paide Tootmine

increased by 61% in the first quarter of the financial year

2005/2006, compared to the same period last year. Raw milk

was mostly used for producing whole milk and skimmed milk

powder, cream and butter. The output was marketed mainly in

EU countries.



The price of dairy products increased on the global market

in 2005. The European Commission lowered the export

subsidies in response to the price increase on the global

market - for instance, the export subsidies for butter,

skimmed milk and whole milk powder in the 1st quarter of the

financial year were, respectively, 30%, 60% and 26% lower,

compared to the same period last year. Export subsidies were

lowered together with intervention prices (last on 1 July

2005). As the export subsidies dropped, prices on the EU

market dropped as well. For instance, the wholesale price

for German whole milk has dropped by 5% and butter by 9%.

The price of skimmed milk powder is almost on par (1% drop)

with that in the same period last year.



Increase in the price of heat energy (as a result of the

increase in the price of shale oil) has also incurred

additional costs upon dairy product processing. As a result

of the high buying-in prices for raw milk in Estonia, and a

drop in the market price of dairy products, the

profitability of the dairy industry has decreased. The

results are evident in the financial indicators of AS Kalev

Paide Tootmine.



2.3. Product sales



Kalev Group’s total confectionery and dairy product sales

amounted to 8 200 thousand tons in the first three months of

the financial year 2005/2006, having grown by 25% times,

compared to the same period last financial year. 60% was

sold on the home market; 40% was exported.



Kalev Group sold a total of over 1 400 tons of confectionery

products (incl. chocolate and sugar confectionery products)

in the given period - an increase of 3%, compared to last

year. The home market constituted 81% of the total sales of

confectionery products; 19% of the sales were exported. In

the given period, the Baltic States remained the group’s

main export targets. In addition to the above countries, the

company also exported its products to the Scandinavian

countries, Russia and the United States. Export of

confectionery products to Ukraine was reopened on a smaller

scale.



Kalev Group’s baked goods (incl. pastry products and

biscuits) sales amounted to 2 800 tons in the first three

months of the financial year 2005/2006, having grown by 22%,

compared to the same period last financial year. These

products were mostly sold at home.



Kalev Group sold over 3 900 tons of dairy products (incl.

skimmed milk and milk powder, high-temperature pasteurised

milk and butter) in the given period - nearly a 36%

increase, compared to the same period in the financial year

2004/2005. Over a half (i.e. 77%) of the sales volume was

exported to various EU countries.





3. Real estate activities



AS Kalev Real Estate Company (AS Kalev REC), Kalev Ltd's

subsidiary involved in real estate administration and

management, continued its operations on the public real

estate market (both residential and commercial premises) in

the first three months of the financial year 2005/2006.

Major projects included construction of the new office

building in Tallinn (the so-called "Tere building"), and new

apartment buildings in Tartu (the so-called "Mesikäpa

buildings").





INCOME STATEMENT (consolidated, unaudited)

in thousands of kroons and euros



                  Consolidated (in EEK)   Consolidated (in EUR)

                  01.07.2005- 01.07.2004-  01.07.2005  01.07.2004-

                  30.09.2005  30.09.2004   30.09.2005  30.09.2004

                                                                                              

Net sales            228 169     174 908     14 583       11 178

Cost of sales       -189 510   - 133 268    -12 112       -8 517

                                                                

Gross profit          38 659      41 640      2 471        2 661

                                                                

Marketing            -21 866     -18 516     -1 397       -1 183

expenses

Administrative       -15 279     -18 311       -977       -1 170

expenses

Other operating        3 518      -1 079        225          -69

expenses

                                                                

Operating              5 032       3 734        322          239

profit

                                                                

Other financial       -3 974      -3 365       -254         -215

income and

expenses

                                                                

Net profit             1 058         369         68           24

(loss) for the

financial year

incl. the share          623          52         40            4

of the owners

of the parent

company

 incl. the               435         317         28           20

share of

minority

shareholders

Net profit per          0,03        0,01       0,00         0,00

share held by

the owners of

the parent

company (basic

and diluted; in

kroons and

euros)





BALANCE SHEET (consolidated, unaudited)

in thousands of kroons and euros



                   Consolidated (in EEK)   Consolidated (in EUR)

ASSETS            30.09.2005  30.06.2005   30.09.2005  30.06.2005



Current assets                                       

Cash and cash          2 179       5 708        139          365

equivalents

Receivables          119 393     114 860      7 631        7 341

Prepayments            1 435       1 367         92           87

Inventories          123 216     106 541      7 875        6 809

Total current        246 223     228 476     15 737       14 602

assets

                                                                

Non-current                                                     

assets

Investments                0           0          0            0

into

subsidiaries

Long-term              5 136       5 116        328          327

receivables

Investment           217 515     200 578     13 902       12 819

property

Property, plant      345 951     347 316     22 110       22 198

and equipment

Intangible                60          79          4            5

assets

Total non-           568 662     553 089     36 344       35 349

current assets

TOTAL ASSETS         814 885     781 565     52 081       49 951

                                                                

LIABILITIES AND                                                 

OWNER’S EQUITY

Current                                                         

liabilities

Borrowings           109 572     119 416      7 003        7 632

Prepayments            2 575       3 925        165          251

received from

customers

Accounts             257 525     233 426     16 458       14 918

payable and

other payables

Provisions             2 500       5 000        160          320

Total current        372 172     361 767     23 786       23 121

liabilities

                                                                

Total non-                                                      

current

liabilities

Borrowings           204 800     183 035     13 089       11 698

Total non-           204 800     183 035     13 089       11 698

current

liabilities

Total                576 972     544 802     36 875       34 819

liabilities

                                                                

Minority               9 133       8 606        584          550

interest

                                                                

Owner’s equity                                                  

Share capital        236 325     236 325     15 104       15 104

Mandatory              4 020       4 020        257          257

reserve

Revaluation            8 669       8 669        554          554

reserve

Retained             -20 234     -20 857     -1 293       -1 333

earnings

Total owner’s        228 780     228 157     14 622       14 582

equity

TOTAL                814 885     781 565     52 081       49 951

LIABILITIES AND

OWNER’S EQUITY







Ruth Roht

PR manager

+372 6 077 858