AS Kalev                    FINANCIAL RESULTS              01.09.2005



12 MONTHS INTERIM REPORT 2004/2005



COMMENTS ON FINANCIAL RESULTS



Kalev Group pursues three principal fields of activity:

confectionery product manufacturing and sale, dairy product

manufacturing and sale, and real estate development and

administration. In addition to the parent company, AS Kalev,

the Group includes six subsidiaries: AS Kalev Paide Tootmine,

AS Kalev Jõhvi Tootmine, AS Kalev Real Estate Company (AS Kalev

REC), AS Vilma, OÜ Maiasmokk and Kalev Merchant Services Ltd.



The financial indicators of Kalev Ltd and its subsidiaries have

been consolidated line by line in this report. 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. The comparative data have not been adjusted, since

the financial indicators of the subsidiary have no significant

influence on those of the Group.





1.   Economic activities and financial results



Characteristic indicators for the financial year 2004/2005,

compared to the same period in the last financial year:



·    Increase in consolidated revenue: 1.3 times (218 million

     kroons – i.e. 13.9 million euros);

·    Decrease in consolidated net profit: 58 million kroons –

     i.e. 3.7 million euros;

·    Increase in sugar and chocolate confectionery product

     revenue: 1.2 times (46.8 million kroons – i.e. 2.9 million

     euros);

·    Increase in export revenue: 3.8 times (276 million kroons

     – i.e. 17.7 million euros);

·    Increase in revenue per employee: 1.1 times (0.05 million

     kroons – i.e. 3.6 thousand euros);

·    Increase in confectionery products sold (chocolate and

     sugar confectionery products, baked goods, biscuits): 1.7 times

     (5,600 tons);

·    Dairy products sold: 14,333 tons (409 million kroons –

     i.e. 26.1 million euros);

  



Consolidated net sales and net profit for the financial year

2004/2005 (by group companies):



                           Net profit             Net sales

                      2003/2004   2004/2005     2003/2004   2004/2005

Group                17 184 663 -41 048 415   624 212 816   842 550 341

Kalev Ltd            14 933 856 -29 919 868   436 046 952   384 560 830

AS Kalev Paide       -9 557 945 -26 073 355   124 450 197   396 176 378

Tootmine

AS Kalev Jõhvi       -1 061 712 -6 839 950     10 887 489    10 695 566

Tootmine

AS Kalev REC         13 874 440 23 919 993     50 856 287    17 522 716

AS Vilma                         1 849 928                   28 172 124

OÜ Maiasmokk            -59 190 -2 001 490      1 769 528     5 422 726





Consolidated net sales of Kalev Ltd for the financial year

2004/2005 amounted to 842.6 million kroons (i.e. 53.8 million

euros)— a 35% increase, compared to the same period last year

(2003/2004: 624.2 million kroons – i.e. 39.9 million euros).



Increase in the turnover generated by the subsidiary AS Kalev

Paide Tootmine was a major contributor to the increase in the

consolidated net sales of Kalev Ltd. So was the incorporation

of the new subsidiary AS Vilma under Kalev Group in July 2004.



In the financial year 2004/2004, the company’s consolidated net

loss amounted to 41 million kroons (2.6 million euros), while

in the comparative period, the company earned 17.2 million

kroons (1.1 million euros) in net profit. The net loss of Kalev

Ltd corresponded to the company’s expectations. Kalev has

developed strategic plans, and started pursuing the established

goals in order to bring the company out of the red.



The following factors contributed to the company’s negative

results in the financial year 2004/2005:



1.   significant raw material price increase (sugar, nuts and

     almonds, crude milk);

2.   dairy product price drop on the EU market;

3.   extraordinary expenses related to the integration of a new

     subsidiary under Kalev Group, as well as continuing the

     integration of previously acquired subsidiaries;

4.   extraordinary expenses related to the relocation of the

     caramel factory, and its launch in the new plant complex;

5.   increase in consumption of energy, water and sewerage

     services; fuel price increase;

6.   increase in product development expenses;

7.   decrease in export revenue.



The main contributor to the company’s loss was the threefold

increase in the price of sugar – the most important raw

material – after Estonia’s accession to the European Union in

May 2004. The price of yet another major raw material group –

nuts, almonds – continued to grow on the world market as well.

For instance, the world market price of nuts has increased four

times, compared to the middle of 2003, while the price of

almonds has doubled in the last few years. This has been caused

by both poor harvest in the countries of origin, and political

factors.



As a result of the increase in raw material prices, the company

has reviewed its confectionery product recipes, and brought the

profitability of the product portfolio into line with the

increased prices of raw materials. The company has also

developed and launched new chocolate and sugar confectionery

products in order to enhance its competitive ability. The above

actions taken by the company resulted in a 65.3% increase in

product development expenses in the financial year under

review, compared to last year. The increase in product

development and other marketing expenses is the result of the

company’s pursuit of future growth in profitability.



The dairy sector was characterised by the following trends. The

price of raw material continued to rise on the local market in

the given period. After its sudden increase at the end of 2003

(average buying-in price for 2003: 2,880 kroons per ton), the

milk buying-in price in Estonia increased a further 6% – from

the 3,820 kroons/ton (in the 1st quarter of 2004) to 4,050

kroons/ton (average price for the 1st quarter of 2005). At the

same time, old EU members experienced the opposite trends – the

average milk buying-in price dropped in both 2004 and 2005. The

milk price in Estonia has more or less levelled with that of

the EU countries by today.



The EU market regulation measures implemented for the purpose

of supporting the dairy sector (namely, the drop in the buying-

in price of butter and skimmed milk powder) also contributed to

the drop in the price of milk. Since July 2004, intervention

buying-in prices for butter and skimmed milk powder have

dropped by 7% and 5%, respectively. Due to the stability of

world market prices, subsidies granted for export to third

countries have continually been reduced. As the year’s end is

the high season for the dairy product market, the effects

related to the drop in intervention buying-in prices could not

be seen until the beginning of 2005. The milk powder price

dropped by 3% and the butter price by 6% on the EU market in

the first half-year of 2005, compared to the same period last

year. Since Kalev Ltd’s subsidiary AS Kalev Paide Tootmine

exports most of its output to EU countries, the low prices

prevailing on the dairy product market had a significant effect

on the decrease in the Group’s profit. AS Kalev Paide Tootmine

will continue focusing on developing partner relations with

customers, enhancing efficiency and establishing a long-term

partnership with milk producers.



Kalev Group saw further expansion in the financial year

2004/2005, incorporating the Viljandi-based bakery AS Vilma.

Integration of this new subsidiary under the Group, as well as

the continuing integration of previously acquired subsidiaries

resulted in extraordinary expenses for the company. Above all,

these expenses were related to integration of the production,

sale and logistics systems, and other areas.



Launch of the Põrguvälja plant building, which was completed at

the end of 2003, turned out to be more costly than initially

estimated. This was conditioned by bigger energy and sewerage

expenses. In the summer of 2004, Kalev Ltd’s caramel factory

was relocated to the new plant complex. The relocation and

launch of the factory incurred 7.8 million kroons (0.5 million

euros) in extraordinary expenses.



The overall market situation of the period, characterised by

tightening competition on the local baked goods and

confectionery product market and the general retail market, can

be brought out as one of the contributors to the company’s

loss. The tightening competition after accession to the EU is

the result of the enhanced activities of producers in EU

countries. Despite the customs duties that have come into

effect, Ukrainian and Russian products are still strongly

represented on the local sweets market, especially in border

regions. At the same time, the Kalev trademark has maintained

its prominent position in Estonia. The company has a strong

position on the local confectionery product market.



The company’s export revenue decreased in the given financial

year. This was conditioned by Estonia’s accession to the

European Union, and the resulting establishment of double

customs duties for trade with third countries. As a result,

Kalev Ltd suspended export of its products to the Ukrainian

market.



The 23.3% increase in marketing expenses was mainly due to

incorporation of new subsidiaries in the Kalev Group in the

given period. The expanded product assortment and the

tightening competition on the end-consumer market also

contributed to the growth in marketing expenses.



General and administrative expenses grew by 12.2% in the given

period. Above all, this was conditioned by turnover increase in

the group companies, and incorporation of the new subsidiary AS

Vilma.



The 47.2% decrease in the revenue for the financial year

2004/2005 was affected by real estate transactions, the volume

of which was significantly smaller than that of transactions in

the comparative period.



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

average of 802 people—a 12.5% increase, compared to the same

period last year. This change was mainly due to incorporation

of the employees of the AS Vilma among the Group staff in the

given financial year.



In the financial year 2004/2005, the Tax and Customs Board

(TCB) conducted an audit of Kalev Ltd, inspecting the company’s

sugar reserve and its declaration thereof. As a result, the TCB

Northern Regional Tax Centre presented Kalev Ltd with a decree

on the discovery of carryover stock and excessive stock reserve

on 17 June 2005. The company contested the TCB decree, and

filed a complaint with the Tallinn Administrative Court,

requesting annulment of the above decree of the TCB Northern

Regional Tax Centre, validation of the nullity of the decision,

and non-application of the Excessive Stock Reserve Fees Act

with respect to the company due to contradiction with the

Constitution. Kalev Ltd maintains that the company’s sugar

reserve declaration was correct, and the company did not own or

possess, as of 1 May 2004, the 15.6 thousand tons of sugar

reserves deemed excessive by the TCB.





3.   Product market and sales



3.1. Chocolate and sugar confectionery products



Kalev Ltd retained its strong position as the leader of the

Estonian chocolate and sugar confectionery market in the given

financial year. According to the retail survey conducted by AC

Nielsen Eesti, Kalev Ltd’s market share was 44% in June/July

2005 as regards chocolate and sugar confectionery products.



The Estonian chocolate and sugar confectionery market was

characterised by stable growth in 2004/2005. Above all, this is

related to the development of local retail trade business.

Kalev Ltd succeeded in keeping pace with market growth in the

important segments – e.g. chocolate bars, candy, etc.



Similarly to recent years, the share of sweets of a lower price

category increased on the local market in the given period.

With the aim of strengthening its position in the sector, the

company launched a new product series under the Sonja trademark

at the beginning of 2004. So far, Kalev Ltd’s products have had

a higher quality and price on the Estonian market, and product

development in products of lower price categories had been

minimal.



As regards marketing activities, the company maintained its

focus on product development in the financial year 2004/2005.

Kalev launched new products in both the chocolate confectionery

sector and the sugar confectionery sector. In addition to the

mentioned Sonja product series, Kalev Ltd launched chocolate-

coated cocoa-flavoured praline candies, the gift boxes Athena

and Toompea, double-layered praline candy sticks and candies,

blueberry-flavoured Draakon chews and candy sticks Õunasuflee

and Rixx.





3.2. Baked goods



In the given period, Kalev Ltd brought the cookie series

manufactured by AS Kalev Jõhvi Tootmine under the Kalev

trademark, and modernised several of that producer’s dark bread

and white bread packages. New products launched at the market

included Mesikäpp, Tähekesed and the two-flavoured

Nisukliiküpsised (wheat bran) cookies.



According to the retail survey conducted by AC Nielsen Eesti,

Kalev Ltd’s market share was 14% in June/July 2005 as regards

cookies.





3.3. Dairy products



As Kalev Paide Tootmine significantly (more than four times)

increased the output volume of its dairy products in the given

period. Skimmed milk, milk powder, cream and butter all showed

growth in production volume. High-temperature pasteurized milk

(UHT milk) was also produced, in a smaller volume. The share of

outsourced services decreased abruptly in the given period. The

company started using the stockpiled raw material to

manufacture goods on its own.





3.4. Product sales



Kalev Group’s total confectionery and dairy product sales

amounted to over 28 thousand tons in the financial year

2004/2005, having grown by 2.2 times, compared to the last

financial year. 52% was sold at the home market; 48% was

exported.



Kalev Group sold a total of over 6,300 tons of confectionery

products (incl. chocolate and sugar confectionery products) in

the given period—a decrease of 9%, compared to last year. The

home market constituted 85% of the total sales of confectionery

products; 15% of the sales were exports. 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.



Kalev Group’s total flour confectionery product (incl. baked

goods and biscuits) sales amounted to over 7,600 tons in the

financial year 2004/2005. Most of the output was sold at the

home market. In the comparative period, the company was not

actively involved in the flour confectionery product sector.



Kalev Group sold over 14,300 tons of dairy products (incl.

skimmed milk and milk powder, high-temperature pasteurised milk

and butter) in the given period – nearly a fourfold increase,

compared to the financial year 2003/2004. Over half (i.e. 62%)

of the sales volume was exported to various EU countries.





4.   Real estate activities



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

subsidiary involved in real estate administration and

management, was initially established for the purpose of

organising the construction of Kalev Ltd’s new plant building,

as well as developing the 30-hectare Põrguvälja real estate in

Rae parish in Harju county. Administration and development of

Kalev Ltd’s real estate located at Pärnu mnt 139 in Tallinn was

the secondary purpose.



As of today, AS Kalev REC has aggressively entered the so-

called public real estate market, and launched active

development operations in both the housing sector and the

commercial space sector. Ongoing projects include construction

of new apartment buildings at Kastani 183a and 183b in Tartu

(the so-called “Mesikäpa buildings”), and the office building

at Pärnu mnt 139c in Tallinn (the so-called “Tere building”).

Housing development projects have also been initiated at

Tervise 5, Järvevana tee 3 and 3a, and Marati 4 in Tallinn.







Balance sheet

consolidated, unaudited



                  Consolidated  Consolidated Consolidated  Consolidated

                                             

ASSETS            30.06.2005    30.06.2004   30.06.2005   30.06.2004

CURRENT ASSETS    EEK           EEK          EUR          EUR

CASH AND BANK        7 598 835     2 780 382     485 654       177 699

ACCOUNTS

RECEIVABLES         87 463 259   206 221 734   5 589 921    13 179 971

PREPAID EXPENSES    20 548 186     3 024 730   1 313 268       193 315

INVENTORIES        100 492 523    85 073 277   6 422 643     5 437 173

TOTAL CURRENT      216 102 802   297 100 122  13 811 486    18 988 159

ASSETS

                                                                      

NON-CURRENT                                                           

ASSETS

LONG-TERM            2 471 015       330 180     157 927        21 102

FINANCIAL

INVESTMENTS

MISCELLANEOUS        2 471 015       330 180     157 927        21 102

LONG-TERM

RECEIVABLES

PROPERTY, PLANT    343 857 657   351 168 558  21 976 510    22 443 761

AND EQUIPMENT

REAL ESTATE        201 625 752    58 054 766  12 886 234     3 710 376

INVESTMENTS

INTANGIBLE              78 762    -9 017 055       5 034      -576 295

ASSETS

TOTAL NON-         548 033 186   400 536 450  35 025 704    25 598 945

CURRENT

ASSETS

                                                                      

TOTAL ASSETS       764 135 988   697 636 571  48 837 191    44 587 103

                                                                      

LIABILITIES AND                                                       

OWNER’S EQUITY

                                                                      

LIABILITIES                                                           

CURRENT            120 403 672   109 628 402   7 695 197     7 006 532

LIABILITIES

PREPAYMENTS FROM     3 924 812     3 416 983     250 841       218 385

CUSTOMERS

SUPLIER PAYABLE    213 235 732   165 615 804  13 628 247    10 584 779

TAXES PAYABLE                        527 594           0        33 719

OTHER PAYABLES       9 407 459    37 145 927     601 246     2 374 057

TOTAL CURRENT      346 971 675   316 334 709  22 175 532    20 217 473

LIABILITIES

                                                                      

LONG-TERM          183 868 465   123 323 114  11 751 337     7 881 784

LIABILITIES

TOTAL NON-         183 868 465   123 323 114  11 751 337     7 881 784

CURRENT

LIABILITIES

TOTAL              530 840 140   439 657 824  33 926 868    28 099 256

LIABILITIES

                                                                      

OWNER’S EQUITY                                                        

SHARE CAPITAL      236 325 000    78 775 000  15 103 920     5 034 640

REVALUATION         18 628 043    17 159 388   1 190 549     1 096 685

RESERVE

MANDATORY            4 020 204     3 160 971     256 938       202 023

RESERVE

RETAINED            10 231 636   141 514 656     653 921     9 044 435

EARNINGS

PROFIT FOR THE     -41 048 415    17 184 663  -2 623 472     1 098 300

FINANCIAL

YEAR

MINORITY             5 139 380       184 070     328 466        11 764

INTEREST

TOTAL OWNER’S      228 156 468   257 794 678  14 581 856    16 476 083

EQUITY

                                                                      

TOTAL              764 135 988   697 636 571  48 837 191    44 587 103

LIABILITIES AND

OWNER’S EQUITY







Income statement

consolidated, unaudited



             Consolidated  Consolidated   Consolidated  Consolidated

      

              01.07.2004-   01.07.2003-   01.07.2004-  01.07.2003-

              30.06.2005    30.06.2004    30.06.2005   30.06.2004

              EEK           EEK           EUR          EUR

NET SALES      842 550 341  624 212 816   53 848 781    39 894 470

                                                                  

COST OF        708 128 828  486 836 727   45 257 681    31 114 538

GOODS SALES

                                                                  

GROSS PROFIT   134 421 513  137 376 089    8 591 100     8 779 932

                                                                  

MARKETING       88 070 076   71 422 289    5 628 704     4 564 716

EXPENSES

ADMINISTRATIVE  77 333 362   68 942 074    4 942 503     4 406 202

AND GENERAL

EXPENSES

OTHER           24 837 075   47 075 080    1 587 378     3 008 646

OPERATING

INCOME

OTHER           16 796 066   14 226 567    1 073 464       909 243

OPERATING

EXPENSES

                                                                  

OPERATING      -22 940 916   29 860 239   -1 466 192     1 908 417

PROFIT

                                                                  

FINANCIAL          933 454    2 166 626       59 659       138 473

INCOME

FINANCIAL       17 768 816   14 865 495    1 135 634       950 078

EXPENSES

                                                                  

PROFIT         -39 776 278   17 161 371   -2 542 167     1 096 811

BEFORE

INCOME TAX

                                                                  

MINORITY        -1 272 137       23 292      -81 304         1 489

INTEREST

                                                                  

NET PROFIT     -41 048 415   17 184 663   -2 623 472     1 098 300

                                                                  

EARNINGS PER         -1,74         2,18        -0,11          0,14

SHARE





Income statement (4th quarter)

consolidated, unaudited



              Consolidated  Consolidated Consolidated  Consolidated

                           

              01.04.2005-   01.04.2004-   01.04.2005-   01.04.2004-

              30.06..2005   30.06.2004    30.06..2005   30.06.2004

               EEK          EEK            EUR          EUR

NET SALES      231 121 890  292 004 790    14 771 381   18 662 508

                                                                  

COST OF GOODS  218 200 872  275 446 151    13 945 577   17 604 218

SALES

                                                                  

GROSS PROFIT    12 921 018   16 558 639       825 804    1 058 290

                                                                  

MARKETING       25 184 482   28 781 582     1 609 582    1 839 478

EXPENSES

ADMINISTRATIVE  25 469 115    3 510 242     1 627 773      224 345

AND GENERAL

EXPENSES

OTHER            5 871 866   14 389 957       375 281      919 686

OPERATING

INCOME

OTHER            9 384 802   -1 109 090       599 798      -70 884

OPERATING

EXPENSES

                                                                  

OPERATING      -41 245 515     -234 138    -2 636 069      -14 964

PROFIT

                                                                  

FINANCIAL          385 102    1 176 722        24 613       75 206

INCOME

FINANCIAL        6 368 072    5 723 704       406 994      365 810

EXPENSES

                                                                  

PROFIT BEFORE  -47 228 485   -4 781 120    -3 018 450     -305 568

INCOME TAX

                                                                  

MINORITY          -211 474       -1 131       -13 516          -72

INTEREST

                                                                  

NET PROFIT     -47 439 959   -4 782 251    -3 031 966     -305 641

                                                                  

EARNINGS PER         -2,01        -0,61         -0,13        -0,04

SHARE





Ruth Roht

PR manager

+372 6 077 858