AS Kalev                        Financial Report                       30.11.2005



Excerpt from Activity report for the financial year 2004/2005



1. Economic activities and financial results



The consolidated net sales of AS Kalev for the financial year 2004/2005 amounted

to 53 849 thousand euros 35% increase, compared to the same period last year

(2003/2004: 39 894 thousand 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 AS Kalev. 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

2 623 thousand euros. In the comparable period, the company earned 1 098 thousand

euros in net profit. The net loss of AS Kalev met the company's expectations. The

company has developed its strategic trends, and started pursuing the set goals in

order to bring the company out of the red (see Clause 6 Main activity trends for

the financial year 2005/2006).



The following factors contributed to the company's negative results in the

financial year 2004/2005:



1. Significant increase in raw material price. The price of sugar increased by

2.7 times in the given period, while that of hazelnuts and almonds grew by 32.3%.



2. Dairy product price drop on the EU market. Milk powder price had dropped by 3%

and butter price by 6% on the EU market in the first half-year of 2005, compared

to the same period last year. The decrease in the above prices resulted in nearly

a 639 thousand euros revenue decrease in the first half-year 2005.



3. Increase in the price of crude milk in Estonia, which incurred nearly 300

thousand euros (i.e. a monthly 50 thousand euros) of additional expenses on the

company in the first half-year 2005.



4.Extraordinary expenses related to the integration of a new subsidiary under

Kalev Group, as well as continuation of the integration of previously acquired

subsidiaries.



5.Extraordinary expenses in the amount of 499 thousand euros related to the

relocation and launch of the caramel factory in the new plant complex.



6. A 48% increase in energy, water, and sewerage expenses.



7. A 67.4% increase in product development expenses.



8. A 36% decrease in confectionery product export revenues.



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. Moreover, the price of yet another major raw

material group - hazelnuts and almonds - continued to grow on the world market.

For instance, the world market price of hazelnuts 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 a poor harvest in countries of

origin, and political circumstances.



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

confectionery product recipes, and brought the product portfolio profitability

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 67.4% increase in product development expenses, compared to last year. The

increase in product development and other marketing expenses is conditioned by

future growth in profitability pursued by the company.



The dairy sector was characterised by the following trends. The price of raw

material continued to grow on the local market in the given period. After the

sudden increase in the milk buying-in price in Estonia at the end of 2003

(average buying-in price for 2003: 184 euros per ton), the price increased from

244 euros/ton (in the 1st quarter of 2004) by nearly 6% (average price for the

1st quarter of 2005: 259 euros/ton). 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 has more or less levelled off 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. Intervention buying-in

prices of butter and skimmed milk powder dropped from July 2004 by 7% and 5%,

respectively. Due to stable world market prices, subsidies for export to third

countries have continually been reduced. Since the end of the year is the high

demand 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. Milk

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

half-year of 2005, compared to the same period last year. Since AS Kalev's

subsidiary AS Kalev Paide Tootmine exports most of its output to EU countries,

the low dairy product prices prevailing on the dairy product market had a

significant effect on the group profit decrease. 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, with the

incorporation of the Viljandi-based bakery AS Vilma. The integration of the above

new subsidiary under the Group, as well as the continuing of the integration of

previously acquired subsidiaries incurred extraordinary expensed. Above all,

these expenses were related to integration of the production, sale and logistics

systems, and other areas.



The launch of the Põrguvälja plant building, which was completed at the end of

2003, was more costly that initially expected. This was conditioned by bigger

energy and sewerage expenses.  In the summer of 2004, the caramel factory of

Kalev Ltd was relocated to the new plant complex. The relocation and launch of

the above factory incurred 498 thousand 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

retail market in general, can be noted 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. Regardless of the

established customs duties, Ukrainian and Russian products still hold a strong

share 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 current financial year. This was

conditioned by Estonia's accession to the EU, and the resulting establishment of

double customs duties for trade with third countries.



The 11% increase in marketing expenses was, above all, 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.



Administrative expenses decreased by 10.5% in the reporting period. Last

financial year, these expenses included relocation to the new plant building.





In the financial year 2004/2005, Kalev Group employed an average of 806 people-a

13.2% 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.





The main financial ratios of Kalev Group (as of June 30, or the financial year

then ended, respectively):

                                         Group            

                                      2005    2004    

 Current ratio                        0.63    0.94    

 Debt ratio                           0.70    0.63    

 Asset turnover ratio                 1.14    1.06    

 Net profit margin (%)                -4.9%   2.8%    

 Return on assets (%)                 -5.6%   2.9%    



The ratios are calculated based on the following methods:



Current ratio: current assets / current liabilities

Debt ratio: total liabilities / total assets

Asset turnover ratio: revenue / average total assets

Net profit margin: net profit / revenue * 100%

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





2. Confectionery product market and sales



2.1. Chocolate and sugar confectionery products



AS Kalev 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, AS Kalev's market share was 44% in June-

July 2005, as regards chocolate confectionery 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. AS Kalev succeeded in keeping pace with market growth in

the important segments - e.g. chocolate bars, candy, etc.



Similarly to previous 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, AS Kalev's products have had a

higher quality and price on the Estonian market. Product development in products

of a lower price category has been minimal.



As regards marketing activities, the company maintained its focus on product

development in the financial year 2004/2005. The company launched new products in

both the chocolate confectionery and sugar confectionery sector. In addition to

the above Sonja product series, AS Kalev launched chocolate-coated cocoa-

flavoured praline candies, gift boxes Athena and Toompea, double-layered praline

candy sticks and candies, blueberry-flavoured Draakon chews and candy sticks

Õunasuflee and Rixx.





2.2. Baked goods



In the given period, AS Kalev brought the biscuit series manufactured by AS Kalev

Jõhvi Tootmine under the Kalev trademark, and modernized several dark bread and

white bread packages of AS Kalev Jõhvi Tootmine. New products launched at the

market included Mesikäpa, Tähekesed and the two-flavoured Nisukliiküpsised

biscuits.



According to the retail survey conducted by AC Nielsen Eesti, AS Kalev market

share was 14% in June-July 2005, as regards the biscuit sector.





2.3. Dairy products



AS Kalev Paide Tootmine significantly (more than four times) increased dairy

product manufacturing in the given period. Skimmed milk, milk powder, cream and

butter - all showed growth in production volume. High-temperature pasteurized

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. 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 exported. In the current 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

production was sold on 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 pasteurized milk and butter) in the reporting period -

nearly a quadruple 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), AS Kalev's subsidiary involved in

real estate administration and management, was initially established for the

organization of the construction of the new plant building of AS Kalev, as well

as development of the 30-hectare Põrguvälja real estate in Rae parish in Harju

County. The second objective was the administration and development of AS Kalev's

real estate located at Pärnu mnt 139 in Tallinn.



AS Kalev REC has actively 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 the office

building at Pärnu mnt 139c in Tallinn (the so-called "Tere building") and new

apartment buildings at Kastani 183a and 183b in Tartu (the so-called "Mesikäpa

buildings"). Housing development projects have also been initiated in Tallinn.







5. Main activity trends for the financial year 2005/2006



AS Kalev's main goal for the financial year 2005/2006 is to enhance product sales

at the local and foreign markets. At the home market, the company will continue

enhancing the efficiency of customer relations and expanding its retail network

with the aim of marketing the company's versatile product selection to as many

consumers as possible. In the autumn of 2005, the company will open yet another

representative sales office in Rakvere, while continuing preparatory work for

opening a similar office in Võru.



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 at the home and foreign markets. The company will also pay extra

attention to the development of baked goods. AS Kalev is optimizing its current

product portfolio with the aim of paying increased attention to developing more

profitable products and excluding less profitable products from the assortment.



According to the public image survey conducted by TNS Emor among Estonian

companies, AS Kalev is the most reputable companies in Estonia, and a brand with

one of the biggest consumer values. The survey revealed that there is still room

for Kalev to expand its brand to other products and services, thus increasing the

brand-related cash flows. Consequently, the company plans to expand the

assortment produced under the trademark, and to enter new product segments.



AS Kalev will retain its position as the leader of the Estonian chocolate and

sugar confectionery market in the next financial year. The company has set a goal

of keeping pace with the estimated market growth while maintaining the current

market position. The same goal has been set for the biscuit market.



As regards export, the company will focus on enhancing its activities at the

neighbouring markets - in the Baltic States, Russia and Finland. In the financial

year 2004/2005, the company conducted a market survey at the attractive St.

Petersburg market. The aim of the survey was to map the repute of and

associations with Kalev trademark in St. Petersburg. The survey revealed that,

with a little help, nearly one-third of St. Petersburg's sweet tooths are

familiar with Kalev. The survey also revealed that the general atmosphere for

marketing Kalev's products is St. Petersburg is positive: young people are open

to new and fascinating products, while recollection of a past consumption

experience might produce good results among middle-aged and senior consumers. The

survey was conducted by TNS Emor. By today, AS Kalev has found a local partner

for marketing the products in the St. Petersburg region. The first sample lot was

dispatched in September.



In the Latvian and Lithuanian market, the company plans to expand its product

sales by making an aggressive entry in international chain stores, using, among

other things, the customer relations developed at the Estonian market. Actual

results can be seen in the second half of the financial year 2005/2006.



The company is also launching a limited assortment of sweets at the Ukrainian

market. AS Kalev suspended export to this country upon Estonia's accession to the

European Union. AS Kalev is also mapping out new potential markets, and finding

local partners.



As regards dairy products, the company is expecting a fair crude milk price in

the next financial year. The so-called fair price should guarantee sustainability

to both milk producers and the dairy industry in general. The balance in the

value chain is currently tilted in favour of milk producers. In order to achieve

a fair crude milk price, the company will adjust the need for crude milk in

accordance with the market situation and the strategic goals. Further activities

in the sector will continue focusing on developing partner relations with

customers, enhancing efficiency and establishing a long-term partnership with

milk producers.



As regards the real estate sector, the company will mainly focus on residential

building development in the financial year 2005/2006, while also continuing

development of commercial premises. The so-called Tere office building at Pärnu

mnt in Tallinn will be completed in the spring of 2006. In the next financial

year, AS Kalev plans to transfer its production real estate to AS Kalev REC,

which will start managing and administrating the real estate.







INCOME STATEMENT (audited, consolidated)

for the financial years ended June 30,

in thousands of euros



                            Group                      Parent                   

                       2005          2004         2005        2004        

                                                                        

 Net sales           53 849        39 894       24 578      27 868      

 Cost of sales      -46 931       -31 114      -18 830     -20 179     

                                                                        

 Gross profit         6 918         8 780        5 748       7 689       

                                                                        

 Marketing expenses  -5 054        -4 565       -4 644      -4 338      

 Administrative      -3 941        -4 406       -2 811      -4 022      

 expenses                                                               

 Other operating        590         2 099           93       1 349       

 items                                                                  

                                                                        

 Operating profit    -1 487         1 908       -1 614         678         

 (loss)                                                                 

                                                                        

 Share of profit       -127             0         -604         729         

 (loss) of                                                              

 subsidiaries                                                           

 Other financial      -938           -811         -405        -309        

 items                                                                  

                                                                        

 Profit (loss)      -2 552         1 097        -2 623       1 098       

 before minority                                                        

 interests                                                              

                                                                        

 Minority interests    -71             1            0            0           

                                                                        

 Net profit (loss)  -2 623         1 098        -2 623       1 098       

 fort he financial                                                      

 year                                                                   

                                                                        

 Basic and diluted   -0,11          0,05                                 

 earnings per share                                                     

 (in euros)                                                             





BALANCE SHEET (audited, consolidated)

as of June 30, in thousands of euros



                            Group                      Parent                   

 ASSETS                2005          2004         2005        2004        

 Current assets                                                         

 Cash and cash          365           178           62          125         

 equivalent                                                             

 Receivables          7 341         13 180       6 324       16 709      

 Prepaid expenses        87            193          47           91          

 Inventories          6 809          5 437       3 830        4 417       

 Total current       14 602         18 988      10 263       21 342      

 assets                                                                 

                                                                        

 Non-current assets                                                     

 Investment in            0             0       12 916        5 329       

 subsidiaries                                                           

 Non-current            327            21          190           21          

 receivables                                                            

 Investment          12 819         3 710            0          515         

 properties                                                             

 Property, plant and 22 198        22 444        3 788        5 234       

 equipment                                                              

 Intangible assets        5          -576            5           10          

 Total non-current    35 49        25 599       16 899       11 109      

 assets                                                                 

 TOTAL ASSETS        49 951        44 587       27 162       32 451      

                                                                        

 LIABILITIES AND                                                        

 EQUITY                                                                 

 Current liabilities                                                    

 Borrowings           7 632         7 006        5 386        5 487       

 Prepaid income         250           218           28           27          

 Accounts payable    14 919        12 993        6 751        9 574       

 and other payables                                                     

 Provisions             320             0            0           0           

 Total current       23 121        20 217       12 165       15 088      

 liabilities                                                            

                                                                        

 Non-current                                                            

 liabilities                                                            

 Borrowings          11 698         7 882         415          887         

 Total non-current   11 698         7 882         415          887         

 liabilities                                                            

 Total liabilities   34 819        28 099       12 580      15 975      

                                                                        

 Minority interests     550           12           0           0           

                                                                        

 Equity                                                                 

 Share capital       15 104        5 035        15 104       5 035       

 Mandatory legal        257           202          257         202         

 reserve                                                                

 Revaluation reserve    554         1 096          554       1 096       

 Retained earnings   -1 333        10 143       -1 333       1 043       

 Total equity        14 582        16 476       14 582      16 476      

 TOTAL LIABILITIES   49 951        44 587       27 162      32 451      

 AND EQUITY                                                             





Ruth Roht

PR manager

+372 6 077 858