Management Report
The aggressive raising of alcohol excise duty in Estonia that continued in 2018 has resulted in significant price differences between stores in Estonia and Latvia and given rise to higher trade flows across the southern border. This has been accompanied by increased cross-border trade in motor fuel and other goods. In addition to the boost of border trade in Latvia, the rise in excise duty has led to a substantial adjustment on our northern border with Finland. The amount of alcohol sold there is dropping and this trend was aggravated even further in the second half of the last year. The decline is reflected in the turnover figures of harbour shops and the amount of spirits sold on board the ships. According to the estimate of alcohol retail chains in Estonia, sales volumes have shrunk. In H2 2017, alcohol sales volumes decreased by approximately 20% with the biggest drop in South Estonian stores - up to 30 %.1
The aforesaid factors, the tougher competitive environment in which the producers of alcoholic beverages operate, and the resulting pressure to economise have affected the performance of AS Linda Nektar (‘The Company’). In H1 2018, the Company’s turnover amounted to 1,092,104 euros marking a decrease of 25.7 % year-on-year (H1 2017: 1,469,298 euros). H1 2018 ended in a net loss of 51,013 euros (H1 2017 yielded a profit of 118,879 euros).
As of 30 June 2018, the Company’s balance sheet totalled 4,164,746 euros (H1 2017: 4,333,222 euros) marking a decrease of 3.9 % year-on-year. Current assets amounted to 1,638,157 euros (H1 2017: 1,352,460 euros) or 39.3 % of total assets. Fixed assets amounted to 2,526,589 euros (H1 2017: 2,980,762 euros) or 60.7 % of the balance sheet total. The liabilities of AS Linda Nektar totalled 246,788 euros (H1 2017: 206,570 euros) and equity capital amounted to 3,917,958 euros (H1 2017: 4,126,652 euros).
The Company’s ongoing prudent approach to leverage and ample liquidity reserves has been retained. As of 30 June 2018, there were no loan commitments, while current and quick ratios for the Company remained at over 6.6x and 5.1x respectively (both slightly increasing compared with H1 2017). Operating cash flow in H1 2018 was a positive 97,891 euros (H1 2017: 337,078 euros). In line with the softer operating conditions capital expenditure has been reigned in. Cash flows from investing activities were a positive 155,748 euros (helped by inflow of government grants – refer to later paragraph) compared with -451,902 euros in H1 2017.
A total of 149,703 euros was invested in fixed assets (H1 2017: 349,950 euros). A significant investment was the commissioning of solar panels (87 kW) as a source of renewable energy for the production process. This investment allows notable savings on energy costs especially over the summer months when the production volumes peak and the energy need for cooling is high. Resource savings throughout the production process, use of renewable energy sources and environmentally sound practices employed by staff are all essential objectives for the Company.
Some investments either made in 2018 or commenced earlier and completed in 2018 have been implemented through support provided by the Agricultural Registers and Information Board (ARIB). In H1 2018, the Company received 158,234 euros as support from ARIB for purchasing machinery and equipment, and 155,346 euros for expanding the production facility. Assets acquired through targeted financing have been recognised using the net method meaning that upon the receipt of support funds the amount of targeted financing was deducted from the acquisition value of assets.
Depreciation costs in H1 2018 amounted to 230,538 euros (H1 2017: 211,637 euros) - the increase being due to the aforesaid investments.
In H1 2018, the Company paid 126,009 euros in dividends on the account of its performance in 2017 (H1 2017: 299,271 euros). The income tax cost on dividends paid to shareholders was 31,502 euros (H1 2017: 74,818 euros).
As of 30 June 2018, the Company had 13 employees, one Management Board Member, and four Supervisory Board Members. Labour costs in H1 2018 (including taxes) amounted to 156,373 euros (H1 2017: 158,060 euros).
With the outcome of the first half reflecting an operating environment which was more or less anticipated, management retains a revenue guidance target of 2.5m euros for the whole of 2018, albeit notes that at present some downside risk to this figure exists. Due to the ongoing shorter term fluctuations further guidance will only be forthcoming later in the second half of 2018.
The Company’s strategic objective continues to be the development of its aroma technologies and related solutions. With this in mind it continues to work with an international flavour producer to launch and market products based on raw materials and its own proprietary technology.
[1]Source: Ministry of Finance of Estonia
Financial Ratios:
| January - June 2018 | January - June 2017 | ||
| Current Ratio = Current Assets/ Current Liabilities | x | 6.64 | 6.55 |
| Quick ratio = (Current Assets – Inventories) / Current Liabilities | x | 5.08 | 4.97 |
| Working Capital = Current Assets - Current Liabilities | 1,391,369 | 1,145,890 | |
| Equity Ratio = Total Equity / Total Assets | % | 94.07 | 95.23 |
| Net Profit Margin= Net Profit / Sales Revenue | % | -4.67 | 8.09 |
| Debt to Assets= Total Liabilities / Total Assets | x | 0.06 | 0.05 |
The Interim accounts
Statement of financial position
(In Euros)
| 30.06.2018 | 31.12.2017 | 30.06.2017 | |
| Assets | |||
| Current assets | |||
| Cash and cash equivalents | 848 124 | 720 494 | 689 422 |
| Receivables and prepayments | 404 787 | 202 220 | 337 263 |
| Inventories | 385 246 | 347 264 | 325 775 |
| Total current assets | 1 638 157 | 1 269 978 | 1 352 460 |
| Non-current assets | |||
| Receivables and prepayments | 25 | 235 | 517 |
| Property, plant and equipment | 2 481 242 | 2 840 234 | 2 868 974 |
| Intangible assets | 45 322 | 84 544 | 111 271 |
| Total non-current assets | 2 526 589 | 2 925 013 | 2 980 762 |
| Total assets | 4 164 746 | 4 194 991 | 4 333 222 |
| Liabilities and equity | |||
| Liabilities | |||
| Current liabilities | |||
| Payables and prepayments | 246 788 | 100 012 | 206 570 |
| Total current liabilities | 246 788 | 100 012 | 206 570 |
| Total liabilities | 246 788 | 100 012 | 206 570 |
| Equity | |||
| Issued capital | 1 575 109 | 1 575 109 | 1 575 109 |
| Share premium | 617 517 | 617 517 | 617 517 |
| Statutory reserve capital | 70 672 | 66 402 | 66 402 |
| Other reserves | 1 804 | 1804 | 0 |
| Retained earnings (loss) | 1 703 869 | 1 748 745 | 1 748 745 |
| Reporting period profit (loss) | -51 013 | 85 402 | 118 879 |
| Total equity | 3 917 958 | 4 094 979 | 4 126 652 |
| Total liabilities and equity | 4 164 746 | 4 194 991 | 4 333 222 |
Income statement
(In Euros)
| 01.01.2018 -30.06.2018 | 01.01.2017 -30.06.2017 | |
| Revenue | 1 092 104 | 1 469 298 |
| Other income | 5963 | 0 |
| Changes in inventories of finished goods and work in progress | 43 321 | -2 857 |
| Raw materials and consumables used | -674 560 | -770 916 |
| Other operating expense | -99 430 | -132 120 |
| Employee expense | -156 373 | -158 060 |
| Depreciation and impairment loss (reversal) | -230 538 | -211 637 |
| Other expense | -43 | -54 |
| Operating profit (loss) | -19 556 | 193 654 |
| Interest income | 45 | 43 |
| Profit (loss) before tax | -19 511 | 193 697 |
| Income tax expense | -31 502 | -74 818 |
| Reporting period profit (loss) | -51 013 | 118 879 |
Statement of cash flows
(In Euros)
| 01.01.2018 -30.06.2018 | 01.01.2017 -30.06.2017 | |
| Cash flows from operating activities | ||
| Operating profit (loss) | -19 556 | 193 654 |
| Adjustments | ||
| Depreciation and impairment loss (reversal) | 230 538 | 211 637 |
| Total adjustments | 230 538 | 211 637 |
| Changes in receivables and prepayments related to operating activities | -202 357 | 9 266 |
| Changes in inventories | -37 982 | -19 718 |
| Changes in payables and prepayments related to operating activities | 158 750 | 17 057 |
| Income tax refund (paid) | -31 502 | -74 818 |
| Total cash flows from operating activities | 97 891 | 337 078 |
| Cash flows from investing activities | ||
| Purchase of property, plant and equipment and intangible assets | -157 877 | -451 945 |
| Proceeds from government grants | 313 580 | 0 |
| Interest received | 45 | 43 |
| Total cash flows from investing activities | 155 748 | -451 902 |
| Cash flows from financing activities | ||
| Dividends paid | -126 009 | -299 271 |
| Total cash flows from financing activities | -126 009 | -299 271 |
| Total cash flows | 127 630 | -414 095 |
| Cash and cash equivalents at beginning of period | 720 494 | 1 103 517 |
| Change in cash and cash equivalents | 127 630 | -414 095 |
| Cash and cash equivalents at end of period | 848 124 | 689 422 |
Kadri Rauba
Member of Management Board
AS Linda Nektar is an Estonian-based beverage company with origins in the 1940s. The company is providing fermented beverages for the drinks industry focusing on unpacked fruit wines under a Business-to-Business model. The company’s production facility is located in a logistically favourable position relative to the Baltic and Northern European markets.
Extensive R&D efforts have led to breakthroughs in the field of aroma stripping and recovery and this, along with the planned geographical expansion, will be the key focal points in the coming years.
The shares of Linda Nektar are admitted to trading on Nasdaq Baltic First North Market.
The Certified Adviser for AS Linda Nektar is AS LHV Pank.
Additional information: Kadri Rauba Member of Management Board AS Linda Nektar Address: Kobela, Antsla parish, 66407 Võrumaa, Estonia Telephone: +372 785 5768 E-mail: info@lindanektar.ee
