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