Memeber of the Board Mr.  Salvis Lapins answers the questions sent in during the webinar of Olainfarm hosted on December 8, 2011.

Question:  There was a twofold increase of loans to management and employees over Q3 2011 to LVL 1.3 million: what are the major terms and  conditions of those loans – interest rate, collateral, term etc?

Salvis Lapins:  Many of the loans referred to here are loans to employees for conditions similar to those that company gets from its bank.  The biggest share of the loans is to Mr. Maligins, however, Mr. Maligins has also lent significant amounts to the company but because they were subordinated to the bank loan, it was not possible to offset them.  Recently the bank has allowed us to offset these loans against each other and as of the end of 2011 loan to Mr. Maligins is fully settled.

Question: Purchases of property, plant and equipment in 9 months 2011 amounted to LVL 2.2 million. The question is: what are the main items in which investments were made?

Salvis Lapins: The main items are: equipment and machinery (mainly analytical) 0.7 million lats, advanced payments for fixed assets and construction 0.7 million lats (as this is cash flow you are referring to), other fixed assets 0.2 million lats, costs of registration 0.16 million lats.

Question: According to the cash flow statement, proceeds from issue of shares was a negative LVL 352K in 9 months 2011: did the company buy own shares and if it did for what purpose?

Salvis Lapins: Unfortunately there has been a misrecord in our books.  In fact these are the dividends we paid and should have been booked respectively. Thanks for pointing this out to us, and for a year-end report this will be booked correctly.

Question: What are the basic commercial terms based on which “marketing expense” is formed, in which markets and to which companies it is paid?

Salvis Lapins: Our approach towards the marketing expenses differs from country to country.  In some countries (Belarus, Latvia, Tajikistan) we have our own representative office conducting marketing activities.  In Russia, Ukraine, Kazakhstan, Uzbekistan, Azerbaijan and Moldova we have outsourced marketing services from a regional or local pharma marketing companies.  For these countries we have selected products that must be promoted and fee for marketing is calculated as percentage of sales of promoted products in given countries.  This percentage is between 30 and 40 depending on a product and country. Yet, in another countries (Georgia, and Ukraine until recently) we ourselves do not have any marketing costs, but instead we sell our products with a certain discount and that discount is then used by our partner to cover the marketing costs.

Question: What is the total investment in Olainfarm Energija, who is the owner of the other 50% share and when is the energy production expected to begin (also, what is the expected Olainfarm own consumption / external sales ratio of the produced energy)?

Salvis Lapins: The total planned investment in Olainfarm Energija is 2 million euros.  Owner of other 50% of this company is Mr Girts Stelbovics, an energy sector professional, not related to Olainfarm in any way.  The energy production is expected to begin in 2nd quarter of 2013.  Olainfarm will purchase all the heat produced by the new company, and because of new technologies used in heat production, it is expected that the cost of heat will be by about 10% lower than what current Olainfarm heat costs are.  In parallel with the heat, the new company will also produce electric energy, and 100% of that will be sold to Latvenergo, national power company.

Question: Any M&A deals planned to strengthen the product portfolio?

Salvis Lapins: No, at the moment there are no M&A deals under way that I could tell about, however, as we have noted several times before, Olainfarm remains open for M&A opportunities to strengthen its product portfolio and enter new markets.

Question: Is Mr Lapins planning to increase or reduce number of shares in Olainfarm that he owns?

Salvis Lapins: I strongly believe that due to many reasons not related to Olainfarm, company’s shares are significantly undervalued at the moment, so I am more likely to buy more shares than sell any of existing.

Full video-record of the webinar is available here: