FINANCIAL STATEMENTS BULLETIN January 1 - December 31, 2006
LÄNNEN TEHTAAT PLC STOCK EXCHANGE RELEASE February 14, 2007 at 8.30 a.m.
FINANCIAL STATEMENTS BULLETIN January 1 - December 31, 2006
FINANCIAL YEAR 2006
. Consolidated net sales came to EUR 408.7 (2005: EUR 433.0, EUR 383.3 excluding
discontinued business operations) million.
. Net sales of the continuing business operations increased by 6.6%.
. The operating profit came to EUR 14.5 (16.3) million and the profit before
taxes to EUR 17.8 (14.9) million.
. The operating profit excluding non-recurring items stood at EUR 12.9 (12.1)
million.
. The earnings per share were EUR 2.10 (1.81).
. The Board will propose a dividend of EUR 0.84 (0.73) per share to the Annual
General Meeting.
Key figures illustrating performance, EUR million
Group total
1-12/2006 1-12/2005
Net sales 408.7 433.0
Operating profit 14.5 16.3
Operating profit without
non-recurring items 12.9 12.1
Profit before taxes 17.8 14.9
Profit before taxes and
without non-recurring items 13.4 11.8
Profit after taxes 13.1 11.4
Earnings per share, EUR 2.10 1.81
FOURTH QUARTER 2006
. Consolidated net sales in October-December came to EUR 117.4 (122.5, 111.1
without discontinued business operations) million.
. Net sales of the continuing business operations increased by 5.6%.
. The operating profit came to EUR 8.1 (12.6, 4.7 without discontinued business
operations) million, and the profit before taxes to EUR 10.0 (12.8) million.
. The operating profit excluding non-recurring items was EUR 5.8 (6.3, 5.2
without discontinued business operations) million.
. Earnings per share were EUR 1.18 (1.52).
Key figures illustrating performance, EUR million
Group total
10-12/2006 10-12/2005
Net sales 117.4 122.5
Net sales for continuing operations 117.4 111.1
Operating profit 8.1 12.6
Operating profit without
non-recurring items 5.8 6.3
Operating profit of continuing
operations without non-recurring items 5.8 5.2
Profit before taxes 10.0 12.8
Profit before taxes and
without non-recurring items 7.5 7.6
Profit after taxes 7.3 10.0
Earnings per share, EUR 1.18 1.52
The comparable net sales for the Food Division in the last quarter, excluding the
net sales for sugar, came to EUR 28.4 (28.7) million. The sugar sales for the
comparative period in 2005 amounted to EUR 10.4 million. The net sales for the
Feeds segment came to EUR 59.8 (59.9) million. Mildola Oy, which was part of the
Animal Feeds segment accounted for EUR 7.2 (9.0) million. The net sales for Grain
Trading operations came to EUR 34.0 (26.0) million, and the net sales for other
operations were EUR 0.0 (1.8) million.
The operating profit of the Food Division for the fourth quarter, excluding sugar
sales, was EUR 2.5 (1.7) million without non-recurring items, and EUR 2.0 (1.7)
million after the reduction of non-recurring items. The sale of the Turku factory
premises of Apetit Frozen Foods had a non-recurrent negative effect of EUR 0.5
million on the profit of the last quarter. In 2005, the operating profit was EUR
10.1 million, including the profit from the discontinued sugar business
operations.
The good progress in the financial performance of the Apetit Frozen Foods and
Jams unit continued due to the growth in the sales of its own brands and improved
cost-effectiveness. The net sales of Apetit Kala during the last quarter were
close to those of the comparable period last year. Christmas sales fell slightly
short of the previous year's results. While the annual operating profit of Apetit
Kala fell short of the previous year, it was clearly positive. The profit was
reduced by high raw material prices and an increase in fixed costs.
The operating profit of the Feeds segment without non-recurring items was EUR 3.6
(3.6) million and after non-recurring items EUR 4.4 (3.6) million. The financial
performance includes a total of EUR 0.7 million non-recurrent profit from the
sale of the Vaasa premises and the cancellation of the price-differential
provisions of previous years for raw material prices. The improved performance of
the Feeds segment was due to better cost-effectiveness. Mildola's contribution to
the result of the fourth quarter was EUR 0.6 (0.9) million.
The operating profit for Grain Trading operations was EUR 0.8 (0.5) million. The
improved performance is due to growth in international sales.
The Other Operations segment comprises operations that are common to the Group
and unallocated to a particular segment. The financial performance excluding non-
recurrent items resulted in a loss of EUR -1.0 (-0.5) million. The change from
last year is mainly due to Group restructuring expenses. The profit after non-
recurrent items was EUR 1.0 (-1.5) million. The profit of the last quarter
includes the cancellation of a previous cost reserve of EUR 1.9 million in
relation to discontinued business operations, and a profit of EUR 0.1 million on
the sale of premises, which in total come to EUR 2.0 (-1.0) million.
LÄNNEN TEHTAAT PLC
Board of Directors
More information: Matti Karppinen, CEO, tel. +358 10 402 4001
Distribution:
Helsinki Stock Exchange
Principal media
www.lannen.fi
Board of Directors' report 2006
Lännen Tehtaat's vision is to be one of the leading Finnish food companies.
GROUP STRUCTURE
During the financial year, the Food Division was managed as two strategic
business units: Apetit Frozen Foods and Jams, and Apetit Kala. In addition to
these, joint operations included marketing, sales, controlling, information
management, human resources management and environmental management.
In June, Lännen Tehtaat plc purchased 49% of the shares of Apetit Kala Oy from
Antti Räsänen. Following the purchase, Apetit Kala is fully owned by Lännen
Tehtaat plc. Operations by Lännen Sugar, which was a business unit in the Food
Division, were discontinued at the end of 2005, since Sucros Ltd terminated the
sales contract for Dansukker consumer products on December 31, 2005.
The Agricultural Division's companies operated as independent units with their
own product brands. The Division comprised Lännen Tehtaat plc's subsidiaries
Suomen Rehu Ltd and Avena Nordic Grain Oy. Suomen Rehu Ltd's subsidiaries are
Lännen Rehu Oy, Hiven Oy, Rehu Eesti Oü, Mildola Oy and SIA Baltic Feed and its
subsidiary UAB Baltijos Pasarai, which began its operations at the beginning of
2006. The operations of Rehu Eesti Oü were discontinued at the end of the year.
The companies are managed through internal Board work. The segments reporting in
the Agricultural Division are the Animal Feeds segment, consisting of Suomen Rehu
Ltd and its subsidiaries, and the Grain Trading segment, which consists of Avena
Nordic Grain Oy and its subsidiaries ZAO Avena St. Petersburg and UAB Avena
Nordic Grain.
In April, Suomen Rehu Ltd acquired 17.5% of the shares of the vegetable oil and
protein feed manufacturer Mildola Oy from Maatalouskesko Oy. Following the
purchase, Suomen Rehu Ltd gained full ownership of Mildola. Following an internal
sale within the Group, Lännen Tehtaat plc acquired the Mildola shares at the end
of December. For the purposes of reporting by segments, Mildola Oy was part of
the Feeds segment during 2006.
In spring 2006, ZAO Scandic Feed, a joint venture owned by Lännen Tehtaat and
Raisio, signed a contract concerning the acquisition of the Tosno feed factory.
The acquisition failed in August as the seller withdrew from the deal. In the
autumn, Lännen Tehtaat and Raisio decided to dissolve ZAO Scandic Feed. The
dissolution is likely to take place at the end of 2007.
The Other Operations segment comprised operations that are common to the Group
and unallocated to a particular segment, and Harviala Ltd. Lännen Tehtaat sold
the shares of Harviala Ltd to Saarioisten Taimistot Oy in March.
NET SALES
Lännen Tehtaat's consolidated net sales totalled EUR 408.7 (2005: 433.0) million.
Net sales for continuing operations was EUR 383.3 million in the comparison year.
Net sales for continuing business operations increased by 6.6%. Food accounted
for 27% (35%) of this figure and the Animal Feeds segment 53% (47%). Grain
Trading accounted for 20% (17%) and Other Operations for 0% (2%).
The Food Division's net sales were EUR 109.1 (105.3 continuing operations)
million, an increase of 3.6%. The increase was due to an 8% rise in Apetit Kala's
net sales. Net sales for Apetit Frozen Foods and Jams fell slightly on the
previous year. This was due to a decrease in the sales of farm supplies. Sales of
frozen foods and jams increased by about 1%. All in all, retail sales of frozen
foods grew by about 2% on the previous year. Sales of frozen foods under the
Apetit brand went up by almost 6%, while sales under the retailers' own brands
fell. Sales of pre-prepared frozen food and pizzas grew by over 10% and frozen
potato products by over 8% on the previous year. Sales of frozen vegetables under
the Apetit brand grew by almost 7%, but sales under the retailers' own brands
decreased with Lännen Tehtaat losing the production of the retailers' brands to
imported products. Retail sales of jams and marmalades went down by about 6%.
Sales to the hotel, restaurant and catering sector increased, as did exports.
Industrial and bakery sales fell short of the 2005 results. The Lännen Sugar
retail sugar sales were discontinued at the end of 2005. The 2005 net sales
included sugar sales to the amount of EUR 44.2 million. The total 2005 net sales
for the Food Division were EUR 149.5 million.
Net sales for the Feeds segment were EUR 218.2 (205.1) million, an increase of
over 6%. The comparable net sales, which exclude Mildola, grew by about 2% on the
previous year. The volume of feed sales dropped slightly. The rise in net sales
is due to the impact of higher raw-material prices on selling prices. Mildola
accounted for EUR 29.8 (20.1) million of the Feeds segment's net sales.
Net sales for Grain Trading were EUR 96.3 (86.6) million. The growth in net sales
was due to both increased volume and a higher market price level for grains and
oil plants compared with the previous year.
Net sales for the Other Operations segment were EUR 0.0 (7.1) million. The
decrease was due to the sale of the business operations of the Lännen Plant
Systems unit at the beginning of April 2005, and the sale of Harviala Ltd in
March 2006.
Net sales for the parent company Lännen Tehtaat plc were EUR 50.2 (99.0) million.
The 2005 net sales include EUR 46.5 million of sales by the discontinued Lännen
Plant Systems and Lännen Sokeri. Net sales for continuing operations were EUR
52.5 million in 2005.
PROFITS
The consolidated profit before tax excluding non-recurring items was EUR 13.4
(11.8) million, and including non-recurring items EUR 17.8 (14.9) million. Profit
for the period was EUR 13.1 (11.4) million. Earnings per share were EUR 2.10
(1.81).
Lännen Tehtaat's consolidated operating profit excluding non-recurring items came
to EUR 12.9 (12.1) million. The impact of non-recurring items on the operating
profit was EUR +1.6 (+4.2) million. Non-recurring items amounted to EUR -0.1
(+7.3) million for the Food Division, EUR +0.3 (-2.1) million for the Feeds
segment, and EUR +1.4 (-1.0) million for the Other Operations segment. Non-
recurring items recorded for the final quarter of the year, totalling EUR +2.3
(+6.3) million, are due to sales of premises and the cancelling of the cost
provisions of previous years. Of the profit from sold premises, EUR 0.5 million
was recorded for the Feeds segment, and EUR 0.1 million for the Other Operations
segment. A EUR 0.5 million loss on a property sale was recorded for the Food
Division. In the Other Operations segment, a previous provision of EUR 1.9
million to cover costs related to the discontinued operations was cancelled. The
Feeds segment recorded as income a differential in raw material prices of EUR 0.2
million.
The operating profit of the continuing operations of the Food Division excluding
non-recurring items, amounted to EUR 3.3 (-0.1) million and EUR 3.2 (-0.1)
million including non-recurring items. The division's performance improved
significantly on the comparison year because of the improvement in the growth and
productivity of Apetit Kala, as well as the increase in the proportion of
products sold under the Apetit brand and the programme trimming fixed costs in
Apetit Frozen Foods and Jams. The improvement in the financial performance of
Apetit Kala was slowed down during the second half of the year, as a strong rise
in raw material prices that began in the spring could not be fully transferred to
selling prices.
The Food Division's operating profit for both continuing and discontinued
operations was EUR 3.2 (9.6) million. The comparative figures in 2005 include
operating profit for the discontinued sugar business operations, a non-recurring
profit of EUR 7.6 million due to the termination of the sugar sales contract, and
a non-recurring expense of EUR 0.3 million.
The operating profit for the Feeds segment excluding non-recurring items was EUR
12.0 (11.5) million and including non-recurring items EUR 12.3 (9.4) million. The
operating profit for the Feeds segment excluding non-recurring items and Mildola
was EUR 9.1 (9.3) million.
The operating profit for Grain Trading amounted to EUR 2.0 (1.4) million. Value
changes in the derivative contracts taken to hedge the raw material positions
reduced the comparative 2005 figure by EUR 0.2 million. As of the beginning of
2005, hedge accounting has been applied to efficient hedging of purchases and
sales under the IAS 39 Standard.
The operating profit for Other Operations excluding non-recurring items was EUR
-4.4 (-3.1) million, and including non-recurring items EUR -3.0 (-4.1) million.
Other Operations' profit includes non-recurring items of EUR +1.4 (-1.0) million
for Other Operations. The cancellation of the provision in relation to the
discontinued operations in the last quarter improved the profit by EUR 1.9
million; the sale of the Harviala Ltd shares in the first quarter weakened it by
EUR -0.6 million; and the profit on the sale of a property in the final quarter
improved it by EUR 0.1 million.
Net financial income totalled EUR 1.6 (-1.2) million. The financial income
includes non-recurring profits of about EUR 2.5 million on sales of quoted and
other shares, as well as a composition of EUR 0.2 million from the Mildola
product development loan. The Group's share in the profit/loss of associated
companies was EUR 1.6 (-0.1) million. In the comparison year 2005, the
termination of the sugar sales contract between Lännen Tehtaat and Sucros reduced
the share in the profit of associated companies by EUR 1.1 million as a one-off.
FINANCING AND CASH FLOW
The Group's financial position and liquidity continued to be good. Cash flow from
operations after interest and taxes stood at EUR -6.4 (17.8) million. The
difference between 2006 and 2005 is primarily due to changes in working capital.
The net cash flow from investments was EUR -2.7 (-8.0) million. A total of EUR
4.6 (4.1) million was paid out in dividends.
The Group's interest-bearing liabilities came to a total of EUR 56.1 (45.9)
million and liquid assets to EUR 7.5 (11.2) million at the end of the financial
period. Net interest-bearing liabilities amounted to EUR 48.5 (34.7) million. The
consolidated balance sheet total stood at EUR 237.5 (232.2) million. Equity
totalled EUR 119.2 (116.1) million at the end of the financial year. The equity
ratio was 50.3 (50.0) %. Commercial papers issued for the Group's short-term
financing stood at EUR 38.0 (19.0) million at the end of the review period. The
increase in commercial papers is due to larger than usual procurement of fish and
grain raw materials. Liquidity is secured with long-term committed credit
facilities. No credit facilities were used during the financial period.
KEY FIGURES
2006 2005 2004
Net sales, EUR mill. 408.7 433.0 473.8
Net sales excluding non-recurring
items, EUR mill. 12.9 12.1 15.4
Net sales excluding non-recurring
items % 3.2 2.8 3.3
Operating profit, EUR mill. 14.5 16.3 11.4
Operating profit % 3.5 3.8 2.4
Profit for the financial period, EUR mill. 13.1 11.4 10.5
Profit for the financial period % 3.2 2.6 2.2
Earnings per share, EUR 2.10 1.81 1.68
Return on equity % 10.5 10.2 10.1
Return on investments % 11.2 10.8 8.7
Equity ratio % 50.3 50.0 49.6
INVESTMENT
Consolidated gross investment in non-current assets came to EUR 7.6 (7.3)
million. Investment by the Food Division excluding corporate acquisitions
totalled EUR 1.4 (1.4) million, by the Feeds segment EUR 6.1 (5.6) million, by
Grain Trading EUR 0.0 (0.0) million and by Other Operations EUR 0.1 (0.3)
million.
The Food Division's main investments were in packaging machinery in both the
Apetit Frozen Food and Jams and Apetit Kala. Investment by the Feeds segment
primarily related to the extension and renovation of the Baltic Feed factory in
Latvia, the extension to the Lännen Rehu factory in Säkylä, and the loading dock
for bulk feed at the Seinäjoki factory of Suomen Rehu. Other Group investment in
non-current assets concerned productivity and replacements.
The most significant of the share and corporate acquisitions, which totalled EUR
3.0 (4.4) million, were the purchase of a minority holding in Apetit Kala Oy and
in Mildola Oy.
SHARES AND SHARE CAPITAL
The shares of Lännen Tehtaat plc are all in one series. All shares carry the same
voting and dividend rights. The Articles of Association prescribe that the number
of votes a shareholder is entitled to exercise cannot exceed one tenth of the
votes represented at a shareholders' meeting. The shares have a nominal value of
EUR 2 each, and the number of shares is 6,317,576. The minimum share capital is
EUR 10,000,000 and the maximum EUR 40,000,000.
Board of Directors' authorizations
The Annual General Meeting of March 29, 2006 authorized the Board of Directors to
raise share capital by new share issues and/or to issue a convertible bond in one
or more instalments. The authorization is valid one year, starting from the date
of the AGM decision. In a new share issue and/or an issue through a convertible
bond, the share capital can be raised by a maximum total of EUR 1,263,514 in such
a way that a maximum of 631,757 shares with a nominal value of EUR 2.00 are
offered for subscription.
The Board of Directors was authorized to diverge from the shareholders' pre-
emptive subscription right to new shares and/or to convertible bonds on condition
that the company has a pressing financial reason to do so. The authorization also
covers the right to decide on the subscription prices, those entitled to
subscribe shares, subscription terms, terms concerning a convertible bond and
other terms and aspects related to a new share issue and/or issue of a
convertible bond.
So far the Board has not exercised its right to raise share capital by issuing
new shares or a convertible bond.
The Annual General Meeting decided to authorize the Board of Directors to decide
to surrender the company's own shares. The authorization concerns the 65,000
company shares acquired using the authorization granted by the AGM on April 5,
2001. The Board is authorized to decide to whom and in what order the company's
own shares are surrendered. The shares can be surrendered in one or more
tranches. The Board may decide to surrender the Company's own shares otherwise
than in proportion to the pre-emptive right of shareholders.
The shares can be surrendered in one or more tranches, as decided by the Board,
in connection with corporate acquisitions or other corporate arrangements or for
some other similar purpose that the Board may consider suitable. Surrender of the
shares can also be carried out via public trading on Helsinki Stock Exchange. The
share price is the current value at the time of surrender, determined in public
trading on Helsinki Stock Exchange. The shares may also be surrendered against
other than monetary consideration. The authorization is valid for one year,
starting from the date of the AGM decision.
The Board has not yet made use of the authorization. The 65,000 Lännen Tehtaat
plc shares in the company's possession represent 1.0% of the total share capital
and total votes.
Dividend distribution
The AGM of Lännen Tehtaat plc decided on March 29, 2006 to pay a dividend of EUR
0.73 (0.65) per share.
Share Trading
In the period under review, 1,622,123 (3,768,866) company shares were traded on
the Stock Exchange, i.e. 25.7% (59.7%) of the total stock. The highest share
price was EUR 24.70 (18.29) and the lowest EUR 15.26 (11.71). The share turnover
totalled EUR 32.8 (54.0) million. The price at the end of the year was EUR 24.30
(18.00) and the market capitalization EUR 153.5 (113.7) million.
Flagging announcements
There were no flagging announcements during the financial period.
IFRS REPORTING
Lännen Tehtaat's consolidated financial statements have been drawn up in
accordance with the International Financial Reporting Standards (IFRS) adopted by
the European Union. The Group transferred to IFRS reporting at the beginning of
2005. The transition was reported in a separate information bulletin issued on
April 27, 2005.
SEASONALALITY OF OPERATIONS
The transition to IFRS reporting has had a noticeable impact on the accrual of
Lännen Tehtaat's profits over the financial year.
In accordance with the IAS 2 standard, the historical cost of inventories
includes a systematically allocated portion of the fixed production overheads. In
production that focuses on seasonal crops, raw materials are processed into
finished products mainly during the year's final quarter, which means that the
inventory volumes and their balance-sheet values are at their highest at the end
of the year. As entering as an expense of the fixed production overheads included
in the historical cost is deferred until the time of sale, most of the Group's
annual profit is accrued in the final quarter. The seasonal nature of operations
features most strongly in the Food Division and in the associated company Sucros,
which is part of that division. There is also some seasonal fluctuation in the
Feeds segment. Apetit Kala's sales depend largely on seasonal holidays. A major
proportion of the entire year's profit depends on the success of Christmas sales.
R&D
The Group's product development expenses were EUR 3.2 (3.1) million, i.e. 0.8%
(0.7%) of the net sales.
In the Food Division, the focus of development was on ready-made frozen foods and
fish products. New products included mashed potato products, an improved range of
wok vegetables, a completely new range of microwave casserole dishes and new
additions to the grilled fish and vegetable patty series.
Mildola developed and launched a range of flavoured special rape seed oils.
In animal feeding solutions, the emphasis was on the development and launching of
feeding concepts and new products, that are based on intestinal health research.
RISKS AND UNCERTAINTIES
The Group companies and the business units regularly assess the risks involved in
their operations and the adequacy of the control methods needed. The purpose of
these risk assessments, which support strategy work and decision-making, is to
ensure sufficient action to control risks.
No significant individual risks have come up in the Group's risk assessments that
would call for special action in addition to measures falling within normal
business operations and defined in the risk management process.
The new European Union sugar regime, which took effect on July 1, 2006, has a
negative impact on the operating conditions in this sector in Finland. Lännen
Tehtaat's associated company Sucros Ltd decided to sell part of its production
quota and continue with a sugar quota of 90 million kilos. The consequent
production cut was achieved by closing down the Salo sugar factory after the
processing of the autumn 2006 sugar beet crop. Sucros will continue to
manufacture beet sugar at its Säkylä factory. The sugar regime reform and the
consequent changes will reduce the dividends received by Lännen Tehtaat from
Sucros Ltd and the share of profit to be entered in the profit and loss account
in the next few years. Lännen Tehtaat plc owns 20% of the shares of Sucros Ltd,
which engages in sugar production in Finland. Following the closure of its Salo
factory and the partial sale of its production quota, Sucros Ltd lodged an
application in November with the Ministry of Agriculture and Forestry for aid for
restructuring. Sucros applied for aid in relation to the relinquished quota of 56
tonnes. The one-off payment is about EUR 34 million and will compensate for the
continuing loss of income due to the reduced production quota, and for the
expenses incurred due to the closure of the Salo factory. The write-off and
estimated closing down expenses will amount to about EUR 15 million.
CORPORATE GOVERNANCE AND MANAGEMENT
The Supervisory Board of Lännen Tehtaat plc elected Tom Liljeström Chairman and
Juha Nevavuori Vice Chairman of the Supervisory Board at its meeting on April 10,
2006.
The Supervisory Board elected the following members to the Board of Directors:
Harri Eela, Aappo Kontu, Matti Lappalainen, Simo Palokangas, Hannu Simula, Soili
Suonoja and Tom v. Weymarn. Tom v. Weymarn was elected Chairman of the Board of
Directors and Hannu Simula Vice Chairman. Simo Palokangas resigned from the Board
of Directors on November 29, 2006.
The CEO of Lännen Tehtaat plc is Matti Karppinen.
PERSONNEL
The most crucial areas for personnel development are management, professional
training and workplace interactive skills.
The Group employed an average of 981 (2005: 1,033 and 2004: 1,072) people in
2006.
Distribution of personnel by business area:
2006 2005 2004
Food 579 581 445
Feeds 355 348 326
Grain trading 29 28 25
Other business areas 18 74 94
Discontinued operations - - 182
Total 981 1,033 1,072
During the financial year, recruitment for key personnel continued in the Food
Division and Group administration. A Director of Sales & Marketing and a Director
of SBU business concepts were recruited to the management of the Food Division;
Group administration appointed a Chief Financial Officer.
During the financial period, personnel received salaries and other remuneration
to the amount of EUR 32.3 (2005: 32.6 and 2004: 33.8) million.
ENVIRONMENT
Lännen Tehtaat observes the principles of continuous improvement and sustainable
development throughout its operations. The company operates in a responsible
manner and takes account of social and environmental considerations throughout
its operations. The aim is efficient production that is in harmony with the
environment.
Lännen Tehtaat's management has defined the company's environmental goals as part
of its overall operating policy.
All production units required to have an environmental permit have a current
permit.
Lännen Tehtaat is not aware of any significant individual environmental risks at
the time of completion of the financial statements.
OVERVIEW ON EARLY 2007
In order to clarify the management model for the Group, it was decided to
corporatize the frozen foods unit Apetit Frozen Foods and Jams and the Group's
service business operations. As of the beginning of 2007, Apetit Frozen Foods and
Jams became Apetit Pakaste Oy and the service business operations Apetit Suomi
Oy. Apetit Suomi Oy will be in charge of developing, marketing and selling
products made by Apetit Pakaste Oy and Apetit Kala Oy. In addition, it will
produce IT, human resources, business controlling, cash management, and
environmental services for the companies in the Lännen Tehtaat Group. The parent
company, Lännen Tehtaat plc, will act mainly as a holding company that owns the
shares of subsidiary companies and properties, and also has a small Group
administration unit.
On January 19, 2007, Lännen Tehtaat plc and Hankkija-Maatalous Oy signed a share-
purchase agreement whereby 51% of the shares in Suomen Rehu Ltd and Avena Nordic
Grain Oy will be transferred to the ownership of Hankkija-Maatalous Oy. The
enterprise value of the business operations of Suomen Rehu and Avena has been
agreed at approximately EUR 81 million. The price for the 51 per cent of the
shares in the companies to be sold will be about EUR 28 million. The purchaser
will also assume responsibility for the net debts of Suomen Rehu and Avena at the
moment when the closing takes place. The exact price for the shares will be
determined on the basis of the assets and liabilities of the companies to be sold
at the moment when the closing takes place. The transaction will not include the
shares of the oil seed processing company Mildola Oy, which have been transferred
to the ownership of Lännen Tehtaat plc in an internal transaction.
The sale of the majority shareholding is expected to take place in the second
quarter of 2007 and generate a tax-exempt profit of about EUR 7 to 8 million. In
connection with the sale of the majority shareholding, an option scheme has also
been agreed under which Lännen Tehtaat will, if it wishes, have the right to sell
the remaining 49% of the shares in Suomen Rehu Ltd and Avena Nordic Grain Oy to
Hankkija-Maatalous. The latter, for its part, has a purchasing option for the
remaining shares, which it will be able to put into effect at the earliest 15
months after the closing of the deal for the majority holding.
At the beginning of 2006, Lännen Tehtaat conducted a feasibility study on the
launching of ethanol production in western or south-western Finland. The study
shows that this part of Finland has the best potential for producing ethanol for
fuel purposes. The region has sufficient grain-growing capacity to supply the raw
material for an ethanol plant. It is also home to one of the two main pig-farming
areas in Finland, which is important for utilizing the animal feed by-products
from an ethanol plant. The region also has a number of feed factories that could
use some of the by-products from an ethanol plant as raw material for their
animal feeds. The total cost of the investment was put at some EUR 55 million.
The Ministry of Trade and Industry has granted Lännen Tehtaat an investment
subsidy of EUR 1 million for the project. Lännen Tehtaat considers Säkylä to be a
highly suitable location for the plant in terms of the procurement of the grain
raw material and ready infrastructure. On January 19, 2007, the company announced
that it will not take responsibility for building an ethanol plant, but is
prepared to consider a minority share in a company that would construct the plant
in Säkylä. The decision to withdraw from implementing the project is based on
Lännen Tehtaat's strategic policy of focusing on the food business operations and
is linked with an announcement the same day to sell the feeds business and grain
trading operations.
In order to accelerate the growth of its fish product operations, Lännen Tehtaat
plc decided to purchase the shares of Maritim Food AS, one of the leading fish
product manufacturers in Norway, at the beginning of February. Lännen Tehtaat plc
and the vendor Brynild Gruppen AS signed the deed of purchase on February 6,
2007, thereby transferring the shares of Maritim Food AS to Lännen Tehtaat. The
deal includes Maritim Food AS and its wholly-owned Swedish subsidiaries Maritim
Food Sweden AB and Maritim Food Sweden Egendom AB, as well as its 47.5% minority
interest in the Norwegian Sandanger AS. In addition, the deal includes a call
option which will enable Maritim Food AS to increase its holding in Sandanger AS
to 51% in the future. The enterprise value of Maritim Food AS has been determined
at approximately EUR 15 million. Upon completion of the purchase, Lännen Tehtaat
plc will pay approximately EUR 10 million for the shares of Maritim Food AS, and
assume responsibility for net liabilities of approximately EUR 4 million. The
final purchase price of the shares will be affected by the development of the
assets and liabilities of the companies between June 30, 2006 and the date of
completion of the purchase. In addition to the purchase price payable upon
completion, the parties have agreed on an additional purchase price of EUR 0-1.3
million which is dependent on the 2007 results for Maritim Food and Sandanger AS.
The share purchase is expected to provide Lännen Tehtaat with a Group goodwill
amounting to not more than EUR 7 million.
In 2005, the net sales of Maritim Food AS were approximately EUR 27 million and
the profit about EUR 1.2 million. The balance sheet total was around EUR 10
million. Maritim Food employs an average of 95 people. The net sales of Sandanger
AS were approximately EUR 9 million and profit about EUR 0.3 million. The company
employs about 50 people.
OUTLOOK FOR 2007
In the new year Apetit Pakaste Oy, Apetit Suomi Oy, Apetit Kala Oy, business
operations that will be acquired and Mildola Oy and expenses that are common to
the Group and unallocated to a particular segment will report as Continuing
Operations.
From the beginning of 2007 until the completion of the majority shareholder sale,
the profit/loss of Lännen Tehtaat's feeds business and grain trading will be
reported as a single line item under discontinued operations. Once the
transaction has been completed, the profit/loss will be recorded as a share of
the profit/loss for the relevant associated company.
In the Food Division, the net sales for Apetit Pakaste Oy are expected to remain
at the 2006 level. Product sales are expected to grow by about 5%. With the
transfer of contract farming of sugar beet to the care of Sucros Oy, sales of
farm supplies will be reduced by almost EUR 3 million. Sales under the Apetit
brand are predicted to grow due to a volume increase and changes in the product
mix. Hotel, restaurant and catering sales and industrial sales are also expected
to make good progress. Sales under retailers' own brands and exports are expected
to fall.
Sales by Apetit Kala are expected to continue to grow with further processing of
products and as the proportion of industrially packaged fish in relation to all
the retailed fish grows.
The performance of Apetit Pakaste is expected to continue to make good progress.
It is anticipated that Apetit Kala's ability to achieve results will improve
following productivity measures. The business service unit Apetit Suomi Oy will
record a small profit.
Mildola Oy's net sales are predicted to increase slightly on the 2006 level
because of a small increase in volume and product prices. As the world market
prices for raw materials rise, the processing margins are expected to fall and
the operating profit to be more modest than the exceptionally good results of
2005 and 2006.
Net sales for the feeds business are expected to grow slightly as a result of an
increase in selling prices and volume. The operating profit is expected to grow
due to the increase in net sales, productivity measures and a reduction in fixed
costs.
Net sales for grain trading are expected to grow because of a volume increase.
Due to an increase in the gross margin, the financial performance of Avena Nordic
Grain Oy is predicted to improve slightly on the 2006 level.
Due to the increase in net sales for Apetit Kala and Mildola, the consolidated
net sales for the continuing operations are expected to grow slightly on 2006.
The operating profit for continuing operations excluding non-recurring items is
predicted to increase over the 2006 operating profit excluding non-recurring
items.
As a result of an increase in the net sales of Apetit Pakaste Oy and Apetit Kala
Oy, the net sales for continuing operations are expected to go up slightly on the
2006 level during the first quarter of the year. The operating profit during the
first quarter for continuing operations excluding non-recurring items is expected
to remain at the 2006 level.
The transfer to IFRS reporting will cause the consolidated profit to accrue in
the latter part of the year.
Lännen Tehtaat's vision is to be one of the leading Finnish food companies, which
means the emphasis is on developing food operations. Action to expand the Group's
food business began in autumn 2005. The goal is significant expansion in Finland
and in the northern Baltic region. In order to be able to focus on food in line
with its vision, Lännen Tehtaat has decided to sell the majority holdings in its
feeds and grain trade business operations. The arrangement will strengthen Lännen
Tehtaat's room for manoeuvre and improve the company's chances of developing its
food sector either through corporate acquisition or via other restructuring.
PROPOSED DIVIDEND
The goal of the Lännen Tehtaat Board of Directors is to ensure that an investment
in the company's shares produces a good yield and stable value. In accordance
with its dividend distribution policy, the company distributes dividends worth at
least 40 per cent of the profit for the financial year to the owners of the
parent company. The Board proposes to the Annual General Meeting that for the
financial year 2006, a dividend of EUR 0.84 (0.73) be paid per share, i.e. 40
(40) % of the yield per share.
The parent company's distributable funds totalled EUR 40,066,946.30 on December
31, 2006, of which EUR 2,364,913.53 is profit for the financial year.
The Board of Directors will propose to the Annual General Meeting that Lännen
Tehtaat plc pays a dividend of EUR 0.84 per share, a total of EUR 5,252,163.84,
and leave the remaining EUR 34,814,782.46 in its equity.
No significant changes have taken place in the financial standing of the company
since the end of the financial year. The company's liquidity is good, and in the
view of the Board of Directors, will not be jeopardized by the proposed
distribution of dividends.
CONSOLIDATED INCOME STATEMENT
EUR million
10-12/ 10-12/ 1-12/ 1-12/
2006 2005 2006 2005
3 mths 3 mths 12 mths 2 mths
Net turnover 117.4 122.5 408.7 433.0
Other operating income 2.1 8.2 5.2 10.9
Operating expenses -109.3 -115.6 -391.0 -416.3
Depreciation in value -2.0 -2.1 -8.2 -8.3
Impairments - -0.3 -0.2 -3.0
Operating profit 8.1 12.6 14.5 16.3
Financial income and expenses 0.0 -0.4 1.6 -1.2
Share of profit of associated
companies 1.9 0.6 1.7 -0.1
Profit before taxes 10.0 12.8 17.8 14.9
Income taxes -2.7 -2.8 -4.7 -3.6
Profit for the period 7.3 10.0 13.1 11.4
Attributable to:
Equity holders of the parent 7.3 9.6 13.1 11.3
Minority interest 0.0 0.4 0.0 0.1
Earnings per share, EUR
basic and diluted 1.18 1.52 2.10 1.81
NET TURNOVER BY BUSINESS SEGMENT
EUR million
10-12/ 10-12/ 1-12/ 1-12/
2006 2005 2006 2005
3 mths 3 mths 12 mths 12 mths
Food segment 28.4 39.1 109.1 149.5
Feed segment 59.8 59.9 218.2 205.1
Grain trading segment 34.0 26.0 96.2 86.6
Other operations segment 0.0 1.8 0.0 7.1
Intra-group sales -4.8 -4.3 -14.8 -15.3
Total 117.4 122.5 408.7 433.0
OPERATING PROFIT/LOSS BY BUSINESS SEGMENT
EUR million
10-12/ 10-12/ 1-12/ 1-12/
2006 2005 2006 2005
3 mths 3 mths 12 mths 12 mths
Food segment 2.0 10.1 3.2 9.6
Feed segment 4.4 3.6 12.3 9.4
Grain trading segment 0.8 0.5 2.0 1.4
Other operations segment 1.0 -1.5 -3.0 -4.1
Total 8.1 12.6 14.5 16.3
NET TURNOVER BY GEOGRAPHICAL SEGMENT
EUR million
10-12/ 10-12/ 1-12/ 1-12/
2006 2005 2006 2005
3 mths 3 mths 12 mths 12 mths
Finland 91.1 105.2 342.3 382.8
Other EU member states 10.2 13.5 37.7 34.2
Other countries 16.1 3.8 28.7 16.0
Total 117.4 122.5 408.7 433.0
CONSOLIDATED BALANCE SHEET
EUR million
Dec. 31.2006 Dec. 31.2005
ASSETS
Non-current assets
Intangible assets 1.5 1.7
Goodwill 17.4 17.4
Tangible assets 67.4 72.2
Investment in associated
companies 23.1 21.3
Available-for-sale investments 0.1 3.2
Receivables 5.8 6.9
Deferred tax assets 0.3 1.3
115.6 123.9
Current assets
Inventories 65.3 54.5
Tax receivables 0.3 1.0
Trade receivables and
other reserves 48.7 41.5
Cash and cash equivalents 7.5 11.2
121.9 108.2
Total assets 237.5 232.2
EQUITY AND LIABILITIES
Equity attributable to the
equity holders of the parent
company 119.2 112.4
Minority interest - 3.7
Total equity 119.2 116.1
Non-current liabilities
Deferred tax liabilities 7.0 7.4
Interest-bearing
Long-term borrowings 7.0 16.0
Long-term provisions - 0.9
Non-current liabilities total 14.0 24.3
Current liabilities
Trade payables and other
liabilities 54.2 58.5
Interest-bearing
Short-term borrowings 49.1 29.9
Tax liabilities 1.0 2.4
Short-term provisions - 0.9
Current liabilities total 104.3 91.7
Total liabilities 118.3 116.1
Total equity and liabilities 237.5 232.2
CONSOLIDATED CASH FLOW STATEMENT
EUR million
1-12/2006 1-12/2005
12 mths 12 mths
Cash flow from operating
activities -6.4 17.8
Cash flow from investing
activities -2.7 -8.0
Cash flow from financing
activities
Change in net debt 10.1 -4.5
Dividends paid -4.6 -4.1
Net increase/decrease in cash
and cash equivalents -3.7 1.0
Cash and cash equivalents
at beginning of the period 11.2 10.2
Cash and cash equivalents
at end of the period 7.5 11.2
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
EUR million
A = Share capital
B = Share premium account
C = Net unrealised gains
D = Other reserves
E = Own shares
F = Translation differences
G = Retained earnings
H = Equity attributable to equity holders of the parent company
I = Minority interest
J = Shareholders' equity total
A B C D E F G H I J
Shareholders'
equity at
Jan. 1, 2005 12.6 23.4 1.1 7.3 -0.8 -0.3 61.0 104.3 2.5 106.8
Available-for-sale
financial assets:
gains/losses
from fair value
measurement - 0.4 - - - - 0.4 - 0.4
Cash flow hedges:
gains recorded
in equity - 0.3 - - - - 0.3 - 0.3
Taxes related to
items entered into
equity and removed
from equity - 0.0 - - - - 0.0 - 0.0
Translation
differences - - - - 0.1 - 0.1 - 0.1
Dividend
distribution - - - - - -4.1 -4.1 -0.1 -4.2
Business
combinations - - - - - - 0.0 1.2 1.2
Other changes 0.0 - - - 0.0 - 0.0
Profit for the
period - - - - - 11.4 11.4 0.0 11.4
Shareholders'
aquity at
Dec. 12,2005 12.6 23.4 1.8 7.3 -0.8 -0.2 68.3 112.4 3.7 116.1
Shareholders'
aquity at
Jan. 1, 2006 12.6 23.4 1.8 7.3 -0.8 -0.2 68.3 112.4 3.7 116.1
Available-for-sale
financial assets:
transferred to
income statement
on sale - -2.1 - - - - -2.1 - -2.1
Cash flow hedges:
gains recorded
in equity - 0.5 - - - - 0.5 - 0.5
Taxes related to
items entered into
equity and removed
from equity - 0.2 - - - - 0.2 - 0.2
Translation
differences - 0.0 0.0
Dividend
distribution - - - - -4.6 -4.6 - -4.6
Increase of
ownership in
subsidiary - - - - 0.0 -3.7 -3.7
Other changes - - - - -0.3 -0.3 - -0.3
Profit for the period - - - - 13.1 13.1 - 13.1
Shareholders'
equity at
Dec. 31, 2006 12.6 23.4 0.4 7.3 -0.8 -0.2 76.5 119.2 - 119.2
KEY INDICATORS
Dec 31. 2006 Dec 31. 2005
Shareholders' equity per
share, EUR 19.06 18.56
Equity ratio, % 50.3% 50.0%
Gearing % 40.7% 29.9%
Return on equity, % 10.5% 10.2%
Return on investment, % 11.2% 10.8%
Investments, EUR million 10.6 11.7
Average number of personnel 981 1 033
Average number of shares, 1 000 6 253 6 161
CONTINGENT LIABILITIES
EUR million
Dec 31, 2006 Dec 31, 2005
Mortgages given for debts:
Real estate mortgages 37.5 40.7
Corporate mortgages 51.4 51.4
Share pledged 3.6 3.6
Other securities given for own
commitments
Real estate mortgages 0.0 0.1
Pledges 0.0 0.0
Leasing liabilities 1.1 1.3
Non-cancellable other leases,
minimum lease payments 2.8 3.0
Contingent liabilities for own
commitments:
Repurchasing commitments 0.0 0.1
Other commitments 0.0 -
Contingent liabilities on behalf
of the associated companies:
Repurchasing commitments - 0.1
OUTSTANDING VALUES OF DERIVATIVE INSTRUMENTS
Forward currency contracts 4.5 1.5
Commodity derivative instruments 4.6 5.0
Interest rate swaps 25.0 25.0
