Growth and improved profitability for Fazer

In 2007, Fazer Group's turnover increased by 11.6 per cent from the previous year and stood at EUR 1,192.6 million (EUR 1,068.7 million in 2006). The Group's operating profit was EUR 51.2 million (40.7), up 26 per cent. The Group's divisions accounted for EUR 36.6 million (32.1) of the operating profit, up 14 per cent from a year earlier. Cloetta Fazer and other associated companies made up EUR 5.7 million (6.7) of the result and non-recurring items accounted for EUR 8.9 million (1.9).

‘Over the last few years, we have successfully adjusted and developed our operations to meet the challenges of the extensively changing environment. This has enabled us to boost turnover and profit significantly. Both operating profit and the growth in turnover exceeded our target,’ says Karsten Slotte, President of Fazer Group.

The age of cheap food is over
The good result did not come as a matter of course. The operating environment of the food sector, which has traditionally been stable, has changed radically in recent years. In 2007, for example, the prices of nearly all raw ingredients increased — the price of wheat increased by 90 per cent during the year. At the same time, the price of energy also increased. In addition, there is a major shortage of qualified labour especially in the production and service sectors. ‘These developments demonstrate clearly that the age of cheap food is over. This is also confirmed by macroeconomic forecasts according to which demand for food will double in 25 years,’ says Karsten Slotte.

Innovations and investments as engines of Fazer's growth
The Group continued to enjoy a solid financial position in 2007. The equity ratio remained high and stood at 64 per cent (64). During the year, the Group invested EUR 78 million in new production lines and the updating of existing equipment. The most important investments were made at bakeries in Russia, Latvia and Sweden, and in a new service kitchen in Estonia. Through these investments, Fazer strengthened its position in these markets significantly.

In December, Fazer decided to sell Candyking, its Pick & Mix candy business. The sales process was completed on 15 February 2008.

The year 2007 was Fazer Amica's best ever
Fazer Amica is the leading food service company in the Nordic countries and the Baltic States. In 2007, Fazer Amica's turnover increased by 6.7 per cent to EUR 547.6 million and operating profit increased significantly. The good result is a consequence of long-term investment in customer and staff satisfaction and successful brand innovations.

In Finland, Fazer Amica won many new accounts and succeeded in keeping important customers in tender processes. In Sweden, the outsourcing of services in the public sector continued at pace and Fazer Amica won several large contracts. Strong organic growth continued in Denmark and Norway thanks to new accounts. Two new Fazer Café & Restaurants were opened in Riga, Latvia, which quickly achieved good profitability and became popular with consumers. A restaurant open to everyone was also opened in St Petersburg, Russia.

One of the most important events of the year was the opening of a new service kitchen in Tallinn. The operations of the service kitchen lie in the region between industrial food production and a traditional kitchen. The wide product range allows the kitchen to offer new types of meal choices to today's consumers. The service kitchen’s customers include hotels, restaurant and café chains, service stations, shipping companies and kiosks.

Fazer Amica was reorganised at the start of 2008 in line with decisions made in 2007. The concession business was separated to create its own business unit. The reorganisation supports the opportunities for international growth.

Fazer Bakeries' new products boosted growth
Fazer Bakeries is the most important bakery company in the Baltic Sea region. In 2007, the turnover of the bakeries increased by 14.8 per cent to EUR 490.3 million (including Russia). Long-term product development and interaction with consumers paid off especially in Finland where Fazer Bakeries reclaimed first place in the market during the year. New products accounted for 20 per cent of sales.

Fazer Bakeries has invested consistently in product development and improving operating methods. Fazer Ruisihme rye bread is a good example of this. It is the first bread in the world that helps to reduce cholesterol and balance blood pressure. In Sweden, the bread has been given the name Råghjärta. In Estonia, the most important new product is Must Leib, which rose in six weeks to become Fazer's most widely-sold dark bread in the country. In addition to the new products, the product range was developed during the year by improving and carefully redesigning several products. For example, consumers rewarded the improvement of Fazer's Karelian pies with a 40 per cent increase in sales. Despite the good growth, Fazer Bakeries' profit remained at the previous year's level. The reason for this was the significant and partly unforeseen rise in costs, especially the cost of ingredients.

Fazer Bakeries has worked for many years to harmonise its operating methods. The objective is to respond to the changing demands of business and consumers and to increase the efficiency of operations. This included, for example, the combination of the Estonian, Latvian and Lithuanian operations into a joint Baltic organisation as of the start of 2007, as well as various internal operating procedure development programmes.

During 2007, Fazer invested in a new dispatch department and office premises in Latvia, which doubled the bakery's floor space. A production line was updated in Lövånger, Sweden to increase capacity. In Finland, modernisation of the dosage systems got underway at the bakery in Vantaa, and the cooling and packaging automation at the bakery in Lahti. Investments were made at Fazer Mill & Mixes in silos and bulk materials handling capacity.

Fazer Russia posted growth in a challenging market
Fazer's bakery business in Russia was made into its own division in 2007. Fazer has operated in Russia for ten years and is one of the largest companies in the sector. In 2007, its turnover increased by about 20 per cent to EUR 170 million, reaching the growth targets set although the market situation was challenging. The challenges were the result in particular of significant increases in the prices of raw materials, poor availability of labour and rising wages. During the year, the foundations were laid for the organisational reform carried out in the early part of 2008 and the further expansion of operations. The objective of the organisational reform is to harmonise operating procedures and adjust the range of products so that the company can respond to the changing demands of customers and consumers. The reform is also intended to boost efficiency and support the development of competence. In Russia, Fazer operates under the name and identity of Hlebny Dom.

Fazer invested a total of about EUR 30 million in Russia in 2007. Several production lines were updated at the Moscow bakery. In St Petersburg, where Fazer is the market leader, bakeries are being used at full capacity. In March 2008, Fazer signed an agreement on purchasing a plot of land in the eastern area of the Leningrad Oblast for the construction of a bakery. The investment supports Fazer's growth strategy in Russia and will enable bakeries to deliver products to a wider area than current market regions. The new bakery will make fresh and frozen bread as well as coffee bread. The value of the total investment is likely to exceed EUR 100 million.

Placing the needs of the local customer and consumer at centre stage
Fazer's operations are concentrated on the region surrounding the Baltic Sea. The strategic starting point is to understand the needs of local customers and consumers. Fazer's operations are highly local and labour intensive. The company wants to participate in the development of surrounding communities and help to ensure that the localities in which it operates remain active and vigorous. ‘Local success is built on an understanding of local taste habits and consumer behaviour, customer-oriented operations and the competence of personnel. Fazer is associated with good taste and high quality. We are very proud of that and want to cultivate this tradition,’ says Karsten Slotte, President of Fazer Group.

It is increasingly important for consumers that the operations of companies are based on socially and environmentally sustainable solutions. It is not enough that companies provide good products and services. Consumers also want to know where, when, how and by whom the product was manufactured. Fazer aims to respond to this need: ‘We want to be forerunners in corporate responsibility,’ Slotte says.

Consumers are careful about their own health, but at the same time they demand that providers of goods and services make their lives enjoyable. Consumers are also highly quality-conscious and often treat themselves to a touch of luxury. Fazer's products and services are aimed at providing solutions for various needs, such as the increasing trend for Take Away foods, healthy but still tasty meals and breads, and numerous products and alternative meals for treats.

Fazer is capitalising on its strong brand in Finland
Fazer has 900 restaurants, 11 bakeries and a mill in Finland. The Group employs over 6,300 people in the country. Finland is the Group's biggest market, and turnover grew in this area by 6.5 per cent to EUR 534.2 million.

Fazer Amica was again chosen as the best known company offering staff catering services in Finland. It also got the best overall grade from decision-makers for its operations among companies in its sector, and in addition customers who ate in the restaurants were extremely satisfied. Fazer Amica won several new important accounts such as the Bank of Finland and all the restaurant services for the Finnish Parliament House. Fazer Bakeries launched 44 new products on the market, a new record, and by the end of the year their share of sales had risen to about one-fifth. Fazer Bakeries' market share was 29.8 per cent in December, which means that the bakery is again the market leader in Finland.

Fazer is Finland's most respected brand. In the brand survey carried out in 2007 by Markkinointi & Mainonta magazine and Taloustutkimus, Fazer Blue came first and Fazer second.

Sweden is Fazer's second home market
Fazer has 300 restaurants and two bakeries in Sweden. The Group has over 2,800 employees in Sweden and its turnover increased by 7.2 per cent in 2007 to EUR 292.8 million.

Fazer Amica won several new and important contracts in Sweden during the year, such as the municipality of Upplands Väsby and the central kitchen of Ekbacken in the municipality of Sundbyberg. The Conference business made important headway in the Göteborg region, where Nääs Fabriker Hotell & Restaurang started its operations. Fazer Bakeries successfully launched several new products on the market such as Aktiv toast rolls, Rågform rye bread, and the market share of the bakeries increased to about 9 per cent.

Russia is Fazer’s most important growth area
Fazer is one of the largest bakery companies in Russia. The company has three bakeries in St Petersburg and one in Moscow. Together with Fazer Amica's catering business, they employ over 3,800 people. Fazer’s bakery business in Russia has grown an average of 37 per cent per year during the last three years, and it currently constitutes around 14 per cent of the entire Group’s turnover.

Great work tastes
At the end of 2007, the Fazer Group had 15,945 employees (15,275 in 2006). During the year, the average number of employees was 13,470 (13,147). The growth is due to, for example, Fazer Amica's growth in Denmark, the Baltic States and Russia. The number of people employed by Fazer Bakeries increased in Estonia, Latvia and Sweden. The number of bakery employees also increased in Russia during the year.

Fazer's operations are local and the food industry is highly labour intensive. ‘Fazer is dependent on committed employees. We have always respected good work, and it is carried out in an atmosphere of good teamwork. Employment relationships often last many years and there will be plenty of work to do in the food sector in the future. We train our staff actively and ensure that Fazer's quality is in safe hands,’ says Karsten Slotte.

Our respect for employees shows in practice and Fazer has a good reputation as an employer both among the company's employees and outside the company, as has been shown by surveys. Despite its reputation as a good employer, Fazer must ensure that it can find enthusiastic employees in the future — in the worst possible scenario, a shortage of labour could prevent the growth of the industry. The "Great Work Tastes" recruitment programme launched in October 2007 uses new methods to respond to the challenges of finding competent employees. The programme's objective is to increase awareness of the versatility of jobs in the catering and food industries and streamline the job application process. The results of the programme from last autumn are encouraging: No fewer than 43,000 people visited the interactive recruitment website during the first month, there was a clear increase in the number of job applicants and the applicants were better qualified. Fazer also succeeded in filling positions that had been open for a long time.

The outlook for 2008 is positive
The Group's divisions agreed on raising prices of their products and services in all markets during the last four-month period of the year. Most of the price increases will enter into force during the first four-month period of 2008. Fazer's strong brands and the company's strong position in chosen markets provide a good opportunity for positive development in the future. Nevertheless, high prices of raw materials and energy and rising labour costs present increasing challenges for the Group's internal efficiency. Fazer assumes, however, that the planned development measures and the positive development of nearly all of the Group's business units will enable an improvement in profit during 2008.

‘I have full confidence in our possibilities to continue improving our positions and our profitability in 2008. The greatest challenge is the steep rise in the world prices of raw materials. The result after the first three months is approximately in line with our plans,’ says Karsten Slotte.

The 2007 annual review
Fazer's new annual review highlights the events during 2007 and success stories about taste sensations.

The 2007 annual review is available on Fazer Group's website www.fazergroup.com. The printed annual review can be ordered by sending an e-mail to jaana.honkanen@fazer.fi or from the annual review section of the Group's website.

Fazer's corporate responsibility report is available on the Group's website www.fazergroup.com.

There is a link to Fazer's image bank at the bottom of the Group's website.

For additional information, please contact:

Karsten Slotte, President, Fazer Group, tel. + 358 (0) 40 507 7065
Ulrika Romantschuk, SVP Communications, tel. +358 (0) 40 566 4246


Fazer Group
Fazer Group originates from a family business founded in 1891. Today the Group offers meals and bakery products and operates in a total of eight countries. Its operations are based on passion for customer, quality excellence and team spirit. The Group operates in three divisions, which are all committed to offering taste sensations: Fazer Amica, Fazer Bakeries and Fazer Russia. Fazer Amica is a leading contract catering company in the Nordic and the Baltic countries, offering customers delicious food and tailor-made service solutions. The company operates in the Nordic countries, Estonia, Latvia and Russia. Fazer Bakeries offers fresh and tasty bakery products and operates in Finland, Sweden, Estonia, Latvia and Lithuania. Fazer Russia is responsible for Fazer’s bakery operations in Russia and is one of the leading bakery companies in Russia. Fazer’s most important associated company is Cloetta Fazer AB, which is the leading confectionery company in the Nordic countries. Fazer Group‘s turnover for 2007 was around 1.2 billion euros. The Group employs ca. 15,000 people.