Board of Directors’ report 2007

Group structure: changes and acquisitions

With the aim of producing a more coherent business structure, Lännen Tehtaat turned the Apetit Frozen Foods and Jams unit and the Group’s service operations into separate companies during the year. Previously part of Lännen Tehtaat plc, Apetit Frozen Foods and Jams became Apetit Pakaste Oy at the beginning of 2007, and the Group’s service operations, comprising sales, marketing, IT, human resources management, environmental management, and some of the financial and financing management, were corporatized under the name Apetit Suomi Oy.

Apetit Kala Oy sold its 20% holding in Oy Silva Seafood AB in January 2007. The transaction had no impact on the Group’s financial result.

Lännen Tehtaat’s vision is to be one of the leading Finnish food companies, with operations across the northern Baltic region. As part of the strategy for achieving this, the Group decided to withdraw from the animal feeds business by selling a 51% majority of its shares in Suomen Rehu Ltd to Hankkija-Maatalous Oy at the beginning of June. Following this, Suomen Rehu Ltd and its subsidiaries were transferred to Hankkija-Maatalous and Suomen Rehu became an associated company of Lännen Tehtaat plc, which retained a 49% holding in Suomen Rehu.

In connection with the Suomen Rehu transaction, agreement was reached on an option scheme by which Lännen Tehtaat has the right, at any time, to sell the remaining 49% of the Suomen Rehu shares to Hankkija-Maatalous Oy. For its part, Hankkija-Maatalous has a call option on the remaining shares that it may exercise no earlier than 15 months after the transaction, i.e. not before September 2008.

In autumn 2006, Lännen Tehtaat and Raisio decided to dissolve ZAO Scandic Feed, the animal feed company established as a joint venture in Russia. The dissolution was completed in June.

In accordance with its strategy, Lännen Tehtaat embarked on the expansion of its food businesses, buying the entire share capital of Norwegian fish-processing company Maritim Food AS on 28 February 2007. Along with Maritim Food AS, the deal included transfer of Maritim’s wholly owned Swedish subsidiaries Maritim Food Sweden AB and Maritim Food Sweden Egendom AB to the ownership of Lännen Tehtaat, as well as transfer of Maritim Food’s 47.5% minority interest in the Norwegian company Sandanger AS. Maritim Food AS also had a call option on Sandanger’s shares that allowed it to increase its holding in Sandanger to 51%. Maritim Food exercised this option in August, purchasing 3.5% of Sandanger’s shares in accordance with the agreement. This raised Maritim Food’s holding in Sandanger AS to 51%, and Sandanger became part of Maritim Food and the Lännen Tehtaat Group at the end of August 2007.

Segment reporting

Following the changes made in the Lännen Tehtaat Group structure, the Group’s segment reporting has been revised accordingly.

The Group’s primary reporting format covers all of its business segments, which are as follows: Frozen Foods, Fish, Vegetable Oils, Grain Trading and Other Operations. The Frozen Foods business comprises Apetit Pakaste Oy, the Fish business Apetit Kala Oy and Maritim Food, the Vegetable Oils business Mildola Oy, the Grain Trading business Avena Nordic Grain Oy and its subsidiaries, and Other Operations Apetit Suomi Oy, the Group Administration and items not belonging to any of the other business segments. The cost effect of services produced by Apetit Suomi Oy is an encumbrance on the operating result in proportion to the use of services. The personnel of Apetit Suomi are allocated either under Frozen Foods or Fish, depending on the nature of their work.

Since the beginning of 2007, Frozen Foods, Fish, Vegetable Oils, Grain Trading and Other Operations have together comprised the Lännen Tehtaat Group’s continuing operations under the IFRS reporting arrangements. The figures for the previous year used for comparison purposes have been altered to conform with the new reporting structure.

The Group’s secondary reporting format applies to the geographical division of its business segments, and this was also revised from the start of 2007. The geographical segments reported are Finland, Scandinavia, the Baltic countries and Russia, and Other countries.

Reporting discontinued operations

The Group’s discontinued operations in 2007 comprise Suomen Rehu, for the period up to the start of June. The profit from the sale of the majority of Suomen Rehu shares was also included under discontinued operations. In Lännen Tehtaat’s consolidated income statement, the discontinued operations’ profit for the year is presented as a separate line after the income statement data for the continuing operations. The figures for the previous year used for comparison are shown in the same way. In accordance with the IFRS rules, no depreciation according to plan was applied to discontinued operations after 19 January 2007. From the start of the year to the date of the Suomen Rehu transaction, the assets and liabilities of operations held for sale are presented separately from other assets and liabilities in the consolidated balance sheet as non-current assets held for sale and as liabilities associated with non-current groups of assets held for sale. The same categorization was not made in the 2006 balance sheet.

Net sales and profit

Consolidated profit for the financial year totalled EUR 13.4 (13.1) million. This includes a non-recurring sum of EUR 5.6 million as profit from the sale of the majority holding in Suomen Rehu. The profit figure for 2006 includes EUR 3.7 million in non-recurring items. The earnings per share came to EUR 2.13 (2.10).

Continuing operations
The net sales of the continuing operations in the financial year came to EUR 309.6 (244.5) million, an increase of EUR 65.1 million or 27% on the previous year. The growth occurred mainly in the Fish and Grain Trading businesses.

The operating profit of the continuing operations excluding non-recurring items was EUR 3.5 (3.8) million. Non-recurring items totalled EUR –0.3 (+1.5) million. The performance of Frozen Foods, Grain Trading and Other Operations improved on the previous year, while that of the Fish and Vegetable Oils businesses deteriorated.

Net financial expenses for the full year were EUR –0.8 (+3.2) million. In the previous year this figure included approximately EUR 2.6 million profit from the sale of shares unrelated to the Group’s business.

The share in the profit of associated companies was EUR 3.5 (1.6) million: EUR 2.1 (1.8) million from Sucros and EUR 1.4 million from the 49% holding in Suomen Rehu following the sale of the majority holding in June. The share in the profit of Sucros includes non-recurrent transitional aid to full-time refiners of EUR 0.7 million, paid on the basis of the EU sugar production reform of 2006.

The pre-tax profit of the continuing operations was EUR 6.0 (10.2) million. This includes EUR –0.2 (+4.2) million in non-recurring items. The profit for the financial year was EUR 5.6 (7.5) million. Taxes for the financial year came to EUR –0.4 (–2.7) million.

Discontinued operations
The Group’s discontinued operations comprise Suomen Rehu. The income statement for the previous year has been divided into continuing and discontinued operations, as if Suomen Rehu had been discontinued from the beginning of 2006.

The profit for the discontinued operations for 2007 comprises the profit of Suomen Rehu from January to the beginning of June plus the profit from the sale of the majority holding in Suomen Rehu less the costs of the transaction. A tax-free profit of EUR 4.1 million on the sale of the majority holding based on a fixed share price was recognized in the second quarter. The final sales price was determined on the basis of the balance of the majority holding at the time of the transaction. The correction to the sale price for the majority holding, EUR 1.5 million, was recognized in the third quarter.
The profit of the discontinued operations for the financial year was EUR 7.8 (5.6) million.

Key figures

Financing and cash flow

The cash flow from operating activities in the financial year after interest and taxes amounted to EUR 5.3 (–6.4) million. The impact of the change in working capital was EUR –3.3 (–23.1) million. The cash flow from investing activities came to EUR 22.5 (–2.7) million. The impact of the sale of the majority holding in Suomen Rehu on the cash flow in investing activities was EUR 42.5 million. The cash flow from loans was EUR –24.9 (+10.1) million. EUR 5.3 (4.6) million was paid out in dividends.

At the end of the financial year, the Group had EUR 33.6 (56.0) million in interest-bearing liabilities and EUR 13.2 (7.5) million in liquid assets. Net interest-bearing liabilities totalled EUR 20.4 (48.5) million. The consolidated balance sheet stood at EUR 205.9 (237.5) million. Equity totalled EUR 128.0 (119.2) million at the end of the financial year, and the equity ratio was 62.1% (50.3%). Commercial papers issued for the Group’s short-term financing stood at EUR 27.5 (38.0) million at the end of the financial year. Liquidity is secured with committed credit facilities. No credit facilities were in use at the end of the financial year.

Investment

Gross investment in non-current assets, excluding corporate acquisitions, came to EUR 7.5 (7.6) million. Investment by Frozen Foods totalled EUR 1.6 (0.8) million, by the Fish business EUR 4.1 (0.6) million, by Vegetable Oils EUR 0.4 (0.4) million and by Other Operations EUR 0.8 (0.2) million. Investment by the Feeds business up to the date of sale of the majority holding was EUR 0.6 (5.7) million.

Investment in shares during the financial year totalled EUR 11.6 (3.0) million and concerned the acquisition of shares in the Norwegian fish-processing company Maritim Food AS and in Sandanger AS.

Overview of each business

Frozen Foods
Net sales of the Frozen Foods business totalled EUR 49.3 (50.2) million. The slight decline in net sales was due to the transfer of both sugar beet contract growing and sales of the related supplies to Sucros Ltd at the beginning of 2007. The net sales associated with contract growing in the previous financial year totalled EUR 2.9 million. Food sales increased by about 4%, including an increase of about 1% in sales of retail frozen foods.

Apetit’s own brands once again accounted for a higher proportion of sales than in the previous year. Sales of Apetit’s frozen potato products and frozen pizzas grew by more than 15%. Active marketing campaigns and new product launches expanded the overall market as well as Apetit Pakaste’s share of that market. Sales in other retail product groups remained at the previous year’s level. Sales in the hotel, restaurant and catering sector grew by more than 10% due to the improved competitiveness of Finnish vegetables in relation to imports. Among the different sales channels, the largest growth in relative terms was in exports. A good pea crop in Finland enabled peas to be exported not only to Italy but to central Europe too, where the crop was exceptionally poor due to unfavourable weather conditions. Exports increased by almost 40% on the previous year.

The operating profit of Frozen Foods, excluding non-recurring items, was EUR 3.5 (2.2) million. The profit was adversely affected by a non-recurring EUR 0.2 million write-down on fixed assets removed from service. Non-recurring items in the previous year totalled EUR –0.5 million. The improved profit was the result of improved product sales and changes in the product range. Systematic improvement of productivity and cost-efficiency also had a favourable impact on the profit of Apetit Pakaste. In order to continue this improvement, Apetit Pakaste decided to transfer production from its Turku plant to Säkylä, which will require an investment of about EUR 4 million at Säkylä during 2008. Earthmoving for the necessary construction work was begun in the autumn, and the construction is scheduled for 2008, the plan being to move production from the Turku plant to Säkylä by the end of the year. This centralization of production is expected to improve the operating profit by about EUR 0.9 million as of 2009.

Investment in Frozen Foods totalled EUR 1.6 (0.8) million in 2007. The most significant item was a renewal of the freezing technology, which will enhance energy efficiency and improve production logistics and product quality. Further packaging automation was also introduced.

Fish
The net sales of the Fish business totalled EUR 81.7 (58.9) million. The increase in net sales due to the acquisition of Maritim Food and Sandanger, merged into the Group at the beginning of March and the beginning of September, respectively, was EUR 26.0 million. Apetit Kala’s sales and market share declined slightly on the previous year as a result of delivery problems in the summer and the poor availability of wild fish and of the raw material for hot-smoked whitefish in the autumn. Apetit Kala introduced several new products, including sliced hot-smoked fillets, and in the autumn shellfish products from Maritim Food sold under the Apetit Maritim brand came onto the market in Finland. Also sold under the Apetit Maritim brand are the new rainbow trout and shrimp gourmet salads launched towards the end of the year.

Net sales at Maritim Food increased slightly on the previous year, mostly due to an increase in the sales of shellfish and processed fish products. Sales of dressings were roughly the same as the previous year. Sales of fish products declined in terms of total value, mainly because of a drop in raw material prices. Sales to Maritim Food’s principal customer grew well during the year.

The full-year operating profit for the Fish business, excluding non-recurring items, was EUR –1.5 (+1.1) million. Non-recurring items came to EUR –0.3 (+0.4) million and comprised the write-down on Apetit Kala’s Kustavi facility.

The allocation of the acquisition cost of Maritim Food caused a negative impact of just over EUR –0.5 million. The non-recurring impact of the allocation was EUR -0.3 million, and the long-term effect adding to depreciation is approximately EUR -0.2 million annually. The contribution of Maritim Food to the operating profit of the Fish business for the full year was slightly positive, as anticipated.

Apetit Kala’s profitability in the early part of the year was adversely affected by high raw material prices, equipment failures and breaks in the production process. The transfer of production from Kustavi and Kerava to Kuopio also led to additional and overlapping costs. In the second half of the year, limited availability of the raw material for hot-smoked whitefish affected the delivery performance of consumer-packaged products.

The functions of the Kustavi production plant were moved to Kuopio during April/May, and the production and packaging functions of the Kerava plant during August/September. Following this, the company’s entire production is now concentrated at a single plant in Kuopio. The logistics centre remains in Kerava. The cost savings from this centralization are expected to gain full effect from the beginning of 2008.

Management positions at Apetit Kala were filled during the year, with the recruitment of a managing director and production and purchasing managers. The aim was to bring more expertise to the development of the company’s core processes, executive control, quality, productivity and purchasing. Delivery performance and productivity have improved as a result of efficiency measures in production control introduced in August. In purchasing, the focus has been on developing procurement channels, agreement procedures and the purchasing process.

In retail concepts, procedures were standardized among the Kalatori service counters with the introduction of new concept manuals, regular concept assessments and a self-assessment model. At the end of the financial year, there were 66 Kalatori service counters.

Investment in the Fish business during the financial year totalled EUR 4.1 (0.6) million. Of this, EUR 2.9 million was allocated to the expansion of the premises in Kuopio in accordance with the production centralization plan. Other significant investments involved replacing smoking ovens and improving the filleting process. Maritim Food investments came to EUR 0.2 million.

Vegetable Oils
The net sales of the Vegetable Oils business increased by 13% to EUR 46.0 (40.6) million. The increase was due to a growth in volume, higher added value products and higher sales prices.

Operating profit, excluding non-recurring items, was EUR 0.8 (2.9) million. The non-recurring items, EUR 0.1 (0.2) million, include the profit from the sale of the storage silo property at Kirkniemi in Lohja. The decrease in operating profit was due to a decrease in the refining margin. The sales prices of vegetable oils and protein feed have been slower to rise than the prices of raw materials, which decreased the refining margin particularly in the latter half of the year.

Gross investment in the Vegetable Oils business totalled EUR 0.4 (0.4) million. The most significant individual investment was the renewal of the company’s enterprise resource planning system.

Grain Trading
Growth in the Grain Trading business continued to be strong throughout 2007. Net sales for the year were up by 38% to EUR 132.8 (96.3) million, growing on both the domestic and international market. The growth was attributable to a volume increase of about 10% and the exceptionally high market prices for grains and oilseeds.

The Lithuanian subsidiary UAB Avena Nordic Grain consolidated its position as a grain trader in the region and contributed to the net sales growth in the Grain Trading business.

In Kazakhstan, the volume of Avena’s grain trading for export exceeded the level of recent years by a considerable margin. With the aim of expanding its grain procurement in Finland, Avena Nordic Grain opened an office in Salo in August, mainly to serve growers in southwest Finland.

The full-year operating profit of the Grain Trading business almost doubled, rising to EUR 3.9 (2.0) million.

Other operations
Other Operations comprise the service company Apetit Suomi Oy, the Group Administration and items not allocated under any of the business segments. The cost effect of services produced by Apetit Suomi is an encumbrance on the operating result in proportion to the use of the services.

Net sales in Other Operations amounted to EUR 4.4 (0.0) million. This figure consists of service sales by Apetit Suomi Oy; in 2006, these sales were included under other Frozen Foods operating income.

The operating profit of Other Operations, excluding non-recurring items, came to EUR –3.0 (-4.5) million. This includes Apetit Suomi Oy’s positive contribution of EUR 0.5 (0.0) million. The non-recurring items concerning previous business divestments or discontinued operations and real estate deals totalled EUR 0.1 (1.5) million.

Shares and share capital

The shares of Lännen Tehtaat plc are all in one series. All shares confer the same voting and dividend rights. The Articles of Association stipulate that the number of votes a shareholder is entitled to exercise cannot exceed one tenth of the votes represented at a shareholders’ meeting. The nominal value of each Lännen Tehtaat plc share is EUR 2, and the total number of Lännen Tehtaat plc shares is 6,317,576. The minimum share capital is EUR 10 million, and the maximum EUR 40 million.


Authorizations granted to the Board of Directors
The shareholders’ meeting of Lännen Tehtaat plc held on 29 March 2007 authorized the Board of Directors to decide on a new issue of shares and on the transfer of Lännen Tehtaat plc shares held by the company, in one or more lots as share issues based on subscription prices. The maximum number of new shares that can be issued is 631,757, and the maximum number of Lännen Tehtaat shares held by the company that can be transferred is 65,000. The subscription price for each new share must be at least its nominal value, EUR 2. The transfer price for Lännen Tehtaat shares held by the company must be at least the current value of the share at the time of transfer, determined by the price quoted in public trading on the Helsinki stock exchange (OMX Nordic Exchange Helsinki Oy). This authorization includes the following rights: the right to deviate from the shareholders’ pre-emptive subscription right if the company has a substantial financial reason to do so; the right to offer shares not only against money payment but also against capital consideration in kind or under other specified terms or by exercising right of set-off; and the right to decide on the subscription price of shares and other conditions of and matters related to the share issue.

This authorization is valid until the next Annual General Meeting. The authorization revoked the earlier authorization to issue shares, given on 29 March 2006, and the authorization to transfer the company’s own shares, given on the same date.

To date, the Board of Directors has not exercised the authorization to issue shares.

Lännen shares held by the company
At the close of the financial year, the company held 65,000 Lännen Tehtaat plc shares, or 1.0% of the total shares and votes. The nominal value of these Lännen Tehtaat shares held by the company was EUR 130,000. No change occurred in the number of Lännen Tehtaat plc shares held by the company during the financial year or during the year preceding it.

Dividend distribution
The Annual General Meeting of Lännen Tehtaat plc, held on 29 March 2007, decided to pay a dividend of EUR 0.84 (0.73) per share.

Share trading
During the financial year, 923,450 (1,622,123) Lännen Tehtaat plc shares were traded on the stock exchange, i.e. 14.6% (25.7%) of the total number of Lännen Tehtaat shares. The highest share price was EUR 24.50 (24.70) and the lowest EUR 15.65 (15.26). The share turnover totalled EUR 19.3 (32.8) million. The price at the end of the year was EUR 16.19 (24.30) and the market capitalization was EUR 102.3 (153.5) million.

Flagging announcements
On 19 October 2007, Skagen Funds administered by the Norwegian company Skagen AS announced under chapter 2, section 9 of the Securities Markets Act, that it had purchased Lännen Tehtaat plc shares and that its holding on 18 October 2007 totalled 318,200 shares, which represents 5.04% of the total number of Lännen Tehtaat plc shares and of the voting rights conferred by the shares.

Ownership of shares
The distribution of ownership of Lännen Tehtaat plc shares by sector, the names of the major shareholders and the number of shares held by the Group’s management are presented in the notes to the financial statements (under note 32).

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.

Seasonality of operations

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 final quarter, which means that the inventory volumes and their balance-sheet values are at their highest at the end of the year. Since the entry of the fixed production overheads included in the historical cost as an expense item 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 is most marked in Frozen Foods and in the associated company Sucros, due to the timing of the crop harvesting and production seasons.

Apetit Kala’s sales peak at weekends and on seasonal holidays. A major proportion of the entire year’s profit in the Fish business depends on the success of Christmas sales.

Research and development

The Group’s research and development costs came to EUR 0.7 (1.1) million, representing 0.2% (0.5%) of net sales. The research and development work mainly concerned the development of new products.

In Frozen Foods, product development focused on the development of frozen ready meals with a higher added value and new kinds of frozen vegetable combinations. Product launches consisted of oven ready Apetit creamed potatoes, vegetable salsas and the new, spicy Tikka Masala Shrimps and Green Curry Chicken, both part of the Quick&Tasty range. The beginning of 2008 saw the launch of a further new Apetit product, potatoes and chopped vegetables for soups.

In the Fish business, the selection of hot-smoked products was expanded with the launch of ready sliced fillets and portions. The Apetit Maritim shellfish range was developed for the Finnish market, and rainbow trout and shrimp gourmet salads were also launched under the Apetit Maritim brand. Two products were also developed for the new Kalamestari fish strips range (both in larger packs) for launch in early 2008.

In the Vegetable Oils business, Mildola continued to develop the Neito range, launching several new products during the year. For its food industry customers the company developed a number of additional customer-specific product solutions, while for the hotel, restaurant and catering sector it focused on products designed for its new customers.

Risks, uncertainties and risk management

To improve risk management within the Group, risk surveys and risk assessments of all activities were carried out in each of the business segments during the year. The results were used to document a comprehensive risk management system. Under this system, all Group companies and business units will regularly assess and report the risks involved in their operations and the adequacy of the control and management methods. The purpose of these risk assessments, which support strategy formulation and decision-making, is to ensure that sufficient measures are taken to control risks.

The Board of Directors of Lännen Tehtaat plc has confirmed the Group’s risk management policy and risk management principles.

No significant individual risks have emerged in the Group’s risk assessments that would warrant special measures over and above those defined in the risk management process and forming part of normal business operations.

The Group’s most significant strategic risks concern corporate acquisitions and their integration into the Group, and changes occurring in the Group’s business sectors and in its customerships.

The main operating risks concern raw material availability, the time lags between purchasing and selling or use of raw materials, and fluctuations in raw material prices. Managing price risks is especially important in the Group’s Grain Trading, Vegetable Oils and Fish businesses, in which raw materials represent between 65% and 85% of net sales. The prices of grains, oilseeds and the main fish raw materials are determined on the world market. In both the Vegetable Oils and Grain Trading businesses, limits are defined for open price risks.

The Group operates in international markets and is therefore exposed to currency risks associated with changes in exchange rates. The most significant currency risks concern the US dollar and the Norwegian krone.

In accordance with the Group’s risk management policy, all major open currency positions are hedged. Further details concerning the management of currency risks are given in the notes to the financial statements (under note 25).

Fire, serious process disruptions and disease epidemics can all lead to major property damage, losses from breaks in production and other indirect adverse impacts on the company’s operations. Group companies guard against these risks by evaluating their own processes through self-monitoring and by taking corrective action where necessary. Insurance policies are used to cover all risks for which insurance can be justified on financial or other grounds.

The process of renewing Lännen Tehtaat’s enterprise resource planning system was begun in autumn 2007. The aim is to replace all of the Group’s tailored operating and financial control systems with packaged business solutions. The Frozen Foods and Fish businesses and the Group’s common functions will switch over to the new system during 2008.

Lännen Tehtaat is aware of the risks involved in transferring to the new system, and these risks are being regularly monitored by steering and working groups as the project progresses.

Management

At its meeting on 11 April 2007, Lännen Tehtaat plc’s Supervisory Board elected Juha Nevavuori as chairman and Heikki Halkilahti as vice chairman of the Supervisory Board.

The Supervisory Board elected the following as members of the Board of Directors: Harri Eela, Aappo Kontu, Matti Lappalainen, Hannu Simula, Soili Suonoja and Tom v. Weymarn. Tom v. Weymarn was elected chairman of the Board of Directors and Hannu Simula vice chairman.

Lännen Tehtaat plc’s CEO is Matti Karppinen. The Group’s CFO Eero Kinnunen was appointed Deputy CEO by the Board of Directors as of 1 January 2008.

Personnel

The most important areas for personnel development are management, professional competence and workplace interactive skills.

In 2007, the Group employed an average of 849 people (2006: 981 and 2005: 1,033). The distribution of the personnel across the different business operations is as follows:

In the Fish business, the increase in personnel was due to the acquisition of Maritim Food.
Lännen Tehtaat publishes a separate personnel report (in Finnish), which can be viewed on the Lännen Tehtaat website at www.lannen.fi/fi/henkilosto.

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 in all its activities. The aim is that production should be efficient and 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 that are 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.

Environmental issues are reported in more detail (in Finnish) on the Lännen Tehtaat website at www.lannen.fi/fi/ymparisto.

Events since the end of the financial year

Apetit Kala’s retail concept business, the Kalatori service counters, has been run both by the company and as franchises. Apetit Kala has decided to discontinue the franchise model and to take over the 11 franchised Kalatori sales points during spring 2008.

In January, Sami Haapasalmi was appointed to head the Lännen Tehtaat Group’s domestic and international fish business. He is responsible for the profitability of the Fish business segment and for expanding the business both organically and through acquisition.

Continuation of beet sugar production by the associated company Sucros
In September 2007, the agriculture ministers of the European Union member states approved the new decisions on cutting sugar production. The key element of the new arrangements is that the cut in production is intended to be achieved by encouraging growers and the industry to give up production voluntarily.

Following the EU’s decisions, the continuation of production at Sucros Ltd’s Säkylä sugar mill has hung in the balance. In December, the producer organizations the Central Union of Agricultural Producers and Forest Owners (MTK) and the Central Union of Swedish Speaking Agricultural Producers in Finland (SLC) and Sucros Ltd signed a seven-year agreement on the terms and conditions for beet growing and sugar production. A sufficient number of growers expressed the desire to continue growing sugar beet, and the necessary number of growing contracts to secure production at the Säkylä sugar mill were signed during January and February 2008.

On 8 February 2008, Sucros Ltd and its owners Danisco Sugar A/S and Lännen Tehtaat plc took the decision to continue beet sugar production at the Säkylä mill.

Lännen Tehtaat plc has a 20% holding in Sucros Ltd, which produces sugar in Finland. This holding is valued at about EUR 19.2 million on the consolidated balance sheet. The new sectoral agreement dispelled the uncertainty over future sugar production in Finland. On this basis, Lännen Tehtaat will recognize more than EUR 3 million related to the EU restructuring aid for the closure of the Salo sugar mill as non-recurring income from the associated company Sucros Ltd in the first quarter of 2008, which means that all the compensation will have been entered in the accounts.

Alteration to reporting practice
Lännen Tehtaat has decided to alter its reporting practice in respect of the way in which it presents its share of the profit/loss of associated companies from the start of 2008. In future, the share of the profit/loss of associated companies related to food businesses will be included in the operating profit, and the share of the profit/loss of associated companies not forming part of Lännen’s core businesses will be shown below the operating profit. The share of the profit/loss of Sucros Ltd, Ateriamestarit Oy and Sandanger AS is shown above the operating profit. The share of the profit/loss from Sucros Ltd and Ateriamestarit Oy is reported under Other Operations, and the share from Sandanger AS from 1 March to 31 August 2007 is reported under the Fish business.

The share of the profit from Suomen Rehu is shown below the operating profit.

Strategy review
Following a review of strategy, the Lännen Tehtaat plc Board of Directors confirmed the company’s updated vision and mission statements and its corporate values. Lännen Tehtaat plc’s vision is to be one of the leading Finnish food companies, with operations across the northern Baltic region. The company’s mission is to produce added value for its shareholders on a long-term basis. This will be achieved by means of profitable organic and external growth. The Group’s corporate values are set out under the headings of customer focus, renewal and responsibility.

The Board of Directors also approved the Group’s long-term financial targets. The aim is to double net sales over a period of three years and to achieve an operating profit of 5% of net sales, a 12% return on equity, and an equity ratio in the longer term of at least 40%.

Outlook for 2008

Full year
The full year’s net sales for the continuing operations are expected to be up, and the operating profit is expected to improve on the previous year.

The net sales of the Frozen Foods business are expected to increase slightly on 2007. Sales of Apetit’s own brands are expected to grow, while sales to the hotel, restaurant and catering sector and to the food industry are likely to remain steady and exports are expected to decline. Apetit Pakaste’s financial performance will be adversely affected by higher raw material and energy costs and the non-recurring expenses from the transfer of production from Turku to Säkylä and the introduction of the enterprise resource planning system. The positive impact of production centralization will begin to show in 2009.

The net sales of the Fish business are expected to grow with the first full year of the added net sales of Maritim Food and Sandanger. Apetit Kala’s net sales are expected to increase through livelier demand and improved delivery performance, and as existing Kalatori franchises are transferred to Apetit Kala. The performance of the Fish business is expected to improve and to end up significantly in profit as a result of process development and productivity-improving measures. The operating profit will also improve with the first full year of Maritim Food being part of the Group.

The net sales of the Vegetable Oils business are expected to increase from their 2007 level due to rising product prices. The refining margin is expected to grow and the operating profit to improve on 2007.

The net sales of the Grain Trading business are expected to remain at the previous year’s level. The operating profit is likely to be good, though slightly below the exceptionally good level seen in 2007.

The IFRS reporting means that a considerable proportion of the Group’s profits will accrue late in the year.

Proposed dividend

The aim of the Board of Directors of Lännen Tehtaat plc is that the company’s shares provide shareholders with a good return on investment and retain their value. It is the company’s policy to distribute at least 40% of the profit for the financial year in dividends to the shareholders of the parent company.

The Board of Directors will propose to the Annual General Meeting that the dividend to be paid on the financial year 2007 be 40% of the profit. The Board’s proposal for dividend is thus EUR 0.85 (0.84) per share.

The parent company’s distributable funds totalled EUR 61,598,627.82 on 31 December 2007, of which EUR 26,783,845.36 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 0.85 per share from the distributable funds, or EUR 5,314,689.60 in total, and leaves the remaining EUR 56,283,938.22 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.