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