HK RUOKATALO GROUP OYJ ANNUAL REPORT 2004

Transcription

1 HK RUOKATALO GROUP OYJ ANNUAL REPORT 2004

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3 HK RUOKATALO GROUP OYJ ANNUAL REPORT 2004 Contents Company overview Shareholder information... 6 Headlines in CEO's review HK Ruokatalo's vision is to evolve into the leading meat company in the Baltic Region Market area: Finland Commercial Operations Group Slaughtering & Cutting Group Processing & Production Group Poultry Group Logistics Group Raw meat procurement and control LSO Foods Oy Working to enhance operations Market area: the Baltics Market area: Poland Report of the Board of Directors Financial indicators Profit and loss account Balance sheet Cash flow statement Notes to the financial statements Shares and shareholders Signatures of the Board of Directors and CEO Report of the Auditors Corporate governance Board of Directors Management Team in Finland Management Team in the Baltics Stock exchange bulletins Addresses HK Ruokatalo Group Oyj, Kaivokatu 18, FI Turku. Registered office: Turku. Business Identity Code:

4 COMPANY OVERVIEW Prospering in Finland strong in the Baltics growing in Poland HK Ruokatalo's mission We at HK Ruokatalo are committed to delivering added shareholder value through a successful combination of quality food production, the excellence of our people, strong brands and consumer and customer driven operations. HK Ruokatalo Group 2004 Turnover: EUR 680 million Employees: Finland 2 600, the Baltics and Poland Product range: meat, poultry meat, processed meats, convenience foods Market leader in the retail trade in processed meats and poultry products in Finland and the Baltics, in processed meats in Latvia and Poland Financial targets Operating profit: Over 5 per cent of turnover Return on equity: Over 15 per cent Equity ratio: Over 40 per cent International business: Over 40 per cent of turnover Dividend distribution: At least 30 per cent of net earnings HK Ruokatalo Group's structure HK Ruokatalo Group Oyj Finland turnover 2004: EUR million HK Ruokatalo Oy LSO Foods Oy the Baltics turnover 2004: EUR million AS Rakvere Lihakombinaat AS Tallegg AS Ekseko AS Rigas Miesnieks UAB Klaipedos Maisto Mesos Produktai Poland * turnover 2004: EUR million Saturn Nordic Holding AB Sokolów S.A. * HK Ruokatalo s and Danish Crown s joint venture (50/50) Saturn Nordic Holding AB owns 75.31% of Sokolów s shares (as at 17 February 2005). 4

5 COMPANY PRESENTATION FINLAND Outokumpu FINLAND Tampere Eura Säkylä Turku Mellilä Forssa Vantaa ESTONIA St Petersburg Tallinn Rakvere ESTONIA Viiratsi Riga LATVIA LATVIA LITHUANIA Vilnius LITHUANIA POLAND Czyzew Kolo Warsaw Sokolow POLAND Tarnow Debica Jaroslaw 5

6 SHAREHOLDER INFORMATION Annual General Meeting The Annual General Meeting of HK Ruokatalo Group Oyj will be held at the company s head office at Kaivokatu 18, Turku at 2pm on Tuesday 12 April Examination of proxy forms will begin at 1pm. Shareholders wishing to attend the Annual General Meeting should notify the company of their intention to do so by 4pm Finnish time on 7 April 2005 either in writing to HK Ruokatalo Group Oyj, Annual General Meeting, PO Box 50, FI Turku, Finland, by telefacsimile , by to marjukka.hujanen@ hk-ruokatalo.fi or by telephoning / Mrs Hujanen. Eligibility To be eligible to attend the Annual General Meeting, shareholders should be registered by 1 April 2005 in the share register maintained by the Finnish Central Securities Depository (APK). Shareholders who have not transferred their shares to the book-entry securities system are also eligible to attend the meeting provided that they were registered in the company s share register before 1 November Such shareholders should also produce evidence or some other proof at the Annual General Meeting to show that title to the shares has not been transferred to the book-entry system. Dividend The Board of Directors is to recommend to the Annual General Meeting that a dividend of EUR 0.29 per share be declared for The dividend decided by the Annual General Meeting will be paid to those shareholders entitled to such dividend who are registered in the share register at 15 April The proposed payment date for the dividend is 22 April Shareholders whose shares are not registered in the book-entry securities system at the record date, 15 April 2005, will duly receive their dividend once they have transferred their shares to the book-entry securities system. Share register HK Ruokatalo s share register is kept by the Finnish Central Securities Depository Ltd, Unioninkatu 32 B, FI Helsinki, Finland. The Finnish Central Securities Depository s phone number in Finland is Shareholders should notify any changes of name and address to the book-entry securities register where their book-entry account is registered. Financial information HK Ruokatalo Group publishes an English translation of the original Finnish annual report in April each year and three interim reports. The interim report for January to March will be published on 2 May 2005, for January to June on 15 August 2005 and for January to September on 21 October These reports are published in Finnish and English and may be viewed on the company s website at where the company s stock exchange bulletins are also published. Printed versions of the annual report will be posted automatically to all shareholders with at least 250 HK Ruokatalo shares and registered in the company s share register kept by the Finnish Central Securities Depository. The interim reports are published in stock exchange bulletin format and may be viewed on HK Ruokatalo s website. Copies of interim reports will be sent on request by post or as an attachment. Annual reports and interim reports may be ordered via our website or from HK Ruokatalo Group Oyj, Communications or PO Box 50, FI Turku, Finland or by at [email protected] 6

7 HEADLINES IN 2004 Headlines in 2004 Financial targets Turnover growth on target. Earnings improved in the Baltics and Poland and remained unchanged at home. Turnover was EUR 680.4, up by 5.1 per cent, and earnings were EUR 26.1 million. All the 8,615,798 Series A Shares in the November offering were subscribed. The issue provided EUR 36.2 million in new equity. Operations front HK Ruokatalo and Danish Crown began strategic cooperation in Sokolów in Poland. Our joint ownership in Sokolów rose to 72.8 per cent. We are merging subsidiaries Broilertalo, Food Kuljetus, Koiviston Teurastamo and Pouttu Foods with the parent company HK Ruokatalo Oyj to simplify the corporate structure in Finland. In second stage of restructuring, the Group s Finnish industrial operations, including employees, will be transferred to a separate subsidiary. The Production Group was split into two: the Processing and Production Group and the Logistics Group. We progressed further with our process way of working by simplifying the roles of the processed meat factories and by switching production at Riihimäki to Vantaa and outsourcing the production of salads. Customer expectations We have been actively involved in the change taking place in the retail sector by making customer relationships more like partnerships, taking into account consumers changing needs. HK Ruokatalo is market leader in its main product groups - processed meats and poultry products in Finland and the Baltics. The company processed over 140 million kg of Finnish meat. We strengthened our position as the largest buyer and user of Finnish meat. Employee contribution We continued work on building the performance management system and improving our management culture. All autonomous teams thought about our values. Employees made 2,230 suggestions to improve work and the work environment. The company paid its employees in Finland performance bonuses of almost EUR 0.7 million. 6

8 CEO S REVIEW We are making strong progress in internationalisation There are currently four major factors impacting on the food industry. Firstly, the accession to the EU on 1 May 2004 of ten new Member States - among them large agricultural countries and food producers - is reflecting somehow on old EU Member States. Secondly, the internationalisation and concatenation of the retail trade is having broad implications for the food industry, which needs to be able to provide products for increasingly larger, stronger customers. Thirdly, consumer buying behaviour is becoming more difficult to anticipate. Consumers are fragmenting into groups, with the appearance of completely new groups whose preferences no longer comply with the established pattern. Lastly, pending international trade agreement negotiations are changing the competitive environment in the food industry. Together, these factors are leading to major structural change across the EU, also in the meat industry. Strong at home, growing abroad HK Ruokatalo has sought to anticipate changes and in its internationalisation policy has aimed at developing its operational structure in good time in response to future needs. We set out on the path of internationalisation over six years ago. This year, an estimated 40 per cent of Group turnover and half of production volume will be generated outside Finland. At home, HK Ruokatalo processed over 140 million kg of Finnish meat and is by far the largest marketing avenue for domestic meat. We are making extensive production investments in Finland to secure the capacity and efficiency we need far into the future. Milestone year in our basic strategy During the course of 2004, we significantly strengthened our position in the Baltic Sea Region. In the late summer, increased ownership in Sokolów, Poland s leading meat production and processing company, led to cooperation with Danish Crown, the largest meat company in Europe. 8

9 CEO S REVIEW The driving force behind strategic cooperation in the ownership of Sokolów is to further develop Sokolów s operations and to help it gain access for its products to the Central and Eastern European markets. Besides Poland s own market of some 40 million consumers, Sokolów also aims to draw on Danish Crown s sales and distribution network to access the Central European market. Bearing future development needs in mind, in November 2004, HK Ruokatalo raised EUR 36.2 million of new capital through a rights issue of 8.6 million new shares. The issue was fully subscribed. We are using the proceeds in investments to develop the Group s international and domestic business and to strengthen the capital structure. "This year, an estimated 40 per cent of Group turnover and half of production volume will be generated outside Finland." The road ahead HK Ruokatalo Group s turnover in 2004 was EUR million, up by EUR 33.0 million or 5.1 per cent on the figure a year earlier. The operating profit rose to EUR 31.3 million (EUR 27.5m) and the operating result before exceptional items was EUR 26.1 million, compared to EUR 22.2 million in Since the beginning of 2005, the figures for Sokolów have been consolidated into the accounts of the entire HK Ruokatalo Group in accordance with IAS rules governing the inclusion of associates. Taking this into account, the Group s revenue target for the current year is around EUR 900 million. We have grown into the largest industrial meat processing company in our business sector. The food industry operates in an open international competitive environment. Even though fresh food markets are traditionally regional, exports of consumer products from one country to another are already on the rise and in the long run, small home markets can provide neither protection nor growth potential. It is important that Finland is home to flourishing international food companies. In this respect, HK Ruokatalo has a head start. New effective corporate structure The autumn saw us make a start on streamlining the legal structure of the business in Finland. Numerous corporate subsidiaries acquired over the years were merged into one industrial company, HK Ruokatalo Oy. HK Ruokatalo Group Oyj is the group s parent company. This new structure better corresponds to the operative division of roles and our process-like way of working. It also enhances business and cuts costs. Since our development programme in the Baltics aims at a similar process-like way of working, we streamlined legal and operative structures there, too. In December, Sokolów appointed a Board of Directors to reflect the new ownership structure. Simo Palokangas CEO 9

10 MARKET AREA: FINLAND Active change and development at home Commercial Operations Group HK Ruokatalo s Commercial Operations Group is responsible for sales to retail and horeca customers, marketing, product development, exports and industrial sales. The grocery sector has undergone a thorough change in recent years. We have been actively involved in this change by making customer relationships more like partnerships, taking into account consumers changing needs. This work is being done on the logistics, product group management, marketing and product development fronts. Greater buying power evident in business The year under review was a challenging one on the sales front. Tough competition translated into lower prices despite rising raw meat prices. We enhanced our own sales operations by discarding around one hundred products and by focusing more on the company s core products. This is part of an extensive product management project intended to enhance the range of products from both the company, customer and consumer aspect. Sales of consumer-packed meat were on target. Our new products have gone down well with customers and sales of seasonal products were extremely successful. Our extensive selection of barbecue meats was tremendously popular in summer Likewise, our from the Farm to the Consumer core process came into its own in the Christmas season with HK Ruokatalo supplying almost half the Christmas hams eaten in Finland. The growing interest in meaty products is also evident in grilling sausages, and A-class sausages increased their popularity. HK Kabanossi Original and HK Camping were the top-selling A-class and general class grilling sausages respectively. In poultry meat, the focus was on boned products such as fillet strips and cutlets, which have seen a sharp rise in consumption. Kariniemen fillet products have established a firm position in consumer purchases throughout the year. Best progress was made with various meals on the convenience foods front. Generally speaking, consumers are increasingly switching over to premium convenience food products. The focus on processed meats was on cold cuts, in other words sliced whole meat products and cold meats. We also addressed packaging during the year under review. The packaging of large product groups - food sausages, cold cuts and frankfurters - was given a new look. In response to consumer wishes, we also improved salad containers making them easier to open and handle. HK Kabanossi Original and HK Camping were the top-selling A-class and general class grilling sausages respectively. More meals eaten outside the home The HoReCa sector performed well during the year and HK Ruokatalo successfully retained its position despite tough competition. Changes in the price of raw meat and tough competition somewhat eroded profitability towards the end of the year. In Finland, the number of meals eaten outside the home rose to million portions, a rise of some two per cent on the year. Almost a third of the Finnish population availed themselves of meal services outside the home each day. HK Ruokatalo s HoReCa sector addressed costeffectiveness and reliable deliveries. We work together with customers to provide consumers with quality meals, taking into account the requirements of various customer and consumer groups. We have done this by working with customers to build new operational models to develop the range of products and logistics solutions. Active exports deliver results HK Ruokatalo successfully increased its Finnish exports in terms of both volume and value. Since prices on the world market began to rise, export profitability also improved. EU enlargement has resulted in greater demand for pork and broiler meat within the Union. This in turn has pushed up raw meat prices, but also strengthened export prices. Although a further strengthening of the euro against the US dollar and Japanese yen weakened exports conducted in those currencies, the overall impact of changes in exchange rates affected HK Ruokatalo s exports less than in We steadily increased exports of pork throughout the year and, as in earlier years exports went to Russia, 10

11 MARKET AREA: FINLAND the EU, Japan and the United States. There was a marked increase in the turnover and volume of exports to Russia. Taking customer wishes into account in cutting meat, for example, has provided durability and predictability and enabled considerable sales of pork to Japan and the United States. Despite Russia introducing a temporary ban on imports of poultry meat from Western Finland in July in the wake of an outbreak of avian disease in the region, exports of poultry meat rose in terms of both value and volume. The ban resulted in increased exports of poultry meat to the Baltics and Sweden. The year under review saw the Far East become a new market territory for poultry meat exports. Finland 2004 % 2003 % Turnover Operating profit Result Employees The amounts are EUR million. The number of employees is the year-end figure. The percentage indicates the proportion of the Group figure. 11

12 MARKET AREA: FINLAND Efficiency and new work practices Slaughtering & Cutting Group HK Ruokatalo s Slaughtering & Cutting Group is responsible for slaughtering and cutting operations at the pork abattoirs in Forssa and Mellilä and at the beef abattoir in Outokumpu. Volumes were healthy in The slaughterhouse utilisation rate in Forssa remained good throughout the year and broke a new record in production output, as did the meat cutting plant. New records in production volume were also recorded at the Mellilä and Outokumpu facilities. HK Ruokatalo is Finland s largest processor of pork, with a share of around 40 per cent of the market, and ranks second in beef, with a market share of some 20 per cent. Continuous improvement Maintaining profitability in the fiercely competitive slaughterhouse business calls for constant vigilance. We are stepping up production and cost control to further improve profitability. The development of work practices is an essential part of this process. We are at the leading-edge of pork cutting development in Finland. Improvements made at the Forssa cutting plant and in work practices in processing, coupled with an overhaul of the processing process, enabled us to deliver to the shops almost half of the Christmas hams sold in Finland. During the summer we also took the decision to replace the entire pork slaughtering line, dating from 1987, at Forssa in a bid to further improve competitiveness. The capacity at Forssa is no longer adequate for future requirements. The project will also see the modernisation of animal reception facilities and the quick carcass refrigeration plant. The project at Forssa is HK Ruokatalo s largest single investment in production in Finland for ten years and is intended to take us to the cutting-edge of efficiency in Europe. We embarked on a programme to improve the work environment at Mellilä and Outokumpu, the latest newcomers to the Group. Other production localities have already completed the programme. All employees at Mellilä and Outokumpu attended a three-day basic training course, after which we made a start on the introduction of working in semi-autonomous teams. Processing and Production Group The Processing and Production Group is responsible for the production of meat, processed meats and convenience foods at the Tampere, Turku and Vantaa factories. Fierce competition for market shares continued throughout 2004 both in processed meats and convenience foods. This is why we focused on strengthening our own competitiveness. We demerged processing and logistics into two separate groups. This arrangement simplifies the division of roles and makes for efficient use of resources. Efficiency programme in processed meats HK Ruokatalo has deployed a development programme in its meat processing operations in Finland to cut operational costs, enhance production and improve competitiveness. Under the programme, autumn 2004 saw us define the division of roles between the processed meat factories at Turku and Vantaa by switching the production of food sausages in skins from Turku to Vantaa. Turku will focus on the manufacture of skinless frankfurters and sausages and short production series of grilling and ring sausages. In line with an earlier decision, the convenience food factory in Riihimäki closed down at the start of The production of salads was outsourced and the remaining production transferred to Vantaa. Noteworthy investments included modernisation and development measures at the slicing department at the processed meat factory in Vantaa. A start was made on increasing the degree of automation of the food sausage-packing department at Vantaa. Spring 2005 will see the completion of the first stage of an investment to greatly enhance the technology and efficiency in the department. Work on developing the processing meat departments will continue in Poultry Group Located in Eura and Säkylä, our poultry production facilities manufacture broiler and turkey products marketed under the Kariniemen brand. HK Ruokatalo has a market share of over 50 per cent and clear leadership of the Finnish poultry meat market. Finland consumed 83.4 million kg (+1.1%) of poultry meat in The growth rate slowed slightly in broiler meat consumption and ceased altogether in turkey meat. In 2004, HK Ruokatalo procured 42.1 million kg of poultry meat, all of which came from its own contract producers. After several years of strong growth, sales of turkey meat remained unchanged on the year. The profitability of the turkey business was unsatisfactory and action has been taken to remedy the situation. 12

13 MARKET AREA: FINLAND Improved productivity Improvements to production resulted in a major improvement in productivity during the year. At the Eura production facilities, we improved the manufacturing process of boneless products and increased capacity. At Säkylä, we started work on a feasibility plan to upgrade the production of cooked products. Improvements to processes generated major savings in water consumption during On the product development front, the focus was on cooked poultry products, boned broiler and turkey fillet and drumstick-thigh products. We intensified cooperation with our Estonian sister company AS Tallegg. Tallegg s restructure and EU membership of the Baltic States have paved the way for comprehensive development within the Group. The impacts of our actions taken will be reflected in Tallegg s operations during the current year. Increasing amounts of cheap poultry meat produced in Brazil and Thailand have begun to appear in the EU and consequently in Finland. We need to respond to increasingly tougher international pressure and to this end work is at hand on several projects to further boost cost-effectiveness and process function. 13

14 MARKET AREA: FINLAND Logistics Group HK Ruokatalo s Logistics Group is resposible for the the operations of the Vantaa and Tampere distribution terminals and associated dispatch logistics, the transportation of raw materials and finished products between places of business and the transportation of goods for distribution in Finland. The units concerned are responsible for managing the transportation of live animals and exports. The Logistics Group took over operational responsibility for transportation from subsidiary Food Kuljetus Oy at the beginning of Cost-effective customer service The distribution terminals located on the site of production facilities in Vantaa and Tampere will form the focus of order picking for delivery to customers. To this end we expanded the terminal building at Vantaa during the year under review. Our next step is to upgrade the order picking system and increase the level of automation in the older part of the terminal. We are responding to changes in customer expectations costeffectively, whilst enhancing logistics throughout the chain from production to the retail outlet. Outsourcing frozen food logistics to our specialist associate Pakastamo Oy went as planned and the solution achieved the aims set. The most important development project on the frozen food logistics front is the freezing plant planned for Forssa. The decision to build is likely to be taken during spring this year. The freezing plant will serve HK Ruokatalo s needs regarding the seasonal storage of raw meat and in freezing and loading export products. The constant development of logistics in the entire delivery chain will become an increasingly important competitive factor. This is why we consider it essential to step up collaboration with all links in the chain to improve logistics quality and to further cut miscosts. Raw meat procurement and management The Raw Material Group is responsible for the procurement of pork and beef raw meat material for HK Ruokatalo s Finnish units. The group manages meat flow in the core process from the Farm to the Consumer to ensure efficient, profitable operations at all stages in the process. The group is also responsible for customer satisfaction in respect of the availability, quality and reliable delivery of raw meat material. Key to the group s roles is to place raw meat material as profitably as possible. The group also coordinates and manages the raw meat material need and balance between companies within HK Ruokatalo Group. The group s remit includes purchases of materials and consumables. Centralised buying, good planning and inviting tenders generate synergetic purchasing benefits. Meat balance sheet of the Group s Finnish units Procurement and purchases by HK Ruokatalo Group s units in Finland in 2004 (million kg) million % of meat kg used by the Group Own slaughter animal procurement in Finland -Pork Poultry Beef Other Own procurement, total Purchases in Finland Meat from Finland, total Imports for own production Imports for resale to others Use of meat, total Additionally, the Rakvere Lihakombinaat and Tallegg groups procured 48.2 million kg of meat for their own use. When we add this to the figures for Finland, HK Ruokatalo Group s meat balance sheet total rises to million kg of meat Use of raw meat material (kg million) Finland Baltics 14

15 MARKET AREA: FINLAND Beginning of the chain in balance Pork production and consumption in Finland both rose an encouraging 3 per cent on the year. Total pork production rose to million kg. Conversely beef production fell to 91.1 million kg. Since consumption was up by 3 per cent at the same time, imports increased and national self-sufficiency in beef declined to 94 per cent. On the poultry meat front, the situation was fairly balanced with consumption up by around 1 per cent and production by 4 per cent. A total of 86.9 million kg of poultry meat was produced in Finland. Own procurement by HK Ruokatalo companies increased in all types of meat, with purchases of pork up by 3.2 per cent and, despite declining production, purchases of beef up by 1.7 per cent. The picture was similar in purchases of poultry meat, which rose by 0.4 per cent. Besides own procurement, we also supplemented supplies with purchases from other Finnish meat companies as in previous years. Our total volume of raw meat rose by some three million kg on the year to stand at million kg. HK Ruokatalo remained the largest processor of domestic raw meat material in Finland. All HK, Kariniemen and Popsi brand products were made from Finnish meat. Despite market fluctuations, meat flow control went as planned and our management system proved it functioned well. The Group s raw meat material balance sheet was in equilibrium throughout the year LSO Foods Oy LSO Foods Oy purchases the Group s live raw meat material, except for poultry. Procurement is based on production contracts with producers. We work together with some seven thousand meat production farms, pork farms in Southern Finland and beef farms in an area extending to Northern Ostrobothnia, North Savo and Kainuu. We provide a reliable and competitive marketing avenue for feeder and slaughter animals. The three focus points in LSO Foods strategic development are: controlled growth of the raw meat material procured, efficient meat chain management in primary production and procurement and quality assurance of the raw meat material procured. These focus points are a direct result of the aims and expectations HK Ruokatalo has set for the meat procurement business. During 2004, the Group switched the procurement operations of Pouttu Foods Oy and Koiviston Teurastamo Oy to LSO Foods. This resulted in LSO Foods increasing its procurement by almost 22 million kg and expanding its operating area to Eastern Finland. Integrating procurement also delivered considerable cost savings and enabled the standardisation of operations models. Meat markets Pork producer prices moved up in Finland, by some 15 per cent between January and December, and across the rest of the EU. Higher prices improved the profitability of pork production in the EU. The pork producer price in Finland was roughly the same as that in nearby EU Member States. Finnish beef producer prices remained fairly stable throughout the year. The average price in Finland for young beef, especially bull, was on a par with the EU average, whilst that for heifers remained below the EU average. A sharp rise in the cost of calves for rearing eroded the profitability of beef production. A ban on applications for financial aid for national investments slowed production development, especially on pig farms. Similarly, the uncertainty surrounding the reform of CAP, the EU s Common Agricultural Policy, curbed development actions on beef farms. Procurement and primary production services LSO Foods acquires some 70 per cent of all the raw meat and almost all the pork and beef required by HK Ruokatalo. During 2004, LSO Foods purchased a total of 97.2 million kg of beef and pork. Procurement of pork rose by over 3 per cent and that of beef by almost 2 per cent. Our share of the total pork produced in Finland rose to around 40 per cent and consolidates our clear market leadership in pork procurement. Higher beef procurement took LSO Foods share of total beef production to over 20 per cent, making us Finland s second largest beef buyer. The number of feeder animals supplied was also up. During 2004, LSO Foods supplied farms with 614,000 piglets and 27,000 calves for rearing. Effective management of the meat chain is pivotal to the company s strategy and is used to anticipate the supply of raw meat material and to better enable us to manage the right amount and timing of raw meat supply. Process management worked as planned during the year under review. 15

16 MARKET AREA: FINLAND We extended our work to improve the quality of primary production to cover the entire from the Farm to the Consumer process. The aim is to work together with contract producers to innovate ways of working to minimise the occurrence of miscosts in the following parts of the chain. Early 2004 saw the launch of contract production coaching, which we have called the LSO Master Meat Producer project. The idea is to train a considerable number of contract producers to understand the joint rules of play in contract production. The reforms and operating models generated by coaching have already been deployed. LSO Foods benefits from cost-effective ebusiness. Notification of around 80 per cent of slaughter pigs and 60 per cent of slaughter cattle now takes place electronically. At the start of 2005, we introduced our eproducer project to study potential new forms of ebusiness between the company and contract farmers. Greater competitiveness in primary production LSO Foods seeks modest growth in procurement volume in Given the likelihood of the uncertainty surrounding agricultural support policy decisions continuing in the foreseeable future, strategic efforts are called for to enhance primary production. The competitiveness of primary production needs be quickly enhanced to ensure the production of Finnish raw meat at HK Ruokatalo. A start on work on a strategy and plan of action on this front has already been made. Working to enhance operations Operational system sets the framework Building a performance management system is an essential part of developing our operational culture and management. In the performance management system, the strategy and related success factors and targets are communicated from Group level to the core process and further down the entire organisation. A strategy map and balanced scorecards are being used to help. We regularly measure progress from four different aspects: employee innovativeness and learning, processes, customers/consumers and finances. To ensure continuous operational improvement, it is important to be successful on all counts. Work continued on further developing indicators to measure success at all organisational levels. Alongside performance management, we continue to develop our process way of working. This will enable us to improve the efficiency of the operating process and competitiveness. HK Ruokatalo s core process is from the Farm to the Consumer. HK Ruokatalo has ISO 9001:2000 certification, which covers the entire core process from procurement to production and transportation. It is envisaged certification will subsequently be extended to include the Mellilä and Outokumpu slaughterhouses. Within the limits of the operating system, we are standardising our working practices, creating a methodical system and directing our resources towards the goals we have agreed together. The performance management system is an integrated part of quality management at HK Ruokatalo. Improving our own operations Our Human Resources unit was reorganised to enable it to more efficiently provide services and tools that core and support processes can use to implement the Group s HR strategy in their own operations. Values discussion HK Ruokatalo s values were summed up in discussions that every employee contributed to in autumn An extensive round of discussions resulted in our values reflecting the shared view of the company and its people. Adoption of the values continued in all production facilities and departments at all organisational levels throughout Employees in different workplaces considered what the values mean in everyday working FROM THE FARM TO THE CONSUMER - THE CORE PROCESS IN FINLAND PORK AND BEEF PRODUCERS POULTRY PRODUCERS Procurement Slaughtering Cutting Production Procurement Slaughtering Cutting Production TERMINALS DISTRIBUTION SUPPORT PROCESSES Finance and administration Information management Communications Processes supporting production Production maintenance SALES R&D MARKET- ING CUSTOMER CONSUMER 16

17 MARKET AREA: FINLAND Part of Finnish society Figures for Finland Employees, average 2,802 2,854 Employees at 31 December 2,579 2,657 Salaries paid, EUR million Social security costs, EUR million Turnover per employee (EUR 1000)* Operating profit per employee (EUR 1000)* Suggestions per 100 employees Rewards paid for suggestions (EUR 1000) Employee structure (at year-end) Blue-collar staff 2,038 2,128 White-collar staff Directors and senior clerical Women 1,232 1,304 Men 1,347 1,353 *) Totals calculated using average number of employees in Finland. Employees by country at year-end 2004 and Finland 2,579 (58.4%) Estonia 1,591 (36.0%) Latvia 197 (4.5%) Lithuania 45 (1.0%) Other 5 (0.1%) 2003 Finland 2,657 (55.5%) Estonia 1,684 (35.2%) Latvia 337 (7.0%) Lithuania 105 (2.2%) Other 5 (0.1%) Finland Estonia Latvia Lithuania Other Finland Estonia Latvia Lithuania Other Employees by company at year-end Change HK Ruokatalo Oyj 1,695 1,703-8 AS Rakvere Lihakombinaat Group 1,200 1, AS Tallegg Group Broilertalo Oy LSO Foods Oy Other HK Ruokatalo Group, total 4,417 4, Group employees at year-end Employees outside Finland shown in lighter shading. life, how they can be translated into action, how they affect the way we work and our prosperity and not least, how they can integrated into our everyday work. This phase ended in early From now on, we will use indicators to track how the values have been implemented in each team, unit and management team. The results will be analysed and we will provide support to implement the values as required. Our bonus scheme built together with employees consists of two parts: a basic part and a performancerelated part. The basic part is linked to team and unit targets and the performance-related part depends on the Group achieving its operating profit target. In 2004, the company paid its employees in Finland performance bonuses totalling almost EUR 0.7 million. Employees were active in making suggestions and came up with 2,230 initiatives, 120 more than in Right to good management Each HK Ruokatalo employee has a right to good management. This is an inherent part of our culture and to this end we continued building and further developing the performance management system in Managers received training in how to be a coach, how to develop a team-like way of working and how to manage conflict situations in the workplace. We likewise continued to chart leadership skills. A third group of HK Ruokatalo employees began to study for the specialist vocational diploma in management (JET) This group of 25 persons includes almost all the HK Group s Management Team and the management team of the Baltic Group. Reliable in-house control As a food company, HK Ruokatalo recognises its responsibility to consumers and to this end has created an in-house control system for all its production facilities. This system goes far beyond statutory requirements. Approved by the authorities, our in-house control system is based on risk assessments of products, raw materials and manufacturing processes and on the management programmes made thereon. FINAS accredited laboratories in conjunction with the production facilities in Vantaa, Forssa and Eura ensure that quality criteria are met. 17

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19 THESE ARE OUR VALUES Trust We keep our promise. Trust has to be earned every day. Competence We want to rank among the best players in the business. Continuous improvement and development Doing things better today than yesterday, doing things better tomorrow than today. Customer satisfaction We recognise customer needs. We anticipate them and respond to them in the best possible way. Profitability We aim for success, both of the company and the individuals working there. This ensures business continuity. 19

20 MARKET AREA: FINLAND Good food and a clean environment HK Ruokatalo operates on the principle of causing minimum environmental impact during production. This is why environmental management is an integrated part of the Group s operational system and involves the entire core process from product development to manufacture and transportation. In the food industry, energy, water, waste arising from processing biological materials, wastewater and smoke gases from heating plants cause the greatest environmental loading. HK Ruokatalo seeks to reduce the amount of energy and water consumed in relation to production (= specific consumption), to reduce the relative amount of landfill waste and to improve sorting. Since there are differences in operations and technology, targets vary from one production facility to another. We monitor the implementation and follow-up results of action programmes to achieve targets. We have achieved results by combining and rationalising operations, by introducing new policies and by adjusting and improving technology. We hold training events for employee groups to help them understand the importance of environmental issues. In 2004, we standardised the monitoring of environmental indicators and introduced energy and water measurements at the Mellilä and Outokumpu slaughterhouses. A summary of our environmental achievements is given in the table below. Additionally, we measured the environmental effectiveness of transport in respect of the degree of fullness of our own fleet and by costs in outsourced transport services. We monitor energy consumption and efficiency in the transport of animals. HK Ruokatalo started work on building an environmental management system in The system was integrated into the operational system in Instead of earlier factory-specific certificates, HK Ruokatalo now has one combined ISO environmental management certificate. Certification does not yet cover the Mellilä and Outokumpu slaughterhouses. Environmental management certification was awarded by Det Norske Veritas. Achievement of environmental measurements A 2004 B 2003 change % C 2004 change % Electricity - total consumption (MWh) 83,165 85, , specific consumption (kwh/production kg) (kwh / external sales kg) Heat - total consumption (MWh) 96,839 95, , specific consumption (kwh/production kg) (kwh / external sales kg) Water - total consumption (m3) 1,432,950 1,509, ,527, specific consumption (litre/production kg) (kwh / external sales kg) Waste Landfill waste - total amount (t / pa) 1,387 1, amount (g/production kg) Amount of total waste used for recycling (%) Columns A and B include the production facilities at Eura, Forssa, Riihimäki, Säkylä, Tampere, Turku and Vantaa. Column C also includes the facilities at Mellilä and Outokumpu, which were previously outside the Group s environmental measurements. 20

21 MARKET AREA: THE BALTICS Rapidly changing market in the Baltics ESTONIA Whilst demand and affluence are growing in Estonia, Latvia and Lithuania, the markets are also undergoing rapid change. Many companies have modernised production with the help of EU aid. This has resulted in increased capacity, which in turn keeps prices low despite, for example, a rise in the price of raw pork. The structure of the retail trade is changing apace as the trade currently focuses purchases and builds chains across the Baltics. Successful suppliers need to understand the needs of the trade and be capable of operating in all three countries. HK Ruokatalo s Baltic Group is well placed to do so. The Baltic Group comprises AS Rakvere Lihakombinaat and subsidiaries and AS Tallegg and subsidiaries. Rakvere Lihakombinaat has a presence in Estonia, Latvia and Lithuania, Tallegg in Estonia. We restructured and reorganised the Baltic Group to standardise ways of working and to improve management of the entire business process. This became an issue when the EU gave rise to a single common market across the Baltics and the need arose to overhaul the operations of the Baltic Group to respond to the ensuing new business environment. In Latvia and Lithuania, business was based on one operative unit in each country. In Latvia, Rigas Miesnieks acquired Tallat s business operations. In Lithuania, Selingas merged into Klaipedos Maisto Produktai. Tallat and Selingas were formerly subsidiaries of Tallegg. Baltics 2004 % 2003 % Turnover Operating profit Result Employees The amounts are EUR million. The number of employees is the year-end figure. The percentage indicates the proportion of the Group figure. Successful suppliers need to understand the needs of the trade and be capable of operating in all three countries. Production and logistics Extensive efficiency measures were underway on the production front and production was reorganised between the Rakvere factory, the Riga factory and Tallegg. We modernised the slaughtering line at Rakvere and switched over to using a gas stunning system, which has considerably improved meat quality. Meat cutting in Riga was wound up and centred on Rakvere, where we were able to increase the proportion of cut meat and thus reduce sales of low margin carcases. Tallegg transferred its sausage production to Rakvere, which ceded production of fresh poultry products to Tallegg in return. Rakvere became the focus of the production of cold cuts and other sliced products. The new consumerpacked meat line at Rakvere enables larger volumes and better storage. This means Rakvere can also supply products to the Latvian and Lithuanian markets. The production facilities in Riga were thoroughly modernised and all processes have been streamlined. The facilities have received EU approval. LATVIA LITHUANIA 21

22 MARKET AREA: THE BALTICS Started in 2003, production restructuring at Tallegg was completed and we embarked on the following stage to further intensify the production structure. We need to continuously push costs down to enable us to retain our competitiveness in poultry meat. On the logistics front, the most important project was the completion of a large logistics centre at the Rigas Miesnieks factory in Riga in spring The centre is responsible for deliveries of the group s products throughout Latvia. The aim is to achieve major cost savings without compromising on customer service. In Lithuania, we merged order picking, storage and transportation of Klaipedos Maisto Produktai and Selingas products. In Estonia, Tallegg ceased using external storage facilities and now uses just one warehouse at its principal place of business in Loo. Primary production Primary production company Ekseko made progress as planned. Enlargements of the piggery resulted in increased production. Higher pork prices improved Ekeseko s profitability, likewise efficiency increased. Ekseko is contending to be one of the top producers in Europe. The company is currently expanding the contract production of pork and its main production unit at Viiratsi will increasingly concentrate on running a sow farm and rearing slaughter pigs. Autumn 2004 saw the merger of Tallegg s primary production department with Ekseko to create an effective unit seeking to deliver major cost savings starting in Commercial operations Sales of our main brands - Rakvere, Rigas Miesnieks, Klaipedos Maistas and Tallegg - were up on the year. Marketing focused on managing the product range in all units. We successfully revamped the range of products for the summer and Christmas season. Sales of new grilling sausages and consumer-packed meats launched for the summer exceeded expectations. Such good progress was made with improving ham products that we were able to launch new sliced products in Estonia in the autumn. Sales of these products were up by almost 30 per cent on the year. Rakvere Lihakombinaat exceeded its sales targets, the other units were slightly below target. We are clear market leader in red meat, with a 35 per cent of the market in Estonia. Profitability on this front improved. Tallegg has an approximately 30 per cent share of the Estonian poultry meat market. High feed costs coupled with increased imports from Lithuania into Estonia eroded profitability in the poultry industry towards the end of the year. Rigas Miesnieks is market leader in Latvia with a market share of almost 19 per cent. The structural changes introduced affected the way sales work, especially in Latvia and Lithuania. The sales organisations now operate uniformly and the meat team, for example, is responsible for all meat sales throughout the Baltic States. 22

23 MARKET AREA: POLAND Modern production in Poland Higher turnover and earnings for Sokolów Sokolów s turnover in 2004 rose to PLN 1,358.9 million (EUR 342.5m), up by PLN million or 31.0 per cent on the figure a year earlier. Group earnings were PLN 42.2 million, including exceptional income. Since all the major international chains have a presence in Poland, competition in the retail sector was extremely fierce. Nevertheless, Sokolów successfully managed to increase sales volumes in Exports were also healthy in the wake of Poland s EU membership and already accounted for over 20 per cent of turnover. However, the continued strengthening of the Polish zloty against the euro and US dollar has begun to chip away at export profitability. This is why stabilisation of the exchange rate is needed to safeguard growth of the Polish economy. Pork and beef prices rose sharply on Poland s accession to the EU on 1 May 2004 since raw meat prices mostly took their cue from prices in neighbouring Germany. Although prices began to fall slightly towards the year-end, they were still higher than before Poland joined the EU. Sokolów s own retail network, which currently comprises a couple of hundred shops and sales outlets across Poland, is one of its success factors. Some of these shops and outlets operate on a franchise basis. Sokolów sold a quarter of its sales through this network and the company plans to build further on this network. Sokolów and its subsidiaries provide some 3,700 jobs. 23

24 MARKET AREA: POLAND Owing to the size of the Polish market and to balance the risks involved, in August 2004 HK Ruokatalo entered into strategic partnership with Danish Crown, which is also interested in the new EU Member States. Meat industry tradition Poland has a long, rich culinary heritage in meats and sausages. At best the meat industry is the country s fourth largest industry and traditionally plays an important role in Poland. Within the EU, Poland ranks among the largest pork producers. Pork accounts for almost two thirds of Poland s annual production of 3 billion kg of meat. A decade ago, the country was home to almost 4,000 slaughterhouses and small meat processing firms and some 500 larger meat production and processing factories, half of which employed more than 50 persons. However, only a score of slaughterhouses and 40 processing factories came up to EU and US standards. Although, mergers and EU standards have subsequently greatly reduced the huge number of facilities, the meat industry in Poland remains very scattered. Sokolów, for example, which is the country s second largest meat production and processing company, has a market share of just 5-10 per cent, depending on the product group. We must assume that many more small slaughterhouses and processing plants will disappear since it will be neither technically nor financially viable to bring them up to EU standards. Finnish-Danish ownership HK Ruokatalo expanded its international operations from the Baltics to Poland in autumn 2002, when it acquired a 10 per cent stake in Sokolów, Poland s second largest meat producer and processor. By summer 2004, HK Ruokatalo had increased its stake to 30.1 per cent. Owing to the size of the Polish market and to balance the risks involved, in August 2004 HK Ruokatalo entered into strategic partnership with Danish Crown, which is also interested in the new EU Member States. In September, the companies agreed to cooperate in the ownership of Sokolów and subsequently rapidly increased their interest in the company to 72.8 per cent. Owned by Danish meat producers, Danish Crown is the largest pork slaughterer in Europe and has global leadership in the export of pork. Danish Crown s competence lies in the start of the production chain and the international meat trade, whereas HK Ruokatalo s expertise is more in processing and consumer product manufacture and marketing. By combining these strengths, we will further develop Sokolów s operations and help Sokolów products gain access to the Central and Eastern European markets. Something old, much new Sokolów evolved through the merger of six different meat companies and various corporate acquisitions during the 1990s, a time of major restructure in the Polish meat industry. The present structure dates from 2000 when Farm Food, which was established through private funds, merged with Sokolowskie Zaklady Miesne, an old state company. Farm Food had completely modern production facilities in the town of Czyzew and plenty of expertise in a market economy, whereas Sokolowskie Zaklady Miesne s strength lay in good products and acclaimed national brands. Funded by private capital and aid from the European Bank for Reconstruction and Development (EBRD), the company embarked on an extensive programme of change. Consequently, all Sokolów s production facilities have been either built or thoroughly modernised within the past ten years. These facilities have EU approval, certification from the United States Department of Agriculture and even NATO credentials. Privatisation hampered the availability of quality raw meat in Poland in the 1990s. Since many independent producers could not afford to invest, Sokolów became involved in primary production and now has four animal production units. The company particularly focuses on providing genetically good animals for its contract producers. 24

25 Good food is worth investing in. HK Ruokatalo Group Oyj's rights issue in November 2004 was a great success, with all the 8.6 million shares offered being subscribed. Our owners are committed to developing the leading meat company in the Baltic Region. 25

26 REPORT OF THE BOARD OF DIRECTORS Report of the Board of Directors for the financial year ending 31 December Turnover (EUR million) Turnover and performance Group turnover for 2004 was EUR million, up by EUR 33.0 million or 5.1 per cent on the figure a year earlier. The operating profit was EUR 31.3 million (EUR 27.5m) and the operating result before exceptional items was EUR 26.1 million, compared to EUR 22.2 million in These figures include the Group s operations in the Baltics, where our turnover rose to EUR million, up 0.8 per cent, and the result before exceptional items was EUR 4.8 million, up 37.1 per cent. This compares with a turnover of EUR million and earnings of EUR 3.5 million in 2003 from the Group s Baltic operations. Operating profit (EUR million) Overall turnover grew in line with targets. Group earnings improved in the Baltics and Poland, whilst remaining unchanged in Finland. High raw meat prices led to a fall in red meat margins at home. In Poland, there was a considerable improvement in Sokolów s turnover. Turnover in 2004 was PLN 1,358.9 million or EUR million, up by PLN million or 31 per cent on the year An analysis of turnover, operating profit and result before exceptional items by main market area* is given below (EUR million): TURNOVER Finland % % Baltics % % Total % % Profit before exceptional items (EUR million) OPERATING PROFIT Finland % % Baltics % % Total % % RESULT Finland % % Baltics % % Total % % *) The figures for the Polish market are included in the operating profit and earnings for Finland 26

27 REPORT OF THE BOARD OF DIRECTORS Market review Despite rising raw meat prices, tough competition in the Finnish retail trade was translated into lower prices. The fastest growing markets were in industrial packed meat and poultry. We enjoy market leadership in both sectors. Growth was also in evidence in convenience foods, where consumers are switching over to premium products. Finnish raw pork meat production was in balance, whereas beef production declined. Since beef consumption rose at the same time, this led to a decline in national self-sufficiency in beef to 94 per cent. HK Ruokatalo s share of the total pork produced in Finland rose to around 40 per cent and clear market leadership. Higher beef procurement took our share of total beef production to over 20 per cent to make us Finland s second largest beef processor. In addition, we also process and market roughly half of the poultry meat produced in Finland. HK Ruokatalo successfully increased its exports from Finland in terms of both volume and value. Since at long last prices on the world market began to rise, export profitability also improved. EU enlargement has resulted in greater demand for pork and broiler meat within the Union. This in turn has pushed up raw meat prices. Russia, the EU, Japan and the United States were HK Ruokatalo s main export markets. Exports of poultry meat to the Baltics and Sweden were up. HK Ruokatalo s total exports from Finland were valued at some EUR 56.6 million. In the Baltics, EU membership gave rise to new competition. Whilst we enjoy distinct market leadership in Estonia and Latvia, we are a contender in Lithuania. More efficient operations within the HK Baltic Group have delivered improved profitability in red meat. On the poultry meat front, high feed costs coupled with increased imports from Lithuania into Estonia eroded profitability towards the end of the year. The retail trade is currently focusing purchases and building chains across the Baltics. Successful suppliers need to understand the needs of the trade and be capable of operating in all three countries. HK Ruokatalo meets these conditions. Pork and beef prices rose sharply in Poland in the early days of EU membership because raw meat prices mostly took their cue from German prices. Sokolów successfully increased both turnover and sales volume in the face of cutthroat competition in the retail trade. Poland s EU membership particularly gave momentum to exports, which accounted for over 20 per cent of Sokolów s turnover in However, export profitability was eroded by the unfavourable exchange rate of the zloty against the euro. A quarter of Sokolów s sales were through its own network of shops in Poland. The company plans to build further on this network, which currently comprises a couple of hundred shops and sales outlets across Poland. Some of these operate on a franchise basis. Ownership arrangements in Sokolów In May 2004, HK Ruokatalo signed an agreement with Conrad Jacobson GmbH of Germany to buy all its Sokolów shares. The first stage of the deal in July took HK Ruokatalo s holding in Sokolów from per cent to per cent. In late summer, HK Ruokatalo and Danish cooperative slaughterhouse Danish Crown AmbA entered into strategic cooperation in the ownership of Sokolów. The driving force behind cooperation is to further develop Sokolów s operations and to help Sokolów s products gain access to the Central and Eastern European markets. Once the EU s competition authority had given the joint venture the green light on 13 September 2004, HK Ruokatalo transferred its per cent shareholding in Sokolów to Saturn Nordic Holding AB (SNH), a joint venture owned by HK Ruokatalo and Danish Crown on a basis. Correspondingly, Danish Crown transferred its own Sokolów shares to SNH, to take SNH s shareholding to per cent. Under Polish stock exchange legislation, an owner becoming a majority shareholder is required to make a public offer to acquire the remaining shares. Subsequent to the public offer made on 17 September 2004, SNH s shareholding in Sokolów rose to per cent. On 28 October, SNH acquired a further per cent stake in Sokolów through share deals, including the remaining lot of shares totalling 2.49 per cent that HK Ruokatalo agreed in May 2004 to purchase from Conrad Jacobson GmbH of Germany. Subsequent to the above arrangements, Saturn Nordic Holding AB had per cent of Sokolów shares and votes. At an extraordinary meeting of Sokolów s shareholders on 9 December 2004, HK Ruokatalo and Danish Crown each received three places on Sokolów s Board of Directors and an independent chairman was also jointly appointed. Sokolów s figures Saturn Nordic Holding AB, the joint venture owned by HK Ruokatalo and Danish Crown, prepared consolidated financial statements on 31 December These statements include SNH s Polish subsidiary, Sokolów S.A. The SNH Group has been accounted for in HK Ruokatalo s consolidated financial statements using the equity method. Proportionate consolidation was adopted on 1 January

28 REPORT OF THE BOARD OF DIRECTORS Transition to IFRS reporting HK Ruokatalo Group s financial statements for 2004 have been prepared in accordance with Finnish Accounting Standards (FAS). The Group switched over to IFRS compliant financial reporting from the start of Before disclosure of the interim report for Q1 2005, we will publish IFRS compliant figures for 2004, including the income statement and balance sheet, quarterly figures and a bridging statement of the transition from Finnish accounting practice to IFRS accounting. In earlier bulletins HK Ruokatalo has stated that the introduction of IFRS will have no material impact on the Group s result or balance sheet values. We currently estimate that the opening balance sheet total at the time of transition, or 2004, will rise by EUR 1.9 million and the shareholders equity decrease by EUR 4.0 million. The most significant changes in the balance sheet concern the booking of pension liabilities and agriculture. IAS/IFRS adjustments will result in a fall in the equity ratio from 41.2 per cent to 39.9 per cent in the opening balance sheet. The provision for pensions based on the defined contribution in the TEL system was almost entirely dissolved, increasing earnings, during In future, planned depreciation will no longer be made on goodwill on consolidation but the need for impairment will be tested each year. Goodwill on consolidation in the opening balance sheet has been tested and there was no need for impairment. Changes in Group structure September saw us make a start on streamlining the legal structure of the HK Ruokatalo s business operations in Finland. This involved merging domestic industrial operations, sales, marketing, logistics and transport into one company. There were previously five companies in the Group responsible for these operations. Corporate restructuring is being effected in two stages. In the first stage, HK Ruokatalo Oyj s fullyowned subsidiaries Broilertalo Oy, Food Kuljetus Oy, Koiviston Teurastamo Oy and Pouttu Foods Oy are to merge with and into HK Ruokatalo Oyj. Meeting on 16 September 2004, the Boards of Directors of HK Ruokatalo and the merging companies approved a merger plan to execute the envisaged merger. On 20 October 2004, once the merger plan had been entered in the Trade Register, HK Ruokatalo notified shareholders of the plan. It is intended to register execution of the mergers by 31 March In the second stage of restructuring, the Group s Finnish industrial operations, including employees, will be divested into a separate subsidiary. Procurement company LSO Foods Oy is not part of restructuring and its responsibilities will remain unchanged. Restructuring will have no impact on employees. The employees of the companies affected by the arrangements will be transferred without loss of holiday and similar entitlements. In Estonia, the remaining 1.75 per cent of Tallegg shares was acquired from minority shareholders, thus taking ownership to 100 per cent. In Latvia and Lithuania, the Group based its operations on one operative unit in each country. In Latvia, Rigas Miesnieks acquired Tallat. In Lithuania, Klaipedos Maisto Produktai took over the operations of Selingas. Tallat and Selingas were formerly subsidiaries of Tallegg. These actions were taken to achieve cost-effectiveness and greater competitiveness. Investments Group gross investments during 2004 amounted to EUR 52.3 million (EUR 64.8m), of which Finland accounted for EUR 41.0 million and the Baltics for EUR 11.3 million. The figure for Finland includes the acquisition of Sokolów and Saturn Nordic Holding shares. The autumn saw HK Ruokatalo embark on an extensive investment programme at the Forssa production facilities to replace the entire pork slaughtering line dating from 1987 and to raise capacity. This investment is intended to take us to the cutting-edge of efficiency in Europe. The animal reception facilities and quick carcass refrigeration plant dating from the 1980s will also be replaced at the same time. Estimated at some EUR 20 million, the project is scheduled for completion in autumn The extension to the distribution terminal was completed at HK Ruokatalo s production facilities in Vantaa. Our next step is to upgrade the order picking system and increase the level of automation in the older part of the terminal. In line with an earlier decision, the convenience food factory in Riihimäki closed down at the end of the year and production was shifted partly to Vantaa and partly to an outside partner. Earthworks and foundation work were completed on the site of HK Ruokatalo s freezing plant to be built at Forssa. In Estonia, Rakvere Lihakombinaat acquired a modern gas stunning system for its pork slaughterhouse and pig rearing company Ekseko continued to make investments to cut environmental loading. In Latvia, Rigas Miesnieks new logistics centre was inaugurated in May. 28

29 REPORT OF THE BOARD OF DIRECTORS Financing Q4 of 2004 saw a marked fall in Group interest-bearing liabilities, which at year-end stood at EUR million (EUR 149.3m). This was mainly owing to a share issue taking place in November. Whilst the issue has still not had a material impact on net financial charges, the equity ratio rose to 49.5 per cent (41.2%). Board of Directors authorisations to increase share capital Meeting on 22 April 2004, the Annual General Meeting of Shareholders authorised the Board of Directors to decide whether to increase the share capital through one or more rights issues, whether to issue one or more convertible bond loans and/or warrants so that in a rights issue or when issuing convertible bonds or warrants, a maximum of 2,000,000 of the company s new Series A Shares having a nominal value of EUR 1.70 may be issued and the company s share capital may be raised by no more than EUR 3,400,000. The authorisation allows the Board of Directors to disapply the pre-emption rights of existing shareholders and to decide the issue price and other terms and conditions of subscription and the terms and conditions of a convertible bond loan or warrants. The authorisation is valid until 22 April To date, the Board of Directors has not exercised this authorisation. Employees The Group employed an average of 4,713 (5,034) people during the year. Efficiency programmes led to the loss of almost three hundred jobs in the Baltics. HK Ruokatalo Group employed 4,417 people at year-end 2004, compared to 4,778 a year earlier. This figure excludes Sokolów S.A. employees. The parent company employed an average of 1,856 (1,858) people. Events taking place since 31 December 2004 Meeting on 23 February 2005, the Extraordinary Meeting of Shareholders voted to amend the company s Articles of Association as a result of changes made in the corporate structure. The most important item of business was the proposal to change the name of the company from HK Ruokatalo Oyj to HK Ruokatalo Group Oyj. Additionally, the Board of Directors decided to establish a new subsidiary to assume responsibility for the Group s industrial operations, sales and marketing, logistics and transport, including employees, with effect from 1 April It has been proposed to register the new company as HK Ruokatalo Oy. Registration is scheduled to take place on 31 March The parent company HK Ruokatalo Group Oyj will remain responsible for Group management and administration. HK Ruokatalo Group Oyj is a public listed company and owns the entire capital stock of HK Ruokatalo Oy. The responsibilities of procurement company LSO Foods Oy, which is outside restructuring, remain unchanged. The future After business growth in Poland and consolidation of the Saturn Nordic Holding Group, our revenue target Gross investment (EUR million) Depreciation (EUR million)

30 REPORT OF THE BOARD OF DIRECTORS for the current year is around EUR 900 million. We have grown into the largest industrial meat processing company in our business sector. At home, we are acting on several logistics and structural measures to further enhance costeffectiveness. In the Baltics, we will continue to streamline our operations and to develop our business structure towards a process-like way of working. In Poland, we have started working with Danish Crown to develop operations and to increase exports mostly to the Central European market. On a platform of growth in the Baltics and Poland, as well as improvements in the efficiency of our core process, we have budgeted earnings improvement during the current year. In the long term, structural change in the retail trade will affect the food industry in the EU. The retail trade is internationalising and becoming increasingly concatenated. It is likely the share of private labels will increase in Finland. This is why it is important for HK Ruokatalo to maintain strong brands, even though we also produce private labels. Cost levels in the new EU Member States are likely to long remain lower than those in old Member States. This will somewhat intensify competition in old Member States. Imports from outside the EU are also likely to increase, especially imports of poultry meat. Furthermore, the EU may well be forced to change agricultural support structures to make them more market driven. Together, these factors are leading to major structural change across the EU, also in the meat processing industry. HK Ruokatalo s internationalisation policy has sought to anticipate changes and to develop its operational structures in good time in response to future needs. Dividend The Group s distributable equity is EUR 41,226, The parent company s distributable equity is EUR 26,394, The Board of Directors recommends that the company pay a 2004 dividend of EUR 0.29 per share, in other words a total of EUR 10.0 million Interest-bearing liabilities (EUR million) Equity ratio (%) Includes capital loan

31 FINANCIAL INDICATORS Financial indicators Five year financial summary Turnover, EUR , , , , ,051 Operating profit, EUR ,327 27,465 32,696 26,122 11,230 - as % of turnover Result before exceptional items, EUR ,081 22,189 26,506 19,219 4,646 - as % of turnover Result before appropriations and taxes - EUR ,081 22,189 26,506 16,456 1,827 - as % of turnover Return on equity (ROE), % Return on investment (ROI), % Equity ratio, % Gross investments, EUR ,265 64,764 33,350 32,690 14,221 - as % of turnover R&D expenditure, EUR ,379 6,091 5,150 4,090 3,587 - as % of turnover Employees, average 4,713 5,034 4,882 4,084 3,877 Per share data Earnings per share (EPS), undiluted, EUR * 0.75 * 0.56 * 0.12 * Earnings per share (EPS), diluted, EUR * 0.66 * 0.49 * 0.10 * Earnings per share (EPS), diluted, EUR 1) Equity per share, EUR * 5.23 * 4.67 * 4.31 * Dividend paid per share, EUR ) Dividend per share, EUR ) 0.25 * 0.24 * 0.15 * 0.06 * Dividend payout ratio, undiluted, % ) Dividend payout ratio, diluted, % ) Dividend payout ratio, diluted, % 1) ) Effective dividend yield, % 3.9 2) Price/earnings ratio (P/E) - undiluted diluted Lowest trading price, EUR 5.53 * 4.60 * 2.86 * 1.38 * 1.37 * Highest trading price, EUR 7.40 * 6.07 * 5.45 * 3.03 * 2.45 * Middle price, EUR 6.28 * 5.48 * 4.57 * 2.31 * 2.08 * Closing price on year, EUR 7.36 * 5.80 * 5.31 * 2.94 * 1.43 * Market capitalisation, EUR million Shares traded, , , , , ,2 - % of average number Adjusted number of shares - average during the financial year 29,428,181 27,928,347 * 25,479,584 * 25,198,294 * 24,469,239 * - at the end of the financial year 34,463,193 28,300,301 * 25,869,205 * 25,423,513 * 24,823,477 * - fully diluted 34,463,193 28,595,971 * 28,714,440 * 28,784,346 * 28,111,608 * 1) Based on number of shares at year-end. 2) Based on Board of Directors recommendation. * Adjusted share figure 31

32 FINANCIAL INDICATORS Formulae for financial indicators RETURN ON EQUITY (%) Profit/loss before exceptional items, provisions and taxes - taxes Shareholders equity + minority interests (average) X 100 RETURN ON INVESTMENT (%) Profit/loss before exceptional items, provisions and taxes interest and other financial charges Balance sheet total zero interest debts (average) X 100 EQUITY RATIO (%) Shareholders equity + minority interests Balance sheet total advances received X 100 EARNINGS PER SHARE EQUITY PER SHARE DIVIDEND PER SHARE Result before exceptional items, provisions and taxes - Taxes +/- minority interests Average number of shares during the financial year Shareholders equity Adjusted number of shares at balance sheet date Dividend per share Coefficient of share issues after the financial year DIVIDEND PAYOUT RATIO (%) Adjusted dividend per share Earnings per share X 100 EFFECTIVE DIVIDEND YIELD (%) Dividend per share Adjusted closing price on the last trading day of the financial year X 100 P/E RATIO Adjusted closing price on the last trading day of the financial year Earnings per share MARKET CAPITALISATION The number of outside shares at the end of the financial year multiplied by the closing price on the last trading day of the financial year 32

33 PROFIT AND LOSS ACCOUNT Profit and loss account 1 January 31 December (EUR 1000) Note Group 2004 Group 2003 Parent 2004 Parent 2003 Turnover Increase (+)/decrease (-) in stocks of finished goods and work in progress Production for own use (+) Share of associates' profits Other operating income Materials and services Raw materials and consumables Purchases during the year Increase (-) or decrease (+) in stocks External services Materials and services, total Staff costs Wages and remuneration Social security costs Pension costs Other social security costs Staff costs, total Depreciation and value adjustments Depreciation according to plan Depreciation on goodwill on consolidation Depreciation and value adjustments, total Other operating charges Operating profit Financial income and charges Income from participating interests Income from other financial assets From others Other interest receivable and similar income From Group companies From others Interest payable and similar charges To Group companies To others Financial income and charges, total Profit before exceptional items Exceptional items Exceptional income Exceptional charges Profit before appropriations and taxes Appropriations Direct taxes, total Minority interests Profit for the financial year

34 BALANCE SHEET Balance sheet as at 31 December (EUR 1000) Note Group 2004 Group 2003 Parent 2004 Parent 2003 ASSETS FIXED ASSETS Intangible assets Intangible rights Goodwill Advance payments Intangible assets, total Goodwill on consolidation 10, Tangible assets Land and water Buildings Machinery and equipment Other tangible assets Payments on account and tangible assets in the course of construction Tangible assets, total Financial assets Shares in Group companies Shares in participating interests Amounts owed by participating interests Other investments Other debtors Financial assets, total CURRENT ASSETS Stocks Raw materials and consumables Work in progress Finished goods and goods for resale Other stocks Advance payments Stocks, total Debtors Long-term Amounts owed by Group companies Loans receivable Deferred tax asset Other debtors Long-term debtors, total Short-term Trade debtors Amounts owed by parent entity/group companies Amounts owed by participating interests Loans receivable Other debtors Prepayments and accrued income Short-term debtors, total Cash at bank and in hand ASSETS, TOTAL

35 BALANCE SHEET Note Group 2004 Group 2003 Parent 2004 Parent 2003 EQUITY AND LIABILITIES EQUITY Share capital Share premium account Revaluation reserve Reserve fund Contingency fund Retained earnings Profit for the financial year CAPITAL LOANS Capital loan MINIORITY INTERESTS ACCUMULATED APPROPRIATIONS Depreciation difference PROVISIONS FOR LIABILITIES AND CHARGES Provisions for pension liabilities CREDITORS Deferred tax liability Long-term Loans from financial institutions Pension loans Other creditors Long-term creditors, total Short-term Loans from financial institutions Pension loans Advances received Trade creditors Amounts owed to parent entity/group companies Amounts owed to participating interests Other creditors Accruals and deferred income Short-term creditors, total EQUITY AND LIABILITIES, TOTAL

36 CASH FLOW STATEMENT Cash flow statement (EUR 1000) Group 2004 Group 2003 Parent 2004 Parent 2003 OPERATING ACTIVITIES Operating profit Adjustments to operating profit Depreciation Change in net working capital Financial income and charges Taxes Net cash inflow/outflow from operating activities INVESTMENTS Purchase of fixed assets Disposal of fixed assets Cash inflow/outflow from investing activities Cash flow before financing activities FINANCING Change in long-term loans Change in long-term debtors Change in short-term financing Dividends paid Share issue Financing activities, total Change in liquid assets Liquid assets at 1 January Liquid assets at 31 December Change in liquid assets in the balance sheet Change in net working capital Increase (-)/decrease (+) in stocks Increase (-)/decrease (+) in short-term operating receivables Increase (-)/decrease (+) in short-term zero-interest liabilities Change in net working capital, total

37 NOTES TO THE FINANCIAL STATEMENTS Notes to the 2004 financial statements Basis of consolidation The consolidated financial statements comprise the accounts of the parent company HK Ruokatalo Oyj and of subsidiaries in which the parent company holds, either directly or through its subsidiaries, more than 50 per cent of the voting rights conferred by shares or by agreement. The consolidated financial statements include the accounts of the parent company HK Ruokatalo Oy and the following subsidiaries: Broilertalo Oy, Food Kuljetus Oy, Koiviston Teurastamo Oy, Pouttu Foods Oy, LSO Foods Oy and its subsidiary Lounaisfarmi Oy, Lihatukku Harri Tamminen Oy, Helanderin Teurastamo Oy and HK International AB. The consolidated financial statements also include the accounts of the AS Rakvere Lihakombinaat subgroup (Estonia, Latvia and Lithuania) and the AS Baltic Poultry subgroup (Estonia, Latvia and Lithuania), which have prepared consolidated financial statements for the subgroups. The financial year is the calendar year for all Group companies. The accounts of the subsidiary Linocon Oy have not been consolidated. This company had no operations during the financial year and has no material impact on the Group's equity. Nor have the accounts of Broilertalo Oy s subsidiary, Keltasiipi Oy, been consolidated. Keltasiipi Oy was sold during the year under review. The accounts of all associated undertakings have been consolidated: Pakastamo Oy, Honkajoki Oy, Etelä- Suomen Multaravinne Oy, Lihateollisuuden Tutkimuskeskus LTK osuuskunta group, Best-In Oy and Finnpig Oy. The accounts of the Sokolów Group were consolidated into HK Ruokatalo Oyj s accounts as an associate company until 30 September The accounts of Saturn Nordic Holding AB, a joint venture established to own Sokolów, have been consolidated into HK Ruokatalo Oyj s accounts, using the equity method, since 1 October More detailed information about Group companies and holdings in associated undertakings is shown below under Shares in subsidiaries and Shares and holdings in associated undertakings. HK Ruokatalo Oyj is a subsidiary of LSO Osuuskunta and part of the LSO Group. HK Ruokatalo Oyj and LSO Osuuskunta have their registered office in Turku. Copies of HK Ruokatalo Group's financial statements are available from the Group's head office at Kaivokatu 18, FI Turku, Finland. Accounting policies The consolidated accounts and the accounts of the parent company HK Ruokatalo Oyj have been prepared in compliance with the Finnish Accounting Act. Rakvere Lihakombinaat Group and Baltic Poultry have prepared consolidated financial statements in compliance with the valid rules governing accounting in Estonia. Except for the valuation of living animals, the impact of which has been eliminated, there are no material differences between Finnish and Estonian accounting regulations. Intragroup share ownership Intragroup share ownership has been eliminated using the purchase method. Intragroup transactions and margins Intragroup transactions, margins on stocks, debtors and creditors have been eliminated. There were no intragroup dividends during the year. Minority interests Minority interests have been separated from the consolidated equity, less the tax liability on untaxed reserves and result, and are shown as a separate item in the profit and loss account and balance sheet. Calculation of minority interests includes indirect ownership in minorities. Associated undertakings Associated undertakings have been consolidated using the equity method. The Group's pro rata share of the result of associated undertakings and the change in untaxed reserves less tax liability appear as a separate item in the consolidated profit and loss account. The goodwill of associated companies is included in their value in the balance sheet and the depreciation of associates has been subtracted from their result in the profit and loss account. Dividends received from associated companies have been eliminated in the consolidated financial statements. 37

38 NOTES TO THE FINANCIAL STATEMENTS Deferred tax liability Untaxed reserves have been divided into deferred tax liability and equity in the balance sheet. The change in deferred tax liability is shown as a separate item under taxes in the profit and loss account. Tax liability takes into account the change in the Finnish tax rate. Valuation policies Valuation of fixed assets Fixed assets have been capitalised at the direct purchase cost or at the value after acquisition, whichever is the lower. The goodwill on consolidation in the consolidated balance sheet is primarily attributable to the acquisition of a majority stake in AS Rakvere Lihakombinaat in 1998, the acquisition by AS Baltic Poultry of a majority stake in AS Tallegg in 2001 and the purchase of AS Baltic Poultry shares taking place in late These investments are based on the Group s long-term plan with the strategic intent of securing a strong presence particularly in the Baltics. The investments also provide a platform for further expansion in the Baltics and Eastern Europe. Goodwill on consolidation also rose during the 2003 financial year owing to the acquisition of shares in Harri Tamminen Oy, Pouttu Foods Oy and Koiviston Teurastamo Oy. The insignificant goodwill on consolidation arising from redemption of Broilertalo s minority interest shares in the 2004 financial year has been eliminated. Goodwill on consolidation rose in 2004 as a result of the additional purchase price for Koiviston Teurastamo Oy shares. The Koiviston Teurastamo investment is to ensure the Group has an adequate supply of Finnish raw pork meat material and to safeguard adequate slaughtering capacity. Planned depreciation is based on historical cost and calculated on a straight-line basis over expected economic life. Depreciation times are: Goodwill Other long-term expenditure Buildings Building machinery and equipment Machinery and equipment Other tangible assets Goodwill on consolidation 10 years 5 years years years 2-10 years 5-10 years 5-20 years The goodwill of EUR 1.68 million in the balance sheet arose through the purchase of slaughter and feeder animal procurement operations, which are of strategic importance to the Group. The investment has long-term earnings potential. Stocks Stocks have been valued at the purchase cost, replacement cost or likely selling price, whichever is the lower. The purchase cost is determined using the weighted average price method. The purchase cost of finished and unfinished products is calculated to include the cost of raw materials, indirect work, other direct costs, variable acquisition and production costs, fixed overheads and depreciation on acquisition and production. Overheads and depreciation are allocated to stocks in accordance with the normal used capacity. Valuation of trade debtors All known credit losses have been booked as a charge under trade debtors. Foreign currency items Trade creditors, trade debtors and loans receivable denoted in foreign currencies and foreign currency bank accounts have been translated into euros at the exchange rates quoted at the balance sheet date. Any gains and losses arising from foreign currency have been recognised in the profit and loss account. The profit and loss accounts of foreign associated companies and subsidiaries have been translated into euros at average exchange rates for the financial year and the balance sheets at the rates at the balance sheet date. Currency derivative contracts Open currency futures are valued at the exchange rates quoted at the balance sheet date. Any gains and losses arising are included in financial income and charges in the profit and loss account. Interest-rate derivatives The Group has no interest swap agreements. Commodity derivatives The commodity derivatives used to hedge against the Group s energy purchases are not valued in the finan- 38

39 NOTES TO THE FINANCIAL STATEMENTS cial statements. The results realised on commodity derivatives are booked as an adjustment to hedged purchases. Deferred tax assets Deferred tax assets consist of pension liabilities shown as a provision for liabilities and charges. Pension arrangements Statutory pension cover for Finnish Group companies has been arranged through pension insurance. Owing to the outsourcing of pension funds, the insurance company invoices the future index-linked increments on pensions each year. Pension arrangements in respect of companies outside Finland have been made in accordance with local regulations and practice. The pension liability in respect of the parent company s CEO appears under other liabilities. Comparability with previous years Comparison of the information for the year under review with that of previous years should take into account the subsidiary and associated companies acquired at various times. Inner circle loans Loans of EUR 7, have been given to a member of the Board of Directors of a Group company. The loan still has 2.5 years to run and attracts interest at 3.75 per cent. Warrants The warrants attached to the shares subscribed in the 1998 Employee Offering could be exercised between 1 February 2002 and 31 January 2004 to subscribe a maximum of 699,750 shares. Between 2 30 January 2004, warrants attached to shares in the Employee Offering were exercised to subscribe 595,705 HK Ruokatalo Oyj A Shares. This corresponded to 2.30 per cent of the shares and 0.46 per cent of the votes of the fully diluted number of shares as at 31 December The last exercise period for warrants attached to shares in the Employee Offering was 2-30 January Notes to the profit and loss account (EUR 1000) Group 2004 Group 2003 Parent 2004 Parent Turnover by business and market By business: Food Primary production Animal feeds and pet foods Other Total By country: Finland Exports to EU * ) Exports outside EU Total * ) New EU Member States (incl. the Baltics) have been calculated as EU members for the whole of

40 NOTES TO THE FINANCIAL STATEMENTS Group 2004 Group 2003 Parent 2004 Parent Other operating income Rent from external parties Rent from Group companies Subsidies from development projects Other operating income Other operating income from Group companies Other operating income from foreign subsidiaries Total Staff numbers Staff during the financial year, average White-collar staff Blue-collar staff Total Management salaries and remuneration Managing directors and their deputies Board members and their deputies Total Depreciation Depreciation according to plant: Intangible rights Goodwill Buildings Machinery and equipment Other tangible assets Other long-term expenditure Total Depreciation on goodwill on consolidation Other operating charges Energy Maintenance Advertising, marketing and entertainment Service, information management and office costs Other operating charges Total Exceptional income Group contributions Total Exceptional charges Group contributions Total Direct taxes Income tax on exceptional items Income tax on ordinary business Taxes from previous years Change in deferred tax asset Change in deferred tax liability Total

41 NOTES TO THE FINANCIAL STATEMENTS Notes to the balance sheet (EUR 1000) Group 2004 Group 2003 Parent 2004 Parent 2003 NON-CURRENT OR FIXED ASSETS AND OTHER LONG-TERM FINANCIAL ASSETS 9. INTANGIBLE ASSETS Intangible rights Acquisition cost at 1 January Increase Decrease Transfers between balance sheet items Acquisition cost at 31 December Accumulated depreciation at 1 January Depreciation for the financial year Accumulated depreciation at 31 December Book value at 31 December Goodwill Acquisition cost at 1 January Increase Decrease Acquisition cost at 31 December Accumulated depreciation at 1 January Depreciation for the financial year Accumulated depreciation at 31 December Book value at 31 December Advance payments Book value at 1 January Increase Decrease Book value at 31 December Intangible assets, total Goodwill on consolidation Acquisition cost at 1 January Netting of Group reserve Increase Acquisition cost at 31 December Accumulated depreciation at 1 January Netting of depreciation of Group reserve Depreciation for the financial year Accumulated depreciation at 31 December Book value at 31 December

42 NOTES TO THE FINANCIAL STATEMENTS Group 2004 Group 2003 Parent 2004 Parent TANGIBLE ASSETS Land and water Acquisition cost at 1 January Increase Transfers between balance sheet items Decrease Acquisition cost at 31 December Book value at 31 December Buildings Acquisition cost at 1 January Increase Decrease EU contribution Transfers between balance sheet items Acquisition cost at 31 December Accumulated depreciation at 1 January Depreciation for the financial year Value adjustments of buildings sold Accumulated value adjustments Accumulated depreciation at 31 December Revaluations Book value at 31 December Machinery and equipment Acquisition cost at 1 January Increase Decrease EU contribution Transfers between balance sheet items Acquisition cost at 31 December Accumulated depreciation at 1 January Depreciation for the financial year Value adjustment depreciation Accumulated depreciation at 31 December Book value at 31 December Other tangible assets Acquisition cost at 1 January Increase Decrease Transfers between balance sheet items Acquisition cost at 31 December Accumulated depreciation at 1 January Depreciation for the financial year Accumulated depreciation at 31 December Book value at 31 December

43 NOTES TO THE FINANCIAL STATEMENTS Group 2004 Group 2003 Parent 2004 Parent 2003 Other long-term expenditure Acquisition cost at 1 January Acquisition cost at 31 December Accumulated depreciation at 1 January Depreciation for the financial year Accumulated depreciation at 31 December Book value at 31 December Payments on account tangible assets in the course of construction Acquisition cost at 1 January Increase Decrease Transfers to intangible rights Transfers to land and water Transfers to buildings Transfers to machinery and equipment Transfers to other tangible assets Transfers between balance sheet items Acquisition cost at 31 December Accumulated depreciation at 1 January Depreciation for the financial year Accumulated depreciation at 31 December Book value at 31 December Tangible assets, total Group reserve Value at 1 January Netting to Group assets Acquisition cost at 31 December Accumulated depreciation at 1 January Netting to Group assets Accumulated depreciation at 31 December Book value at 31 December Revaluations Buildings Value at 1 January Value at 31 December Revaluations. total

44 NOTES TO THE FINANCIAL STATEMENTS Group 2004 Group 2003 Parent 2004 Parent Financial assets Shares in Group companies Acquisition cost at 1 January Increase Decrease Acquisition cost at 31 December Value adjustments Book value at 31 December Shares and holdings in associates Acquisition cost at 1 January Increase Decrease Acquisition cost at 31 December Accumulated depreciation at 1 January Accumulated depreciation at 31 December Book value at 31 December Amounts owed by associates Book value at 1 January Book value at 31 December The convertible subordinated capital note is a receivable. Other investments Acquisition cost at 1 January Increase Decrease Acquisition cost at 31 December Book value at 31 December Other debtors Book value at 1 January Increase Decrease Book value at 31 December Financial assets, total

45 NOTES TO THE FINANCIAL STATEMENTS Shares in subsidiaries Number of shares Book value Holding % Owned by the parent company Broilertalo Oy, Eura Food Kuljetus Oy, Turku LSO Foods Oy, Turku Helanderin Teurastamo Oy, Loimaa Koiviston Teurastamo Oy, Mellilä Lihatukku Harri Tamminen Oy, Vantaa Pouttu Foods Oy, Outokumpu Linocon Oy, Helsinki HK International Ab, Sweden AS Rakvere Lihakombinaat, Estonia AS Linnulihatooted, Estonia AS Baltic Poultry, Estonia Total Owned by LSO Foods Oy Lounaisfarmi Oy, Turku Total 8 Owned by AS Rakvere Lihakombinaat * AS Ekseko, Estonia AS Linnulihatooted, Estonia AS Rigas Miesnieks, Latvia UAB Klaipedos Maisto Produktai, Lithuania Klaipedos Maisto Mesos Produktai, Lithuania Total Owned by AS Baltic Poultry * AS Tallegg, Estonia Shares and holdings in associates Number of shares Book value Holding % Owned by the parent company Honkajoki Oy, Honkajoki Etelä-Suomen Multaravinne Oy, Forssa Pakastamo Oy, Helsinki Finnish Meat Research Institute, LTK Osuuskunta Best-In Oy, Kuopio Saturn Nordic Holding AB, Sweden Total Owned by LSO Foods Oy Finnpig Oy, Vaasa Owned by AS Tallegg AS Eesti Munatooted, Estonia Other shares Book value 2004 Book value 2003 Owned by the parent company Owned by Broilertalo Oy Owned by Helanderin Teurastamo Oy 1 1 Owned by Koiviston Teurastamo Oy 6 9 Owned by Pouttu Foods Oy 5 5 Owned by foreign subsidiaries 16 3 Other shares, total * The book values are based on the book values in the companies balance sheets and, in compliance with local accounting practice, include the change in the subsidiary s equity, which has been taken into account using the equity method. 45

46 NOTES TO THE FINANCIAL STATEMENTS Group 2004 Group 2003 Parent 2004 Parent Debtors Long-term debtors Amounts owed by Group companies: Loans receivable Total Amounts owed by others: Loans receivable Convertible subordinated capital note loans receivable Deferred tax assets Other debtors Total Long-term debtors, total Short-term debtors Trade debtors Amounts owed by parent coop./group companies: Trade debtors Loans receivable Prepayments and accrued income Amounts owed by participating interests: Trade debtors Loans receivable Prepayments and accrued income Loans receivable Other debtors Prepayments and accured income Short-term debtors, total Specification of prepayments and accrued income Short-term Prepayments and accrued income owed by Group companies: Group contributions Other prepayments and accrued income Prepayments and accrued income owed by Group companies, total Prepayments and accrued income owed by participating interests Interest receivables Other prepayments and accrued income Prepayments and accrued income owed by participating interests, total Prepayments and accrued income owed by outside parties: SII healthcare compensation Miscellaneous subsidies VAT and other tax assets Interest receivables Other prepayments and accrued income Prepayments and accrued income owed by outside parties, total Short-term prepayments and accured income, total

47 NOTES TO THE FINANCIAL STATEMENTS Group 2004 Group 2003 Parent 2004 Parent Equity Share capital at 1 January New issue Share capital at 31 December Reserve fund at 1 January Transfer from retained earnings Reserve fund at 31 December Share premium account at 1 January New issue Issue costs Share premium account at 31 December Revaluation reserve at 1 January Revaluation reserve at 31 December Contingency fund at 1 January Unclaimed dividends Unclaimed dividends Contingency fund at 31 December Retained earnings at 1 January Transferred from result for financial year Dividends paid Transferred to reserve fund Change in translation differences and other change Retained earnings at 31 December Profit/loss for the financial year Capital loan Equity, total Share of accumulated depreciation difference added to equity Deferred tax liabilities Arising from appropriations Total Calculation of distributable assets Contingency fund Retained earnings Profit/loss for the financial year Translation differences Share of accumulated depreciation difference added to equity Distributable assets

48 NOTES TO THE FINANCIAL STATEMENTS Group 2004 Group 2003 Parent 2004 Parent Long-term creditors Creditors due in five years or more Loans from financial institutions Pension loans Total Short-term creditors Loans from financial institutions Pension loans Advances received Trade creditors Amounts owed to Group companies Trade creditors Other creditors Accruals and deferred income Amounts owed to participating interests Trade creditors Other creditors Accruals and deferred income Short-term creditors, total Specification of accruals and deferred income and other creditors Other creditors: Unpaid withholding tax and social security contributions VAT debts Other creditors Other creditors, total Accruals and deferred income owed to Group companies: Group contribution Other accruals and deferred income Accruals and deferred income owed to Group companies Accruals and deferred income owed to outside parties: Transitional salaries and other staff costs Unpaid interest Unpaid marketing support and annual discounts Other accruals and deferred income Accruals and deferred income owed to outside parties, total Accruals and deferred income, total

49 NOTES TO THE FINANCIAL STATEMENTS 19. Other notes Surety, contingent and other liabilities Group 2004 Group 2003 Parent 2004 Parent 2003 Debts for which mortgages given as surety Pension loans Loans from financial institutions Real estate mortgages given as security Business mortgages given as security Debts for which other pledges given as surety Loans from financial institutions Pledges given as surety, total Surety given on behalf Group companies Guarantees given Total Surety given on behalf of associates Guarantees given Total Surety given on behalf of others Other pledges given Guarantees given Total Leasing commitments outside the balance sheet Unpaid amounts on leasing agreements Payable during the 2005/2004 financial year Payable later Total Other liabilities Pension liabilities Mortgages given Other liabilities Total Environmental liabilities HK Ruokatalo Oyj and Forssan Talotaito Oy have jointly agreed to meet the potential costs related to cleaning up the facilities of Etelä-Suomen Multaravinne Oy s site when its business is wound up one way or another. The Group is not aware of any other environmental responsibilities. 21. Liabilities arising from derivative instruments Values of underlying instrument at 31 Dec Fair value at 31 Dec Currency derivatives Forward exchange contracts Commodity derivatives Electricity derivatives

50 SHARES AND SHAREHOLDERS Shares and shareholders Share capital HK Ruokatalo Oyj s registered and fully paid share capital was EUR 42,927, at 1 January 2004 and EUR 58,587, at 31 December At the balance sheet date, the share capital was divided into 29,063,193 A Shares and 5,400,000 K Shares. Each share has a nominal value of EUR 1.70 and gives equal entitlement to a dividend. Under the company s Articles of Association, each A Share conveys one vote and each K Share 20 votes. All the K Shares are held by LSO Osuuskunta. The company s shares joined the book-entry securities system on 31 October At the balance sheet date, the company had 7,535 registered owners. Stock exchange listings During the year under review, 10,358,752 HK Ruokatalo A Shares were traded on the Helsinki Exchanges for an estimated total of EUR 70,862,661. The highest price quoted was EUR 7.90 and the lowest EUR The middle price was EUR 6.84 and the closing price on the year was EUR The share price rose 13.2 per cent on the year. HK Ruokatalo s market capitalisation at the balance sheet date was EUR million (EUR 164.1m). Increases in share capital (1) Between 2 and 30 January 2004, the exercise of warrants attached to shares issued in the 1998 Employee Offering increased the number of the company s A Shares by 595,705 new A Shares and the share capital by EUR 1,012, The issue price was EUR 5.94 per share. The increase was entered in the Trade Register on 13 February The new shares are entitled to any future dividends commencing with any dividend payable for the financial year beginning 1 January The warrant scheme expired on 31 January A total of 119,656 warrants of the 150,000 warrants originally attached to the Employee Offering were exercised to subscribe new A Shares. Around 220 members of staff employed by the Group at the time subscribed to shares in the 1998 Employee Offering. (2) Meeting on 27 October 2004, HK Ruokatalo Oy s Extraordinary General Meeting of shareholders decided to increase the company s share capital by a maximum of EUR 14,646, through the issue of a maximum of 8,615,798 new A Shares. The rights issue sought to raise a maximum of EUR 36.2 m in new equity. The proceeds are being principally applied to investments to develop the Group s international and domestic business and to strengthen the capital structure. The issue entitled HK Ruokatalo shareholders to subscribe for one new Series A share against three (3) old A and/or K shares they held at the record date, 1 November 2004, at an issue price of EUR 4.20 per share. The subscription period for the new issue was between 4 and 25 November 2004 and subscription rights were publicly traded on the Helsinki Exchanges between 4 and 18 November All the 8,615,798 new Series A Shares available for subscription in the offering were subscribed. A total of 8,527,109 shares, corresponding to per cent of the shares available in the offering, were subscribed by primary pre-emptive subscription right (Primary Right). Shares subscribed by virtue of the Secondary Right were allotted to those shareholders subscribing them on a pro rata basis to their shareholding at the record date, 1 November Each shareholder subscribing for shares under the Secondary Right received around 0.78 per cent of their shareholding at the record date, rounded to the nearest whole share. However, each shareholder received at most the number of new shares subscribed. Since only whole shares could be issued, no shares were allotted to shareholders owing 125 shares or less. The increase of EUR 14,646, in share capital was entered in the Trade Register on 7 December The new shares are entitled to any future dividends commencing with any dividend payable for the financial year beginning 1 January The company s shares joined the book-entry securities system on 31 October At the balance sheet date, the company had 7,535 registered owners.

51 SHARES AND SHAREHOLDERS 20,000,000 18,000,000 16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 Shares traded (value of shares in million euros traded per month) 1-12/ / / / /2004 Source: HEX Helsinki Shares traded (number of shares traded per month) 1-12/ / / / /2004 Source: HEX Helsinki Share performance (middle price in euros each month) Total dividends paid (EUR million) / / / / /2004 Source: HEX Helsinki The trading code of HK Ruokatalo s A Share on the Helsinki Exchanges is HKRAV and the ISIN code FI Notices of changes in ownership During the current year, the company received the following notices regarding change of ownership pursuant to Chapter 2, Section 9 of the Securities Market Act. On 13 February 2004, Markku Helander reported that he had reduced his stake in HK Ruokatalo to 4.91 per cent of the shares and 0.99 per cent of the votes. On 16 February 2004, Sampo Life Insurance Company reported that its stake in HK Ruokatalo had fallen to 4.94 per cent of the shares and 0.99 per cent of the votes. On 6 August 2004, LRF of Sweden reported its intention to sell its HK Ruokatalo shares and, subject to the deal taking place, would have no stake in HK Ruokatalo. On 6 August 2004, Danish Crown of Denmark reported that its stake in HK Ruokatalo would rise to per cent of the shares and 2.04 per cent of the votes if a planned deal went through. On 16 September 2004, LRF and Danish Crown announced that the deals announced on 6 August 2004 had taken place. 51

52 SHARES AND SHAREHOLDERS Analysis of shareholders as at 31 December 2004 Size of Number of % Number % Number % shareholding shareholders of shares of votes , , , , , ,000 3, ,599, ,599, ,001-10,000 1, ,890, ,890, , , ,147, ,147, , , ,560, ,560, , ,018, ,618, Total 7, ,298, ,898, Waiting list General account 164, , Total 34,463, ,063, Shareholder profile as at 31 December 2004 Share capital by share series as at 31 December 2004 % of % of Share Number of % of % of shareholders shares series shares shares votes Corporates A Shares 29,063, % 21.20% Finance and insurance companies K Shares 5,400, % 78.80% Public sector entities Total 34,463, % % Non-profit organisations Households Each A Share conveys one (1) vote, each K Share conveys 20 votes. Abroad Waiting list 0.00 General account per cent, of the total shares, including nominee registered shares, were in foreign ownership. This compares to per cent a year earlier. Largest shareholders as at 28 February 2005 A Shares K Shares % of total % of votes LSO Osuuskunta 7,252,522 5,400, Danish Crown AmbA 3,494, Markku Helander 1,693, Pohjola, mutual funds, total 1,190, Nordea, mutual funds, total 801, Gyllenberg, mutual funds, total 649, Central Union of Agricultural Producers and Forest Owners 608, Tapiola Mutual Pension Insurance Company 373, Special mutual fund, Avenir 360, EQ, mutual funds, total 300, Veritas Group 277, Evli, mutual funds, total 210, Nominee registered 2,524, Others 9,326, Total 29,063,193 5,400,

53 SIGNATURES OF THE BOARD OF DIRECTORS AND CEO Signatures of the Board of Directors and CEO Vantaa, 24 February 2005 Marcus H. Borgström Markku Aalto Kjeld Johannesen Heikki Kauppinen Tiina Varho-Lankinen Simo Palokangas Report of the Auditors To the shareholders of HK Ruokatalo Oyj We have audited the accounting, the financial statements and the corporate governance of HK Ruokatalo Oyj for the period 1 January 2004 to 31 December The financial statements, which include the report of the Board of Directors, consolidated and parent company profit and loss accounts, balance sheets and notes to the financial statements, have been prepared by the Board of Directors and Chief Executive Officer. Based on our audit, we express an opinion on these financial statements and on corporate governance. We have conducted the audit in accordance with the Finnish Standards on Auditing. Those standards require that we perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis evidence supporting the amounts and disclosures made by the management as well as evaluation the overall financial statement presentation. The purpose of our audit of corporate governance is to examine that the members of the Board of Directors and the Chief Executive Officer have legally complied with the provisions of the Companies Act. In our opinion, the financial statements, which show a profit of EUR 13,502,570.22, have been prepared in accordance with the accounting Act and other rules and regulations governing the presentation of financial statements. The financial statements give a true and fair view, as defined in the accounting Act, of both the consolidated and parent company s result of operations as well as of the financial position. The financial statements with the consolidated financial statements can be adopted, and the members of the Board of Directors and the Chief Executive Officer can be discharged from liability for the period audited by us. The proposal by the Board of Directors regarding the distribution of retained earnings is in compliance with the Companies Act. Turku, 14 March 2005 Authorised public accountants PricewaterhouseCoopers Oy Kauko Lehtonen, APA Jari Henttula, APA 53

54 YHTIÖN HALLINTO Corporate governance Additional information about corporate governance is available on the company s website at under Investor information. Supervisory Board HK Ruokatalo Group has no Supervisory Board. Board of Directors HK Ruokatalo Group Oyj s Board of Directors comprises five members, who represent the company s shareholders and have a considerable breadth and depth of commercial and international experience that is important for the company. Under the Articles of Association, the Board of Directors comprises between five and seven members. The Annual General Meeting elects all members for a term of office of one year at a time and also fixes the remuneration they receive. In accordance with the prevailing practice, producer representatives form a majority on the company s Board of Directors. They have production contract to supply the company with raw meat at the market price. Additionally, one member of the Board is managing director of a company that is a major shareholder in HK Ruokatalo Group and with which HK Ruokatalo Group is involved in strategic cooperation. The Board of Directors elects a chairman and deputy chairman from among its members. The chairman may not be an employee of the company. The work of the Board of Directors is based on the Finnish Companies Act, the provisions contained in the Company s Articles of Association and the Board s own rules of procedure. The Board of Directors works together as a collegiate body with all Board members participating in all matters considered by the Board. Temporary working groups or permanent committees may be established if required. HK Ruokatalo Group s Board of Directors meets once a month on average and more often if required. The Board met 19 times during The average attendance rate of Board members was 95.8 per cent. Members of the Board of Directors received fees and other benefits as follows: Marcus H. Borgström, EUR 21,100 Markku Aalto, EUR 12,250 Lars Danell, EUR 7,770 Kjeld Johannesen, EUR - Heikki Kauppinen, EUR 9,400 Tiina Varho-Lankinen, EUR 9,400 From 1 April 2005, HK Ruokatalo Group Oyj s Board of Directors also serves as the Board of Directors of HK Ruokatalo Oy. CEO The Board of Directors appoints the parent company s CEO and also decides his salary and other benefits. The Board of Directors has agreed with CEO Simo Palokangas that he will continue to head the company. Under his service agreement, Mr Palokangas could have retired when he reached the age of 60 in October The CEO received a salary of EUR 350,050 and other benefits of EUR 11,880 in The CEO s pension is determined in accordance with the Employees Pension Act (TEL) and the supplementary pension insurance taken out by the company and amounts to 60 per cent of the salary forming the basis of pension under the Employees Pension Act. Under his employment relationship, the CEO can give six months notice to terminate his agreement. On termination of his agreement by HK Ruokatalo, the period of notice is 12 months. The CEO receives normal payment of salary during the period of notice. No severance payment has been agreed. 54

55 YHTIÖN HALLINTO Salaries and remuneration Management salaries and remuneration totalled EUR 1.39 million, of which EUR 0.07 million was paid to members of the Board and EUR 1.32 million, including benefits, to managing directors and their deputies. The Company has no share bonus or share derivative incentive schemes in place for members of the Board of Directors or for management. In common with other employees, the CEO and other operative management were able to take part in the Employee Offering in This offering also included warrants. The warrants attached to the Employee Offering expired on 30 January The terms and conditions of the Offering are given in the notes to the financial statements on page 39. Auditors Under its Articles of Association, HK Ruokatalo Group shall have two (2) auditors and two (2) deputy auditors, one (1) of the auditors and one (1) of the deputy auditors shall be authorised by the Central Chamber of Commerce. The term of any auditor or any deputy auditor is the calendar year following their appointment. Auditors from authorised public accountants PricewaterhouseCoopers Oy served as the company s auditors. In 2004, the auditors fees for the statutory audit in the parent company were EUR 66,912 and in the Group EUR 153,933. In addition, PricewaterhouseCoopers were paid EUR 154,315 for services unrelated to the audit. These services included assignments relating to the share issue, arrangements in Poland, IFRS accounting practice and taxation. Management interests At year-end 2004, members of the Board of Directors and the company s CEO owned a total of 66,343 A Shares, which corresponded to 0.19 per cent of the total number of shares and 0.05 per cent of the votes. Share agreements The company is not aware of any shareholder agreements or other commitments agreed on share ownership or the exercise of votes in the company. Insider holding HK Ruokatalo has complied with the insider holding guidelines prepared by the Helsinki Exchanges, the Central Chamber of Commerce and the Federation of Finnish Industry and Employers since 1 March On the basis of law, permanent insiders include members of the Board of Directors, the company s auditors and CEO. By corporate decision, insiders also include members of the Group s Management Team, secretaries to the CEO and CFO, financial administration managers, group controllers, persons responsible for the profit calculation and communications of the group and its principal units, the board of the principal owner and chairmen of the principal owner s Supervisory Board. There are currently 37 persons on the company s insider register. These persons are banned from trading for 30 days prior to the publication of interim reports and financial statement bulletins. HK Ruokatalo ensures compliance with insider holding guidelines by reminding insiders in advance of a forthcoming ban on trading and by checking the Finnish Central Securities Depository register once a year to see the trades carried out by insiders. In the same context, the company sends an extract from the register to each insider to allow him or her to check and complete their own personal information in the register. HK Ruokatalo s Group s group administration maintains and manages the insider register. The actual register is kept in the Finnish Central Securities Depository s SIRE system. 55

56 BOARD OF DIRECTORS Marcus H. Borgström Markku Aalto Board of Directors Appointed on 22 April 2004, supplemented on 27 October 2004 Marcus H. Borgström (born 1946) Chairman of the Board since 1997, member since 1995, MSc (Agriculture and Forestry), Agricultural Counsellor (Hon) Pork producer in Sipoo, Uusimaa. Member of the Board of Directors of Hankkija-Maatalous Oy and Veritas Life Insurance Company Ltd, chairman of the Supervisory Board of Itä-Uudenmaan Osuuspankki bank, OKO Bank Group Pension Fund and Osuuskauppa Varuboden and a member of the Board of Directors of LSO Osuuskunta. Current elected positions: Chairman of the Board of Pellervo-Seura and Finlands Svenska Andelsförbund (the Confederation of Swedish-Speaking Cooperatives in Finland) and representative of Finnish farmers on the General Committee for Agricultural Co-operation in the European Community (COGECA). Shares: 20,334 An expert on the international marketing of branded goods and has served as managing director of Suomen Unilever Oy from 1994 to Also chairman of the Boards of Directors of Mildola Oy and the Finnish Orienteering Association. Shares: 2,011 Lars Danell (born 1947) Member of the Board from 1999 to 27 October 2004, MSc (Agric.) Business development director of Swedish Meats. Served earlier as managing director of the Swedish Meat Farmers Marketing Association (Slakteriförbund). Current chairman of the Board of Directors of Sokolów S.A. Shares: 4,000 Auditors for the 2005 financial year Auditors Authorised public accountants PricewaterhouseCoopers Oy, with Jari Henttula MSc (Econ. & Bus. Admin.), Authorised Public Accountant, Turku as the principal auditor Kauko Lehtonen, MSc (Econ. & Bus. Adm.), Authorised Public Accountant, Turku Kjeld Johannesen Tiina Varho-Lankinen Heikki Kauppinen Markku Aalto (born 1950) Member of the Board since 1994, deputy chairman since 2003 Pork producer in Jämijärvi, Satakunta. Chairman of the Board of Directors of LSO Osuuskunta. Shares: 1,200 Kjeld Johannesen (born 1953) Member of the Board since 27 October 2004, MSc (Econ. & Bus. Adm.) CEO of Danish Crown. Deputy chairman of the Board of Directors of DAT-Schaub, Tulip Food Company and Sokolów S.A. and a Board member of the following companies: Vest-Wood A/S, DBC Ltd (UK), The Danish Bacon and Meat Council, Plumrose USA, Inc. and Tulip Ltd. (UK). Shares: - Tiina Varho-Lankinen (born 1962) Member of the Board of Directors since 2003, MSc (Econ. & Bus. Admin.) Beef and broiler meat producer, a farm entrepreneur in Oripää, Varsinais-Suomi. Deputy chairman of the Board of Directors of LSO Osuuskunta and chairman of Suomen Broileryhdistys (Finnish Broiler Association). Shares: 671 Heikki Kauppinen (born 1947) Member of the Board since 2003, Bus. Admin.) Deputy auditors Mika Kaarisalo, MSc (Econ. & Bus. Adm.), Authorised Public Accountant, Turku Pasi Pietarinen, MSc (Econ. & Bus. Adm.), Authorised Public Accountant, Turku The Annual General Meeting was held on 22 April 2004 in Turku and an Extraordinary General Meeting on 27 October 2004 in Helsinki. Management Team in Finland Simo Palokangas (born 1944) CEO, MSc (Agric.). CEO of HK Ruokatalo Group Oyj since 1994, CEO of HK Ruokatalo Oy since 2005, Managing director and a member of the Board of Directors of LSO Osuuskunta since Earlier served as managing director of Munakunta and CEO of Lännen Tehtaat Oy Currently chairman of the Supervisory Board of AS Rakvere Lihakombinaat and AS Tallegg and deputy chairman of the Board of Directors of Sokolów S.A. Current elected positions: Chairman of the Board of the Finnish Food Industry Federation, a member of the Board of Directors of the Confederation of Finnish Industry and Employers and a member of the Board of Turku University Foundation. Shares: 42,127 56

57 BOARD OF DIRECTORS Matti Perkonoja (born1949) CFO and CEO s deputy, commercial college graduate. His remit is finance and administration, information management and development of the Group s work environment and quality issues. Member of the Supervisory Board of AS Rakvere Lihakombinaat and AS Tallegg and a member of the Board of Directors of Sokolów S.A. Joined the Group as managing director of Broilertalo Oy in 1993 before being made director of commerce. Shares: 7,000 Kimmo Piiroinen (born 1948) Employee group representative in the Management Team. Reteaming coach in Tampere, prior to which he was chief shop steward and work environment coach at the Tampere factory. Joined the Group in Shares: - Secretary to the Board of Directors and the Management Team is Eva-Stina Engberg, University Diploma for Correspondent. Raimo Laine (born 1943) Executive vice president, Raw Material Group, trade technician. His remit is the procurement of raw meat material, raw material control and material purchases. Joined the Group in 1964, assumed his present position in 2000, prior to which he was sales director. Shares: 1,342 Risto Koivisto (born 1961) Executive vice president, Slaughtering and Cutting Group. Pork and beef slaughterhouses and cutting operations. Joined the Group in Managing director of Koiviston Teurastamo Oy slaughterhouse in Mellilä Shares: 10,169 Pekka Kaikkonen (born 1961) Executive vice president, Processed Meat and Convenience Foods, MSc (Food Sciences). Production of processed meat and convenience foods. Joined the Group in Managing director of Järvi-Suomen Portti cooperative from 1998 to Shares: - Jari Leija (born 1965) Executive vice president, Logistics Group. Finnish production and transport logistics and the dispatch terminals at Vantaa and Tampere. Joined the Group in 1993, served as logistics manager, and the manager of the Vantaa factory and production director. Shares: - Esa Mäki (born 1966) Executive vice president Poultry Group, MSc (Agriculture and Forestry). Poultry operations at the production facilities in Eura and Säkylä. Joined the Group in Prior to this was meat line director and most recently director of control and logistics at Atria Group plc. Shares: - Reijo Kiskola (born 1954) Executive vice president, Commercial Operations Group, dairy technician. Finnish retail and horeca sales, marketing, R&D and exports. Joined the Group as managing director of Broilertalo Oy in 2001, prior to which he served eight years as managing director of Osuuskunta Satamaito dairy. Shares: - Management Team in the Baltics Olli Antniemi (born 1959) Executive vice president, Baltic Group, MSc (Econ. & Bus. Admin.). His remit is HK Ruokatalo Group operations in the Baltics. Joined the Group in 1996 as export director. Prior to this he served the Huhtamäki Group, including a spell with Leaf in the United Kingdom. Shares: - Olle Horm (born 1967) President of Rakvere Lihakombinaat since 2000 and of Tallegg since autumn 2004, MSc (Tech.). Was earlier a director of the construction firm AS EMV and of the Estonian national oil company AS Eesti Kütus Shares: - Veimo Beilmann (born 1970) President of UAB Klaipedos Maisto Mesos Produktai in Lithuania since His remit additionally includes sales and logistics in Latvia and Lithuania and key customer relationships in the Baltics. Served earlier as sales director at Rakvere Lihakombinaat. Shares: - Toomas Koovit (born 1965) President of Rigas Miesnieks A/s in Latvia since 2004, MSc (Tech.). His remit also includes the HK Baltic Group s pork and beef production. Was earlier technical director of Rakvere Lihakombinaat and before that he worked in the Estonian energy sector. Shares: - Teet Soorm (born 1970) Managing director of AS Ekseko in Estonia since 2000, MSc (Econ. & Bus. Admin.). His remit additionally includes HK Baltic Group s primary production, (including pig and broiler breeding, feed and primary production support services). Joined Rakvere Lihakombinaat as CFO in Shares: - 57

58 STOCK EXCHANGE BULLETINS Stock exchange bulletins We issued 32 stock exchange bulletins during the year. These can be read on our website at A summary of the more important ones appears below. 25 February 2004 Financial statement bulletin Group turnover in 2003 rose by 2.2 per cent to EUR million. The result before exceptional items was EUR 22.2 million (EUR 26.5m in 2002). The Board of Directors is to recommend that 46 per cent of EPS, equivalent to EUR 0.28 per share (EUR 0.27 in 2002), be distributed as dividend for May 2004 Interim report for Q1, 1 January to 31 March Q1 turnover was up by EUR 7.8 million to EUR million, a rise of 5.4 per cent on the year. The operating profit rose to EUR 5.1 million and Q1 earnings before exceptional items were EUR 3.9 million (EUR 3.5m). 6 May 2004 Agreement to increase ownership in Sokolów HK Ruokatalo is to buy a total of 11.5 million Sokolów shares from Conrad Jacobson GmbH of Germany. The deal will take place in two instalments. 6 August 2004 Strategic cooperation in Poland HK Ruokatalo and Danish Crown are to begin strategic cooperation in Sokolów. Danish Crown has agreed with the Federation of Swedish Farmers (LRF) to acquire LRF s per cent stake in Sokolów. Sokolów s largest shareholder is HK Ruokatalo, which has a per cent stake. Cooperation is to take place through Saturn Nordic Holding AB, which will be owned by HK Ruokatalo and Danish Crown on a 50/50 basis. 11 August 2004 Interim report for 1 January to 30 June Turnover for the first six months of the year was EUR million. The operating profit rose by 17.3 per cent to EUR 12.4 million. The result before exceptional items was EUR 10.1 million (EUR 8.1m in 2003). 26 August 2004 Modernisation of the Forssa production facilities Work is to start on an extensive efficiency and regeneration project at Forssa. The existing pork slaughtering line dating from 1987 is to be completely replaced since its capacity is inadequate for future requirements. The animal reception facilities and quick carcass refrigeration plant dating from the 1980s will also be replaced at the same time. The project will last about two years and is expected to cost over EUR 20 million. 14 September 2004 Authorities give green light for cooperation in Poland HK Ruokatalo and Danish Crown were given the approval of the Polish Authorities and European Commission for cooperation in Sokolów. Cooperation is to take place through joint venture Saturn Nordic Holding AB. 16 September 2004 Streamlining of legal structure in Finland To streamline the legal structure of operations in Finland, HK Ruokatalo Oyj is to merge its fully-owned subsidiaries Broilertalo Oy, Food Kuljetus Oy, Koiviston Teurastamo Oy and Pouttu Foods Oy into HK Ruokatalo Oyj and to centre industrial operations, sales, marketing and logistics on one company. The second stage of restructuring will see the Group s Finnish industrial operations, including employees, being divested into a separate subsidiary. 16 September 2004 Progress with cooperation arrangements in Poland HK Ruokatalo has transferred its per cent shareholding in Sokolów to joint-venture Saturn Nordic Holding AB through a share swap arrangement. The shares were transferred once the envisaged cooperation with the Danes had been given the goahead by the European Commission. Saturn Nordic Holding now has a per cent shareholding in Sokolów. 17 September 2004 Public offer for Sokolów s shares Saturn Nordic Holding has made a public offer in Poland to buy the remaining shares in Sokolów for PLN 6.00 (appr. EUR 1.38) per share. 19 October 2004 Further progress made with restructuring Having entered the merger plan regarding HK Ruokatalo, Broilertalo, Food Kuljetus, Koiviston Teurastamo and Pouttu Foods in the trade register, HK Ruokatalo notified the company s shareholders of the plan as required under the Companies Act. 27 October 2004 Interim report for January to September Turnover for the first nine months of the year was EUR million, up by EUR 26.2 million on the figure a year earlier. The operating profit was EUR 21.9 million (EUR 19.7m, 1-9/2003 and earnings before exceptional items rose to EUR 18.2 million (EUR 16.1m). 27 October 2004 Extraordinary General Meeting decides on share issue HK Ruokatalo Oyj s Extraordinary General Meeting of Shareholders decided to increase the company s share capital by EUR 14,646, through the issue of 8,615,798 new A Shares. The rights issue seeks to raise EUR 36.2 million in new equity. 28 October 2004 Saturn Nordic Holding increased its ownership in Sokolów Saturn Nordic Holding has increased its shareholding in Sokolów by per cent. This includes the remaining Sokolów shares owned by Conrad Jacobson GmbH. Saturn Nordic Holding now has per cent of the shares and votes in Sokolów. 3 December 2004 Result of share offering All the 8,615,798 Series A Shares in the offering were subscribed. A total of 8,527,109 shares, corresponding to per cent of those offered, were subscribed by primary pre-emptive subscription right (Primary Right). The number of subscriptions made by virtue of Secondary Pre-emptive Subscription Right (Secondary Right) exceeded the number of shares offered. 58

59 ADDRESSES HK Ruokatalo Group Oyj, Communications/ Printed by Painoprisma Oy HK RUOKATALO GROUP OYJ (Head office, group management and administration) PO Box 50 (Kaivokatu 18) FI Turku, Finland tel: fax: FINLAND HK RUOKATALO OY tel: Turku (Meat processing, administration, exports) PO Box 50 (Kaivokatu 18) FI Turku, Finland fax: Vantaa (Meat processing and convenience foods, sales, marketing, product development, distribution centre, logistics) PO Box 49 (Väinö Tannerin tie 1) FI Vantaa, Finland fax: Forssa (Slaughtering and cutting operations) Teollisuuskatu 17 FI Forssa, Finland fax: Eura (Poultry production, procurement, marketing, administration) Kariniementie 2 FI Eura, Finland fax: Säkylä (Turkey production, cooked poultry products) Säkyläntie 120 FI Säkylä, Finland fax: Tampere (Processing of fresh meat, distribution centre) Kolismaankatu 1 FI Tampere, Finland fax: Mellilä (Slaughtering operations) Ysitie 387 A FI Mellilä, Finland fax: Outokumpu (Slaughtering and cutting operations) Kuvernöörinkatu 27 FI Outokumpu, Finland fax: LSO FOODS OY (Procurement and information) Turuntie 4 FI Forssa, Finland tel: fax: [email protected] ESTONIA AS RAKVERE LIHAKOMBINAAT (Production facilities, sales and marketing in the Baltics) Roodevälja küla Sõmeru vald EE Lääne-Virumaa, Estonia tel: fax: [email protected], [email protected] AS TALLEGG (Production facilities, sales and marketing in the Baltics) Saha tee 18, Loo Harju mk 74201, Estonia tel: fax: [email protected] AS EKSEKO (Production of pigs) Mäetküla Viiratsi sjk EE Viljandi maakond, Estonia tel: fax: LATVIA RIGAS MIESNIEKS A/S (Production facilities, sales and marketing in Latvia) str. 7 Atlasa Riga, Latvia, LV-1026 tel: fax: [email protected] LITHUANIA UAB KLAIPEDOS MAISTO MESOS PRODUKTAI (Sales and marketing in Lithuania) V.A.Graiciuno 22 LT-2035 Vilnius, Lithuania tel: fax: [email protected] POLAND SOKOLÓW S.A. - Headquarters Aleja 550-lecia Sokolów Podlaski, Poland tel: ax: SOKOLÓW S.A. - Head Office in Warsaw 22 Sielecka Str Warsaw, Poland tel: fax: [email protected] Banks and stockbrokers in Finland analysing HK Ruokatalo as an investment HK Ruokatalo Group Oyj is not liable for any evaluations presented in the analyses. Carnegie Investment Bank AB, Finland Branch tel: [email protected] Enskilda Securities AB Tommy Ilmoni tel: firstname. [email protected] eq Pankki Ltd Kalle Karppinen tel: firstname. [email protected] Evli Pankki Oyj tel: [email protected] FIM Securities Ltd Linda Blom tel: [email protected] Kaupthing Bank Oyj Jutta Rahikainen tel: [email protected] Mandatum Stockbrokers Ltd Noora Alestalo tel: [email protected] Opstock Ltd Mikael Doepel tel: [email protected]

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