2017 Lantmännen Annual Report including Sustainability Report Lantmännen’s Annual Report 2017 a Contents About Lantmännen Annual Report Annual overview 2 Table of contents 68 Lantmännen in figures 4 Board of Directors’ Report 69 Key figures 5 Financial statements and notes 96 Lantmännen’s structure 6 Auditor’s Report 142 Business overview 8 Description of financial performance measures 145 Significant events 10 Chairman’s comments 12 Corporate Governance Report President’s overview 14 Table of contents 146 Owner dialogue that involves 16 Corporate Governance Report 147 The dividend makes a difference 17 Board of Directors’ report on internal control Lantmännen has a clear mission 19 over financial reporting 153 Market and trends 20 Organization and structure 154 Strategy 2020 22 Our corporate functions 155 Our financial targets 24 Board of Directors and Auditors 156 Our sustainability targets 25 Group Management 158 Our responsibility from field to fork 26 Sustainability for profitable businesses 28 Financial overview and facts Innovation for future demand 30 Table of contents 160 Climate work leading to 2030 31 Risk facts and risk analysis 161 Active dialogue and cooperation 32 The Group’s ten-year overview 165 Our employees 33 How to read the income statement 167 2 – Digital tool for farmers 36 LM How to read the statement of financial position 168 How to read the statement of cash flows 169 Our Sectors and businesses About sustainability reporting 170 Agriculture Sector 38 Statutory sustainability report 170 Machinery Sector 44 Materiality analysis 171 Energy Sector 50 Glossary 172 Food Sector 54 Lantmännen’s new structure 173 Lantmännen Real Estate 62 Addresses 176 Lantmännen’s international ownership 64 Lantmännen’s Annual General Meeting Distribution & Ordering The Annual General Meeting will be held at Hilton Stockholm Lantmännen’s complete Annual Report including Sustainability Slussen, Guldgränd 8, Stockholm, on Monday, May 7, 2018 Report can be downloaded from lantmannen .com/financial- information or ordered by calling +46 10-556 00 00 . Financial Reporting The reports are available in Swedish and English . Interim 1st four months . June 1, 2018 Sustainability Reporting Interim 2nd four months . October 4, 2018 Lantmännen reports in accordance with the Global Reporting Initiative guidelines for sustainability Listen to us! reporting, GRI Standards . Sustainability reporting Listen to selected parts of Lantmännen’s Annual Report including comprises the Annual Report including Sustainability Report on a computer or mobile . (Available in Swedish) Sustainability Report and Key Sustainability Learn more at lantmannen .com/lyssna2017 Facts, available at lantmannen .com b Lantmännen’s Annual Report 2017 Lantmännen’s assignment is to contribute to the profitability of its owners’ farms and optimize the return on their capital in the association. ” Lantmännen’s Annual Report 2017 1 Annual overview2 017 Lantmännen acquired K-maatalous The purpose of the acquisition was to establish a greater presence in the Finnish market’s grain value chain and to grow in the Baltic Sea region. K-maatalous is one of the largest players in the Finnish agricultural market, with a strong product portfolio and many well-established brands. In 2016, K-maatalous reported net sales of EUR 334 million and an operating profit of EUR 5.3 million. Our strong position throughout the value chain from field to fork means that we can develop profit- Owner dialogue 2017 able, sustainable businesses and make The owner dialogue has involved elected representatives and 2 Swedish farming thrive. The LM digital members in Lantmännen’s development, giving them the tool, designed to strengthen the com- opportunity to discuss ownership matters. petitiveness of Swedish farming, was The dialogue shows that there is unanimity about Lantmän- launched during the year. nen’s long-term direction and the importance of a strong We are well placed for the future, and agribusiness. Topic also discussed: I have strong confidence that we will • The importance of engaging younger entrepreneurs continue the positive development. • The strength of international initiatives • A long-term dividend policy Per Olof Nyman President & CEO, Lantmännen • The desire for a continuous owner dialogue Lantmännen Cerealia expands Lantmännen Aspen its crispbread operations acquires Marline Lantmännen continues to grow in the alkylate petrol market. Since the Group bought Swedish company Aspen ten years ago, Lantmännen Aspen has developed into a leader in specialty fuel in several markets in Europe. As the next step in its development, Lantmännen Aspen has now acquired France’s leading alkylate petrol producer, Marline, which has sales of just over EUR 20 million and about 20 employees. Marline is the leading French company Lantmännen Cerealia acquired Orient Products, Russia’s in specialty fuels and finished blends leading crispbread producer, to strengthen its geographic for small engines. presence. Orient Products is based in St Petersburg and has about 250 employees. 2 Lantmännen’s Annual Report 2017 2 017 Lantmännen sets new climate target on reduced New research results emissions for its own give hope to patients with production type 2 diabetes The new Group-wide target will be achieved through the Through its research foundation, following initiatives: Lantmännen has contributed to research • Reduction of emissions by 40 percent in the Group’s showing positive effects in patients with own production facilities up to year 2030, with 2015 as type 2 diabetes. The active substance, an the base year. antioxidant found in broccoli, has been • Fully fossil-free production in Sweden and Norway by shown to lower blood sugar levels in 2025, the rest of the Nordic region by 2030 and the persons with type 2 diabetes. rest of Europe by 2040. • Energy efficiency of 3 percent per year and per volume, produced up to 2020. Swecon becomes a separate business area Lantmännen recognized in 2018 for successful innovations To create a more consistent and customer- oriented agricultural business, Lantmännen Maskin, as a retained unit, is moving to the Agriculture Sector. A new, separate business area, Swecon, will be formed and Agro Oil will be trans- ferred to Lantmännen Aspen in the Energy Sector as part of the change. Lantmännen BioAgri CEO Kenneth Alness and ThermoSeed were awarded at the Swedish University of Agricultural Sciences’ awards for the most successful innovations in its 40-year history. Lantmännen took over Massey Ferguson imports “ and market support By taking over the import agency for Massey Ferguson, Lantmännen Maskin strengthens its network of committed dealers with excellent knowledge and ability to conduct business. Lantmännen’s Annual Report 2017 3 Lantmännen in figures Net sales MSEK 39,686 Net income MSEK 1,305 Net sales for the Group amounted to MSEK 39,686 (37,244), Net income was MSEK 1,305 (1,274). an increase of 7 percent. Adjusted for acquired and divested operations, net sales were 5 percent higher. Currency effects Cash flow MSEK –703 had only a marginal impact on net sales for the year. Cash flow from operating activities for the year was MSEK 2,398 (3,136). Cash flow from investing activities was MSEK Operating income MSEK 1,677 –3,101 (–2,310). Investments in non-current assets totaled Operating income was MSEK 1,677 (1,606) and adjusted for MSEK 2,593 (2,333). Total cash flow before financing activi- items affecting comparability MSEK 1,708 (1,697). ties was MSEK –703 (826). After financial items MSEK 1,521 Dividend to owners MSEK 566 Income after financial items totaled MSEK 1,521(1,457) The Board has decided to pay a refund and supplementary and adjusted for items affecting comparability MSEK 1,552 payment of 2.5 (2.5) percent on trade with Lantmännen (1,548). Lantbruk Sweden. The Board has also decided to pay a 0.5 (0.5) percent refund on members’ purchases from the Machinery Sector’s Swedish operations. The total refund and supplementary payment is estimated at MSEK 244 (231). The Board proposes that the Annual General Meeting adopt a contribution dividend of 9 (9) percent of the con- tributions’ nominal value, totaling MSEK 222 (207), and a contribution issue of MSEK 100 (70). Together, the pro- posed contribution dividend and contribution issue represent 13 (12) percent of the association’s contributed capital. The total dividend to the owners is therefore expected to be MSEK 566 (508). The Board also proposes that the Annual General Meet- ing adopts a 6.0 (7.25) percent dividend on subordinated debentures, totaling MSEK 15 (18). Net sales Operating margin MSEK % 40,000 5 4 30,000 3 20,000 2 10,000 1 0 0 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 Operating margin Operating margin excluding items affecting comparability 4 Lantmännen’s Annual Report 2017 Key figures Lantmännen’s key figures 2017 2016 Excl. items affecting comparability 2017 2016 Net sales, MSEK 39,686 37,244 Operating income, MSEK 1,708 1,697 Operating income, MSEK 1,677 1,606 Operating margin, % 4 .3 4 .6 Operating margin, % 4 .2 4 .3 Income after financial items, MSEK 1,552 1,548 Income after financial items, MSEK 1,521 1,457 Net income for the year, MSEK 1,353 1,457 Net income for the year, MSEK 1,305 1,274 Return on equity, % 9 .4 11 .0 Cash flow before financing activities, MSEK –703 826 Return on operating capital, % 7 .9 8 .4 Return on equity, % 9 .0 9 .6 Return on operating capital, % 7 .8 8 .0 Sales by market, MSEK 2017 2016 Total assets, MSEK 34,540 32,490 Equity ratio, % 43 .3