RAISIO GROUP ANNUAL REPORT RAISIO GROUP 2003 Raisio Group ................................. 1 FINANCIAL STATEMENTS SHARES, SHAREHOLDERS AND Chief Executive‘s review .................. 2 Report of the Board of Directors ...... 29 GOVERNANCE Vision, strategy and values ............... 4 Income statement .......................... 34 Shares and shareholders ................ 49 Environment and social responsibility .. 6 Balance sheet .............................. 35 Share indicators ........................... 54 Source and application of funds ...... 36 Investment analysis and IR contact ... 55 REVIEW OF BUSINESS AREAS Accounting principles .................... 37 Corporate governance .................. 56 Raisio Group Business Sectors ........ 13 Notes to the accounts ................... 38 Supervisory Board ........................ 59 Raisio Chemicals .......................... 14 Risk management ......................... 45 Board of Directors and Auditors ...... 60 Raisio Nutrition ............................ 18 Financial indicators ....................... 46 Executive Committee ..................... 62 Raisio Life Sciences ....................... 24 Board‘s proposal for the Glossary ..................................... 64 disposal of profit .......................... 47 Contact information ...................... 65 Auditors‘ report ............................ 47 Statement of the Supervisory Board .. 47 Pictures Niko Levo is one of the pupils at Tahvio primary school. The school is located near Raisio Group headquarters and cooperates closely with Raisio Group. .................................................... 7 Group of Raisio Nutrition’s employees: Pauliina Karke (front right), Outi Suovanen, Tapio Tamminen, Raila Ilmonen, Auli Ketonen, Jyrki Aalto, Irma Tervonen and Kirsi Koskinen. ...................... 11 Cristina Prosperini works for Diffchamb in Italy. .................................... 26 Pasi Aakula is a Raisio Group shareholder and contract farmer. ................. 49 The Annual General Meeting of Raisio Group will be held on 26 March 2004. The picture is from the 2003 AGM. ............................... 56 This Annual Report has been printed on G-Print paper. Raisio Chemicals paper chemicals have been used in the manufacturing. Raisio Group is a growing international industrial group whose operations are divided into three business sectors: Raisio Chemicals, Raisio Nutrition and Raisio Life Sciences. Raisio Chemicals serves the paper industry globally, supplying it with functional paper chemicals and chemical concepts. It is one of the world’s leading manufacturers of paper latex, specialty chemicals and starch binders. Raisio Nutrition comprises the Food, Animal Feeds and Malt business areas, while Raisio Life Sciences produces stanol ester, the Benecol ingredient that helps to reduce cholesterol. The other important pillar of Raisio Life Sciences is food diagnostics. In the future, Raisio Nutrition and Raisio Life Sciences will be concentrating more and more on special expertise in well-being. Raisio Group employs some 2,700 people, 45 per cent of them abroad. It has production units in 31 locations in 18 countries. The Group also has sales offices all over the world. The Group’s head office is in the town of Raisio in southwest Finland, and there are production plants in eight other locations in Finland. The free shares of the parent company, Raisio Group plc, are quoted on the Helsinki Exchanges Main List under the food industry and its restricted shares on the I List. The company has some 47,000 shareholders. KEY FIGURES 2003 2002 Turnover, EURm 860.5 843.1 Operating result, EURm –14.3 20.6 Result before extraordinary items, EURm –27.2 9.3 Return on investment, % –1.8 4.5 Return on equity, % –10.9 2.4 Equity ratio, % 32.2 34.4 Cash flow from business operations, EURm 77.0 45.4 Earnings per share, EUR –0.16 0.03 Cash flow from business operations per share, EUR 0.47 0.27 Equity per share, EUR 1.17 1.41 Market value, EURm 205.5 189.0 1 Chief Executive’s Review activities. The recession that has continued in the paper industry, Strategic reassessment is on stream. the tardiness of rationalization in margarine production and Raisio has strong traditions of contributing to the slowness of the regulatory processes in functional foods Finnish well-being. weakened growth and financial performance, thus undermining future investment potential. Food and animal feed businesses have growth potential in the Baltic region. At the beginning of 2004, the Raisio Group Board initiated the preparation of a new strategy based on a more focused Market for functional ingredients and food diagnostics approach. We plan to develop Raisio Group as a growing, are global and growing rapidly. profitable and innovative food and animal feed company that is Profitability and customer satisfaction are Raisio’s oriented towards the life sciences. This means that Raisio has basic targets for the future, too. already initiated evaluation of restructuring alternatives, including the possibility of the divestment of Raisio Chemicals or listing it separately on the stock exchange. Discussions have already been In terms of business performance, 2003 fell more or less into two started with a number of companies in the chemicals sector. This parts. The first half of the year was extremely difficult for all three sort of restructuring would give Raisio Chemicals the opportunity business sectors, Raisio Chemicals, Raisio Nutrition and Raisio to grow and internationalise still further. Life Sciences. Some corrective measures had already been taken the previous year, but these gathered speed during the spring Raisio has strong traditions of contributing to Finnish well-being. and the autumn. In terms of operations, the last two quarters As a diversified processor of grain, oil plants and potatoes, Raisio indeed began to show indications of improvement for Raisio is able to respond to the expectations of the Finnish consumer Chemicals. However, non-recurring costs related to rationalization for safe, healthy, easy to use and tasty food. Consumer confidence programmes weakened the results. We had greater success than in Finnish food is also reflected in Raisio’s Animal Feeds business anticipated in reducing working capital and improving cash flow, through Finnish livestock production. Innovative product develop- which made it possible to maintain solvency level despite the ment, strict quality control and close cooperation with customers negative result. are the keys to the success of Raisio Nutrition. Implementing the strategy drawn up by Raisio Group in 2001 It seems to me that in the future, Raisio will have the opportunity proved to be more challenging than we expected. The successful to extend its grain and oil plant expertise in the Baltic region. integration that followed the Latexia acquisition in 2002 and new The margarine factory completed near Moscow in early 2004 entries into the growing markets for paper chemicals in China will provide us with a more cost-effective route to the growth and food diagnostics in Europe were important strategic steps centres in Russia where the Raisio trademarks are already well forward. There was also divestment of some non-core business established. Poland’s membership of the European Union will 2 open up new opportunities for Raisio Polska Foods in the Union’s have to reorganize the structure of the Group and strengthen our internal market. The decision has been taken to deepen sales competitiveness. We have to concentrate on those business and marketing cooperation with the Swedish company Cerealia operations where we have a competitive edge and in which we in both Sweden and Finland. Expanding cooperation in the Baltic have special expertise. We also need to be able to commercialise region is the logical next step. this expertise and our innovativeness. Consequently, I feel it is important that we have got a good start with our strategy work The primary target market for Raisio Food and Animal Feed busi- and that we are prepared for structural changes. nesses is the Baltic region. For Raisio Life Sciences, on the other hand, there is a great deal of scope on global markets. At the Despite the fact that fundamental changes are indeed being moment, however, the focus of both functional food ingredients planned in Raisio Group strategy and structure, the basic targets, and food diagnostics is in Europe. The markets for functional profitability and customer satisfaction, will remain. Long-term part- foods are growing, especially in Europe. Products enriched with nerships and close cooperation with customers will enable us to the cholesterol-lowering ingredient of Benecol have already spread generate success on both sides. At the same time, the substantial all over Europe. Last year, 13 new Benecol products that had rationalization programmes that have already been implemented received official approval were put on the market. I firmly believe and the concentration of business operations that is now being that this good progress will continue and that last year’s efforts planned will help us to achieve our profitability targets. will start paying off. 2003 was a demanding year. I want to take this opportunity of The other area of organic growth in Raisio Group is food diagnos- thanking the personnel for the good work they have put in. The tics, where the first investments were made in 2003. The Group’s current year is likely to bring even more important changes that comprehensive expertise throughout